Bray Cary -- Frontier's biggest fan in West Virginia

Bray Cary has been falling all over himself again — singing praises for Frontier Communications while many of its customers in West Virginia contend with service problems and outages, sometimes for weeks at a time.

Cary, president and chief executive officer of West Virginia Media, owner of television stations across the state, was a big supporter of the deal to sell Verizon’s landlines in West Virginia to Frontier Communications. This past spring, Cary’s weekly Decision Makers program treated viewers to a softball question and answer session with Frontier’s Ken Arndt, who was forced to “endure” Cary’s contention that opposition to the deal was limited mostly to labor union sour grapes.

With a hard interview like that, Arndt was delighted to be asked back for another edition of Tea-’N-Cookies Breakfast Club With Bray, this time to answer tough questions about how the transition could have possibly gone any better for the independent phone company.

Good morning and welcome to Decision Makers on a weekend when America is discovering the beauty of the great state of West Virginia.  Through the magic of worldwide television [...] we here in West Virginia are on the verge of discovering the power of the Internet across all of our hills and all of our valleys.

With that over-the-top introduction, Cary was off, spending nearly 20 minutes glad-handing Arndt through an interview that could have been produced in-house by Frontier’s marketing department.

Click here to view the embedded video.

Nearly 20 minutes of mutual admiration between Frontier’s Ken Arndt and WV Media’s Bray Cary can be experienced for yourself.  These segments appeared July 31st on the Decision Makers program.  (19 minutes)

Ohio County, WV

More tea?

Meanwhile, in other parts of the state things are not nearly as rosy as Cary and Arndt contend.

Stop the Cap! reader Ralph points us to Ohio Country, located in the Northern Panhandle of West Virginia, where Frontier has subjected some customers to service outages extending into three weeks.  Entire neighborhoods have lost phone and broadband service.  Dela Misenhelder, who lives in Valley Grove says a storm August 4th knocked out service for her and her neighbors.  Misenhelder used her cell phone to call Frontier three different times to no avail.

“My concern is the elderly,” Misenhelder told a local TV station.  “Do they have cell phones — being out in the country, do they even have a signal — and be able to get 911 in case of an emergency or problem.”

Frontier’s regional general manager, William (Bill) Moon said that Frontier was supposed to have contacted all of the neighbors impacted by the outage to make sure service was restored.  In Misenhelder’s case, since her phone line was still not working, she never got that call.

Moon is a name readers will become increasingly aware of, as he features prominently in damage control efforts by Frontier in northern West Virginia when they get negative media coverage.

Click here to view the embedded video.

Dela Misenhelder in Ohio County, W.V., was without her Frontier phone line for three weeks.  She made three calls to Frontier, who ignored her, so Dela called the newsroom of local TV station WTOV-TV in Steubenville, Ohio looking for help.  They achieved results for her, as you’ll see in this report.  (2 minutes)

Hancock County, WV

Matters are even more serious in the northern tip of the state — in Hancock County — where emergency responders are coping with defective T1 data lines that Frontier has failed to maintain properly, causing interruptions in emergency radio traffic.

The problems started when Verizon was in charge, but have gotten considerably worse since Frontier arrived.  Now the backup systems are beginning to fail as well.

When that happens, emergency communications with fire, police, and ambulance can’t happen, forcing first responders to rely on cell phones to communicate with one another.

Frontier called the problems with the T1 lines “odd” and at last check was examining more than 10,000 feet of phone cable looking for problems.

A local TV station witnessed the failure of a Frontier T1 line provided for emergency radio traffic themselves while filming a story on repeated Frontier outages.

On Saturday, another Frontier outage disrupted 911 service across Jefferson, Belmont and Harrison Counties, forcing local media to deliver streams of local direct numbers for emergency officials across all three counties.

Click here to view the embedded video.

