Ajit Pai quietly changes landscape for low-income mobile subs before he departs

FCC Chairman Ajit Pai has been extremely popular with the telecom companies he’s regulated for the last four years, but one corner of the industry will not be sad to see the chairman step down. The carriers that provide mobile service to the nation’s neediest citizens say Pai is trampling them on his way out the door while pulling critical service away from those hit hardest by this year’s economic downturn.

Lifeline providers say an FCC order that took effect December 1 will force them to stop offering free data service to qualified low-income customers. In an order adopted without a vote by the full Commission, Pai has instituted a 50% increase in the minimum amount of data Lifeline providers must offer. Subscribers will now get a minimum of 4.5 GB of data per month, an increase that will be welcomed by those Lifeline customers who can get it. But carriers say many cannot.

“Most people will either be cut off or receive some very diminished services, just voice,” said Matthew Johnson, co-CEO of Lifeline carrier TruConnect. Johnson said his company simply can’t afford to offer that much data for free, and the vast majority of his customers can’t pay. But as of December 1, subscribers outside California can no longer get data from TruConnect without making a payment.

Traditionally, Lifeline subscribers get free data and their providers get government subsidies. Outside of California and tribal areas, the subsidy is $9.25/month per data subscriber. That amount has stayed the same for three years, even as the minimum amount of data carriers must offer has climbed from 1 GB to 2GB to 3GB and now 4.5 GB. “At 3 GB we were already at very thin margins, and at 4.5 GB we’re all under water,” said Johnson.

T-Mobile’s role

The nation’s four largest Lifeline providers (Assurance, Q Link, Tracfone and TruConnect) all lease T-Mobile’s spectrum in order to offer service. Assurance, the largest Lifeline provider, became part of T-Mobile through the T-Mobile/Sprint merger. According to TruConnect’s Johnson, Assurance now gets to pay lower rates for spectrum because it is part of T-Mobile. Johnson said an FCC staffer assured him that T-Mobile will offer the same lower rates to all Lifeline providers to help them stay afloat after the 4.5 GB data minimum takes effect. The TruConnect CEO said he’s repeatedly called T-Mobile for confirmation, but has gotten no response. T-Mobile also declined to comment for this story. 

T-Mobile and Assurance did not publicly protest the 4.5 GB data threshold, and they seem prepared to offer that package for free to qualified low-income subscribers. If competitors can’t do the same, many of their customers may be able to switch to Assurance, which now offers service in 42 states. This will be a blow for the smaller Lifeline providers, but a win for some low-income consumers, who will get more data, and for Assurance, which will get more customers.

RELATED: Chairman Pai announces he will leave FCC on January 20

It could also be a win of sorts for Pai. Consolidating more Lifeline subscribers under the T-Mobile umbrella would be in line with his long-term goals for the program. Early in his chairmanship, he tried to ban MVNOs from offering Lifeline service, saying that “facilities-based” carriers should offer this service because it would incentivize them to build infrastructure in low-income areas.

Pai’s effort to kick MVNOs out of the Lifeline business failed three years ago, but some of these companies think he hasn’t given up. “He’s got a real ax for companies like ours,” said Johnson, adding that part of Pai’s frustration probably stems from the history of fraud and abuse that has plagued some companies in the industry. But squeezing out independent players isn’t necessarily a recipe for cleaning things up - plenty of fraud has occurred right under the nose of a nationwide carrier. Just last month, T-Mobile agreed to pay a $200 million penalty after investigators found that Assurance had over billed the government for years while it was part of Sprint. 

RELATED: T-Mobile to pay $200 million in Sprint Lifeline settlement

A leaner Lifeline

During Pai’s tenure as FCC chairman, the number of Lifeline subscribers declined sharply. In June 2020 roughly 7.3 million people were using Lifeline, down from 12.7 million in 2016, according to the Universal Services Administration Company, which administers the program. Lifeline’s expenditures have also fallen, from $1.5 billion in 2016 to $981 million last year, according to USAC numbers. Meanwhile, 35 million Americans qualify for Lifeline, based on their use of the USDA’s SNAP food assistance program. But signing up for Lifeline is a challenge for people who don’t have internet access or phones. 

In April, members of Congress asked the FCC to work with the USDA to help new applicants for SNAP get information about Lifeline. Congress is also looking at increasing the monthly reimbursement that Lifeline providers get to $25.00/subscriber, with the goal of concurrently removing all limits on the data and minutes Lifeline subscribers could access. This initiative is part of H.R. 6800, also known as the HEROES Act. Separately, Senate Democrats have asked Congressional leadership to include additional funding for Lifeline in any future COVID-19 relief spending, so that provider reimbursement rates and subscriber data limits can be increased

For now, Lifeline subscribers are entitled to 4.5 GB of monthly data, the most the program has ever offered. Is Ajit Pai giving low-income consumers a holiday gift of more free data, or is he crippling Lifeline when millions of Americans need it to stay connected during the pandemic? The answer will depend in part on how many Lifeline providers stop offering free data, and how many subscribers lose service as a result.