The Best 10 Ironies About The ‘Obama Phone’

by Guest Contributor on April 19, 2013

This article by Harold Feld originally appeared on The Wet Machine, a group blog on telecom policy, software, science, technology, and writing.

Obama PhoneThere is so much about the “Obama Phone” nonsense that tickles my funny bone in odd places. It’s not just that everything conservatives say about it is factually wrong. It also proves that the cherished progressive belief that every policy ever adopted under Reagan and under W were universally unmitigated disasters for the poor and people of color is also wrong. (No, I’m not saying one good policy makes up for a load of bad policies – but honesty demands acknowledging that the Universal Service Fund (USF), of which Lifeline/Linkup is part, started under Reagan and got expanded to wireless by former Federal Communications Commission (FCC) Chair Kevin Martin under Bush).

As if this were not ironic enough, the “Obama phone” was approved by the FCC in part to address the massive sudden need for subsidized mobile phones for Katrina victims. In 2005-06, Tracfone distributed 30,000 phones to Katrina victims under the expanded Lifeline program, and raised awareness of the new program through the devastated Gulf Coast region, i.e, the same red state regions now bellyaching about the program. For Progressives, consider that the “Obama phone” was invented in part as a response to Katrina by the President who “didn’t care about black people.”

Even better, it’s an example of how Republicans once upon a time took action to create programs to address the needs of poor people, even when it meant raising rates on the wealthy – a thing neither conservatives or progressives appear willing to acknowledge ever happened. Then, of course, there is the irony that the people most upset about the “Obama Phone,” rural conservatives, are subsidized out of the same program at a much higher rate. For us law geeks, it’s fun to remember that USF started with the FCC exercising its “ancillary authority,” that the D.C. Circuit affirmed this massive expansion of FCC authority, and the Republican Congress would later approve, endorse, and expand this as part of the 1996 Act.

Another irony on the Republican side is that USF is exactly the kind of “teach a man to fish” program for the poor that at least some Republicans say holds the key to winning back the working class vote. Rather than just being a hand out, it puts an important tool for participating in the national economy in the hands of the poor so that they can find and keep jobs and become self-sufficient. Anyone who has applied for a job, or just about anything else these days, recognizes that having a mobile phone so your work can find you (especially if you are a day laborer or some other form of self-employed) is critical to success. Republicans should be arguing that this is exactly the kind of program that gives people tools to improve their lives rather than “creating dependencies,” etc.

Finally, as with so many of these things, legislation to end the “Obama phone” (as proposed by a number of Senators recently) would probably drive a serious spike into provision of rural wireless – and ultimately rural broadband and telephony generally.

So here are my Top Ten Ironies about the “Obama Phone.” Not that I expect actual history to matter much. But for my own amusement, and for the handful of telecom geeks like me that find this stuff entertaining, I elaborate below . . .

First, let me briefly address substance to say that FCC Commissioner Clyburn is spot on in her defense of Lifeline and Universal Service generally. If this were simply a merits argument, Clyburn would win on the merits. But, as I said recently at the National Conference on Media Reform (NCMR) in Denver, “no idea is so stupid it cannot gain traction in Washington.” Let us therefore pass over the actual merits and jump to the delightful history of universal service and its myriad of ironies, culminating in the “Obama Phone” foolishness.

Where Did ‘Universal Service’ Come From?

The actual, serious definitive history of the idea of ‘universal service’ and how it got implemented is probably still Milton “I had a life before ICANN Dammit!’ Mueller’s book “Competition, Interconnection and Monopoly in the Making of the American Telephone System.” I will give a shorter (and therefore less accurate) synopsis to emphasize the relevant ironic bits.

The idea of “universal service” was actually an invention of AT&T to justify getting a national monopoly on phone service. This ultimately got incorporated into something called the Kingsbury Commitments in 1913. Mind you, the idea of universal phone service was simply an extension of the general principle that all Americans need access to the basic means of communication we have had in this country since George Washington made the first Postmaster General a member of his cabinet.

As we shifted to “natural monopoly” public utility regulation of the telephone system over the next 30 or so years (culminating in the Communications Act of 1934), we set up a system where AT&T accepted rate regulation and agreed to bring service to anyone anywhere in its franchise area. We also required AT&T to offer a low-cost basic package, designed to be affordable for poor people no matter where they lived. This way, we brought telephone service to rural areas that were waaaaayyyy too expensive to serve under any rational business plan, and also made the most basic form of service affordable for most people.