Not less than three reports about failures in emergency communications attributed to a defective T1 line maintained by Frontier Communications have run on WTOV-TV in the last two months.  (6 minutes)

Residents in Marshall and Wetzell counties, which complete the Northern Panhandle are no strangers to Frontier service problems.  They were Frontier customers before Verizon sold its landline network to the company.

Stop the Cap! reader Mitch in New Martinsville writes to tell us West Virginia is just becoming acquainted with service on ‘the Frontier.’

“The company delivered lousy service to us long before they’ll deliver lousy service to the rest of the state,” he writes. “We cannot get DSL from Frontier because they won’t spend the money to re-engineer the ancient wiring on our street.”

For Mitch, the outage experienced by his ailing grandmother this past February, which stopped calls connecting from outside of the 686 exchange, was the last straw.

“She couldn’t reach me and I couldn’t reach her,” Mitch adds. “If a phone company cannot even handle basic phone call connections, what good are they?”

Click here to view the embedded video.

A winter storm knocked out Frontier service across parts of the Northern Panhandle this past February.  Customers discovered they could only dial and receive calls from other local residents.  WTOV-TV covered the story.  (2 minutes)

When Mitch tried to cancel Frontier service, he says they tried to stick him with an early termination fee of more than $100.

“I never signed a contract with them,” he writes.

NY State Attorney General Andrew Cuomo

Mitch escalated his complaint to the West Virginia Public Service Commission, which finally got Frontier to relent.

Mitch’s experience with phantom early termination fees charged by Frontier are hardly new.  Last fall, Frontier was slapped with a $35,000 fine and ordered to refund $50,000 in wrongfully charged termination fees by the NY State Attorney General’s office.

That precedent might come in handy in Washington state, where Frontier “accidentally” put former Verizon customer Steve Matheny in Redmond on an annual contract with a hefty cancellation fee.  When Frontier took over for Verizon, Matheny decided it was time to drop service.  Frontier sent him a final bill including a fee of $120 for terminating his service before his contract had ended.

Only one problem — he never had a contract.

“These folks rolled in and added a fee that no one committed to, at least I didn’t commit to,” he said.

Frontier ignored Matheny’s attempts to get the fee off his final bill, so he called KING-TV in Seattle for help.

As with so many other cases, when local TV stations feature Frontier’s mistakes and bad service on the 6 o’clock evening news, doors to a speedy resolution have a tendency to open.  Matheny got his $120 “fee” removed.

Click here to view the embedded video.

Redmond, Washington resident Steve Matheny joins a growing number of Frontier customers who suddenly find themselves on annual service contracts with hefty cancellation fees, despite the fact they never agreed to them.  KING-TV reports their intervention finally cut through Frontier’s red tape to get $120 in early cancellation fees removed from a final bill.  (2 minutes)

For West Virginia residents, the next time you experience a problem with your Frontier landline or broadband service, why not contact Bray Cary and ask him what he’ll do about it.  At the very least, ask him to pass you the plate of cookies.

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Almost two years to the day Frontier Communications quietly introduced language in its customer agreements providing a monthly broadband usage allowance of just 5GB per month, the company has quietly removed that language from its terms and conditions.

The 5GB usage allowance was deemed generous by Frontier CEO Maggie Wilderotter.  Frontier claimed most of its 559,300 broadband subscribers (2008 numbers) consumed less than 1.5 gigabytes per month.  But news of the cap angered customers anyway, particularly in their biggest service area — Rochester, N.Y.  In fact, Frontier’s usage cap was what sparked the launch of Stop the Cap! in the summer of 2008.

While never universally enforced against the company’s DSL customers, Frontier has used that portion of its acceptable use policy to demand up to $250 a month from some “heavy users” in Mound, Minn.

Frontier’s usage limit language also played a role in a major controversy in April, 2009 when Time Warner Cable planned usage limits of their own for western New York customers already faced with Frontier’s 5GB usage limit.

The phone company used Time Warner’s planned usage cap as a marketing tool to switch to Frontier DSL service.

Frontier used Time Warner Cable's usage cap experiment against them in this ad to attract new customers in the spring of 2009.

