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