End of ACP could bring modfication of FCC Title II rulemaking to allow regulation of residential Internet services

The end of the Affordable Connectivity Act (ACP) sets the stage for the potential modification of the Federal Communication Commission’s recently adopted rulemaking classifying Internet protocol-based services as a common carrier utility under Title II of the Communications Act of 1934. The Biden administration encouraged the FCC to adopt the rulemaking in July 9, 2021 executive order to reverse a 2017 FCC rulemaking that classified IP services as lightly regulated information services under Title I of the statute.

While terming rate regulation “a hallmark of utility regulation,” the FCC’s rulemaking adopted April 25 forbears from giving state public utility commissions authority to regulate rates as they currently do for legacy voice telephone service. But it left the door open to do so in the future. “Although we adopt firm forbearance from all direct rate regulation, with respect to other provisions we forbear from here, we note that it also is within the Commission’s discretion to proceed incrementally,” the rulemaking notes.

The FCC could come under pressure from the White House to regulate rates after Congress rejected the Biden administration’s request to provide additional funding to extend the ACP to provide a $30 monthly subsidy to low-income households and $75 for those on tribal lands. The modification might particularly apply to rates for residential landline delivered services over copper, coaxial cable and fiber in order to reduce low income households' reliance on costly mobile wireless services, referred to as "smartphone dependency."

Such a move might be aimed at scoring points with voters in this election year as President Biden faces a tough re-election bid. It could also occur early in a second Biden term if the president is re-elected in November. Politically, it would align with voter sentiment that their interests have been subordinated to shareholders and lobbyists of large corporations, a "system is rigged against you" theme that was prominent in the 2016 presidential campaigns of Donald Trump and Bernie Sanders.

Key opponent of ACP extension claims subsidy will inflate prices

A primary failure of U.S. advanced telecommunications policy and its fraught evolution is fostering a commodity market of “broadband” bandwidth. Its roots date back to the early 1990s and sluggish dialup connections over screeching modems. Faster, always on connections like DSL were dubbed “broadband” or “high speed Internet.” Going on three decades later, the terms are used to describe a commodity market of bandwidth sold in price tiers. Low “broadband speed” tiers are bargain basement offerings while the higher tiers offer luxury connectivity for those who can afford it.

This marketplace of broadband bandwidth developed due to the failure to timely modernize legacy twisted pair copper voice telephone delivery infrastructure to fiber. Legacy metallic delivery infrastructure like cooper and coaxial cable has far more limited carrying capacity and upgradability than fiber. Consequently, bandwidth per customer must be rationed. 

That drives what economists call price elasticity. Higher prices for higher bandwidth drives down bandwidth demand and vice versa, thus preserving limited bandwidth. This dynamic between price and demand is behind opposition to expanding the Affordable Connectivity Program (ACP), now expired temporary subsidy for low-income households:

Opponents remain unconvinced of the ACP’s benefits, however. In his opening statement before a Senate subcommittee last week, Republican Sen. Ted Cruz, the Senate Commerce Committee’s ranking member, criticized the FCC’s recent survey, which found that only 22% of households who have benefited from ACP did not have broadband. He argued, alongside witness Paul Winfree, the president and CEO of the Economic Policy Innovation Center, that the ACP has had an inflationary effect on internet prices.

“History has shown that when the federal government starts subsidizing demand in higher education and agriculture, the subsidy gets capitalized, and prices go up,” Cruz said. “After all, why would corporations ever leave free money on the table? Well, those who received the subsidy may realize that immediate cost reduction, the market prices rise for everybody else. This rising price creates a call for more subsidies and higher taxes to fund those additional higher subsidies and eventually a government takeover of the internet to provide it for free.”

https://www.route-fifty.com/infrastructure/2024/05/only-three-weeks-go-lawmakers-weigh-ways-save-federal-internet-subsidy/396339/

Cruz is essentially arguing subsidizing bandwidth as a commodity creates demand by lowering the price for bandwidth. Price elasticity holds that in turn will boost demand which Cruz says will encourage Internet Service Providers (ISPs) to increase rates for unsubsidized households in demand-pull inflation.

Publicly owned infrastructure: Lowering the cost bridge rather than raising the affordability river with household subsidies

Paul Winfree, president and CEO of the Economic Policy Innovation Center, an economic policy think tank, testified that the ACP monthly subsidies have led to increased costs for everyday consumers, as Internet service providers simply raise their rates to capture as much of the subsidy as possible. “Deregulation and competition have reduced [broadband] prices,” Winfree told the subcommittee, arguing for a more free market approach. “We have also learned that policies that subsidize demand, such as the Affordable Connectivity Program, tend to increase prices.”

But Jon Tester, a Democratic Senator from Montana, pushed back on this theory, saying broadband is not like groceries or other consumer goods where more supply brings down prices. “It is so damn expensive to lay broadband,” Tester remarked. “It’s just a different marketplace that somehow holds the consumer at a disadvantage.”

https://www.govtech.com/network/feds-discuss-acp-but-no-path-forward-emerges-from-hearing

Some distinguishing terminology needed here. Broadband is indeed marketed as a commodity service and sold by the bandwidth tier, even including federally mandated "nutrition labels." That's what's driving the calls for extending subsidies to low income households. 

What Sen. Tester is referring to is the capital and operating costs of advanced telecommunications infrastructure to deliver broadband services. All service providers need to cover those costs. Investor owned providers also need to price in profits and income taxes. Those are passed on to end users and can make service for lower income households difficult to balance tight household budgets. The ACP is essentially a means tested couponing program that supports the higher cost of investor owned delivery infrastructure.

Publicly owned infrastructure doesn't need profits nor is it subject to income taxation, providing a lower the cost bridge solution rather than raising the affordability river in the form of household subsidies.