May 31, 2017 – FCC Commissioners Michael O’Rielly and Mignon Clyburn have coauthored an article that was recently posted on the FCC’s official blog that asks whether means-testing could bring “efficiencies” to the universal service fund’s high-cost support mechanism.[1] It’s a terrible idea for the simple reason that it reflects a fundamental misunderstanding about how broadband networks are built, especially in rural areas. I predict this idea goes nowhere.

A means test is a determination of whether an individual or family unit is eligible for assistance, based upon whether the individual or unit possesses the means (income and assets) to do without that assistance. In the U.S. for example, means-testing is used to determine eligibility for Medicaid. Individuals with household incomes within a certain percentage of the poverty threshold qualify for the program. In contrast, someone that is extremely wealthy, like Mark Zuckerberg, does not get help from federal and state governments to pay his health insurance premiums. In FCC world, the Lifeline program employs means-testing as one way to determine whether an individual qualifies for a discount on monthly communications service.

So, what does this have to do with the universal service high-cost fund? Most rural providers will recall this type of popular sound bite from recent FCC administrations, “The USF shouldn’t subsidize the cost of deploying a network to places like Aspen and Jackson Hole, just so the wealthiest Americans can access the Internet the few weeks out of the year that they are staying at their vacation homes.” Remember that? That’s the means-testing that Commissioners O’Rielly and Clyburn are talking about. Millionairs and billionaires must pay their fair share!

In their blog post, FCC Commissioners O’Rielly and Clyburn state that they agree with existing views of some economists that the high-cost program is inefficient because “poor urban consumers pay significant telecommunications fees to subsidize affluent phone customers in Aspen, Colorado and Jackson Hole, Wyoming.” Here’s some more:

[W]e currently subsidize access to communications for people who don’t need or deserve governmental assistance. In other words, we should end the practice of spending scarce USF high-cost support to illogically subsidize the cost of communications services for very rich people who happen to live in the more rural portions of our nation.

Commissioners O’Rielly and Clyburn want to release a formal item “in the very near future” soliciting comment on implementing means-testing for the high-cost fund. In their blog post, they have initially identified a number of issues:

• Would means-testing make the high-cost program more efficient (advantages and disadvantages)? Given the limited USF budget, would it enable the Commission and/or providers to retarget USF funding to areas or consumers in greater need of support?

• Should the Commission require that consumers identified as having adjusted gross income (AGI) levels above a set threshold ($1 million or $500,000) to pay the full cost of providing service to their locations? How would consumers above the threshold be identified?

• Should the FCC utilize means-testing as a weighting factor in future reverse auctions or other distributions of USF support?

• Should the FCC exclude support for households in high-cost areas where the FCC determines that a service area has a substantially high percentage of households with income at or above the 95th percentile of national household income levels or an equivalent measurement?

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[1] Michael O’Rielly and Mignon Clyburn, Would Means-Testing Bring More Efficiencies to the High-Cost Program? (May 31, 2017), https://www.fcc.gov/news-events/blog/2017/05/31/would-means-testing-bring-more-efficiencies-high-cost-program.