Get out your tiny violins.  Telephone and cable companies that have ignored your neighborhood for years are decrying attempts by the federal government to fund projects that would finally extend broadband service to rural America.  Companies ranging from tiny Eagle Communications in Kansas, to major regional telephone companies like FairPoint Communications and Windstream, are upset that new providers are on the way to deliver broadband service to bypassed homes or communities stuck in their broadband slow lane.

The Associated Press reports coast-to-coast complaints from incumbents who have refused to deliver service or force customers to accept 1-3Mbps speeds indefinitely.

From the Blue Ridge Mountains to the Great Plains, some local phone and cable companies fear they will have to compete with government-subsidized broadband systems, paid for largely with stimulus dollars. If these taxpayer-funded networks siphon off customers with lower prices, private companies warn that they could be less likely to upgrade their own lines, endangering jobs and undermining the goals of the stimulus plan.

That’s rich coming from some providers who threaten to refuse to upgrade lines they’ve never upgraded, endanger employees they’ve long since cut, and threaten their quest for monopoly profits serving rural Americans larger carriers are rapidly abandoning.

Anemic Broadband Is Not in Kansas Anymore

Rural Telephone's Exchange Map (click to enlarge)

Kansas-based Eagle Communications provides cable and wireless broadband service to more than a dozen small towns in the state.  For more populated areas, it’s cable broadband service.  For the rural parts of its service areas, Eagle relegates everyone to a slower speed, more expensive wireless network.

The company is upset to learn about additional expansion forthcoming from Rural Telephone Company, a cooperative which recently won a $101 million stimulus grant to construct a fiber optic system to expand service.  With the grant, the co-op phone company will move beyond its currently constrained DSL broadband network into areas even Eagle’s rural wireless signal won’t reach.

Rural Telephone Company says their broadband grant will provide service “in an area 99.5 percent unserved/underserved and provide a rural infrastructure required for economic stability, education and health care.”

Eagle says it’s unfair competition.

“It is extremely unfair that the government comes in and uses big government money to harm existing private businesses,” Gary Shorman, president of Eagle Communications, told the AP.  “This hurts our company.”

“It’s a little disappointing that companies that aren’t adequately serving these areas are trying to undercut those of us who are trying to step in and get the service where it’s needed,” says Lawrence Strickling, head of the National Telecommunications and Information Administration, the arm of the Commerce Department handing out much of the stimulus money.

The $101 million Kansas project, for instance, will bring connection speeds of up to 1 gigabit to businesses and up to 100 megabits to as many as 23,000 homes. While the network will cover the population center of Hays, where both Rural Telephone and Eagle Communications already offer broadband, that accounts for just eight of the 4,600 square miles to be reached. Much of the area has no broadband at all, says Larry Sevier, Rural Telephone’s chief executive.

The goal is to “close the digital divide between Hays and the outlying areas,” says Jonathan Adelstein, head of the Rural Utilities Service, which awarded the money.

Eagle Communications' Wireless Service Area - Central Region (click to enlarge)

For rural Kansans choosing between Eagle’s wireless service or Rural Telephone’s current maximum 1.5Mbps DSL service for those outside of the Hays city limits, the definition of “high speed service” maxes out at an anemic 3Mbps:

Eagle Communications Wireless Network Pricing – Hays, Kansas

• Eagle 256/256 $34.95 /per month
• Eagle 768/512 $37.95 /per month
• Eagle 1.0/384 $44.95 /per month
• Eagle 2/512 $54.95 /per month
• Eagle 3/512 $59.95 /per month

Rural Telephone Company Pricing for Outside the City Limits – Hays, Kansas

• Rural Telephone’s 1.5Mbps DSL — $29.95 per month
• Rural Telephone’s 512kbps DSL — $19.95 per month

Gone With the Windstream: Phone Company Says Broadband Stimulus Doesn’t Give a Damn About Their Georgia Business Model

Many of the projects seeking funding don’t actually want to get into the Internet Service Provider business, preferring to construct fiber-based networks available equally to all-comers at wholesale pricing.  Sure they’ll wire government buildings, schools, and libraries as a public service, but their real goal is to make available super high speed networks that incumbent providers haven’t, under the theory a rising tide lifts all boats.  They even invite existing ISP’s to hop on board, buying access to deliver improved service to their existing customers.

But because some providers don’t own or control the infrastructure outright, they’re not interested.

One such project is the North Georgia Network Cooperative, created from a consortium of private business advocates, a state university, and two power company co-ops.

North Georgia sees broadband as a major economic stimulant… if they actually had it.  Large parts of the region don’t, so the Cooperative applied for and won a $33.5 million NTIA grant to construct a 260-mile fiber ring running through 12 counties in the state.  The network will easily deliver connections upwards of 10Gbps for institutions and broadband speeds far faster than incumbent DSL provider Windstream currently provides across the region.

Windstream's biggest promotional push is for its 6Mbps DSL service

Windstream’s DSL packages look better than many other independent phone companies, at least based on their website.  Windstream offers 3, 6, and 12 Mbps DSL packages across northwestern Georgia,  but that doesn’t mean you can actually obtain service at those speeds.  Stop the Cap! reader Frederick, who tipped us off to this story, notes that he can’t obtain more than 1.5Mbps DSL service from his home in Dalton, Georgia because the phone lines in his area won’t support faster speeds.

“I’m actually less than a mile from my area’s central office, but because the phone lines in my area are deteriorated, they had to lock my speed in at 1.5Mbps — anything faster causes the modem to reset,” Frederick writes.  “Windstream does the same thing to my cousin in Lafayette, who was offered 6Mbps service but can only get 3Mbps in reality.”

Frederick says most people in the community don’t really care where the faster broadband comes from — just that it comes.

“If Windstream, who incidentally also applied for government money, could do it there would have never been a need to go around them in the first place,” he says. “Hell, the ironic part is the Cooperative will sell wholesale access to Windstream to use as it sees fit, but because Windstream doesn’t own it they’re pouting, refusing to participate.”

