II. Background

On June 22, 2004, the FCC released the Lifeline/Link-Up Order modifying the requirements for eligible telecommunications carriers (ETCs) to receive federal Lifeline/Link-Up funds. The Lifeline/Link-Up Order was intended to improve telephone subscribership and the effectiveness of the low-income support mechanism.

The Federal Lifeline program provides low-income customers with discounts of up to $10.00 from the monthly cost of telephone service for a single telephone line in their principal residence.¹ The Federal Link-Up program provides low-income customers with 50% discounts, to a maximum of $30.00, from the initial costs of installing telephone service.²

In its Order, the FCC expands the federal default eligibility criteria to include an income-based criterion. Furthermore, the Order requires states, like California, that operate their own income-based Lifeline programs to document low-income customers' income qualification.

Under the FCC's rules, states and territories have the authority to establish their own Lifeline/Link-Up programs that provide additional support to low-income consumers which incorporate the unique characteristics of each state. Some state and territories, however, have elected to use the federal criteria as their default standard. These are known as "federal default states." California has established its own program, the Universal Lifeline Telephone Service (ULTS) program.

Currently, California's ULTS is a $570 million program. Of this amount, approximately $330 million is financed by federal Lifeline/Link-Up funds and $240 million is from an all-end-user surcharge assessed on consumers' intrastate telephone bills. California, however, could lose the $330 million of federal Lifeline/Link-Up funds if California does not implement the FCC's new program eligibility requirements by June 2005.