West Virginia’s biggest telecommunications company will get hundreds of millions more in federal money to serve the state, despite being under investigation for its chronic poor service and misuse of funds by the state’s utility regulator.
It’s the result of an auction in which the Federal Communications Commission gave away $9 billion of its Rural Digital Opportunity Fund, which is financed by surcharges on customers telephone bills. Of the $362 million allocated to West Virginia by the FCC, over two-thirds will go to Frontier Communications and will be distributed in annual installments over the next decade.
It’s “the single largest step ever taken to bridge the digital divide,” Ajit Pai, chairman of the FCC, said in a press release announcing the completion of the auction on Monday.
But some broadband advocates in West Virginia are not so thrilled.
Frontier, which was allocated nearly $250 million in the state, declared bankruptcy in March. The company has a long track record of making — and then breaking — extravagant promises in West Virginia, and there’s doubt as to whether this time will be any different.
“It’s unbelievable,” said Mike Holstine, the secretary-treasurer of the state council tasked with coordinating rural broadband expansion in West Virginia.
“I think the state is going to get screwed again,” he said, referencing the Broadband Technology Opportunities Program scandal in which West Virginia was forced to return nearly $5 million in federal funds in 2017 after regulators discovered Frontier had wasted it.
Back then, the state took federal stimulus funds and awarded them to Frontier. This time, the FCC eliminated the middleman and allowed companies to compete directly for the subsidies.
But the result was similar. Frontier was allocated over $370 million in eight states — but won most of it in West Virginia, solidifying the company’s checkered relationship with the state it entered a decade ago after it bought out Verizon’s local telephone network and promised to provide high-speed internet to a vast majority of its new customers.
Just three years later, the West Virginia attorney general launched an investigation into the company after customers complained that Frontier service wasn’t living up to its promises. The state settled for $160 million, albeit with dubious results.
Eight other companies, besides Frontier, won money to serve West Virginia. They include local companies like Bridgeport-based Citynet and Virginia’s Gigabeam Networks — but also Elon Musk’s SpaceX, the fledgling California startup that has built a network of 900 communication satellites launched into space on custom-built rockets.
Citynet, the second-largest winner, was allocated more than $50 million. State lawmakers had hoped to give local companies a boost by easing restrictions on the state’s loan insurance program, an executive order that Gov. Jim Justice had promised would help smaller companies bid more competitively in the auction.
But it wasn’t enough to boost Citynet’s efforts to win more territory in eastern sections of the state, where Frontier bid too aggressively for Citynet to compete, Holstine said.
Promises of fiber
In the end, Frontier won a bulk of the subsidies by promising to do the job for less than its competitors.
In what is known as a “reverse auction,” companies competed over census tracts that the FCC determined currently do not have high-speed internet: primarily rural areas where rugged terrain and low population density made it uneconomical to wire service without government subsidies. The company that promised to provide service with the least amount of federal help won the subsidy.
Since companies that promised lower speeds were penalized, Frontier promised the fastest option on the menu — gigabit speeds — which will require wiring fiber optic cable directly to homes.
Jeff Proctor, a retired Fayette County businessman who is now on the state’s broadband enhancement council, has doubts whether Frontier can pull this off. In Proctor’s neighborhood, Frontier’s service is so slow it’s hardly usable.
That’s because Frontier relies almost exclusively on its rickety copper telephone network to deliver DSL internet service, and the company has little experience in West Virginia installing fiber to the home. Furthermore, Frontier’s workforce and capital spending in the state has dwindled in recent years as its business suffered from underinvestment.
“I was hoping they wouldn’t be as successful as they were,” Proctor said.
As bidding went on over the last month, Frontier drove prices lower and lower until Citynet was forced to drop out. In some areas, according to Holstine, Frontier was bidding as low as one-fifth of the original auction price.
It wasn’t just Citynet that was pushed out by Frontier. Hardy Telecommunications, a local utility cooperative in Hardy County, ended up winning no money despite being authorized to bid in the auction.
Much of the census blocks near the co-op’s current territory were gobbled up by Frontier.
Derek Barr, an assistant general manager at Hardy Telecommunications, couldn’t comment directly on the bidding because of an FCC-mandated “quiet period” as the auction results are finalized.
But he did express some apparent frustration at the auction’s results via email. “[Bidders] must determine how low they can go before the available funding would no longer be sufficient to responsibly take on the project,” he wrote.
“I hope Frontier exercised the same fiscal responsibility when determining the viability of any project.”
Frontier was even more circumspect. “We cannot comment beyond what has been made publicly available by the FCC due to quiet period regulations,” wrote spokesman Javier Mendoza.
Holstine fears that Frontier’s bidding strategy was more about thwarting competition than improving its own service.
Over the last year, Holstine has been putting together a grant proposal in partnership with Citynet and the Greenbrier Valley Economic Development Corporation to bring high speed internet to nearly 1,000 households in Pocahontas County where Holstine lives. But now, with Frontier promising the federal government that it will provide high-speed internet to many of the county’s census blocks, that proposal is gutted. It now covers fewer than 200 households, and it’s future is in jeopardy.
“The USDA has pulled their funding on it, because they’re now saying RDOF has already served those areas,” Holstine said, referring to the Rural Digital Opportunity Fund, the official name of the FCC auction.
Roane County is in a similar situation, and had to cut back its own plans. The chairman of a three county committee, Matt Erb, dedicated to planning out broadband expansion in the region recently resigned, citing frustrations with the federal grantmaking process. It stripped local governments of control over their own destiny, he said, and handed it to private companies like Frontier — despite a miserable track record.
“Holding these companies accountable is laughable,” he said. “Why would you believe that things would be any better with the same players?”
Retired, Erb is looking to the future. “I’m just waiting for Elon Musk and SpaceX to make all of this obsolete,” he said.
‘Hold these providers accountable’
But this isn’t a done deal, yet: Frontier must jump through more hoops before it receives the money. It needs to prove to the FCC that it’s financially qualified, and it needs to certify that it’s an “eligible telecommunications carrier.”
Whether the company can do this will depend on the Public Service Commission, West Virginia’s utility regulator, which has yet to approve Frontier’s restructuring plan. The company has been trying to convince the commission that it’s serious about reinvesting in West Virginia, despite sucking profits from the state for years and spending them on ballooning debt payments as it expanded to new coastal markets.
Once approved by the FCC, Frontier will need to actually build the fiber it’s promising. It has six years to do so, according to the regulator’s timeline, which includes annual milestones and speed tests. The federal government can pull the subsidy — and eventually levy fines — if a company doesn’t follow through.
‘“The job now lies on the FCC to hold these providers accountable,” said Delegate Daniel Linville, R-Cabell.