As ACP Funding Dwindles, What is the Future of Broadband Affordability?

Benton Institute for Broadband & Society

Friday, May 3, 2024

Weekly Digest

As ACP Funding Dwindles, What is the Future of Broadband Affordability?

 You’re reading the Benton Institute for Broadband & Society’s Weekly Digest, a recap of the biggest (or most overlooked) broadband stories of the week. The digest is delivered via e-mail each Friday.

Round-Up for the Week of April 29 – May 3, 2024

Grace Tepper

Without congressional action, funding for the Federal Communications Commission's Affordable Connectivity Program (ACP) will expire at the end of May 2024. With this in mind, the Senate Commerce Subcommittee on Communications, Media and Broadband convened a May 2 hearing on 'The Future of Broadband Affordability' to discuss congressional funding of U.S. broadband programs and the potential impact of the end of the ACP with expert researchers, educators, and policy advocates in the field. During the hearing, senators considered the current state of broadband affordability and what lies ahead for broadband equity, access and deployment in the U.S.

The witnesses at the hearing were:

  • Jennifer Case Nevarez, Director and Lead Educator, Community Learning Network; Member of the Broadband and Digital Equity Support Team for New Mexico and the Office of Broadband Access and Expansion
  • Kathryn de Wit, Project Director, Broadband Access Initiative, The Pew Charitable Trusts
  • Blair Levin, Policy Advisor, New Street Research; Nonresident Senior Fellow, Brookings Metro
  • Dr. Paul Winfree, President and CEO, Economic Policy Innovation Center

Hearing: The Future of Broadband Affordability<br />

The Current State of Play

The ACP—which has offered eligible low-income consumers a $30/month benefit towards their broadband internet subscriptions (or $75/month for low-income consumers on Tribal lands)—is now in its probable last month although program subscribers are now receiving just a $14 non-tribal service benefit and $35 on Tribal lands this month.

At the beginning of the hearing, Subcommittee Chair Ben Ray Luján (D-NM) acknowledged current efforts by lawmakers to keep the ACP alive. Proposals include the Affordable Connectivity Program Extension Act (S. 3565)—sponsored by Sen. Peter Welch (D-VT) and cosponsored by Sens. JD Vance (R-OH), Jacky Rosen (D-NV), Kevin Cramer (R-ND), Roger Marshall (R-KS), and Sherrod Brown (D-OH)—as well as a companion bill in the House sponsored by Representatives Yvette D. Clarke (D-NY) that has 230 (!) cosponsores, headed by Rep. Brian Fitzpatrick (R-PA). Sen Luján also mentioned the proposed Spectrum and National Security Act introduced by full Senate Commerce Committee Chairwoman Maria Cantwell (D-WA), which would use $7 billion in proceeds from spectrum auctions to continue funding the ACP. In addition to these bills, Sen Luján discussed the efforts of his bipartisan Universal Service Fund Working Group, which is looking for long-term funding solutions for the Universal Service Fund and broadband access in the U.S.

Subcommittee members called on these witnesses to assess the impact the ACP has had on U.S. consumers since its inception. Nevarez, in her testimony, highlighted how difficult broadband connectivity was for New Mexico residents before the ACP, and what connectivity might look like for those same residents after the ACP is gone.

A Diné Navajo elder I work with who lives on a fixed income on a farm in rural New Mexico. With the end of ACP and broadband access and affordability out of reach for many rural residents, she and many others like her will go without internet connectivity at home. And in her case, [she] will do what she has done before to get online: drive 52 miles to check her email at the public library.

Nevarez continued to emphasize the impacts of the end of the ACP on New Mexico statewide.

In New Mexico, more than 184,000 households face losing their ability to pay bills, purchase goods, check health portals, run small businesses, and do work or schoolwork online. In Congressional District 2, 28 percent of all households are enrolled in ACP. So one of every four households is now at risk of losing connectivity. This is a terrible blow to the local economy and a terrible setback for local families and the counties where they live.

