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. 

GAO Flags Broadband Funding Coordination Concerns

Last month, the Government Accountability Office (GAO) issued a report on the state of federal broadband funding interagency coordination. Not for the first time, it flagged breakdowns in process that could lead to duplication, waste, fraud, and abuse.

Publicly released on April 28, "Broadband Programs: Agencies Need to Further Improve Their Data Quality and Coordination Efforts," identifies two concerns:

1. The FCC's failure to evaluate and document the accuracy of the service availability data underlying its National Broadband Map, which "adds both to the risk that agencies leveraging these data cannot effectively target funding to areas that lack high-speed internet and to users' existing concerns about the data's reliability."
   
   
2. The need for the FCC, NTIA, and the Departments of Agriculture and Treasury to define with sufficient clarity their coordination processes to "better position the agencies to sustain their collaboration, manage fragmented federal broadband efforts, and ensure that the considerable federal broadband funding is spent efficiently and effectively."

Regarding the National Broadband Map, the Report states that:

FCC officials described its processes for data validations, verifications, audits, and enforcement referrals as a new workstream that continues to be informed by fresh rounds of data, citing this as the reason why FCC had not yet formally evaluated or finalized formal operating procedures for these processes. However, without evaluating the effectiveness of its validations, verifications, audits, and referrals processes, FCC cannot know the extent to which these processes are sufficient to ensure the accuracy of the data in the National Broadband Map.

With respect to interagency coordination, the Report identifies three shortcomings: (1) no clear shared definition as to what the "covered data" that the agencies have agreed to share actually entails; (2) delays in the submission of data to be included in the FCC's Broadband Funding Map, a separate map that I described in a May 2023 Perspectives from FSF Scholars; and (3) the fact that "officials … have not established a formal process to de-duplicate their funding prior to making decisions about projects to fund."

To address these concerns, the Report presents 14 recommendations for executive action.

As you may recall, the GAO assessed broadband funding interagency coordination efforts once before, in May 2022. As I noted in a contemporaneous post to the Free State Foundation's blog, "Broadband: National Strategy Needed to Guide Federal Efforts to Reduce Digital Divide" identified "at least 133 funding programs that could support increased broadband access" under the purview of 15 different agencies and warned that "[t]his patchwork of programs could lead to wasteful duplication of funding and effort."

House Commerce, Commerce Department Commence BEAD Reforms

Multiple efforts are underway to reform the beleaguered $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program.

Representative Richard Hudson (R-NC), Chairman of the House Energy and Commerce Committee’s Subcommittee on Communications and Technology – and Keynoter at the Free State Foundation's upcoming Seventeenth Annual Policy Conference – recently introduced legislation designed to "eliminate the burdensome Biden regulations so that we can get money out the door and shovels into the ground as soon as possible."

In his Opening Statement before "Fixing Biden's Broadband Blunder," a hearing held on March 5, 2025, Chairman Hudson unveiled the Streamlining Program Efficiency and Expanding Deployment (SPEED) for BEAD Act. In the accompanying Press Release, he pointed out that "not a cent of the BEAD funds have been put towards actual deployment for even one household. This is unacceptable. Our rural communities need to be fully connected, and this legislation will do that."

Specifically, the SPEED for BEAD Act would:

• Clarify that BEAD Program money is to be used for two purposes: broadband deployment and workforce development. Consistent with that refined focus, the bill would replace the word "Equity" with the word "Expansion" in the program's title.

• Expressly require the return to the U.S. Treasury of unused funds.

• Prohibit the consideration, when awarding grants, of the following: prevailing wages, project labor agreements, union workforces, collective bargaining, local hiring, commitments to union neutrality, labor peace agreements, workforce composition (or the reporting thereof), climate change, the regulation of network management practices (including data caps), open access requirements, and certain letter of credit requirements.

• Provide applicants greater flexibility with respect to service area.

• Expand the definition of "reliable broadband service," consistent with the principle of technological neutrality, to include "any broadband service that meets the performance criteria … without regard to the type of technology by which such service is provided."

• Expound upon the existing ban on the regulation of rates (see below).

Regarding rate regulation, the bill makes clear that neither NTIA nor the states may:

[R]egulate, set, or otherwise mandate the rates charged for broadband service or the methodologies used to calculate such rates, for consumers generally or for any subset of consumers, including through the capping or freezing of such rates, the encouragement of another entity to regulate such rates, or the use of rates as part of an application scoring process.

