Lawsuit Claims Frontier Misused Millions In Federal Broadband Stimulus Funds

from the big-'ole-boondoggle dept

Fri, Jul 22nd 2016 4:07pm — Karl Bode

If you want to see what the U.S. broadband market really looks like, you should take a close look at West Virginia. Historically ranked close to dead last for broadband access and quality, the state has been a perfect example of what happens when you let the incumbent telecom monopoly incestuously fuse with state regulators and politicians. For years now the state has been plagued by news reports of unaccountable broadband subsidies, money repeatedly wasted on unnecessary hardware, duplicate consultants overpaid to do nothing, and state leaders focused exclusively on ensuring nobody is held accountable.

Frontier acquired Verizon's phone and broadband networks in the state back in 2010, and while jumping from an entirely apathetic incumbent monopoly ISP to a barely competent one netted some slight improvements initially for users, the lack of competition continues to keep serious advancement at bay. In an attempt to improve access to neglected areas of the state, Frontier that same year received $126.3 million in federal stimulus funds to provide high-speed Internet to such areas, including 1,064 public facilities such as schools, courthouses and first responders.

Roughly $40 million of that money was supposed to be used to build an "open-access middle-mile network" intended to help multiple, competing West Virginia ISPs improve last-mile connectivity to roughly 700,000 homes and 110,000 businesses. But it didn't take long for allegations to surface that Frontier had used that money solely to shore up its broadband monopoly in the state, building fiber connections that only benefited itself. Allegations also surfaced that Frontier had manipulated just how much fiber was actually laid, with state investigations and audits, as they're wont to do, going nowhere fast.

Fast forward to this week, when the courts unsealed a 2014 lawsuit (pdf) by competing West Virginia ISP Citynet, shining a little more light on the claims, while also naming a number of government officials as defendants alongside Frontier. Among other allegations, the lawsuit claims that Frontier artificially inflated fiber deployment metrics in ways that weren't even particularly creative and shouldn't have been difficult for regulators or auditors to uncover:

Citynet claims that Frontier “double-counted” fiber to 58 buildings in 32 counties, and “used excessive maintenance coil to make up for fiber not constructed.” “Frontier also misrepresented the proposed distances for many of the community anchor institutions by simply inputting the same number for several projects,” the lawsuit alleges. “Incredibly, there were 36 [buildings] in seven different counties that each required the exact same 4,390 feet of new fiber.”

Not only did Frontier deliver less fiber than actually promised in a way no competitor could access (again, the state and Frontier repeatedly promised this would be an open access network), the company charged significantly more than originally estimated. With the help of a former Verizon executive turned state Technology Officer, the lawsuit alleges that Frontier inflated its invoices using something called "loadings fees":

Citynet claims on July 1, 2012, Given, the former president of Verizon, was appointed as the new State Technology Officer and immediately took exclusive control over approving Frontier’s invoices for the BTOP project. Within one month, every one of Frontier’s invoices that were submitted for payment contained a “loadings” charge, which, per the invoices, was for “allocated indirect costs such as vehicles, accounting, administration, etc.”

In many instances, the indirect cost fee was higher than the original total cost estimate for the fiber build and there were 365 separate invoices with loadings fees, totaling $4,553,387.31, according to the suit.

“Even though Frontier often ended up building much less fiber than was originally estimated, its final charges were substantially higher than the original estimate,” the complaint states.

FCC data ranks West Virginia 48th in terms of broadband availability. After the project was completed, the lawsuit claims West Virginia ranked 53rd among 50 states, Guam, Puerto Rico and the District of Columbia. It's unfortunate in that broadband stimulus subsidies really have helped a number of communities where the private sector failed, just not in states where incumbent monopolies have excessive control over state players that should be policing this kind of behavior.

Should West Virginia's dysfunction follow the historical tendency of other boondoggles of this type by the likes of AT&T and Verizon, absolutely nothing will come of this case or any subsequent investigation, audits (in the rare case they actually occur) will magically conclude no wrong doing by any participant, and the entire sordid affair will magically be forgotten the next time Frontier is in line to receive additional taxpayer handouts.

CityNet-v-Frontier (PDF)CityNet-v-Frontier (Text)

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Filed Under: broadband, fcc, stimulus funds, subsidies, west virginia
Companies: citynet, frontier

14 Comments

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That Anonymous Coward (profile), 22 Jul 2016 @ 5:19pm

This is my shocked face.

