ISPs say they can’t expand broadband unless gov’t gives them more money

Broadband providers have spent years lobbying against utility-style regulations that protect consumers from high prices and bad service.

But now, broadband lobby groups are arguing that Internet service is similar to utilities such as electricity, gas distribution, roads, and water and sewer networks. In the providers' view, the essential nature of broadband doesn't require more regulation to protect consumers. Instead, they argue that broadband's utility-like status is reason for the government to give ISPs more money.

That's the argument made by trade groups USTelecom and NTCA—The Rural Broadband Association. USTelecom represents telcos including AT&T, Verizon, and CenturyLink, while NTCA represents nearly 850 small ISPs.

"Like electricity, broadband is essential to every American," USTelecom CEO Jonathan Spalter and NTCA CEO Shirley Bloomfield wrote Monday in an op-ed for The Topeka Capital-Journal. "Yet US broadband infrastructure has been financed largely by the private sector without assurance that such costs can be recovered through increased consumer rates."

ISPs want benefits but not responsibilities

While ISPs want the benefits of being treated like utilities—such as pole attachment rights and access to public rights-of-way—they oppose traditional utility-style obligations such as regulated prices and deployment to all Americans.

The industry's main arguments against net neutrality and other common carrier regulations were that broadband shouldn't be treated as a utility and that the broadband market is too competitive to justify strict regulations. "Utility regulation over broadband can only inhibit incentives for network investment," AT&T warned in November 2017. Further Reading Report: Verizon FiOS claimed public utility status to get government perks

Industry groups have also tried to stop cities and towns from building their own networks, saying that the government shouldn't compete against private companies. Telecom-friendly legislatures have passed about 20 state laws restricting the growth of municipal broadband.

Despite the industry's fight against municipal networks, Spalter and Bloomfield wrote that the "private-led investment model" only works well in "reasonably populous areas." In rural parts of America, "the private sector can't go it alone," they wrote.

To close the rural broadband gap, the US needs "solutions that unite the public and private sectors to finish the job of building a truly connected nation," Spalter and Bloomfield wrote. This public/private model is "without question... the only acceptable path forward just as it was in wiring rural America with electricity and building our nation's highways."

"Broadband providers need a committed partner to finish the job of connecting unserved communities. That partner should be all of us as Americans—in the form of our government," they wrote.

The op-ed did not explain why the FCC's repeal of net neutrality rules wasn't enough to spur expanded broadband investment, though broadband industry lobby groups previously claimed that the rules were holding back network expansions and upgrades. ISPs also promised more investment in exchange for a major tax break that was passed by Congress late last year.

To make their point, USTelecom and NTCA commissioned a report titled, "Rural Broadband Economics: A Review of Rural Subsidies."

The "costs per user" of building networks in sparsely populated areas led to "unsustainable business models to provide network services," the USTelecom/NTCA report says. The report was written for USTelecom and NTCA by telecom consulting firm CostQuest Associates. It continues:

In this respect, there are similarities between networks in communications, electric power, roads, natural gas distribution, water distribution, and sewer networks. By the very nature of network economics, each industry exhibits economies of density and each reaches a point at which un-subsidized provision of service in low-density areas is not viable.

The report goes on to describe "the importance of subsidies to networks in low-density areas" for essential services including electricity, road networks, natural gas, water distribution, waste disposal, and broadband.

Despite subsidies, rural broadband is still poor

Of course, private Internet service providers already receive various subsidies from states and the federal government, including $1.5 billion a year for rural networks from the Federal Communications Commission's Connect America Fund. Despite this, telcos like AT&T have mostly avoided upgrading their copper networks to fiber, except in areas where they face competition from cable companies, we noted in a recent article. Further Reading Comcast, Charter dominate US; telcos “abandoned rural America,” report says

Nearly 31 percent of the 43.6 million Americans in rural areas do not have access to home Internet service with speeds of at least 25Mbps down and 3Mbps up, according to the FCC.

The USTelecom/NTCA report argues that ISPs need more money from Americans, saying the government could boost subsidies to private firms with "access to low-cost infrastructure, low-interest loans, loan guarantees, up-front payments, on-going payments, and/or other mechanisms."

The report notes that, historically, telecommunications networks were subsidized in order to establish universal phone service, and carriers were subject to rate-of-return regulation that limited the amount they could charge consumers. Unlike today's broadband providers, prices charged by electric companies and other utilities are still regulated in many US states.

But the increased subsidies for private ISPs proposed by the USTelecom/NTCA report apparently wouldn't come with any limits on what carriers can charge consumers; the report states that rate-of-return regulation would be "unsustainable in modern competitive communications markets."

Only three options (or some combination thereof) are possible in such low-density areas: 1) prices are higher in low-density areas to reflect higher costs; 2) service is not offered in low-density areas since demand is insufficient to cover the higher costs; and/or 3) the higher costs of providing service are subsidized (at least partially). The public and the FCC are disinclined to accept higher prices in rural areas (which often have lower incomes). The remaining choice is between subsidizing broadband, by some method, or leaving the most rural areas of the US without broadband service.

There are more options than just subsidizing private companies or having poor access in rural America, though. Instead of giving government money to private companies that get to choose what price to charge, many municipalities have built their own networks in order to boost speeds in areas neglected by private companies.

Proponents of municipal broadband say that the private model's failure in rural areas shows that cities and towns should consider taking a more direct role in providing Internet access.

"The federal government has offered billions of dollars to CenturyLink and AT&T, resulting in little infrastructure improvement. Despite funding, speeds still do not meet the FCC definition of broadband," the Institute for Local Self-Reliance (ILSR) notes in a fact sheet. Further Reading States win the right to limit municipal broadband, beating FCC in court

Local governments in more than 750 communities have invested in wired telecommunications networks, with cooperatives and other local organizations providing fiber-to-the-home in many areas that were underserved by private companies, the ILSR says.

Chattanooga, Tennessee, is a good example of the municipal model. The Electric Power Board (EPB) of Chattanooga offers gigabit Internet service for $70 a month and was the highest-rated ISP in a recent Consumer Reports survey. EPB built its network and turned a profit despite having to defeat a lawsuit filed in 2008 by Comcast, which tried to stop the network from being built.

Providing Internet service directly to residents isn't the only municipal-led option, the ILSR notes. Cities and towns can also build "open-access networks [that] allow multiple ISPs to operate on publicly owned infrastructure, creating competition to improve speeds and lower prices."

That wouldn't please broadband industry lobbyists who have been fighting municipal efforts to expand public broadband options. USTelecom and NTCA both fought an FCC attempt to preempt state laws that limit the spread of municipal broadband, and they cheered in 2016 when a court struck down the FCC attempt to allow expansion of city-run broadband networks.

In their op-ed, Spalter and Bloomfield argued that government funding should be given to "experienced broadband providers" rather than to newcomers.

"With adequate and constructive government support, alongside the continued commitment and innovation of our nation's broadband companies, the dream of a truly connected nation is within reach. It's time to make it a reality for all Americans," they wrote.