Without federal internet subsidies, state efforts to offer low-cost broadband could be impacted

Congress and President Joe Biden may have touted that people of all incomes would be able to afford the broadband being built under the 2021 infrastructure act, but a decision by lawmakers last week is casting uncertainty on that promise.

The concerns from some state broadband officials stem from the fact that Congress did not include funding to preserve the Affordable Connectivity Program, or ACP, as part of the package of spending bills it passed to avoid a government shutdown.

The Federal Communications Commission has said the program, which provides a $30-a-month subsidy to low-income households to pay for internet access, will now end April 30.

According to state broadband officials in Michigan, Vermont and Pennsylvania, its termination could not only impact the 23 million households on the program, but also those who live in areas where broadband is being built out. 

In Michigan, for instance, the state wants to require broadband companies receiving grants under the Broadband Equity, Access and Deployment, or BEAD, program to charge lower-income people no more than $30 a month. Had Congress not ended the program, broadband being created through the BEAD program would have essentially been free for low-income households participating in the ACP.

Eric Frederick, Michigan’s chief connectivity officer, noted in an interview with Route Fifty that about a third of the state’s households who now have internet access rely on that ACP. Without the subsidy, he estimated that a quarter or a third of the households in the areas where broadband service is being built out under BEAD may struggle to afford it.

“Without the subsidy, I know we’re gonna lose folks,” Frederick said. “It’s not going to be affordable.”

Similarly, Christine Hallquist, executive director of the Vermont Community Broadband Board, noted that 14% of households with internet service in her state relied on the subsidy. She agreed that some households in the areas where broadband is being built will struggle to afford it without the assistance.

Vermont’s officials had estimated that those living at the federal poverty line—which amounts to $25,820 for a family of three—can generally afford to spend up to 1% of their monthly income, or $10.73 a month, on internet.

But because of the higher costs of operating broadband in a largely rural state, Vermont is planning to allow companies to charge up to $45-a-month. With the $30 monthly subsidy under the ACP and another $9.25-a-month through a separate federal program called Lifeline, low-income people in the state would have had to pay only about $6 a month, instead of $36.

It is “really a betrayal of trust by Congress to not continue a subsidy that’s been a lifeline for many Vermonters to access essential services,” Robert Fish, the state broadband office’s deputy director, said in an interview. “Now there’s going to be Vermonters who are going to be in a place where they’re going to have to choose between internet access or food. And of course, they’re going to choose food.”

Still, the state does not believe it can lower the $45 limit, said Alexei Monsarrat, a state broadband specialist working on Vermont’s BEAD plan. After examining the costs for companies to offer the service in a rural state, “we feel [$45] remains a reasonable line that we’ll have to keep,” he said. “Obviously, the impact then is that it will make it harder for folks.”

Hallquist explained that companies in rural areas will have fewer customers and face higher costs to maintain the service. “These areas have such low density, they’re trying to serve eight houses per mile,” she said. “The bottom line here is you can’t fund [the loss of the ACP program] through reducing rates because then you don’t have a sustainable business plan.”

Congress’ decision to end the ACP comes at a critical time. States are seeking approval of their plans for BEAD funding from the National Telecommunications and Information Administration, or NTIA, including deciding how much to limit what companies receiving the funds will be allowed to charge low-income people.

Asked by Route Fifty if they might lower the rates companies can charge because of the end of the subsidy, several states, including Alabama and Massachusetts, declined to comment, saying they are still working through the question with NTIA. 

The Pennsylvania’s Department of Community and Economic Development told Route Fifty in a statement that it is still in discussions with NTIA about how to define how much low-income people can be charged, but it is considering capping rates based on households’ level of poverty.

While that would lower prices, ISPs will “not be required to provide the additional [$30] subsidy,” the statement said, adding that the department is “concerned about affordability when ACP expires.” 

In addition to making it more “difficult for some to afford reliable high speed broadband internet service,” the department said the ending of ACP will also impact broadband companies who “rely on subscribers to ensure the networks they are building out remain sustainable over time.  With the expiration of ACP, it’s reasonable to expect there will be fewer internet service subscribers, which could impact some providers’ network sustainability.”

Others, including Michigan, New York and Washington state, expressed similar worries. They said that despite their concerns over the end of the subsidy, they were not planning to further lower the limits on what companies can charge.

Frederick said he is awaiting more guidance from NTIA. But he also said lowering the limit below $30 a month would harm companies’ ability to maintain quality service. “We can’t force the providers to go down to zero,” he said. “The networks will never be supported that way.”

NTIA would not say how it may advise states to address the end of the ACP subsidy. The limits on how much companies will be allowed to charge low-income households “ensures that newly connected households have access to affordable plans,” said an NTIA spokesperson, adding, “but it does not replace the Affordable Connectivity Program.”

Several states also said that creating their own programs to replace the ACP does not appear to be possible.

In Michigan the cost would be $350 million a year, Frederick said. It’s unlikely the state will offer its own subsidy. “Either you will have to reduce the subsidy,” he said. “Or change the eligibility and reduce the number of folks that use the program.” 

Frederick said the state will be trying to incentivize companies to lower rates below $30 by giving them more points as they compete for grants based on how little they are willing to charge.

Another potential consequence of the program ending is that companies could ask for more funds because they would have fewer customers, according to Frederick. That could reduce the number of projects the state can do, he said. “So we’ll just have to stretch those dollars as far as we can.”

Frederick is still hoping Congress will at some point restore the ACP and make it permanent. “But until then, states are going to be struggling to implement BEAD without that ACP program,” he said.

Hallquist said it would cost Vermont $23 million a year to start its own subsidy program. “Our state, like many, is certainly struggling financially,” she said. “So we know we can’t afford to replace that entire program.”

Rather, Vermont officials said they are “triaging” how to deal with the end of the program. Fish said the office is discussing ways with state lawmakers to reduce costs for customers, including finding a way to address the fact that companies in Vermont only pay for a line to go to the edge of a property. But customers have to pay to extend the line to a home, which in rural areas can be hundreds of feet away and cost more than a thousand dollars.