by Lucas Manfield
Mountain State Spotlight
September 28, 2020
Struggling under a mountain of debt that threatened to collapse its business, Frontier Communications turned to West Virginians for a bailout last year.
The company shopped around to state legislators and potential lobbying allies a new surcharge on every internet, cellular and phone subscriber in the state, with the extra fees funnelled straight to Frontier to patch up the company’s shaky finances as it labored to maintain its aging network of copper telephone wires.
Lawmakers, averse to a new tax and fed up with the company’s track record of fraud, balked.
But the failed effort, unreported until now, has long-term repercussions. Such a tax, its proponents say, is badly needed in a state that has failed repeatedly to solve one of its most intractable problems: a lack of reliable high-speed internet in rural communities.
Billy Jack Gregg, West Virginia’s former chief consumer advocate turned Frontier lobbyist, put together the proposed legislation. He’s now retired, but agreed to an interview with Mountain State Spotlight.
The legislation is long overdue, he said.
“It’s like most such problems: Until the house is on fire, people don’t recognize that you need a fire department,” Gregg said. “It’ll have to happen sooner or later.”
Improving broadband internet access has long been a goal of West Virginia policymakers, who argue it would attract badly needed investment in rural areas of the state.
But blanketing the state in the fiber-optic cable necessary to deliver internet at streaming speeds is far easier said than done. Such projects cost far more than they will recoup in customer subscription revenue. As a result, they’re dependent on government subsidies to make the economic math work.
Many states run their own subsidy programs, according to a recent analysis by the National Regulatory Research Institute, but West Virginia does not.
So it continues to lag behind other states in national measures of broadband availability. The state’s rural residents are left reliant on Frontier, whose copper telephone network has proved largely unable to deliver speeds high enough to qualify as broadband internet by federal standards.
Around 18% of households in the state lack fixed high-speed internet connections, according to the Federal Communications Com- mission. That’s significantly more than each of West Virginia’s neighbors – Kentucky is 7% and Pennsylvania is 5%.
The problem is far worse than those numbers make it seem. Because the data is self-reported by the telecoms using an outdated methodology, it is considered flawed, even by the FCC, and the percentages are far lower than reality.
In recent years, Frontier customers, faced with prolonged outages and snail-paced internet, have flooded West Virginia’s utility regulator with complaints.
Meanwhile, Frontier’s financial investment in the state has stagnated. Revenues have dried up as its customers fled to competitors with superior technology. The company declared bankruptcy earlier this year.
The proposed legislation, Gregg said, was a result of Frontier’s financial difficulties.
“They were looking for additional revenues to support maintaining the network in the rural areas of the state,” he said. “The old traditional revenue streams coming from the urban areas had dried up.”
Gregg’s proposal would have generated $26 million in additional revenue for Frontier, a quarter of which would have been earmarked for broadband expansion.
But it didn’t gain much traction.
“The Legislature didn’t think much of the idea,” said Gaylene Miller, the director of AARP West Virginia and an influential lobbyist at the state Capitol.
The AARP received an early preview of the legislation.
“I think that was looked at as a tax increase,” she said.
Miller said that Frontier needed to be held accountable for fixing its existing problems before it could be trusted with additional government funding.
“We’ve seen their track record, frankly,” she said.
Frontier’s financial difficulties were largely of its own making. The company made a series of devastating strategic mistakes over the last decade, taking on over $10 billion in new debt in a series of acquisitions. When it filed for bankruptcy earlier this year, the company admitted that the interest payments had crippled its ability to invest in new technologies.
It had also been at the center of a series of scandals involving its use of federal funding.
In 2010, the state steered $40 million in federal funds to Frontier to build out its fiber network. After the buildout was complete, a competitor filed suit alleging that Frontier had broken its promise to allow competitors open access to the network. Later, a Department of Justice investigation found that Frontier had wasted nearly $5 million of the grant and then attempted to cover it up.
Frontier’s legislative proposal was also reviewed by state auditors, who wrote that the annual infusion of cash could solve reliability issues with the company’s telephone service “in the long run.” But, they noted, the likelihood of the proposal becoming law was “unknown.”
Frontier’ lobbying continued to be “in progress,” they wrote. The report was published earlier this year.
But it was extensively redacted, including a section on the “Mountain State Universal State Fund.” An administrative judge ordered the full text of the report be made public in August.
The unredacted report details the legislation, which would have included a $1 surcharge on “all connections for voice service – wireline, mobile, and VoIP (including cable).”
The concept of taxing phone and internet subscribers to fund service improvements in rural and hard-to-serve areas isn’t new. The federal government runs a massive “Universal Service Fund” that gives out grants to spur infrastructure development and subsidizes phone plans for low-income subscribers.
That program is gearing up to give out an additional $20 billion for broadband expansion, a process that will begin this November.
Although it’s a federal program, that hasn’t stopped state lawmakers from attempting to take credit. “Gov. Justice leading the way on ‘monumental’ project,” headlined a press release from his office in early September after Justice signed an executive order that would assist local firms in their applications to bid for the funds.
He’s also promised to allocate $50 million in federal CARES Act funds toward improving rural internet.
But the state is not leading the way when it comes to actually ponying up its own money.
Most states supplement federal programs with some sort of universal service fund of their own. West Virginia is one of only eight states that don’t, according to a 2019 analysis by Sherry Lichtenberg, deputy director of the National Regulatory Research Institute.
It hasn’t always been this way. In 2008, the state Legislature allocated $5 million to be given out by a new Broadband Deployment Council. It funded several projects, including a $713,000 grant to bring high-speed internet to the Snowshoe ski resort. But the council was eventually disbanded, and later replaced with volunteers who lack state funds to give out grants.
These grant programs – although generally small compared to federal efforts – do work. Research published earlier this month by professors at Ohio State University and Purdue University found that they increased broadband access rates by 1 to 2 percentage points.
Lichtenberg explained why: They give a powerful tool to local authorities who understand the problem best. “The state commission understands what its customers need,” she said.
This was the logic behind Gregg’s proposal, which was similar in many ways to what’s been implemented in other states across the country.
Gregg knows something about creating a universal service fund. He was the founding director of the state’s consumer advocacy office and served in that role for 25 years. During his tenure, he advised the FCC on the implementation of the 1996 Telecommunications Act, which established the national fund. Since, he’s repeatedly been called to testify before Congress.
The $1 fee per connection he proposed for West Virginia is typical, according to Lichtenberg’s analysis.
But distributing the bulk of the funds to a single telecommunications provider, she said, was not.
The legislation would have directed the funds toward West Virginia’s “carriers of last resort,” meaning companies required to provide telephone service if a customer requests it. There is only one such carrier in the state: Frontier.
During their push to get the bill on last year’s legislative agenda, Frontier representatives took the idea to Delegate Daniel Linville, R-Cabell, vice chairman of the House Technology and Infrastructure Committee. He wasn’t impressed.
The proposal “could not possibly be a good use of public funds,” he said, citing Frontier’s history in the state. Other lawmakers evidently agreed. No one sponsored the legislation.
They did pass a bill last year that would allow the state to rent out space on its wireless towers and buildings, nearly a third of which will be used to fund broadband expansion. The law went into effect this summer, but the pandemic has delayed the hiring of a contractor to oversee the program, and it’s unclear how much money it will raise.
Still, Linville explained, it’s a way forward.
“I am determined to do everything in my power to make sure that the failures of the past are not repeated,” Linville said.
For more stories, go to mountainstatespotlight.org