Through Lifeline, roughly 3.5 million Americans receive a monthly credit worth $9.25 that they then use to reduce the cost of buying mobile or residential broadband. Millions more use the subsidy to purchase traditional phone service. The program, which was created during the Reagan administration, supports seniors, veterans and rural Americans who otherwise cannot afford phone or Internet service. It is not funded by taxpayer dollars but by the fees collected on consumers' phone bills each month.

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Pai's decision this week takes aim at the FCC's role in approving companies to participate in the Lifeline broadband program. While he said Lifeline should continue to support Internet service as an eligible benefit, the FCC should not be the agency to decide which providers may join, he argued.

"The law here is clear: Congress gave state governments, not the FCC, the primary responsibility for approving which companies can participate in the Lifeline program under Section 214 of the Communications Act," Pai said.

The National Association of Regulatory Utility Commissioners, which represents state public utility commissions, welcomed Wednesday's decision.

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"Eliminating the national designation procedure puts more ‘state cops on the beat,'" said Paul Kjellander, a commissioner on Idaho's public utilities commission, "and strengthens both complementary state Lifeline programs and the quality of service provided to customers, as well as deters fraud and abuse of the program.”

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Opponents of the decision said the move will limit struggling Americans' ability to choose a good provider, particularly in rural or low-income areas.

"The Chairman’s position stands in stark contrast to his stated aim to close the digital divide," said the consumer group Public Knowledge, "by raising barriers to affordable choices available to low-income families."

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Lifeline has long been criticized by Republicans for waste, fraud and abuse. Reforms enacted in recent years have cut down on some of those issues, though conservatives say there could be more savings to be found in the program.