Tag Archives: Pew Charitable Trusts

My Challenge to Cable Companies

Big cable companies are losing broadband customers. This started in earnest in the middle of last year, and the companies blamed the initial drops on the end of ACP. But the customer drops are real and likely permanent. Over the last four quarters, Comcast lost 545,000 broadband customers and Charter lost 496,000. Big cable companies are being besieged by FWA cellular wireless being sold by AT&T, T-Mobile, and Verizon, and by fiber overbuilders. Wall Street is punishing cable company stock prices for the losses, and it’s only going to get worse.

I have a potential solution for the cable companies that could reverse the customer losses, at least for a few years. The solution has the side benefit of also being very good for the country.

We are in the process of spending a lot of money to solve the rural broadband gap. The federal government threw a lot of money at the issue with multiple grant programs that are culminating in the $42.5 billion BEAD program. However, the government has not been willing to tackle the urban broadband gap, where an even larger number of residents don’t have home broadband. Part of the reason for this was from heavy lobbying from cable companies that didn’t want to see a penny of federal funding going to their competitors.

It’s a little hard to quantify the urban digital divide. According to the Pew Charitable Trusts, 43% of households earning less than $30,000 annually have no broadband access. 49% of those making less than $50,000 find it challenging to afford a broadband connection. Many of those who don’t have good broadband live in apartments. According to HUD, over 4.5 million families live in subsidized apartment units. Anybody who thinks broadband is complicated ought to look at the labyrinth of rules that govern the way the government subsidizes housing. This includes public housing, the Housing Choice Voucher Program (Section 8) and the Low-Income Housing Tax Credit program (LIHTC).

A lot of subsidized housing doesn’t have adequate or affordable broadband. Many landlords have settled for WiFi in the halls – the same poor broadband solution that every business traveler hates in hotels.

The poor broadband in many apartment complexes can be blamed in part on out-of-date housing rules that compensate landlords for electricity and water but don’t consider broadband as a necessary utility. Landlords aren’t encouraged or rewarded for providing good broadband, although there is huge evidence that broadband is a necessity for people to participate in our digital society. Students without good broadband are particularly harmed, and studies show that those without home broadband fall significantly behind their peers in mastering the digital skills needed to work and thrive in our economy.

My challenge to cable companies is to tackle the urban digital divide, and to do so by starting with affordable housing apartment complexes. Bringing broadband to apartments would solve the problem of falling customer counts by replacing lost customers with millions of apartment units.

This will require a new way of thinking for a cable company. Broadband rates for affordable housing probably need to be between $10 and $20 dollars per month. While that may not sound like a lot of revenue, a cable company could pay for the upgrade costs to bring faster broadband to an apartment complex and could lock the landlord into a ten or twenty-year contract for service. Such contracts are lucrative over the long run because the income is guaranteed and there is no churn. This solution also doesn’t involve a subsidy that can disappear like happened with ACP.

Cable companies will also benefit from mountains of good local press. The federal government has turned its back on the urban digital divide, including the recent cancellation of the Digital Equity Act, and cable companies can make great hay by coming to the rescue.

Cable companies have always had it within their power to solve the urban digital divide. But now, with a falling customer base, I think they finally have an incentive to do so. It’s obvious in listening to the first quarter earnings announcements that cable companies are starting to quietly panic. Tackling the urban digital divide will require some creativity from the big cable companies, but tackling the urban digital divide is the right thing to do – for themselves and for urban America.

BEAD’s Middle Class Affordability Requirement

One of the most perplexing requirements for the BEAD grant program is that State broadband plans must include a middle-class affordability plan to make sure that all consumers have access to affordable broadband. I don’t know anybody who fully understands what this means.

A good place to start is with suggestions made by the NTIA in the Notice of Funding Opportunity (NOFO) for the BEAD grant program. The following has been edited to replace the term Eligible Entity with State Broadband Office (SBO). The NTIA suggests that

Some SBOs might require providers receiving BEAD funds to offer low-cost, high-speed plans to all middle-class households using the BEAD-funded network. Others might provide consumer subsidies to defray subscription costs for households not eligible for the ACP or other federal subsidies. Others may use their regulatory authority to promote structural competition. Some might assign especially high weights to selection criteria relating to affordability and/or open access in selecting BEAD subgrantees. Ultimately, each SBO must submit a plan to ensure that high-quality broadband services are available to all middle-class families in the BEAD-funded network’s service area at reasonable prices.

