What are you looking for?

Showing 9 of 37 Results in Digital Divide

Will the USF Survive the 5th Circuit?

TOTM The Telecom Hootenanny is back from a little summer break. As they say on AM radio: “If you miss a little, you miss a lot.” . . .

The Telecom Hootenanny is back from a little summer break. As they say on AM radio: “If you miss a little, you miss a lot.” So rather than trying to catch up, let’s focus on some of the latest news from the telecom dancefloor. For this edition of the Hootenanny: we’ve got a big-time challenge to the Federal Communications Commission (FCC) heating up in the 5th U.S. Circuit Court of Appeals; an upgrade to the rapidly running-out-of-money Affordable Connectivity Program (ACP); and some big contrasts in how states plan to use their Broadband Equity, Access, and Deployment (BEAD) Program funds. Read the full piece here.
Continue reading
Telecommunications & Regulated Utilities

Antitrust and FCC Oversight Are Needed to Promote Broadband Deployment in the Tennessee Valley

TOTM In late June, Sen. Mike Lee (R-Utah) sent a letter to Assistant Attorney General Jonathan Kanter arguing that the U.S. Justice Department (DOJ) needs to investigate the . . .

In late June, Sen. Mike Lee (R-Utah) sent a letter to Assistant Attorney General Jonathan Kanter arguing that the U.S. Justice Department (DOJ) needs to investigate the Tennessee Valley Authority (TVA) and its local power companies (LPCs) on grounds that abuses of the pole-attachment process appear to be slowing broadband deployment.

Read the full piece here.

Continue reading
Telecommunications & Regulated Utilities

The Role of Antitrust and Pole-Attachment Oversight in TVA Broadband Deployment

ICLE Issue Brief I.       Introduction As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for . . .

I.       Introduction

As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for broadband deployment, mapping, and adoption projects through the Broadband Equity, Access, and Deployment (BEAD) program, with the stated goal of directing the funds to close the so-called “digital divide.”[1] But actions by pole owners—such as refusing to allow broadband companies to attach their lines on reasonable and nondiscriminatory terms—threaten to slow broadband deployment significantly.

In a recent letter to Assistant Attorney General Jonathan Kanter, Sen. Mike Lee (R-Utah) put forth the argument that the U.S. Justice Department (DOJ) should take action to address abuses of the pole-attachment process by local power companies (LPCs) regulated by the Tennessee Valley Authority (TVA).[2] His concern is that such abuses threaten to slow broadband deployment, especially to rural areas served by the TVA and the LPCs.[3] Among the abuses he details are:

  • Delaying or refusing to negotiate pole-attachment agreements with competitive broadband-service providers, including when the TVA LPC provides broadband service (itself or through a joint venture agreement) or is interested in doing so;
  • Initially refusing to negotiate pole-attachment agreements that would enable competitive broadband-service providers to obtain permits in sufficient time to meet federal grant deadlines;
  • Refusing to review pole-attachment applications on a scale or at the pace necessary to complete broadband projects in a timeframe required by federal grant programs;
  • Refusing to follow the standard industry practice of approving a contractor to process pole-access applications in a timely manner when the utility’s staff is insufficient to do the work, even when the broadband-service provider is willing to pay the entire bill for the contractor; and
  • Refusing to process pole-attachment applications at all, and failing to respond to provider outreach regarding the processing of applications for months on end.[4]

Section 224 of the Communications Act exempts municipal and electric-cooperative (“coop”) pole owners, such as the LPCs, from oversight by the Federal Communications Commission (FCC).[5] At the same time, the TVA’s authority over pole attachments is not subject to oversight by state governments.[6] This loophole means that it is the TVA, not the FCC, that sets the rates for pole attachments. The TVA’s rates are significantly higher than those of the FCC, [7] and the TVA’s LPCs often are able to avoid the access requirements that states and the FCC typically require.[8]

But avoiding state and FCC regulatory oversight is not the only loophole that the TVA and its LPCs can exploit: the TVA and the government-owned LPCs also may not be subject to antitrust law. These entities hold a resource critical for broadband deployment, while it is essentially impossible for private providers to build competing pole infrastructure. In situations like this, government entities that participate as firms in the marketplace—known in the literature as “state-owned enterprises” (SOEs)—should be subject to antitrust law in order to ensure access by private competitors.

Sen. Lee is correct that the DOJ should examine the practices of the TVA and its LPCs under antitrust law. Antitrust clearly applies to those LPCs that are private coops, which have no immunities. But Congress should clarify that the TVA and government-owned LPCs are likewise subject to antitrust law when they act according to their “commercial functions” or as “market participants.” They should also consider bringing the TVA and all of its LPCs under the purview of the FCC’s Section 224 authority over pole attachments.

II.     The Law & Economics of State-Owned LPCs and Rural Electrical Cooperatives (RECs)

A.    The Competition Economics of State-Owned Enterprises

SOEs’ incentives differ from those of privately owned businesses. Most notably, while a private business must pass the profit-and-loss test, SOEs often are not subject to the same constraints. This difference may manifest through setting up legal SOE monopolies against which no other firm can compete; exempting SOEs from otherwise generally applicable laws; extending explicit subsidies to SOEs, whether in the form of taxpayer-financed appropriations or government-backed bonds (which the government explicitly or implicitly promises to repay, if necessary); or cross-subsidies from other government-owned monopoly businesses.

As a result, SOEs do not need to maximize profits (with Armen Alchian’s caveat that private market participants may be modeled as profit maximizers even if that isn’t their true motivation[9]) and can pursue other goals. In fact, this is exactly why some supporters of SOEs like them so much: they can pursue the so-called “public interest” by providing ostensibly high-quality products and services at what are often below-market prices.[10]

But this freedom comes at a cost: not only can SOEs inefficiently allocate societal resources away from their highest-valued uses, but they may actually have greater incentive to abuse their positions in the marketplace than private entities. As David E.M. Sappington and J. Gregory Sidak put it:

[W]hen an SOE values an expanded scale of operation in addition to profit, it will be less concerned than its private, profit-maximizing counterpart with the extra costs associated with increased output. Consequently, even though an SOE may value the profit that its anticompetitive activities can generate less highly than does a private profit-maximizing firm, the SOE may still find it optimal to pursue aggressively anticompetitive activities that expand its own output and revenue. To illustrate, the SOE might set the price it charges for a product below its marginal cost of production, particularly if the product is one for which demand increases substantially as price declines. If prohibitions on below-cost pricing are in effect, an SOE may have a strong incentive to understate its marginal cost of production or to over-invest in fixed operating costs so as to reduce variable operating costs. A public enterprise may also often have stronger incentives than a private, profit-maximizing firm to raise its rivals’ cost and to undertake activities designed to exclude competitors from the market because these activities can expand the scale and scope of the SOE’s operations.[11]

Here, entities like the TVA and many of the government-owned LPCs that sell the electricity it produces are simply not subject to the same profit-and-loss test that a private power company would be. But even more importantly for the discussion of broadband buildout, many of these government-owned LPCs also provide broadband services (or intend to), effectively using their position as a monopoly provider of electricity to cross-subsidize their entry into the broadband marketplace. Moreover, LPCs often own the electric poles and control decisions about whether and at what rates to rent them to third parties (subject to TVA rate regulations), including to private broadband providers that may compete with the LPCs’ municipal-broadband offerings.

This raises two significant issues for competition policy:

  • Because government-owned municipal-broadband providers focus on speed and price, rather than profitability, they can sometimes offer greater speeds at lower prices than private providers, deterring private buildout and competition using what, in other contexts, would be referred to as “predatory pricing” (e., the government can use its unique monopoly advantages to indefinitely set prices too low)[12]; and
  • LPCs that offer municipal-broadband services can raise rivals’ costs by refusing to deal with private broadband providers that want to attach equipment to their poles (an “essential facility” or “critical input”) or by offering access only on unreasonable and discriminatory terms.

In Verizon Communication Inc. v. Law Offices of Curtis V. Trinko LLP,[13] the U.S. Supreme Court explained the reasoning behind a very limited duty to deal under antitrust law:

Compelling… firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.[14]

In sum, a private market participant is constantly looking to acquire monopoly power by innovating and better serving customers, and temporary monopolies—acquired through a legitimate competitive process—are not unlawful. If successful, this process provides incentive for more innovation and competition, including incentives for competitors to build their own infrastructure.

But this is not so when it comes to SOEs, which can prevent competition in a way that private market participants cannot, due to their special access to legal mechanisms like eminent domain, taxes, below-market-rate loans, government grants of indefinite monopolies, and cross-subsidies from their own monopolies in adjacent markets. As a result, SOEs possess both special ability and incentive to raise rivals’ costs through refusals to deal or predatory pricing.

Ironically, the lack of a profit motive may make SOEs uniquely positioned to harm competition. Thus, it may make sense to impose on SOEs a duty to deal on reasonable and nondiscriminatory terms when it comes to pole attachments.

B.     The Economics of Co-Ops[15]

According to the National Rural Electric Cooperative Association, the trade association for rural electricity co-ops (RECs):

  • Co-ops serve 56% of the U.S. landmass and 88% of the nation’s counties, including 93% of the 353 persistent poverty counties.
  • They account for roughly 13% of all electricity sold in the United States.
  • More than 90% of electric co-ops serve territories where the average household income is below the national average. One in six co-op consumer-members live at or below the poverty line.
  • Cooperatives serve an average of eight consumer-members per-mile of electric line, but this average masks the extremely low-density population of many co-ops. If the handful of large co-ops near cities were removed, the average would be lower.
  • More than 100 electric cooperatives provide broadband service and more than 200 co-ops are exploring the option and conducting feasibility studies to do so.[16]

There are some important differences between electric co-ops and investor-owned power companies. Most importantly, co-ops are owned by their consumers. Economics helps explain why this form of organization could be pro-competitive in some situations, but the history of RECs suggests that government support and corporate rules particular to co-ops are the main reasons that we continue to rely on co-ops to distribute electricity in rural areas of the United States. As a result, RECs—especially those that distribute electricity generated and transmitted by the TVA—have incentives more like those of state-owned enterprises (SEOs) than private firms.

In other words, RECs also have the incentive and ability to act anticompetitively—e.g., by refusing to deal with private broadband providers who wish to attach to the poles they own.

1.       Why Do We Have So Many RECs?

The classic law & economics examination of firms’ choice of business organization comes from Henry Hansmann, in his book The Ownership of Enterprise.[17] He explained that the choice of ownership for any firm is driven by costs. The form that is chosen by a particular firm is that which “minimizes the total costs of transactions between the firm and all of its patrons.”[18] These costs include both transaction costs with those patrons who are not owners, and the costs of ownership, such as monitoring and controlling the firm.

Hansmann argued that the form of consumer-owned co-ops predominates in the distribution of electricity in rural areas because it is a response to the threat of natural monopoly, where high barriers to entry and startup costs suggest that one firm is likely to dominate.[19] This is particularly true in geographic areas with low population density, because the costs of building out infrastructure is extremely high per individual consumer. As such, consumers would likely be subject “to serious price exploitation if they were to rely on market contracting with an investor-owned firm.”[20] Thus, the choice is among rate regulation of an investor-owned utility, municipal ownership, or consumer ownership through a co-op.

Hansmann argued that consumer co-ops best align “the firm’s interests with those of its consumers” because they have lower overall costs than other forms of ownership in rural areas.[21] This is because electricity is a “highly homogeneous [commodity] with few important quality variables that affect different users differently.”[22] Moreover, relatively stable farm and nonfarm residential households account for the overwhelming majority of the membership and demand for electricity in rural areas, “creating a dominant group of patrons with relatively homogenous interests.”[23]

As a result, the costs of monitoring and controlling these natural monopolies are relatively lower for the consumers as owners than they would be as citizens overseeing a public utility commission in charge of regulating an investor-owned utility, or a board in charge of a municipally owned utility.