Windstream says it has already invested $5 million in network upgrades covering northern Georgia over the last three years and the Cooperative’s stimulus grant undermines the economics of that investment.  Michael Rhoda, Windstream’s vice president of government affairs told AP Windstream now has to share rural customers with a government-funded competitor.  Windstream wants that funding limited strictly to those areas where broadband service is uneconomic to provide.  To underline that point, the company has applied for $238 million in stimulus funding to reach the “last 11 percent” who don’t have broadband in Windstream’s service areas.

Maine’s Three Ring Binder Project Snaps Shut on FairPoint’s Monopoly Fingers

Maine's Three Ring Binder Project plans to serve most of Maine (click image for additional information)

More often than not, independent efforts to launch improved broadband service in a region come after years of dealing with an intransigent provider comfortable moving at a snail’s pace to improve service.  Financially-troubled FairPoint Communications has been struggling to meet Maine’s broadband needs since the company took over service from Verizon two years ago.  The state government, university, and smaller telecommunications companies decided they could do better — applying for, and winning a $25.4 million dollar grant to construct three fiber rings across the state.

FairPoint insists the project duplicates the company’s own efforts to improve connectivity in Maine and has appealed to lawmakers to stop the project.  But FairPoint recently called a truce when it reached a deal to charge users of the new network a usage fee, with FairPoint getting a large share of the proceeds to expand its own broadband efforts.

[FairPoint's financial problems have left the company] unable to bring broadband to wide swaths of rural Maine, says Dwight Allison, chief executive of Maine Fiber Co., which was created to build and operate the stimulus-funded network. The project, he says, represents a serious competitive threat to a company that “feels its monopoly is being attacked.”

Of course nothing precludes FairPoint from getting access to the new fiber network at the same wholesale pricing other providers will pay, but the company so far doesn’t seem interested.

Various talking points designed to derail the project are debunked by the Maine Fiber Company:

• Fiction: It’s government-run broadband.
• Fact: Three Ring Binder will be owned and operated by Maine Fiber Company, a private company based in Maine. MRC is unaffiliated with any telecom carrier to ensure fair and equal access to the system for all competitors.

• Fiction: This project will create unfair competition for private providers.
• Fact: MFC will be a wholesale provider of dark fiber, and its customers will be Internet Service providers, wireless carriers, and telephone companies. MFC will not provide “lit” service in competition with private broadband carriers. MFC is required to provide service on an open access and non-discriminatory basis. All carriers in Maine will be able to use the network to serve their customers in Maine, resulting in robust competition for the benefit of Maine consumers.

• Fiction: This project duplicates service FairPoint already provides.
• Fact: Prior to receiving a federal stimulus grant, the project was carefully reviewed by the National Telecommunications Information Agency (NTIA) of the US Department of Commerce to determine whether there was overlap with existing carriers. NTIA determined that TRB would substantially improve access to high-speed Internet access in rural Maine. If material duplication had been discovered, TRB would not have been funded. TRB will offer a mid-mile, dark fiber service that is fundamentally different from what currently exists in rural Maine. In fact, carriers seeking to obtain dark fiber service along the TRB route have routinely been denied access by incumbent fiber providers.

Milton, Vermont

Jesse and his nearby neighbors on the west side of Milton are frustrated.  They live just 20 minutes away from Burlington, the largest city in the state of Vermont.  Despite the proximity to a city with nearly 40,000 residents, there is no cell phone coverage in western Milton, no cable television service, and no DSL service from FairPoint Communications.  For this part of Milton, it’s living living in 1990, where dial-up service was one’s gateway to the Internet.

Jesse and his immediate neighbors haven’t given up searching for broadband service options, but they face a united front of intransigent operators who refuse to make the investment to extend service down his well-populated street.

“After many calls to Comcast, they eventually sent us an estimate for over $17,000 to bring service to us, despite being less than a mile from their nearest station,” Jesse tells Vermont Public Radio.  “They also made it very clear that there was no plan at any point in the future, 2010 or beyond, to come here unless we paid them the money.”

Jesse and his neighbors want to give Comcast money, but not $17,000.

For at least 15 percent of Vermonters, Jesse’s story is their story.  Broadband simply remains elusive and out of reach.

Three years ago, Vermont’s Republican governor Jim Douglas announced the state would achieve 100 percent broadband coverage by 2010, making Vermont the nation’s first “e-State.”

Vermont Public Radio reviewed the progress Vermont is making towards becoming America’s first e-State. (January 20, 2010) (30 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Gov. Douglas

In June 2007 the state passed Act 79, legislation that established the Vermont Telecommunications Authority to facilitate the establishment and delivery of mobile phone and Internet access infrastructure and services for residents and businesses throughout Vermont.

The VTA, under the early leadership of Bill Shuttleworth, a former Verizon Communications senior manager, launched a modest broadband grant program to incrementally expand broadband access, often through existing service providers who agreed to use the money to extend service to unserved neighborhoods.

The Authority also acts as a clearinghouse for coordinating information about broadband projects across the state, although it doesn’t have any authority over those projects.  Lately, the VTA has been backing Google’s “Think Big With a Gig” Initiative, except it promotes the state as a great choice for fiber, not just one or two communities within Vermont.

Vermont used this video to promote their bid to become a Google Fiber state.  (2 minutes)

Some of the most dramatic expansion plans come from the East Central Vermont Community Fiber Network.  ECFiber, a group of 22 local municipalities, in partnership with ValleyNet, a Vermont non-profit organization, is planning to implement a high-capacity fiber-optic network capable of serving 100% of homes and businesses in participating towns with Internet, telephone and cable television service.  In 2008, the group coalesced around a proposal to construct a major fiber-to-the-home project to extend broadband across areas that often don’t even have slower speed DSL.

The ECFiber project brought communities together to provide the kind of broadband service private companies refused to provide. Vermont Public Radio explores the project and the enthusiasm of residents hopeful they will finally be able to get broadband service. (March 8, 2008) (24 minutes)
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ECFiber's Partner Communities

The Vermont towns, which together number roughly 55,000 residents, decided to build their own network after FairPoint Communications and local cable companies refused to extend the reach of their services.  Providers claim expanding service is not financially viable.  For residents like sheep farmer Marian White, interviewed by The Wall Street Journal, that means another year of paying $60 a month for satellite fraudband, the speed and consumption-limited satellite Internet service.

