Lobbying for Grants

As you might expect, the lobbying is becoming hot and heavy to position ISPs to win the $42.5 billion of Broadband Equity, Access, and Deployment (BEAD) grants that will likely start being awarded in 2023. This is one of the most interesting lobbying challenges I’ve ever seen because there is no one central place that will be awarding these grants.

Congress gave the responsibility for these grants to the NTIA, but the money is going to flow from them to the states. There seems to be a lot of lobbying happening with state legislators, but even that might not be very effective. States must file broadband grant plans that largely follow the rules established by Congress as interpreted by the NTIA. States will have some leeway on how to award grants, but states will still have to follow the basic NTIA rules.

I fully expect many states will have bias. This could mean favoring grants for the large incumbents or favoring grants for cooperatives or municipalities. But even states with a bias will have a hard time turning down solid grant applications that includes a significant amount of matching funding from a local government. This raises the big question of who should be lobbied – the NTIA, state legislators, or individual communities? From what I’m seeing, the answer seems to be all of the above.

We’re starting to see the lobbying position of some of the major industry players. Trade associations have filed comments with the NTIA outlining how they think grants should work. Open letters are being sent to legislators, and to state and federal agencies arguing for various positions. Happening more quietly is one-on-one meetings with local and state government officials. Following are a few of the lobbying positions that I’m starting to regularly see.

The Wireless Internet Service Provider Association (WISPA) represents ISPs using wireless technologies to reach customers. The gist of the WISPA comments is that BEAD funding should not be used to overbuild broadband in any area where an ISP is already delivering broadband of at least 100/20 Mbps service. This position is making the argument that grants should not be used to overbuild any technology, including wireless broadband, that is delivering adequate speeds. It’s easy to understand this position since there has been a lot of discussion about basing grant eligibility on the fastest landline broadband options available today and ignoring the speeds of existing wireless broadband.

The NTCA – The Rural Broadband Association represents independent telephone companies. Its filed comments voice a similar concern against overbuilding but are not quite as rigidly opposed to some overbuilding. NTCA said it is opposed to providing funds to overbuild areas that already have technologies capable of 100/20 Mbps. However, the association said it is open to the idea of combining funding from the BEAD grants to supplement existing federal or state grants if the extra grant funding will boost the speeds of existing technologies to 100/100 Mbps or gigabit speeds. This concept is being referred to as the ‘layering of grants’ to describe combining federal, state, and local grants.

USTelecom, the lobbying arm for the big telcos recently issued a letter to everybody in DC with its thoughts on the best way to administer the grants. They ask to rescind any grant rules that favor municipalities, cooperatives, or non-profits. They want money to go to communities only through partnerships with ISPs. They want past experience as an ISP to be the most important factor in judging who can be funded. This is clearly a wish list that would blatantly slant the money towards the big ISPs.

The Fiber Broadband Association (FBA) represents ISPs that build gigabit fiber networks. The association argues that fiber is the ultimate broadband technology and that federal grant money should not be used to fund any technology that does not create a long-term benefit to a community. This argument is best summarized by saying that grants should only be used to support technologies that are future-proof.

Interestingly, I’m not hearing any lobbying coming directly from the big cable companies – and that makes sense.  For example, Charter is clearly chasing grant money across the country and is promising to build fiber if awarded grant funding. But Charter can’t be publicly talking about how fiber is a future-proofed technology when it owns huge hybrid fiber/coaxial networks.

I think the big ISPs also understand the nuances of the BEAD grants the best. I’m starting to see the big ISPs show up in local communities asking to create partnerships. There is not a lot to be gained by Charter of AT&T lobbying the NTIA or state grant offices to get the policies they want, although I’m sure they are doing so quietly. The best way to win the BEAD grants is to go arm-in-arm with a local community partner to ask for the funding.

The Upcoming Marketing Wars

In April 2019 my daughter and I were watching the NCAA final between Virginia and Texas Tech (and rooting for her school TTU). We noticed about halfway through the game that practically every ad we had seen was about 5G. Verizon was busy showing us speed tests from millimeter-wave cellphones receiving gigabit speeds. Not to be outdone, there were a ton of commercials also from T-Mobile and AT&T.