On the other hand, the history of RECs suggests that their formation and persistence may be more due to government intervention than as a market response to consumer demand. As Hansmann himself recognized, RECs received significant public subsidies in the form of below-market loans from the Rural Electrification Administration (REA), though he argues that these loans were not significant subsidies for the first 15 years); exemption from federal corporate income tax; and preferential access to power generated by the TVA.[24] On top of that, the REA essentially organized many co-ops in their early days.[25]

Nonetheless, Hansmann argues:

These subsidies have undoubtedly been important in encouraging the formation and growth of cooperative utilities, and therefore the great proliferation of rural electric cooperatives does not provide an unbiased test of the viability of the cooperative form. Evidently, however, the federal subsidies have not been critical to the success of cooperatives in the electric power industry. Even before the federal programs were enacted, there already existed forty-six rural electric cooperatives operating in thirteen different states. Also, as already noted, there was no net interest subsidy to the cooperatives for the first fifteen years of the REA. And in its early years, the REA also offered low-interest loans to investor-owned utilities that wished to extend service into rural areas, but found little interest in these loans among the latter firms.[26]

In an excellent 2018 law-review article, however, Debra C. Jeter, Randall S. Thomas, & Harwell Wells systematically detail the great lengths to which the REA went to organize co-ops in rural areas.[27] The authors convincingly argue that the co-op model was not adopted as a market response, but primarily due to the REA’s organizational efforts and the subsidies bestowed upon them.

Even if RECs were a market response to natural monopoly in rural areas at the time of their adoption, that does not mean that they would necessarily continue to be the most economically efficient model. At a given point of time, economies of scale and high costs of entry may mean that the market can only support one firm (i.e., natural monopoly). But over the last 80-90 years, underlying conditions that may have made co-ops the most efficient model may have changed. As we argued in a 2021 white paper:

[I]n any given market at a given time, there is likely some optimal number of firms that maximizes social welfare. That optimal number—which is sometimes just one and is never the maximum possible—is subject to change, as technological shocks affect the dominant paradigms controlling the market. The optimal number of firms also varies with the strength of scale economies, such that consumers may benefit from an increase in concentration if economies of scale are strong enough… And it is important to remember that the market process itself is not static. When factors change—whether a change in demographics or population density, or other exogenous shocks that change the cost of deployment—there will be corresponding changes in available profit opportunities. Thus, while there is a hypothetical equilibrium for each market—the point at which the entry of a new competitor could reduce consumer welfare—it is best to leave entry determinations to the market process.[28]

In fact, as Jeter, Thomas, & Wells go on to argue, rules particular to the co-op model make it nearly impossible to change the form of ownership through merger or acquisition.[29] These rules—adopted as part of the model acts promoted by the REA—prevent what the great Henry Manne called “the market for corporate control” that would otherwise discipline co-op managers.[30]

As has been noted by even the strongest supporters of the co-op model[31]—and seemingly undermining Hansmann’s assessment that consumer-ownership is the most effective form of organization for these entities—RECs suffer from a lack of oversight by consumer-owners, with very few ever showing up to even vote for their board of directors:


This lack of oversight from the ownership means that the board of directors can engage in all kinds of abuses, as detailed extensively by Jeter, Thomas, & Wells.[33]

Without sufficient incentives for oversight by consumer-owners or a functioning market for corporate control, there is no basis to conclude that RECs remain the best business model for distributing electricity. Their ubiquity is more due to the REA’s organizational efforts and ongoing government benefits—in the form of subsidies, tax exemptions, and preferences from the TVA—than market demand.

2.       The Competition Economics of RECs and Pole Attachments

Due to the privileged position enjoyed by RECs, particularly those that distribute electricity from the TVA, they have a unique ability and incentive to act anticompetitively toward broadband providers that want to attach to the poles they own.

Much like municipally owned electricity distributors, RECs are not motivated solely by profit maximization. RECs also have similar advantages, like access to eminent domain, below-market loans, tax exemptions, and the ability to cross-subsidize entry into a new market (like broadband) from its dominant position in electricity distribution.

On the other hand, unlike municipally owned electricity distributors, RECs can go out of business, and thus must earn sufficient revenues to remain a going concern. This means that the incentives for RECs to act anticompetitively are at least as strong as those of investor-owned firms, and may be even as strong as those of state-owned enterprises. This is especially notable, when so many RECs either have entered or are planning to enter the broadband market.

In such cases, there are strong incentives for RECs to refuse to deal with private broadband providers that are trying to deploy in—and introduce competition to—their rural areas, as Sen. Lee’s (R-Utah) recent letter to the U.S. Justice Department suggests, many of these co-ops have done exactly that.[34]

The economic logic that drives a limited duty to deal under antitrust law is that enforced sharing rarely makes sense because it reduces the incentives to build infrastructure. [35] But creating new rural infrastructure (like poles) is cost-prohibitive—at least, without the same subsidies, eminent-domain power, and other advantages that RECs have historically enjoyed. Thus, RECs may rightfully have a duty to deal with broadband providers on a reasonable and nondiscriminatory basis.

Moreover, many RECs receive little oversight from rate regulators when it comes to pole attachments. And when they do, like those RECs that distribute electricity from the TVA, the formula allows for much higher rates than the FCC would allow.[36] As a result, pole costs are much higher for broadband companies dealing with poles owned by co-ops and municipalities that are not subject to the FCC’s authority (see Figure II).[37]

III.   The Complicated Nature of Antitrust Immunities

There is, however, a complication. In his letter to the DOJ, Sen. Lee rightly complains that:

TVA’s regulatory practices enable such behavior: there is no reason why TVA’s regulation of the pole rental rates charged by its LPCs requires TVA to somehow exempt those LPCs from generally-applicable rules that protect competition by requiring pole owners to provide pole access to third parties on reasonable terms. TVA should be using its authority over LPC distribution contracts to require LPCs to offer reasonable, non-discriminatory, and prompt pole access to third-party broadband providers (particularly recipients of taxpayer-funded broadband grants) in unserved areas, rather than giving its LPCs a free pass from those requirements.[38]

Unfortunately, while Lee’s letter is addressed to the DOJ’s antitrust chief, it isn’t clear whether antitrust laws even apply to the behavior he observes. This is primarily because of two legal doctrines: federal sovereign immunity from lawsuit and state-action immunity from antitrust.

A.    Federal Sovereign Immunity and the TVA

Normally, the federal government is immune from lawsuit under the ancient (and deeply flawed[39]) doctrine of sovereign immunity, except where explicitly waived by statute. The TVA is a wholly owned corporate agency and instrumentality of the federal government. Thus, federal courts have typically found that the TVA and other federal entities operating in the marketplace are exempt from antitrust.[40] This is despite the fact that the TVA’s enabling statute states:

Except as otherwise specifically provided in this chapter, the Corporation… may sue and be sued in its corporate name.[41]

There is, needless to say, nothing in the chapter that actually says the agency can’t be sued for antitrust violations. The older cases finding the TVA to be exempt from antitrust are likely to be found wrongly decided under the logic of the U.S. Supreme Court’s most recent case dealing with TVA’s immunity from suit. In 2019, the Court took up Thacker v. TVA,[42] which asked whether the TVA was immune from lawsuits for negligence. The Court rejected the lower court’s reasoning that the TVA was immune for torts arising from its “discretionary functions,” substituting a new test as to whether the TVA was acting pursuant to its governmental function or a commercial function. As the Court stated:

Under the clause—and consistent with our precedents construing similar ones—the TVA is subject to suits challenging any of its commercial activities. The law thus places the TVA in the same position as a private corporation supplying electricity. But the TVA might have immunity from suits contesting one of its governmental activities, of a kind not typically carried out by private parties.[43]

The Court also gave examples to help distinguish the two:

When the TVA exercises the power of eminent domain, taking landowners’ property for public purposes, no one would confuse it for a private company. So too when the TVA exercises its law enforcement powers to arrest individuals. But in other operations—and over the years, a growing number—the TVA acts like any other company producing and supplying electric power. It is an accident of history, not a difference in function, that explains why most Tennesseans get their electricity from a public enterprise and most Virginians get theirs from a private one. Whatever their ownership structures, the two companies do basically the same things to deliver power to customers.[44]

The test to be applied, therefore, is “whether the conduct alleged to be negligent is governmental or commercial in nature… if the conduct is commercial—the kind of thing any power company might do—the TVA cannot invoke sovereign immunity.”[45] Here, that arguably means that, when the TVA is acting pursuant to its commercial function, it should not receive immunity from antitrust suit.

On the other hand, Congress gave the TVA broad ratemaking authority and contractual powers. One federal court (previous to Thacker) rejected an antitrust challenge to the TVA’s ratemaking formula because it was a “valid governmental action and [therefore] exempt from the antitrust laws of the United States.”[46]

As noted above, some LPCs have entered into the municipal-broadband market and act as competitors to private broadband companies who want to attach to poles owned by LPCs. Thus, even though competition economics would suggest that LPCs would have a greater incentive to raise rivals’ costs by charging a monopoly price, the TVA would likely argue that it is acting in its government function when it sets those rates.[47] If courts agree, then antitrust law would not be able to reach that problem.

Consistent with the Court’s reasoning in Thacker, however, courts could find that antitrust law reaches agreements between wholesalers (like the TVA) and retailers (like the LPCs) to charge certain rates for pole attachments to competitors in an adjacent market. This would arguably be an example of the TVA acting as any other power generator would, pursuant to its commercial function, through some type of price-maintenance agreement. As it stands, it isn’t clear which way the courts would go.

Congress should strongly consider clarifying that the TVA is not exempt from antitrust scrutiny when it acts pursuant to a commercial function, including when it sets anticompetitive rates for pole attachments that would slow broadband buildout. This clearly affects the market for access to LPC-owned utility poles.

B.     State Action Immunity and the LPCs

Even if the commercial versus government distinction is clarified with respect to the TVA, there is a further wrinkle as it relates to antitrust scrutiny of LPCs. This concerns how the TVA’s actions interact with state-action immunity in antitrust law.

Grounded in the 10th Amendment, the Supreme Court has found there is immunity from antitrust laws for conduct that is the result of “state action.”[48] This doctrine has been interpreted to immunize anticompetitive conduct pursuant to state and local government action from antitrust claims, so long as “the State has articulated a clear … policy to allow the anticompetitive conduct, and second, the State provides active supervision of [the] anticompetitive conduct.”[49] When it comes to municipalities, however, the Court has found that “[o]nce it is clear that state authorization exists, there is no need to require the State to supervise actively the municipality’s execution of what is a properly delegated function.”[50]

The Supreme Court has also left open the possibility of an exception to state-action immunity when government entities themselves are acting as market participants.[51] In one case dealing with a local municipally owned power plant in Louisiana, the Supreme Court did not grant broad immunity from antitrust laws, in part because:

Every business enterprise, public or private, operates its business in furtherance of its own goals. In the case of a municipally owned utility, that goal is likely to be, broadly speaking, the benefit of its citizens. But the economic choices made by public corporations in the conduct of their business affairs, designed as they are to assure maximum benefits for the community constituency, are not inherently more likely to comport with the broader interest of national economic well-being than are those of private corporations acting in furtherance of the interests of the organization and its shareholders.[52]

While there are a few cases applying this distinction in lower federal courts,[53] there is no Supreme Court caselaw determining how to differentiate when, for the purposes of state-action immunity, municipal corporations act as market participants versus when they act as government entities. Jarod Bona and Luke Wake have proposed applying a test similar to the one the courts use in dormant Commerce Clause cases.[54] The distinction made by the Supreme Court in Thacker and discussed above may also be applicable.

Government-owned LPCs are creatures of states or municipalities. As such, they would certainly argue they are immune from antitrust scrutiny, even when they refuse to deal with private broadband providers with whom they compete while withholding a critical input (i.e., the ability to attach to their poles). But there are two problems with this argument.

