Rate Regulation Harms Broadband Competition, ACA Connects Study Finds
Rate regulation would harm competition in the broadband marketplace and undermine efforts to close the digital divide, said ACA Connects in a new study released Thursday. The study, conducted in partnership with Cartesian, found four "cascading" effects of rate regulation: less investment, less competition, a slowdown in pricing declines and harm spillover.
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"Rate regulation effectively will reduce the amount of revenue that's available" for ISPs, said Cartesian Vice President Michael Dargue during a webinar Thursday. That would result in fewer investments because ISPs "wouldn't be able to offset that last revenue through increased uptake."
The study identified $33.5 billion in viable broadband investments, but under a low-income requirement to charge $30 monthly, investment dropped by 19%. Under a $15 low-income plan, potential investments decreased by 25%. When extended to broader market regulations, the study calculated about $10 billion in annual capital losses.
“When you reduce ARPU [average revenue per user], you take away essential revenue and shrink the number of projects that are financially viable,” Dargue said: “Even a small drop in ARPU can push projects over the edge.” The study found that rate regulation would result in a decrease in investments in network expansions and upgrades, reducing the number of competitors that would otherwise exist.
The study cited several states with enacted or pending legislation establishing broadband affordability laws. In New York, ISPs must offer speeds of at least 25 Mbps at $15 per month or 200 Mbps at $20 per month. California, Massachusetts, Vermont, Maryland, Minnesota and Connecticut have similar legislation pending.
ACA Connects was among a coalition of industry groups that challenged New York's Affordable Broadband Act, which went into effect earlier this year (see 2412160039). Some ISPs, like AT&T, have withdrawn certain service offerings from the state (see 2501210041). Not all states are moving in the same direction, however. In Tennessee, local governments are barred from regulating broadband services, and ISPs are exempt from being classified as public utilities.
Cartesian relied on the FCC's urban rate survey when analyzing broadband pricing trends and affordability, Dargue said. That study found a steady price decline in urban areas, with the average monthly price for 100 Mbps service dropping 47% since 2017.
Although broadband networks are multiuse platforms, broadband remains the primary driver for most providers, the study said. It found that rate regulation could unintentionally squeeze small providers out of the market, impose added costs on them for compliance, and limit their footprint. “Rate regulation, while well-intentioned, creates real disincentives for smaller providers to enter the market,” said Brian Hurley, ACA Connects' senior vice president-legal and regulatory affairs: "That ultimately reduces competition, ironically making service worse and prices higher in the long run."
The study also found that the effect of rate regulation would vary by state. Because of their size, Florida, California and Texas would lose the most investment in absolute dollar terms, but states like Montana, New Hampshire and Maine would suffer the highest percentage losses related to their originally projected capital investment. That means fewer upgrades and competitive options in the areas most in need of connectivity, Dargue said.