White calls the satellite service unreliable, especially in winter when snow accumulates on the dish.  Unlike many broadband users who vegetate for hours browsing the web, White actually gets an exercise routine while trying to get her satellite service to work.

“I open a window and I take a pan of water and, a cup at a time, I launch warm water at the satellite dish until I have melted all the snow off the dish,” Ms. White says. “It works.”

Other residents treat accessing the Internet the same way rural Americans plan a trip into town to buy supplies.

Kathi Terami from Tunbridge makes a list of things to do online and then, once a week, travels into town to visit the local public library which has a high speed connection.  Terami downloads Sesame Street podcasts for her children, watches YouTube links sent by her sister, and tries to download whatever she thinks she might want to see or use over the coming week.

A fiber to the home network like ECFiber would change everything for small town Vermonters.  The implications are enormous according to project manager Tim Nulty.

“People are truly afraid their communities are going to die if they aren’t on the communications medium that drives the country culturally and economically,” he says. “It’s one of the most intensely felt political issues in Vermont after health care.”

Despite the plan’s good intentions, one obstacle after another has prevented ECFiber from making much headway:

• The VTA rejected the proposal in 2008, calling it unfeasible;
• Plans over the summer and fall of 2008 to approach big national investment banks ran head-on into the sub-prime mortgage collapse, which caused banks to stop lending;
• An alternative plan to build the network with public debt financing, using smaller investors, collapsed along with Lehman Brothers on September 14, 2008;
• An attempt by Senator Pat Leahy (D-Vermont) to insert federal loan guarantees into the stimulus bill in February 2009 was thwarted by partisan wrangling;
• Attempts to secure federal broadband grant stimulus funding has been rejected by the Commerce Department;
• Opposition to the plan and objections over its funding come from incumbent providers like FairPoint, who claim the project is unnecessary because they will provide service in those areas… eventually.

For the indefinite future, it appears Ms. White will continue to throw warm cups of water out the window on cold winter mornings.

Vermont Edition takes a comprehensive look at where the state stands in broadband and wireless deployment. (April 8, 2009) (46 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

For every Tunbridge resident with a story about life without broadband, there are many more across Vermont living with hit or miss Internet access.

Take Marie from Middlesex.

Most residents in more rural areas of Vermont get service where they can from FairPoint Communications

“I am in Middlesex, about a half-mile off Route 2, and five minutes from the Capitol Building. Yet up until just recently, we had no sign of high-speed Internet. I understand that my neighbors just received DSL a few weeks ago, but when I call FairPoint, they tell me it’s still not available at my house, which is a few hundred yards up the hill. Hopefully, they’re wrong and I’ll see DSL soon,” she says.

Marie is pining for yesterday’s broadband technology — FairPoint’s 1.5Mbps basic DSL service, now considered below the proposed minimum speeds to qualify for “broadband” in the National Broadband Plan.  For Marie, it’s better than nothing.

Geryll in Goshen also lacks DSL and probably wouldn’t want it from FairPoint anyway.

“We have barely reliable landline service. A tech is at my house at least three times per year. I was told the lines are so old they are decaying. Using dial-up is impossible. I use satellite which is very expensive and is in my opinion only one step up from dial-up. I am limited to downloads and penalized if I reach my daily limit,” he says.

Many Vermonters acknowledge Douglas’ planned 100-percent-broadband-coverage-by-2010 won’t come close to achievement and many are highly skeptical they will ever see the day where every resident who wants broadband service can get it.

Chip in Cabot is among them, jaded after six years of arguments with FairPoint Communications and its predecessor Verizon about obtaining access to DSL.  It took a cooperative FairPoint engineer outside of the business office to finally get Chip service.  His neighbors were not so lucky, most emphatically rejected for DSL service from an intransigent FairPoint:

“I laughed when Governor Douglas announced his e-State goal “by 2010″ three years ago. Now I’m thinking I should have made some bets on this claim. It took years of legal battles and a zoning variance to obtain partial cell coverage here in Cabot. Large parts of the town still do not have any cell coverage. Governor Douglas can perhaps be forgiven – he has no technical knowledge, and as a politician would be expected to be wildly optimistic about such “e-State” claims. The Vermont Telecommunications Authority and the Department of Public Service should know better however. We’re talking about rural areas where there is no financial incentive to provide either DSL or cell service. It will take a huge amount of money to provide service to those remaining parts of the state. I’m not optimistic.”

The Wall Street Journal chronicled the challenges Vermonters face when broadband is unavailable to them.  ECFiber may solve these problems.  Some of the stories in our article are reflected in this well-done video.  (3/2/2009 — 4 Minutes)

Verizon Communications has made its intentions clear — would-be broadband customers in its service area who are off the FiOS footprint can pound salt.  The Federal Communications Commission issues regular reports on broadband services and their adoption by consumers across the United States.  In the latest report, published this month, customers in Verizon’s current or former service areas who are not being served by Verizon FiOS are behind the broadband 8-ball, waiting for the arrival of DSL service from a company that has diverted most of its time, money, and attention on deploying its fiber-to-the-home service for the big city folks.

One might think the worst DSL availability in the country would be in rural states like Alaska, or territories like Guam, or income-challenged Mississippi.  No, the bottom of the barrel can be found in northern New England and the mid-Atlantic states — largely the current or former domain of Verizon:

Percentage of Residential End-User Premises with Access to High-Speed Services by State
(Connections over 200 kbps in at least one direction)

Source: FCC High-Speed Services for Internet Access: Table 19

Some might argue that DSL penetration ignores Verizon’s fiber upgrades, but does it?

Providers of High-Speed Connections by Fiber by State as of December 31, 2008
(Connections over 200 kbps in at least one direction)

Source: FCC High-Speed Services for Internet Access: Table 20

A survey of the rest of the country calls out Verizon’s inattentiveness to DSL expansion in its remaining service areas not covered by FiOS.

For example: Alabama, Idaho, Montana, and Oklahoma all enjoy 80 percent DSL availability.  Utah and Nevada achieved 90 percent coverage.  Even mountainous Wyoming, the least populous state in the country, provides 78 percent of its state’s customers with the choice of getting DSL service.  Yet New York manages only one point higher among its telephone companies, largely because of enormous service gaps upstate.