This website has pounded Frontier for two years over its continued use of the 5GB language as part of its broadband policies.  We raised the issue with several state regulatory bodies as part of Frontier’s purchase of Verizon landlines in several states.  Several state utility commissions raised the usage cap issue with Frontier as a result, deeming it negative for rural broadband customers who would effectively endure rationed broadband service from a de facto monopoly provider.

We also criticized Frontier for promoting its MyFitv service, little more than a website containing Google ads and embedded videos already available on Hulu, while not bothering to tell its customers use of that service on a regular basis would put them perilously close to their 5GB allowance.

In the end, Frontier itself denied they would strictly enforce the 5GB limit, making its continued presence in the company’s terms and conditions illogical.

Now, the company has returned to the earlier language it formerly used, reserving the right to shut you off if you use the service excessively or abusively.  This resembles similar language from most broadband providers.  While not absolute in defining those terms, Frontier doesn’t commit to a specific number either.  Today’s “generous usage allowance” is tomorrow’s “rationing.”

If Frontier cuts off customers for using only a handful of gigabytes a month, deeming it excessive, we want to know about it.

Stop the Cap! opposes all Internet Overcharging schemes like usage caps, speed throttles, and so-called “consumption billing.”  We believe such limits retard the growth and potential of broadband service and are unwarranted when considering the ongoing decline in costs to provide the service.  We do not oppose providers dealing with customers who create major problems on their networks, but believe those issues are best settled privately between the company and the individual customer.

Providers must also be honest in recognizing that broadband is a dynamic medium.  They have a responsibility to grow their networks to meet demand, especially at current pricing which provides major financial returns for those offering the service.  We also believe broadband tiers should be limited to speed, not consumption.  Customers with higher data demands will naturally gravitate towards higher-priced, faster-speed tiers, providing higher revenue to offset the minimal costs of moving data back and forth.

Broadband customers will be loyal to the providers that treat them right.  We applaud Frontier Communications for finally removing the last vestiges of its infamous 5GB usage allowance.  Hopefully, going forward, Frontier will spend its time, energy and money improving its broadband service instead of trying to convince customers to use less of it.

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One month after Frontier Communications took over phone service from Verizon Communications in West Virginia, unresolved problems over West Virginia’s telephone system continue to mount, leaving one sheriff’s department using Facebook to communicate with some residents and a renewed call for an investigation over Frontier’s poorly functioning “Operational Support System.”

One serious problem is in Wetzel County, where the local sheriff’s office faces trouble from disruptions to their call management system that began July 1st, the date Frontier switched over operations from Verizon Communications.  Calls that are intended to reach individual officers’ direct extensions or voicemail are instead being diverted into a black hole, as callers are told they will be transferred to an operator that does not exist.

The result of the ongoing, month-long problem is that individual residents are unable to reach officers except through the county’s Facebook page and website.  Emergency calls to 911 are not affected, but calls transferred from 911 to the sheriff’s office are.

Despite weeks of back and forth, Frontier is blaming an outside vendor for the problem, claiming the sheriff’s office needs to order a “part” to repair the all-digital call management system.  That doesn’t seem to impress Wetzel County Sheriff James Hoskins, who wonders why the problem suddenly started the same day Frontier switched away from Verizon’s systems.  Additionally, voicemail messages saved on Verizon’s old system are no longer accessible to the department.

Meanwhile, other service disruptions continue to pile up across the state, along with consumer and business complaints at the Consumer Advocate’s Division of the Public Service Commission.  Things have deteriorated so much, the state’s Consumer Advocate Byron Harris is asking the Commission to hold hearings on Frontier’s poor performance in the state.

Harris told MetroNews the problems have gone beyond glitches.

“In any transition between companies, there are always going to be some glitches, but this has gotten past the point of glitches,” Harris said.

FiberNet uses Frontier’s landline network and, last week, that company asked for a similar review.  FiberNet officials say their customers have been experiencing many problems since the change at the beginning of the month.

