The States Are the Broadband Lifeline

Don’t panic! The Federal Communications Commission is not gutting, killing or otherwise maiming Lifeline.

FCC Chairman Ajit Pai is protecting the Lifeline program from uncertainty and legal challenges as to who can determine the recipients of subsidies, and taking another step to combat fraud.

While there is debate as to whether the Lifeline fund should include subsidies for broadband or not, right now it does. The problem threatening the legality of those subsidies is that Congress gave states the authority to determine which telecom carriers are eligible for subsides. When the FCC said broadband could receive subsidies it took that authority for itself.

As a result, 12 states and utility commissioners entered petitions over preemption issues, as did the National Association of Regulatory Utility Commissioners.

Wisconsin has taken the lead in a demonstrably bipartisan, nonpolitical case from states that include Arkansas, Idaho, Indiana, Michigan, Montana, Nebraska, South Dakota, Utah, and utility commissions in Connecticut, Mississippi and Vermont, who all say the court should eliminate the FCC’s eligibility determination change from the order that expanded Lifeline to include broadband.

The states’ Petition for Review said: “The states seek review on the grounds that this part of the order exceeds the commission’s jurisdiction or authority, violates the Communications Act of 1934 and the notice-and-comment requirements of the Administrative Procedure Act and is arbitrary, capricious, an abuse of discretion or otherwise contrary to law.”

Wisconsin Attorney General Brad Schimel added: “As this case shows, federal overreach is not an issue of Republicans versus Democrats. It harms everyone. The state commissions — including our own Public Service Commission of Wisconsin — have by far the best record of rooting out waste, fraud and abuse in the Lifeline program.”

Congress and the states agreed that the authority to determine eligibility for Lifeline subsidies is best done by the states, especially to combat waste, fraud and abuse.

There is fraud, and states have done the best job of catching it.

The owner of Oklahoma’s Icon Telecom, Wesley Yui Chew, was caught in a scheme to defraud the Lifeline program out of more than $25 million by knowingly signing up tens of thousands of fabricated customers. In 2014, Icon’s owner pleaded guilty to money laundering for transferring more than $20 million from the company to his personal bank account. The average subsidy for Lifeline providers is $9.25 per month for each qualified customer, but on tribal lands the subsidy is $34.25 per customer. Much of Oklahoma is classified as tribal lands eligible for the subsidy. Icon took advantage, and the state of Oklahoma, not the FCC, caught Chew.

A Hawaii company, Blue Jay Wireless, also took advantage of the enhanced tribal subsidy, and it will pay $2 million to resolve the investigation into its improper enrollment of several thousand Hawaiian customers.

The FCC received complaints about another Hawaii company, Sandwich Isles Communications, as early as 2010, but it took an indictment by a District of Hawaii grand jury in 2014 for the FCC to take action. In December 2016, the FCC finally penalized Sandwich Isles’ fraud for $27 million in misappropriated funds, as well as $50 million forfeiture for misconduct. The combined amount of $77 million owed, however, is only a fraction of the $250 million in total FCC funds provided for Sandwich Isles from 2002 to 2015.

There is certainly more fraud throughout the program even without broadband subsidies going out. In the 18 months leading up to April 2016, 4.3 million Lifeline subscribers had been signed up using the “independent economic household” override to circumvent FCC rules that limit subsidies subscriptions to one per household.

The states are the best cops on the beat for determining companies able to provide subsidies through the Lifeline program. The FCC, as a federal agency, is too far removed to be effective.


Katie McAuliffe is executive director of Digital Liberty, and federal affairs manager at Americans for Tax Reform.

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