AT&T could afford to do this because the cost got bundled into its regulated rate, under which it was guaranteed 15% return on investment (which used to be considered a very nice deal). In other words, we had a system of hidden subsidies to make it so that rural people and poor people in urban areas got telephone service. Notably, long distance charges were outrageously expensive, so that we could subsidize all this good stuff On the positive social side, we got a phone system that reached everyone and formed the basis for a platform for massive amounts of economic activity and major social change. This “universal service” concept proved so popular we put it in Section 1 of the Communications Act.

In the early 1980s, AT&T settled a long-standing anti-trust case and we underwent a major upheaval in how to manage the phone system. Specifically, the break up of AT&T and the separation of the long-distance service provider from the local service provider eliminated the ability to use long-distance rates to subsidize universal service. Confronted with this reality, the FCC did a bunch of things to make sure that local providers could still get subsidies to serve high cost urban areas and provide a basic low-cost service affordable for both urban and rural poor.

Irony Alert #1: So, in other words, this whole tax on the phone system to pay for free (or at least affordable) phone service got started under Reagan.

Irony Alert #2: Anyone living in rural America who complains about how the “Obama phone” is taking money out of their pocket “and how come I don’t get a free telephone” – joke’s on you! You are getting a free telephone, at the expense of every single urban telephone subscriber. Most of you are also getting the cheapo basic voice package as well because, well, most of you are poor. Of course, because you pay something for it (an amount which does not even begin to cover what it actually costs to provide you with the service you expect as a matter of right), you don’t even realize this. Y’all think you’re Makers, but you’re actually Takers.

Sadly, we don’t humiliate you and make you submit all kinds of paperwork to suckle at the government teat on subsidized phone service, like we do the Lifeline recipients. You get your government goodies as a function of being in the right zip-code. As a practical matter, it means you think the pathetic pittance you pay makes you a “good customer” instead of a government-subsidized parasite on the landline version of the Obama Phone. If we actually did what you wanted and ended the Universal Service program subsidies, you’d be slitting your own throats. Not that you would get that. You’d lie there exsanguinating wondering what the Hell happened to your phone service and surely this must somehow be Obama’s fault. On the plus side, my phone bill would be a lot cheaper.

So either grow soul-patches on your chins and enjoy your subsidized landlines ironically, or shut your subsidized hypocritical pie-holes. ‘Cause every time a rural Tea Party Taker calls his or her Senator or Rep to complain about the “Obama phone,” you’re doing it on my dime.

Ancillary Jurisdiction And The Republican Bleeding Hearts

But we are only at the beginning of our delightfully ironies tour of phone history. Lacking any statute for this, the FCC used it’s “ancillary jurisdiction” over the phone system. The D.C. Cir. Subsequently affirmed this exercise of the “expansive powers” granted to it by Congress.” Rural Tel. Coalition v. FCC, 838 F.2d 1307 (D.C. Cir. 1988)

Irony Alert #3: Yes, that ancillary jurisdiction – the one that powers Net Neutrality and that conservatives now consider an offense against the law of nature is what saved all your bacon back when we broke up AT&T. And the D.C. Circuit held it was OK for the FCC to make big companies like MCI (anyone still remember MCI?) pay to subsidize phone service for all Americans – even without explicit authorization from Congress.

In 1994, the Republicans won both houses of Congress and promptly set to work on what they would proudly declare the “Republican Revolution.” Needless, to say, they recognized this “universal service” concept as a nefarious tax imposed by an Imperial FCC and promptly repealed it.

Just kidding! Far from punishing the way in which the Republican FCC under Reagan had used its “expansive powers” to save universal phone service, Congress gave it the gold stamp of approval by incorporating the basic concept into the Communications Act as part of the massive overhaul known as the Telecommunications Act of 1996. This added Section 254 which put universal service on firm statutory footing and reaffirmed the 200+ year old principle – going back to the appointment of the first Postmaster General to George Washington’s cabinet — that as part of the social contract of making sure the U.S. is one country that guarantees to its people the means to communicate freely with one another.

Irony Alert #4: So, just for those keeping score, the “Obama Phone” created by the Reagan FCC using ancillary jurisdiction, then ratified by the Republican Congress as one of the largest and most comprehensive pieces of legislation in the “Republican Revolution.” The first Democrat to even touch this “Obama Phone” thing was when Clinton signed the ’96 Act.

Where’s Wireless?

When the Reagan FCC first implemented the Universal Service Fund in the 1980s, the wireless industry scarcely counted as a factor to even think about. The original programs focused on the wireline side of things, although many states over time developed their own state-based universal service programs that included wireless.

