Regulation - What is it Good For?

The End of ACP

As of the date that I wrote this blog, there are almost 15.6 million households using the broadband subsidy from the Affordable Connectivity Program (ACP). This program provides a $30 monthly discount for broadband to eligible households and up to a $75 monthly discount to households residing on an Indian reservation. The program started with a little over 9 million households at the start of 2022 and added over 500,000 new enrollees per month during the year. You can see the enrollment statistics on this website.

ACP was originally funded with $14.2 billion from the IIJA legislation. There was rollover funding of $2.2 billion added from the previous Emergency Broadband Benefit program that had been funded from the CARES Act. At the current level of enrollment, the ACP is paying out $477 million in a month, a number that gets bigger each month as more homes are added. Several folks who track the size of the fund say that it is going to run out of money sometime in the summer of 2024.

The obvious solution to keep ACP operating is for Congress to refill the ACP funding bucket. ACP was not created through a normal budget appropriations bill but was funded by the Infrastructure Investment and Jobs Act (IIJA). That was a one-time funding event, and that means specific legislation will be needed to keep the program running. Anybody who understands the implications of having a Congress divided between the two parties knows that this will be a major challenge in 2023 or 2024. Most DC pundits are predicting that there will be very little bipartisan legislation passed in the next two years. The chances of getting bipartisan approval of what many will consider a social program seem even lower.

That means that it’s time to think about what happens when the ACP fund runs dry. Nobody has an answer for how many households will drop broadband when the subsidy stops. Hopefully, a lot of ACP recipients will find a way to pay for more costly broadband. Almost 8.3 million, or 55% of the ACP recipients, get the subsidy for a cell phone. It’s likely that many of these folks will keep their cell phones. The remaining 6.8 million recipients use the ACP subsidy to offset home broadband prices. The entire premise of the ACP was to make it viable for low-income homes to afford home broadband, and it’s likely that many of these households won’t be able to afford broadband without the discount.

For the ISP industry, the end of ACP means seeing broadband customers drop over a few months by at least a few million subscribers. That will cause a footnote for the giant ISPs that regularly report customer counts as a success metric. Unfortunately, the biggest impact of ACP ending will be on any ISPs that most aggressively pushed the discount for customers. Some ISPs might try to counter the end of ACP by offering a lower-price product to low-income households, but few will find it feasible to discount broadband by $30.

This timing also has an interesting implication for the BEAD grant program. The grant legislation requires that grant winners participate in ACP, which will obviously be impossible if the plan ends. It’s obvious that whoever wrote that requirement into the grant rules thought that ACP would be funded into the future. It is looking unlikely that any households that get better broadband from a BEAD grant will have the opportunity to use the ACP discount.

I was uncomfortable from the day that ACP was announced that it would have staying power. From a funding perspective, the ACP program sits out on an island and is an easy target for politicians who are against spending money on social programs. Sustainable social programs like social security bring along a funding source – but ACP must periodically be funded from general funds to keep going.

What I find most distressing is the idea of bringing affordable broadband to homes, knowing that the discounts will likely disappear 18 months from now. It’s heartbreaking to think about the households who get a subsidized computer and an affordable broadband rate to support students, but who will see the rate climb higher sometime in 2024. It’s not impossible that some way will be found to continue the program, but the reality of politics in Washington DC doesn’t make that sound likely.

Regulation - What is it Good For? The Industry

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.

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