Lifeline - Where Did It Come From?

The history and legal underpinnings of Lifeline

Lifeline telecommunications services have long generated controversy, but over the last few years, critics have been especially vociferous, railing against what they have termed “Obamaphones,” wireless phones with modest free service allotments provided to low income users. (As discussed below, and as this explainer says, the term is a misnomer in that the Lifeline program dates to the 1980's and it was expanded to wireless during the George W. Bush Administration.)

In the coming weeks, the Federal Communications Commission will likely launch a proceeding considering a number of changes to its Lifeline Assistance program (Lifeline), including an expansion of its coverage to broadband services. Therefore, this is a good time to review the history and legal underpinnings of Lifeline, and how the “Obamaphone” came into being.

In fact, the Lifeline program is a modern embodiment of a century-old commitment to bring telephone services to all Americans. (Indeed, it can be argued that the roots of the policy can be traced to the Postal Service Act of 1792.) In 1913, as part of its effort to settle an antitrust case brought by the federal government, AT&T made the “Kingsbury Commitment,” which included a (largely unenforceable) promise to provide “universal service.” The policy goal of connecting everyone to the communications network has unquestionably been a central element of policy ever since. It is important to recognize that the benefits of universal service redound to everyone. One way this is expressed is as “Metcalfe’s Law,” which posits that the value of a network is proportional to the number of people connected to it. Put another way, every additional person (or “node”) on a network increases its value to every other user who can now connect to that person.

The universal service objective was placed into law in the Communications Act of 1934. Section 1 of that statute created the FCC to make “available…to all the people of the United States…a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.” Under that generic mandate, the FCC adopted regulatory policies under which urban consumers helped pay for wiring rural areas and (of immediate relevance here) higher long-distance rates were used to subsidize local telephone service.

“make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges”

In the wake of the break-up of AT&T in 1984, the FCC was concerned that local service rates would become unaffordable for many because, among other things, the separation of AT&T’s long distance services from the new local “Baby Bell” companies meant that the long distance subsidy would end. (With respect to the “Obamaphone” issue, it should be noted that this was during the Reagan Administration.) Accordingly, in 1985, the FCC established its Lifeline Service to provide discounted local phone service to low-income consumers. This program was adopted under the generic powers afforded to the FCC under the 1934 Act.

When Congress overhauled the Communications Act in 1996, it made two important changes. First, it added non-discriminatory language to Section 1 so that it now requires the FCC to “make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges,...” Second, it gave specific statutory recognition to universal service, including Lifeline, for the first time. The Telecommunications Act of 1996 included Section 254, which, among other things, defined priorities for universal service, to be administered by the FCC and a special joint Federal/State board:

  1. Quality services at rates that are just, reasonable, and affordable should be available.
  2. All regions of the Nation should have access to advanced services available in telecommunications and information.
  3. Telecommunications and information services should be accessible by consumers (including low-income) in all regions of the Nation, including rural, insular, and high cost areas at rates reasonably comparable to those in urban areas.
  4. All providers of telecommunications services should make an equitable and nondiscriminatory contribution to preserve and advance universal service.
  5. Specific, predictable and sufficient support mechanisms at the Federal and State levels are necessary to preserve and advance universal service.
  6. Access to advanced telecommunications services for elementary and secondary schools, health care providers and libraries should be available.

Significantly, this list of priorities is not exclusive; the Board and Commission can establish “additional principles” based on experience.(1)

It is highly relevant to the FCC’s current proceedings that Section 254 was intended to be forward-looking and to responsive to changing technology and service offerings. Section 254(c) specifically states that:

The definition of universal service is evolving and should take reference from telecommunications services that are essential to education, public health, or public safety; have been subscribed to by a substantial majority of residential customers; are being deployed by carriers in public telecommunications networks; and are consistent with the public interest, convenience, and necessity. The FCC may designate additional services for such support mechanisms for schools, libraries, and health care providers.

The definition of universal service is evolving

Thus, universal service offerings were not to be locked into the wired analog services of 1996 as we have moved into the wireless digital world of 2015.

There are now four programs paid for by the Universal Service Fund. The money in this fund does not come from taxes, but from fees paid by wireless and landline telephone subscribers based on their long distance and international usage. (Look at your phone bill; you will see the fee enumerated.) In addition to Lifeline, there is a “Connect America” fund which supports high cost rural connectivity, the so-called “E-rate” subsidizing schools and libraries and a Rural Healthcare fund.

Based on the evolving principles contemplated by Section 254, the FCC made two significant changes in 2005, during the George W. Bush Administration. First, it ruled that wireless carriers could be ETCs (“eligible telecommunications carriers”) so they could provide universal service offerings. Second, it lifted the requirement that ETCs must own the facilities they use; this permitted companies like TracFone, which leases wireless services on systems operated by Sprint and other major “facilities based” providers.

This, then, is what created the conditions for the widespread availability of free or low cost wireless services. Using the funds provided by the Universal Service Fund, companies like TracFone can afford to provide free or almost-free handsets to customers and give them some basic voice and texting service. In short, what has become known as the “Obamaphone.”

  1. And the FCC did adopt this additional principle in 1997: COMPETITIVE NEUTRALITY -- Universal service support mechanisms and rules should be competitively neutral. In this context, competitive neutrality means that universal service support mechanisms and rules neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor one technology over another. (

By Andrew Jay Schwartzman.