Could Lifeline Expansion Help the Economy?

A new proposal would allow Lifeline recipients to get help with their broadband connection instead of their phone. An economist looks at the potential impact of getting more low-income Americans online.

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The Federal Communications Commission’s (FCC) recent proposal to expand the current Lifeline program – which provides phone service to low-income households – to include broadband access has drawn both praise and criticism.

Since 1985, the program has helped cover the cost of landline and (20 years later) mobile phone service for low-income households, and is credited with helping cut the telephone penetration gap between low- and high-income households by two-thirds.

But what does the empirical evidence have to say about extending such a program to broadband? Is there a documented need for it? What are the expected economic gains? Will there be increases in low-income Americans’ quality of life, decreases in overall poverty rates or growth in our regional or national economies?

Widening Broadband Adoption Gap

In FCC Chairman Tom Wheeler’s blog post on the topic, he noted the large disparity in broadband adoption rates between low-income households that make less than US$25,000 a year and high-income ones that earn more than $100,000. While rates on the high end approach universal adoption at 95%, poorer homes don’t even reach half (47%).

Even more interesting is the fact that this gap has actually widened, by five percentage points, over the past decade, despite low-income adoption rates starting from an abysmally low 7% in 2003 (see chart below).

Since market forces and prior policy efforts have not been successful at reducing this gap over time, there is a clear need for measures to encourage adoption among low-income households.

Some studies have directly pointed to this gap in highlighting the importance of broadband in today’s society, particularly for low-income households.

A 2010 study commissioned by the FCC notes that broadband access is becoming required for social and economic inclusion – and low-income communities know it. Another qualitative study found that price was only one factor in what was termed “digital exclusion” of low-income communities.

Access and Economic Growth

In terms of the economic impact of such a program, Chairman Wheeler’s notes referenced a 2012 study that estimated broadband helps a typical US consumer save $8,800 per year by providing access to online bargains.

This study, however, is not peer-reviewed and can be thought of as a “best-case” scenario in which a very internet-savvy consumer scours the web for the best deals on products ranging from apartments and cars to food and gas. It is not a very realistic scenario for low-income households that will be relatively new to the internet, particularly since 37% of these households responded that their primary reason for not using the internet at home was “no need.”

What, then, does the peer-reviewed research say about the potential impacts of such a program?

There is little research focused directly on the economic impact of increasing adoption among low-income households. However, we can draw from a wider body of evidence that deals with broadband’s impact on the overall economy.

Importantly, a large body of recent work stresses that it is broadband adoption (and not simply access) that drives many of the positive results. This is in direct contrast to the current federal policy solution of pushing out infrastructure to underserved areas, at the expense of promoting adoption.

The new Lifeline proposal directly addresses this critique by subsidizing broadband use for a specific demographic with historically low broadband adoption rates. The proposed subsidy of $9.25 per month (roughly one-third of a typical broadband bill) should encourage adoption in those households where cost is the primary barrier.

The current Lifeline program, which paid out $1.7 billion in 2014, should not experience any sizable increases in costs since recipients will be limited to one subsidy per household (that is, they will have to choose to subsidize either phone or broadband service).

Here is a sampling of what else the empirical evidence suggests regarding the benefits of increased broadband adoption in the US:

  • increases in the number of broadband lines per capita (a measure of adoption) have a strong positive relationship with overall employment, according to a Brookings Institution study

  • high levels of broadband adoption (greater than 60%) in rural counties are (arguably) causally related to higher income and lower unemployment in those areas

  • a statistical process known as regression analysis shows that there is a positive relationship between broadband adoption rates and the number of firms and jobs in rural counties

  • increased internet usage is associated with higher levels of community participation

  • there is even some evidence that rising levels of broadband adoption are related to improvements in self-reported health outcomes within a community.

Clearly, there are positive economic and social outcomes associated with increasing overall broadband adoption rates. Focusing on low-income households (with historically low adoption levels) is a logical first step for any policy aimed at a general increase in these rates.

Reasons for Skepticism

There are reasons to be skeptical about the FCC’s proposal. A pilot program initiative consisting of 14 projects that ran from 2012 to 2014 succeeded in signing up only about one-tenth of the anticipated customers during its run.

A summary of the lessons learned from this and other projects suggests that there was little interest in offers of digital literacy training and that some of the enrolled recipients lost service during the course of the project due to an inability to pay the (reduced) costs.

These are causes for concern in a program focused on encouraging large numbers of customers to productively use broadband.

Step in the right direction

Nonetheless, the Lifeline program deserves credit for being forward-looking. In its original form, it recognized the prevalence of cell-phone use at a relatively early stage, and allowed for prepaid wireless services to be included in the program after 2005. As a result, program disbursements shifted from 82% landline in 2008 to 85% wireless by 2014.

The transition to broadband is a natural further step. The National Broadband Map tells us that 99.9% and 95.8% of urban and rural America, respectively, have access to broadband with download speeds of at least 6 megabits per second (Mbps) and upload rates of 1.5 Mbps.

However, some groups (including low-income households) continue to lag behind in terms of adopting and effectively using this technology. The existing literature tells us that there are significant benefits associated with increased broadband adoption rates. Building upon a recognized, successful federal program to subsidize connections should be seen as a step in the right direction for US broadband policy.

The Conversation

Brian Whitacre is associate professor and extension economist at Oklahoma State UniversityThis article was originally published on The Conversation. Read the original article.

 

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