	FCC Has Made Progress Implementing Lifeline Reforms, but Some Reform Efforts Remain Incomplete

Our March 2015 report found that FCC has made progress implementing  reform efforts contained in the Order. In May 2015, FCC  reported the results of the broadband pilot program. In addition, to reduce the burden  on consumers and Lifeline providers, the Order called for an  automated means for determining Lifeline eligibility by the end of  2013. Performance goals and measures: FCC established three outcome- based goals: (1) to ensure the availability of voice service for low- income Americans, (2) to ensure the availability of broadband for low- income Americans, and (3) to minimize the Universal Service Fund  contribution burden on consumers and businesses. FCC identified  performance measures it will use to evaluate progress towards these  goals, but it has not yet fully defined these measures. FCC Has not Evaluated the Extent to which Lifeline is Efficiently and Effectively Reaching its Performance Goals

In our March 2015 report, we found that FCC has not evaluated the  effectiveness of the Lifeline program, which could hinder its ability to  efficiently achieve program goals. Although FCC attributes the penetration rate  improvement to Lifeline, several factors could play a role. For example,  changes to income levels and prices have increased the affordability of  telephone service, and technological improvements, such as mobility of  service, have increased the value of telephone service to households. FCC officials stated that the structure of the program has made it difficult  for the commission to determine causal connections between the  program and the penetration rate. However, FCC officials noted that two  academic studies have assessed the program. These studies suggest  that household demand for telephone service—even among low-income  households—is relatively insensitive to changes in the price of the service  and household income. As a result, we concluded that the Lifeline program, as currently  structured, may be a rather inefficient and costly mechanism to increase  telephone subscribership among low-income households, because  several households receive the subsidy for every additional household  that subscribes to telephone service due to the subsidy. In our March 2015 report, we recommended that FCC conduct a program  evaluation to determine the extent to which the Lifeline program is  efficiently and effectively reaching its performance goals of ensuring the  availability of voice service for low-income Americans while minimizing  program costs. The  results of an evaluation could be used to clarify FCC’s and others’  understanding of how the Lifeline program does or does not address the  problem of interest—subscription to telephone service among low-income  households—and to assist FCC in making changes to improve program  design or management. FCC agreed that it should evaluate the extent to which the  Lifeline program is efficiently and effectively reaching its performance  goals and said that it would address our recommendation. Usefulness of Broadband Pilot Program May Be Limited by FCC’s Lack of Evaluation Plan and Other Challenges

In our March 2015 report we also found that FCC’s broadband pilot  program includes 14 projects that test an array of options and will  generate information that FCC intends to use to decide whether and how  to incorporate broadband into Lifeline. FCC officials said  they aimed to test and reveal “causal effects” of variables. We found that FCC did not conduct a needs assessment or develop  implementation and evaluation plans for the broadband pilot program, as  we had previously recommended in October 2010. We noted that a needs assessment could provide  information on the telecommunications needs of low-income households  and the most cost-effective means to meet those needs. FCC officials noted that the pilot program is one of many factors  it will consider when deciding whether and how to incorporate broadband  into Lifeline, and to the extent the pilot program had flaws, those flaws will  be taken into consideration. Since our report was issued, FCC released a  report on the broadband pilot program, which discusses data collected  from the 14 projects. The pilot projects enrolled  approximately 12 percent of the 74,000 low-income consumers that FCC  indicated would receive broadband through the pilot projects. FCC officials told us they do not  view the pilot’s low enrollment as a problem, as the program sought  variation.
Why GAO Did This Study

Through FCC's Lifeline program, companies provide discounts to eligible low-income households for telephone service. Lifeline supports these companies through the Universal Service Fund (USF); in 2014, Lifeline’s disbursements totaled approximately $1.7 billion. Companies generally pass their USF contribution obligation on to their customers, typically in the form of a line item on their telephone bills. In 2012, FCC adopted reforms to improve the program’s internal controls and to explore adding broadband through a pilot program. This testimony summarizes the findings from GAO’s March 2015 report (GAO-15-335) and provides information on (1) the status of Lifeline reform efforts, (2) the extent to which FCC has evaluated the effectiveness of the program, and (3) how FCC plans to evaluate the broadband pilot program. GAO reviewed FCC orders and other relevant documentation; analyzed 2008-2012 Census Bureau data; and interviewed FCC officials, officials at four pilot projects selected based on features such as technology, and officials from 12 Lifeline providers and four states selected based on factors such as disbursements and participation.

What GAO Found

The Federal Communications Commission (FCC) has made progress implementing reforms to the Lifeline Program (Lifeline), which reduces the cost of telephone service for eligible low-income households. In 2012, FCC adopted a Reform Order with 11 key reforms that aimed to increase accountability and strengthen internal controls, among other things. FCC has made progress implementing eight of the reforms, including the National Lifeline Accountability Database, which provides a mechanism to verify an applicant’s identify and whether the applicant already receives Lifeline service. FCC has partially implemented three of the reforms. For example, FCC established performance goals for the program, but it has not fully defined performance measures.
FCC has not evaluated the extent to which Lifeline is efficiently and effectively reaching its performance goals—to ensure the availability of voice service for low-income Americans and minimize the burden on consumers and businesses that fund the program. FCC attributes improvements in the level of low-income households' subscribing to telephone service over the past 30 years to Lifeline, but other factors, such as lower prices, may play a role. FCC officials stated that Lifeline's structure makes evaluation difficult, but referred GAO to two academic studies that have evaluated the program. These studies suggest that household demand for telephone service—even among low-income households—is relatively insensitive to changes in the price of service and household income; therefore, several households may receive the Lifeline subsidy for every additional household that subscribes to telephone service due to the subsidy. GAO has found that program evaluation can help agencies understand whether a program is addressing an intended problem. Without a program evaluation, FCC does not know whether Lifeline is effectively ensuring the availability of telephone service for low-income households while minimizing program costs.
The usefulness of the broadband pilot program may be limited by FCC’s lack of an evaluation plan and other challenges. The pilot program included 14 projects to test an array of options and provide data on how Lifeline could be structured to promote broadband. Although GAO recommended in 2010 that FCC develop a needs assessment and implementation and evaluation plans for the pilot, FCC did not do so. A needs assessment, for example, could provide information on the telecommunications needs of low-income households and the most cost-effective means to meet those needs. In addition, the 14 projects enrolled about 12 percent of the 74,000 customers anticipated. FCC officials said they do not view the pilot’s low enrollment as a problem, as the program sought variation. FCC officials noted that the pilot program is one of many factors it will consider when deciding whether and how to incorporate broadband into Lifeline, and to the extent the pilot program had flaws, those flaws will be taken into consideration. In May 2015, FCC released a report which discusses data collected from the pilots.

What GAO Recommends

In its March 2015 report, GAO recommended that FCC conduct a program evaluation to determine the extent to which the Lifeline program is efficiently and effectively reaching its performance goals. FCC agreed that it should evaluate the extent to which the program is efficiently and effectively reaching its performance goals and said that it will address GAO's recommendation.