Kathryn de Wit highlighted ACP participation rates in a number of states.

The ACP has been a success, demonstrating high rates of enrollment, a positive effect on individuals and networks, and assumed impact on the nation’s GDP. More than 23 million households are currently enrolled, far exceeding participation in programs like Lifeline. Of these participating households, approximately half are Americans over 50 and military families or veterans. Enrollment is high across states. For example, 58 percent of eligible Ohioans are enrolled as are 48 percent of Wisconsinites, 52 percent of eligible North Carolinians, and 41 percent of Texans.

ACP subscribers live in Red and Blue districts, de Wit noted.

Data also show that ACP spending almost equally benefits districts represented by Republicans and Democrats. What’s more, 62 percent of Republican, 78 percent of Independent, and 96 percent of Democratic voters all support continuing ACP.

According to Blair Levin, the cost of digital exclusion is already large and growing. With the end of the ACP, Levin says, we cannot know the full scale of how many people will be disconnected, but we do know how consumers were impacted by the establishment of the program.

"Fifty-three percent of rural survey respondents and 47 percent of all respondents reported having either zero internet connectivity or relying solely on mobile internet service prior to receiving their ACP benefit," said Levin, citing research done by the FCC. "Nearly 70 percent of survey respondents reported they had inconsistent connectivity or zero connectivity at all before ACP. More than three-quarters of respondents say losing their ACP benefit would disrupt their service by making them change their plan or drop internet service entirely. So, the number of Americans disconnected from a permanent broadband connection if ACP disappears is likely to number in the tens of millions."

The digital disconnection caused by the lack of the ACP will lead to further costs for U.S. consumers and the national economy, Levin added.

A 2021 study showed that in areas where discount internet plans were available, there was a positive impact on employment rates and earnings of eligible households. With greater labor force participation and decreased probability of unemployment, low-income households saw a $2,200 annual earning boost from subsidized internet programs. As the study showed increased broadband affordability for low-income people leads to 'increased employment rates and earnings of eligible individuals, driven by greater labor force participation and decreased probability of unemployment'—providing further savings to government unemployment insurance programs.

In his remarks, Levin also highlighted that the loss of the ACP program will raise the cost of government-provided healthcare services and diminish healthcare outcomes, as well as raise the cost of government writ large and diminish its performance in other areas including job training, social services, and the ability for military families and veterans to access Department of Veterans Affairs services such as telemedicine, job training, and VA benefits. The end of ACP may also affect how the U.S. comes to terms with the common usage and development of artificial intelligence in its broadband networks.

"I have no doubt that later this decade we will view the implications of AI similarly to how we saw the implications of Covid in how both vividly demonstrate the unacceptability of digital exclusion," he said.

Paul Winfree, in his remarks, acknowledged that access to affordable high-speed internet will determine regional development as well as America’s ability to continue to grow by leading the world in innovation. He advocated for deregulation as the best course of action for consumers.

Deregulation can produce significant gains for consumers, especially when it enhances transparency, by increasing the scale on which providers can compete on the price and quality of services. Economic theory would predict that a demand subsidy can act as a price floor, especially in a market where the demand and supply of a product remain relatively fixed. In this environment, the producer (in this case, ISPs) will capture a portion (or even all) of the subsidy.

Winfree estimates that the ACP may actually be increasing the costs for U.S. broadband consumers.

The Biden Administration has posited that ACP helps households save about $500 million per month on internet bills. However, that calculation does not include the effects of ACP on prices for broadband services. Based on the estimates provided in [an Economic Policy and Innovation Center] report, ACP likely reduces the monthly net cost of broadband by about $380 million for households who qualify for the subsidies after adjusting for the increase in prices. Once we factor in the price increase for all households (including ACP beneficiaries), ACP likely increases the net out-of-pocket cost of broadband that households pay by about $185 million per month or $2.2 billion per year.

