ACA Connects concerned about BEAD's 'middle class affordability' requirement

ACA Connects CEO Grant Spellmeyer has outlined concerns the trade association, which represents small and independent cable providers, has with how states and territories may interpret a "middle class affordability" requirement in the Broadband Equity Access and Deployment (BEAD) program.

In a letter to NTIA chief Alan Davidson this week, Spellmeyer pointed to initial BEAD proposals released by states thus far – a requirement in order to receive funding – noting: "While ACA Connects applauds many aspects of these draft proposals, we have various concerns, including about how these States and Territories propose to address the Middle Class Affordability requirement." Spellmeyer further suggested NTIA release additional guidance on the matter.

As per BEAD rules, spelled out in the notice of funding opportunity (NOFO) for the $42.5 billion program, states and territories are required to include in their proposals "a middle-class affordability plan to ensure that all consumers have access to affordable high-speed Internet."

The NTIA suggests this could be interpreted in multiple ways: "For example, some Eligible Entities might require providers receiving BEAD funds to offer low-cost, high-speed plans to all middle-class households using the BEAD-funded network," wrote NTIA.

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"Others might provide consumer subsidies to defray subscription costs for households not eligible for the Affordable Connectivity Benefit or other federal subsidies.

"Others may use their regulatory authority to promote structural competition. Some might assign especially high weights to selection criteria relating to affordability and/or open access in selecting BEAD subgrantees," added NTIA in the BEAD NOFO.

But in his letter to NTIA's Davidson this week, ACA Connects' Spellmeyer said more guidance is needed, and that a state or territory "should provide a rational basis for its plan and justify its methodology."

As an example, Spellmeyer said states could "produce evidence on middle-class income levels and the amount or percentage of income that existing subscribers are spending on broadband service" in order to "confirm whether its proposed affordability plan is reasonable by examining prices, terms, and conditions for broadband service in areas that are competitively served."

Another suggestion is to require BEAD grant recipients "to offer the same pricing and service packages in BEAD-funded areas that they offer in competitive areas in the same State or Territory," said Spellmeyer.

"In any event, it is critical that NTIA ensure that all middle-class affordability plans are based on a reasonable assessment of the needs of middle-class households," Spellmeyer added.

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What is 'affordable'?

That "reasonable assessment" of middle-class affordability is somewhat subjective and hard to come by, particularly as wages continue to lag behind the rising cost of living.

In his letter, ACA Connects' Spellmeyer pointed to an assessment by Pew Charitable Trusts, released in August, in which Pew used a 2016 FCC benchmark of 2% of monthly household income to measure broadband affordability. That research thus defined median middle-class broadband affordability as $107.64 in the Northeast to $84.79 in the South.

However, that research also found that using the 2% rule will leave "as much as 30% of middle-class families without access to an affordable home broadband subscription and suggests that state officials should consider a wide range of potential middle-class incomes when developing this policy."

Pew explicitly stressed in its study that it "is not recommending that states adopt the 2% benchmark and encourages them to consider whether a higher standard is more appropriate for their populations."

Fear of rate regulation

ACA Connects' concern about how to define middle-class affordability is emerging as the industry is readying itself for a fight against a new effort by the FCC to reclassify broadband as a Title II service under the Communications Act. While analysts have expressed confidence the proposed rules will not result in broadband price regulation, and the FCC Chairwoman said such practices would be "strictly prohibited," multiple industry groups are opposed to the reclassification.

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"The FCC's proposal to treat broadband as a Title II telecommunications service puts achieving our national goal of universal connectivity at serious risk," wrote Jonathan Spalter, president & CEO of USTelecom, in a statement on the FCC's notice of proposed rulemaking. "Consumers today connect to a thriving, open Internet at faster speeds and lower prices. Retrofitting outdated rules onto today's competitive broadband networks is simply the wrong approach."

The subject of broadband affordability via the BEAD program is only bound to get more challenging the longer Congress waits to provide funding for the Affordable Connectivity Program (ACP).

The program, favored by providers over efforts to price regulation, is subsidizing broadband service for over 21 million households and counting. And while BEAD rules require grant recipients to participate in the low-income subsidy program in order to offer affordable service, the ACP is on track to run out of funding by April 2024, before a single BEAD-subsidized shovel is expected to hit the ground. Indeed, ACA Connects' Spellmeyer earlier this year called fixing ACP's funding gap the "biggest issue" on the horizon.

However, with little activity on re-funding the program thus far, and Congress currently in a state of turmoil, it's unclear if or when ACP's funding shortfall will be resolved.