Tag Archives: ACP

ISPs and the End of ACP

As I write this blog, the ACP program that provides a discount for millions of homes will disappear unless Congress takes action to continue it. By now, most big ISPs have announced how they will handle broadband for low-income homes after the end of ACP.

Altice Optimum provides the Optimum Advantage Internet plan that provides 50 Mbps download speed for $14.99 per month. Customers can choose to double the speed by doubling the price.

AT&T. The company says it will still offer its Access from AT&T plan for $30 per month that provides unlimited usage at 100 Mbps. Those speeds are available on fiber, with best effort-speeds on DSL or FWA cellular wireless.

Charter will continue to offer the Spectrum Internet Assist plan, which offer 50 Mbps download speeds for $24.99 per month. Customers can double the speed for an extra $5 per month.

Comcast is going to keep its Internet Essentials plan that provides speeds up to 50 Mbps for $9.95 per month. Plan participants can also buy a low-cost basic computer. Comcast is going to let customers who were enrolled in ACP rollover to Internet Essentials without having to go through the qualification process again. But it looks like customers will have to choose the rollover option and it’s not automatic.

Comcast also just announced a new plan called NOW Internet that will offer 100 Mbps service for $30 or 200 Mbps service for $45. These are not low-income programs and are available to everybody. This seems to be the company’s response to losing customers to FWA wireless plans being offered by T-Mobile and Verizon.

Cox Communications will continue to offer two plans. First is its Connect2Compete plan that provides a $9.95 monthly broadband connection to families with a child in grades K-12 who qualifies for the national School Lunch Program or other federal programs. Cox also has a ConnectAssist plan for $30 per month for other families who qualify for a list of federal programs. Both plans deliver speeds up to 100 Mbps.

Frontier will allow customer who were using ACP to instead get the $9.25 FCC Lifeline discount. It’s not clear if that transition is automatic or if customers will have to apply for the Lifeline discount.

Mediacom offers the Xtreme Connect plan for low-income households for $28.99 per month. This includes a $14 charge for the WiFi modem. Households with students who qualify for the federal School Lunch Program are not charged the modem fee, bringing the price down to $14.99.

T-Mobile has several plans for customers who are already using the ACP discount. Customers of Assure Wireless will continue to get the equivalent of the ACP discount through August 2024, at which point they will covert to get the FCC’s $9.25 Lifeline discount. ACP customers using Metro by T-Mobile will continue to receive the ACP discount through June 2024. For July and August, the discount will drop to $15 per month.

Verizon will continue to offer its Verizon Forward plan that gives customers a 300/200 Mbps connection for $20 per month. Existing ACP customers will get this plan free for at least six months.

Windstream gave ACP customers until April 30 to transfer their ACP benefit to its Kinetic Benefit program. Any customers who made the transition will be able to keep the identical discount received under ACP for as long as they keep the plan at the same address and don’t make any changes to the plan. It’s not clear what happens to customers who did not make the benefit transfer.

This is a wide range of responses to the end of ACP. Some big ISPs are reverting to affordable rates for low-income households such as the $9.95 plan from Comcast. Others are extending the ACP from a few months up to six months. A few are only offering Lifeline as the alternative to ACP. A few are making the transition automatic to low-cost plans while it appears others will require customers to apply for the discounts.

While I won’t list them, smaller ISPs are making similar changes. For example, I know one ISP that will keep the ACP discount the same for customers as long as they keep service. I also know smaller ISPs that will let ACP lapse with no low-income replacement plan.

A Troubling Decision on Rates

The 2nd U.S. Circuit Court of Appeals in Manhattan ruled recently that federal telecommunications law does not stop states from regulating broadband rates. This was in relation to a 2018 law passed by the State of New York that required ISPs to offer low-income rate plans for as low as $15 per month.

ISPs appealed the new law, and a U.S. District Court issued an injunction against the law. The recent ruling overturned that injunction and puts the law back into effect. The law allows ISPs with less than 20,000 customers to appeal the the implementation of lower rates, but there is no guarantee that ISPs will be relieved from the law.

I’ve written many times about the negative impact of forcing low rates onto ISPs. ISPs with a lot of low-income customers could quickly find their revenues streams decimated. Any legislator or regulator that makes this kind of rule must obviously think that ISPs sit atop gigantic margins – but many do not. An ISP with a lot of low-income customers will almost certainly have to increase other rates to offset the forced low rates, a move that would likely will put them at a competitive disadvantage.

