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Will the feds set our broadband Internet prices?

New York Governor Andrew Cuomo late last week signed a bill that requires all Internet service providers operating in the state to offer a $15 a month broadband option to low-income consumers.

The action comes just months after lawmakers in California authorized legislation activating net neutrality rules in the state.

Taken together, the developments raise the prospect of ISPs like Verizon and Comcast facing a patchwork of local regulations that could ultimately affect how they price and sell their services.

"If the idea spreads to other states, and the metrics for the law are different, it could have a material financial impact on the ISPs," warned the financial analysts at New Street Research in a recent report to investors, in discussing New York's newest law.

There are indications that President Biden wants to influence broadband pricing at the federal level.

"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 White House wrote in its $100 billion "broadband to all Americans" proposal.

Federal rate regulation

Leading members of the Biden administration are also pushing the concept. "Americans pay among the highest prices for broadband Internet across the world," Bharat Ramamurti, deputy director of the White House's National Economic Council, told the Washington Post.

"Compared to Europe, for example, for the same speed Internet Americans are paying $30, $40, $50 a month more," Ramamurti continued. "And so, part of what the president's also committed to is bringing down the price of Internet access for all Americans to make it easier for those folks who have access but can't afford it, to actually afford it in the future."

Perhaps not surprisingly, Biden's proposals are already generating plenty of criticism. "President Biden's claim also rests on a false premise – namely, that Americans are now paying more and getting less for their broadband dollars," wrote Brendan Carr, the senior Republican on the FCC, in The Hill. "The opposite is true. A 2020 study of 36 OECD countries determined that America's wireless customers get the most value for their money. In fact, prices decreased 45% on the wireless side over the past decade and by similar margins for high-speed wireline services since 2015, while prices for all consumer goods have been increasing. Like all Americans, I would be happy to pay less for Internet service. I just have no interest in paying less for service that does not work." [Ed. note: The study Carr cited was funded, in part, by the CTIA, the mobile industry's US pressure group. The study didn't cover fixed broadband affordability in the US, but worked hard to justify the high prices US consumers pay for mobile data, given the high network reliability.]

Others agree. "The introduction of price controls would diminish competition, as usually incumbents and bigger companies are the ones able to operate with smaller or negative profit margins, thus crowding out potential competitors," wrote two officials with the American Action Forum, a self-described "center-right" nonprofit. "Consumers would end up paying the price of a more rigid market, as companies would face less pressure from competitors, allowing them to charge higher prices, provide a lower quality service, or postpone research and development investments."

However, some analysts aren't too worried about the prospect of the White House deciding whether Internet services should cost $20 per month, $40 per month or something else.

"The current thinking inside [Washington] DC is that language around pricing and affordability of broadband for all ... is not going to include direct price controls," wrote the financial analysts with Raymond James in a recent note to investors.

"We see no prospect for general price regulation," agreed the New Street analysts.

Negotiation tactics

Nonetheless, the issue appears to be up for debate.

For example, a group of top ISPs – including Verizon, AT&T, Comcast, Charter – and some public-interest groups argued that lawmakers should create "a long-term federally-funded broadband benefit program that the FCC would manage and administer to provide low-income individuals with enhanced financial support for broadband long after the pandemic ends." They said the program should work like the new $3.2 billion Emergency Broadband Benefit that the FCC is currently allocating.

Indeed, some Democratic lawmakers are already proposing another round of funding to bolster the Emergency Broadband Benefit program, according to Politico.

But some analysts think Biden's strongly worded pricing proposals are actually designed to give the administration a firmer starting point in the debate over broadband for all.

"We believe that this commentary is designed to send a message that, while the [Biden] plan will include subsidies [for consumers], broadband providers shouldn't assume that the subsidies will simply allow them to continue with business as usual, with the taxpayer picking up a portion of the tab of broadband expansion," argued the financial analysts at Evercore. "We don't, however, believe that the administration is giving serious consideration toward actual price regulation of broadband. Rather, the focus is on using the bully pulpit to keep political pressure on broadband providers to ensure that they keep pricing at reasonable levels."

So what's next? The financial analysts at Cowen expect to know more next month, after the government's budget bill is introduced. Then, some kind of broadband legislation might be passed by September. Maybe.

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

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