What Lawmakers Said

During the hearing, Subcommittee members asked the witnesses a number of questions concerning the next steps for broadband affordability.

Senator Ted Cruz (R-TX), the Ranking Member for the full committee, echoed Winfree’s analysis of the ACP and its impact on prices. According to Sen Cruz, the ACP continues to raise prices for all consumers, and is superfluous considering the pre-existing Lifeline program, which provides a $9.25/month discount on phone and internet service for qualifying low-income consumers. Eligible consumers can be enrolled in both Lifeline and the ACP, per FCC guidance.
“To the extent there are truly indigent people who cannot afford connectivity, there is a program already designed for them. It's called Lifeline,” said Sen. Cruz. “If it's not working well, we should look to improve it. Not to impose higher taxes on millions of hardworking Americans to cover the internet bills of their neighbors who are already willing and able to pay for it themselves.”

Senator Gary Peters (D-MI) brought up the USF Working Group and its efforts to find a long-term solution for broadband affordability. According to Peters, Universal Service Fund reform and maintaining the ACP go hand in hand.

“And one of my top priorities as a member of [the] USF Working Group with Chair Lujan is to find a long-term sustainable funding mechanism for ACP. So Americans never have to face another program cliff like the one that we have right now. We have enough cliffs that we have to deal with. We don't need this one as well.”

Sen John Thune (R-SD) also advocated for deregulation of both the ACP and of broadband infrastructure deployment efforts, like the BEAD Program. Sen. Thune said that rural ISPs in South Dakota struggle to participate in BEAD.

“The reason is because of all the conditions and rules and regulations that the administration attaches to the program, many of which are completely unrealistic for the kind of service that these folks provide in rural areas of the country,” said Sen Thune. “So, sometimes, getting more government involved in some of these issues ends up not being a good solution that ends up making matters worse.”

Sen. Raphael Warnock (D-GA) reiterated the importance of the ACP for both active military families and veterans in Georgia and nationwide. Rev. Warnock stressed that a lack of affordability leads to fewer telehealth opportunities and a potential healthcare crisis for rural communities. According to the senator, maternal mortality rates are another health risk associated with a lack of access to telehealth. Levin explained this connection at the hearing.

I think it's important to remember correlation does not imply causation. But the FCC mapping demonstrated, and if you look at the map of maternal mortality, and you look at the map of where not as many people are connected, there does seem to be a correlation…Preventative care is a win-win, but a lot of times people won't have time to go to the hospital.  Um, and therefore, a broadband connection saves them that time and they're more able and, and there's a greater incentive to do that preventative care.

In Subcommittee Chair Sen Lujan’s remarks, he reiterated the bipartisan nature of the Infrastructure Investment and Jobs Act and what he hopes to see come from the USF Working Group.

“I hope that we can find a way to work together, as the bipartisan working group with USF has come up with really strong ideas,” he said. “Democratic ideas, Republican ideas, thoughts that have come out of studies from the right and the left, from the center.”

“I think we can get there. We can find a way to work together,” he continued. “We can address concerns. To ensure that we're going to have real broadband connectivity across the country that's fast and that's affordable. Now, we know the stakes are simply too high,  especially with our veterans and students, families, rural and older Americans. So over the next week, I'm committed to continue working with my colleagues to extend this program.”

How the ACP Affects Broadband Deployment

Many of the hearing attendees asserted that the ACP impacts all Infrastructure Investment and Jobs Act (IIJA) programs and U.S. broadband deployment efforts.

“All 56 states and territories have incorporated ACP or a similar success program into their deployment strategies for [Broadband Equity, Access and Deployment (BEAD)] and their plans for Digital Equity Act funding,” said de Wit. “In their BEAD Initial Proposal Volume II, every state has proposed how an awarded provider would make a low-cost service option available to ACP-eligible households.”

