ISPs seek compensation to Keep Americans Connected

The nation’s internet service providers, both for fixed and mobile services, are beginning to see the economic impacts from their pledge to not disconnect customers during the COVID-19 crisis.

When the coronavirus pandemic first broke out in earnest, the Federal Communications Commission (FCC) asked service providers across the country to make a Keep Americans Connected pledge to not disconnect customers for 60 days due to their inability to pay. And American service providers quickly made the pledge. Recently, the FCC extended the pledge through June 30.

In testimony yesterday before a Senate commerce committee, Jonathan Spalter, president and CEO of USTelecom – The Broadband Association, said, “As the first billing cycle since the outbreak of COVID-19 comes to an end, many are starting to see that doing the right thing (maintaining service, in some cases without payment) is coming at a substantial cost.”

Spalter told the senate committee that service providers are committed to keeping Americans connected, but at the same time service providers, themselves, have to keep their own lights on. He applauded the move by a bi-partisan group of senators who’ve introduced a bill that would appropriate $2 billion for small broadband providers to recompensate them for providing free broadband services. The bill is endorsed by NTCA—the Rural Broadband Association, WTA – Advocates for Rural Broadband and the Wireless Internet Service Providers Association (WISPA).

Steven Barry, president and CEO of the Competitive Carriers Association, also testified at the Senate commerce committee yesterday. He said CCA members have been doing the right thing for their communities. “Their efforts come at no immediate cost to customers but can draw significant resources from the carriers,” said Barry.

CCA is supporting a “Stay Connected Voucher” proposal, which would provide government-funded vouchers to consumers via the CARES Act. As proposed, qualified households would receive two $50 vouchers during each month of the declared COVID-19 crisis to apply to communications services bills. Vouchers would expire six months after the end of the emergency period. Consumers would then determine which communications services they wanted to purchase with their vouchers, whether broadband, mobile, video or voice.

Larger service providers

The big mobile operators haven't asked for any kind of recompensation due to their Keep Americans Connected pledge. But they have reported a spike in bad debt.

Verizon CEO Hans Vestberg said on CNBC today that about 2.5% of Verizon’s customers, or about 800,000, were unable to pay their bill because of financial problems they were experiencing related to COVID-19.

Verizon had reported similar numbers on its earnings call in April. Vestberg said today, “The last two weeks we have seen improvements on the payment side from our customers who are stressed during this time.”

Verizon increased its bad debt reserve in the first quarter by $228 million based on the expected number of customers who will seek payment relief under the Keep Americans Connected pledge.

Similarly, AT&T’s CFO John Stephens said on the company’s recent earnings call that, “As a result of COVID, we anticipate an increase in bad debt expense across the various businesses, and accordingly, have recorded a $250 million incremental reserve in anticipation of that.”

On its Q1 2020 earnings call, T-Mobile CFO Braxton Carter said, “Our results in the first quarter were impacted by the macroeconomic impacts of COVID-19. Total bad debt expense and losses from sale of receivables was $138 million or 1.24% of total revenues in the first quarter of 2020, compared to $108 million or 0.98% of total revenues in the first quarter of 2019.”

Speaking at a MoffettNathanson investor event earlier this week, Charter’s CEO Tom Rutledge was asked about bad debt related to COVID-19. “I think they’ll be collection issues in the near term,” said Rutledge.