First, it seems unlikely that the LPCs could argue that they are acting pursuant to a clearly articulated policy of displacing competition when they refuse to deal with broadband providers. As Sen. Lee pointed out in his letter, there are state laws that would impose a duty to deal on reasonable and nondiscriminatory terms, but for any exemptions to that authority due to the TVA.[55] For instance, North Carolina and Kentucky require all pole owners not subject to FCC Section 224 authority to offer nondiscriminatory pole access.[56]

On the other hand, they could appeal to the TVA’s contract authority,[57] in addition to the TVA’s stated policy that its purpose is “to provide for the … industrial development” of the Tennessee Valley.[58] But even if this grants the TVA authority to regulate rates for pole attachments, it doesn’t mean the TVA has enunciated an articulable policy of displacing competition in refusing to deal with broadband providers. It also would appear to be contrary to the purpose of promoting industrial development to forestall broadband deployment in the Tennessee Valley because LPCs that also have municipal-broadband systems don’t want that competition. In other words, their refusal to deal is not protected by an appeal to any articulable policy to displace competition, either by a state or the TVA.

Second, under the caselaw that does exist, government-owned LPCs are market participants that should not receive antitrust immunity. For instance, in one case, a private arena owner challenged under antitrust law an exclusive contract between a municipal-arena owner and LiveNation.[59] The court held that state-action immunity was “less justified” because the municipality’s “entertainment contracts” reflected “commercial market activity,” not “regulatory activity.”[60] Here, the LPCs’ actions as both power companies and municipal-broadband providers reflect commercial-market activity more than regulatory activity. They shouldn’t be able to claim immunity from antitrust for this refusal to deal, any more than a private broadband provider could.

In sum, the LPCs’ anticompetitive refusal to deal appears to be separate from the rates set by the TVA pursuant to its ratemaking authority or contractual powers. They should be subject to antitrust law. But due to uncertainty in this area, Congress should clarify that LPCs are not immune from antitrust scrutiny, and consider codifying the market-participant exception to state-action immunity in antitrust statutes.

IV.   Section 224 of the FCC Act

In his letter, Sen. Lee noted that, under Section 224 of the Communications Act, “Congress determined that poles and conduits are essential facilities that lack a viable market-based alternative, which led it to require utilities to extend nondiscriminatory access to utility poles to cable operators and competitive telecommunications providers.”[61] While acknowledging that TVA distributors are not subject to Section 224, Lee argued that “the congressional conclusion that poles are essential facilities that lack a viable market-based alternative holds for all poles.”[62] Lee further noted that the “TVA’s regulation of its LPCs’ pole attachment rates also impedes competition by setting rates well above the rates set by the FCC and deemed compensatory by the U.S. Supreme Court, inflating the cost for competitive broadband providers unaffiliated with TVA LPCs to offer service.”[63]

Theoretically, government-owned LPCs and cooperative LPCs are subject to some oversight when they run services like municipal broadband, either from voters or member-owners. But it is implausible that such oversight can be truly effective, given that these pole owners are not subject to normal market incentives and have their own conflicts of interest that encourage hold-up problems. Combined with their ability to cross-subsidize operations in broadband from their electricity customers, it should be clear that these entities pose a host of potential public-choice problems.[64]

Indeed, as FCC Commissioner Brendan Carr has noted:

I continue to hear concerns from broadband builders about unnecessary delays and costs when they seek to attach to poles that are owned by municipal and cooperative utilities. Unlike what we are doing in today’s item, there is a strong argument that Section 224 does not give us authority to address issues specific to those types of poles. Therefore, I encourage states and Congress to take a closer look at these issues—and revisit the exemption that exists in Section 224—so that we can ensure deployment is streamlined, regardless of the type of pole you are attaching to.[65]

We echo both Sen. Lee’s and Commissioner Carr’s sentiments here. The FCC’s important work on this matter stands to benefit millions of Americans trapped on the wrong side of the digital divide. The co-op and municipal loophole poses a major obstacle to achieving these ends. Insofar as Congress prioritizes quick and efficient broadband buildout, the TVA and its LPCs should not be able to thwart these goals through anticompetitive rates and refusals to deal. Congress should revisit this issue and grant the FCC jurisdiction over these types of pole owners.

V.     Conclusion

Sen. Lee’s letter to the DOJ highlights issues that are extremely important to closing the digital divide. Broadband deployment could be harmed as a result of the practices by the TVA and the LPCs. If DOJ Antitrust Division chief Jonathan Kanter is serious about taking on gatekeeper power,[66] he should start here: with public entities granted a truly unassailable gatekeeper position over private markets. But even more importantly, Sen. Lee’s letter highlights the need to reform antitrust immunities that apply to SOEs. Economics suggests government monopolies are a greater harm to competition than private ones. Antitrust law should reflect that reality.

Appendix A: Sen Mike Lee Letter to DOJ

[1] 47 U.S.C. § 1702(b) (2018).

[2] See, infra, Appendix A [hereinafter “Lee Letter”].

[3] Broadband Assessment Report, Tennessee Valley Authority (Dec. 2022), https://www.tva.com/energy/technology-innovation/connected-communities/broadband-assessment-report.

[4] See Lee Letter, supra note 2, at 1-2.

[5] See 47 U.S.C. § 224(a)(1) (2018) (“The term ‘utility’ means any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal Government or any State.”).

[6] See Lee Letter, supra note 2, at n.2.

[7] Pole Attachment Fee Formulas Adopted by TVA and the FCC, Tennessee Advisory Commission on Intergovernmental Relations (Jan. 2017), available at https://www.tn.gov/content/dam/tn/tacir/commission-meetings/january-2017/2017January_BroadbandAppL.pdf.

[8] See Lee Letter, supra note 2, at n.4.

[9] See Armen A. Alchian, Uncertainty, Evolution, and Economic Theory, 58 J. Pol. Econ. 211 (1950).

[10] See, e.g., Jonathan Sallet, Broadband for America’s Future: A Vision for the 2020s, at 50-51 (Oct. 2019), available at https://www.benton.org/sites/default/files/BBA_full_F5_10.30.pdf.

[11] David E.M. Sappington & J. Gregory Sidak, Competition Law for State-Owned Enterprises, 71 Antitrust L.J. 479, 499 (2003).

[12] See Ben Sperry, Islands of Chaos: The Economic Calculation Problem Inherent in Municipal Broadband, Truth on the Market (Sept. 3, 2020), https://truthonthemarket.com/2020/09/03/islands-of-chaos-the-economic-calculation-problem-inherent-in-municipal-broadband.

[13] 540 U.S. 398 (2004).

[14] Id. at 408-09.

[15] This section is adapted from Ben Sperry, Broadband Deployment, Pole Attachments, & the Competition Economics of Rural-Electric Co-ops, Truth on the Market (Aug. 16, 2023), https://truthonthemarket.com/2023/08/16/broadband-deployment-pole-attachments-the-competition-economics-of-rural-electric-co-ops.

[16] See Brian O’Hara, Rural Electrical Cooperatives: Pole Attachment Policies and Issues, at 2, NRECA (Jun. 2019), available at https://www.cooperative.com/programs-services/government-relations/regulatory-issues/documents/2019.06.05%20nreca%20pole%20attachment%20white%20paper_final.pdf.

[17] Henry Hansmann, The Ownership of Enterprise (2000).

[18] Id. at 21.

[19] See id. at 169.

[20] Id.

[21] Id. at 170.

[22] Id.

[23] Id.

[24] See id. at 173

[25] See id.

[26] Id.

[27] See Debra C. Jeter, Randall S. Thomas, & Harwell Wells, Democracy and Dysfunction: Rural Electrical Cooperatives and the Surprising Persistence of the Separation of Ownership and Control, 70 Ala. L. Rev. 316, 372-395 (2018).

[28] Geoffrey A. Manne, Kristian Stout, & Ben Sperry, A Dynamic Analysis of Broadband Competition: What Concentration Numbers Fail to Capture, at 28, 32 (ICLE White Paper – June 2021), available at https://laweconcenter.org/wp-content/uploads/2021/06/A-Dynamic-Analysis-of-Broadband-Competition.pdf.

[29] Jeter et al., supra note 27, at 419-39.

[30] See Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).

[31] See John Farrell, Matt Grimley, & Nick Stumo-Langer, Report: Re-Member-ing the Electric Cooperative, Inst. For Local Self-Reliance (Mar. 29, 2016), https://ilsr.org/report-remembering-the-electric-cooperative/#Missing%20Members (“More than 70 percent of cooperatives have voter turnouts of less than 10 percent [] including Wilson’s Jackson Energy Cooperatives, which averages just under 3 percent turnout.”).

[32] Id.

[33] Jeter et al., supra note 27, at 397-400.

[34] See Lee Letter, supra note 2, at 1-2.

[35] See Trinko, 540 U.S. at 408-09.

[36] See Pole Attachment Fee Formulas Adopted by TVA and the FCC, supra note 7.

[37] See NCTA, Pole Attachments, https://www.ncta.com/positions/rural-broadband/pole-attachments (last accessed Sept. 4, 2023).

[38] Lee Letter, supra note 2, at 2.

[39] See Ben Sperry, When Violations of the Law Have No Remedy: The Case of Warrantless Wiretapping, Competitive Enterprise Institute (Aug. 8, 2012), https://cei.org/blog/when-violations-of-the-law-have-no-remedy-the-case-of-warrantless-wiretapping.

[40] See, e.g., Webster Cty. Coal v. Tennessee Valley Authority, 476 F.Supp. 529 (W.D. Ky. 1979) (finding the TVA is exempt from antitrust law); Sea-Land Serv. Inc. v. Alaska R.R., 659 F.2d 243 (D.C. Cir. 1981), cert. denied, 455 U.S. 919 (1982) (finding the Alaska Railroad exempt from antitrust law).

[41] 16 U.S.C. §831c(b) (2018).

[42] 139 S. Ct. 1435 (2019).

[43] Id. at 1439.

[44] Id. at 1443-44.

[45] Id. at 1444.

[46] City of Loudon v. TVA, 585 F.Supp. 83, 87 (E.D. Tenn. Jan. 30, 1984).

[47] The TVA could also argue that the rate formula for pole attachments that it sets is subject to the filed rate doctrine and thus exempted from antitrust scrutiny. The filed rate doctrine does not allow courts to second-guess agency determinations of rates. See Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). While the original case on the filed rate doctrine dealt with the literal situation of regulated entities filing rates which were approved by a regulator, courts have extended the doctrine to other situations where a regulator uses its authority to set rates. Cf. Wortman v. All Nippon Airways, 854 F.3d 606, 611 (9th Cir. 2017) (“While the filed rate doctrine initially grew out of circumstances in which common carriers filed rates that a federal agency then directly approved, we have applied the doctrine in contexts beyond this paradigmatic scheme.”) The unique situation with the TVA is that there is no clear statutory ratemaking authority over pole attachments, but they have asserted the ability to do so under their contract powers, raising the same issue of whether this is a governmental function or market function. See TVA Determination of Regulation on Pole Attachments 2 (Jan. 22, 2016), available at https://tva-azr-eastus-cdn-ep-tvawcm-prd.azureedge.net/cdn-tvawcma/docs/default-source/about-tva/guidelines-reports/determination-on-regulation-of-pole-attachments-7-12-2023.pdf. Even if the filed rate doctrine applies, though, it would not stop an enforcement action aimed at an injunction or declaratory relief by the DOJ, just treble damages sought by a private litigant. See Keogh, 260 U.S. at 162 (“[T]he fact that these rates had been approved by the Commission would not, it seems, bar proceedings by the Government.”).

[48] See, e.g., Parker v. Brown, 317 U.S. 341 (1943) and its progeny.

[49] North Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494, 506 (2015) (internal citations omitted).

[50] Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).

[51] See, e.g., City of Columbia v. Omni Outdoor Advertising Inc., 499 U.S. 365, 379 (1991) (“We reiterate that, with the possible market participant exception, any action that qualifies as state action is ‘ipso facto… exempt from the operation of the antitrust laws…’”); FTC v. Phoebe Putney Health Systems Inc., 568 U.S. 216, 226 n.4 (“An amicus curiae contends that we should recognize and apply a ‘market participant’ exception to state-action immunity because Georgia’s hospital authorities engage in proprietary activities… Because this argument was not raised by the parties or passed on by the lower courts, we do not consider it.”).

[52] City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 403 (1978).