“At the Consumer Advocate’s Division, we’ve also noticed a significant increase in complaints, across the board, all types of complaints from customers,” he said.

Harris says customers that are having problems are, in some cases, also finding it difficult to get in touch with anyone with Frontier to report their issues.

But Frontier Spokesperson Brigid Smith says it’s impossible to completely avoid all such problems.

“We are 30 days into a very, very large change which, by and large, has gone very well,” Smith told MetroNews.

“There have been glitches.  We have taken accountability for those.  We are trying to fix a system that has been sorely neglected and we are very, very committed to the state.”

Stop the Cap! reader Janel from Huntington thinks that excuse is becoming the equivalent of a broken record.

“Frontier can’t help but tell people here over and over and over how great of a job they’re doing and how well the transition went,” she writes.  “But there are a whole lot of people who disagree — they just don’t happen to work for Frontier.”

Janel’s cousin lost his DSL service for nearly a week after the transition and after repeated calls to customer service finally learned the company lost his records.

“They deactivated his account and their customer service people, when they bothered to answer, were about as useful as a car in a ditch,” she notes. “They had no record he even had an account and thought he was served by some other company, despite having a phone bill he was willing to fax them showing he had their DSL service.”

Frontier eventually “re-established service” after re-entering his customer information and reauthorized the DSL modem.

Frontier’s unionized employees facing enormous overtime demands are perhaps the best evidence Frontier continues to experience serious transition issues.

Frontier used a provision in its union contract with the Communications Workers of America to demand 70-hour workweeks for many Frontier service technicians working in West Virginia, declaring an “emergency and long term service difficulty.”

With an extremely hot summer underway, line technicians are facing long hours in 90 degree plus weather repairing lines Verizon neglected for years.  Transition issues are also being blamed for long overtime hours as Frontier works its way through a large number of unresolved support requests.

Click here to view the embedded video.

WTRF-TV in Wheeling, W.V., reports on the concerns of the Wetzel County Sheriff’s Office, which is still without properly working phone service a month after Frontier Communications took over phone service in the state.  (3 minutes)

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Frontier Communications rented a conference room at the Charleston Embassy Suites, calling it a "command center" for the transition. (Courtesy: Charleston Gazette/Lawrence Pierce)

No state faces a larger impact from Verizon’s exit than West Virginia.  The epitome of the kind of market Verizon doesn’t want to serve any longer, West Virginia suffered through several years of Verizon not keeping up with required investments in the aging landline network, and service had markedly deteriorated as a result.  West Virginia is mountainous — expensive to maintain infrastructure, often rural — reducing potential revenues, and economically-challenged — killing the chances of making “triple-play” sales (and profits) in communities where customers have to watch every penny.

West Virginia was also the epicenter of the loudest controversy over the sale, as unions and consumer groups opposed the transaction because of its enormous threat to an entire state’s landline network.  A failure by Frontier would result in the kind of drama experienced by northern New England customers of FairPoint Communications, who suffered with more than a year of horrible service and inaccurate billing.

So news that Frontier has run into problems in the state just one week in, despite sending 250 extra employees into the area for the conversion, has raised concerns with the Public Service Commission, as well as those impacted by problems and outages.  Frontier has tried to put its best face forward, with employees holed up in a self-described “command center” in a conference room at the local Embassy Suites in Charleston.  On the day before the handover, press photographers were able to snap pictures of Frontier employees seated at long conference tables facing one another, with laptops open.  A digital projector showed PowerPoint slides that promoted the “new Frontier” while a temporary company banner tacked to a corner wall rippled over a stand.  A high tech glitz and glamor presentation this was not.

David Armentrout, president and chief operating officer of FiberNet was underwhelmed by all of it.  His company requires connections with West Virginia’s landline provider to deliver full service to his clients.  Prior to the handover, Armentrout said FiberNet had 43 outstanding trouble tickets on file with Verizon.  But Verizon apparently never handed over those support tickets to Frontier, effectively losing them after the transition.  Now that Frontier has taken over, Armentrout’s company has had to open 113 trouble tickets for problems old and new.