It doesn't matter what they did to sell out the people, they will end up being reelected telling the same lies they told before. Everyone profiting & benefiting... except the people footing the bill.
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Anonymous Coward, 22 Jul 2016 @ 5:34pm

Business as Usual...
Sounds like Frontier just brought the existing Verizon management on board and let them continue to use the Verizon version of "Standard Accounting Principals" to help themselves to the broadband stimulus money. We haven't seen this problem before... cough, AT&T, cough. (True, though, AT&T hasn't been found to be padding their pockets with stimulus $$$ but they do pad it with PLENTY of municipal/state $$$.)
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That One Guy (profile), 22 Jul 2016 @ 5:44pm

Oh yeah, /much/ better way to spend taxpayer money
No really, tell us how municipal broadband must be blocked in order to protect the taxpayers from having their money wasted on something that might not be as successful as it could have been, as opposed to entirely wasted throwing it at a company that just uses it to pad out their profits and buy politicians.
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Pixelation, 22 Jul 2016 @ 6:31pm

Perfect candidate
"Not only did Frontier deliver less fiber than actually promised in a way no competitor could access (again, the state and Frontier repeatedly promised this would be an open access network), the company charged significantly more than originally estimated."

Frontier should run for president.
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Anonymous Coward, 22 Jul 2016 @ 7:54pm

Hopefully because they used federal money they will be held accountable.
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Padpaw (profile), 22 Jul 2016 @ 8:25pm

there will be lynchings at this rate
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Anonymous Coward, 22 Jul 2016 @ 8:26pm

Call Me LUCKY
Where I live I have the the "choice" of two internet providers:

--Comcast (With data cap "trial" in place)

--Frontier DSL (do not have competitive rates/speeds so Comcast can put their data cap "trial" in place here without worries)

Yea me.
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Whatever (profile), 23 Jul 2016 @ 8:20pm

YAwn
A whole bunch of NOT MUCH here. The allegations come from a competitor unable or unwilling to finance their own network. The reasons have nothing to do with frontier, and instead have everything to do with this simple map:

http://s144.photobucket.com/user/michael5186/media/WV.jpg.html

Basically, outside of a few areas, West Virginia is as densely populated as Alaska. The costs to provide boradband service to everyone is pretty darn high, when you consider the distance per drop, and the amount of cabling that would be required. Distance wise, it makes DSL lines all but useless, as they lose speed with distance and most people would be quite far from a CO.

It's not surprising.

Now the lawsuit (which contain allegations, not confirmed facts) raises some good issues. But really, the company should be suing the government for lack of management, and not Frontier for using the funds to expand the network. This appears to be a classic case of throwing money at something and then not checking to see how it was spent.

That it took them 2 years to even SERVE the lawsuit tells you everything you need to know.
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Anonymous Coward, 24 Jul 2016 @ 6:42am

If a corporation can not survive without welfare, then it probably should be allowed to fail.
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Wendy Cockcroft, 25 Jul 2016 @ 7:43am

Re: Oh yeah, /much/ better way to spend taxpayer money
I'll bite. Municipal broadband must be blocked in the name of the free market. People erroneously believe that "free market" means "equal entry." This is not true. It actually means, "See this barrel, consumer? Bend over it."

And that's not all; everything Government touches turns to crap like Midas in reverse. I know this because the anarcho-capitalists and their entourage of anti-democratic nutbuckets told me so. Since Government gets between predatory corporations and their prey, it must be stopped at all costs.

Now you know.
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Wendy Cockcroft, 25 Jul 2016 @ 7:44am

Re:
You get the tar, I'll get the feathers.
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Dirkmaster (profile), 25 Jul 2016 @ 11:02am

Re: YAwn
Fairly sure that the map of West Virginia hasn't changed significantly. Therefore Frontier KNEW OR SHOULD HAVE KNOWN what they were getting into. If they cannot estimate what a job will cost accurately, they didn't do their due diligence, and shame on them. It's not the people in WV's fault that Frontier can't put together a proper estimate.

Perhaps WV should think about recovering their expenses by "nationalizing" Frontier there.
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Hephaestus (profile), 26 Jul 2016 @ 10:43am

Re: Re:
Lynchings require rope. Although adding tar, feathers, and a lighter might make the event all the more enjoyable. I'll bring the marshmallows.
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Whatever (profile), 26 Jul 2016 @ 10:30pm

Re: Re: YAwn
Actually, what should have happened is that the project should have been stuctured as a normal business deal, with milestones and partial payments as those milestones are reached. The problem here is that government shovels over a pile of money and walks away, and never actually checks the end result.

That the government isn't taking action and a private company is instead trying to do it can tell you that the government is generally okay with the end results, or at least unwilling to deal with the reality of a poorly structured and un-monitored project.

Did Frontier do wrong? Looks like it. Should they be accountable? Honestly, it's a little late now. Any lawsuit will get the government dragged in, and it will look good for nobody. Want to bet that this ISP suddenly drops the lawsuit when they get a "subsidy" to develop their network?
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