By the time Congress passed the Telecommunications Act of 1996, the wireless industry had grown into a real-live service with fantastic growth opportunities ahead of it. In addition, one of the key themes of the 1996 Act was the idea of “technological neutrality” – that we wanted all services to compete with each other and the government should not “pick winners and losers.” In its massive 1997 Order implementing the statutory changes made Congress to the Universal Service Fund (USF) (which, now that it had been formally recognized by Congress, became a proper noun and got capital letters), the FCC incorporated this “technological neutrality” concept into USF. Under the rules adopted in 1997, any telephone provider – whether wireline or wireless – could receive USF funding for supported services.

So Why Do People Keep Saying It Was George W. Bush’s FCC That Expanded the Program To The “Obama Phone” in 2005? It Was Democrats in 1997! Gotcha!

Although wireless services could get Lifeline subsidies after the FCC adopted new rules in 1997, the real change for wireless cell phones and Lifeline came in 2005 when the FCC expanded the program at the request of Tracfone to include the exciting new development in the wireless industry – prepaid phone plans. For those not familiar with the concept (and to give the very basic version – there are lots of variants now because it is a very popular option), people who get prepaid plans don’t buy a phone and get locked in for a long-term contract, then pay a fee every month. Instead, you pay a set amount of money for a phone with a bunch of minutes on it. The company charges your account until you run out of minutes. Then, if you want more minutes, you drop in more money.

Until 2005, resellers like Tracfone (at the time, Tracfone did not have any wireless licenses of its own; it offered services by buying wireless capacity at wholesale from folks with wireless licenses) could not get lifeline service. Tracfone filed a Petition with the FCC in 2004 asking the FCC to modify the rules so that it could offer pre-paid plans eligible for Lifeline subsidy.

The Bush FCC, under Chairman Kevin Martin, approved the Tracfone Petition and created the process by which wireless providers offering pre-paid plans could get Lifeline subsidies. As noted in the Order, Lifeline had been undersubscribed, with many poor people (including a whole bunch in rural areas) not applying for various reasons. The Bush FCC reasoned that encouraging programs such as Tracfone would expand the number of eligible poor people getting subsidized phone service. In her additional statement supporting the Order, Republican Commissioner Kathy Abernathy stressed the importance of extending the program so that poor people would have critical phone services using the technology of their choice.

Irony Alert #5: Obama phone conspiracy theorists love to point out that the CEO of Tracfone – which remains one of the largest providers of Lifeline-subsidized phones – is a big Obama supporter can campaign fundraiser. But in fact, it was the Republican FCC under George Bush that granted the Tracfone Petition.

Irony Alert #6: Once again, we see the Republicans being innovative and aggressive on programs to help the poor. The whole point of expanding the program was to make it easier for poor people to get phone service through pre-paid wireless plans because giving poor people access to phone service is vital for their quality of life and to improving their economic condition by enabling them to participate fully in their pursuit of the American dream, yadda yaddah yaddah etc. And according to this GAO report from 2010, the rule change succeeded spectacularly in expanding the program and thus improving the quality of life for hundreds of thousands of poor people.

This is another example of that “compassionate conservatism” championed by Bush that was actually, ya know, compassionate and stuff. It stands in stark contrast to the “grumpy, selfish jerkwad” brand of conservatism promulgated in the last election. Part of the contrast, of course, being that a majority of people actually voted for the “compassionate conservatism” of 2000/04 and not for “selfish jerkwad conservatism” of 2008/12.

Irony Alert #7: Part of the reason the FCC approved the Tracfone Petition in the beginning of September 2005 was that it allowed Tracfone and other providers to offer prepaid service with Lifeline subsidy to the people displaced by Hurricane Katrina – authorizing providers like Tracfone to provide free phones and 300 minutes of free service using Lifeline funds. Needless to say those made homeless by Katrina desperately needed mobile phones to access emergency relief services and to stay in touch with loved ones. Most of these Katrina victims would have been utterly unable to get them given they were now homeless and facing a very uncertain future.

Crowning Irony of Ironies: The “Obama Phone” was created by Former FCC Chair Kevin Martin for the President who ‘didn’t care about black people,’ in part to help Katrina victims. Tracfone, the company run by the big Obama donor, distributed 30,000 free phones in the Red States that uniformly voted against Obama (MS, AL, LA, TX).

How Would Killing The Lifeline Subsidy Hurt Rural Wireless?