The SPEED for BEAD Act explicitly would ban any such forms of rate regulation even if approved prior to its enactment or adopted "in conjunction with the requirement to offer a low-cost broadband service option."

The same day, Secretary of Commerce Howard Lutnick issued a Statement announcing that:

Under [his] leadership, the Commerce Department has launched a rigorous review of the BEAD program. The Department is ripping out the Biden Administration's pointless requirements. It is revamping the BEAD program to take a tech-neutral approach that is rigorously driven by outcomes, so states can provide internet access for the lowest cost. Additionally, the Department is exploring ways to cut government red tape that slows down infrastructure construction.

Since the passage of the legislation that created the BEAD Program, the Infrastructure Investment and Jobs Act, in 2021, FSF scholars repeatedly have criticized the Biden Administration for its prioritization of extraneous policy preferences that discouraged proven broadband providers from participating, raised costs, and ground implementation to a standstill.

They include impermissible rate regulation, inappropriate labor- and climate-related mandates, the unjustified promotion of government-owned networks, and a pro-fiber bias that brazenly defied the statute's technologically neutral intent. 

 

Report Proposes Much-Needed Repairs to Beleaguered BEAD Program

The Advanced Communications Law & Policy Institute (ACLP) at New York Law School today released a "BEAD Acceleration Checklist" that "offers … a series of straightforward recommendations for accelerating the award of BEAD grant funds [that] focus on freeing BEAD from its bureaucratic shackles."

Those of you who have been following the Free State Foundation's extensive scholarship on the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program – and, more broadly, the deeply flawed Biden Broadband Plan for which it serves as the centerpiece – will find familiar many of the fixes set forth in "How to Free BEAD From its Bureaucratic Shackles."

In a companion op-ed published by Broadband Breakfast, Michael Santorelli, Director of the ACLP and co-author (along with ACLP Senior Fellow Alex Karras) of the report blamed the Biden Administration for the BEAD Program's ongoing failure to bring broadband to even one unserved location, pointing the finger specifically at "excessive bureaucracy, regulatory overreach, and a misguided approach by the Biden administration, which prioritized its political agenda and program micromanagement over connecting people to broadband."

In the report itself, the co-authors urge the Trump Administration to make seven course corrections, which include:

• Eliminating all rules and requirements not expressly prescribed by the Infrastructure Investment and Jobs Act (IIJA) – that is, the legislation that established the BEAD Program. In "NTIA's BEAD Program Needs Revisions to Succeed," an October 2022 Perspectives from FSF Scholars, Michelle P. Connolly, Ph.D., a member of the Free State Foundation's Board of Academic Advisors and Professor of the Practice within the Economics Department at Duke University, identified five superfluous "subgrantee requirements" included in NTIA's Notice of Funding Opportunity: "Buy American" requirements, union labor-related mandates, middle-class "affordability," network management practice limitations (including data caps), and the unreasonable prioritization of municipal broadband.

• Prohibiting rate regulation. As I pointed out in "Virginia Flags NTIA's Impermissible Pressure to Regulate Broadband Rates," a February 2024 Perspectives, while the IIJA does require that grant recipients make available a "low-cost broadband service option," it also explicitly bans the regulation of rates. And as Free State Foundation President Randolph May argued in "Government Price Controls Jeopardize the BEAD Program's Success," a September 2024 Perspectives, attempts by NTIA and the states to require below-market rates amount to price caps, which "lead to suboptimal levels of supply" and undermine the "policy goal of achieving universal broadband access because experienced ISPs will be discourage from participating."

• Clarifying the role of low-Earth orbit (LEO) satellites. In "BEAD Program Softens Stance on 'Alternative' Technologies," a January 2025 post to the FSF Blog, I explained that while revised NTIA guidance opened the door in certain extremely high-cost situations to "alternative technologies" – that is, LEO satellites and unlicensed spectrum – it fell well short of putting these distribution platforms on an equal footing with other "Reliable Broadband Service" options.

• Removing "extraneous requirements," including those referenced in the first bullet point above as well as those relating to climate change and other policy preferences, from NTIA's BEAD Program "Terms and Conditions."

• Prohibiting the states from imposing their own "extraneous" and "burdensome" requirements beyond that which the IIJA requires.

• Strongly encouraging states to prioritize public-private partnership applications involving established broadband service providers with a proven track record of success.

• Allowing states to adjust project-service areas so that they "align with the realities of broadband network deployment."

