This March, the Federal Communications Commission circulated a Notice of Proposed Rulemaking, or NPRM, seeking input on how to best “lower costs and address the lack of choice for broadband services available to households in apartments, condos, public housing, and other multi-tenant buildings.” Public Knowledge and 30 other organizations recently wrote to the Commission expressing our support for giving consumers the freedom to opt-out of bulk billing arrangements. This proposal is an intuitive addition to the administration’s broader suite of pro-consumer efforts, such as the FCC’s recently adopted “all-in” pricing transparency rules.
Broadband bulk billing arrangements may sound good in theory – if people collectively pay into a service and receive a discounted rate, what’s not to like? But if you look under the hood, these contracts don’t always end up serving consumers’ interests. Instead, many tenants are left with poor service or high prices. For example, Lifeline-eligible consumers (or Affordable Connectivity Program-eligible households, should the program be revived) are forced onto higher-cost plans. So an opt-out option is a middle ground, commonsense approach to meet the wide-ranging needs of tenants. When we empower consumers to leave arrangements that aren’t working for them, we build markets that are responsive to every consumer’s needs.
Consumers Benefit From More Choice
Since 2020, the share of renting households has grown rapidly, with renters now making up more than a third of all American households. Renters consider a wide variety of factors when choosing where to live, some of which are informed by the renter’s own observations (location, price, lease length) or what is disclosed to them (perhaps, chipped lead paint). But fundamentally, the relationship between a renter and their building’s management is freighted with informational asymmetries. Since landlords have no obligation to inform renters of the potential additional cost of “utilities” until the point of sale, bulk billing arrangements rarely play a role in tenants’ rental decision-making. Thus, landlords do not necessarily have an incentive to pass on any savings negotiated with an internet service provider – in fact, there is a competing incentive to keep the surplus.
The Commission heard similar arguments in defense of exclusive agreements as part of the 2008 Order and the 2022 Order. In those instances, the Commission found that the competitive benefits to residents of Multiple Tenant Environments (MTEs) like apartments and condominiums, and consumers as a whole, outweighed the claimed benefits of exclusive agreements. There is no reason for the Commission to reach a different conclusion here. If the behavioral economics literature on default effects is any indication, it’s unlikely that tenants will opt-out of these agreements unless the in-building service is significantly inferior to competing providers’ or the same service is available at a significantly lower cost. In similar instances of default consumer landscapes like community choice aggregation programs, states have reported opt-out rates of three percent or less.
We can generally infer that the people most likely to opt out of these arrangements are the people least satisfied with them – whether that’s because they’re paying into services they don’t want through their apartment’s “bundled” arrangement, they’re unable to afford the plan, or they’re simply receiving low-quality service.
One renter, Dr. J. David Smith, articulated such concerns with superfluous service to the Commission in a comment regarding compulsory bundled agreements. After renewing his lease, he was forced onto a bundled internet plan for $85 dollars per month that included basic internet and cable TV – services which Dr. Smith did not want. Dr. Smith’s experience demonstrates that one-size-fits-all arrangements inevitably leave some consumers unsatisfied.
Supporters of bulk billing arrangements claim that these arrangements can save consumers up to 50-60% off individual retail plans. It’s unclear if these savings are representative of the average bulk billing cost savings or the best-case scenario, but we do know that internet service costs, on average, about $60-90 a month. This means that even on the lower bound of that range, $60, a 60% discount would still leave consumers at $24 per month – almost $14 more than many discount internet offers. Low-income consumers who would prefer pared-down plans or qualify for the Lifeline subsidy cannot access these savings under bulk billing arrangements. These issues are magnified when Public Housing Agencies or PHAs – local agencies that develop public affordable housing – are locked into exclusive agreements. For low-income households, unfettered access to broadband markets is critical.
Other consumers may seek an alternative provider on the basis of service quality. When landlords choose broadband service for tenants, they do not necessarily choose a reliable wireline connection to each individual apartment. Instead, they often prioritize breadth of connectivity over quality of connection for each apartment. An entire building or complex using the same shared spectrum on the same network for its primary connectivity can lead to performance and reliability problems less likely with wired connections for individual units. Signal strength varies for each residence depending on the location of base stations; therefore, the ability to opt out of bulk billing arrangements gives residents the opportunity to get the service that meets their connectivity needs.
HOAs Are Not Equipped To Serve as Consumer Representatives
As proponents of status quo bulk billing will point out, one kind of MTE includes communities managed by homeowner associations, co-ops, or other arrangements where residents select a board (collectively referred to as a “homeowners association,” or HOA). Since HOAs do not have the same profit motive as landlords, an HOA is ostensibly accountable to and representative of the residents. However, the claim that HOAs engage in substantive consumer advocacy does not hold up under scrutiny. If anything, residents often find that HOA decision-making is in tension with their interests.
Residents’ frustrations with HOA boards are well-documented. A 2023 Rocket Mortgage survey of over 1,000 residents of HOA communities showed that fewer than half (47%) of HOA residents surveyed believe their community is better off with a HOA, and 40% of residents feel their HOA board is incompetent. Many HOA boards are composed of volunteers who neither have the expertise nor the resources to select and negotiate for the best service. Even if the majority of residents are satisfied, individual residents may still have particular needs that prompt them to opt out. And if residents act on their dissatisfaction and vote out the HOA board, they may still be stuck with a long-term contract. This severely undercuts the accountability mechanism of not only HOAs to their residents, but also the providers’ accountability to their customers.
Even if HOA boards were well-positioned to serve as residents’ negotiators, for the millions of MTE residents who rent apartments or condos, there is no such representation. When we consider that young people, people of color, and low-income residents are far more likely to rent – with Black and Hispanic households twice as likely to rent as white households – this poses additional questions about how empowered these consumers are to advocate for their interests.
The Ability To Opt Out Is the Smart, Middle-Ground Position
The best way to determine whether bulk billing arrangements do more harm than good, whether providers genuinely need 100% sign-up in a building to make service viable, or other questions is to thoroughly examine the evidence for and against them. In moving forward with this NPRM, the FCC can develop a robust record – informed by a diverse group of stakeholders – on the merits of these arrangements. If the bulk billing arrangements that renters are being offered truly are the best market value and service available, then the low opt-out rates will speak for themselves.