Court upholds low-cost internet law in blow to ISPs

  • The Second Circuit upheld a New York law mandating low-cost ISP service for low-income customers

  • The court ruling is seen as a setback for ISPs who had challenged New York's Affordable Broadband Act

  • It could also pave way for other states to enact similar measures as ACP funds run low

In the fading light of the Affordable Connectivity Program (ACP), a Second Circuit panel made a decision that might seem local, but could be of national consequence, with ties to the ACP and the Federal Communication Commission's (FCC) latest order on Title II regulations. The panel upheld a New York law requiring ISPs to offer a low-cost service for low-income customers.

It's a decision seen as a setback for service providers.

For context, New York passed the Affordable Broadband Act (ABA) in 2021, mandating ISPs to provide reduced-cost internet to qualifying low-income families.

The same year, ISPs challenged the law, arguing that the federal government's regulation of broadband is comprehensive enough through the Federal Communications Act that it should prevent states from enacting their own regulations.

Initially, a district court sided with the ISPs, issuing an injunction against the ABA's enforcement, but the new Second Circuit ruling overturned that decision, supporting the state law that requires ISPs to offer a low-income broadband service — specifically $15/month for 25 Mbps; $20/month for 200 Mbps.

The law goes into effect immediately, however, its real impact on broadband pricing is still unclear. Upon the Second Circuit's decision, a note from New Street Research analysts said, “Our understanding is that all the ISPs we cover operating in New York offer plans as good as or better than the plans required by the state law.”

New Title II vote complicates matters

In defending its decision, the Second Circuit explained that the Federal Communications Act doesn't regulate broadband rates sufficiently enough to exclude state intervention. Additionally, the court argued that the FCC's 2018 order, which classified broadband as a Title I information service, “stripped the agency of its authority to regulate the rates charged for broadband internet.”

The FCC has broad authority over Title II telecommunications services, and virtually no authority over Title I information services such as websites and apps. When the FCC put broadband in the information services category, it removed any authority that would allow the FCC to adopt net neutrality protections or broadband affordability laws like New York’s.

You may be asking yourself: Wait a minute. Didn’t the FCC just reinstate Title II? The answer to that is: yes. Which is why the Second Circuit decision in New York could get tricky.

New Street Research analyst Blair Levin said the decision is a loss for ISPs. It “effectively invites states to tackle the low-income broadband adoption problem,” he said in a note this week. However, “The legal and political framework for that invitation is a complicated bad news/good news story."

Just last week, the FCC under Chairwoman Jessica Rosenworcel voted to reclassify broadband internet access service as a telecommunications service. That means ISPs could challenge the Second Circuit ruling because it was based on the FCC’s Title I classification ordered in 2018.

Among other outcomes, providers may file a new case with a new argument, or seek a rehearing or an en banc review, Levin said.

More bad news for ISPs

In more bad news for ISPs, the Second Circuit’s ruling might signal a pathway for other states to follow New York with similar measures, particularly as the Affordable Connectivity Program (ACP) is nearly out of money.

Barbara van Schewick, professor of law at Stanford and Director of the Center for Internet and Society, said the ruling could back up states’ right to create their own net neutrality protections (like California and others have done), require affordable broadband options like New York and/or institute broadband privacy protections like Maine.

Levin warned that ISPs could face some risks in challenging state laws, especially if the FCC remains under Democratic control. “In a world with ACP, Democrats might favor federal efforts. But now, their priority will be protecting broadband access for low-income households,” he wrote.

In any case, relying on political outcomes could make things awkward for ISP lawyers in the future. If the FCC's Title II order is overturned by a different political regime later on, Title I classification will put the Second Circuit's current justification back in place.

“In short, there is complexity but there are multiple scenarios for ISPs having to comply with the New York law, but none that are likely that get them out of doing so,” Levin concluded.

Industry reacts

Schewick called the Second Circuit’s decision “a sweeping victory” for New York state and its consumers.

“The decision makes it clear that if the FCC doesn't claim authority over broadband, the states have wide authority to act, including requiring affordable broadband,” she said in a statement. That means if a future FCC again decided to return broadband back to its Title I classification, effectively relinquishing control over ISPs, the states would have a legal precedent to institute their own protections or re-activate dormant ones.

In a statement, Benton Senior Counselor Andrew Jay Schwartzman agreed that the Court’s decision upholds an “important principle” for broadband deployment: that FCC regulations do not interfere with states’ ability to ensure affordable access.

As the ACP winds down, Schwartzman said the decision “provides a roadmap for other states to follow to join New York in doing what the federal government has thus far failed to do.”

Meanwhile, ISP advocates said they were “disappointed by the court’s decision and New York state’s move for rate regulation in competitive industries.”

In a joint statement, ACA Connects, CTIA, NTCA, New York State Telecommunications Association, Satellite Broadcasting & Communications Association and USTelecom argued the move “discourages the needed investment in our nation’s infrastructure,” and also “potentially risks the sustainability of broadband operations in many areas.”

The groups said the “broadband industry supports efforts to connect all Americans” and urged Congress to “maintain support for low-income Americans on a nationwide basis.”

Read more about the demise of the Affordable Connectivity Program here.