Will $9.25 a Month Be Enough to Get Poor Americans Online?

With the rise of low-cost broadband, the new FCC proposal could certainly help. But the way the subsidy works might mean giving up mobile phone service in the process.
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With the rise of low-cost broadband, the new FCC proposal could certainly help. But the way the subsidy works might mean giving up mobile phone service in the process.
(Photo: dcarlbom/Flickr)

(Photo: dcarlbom/Flickr)

The reasons why people don't have home Internet access generally fall into two main camps: They can't afford it, or they don't live where Internet is available. The latter is based on an infrastructure issue: Service providers don't have the incentive to run lines where potential customers are not. The former is a little simpler to tackle.

According to estimates from the Federal Communications Commission, 95 percent of households with incomes over $150,000 have high-speed Internet access; less than half of households with an income level under $25,000 have home Internet. Giving that second group extra dough for Internet usage, then, should help get them online. That's the idea behind the proposal recently circulated by FCC chairman Tom Wheeler.

It's elegant in its simplicity. For households eligible—and there's a substantial list of those that are—they'll be able to use a government subsidy of $9.25 a month for high-speed Internet purchases. In terms of whether or not it is better than not having an extra $9.25 a month to use, it certainly is. But is it enough?

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It's best to have an understanding of where that $9.25 a month number comes from. It's not, as one might imagine, the result of an algorithm intended to find a sweet spot threshold to justify purchasing Internet. Rather, it's a relic.

In 1985, the FCC instituted the Lifeline program, which offered low-income families a subsidy to purchase landline phone service, the idea being that the true value of a national phone network would only be realized if as many people as possible had access. In 2008, the FCC began allowing funds from this program to be used on purchasing mobile service. The program under consideration now is the next, and biggest, tweak to the program.

"If they're making $12,000 a year, even $10 a month can be a real struggle. But if you only have to pay 75 cents a month [for Internet] that totally changes the calculus."

Where does the money come from? It's drawn from the Universal Service Fund, a pool created with money from the nation's various telecommunication services. The trick is they're allowed to pass on the fee to their customers. And they do: Search your latest phone bill for that small USF fee. In short, then, it's a fund created by all of us.

If this proposal is approved—voting takes place March 31—it will allow the fund to be used toward home Internet. It will also increase the money allocated to the project from $1.7 billion to $2.25 billion, which will allow up to five million more homes to utilize the service—although projections show that budget isn't going to be used immediately.

How big of a deal is this?

"There are no silver bullets, but it definitely is a game-changer," says Chike Aguh, the CEO of EveryoneOn, a non-profit focused on closing the digital divide. "Research tells us cost is the number one people why people are not online. If they're making $12,000 a year, even $10 a month can be a real struggle. But if you only have to pay 75 cents a month [for Internet] that totally changes the calculus."

Aguh gets that small figure for Internet service due to the fact that low-income families are dealing with a different set of available options than others. (An extra $10 a month would not bring my Internet cost to the same level.) The true impact of the subsidy, then, is only known when combining it with the low-cost broadband options that are increasingly becoming available.

"Comcast has one that's $10 a month, AT&T is going to have a very similar program," says Tom Koutsky, chief policy council for Connected Nation, a non-profit trying to bring affordable high-speed Internet to the country. "The market will meet this price point fairly aggressively and fairly quickly."

This is definitely a good thing then. But there are still a few issues with this modest amount.

The first is simple inflation. When the Lifeline was instituted in 1985, households were given a subsidy of $5.25 a month to use toward phone service. That has increased over the years, but not at the rate of inflation. If it had, the current subsidy would be worth $11.56 a month.

Second—and probably most importantly—is the quirk of how the $9.25 a month can be used. This isn't simply giving everyone who qualifies an extra $9.25 a month for Internet, but rather opening up what an existing $9.25 subsidy can be used for. If a household is already taking advantage of the subsidy—only 40 percent of those eligible actually take advantage of it—some or even all of the money is already put toward mobile and/or landline service. Once the proposal is approved, any portion of the available $9.25 can be funneled instead toward Internet service, forcing possibly tough decisions. Canceling a land line or a mobile phone plan in order to gain Internet access at home doesn't seem like the spirit of the plan's original intention.

This doesn't address the other problem when it comes to getting people online either. "Will it have an impact? I think it will," says Eric Frederick, vice president of community affairs for Connected Nation. “But for those customers that still live in rural areas where there isn't a great selection and costs are still very high, it might not mean much at all."

If this proposal passes, things will be better than they currently are. Having $9.25 a month to use toward Internet is better than having $0. Until the sum is raised, or split off from the previous telephonic uses of the subsidy, this seems more like a necessary first step than a giant leap forward.

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