[53] See, e.g., Edinboro Coll. Park Apartments v. Edinboro Univ. Found., 850 F.3d 567 (3d Cir. 2017); VIBO Corp. v. Conway, 669 F.3d 675 (6th Cir. 2012); Freedom Holdings Inc. v. Cuomo, 624 F.3d 38 (2d Cir. 2010); Hedgecock v. Blackwell Land Co., 52 F.3d 333 (9th Cir. 1995).

[54] See Jarod M. Bona & Luke A. Wake, The Market-Participant Exception to State-Action Immunity from Antitrust Liability, 23 J. Antitrust & Unfair Comp. L. Section of the State Bar of Ca., Vol. 1 (Spring 2014), available at https://www.theantitrustattorney.com/files/2014/05/Market-Participant-Exception-Article.pdf.

[55] See Lee Letter, supra note 2, at 2.

[56] Id. at n.4; N.C. Gen. Stat. § 62-350(a) (requiring all pole owners to offer non-discriminatory pole access); 807 Ky. Admin. Regs. 5:015 § 2(1) (same).

[57] 16 U.S.C. § 831i (2018) (“Board is authorized to include in any contract for the sale of power such terms and conditions, including resale rate schedules, and to provide for such rules and regulations as in its judgment may be necessary or desirable for carrying out the purposes of this Act”).

[58] 16 U.S.C. § 831 (2018).

[59] See Delta Turner Ltd. v. Grand Rapids-Kent County Convention/Arena Authority, 600 F.Supp.2d 920 (W.D. Mich. 2009).

[60] Id. at 929.

[61] Lee Letter, supra note 2, at n.5.

[62] Id.

[63] Id. at n.3.

[64] See Vincent Ostrom & Elinor Ostrom, Public Goods and Public Choices, in Alternatives for Delivering Public Services: Toward Improved Performance (1979) (“[I]nstitutions designed to overcome problems of market failure often manifest serious deficiencies of their own. Market failures are not necessarily corrected by recourse to public sector solutions.”).

[65] Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment, WC Docket No. 17-84, Second Further Notice of Proposed Rulemaking (March 16, 2022) (Statement of Commissioner Brendan Carr), available at https://docs.fcc.gov/public/attachments/FCC-22-20A3.pdf.

[66] See, Assistant Attorney General Jonathan Kanter Delivers Opening Remarks at the Second Annual Spring Enforcers Summit, U.S. Justice Department (Mar. 27, 2023), https://www.justice.gov/opa/pr/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-second-annual-spring (“Gatekeeper power has become the most pressing competitive problem of our generation at a time when many of the previous generations’ tools to assess and address gatekeeper power have become outmoded.”).

Continue reading
Telecommunications & Regulated Utilities

Dynamic Competition Proves There Is No Captive Audience: 10 Years, 10G, and YouTube TV

TOTM In Susan Crawford’s 2013 book “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,” the Harvard Law School professor argued that . . .

In Susan Crawford’s 2013 book “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,” the Harvard Law School professor argued that the U.S. telecommunications industry had become dominated by a few powerful companies, leading to limited competition and negative consequences for consumers, especially for broadband internet.

Crawford’s ire was focused particularly on Comcast, AT&T, and Verizon, as she made the case that these three firms were essentially monopolies that had divided territories and set up roadblocks through mergers, vertical integration, and influence over regulators and franchisors to prevent competition and innovation. In particular, she noted the power Comcast commanded in securing access to live sports, allowing them to effectively prevent cord-cutting and limit competition from other cable companies.

According to Crawford, the consequences of this monopoly power were high prices for service, poor customer service, and limited access to high-speed internet in certain areas, particularly in rural and low-income communities. In effect, she saw no incentives for broadband companies to invest in high-speed and reliable internet. In response, she proposed increased competition and regulation, including the development of fiber-based municipal broadband to foster greater consumer choice, lower prices, and improved access to reliable internet service.

A decade later, the broadband market is far more dynamically competitive than critics like Crawford believed was possible. YouTube TV’s rights to NFL Sunday Ticket (as well as the massive amount of programming available online) suggests that Comcast did not have the control over important programming like live sports that would have enabled them to prevent cord-cutting or to limit competition. And the rise of 10G broadband also suggests that there is much more competition in the broadband market than Crawford believed was possible, as her “future proof” goal of symmetrical 1Gb Internet will soon be slower than what the market actually provides.

Read the full piece here.

Continue reading
Telecommunications & Regulated Utilities

To Infinity and Beyond: The New Broadband Map Has Landed!

TOTM Announced with the sort of breathless press release one might expect for the launch of a new product like Waystar Royco’s Living+, the Federal Communications Commission . . .

Announced with the sort of breathless press release one might expect for the launch of a new product like Waystar Royco’s Living+, the Federal Communications Commission (FCC) has gone into full-blown spin mode over its latest broadband map.

This is, to be clear, the map that the National Telecommunications and Information Administration (NTIA) will use to allocate $42.5 billion to states from NTIA’s Broadband Equity, Access, and Deployment (BEAD) program. Specific allocations are expected to be announced by June 30.

Read the full piece here.

Continue reading
Telecommunications & Regulated Utilities

States Risk Wasting Scarce Broadband Grant Dollars

Popular Media The federal government is set to award more than $42 billion in new grants to state governments this summer, with the goal of expanding high-speed . . .

The federal government is set to award more than $42 billion in new grants to state governments this summer, with the goal of expanding high-speed internet access in areas that currently lack it.

But as this new Broadband Equity, Access, and Deployment program ramps up, it is crucial that states spend the money wisely.

Read the full piece here.

Continue reading
Telecommunications & Regulated Utilities

Whatcha Gonna Do When the Well Runs Dry?

TOTM As the U.S. House Energy and Commerce Subcommittee on Oversight and Investigations convenes this morning for a hearing on overseeing federal funds for broadband deployment, it bears . . .

As the U.S. House Energy and Commerce Subcommittee on Oversight and Investigations convenes this morning for a hearing on overseeing federal funds for broadband deployment, it bears mention that one of the largest U.S. broadband-subsidy programs is actually likely run out of money within the next year. Writing in Forbes, Roslyn Layton observes of the Affordable Connectivity Program (ACP) that it has enrolled more than 14 million households, concluding that it “may be the most effective broadband benefit program to date with its direct to consumer model.”

Read the full piece here.

Continue reading
Telecommunications & Regulated Utilities

ICLE Reply Comments on Prevention and Elimination of Digital Discrimination

Regulatory Comments I.        Introduction On behalf of the International Center for Law & Economics (ICLE), we thank the Federal Communications Commission (FCC or the Commission) for the . . .

I.        Introduction

On behalf of the International Center for Law & Economics (ICLE), we thank the Federal Communications Commission (FCC or the Commission) for the opportunity to comment on this Notice of Proposed Rulemaking in the Matter of Implementing the Infrastructure, Investment, and Jobs Act: Prevention and Elimination of Digital Discrimination (NPRM).[1]

The Commission is contemplating creating a definition of “digital discrimination of access” under Section 60506 as “(1) policies or practices, not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on their income level, race, ethnicity, color, religion, or national origin” and/or (2) “policies or practices, not justified by genuine issues of technical or economic feasibility, that are intended to differentially impact consumers’ access to broadband internet access service based on their income level, race, ethnicity, color, religion, or national origin.”[2]

Finding ways to increase deployment to those Americans who have been persistently difficult to connect is a laudable goal, but there are better and worse ways to proceed. Section 60506 is about making sure that broadband is deployed fairly, given existing technological and economic constraints. It is not a radical prescription from Congress, but a request that the FCC ensure that impermissible discrimination doesn’t affect broadband deployment.

This requires accounting for the current state of deployment, the economic realities that constrain deployment decisions, and the existing legal framework that constrains the manner in which the Commission can interpret Section 60506.

A.     The State of Deployment

As a baseline, it’s important to recognize that broadband providers have, by and large, done an excellent job of deploying to most households, while the data the FCC is currently gathering to assemble new broadband maps will enhance our ability to identify those problem areas that remain. Some of the comments in the record illustrate this baseline well. For example, NCTA observes in its comments that more than 98% of homes across income levels have access to fiber connections with speeds of at least one gigabit per second,[3] and that more than “97% of all homes and businesses in cable provider service areas have gigabit access regardless of race.”[4] As the FCC interprets Section 60506, the goal should be to work with this track record of success and not erect roadblocks that could prevent building on this base.

Moreover, broadband providers have been actively courting low-income consumers, particularly since Congress enacted successful programs such as the $14.2 billion Affordable Connectivity Program (ACP). By actively participating in these programs and offering tailored low-cost options, broadband providers are working to bridge the digital divide and reach unserved consumers. For example, Comcast’s “Internet Essentials” and “Internet Essentials Plus” programs offer affordable high-speed Internet service to eligible low-income households,[5] while AT&T’s “Access” program provides low-cost broadband plans to qualifying families.[6] Additionally, providers such as Charter Communications, through their “Spectrum Internet Assist” initiative, extend discounted Internet services to qualifying individuals and families.[7]

B.     The Economic Constraints of Section 60506 and Deployment

Section 60506 directs the FCC to prevent discrimination in broadband access based on income level. It also instructs the Commission to consider issues of technical and economic feasibility. A fundamental challenge presented by the intersection of these two directives is that a prospective broadband territory’s income level is related, albeit indirectly, to the economic feasibility of deployment projects to serve that territory. Economic feasibility is driven largely by population density and anticipated broadband adoption and retention. Broadband adoption and retention are, in turn, driven by income, willingness-to-pay, and many other factors. This present an “income conundrum,” in that it is nearly impossible to completely disentangle a given customer base’s anticipated rates of broadband adoption and retention from their income level.

It is well known and widely accepted that income is correlated with many factors that are not identified in Section 60506, including population density, age, educational attainment, home-ownership status, home-computer ownership and usage, and rates of broadband adoption and un-adoption. Because each of these additional factors is correlated with income level, many effects-based statistical tests of broadband adoption are likely to produce false positives, concluding the presence of digital discrimination even where explicit efforts are made to avoid such discrimination.

This problem is exacerbated if providers are not allowed to point to the relative profitability of prospective deployment investments. Like all firms, broadband providers have limited resources to invest. While profitability is a necessary precondition for investment, not all profitable investments can be undertaken. At any given time, firms must choose from numerous potentially profitable projects, some more apparently profitable than others. Firms must be allowed to choose the mix of profitable investments that they believe will best advance long-term deployment without fear of having to defend claims of income discrimination.

While the NPRM[8] and several commenters[9] suggest the statute can be read to give the FCC broad authority to redress the disparate impact of deployment decisions based on income and race (among other impermissible deployment factors), principles of statutory interpretation preclude that reading. Supreme Court precedent on antidiscrimination statutes makes clear how Congress can write disparate-impact law.[10] It also makes clear that many provisions of antidiscrimination statutes apply only to intentional discrimination.[11] The difference turns on the language of the operative text and the statutory purpose, as illustrated by things like the overall structure of the legislation and the stated policy objective (including legislative intent, if it can be known).[12] Applying this rubric to Section 60506, we find that it lacks requisite “results-oriented language” that would make it into an effects-oriented statute. Thus, the prohibition against digital discrimination “based on income level, race, ethnicity, color, religion, or national origin” would apply only in cases of intentional discrimination in deployment decisions. Mere statistical correlation between deployment and protected characteristics is insufficient to support a finding of discrimination.

As to the overall structure of the Act, while the Infrastructure, Investment, and Jobs Act (IIJA) incorporates some of its provisions into the Communications Act, Section 60506 is not among them. The IIJA is concerned chiefly with promoting broadband buildout through the use of subsidies. As to the policy objective, the scant congressional record on Section 60506 fails to illuminate the text, leaving us to consider the plain meaning of the statute. The “statement of policy” in subsection (a) holds that subscribers “should” benefit from equal access to broadband and that the Commission “should” take steps to ensure such equal access.[13] This “precatory”[14] section tells us the goal of the operative text: to make sure the Commission takes steps to promote broadband buildout. The mandate to create rules that facilitate equal access to broadband service—including by “preventing digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin”—grants the Commission authority to set up a regulatory structure that would prevent intentional discrimination in deployment decisions, using language akin to those antidiscrimination provisions that speak only to intent.[15] This limited authority doesn’t allow for disparate-impact analysis, nor does it create a private right of action to enforce against any broadband provider. Instead, it empowers the Commission (and the Office of the Attorney General) to ensure federal policies promote equal access by prohibiting such deployment discrimination.[16]

Broadband buildout is big business, in the sense that a lot of money is invested by providers and governments (in the form of subsidies) alike. How these providers are regulated is a “major question” of “vast economic [and] political significance.”[17] To allow the Commission to exercise broad authority to ameliorate disparate impact, as suggested by some commenters, would be to find the proverbial “elephants in mouseholes”[18] in this statute, which the U.S. Supreme Court has not permitted.

