One of the most perplexing requirements for the BEAD grant program is that State broadband plans must include a middle-class affordability plan to make sure that all consumers have access to affordable broadband. I don’t know anybody who fully understands what this means.
A good place to start is with suggestions made by the NTIA in the Notice of Funding Opportunity (NOFO) for the BEAD grant program. The following has been edited to replace the term Eligible Entity with State Broadband Office (SBO). The NTIA suggests that
Some SBOs might require providers receiving BEAD funds to offer low-cost, high-speed plans to all middle-class households using the BEAD-funded network. Others might provide consumer subsidies to defray subscription costs for households not eligible for the ACP or other federal subsidies. Others may use their regulatory authority to promote structural competition. Some might assign especially high weights to selection criteria relating to affordability and/or open access in selecting BEAD subgrantees. Ultimately, each SBO must submit a plan to ensure that high-quality broadband services are available to all middle-class families in the BEAD-funded network’s service area at reasonable prices.
It’s a challenge for any State to set BEAD rules related to prices. The original legislation that created BEAD grants prohibited States from requiring specific broadband prices.
BEAD grants have another requirement that States must have a plan to provide affordable rates for low-income homes. Most ISPs plan to meet this requirement by relying on the continuation of the Affordable Connectivity Program (ACP). These ISPs will have to cut rates somehow if the ACP program is not funded by Congress.
In 2016, the FCC suggested that the benchmark for a reasonable middle-class rate should be set at 2% of monthly household income. Pew Charitable Trust did some analysis that showed that the 2% benchmark would equal between $82.79 in the South and $107.64 in the Northeast. Pew estimated that as many as 30% of middle-class households would not be able to afford broadband set at those prices.
The idea of having to push down the rates to win the grants is scary for most ISPs – because most of the customers who aren’t low-income are probably considered to be middle-class. That is the category of broadband that drives the majority of the revenue in a broadband business plan. If ISPs are pressured to have low rates for everybody, it’s that much harder to build a business plan that doesn’t lose money.
The folks who write some of these grant rules don’t seem to appreciate how hard it is to succeed as an ISP in a rural area. For example, it can be a several-hour round trip to just visit some customers – costs are a lot higher per customer than in more densely populated areas.
ISPs also have very limited ways to control profitability in rural markets. It’s difficult to cut enough expenses to make a difference to the bottom line, so raising basic broadband rates is about the only tool that can be used to keep a rural market in the black.
Luckily, many State Broadband Offices are making the middle-class rate issue into a check box – can a grant applicant demonstrate that rates are affordable? But other SBOS are clearly taking the low middle-class objective to heart by mandating specific rates to win grant points – all prompted by the language in the NOFO.
I’m sure it’s really tempting for a State Broadband Office to mandate affordable rates – it’s a chance through the grant process to try to establish public policy. But I find it really troubling that policy-driven folks who have never operated an ISP try to micromanage how an ISP should operate. The BEAD rules already layer on all sorts of extra costs that are not part of a regular business plan. Additionally requiring specific low rates can be a disaster for ISPs who will, by definition, not have many paths to financial success in rural markets. I can’t think of anybody who benefits if the ISPs that take BEAD money find themselves losing money a few years after the grant networks are built.
Perplexing? It appears that policymakers considered that taxpayers are providing most of the capital to build networks that will be local monopolies of an essential service—so at least some of their plans should be affordable for everyone. What other protection is there for consumers so they are not price gouged?
what is price gouging in this context? Also, what’s essential?
MOST, and I mean overwhelmingly MOST of the need for more capacity is for entertainment. It’s to get that sweet sweet 4k Netflix and Disney+ into your eyes.
We’ve conflated luxury and essential a bit too much.
Dear Mr. Denson:
Forgive my not appreciating this point of view on “luxury” and “essential”, but as a teacher, I see too many families in both urban and rural areas that must get by on substandard Internet access. And yes, it seriously affects their productivity and homework output. This affects those students who must spend inordinant amounts of time downloading the requisite resources and then uploading completed assignments in environments and with access facilities that are not conducive to quality study.
This country has done a pretty good job ensuring that school facilities and other community locales have substantially good access to the Internet. Individual families, however, are not always so endowed. Sure, some kids can be seen doing their homework sitting in Internet cafes and Starbucks, but those are really not optimal locations for seriously completing homework assignments. (Many do so, of course!)
And perhaps there are kids out there that spend too much time accessing junk and wasting their time. I would venture to guess, however, that this paradigm is more stereotypical than reality. Most students are just trying to get their homework assignments completed and passed in.
there is quite a gap between any essential service and the luxury counterpart to it. It’s not dissimilar from saying that a Tesla Model X is an essential vehicle. Having a reliable vehicle is essential, that model X is clearly luxury.
There is zero need for 1G for remote learning. However 3Mbps DSL (and it’s sub 1Mbps upload) is a hinderance. There is a 333x difference between those two services and somewhere in there lies essential service and on the far end luxury.
As a provider that donated services to families for remote learning needs, 25Mbps was barely utilized. Most of the materials were a few MB large and videos were streamed at only a few Mbps. Most of what students suffered through was abysmal uploads and general unreliability OR just low income folks that didn’t have the funds to purchase internet service in the first place. Trying to submit homework that was a fairly small 7MB word doc on a 100kbps upload that was of low quality and continuously fails and retries. They possibly could have been comfortable on the 3Mbps download if their upload was usable.
The problem is that so many people didnt’ have access to even our previous definition of ‘broadband’ service of 25Mbps. 25×5 is fantastic for a lot of people and easily services students. We were seeing people with these 1.5×0.1 DSL speed tests struggling to send an email. That’s the problem, it’s not a need for gig service it’s the need for adequate services that is essential.
We’re are currently bankrupting ourselves (this is public debt being spent) trying to deliver luxury services to a small portion of the population at gig speeds and frankly, overbuilding a lot of coax services that are already multi-hundred-Mbps, when we could get 25-100M speeds to virtually everyone for a fraction of the price in short order which is easily adequate and then push those numbers as well as lower latency and more stability during the next round of infrasrtucture building.
“This country has done a pretty good job ensuring that school facilities and other community locales have substantially good access to the Internet.”
I want to respond to this directly, because in many parts of the country it’s just false. We work with schools and often they burn a teacher’s salary to get really basic services to the school. One local school is riding out their current contract for just 200Mbps (yes, for a school) for $1950/m for us to drop in 1G for a few hundred bucks. This isn’t a unique case.
Unless a rural school is in a district that got some attention from a politician or something like that they likely don’t have the connectivity they should have. Most school networks are considered quite slow, and when having students trying to do e-learning from school facilities… it’s not so good. The last time there was a really serious build out to schools was back in the 90’s. And some of them are still basically on that infrastructure.