As noted by some, among the biggest opponents of dropping wireless (including pre-paid plans) from Lifeline eligibility are major wireless providers like Sprint and AT&T Mobility. These companies make money from Lifeline subsidy in two ways. First, they have prepaid plans that qualify for Lifeline Second, as wholesale providers of spectrum to companies like Tracfone, these companies make money from the larger customer base generally.

This is extremely important in rural areas where the business case for wireless is marginal or non-existent without USF subsidies. If we eliminate USF subsidies from wireless (whether entirely or just on Lifeline), it throws a serious crimp into the revenue that supports rural wireless. Yes, it is cheaper for companies to provide wireless in rural areas than wireline – that’s why companies like AT&T and Verizon are planning to replace rural copper with wireless. But building and maintaining wireless in rural areas still costs money, aggravated by the low population density and the fact that rural populations are generally poorer than urban markets.

As a result, rural wireless (to the extent you can get signal) relies on federal subsidy. Cut back the subsidy and you impact service – especially in the poorer and more expensive areas. I am not saying that legislation to kill the Obama phone would kill rural wireless (although it might, depending how drafted), but it would hurt – especially in the poorer rural areas that are most expensive to serve and are disproportionately poorer. This becomes critical as we move forward with the digital conversion of the phone system and the telephone companies simply stop offering traditional copper wire service in rural areas altogether.

Irony Alert #8: Not only does this turn out to be good policy, it’s good business – especially for rural Americans. So, of course, the Republican base, which is primarily rural, are the ones trying to kill it.

USF Is Also Revenue Neutral.

As far as I know, no one has raised the “subsidies are awful in our new age of austerity” argument. There’s a reason for this. USF is revenue neutral. It is a separate charge on everyone’s phone bill, which then gets dumped into a special fund for all USF programs (including Lifeline). This is administered in an extremely complicated scheme involving something called the Universal Service Administrative Company (USAC). All of this falls completely outside the federal budget, so it is revenue neutral.

Nor would eliminating Lifeline eligibility for prepaid plans lower your phone bill. The same money would get collected, and the same money would go into the Lifeline pot. It would just go to fewer people, like it did before 2005.

Irony Alert #9: So at the end of the day, eliminating the Obama phone does not help anyone. No one saves money eliminating wireless eligibility for Lifeline, and eliminating Lifeline for mobile services doesn’t reduce the deficit. Any legislation to eliminate the “Obama phone” just means lots of people will lose phone service – including a lot of people right now pushing to eliminate the Obama phone.

Will A Herd of Loudmouth Ignorant Tea-Party Takers Once Again Drive the Republican Party (and themselves) Over A Cliff (Again)?

So to recap, for a rational Republican Party, the “Obama phone” would actually be a proud selling point. It’s exactly the kind of program smart conservatives once championed to improve the lives of the poor. It is the perfect pushback for progressive accusations that the Republican Party hates minorities and poor people. Bluntly, smart conservatives (particularly rural conservatives) ought to be pushing to expand Universal Service to include broadband services as building on a highly-successful Republican program to give the poor and minority communities the tools to advance economically and build a better future for themselves rather than a ‘culture of dependency’, etc.

Instead, a bunch of ignorant wankers in the conservative echo chamber have whipped their base into a suicidal Lemming frenzy and appears once again intent on driving the Republican Party over a cliff, cutting their own phone service off in the process.

Irony Alert #10: I’m not going to pretend that the 2014 election will turn on “the Obama Phone” any more than the 2010 election turned on Net Neutrality, but this illustrates the dynamic that is generally killing the Republican Party brand with young voters and people of color. It’s not just that Republicans are squandering the opportunity to embrace Lifeline for wireless phones as a smart, tech-savvy, revenue neutral way to address our need for communications infrastructure and speak to the needs of the poor – particularly people of color (a population that relies heavily on mobile phones for Internet access as well as traditional phone service]). Instead, the Obama Phone flap is once again painting the Republican Party as a bunch of ignorant racist yahoos who don’t even understand that they are killing their own friggn’ program!

Mind you, there is plenty of time for smart conservatives looking to rescue their party from oblivion by explaining the reality of the Lifeline program and how it represents an opportunity for Republicans if they have the wit to seize it. A timely op ed from one of the Republican FCC Commissioners (or perhaps a former Republican Commissioner) could still turn things around, and earn Republicans some real brownie points with their target demographics – especially if supported by the larger wireless carriers (or their trade associations) who understand the economics of this and wouldn’t mind seeing USF expanded/refocused on wireless broadband access, or used to help cover the conversion of rural copper to rural wireless.

So far, however, Republicans seem determined to make this into a self-inflicted wound rather than seize it as a golden opportunity.

Stay tuned….

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