What happened?  By 2002 Verizon began to realize their future depended on moving beyond providing landline service.  The company began to divert most of its resources to a grand plan to deliver fiber connections to residences in larger markets in its service areas.  While great news for those who live there, those that don’t discovered they’ve been left behind by Verizon.  Northern New England got flushed by Verizon altogether — sold to the revenue-challenged FairPoint Communications who assumed control of Verizon’s problems and managed to make them worse.

The argument that rural broadband is “too expensive” doesn’t fly when looking at DSL availability in the expansive mountain west or rural desert regions.  Compact states like Vermont, New Hampshire, and Maryland are far easier to wire than North Dakota, New Mexico or even Texas with its large rural areas (87, 87, and 81 percent coverage, respectively).  Verizon simply doesn’t realize the kind of Return on Investment it seeks from FiOS customers — a dollar amount investors want to see.

Of course, that’s the argument Frontier Communications, and FairPoint behind it, made to regulators in sweeping promises to deliver better broadband service.  FairPoint missed its targets and declared bankruptcy.  Frontier is still in the “promises, promises” stage of its deal to take over millions of rural customers currently served by Verizon.

In Maine, bankrupt FairPoint Communications managed to scrape up enough cash to launch a lobbying effort to get a bill introduced, tailor-written to prohibit stimulus award winners from… helping provide improved broadband service to Maine residents.

Marrache

Incredibly, Sen. Lisa Marrache, D-Waterville, the assistant Senate majority leader, has introduced a bill that would ban the system from using any tuition money to help pay for efforts to expand broadband access. Marrache mouthed FairPoint’s talking points as she suggested poor college students’ tuition money would be diverted for broadband projects. She claimed the bill was introduced because constituents FairPoint’s lobbyists and employees were calling her about it.

The fact Marrache so misunderstood a public-private partnership between the University of Maine, Great Works Internet, and two private investors to improve the Internet “backbone” in Maine should be of grave concern to her constituents. Unless some campaign contributions from FairPoint and its executives make their way to Marrache’s next campaign, voters must be wondering whether the majority leader has a grip on the technology matters before her.

Indeed, the University of Maine explained the “middle mile” improvement program was not going to steal students’ lunch money, but rather dramatically improve broadband capacity for all comers — something FairPoint couldn’t be bothered with while breaking promises to expand broadband service themselves.

Jeff Letourneau, associate director of information technology at UMS, told the Bangor Daily News, “as for tuition subsidizing our broadband efforts, that does not happen and will not happen.”

WABI-TV in Bangor reported on the announced funding of broadband projects in Maine designed to improve rural broadband service statewide (12-17-2009 — 2 minutes)

Ironically, the network that will be built with the help of the broadband stimulus program will be open to any and all providers, including FairPoint, on a wholesale cost basis. But of course FairPoint would not own and control it, so it’s bad for them, and they’re trying to convince Maine lawmakers it’s bad for Maine residents as well.

Great Works Internet has had a running dispute with FairPoint

But then, FairPoint has had a vendetta of sorts against Great Works Internet for months, trying to overcharge the independent ISP for connectivity it obtained under provisions established in the Communications Act of 1996.

Also running interference for FairPoint is Rep. Stacey Fitts, R-Pittsfield, who serves on the Legislature’s Utilities and Energy Committee. His bill prevents any “undue” competition by UMS with existing broadband providers. In other words, he has written the FairPoint Entrenched Provider of Mediocre Broadband Protection Act. Fitts said he has concerns that the university’s efforts could have unintended consequences on private companies (read that FairPoint) that “already provide access.” It will have directly intended consequences on GWI by further disadvantaging them and potentially sinking their efforts to provide better service in Maine.

“If the university is able to bypass some of the competitive markets, and cherry pick, it could affect the ability to deliver broadband to others,” he said.

Exactly how it affects the ability of FairPoint to deliver what it has failed to demonstrate it is capable of delivering is a question Fitts doesn’t answer.

Fitts

“I know this will cause a lot of discussion in committee,” he told the newspaper. “But we need to have that discussion.”

Maine Public Radio covered the introduction of Rep. Fitts’ bill, and the debate swirling around it. (3 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Constituents need to have a discussion with him. Unless he wants to be known as the representative from FairPoint, he might want to get out of the way of a project that has a chance of improving broadband in his state, as opposed to the empty promises from a bankrupt provider. If he wants to tie himself to FairPoint’s record of failure, voters can choose someone else to represent them at the earliest possible opportunity.

Those with a need for high speed broadband have tried, and failed, to obtain better service from FairPoint. As Stop the Cap! has reported in exhaustive detail, FairPoint was preoccupied in delivering third world phone service at the time, finally collapsing on the courthouse steps under the weight of its bankruptcy filing.

Bills like these in Maine are further evidence that Congress needs to act on the federal level to pass the Community Broadband Act, which would overturn these kinds of bought-and-paid-for protectionist bills passed in several states. Communities must have the right to bypass companies in the broadband shortage business.

http://www.phillipdampier.com/video/WLBZ Bangor Broadband Stimulus Will Help Maine Health Care 12-2009.flv

WLBZ-TV in Bangor showed what broadband brings to Maine’s health care system and other business.  (3 minutes)

http://www.phillipdampier.com/video/MaineBiz Broadband Special 11-2009.flv

MaineBiz Sunday spent nearly an hour going in-depth into broadband challenges in Maine, the problems with FairPoint Communications, the dispute with GWI, and more.  Appearing on the show, which originally aired last November: Fletcher Kittredge CEO of GWI, Phil Lindley of the ConnectMaine Authority, Steve Hand of Know Technology and Rep. Cynthia Dill of District 121 in Cape Elizabeth. (36 minutes)

Coming up…

Comcast Is Allergic to the Word “Free” Except When They Are the Recipient

Frontier customers are advised to recycle their directories after November, but the new books won't arrive until March.

The dead tree format telephone directory lives on, dropped on the front doors of millions of Americans each year, often whether they want them or not.  The ubiquitous “phone book” has been with us for 100 years, and continues to be the source of controversy, anger, and irritation for those who advertise in it, want either to be listed or unlisted from it, or simply want to stop killing trees to print it.

