Court Rejects Ajit Pai's Bid To Reduce Broadband Subsidies For Tribal Areas

from the unnecessary-fisticuffs dept

For a while now we've been noting that while Ajit Pai professes to be a huge proponent of "closing the digital divide," most of his policies are doing the exact opposite. Pai's attacks on net neutrality, for example, will likely only act to drive up broadband prices for everyone as ISPs enjoy their newfound ability to creatively abusive captive customers in uncompetitive markets. And Pai has repeatedly attempted to fiddle with FCC data collection methodology with an eye toward obfuscating the industry's competitive failures (be that skyrocketing prices or poor coverage).

That's of course when he hasn't been busy slowly-but-surely gutting programs designed to help bring broadband to the nation's less affluent areas.

One of Pai's core policies has been a relentless attack on the FCC's Lifeline program. Lifeline was created under the Reagan administration and expanded under the George W. Bush administration, and provides low-income households with a measly $9.25 per month subsidy that low-income homes can use to help pay a tiny fraction of their wireless, phone, or broadband bills (enrolled participants have to chose one). The FCC under former FCC boss Tom Wheeler had voted to expand the service to cover broadband connections, something Pai (ever a champion to the poor) voted down.

Traditionally this program had broad, bipartisan support and was never deemed even remotely controversial. But ever since Trump and Pai stumbled into town, the current FCC has slowly waged war on the program. For example Pai's FCC voted 3-2 last November to eliminate a $25 additional Lifeline subsidy for low-income native populations on tribal land. Pai's FCC also banned smaller mobile carriers from participating in the Lifeline program, a move opposed by even the larger companies (Verizon, AT&T) Pai's FCC normally nuzzles up to.

But Pai's quest backfired late last week when a U.S. Appeals court issued a stay order (pdf) freezing Pai's efforts to kill Tribal broadband subsidies, the court arguing that Tribal organizations and smaller wireless carriers are likely to win their court challenge against the recent FCC changes.

Small wireless carriers and several tribal organizations had sued the FCC (pdf) in the United States Court of Appeals for the DC Circuit, noting the FCC "failed to engage affected tribal governments" ahead of the rule changes. Tribal leaders also filed a petition (pdf) claiming Pai's multi-pronged attack on Lifeline would only make it harder to connect tribal lands to the internet.

So far the courts seem to be agreeing with them, and tribal groups have been quick to applaud the ruling:

"Residents of Tribal lands, like many low-income consumers, rely on Lifeline service from wireless resellers, who are the primary, and sometimes only, providers of Lifeline service,” Gene DeJordy, an attorney for the Crow Creek Sioux Tribe in South Dakota, said in a statement. “The victory today is for the people -- Tribal members who cannot afford many of the basic necessities of life and rely on Lifeline service for their telephone and broadband needs."

Pai had taken aim at the program's use in tribal areas under purely ideological grounds (ie: government can never do good and should be gutted from all oversight of natural monopolies), insisting his agency was purely concerned about potential fraud in the program. But the court stated that it had "identified no evidence of fraud or misuse of funds in the aspects of the program at issue here." As we saw with net neutrality, Pai likes to bend reality to fit his ideological agenda (aka sophistry), instead of letting facts inform policy.

Also like net neutrality, it's yet another example of how Ajit Pai's self-professed dedication to "closing the digital divide" looks suspiciously like a giant middle finger aimed at the communities he professes to be "helping."

Filed Under: ajit pai, broadband, competition, fcc, rural broadband, subsidies

Canadian Music Industry Pitches 'You Must Be A Pirate' Tax On Smartphones

from the physical-tax-for-a-non-physical-age dept

Every electronic device capable of storing data is just another tool in the pirate's chest. If you think your phone or mp3 player or hard drive is just something for storing data and perhaps even purchased software, movies, and music, think again. The simple fact you've decided to purchase any of these devices pretty much ensures content creators everywhere will go bankrupt.