It’s a challenge for any State to set BEAD rules related to prices. The original legislation that created BEAD grants prohibited States from requiring specific broadband prices.

BEAD grants have another requirement that States must have a plan to provide affordable rates for low-income homes. Most ISPs plan to meet this requirement by relying on the continuation of the Affordable Connectivity Program (ACP). These ISPs will have to cut rates somehow if the ACP program is not funded by Congress.

In 2016, the FCC suggested that the benchmark for a reasonable middle-class rate should be set at 2% of monthly household income. Pew Charitable Trust did some analysis that showed that the 2% benchmark would equal between $82.79 in the South and $107.64 in the Northeast. Pew estimated that as many as 30% of middle-class households would not be able to afford broadband set at those prices.

The idea of having to push down the rates to win the grants is scary for most ISPs – because most of the customers who aren’t low-income are probably considered to be middle-class. That is the category of broadband that drives the majority of the revenue in a broadband business plan. If ISPs are pressured to have low rates for everybody, it’s that much harder to build a business plan that doesn’t lose money.

The folks who write some of these grant rules don’t seem to appreciate how hard it is to succeed as an ISP in a rural area. For example, it can be a several-hour round trip to just visit some customers  – costs are a lot higher per customer than in more densely populated areas.

ISPs also have very limited ways to control profitability in rural markets. It’s difficult to cut enough expenses to make a difference to the bottom line, so raising basic broadband rates is about the only tool that can be used to keep a rural market in the black.

Luckily, many State Broadband Offices are making the middle-class rate issue into a check box – can a grant applicant demonstrate that rates are affordable? But other SBOS are clearly taking the low middle-class objective to heart by mandating specific rates to win grant points – all prompted by the language in the NOFO.

I’m sure it’s really tempting for a State Broadband Office to mandate affordable rates – it’s a chance through the grant process to try to establish public policy. But I find it really troubling that policy-driven folks who have never operated an ISP try to micromanage how an ISP should operate. The BEAD rules already layer on all sorts of extra costs that are not part of a regular business plan. Additionally requiring specific low rates can be a disaster for ISPs who will, by definition, not have many paths to financial success in rural markets. I can’t think of anybody who benefits if the ISPs that take BEAD money find themselves losing money a few years after the grant networks are built.

Broadband for Low-Income Housing

In April of this year, Kathryn de Wit of the Pew Charitable Trusts released what I consider to be the definitive article defining the broadband gap in low-income housing. I’ve discussed her paper before, but as we finally approach the start of the BEAD grant process, I wanted to highlight the findings from her report. While BEAD grant funding is supposed to be available to bring broadband to unserved and underserved homes everywhere, I have to wonder how much funding will be provided in most states to tackle this issue – which is mostly found in cities.

I think its universally understood that homes need broadband to take part in modern life. Just in my own life, it seems that month after month and year after year, that more of the functions I do now involve broadband. Just one example, I recently had some doctor visits, and a lot of the process is now online to register prior to the visit and to get my results from lab tests. This was not part of the process for my doctor just a year ago – but seemingly everything we do is migrating online.

Pew interviews with low-income households showed that some of the most important benefits of broadband for low-income homes include reduced isolation and increased social connection, support for aging in place, access to education, health care and wellness, job training, financial services, and the opportunity to apply for and find jobs. Several major studies have documented the positive impact for students who have broadband and computers in the home.

The Pew paper describes the lack of broadband for low-income housing as being the result of several issues. First is that ISPs, in many cases, are not building fiber or other modern infrastructure to subsidized housing. When an ISP builds fiber near a low-income apartment building, it often bypass the building and don’t offer fiber. While ISPs won’t publicly say it, this is due to an expectation of low returns on the investment of building a fiber drop, wiring the units, and providing the electronics.

Another issue is a shift away from community technology centers – places where WiFi broadband and computers are made available to the public. This is a movement that was already underway before the pandemic and which became the norm during COVID shutdowns. This means there must be a bigger emphasis on getting broadband and computers into living units.

But the biggest issue continues to be affordability. Pew research from 2021 showed that 43% of households with incomes under $30,000 did not have a broadband connection – which compares to 8% for homes with incomes over $75,000 per year. 45% of people without home broadband said they can’t afford a monthly broadband subscription, and 37% said they can’t afford a computer. The household income issue is even more acute in public housing, where the average household income in a 2016 study was just over $14,000 per household.

