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What It Will Take to Make Rural Broadband Affordable — and Keep It That Way

Tens of billions in federal funds are on the way to spread high-speed Internet across the countryside. States should structure their grant programs to make sure markets are competitive.

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There’s no question that the Biden administration’s historic investment of more than $42 billion in broadband expansion will change the telecommunications landscape. By May, every state is required to have plans in place to build unprecedented amounts of high-speed Internet infrastructure. That’s great news for rural America, where too many residents continue to have few or no affordable broadband choices.

But the reality is that the Broadband Equity, Access and Deployment (BEAD) Program can’t erase every broadband gap. And it’s that resource-limited reality that is forcing policymakers to prioritize efficiency — building the most they can with the money available. Now is the time for policymakers to act to ensure that we have the best, most affordable broadband infrastructure for all of rural America.

Grant programs that prioritize efficiency above all else naturally favor applicants with the greatest economies of scale — the big incumbent Internet service providers (ISPs) that have their own construction crews and can purchase goods and materials in bulk. That is not a bad thing in and of itself.

However, for smaller ISPs — including cooperatives, nonprofits, rural telephone companies and municipally operated providers — the structure of BEAD funding also makes it an expensive opportunity. Due to matching-fund requirements, letter-of-credit backing and the taxable nature of the grants themselves, the largest private-sector ISPs will be the ones able to apply for the most funding.

Consequently, many of the smaller providers — the ones that typically get great customer-service grades and don’t have investor-driven incentives to extract as much revenue as possible from subscribers in smaller markets to subsidize larger markets — will be less competitive under the likely rules in most states.

What this foreshadows is a future in which the ISPs that win the bulk of public funding are the ones motivated to raise prices in communities with BEAD-funded projects and decrease costs by cutting back on maintenance and customer service. This would be especially harsh for rural places.

To be clear, this is not a foregone conclusion. If states truly care about long-term affordability and access, they can structure these grant programs in a way that protects rural areas from the extractive behavior we’ve seen in the past. Awarding the bulk of BEAD funds to large ISPs and equity-backed firms with no guardrails in place is a short-term win that risks creating environments with no constraints on how providers can derive profits.

A number of states have mandated that affordability measures remain in place, but for just five years. Why should we let companies off the hook a quarter of the way (or less) into the useful life of this infrastructure that the public is paying for?

In order to protect public interests in BEAD funding, states need to create thoughtful policies that address long-term affordability and equity. Some states, interpreting guidance from the National Telecommunications and Information Administration, have tried to set exact customer prices that BEAD recipients must offer to be eligible. But this idea will not work well for ISPs big or small: The economics of building and maintaining rural infrastructure are so challenging that mandated pricing could prevent a network from being sustainable.

Yet there are ideas circulating that both encourage long-term public benefit and do not risk creating unsustainable networks. Vermont, for example, is proposing to award grant points to applicants that reinvest future revenues into affordability. Alternatively, Alaska is among states proposing to limit ISPs to service rates that are 120 percent of those in urban areas, which acknowledges that providing rural service is more expensive but also ensures that ISPs do not charge excessive fees when they are the only provider in the area. Other states are considering matching rural service rates to costs in urban areas.

Another strategy states should embrace is ensuring that all types of ISPs can be competitive in this program. Virginia offers a great solution that all states can adopt, proposing to award 10 percent of BEAD application points to providers who can prove strong community support. This allows small ISPs that provide great service and have a positive reputation in the community to earn points that can make up for disadvantages they may have when it comes to construction costs due to their lack of scale.

Many states are engaged in the feedback period before submitting their final BEAD grant rules. This represents the last, best chance to advocate for states to prioritize affordability for networks that will be built with this once-in-a-lifetime funding.

Matt Dunne is the founder and executive director of the Center on Rural Innovation, which he launched in 2017 to reverse the nation’s growing rural opportunity gap and create economic prosperity for small-town residents.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
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