The "you must be a pirate" tax is being pitched again. The senseless fee tacked on to blank plastic discs for so many years continues to migrate to electronic devices, including the tiny chips stashed away inside smartphones. Apparently, the Canadian music industry needs something to replace the revenue stream that dried up when people stopped buying blank CDs. Michael Geist, working with documents secured through a public records request, reports the Canadian music industry is looking for a hefty payout from the government.

According to documents released under the Access to Information Act, the collective arrived with a startling demand, asking the federal government to pay $160 million over the next four years to compensate for music copying.

The demand, which now forms part of the platform of demands from the Canadian music industry, is based on a $40 million annual handout. While the industry has not provided details on how it arrived at its figure, notes (likely from Graham Flack) reveal the basis of the demand.

This apparently breaks down to $3.50 a device, according to the cocktail napkin math handed in by the industry.

But the industry isn't willing to wait around for devices to be sold. The CPCC (Canadian Private Copying Collective) wants the government to just hand it $40 million a year and assume it all adds up in the end. So, it's a much broader "you must be a pirate tax" that calls all Canadians pirates, whether or not they've actually purchased a new piratephone during the fiscal year.

What's more, the document [PDF] makes it clear the CPCC wants a new revenue stream just because an old one has vanished. It points out revenues from "pirate" taxes have dropped from a high of $38 million back in the heyday of blank media to an expected $2 million in 2017. It also notes that streaming services are replacing music sales, accelerating this decline in "pirate" taxes.

However, the report carefully does not point out revenues from streaming services have increased from $3.4 million in 2013 to $49.3 million in 2017. It also ignores the fact that much less copying -- authorized or unauthorized -- is taking place.

The business model this "pirate" tax depended on -- copying of music to media or devices -- is slowly being eliminated. That doesn't mean taxpayers owe CPCC a living. It just means sales are being replaced with "rentals." If the CPCC failed to capitalize on the shift to streaming, it shouldn't be allowed to make up its "lost" revenue by taxing smartphones just because that's where most music streaming takes place. It makes as much sense as envelope manufacturers demanding a per-device tax because email and instant messaging has replaced snail mail as a means of communication.

Filed Under: canada, copyright, music, pirate tax, recording industry, smartphones, subsidies

There Are Several Good Reasons To End Entertainment Industry Subsidies, But Blasphemy Isn't One Of Them

from the free-speech-doesn't-work-that-way dept

There are a lot of arguments to be made against subsidizing movie/TV studios. The best argument is this: the payouts to visiting studios rarely pay off for local taxpayers. Politicians love the side benefits -- rubbing elbows with producers, actors, and other studio personnel -- but there's nothing to be gained financially by paying a studio to film in your town. In one case, a city was promised 3,600 additional jobs. In reality, only 200 jobs materialized, all but 14 of those temporary construction work.

Then there's the argument against using public funding to prop up an out-of-town industry. If there are extra tax dollars around, they're better spent locally, where they'll do the most good. Subsidizing businesses is always problematic. It skews incentives and allows governments to play favorites using the public's money.

But the worst argument someone can make against subsidies is this one: subsidies should be content-based. Two members of the clergy and a state politician are bent out of shape because a subsidized TV series shoot resulted in the depiction of a historical figure in compromising positions.

The AMC series "Preacher" has portrayed Christ in a graphic sex scene that combines blasphemy with pornography.

The August 21 episode titled, "Dirty Little Secret," showed an actor playing the role of Jesus having sex with a married woman in an extended, graphic scene with explicit vocals. The director used shadows and silhouettes to soften the two figures as they engaged in various sexual positions, but these cinematic techniques did not disguise the pornography.

We have laws governing porn which are mostly hands-off, provided producers follow several regulations. We certainly don't have blasphemy laws, thanks to a separation of church and state. But never mind the legal details. This small collective of pearl-clutchers wants legislators to pull funding solely because the imagery in this episode may have offended some members of one religion.