I found it extraordinary that the cellular carriers would spend that much money to buy premium-rate ads for a major sports event. We now know this was part of an all-out blitz on 5G to put pressure on Congress and the FCC to give them more spectrum.

I think that by this fall we’re going to wish we could go back to the 2019 level of ads because I’m predicting by this fall that all we’re going to hear about is cellular and broadband. A lot has changed in the industry since 2019. In more recent sporting events, I noticed that a lot of the ads were from the cable companies touting low-cost cellular service. The cable companies view bundling with cellular as one of the best ways to retain broadband customers – bundling means that when a customer drops broadband they will also lose cheap cellular service.

Dish network will be hitting the market sometime this summer, promising a rollout in a hundred smaller markets and 25 large markets in June. The company already owns Boost Mobile, but Dish is going to spend a lot of money to convince America to consider it for cellular service. This means mountains of advertising to make us aware that Dish is now a cellular company. Dish promises to be aggressive with pricing, so expect this advertising effort to set off a price war from the other carriers.

T-Mobile has already been blitzing the air this year in an attempt to sell its cellular broadband product. The company picked up 400,000 new cellular broadband customers in 2021, most at the end of the year. T-Mobile has a goal to pick up several million new broadband customers this year. T-Mobile’s ultimate goal is to reach 6 to 7 million FWA customers by 2025.

Verizon is also selling fixed wireless broadband and plans to hit the market hard later this summer. The company has a goal to reach 4 to 5 million FWA customers by 2025.

AT&T isn’t going to hit the national market with a push for FWA until some time in 2023, but there is no way that the company is going to sit by and watch the other cellular carriers lure away its customers. Expect AT&T to also be on the air nonstop.

It’s hard to think that national advertising this fall will be much more than cellular and political ads. I’m warning you now to find an outdoor hobby if you don’t want to hear any more about 5G.

We’re also going to see an unprecedented marketing blitz from cable companies and fiber overbuilders. All of the big telcos are furiously building fiber this year. There are aggressive plans to build fiber underway from AT&T, Verizon, Frontier, Windstream, Consolidated, Ziply, Lumen, and many smaller fiber builders. Much of the construction this year will be in cities and county seats, and that is going to mean a whole lot of advertising.

We’ve not seen a lot of national advertising about home broadband, and the marketing wars will likely be local. That’s going to translate to salespeople knocking on doors and a lot of mailers about fiber broadband.

There was some unexpected growth in cellular customers last year. For example, in the third quarter of last year, there was a net addition of 2.3 million new nationwide cellular customers. Industry analysts are chalking this up to businesses buying cell phones for remote employees and more students buying phones because of remote learning during the pandemic.

This kind of market growth is not sustainable since most people have cell phones. That means that the coming cellular marketing wars will largely be a zero-sum game. The only way for a cellular company to grow will be to take customers from another carrier. That’s going to lead to some real desperation – and even more ads. When you watch the first football game this fall, don’t say I didn’t warn you.

Home Broadband and the Cloud

I’m not sure that most people understand the extent to which our online experience has moved to the cloud – and this movement to the cloud means we’re using a lot more bandwidth than in the recent past. A huge number of online functions now reside in the cloud, when only a few years ago a lot of processing was done on our computers.

Take the example of Twitter, where I keep an account to upload a copy of my blog every day. The Twitter platform exists in a series of interlinked data centers. When I open Twitter to look at my feed I see comments made by people I’m following on the platform. What is extraordinary is that Twitter sends me constant real-time updates of the status of all of those comments. I can see instantly when somebody has liked or has commented on each of the many tweets included on my feed. Twitter is constantly streaming me data that updates the statistics for each tweet on my feed. That’s a constant downstream feed that happens whenever the supplication is open. If I keep Twitter open all day in the background, these updates happen constantly, regardless of whether I am looking at Twitter.

The same thing now happens to all of the software in my Microsoft office suite. Every change I made to a document or spreadsheet is constantly saved in the cloud. It seems like a big benefit because I never have to worry about losing work, but the autosave function on my desktop used to perform the same function, and I rarely lost any work due to an unexpected event like a power outage.