In Part II, we review specific questions in the NPRM, the economics underlying deployment decisions, and how these relate to potential digital discrimination.

In Part III, we review some of the legal implications of attempting to regulate “digital discrimination” under both an intent-based and effects-based approach.

In Part IV, we consider the need for safe harbors and other procedural protections.

In Part V, we conclude and offer some thoughts on how to give best effect to Section 60506.

II.      Using Income as a Measure of Digital Discrimination

Section 60506 directs the FCC to prevent discrimination in broadband access based on income level, race, ethnicity, color, religion, or national origin, while also directing the Commission to consider issues of technical and economic feasibility.

We assert that the FCC should adopt an intent-based discriminatory-treatment standard, rather than one that opens the doors to disparate-impact claims. The high risk of false positives under a disparate-impact standard would stifle broadband deployment through additional costs, delays, and risk of litigation. Similarly, FCC rules should articulate a presumption of nondiscrimination in which allegations of digital discrimination must be demonstrated, rather than a presumption of discrimination that must be rebutted for each deployment decision.

It is clear that population density and anticipated broadband adoption are the key factors affecting the economic feasibility of broadband-deployment investments. Affordability and willingness to pay are the primary drivers of broadband adoption where it is available. Indeed, Congress has recognized this reality in its recent legislation. The IIJA’s Broadband Equity and Access program provides more than $42 billion in grants to state programs to help them support providers and give assistance directly to users.[19] The Affordable Connectivity Program provided another $14 billion in funding to help users pay for devices and broadband connections.[20]

If the Commission has good evidence of intentional discrimination in the deployment of broadband, it has a role to play in preventing it. But attempts to use the regulatory process to root out digital discrimination will do little to shrink the digital divide without substantial resources to increase adoption and retention of broadband services.

A.      The Indirect Relationship Between Income and Economic Feasibility

The NPRM asks “how does a consumer’s income level, or the average income level of a geographical area, relate to economic feasibility in the deployment and provision of broadband internet access services?”[21]

The short answer is that income level is only indirectly related to economic feasibility. When evaluating the economic feasibility of a potential investment, broadband providers consider that territory’s anticipated adoption rate.[22] There is evidence that income, willingness to pay, and many other factors affect consumers’ adoption and retention decisions. Thus, it can be said that income level is related to deployment decisions only through a daisy chain linking anticipated adoption and retention rates to consumers’ willingness to pay, with willingness to pay loosely correlated with income level.

Population density is widely acknowledged to be the most important factor driving broadband-deployment decisions. For example, the U.S. Government Accountability Office (GAO) reports that population density is the “most frequently cited cost factor” and “a critical determinant of companies’ deployment decisions.”[23] Academic research supports the GAO’s conclusions. Brian Whitacre & Roberto Gallardo describe population density as one of “the main determinants of Internet availability.”[24] Similarly, Tonny Oyana, citing earlier research, concluded that “[l]imited broadband access is common in rural communities because of geographic remoteness and low population density.”[25]

Several other factors also affect the profitability of broadband-deployment investments, including:

  • Terrain: The GAO notes that “it is more costly to serve areas with low population density and rugged terrain with terrestrial facilities than it is to serve areas that are densely populated and have flat terrain.”[26]
  • Backhaul: That is, the cost of routing Internet traffic from rural areas to larger cities in order to connect to a major Internet-backbone provider. The GAO also reports that the cost of backhaul can affect broadband deployment to rural areas.[27]
  • State-level broadband-funding programs: Whitacre & Gallardo find such programs are associated with a modest increase (1.2–2.0 percentage points) in broadband availability.[28]

Juan Schneir & Yupeng Xiong note that firms are more likely to deploy broadband in urban and suburban areas, rather than rural areas, due to both cost and demand factors. They conclude this is “because of the high density of users willing to pay for high-speed broadband services and the relatively low network rollout costs in urban and suburban areas.”[29] Consistent with Schneir & Xiong’s conclusion, the GAO also finds that population density is an important factor on the demand side of deployment decisions. In particular, the GAO concludes that it is more difficult to “aggregate sufficient demand” to pay for broadband service in low-density rural areas.[30]

But broadband access alone also may not be sufficient to drive greater rates of broadband adoption. For example, Brian Whitacre and his co-authors found that while the reduced levels of broadband access in rural areas explained 38% of the rural-urban broadband-adoption gap in 2011, differences in other general characteristics—such as income and education—explain “roughly half of the gap.”[31] Another GAO report concluded that “even where broadband service is available … an adoption gap may persist due to the affordability of broadband and lack of digital skills.”[32] The report further notes that nearly one-third of those with access to broadband do not subscribe to it and that “lower-income households have lower rates of home broadband subscriptions.”[33]

The price of broadband services is another significant factor that affects adoption. A National Telecommunications and Information Administration (NTIA) survey of Internet use identified “affordability as a driving factor around why some households continue to remain offline, confirming that cost of service is an essential part of increasing Internet adoption.”[34] The survey reported that the average price that offline households wanted to pay for Internet access was approximately $10 per month, and about 75% of households gave $0 or “none” as their answer. Kenneth Flamm & Anindya Chaudhuri’s empirical research finds that broadband price is a “statistically significant driver” of broadband demand.[35] They conclude that broadband-price declines in the early 2000s explain “some portion” of increased broadband adoption.[36] Victor Glass & Stela Stefanova’s empirical study found that higher prices “depress” demand for broadband.[37]

Price sensitivity is linked to income. Christopher Reddick and his co-authors concluded that “[i]ncome is a major factor that is likely to influence broadband adoption especially where technology is available.”[38] Glass & Stefanova find broadband service to be a normal good, which means that increased incomes are associated with increased broadband adoption—a finding consistent with previous research.[39] Similarly, the GAO reports: “A recent nationally representative survey by Consumer Reports reported that nearly a third of respondents who lack a broadband subscription said it was because it costs too much, while about a quarter of respondents who do have broadband said they find it difficult to afford.”[40] Alison Powell and her co-authors report that a significant number of low-income Americans engage in a cycle of broadband adoption and “un-adoption,” in which they adopt broadband and then drop it for financial or other reasons, and then re-adopt when circumstances improve for them.[41]

In addition to price and income guiding a household’s broadband-adoption decisions, other factors are also relevant. Oyana’s empirical research concludes that income, the share of a population who are senior citizens, and the share with some college education are the “three most important demand-side factors” affecting both access and adoption.[42] On the demand side, the GAO reports that “demand will be greater in areas where potential customers are familiar with computers and broadband.”[43] The GAO reports that “[o]ther barriers include lack of digital skills,” citing a 2016 Pew Research Center report finding that “about half of American adults were hesitant when it comes to new technologies and building their digital skills.”[44]

It can be argued that the gap between rates of broadband access and broadband adoption may present the real digital divide. That is, large numbers of American who have access to broadband do not adopt it, and some who do may “un-adopt” it. While income is a key factor in a household’s adoption choice, it is only one of several important factors, which also include age, educational attainment, and home-computer ownership and usage—each of which is, in turn, also correlated with income.

If firms do not expect sufficient levels of adoption, then deployment may be unprofitable. It would be a mistake to infer that income discrimination in deployment causes low rates of broadband adoption in low-income communities when low income itself—and other factors correlated with income—may be a primary cause of low rates of broadband adoption, even where broadband access is available.

B.      Profitability, Return on Investment, and Economic Feasibility

The NPRM asks, “should a provider be permitted to defend a claim of income-based intentional discrimination by offering projections showing that deploying to a particular community would likely produce a lower-than-normal rate of return on investment?”[45]

Section 60506 requires the Commission to take account of “issues of technical and economic feasibility.” There is broad understanding that “economic feasibility” here refers to profitability.[46] More precisely, a project is economically feasible if it provides an adequate return on investment (ROI). Like all firms, broadband providers have limited resources with which to make their investments. While profitability is a necessary precondition for investment, not all profitable investments can be undertaken. Among the universe of potentially profitable projects, firms are likely to give priority to those that promise greater returns on investment relative to those with lower ROI.[47] Thus, any evaluation of potential digital discrimination must examine not only whether a given deployment is likely to be profitable, but also how its expected returns compare to other investment opportunities.

This concept—opportunity cost—is fundamental not just to economics, but to our daily lives. Indeed, we all live in a world of endless wants, but only limited resources (e.g., money, time, natural resources) to satisfy them. As a result, we must make choices about how best to use those resources to satisfy our wants. By choosing to pursue one activity, we must forgo another. The value of what we have foregone is our opportunity cost.[48] A worker contemplating quitting their job to start a business is certain to consider the income they would be giving up as an opportunity cost of entrepreneurship.

Similarly, a broadband provider who invests in region A recognizes that it is giving up the opportunity to invest in region B. But the provider faces another factor the would-be entrepreneur does not. If the provider regularly chooses low-ROI investments over higher ROI investments, then its shareholders may choose to replace management with a team that can provide better returns. The opportunity-cost calculus is unavoidable.

Thus, it is surprising to see comments to this proceeding that suggest the FCC should ignore opportunity cost in evaluating economic feasibility.[49] Section 60506 specifically calls on the FCC to consider economic feasibility—not financial feasibility or accounting feasibility. There is no evidence that this was an accident or mistake. Because opportunity cost is a cornerstone of economic analysis, it would be reasonable to conclude that the law’s mandate to consider economic feasibility was meant to rely on economic analysis and, in turn, to consider the opportunity costs of foregone deployment investments. We strongly encourage the Commission to include opportunity costs that providers face whenever it evaluates alleged digital discrimination in deployment.

C.      Demonstrating Discrimination: The Income Conundrum

The NPRM asks, “[S]hould a provider be permitted to defend a claim of income-based intentional discrimination by offering projections showing that deploying to a particular community would likely produce a lower-than-normal rate of return on investment? How are we to determine whether a proffered economic justification, such as rate of return, is a pretext for income-based discrimination?”[50] The NPRM reports that some have argued a sub-normal profit margin should not be considered sufficient reason to claim economic infeasibility and that the Commission should rarely excuse discrimination on such grounds.[51]

A provider should be permitted to defend a claim of income-based intentional discrimination by demonstrating that deploying to a particular community would likely produce a lower return on investment relative to other likely alternatives investments. Thus, a provider should be able to defend a claim of income-based intentional discrimination even if deploying to a particular community would likely produce a higher than “normal” ROI—so long as other deployment alternatives produce anticipated ROIs that are greater still. As noted above, a positive ROI is a necessary precondition for investment, but not all profitable investments can be undertaken. Evaluations of potential digital discrimination must examine not only whether a given deployment is likely to be profitable, but also how its expected returns compare to other investment opportunities.

It would be near-impossible to evaluate demographic, economic, and financial data to determine whether profitability, ROI, or other economic reasons constitute a pretext for a pattern of so-called income-based discrimination. Our research indicates that such an approach would likely lead to a huge number of “false positives”—finding discrimination where no discrimination is intended or, indeed, where it was explicitly avoided. This presents what we call the “income conundrum,” because it is virtually impossible to disentangle the factors affecting economic feasibility from factors correlated with membership in certain income and other protected classes.[52]As such, alleged patterns of income-based discrimination provide very little (if any) information, and certainly not enough information to sufficiently prove a violation of Section 60506.

