No, NTIA’s Approach to BEAD’s Low-cost Option Requirement Is Not Rate Regulation

From the onset of the BEAD program, it has been clear that the buildouts it funds must include a low-cost option for those who need it. The rationale is clear: Billions of dollars spent on new networks for services that disproportionately offline populations can’t afford would be billions of dollars wasted. The requirement draws on a significant body of evidence that lagging adoption, more so than the deployment of infrastructure, is perpetuating the digital divide—and the price is a key driver of that. It also rests on Congress’ original finding in the Infrastructure Investment and Jobs Act (IIJA), which funded BEAD, that “access to affordable, reliable” broadband service is essential for participation in modern-day life.

The IIJA and NTIA’s Notice of Funding Opportunity were therefore explicit that networks funded through BEAD include a low-cost service option for eligible consumers, which NTIA will evaluate based on the total recurring charges to the consumer, accounting for any subsidies like the Affordable Connectivity Program (ACP). Per NTIA guidance, states’ “Initial Proposals” for the BEAD funds, which are all due by year’s end, must include the expected price of this low-cost option, or their formula for arriving at it, for NTIA’s approval—prior to the disbursement of funds.

This is attracting some controversy as Virginia, which has been lauded for its rapid progress through BEAD’s requirements, spars with NTIA over the state’s unwillingness to specify the terms of its low-cost option upfront. Instead, for fear of perceived rate regulation, Virginia—and a number of other states—would leave it to Internet service providers (ISPs) interested in becoming BEAD funding subgrantees to propose their own individual terms for the state, and later NTIA, to assess. Similar concerns over rate regulation were echoed by congressional Republicans at a recent House oversight hearing.

These fears are unfounded: Neither BEAD’s low-cost requirement nor NTIA’s insistence on knowing how a state intends to set it is rate regulation. NTIA is not setting prices at all. It is simply declaring the means by which states may meet the statutory requirements to receive BEAD funding—namely, to provide a low-cost broadband option for a limited population in exchange for a massive government subsidy.

Since no rate regulation will take place either way, it is unclear why states or consumers would benefit from waiting for subgrantees’ individual low-cost proposals. In fact, states looking to do so should be clear on the risks involved with that approach.

First, upfront establishment of the low-cost criteria appears less onerous than the alternative. If a state sets clear, transparent requirements before the subgrantee application process takes place, providers who are unwilling to offer the low-cost option can self-select out, rather than each making proposals that state broadband offices will have to comb through. States are already burdened with a monumental task on a short timeline, and if it becomes clear after the subgrantee application process that a state has not adequately addressed the needs of its low-income population, both providers and the state will have wasted time and BEAD resources. And since the IIJA gives NTIA the final say in approving the low-cost criteria before it can be established, states wanting to solicit subgrantees’ applications before seeking that approval risk pulling a bait-and-switch on applicants if the low-cost criteria they arrive at doesn’t pass muster.

Moreover, it is unclear what benefits the after-the-fact approach will bring. Yes, waiting until ISPs have applied for the grants will give states more information about what low-cost plans applicants would be willing to offer without a benchmark, but the most relevant factor is the financial situation facing low-income consumers, something that states can analyze fairly accurately on their own. If states conduct that research themselves, subgrantees will have full knowledge of each state’s low-cost requirements before they apply. If a provider is unable to provide a low-cost option that people in an area can afford, then that provider is not the best vehicle for BEAD funds meant to ensure affordable access for all.

The elephant in the room in the discussion of low-cost options is the future of ACP. It now bears most of the burden of funding broadband access for low-income individuals, but barring action from Congress, it will run out by the spring of 2024. This partisan stalemate risks endangering billions in already allocated BEAD funds or forcing states to incur additional administrative costs trying to design their own programs to meet NTIA’s requirements. It also leaves ISPs uncertain as they calculate the cost of providing the low-cost option. But whatever happens with ACP, states should not risk their entire grant process and BEAD funding on overzealous avoidance of any perceived rate regulation, when providing the low-cost terms upfront is not rate regulation at all.

NTIA is right to want to check on the feasibility and comprehensiveness of states’ plans to comply with the low-income option requirement before sending billions of dollars into the void, and the IIJA affirmed their right to do so. It is unclear why risking BEAD dollars by conducting this check after the subgrantee application process has taken place is the more desirable option.

Yes, genuine rate regulation is not in NTIA’s purview and can lead to unintended consequences. No, expecting a low-income broadband option in return for an enormous federal subsidy is not an overreach, and it is to everyone’s advantage for those terms to be specified upfront. NTIA is dispensing billions of dollars and must guarantee that money actually achieves its intended outcome. Part of this is ensuring that some of the populations facing the greatest barriers to access can afford the networks being built to their homes. That’s more than a fair trade.