The real advantage of cloud documents is for collaboration. I mostly work alone, but I recently edited a document in real time with a client and it was interesting seeing both of our keystrokes appearing in the document in real time. At least in my world, this is still not a common way to work, mainly due to the fact that people are using a wide array of different software platforms. But I could understand the power of this tool working inside a corporation where employees are scattered and not in the same office.

All sorts of other software have quietly edged into the cloud without us noticing it. As an example, updates are now made to online banking and credit card accounts as transactions occur. It wasn’t long ago when updates were batch processed and not done live. These companies have changed the software so that when they see any update for our accounts we are linked instantly to that change. The cloud version of the online banking portal doesn’t look any different than the old one – the change is in the background where data is shared instantly.

The industry with the most dramatic shift to the cloud is probably gaming. The ability to play games online with others has been around for a decade, but the gaming companies have beefed up data centers so that interactions between gamers happen as quickly as possible. Serious gamers know that a difference in milliseconds can provide an advantage over gamers using a slower broadband connection. The even bigger change in the industry was putting the game software in the cloud. This means instant gratification since a new game can be played within minutes rather than having to go buy a CD or having to download a huge file.

The shift to the cloud is still an ongoing transition and there are still plenty of software packages that are not processed in the cloud, but it’s obvious that everything will eventually be in the cloud.

Having software and applications in the cloud has made a big change in home bandwidth usage. If I have Twitter open in the background there are constant updates coming to my computer. The industry refers to this traffic as machine-to-machine traffic where updates are made between computers and the cloud without users taking any active steps to request an update. I read recently that Cisco says that this is the fastest growing segment of broadband usage as more and more functions are migrating to the cloud. It’s unlikely that cloud traffic will ever come close to overtaking video traffic in terms of the number of bits being sent, but it’s one of the reasons that homes are using more broadband every year.

Let’s Sue!

One thing that is extremely rare in the broadband industry is lawsuits between ISPs concerning unfair trade practices. Big ISPs bully and compete unfairly against small ISPs all of the time, and yet you don’t hear of many cases where a small ISP sues the big ISP.

There are several reasons for this. One is simple to understand – the big ISPs have a flock of in-house lawyers who can overwhelm anybody who sues them. Little ISPs don’t generally have the deep pockets needed to last through a long, protracted lawsuit.

But the harder reason to understand is that the law is basically not on the side of the little guy in this kind of lawsuit. There are a series of laws associated with unfair competition. However, these laws are specific about the kinds of behaviors that would enable a suit based upon the claim of unfair competition. Unfair competition laws mostly have to do with practices like trademark infringement or selling counterfeit products. You can sue another company if they violate a non-compete clause or break a contract between the two parties. You can sue a competitor who steals trade secrets. A small ISP could sue a bigger ISP for trade libel/slander if the big ISP advertised in a way that ruins or harms the smaller company’s reputation.

Even if a competitor can prove these kinds of bad behavior, they have a secondary burden of proving that they suffered monetary harm from the behavior of their competitor. It’s incredibly hard to quantify things like sales never made, and so proving harm is difficult unless a big ISP were to somehow drive somebody completely out of business. This did occur a few times in the days when the big telcos purposefully tried to squash dial-up ISPs, but anything short of that makes for hard proof.

The fact is that ISPs don’t engage in the kind of behaviors that these laws are designed to prohibit. No small ISP ever tried to peddle their own broadband as coming from AT&T or Comcast. No small ISPs ever pretended to be a larger ISP to customers. The very idea of an ISP doing these sorts of things is hilarious to contemplate.

Interestingly, big ISPs make quiet legal threats against small ISPs all of the time. I’ve had many clients who got a letter from the legal department of a big ISP telling them to cease false advertising against the big ISP. This normally comes from advertising that says that the small ISP has faster broadband, a higher quality connection on fiber, or some claim that distinguishes the small company broadband from the big ISP products.

Most of my clients who get such letters back off on the tone of their advertising. They are cowed from the threat of an expensive legal fight, even when there doesn’t seem to be anything untruthful in their advertising. However, I’ve had a few who ignored such warnings, and I can’t recall that the big ISPs ever took any further action. I had one feisty client who sent back a letter and said he invited a jury trial to debate in public who had the better broadband product.