This court ruling comes at an interesting time. The FCC just passed new rules that put Title II regulation and net neutrality back into play. One of the interesting provisions of the new rules is that the FCC purposefully decided to forebear the right to regulate broadband rates, meaning the FCC didn’t invoke the portions of Title II regulations that give the agency the ability to regulate rates.

The Court’s ruling was made under the assumption that ISPs are regulated under Title I rules – which are the rules that have been in place since the Ajit Pai FCC killed net neutrality. But suddenly, we are back in a Title II regulatory environment. The Court ruled that the FCC has no power to preempt State regulation under Title I rules, but that the FCC would have that right under Title II regulation. This means the Court believes the FCC could now preempt the State law since the agency just reinstated Title II regulations.

The court ruling creates several dilemmas for ISPs. The easiest path for ISPs to fight the reinstated New York law is to embrace Title II regulation and ask the FCC to preempt New York. That’s not something that big ISPs want to do – they have spent years and a lot of political capital vilifying Title II regulation. Everybody is expecting big ISPs to quickly appeal the recent FCC order that reinstates Title II regulation. If ISPs are successful in getting a Court to put Title II rules on hold, then the New York low-rate regulations will go into effect without recourse from the FCC.

If the big nationwide ISPs decide to try to kill Title II regulation, they will be throwing New York ISPs under the bus. But that’s not the end of the story. If the New York law goes into effect, it seems likely that other states will pass similar legislation. Many states are unhappy to see the ACP low-income subsidy die. But very few States are interested in using general funds to fund a new low-income subsidy program, so it’s going to be tempting to force ISPs to cover the discounts. If ISPs decide to fight against the FCC’s Title II rules, they might find themselves fighting against having to cut rates in dozens of states.

The Court ruling also creates a dilemma at the FCC. Even if the FCC has the right to tell New York that it can’t regulate rates – will it do so? The FCC recently made it clear that it did not want to try to absorb the dying ACP plan into the Universal Service Fund. But that doesn’t mean that the FCC will willingly play the bad guy and tell States they can’t tackle some state version of ACP relief.

It is nearly impossible to predict how the FCC will react. The FCC will certainly be happy to see States tackle the low-income problem since that takes the FCC off the hot seat. But the FCC would be happier with state plans that mimics ACP, where a State would fund the subsidy. The FCC will not like the precedent of states telling the ISPs they must cut rates. Which will the FCC dislike more – telling states they can’t cut rates or letting states exercise rate regulation?

Every ISP ought to be concerned about this ruling. However, there is no way to guess how the big ISPs and the FCC will react to the Court order. It’s unusual to encounter a regulatory ruling that is as challenging as this one for both ISPs and the FCC.

Can States Pick Up the End of ACP?

FCC Chairwoman Jessica Rosenworcel made it clear recently that the FCC is not willing to tackle funding for the ACP plan that is expiring in May. She estimated that the FCC would have to add something like $9 to every broadband bill in the country to fund the ACP plan.

But there is another alternative. States could pick up the ACP funding just for their state. States will have the authority to do this after the FCC approves the reinstitution of Title II authority this month. That authority would give the FCC the authority to create the fee needed to fund the ACP through the FCC Universal Service Fund.

We’ve always had a regulatory structure that allows States to tackle any telecom issue that the FCC decides not to pursue. Once Title II regulation is in place, and assuming that the FCC formally passes on funding ACP, then each state would be free to do so.

It’s obvious that the big ISPs are worried about this. A joint letter from Comcast, Charter, and Cox was recently sent to the FCC asking it to preempt States from establishing a State version of ACP.

If I was a betting man, I bet that the FCC will not preempt the States on this issue. While the FCC is not ready to take on the flak that would come with creating a nationwide ‘tax’ on every broadband household and business, I’m guessing that they will allow States to do so.

Many States already have a mechanism that easily could handle this. A lot of States have a State universal service fund that mimics the structure of the FCC’s USF. The States have used these funds in the past to support rural telcos or to fund other telecom-related issues. Many States already assess a fee on telephone customers to fund the State USF. It’s not much of a stretch for a State to extend this to cover a broadband discount.

