ACA Connects Members participated widely in the Affordable Connectivity Program and would welcome adoption of a well-designed subsidy program to replace it, but usingbroadband rate regulation as a substituteis misguided. Regulating rates will only depressinvestment, curtailentry into new markets, limit price reductions in response to competition and consumer demands, and stiflecompetition. These consequences would harm Americans at all income levels.
ACA Connects engaged the business consulting firm Cartesian to assess these impacts of rate regulation in detail.
Overview of State-Level Broadband Rate Regulation Laws
The State of New York has enacted a law requiring fixed broadband providers to offer $15 or $20 broadband service to qualifying low-income households.
Several states like California, Massachusetts, and Vermont are following New York’s lead and considering similar laws of their own
Tennessee, on the other hand, exempts broadband providers from being classified as public utilities. It prevents local governments from imposing regulations on rates, terms, entry, or conditions of broadband services.
Key Findings From Cartesian’s Analysis on Rate Regulation
For the mildest form of rate regulation Cartesian modeled – a $30/month rate applicable only for low-income subscribers – ARPU would fall by 6%, and capital expenditures would decline by between 19% and 39%.
A 19% drop in investment nationwide would result in less competition (i.e., one less provider) for 3.3 million locations in the U.S. This would be especially dire for underservedand unserved locations
For the most severe rate regulation scenario that Cartesian modeled – a $15/month low-income rate, with a $10/month decrease in ARPU for other subscribers – ARPU would fall by 14% and capital expenditures by between 41% and 56%.
Entry into new areas by providers would decline by 15% in the “mild” scenario and by 34% in the “severe” scenario, and upgrades and edgeouts in existing markets would stagnate.
Rate Regulation’s Cascading Harms
Less Investment:Fewer areas would be economically viable for providers to invest in new projects, expansions,andservices.
Less Competition: Worse business cases for investment would result in fewer areas gaining additional competition. In the absence of new entrants and with lower returns, incumbents may also be less incentivized to make network upgrades.
Slow Down in Pricing Decline: With less competition in the market, the historical trend towards lower prices may slow down.
Higher Costs: Consumers may also face higher prices on non-broadband services as providers adjust prices on non-regulated services to cover their costs.
Fewer Services: Fewer network expansions mean less availability of other services that stem from provider networks as well, including video, voice, and business services.