The Federal Communications Commission is dropping its legal defense of a new system for expanding broadband subsidies for poor people, and it will not approve applications from companies that want to offer the low-income broadband service.

The decision announced today by FCC Chairman Ajit Pai would halt implementation of last year's expansion of the Lifeline program. This 32-year-old program gives poor people $9.25 a month toward communications services, and it was changed last year to support broadband in addition to phone service.

Pai's decision won't prevent Lifeline subsidies from being used toward broadband, but it will make it harder for ISPs to gain approval to sell the subsidized plans. Last year's decision enabled the FCC to approve new Lifeline Broadband Providers nationwide so that ISPs would not have to seek approval from each state's government. Nine providers were approved under the new system late in former FCC Chairman Tom Wheeler's term, but Pai rescinded those approvals in February.

There are 36 pending applications from ISPs before the commission's Wireline Competition Bureau. However, Pai wrote today, “I do not believe that the Bureau should approve these applications." He argues that Congress gave state governments the primary responsibility to approve such applications.

“Twelve states, from Vermont to Wisconsin, are currently challenging the legality of the FCC’s order in the US Court of Appeals for the District of Columbia Circuit," Pai wrote. "In my view, it would be a waste of judicial and administrative resources to defend the FCC’s unlawful action in court. I am therefore instructing the Office of General Counsel to ask the DC Circuit to send this case back to the Commission for further consideration. And the FCC will soon begin a proceeding to eliminate the new federal designation process."

3.5 million Americans will still get cheap broadband

When defending his decision to revoke Lifeline approvals for the nine companies, Pai said last month that more than 900 Lifeline providers were not affected. But most of those were apparently offering subsidized telephone service only and not subsidized broadband. Currently, more than 3.5 million Americans are receiving subsidized broadband through Lifeline from 259 eligible providers, Pai said in today's statement.

"And according to the latest available figures, the number of customers receiving subsidized broadband service has increased by over 16 percent during my chairmanship," he wrote.

About 99.6 percent of Americans who get subsidized broadband through Lifeline buy it from one of the companies that received certification "through a lawful process," Pai wrote. The remaining 0.4 percent apparently need to switch providers or lose service because of Pai's February decision. Only one ISP had already started providing the subsidized service under the new approval, and it was ordered to notify its customers that they can no longer receive Lifeline discounts.

Pai's latest action would prevent new providers from gaining certification in multiple states at once, forcing them to go through each state's approval process separately. Existing providers that want to expand to multiple states would have to complete the same state-by-state process.

Pai, a Republican, accused the FCC's previous Democratic leadership of "snatching this legal responsibility away from states." But the FCC order from March 2016 said the new FCC approval process would be an "additional alternative" to the current state processes, which would remain in place.

"This action preserves states’ authority to designate ETCs [eligible telecommunications carriers] to receive Lifeline reimbursement for qualifying voice and/or broadband services, while adding to that structure the option for carriers to seek designation as Lifeline Broadband Providers through the FCC," the FCC said at the time.

FCC Commission member Mignon Clyburn, a Democrat, said Pai's decision will make it harder to bring broadband to poor people. Low-income Americans "will have less choice for Lifeline broadband, and potential providers who want to serve low-income Americans will face greater barriers to entry and regulatory uncertainty," Clyburn said. "While today's announcement is not surprising, it is nonetheless deeply disappointing.”

Pai pledged to make closing the digital divide one of his top priorities on his first day as FCC chairman in January. But he says Lifeline is plagued by fraud. While last year's FCC decision would have set up a new national eligibility verifier in order to reduce fraud, Pai argued in his dissent last year that "states are still the best cops on the beat."