Big ISPs attack each other all of the time over the issue of false advertising. They constantly challenge the ads of competitors, who are often forced to change untrue claims. However, this isn’t done in the courts. The big ISPs have voluntarily joined the National Advertising Division (NAD), which arbitrates disputes between large companies. A lot of the largest corporations have agreed to this process because they realize that voluntary arbitration is a lot less expensive than actual lawsuits. ISPs almost always comply with recommendations made by the NAD.

While the idea of a small ISP taking a big ISP to court to win a big settlement sounds appealing, the reality of winning such a suit is remote. The big guys have monopoly market power, and small ISPs have to accept that as part of competing against them.

Get Ready for Middle-mile Grants

Alan Davidson, the Administrator of NTIA, recently held a press conference and webcast talking about the $1 billion middle-mile grant program. The biggest takeaway from that conversation is that the NTIA is likely to make these awards much sooner than the awards from the $42.5 billion BEAD grants for last-mile broadband. Mr. Davidson was not specific about the dates of these grants, but anybody wanting to request one of these grants should start getting ready.

It’s worth noting that the last-mile BEAD grants will not fund middle-mile fiber. The early NTIA rules indicate that the grants will expect any constructed fiber to have closely-spaced and regular access points. This is what distinguished last-mile fiber from middle-mile fiber. Middle-mile fiber is aimed at connecting two points, be that fiber huts, electric substations, core fiber sites, or two communities. It’s a lot more expensive to build fiber that has a lot of access points. It costs labor and extra materials every place that fiber is spliced off to a handhole or MST. While a fiber route can be built to serve both purposes, the assumption of the BEAD grants is that the fiber is used to serve those living close to a fiber route.

Recent experience from both state and federal grants shows that the entities awarding grants are allowing for a relatively short window from the date of announcement of a grant until grants are due. On state grants, I’m seeing grant requests that are due within six weeks of the announced opening of a grant. The NTIA grant window will likely be a little, but probably not a lot longer.

This means anybody interesting in the grants should already be figuring out the engineered cost of the desired middle-miles routes. You are not going to have time once the grants are announced to determine costs.

More importantly, anybody wanting the middle-mile grants needs to craft a good story about why a specific middle-mile grant is needed. $1 billion might sound like a lot of money, but on the national scale, it’s not a lot. This works out to an average of only $20 million per state. If you assume an average cost of middle-mile fiber at between $35,000 and $50,000, that’s only 400 – 575 miles of new fiber, on average, per state. To put this grant program into perspective, California has established a $3.5 billion middle-mile grant program just for within the state.

Another thing that must be considered is that the NTIA has a history of making fewer numbers of larger grants rather than a lot of little grants. It’s hard to picture the agency awarding hundreds of grants because the work needed to administer the grant is nearly the same for a small grant and a large grant. If that history holds true, these funds are more likely to go to larger projects that connect distant rural communities than to projects that connect places relatively close together in a middle-mile project. I picture grants that connect a dozen communities being far more attractive to the NTIA than a project connecting a dozen local fiber nodes or electric substations.

Finally, it’s fairly clear that the NTIA is currently favoring non-profit entities more than commercial ISPs. I’m sure some of this grant will go to commercial entities, but I’m going to bet that collaborations of local governments will have a better chance of winning these grants. I’ve written a few times about project THOR in northwest Colorado, which is a consortium of local governments that built middle-mile to connect 14 communities with fiber. The benefits of this fiber for anchor institutions like hospitals were seen almost immediately after the first fiber routes were connected.

https://www.nwccog.org/programs/broadband-program/project-thor/

I envision that the projects with the biggest chance of success will be similar to Project Thor, which was organized by local communities, or to projects done by states to reach remote areas like is being done by ConnectMaine.

https://www.maine.gov/connectme/home

People are often surprised about the lack of middle-mile fiber in rural places. It’s hard to justify building last-mile fiber to an unserved rural community if there is no affordable way to connect that community to the Internet. I’m guessing that the NTIA will look hardest at projects that can make these connections.

Estimating Broadband Customers

For years, I was safe using what I called the 80:20 rule for predicting broadband customers in a new market. This meant that in most markets, 80% of customers would buy the lowest-priced broadband option. I’d sometimes run into a market where that dipped as low as 70%, but I found it extremely rare to find a neighborhood where fewer than 70% of customers bought the lowest-price option.

