Viewpoints
By: Steven S. Ross, Broadband Communities
I was happy to see new rules on pricing clarity approved by the FCC March 14. I was delighted about the 2022 ban on landlords making a profit on broadband. But the proposed bulk pricing ban in the works seems absurd.
The White House and Federal Communications Commission (FCC) have signaled they want to ban or sharply restrict bulk pricing agreements. Current regulations, issued in 2022 loosely target abusive landlords on this issue, mainly by banning revenue-sharing deals between landlords and broadband providers. But critics say the rules should be much broader.
While I applaud the earlier action, and the commission’s March 14 action banning junk fees and demanding clear pricing of all broadband services, what we’ve seen so far with regard to the privately circulating proposed ban on bulk pricing is absurd and counterproductive. It will reduce deployment of new networks, reducing competition – an effect exactly opposite its stated purpose.
In a bulk arrangement, residents being served are typically required to pay a set monthly fee to landlords or homeowner associations, even if they use another carrier or do not use broadband at all.
The bulk fee tends to be low – typically under $40 a month and often much lower – because the carrier saves on marketing, billing, and financing costs, and because it is far cheaper per dwelling or unit to deploy broadband in an apartment building, compared to single-family homes. Bulk seems to be getting more popular as newly deployed networks tend to serve only broadband. Content tends to be charged separately, outside of the mandatory bulk fee.
Nevertheless, bulk pricing affects only a small proportion of broadband customers – just over 2 percent — and less than 9 percent of customers living in apartments. The data is an average of 2022 and 2023 consumer responses from market researcher Michael Render’s annual RVA/Fiber Broadband Association surveys. That amounts to about 3 million households, including college dorms and long-term care facilities. But large multiple dwelling unit buildings alone are now about 40 percent of new housing, compared to about a quarter of existing housing.
Aside from reliability issues, the bandwidth and latency served tends not to vary much in new builds. A few additional features, such as availability of fixed IP addresses (important for secure networking demanded by many companies with remote workers) and fast upload speeds matter as well.
If current press releases by FCC Chairwoman Jessica Rosenworcel and various White House sources are any indication, there is a desire to go much further than the 2022 regulations. New draft regulations, still not public or final, could include condominiums and all other bulk arrangements, all in the name of “preserving” consumer choice, enhancing competition, and reducing prices consumers pay. The regulations would, in general, have precisely the opposite effect.
This sets up an interesting friendly dynamic between the major national carriers, who occasionally use bulk but see a chance to fight competition and tend to fund right-leaning politicians, along with progressives who say they want pro-consumer regulation but fail to understand how the broadband business is funded.
Smaller local carriers – who now provide more than half the new fiber-based broadband connections – and specialized broadband businesses that build and manage broadband systems in new or existing multiple-dwelling unit (MDU) buildings, see mortal danger.
Harold Feld, a senior vice president with Public Knowledge, a digital rights and consumer activist group, told me this is the only way the FCC can “protect” consumers and preserve competition, because, of course, it is not allowed to actually set rates for broadband services. That’s a job reserved mainly for states.
Affected deployers, Feld told me, should reserve some of their potential rights by responding to any FCC proposed regulation as soon as the proposal becomes public. The FCC docket procedure is easy, allowing submittals to describe the facts of your situation, but proposed new FCC rules generally allow only a 30-day comment period, and the legal costs of actually fighting the FCC would be daunting for most small carriers.
In my opinion, any new federal regulation should take the following issues into account:
1.) No outright ban of bulk pricing for student housing, because it is common and necessary in that market. Every once in a while, a carrier will try billing dorm students in the normal way. I know of no success. Even before COVID, a typical “resident” student took one course a year fully online. Today, online courses, including hybrids (typically lectures online with small, in-person breakout sessions) are even more common. Private developers often build student housing and there are plenty of complaints about rent. But that is not an FCC issue. Bundled mandatory broadband fees are typically 1 percent of the total, or less.
2.) Feld said condos should be treated as landlords. That may be unfair, but it may be “collateral damage,” he said, because of their relative rarity. I note also that many condo units are rented by absentee owners and all condo fees are typically included in the rent. As overall rents are typically set by the market, not owner cost, I doubt it makes a difference. But what happens when a condo homeowner association (HOA) makes a deal with a broadband provider or becomes its own provider? Deals I see now often follow this path:
- Someone who knows how to run a system makes a deployment proposal to the HOA.
- The “someone” arranges financing, backed by the bulk fee.
- The deployment is financed over 5 to 7 years and leased to the condo through the HOA.
- The fully depreciated asset is then handed over to the HOA.
- Pricing to condo unit owners is often roughly what the “affordable” tier would be, around $30/month. But no bulk deal, no financing.
By the way, as all deployers know, it is far more difficult to deal with a typical HOA than with a typical owner.
3.) When these deals are done by “landlord as building owner,” they are trickier because the landlord could see a new revenue opportunity or wish to build in a cushion – the existing renters, in effect, pay the cost of serving empty apartments. So those deals tend to be the realm of national carriers or existing local carriers. That’s why, as noted, the FCC banned such deals in 2022.
4.) There are still many carriers using the “private cable operator” model even though they have not had guaranteed access to existing trunk since 2004. Some offer bulk pricing, and as it is cheaper than billing, that’s not unpopular. Banning bulk would put many private cable operators out of business and they are already screaming. A joint press release in March noted their disapproval to possible new regulations, but did not detail why, because the final rule is still in flux.
The broadband environment is also slowly changing. In very sparse regions, SpaceX low-earth-orbit satellites may be a good option, for instance. Current equipment is optimized for individual dwelling units, but could be adapted by individual apartment dwellers in many cases. But what’s the incentive? Starlink by SpaceX costs more than the typical bulk deal, for less reliable service. And, of course, MDUs are scarce in such regions anyway.
There are also an increasing number of community-owned open-access systems whose broadband borrowing is guaranteed by revenue that might even be a tax – the “public” equivalent of bulk pricing.
In those cases, private networks built by planned unit developments, MDU owners, or communities themselves to serve public facilities could also be seen as “cherry-picking” that erodes the ability of a private carrier to wire an entire community. My annual survey of new MDU permits shows little overlap between communities with new, large MDUs, and communities planning on their own network deployments. But, I know that planned unit developments are more common in low-population areas.
Conclusion: The circulating proposal supposedly requires a tenant to opt out of bulk rather than opt-in. That is small comfort to new deployers providing the competition the White House wants. In a sense, the high-handed reputation (not always based on fact) of national carriers over the years has poisoned the well.
The national carriers do indeed account for the majority of current broadband customers, but new deployers easily hold their own. I cannot imagine this proposed new rule is in the interests of consumers or of a government that wants everyone to have good broadband for the sake of national resiliency in times of disease or national disasters.