States that decide to create a low-income subsidy plan that like the ACP will face the same kind of issues highlighted by Chairwoman Rosenworcel. A State fee could easily be anything from a few dollars per month to over $10 per month. People are annoyed at any taxes and fees added to products they must buy, and a large fee is going to draw a lot of public attention and ire.

There are ways that the States could reduce the size of an ACP replacement. An easy change would be to not cover cellphones, just home broadband connections. States are also likely to fiddle with the qualifications. The ACP program had a wide range of ways to qualify, with the most important one being that ACP is eligible to homes making as much as twice the level of poverty for a given area. States might lower that threshold to lower the size of the fund and the size of any monthly fee.

It’s always interesting to watch big ISPs fight hard to keep fees from being assessed on broadband. In this particular case, a State USF assessment wouldn’t likely cost an ISP anything since they would pass the fee on to customers. But big ISPs are fighting hard to maintain the current environment where broadband can’t be taxed. While payments to a state or federal USF fund are technically fees and not taxes, they feel like taxes to the folks who pay them. The big ISPs have been successful at keeping broadband from being taxed for the last 25 years, and they don’t want to open up the floodgate where State and local governments feel they can tax broadband revenues for ACP since that would raise the issue of assessing fees for a wide variety of other purposes.

Of course, this discussion could end in a hurry if Congress steps up and funds some version of ACP. That’s not something I’m willing to bet on.

Can the FCC Fund the ACP?

A lot of folks have been pleading with the FCC to pick up the tab to continue the the Affordable Connectivity Program (ACP). Folks are assuming that the FCC has the ability to take on the ACP program inside the Universal Service Fund. To make that work, the FCC would have to apply a monthly assessment against all broadband users – something the FCC should have the authority to do if it votes to reinstate Title II authority over broadband at its April meeting.

What might it look like for the FCC to absorb the dying ACP program? FCC Chairwoman Jessica Rosenworcel told Congress that rolling the ACP into the USF could add $9.00 to monthly broadband and telephone bills. She also cited an internal FCC report that found that broadband bills could increase between $5.28 and $17.96 per month. I decided to kick the tires on the FCC’s estimates.

Taking over the Existing ACP. The existing ACP has 23.3 million recipients. That includes 13 million cellular customers, and the rest using landline or wireless broadband. It’s not easy to pin down the number of U.S. broadband customers that a fee might be assessed to. For example, there are numerous wholesale arrangements that would have to be defined – like assessing the fee on a landlord who includes broadband in the rent. Using a variety of sources, I assumed there about 121 million total broadband customers that could be assessed a fee to support ACP.

Funding the current ACP with a monthly fee on all broadband users equates to a monthly fee of $5.78. However, the monthly ACP fund disbursements grew 28% over the last year, so an initial fee would have to be set higher to prepare for growth over the next year. That means the starting USF fee might have to be something like $7.50 per month, and there would have to be additional future increases to the fee until the ACP fund reached equilibrium. It’s not hard to envision the broadband fee growing significantly beyond $10 per month in a few years.

This also raises the uncomfortable question about giving low-income households a $30 monthly discount and then charging the same folks to fund the program. If low-income households are excused from the USF fee, then the fee to everybody else would be increased by another 20%.

Exclude Cellular from ACP. There is a lot of controversy about giving the ACP discount to cellular customers. Almost all of the cellular companies involved in the program are cellular resellers, and most of the suspected ACP fraud involves cellular ACP claims.

If ACP is limited to landline (and fixed wireless) customers, the broadband fee would be a lot smaller. With the current number of ACP enrollees, the FCC broadband fee would be roughly $2.54 per month. However, it seems likely that a lot of ACP recipients receiving the discount on cellphones would convert that to a home broadband connection, which would quickly boost the fee.

The most common qualification for ACP is participation in the SNAP program that provides food subsidies for low-income households. There are currently 21.6 million households that get SNAP benefits, and if all of them applied for the ACP discount, the monthly fee to fund the USF would equate to  $5.36. The current economy has historically low unemployment rates, and a future dip in the economy could quickly add to households eligible for SNAP and ACP.