Price alone didn’t seem to be the driver behind the 80:20 rule, and I found the same behavior in markets with high and low-income households. If somebody purchased broadband, they mostly chose the most affordable option. I always assumed that as long as the minimum speed sounded fast enough that households didn’t think they needed faster broadband speeds.

This is no longer true. Consider the following numbers that come from OpenVault that show the percentage of American homes subscribed to various download speed tiers.

Speeds Jun-20 Jun-21 Dec-21
Under 50 Mbps 18.40% 10.50% 9.40%
50 – 99 Mbps 20.40% 9.60% 7.60%
100 – 199 Mbps 37.80% 47.50% 36.90%
200 – 499 Mbps 13.50% 17.20% 28.50%
500 – 999 Mbps 5.00% 4.70% 5.50%
1 Gbps 4.90% 10.50% 12.20%

There has been a huge shift from early in the pandemic until the end of 2021. It’s obvious that a lot of people have upgraded their broadband subscription during the eighteen months. I’ve heard a lot of anecdotal evidence to support this from my ISP clients. My consulting firm does a lot of surveys and interviews, and we’ve been seeing this shift everywhere. Not that it matters much in the big picture, but I also upgraded my own broadband from 100 Mbps to 400 Mbps download.

It’s fair to note that some of these shifts didn’t come from changes made by subscribers but from changes made by ISPs. Many of the big cable companies are now defining their minimum broadband product to be 200 Mbps. Several made this change last year, and a few more announced this recently. When that change is universal, we’re going to see an additional shift from the 100 Mbps tier to the 200 Mbps tier.

Much of this change came from people deciding to make the change. People worked at home and found their broadband to be inadequate. Our surveys have consistently shown that over one-third of homes in urban markets found broadband to be inadequate when working or schooling from home, and many of them decided to upgrade.

Unfortunately, for some households, changing to a faster download speed didn’t bring any relief if their real problem was upload speed – but they upgraded and are not likely going to back to the slower speed tiers. Of particular note is the big shift of homes that used to subscribe to speeds under 100 Mbps. In just 18 months, that dropped from 29% of all households down to 17%. A shift that large sticks a fork into the idea that the public is interested in any broadband product under 100 Mbps. The public is defining the definition of broadband even if the FCC won’t.

This big shift creates a challenge for any ISP that is creating a forecast for a new market expansion. ISPs used to be able to build a business plan that assumed an 80% penetration for the first broadband product and knew they would be close. I’ve worked for various bankers over the years to review business plans from potential ISP borrowers and would laugh when I saw somebody predict high penetration of gigabit broadband as a way to justify getting a loan.

But today, all bets are off. I don’t have any advice to give to an ISP building forecasts other than to tell them that the 80:20 rule is dead. I think a new ISP needs to dig in and do the market research through surveys to get a better feel for how a given market will act. It’s a new world for anybody that wants to accurately predict how their business will fare – but the good news is that customers seem willing to pay extra for faster speeds. The 80:20 rule is clearly dead, but there is no rule to take its place.

Who’s the Fastest?

It’s always interesting to see broadband speed comparisons between different parts of the world, the country, and technologies. There is no more interesting report for a broadband nerd than the speed test results reported by Ookla. The company compiles the results of speed tests from all around the world and the country and provides some interesting results.

Any analysis of speed tests comes with some big caveats. There are plenty of individual cases where a speed test result is slow due to issues at the user end. My house is a great example. My wife gets 3 – 4 times faster broadband in her office located with the incoming broadband modem than does my office upstairs at the far end of a long house. The difference in our speed tests results is related to our WiFi network and not to our ISP.

But ISP data speeds are also variable. I look at speed test results regularly, and I see a variance of several magnitudes during a day or a week. My ISP is Charter, and there are obviously things happening in the City which cause the Charter network to slow down at times. Because of the wide range of speeds I see at my house, it’s impossible for anybody to use a single number to define my broadband speed. I’m sure Charter would define my broadband speed to be the fastest speed we can get, but there are times when we see only a fraction of that number.

