States consider capping the cost of broadband for low-income families

Dozens of states appear to be set to cap how much broadband providers can charge low-income households. But the idea isn’t popular with industry groups and House Republicans, who argue that regulating rates is not the purpose of the federal program to expand broadband.

While the proposed caps being considered vary by state, several would limit rates for low-income people to $30 a month, according to a Route Fifty analysis of states’ draft plans for how they will use their share of the infrastructure act’s $42.5 billion in Broadband Equity, Access, and Deployment, or BEAD, funds. (States have until Dec. 27 to turn in plans for how they will use their BEAD funds, which must be approved before the first one-fifth tranche of money can be released. Only six states have formally submitted plans, but every state has submitted draft proposals.) 

Should Congress opt to continue the Affordable Connectivity Program, which provides a $30-a-month subsidy to low-income households for broadband, the cost of internet service could drop to zero in states like California, Kansas, Louisiana and Virginia.

But the idea of limiting how much broadband companies can charge is coming under fire from some House conservatives, who urged that those plans be rejected at a hearing last week. Ohio Rep. Bob Latta, a Republican, said the National Telecommunications and Information Administration, or NTIA, should reject what he called “attempts to regulate rates,” adding that such efforts “will undermine the effectiveness of the program.”

The proposals have also been criticized by the broadband industry group, NCTA – The Internet & Television Association. A spokesperson for the association representing cable companies that provide broadband argued to Route Fifty that the infrastructure act was aimed at “building broadband infrastructure, rather than setting prices.”

Still, NTIA administrator Alan Davidson, whose agency is in charge of distributing the billions in broadband funding, indicated to lawmakers that the agency will be giving states “flexibility” over how they will meet a requirement to make broadband affordable to lower-income people in order to be able to get their share of the money.

A document with Frequently Asked Questions sent last month to states by the agency addresses this flexibility. “Is setting a cost to the consumer (or using a formula) for low-cost service offerings allowed?” one of the questions reads. The agency’s response is, “Yes.” The FAQ then said, “No,” to the question of whether it would be rate regulation. 

As it currently stands, all but five of the plans submitted to NTIA cap how much low-income families can be charged, according to a broadband industry source. Those proposals either set a specific dollar limit or say that low-income families cannot be charged beyond a certain percentage of their income.

Of the drafts, six plans that have been formally submitted ahead of the Dec. 27 deadline, three would not allow companies that receive Broadband Equity, Access, and Deployment dollars to charge low-income households more than $30 a month.

According to nine draft plans examined by Route Fifty, broadband offices in California, Massachusetts and Ohio are also moving toward setting the price limit at $30 a month. Washington state is considering proposing to go even lower, setting a cap at $25 a month unless a provider can demonstrate a financial burden. 

Michigan’s draft proposal would not set a specific dollar amount, but the state is considering requiring that providers charge nothing to families receiving assistance through the Affordable Connectivity Program and the Lifeline program from the Federal Communications Commission.

Several states proposing caps are setting them well above $30 a month. The decision reflects a shared concern with Republicans and the broadband industry that $30 a month might interfere with broadband companies’ ability to maintain broadband service, or that it will deter them from wanting to accept federal dollars to expand service to low-income areas.

In its draft proposal, Delaware has asked for NTIA’s permission to set the limit at $50. Pennsylvania wants the OK to let companies charge up to $48.60. New York said it is considering allowing companies to charge up to $65 in order to “not deter ISPs from submitting bids to build in unserved and underserved” areas. Alabama said it is considering setting the limit at $70 because it “is not likely to adversely impact ISP interest.”

Vermont in the proposal it submitted to the NTIA noted that much of the state is rural. The state’s broadband office “remains concerned about ensuring the viability of the networks being constructed and the sustainability of the services being provided” if they follow NTIA’s recommendation to keep rates for low-income people at $30 a month. Instead, the state is seeking permission to encourage companies to charge no more than $45 unless they can demonstrate a “reasonable necessity for the higher cost.” Under that scenario, the state would allow providers to charge up to $75.

One state that is not proposing to set a limit is Florida. “It is not the role of the state to dictate price points for consumers,” said the state’s draft plan.

At issue here is how to meet a requirement in the 2021 infrastructure law that mandates that internet service providers offer low-income families a “low-cost option” in return for getting BEAD funding. 

In the House hearing last week, Rep. John Joyce, a Pennsylvania Republican, argued that limiting how much can be charged is prohibited under the infrastructure law because of a provision that says the law does not authorize NTIA “to regulate the rates charged for broadband service.”

Davidson agreed at the hearing that the law said “regulation should not be part of any rollout.” However, he said that NTIA will not be limiting how much companies can charge. Instead, the agency will be giving states “a tremendous amount of flexibility about how they want to implement these rules, particularly around the low-cost option.”

Brian Dietz, a spokesperson for NCTA, pushed back against Davidson’s argument. “It is categorically wrong to suggest that the federal government can allow or encourage states to do what Congress has explicitly prohibited,” he said. “The suggestion that the program's voluntary nature permits such action makes a mockery of Congress' expressed intent.” 

Dietz also argued that broadband providers “have long demonstrated their commitment to affordability.”

However, Rob Fish, deputy director of Vermont’s broadband office, supported Davidson’s position in a statement to Route Fifty, although he urged NTIA to allow states to set their own limits. 

"No, it's not rate regulation,” he said, noting that companies do not have to take the billions being handed out by the federal government. But if they want the money, “every program has requirements.” Fish noted that charging less than $30 a month “may prove difficult for some small providers and in some rural areas where a higher price is necessary to ensure a sustainable business plan.”

The state plans come as Congress considers whether to renew the Affordable Connectivity Program or not. The Federal Communications Commission estimates that the money for it will run out in April. Though President Joe Biden has called on Congress to provide $6 billion in funding, it remains unclear whether Congress will go along after agreeing not to increase overall spending as part of the deal earlier this year to avoid a default on the nation’s debt. All the plans reviewed by Route Fifty would require internet service providers to accept the program’s subsidy.

Some state plans depend on the subsidy. Vermont, for example,  estimated that low-income people can afford to spend 1% of their income on broadband. That would be $10.73 a month for a single person at the federal poverty level or $21.47 for a person at twice the poverty level. Both could afford the $45 cap the state is proposing, but only if  the subsidy is still available.

The program “is a lifeline for millions of Americans,” Fish said. “Taking it away now will set efforts back to close the digital divide by years. Congress must act quickly since notices of its ending would have to go out soon.“

In addition to helping low-income families afford to get online, the infrastructure law also requires providers to make broadband service available to middle-class families. States, at least among the 15 reviewed by Route Fifty, did not set a strict limit on how much those families can be charged. However, as internet providers compete with each other on bids to build broadband, those that keep rates below a certain amount stand a better chance of winning contracts. Both Ohio and Nevada would award points to bids that provide cheaper service to the middle class.