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Telecom begins the fight against US government rate regulation

A group of top telecom providers are filing a lawsuit against the state of New York's plan to require broadband plans for low-income residents starting at $15 per month for 15 Mbit/s.

The lawsuit potentially sets the stage for a wider fight between the telecom industry and the Biden administration over what constitutes "affordable" broadband.

"While well-intended, this bill [recently enacted by New York Governor Andrew Cuomo] is preempted by federal law and ignores the $50 monthly broadband discount recently enacted by Congress, as well as the many unprecedented commitments, donations and accommodations that broadband providers have made for low-income consumers since the pandemic began," the telecom companies said in a statement, according to Axios.

The lawsuit is backed by USTelecom, CTIA and the New York State Telecommunications Association, which represent telecom providers like Verizon and AT&T, as well as other telecom companies and entities. "We urge state policymakers to coordinate with their federal counterparts, and with the broadband industry, to better serve the needs of New Yorkers," they said.

Others, though, voiced support for New York's new law.

"AT&T/Verizon have sued to block NY's broadband price regulation law and I am here to remind you the big ISPs did this to themselves. Lobbying to get rid of the FCCs authority invoked a counter push," tweeted Ernesto Falcon of the public-interest group Electronic Frontier Foundation. "They wanted to be unregulated monopolies and thought no one would stand against."

Cheaper broadband

The new New York legislation is designed to require Internet service providers in the state to offer cheaper plans to poor residents. Axios reported that New York estimates that roughly one out of every three residents – or 7 million people across 2.7 million households – will qualify for the discounted service.

The ultimate fate of New York's new legislation raises the prospect that other states, such as California, might also follow with telecom rate regulation of their own.

Further, President Biden has made it clear that such regulation is on the table as part of his proposal to allocate up to $100 billion to cross the broadband digital divide in the US. That funding is likely intended for the construction of broadband networks in rural areas as well as to help poorer Americans pay for connections that may already be available. But in his proposal, Biden suggested that such subsidies aren't his endgame.

"While the President recognizes that individual subsidies to cover internet costs may be needed in the short term, he believes continually providing subsidies to cover the cost of overpriced internet service is not the right long-term solution for consumers or taxpayers," the White House wrote in its proposal. "Americans pay too much for the Internet – much more than people in many other countries – and the President is committed to working with Congress to find a solution to reduce Internet prices for all Americans, increase adoption in both rural and urban areas, hold providers accountable and save taxpayer money."

The negotiations have begun

The financial analysts at New Street Research pointed out that a number of Internet service providers already offer plans for low-income customers. But the threat of state- or federally mandated pricing looms large. Indeed, the analysts wrote earlier this month that legislation against New York's law was "inevitable."

"The industry is concerned about the precedent of any effort by any government to price regulate its offerings," the analysts wrote earlier this month in a note to investors. "Acceding to such a regulatory framework is likely, in the eyes of investors, to put a cloud on the long-term terminal value calculations that investors rely on to calculate stock values."

But the New Street analysts subsequently argued there are a number of legal and technical reasons why widespread rate regulation on telecom services likely won't take hold in the US. They speculated that Biden's comments around pricing are likely an effort to gain leverage in overall broadband negotiations.

"We see no prospect for general price regulation," the New Street analysts wrote earlier this week.

During his recent address to Congress, Biden assigned his VP Kamala Harris to the task of providing high-speed Internet access to all Americans.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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