“Not only is the ACP subsidy critical to the success of BEAD, but states are also relying on the administrative infrastructure of the National Verifier to determine which households are eligible for a low-cost service option,” de Wit continued.

Multiple hearing witnesses stressed that rural broadband deployment is in danger due to the wind-down of the ACP.

Levin said, “As the consulting group BCG found, ACP reduces the subsidy needed to incentivize providers to build in rural areas by 25 percent per household, writing, 'The existence of ACP, which subsidizes subscriber service fees up to $360 per year, reduces the per-household subsidy required to incentive ISP investment by $500, generating benefit for the government and increasing the market attractiveness for new entrants and incumbent providers.'"

For smaller internet service providers in rural areas, a potential loss of low-income subscribers would be catastrophic and could lead to bankruptcy. Some of these providers are the only option for rural communities.

"Thanks to collaborative investment and ACP outreach, local networks and providers have been building relationships and trust while growing their customer base,” said Nevarez. “The end of ACP now after just over two years of getting going and the loss of subscribers puts the BEAD initiatives in jeopardy."

Nationwide, the end of the ACP is already a massive administrative undertaking for ISPs. Nevarez adds that the burden on ISPs to manage the wind-down of the program with their customer base is incredibly challenging.

Closing Remarks

Each witness at the Subcommittee hearing concluded their remarks with a statement on the impacts of the ACP and the state of U.S. broadband affordability, with or without the program.

"Let us not take the greatest step backwards any country has ever taken in terms of closing the digital divide, said Levin. "Let’s adopt a clean ACP extension and then work hard to reform the entire Universal Service Program to put it on a sustainable basis. Let’s grab the opportunity broadband creates to improve our economy, our society, and our future by making sure, as Congress wrote, that all Americans have the broadband access they need to fully participate in the economy and the society."

"Ambitious goals—such as connecting every American to high-speed, affordable internet––require a combination of public and private sector partners working together," said de Wit. "The central responsibility in the public sector is the providing of secure and reliable funding. With millions of people lacking access to a service that has become essential for quality of life and economic well-being, there is no time to waste. Pew asks that Congress act swiftly to ensure the future of ACP and prioritize long-term policies that promote access to high-speed affordable internet for all Americans."

"Governments at all levels should focus on increasing the supply of internet services to provide consumers with more access to lower cost services," said Winfree. "Focusing on deregulation and competition avoids the costs associated with ACP which can raise prices for all consumers without meaningfully closing the digital divide. Deregulation and competition can also avoid the hidden costs of subsidizing demand with additional inflation fueled by deficit spending."

"Let’s not let more than 23 million households and families disappear from the digital economy," said Nevarez. "Congress has the power to act now to keep those 23 million households of constituents connected, and I am here to remind you today, that the health and well-being of Americans, as well as the economic vitality and security of our nation, depend on it."

Quick Bits

Weekend Reads (resist tl;dr)

ICYMI from Benton

Upcoming Events

May 6—Closing the Cybersecurity Gap (Axios)

May 8––Budget Hearing – Fiscal Year 2025 Request for the Department of Commerce (House Appropriations Committee)

May 8––Budget Hearing – Fiscal Year 2025 Request for the Federal Communications Commission (House Appropriations Committee)

May 15—FCC Tribal Workshop Hosted by the Eastern Shawnee Tribe of Oklahoma (FCC)

May 16—Disability Advisory Committee Meeting (FCC)

May 16––Social Media and the First Amendment (Information Technology & Innovation Foundation)

May 23—May 2024 Open Federal Communications Commission Meeting (FCC)

Jun 6––June 2024 Open Federal Communications Commission Meeting (FCC)

Jun 6-7––2024 Conference on Artificial Intelligence & Financial Stability (Department of the Treasury)

Jun 10––Pathways to Affordable Connectivity (Institute for Local Self-Reliance)

Jun 25––5x5 Summit: The Public Safety Innovation Summit (Department of Commerce)

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