A large survey conducted by the NTIA of homes without broadband showed that the average amount that those living in subsidized households said they could afford was just $10 per month, although over half of homes said they couldn’t afford any amount. A 2021 survey by Everyone On shows that 40% of households with incomes of $50,000 said they can’t afford broadband, while 22% said they could afford to pay as much as $25 per month.

As you might imagine, there are a lot of challenges in getting better broadband to public housing:

  • Broadband subscriptions are not included in the HUD utility allowance. This is a funding mechanism that covers electricity, gas, and water fees in public housing. It’s time to recognize that a broadband subscription is a household need and not a luxury.
  • While BEAD grants theoretically cover bringing broadband to apartment buildings that need it, it’s a challenge to prove the areas are underserved since urban maps often claim ubiquitous broadband coverage from cable companies. The BEAD process is also incredibly unfriendly for filing grants for small areas like a single building due to the complexity of the requirements.
  • ACP funding has allowed many low-income households to get broadband. But unless Congress acts soon, that fund will run dry by next spring. The ACP rules also require individuals to apply for the subsidy. In a low-income housing building, everybody qualifies for ACP by definition, yet there is no mechanism for enrolling a building in ACP. Most other benefits for low-income housing are funded by the building instead of by individual tenants.

I’ve predicted for the last several years that the next big push for broadband connectivity will be in cities. As states start allocating rural grants for BEAD, it will likely become obvious that little has been done to help most cities. I think this is going to be a harder issue to solve than the rural broadband gaps because the big cable companies are going to fight anybody that tries to bring broadband into what they consider as their turf – even where they aren’t serving. But if the goal is to get everybody onto broadband, this is an issue we need to tackle and solve.

Defining Affordable Broadband

One of the requirements for the $42.5 billion BEAD grants that come directly from the Infrastructure Investment and Jobs Act legislation is that broadband should be affordable for middle-class families. The specific legislative requirement is that, “High-quality broadband services are available to all middle-class families . . . at reasonable prices.” The NTIA that oversees the BEAD grants has not defined a benchmark for an affordable middle-class price, so State broadband offices are on their own to decide how to handle this requirement.

Pew Charitable Trusts took a shot at defining affordable middle-class broadband in a recent study. Pew based affordability upon an FCC study in 2016 that concluded that the average middle-class family can afford to pay as much as 2% of household income on broadband. Pew is not recommending that States automatically adopt the 2% definition – instead, they looked at how that benchmark would be calculated in various parts of the country.

Pew defined middle-class household incomes to be between $40,000 and $150,000 annually. That’s a somewhat simplistic assumption in that the definition of middle-class also depends on the number of family members. Pew found that between 51% (in the South) and 57% (in the Midwest) of households are classified as middle-class using that income range.

Household incomes vary significantly across the country – but so does the cost of living. The Pew article calculates the monthly affordable broadband rate set at 2% of average middle-class incomes for both states and regions. The results are interesting. The highest affordable rate using the 2% definition is in the Northeast at $107.65 per month. In the South, the rate would be $84.79. The national average affordable rate set at 2% is $93.21. States vary even more widely – the highest affordable rate at the 2% benchmark is in Rhode Island at $150.73 per month, and is lowest in Mississippi at $68.53.

One of the reasons that Pew doesn’t like the FCC’s 2% definition is that there are a lot of middle-class homes that can’t afford the rate that would be established for their state or region. For example, 28% of middle-class homes in the Northeast that are considered to be middle-class could not afford the $107.65 rate.

Pew shows that States have another challenge in trying to meet this grant requirement. States have no good data on existing rates for broadband. ISPs have a wide array of ways that they price broadband that includes offering special rates to some customers for term contracts, burying broadband rates in a bundle so that nobody knows what broadband costs, and adding hidden fees like an expensive modem in order to buy broadband. It’s hard to set a benchmark rate for broadband when it’s nearly impossible to define what the public is paying today for broadband.

The big question is how States might use an affordable middle-class rate. Federal, state, and local governments have no regulatory authority to set or approve broadband rates. The FCC theoretically had this ability until the Ajit Pai FCC eliminated Title II regulatory authority over broadband. However, no past FCC ever considered regulating broadband rates, even when they had the authority.

This raises the question of what a States might do once it determines an affordable middle-class rate. A broadband office can’t require that ISPs have rates under any benchmark it establishes. It even seems problematic if a broadband office uses prices as one of the criteria for awarding grants.

The first day I read the BEAD grant legislation, I knew that middle-class affordability requirement was going to be a challenge. I’m not sure there is a good answer for how a State can do this, and I’m sure they are all still puzzled.