Last year, Congress passed the bipartisan Infrastructure Investment and Jobs Act (IIJA), which included the Broadband Equity, Access, and Deployment (BEAD) program. Among other provisions, the bill allocated $42.45 billion to connect underserved and unserved regions to broadband service. With this once-in-a-generation investment, Congress laid the foundation to close the digital divide finally. Unfortunately, these plans are at risk as the agency responsible for implementing the BEAD program is ignoring the deal worked out by Congress and pushing ahead with the administration’s agenda, including: a new subsidy for the middle class, the growth and incentivization of inefficient municipal broadband networks, and expanding regulatory regimes in the name of net neutrality.

The National Telecommunications and Information Administration (NTIA), which oversees the program, recently released a Notice of Funding Opportunity (NOFO) for the BEAD program that provides specific guidance to both providers and state governments about ways to implement the program. While the legislation received bipartisan support, the NTIA’s NOFO ill-advisedly included additional provisions that narrowly tailored the legislation, upsetting the bipartisan balance. As a result, the NOFO raises several red flags that both the NTIA and Congress need to address.

It is worth highlighting that the NTIA prudently provides initial funding to individual states, which will then allocate funds to “subgrantees” (public and private entities that will build out broadband infrastructure). All states—including Puerto Rico and Washington, D.C.—are entitled to receive a minimum of $100 million each, while American Samoa, the U.S. Virgin Islands, the Northern Mariana Islands and Guam will receive at least $25 million. These grants include $1.25 million for “planning funds” that can be spent on resources such as research, data collection, community outreach and technical assistance. States will also be issued an additional $4.245 billion in BEAD funds according to a state’s number of unserved locations in high-cost areas—based on Federal Communications Commission (FCC) broadband maps. The remaining $37.1 billion will be divided among states based on the total number of unserved locations relative to national totals. 

Middle-Class Subsidies?

Under the BEAD NOFO, subgrantees are required to offer both a low-cost broadband plan to eligible subscribers, and must additionally develop a “middle-class affordability plan” to ensure that all middle-class consumers have access to affordable high-speed broadband in the BEAD-funded network’s service area.

States will determine what features the low-cost option includes such as speed, cost and other requirements, including participation in the FCC’s Affordable Connectivity Program (ACP). The NOFO also looks at poverty benchmarks and other federal benefits to determine eligibility criteria. Although states have some discretion, they will likely use these metrics to determine the definition of “low income.”

However, the NOFO also includes a middle-class affordability plan “to ensure that all consumers have access to affordable high-speed internet.” The NOFO suggests that eligible entities may offer low-cost, high-speed plans to all “middle-class” households using the BEAD-funded network, or provide a subsidy to offset subscription costs for households that do not qualify for the ACP. Yet, the NOFO does not define what the middle class is, nor does it justify why resources should be allocated toward middle-class subsidies.

Whereas low-income programs have specific metrics to identify qualified recipients, no such criteria exist for “middle-class” recipients. Such a broad middle-class mandate could potentially open the flood gates for states to implement quasi-rate-regulation programs that force carriers to provide service to middle-class customers at specific price points. As seen with other forms of rate regulation that impose price caps, this will result in internet service providers either reducing the quality of service to middle-class subscribers or reconsidering whether it even makes sense to participate in the program. It also incentivizes municipalities and utilities to enter the space by promising rates that are below market and unsustainable without additional government funding. This crowds out private sector competitors unable to compete with below market prices.

Yet, it is not even clear that the NTIA has the authority to authorize new rate regulations. Assistant Secretary of Commerce for Communications and Information Alan Davidson testified before Congress that he did “not believe that the IIJA statute allows NTIA to engage in rate regulation.” Yet, the result of this provision could give states a de facto rate regulation mechanism, which is contrary to both statutory intent, and assertions of the NTIA head. 

Expanding Government-Owned Networks?

One of the advantages of the BEAD program is that it provides flexibility regarding which entities are eligible to build networks using available funds. However, it also opens the door for municipal governments to build networks using the program. While providing broad options for eligible entities is important, there are serious concerns surrounding the efficacy of municipal broadband networks. The BEAD program should focus on the most efficient providers and not on subsidizing failing municipal networks.

As argued by USTelecom, local municipalities should focus on the maintenance and administration of static infrastructure (roads, bridges, etc.), not on running advanced and complex broadband networks. According to an economic study by Sarah Oh at the Technology Policy Institute, there is little evidence “to prove that municipal broadband yields any effect on changes in household broadband subscriptions, unemployment rates, or labor force participation rates.” The Center for Growth and Opportunity’s Will Reinhart also found that “[w]hile there is a generally positive relationship between broadband and the economy, building a new government-owned network does not automatically cause economic growth or other benefits. Indeed, many government broadband projects fail to break even . . . the actual benefits to citizens can be outweighed by costs.”

There is strong evidence suggesting that municipal governments are ill-suited to provide broadband service, as seen in the spotty track records of already existing and pending municipal broadband networks. States should resist the urge to focus municipal broadband applicants and instead opt for proven private providers who have experience building, managing and maintaining complex networks.

The Return of Network Management/Net Neutrality? 

Net neutrality seeks to ensure that providers treat all traffic moving over their networks equally. While net neutrality has not made headway at the federal level, its proponents have continued to seek ways to implement net neutrality policies through a patchwork of state legislation (see California), or a call for new heavy-handed FCC regulations that would classify broadband as a common carrier, bringing new regulations to internet service. The NTIA’s NOFO is being viewed by many as a new vehicle to pursue net neutrality.

The NOFO includes language that could be construed by net neutrality advocates and state officials sympathetic to their arguments as an invitation to propose rules that, in effect, impose net neutrality regulations. States using BEAD funds to deploy last-mile networks are prohibited from engaging in “unjust or unreasonable network management practice,” and BEAD further requires recipients to “provide access to broadband service . . . on terms and conditions that are reasonable and non-discriminatory.” Neither the statute nor the NOFO defines what unjust or unreasonable practices are, nor do they provide examples of conduct or rules that states must establish as conditions for funding. It is worth noting that this language does not expressly force states to impose net neutrality rules over providers and prevent blocking, throttling or paid prioritization. But it does allow states to implement these policies should they feel so inclined.

With the Department of Justice dismissing the legal challenge to California’s net neutrality law, there is nothing precluding other states from implementing their net neutrality laws under the BEAD program, leading to a patchwork of inconsistent laws across the United States. While the NOFO does not require any legal change, it does open the door to states seeking to implement net neutrality rules, further muddying the waters and overly complicating broadband deployments.

Conclusion

Provisions included in the NOFO make it harder for private providers to deliver high-speed, low-cost competitive broadband in areas that are currently unserved and underserved. In fact, the NOFO includes provisions that will disincentivize private participation and encourage less efficient municipal providers, utilities and other entities that offer lower quality services with larger burdens on taxpayers.

Congress has approved one of the largest capital investments ever for broadband build-out, allowing the United States an opportunity to bridge the digital divide. The Bipartisan Infrastructure bill was a carefully crafted compromise that incentivized competition to build reliable and strong networks that would connect millions of Americans. But the NTIA unnecessarily narrowed the scope of the legislation, transforming this bipartisan achievement into a wish list of policies that will not only hinder deployment but create unnecessary additional barriers to access and disincentivize competitive carriers from participating in the BEAD program.

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