Research Peek of the Week: Affordable Connectivity Program Improves Economic Case for Deployment, Reducing BEAD Subsidy Amount Needed by 25% Per Household

A report developed by Boston Consulting Group (BCG) in partnership with Common Sense found the Federal Communications Commission’s (FCC) Affordable Connectivity Program (ACP) reduces the amount of Broadband Equity, Access, and Deployment (BEAD) Program subsidy needed to incentivize providers to build in rural areas by 25% per household. According to the report, the economic case for deployment is improved by the ACP because:

1. It effectively lowers the cost of service and thereby increases the take-up rate (i.e., the percentage of households that subscribe to internet service).
2. ACP subscribers have lower churn (i.e., fewer cancellations per month). Because their bill is subsidized by the government, an ACP household’s ability to subscribe is less contingent on income and employment. For similar reasons, ACP households are also less likely to voluntarily churn because some price sensitivity is removed. Moreover, ACP customers are less likely to switch service providers because the burden of signing up with a government benefit is higher.
3. ACP subscribers are easier for ISPs to acquire. Governments and philanthropies are funding awareness campaigns, and community organizations are assisting with enrollment. These activities reduce the marketing costs needed to acquire ACP subscribers.

From the study authors: “The existence of ACP, which subsidizes subscriber service fees up to $360 per year, reduces the per-household subsidy required to incentivize ISP investment by $500, generating benefit for the government and increasing the market attractiveness for new entrants and incumbent providers.” Thus, “if Congress fails to reauthorize ACP, the federal government likely will end up overpaying for broadband deployments. As a result, the federal dollars will end up funding deployments to significantly fewer unserved and underserved homes and businesses,” the National Urban League observed.

The Common Sense study emphasizes that “the ACP does not currently have a permanent source of funding, and, unless additional funding is secured, the ACP will exist only until its original appropriation is depleted, which may be as early as 2024 or 2025. Given the importance of affordable connectivity, institutions should consider advocating for additional ACP funding…”

Source