States, feds at odds over low-cost broadband option

States and the federal government may agree that the expansion of broadband service around the country funded with $42.5 billion from the infrastructure act should be affordable for low-income people. But at least one state doesn’t agree that they should be dictating what’s affordable.

In late December, states submitted plans for how they would use the federal funding to build out broadband. After reviewing Virginia’s, the National Telecommunications and Information Administration told the state it needed to be more specific. In order to be approved to receive the first batch of its $1.4 billion in Broadband Equity, Access and Deployment, or BEAD funding, NTIA said Virginia—which only calls for companies to provide an “affordable” option—has to set an “exact" limit on how much companies can charge low-income households. 

The idea of the government dictating how much a company receiving grants through the program can charge has been criticized by some House Republicans and internet service providers as “rate regulation.”

Virginia agrees. In its response, the state told NTIA that it does not believe it would be legal for states to tell companies how much they can charge, or for the agency to tell them to do so.

“Virginia is concerned that it is being asked by the funding agency, NTIA, to take an action that NTIA is expressly prohibited from taking,” wrote the Virginia Department of Housing and Community Development, which runs the state’s broadband, in a letter to the agency.

The dispute comes as NTIA is in the process of reviewing states’ plans for using the BEAD money before releasing the first tranche of funding.

Virginia is not the only state to disagree with the requirement. But Florida, which has also objected to rate regulation and is waiting for its plan to be approved, declined to say whether it is having a similar dispute with NTIA.

“It is not the role of the state to dictate price points for consumers,” Florida said in its proposed plan.

“We remain frustrated that NTIA is withholding approval of some state plans that don’t include rate regulation,” said Brian Dietz, spokesperson for the broadband industry group, NCTA—the Internet & Television Association, in a statement to Route Fifty. “Delaying approval of these plans means delaying opportunity for rural Americans. We urge NTIA to quickly approve these compliant state plans without insisting on rate regulation.”

The issue is over a key component of the BEAD program that requires internet service providers receiving a grant through the program to offer its customers a “low-cost option.” But the law does not define what is considered an “affordable option,” leaving open the question of who gets to decide.

Ensuring that the broadband being built is affordable is a key priority for the Biden administration. “It’s not enough to have access—you need affordability and access,” President Joe Biden said last June when announcing how much funding each state will receive.

At a December hearing before the House Committee on Energy and Commerce, NTIA Administrator Alan Davidson assured House Republicans that the agency will not be limiting how much companies can charge. Instead, he said 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.”

NTIA also said in a fact sheet about the program that “it has not, and will not, engage in rate regulation.” But the fact sheet also said the law does allow the agency’s assistant secretary to approve states’ plans for offering a low-cost option. 

A number of states have proposed limiting how much companies can charge low-income people to $30 a month or less. Combined with the $30-a-month subsidy that many are now receiving under the Affordable Connectivity Plan, that would make internet service free for lower-income people.

NTIA, meanwhile, does appear to be giving some states flexibility. 

The Vermont Community Broadband Board, for instance, said in its proposal that it is concerned that requiring a set low price would not provide companies enough revenue to maintain service in rural areas, which have fewer customers. The state’s broadband office “remains concerned about ensuring the viability of the networks being constructed and the sustainability of the services being provided,” the board wrote.

Instead, under a draft of its plan, the state would encourage companies to charge no more than $45 unless they can demonstrate a “reasonable necessity for a higher cost.” If so, the state would allow providers to charge up to $75.

Greg Guice, chief policy officer for the Vernonburg Group, who is advising the state on how to use its BEAD funding, said NTIA does not appear to have problems with the approach. He added that NTIA’s position isn’t rate regulation because companies do not have to take the billions in BEAD money if they don’t want to follow the restrictions.

“Companies that choose not to participate in the BEAD program will not be required to offer a low-cost broadband option,” he said.

Others, including Harold Feld, senior vice president of the progressive internet policy think tank Public Knowledge, agreed. “Virginia is frankly wrong,” he said. “If you don’t like it, don’t take the money.” He was unsure how the issue will be resolved with neither NTIA nor Virginia wanting the BEAD funding to continue to be held up.

Under the Virginia plan, instead of setting a certain price, the state would require companies applying for grants to “submit justification” showing how the price they would charge would be affordable. The state would decide whether the price is low enough in awarding the grant. Virginia noted that NTIA would also have to approve giving a company the grant.

Citing several court cases, Virginia’s broadband office said, “it appears that states are preempted by federal law from regulating the rates of broadband services generally.”

“The bipartisan infrastructure law does not take a specific approach to defining what a low-cost option would look like,” the state continued. “Instead, it takes a general approach that leaves much up to the states. It provides that states are to develop their own definition of the low-cost broadband service option. It does not require a fixed price or a formula.”