We respectfully request that the Administration, and the Office of Louisiana Economic Development, reject all efforts by AMC to obtain tax credits for the series "Preacher" and the episode which blasphemed Christ. We call upon the Administration and the Louisiana Office of Economic Development to flatly reject this request for a $16.2 million tax refund check.

The op-ed notes the state of Louisiana has a law prohibiting the use of public money to fund pornography. That's all well and good, but just because the writers call the images that offended them porn doesn't make them porn. To buttress this argument with talk of blasphemy only adds to the problem, ensuring that any state legislators attempting to follow through on this dubious suggestion will engage in multiple constitutional violations.

That's not all. The authors of the op-ed -- which include state senator John Milkovich -- claim their views are universal, something that's more factually-incorrect than everything leading up to it.

Thus, the larger truth is that there is never a good time to reward production companies that trash our Louisiana values, mock our beliefs– and dishonor Christ.

The state should definitely reject the request for a $16.2 million subsidy by AMC. If AMC is so keen on shooting scenes in Louisiana (or any other state), it should pay its own way. But it shouldn't do it for any of the reasons suggested here. It should end the subsidy program completely, rather than risk looking like it's making content-based decisions about what type of speech it's willing to fund.

Filed Under: blasphemy, first amendment, louisiana, movies, preacher, subsidies, tv
Companies: amc

After Report Suggests It Ripped Off Taxpayers, Frontier Communications Shrugs When Asked For Subsidies Back

from the graft-ahoy dept

For years we've noted how if you want to really understand the dysfunction at the heart of the U.S. broadband industry, you should take a closer look at West Virginia. Like most states, West Virginia's state legislature is so awash in ISP campaign contributions it literally lets incumbent ISPs write state law, only amplifying the existing lack of broadband competition in the state. So when the state received $126.3 million in broadband stimulus funds, it's not particularly surprising that a report by the US Commerce Department's Office of Inspector General (pdf) found more than a few examples of fraud and waste.

More specifically, Frontier was accused of buying and storing miles of unused fiber to drive up costs, as well as the use of various "loading" and "invoice processing" fees to milk taxpayers for an additional $5 million. The report's findings come on the heels of previous reports that found Frontier and the state used taxpayer money on unused, overpowered routers and overpaid, redundant, and seemingly purposeless consultants. As is often the case with regulatory capture, efforts to hold anybody accountable for any of this have so far gone nowhere.

But after the Inspector General's report, the federal government decided it might be a good idea to at least ask for some of this misspent money back from Frontier and the State. According to the Charleston Gazette Mail, of particular interest were these additional "loading" surcharges, and the fact Frontier stockpiled 49 miles of unused fiber to drive up build costs:

"The Commerce Department letter cites findings that Frontier misled the public about the amount of unused fiber cable — called “maintenance coil” — the company installed across the state. The extra fiber, which is stored at public buildings and used for repairs, drove up the broadband expansion project’s cost. Frontier placed 49 miles of spooled-up, unused fiber in West Virginia, four times the amount the company had disclosed to state officials.The feds have ordered state officials to disclose whether the extra coil was included in the total miles of fiber the state claimed Frontier built with stimulus funds. The state also must get an “explanation from Frontier for the reason it misrepresented the maintenance coil mileage to the public,” according to the Commerce Department’s Aug. 21 letter.

This sort of stuff happens pretty much constantly in telecom as companies pay empty lip service to "bridging the digital divide." But whereas giants like Comcast, AT&T and Verizon have the lobbying and policy chops to obfuscate such graft, West Virginia is so dysfunctional Frontier doesn't even have to try. Case in point: a Frontier executive has spent years also employed as State Senate leader -- without anybody raising much of an eyebrow. That employee was only recently fired -- but only because he finally failed to oppose a bill Frontier wanted killed.

With that kind of support, it's not too surprising that Frontier executives say they won't be returning the misspent taxpayer money anytime soon:

"In a letter to West Virginia Chief Technology Officer John Dunlap this week, Frontier asserted that any funds the state might return to the federal government “are, of course, not recoverable from Frontier.”...Frontier also disputed the federal government’s determination that the state must return $4.7 million, urging the state to file an appeal. "To avoid the waste of millions of West Virginia taxpayer dollars, the [state] should appeal,” wrote Mark McKenzie, a Frontier engineer who oversaw the company’s role in the project.

