Rate Setting for BEAD Funds Is Forcing States to Consider the Impact of Inflation | Citizens Against Government Waste

Rate Setting for BEAD Funds Is Forcing States to Consider the Impact of Inflation

The WasteWatcher

Funding proposals for the National Telecommunications and Information Administration’s (NTIA) Broadband Equity Access and Deployment (BEAD) program have been submitted by all 56 U.S. states and territories.  The BEAD program received $42.45 billion in the Infrastructure Investment and Jobs Act (IIJA), but the NTIA funding guidance to the states and territories ignored or contravened several provisions in the statutory language.  One such provision relates to rate regulation, which both the Department of Commerce secretary and NTIA administrator agreed is not allowed under the IIJA.

The BEAD Notice of Funding Opportunity states, on p. 67, that states should impose a $30 price cap on low-cost plans and require providers to commit to delivering this low-cost option “for the useful life of the funded network assets.”  These assets have a potential “useful life” that could last for decades.  Thus, any state law that locks providers into offering a $30 per month plan for such a length of time without any consideration of how providers’ operating costs will rise over that period will discourage providers from opting to participate in BEAD.  Investment could shift away from states that fail to attach an “inflation escalator” to their low-cost plan rate caps and toward those states that have the foresight to anticipate price inflation in the coming years.  

While every state and territory requires providers to offer a low-cost plan to participate in BEAD, 41 states, along with the District of Columbia and three territories, propose an arbitrary, statewide, fixed monthly rate cap of between $30 and $70 per month on those plans.  In eight states and two territories, there will be alternative methods of assessing the affordability of low-cost plans instead of a statewide fixed rate cap.  (North Dakota’s proposed definition of its low-cost plan not available on the state’s website).  Of the 45 states and territories that will impose statewide fixed rate caps, 28 states proactively address the expected price inflation providers will face by tying an automatic inflation escalator to their monthly rate caps, while the other 13 states, D.C. and three territories seem to pretend that inflation does not exist at all.  As providers in those 17 states and territories with fixed rate caps that do not adjust for inflation nevertheless face rising costs over time, they will likely face the necessity of raising rates for middle-income households to subsidize the cost of delivering unprofitable service to lower-income households in their state.  Smaller ISPs in particular will struggle to continue serving lower-income residents as costs rise.  They may see this inability to adjust their rates to reflect their mounting costs over time as a reason to not participate in the BEAD program.  

States that take inflation into account have chosen to tie their maximum rate caps to various measures of inflation.  The Consumer Price Index (CPI) or the Producer Price Index (PPI), based on nationwide, regional, or state measurements, are used by 15 states.  Georgia, Iowa, Kansas, Kentucky, New Jersey, North Carolina, West Virginia, Wisconsin, and Wyoming all peg their low-cost plan rate caps to some form of CPI, while Vermont allows providers to use CPI “or another industry-recognized measure of inflation.”  Iowa uses the Midwest Regional CPI rather than the national index, and West Virginia uses the index of non-food and non-energy price inflation for urban consumers, a measure known as “Urban Core CPI” or C-CPI-U.  Kansas uses the Midwest Regional CPI-U.  Alabama, California, Connecticut, Delaware, and Maryland peg their low-cost plan rate caps to their state’s PPI rather than to a national inflation index.  California, Colorado, Idaho, Louisiana, D.C., and Guam will allow providers to apply for waivers to raise their rate cap in specific cases.

Kentucky, Minnesota, New Jersey, and Virginia use the Federal Communication Commission’s Reasonable Comparability Benchmark, determined annually by the Commission’s Urban Rate Survey, as a measure of nationwide broadband price inflation. 

While 15 of the 28 states that adjust their arbitrary rate caps for inflation use CPI or PPI, Arkansas and Indiana tie their monthly rate caps to low-income household income growth.  This allows providers to help them afford service if wages decline or flexibility adjust rates to cover increased labor costs if wages rise.

Arizona and Michigan have not yet decided which measure of inflation they will tie to their monthly rate caps.  They will only allow their rate caps to rise with inflation if the federal Affordable Connectivity Program (ACP) ends.  Should ACP continue in some form, however, monthly rates for low-income households will remain fixed without any inflation adjustment.


 

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