With that warning, the Ookla speed test results are still interesting because these same factors affect all ISPs – meaning that a comparison between ISPs should be fairly instructive.

In looking at the median download speeds of the major landline ISPs, Verizon is the fastest at 184 Mbps, followed closely by Comcast at 179 Mbps and Cox at 174 Mbps. The other major ISPs tracked by Ookla are Charter at 166 Mbps, AT&T at 141 Mbps, and CenturyLink at 41 Mbps. It’s obvious that the AT&T and CenturyLink speeds are held lower because of DSL. Note that median means that half of customers are faster than these speeds and half are slower. These numbers are not average speeds.

One of the more interesting things reported by Ookla is a consistency score. Ookla defines consistency as the percentage of traffic that provides a consistent quality of service, and where a customer connection produces expected minimum levels of both upload and download speeds. Comcast, Charter, and Verizon all have roughly identical consistency rates of 89% to 90%. Cox is at 84%, AT&T at 80%, and CenturyLink at 57%.

Ookla also ranked states by the median download speeds. Topping the list at 195 Mbps is New Jersey, with New York next at 179 Mbps. The next fastest states are Rhode Island, Maryland, Delaware, and Massachusetts – all states that have significant Verizon FiOS. The two states with the lowest median broadband speeds are Wyoming at 70 Mbps and Montana at 74 Mbps, followed by New Mexico, Alaska, Vermont, Idaho, and Arkansas. There are a dozen major U.S. cities with median broadband speeds over 200 Mbps. Topping the list is Jersey City, NJ (216 Mbps) and Raleigh, NC (214 Mbps).

Median upload speeds tell a different story. The leaders are four states with Verizon FiOS: Maryland (38 Mbps), New Jersey (36 Mbps), Rhode Island (34 Mbps), and Virginia (32 Mbps). But next is North Dakota at 32 Mbps and Iowa at 27 Mbps. For download speeds, those two states come in 39th and 42nd. The states with the worst median upload speeds are Arizona (10 Mbps), Montana (11 Mbps), Wyoming (11 Mbps), and Maine (12 Mbps).

Ookla also ranks broadband speeds by country. The fastest are Singapore (198 Mbps), Chile (197 Mbps), Thailand (188 Mbps), and Denmark (170 Mbps). The U.S. has moved up this chart over the last few years, and is now eighth at 151 Mbps.

The report also looks at cellular speeds. The median download speeds for March 2022 are T-Mobile (118 Mbps), Verizon (63 Mbps), and AT&T (56 Mbps).  Ookla also reports 5G speeds (meaning using the new frequency bands for each company) as T-Mobile (191 Mbps), Verizon (107 Mbps), and AT&T (68 Mbps). Ookla says that T-Mobile 5G is available for 65% of connections, AT&T for 49% of connections, and Verizon for 28% of connections.

Broadband for Communities

When talking about the benefits of broadband, it’s easy to overlook how broadband has become the glue that brings people and communities together. This is becoming particularly important for rural communities but matters to people everywhere.

Rural communities have been rapidly losing other forms of media that were the focal point in the past. 2004 was the peak of the newspaper business in terms of readership and revenues. Since then, the number of journalists has been cut in half. In the last fifteen years, we’ve lost more than 20% of all newspapers, and many remaining papers are just barely hanging on financially. Over half of the 3,143 counties in the country now only have one newspaper, which in the majority of cases means only a small weekly paper. In a recent count, over 200 counties have no newspaper.

We’ve also lost a huge number of local radio stations. Lost is not entirely the right word since many stations haven’t gone off the air but stopped being local. Local radio stations became endangered when Congress introduced deregulation into the radio business in the Telecommunications Act of 1996. Since that time, two-thirds of all radio stations are owned by ten parent companies that have gobbled up local radio stations. Instead of local news and content, the conglomerates pipe in national content, which also allows them to eliminate almost all of the staff at local stations. The big companies seek national advertisers, and communities don’t even hear ads for local businesses any longer.

The Internet has stepped in to fill some of this void. I see this directly when I help communities conduct broadband surveys and see how they go to get the word out. A lot of rural communities now have local Facebook forums (I note that I haven’t yet met anybody who has started to use the new name Meta). The local social media groups are popular, and I’ve seen communities drive a thousand survey responses through a local Facebook page. But not every local community has taken this approach, probably due to some of the downsides with social media.