Now two phone companies have riled up their customers over the books — Frontier Communications for changing the printing schedule of the Yellow Pages, forcing businesses trying to economize to continue to pay for advertising they no longer want, and FairPoint Communications for omitting a large number of customers from their 2010 White Pages.

Coincidentally, the controversies impact two communities sharing the same name – Rochester, New York and Rochester, New Hampshire.

Even though this coupon expires in December 2009, Agatina's Restaurant will still be paying for their advertising until March, 2010.

In Frontier’s largest service area in western New York, businesses are confronting the fact they’ll be forced to pay up to four additional months for Yellow Pages advertising, including for coupons that expire in December.  That’s because Frontier has decided to change the publishing schedule for telephone directories from the traditional month of November, in place in Rochester for decades, to next March.  Residential customers may also accidentally discard their phone books, which indicate they should be recycled in November, assuming new directories are on the way.

The change impacts existing businesses who want to reduce or stop their Yellow Pages ads, as well as new area businesses that will have to wait until spring before their listings appear in the printed directories.

Although many customers now look up telephone numbers online and don’t use the White Pages print edition, many consumers still rely on the Yellow Pages to size up businesses, look for coupons, or learn more about businesses from their advertising.

WHEC-TV Rochester’s I-Team 10 reporter visits with the owner of Agatina’s Restaurant, who is upset to discover he’s going to be paying for his Yellow Pages ad longer than he thought. (2 minutes)

In southern New Hampshire, scores of customers receiving new directories from FairPoint are discovering they are not in the book, or have outdated addresses listed, some nearly 19 years old.

The New Hampshire Union-Leader covered the story Wednesday:

“Basically, they left a lot of our numbers out of the phone book,” said Rochester City Manager John Scruton.

“My main concern is we want to provide good service to the city of Rochester, and it is difficult for people if they cannot find key phone numbers using the phone book,” he said.

“Hopefully, they’ll correct it in the next generation of books, but that’s not going to help people who have trouble finding them right now,” he said.

Plaistow Town Clerk Maryellen Pelletier said, “We didn’t even get the right directory.” After years of getting the Haverhill, Mass., directory, the town suddenly was delivered the Manchester-Derry book.

In that same book, Union Leader-New Hampshire Sunday News, a reference to the company that publishes the statewide newspaper and this web site, is listed twice in succession, once with its current address, once with an address it left 19 years ago.

Ironically, FairPoint’s phone books are printed by another Verizon castoff that declared bankruptcy earlier this year: Idearc.

Customers are outraged by the latest FairPoint foul-up.

Jim in Hillsboro: “Other than hoodwinking the Public Utilities Commission, name me one thing FairPoint has done right. Anybody?”

Mo in Plymouth: “Is this strike three and out of business? I hope so. Maybe we can get some company who will at least tell us the truth.”

Doris in Manchester: “Good ole FairPoint. What else would you expect from this fine outstanding company? I have never seen such a screw-up company as FairPoint.”

Frank in Bedford: “Waste of paper = phone book. When everyone has a computer there should be no more phone books allowed. Speaking of being allowed, FairPoint is another thing that shouldn’t be allowed to screw up anymore in New Hampshire. Give them the boot.”

DL in Nottingham: “In Nottingham, we keep getting new phone books every week for all different sections of the state. They just keep showing up.”

Chris in Bow: “Let’s all hope FairPoint managed to print the correct home telephone numbers for members of the Public Utilities Commission.”

Bren in Manchester: “Three months running now my home phone has been disconnected for “non-payment.” Three times I’ve called, spent my lunch hour giving the date that my payment was processed, waited while they figured out where it was misapplied and then had to wait several hours for the service to be reinstated. Then the insult of a phone book that isn’t going to be used, delivered into a rain puddle – the result is a wasted tree.”

FairPoint Communications’ performance in New England, finally leading to bankruptcy, harms not only itself but also smaller local Internet companies providing jobs and service across the region.  That’s the gist of a report in this morning’s Kennebec Journal outlining a dispute between FairPoint and Great Works Internet, a Biddeford, Maine Internet Service Provider caught between FairPoint’s fiber optic network and a billing dispute that demands GWI pay more than $3 million dollars by December 19th, or face service termination by FairPoint.

GWI leased fiber optic cables with FairPoint’s predecessor Verizon back in 2005.  As part of the Communications Act of 1996, designed to spur competition, GWI obtained access at special interconnection rates, lower than the prices charged for retail customers.  Verizon felt the price was too low, and went to court in 2005 to seek the right to charge “market rates” for access, but the issue was never settled before Verizon sold its landline network to FairPoint last year.  In March of this year, FairPoint stopped accepting new orders from GWI for fiber service, which has kept the company from growing beyond its current fiber network agreements, costing the company plenty in new business.  Then, in September, FairPoint back-billed GWI for $3,085,025, representing the price FairPoint felt GWI should have been paying since 2006.  If the Maine-owned ISP doesn’t pay up, it has been threatened with having its service cut off altogether.

Fletcher Kittredge, GWI’s founder and chief executive officer, has been around the ISP business a long time.  The company was founded in 1994, before Internet access became common, and he has grown the company into a locally owned business serving 18,000 customers with phone and Internet connections.  At risk are the loss of up to 75 local jobs and a significant part of $13 million in annual revenues earned by what the Journal calls one of Maine’s leading Internet providers.

“For us, it’s vital that this be settled soon,” Kittredge told the newspaper. “FairPoint has been threatening us with some pretty draconian action.”

FairPoint’s threat has already cost the company customers, Kittredge said, and the uncertainty makes it hard to go after new business accounts.

But growth has been trimmed by FairPoint’s actions, according to Kittredge. For instance: The company signed a contract with the Skowhegan school system for high-speed access and set up equipment. But the connections it needed from FairPoint were never made, Kittredge said, and he had to cancel the school contract. That has had a chilling effect on efforts to go after new accounts.