Armentrout complained about the lack of results from Frontier in the pages of the Charleston Daily Mail:

Armentrout said that after consistently being put on hold for more than an hour when trying to reach Frontier to talk about outstanding trouble tickets, “we had a meeting with their senior team on Saturday. We said this was not acceptable. Since then they’ve given us a work-around with two dedicated Frontier employees. When we get an hour hold time, we contact these dedicated employees.

“Another issue we’ve had is, we’ve had to contact our customers directly to verify the status of their trouble tickets because the (Frontier) system doesn’t tell us the status,” he said. “As a result of having to contact our customers directly and working with Frontier on all of these issues since July 1, our dedicated team has spent over 200 man-hours working on these issues.

“When you look at the results: six of 43 completed and three of 113 completed, we’re doing a lot of work and spending a lot of man hours but not really seeing a lot of service issues being resolved.

“Unfortunately on Friday the Public Service Commission was closed,” Armentrout said. “We made attempts to get in touch with them because we recognized we would have the problems we’re continuing to have today. I want our customers to know we’re doing everything we can to get these issues resolved.

“Several individuals within Frontier have exhibited good-faith efforts to resolve these issues,” he said. “We commend them for their efforts. But what we’re looking for is results. We need to get these issues fixed. They’ve made efforts but at the end of the day we’re still not getting where we need to be.

“Come Tuesday when business gets back to normal we can expect these numbers to increase unless we get these issues resolved,” Armentrout said. “Our intention is to go to the Public Service Commission on Tuesday and get them involved to make sure these issues are getting resolved as quickly as possible. It has been a long weekend.”

Ken Arndt, president of Frontier’s Southeast Region, issued a statement Sunday that unconvincingly blamed some of the delayed fixes on the recent death of West Virginia Senator Robert Byrd:

“We are doing the necessary work needed to correct old and current issues. It’s Day 4 and overall this has been a very successful conversion. That is especially true when you remember that Day 2 was marked by the presence of the President and Vice President of the United States and many members of Congress at the memorial for Sen. Robert Byrd. We made sure Frontier’s system performed flawlessly.”

The newspaper notes Verizon’s landline network in the state is notorious for having problems when there are storms, and since the July 1st transition there have not been any.  Armentrout agrees, hoping that Frontier’s outstanding issues get resolved before the first major storm hits the state, which could come as early as Friday.  Armentrout calls the first severe weather challenge Frontier faces “the mid-term exam.”

Taking the longer view, Frontier promises it will spend millions in West Virginia to update the state’s landline infrastructure and expand broadband availability.  Frontier announced the hiring of nine regional managers to oversee operations across the state, including Mitch Carmichael, a delegate in the West Virginian legislature representing Jackson.  Carmichael is a former computer salesman who will now manage Frontier’s Parkersburg office.

Customers are less impressed.  Many have experienced lengthy outages with their DSL service since the transition — a bad omen for many Charleston residents who immediately called Suddenlink, the area’s cable company, to switch service providers.  Another Charleston customer called Frontier’s continued reliance on a Yahoo!-provided “front end” “really low class.”  In nearby Huntington, a few customers couldn’t say much about what changed after Frontier took over because their phone service went out on the 1st and was still out a week later.

“I hope they don’t raise the bill since we have not had any phone service at all since 11:00am on July 1st when Frontier took over,” wrote one customer. “With my phone service out since Saturday and a new promise of repairs to be made by Tuesday July 6th, I am waiting to see where Frontier improves service in rural West Virginia. The Verizon employees would just as soon as to tell you anything — same people, just a different company. Frontier needs to have a major house cleaning, as their tales haven’t changed along with the service,” writes another.