Former FCC Chief Economist Glenn Woroch combined recent census-block-level wireline-broadband deployment data from the Commission’s Form 477 reports with demographic and income data published by the U.S. Census Bureau to evaluate broadband availability rates for wireline 100/20 Mbps service (1) between census-based “white” and “non-white” households and (2) between households above and below the Federal Poverty Guidelines.[53] His statistical analysis indicates broadband availability rates are about 5 percentage points higher for non-white households than for white households, and that broadband availability rates are nearly identical for households above and below the Federal Poverty Guidelines.

Woroch’s results are consistent with the statistical analysis published by Randolph Beard & George Ford.[54] Their data indicate that U.S. Census blocks with higher population densities are associated with a higher share of minority residents and lower average incomes. Beard & Ford also report that blocks with a higher share of minority residents have lower fixed-broadband adoption rates and a higher share of mobile-only broadband use. Their empirical model includes four demand factors for each Census block: fixed-broadband adoption rate, mobile-broadband adoption rate, the share of persons with a tertiary education, and the share of homes with a computer. The model also includes five cost factors: population density, the share of rural blocks within the Census-block group, and three cost categories from CostQuest. Using this information, they evaluate: (1) fiber deployment by race, (2) fiber deployment by income level, (3) download speeds by race, and (4) download speeds by income level. Beard & Ford conclude from their statistical analysis that there is “no meaningful evidence of digital discrimination in either race or income for fiber deployments or for download speeds.”

It is well-known and widely accepted that income is correlated with many factors that are not identified in Section 60506, including population density, age, educational attainment, home-ownership status, home-computer ownership and usage, and broadband adoption and un-adoption. But because each of these other factors is, in turn, correlated with income level, applying an effects-based statistical analysis is likely to produce false positives that conclude the presence of digital discrimination, even if there was an explicit effort to avoid such discrimination. This is a version of Nobel laureate Ronald Coase’s well-known quote: “If you torture the data long enough, it will confess.”[55]

Indeed, as the Competitive Enterprise Institute (CEI) notes, even if the Commission were to adopt a disparate-impact standard (discussed infra), it would be exceedingly difficult, if not impossible, to prove income discrimination through a series of correlated proxies under existing Supreme Court precedent:

Thus, as Hazen demonstrates that as long as the motivating factor for digital discrimination of access is analytically distinct from the protected characteristic (even if one is correlated with the other, like age when set against years of service), the person who is wholly motivated by other factors wouldn’t be discriminating based on protected characteristics. [56]

Thus, even if correlational evidence is introduced, it will be of such little probative value as to contribute very little information to a proceeding. For example, even if statistical analysis indicated a relationship between income and some other non-protected characteristic (e.g., education), under 1993’s Hazen Paper Co. v. Biggins decision, that information could not be used to demonstrate income discrimination. The only way that a prohibition on income-based discrimination would make sense at all would be if Section 60506 were construed as prohibiting intentional discrimination. In this sense, claims would have to be brought on the basis that a provider intentionally discriminated against a low-income household, or against a territory for being low-income, with all else being equal. That is, if a particular opportunity would otherwise have been included in a provider’s deployment plans, discrimination could be found if that provider refrained from deploying based on an intent not to serve low-income households in the area.

III.    Section 60506 Empowers the Commission to Facilitate Equal Access to Broadband by Prohibiting Intentional Discrimination

Congress did not, with Section 60506, turn the FCC into a general-purpose civil-rights agency. It did, however, give the Commission a set of tools to identify and remedy particular acts of discrimination.

In the NPRM, the Commission proposes:

to define “digital discrimination of access,” for purposes of this proceeding, as one or a combination of the following: (1) “policies or practices, not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on their income level, race, ethnicity, color, religion, or national origin”; and/or (2) “policies or practices, not justified by genuine issues of technical or economic feasibility, that are intended to differentially impact consumers’ access to broadband internet access service based on their income level, race, ethnicity, color, religion, or national origin.”[57]

Although some commenters have called for the FCC to employ an effects-based “disparate impact” analysis under Section 60506,[58] we continue to believe this would be a mistake under both the structure of Section 60506 and the Supreme Court’s established jurisprudence on disparate-impact analysis. A more reasonable approach for the Commission would be to construe Section 60506 as directing an analysis of intentional discrimination in deployment.

Statutes that define impermissible discrimination, such as the Civil Rights Act of 1964, can be analyzed legally either as addressed toward explicit discriminatory intent, referred to as “discriminatory treatment,” or toward behavior inferred from discriminatory effects, such as the “disparate impact” that the challenged behavior or policy has on a protected class.[59] A case involving discriminatory treatment is somewhat more straightforward,[60] insofar as it demands evidence demonstrating that decisions adversely affecting some protected class were made based on bias toward members of that class. In this context, where deployment decisions are made on the basis of discriminatory intent, the Commission is on much firmer legal ground to pursue them.

By contrast, were the Commission to adopt a “disparate impact” assessment as part of Section 60506, it would face a steep uphill legal climb. Among the primary justifications for disparate-impact analysis is to remedy those historical patterns of de jure segregation that left an indelible mark on minority communities.[61] While racial discrimination has not been purged from society, broadband only became prominent in the United States well after all forms of de jure segregation were made illegal, and after Congress and the courts had invested decades in rooting out impermissible de facto discrimination. Any policy intended to tackle disparate impact in broadband deployment needs to take this history into account.

Commenters like Public Knowledge point to Section 60506’s stated policy objective to make the case that the statute encompasses disparate-impact analysis.[62] They also situate the IIJA as a part of the universal service regime of the Communications Act.[63] However, Section 60506 was not incorporated into the Communications Act, unlike other parts of the IIJA. In other words, the FCC’s general enforcement authority doesn’t apply to the regulatory scheme of Section 60506. The FCC must rely on the statute alone for that authority. Moreover, the statement of policy in Section 60506(a) is exactly that: a statement of policy. Courts have long held that sections using words like “should”[64] are “precatory.”[65] While this helps to illuminate the goal of the provision at issue, it does not actually expand the remit of FCC authority. The goal of the statute is clear: to make sure the Commission takes steps to promote broadband buildout. It empowers the Commission (and the Office of the U.S. Attorney General) to ensure that federal policies promote equal access by prohibiting such deployment discrimination.[66]

There is little evidence that IIJA’s drafters intended the law to be read so broadly. The legislative record on Section 60506 is exceedingly sparse, containing almost no discussion of the provision beyond assurances that “broadband ought to be available to all Americans,”[67] and also that the provision was not to be used as a basis for the “regulation of internet rates.”[68] Given that sparse textual basis, reading Section 60506 as granting the Commission expansive powers to serve as a broadband civil-rights czar could also run afoul of the “major questions” doctrine.[69] That doctrine requires Congress “to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’”[70] To allow the Commission to exercise the type of broad authority to ameliorate disparate impact, as suggested by some commenters, would be to find the proverbial “elephants in mouseholes”[71] in this statute that the Supreme Court has not allowed.

More specifically, it does not appear that Section 60506 can be reasonably construed as authorizing disparate-impact analysis. While the Supreme Court continues to uphold disparate-impact analysis in the context of civil-rights law, it has recently imposed some important limitations. For example, in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project Inc., the Court upheld the disparate-impact doctrine, but noted that disparate-impact claims arise under statutes explicitly directed “to the consequences of an action rather than the actor’s intent.”[72] For example, in the Fair Housing Act, Congress made it unlawful:

To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.[73] [Emphasis added.]

The Court noted that the presence of language like “otherwise make unavailable” is critical to construing a statute as demanding an effects-based analysis.[74] Such phrases, the Court found, “refer[] to the consequences of an action rather than the actor’s intent.”[75] Further, the structure of a statute’s language matters:

The relevant statutory phrases… play an identical role in the structure common to all three statutes: Located at the end of lengthy sentences that begin with prohibitions on disparate treatment, they serve as catchall phrases looking to consequences, not intent. And all [of these] statutes use the word “otherwise” to introduce the results-oriented phrase. “Otherwise” means “in a different way or manner,” thus signaling a shift in emphasis from an actor’s intent to the consequences of his actions.[76]

Previous Court opinions help to parse the distinction between statutes limited to intentional-discrimination claims and those that allow for disparate-impact claims. Particularly relevant here, in Alexander v. Sandoval, the Court emphasized that it was “beyond dispute—and no party disagrees—that § 601 prohibits only intentional discrimination.”[77] The relevant statutory language stated that “No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.”[78]

Thus, when Public Knowledge argues that “assertion that the phrase ‘based on’ limits the Commission to disparate intent is based on the dissent not the majority opinion of Inclusive Communities. The majority’s opinion states the exact opposite… The phrase at issue in Inclusive Communities was ‘because of,’ which is equivalent to ‘based on’ contained in section 1754…”[79], it gets both Inclusive Communities and previous precedents wrong. First, Inclusive Communities primarily based its opinion on the “otherwise make unavailable” language and not on the “because of” language on its own. Second, the closest analogy for “based on” is the “grounded on” language of Title VI, which does not include the “otherwise” language found to be so important in Inclusive Communities. If the Court has found “grounded on” means only intentional discrimination, then it is hard to see how “based on” wouldn’t lead to the same conclusion.

Further, even where disparate-impact analysis is appropriate, the Court held in Inclusive Communities that it is significantly constrained by the need to ensure that the free-enterprise system continues to function:

[Supreme Court precedent] also teach[es] that disparate-impact liability must be limited so… regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system. And before rejecting a business justification…a court must determine that a plaintiff has shown that there is “an available alternative … practice that has less disparate impact and serves the [entity’s] legitimate needs.”[80] [Emphasis added.]

In practice, this means that lower courts are free to probe a disparate-impact claim rigorously in order to avoid such claims becoming a club to wield against regulated entities.[81] It also suggests that, in a context such as Section 60506’s proscriptions against digital discrimination, they may not be so broad as to render it impossible for broadband providers to make effective decisions about which deployment projects are economically feasible.

More to the point, as Section 60506 was drafted without “results-oriented language”[82] and instead frames the prohibition against digital discrimination as “based on income level, race, ethnicity, color, religion, or national origin,”[83] this would put the rule squarely within the realm of prohibitions on intentional discrimination.[84] That is, to be discriminatory, the decision to deploy or not to deploy must have been intentionally made based on or grounded on the protected characteristic. Mere statistical correlation between deployment and protected characteristics is insufficient.

In enacting the IIJA, Congress was undoubtedly aware of the Court’s history with disparate-impact analysis. Had it chosen to do so, it could have made the requirements of Section 60506 align with the requirements of that precedent. But it chose not to do so, thereby reinforcing that it intended the FCC to have some discretion, but to err on the side of caution when declaring certain practices an impermissible form of discrimination.

This is not to say that Section 60506 has no effect. As mentioned above, it can be reasonably read to encompass intentional discrimination, given appropriate evidence. Further, the means available to the FCC to remedy undesirable patterns of deployment are manifold. The only options rendered off the table would be requirements that are technologically or economically infeasible, such as an unfunded mandate that providers deploy at maximum speeds to all households simultaneously.

Moreover, as NCTA noted in its comments, the “intentional discrimination” standard provides ample room for the Commission to act upon instances of impermissible discrimination:

[I]t is NCTA’s position that discriminatory intent need not be proven with a “smoking gun,” such as documentary evidence overtly acknowledging or demonstrating discrimination, but can instead be sufficiently pled and shown with evidence including a combination of impact elements and facts such as: statistics demonstrating a pattern of discriminatory intent, the sequence of events leading to the decision, departures from normal procedures, and a consistent pattern of actions imposing much greater harm on the protected class that is unexplainable on grounds other than discriminatory ones.[85]

Indeed, in Vill. of Arlington Heights v. Metro. Hous. Dev. Corp.,[86] the Supreme Court established a legal test for determining intentional discrimination. The test requires a plaintiff to demonstrate that a discriminatory intent was a motivating factor behind the challenged action or decision.[87] To prove intentional discrimination, the Court identified several factors that can serve as evidence.  Under this test, “[d]etermining whether invidious discriminatory purpose was a motivating factor demands a sensitive inquiry into such circumstantial and direct evidence of intent as may be available.”[88] Such an analysis can include circumstantial evidence of:

  • A history of discriminatory practices or a pattern of decisions that have consistently disadvantaged a protected class;[89]
  • Significant departures from standard procedures, substantive norms, or established practices can indicate discriminatory intent, especially if they seem designed to disadvantage a specific group;[90]
  • Statements or actions by decisionmakers during the decision-making process that reveal prejudice or bias against a protected group;[91]
  • Evidence of differential treatment or disparate outcomes for similarly situated individuals from different protected groups; or[92]
  • Unjustified or pretextual explanations that are implausible, inconsistent, or unsupported by facts.[93]

As the DOJ observes, while statistical evidence of patterns of discrimination cannot themselves be used as proof of discriminatory intent, they can be used as supporting evidence in such claims.[94] Critically, as noted in the section above, when dealing with claims of income-based discrimination, this means that challenges to deployment decisions must be made on the basis of bias regarding consumers at a particular income level, and cannot be divined through statistical inferences in the myriad factors that are merely correlated with income (such as education, computer ownership, adoption levels, and willingness to pay).