“We can’t go out and solicit new businesses,” he said. “We can’t say, ‘This is going to be great, but we may not be able to deliver it to you.’ ”

Great Works hasn’t wanted to make a big deal in public of its fight with FairPoint. It’s concerned that the news will cause existing customers to worry that they could lose their Internet connections.

“It’s a threat I’m going to watch,” said Mitch Davis, chief information officer at Bowdoin College in Brunswick.

Bowdoin gets phone service from FairPoint, but most of its Internet access is from Great Works. Davis was aware of the initial court dispute, but didn’t realize FairPoint was threatening to cut line access. He hopes the bankruptcy judge will let the case go forward and get settled.

GWI told the Journal the company may just be trying to steal Great Works’ lucrative business customers.  That might come to pass if the circuits are cut.  Despite Davis believing FairPoint probably wouldn’t make good on their threat because of the bad publicity it would generate, he admits if they do, he might be forced to transfer the college account to FairPoint.

“I would do what I need to do to keep the college running,” Davis said.

One Journal reader characterized the dispute as just one more consequence of approving FairPoint Communications’ takeover of Verizon service in Maine.

“I would like to thank the governor of Maine for letting such a strong stable company like FairPoint in this state. You really did your homework.  I thought we had a Public Utilities Commission that watched out for public interest.  Boy are they on the ball.  I am glad to see [...] they are not running my business.”

Phillip Dampier

The Concord Monitor published an editorial Sunday suggesting that FairPoint Communications’ crash and burn bankruptcy is, in fact, a good thing for New Hampshire.

FairPoint’s bankruptcy was always a distinct possibility. At this point, it’s good that it happened. The massive reduction in debt that will result will either allow the company make good on its promise to provide widespread broadband service or make it attractive to a buyer capable of doing so. Surviving on landlines alone isn’t an option.

FairPoint’s debt would have been hard to repay even in good times by a smoothly operating company. The severe recession, lousy service that caused customers to flee in droves and high interest rates on its debt doomed FairPoint.

This is like saying the GM’s bankruptcy was a great thing for Detroit.  The Concord Monitor would do better to beat the drum for utility commission reform, to make sure such bad deals don’t get approval in the first place.  As it stands, FairPoint’s promises aren’t worth much in good times or bad.  How many broken promises should cust0mers endure before realizing money alone does not resolve bad decisions, bad implementation of those decisions, and now “cost savings” from a company that cannot afford to lose a single technician or customer service employee.

Making FairPoint attractive for a buyout or merger means slashing costs, and we all know where that will happen – among local employees who do the work to keep the company running.  Another merger or buyout with a sweet bonus for management will do little for New Englanders who rely on FairPoint for telephone and broadband service unless the buyer has the resources to provide a more advanced platform for telecommunications in this century.

The editorial is right in calling out the enormous debt FairPoint took on to make the deal happen.  It would be hard to repay in good times by a smoothly operating company, which is precisely why those who live in the next round of cities Verizon is about to cast into the wild Frontier should be so very wary.  The economy, it’s suggested, is getting better, but for those of us in economically challenged states like New York, Ohio, West Virginia, and others where Frontier operates wouldn’t know it from looking around their communities.  If FairPoint thinks it has a challenge now, watch as customers trying to economize continue to pull the plug on their phone lines.  As cell phone plans continue to offer more minutes (or unlimited access), why pay for two phone bills when one is high enough?

Most of FairPoint’s customers have another option: cell phones. Between June 2008 and June 2009 the company lost 11 percent of its landline customers. They’ll lose customers even faster if they raise prices. There are other threats to FairPoint’s future. Small companies and cooperatives are beginning to offer wireless internet service in rural areas. So even if FairPoint succeeds in extending broadband into the boonies, it could face competition.

Considering FairPoint, like Frontier, is relying on rapidly aging ADSL technology for broadband, and has few apparent plans to meet the needs of a wider bandwidth future, old fashioned DSL broadband isn’t far behind copper wire landlines on the endangered species list.  But FairPoint, like Frontier and other independent companies focusing on rural communities may be betting their business plans that for the same reason Verizon said goodbye, would-be competitors will never drop in and say “hello.”  In communities too small for cable companies, the prospect for wireless broadband, or other competition, isn’t exactly rosy.

Not so the investors in FairPoint, who will exchange hundreds of millions of dollars in debt for stock that at week’s end was trading for just over a dime a share. The investors gambled and lost. The free market worked.

The free market worked particularly well for Verizon, who played the system and won an enormous bounty.  Investors taking a beating will write off their losses and move on.  Where do rural FairPoint customers go to write off their loss in the broadband backwater they’ll be stuck in indefinitely?  FairPoint actually represented another failure in the free market, because of the lack of appropriate oversight which should have taken one look at this deal and the debt pile-on it represented, and then rejected it as inappropriate for a utility to gamble with ratepayers’ money.

FairPoint made a number of commitments to win state approval of its purchase. Whether such agreements must be kept is now up to the court.

Utilities are classically required to provide universal service. Urban customers subsidize service for rural ones for the good of society and because they may want to communicate with them. But the game changed when technology allowed other unregulated companies to poach on a utility’s turf by offering cheaper or better service.

FairPoint will keep operating, and its customers are unlikely to see any effect from its decision to declare bankruptcy to reorganize and shed debt.

Don’t pick me up off the floor shocked and surprised when FairPoint and its banker-owners walk into court begging to be freed from the “onerous commitments” they made to get the deal done in Maine, New Hampshire, and Vermont.  Those “hard won” concessions by utility oversight boards may be nothing but memories soon enough.  The game change of telecommunications choice has come to more urban areas, where customers have options.  That isn’t necessarily the case for rural New England consumers without cable and with zero bars on their cell phone from home.

Customers who earlier thought that no changes in the quality of their FairPoint service meant “more crappy” service in their future may find the “crap bar” still has plenty lower to go should the company seek to realize its fiscal conservatism at the expense of its experienced and competent workforce who have coped with bad management decisions since day one.  Somehow the “must keep” employees might just turn out to be the same folks at FairPoint headquarters in North Carolina who made the bad decisions that put the company in its current predicament.

Strong, careful oversight of any restructuring is essential to protect New England ratepayers from being victimized all over again.

