Reform the ACP

Reform the ACP

On Thursday, the Senate will hold a hearing on “The Future of Broadband Affordability.” The Affordability Connectivity Program (ACP) that provides subsidies for more than 20 million low-income households will expire in May. Without the extension, these families will see the cost of the internet service increase by up to $30 per month and prompt some families to drop internet service altogether.

Congress should take action to ensure affordable internet access but can make the ACP much more cost-effective. Let us explain.

The ACP helps low-income families connect and stay connected to the internet by providing eligible households subsidies of $30 per month (or $75 on qualifying tribal lands) plus up to $100 for a laptop, desktop, or tablet. Most leading internet service providers (ISPs) responded to the ACP by creating $30 service plans that provide ACP households access to high-speed internet services without paying monthly fees. According to the Federal Communications Commission (FCC), about 30 percent of ACP participants surveyed indicated that they will drop service if the subsidy disappears.

Prior to the ACP, ISPs offered low-priced service plans to qualifying low-income households without government subsidy. For example, Comcast’s Internet Essentials Plan cost low-income households $9.95 per month and the Spectrum Assist plan cost $24.99 per month (and was lower before pandemic-era subsidies). Unsubsidized low-income programs deliver speeds up to 100 megabits per second (Mbps), but many are in the 25 – 50 Mbps range. Most of these plans are available today, but are not widely used because low-income households enroll in plans designed for households that receive ACP subsidies.

ISPs that had low-income programs prior to the ACP increased their profits by moving customers from unsubsidized plans to the subsidized ACP plan. For example, ISPs that offered unsubsidized plans for $9.95 per month eliminated household out-of-pocket costs and increased profit by moving customers from the $9.95 low-income plan to their new $29.95 ACP plan. In these cases, the ISP captured $20 of the ACP subsidy, and two-thirds of the ACP subsidy had no direct effect on the number of low-income households connected to the internet. More recently, ISPs have begun promoting low-cost plans that will be available to ACP households that lose their subsidies in May.

Low-price plans provide policymakers the opportunity to adopt program changes that reduce costs without significantly affecting the number of households connected to the internet. Revisions to the ACP that reduce the share of subsidy dollars captured by ISPs allow policymakers to continue to ensure affordable internet and could reduce the cost of the ACP by up to $3 billion per year.

Maintaining the equipment subsidy, reducing the subsidy from $30 to as low as $10, and allowing ACP participants to select low-priced service plans with 25 or 50 Mbps would keep most ACP households connected to the internet.

While some will argue that the ACP should only subsidize services that provide at least 100 Mbps, there is no evidence that services that provide 25 or 50 Mbps prevent households from participating in a digital society. Most of the things we do on the internet do not require much more than a total of about 15 Mbps, even for a family of four. Online services needed to work and learn from home, search for jobs, use government services, consume basic telehealth services, and perform other essential online functions require fewer than 25 Mbps. Zoom calls require only about two Mbps and streaming high-definition Netflix shows require five Mbps.

Congress can keep broadband affordable and save the government money by adjusting and extending the ACP.

Gregory Rosston is the Gordon Cain Senior Fellow at the Stanford Institute for Economic Policy Research and Director of the Public Policy program at Stanford and a member of TPI’s Academic Advisory Board.  Bradley Wimmer is Professor of Economics at the University of Las Vegas. Both served as economists at the Federal Communications Commission.

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