In sum, Section 60506 is an intentional-discrimination statute and the Commission’s rules should reflect that fact. To create a disparate impact regime would be to invite a drawn-out legal battle that would likely result in the rules being struck down.

IV.    The Commission Should Adopt Sufficient Procedural Protections

The Commission asks whether it should adopt safe harbors, rely on case-by-case inquiry into “technical or economic” feasibility issues, or both.[95] We believe that the FCC needs to establish clear and robust safe harbors and affirmative defenses to discrimination complaints. Without such safe harbors, the administration of Section 60506 would become unwieldy, as the Commission wades through what is likely to be many false positives. There are a few situations that provide prima facie evidence that a broadband provider is not impermissibly discriminating against low-income consumers, or consumers in an otherwise protected class.[96]

For instance, in areas where a provider deploys service that is adhering to obligations under federal or state subsidy programs, a provider is obviously trying to reach underserved communities. Any shortcomings in deployment in such an area are almost certainly going to be the result of technical or economic realities. Similarly, where a provider is constrained by federal or state laws regarding permitting or access to rights of way, it would be fruitless to investigate; only once a provider is actually able to deploy legally should it be subject to scrutiny under Section 60506.

Similarly, there are constrains implicit in particular technologies that would make it difficult to accurately assess discrimination in some cases.[97] For example, when examining deployment of wireless providers, spectrum availability is a major issue that can constrain a provider’s ability to deploy in certain areas. Relatedly, the nature of a particular geographic area may limit how signals propagate. Even if a wireless provider fully deploys in such areas, building density or, inversely, sparsely populated areas might appear to be underperforming. In such cases, the Commission should adopt a technological safe harbor that assumes best efforts in certain cases imply good-faith compliance with Section 60506.

Thus, not only do all providers need some form of safe harbor, given the limitations of technology, but the Commission should also employ tailored safe harbors that incorporate the unique features of both wireless and wired providers.

Moreover, safe harbors do more than merely safeguard against an unfair or inefficient process, but may become a virtual necessity if the Commission attempts to rely on a “disparate impact” standard. As USTelecom noted in its comments, related civil-rights laws invariably include safe harbors in the context of fact-dependent, complicated proceedings.[98] These well-established legal proceedings create a formal burden-shifting framework that attempts to capture the economic and business realities underlying challenged practices.[99]

The Commission has also asked whether it would be appropriate to rely on its informal consumer-complaint process as part of its enforcement of Section 60506.[100] An informal complaint process that invites input from individuals directly affected by deployment decisions can make sense in some cases, while in others, a more formal complaint process will be necessary. Even if the Commission can appropriately delineate these cases, certain procedural protections should be in place to ensure the process is not abused.

First, there should be some form of standing requirement, such that a complainant actually is in a position to obtain broadband service, but is unable to do so (or do so at “comparable speeds, capacities, latency, and other quality of service metrics in a given area, for comparable terms and conditions”[101]). Given how large the national deployment footprint is, without an injury-in-fact requirement, opening the process to third parties who lack direct interest would be unmanageable. It would burden both the Commission and providers, who we otherwise want to spend their scarce resources on further deployment. Moreover, private parties with adequate standing who believe they have valid complaints can file through an informal process that could theoretically be handled much more quickly and efficiently.

The Commission also asks whether it should adopt a private right of action or permit state and local government enforcement against broadband providers.[102] Both options are likely to prove unworkable for a number of reasons. First, states and localities are often in a position of both granting access to necessary facilities as well as granting permission for providers to deploy. A right of action for states and localities—or even a process by which states and localities can source complaints in their jurisdiction and try those complaints—would create an imbalance in the bargaining process between providers and state authorities. Those authorities could use the complaint process as a leverage tool to extract inappropriate concessions from providers as they negotiate franchising agreements and other permissions necessary for deployment in particular jurisdictions.[103] Giving them a dual role in this respect—as both a complainant that can use legal process to intervene in providers’ deployment decisions as well as a party seeking to conduct an arm’s length negotiation with providers—threatens to seriously distort deployment incentives.

Moreover, providers are responsible for managing deployment decisions in a way that inherently crosses jurisdictional barriers, particularly for large providers that cross state lines. A given locality could be in a position to complain about a provider’s deployment decision, even if that decision makes technical and economic sense across jurisdictional boundaries. A state or locality is not well-positioned to adjudicate this problem, while the FCC is extremely well-positioned to do so.

Ostensibly in the interests of completeness, the NPRM asks whether it has authority to retroactively pursue claims for digital discrimination.[104] We believe it should go without saying that this procedure should be forward looking. Nothing in Section 60506 suggests that Congress intended to give the FCC authority to pursue providers for previous deployment decisions.

V.      Conclusion

It is evident that, while the Commission possesses considerable authority to remedy intentional discrimination under Section 60506, its discretion is not without boundaries. Moreover, it should create safeguards to ensure that the complaint process does not excessively burden Commission staff or erect administrative barriers to providers’ efforts to deploy broadband.

Although “income level” is included as a protected category under Section 60506, income can be correlated with such a wide array of variables, which themselves better explain deployment and adoption, that the Commission needs to take care. Trying to construe discrimination on the basis of “income” too broadly will surely generate a large number of false positives, and will lead the Commission astray.

Moreover, Section 60506 employs language directly related to case law centered on “intentional discrimination” and further includes crucial provisions directing the Commission to consider technical and economic feasibility. This legislative framework exists against the backdrop of the Supreme Court’s expanding “major questions” doctrine. With the law and the economics taken together, it is clear that the Commission should not adopt a “disparate impact” test under Section 60506. Moreover, it is crucial to remember that “income” remains a slippery metric to judge, and attempts to use correlational proxies in a discrimination analysis are fraught. As such, claims based on income discrimination should be rooted in bias regarding particular income levels, all else equal. It is critical that Section 60506 not be used as a cudgel against providers as they attempt to balance the opportunity costs of competing deployment opportunities.

The FCC rules should also articulate a presumption of nondiscrimination in which allegations of digital discrimination must be demonstrated, rather than a presumption of discrimination that must be rebutted for each deployment decision. This presumption should furthermore be coupled with adequate safe harbors that allow that Commission to consider defenses based on “technical and economic” feasibility in an expedited manner. Otherwise, given the economic realities discussed above, there is an unacceptably high chance that every one of a provider’s decisions will be subject to challenge, wasting the resources of both the Commission and the providers.

The largest takeaway is that adoption matters quite a bit. Indeed, one of the biggest issues affecting economic feasibility is consumers’ ability and willingness to pay. Moreover, Congress has recognized this reality in its recent legislation. The IIJA’s Broadband Equity and Access program provides more than $42 billion in grants to state programs to help them support providers and give assistance directly to users.[105] The Affordable Connectivity Program provided another $14 billion in funding to help users pay for devices and broadband connections.[106] In our estimation, the Commission stands to do the most good by championing and shepherding programs like these.

If the Commission has good evidence of intentional discrimination in the deployment of broadband, it has a role to play in preventing it. But without strong, compelling evidence of intentional discrimination, the FCC will waste scarce resources chasing bogeymen.


[1] Notice of Proposed Rulemaking, Implementing the Infrastructure Investment and Jobs Act: Prevention and Elimination of Digital Discrimination, GN Docket No. 22-69 (Dec. 22, 2022) [hereinafter “NPRM”].

[2] Id. at ¶ 12.

[3] Comments of NCTA, GN Docket No. 22-69 (Feb. 21, 2023), at 4 [hereinafter “NCTA”].

[4] Id. at 6.

[5] Apply for Internet Essentials or Internet Essentials Plus From Comcast, Comcast, https://www.xfinity.com/support/articles/comcast-broadband-opportunity-program (last visited Apr. 19, 2023).

[6] Affordable Connectivity Program, AT&T, https://www.att.com/help/affordable-connectivity-program (last visited Apr. 19, 2023).

[7] Spectrum Internet for Low Income Households, Spectrum, https://www.spectrum.com/internet/spectrum-internet-assist (last visited Apr. 19, 2023).

[8] NPRM, supra note 1 at ¶ 12

[9] See, e.g., Comments of Public Knowledge, Benton Institute for Broadband and Society, and Electronic Privacy Information Center, GN Docket No. 22-69 (Feb. 21, 2023), at 52 (“Congress has again centered the focus of the Commission’s actions on getting all people access, regardless of any discriminatory treatment or intent of the provider.”) [hereinafter “Public Knowledge”]; Letter from David Brody, Lawyers’ Committee for Civil Rights Under Law, to Marlene H. Dortch, Implementing the Infrastructure and Jobs Act: Prevention and Elimination of Digital Discrimination, WC Docket No. 22-69 (Dec. 12, 2022) [hereinafter “Brody”].

[10] See, e.g., Tex. Dep’t of Hous. & Cmty. Affs. v. Inclusive Cmtys. Project Inc., 576 U.S. 519 (2015) [hereinafter “Inclusive Communities”].

[11] See, e.g., Alexander v. Sandoval, 532 U. S. 275, 280 (2001) (“[I]t is… beyond dispute—and no party disagrees—that § 601 prohibits only intentional discrimination.”).

[12] See, e.g., Inclusive Communities, supra note 10 at 533- 34 (“[A]ntidiscrimination laws must be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose.”); Board of Ed. of City School Dist. of New York v. Harris, 444 U. S. 130 –141 (1979) (considering the context of a statute’s text, history, purpose, and structure in determining whether a statute encompasses disparate impact analysis).

[13] See Section 60506(a)(1), (a)(3).

[14] See, Emergency Coal. to Def. Educ. Travel v. U.S. Dep’t of Treasury, 498 F. Supp. 2d 150, 165 (D.D.C. 2007) (“Courts have repeatedly held that such ‘sense of Congress’ language is merely precatory and non-binding.”), aff’d, 545 F.3d 4 (D.C. Cir. 2008).

[15] Compare 42 U.S. Code § 2000d (“No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.”) with Section 60506(b)(1) (empowering the Commission to create rules taking into account “preventing digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin”) (emphasis added).

[16] See Section 60506(c) (“The Commission and the Attorney General shall ensure that Federal policies promote equal access to robust broadband internet access service by prohibiting deployment discrimination…”).

[17] West Virginia v. EPA, 142 S. Ct. 2587, 2607–2608 (2022); Util. Air Regul. Grp. (UARG) v. EPA, 573 U.S. 302, 324 (2014).

[18] Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001).

[19] Broadband Equity, Access, and Deployment Program, BroadbandUSA, https://broadbandusa.ntia.doc.gov/resources/grant-programs/broadband-equity-access-and-deployment-bead-program (last visited Oct. 23, 2022).

[20] Affordable Connectivity Program, Federal Communications Commission, https://www.fcc.gov/acp (last visited Oct. 23, 2022).

[21] NPRM, supra note 1 at ¶24.

[22] NOI Reply Comments of AT&T, GN Docket No. 22-69 (Jun. 30, 2022), (“In particular, like all companies operating in a competitive marketplace, broadband providers must and do take expected demand into account, and the ‘economic feasibility’ qualifier protects their right to do so.”)

[23] Telecommunications: Broadband Deployment Is Extensive Throughout the United States, but It Is Difficult to Assess the Extent of Deployment Gaps in Rural Areas, U.S. Gov’t Accountability Off., GAO-06-426 (May 2006), https://www.gao.gov/assets/gao-06-426.pdf. [hereinafter “GAO-06-426”].

