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.