Broadband Pricing Under the Broadband Equity, Access, and Deployment Program

Key Points

States will provide their citizens with more and better broadband if they approach price restraints with a light hand.
The National Telecommunications and Information Administration has suggested heavy-handed approaches that will be costly, discourage customers and companies from innovating, and disrupt low-income consumers.
Centuries of legal cases, economic studies, and regulatory experiences teach that prices are best left to competitive markets, and regulated prices must be high enough to provide sufficient revenue for continued investment and innovation.
States that use effective competitive processes for choosing Broadband Equity, Access, and Deployment funding recipients can rely on those competitive outcomes to adequately fund light-handed price restraints, if they are limited in scope and duration.

Congress created the federal Broadband Equity, Access, and Deployment (BEAD) Program, a prominent feature of the Infrastructure Investment and Jobs Act (IIJA),¹ to usher areas without modern broadband into the digital age. Congress found:

Access to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States.
The persistent “digital divide” in the United States is a barrier to the economic competitiveness of the United States and equitable distribution of essential public services, including health care and education.
The digital divide disproportionately affects communities of color, lower-income areas, and rural areas, and the benefits of broadband should be broadly enjoyed by all.²

The IIJA provides $42.45 billion for planning, infrastructure deployment, and adoption programs in all 50 states, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, the US Virgin Islands, and Washington, DC (hereafter “states”). The money is distributed to the states by the National Telecommunications and Information Administration (NTIA), an agency in the Department of Commerce. States must use the money for purposes outlined in the statute, subject to the law’s numerous requirements, including data speed requirements, processes for submitting plans to NTIA, and guidelines for working with local governments.

There are disagreements about the amount of subsidy needed to provide broadband access to all the approximately 24 million Americans³ who lack it. Investment professionals knowledgeable about broadband costs and financing are optimistic that, with light-handed regulatory policies, the $42.45 billion is sufficient to attract enough private capital to fill the gap, but some states believe gaps will remain.⁴

Even if the $42.45 billion is sufficient under light-handed regulation, some NTIA policy choices are heavy-handed and threaten the country’s ability to fill the 24-million-person gap. For example, NTIA chose to press states to require fiber optics, even though less-costly technologies might provide better value in certain circumstances.⁵ It also chose to allow states to use inefficient grant systems instead of encouraging auction processes that save money by forcing funding recipients to aggressively compete for business.⁶

Also troubling, and the subject of this report, is NTIA’s decision to de facto regulate broadband prices, contrary to economic evidence that such regulations would be counterproductive and the statute’s clear language prohibiting NTIA from regulating prices. NTIA’s desired price controls, if the states follow them, will raise the costs of expanding broadband and discourage the development and adoption of advanced broadband capabilities. As a result, rather than ensuring a vibrant broadband future, as Congress envisioned, price controls could waste taxpayer dollars and slow technological progress.

NTIA is pressing states to adopt two price controls that it created. One control is a $30-per-month low-cost service option for eligible consumers for the life of the broadband assets, about 20 years.⁷ The IIJA says states must require BEAD-funded broadband providers to include low-cost options in their BEAD-area service offerings and that NTIA should establish which consumers qualify for low-cost options. But NTIA has gone further and is strongly pressing states to adopt a $30 nationwide price for qualifying customers. By extending the low-cost option for two decades and denying states the opportunity to develop pricing policies that fit local needs, NTIA is ensuring the low-cost option will be overly costly and counterproductive for at least some consumers, resulting in a stunted broadband market.

The other control is NTIA’s middle-class affordability requirement,⁸ which the agency created with no congressional authorization. Without defining “affordability” or evidence that middle-class Americans have affordability problems, the agency is requiring states to create plans for addressing an imagined problem. In contrast to NTIA’s forceful approach with the low-cost option, here NTIA requires states to have a middle-class program but does not strongly encourage a specific approach. Instead, NTIA signals that it would like states to make middle-class households eligible for the low-cost service option, directly subsidize these households, or pressure companies by, for example, monitoring and evaluating prices.

Regulating broadband prices would limit the IIJA’s success. To help states develop effective policies, this report examines state options and encourages light-handed approaches that incentivize service expansion, adoption, and innovation. It proceeds as follows. The first section describes the IIJA’s statutory provisions and NTIA’s price-control policies. The second section summarizes lessons from past price controls and the proper legal and economic principles for price limits. The third section uses these principles to present and analyze state options. The last section is the conclusion.

Read the fu ll report.

Notes

1. Infrastructure Investment and Jobs Act of 2021, Pub. L. No. 117-58.

2. Infrastructure Investment and Jobs Act of 2021, Pub. L. No. 117-58, § 60101.

3. Danielle Hinton et al., “Are States Ready to Close the US Digital Divide?,” McKinsey & Company, June 1, 2022, https:// www.mckinsey.com/industries/public-sector/our-insights/are-states-ready-to-close-the-us-digital-divide.

4. See Jonathan Chaplin’s comments in American Enterprise Institute, “Will Broadband Be Affordable? Assessing Regulations for Broadband Subsidies,” YouTube, October 2, 2023, https://www.aei.org/events/will-broadband-be-affordable-assessing-regulations-for-broadband-subsidies; and Doug Dawson, “If BEAD Isn’t Enough,” Benton Institute for Broadband & Society, August 28, 2023, https://www.benton.org/headlines/if-bead-isn%E2%80%99t-enough.

5. See Michelle Connolly’s comments in American Enterprise Institute, “Can Billions of Dollars in Federal Grants Solve Broadband Access and Availability Throughout the US?,” YouTube, July 21, 2022, https://www.aei.org/events/can-billions-of-dollars-in-federal-grants-solve-broadband-access-and-availability-throughout-the-us.

6. See Greg Rosston’s and Scott Wallsten’s comments in American Enterprise Institute, “Where’s the Broadband Money Going? Tracking Impact and Accountability,” YouTube, May 24, 2023, https://www.aei.org/events/wheres-the-broadband-money-going-tracking-impact-and-accountability.

7. US Department of Commerce, National Telecommunications and Information Administration, Broadband Equity, Access, and Deployment (BEAD) Program: Initial Proposal Guidance, September 29, 2023, https://broadbandusa.ntia.doc.gov/sites/default/ files/2023-10/BEAD_Initial_Proposal_Guidance_Volumes_I_II_10-2023.pdf.

8. US Department of Commerce, National Telecommunications and Information Administration, Broadband Equity, Access, and Deployment (BEAD) Program.