BEAD Program Softens Stance on "Alternative" Technologies

In final guidance released on January 2, 2025, the National Telecommunications and Information Administration (NTIA) opened the door, ever so slightly, to Broadband Equity, Access, and Deployment (BEAD) Program projects utilizing unlicensed fixed wireless and low Earth orbit (LEO) satellites. By no means a course correction to a true technology neutral approach – end-to-end fiber proposals continue to be heavily favored without adequate regard for cost – at least providers using these so-called "alternative technologies" are no longer barred outright from participating in the $42.45 billion BEAD Program.

In the Public Notice, NTIA reiterated its position that states "must seek the most robust technology feasible at each location." Prior to this policy change, that meant (a) end-to-end fiber first ("Priority Broadband Projects"), and (b) cable broadband, digital subscriber line (DSL), or fixed wireless – using either licensed spectrum or a combination of licensed and unlicensed spectrum – second ("Reliable Broadband Service"). Projects using unlicensed spectrum only do not fall within the definition of "Reliable Broadband Service." Nor do LEO satellite-based offerings.

With this final guidance, NTIA will allow states to consider grant applications utilizing distribution technologies that meet the speed (100 Mbps downstream and 20 Mbps upstream) and latency (less than or equal to 100 milliseconds) requirements for "Reliable Broadband Service" but (in my view, at least) arbitrarily remain excluded from that category. Specifically, unlicensed fixed wireless and LEO satellite-based offerings now will be treated as quasi-eligible "Alternative Technologies."

However, and as I highlighted in "BEAD Program Technological Neutrality 'Fix' Falls Short," an August 2024 Perspectives from FSF Scholars, states may consider non-fiber "Reliable Broadband Service" technologies only where the cost to deploy fiber exceeds the "Extremely High Cost Per Location Threshold" (EHCPLT), an often unreasonably high bar that disregards the amount of time it will take to deploy fiber versus other technologies.

"Alternative Technologies," meanwhile, become eligible only after states "demonstrate that no ["Reliable Broadband Service"] was deployable for less than the EHCPLT by leveraging multiple strategies to obtain bids for Priority Broadband Projects and other ["Reliable Broadband Service"] projects that fall under the EHCPLT."

In other words, with this change the funding eligibility priority order has been expanded, somewhat, from two categories – end-to-end fiber followed by other "Reliable Broadband Service" – to three, with unlicensed fixed wireless and LEO satellite at the end of the line.

While in theory an improvement over the exclusionary approach originally set forth in the BEAD Program Notice of Funding Opportunity, the final guidance's creation of a third-place "Alternative Technology" category – well short of a full embrace of the concept of technological neutrality – may not have that much of practical impact.

USF Tax Hike – Now Up to 36.3%

On December 12, the FCC's Office of Managing Director announced that the Universal Service Fund (USF) contribution factor for the first quarter of 2025 will be 36.3%. Early Happy New Year to American consumers! The rate hike to 36.3% appears to be yet another all-time high for USF surcharges – something the U.S. Court of Appeals for the 5th Circuit rightly called an unconstitutional "USF Tax." Absent any unlikely intervention by the FCC's Commissioners, the proposed rate will go into effect. 

USF surcharges are functionally taxes paid by voice consumers on the long-distance part of their monthly bills. The money consumers pay is collected by the voice carriers and passed on to the Universal Service Administrative Company (USAC), the corporation established by the FCC to administer the USF program and dole out subsidies to program recipients. 

The upcoming 36.3% USF surcharge rate is significantly higher than just a few years ago. Free State Foundation President Randolph May wrote about the recent history of spiking USF surcharge rates and concerns about the viability of the USF contribution system in his blog post from June 14 of this year, "The Telephone Tax Rises Again – Now 34%." 

 

As observed in my November 26 blog post, the Supreme Court has granted a writ of certiorari in Consumers' Research v. FCC. The case, which will review an en banc decision by the 5th Circuit this summer, will be closely watched by many, including taxpayer advocates and opponents of the overreaching administrative state. In Consumers' Research v. FCC, the Court will decide the constitutionality of the USF contribution mechanism and the USF Tax.

