I’m puzzled by the recent change to the Affordable Connectivity Program (ACP). The FCC recently implemented an increase in the monthly ACP subsidy in qualifying high-cost areas from $30 to $75. The reason for the change is easy to understand – this was codified in the Infrastructure Investment and Jobs Act legislation. The legislation required higher ACP payments be higher in  areas of the country designated as high-cost.

The NTIA has been working with State Broadband Offices to designate the high-cost areas in each state – because such areas are also eligible for special treatment and consideration in the upcoming BEAD grants. Now that high-cost areas are being defined, the FCC can implement the legislatively mandated ACP change.

What puzzles me is why this was in the legislation. The concept seems to be that areas with higher costs need additional support. To quote the recent FCC order on the increase, “the $75 monthly benefit would support providers that can demonstrate that the standard $30 monthly benefit would cause them to experience “particularized economic hardship” such that they would be unable to maintain part or all of their broadband network in a high-cost area”.

I agree with the concept that areas with particularly high costs might need some kind of broadband subsidy. For example, this is a big piece of the rationale for subsidy programs like ACAM.

But the extra ACP subsidy doesn’t help ISPs. ISPs use the ACP program to discount customer rates and then get reimbursed for the customer discount from the ACP funding provided by Congress. Whether the discount is $30 or $75, this is a net wash for the ISP. None of this support goes to the ISP and all of the benefit flows directly to the customer. It appears to me that the folks who wrote the legislation thought the ACP benefits ISPs and not low-income households.

I have a hard time rationalizing why this extra discount is only given in high-cost areas. Isn’t a low-income household located elsewhere just as worthy of extra help?

I guess you can make the argument that having a larger discount will make it easier to add more low-income customers to the network – and that would improve revenues for a rural ISP.

But realistically, having a higher customer discount also puts an ISP at greater risk if the ACP subsidy ever stops. The ACP discount only applies to customers who can demonstrate they are low-income or that they take part in one of several social programs. If a customer is getting free broadband because of a $75 ACP subsidy, is that customer going to be able to suddenly start paying for broadband if the ACP subsidy ends? That’s a valid question to ask since it looks like the ACP fund will run out of money some time in the second quarter of next year.

This extra subsidy would a little make more sense if ACP was a permanently funded program. But it seems like a rural ISP can be badly harmed if it relies on ACP and suddenly loses a lot of customers if the ACP fund runs dry.

I’m sure that the folks who drafted this requirement had good intentions, and some of the envisioned benefit might materialize if ACP is permanently funded. With a permanent ACP, ISPs in high-cost areas could justify making the effort to connect low-income households to broadband. But I have to advise ISPs not to aggressively pursue getting folks connected to the $75 ACP subsidy because the ISP stands to lose most such customers if the ACP program ends. There is a fixed cost to add a new customer to the network, and an ISP adding a new customer today won’t even recover that initial cost if the ACP subsidy ends early next year.

Perhaps the folks who inserted this language into the IIJA assumed that ACP would be so beneficial that Congress would permanently fund it past the end of the IIJA funding. But unless that commitment is made soon by Congress, I find it impossible to advise small ISPs to enroll new ACP customers.