[24] Brian Whitacre & Roberto Gallardo, State Broadband Policy: Impacts on Availability, 44 Telecomm. Pol’y. 102025 (2020).

[25] Tonny J. Oyana, Exploring Geographic Disparities in Broadband Access and Use in Rural Southern Illinois: Who’s Being Left Behind?, 28 Gov’t. Info. Q. 252 (2011).

[26] GAO-06-426, supra note 23.

[27] Id.

[28] Whitacre & Gallardo, supra note 24.

[29] Juan Rendon Schneir & Yupeng Xiong, A Cost Study of Fixed Broadband Access Networks for Rural Areas, 40 Telecomm. Pol’y. 755 (2016).

[30] GAO-06-426, supra note 23.

[31] Brian Whitacre, Sharon Strover, & Roberto Gallardo, How Much Does Broadband Infrastructure Matter? Decomposing the Metro–Non-Metro Adoption Gap with the Help of the National Broadband Map, 32 Gov’t Info. Q. 261 (2015).

[32] Broadband: National Strategy Needed to Guide Federal Efforts to Reduce Digital Divide, U.S. Gov’t Accountability Off., GAO-22-104611 (May 31, 2022) [hereinafter “GAO-22-104611”].

[33] Id. See also, How Do Speed, Infrastructure, Access, and Adoption Inform Broadband Policy?, Pew Research Center (Jul. 7, 2022), https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2022/07/how-do-speed-infrastructure-access-and-adoption-inform-broadband-policy (“nearly 1 in 4 Americans do not subscribe to a home broadband connection, even where one is available”).

[34] Michelle Cao & Rafi Goldberg, New Analysis Shows Offline Households Are Willing to Pay $10-a-Month on Average for Home Internet Service, Though Three in Four Say Any Cost is Too Much, National Telecommunications and Information Administration (Oct. 6, 2022), https://www.ntia.doc.gov/blog/2022/new-analysis-shows-offline-households-are-willing-pay-10-month-average-home-internet.

[35] Kenneth Flamm & Anindya Chaudhuri, An Analysis of the Determinants of Broadband Access, 31 Telecomm. Pol’y. 312 (2007).

[36] Id.

[37] Victor Glass & Stela K. Stefanova, An Empirical Study of Broadband Diffusion in Rural America, 38 J. Reg. Econ. 70 (Jun. 2010).

[38] Christopher G. Reddick, Roger Enriquez, Richard J. Harris, & Bonita Sharma, Determinants of Broadband Access and Affordability: An Analysis of a Community Survey on the Digital Divide, 106 Cities 102904 (2020).

[39] Glass & Stefanova, supra note 37 at 70.

[40] GAO-22-104611, supra note 32.

[41] Alison Powell, Amelia Bryne, & Dharma Dailey, The Essential Internet: Digital Exclusion in Low-Income American Communities, 2 Pol’y & Internet 161 (2010).

[42] Oyana, supra note 25.

[43] GAO-06-426, supra note 23.

[44] GAO-22-104611, supra note 32.

[45] NPRM, supra note 1 at ¶ 66.

[46] See, e.g., Notice of Inquiry, Implementing the Infrastructure Investment and Jobs Act: Prevention and Elimination of Digital Discrimination, GN Docket No. 22-69 (2022) (“If underlying cost or geographic hurdles exist in conjunction with demand in an area that makes it unprofitable, how should the Commission address such a situation?”).

[47] Public Knowledge, supra note 9 at 45 (“In many cases, a provider has the choice to build out and provide service in one area, or another. It will likely choose to build out in the more profitable area, even if it could break even or turn a profit serving the other, as well.”)

[48] See, e.g., N. Gregory Mankiw, Principles of Microeconomics, 9th ed. (2021) (“The opportunity cost of an item is what you give up to get that item. When making any decision, decision makers should take into account the opportunity costs of each possible action.”).

[49] Public Knowledge, supra note 9 at 45 (“determinations of economic feasibility also cannot take into account opportunity costs”).

[50] NPRM, supra note 1 at ¶ 66.

[51] Id.

[52] Eric Fruits & Kristian Stout, The Income Conundrum: Intent and Effects Analysis of Digital Discrimination, Int’l Ctr. for L. & Econ. (Nov. 14, 2022), available at https://laweconcenter.org/wp-content/uploads/2022/11/The-Income-Conundrum-Intent-and-Effects-Analysis-of-Digital-Discrimination.pdf.

[53] Declaration for Glenn Woroch, NOI Reply Comments of AT&T, supra note 22.

[54] T. Randolph Beard & George S. Ford, Digital Discrimination: Fiber Availability and Speeds, by Race and Income, Phoenix Ctr. for Advanced Legal & Econ. Pol’y Stud., Phoenix Ctr. Pol’y Paper No. 58 (Sep. 2022), https://phoenix-center.org/pcpp/PCPP58Final.pdf.

[55] Garson O’Toole, If You Torture the Data Long Enough, It Will Confess, Quote Investigator (Jan. 18, 2021), https://quoteinvestigator.com/2021/01/18/confess.

[56] Comments of CEI, GN Docket No. 22-69 (Feb. 21, 2023), at 8.

[57] NPRM, supra note 1 at ¶ 12.

[58] Public Knowledge, supra note 9 at 52 (“Congress has again centered the focus of the Commission’s actions on getting all people access, regardless of any discriminatory treatment or intent of the provider.”); see also, Brody, supra note 9.

[59] Ricci v. DeStefano, 557 U.S. 557, 577 (2009) [hereinafter “Ricci”].

[60] Id. (Intentional discrimination cases “present the most easily understood type of discrimination…[that] occur[s] where [a party[ has treated [a] particular person less favorably than others because of a protected trait.”).

[61] Inclusive Communities, supra note 10 at 528–29.

[62] See Public Knowledge, supra note 9 at 50-53.

[63] Id. at 5-40.

[64] See Section 60506(a)(1), (a)(3).

[65] See, Emergency Coal. to Def. Educ. Travel v. U.S. Dep’t of Treasury, 498 F. Supp. 2d 150, 165 (D.D.C. 2007) (“Courts have repeatedly held that such ‘sense of Congress’ language is merely precatory and non-binding.”), aff’d, 545 F.3d 4 (D.C. Cir. 2008).

[66] See Section 60506(c) (“The Commission and the Attorney General shall ensure that Federal policies promote equal access to robust broadband internet access service by prohibiting deployment discrimination…”).

[67] 167 Cong. Rec. 6046 (2021).

[68] 167 Cong. Rec. 6053 (2021).

[69] See, e.g., West Virginia v. EPA, 142 S. Ct. 2587 (2022); Util. Air Regul. Grp. (UARG) v. EPA, 573 U.S. 302 (2014).

[70] West Virginia v. EPA, 142 S. Ct. at 2607–2608; UARG, 573 U.S. at 324.

[71] Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001).

[72] Inclusive Communities, supra note 10 at 534.

[73] 42 U.S.C. § 3604(a) (emphasis added).

[74] Inclusive Communities, supra note 10 at 534.

[75] Id.

[76] Id. at 534-35.

[77] Alexander v. Sandoval, 532 U.S. 275, 280 (2001).

[78] 42 U.S.C. §2000d (emphasis added).

[79] Public Knowledge, supra note 9 at 54.

[80] Inclusive Communities, supra note 10 at 533 (emphasis added).

[81] Id. at 521–22 (“Courts should avoid interpreting disparate-impact liability to be so expansive as to inject racial considerations into every housing decision. These limitations are also necessary to protect defendants against abusive disparate-impact claims.”).

[82] Id.

[83] Section 60506 (emphasis added).

[84] Ricci, supra note 59 at 557.

[85] NCTA, supra note 3 at 21.

[86] 429 U.S. 252, 266-67 (1977).

[87] Id. at 265 (“Proof of racially discriminatory intent or purpose is required to show a violation of the Equal Protection Clause.”).

[88] Id. at 266.

[89] Id. at 266-67.

[90] Id. at 267.

[91] Id. at 268.

[92] See, Texas Dep’t of Cmty. Affs. v. Burdine, 450 U.S. 248, 258–59 (1981). Note that the last two factors listed in this and the subsequent footnote are part of the McDonnell Douglas framework, McDonnell Douglas Corp. v. Green, 411 U.S. 792, 798, 93 S. Ct. 1817, 1822, 36 L. Ed. 2d 668 (1973). Technically, the Arlington factors are generally used when analyzing group discrimination and the McDonnell Douglas factors are used when analyzing discrimination against individuals. Section 60506 might, however, be plausibly read as permitting either approach to intentional discrimination in deployment decisions.

[93] See, Reeves v. Sanderson Plumbing Prod. Inc., 530 U.S. 133, 143–44 (2000).

[94] US Dep. of Justice, Title VI Legal Manual: Proving Discrimination – Intentional Discrimination, https://www.justice.gov/crt/fcs/T6Manual6 (“While statistical evidence is not required to demonstrate intentional discrimination, plaintiffs often successfully use statistics to support, along with other types of evidence, a claim of intentional discrimination.”).

[95] NPRM, supra note 1 at ¶ 35-36.

[96] Indeed, as NCTA notes in its comments, a safe harbor of this kind would give effect to Congress’ requirement that the FCC acknowledge constraints on deployment relating to “technical or economic feasibility.” NCTA, supra note 3 at 25-30.

[97] See, e.g., Comments of T-Mobile, GN Docket No. 22-69 (Feb. 21, 2023), at 30-31.

[98] Comments of USTelecom, GN Docket No. 22-69, (Feb. 21, 2023), at 33-34.

[99] Id.

[100] NPRM, supra note 1 at ¶ 52.

[101] Section 60506(a)(2).

[102] NPRM, supra note 1 at ¶ 76.

[103] These possibilities open the door for what public-choice economists call “rent extraction,” whereby public officials use the ability to control entry into a market for their own benefit. See Fred McChesney, Money for Nothing: Politicians, Rent Extraction, and Political Extortion (1997). See also, ICLE Ex Parte on Sec. 621, MB Docket No. 05-311 (Jul. 18, 2019), available at https://laweconcenter.org/wp-content/uploads/2019/07/ICLE-Comments-on-Implementation-of-Section-621a1-of-the-Cable-Communications-Policy-Act-of-1984.pdf (arguing that local and state franchising authorities often abuse their authority to get in-kind contributions from cable providers far beyond the 5% cost limit).

[104] NPRM, supra note 1 at ¶ 92.

[105] Broadband Equity, Access, and Deployment Program, BroadbandUSA, https://broadbandusa.ntia.doc.gov/resources/grant-programs/broadband-equity-access-and-deployment-bead-program (last visited Oct. 23, 2022).

[106] Affordable Connectivity Program, Federal Communications Commission, https://www.fcc.gov/acp (last visited Oct. 23, 2022).

Continue reading
Telecommunications & Regulated Utilities

Kristian Stout on Rural Broadband

Presentations & Interviews     ICLE Director of Innovation Policy Kristian Stout was interviewed by RFD-TV for a story item about the challenges involved in connecting rural areas . . .



ICLE Director of Innovation Policy Kristian Stout was interviewed by RFD-TV for a story item about the challenges involved in connecting rural areas to broadband internet.



One of the threats that could affect the efficacy of this program could be different state authorities not necessarily focusing on people who have traditionally been very difficult to connect to the internet but looking at lower hanging fruit that it’s easier to connect, like people who

might have slower than extremely fast but are faster than what we consider nonexistent broadband service. There are a number of hurdles that have just traditionally existed everywhere in the United States for broadband deployment. These include things like municipal permitting, getting rights of way, and then one of the largest drivers cost is access to utility poles across the United States. There are some more complicated problems that go into accessing these poles around whether they’re privately-owned or whether they’re owned by municipalities and co-ops, which can easily explode costs for a particular deployment and make it so that the money that the federal government is directing to reach these remote areas is not being fully-used to reach these people but is instead being wasted.

Continue reading
Telecommunications & Regulated Utilities