TMT with Mike O'Rielly - Ep 15: Structural Problems in the ACP

Episode 15 of "TMT with Mike O'Rielly," a videocast that features former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on December 6. This episode, titled "Structural Problems in the Affordable Connectivity Program," is a conversation between Mr. O'Rielly and guest Ryan Tracy, Co-Writer at Capital Account. Streaming video of the Episode 15 is now available: 

Maine Satellite Plan Casts Doubt on BEAD Program Approach

As reported by Broadband Breakfast (subscription required), the Maine Connectivity Authority (MCA) has announced that it will allocate upwards of $5 million toward the purchase of Starlink terminals for every remaining "unserved" location in the state. What's more, the contract with Starlink "is expected to include capacity guarantees to ensure that the state-purchased terminals can connect to internet service at the newly established speed benchmark of 100/20 Mbps."

Universal access? Check. Speeds that satisfy the FCC's recently updated "broadband" benchmark? Check. A price tag roughly one-twentieth that of fiber? Check. So why, then, will the MCA spend an additional $278 million in federal subsidies from NTIA's Broadband Equity, Access, and Deployment (BEAD) Program to connect "underserved" locations to fiber?

Despite their marketplace-proven ability, technologically speaking, to deliver the speeds that consumers demand – and that the Infrastructure Investment and Jobs Act, the statute that created the BEAD Program, specifies – from day one NTIA has discouraged the use of BEAD Program subsidies to deploy non-fiber broadband distribution platforms.

As I pointed out in "BEAD Program Technological Neutrality 'Fix' Falls Short," an August 2024 Perspectives from FSF Scholars, even recent changes to NTIA's BEAD Program rules approving the use of satellites and unlicensed spectrum do so only under very limited circumstances – to be specific, when the price tag for fiber exceeds a state-specified price ceiling aptly labeled the Extremely High Cost Per Location Threshold (EHCPLT).

Other distribution technologies – cable broadband, fixed wireless access using licensed spectrum, and so on – likewise are eligible for BEAD Program subsidies only if the fiber cost exceeds the EHCPLT.

The MCA's announcement that it will make Starlink terminals available to all 9,000 unserved locations in the state at a cost of just $599 per location, plus free shipping and professional installation, highlights the degree to which NTIA's approach leads to inefficiencies and waste.

Evidence that proves this point can be found in the very same press release announcing the purchase of Starlink terminals: "[i]n 2025, MCA will facilitate the investment of an additional $350 million in broadband infrastructure through the [BEAD] Program to serve the remaining 5% of locations in Maine that currently have slow and unreliable internet service."

According to my back-of-the-envelope math, $350 million in total subsidies works out to almost $12,000 per "underserved" location – that is, locations with Internet access at speeds equal to or greater than 25/3 Mbps but less than 100/20 Mbps. That amounts to a nearly 20X premium for a fiber-based solution as compared to the cost of satellite-based service.

Incidentally, Volume 2 of Maine's Initial Proposal, which was approved by NTIA in June, does not identify a specific EHCPLT. Instead, it indicates that the MCA intends at some point in the future to set the EHCPLT so high that, in virtually all cases, fiber will win the day:

If it is determined that a small number of locations in a given PSA should be served with alternative technologies allowed through the EHCPLT process to ensure maximum impact of BEAD funding, MCA will consider allowing non-fiber service to a minimal number of locations. All other locations in the PSA will otherwise be served by FTTH.

Accordingly, the extent to which satellites and other non-fiber distribution platforms will be eligible for BEAD Program funding likely will be extremely limited.

The BEAD Program's underlying congressional goal is to connect locations still without "broadband" – Internet access at speeds of 100/20 Mbps – in a cost-effective manner. The fact that, in Maine, far more federal taxpayer dollars will be spent on "gold-plated" fiber infrastructure to upgrade "underserved" locations than what is being spent to connect "unserved" locations strongly suggests that NTIA's approach is fundamentally flawed.

TMT with Mike O'Rielly – Ep 13: Changing Satellite Regulatory Environment

Episode 13 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 October 17. This episode, titled "The Changing Satellite Regulatory Environment," features a conversation between Mr. O'Rielly and guest Tom Stroup, President of the Satellite Industry Association (SIA). Their conversation ranges from market change over the last decade with new entrants and new services such as low-earth orbit (LEO) satellite networks, dramatically improved broadband satellite network capacity and speed capabilities, the importance of access to spectrum for satellite providers – including potential expanded use of the 18 GHz band for satellite services, the 2024 State of the Satellite Industry Report, export reform, broadband subsidy programs and policy, direct-to-mobile (or direct-to-cell) integrated offerings through satellite provider partnerships with terrestrial wireless providers, and more.