Again, if you've tracked the similar reports bubbling out of the state for years, the $4.7 million the feds want returned is likely only the tip of the iceberg. But because state legislatures are often little more than glorified rubber stamps for the interests of giant telecom operators, it's less than likely that these inquiries result in anything vaguely resembling genuine accountability. As a result, West Virginia remains one of the least broadband-connected states in the union, a story of graft and regulatory capture that plays out in countless states across the country on a daily basis. This is, as they say, why we can't have nice things.

Filed Under: broadband, subsidies, taxpayers, west virginia
Companies: frontier communications

Frontier Communications Caught (Again) Ripping Off West Virginia Taxpayers

from the your-estimates-seem-a-little-high dept

So (for good reason), we keep noting that if you want to see how the American broadband market really works, you should take a close look at West Virginia. As in most states, a lack of competition keeps broadband prices high and speeds slow, with far too many consumers forced to pay a tidy sum for DSL speeds circa 2002. But the state has also been embroiled in scandal after scandal involving Frontier Communication's mismanagement of taxpayer subsidies that were intended to try and resolve this problem.

Local Charleston Gazette reporter Eric Eyre has quietly done an amazing job the last few years chronicling West Virginia's immense broadband dysfunction, from the State's use of broadband stimulus subsidies on unused, overpowered routers and overpaid, redundant consultants, to state leaders' attempts to bury reports supporting allegations that Frontier engaged in systemic, statewide fraud on the taxpayer dime.

Eyre is back again directing readers to a new report by the US Commerce Department's Office of Inspector General (pdf) which found that Frontier pretty consistently tried to game the subsidy system, imposing various "loading" and "invoice processing" fees -- outlawed by federal grant rules governing stimulus funding -- on to invoices submitted to the state. Frontier consistently used these fees to pad their bills to the tune of $4.7 million, and internal memos feature employees clearly demonstrating that Frontier saw this bill padding as a way to glean some additional profit on the taxpayer's dime:

The scathing, 31-page report declared the payments "unreasonable" and "unallowable." Meanwhile, Frontier saw the tacked-on charges as a “revenue opportunity,” according to an internal company email cited in the report. Frontier employees referred to the extra fees as “markups” and “profit."

Keep in mind Frontier had already been fighting a lawsuit alleging that it used a wide variety of tricks to both jack up its original estimates for broadband deployment -- and ensure any subsidies would only be used to shore up Frontier's internal networks, and not to improve overall broadband penetration and competition in the state. This new report notes that one of the tricks used by Frontier was to order and store a massive amount of unused fiber for future "repairs," allowing it to bill more than projects actually cost:

"What’s more, Frontier misled the public about the amount of unused fiber cable — called “maintenance coil” — the company installed across the state, according to the report. The extra fiber, which is stored at public facilities and used for repairs, drove up the broadband expansion project’s cost. Frontier wound up placing 49 miles of spooled-up, unused fiber across West Virginia — four times the amount the company had disclosed to state officials, according to the report.

Unsurprisingly, Frontier insists it has done nothing wrong, despite years of similar allegations across the state. This is the same Frontier that just got done firing a seven year employee because, at his part-time job as West Virginia senate leader, he voted for a new law that would actually help improve broadband penetration and competition in the state. Oddly, state officials (many of the same ones that tried to bury reports alleging the same sort of thing earlier) aren't commenting on the report's findings.

It should be noted that this is how state politics has worked for years for the likes of AT&T and Verizon, who long found it easy to gobble up subsidies and tax breaks, then pay state lawmakers and regulators to look the other way when it came time for accountability over how subsidies are spent. More often than not, these companies are simultaneously being allowed to quite literally write state telecommunications law ensuring that competition in the broadband sector remains muted. All while everybody in the chain professes their unwavering dedication to free markets and consumer welfare.

