Study: State Broadband Rate Controls Have Bad Consequences for Investment and Competition

On May 29, ACA Connects held a webinar highlighting a newly released study by Cartesian titled "State Broadband Rate Regulation: Impact on Investment and Competition." The study analyzes the negative effects of state-level price controls for fixed broadband Internet service investment and access.  

My February 2025 Perspectives from FSF Scholars, "States Should Keep Broadband Internet Services Free From Price Controls," addressed New York's requirement that fixed providers in the state offer $15 and $20 monthly price plans to qualifying consumers. In response to the state's law requiring service offerings at rates far below market, AT&T discontinued its AT&T Internet Air fixed wireless access (FWA) service. Also, Starlink petitioned for an exemption and thus apparently intends to limit its subscribership to less than 20,000 in New York. Those early responses to the implementation of New York's law are real-life examples of how imposing price controls in competitive markets creates more problems than it solves. New York's rate regulation has discouraged market entry by new providers using innovative technologies. 

 

Back to the Cartesian study. Based on its economic model, Cartesian found that price caps on fixed broadband Internet service would result in most states losing 15% to 35% of modeled capital expenditures by marketplace providers, depending on the state and based on whether it imposes a $30 monthly or $15 monthly low-income plan mandate.  

 

Cartesian similarly concluded that American consumers lose choices as a result of state-level rate regulation, as it found that most states would get 15% to 35% fewer locations served by new competitive entrants. Among its key findings: a 19% drop in investment (per $30 low-income monthly plan) would result in one less provider for 3.3 million locations, and a 41% drop in investment (per a $15 low-income monthly plan) would result in 7.5 million locations with one less additional competitor. 

 

ACA Connects and Cartesian should be commended for preparing and publishing the insightful study about the harmful downsides of state-level rate regulation of broadband services. 

 

The bottom line is that state-level rate regulation is a poor policy for promoting Internet access. Instead of imposing price controls that will inevitably reduce investment and new market competitors, state legislators who are concerned about affordability and lack of access for low-income households should consider options such as (1) promoting awareness of the federal Lifeline subsidy program, which offers $9.25 per month toward broadband service for qualifying households; (2) using state universal service fund subsidies or establish other state-level subsidy programs to supplement Lifeline support for their residents; (3) promoting awareness of private affordability programs such as Xfinity's Internet Essentials. 

TMT with Mike O'Rielly - Ep 9: FCC Regulations and NTIA BEAD Burdens

Episode 9 of "TMT with Mike O'Rielly," a videocast featuring former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on July 30. In this episode, titled "FCC Regulations and NTIA BEAD Burdens," Mr. O'Rielly is joined by guest Grant Spellmeyer, President and CEO of ACA Connects. Their conversation also includes FCC matters and issues such as public utility regulation of broadband as well as the video services market. 

ACA Connects is a member association of independent broadband, video, and communications providers. 

Smaller Networks Marshall the Evidence for Broadband Market's Competitiveness

A report by ACA Connects – included in a February 22 ex parte filing with the FCC – provides a window into the competitiveness of the broadband market from the vantage point of medium and smaller providers. Members of ACA Connects collectively serve nearly 32 million households – or about 25% of all U.S. households – including 7.3 million households in rural communities – or about 29%.

Insightful data points about communities served by ACA members include the following:

• "Members reached 31% more households via FTTH over the last year, a rate far higher than their overall increase in coverage."
• "96% of households have two or more fixed broadband options—and 85% have three or more options."
• "Over a third of all households (37%) in areas served by ACA Connects Members have access to gigabit broadband service."
• "The ACA Connects Members increased gigabit service availability in [] rural communities from 24% in 2022 to 33% in 2023." 

The ACA Connects report also includes figures about trends in the wider broadband market. This includes a breakdown of the share of U.S. households with competitive presence by technological capabilities of 100/20+ Mbps. According to FCC and Cartesian data for 2022-2023, almost 95% of households are in census blocks where there is an actual or potential presence of a cable, fiber, or licensed fixed wireless access (FWA) broadband provider offering speeds of 100/20+ Mbps. For 89.1% of households, a cable provider offering those speeds has a competitive presence, for 49.7% a fiber provider has a competitive presence, and for 39.6% a licensed FWA has a competitive presence. While those figures are higher than actual access figures for households, there are strong pro-deployment and pro-competitive trends. Back in 2017, only 69% of households had access to a provider offering 100/20+ Mbps, with a cable/fiber/licensed FWA competitive presence breakdown in 2017 of 59.3%/19.4%/1.7%.

 

The ACA Connects report was filed with an ex parte regarding the FCC's proposal to reclassify broadband Internet services as Title II telecommunications services and subject them to public utility regulation, including conduct-based restrictions that could eliminate consumer choice for reduced pricing options such as usage-based billing or free-data mobile offerings.

 

In December 2023, the Free State Foundation filed comments opposing the FCC's Title II reclassification proposal. And in January of this year, FSF filed reply comments. If the Commission adopts its proposal, the harm to private market investments and the ability to generate returns on future investments would come to all broadband providers, with small and medium providers almost certainly being hit the hardest. 

ACA Connects Broadband Competition Report Undermines Common Carriage

Last week, ACA Connects released "Broadband Competition Is Thriving Across America," a report that argues common carriage regulation of broadband providers is inappropriate in light of increasingly competitive broadband market conditions. The report projects future competitive conditions in the broadband market based on existing FCC data, the historic pace of deployment, and provider announcements for increased fiber deployment over the next few years.

ACA projects that by December 2025:

• Over 95% of homes will have access to at least one provider of 100 Mbps/20 Mbps speeds;
• Over 95% of homes will have access to at least one provider of 100 Mbps/20 Mbps and one provider of 25 Mbps/3 Mbps speeds;
• 84% of homes will have access to at least two providers of 100 Mbps/20 Mbps speeds.

At this level of competition, harms from common carriage regulation, including reduced investment, efficiency, and innovation, are likely to outweigh its potential benefits, which could include price reductions and better speeds in uncompetitive areas. This is because the vast majority of the country would have competitive conditions in the broadband market, so common carriage regulation would fail to improve the service quality that results from competition.

Additionally, ACA's report argues that the NTIA's BEAD Program eliminates the need for common carriage regulation. It is likely that the BEAD program, or other federal broadband programs, will subsidize new deployment in areas that have only one broadband provider. Thus, common carriage is not needed because BEAD will fund new entry, correcting any market failures common carriage could address.

ACA's report also argues that small broadband providers should be exempted from common carriage regulations if they are implemented despite the evidence that they will not improve competition. This is because nearly every household has at least one large broadband provider. Thus, in almost every market where a small provider competes against a large provider, the large provider will be subject to common carriage regulations, and the small provider would have to offer prices or speeds that reasonably compete with the service standards imposed on the large provider in order to attract any customers.

Free State Foundation scholars have long argued that common carriage regulation of the broadband market is unwarranted and potentially harmful. The FCC's 2018 Restoring Internet Freedom Order, which repealed common carriage regulation of broadband services, cited our supportive comments over 50 times. And Free State Foundation President Randolph May and Director of Policy Studies Seth Cooper wrote a book dedicated to this subject, "A Reader on Net Neutrality and Restoring Internet Freedom," which can be purchased on Amazon by clicking the hyperlink.