With Biden’s 2021 Infrastructure Investment and Jobs Act (IIJA) providing $42 billion in federal funding to projects that increase access to high-speed internet, American financiers have quickly recognized that there’s a windfall of profit to be made as internet service providers (ISPs).
In May, Uniti Group—a real estate investment firm—announced that it was acquiring ISP Windstream for $13.4 billion. The two companies, once one, were reunited thanks to backing from the hedge fund Elliott Management. In another recent announcement, ISP WideOpenWest received an unsolicited takeover bid from DigitalBridge Investments. And back in 2021, Apollo Global Management acquired Lumen’s extensive retail broadband and telephone assets (and later renamed the company Brightspeed) for $7.5 billion. Private equity and hedge funds have also made significant investments in large ISPs like Frontier, Consolidated, Cogent, Wire3, and other telecommunications infrastructure companies.
This encroachment of private capital into the broadband ecosystem, I argue in what follows, represents an existential threat to local provision and the goal of universal, affordable broadband.
The Lost Art of Local Provision
The current state of broadband provision leaves much to be desired. US consumers experience high prices, poor connectivity, and lackluster customer service (recall the Comcast customer service call from hell) for a utility that is essential to contemporary life. Understandably, then, ISPs are largely disliked in the United States. In the 2022 American Customer Satisfaction Index, for instance, large ISPs like Verizon, T-Mobile, AT&T, Comcast and Charter were ranked last amongst 400 companies in 45 different sectors.
Customer dissatisfaction is in part a consequence of scant competition—a phenomenon some have labeled “the broadband cartel.” Many customers find themselves with only one incumbent, or, maybe, a choice between two providers. A 2021 report found that 83.3 million Americans have no choice in broadband provider at all, which is perhaps less surprising if you consider that just two companies, Comcast’s Xfinity and Charter’s Spectrum, control at least 60 percent of the market.
The lack of competition also means that Americans are overpaying for connectivity. U.S. residents pay the most for broadband connectivity out of all the OECD countries. Low-income families bear the brunt of these anti-competitive decisions. According to the Pew Research Center, only 57 percent of families with incomes under $30,000 have a home broadband subscription (compared to 92 percent for families with incomes over $75,000). Affordability also transcends geography—minority communities living in urban areas also struggle to afford internet. Research suggests that low-income families can only afford a broadband subscription of $10 per month. Yet with the largest broadband providers raising their prices and fighting the government mandate to provide low-cost options as part of the $42 billion Broadband Equity Access and Deployment (BEAD) program, many are unable to afford even the lowest tier access, which, to take one example from Charter Spectrum’s Internet Assist Program, comes in at roughly $25 per month for a meager 50 Mbps speed.
There is, however, another option. In contrast to the largest providers that dominate the broadband marketplace, locally owned and operated ISPs are providing high quality connection at a reasonable price. Although there are various configurations of local ISPs—they can be public or private, individually, municipally, or cooperatively run—they are all trusted, community driven, and responsive. Examples include municipal providers, where the network is owned and operated by a town or community, privately held local ISPs, and cooperatives (electric, telephone, and broadband). Each type of local ISP illustrates a more exemplary vision of broadband connection; municipal providers prove that broadband can be governed as a public utility, while cooperatives offer a model of democratic governance based on community ownership.
These providers are ideally suited to connect the unconnected. As I discussed in my 2021 book, Farm Fresh Broadband, communities trust their local providers. They are trusted because they are part of the fabric of the community. “I wasn’t signing a deal with some guy in Texas” one county administrator told me about a 2018 deal to bring fiber optics to his community. Moreover, because they are not beholden to shareholder demands for quarterly returns (and, as it pertains to coops, are also nonprofit)—they are willing to assume longer returns on investments, sometimes upwards of twenty years. This risk assumption allows them to deploy fiber optics—the gold standard of internet connectivity—to homes across the country who were previously un- or underserved. According to the Fiber Broadband Association, for instance, “rural electric co-ops are the fastest growing segment of broadband providers.”
Local providers have been at the forefront of offering future-proof, fiber optic networks to communities that have been ignored or abandoned by larger private market providers. For example, Ammon, Idaho is home to some of the strongest internet globally. The town’s hugely successful community-owned infrastructure has become known as the “Ammon Model.” In the Ammon model, the infrastructure is owned by the community, and private ISPs sit atop the network to offer retail service (what is known as “open access”). A similar situation in found in Utah. UTOPIA Fiber is owned by a consortium of 11 cities and offers fiber to the premises using open access networks. As a testament to its public, open access nature, it is now expanding into neighboring states including California. Another community model comes from Vermont, where towns are coming together to create Communications Union Districts (“CUDs”). CUDs, which allow municipalities to pool resources and thus enable the collective ownership and operation of community networks, were codified in Vermont Statute in 2015. In Virginia, electric cooperatives, such as the Central Virginia’s Electric Cooperative’s Firefly Broadband, have successfully connected rural and remote communities. In Firefly’s case, the cooperative has partnered with thirteen counties to offer universal service.