Assessing a Fee on Broadband Isn’t Easy. It’s more challenging than you might think to assess a fee on every broadband customers. A fee on single family homes and standalone businesses is fairly straightforward. But there are a lot of complicated broadband billing arrangements. Landlords for both residents and businesses often build broadband into the rent. Landlords might drop broadband rather than pay a fee for every tenant. There are many arrangements providing free broadband to public housing. There are many varieties of wholesale broadband relationships that would have to be figured out.

Impact of Raising Rates. It’s not hard to imagining the furor that would ensue if people drop their broadband connection as unaffordable because of the extra fee. One of Chairman Rosenworcel’s fears is that funding broadband this way would push a lot of broadband rates to an unaffordable level.

Conclusion. I think Chairwoman Rosenworcel is in the right range with her estimate if you trend the current ACP recipients to grow for a few more years. However, the FCC has alternatives. If ACP recovery was limited to home broadband and not cellphones, it looks like the fee might might top out at $6 or $7 – lower than her $9 projection. If cell phones remain eligible for ACP, it’s not hard to envision the USF fee growing far past her cited $9 fee – that might be how the FCC predicted a $17 fee.

But the real issue isn’t the size of the monthly fee – but whether the FCC is willing to take on the responsibility. If the FCC was to assess a $5 – 7 fee on every broadband user, the agency would be in the crosshairs by both sides of the political spectrum. Realistically, it also seems likely that an attempt by the FCC to implement such a fee would be challenged and end up in court for years – which wouldn’t help anybody.

The FCC is obviously being cautious, but they might be right in doing so. Tackling such a controversial solution with such high visibility would likely put the FCC under a lot of scrutiny, which might even bring the entire Universal Service Fund under attack. I know it’s not the answer that people want to hear, but the best solution is for Congress to fix ACP – unfortunately, nobody is feeling highly hopeful about that.

BEAD Grants and ACP

Another chance to fund the Affordable Care Program just went past when Congress finally signed legislation to approve the budgets for the current fiscal year. There was a lot of lobbying to get an extension to ACP included in one of the two budget bills that were recently enacted.

The FCC already took steps to end the program that had 23 million participants. As of February 7, the program no longer accepted new participants in the plan. The FCC required ISPs to notify ACP recipients that the last funding would be in April. The FCC might issue a partial discount in May if enough funds remain. Without Congressional action, the program will cease to exist when the funds run dry.

In October 2023, the White House asked Congress to approve an additional $6 billion to continue to fund the ACP. In a rare show of bipartisanship these days, a group of senators and representatives introduced the Affordable Connectivity Program Extension Act that would have provided $7 billion to extend ACP from unspent Covid-19 funds. Support for ACP poured in from all corners of the country from governors to local politicians. Just in my own neighborhood, the Land of Sky Regional Council Board of Delegates unanimously approved a resolution in support of ACP.

Most of the support and lobbying effort was aimed at getting ACP renewal included in the new budget bills. When that failed, the future chances to fund ACP are looking slimmer by the day.

The consequences of the end of ACP are still to play out. The BEAD legislation required ISPs requesting BEAD funds to participate in ACP, and State Broadband Offices were counting on BEAD participation as a key part of the directive of the IIJA legislation to have affordable rates. ISPs are being put under pressure to self-fund and continue the BEAD discounts. But without a mandate, very few of them will do so. I’ve heard from a number of ISPs that will extend the discounts for a few months past the end of May to see if Congress renews ACP. But it’s hard to think that many ISPs will continue discounts for long after that.

It was not unexpected that we would end up in this situation. Social programs that don’t have a permanent source of funding routinely expire when the temporary funding runs dry. The expanded child care credit that was part of the IIJA Covid funding also expired. The House passed a renewed expansion of the childcare credit, but it stalled in the Senate and also failed to make it into the newly passed budget bills.

I’ve heard rumors for years that the policymakers in DC never expected the ACP program to be permanent. The expectation of the original architects of the plan was that ISPs would bow to public pressure to fill the void when ACP ran dry. However, the giant ISPs are not likely to self-fund the discounts and smaller ISPs can’t afford to do so.

I’ve seen some recent articles that argue that the FCC could tackle at least some of the BEAD obligation out of the Universal Service Fund. Even if the FCC is willing to consider this, their normal process are slow and cumbersome and it’s hard to think it could happen much before the end of the year. But there doesn’t seem to be any talk of the Commissioners willing to tackle this.

