In late 2015, West Virginia Attorney General Patrick Morrisey announced a record $160 million settlement with Frontier Communications, the result of a years-long investigation into complaints about the company’s internet service.
It was widely reported as a major victory — “Good job,” the Charleston Daily Mail told Morrisey in an editorial — and perceived as a commitment from Frontier to invest more in the state to fix its aging network.
A spokesman for Frontier told the Charleston Gazette-Mail, “this is a big deal, it’s an additional investment,” referring to what Morrisey called the “centerpiece” of the deal: a promise by Frontier to spend $150 million on new investments in the state.
The Associated Press echoed this claim, calling it “an additional $150 million.” A columnist at the Dallas Morning News praised it as “one of the greatest government deals ever” and initially reported it, incorrectly, as a fine paid to the state.
In fact, Frontier had committed to less than it was already doing in West Virginia. In the years since that heralded settlement, Frontier appears to have done the bare minimum to fulfill the terms of the agreement. But in doing so, it ended up investing far less in West Virginia.
According to details about the company’s finances that were released this August following an investigation by the state’s utility regulator, Frontier spent more than $220 million on capital expenditures in the three years prior to the settlement.
During the settlement’s three-year term, the company spent only $165 million in capital expenditures, which includes federal money excluded from the agreement, according to its auditors.
Now, the problem is even further from being resolved and Frontier’s infrastructure in the state is falling apart. Complaints about lousy service, submitted to the state regulator, have skyrocketed. The company, with operations in 25 states, filed for bankruptcy earlier this year.
Morrisey would not speak with Mountain State Spotlight about this story.
In a written statement, his spokesman wrote, “The Attorney General never sought to penalize Frontier out of existence, but his quick action and foresight in late 2015 secured a substantial investment in the state’s internet infrastructure years ahead of Frontier’s bankruptcy — a move that could have left the state empty handed.”
Warning signs
Frontier came to West Virginia in 2010 with big promises. In order to win approval from regulators to take over the state’s aging telephone network, then owned by Verizon — which was already being scrutinized by the state Public Service Commission for failing to do adequate maintenance — Frontier promised to provide internet to a vast majority of its new customers.
But that proved difficult to do well, particularly using DSL, a technology that moves data over phone lines and degrades rapidly with distance. After receiving “multiple complaints” about Frontier’s internet speeds, the attorney general launched an investigation into the company in 2013. The settlement “resolved” those complaints, Morrisey’s office said in 2015.
But those complaints didn’t stop coming. The office received 404 more in 2019 alone, from irate customers whose internet service had slowed to a crawl as Frontier’s aging network of telephone lines proved unable to keep up with the demands of Netflix and other online services.
This led to another investigation, this time by the PSC. It commissioned an audit, which found that the company’s capital investment in the state had fallen by half between 2012 and 2018.
The details of exactly when that drop in spending occurred, contained in an initially-redacted version of the audit report released in March, were made public by Frontier in August after an administrative judge ruled that the data were not, as Frontier had argued, trade secrets.
For Frontier’s customers, this meant worse internet. While other companies invested in new technologies like fiber-to-the-home, Frontier continued to rely on DSL, cramming more and more data through overloaded equipment.
Auditors laid the blame on the company’s executives in Connecticut, who ignored the warning signs that its business in West Virginia was falling apart. Capital expenditures for the state, auditors found, were budgeted in Connecticut with little input from regional managers.
“It is unclear to Schumaker & Company consultants how capital decisions are being made at the corporate level that affect West Virginia with little input from West Virginia,” consultants from Schumaker & Company, commissioned by the Public Service Commission to complete the audit, wrote in their report.
As a result, instead of investing more money in West Virginia, Frontier went on a spending spree, acquiring new service territory in states where it thought it could be more profitable, like California, Texas and Florida.
It was a catastrophic mistake. The company took on $10 billion in debt and the interest payments hamstrung its efforts to invest in fiber.
In response to the audit, the Public Service Commission has asked Frontier to create a five-year investment plan in the state. So far, the company has refused.
‘A shot in the arm’
Frontier’s behavior in West Virginia has infuriated lawmakers, who have punished the company by denying it new state funds.
But Morrisey’s 2015 settlement has been the flashiest attempt by state officials to hold the company accountable.
“The agreement is the largest, independently negotiated consumer protection settlement in West Virginia history,” Morrisey’s office gushed in a press release announcing the deal.
Morrisey told local media outlets that the settlement would be “a shot in the arm to help the state economically.”
But while Frontier may have complied with the terms of the deal, it has hardly complied with its spirit.
According to the terms of the deal, the promised $150 million investment was “in addition” to the $180 million the company was set to receive from the Federal Communications Commission beginning in 2016.
But little of that federal money — only 22% — actually went to buying new equipment and other capital investments. The vast majority of the funding went to maintenance and operating costs, according to auditors who reviewed the company’s books.
In 2016, as Frontier’s capital expenditures began to drop, Morrisey continued to promote the deal, telling the Gazette-Mail that it ensured “heavy investment into our state’s internet infrastructure.”
Now, as Morrisey campaigns for reelection, he uses that Frontier settlement as a talking point. “We’ve done as much or more than any state out of the [Attorney General’s] Office through the settlement work,” he told Ogden Newspapers earlier this month.
But his political opponents have long faulted Morrisey, who was a drug-company lobbyist before being elected in 2012, for relying on settlements and failing to take corporations like Frontier to court.
Morrisey’s current challenger, Democrat Sam Petsonk, has accused the attorney general of not doing enough to enforce the Frontier settlement. “Morrisey never lifted a finger,” he wrote on Facebook.
“These cases need to go to trial. And then when there’s settlements, there has to be admissions of responsibility,” Doug Reynolds, Morrisey’s 2016 Democratic challenger, said during a debate at the time.
Frontier admitted no liability under the terms of the 2015 settlement, which was titled an “assurance of voluntary compliance.”
In an interview on the MetroNews radio show Talkline in 2015, shortly after the deal was signed, Morrisey admitted that it was the eye-popping nine-figure offer from Frontier that convinced him to settle — rather than going to trial.
“While we feel very good with the issues we brought to the table, when you can get a $160 million settlement — the single largest independently negotiated settlement in the state’s history – you take it,” he said.
In their emailed statement, Morrisey’s office did not address several of the questions posed by Mountain State Spotlight, including whether the attorney general was aware of Frontier’s prior capital expenditures when he agreed to the deal.
Those data were readily available. Frontier had been promoting its investment in the state in “fact sheets” for years as it pursued state contracts.
“We’ve invested over $600 million,” Rich O’Brien, a Frontier executive, said in a separate Talkline interview after the deal was signed, a claim that amounted to the company spending $100 million each year it had been operating in West Virginia.
“We’ll continue to do that,” he went on.
O’Brien left Frontier earlier this year. He is now an executive at a local firm, Alpha Technologies, which Gov. Jim Justice recently applauded for its efforts to expand high-speed internet access in the state.
Correction: A previous version of this story incorrectly reported Frontier’s earnings.