Barely 18 months after taking control of telephone and broadband service from Verizon Communications, FairPoint Communications collapsed under the weight of enormous debt and an economic downturn, announcing they would declare Chapter 11 bankruptcy this morning.

As Stop the Cap! reported Friday afternoon, sources told us the company had quietly notified key employees of the impending filing, which was expected as early as this weekend.  On Monday morning, the announcement of the filing was made to the media and to an unsurprised customer base of several million dissatisfied customers in Maine, New Hampshire, and Vermont who lived through a never-ending nightmare of bad service and broken promises from a company many believe “bit off more than they can chew.”

Today’s announcement may bring additional scrutiny to the next telecommunications deal Verizon has planned for customers in 13 states.  Frontier Communications, much like FairPoint, wants to take on the operations of a departing Verizon, who wants to disengage from smaller communities to focus on providing fiber optic telecommunications service in larger cities.  Today’s bankruptcy announcement marks three out of three failures for companies assuming control of Verizon’s discarded operations.  Hawaii Telcom declared bankruptcy last December, three years after being sold to The Carlyle Group, a politically well-connected private equity investment firm.  Idearc Media, a Verizon spinoff of the phone company’s print and online yellow pages business declared bankruptcy on March 31st, and FairPoint Communications, which took over Verizon’s northern New England phone operations made its bankruptcy known this morning.

FairPoint executives admit the downturn in the economy and much larger than anticipated conversion problems contributed to the declaration.  FairPoint has accumulated more than $2.7 billion in debt, mostly from the Verizon transaction, and faced difficulty making payments on that debt as credit markets froze and customers fled the terrible service problems that developed when the company tried to integrate 600 Verizon computer systems and software to 60 FairPoint systems on January 30th.

“Those two things contributed to FairPoint having too much debt, at the end of the day,” said David Hauser, chairman and CEO of FairPoint.

Creditors now effectively control FairPoint Communications, and they’ve agreed to forgive $1.7 billion dollars in debt and reduce the company’s interest payments to keep service operational.  Company officials are also looking for savings from cost-cutting measures.  Union officials are extremely concerned that could mean significant job losses for a company already stressed to provide service.  Although company officials characterized today’s announcement as a “non event” for FairPoint customers, many are not so sure.

“There have been a lot of promises made by FairPoint,” one customer told a Maine television station.  “Services that were promised are not being delivered,” said another.

Skepticism was rampant that today’s bankruptcy announcement would be the start of a new beginning for a restructured FairPoint.

“On the news they said that the services would go on as usual, which means crappy,” said one Maine customer in Portland.

Perhaps to underline that sentiment, FairPoint spokeswoman Jill Wurm reported FairPoint broadband’s e-mail service is out of order this evening.  Wurm said anyone with a fairpoint.net e-mail address has been without service since 6pm.  The company was unable to project an estimated time when service will be restored. It was also not known how many customers were affected.

Union leaders said they take no pleasure in the fact their predictions were all-too-accurate about the ultimate outcome of the FairPoint-Verizon deal.

“What good does it do us? We can say it, but we’re left here to deal with it,” Pete McLaughlin of the International Brotherhood of Electrical Workers, which represents FairPoint employees, told the Associated Press.

State regulators across all three New England states plan to keep a watchful eye on reorganization proceedings.  Special consultants and attorneys have been hired to give the states input and guidance as the restructuring commences.  For some consumers, that doesn’t provide much comfort because many of these same regulatory agencies approved the deal in the first place.

Stop the Cap! has extensive coverage of today’s developments from across all three states’ local newscasts.  We’ve also been notified representatives of utility boards now considering a similar spinoff with Frontier have also arrived here to gain our perspective on the sales deal now before them.  For that reason, we will continue covering FairPoint’s final months before today’s announcement to complete the record on FairPoint and its impact on customers, state regulators, and public safety officials.

Our coverage begins with today’s announcement, starting in Maine, where it was a lead story across the state.

WGME-TV in Portland leads their 6pm newscast this evening with the news of FairPoint’s bankruptcy and what it means for customers, some of whom remain skeptical. (5 minutes)

More video to view below ….

… Continue Reading

Sources tell Stop the Cap! FairPoint Communications will likely declare bankruptcy as early as this weekend, having failed to survive the crushing debt load it took on over its purchase of Verizon service in three New England states – New Hampshire, Vermont, and Maine.

The catastrophic failure of FairPoint to provide customers with quality service while saddled with enormous debt was never a surprise to those that warned about the perils of approving the transaction at the outset.

The employees of FairPoint are now working on a recovery plan to maintain service and bring back stability to FairPoint customers.  Unlike the senior corporate management of FairPoint, who live in North Carolina far away from the New England nightmares, local employees are committed to bringing their families, friends, and neighbors the service they feel should have been provided by the outset.

What will prevent such a recovery plan from working?  The lenders who hold the paper on FairPoint’s colossal debt and some in FairPoint management who want employee concessions for bad management mistakes.  Wall Street could also move in and demand massive cuts in employees and the infrastructure they need to bring quality service back to northern New England as part of a bankruptcy reorganization.

Once victimized by Verizon, then by FairPoint, and next by Wall Street bankers, the residents of northern New England just can’t win.

The International Brotherhood of Electrical Workers, who were exactly right when they predicted the outcome of the Verizon-FairPoint deal, now could face paying the biggest price for bad management — a loss of their jobs or a cutback in their wages.

Pete McLaughlin Chairman of IBEW SCT-9.  “Demanding cuts in labor costs from employees who aren’t in any way to blame for the company’s woes is the wrong way to go.  The overwhelming burden of billions of dollars in crushing debt cannot be solved by ‘nickel and dime-ing’ our union contracts.  And such attacks will be counter-productive to any attempt to improve operations and the quality of service for our customers.”

Some FairPoint customers want to know, “will those who profited handsomely from the original transaction pay a price?”

As we approach Halloween, it’s time to share a scary story.

The “Reverse Morris Trust” is something a majority of Americans have never heard of before, but if you are a Verizon customer and happen to live in one of 13 states where Verizon is just itching to abandon you, it’s time to learn more about this twister in the tax laws.  A debt-laden phone company may haunt your future.  Another is already haunting millions of New Englanders.