Even if ACP gets renewed later this year, it will be a mess. The process of onboarding customers to ACP is cumbersome, and it seems likely that every customer will need to start with a fresh application. A lot of customers are likely not going to jump through the hoops a second time to get the discount.

Can ISPs Absorb the End of ACP?

I’ve heard from a few ISPs who told me that State Broadband offices are asking ISPs interested in BEAD to self-fund a $30 discount for low-income customers after the end of ACP. Since this request came from multiple states, I have to imagine the idea came from NTIA. I can’t think of any better proof that policymakers are out of touch with the reality of rural business plans.

First, any ISP is going to lose money for the first two or three years of launching a new broadband market until that market gets enough customers for revenues to cover costs. The request is asking the ISP to fully fund the discounts for this period out of their pocket since the grant-funded market can’t fund the discount.

But more fundamental is the idea that ISPs will have excess margins in a rural market that can somehow be used to fund these discounts permanently. Even with a 75% grant, most rural market business plans are barely going to cash flow – and realistically, some BEAD-funded markets are going to lose money for twenty years until the debt used to fund the matching is retired. ISPs like Cooperatives are willing to wait that long to be profitable since they have a hundred-year outlook on the broadband business, but even they can’t be comfortable with self-funding these discounts.

Even ISPs that are successful in rural markets are going to have small margins. They will be lucky to build margins to 10% to 15% annually over time. These margins are needed to fund future retirements and replacements of electronics that will inevitably come in 12-15 years and to replace assets like vehicles a lot sooner than that.

It’s not hard to do the math on what this request means in terms of ISP margins. Consider an ISP that has an average revenue per customer of $65. If that ISP gives a low-income $30 discount to 10% of customers, that would equate to giving away 4.6% of its margin. For an ISP that was only going to make a 10% margin, that means giving away half of the margin. If the percentage of customers that get the discount is higher, then self-funding the $30 discount can get ugly in a hurry.

I’ve read reports of a few ISPs that have more than 70% of customers enrolled in ACP, and they obviously can’t self-fund this. But it’s ludicrous to ask an ISP with even 20% of customers using ACP to self-fund this discount.

There is another way for some ISPs to continue the discount, which would be to raise the rates for everybody else. Using the sample ISP discussed above, the ISP with 10% of customers on ACP could fund the ACP discount by raising rates on everybody else by $3.30 per month. The amount of rate increase grows to be gigantic if more than 10% of customers are on ACP. The idea of ISPs raising rates will likely horrify State Broadband Offices that are already pressuring ISPs to have low rates.

This whole concept stems from a mistaken assumption that all ISPs are fat with profits and that they can dig into excess earnings to fund things. That might be true for some giant ISPs, but even for them this is not true in rural markets. The policy makers have already stacked extra costs on top of ISPs in the BEAD grant process, and this just adds to the pile.

ISPs with a lot of ACP customers are in real trouble. They are likely to lose a lot of customers when the ACP ends. They can’t survive if they lose too many customers, and they can’t survive if they keep them by giving giant discounts.

Policymakers often wonder why some ISPs refuse to participate in federal programs like ACP, and I hope they now understand why. It’s truly a bad decision for an ISP to sign up a lot of customers in a government-subsidized program if there is no guarantee that the program will survive from year to year. Smart ISPs signed up for ACP because of the political pressure to do so, but they only enrolled customers who asked for the discount. ISPs that fully embraced and advertised ACP are now going to pay a big financial penalty for trusting a program that had a clear and expected expiration date.

I hope that no State Broadband Office makes it mandatory for BEAD winners to self-fund the $30 discounts. They are already worried about ISPs taking a pass on BEAD, and this will convince more to walk away from the grant program. ISPs pressured to do this just need to say no.

Can ACP be Sustainable?

By now, everybody has written about the pending end of the Affordable Connectivity Program (ACP). This is the federal program that provides a $30 monthly discount for broadband for low-income households and up to a $75 discount in tribal areas. The fund is available to homes with a household income under 200% of the federal poverty level or homes that participate in various federal low-income subsidy programs.

The ACP program was funded by the Infrastructure Investment and Jobs Act and was seeded with $14.2 billion, which was part of the $65 billion allocated to broadband. However, the original funding is running dry, and the FCC forecasts that the last month of fund disbursement will be April unless Congress acts to refill the funding. The FCC has already notified ISPs that they can’t add any new participants after February 7. For much of last year, the fund was growing by over 500,000 participants per month.

