How Should Broadband Be Regulated?

A conversation about oversight, cost, and the role of public utility commissions

How Should Broadband Be Regulated?

One central question in the public discussion about expanding broadband access is regulation—specifically, whether broadband should be treated like a utility.

It’s a question that Sherry Lichtenberg, deputy director of the National Regulatory Research Institute (NRRI), knows well. The nonprofit and nongovernmental institute, founded by the National Association of Regulatory Utility Commissioners in 1976, supports the work of state utility regulators by providing research on issues such as clean energy, net neutrality, and cybersecurity. Before joining NRRI, Lichtenberg worked for various telecommunications service providers, providing guidance on compliance, state and federal policy, and operations.

This interview has been edited for clarity and length.

Q: Can you start by telling us what a state public utility commission is?

A: Sure. State public utility commissions, or PUCs, are government agencies charged with ensuring that utility services are reliable, resilient, and available. The level of oversight differs by industry and state.

Q:  Can you explain more about how different utilities are regulated?

A: Traditional utilities that provide electricity, natural gas, water, and in some cases other services are rate-regulated, meaning their rates and services must be approved by their state’s PUC in exchange for the right to a monopoly on the service they provide. The PUC also sets requirements for the quality of service these companies deliver. This rate and service regulation protects ratepayers while ensuring that the utility gets the revenue it needs to provide safe, reliable service and to invest in expansion and maintenance of its system.

By contrast, broadband suppliers, including cable and wireless companies, are subject to only limited oversight by the states, primarily to ensure that they provide adequate 911 emergency service. The same is true for most companies that provide wireline—that is, landline—telephone service. They’re not rate-regulated and are subject to only limited regulation of service quality. Legislation in 34 states prohibits local PUCs from oversight of internet services, which includes broadband, although some small telephone companies, primarily in rural areas, continue to be regulated for both voice and broadband services.

Q: Over the last several years, we’ve seen many states begin permitting electric utility companies to offer broadband service. How does that work in the context of the regulatory differences you just outlined?

A: Before I answer that, let’s distinguish among the different types of electric utilities—municipal, cooperative, and investor-owned.

Q: And by investor-owned you mean what?

A: Those are the large, publicly traded utilities.

Q: Let’s start with municipal utilities. How are they regulated as far as providing broadband?

A: We can actually bunch municipal and cooperative utilities together. Munis and coops, for short, were established during the 1930s to support rural electrification in areas where larger utility companies weren’t providing service. Now, in a similar move, they’ve begun to meet the needs of their customers by offering broadband in the parts of their service territories that are unserved by other internet service providers (ISPs). They usually do this through a separate broadband subsidiary and are generally not regulated by their state’s PUC. However, many have sought a special regulatory designation from their PUCs that allows them to qualify for federal broadband funds. 

Q: And what about investor-owned utilities?

A: These companies are using fiber communications networks to support the installation of smart meters—which are utility meters that monitor and report usage in real time and allow for automated meter readings—and to increase the remote management of their electric systems.

Q: What does that have to do with broadband?

A: Well, as companies install fiber for their network operations, including smart meters, they’re including additional strands of fiber which allows them to provide the ISPs that actually bring service to homes and businesses with the necessary data transmission capacity for broadband service. Although there have been no definitive studies of the financial potential of these utility companies using their fiber in this way, it’s possible that they’re doing it both to support their customers and to defray some of the cost of their fiber build-out. 

Q: How so?

A: Since the majority of these utilities are still rate-regulated and they are primarily installing fiber to support their electric operations, under PUC rules they may be able to seek reimbursement for this investment through their electric rates.

Q: So why are traditional utilities so much more regulated than broadband?

A: The way different services are regulated is not indicative of the way in which governments see or value those services. Instead, services are regulated in different ways based on legislation or historical context. 

Q: Can you give us some of that historical context?

A: Originally, all utilities were regulated similarly. But the 1996 Telecommunications Act relaxed the regulation of telecommunications services in order to incentivize competition, and arguably it did just that. The internet was in its infancy when the act was passed, with dial-up service generally provided as part of a package offered by suppliers such as AOL.

Q: And since 1996?

A: A lot has changed in the 25 years since the act was passed. No one guessed that we would reach the broadband speeds or usage that we see today. In that context, the act defined “internet protocol-enabled” offerings as “information services” and proposed light regulation.  The framers of the act saw competition as a way to encourage the development of new services and to give customers the right to move among providers to select the one that suited them best. 

And now, the COVID pandemic has showed that broadband is as important to daily life as electricity, gas, or water. Without broadband, students can’t participate in remote schooling; workers can’t perform their jobs; and patients can’t access telemedicine services. 

Regulation provides a way to identify and correct service issues and ensure that services are reliable, available, and operate as described by the provider. So, increasing oversight of where and how services are deployed could help to close these availability and accessibility gaps. 

Q: So, does any regulatory body have jurisdiction over broadband?

A: The FCC has designated broadband as an interstate service, so it has the primary jurisdiction, which means that oversight of broadband takes place at the federal rather than state level.

Q: Then, here’s the all-too-anticipated tough question: Based on your experience, should broadband be regulated as a utility?

A: That’s definitely the all-too-anticipated tough question, and one to which I don’t have a definitive answer. What’s clear to me is that we need universally available, affordable, and reliable broadband at speeds that allow everyone to participate fully in the digital economy.  This will take some level of oversight to ensure that companies that take federal or state funds to build or deploy broadband networks live up to their commitments and that consumers know what they’re buying and have somewhere to go if it doesn’t meet their needs or expectations. 

Q: What else should policymakers know about broadband regulation?

A: The telecommunications landscape is complex, with products and services that are changing every day. Lawmakers should work with their state public utility commissions and broadband authorities to ensure that the decisions they make take into account technical, legal, and consumer needs and provide room for adjustments as the landscape changes. States can ensure that the money allocated for broadband is spent in the places where it’s most needed—and that service becomes both more universally available and universally adopted.

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