Pew Charitable Trusts – POTs and PANs

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.

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.

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