Just about everybody I know is betting against a miracle from Congress. The White House asked Congress to fund the ACP plan for a year for over $6 billion, and that seems like a big ask for a Congress that was the least productive in over a hundred years.

But even if the ACP gets funded somehow, either now or later this year, how sustainable is ACP if Congress has to act every year to renew it? Congress seems to be constantly at loggerheads over every low-income subsidy programs, and it seems like ACP would be a target for some legislators to kill every year.

There are members of Congress questioning if the funding is being well spent. For example, I’ve heard the stories of some big ISPs that had a low-income program for $9.99 per month that jacked up the fees to $30 when ACP could pay the bill.

Another issue to consider is that over 54% of the ACP funding is going to subsidize cell phones and not home broadband. There are many good arguments to be made that a subsidy is needed to provide cell phones to the homeless. But cell phones are not a good substitute for home broadband, particularly for a home with students. Unfortunately, most of the rumors of ACP fraud also concern unscrupulous cellular companies.

There have been calls for moving the ACP under the FCC’s Universal Service Fund. That would be a way to make the plan sustainable and remove it from the annual Congressional budget battles. But $6 billion a year would be a heavy push for the USF. There has been a lot of talk about changing the method of funding USF since the current funding that is based on telecom revenues is shrinking each year. It does seem possible that a reduced fund of a few billion per year could be rolled into the USF, particularly if ACP replaces the FCC’s Lifeline Fund.

There is no predicting Congress, and this bill could come up for a floor vote in time to save the fund for 2024. My guess is that even if ACP is funded, it will be at lower levels. It’s likely that legislators would reduce the income qualification to something lower than 200% of the poverty level and eliminate or lower the eligibility for cell phones. But I think it’s more likely that a Congress that can’t seem to pass a budget will not do anything with ACP before the fund runs dry. And once that happens, it will get easier and easier over time for Congress to ignore it.

My Predictions for 2024

BEAD Predictions. It’s clear that most state broadband offices are going to try to award all of the BEAD grants in 2024. There will be barely any BEAD construction completed in 2024, but there will be big hoopla over the handful of customers that get connected before the end of the year.

A lot of pundits have been predicting that a large majority of the funding will go to the largest ISPs to build fiber. But after reading the grant rules in numerous states, I’m not so sure. In some states, the big companies will win it all. States that emphasize the cost of the grant per passing might end up giving all of the money to WISPs. A few state rules are so obtuse that even the big ISPs might decide to take their money to a neighboring state.

RDOF Troubles. I’ve talked with a lot of local governments that haven’t heard a peep from RDOF winners. Most winners will be required to have completed 40% of the RDOF construction by the end of 2024, so this is the year that will flush out ISPs that are going to default. Defaults will probably be too late to attract any BEAD funding.

Wireless Technology Improvements Shake up the Market. 6 GHz radios will change the WISP landscape. New radios that include the giant 6 GHz channels will deliver much faster speeds. More WISPs will begin advertising gigabit speeds in 2024, but most will not deliver what they advertise – but speeds will still be fast.

Big cellular companies will use C-Band spectrum to boost speeds on FWA broadband. But a lot of rural counties that are hoping to get faster speeds will not see the new technology deployed in 2024.

The Beginning of Consolidation. We’re going to see some interesting acquisitions in 2024. I don’t know who, but some of them will be big names. There is a huge amount of venture capital suddenly interested in broadband, and as it becomes clear that these companies will not win as much BEAD grants as they hoped, they’ll turn their attention to acquisitions.

Cable Companies Will Lose Broadband Customers. The large cable companies collectively gained only 4,700 customers in the third quarter of this year, and the only one that grew was Charter. In 2024, customer losses will increase each quarter, and the cable industry is going to panic. Cable company board rooms are at a loss on how to stem the losses. They are now banking that the public will be happy with faster upload speeds with mid-split upgrades, but that isn’t going to impress customers who are offered a fiber alternative or a much cheaper FWA alternative.

Little Impact from FCC Broadband Regulation. If you listen to the rhetoric from the big ISPs, the double whammy of Title II regulation and the new digital discrimination rules will devastate ISPs and kill innovation and new investments. The reality is that there will barely be a peep from regulators concerning the new regulations in 2024. Some minor investigations will be undertaken, but the new regulation will have almost no impact on the market or investments.