Local broadband providers, and in particular, public providers, offer faster speeds at lower prices than the largest incumbents. Moreover, they offer a more community-focused and democratic approach to internet connectivity. If the federal government funneled billions of dollars to such providers, it would radically improve the lives of low-income Americans. When adopted and when affordable, broadband is linked with higher community GDP, lower unemployment, stronger school performance, and higher quality of life. This is to say, the benefits of broadband access transcend economic returns and actually impact the physical well-being of individuals.
The Threat of Private Equity
This returns us to the increasing presence of private equity in the broadband ecosystem. As I noted above, private equity firms have moved steadily into the broadband market, beginning with the acquisition of some major broadband providers. While we have yet (to my knowledge) to see the full acquisition of local broadband company by a private equity manager or hedge fund, we have seen plenty of examples of significant investments. This includes private equity capital investment in local broadband (fiber) providers serving localities in Ohio, Texas, Florida, and Maryland. And the law firm Ropes & Grey, which advises private equity investment, “estimates digital infrastructure M&A activity will pick up in the next year and will likely grow even further with the increased need for applications like generative AI (GenAI).” A report from CoBank, a rural cooperative bank focusing on credit and loans, noted that while many rural and independent providers may not be candidates for acquisitions, “given the sheer number of broadband operators and the coverage holes that are being addressed with new fiber networks, it is probable many operators in attractive markets may be considered M&A candidates.” This is an existential threat to local provision and a threat to the goal of universal, affordable broadband.
The not-so-distant economic downfall of journalism captures the dangers of a private equity takeover. When the newspaper industry collapsed during and following the Great Recession, private equity and hedge funds swooped in like vultures to suck every last bit of equity from struggling local papers. In an effort to squeeze out as much profit as possible, firms severely reduced newsrooms, sold their real estate, and increased subscription prices. Sooner or later, many newspapers folded. This resulted in “news deserts,” certain areas without access to local reporting, which, like broadband, is crucial to an informed and engaged public.
One example is Alden Global Capital’s acquisition of The Chicago Tribune in 2021. Upon Alden Global Capital’s acquisition of The Chicago Tribune, for instance, McKay Coppins for The Atlantic wrote in 2021, “they gutted the place.” Continues Coppins:
[Local newspapers are] being targeted by investors who have figured out how to get rich by strip-mining local-news outfits. The model is simple: Gut the staff, sell the real estate, jack up subscription prices, and wring as much cash as possible out of the enterprise until eventually enough readers cancel their subscriptions that the paper folds, or is reduced to a desiccated husk of its former self.
Alden did the same thing to the Denver Post in 2018, where it reduced the staff of the paper by 75 percent.
Transcending the bounds of newspapers and broadband alike, private equity firms are everything that local, community-focused ISPs are not: faceless, placeless, and single-mindedly profit-driven. The fear is that they will replicate their short-term, profit-prioritizing strategy on ISPs: gutting local services, firing local staff, and forgoing local upgrades. The result could be devastating for underserved communities, especially once federal funding dries up.
The takeover of an entire media industry by private capital is not a new concept for those of us who study communications policy and history. If we value the community-focused, economic, and cultural potentials offered through the inclusivity of more democratically focused broadband—seen in local, cooperative, and municipal networks—we cannot let what happened to newspapers happen to internet providers. We cannot sacrifice local, community-driven providers for the hope of financial investment.
While Biden’s federal grant program prohibits states (who are the final arbiters of the $42 billion BEAD program) from discriminating against public, non-profit, and cooperative applicants, little guidance has been offered on how that works in practice. In Pennsylvania, for instance, municipal broadband is drastically inhibited by law, but the federal government seems content to allow it to happen despite the anti-discrimination mandates. Clarity on this matter is of great importance. Ideally, states should have considered privileging local, community-centric providers, as was the IIJA’s original intent. With that option now off the table for many states with the federal approval of their broadband funding plans, state and local government could still protect community-based ISPs through statutes such as Vermont’s CUD model or Minnesota’s recent repeal of its anti-municipal broadband laws.
If private equity firms continue to acquire ISPs, moving ever more local, and if they swallow-up federal funding, Americans may face worse service provision than before. There’s a lot of ambiguity here, since state BEAD programs will not begin meting out funds until the new year at the earliest. In the meantime, with unprecedented energy and funding being paid to widening and improving broadband access, it’s crucial we have a say in who is shaping this market and consider the contingency we are willing to place on such a vital service.