Community life in one community I worked in recently all used a website created by the local radio station. I’ve worked in communities where church websites seem to be the predominant forum for local news.

In cities, we have more ways to keep up with local events. My own city has several newspapers, a few local radio stations, and one local TV station. In cities, the trend for the Internet is to get hyperlocal news directly in the neighborhood. There are a lot of people who use the Nextdoor app. While this is like other social media in that there’s a lot of gossip and squabbles, this is also the place to find out about crimes or events that you’d never know about otherwise.

One of the benefits of the Internet that is rarely talked about is the ability to become part of a larger community. I have a good friend I met strictly through the Internet who lives in Salt Lake City. I have a friend whose son is a competitive gamer, and his daily community is other gamers in Japan, Korea, Thailand, Vietnam, China, and Ukraine. My wife has developed friendships across the country when participating in forums on her various hobbies and interests. I’m not sure why we don’t mention ‘finding one’s tribe’ as one of the most important aspects of the Internet.

It’s easy to be cynical, and write off social media as being entertainment, but doing so ignores the real connections people make on the Internet. And yet, I’ve never seen any list of Internet benefits that includes the power of the Internet to provide local news and a sense of community.

What Happens After ACP?

It seems that almost every ISP going for broadband grants is promising to offer a low-income program by promising to take part in the Affordable Connectivity Program (ACP), which provides a $30 monthly discount on broadband rates for qualifying households. The discount is available for households earning less than 200% of the federal poverty level.

I love the idea of the ACP program. It certainly makes a bigger difference for households than the $9.25 Lifeline subsidy provided by the FCC. But I think it’s already time to start the discussion of what happens when the ACP program runs out of money.

Congress put $14.2 billion into the ACP fund effective January 1, 2022. That money was bolstered by about $2.2 billion left over from the Emergency Broadband Benefit program that came out of the CARES Act funding. I did a little math to see how long the funds will last. By my quick math, the ACP fund will have paid out about $1.3 billion by the end of this April 2022.

As of April 16, there are almost 11.6 million enrollees in the ACP program. That equates to a monthly draw of $348 million per month. And the draw is growing. This year the number of plan participants has been growing by over 700,000 per month. If fund participants keep growing at that rate, then the ACP fund will run dry in 25 months. If growth in fund participants slows to 500,000 per month, the ACP only last two additional months. If I had to make a bet, I would think that the number of new participants per month will accelerate even more than the current 700,000 per month. Even if nobody new enrolls in the ACP, the funding will be gone in a little less than four years.

If the ACP fund runs out of money, the subsidy will stop. If the fund participants grow at the current rate, then 28 million homes would see an immediate $30 rate increase – one that, by definition, most of them can’t afford. The only way for the ACP to continue is for Congress to continue to fund it. If there are 20 million ACP participants, that’s a new annual federal subsidy program of $7.2 billion per year. At 30 million participants, it’s $10.8 billion per year.

This sounds like the kind of subsidy that will draw a lot of political controversy. There have been major critics in Congress for years about the FCC’s Lifeline program, which costs only a fraction of the ACP numbers.

This also creates a dilemma for ISPs. Most ISPs will tell you that the cost to connect a new household to a fiber network can cost between $1,000 and $1,500 in cities depending upon whether drops are aerial or buried, and even more in rural areas with longer drops. Can an ISP justify making that kind of investment for a home getting the ACP discount if that discount will disappear in two years? Obviously, not everybody getting an ACP discount would drop service without the subsidy, but a lot will have no choice.

What’s also ironic is that the ACP program was designed as part of the Investment, Infrastructure, and Jobs Act and was meant to provide a subsidy to go along with the $42.5 billion in broadband grants in the BEAD grant program. My best guess of the timeline is that the ACP will be out of money by the time that BEAD grant households start coming online.

There are a whole lot of folks putting energy today into digital equity, and many of them tell me that the $30 discount really makes a difference to families. I’m sure many of them have done the same math as me and must be worried about what happens when the ACP runs out of money. Two years is almost no time in political terms, and anybody who wants the ACP fund to last more than two years needs to already be lobbying for the replacement funding.