Congress Will Let ACP Lapse. There seems to be a big consensus in Congress that the ACP program should continue., But I can’t picture the currently dysfunctional Congress approving new funding for the subsidy program before ACP runs dry. I think ACP will get renewed later in 2024, but only after first lapsing, which will create chaos for ISPs and customers. When ACP is renewed, the number of eligible households will be greatly pared down.

The FCC Will Launch the 5G Fund. This is intended to bring more rural cell towers. The industry says that $9 billion is not nearly enough to reach all of the places that need better cellular coverage, so counties and states will lobby fiercely to get included in the funding.

Big ISPs Will Continue to Buy Back Stocks Rather than Invest in Networks or Maintenance. This may be the least bold prediction I have ever made.

ACP Fraud

It seems like every time there is talk about increasing or renewing federal funding for broadband subsidies, the industry is flooded with stories about rampant fraud in the current subsidy programs. While there is some fraud and abuse, I have to think part of the reason for the stories is political and is raised by opponents of subsidies.

I’ve seen several recent stories talking about fraud in the ACP program. The stories say that unscrupulous ISPs are enrolling folks into ACP and then continuing to bill the FCC after customers no longer are getting broadband service. It’s not hard to believe that this is true.

We heard similar stories for years about the FCC’s Lifeline program which is funded by the Universal Service Fund. The big complaint for Lifeline fraud was that carriers would sign up customers that weren’t eligible for the program. The FCC took some major steps to address this issue by creating the National Lifeline Accountability Database (NLAD). This database is populated by the federal agencies that operate the programs that are used to qualify a household for Lifeline. By all accounts, this database got rid of a lot of the problems since the FCC won’t process payments for customers who are not included in the database.

But the current accusation that ISPs are billing for service that isn’t being delivered is a lot more troublesome. Other than minor infractions caused by billing errors, any ISP doing this is committing criminal fraud. This is a lot harder for USAC, the agency that handles Lifeline and ACP, to monitor and uncover.

I have a suggested fix for the problem. I would wager that most of the supposed ACP fraud is coming from cellular carriers. The ACP monthly $30 subsidy can be applied to either a cellphone plan or to home broadband. In some parts of the country, that subsidy can now be as high as $75 – which is going to invite even more fraud. My suggestion is that we stop using ACP to subsidize cellular service. The underlying concept of ACP is to get better broadband to folks, and I don’t care how you try to justify it – cell phone data is not a substitute for home broadband. Many people claim that they only use their cellphone as a broadband connection, but if they are more than a casual broadband user, they are probably getting most of their broadband through WiFi connections on somebody else’s broadband connection.

ACP should be used to subsidize home broadband. The Quello Center, which is part of the Department of Media and Information at Michigan State University, released a definitive study in 2022 that showed that students without home broadband and a computer at home struggle to become computer literate. One of the most startling findings was that an 11th grader without home broadband has about the same level of computer literacy as an eighth grader with home broadband.

I don’t want to sound heartless. I know that subsidies on cell phones provide a much-needed service to a lot of people. But the cellphone service being subsidized by ACP is not broadband – it’s limited access to the Internet. There ought to be a different program to provide subsidized cellphone service to those who need it.

I would guess that eliminating the cellular companies from ACP would eliminate most of the fraud. Many of the cellular companies participating in ACP do not own cellular networks and are reselling wholesale service from somebody else. These are not facility-base carriers or ISPs.

There may be landline ISPs also committing fraud, and if so, I hope that USAC and the FCC nails them. But most ISPs I know are not going to endanger their network business by chasing extra dollars through fraud. Any network owner that does this should be penalized with huge fines and also prohibited from participating in any federal broadband program for at least a decade. That means no ability to win grants or subsidies. That would mean no ability to sell services using the Schools and Library funds or the Rural Healthcare funds.

I am sure that there are cellular carriers participating in ACP who are good actors and are not committing fraud. But bad actors are endangering the whole program that is vital for millions of low-income households to get affordable broadband. It’s really hard to make a case that cellular service is equivalent to a home broadband connection, and we should stop pretending that it is. Eliminating cellular carriers from ACP probably instantly eliminates most of the fraud problem and would have the additional benefit of extending the life of the ACP fund.