But Frontier has neither the competency nor the legal and accounting firepower of its larger counterparts, and as it has stumbled closer to bankruptcy courtesy of some questionable business decisions over the last few years, keeping formerly loyal state politicians and regulators consistently looking the other direction has proven increasingly difficult. Still, believing that this ends with anything even remotely resembling accountability and justice remains a very risky wager.

Filed Under: broadband, stimulus, subsidies, west virginia
Companies: frontier communications

Tennessee Gives AT&T, Comcast Millions In New Taxpayer Subsidies, Yet Banned A City-Owned ISP From Expanding Broadband Without Taxpayer Aid

from the dysfunction-junction dept

If you want to understand what's wrong with the American broadband industry, you need look no further than Tennessee. The state is consistently ranked as one of the least connected, least competitive broadband markets in the country, thanks in large part to Comcast and AT&T's stranglehold over politicians like Marsha Blackburn. Lawmakers like Blackburn have let Comcast and AT&T lobbyists quite literally write protectionist state laws for the better part of a decade with an unwavering, singular focus: protecting incumbent revenues from competition and market evolution.

The negative impact of this pay-to-play legislature is non-negotiable. One state-run study last year ranked Tennessee 40th in terms of overall broadband investment and availability (pdf), and found that 13% of households (or 834,545 Tennesseans) lack access to any high-speed broadband internet service whatsoever. The study found that the vast majority of Tennessee residents still get internet access through slower services like DSL, wireless or dial-up connections, either because that's all that's available, or because they couldn't afford faster options.

Like twenty other states, Tennessee long ago passed a state law hamstringing towns and cities looking to improve regional broadband networks. As a result, popular municipal broadband providers like Chattanooga's utility-run ISP, EPB, have been banned from expanding its up to 10 Gbps offerings into any more markets. Attempts to repeal the law earlier this year went nowhere after mammoth pressure from incumbent ISP lobbyists. When that didn't work, one lawmaker tried to pass a compromise bill that would have allowed EPB to expand into just one neighboring county.

That proposal was shot down as well, one of the dissenting votes being that of Rep. Patsy Hazlewood, a former AT&T executive.

Tennessee residents have increasingly seen through Tennessee's unwavering fealty to some of the most despised brands in America. Some annoyed state residents have gone so far as to spend their own money to wire the state glacially, hilltop by hilltop. In a feeble attempt to try and placate those tired of expensive, slow broadband, Tennessee lawmakers recently passed HB 0529 or the "Broadband Accessibility Act of 2017." The centerpiece of the bill: throwing $45 million in additional subsidies at ISPs, the majority of which will be enjoyed by AT&T.

Motherboard correctly points out that the state banned EPB from expanding service to those same users without any cost to taxpayers, but was willing to throw additional subsidies at two giant companies with a mixed track record on putting government subsidies to work:

"To be clear: EPB wanted to build out its gigabit fiber network to many of these same communities using money it has on hand or private loans at no cost to taxpayers. It would then charge individual residents for internet service. Instead, Tennessee taxpayers will give $45 million in tax breaks and grants to giant companies just to get basic infrastructure built. They will then get the opportunity to pay these companies more money for worse internet than they would have gotten under EPB's proposal.

"Tennessee taxpayers may subsidize AT&T to build DSL service to Chattanooga's neighbors rather than letting [EPB] expand its fiber to neighbors at no cost to taxpayers," Christopher Mitchell, director of the Community Broadband Networks initiative at the Institute for Local Self-Reliance said. "Tennessee will literally be paying AT&T to provide a service 1000 times slower than what Chattanooga could provide without subsidies."

Given the repeated billions that have been thrown at incumbents that then consistently find ways to wiggle out of the obligations, resistence to the "throw subsidies at giant ISPs with a long, documented history of anti-competitive behavior and hope that does the trick this time" model is understandable. Especially in a state like Tennessee, where holding giant companies accountable for misdirection of telecom funds has never been a priority.