The History of Broadband Price Competition

It’s sometimes easy to forget that the broadband business is just over twenty-five years old. The telephone companies had a monopoly on copper-based technologies until Congress passed the Telecommunication Act of 1996 which forced the big telephone companies to allow competition for copper-based broadband services. The telephone companies vigorously resisted the emerging CLEC business, but eventually, the country was flooded with competitors selling cheaper T1s over telephone company copper lines. For a list of reasons too long to repeat here, most of the big CLECs crashed, but some of these traditional CLECs persevered, and there are still a few today making money by selling service over telephone copper.

The late 1990s saw the introduction of DSL over copper lines and cable modems provided by cable companies – both technologies offering broadband download speeds of around 1 Mbps. Cable companies and telephone companies slugged it out and competed fiercely for a few years. However, over time we saw the broadband market settle into duopoly competition – a term used by economists to describe a market with only a few competitors. After only two or three years of real competition, we saw the marketing rhetoric cool down as both sides reached a steady equilibrium share of the broadband market. In duopoly competition, both sides stop competing on price and instead compete with rhetoric describing their advantages as a company. Both sides charged relatively high prices for the time, and cable companies and telcos were largely happy with the market.

The duopoly equilibrium didn’t last long when cable modem technology improved more quickly than DSL. It became clear by 2005 – 2006 that the cable companies were going to win the speed battle. Since that time, the cable companies have gained market share every year at the expense of DSL. The conversion of DSL customers to cable modems accelerated in recent years when homes found DSL speeds to be inadequate. This exploded during the pandemic, and the cable companies are now capturing millions of DSL customers each year. From a pricing perspective, the telcos went after the low end of the market, chasing those that didn’t want to spend too much for broadband. The cable companies cautiously raised rates for a few years until they realized that people didn’t drop cable modem service to return to DSL – and they started to regulatory jack up broadband prices.

There was one exception to the DSL/cable modem duopoly when Verizon started building FiOS fiber in the Northeast. With FiOS, Verizon was clearly the fastest technology and was far ahead of the cable modem technology of the time. As would be expected, Verizon and the cable companies also reached a duopoly equilibrium after a few years of fierce marketing, and both sides seemed to be happy to be making good profits.

The cable companies reacted differently to competition from anybody who was not a telephone company. We saw a fierce reaction by the cable companies when municipalities built fiber. I think the cable companies knew that the public would prefer broadband from a city instead of a large unresponsive cable company. In the first few markets with a municipal provider, the incumbent cable company engaged in what can only be called predatory pricing. The cable companies dropped rates extraordinarily low, hoping to cause large losses for the new municipal providers. While this happened in only a few places, the reaction by the cable companies was so extreme that the FCC warned that it would investigate the predatory pricing issue. Predatory pricing died as a strategy and I can’t remember a case of an incumbent dropping prices far below a competitor in over fifteen years.

The more common practice for cable companies is to drop rates to match or almost match any new competitor. Bigger cable companies have nationwide rates and don’t want to establish different rates in different markets, so they started to compete with promotional discounts that bring prices down to the level of the new competitor in each market. Over time, the cable companies adopted this philosophy for competing with any new fiber builder, not just municipal ones.

The cable companies never got this quite right. They offer lower rates for a year or two to compete with a fiber provider, but at the end of the contracts, the rates return to normal. Customers can usually still get the lower prices by calling and negotiating, but over time we see the public tiring of the rate game and eventually moving to the company with the permanently lower rates.

Cable companies adopted another interesting way to compete through what is called hidden fees, which are fees that are not clearly identified when new customers sign for service. Hidden fees have been around a long time, but in recent years have become gigantic. The motivation for having hidden fees is clear – it lets a cable company advertise a low price for basic service by not mentioning the hidden fees. It’s an odd tactic since customers find out about all of the hidden fees when they get the first bill.

The FCC has proposed to make it harder to use hidden fees by using a report card that will require ISPs to report all of their charges. It’s going to be interesting to see how the report card changes the pricing strategies of the big ISPs. I have no doubt that it will force some changes, but as they’ve always done in the past, the big cable companies will find new ways to look like they have low rates while extracting as much money out of customers as possible.