Mamma Mia, what is going on in New York? The Affordable Broadband Act (ABA), which mandates low-cost internet plan options for low-income families who are stuck on the wrong side of the digital divide, finally took effect this year with chilling effects on the state’s home internet market. New York’s intervention is strangling market competition, discouraging investment, and lowering consumer choice in a market that should be adapting to meet changing consumer preferences.
While New York is right to target internet affordability issues, their current approach is flawed. The ABA is restricting consumer choice in the Empire State, and it must improve to be more effective. New York lawmakers should look to the success of the Affordable Connectivity Program (ACP) in empowering consumers rather than constraining suppliers.
Shortly after the ABA went into effect in January, AT&T pulled its 5G Internet Air service from the New York market. The Act imposed new requirements on ISPs to offer $15-20 monthly plans for low-income homes. After reviewing the law and the new costs of doing business, AT&T decided it could no longer justify its home internet expansion in New York and pulled the service, leaving only its mobile services. Meanwhile, Starlink and other incumbents remain, but with the added cost of misguided price controls.
When government intervention shrinks the number of businesses in a market, consumers lose. When that number shrinks naturally, like through mergers, ISPs can benefit from economies of scale and drop prices—their fixed costs to maintain service can now be recouped through more subscriptions. But when markets shrink because state governments put their thumb on the scale, consumers lose. Businesses’ costs don’t drop, so they can’t lower their prices without incurring substantial losses. This leaves businesses to cut costs elsewhere by slashing programs and reducing R&D investment. In these conditions, only those with adequate resources, usually large incumbents, can stay afloat. That’s when consumers are faced with fewer options and worse products.
Something similar is playing out in New York. With ABA going into effect, AT&T has pulled its high-speed 5G internet program. Meanwhile, the law requires remaining competitors to offer a surprisingly slow minimum speed of 25 Mbps to low-income customers. That’s only a fraction of the 2024 national average speed of 214 Mbps or even the minimum 100 Mbps download speeds that the National Telecommunications and Information Administration (NTIA) considers the dividing line between adequate coverage and being underserved. Another solution could have brought better service within reach, but now New Yorkers have fewer internet providers, their affordable plans fall far below the federal standard, and their own policies are one big reason why.
Despite the ABA’s many flaws, New York is right to target demand-side drivers. According to 2023 survey data from the NTIA, about 15 percent of offline Americans indicated that they cannot afford service at home. Another 60 percent of respondents said they weren’t interested in buying their own service or opted to use the internet elsewhere, like in schools or in public libraries. This suggests these respondents may change their minds if they had access to fast internet speeds at lower prices, meaning as much as 75 percent of offline Americans remain offline likely for affordability reasons. With the right policies, New York can approach the affordability issue without harming consumer choice.
A better approach would be to fund consumers directly by reforming already existing programs. Providing a fixed monthly dollar amount to consumers was the primary mechanism of the Affordable Connectivity Program, and it garnered overwhelming success. During its three years in operation, the ACP connected upwards of 23.2 million homes to any ISP consumers chose—that’s more homes connected than the 17 million offline participants in the NTIA survey. New York had 1.79 million ACP subscribers, making it the second-highest enrolling state in the nation. It’s safe to say direct-to-consumer assistance is popular in New York—and that should and must be done without price setting.
New York has a couple of programs that come close to this but fail to deliver support that is ongoing and direct-to-consumer. The Big Apple Connect program pays ISPs directly—Optimum or Spectrum only—to deliver free service for certain public housing tracts. The Affordable Housing Connectivity Program (AHCP) similarly targets regulated affordable housing, but only to install or upgrade necessary broadband equipment as a one-time project. One or the other could feasibly be reformed to deliver ACP-like benefits without New York having to set up another additional subsidy scheme. Either could deliver better outcomes than accidentally chasing businesses out with rate regulation.
This approach can empower individuals to make their own choices about which plan is right for them and provide a means to help them pay for it. Having more ready customers is attractive to businesses, too, and can lure companies back into the area, thereby increasing competition and spurring the benefits of better services and lower prices.
In trying to assist a few residents, Empire State policymakers have harmed everyone by implementing policies that drove out AT&T’s home internet service. Instead of dictating the speeds and prices that ISPs must offer, policymakers should try reforming existing programs to connect offline New Yorkers through targeted assistance. This consumer-focused approach has already proved successful in New York with the federal-level ACP. Otherwise, this classic case of regulation harming consumer choice could continue to artificially concentrate the market further, ultimately leaving a few winners to take it all.
Nate Karren is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, follow us on X @ConsumerPal.