Fortunately, this new bill does make it legal now for electric cooperatives to provide broadband internet access to some areas -- a concession to outraged locals and a small sign of progress. That said, these co-ops will still find themselves hamstrung by Tennessee's other, existing, protectionist laws, which impose all manner of reporting and financing restrictions on anybody not named AT&T or Comcast. Popular companies like EPB -- ranked recently by Consumer Reports as one of the best rated ISPs in the country -- still can't offer service outside of its traditional electric utility footprint under Tennessee state law.

It's ironic, in that ISP lobbyists and loyal lawmakers usually try to justify their state bans on community broadband by pretending they were solely interested in protecting state residents from additional taxpayer spending. Yet this is all pretense to justify protecting large incumbent broadband duopolists from having to actually compete. One lawmaker that's actually trying to eliminate the state's restrictions on community broadband perhaps put it more succinctly:

"What we have right now is not the free market, it's regulations protecting giant corporations, which is the exact definition of crony capitalism."

And yet Tennessee's Marsha Blackburn has been consistently and generously rewarded for the kind of "crony capitalism" she's relentlessly advocated for on the state level. She recently was tagged to replace Greg Walden as the head of the House Energy and Commerce Committee's Subcommittee on Communications and Technology. Since that committee tackles most of the pressing internet-related issues, you can expect Tennessee's particular brand of AT&T and Comcast earlobe nibbling to manifest even more strongly on the federal level moving forward.

Filed Under: broadband, chattanooga, competition, marsha blackburn, municipal broadband, subsidies, tennessee
Companies: at&t, comcast, epb

Allegations Of Dysfunction Continue To Plague FirstNet, Our $47 Billion (And Growing) National Emergency Network

from the history-repeats-itself-history-repeats-itself dept

When first responder communications networks failed after 9/11, the government decided to build a nationwide wireless emergency communications network that would actually work. It took a decade of general histrionics and dysfunction by Congress, but in 2012 the Middle Class Tax Relief and Job Creation Act formally created the First Responder Network Authority (FirstNet). FirstNet is an entirely new federal agency tasked with coordinating the build of a 700 MHz LTE-based coast-to-coast emergency broadband network.

But since its creation the effort (tell us if you've heard this one before) has been plagued with dysfunction, allegations of incumbent carrier cronyism, and stories of people getting paid a significant sum of money despite not actually producing anything of note. Fifteen years after 9/11 and four years after FirstNet was formally created, the program is showing only modest signs of progress. According to a new report in The Atlantic, completion projections for the project are now reaching $47 billion, without much of anything to show for it so far:

"It took FirstNet two years just to recruit a skeleton staff, only to be hit by an inspector general’s report that found potential conflicts of interest and problems with the awarding of initial consulting contracts. It then took another two years to issue a request for proposal (RFP) asking contractors to bid on the work to build and operate the system."

That RFP finally emerged in January, with the two most likely contenders being AT&T and Verizon, both already firmly entrenched in our domestic intelligence gathering efforts:

"The FirstNet RFP, which finally emerged in January, seeks one company to operate the nationwide system. (Verizon, AT&T, and one or more firms that would gather dozens of regional partners into a consortium are the likely players.) The bidders have to offer to pay FirstNet at least $5.6 billion spread over 25 years in return for the bandwidth that FirstNet would make available to them.

The winner (presumably, whichever company bids the most above $5.6 billion, while also demonstrating it can do the job) can then sell the FirstNet network to police and fire departments, hospitals, and other first responders, one by one."

If you've been playing along at home, you'll recall that both AT&T and Verizon have a long, proud history of taking billions in subsidies and tax breaks for next-generation networks repeatedly left half completed. AT&T, as we've well documented, has a prodigious history of fraud, whether it's ripping off low-income families, the hearing impaired, various school districts or the company's own customers. While the nation's top two wireless carriers make sense as the best positioned to win the contract, they're also the most likely to milk the program for every extra penny it's worth while doing the bare minimum required.

