This is Dominic Pino standing in for Jim. On the menu today: How Congress used the pandemic to create a new wasteful welfare program, and how it can end that program by doing nothing.
How Congress Created Web Welfare
During the Covid pandemic, there was concern that some households would lose internet access. If people lost their jobs for a period of time, they might not be able to pay their internet bill and would have service cut off. That could harm their children, who, because of school closures, required the internet to do their schoolwork from home.
Part of the Federal Communication Commission’s (FCC) mandate from Congress is to expand internet access, with special attention given to internet access for educational purposes. To that end, the FCC’s then-chairman, Ajit Pai, led several different efforts to make sure internet access was not cut off for people struggling during the pandemic.
The FCC already had a program, Lifeline, that provided a subsidy of up to $9.25 per month for low-income households that could be used to pay for internet service. Pai announced the Keep Americans Connected Initiative in response to the presidential-emergency declaration at the beginning of the pandemic in March 2020. It was a voluntary agreement signed by over 800 internet-service providers that included pledges to waive late fees, open WiFi hotspots, and not terminate people’s service during the pandemic. The FCC also waived several regulations that could have hindered internet access. Rather than cut off people’s service, most internet-service providers, at Pai’s urging, put customers on deferred-payment plans instead.
The FCC’s efforts were successful at preventing any mass disconnection from the internet during the pandemic. Add in expanded unemployment insurance and other more general forms of government support to households, and virtually nobody lost internet access. Between March 12 and May 1 of 2020, at the peak of pandemic-induced unemployment, the FCC received only 498 complaints in the entire country about internet service being cut off.
But then, in the end-of-the-year omnibus spending bill in 2020, Congress created the Emergency Broadband Benefit Program (EBBP). Buried on page 2,422 of the 5,593-page law, the program provided a subsidy of up to $50 per month for broadband service for any household making up to 135 percent of the federal poverty line, or any household receiving a Pell Grant, having a child who qualifies for free or reduced lunch, or experiencing unemployment, among other ways to qualify. That program only took effect in May 2021, a year after the pandemic recession was over.
The EBBP was temporary at first, but of course, government programs don’t stay temporary. It was made into a non-emergency program in the bipartisan infrastructure law in the summer of 2021. The name was changed to the Affordable Connectivity Program (ACP), and eligibility was expanded to include households making up to 200 percent of the federal poverty line and households receiving benefits from SNAP or WIC. The benefit was reduced to $30 per month, but that makes little difference since most low-income internet plans are below $30 per month anyway.
There was no broadband emergency. But Congress invented one to create a new welfare program whereby the federal government pays the internet bill for millions of households. Now, over 20 million households are enrolled in the ACP. For most of them, the $30 per month subsidy covers all or most of the household’s internet bill.
The ACP has been subject to fraud like other programs created during the pandemic. The FCC inspector general put out an advisory in November 2021 after it found that dozens of schools across the country had more households enrolled in the program through eligibility for free or reduced lunch than there were students in the schools. In the most egregious example, a school in Florida with 200 students had 1,884 households receiving benefits.
One internet-service provider already repaid $50 million in improper benefits after being investigated by the FCC’s inspector general. That amounted to about one-third of all the ACP payments that provider made between June 2021 and July 2022.
This is par for the course on government broadband subsidies, as the Lifeline program is also prone to fraud. Lifeline is the same program that spawned the “Obamaphone” controversy. The FCC inspector general’s November 2021 advisory said, “Many of the abuses that once plagued the FCC’s Lifeline program have reappeared in the EBB [now ACP] program.”
The inspector general recommended that ACP applicants be required to provide the last four digits of their Social Security numbers as an anti-fraud measure. The FCC rejected that advice. Commissioner Brendan Carr dissented from the FCC’s decision and wrote, “I worry that by not requiring this information, we are turning a blind eye to fraud already happening while leaving the door open for even more benefits going to ineligible households.”
How Congress Can End Web Welfare
By doing nothing. The ACP is set to run out of funding in April. The FCC is currently winding down the program and stopped accepting new applications on February 8.
It’s a bad program that deserves to die. Aside from the fraud, the program has not been effective at reducing broadband prices and has likely contributed to increasing them.
A January paper from economist Paul Winfree of the Economic Policy Innovation Center found that with today’s proportion of about 15 percent of households participating in the ACP, average broadband prices have increased by 7 percent. The Biden administration wants to expand the program in such a way that it would potentially cover up to 40 percent of households. If coverage becomes that high, Winfree estimates prices would increase by 12 percent. That comes out to $9.39 per month for the average customer and $2.2 billion per year for the entire country.
The reason for the higher prices is that the subsidy makes consumers less price-sensitive. If your plan costs less than $30 per month, which many low-income plans marketed by internet-service providers do, you don’t care at all what it costs. If it costs greater than $30 per month, becoming eligible for the subsidy means that as long as your provider doesn’t raise prices by more than $30, you still come out ahead.
Winfree estimates that internet-service providers currently capture 18 percent of the subsidy. If enrollment were to increase to 40 percent of households as the Biden administration wants, Winfree estimates that they would capture 31 percent of the subsidy. The effect is even more pronounced for low-income plans, for which providers would capture 75 percent of the subsidy, Winfree estimates, if enrollment expanded to 40 percent of households.
Internet-service providers support the ACP and want it expanded. Comcast, AT&T, Charter, and industry associations all issued statements supporting White House efforts to renew ACP funding in October (as did the Communications Workers of America).
Their support makes sense given Winfree’s estimates of their benefits from the subsidies. As I noted when I first wrote about this program in 2021, AT&T offered its own plan for low-income households for $10 per month or less. A $30 subsidy for low-income households means AT&T could raise prices by up to $20 per month, and low-income households would still get internet service at no cost to them.
And sure enough, the price now advertised on AT&T’s website for a faster “low-cost internet service for eligible households” is $30 per month. (See this page from the Wayback Machine with the same URL in 2021 advertising service for $10 per month.) In a February 2022 press release, AT&T straightforwardly advertised its new low-cost plans as being “the best monthly rate possible — $0” with enrollment in the ACP. “New ‘Access from AT&T’ Plan + New Federal Benefit = Free Internet,” the release was titled.
The federal government should not be in the business of providing “free” internet by subsidizing internet-service providers with a pandemic-era program prone to fraud. No government program is actually free, and there’s no reason taxpayers should be on the hook for 40 percent of households’ internet bills while prices go up in response to a flood of federal cash. Congress can end this program by doing nothing, and it should stand up to the Biden administration and industry pressure by letting funding expire and the program wind down as scheduled.