Please Don’t Force Low Rates

The NTIA conducts an annual broadband survey, and the 2021 survey asked a question about affordability. The survey asked folks who didn’t have home broadband what they would be willing to pay, with the question, “At what monthly price, if any, would your household buy home Internet service?”

The NTIA estimates that there are over four million households that say they can’t afford broadband. The purpose of the survey was to understand the kind of price points that might be needed to get broadband to more of these households. I think the NTIA was surprised by the results – three-quarters of respondents said they would only get broadband if it was free.

I find this result to be troubling for several reasons. First, many of the homes in this category are the poorest homes that truly can’t afford broadband. I’m sure many of the folks who say they can’t afford broadband would love to have it like most of the rest of us. But as important as broadband is, it’s not more important than rent and food.

My second problem is that not everybody who says they can’t afford is telling the truth. How do I know this? My firm has been doing surveys in the industry for over twenty years, and we’ve asked some version of the same question in hundreds of surveys. What I have discovered is doing surveys is that the responses to any survey questions involving money are not fully reliable.

This is well-known by folks who give surveys for a living. As an example, as many as half of survey respondents give a false answer when asked the level of family income. There are a lot of conjectures about why this is so, but surveyors know you can’t fully trust the responses to most questions involving money.

A question I’ve often asked is what people would like to pay for broadband. That’s a little different than the question being asked by the NTIA, but not much different. The big difference is that we ask this question to everybody, not just those who say they can’t afford broadband. It’s not usual to see 20% or 30% of respondents saying they don’t want to pay more than $10 or $15 per month. Most of the people giving that response are already paying $60 or $70 per month for broadband. I have no doubt that the responses about wanting low rates are serious – folks really would love to save money. But the responses I see are clearly reflecting what folks wish that broadband cost, which is different than what they are willing to spend – we already know they are spending a lot more. ISPs that get this survey response never know what to do with the answer – they know they can’t afford to sell broadband at super-low rates if they want to stay in business.

My biggest concern is what the NTIA or State Broadband Offices will do with the results of this survey. I’m afraid they are going to come out with a policy that ISPs must offer a $30 broadband rate coupled with the $30 ACP plan reimbursement for qualifying homes. This would provide broadband to the homes that really can’t afford broadband – but it would also give low-price broadband to a lot of homes that are willing to pay more, but who will gladly take the discount.

I’ve looked at dozens of rural broadband feasibility studies this year, and most rural ISPs absolutely cannot make the business work if some portion of customers is only paying $30 (through the ACP). I’ve looked at a lot of plans where the rates have to be $60, $70, or even $80 for the ISP to cover all costs – particularly the debt used to provide grant matching funds.

The NTIA isn’t supposed to be able to direct rates in the BEAD grants. The IIJA legislation clearly says that the NTIA cannot force any kind of price control on grant applicants. But that doesn’t mean they can’t try this in a backdoor way, such as giving more grant points to ISPs willing to offer super-low rates. That probably doesn’t qualify as forcing low rates, but it sure feels the same.

My last trouble is that I sympathize with the NTIA if they try this. The agency wants to get broadband into every home, and the only way to do this for the poorest homes is to make broadband somehow free. I know that rural cooperatives and telephone companies might try to make this work. But as I tell all of my clients – you have to let the numbers speak. If an ISP needs $70 rates to break even and then offers a $30 broadband product as a way to get grants, they are going to put the entire business at risk if too many people take that product.

I know forcing low rates is tempting, and it would feel like a good policy. But you can’t put rate pressure on ISPs willing to work in rural areas where costs are already sky-high. If the government wants the poorest homes to get broadband, the right solution is to something like putting more money into the ACP. The right solution is not to ask ISPs to shoulder the economic burden of too-low rates.

2 thoughts on “Please Don’t Force Low Rates

  1. The two dominant carriers in Hawaii both have great $30 ACP plans. The result is free broadband for those who qualify. There are at least 50,000 households who have yet to sign up and give the carriers an extra $1.5 million/month.

    • I think it’s great when ISPs can do that – the big ISPs ought to be able to make this work. But somebody trying to bring broadband to a rural place with super-high costs has an extremely hard time taking anything less than full revenue.

Leave a Reply