Not too surprisingly, the Atlantic article has reportedly upset those working on FirstNet, even though it's far from the first report of this kind. The above-cited report by the Office of Inspector General of the Department of Commerce initially found numerous conflicts of interest on the FirstNet board, with many board members playing fast and loose with conflict reporting rules. It's worth noting that many of these original board members (like FirstNet GM and former Verizon exec Bill D'Agostino) have already moved on, but these problems set the stage for the kind of dysfunction we've seen time and time again in telecom.

Estimates suggest the contract will be worth around $100 billion to the company that wins it, with the winner grabbing not only the lion's share of fees paid by state customers, but the right to sell off excess capacity to private companies and consumers. Winners are expected to be announced in November. And while the project may be well-intentioned and even necessary, it's painfully unclear if the U.S. government is actually capable of completing it without giving a master class in telecom waste, fraud and abuse. History, quite simply, just isn't on the project's side.

Filed Under: corruption, emergency, first responders, firstnet, subsidies
Companies: at&t, verizon

Lawsuit Claims Frontier Misused Millions In Federal Broadband Stimulus Funds

from the big-'ole-boondoggle dept

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.

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

Add Pittsburgh To The List Of Cities That Say Verizon Ripped Them Off

from the maybe-you-should-read-your-contracts dept

You can add Pittsburgh to the growing list of towns, cities and states that claim Verizon is ripping them off. Verizon, of course, froze its FiOS fiber expansion years ago, instead focusing its attention on more profitable (read: capped) wireless service. The company did continue to expand FiOS in a number of east coast cities (Washington, Philadelphia, New York), agreeing to full city fiber expansion in exchange for sweetheart franchise deals, tax cuts, and/or subsidies. But as cities like New York have found out, Verizon's definition of full city fiber upgrades probably doesn't match yours.

Pittsburgh Mayor Bill Peduto has started noticing that huge swaths of Pittsburgh haven't been upgraded, despite the city signing a franchise agreement with Verizon that called for uniform FiOS coverage. Peduto was one of fourteen mayors who recently wrote Verizon's CEO in a futile attempt to get the telco to give a damn about its rotting, taxpayer-subsidized DSL networks. Peduto's now considering legal action after Verizon failed to meet its obligations:

"We have an agreement with Verizon that, over the course of several years, the entire city would be provided with FiOS, and it was the agreement that allowed them to start putting their lines in the public right of way. They have now broken that agreement," Peduto said. "They do not have the city finished, so now we need to seek the damages that were agreed to through the contract. At this point, I'd have to talk with our law department."

As with New York's belated realization that they'd been swindled, the problem is that these cities signed these deals without reading them. Most of these contracts include oodles of fine print that let Verizon claim that homes "passed" with fiber (several blocks away) are the same as being "served" by fiber, or let Verizon pay a modest fine for missing deployment goals. As such, Verizon was quick to highlight that it met the terms of the deal, because technically -- it probably had:

"Verizon sent a letter to the City confirming it is in compliance with the terms of the franchise agreement and that with certain exceptions allowed under the franchise, there are no residential areas of the city where Verizon does not offer cable service. In addition, Verizon is scheduling a meeting with the City in the near future to explain its accomplishments."

While hindsight certainly helps, cities that don't want to be ripped off should either learn to read their contracts, or avoid doing business with companies with a generation of documented, sleazy behavior. Pittsburgh leaders in particular should have paid close attention to Verizon's multi-billion dollar swindle of Pennsylvania years earlier, in which Verizon promised ultra-fast fiber broadband in exchange for billions in subsidies, then just threw money at the state legislature and regulators to convince them to forget the obligation ever existed (Verizon did the same thing in New Jersey).

Of course that's just it; most politicians are so cash compromised they saw the warning signs but just didn't care, leaving the mess for somebody else to clean up (or ignore). And in Verizon's case, billions in undeserved subsidies across thousands of miles have left a fairly massive mess.

Filed Under: broadband, fiber, fiox, pittsburgh, promises, subsidies
Companies: verizon