When Verizon throws telephone customers overboard to companies like FairPoint (and Frontier Communications if that deal is approved by state regulators), the company has found a great way to cash out, saddle the buyer in massive amounts of debt, and walk away without paying one cent in taxes.  How?

The Reverse Morris Trust.

To be fair, Verizon is not the first company to use this tax loophole to structure mergers, acquisitions, and spinoffs.  Before 1997, the use of the original Morris Trust provision was commonplace.  A company would split itself into two pieces, one of which would be swapped for stock in an unrelated company.  Then those shares would be redistributed, effectively transferring ownership.  The tax savings were enormous.  A $3 billion dollar sale would normally net the taxman nearly $1 billion in capital gains taxes.  But when using the magic of the Morris Trust, the taxman got $0.00.

In 1997, Congress realized how much tax money they were losing from this loophole.  They enacted Internal Revenue Code Sec. 355(e), which made these transactions taxable.  Or did they?

With billions in savings now potentially gone, businesses started looking for a way around Sec. 355(e) and found one in the Reverse Morris Trust.

Follow this:

A Reverse Morris Trust - "D"=Verizon, "C"=Spinco, "A"=FairPoint or Frontier

Companies involved in a Reverse Morris Trust deal don’t buy and sell from each other directly.  Instead, the seller sets up a new corporation, usually referred to in company financial reports as “Spinco” and conducts the transaction through that entity.

Spinco issues stock (and why not), which is owned by a majority of the shareholders of the parent company cooking up the sale.

When Verizon cast off its New England customers into the fetid waters of FairPoint, it structured the sale as a Reverse Morris Trust.  Verizon “spun off” Bell Atlantic Communications, NYNEX Long Distance, and Verizon New England assets serving Maine, New Hampshire and Vermont into Northern New England Spinco, a new corporation it created just for the deal.  It needed to find a buyer smaller than itself to take advantage of the tax-free magic of the Reverse Morris Trust.  It found FairPoint Communications, a tiny independent phone company based in North Carolina, dwarfed by the three New England states’ Verizon customers.  Imagine living alone in a one bedroom apartment and then letting The Brady Bunch move in with you.

Spinco, by design, has an addiction to piling on debt.  It’s like giving a shopaholic a wallet full of credit cards all issued by Verizon.  Spinco lards itself with as much debt as it possibly can.  When it’s finally teetering under the weight of  as much as $1.7 billion in debt, Verizon effectively sends a bill saying “we want our money — pay us back our $1.7 billion in full.”  Of course, Verizon doesn’t expect to receive the check.  Instead, it demands Spinco pay a “dividend” in the form of an IOU for the entire amount.

Spinco now has a problem.  Its balance sheet looks terrible.  Would you buy a company that has a $1.7 billion liability on its balance sheet?  FairPoint would, but of course, they knew this was part of the plan all along.

FairPoint now seeks to merge with this Spinco company that has more debt than some third world countries.  State regulators announce they have to examine this deal to make sure a company like FairPoint, now proposing to take on Spinco’s debt, will be able to run the company, make investments in its upkeep and expansion, and still pay back the Bank of Verizon, or whoever else ends up owning the IOU.

Regulators (foolishly) go ahead and approve the deal, and the newly merged Spinco and FairPoint issue stock to Verizon shareholders, the original owners of Spinco.  Verizon also gets cash and securities.  Technically, Verizon shareholders now own 60% of FairPoint.  Of course, nobody says every shareholder gets an equal vote.  In the end, FairPoint runs and manages the entire operation, or tries to, saddled with what is now $2.5 billion in debt and on the brink of bankruptcy.

How much did taxpayers lose from all of this?  Considering the spending machine in Washington is going to get the money from somewhere (us), they are going to be looking at you and I for the estimated $700 million Verizon never had to pay in capital gains taxes.

Make your check payable to “U.S. Government” and make sure it’s in the mail by Halloween.

Yes, this scary story is true, and has a sequel: Frontier and Verizon plan to structure their magic deal using the same technique.

Boo!  (Now add another zero on the dollar amount of your check.)

If this new deal is approved, Verizon walks away with $3.3 billion in tax-free cash.  Verizon shareholders (lucky them) get to be owners of just under 70% of Frontier Communications, soon to be saddled with its own Spinco debt which will run well into the billions.  Knowing this, they dump their stock in Frontier in droves as soon as the deal completes.  Why hang around for another financial Titanic to sink like a rock around their portfolio?

Verizon customers get to join the Frontier Family, and those of us who are already members get to see whether Frontier can survive the minimum monthly payment on that debt.

Or maybe not.

A large contingent of the New England Congressional delegation has written a letter to Rep. Charlie Rangel (D-NY), who chairs the Ways and Means Committee responsible for overseeing tax policy in Congress, asking that a stake be driven through the heart of the loopholes in the Reverse Morris Trust.

Reps. Michael Michaud, Chellie Pingree, Peter Welch, Paul Hodes, and Carol Shea-Porter all signed the letter asking Rangel to reform the Reverse Morris Trust (they abbreviate it “RMT”) and take it away from companies like Verizon looking for a tax-free windfall:

We projected that the transaction [FairPoint-Verizon] would have disastrous consequences in our states.  Unfortunately, our concerns were well founded with widespread consumer dissatisfaction evident across the region.

Recently, we have learned that other states across the country face similar threats to service and employment as Verizon, once again, seeks to avoid taxes through the use of the RMT in its proposed transaction with Frontier Communications.

[...]

Now is the time to restrict the utility and benefits of the RMT to protect the public interest.

West Virginians, in particular, have expressed increasing concern about their state following a similar path northern New England took. Frontier would assume control over all of Verizon’s operations across the state of West Virginia.

“I hope this vital request, now based on past history, isn’t ignored again,” said Elaine Harris, International Representative with the Communications Workers of America.  “West Virginia is being given the opportunity to avoid some of the pitfalls of the FairPoint disaster and it would be a real shame if we simply follow the same path and our communications operations end up in bankruptcy.”

Expect the usual Washington lobbyists to fight to preserve the loophole.  Remember, in the world of Halloween telecommunications finance, tax free trick or treat candy is for closers.