The Three Broadband Gaps

One of the three traditional legs of the digital divide is broadband availability. I think there are three distinct broadband gaps that together define the broadband availability gap – the rural broadband gap, the urban affordability gap, and what I call the competition gap.

Everybody knows about the rural broadband gap. I don’t need to say a lot about this because the whole industry is currently fixated on solving the lack of rural broadband through the various major grant programs.

There is also an urban affordability gap where large numbers of homes and entire neighborhoods in cities don’t have a good broadband option that people can afford. While there has been increasing attention to this problem, we are a long way from addressing the issue. There has been a lot of recent attention about the possible demise of the Affordable Connectivity Program (ACP), which gives discounts that are supposed to help solve this gap. But even if the ACP continues, it’s just a band-aid that cannot solve the urban affordability gap – prices from cable companies and other ISPs have grown out of reach of too many households, even with a subsidy.

Nobody is talking about what I call the competition gap. Most places in the U.S. have only one ISP that can deliver fast broadband of speeds greater than 100/20 Mbps. Why does this matter? It is becoming clear that the majority of people and businesses nationwide want relatively fast broadband. OpenVault reported that in June 2023, only 11% of broadband users in the country are subscribing to broadband products with speeds under 100 Mbps. Only 27% are subscribing to broadband products with speeds under 200 Mbps. Almost 32% of homes nationwide are now subscribed to gigabit broadband. This represents a huge shift, and as recently as June 2021, 20% of broadband users were buying speeds under 100 Mbps, and 68% of homes were buying speeds under 200 Mbps. In June 2021, less than 11% of homes were buying gigabit broadband.

It’s clear that residential customers are willing to buy products with faster speeds. There will be a few ISPs who respond to this blog with the observation that the quality of broadband connection matters more than speed – but that is clearly not what the public thinks. An ever-increasing number of residential customers are willing to pay a premium price to get faster broadband.

The only widespread gigabit broadband technologies available are hybrid fiber-coaxial networks operated by cable companies or fiber. There are a few other fast broadband technologies like the fiber-to-the-curb technology that Verizon operates as 5G Home Plus. There are other technologies that are faster than 100/20 Mbps but which don’t deliver the gigabit speeds that people want. The relatively new FWA cellular broadband is capable today of delivering speeds of between 100 and 300 Mbps within a mile or so from a cellular tower. Some WISPs are upgrading to newer radios that can deliver speeds far in excess of 100/20 Mbps, although most WISP networks still use older technology.

The bottom line is that in most of the country, the only place with real broadband competition is where an ISP with fast technology overbuilt a cable company. There is a lot of fiber construction underway, and the number of neighborhoods with two choices of fast broadband is growing. But it’s still not unusual to find entire counties where nobody has a choice of two fast ISPs. The majority of people in the country still have little or no real competition.

Many ISPs will dispute the lack of choice and say that most folks have multiple choices of ISPs. This is backed up by the FCC broadband maps. If you look at most homes and businesses in the FCC maps, there are multiple ISPs claiming to be able to serve almost every address. I’m sure that the FCC will issue a new broadband report to Congress one of these days, bragging about how great the broadband choice is across the country. The FCC maps show that I have a choice of ten ISPs at my home. But the options available to me are mostly not viable. Most of my choices are DSL, satellite broadband, and cellular broadband – and from that list, only Viasat claims 100 Mbps download speed.

There are real consequences of having only one fast ISP in a city or a neighborhood. When there is only one fast ISP, that company holds a virtual monopoly. There are clearly documented consequences of being served by ISPs that have a virtual monopoly. We know that monopoly providers tend to have higher prices, less than stellar customer service, and technology that is not as up-to-date as competitive neighborhoods.

I know that the competition gap is real since my consulting firm conducts a lot of broadband surveys. In every survey we’ve done for many years, at least half of respondents say they want increased competition – which for most people means a choice of a second fast ISP. Far too many households and businesses lament that they only have one practical choice of broadband.

I hear from communities every day that are served by a cable company but want faster broadband. Regardless of what the FCC says or ISPs claim, folks are unhappy to live in communities with no broadband choice. The competition gap is real and is going to become more apparent over time as county seats see the rural areas around them getting fiber while they are stuck with an older coaxial network.