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Business Misconceptions and the NPRM

By: Dave Skogen, NaLA Board Member

FCC Broadband InitiativeEvery American should have access to essential communication services, and in today’s world, that includes Broadband service. The Lifeline framework can, and should, be a critical tool to help make that idea a reality. In its recently released Second Further Notice of Proposed Rulemaking, Order of Reconsideration, Second Report and Order and Memorandum Opinion and Order (“NPRM”), the FCC makes it clear that they understand that and I applaud them for it.

The NPRM is sure to initiate significant commentary, and those of us in the Lifeline community must play a central role in that debate. While Regulatory and policy arguments will be forthcoming, it is important for all of us in the industry to help educate decision makers on what I see as misconceptions from a business perspective. Incorrect assumptions on business issues pose a serious threat to sound policy making and effectively moving the program forward in a way that is optimal for the American public.

In my view, the primary areas where there is seemingly a break from perception and reality – from a business perspective – are (a) the current $9.25 reimbursement can and should be funding consumer offers beyond those currently in the market (b) shifting consumer eligibility away from Lifeline providers would remove a significant financial burden from them and (c) the lack of greater competition is largely due to the existing ETC framework.

MINIMUM SERVICE STANDARDS FOR VOICE

In the NPRM, the FCC suggests that the current structure may not “extract” enough value for the fund and consumers. To support this, the Commission points out that the common industry offer of 250 minutes per month has gone largely unchanged in three years. It also notes that non Lifeline services have seen reduced prices in that period, and that consumers may have to pay out of pocket for services at a new minimum standard.

There are several things the Commission may not fully understand regarding the existing model (again, from a business perspective).

  • The commission argues that the offer has gone stagnant during this time, but does not mention that the 250 minute offer was developed prior to the elimination of Link Up. That alone is a $30 “extraction” from providers.
  • While the commission points out that wholesale telco prices may have been reduced during the period, it ignores other significant and real costs of providing services. There has been no reduction in phone costs and, as penetration rates have increased, distribution costs have also gone up. While these may not be considered “supported services”, from a practical perspective that is not relevant as the financial model does not change due to such distinctions.

The evidence that the offer is not unduly enriching providers is evidenced by the FCC’s own statements. They point out that there are several providers yet the general offer has not changed. If the flexibility on the offer was not limited due to financial reasons tied to the $9.25 reimbursement rate, we would naturally see competitors differentiating themselves through enhanced offers. Simply forcing higher minimum standards upon providers will not lead to improvements for consumers, but will simply force providers abandon customer outreach, reducing options for consumers.

ELIGIBILITY DETERMINATION AND IT’S ASSOCIATED COST FOR PROVIDERS

The debate on where eligibility determination should lie is beyond the scope of this piece. Here, the discussion is limited to the FCC’s perception on the costs associated with that function. This is relevant because an overestimation of costs may (a) justify the FCC spending an unreasonable amount to support the function, (b) overcharge carriers, ultimately harming consumers and (c) inaccurately influence the decision making process.

Currently, the eligibility determination is done during the enrollment process. It is but one of the several steps a carrier and consumer must go through at that time. Other items include describing the program and offering, going over the large number of disclosures, covering Terms and Conditions, instructing the consumer on use of the product, etc. Eligibility determination takes a small percentage of that time. Adding a third party to the process only lengthens it, especially if it cannot be done in real time, as the Commission suggests. On top of that, the third party must be compensated. In short, while other merits of the proposal may be debated, this change would ADD costs for the provider and the overall Lifeline ecosystem, not reduce them.

COMPETITION AND THE CURRENT ETC FRAMEWORK

The NPRM discusses potential changes to the ETC designation process and a potential alternative with the goal of encouraging more competition. The possible merits and issues with those approaches are beyond the scope of this paper. However, it is worth noting that the existing framework could provide much greater competition if the FCC simply executed within it. Dozens of Compliance Plans and Federal ETCs (created at no small expense by carriers) have gone simply unaddressed for literally years. If increased competition is truly desired, an immediate way to address that seems obvious.

All of these issues matter, because – again – sound policy making must be built on a reasonable understanding of market realities. Where that is not the case, it is incumbent on all of us to educate those influencing policy.

The opinions expressed above are solely those of the author and do not necessarily represent those of NaLA or its members.

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Jordan MajkszakBusiness Misconceptions and the NPRM

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