Sen. Moore Capito: Frontier mismanaged previous funds and shouldn’t get new gigabit money.
By Jon Brodkin, Dec 15, 2020 | Original Ars Technica article here.
A Republican US senator from West Virginia has asked the government to block broadband funding earmarked for Frontier Communications, saying that the ISP is not capable of delivering gigabit-speed Internet service to all required locations.
Sen. Shelley Moore Capito (R-W.Va.) outlined her concerns in a letter to Federal Communications Commission Chairman Ajit Pai last week. Capito told Pai that Frontier has mismanaged previous government funding and seems to lack both the technological capabilities and financial ability to deliver on its new obligations.
Frontier, which filed for bankruptcy in April, is one of 180 ISPs that won funding in the FCC’s Rural Digital Opportunity Fund (RDOF) reverse-auction results announced last week. Frontier is due to receive $370.9 million over 10 years to bring broadband to 127,188 homes and businesses in eight states. Frontier’s biggest payout is in West Virginia, where it is due to receive $247.6 million over 10 years to expand its broadband network to 79,391 locations.
Frontier won over two-thirds of the funding that the FCC allocated to West Virginia despite failing to hit FCC deadlines for a previous round of subsidized broadband deployment in West Virginia and other states. Under the previous funding allocated in 2015 via the FCC’s Connect America Fund, Frontier was originally required to meet the build deadlines by the end of 2020. Frontier told Ars today that it will now meet that deadline "by the end of 2021."
“Pattern” of Missing Deadlines
Capito urged Pai to block Frontier’s new funding by rejecting the ISP’s long-form application, which must be completed by winning bidders in order to receive the allocated money. "The stakes are simply too high to provide nearly $250 million to a company that does not have the capability to deliver on the commitments made to the FCC," she wrote.
Under FCC rules, winning bidders must deploy broadband to 40 percent of required locations in each state within three calendar years, to 60 percent within four years, 80 percent within five years, and 100 percent within six years. Because Frontier won funding in the gigabit tier, it is required to offer download speeds of 1Gbps and upload speeds of 500Mbps along with monthly usage allowances of at least 2TB.
Capito described her reasons for concern about Frontier’s ability to meet the requirements as follows:
"Frontier’s mismanagement of prior federal funding through the Broadband Technology Opportunity Fund program, resulting in $4.7 million in funds repaid to the federal government for improper use, raises significant questions about their ability to manage federal funds of this magnitude. Furthermore, Frontier has a documented pattern of history demonstrating inability to meet FCC deadlines for completion of Connect America Fund Phase II support in West Virginia. The inability to deploy federal funds in a timely fashion to make improvements to a network delivering broadband service at speeds of 10/1Mbps or higher should raise significant concerns about their capacity to build out a network delivering one hundred times that level."
"Specifically with regards to Frontier’s assigned performance tier, I urge you to exert the utmost scrutiny to ensure they have the technological capability to deliver gigabit level service in West Virginia. As stated in the Federal Register dated June 18, 2020, the FCC reserves the right to reject an applicant’s long-form application if they do not meet the technical qualifications for the performance tier in which they were permitted to bid. Based on Frontier’s current and previous performance, I am concerned they lack the technological capabilities in West Virginia to transition from a provider that struggles to deliver the FCC minimum standard of 25/3Mbps to a provider that is able to provide gigabit level service to 95 percent of the required number of locations in the state."
In April, we wrote about an audit report ordered by the West Virginia Public Service Commission, which found that Frontier’s "copper network has at least 952,163 connection points that are susceptible to moisture, corrosion, loose connections, etc. that may cause interruptions of service to customers."
The report also found that Frontier repeatedly failed to meet a service-quality benchmark that 85 percent of outages should be fixed within 48 hours. Frontier has about 300,000 customers in West Virginia, most of whom subscribe to DSL Internet service.
When contacted by Ars today, a Frontier spokesperson said that "due to quiet period regulations," the company "cannot comment beyond what has been made publicly available by the FCC." Frontier told the FCC it would use fiber-to-the-home to deliver gigabit speeds and will have to provide more detail on its network and funding plans in the long-form application.
We contacted the FCC about Capito’s letter today and will update this article if we get a response.
Frontier’s Bankruptcy
Frontier’s bankruptcy also worries Capito. As the FCC subsidies apparently won’t cover the full cost of deployment, she wrote that Frontier "would need to raise over $250 million in private capital to fund the buildout of a gigabit network in West Virginia."
Nationwide, the FCC awarded $9.2 billion to ISPs despite initially making $16 billion available. The reverse auction format resulted in lower payouts because ISPs compete for the funding. Capito wrote to Pai:
"I urge you to closely scrutinize the financial capability of Frontier to finance these investments, particularly as they emerge from a Chapter 11 financial restructuring. Because of the nature of a reverse auction, it is entirely possible, if not likely that a bidder will be required to invest their own funds to cover costs above and beyond the subsidy provided by RDOF. Emerging from a financial restructuring requires significant private capital and I am concerned about the ability of Frontier to raise sufficient capital to both complete their financial restructuring and fund the construction of a network that will deliver the required gigabit level service in the locations they successfully bid in the RDOF auction. The expense of constructing a network capable of delivering gigabit service is an expensive and daunting feat for a company in a strong financial position, let alone one that is in financial turmoil."
At the time of its bankruptcy, Frontier acknowledged to investors that its "significant under-investment in fiber deployment" contributed greatly to the company’s decline. Frontier has also faced investigations and complaints of chronic outages in New York, Minnesota, and Ohio.
Derek Turner, research director at advocacy group Free Press, Turner told Ars today that he is
skeptical about Frontier’s ability to deploy fiber-to-the-premises (FTTP) in remote areas.
"Can Frontier handle FTTP deployment at this scale in rural areas? I can’t say; what I can say is that they bought most of their existing FTTP assets from Verizon, so their deployment track record is limited," Turner has also criticized the FCC for awarding much of the RDOF funding to various ISPs in wealthy urban areas."
Holstine: “I think the state is going to get screwed”
Capito is not the only official from West Virginia who has objected to Frontier getting federal money, as shown in a Mountain State Spotlight report last week. Mike Holstine, secretary-treasurer of the West Virginia Broadband Enhancement Council, called Frontier’s new funding "unbelievable."
"’I think the state is going to get screwed again,’ [Holstine] 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," the news report said.
Frontier has said it expects to emerge from Chapter 11 bankruptcy in early 2021. Besides West Virginia, Frontier also won FCC funding in California, Connecticut, Florida, Illinois, New York, Pennsylvania, and Texas.
In May, Frontier completed a sale of its Northwest US operations to a newly formed ISP called Ziply Fiber. Ziply, referred to as Frontier Communications Northwest in FCC filings, participated in the RDOF auction and won funding in Idaho, Montana, Oregon, and Washington state.