A handful also complained that their Frontier phone service cost plenty more than what Verizon charged:

“My parents have Frontier and their bill is twice as high as my Verizon. We have the DSL and the freedom package (unlimited long distance, call waiting, voicemail and caller ID) and my bill is $78 a month.  My parents only have local calling, call waiting, voicemail, caller ID, and DSL and their bill is over $120 with no long distance,” he writes.  “How is this take over going to help anyone other than Frontier? I’m going to cable for Internet and phone.”

Click here to view the embedded video.

WSAZ-TV in Charleston says some companies are experiencing minor problems in the West Virginian conversion from Verizon to Frontier.  (2 minutes)

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Talk about bad timing.  Just as the transition between Verizon and Frontier Communications was about to get underway, a fiber cable cut in Virginia June 29th caused a multi-state outage for Frontier DSL’s service.  In downstate New York, tens of thousands of customers lost service.

News of the outage was picked up by the Times Herald-Record, which reported nearly 30,000 customers in Orange and Rockland counties without service from 2-11am.  A Times reader named Steve observed, “I thought this outage was just the typical monthly DSL outage I suffer every month with Frontier. Think service is bad now? God help us when they get their hands on that chunk of Verizon territory. I suspect it will be overwhelming for them, from financial and technical viewpoints.”

Several thousand customers near Rhinebeck and Hopewell Junction were also impacted, according to a story in the Poughkeepsie Journal.  Reader MarienneV noted this wasn’t the first Frontier DSL outage she’s dealt with:

We noticed that there was no Internet at my house at around 5am yesterday. It was after 8pm when we were finally able to get online. This is not the first time it happened either, about a week or two ago Frontier had an outage that lasted at least five hours. Since there is no local television news up here, I felt kind of cut off from the world. I hope the Internet stays on now.

A similar service outage hit Frontier customers in the Middletown area, according to the Mid-Hudson News.

Since the transition, now even former Verizon customers are being exposed to Frontier DSL outages, especially in West Virginia where widespread problems are attracting the attention of the state Public Service Commission.

The Charleston Daily Mail today reports more than 500 customers in Martinsburg alone seem to have had problems with Internet service since Saturday:

The commission, in its May 13 order approving Frontier’s acquisition of Verizon’s landline network, required Frontier to spend millions of dollars to increase broadband deployment and subscriptions in what was Verizon’s service territory. However, the commission does not regulate Internet service.

On Tuesday Doug Stone said he and his brother-in-law, who both live outside of Martinsburg, hadn’t had Internet service since Saturday morning. Stone said a Frontier customer service representative in Texas told him the company had over 500 calls from the Martinsburg area about Internet service.

Tuesday evening Frontier spokeswoman Brigid Smith said, “The outage in Martinsburg seems to be the direct result of faulty workmanship by Verizon two weeks prior to the completion of the acquisition,” and was directly related to Verizon’s movement of a switch from Maryland to West Virginia. She added, “The cooling equipment Verizon installed was insufficient for the additional data equipment associated with this project.

“My partners at Frontier are working incredible hours to make right many things that have been too long ignored,” Smith said.

A Marmet resident who asked to not be identified said Wednesday that she and a friend, who also lives in Marmet, were without Internet service. “They tell us it will be 24 to 48 hours before they fix it,” she said. “I want you to know the problems aren’t just in Martinsburg.”

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Week one of the transition for millions of ex-Verizon landline customers didn’t exactly go off without a hitch.  A few problems with support issues for certain business customers in West Virginia, a major multi-state DSL outage from a fiber cable cut in Virginia, and long hold times of 30 minutes or longer have afflicted the all-new, super-sized Frontier.  Also not inspiring confidence: a plummeting Frontier stock price as Verizon shareholders, which now own 68 percent of Frontier Communications are hurrying to dump their stock and get out.  It has gotten so bad, TradersHuddle declared Frontier Communications the worst performing stock on the S&P 500.

Not much of this comes as a surprise, particularly the fleeing of Verizon shareholders who received 0.24 shares of Frontier, worth about $1.75 on July 1st (but now dropping fast), for every Verizon share they owned on June 7.  They’ve learned from prior experience that holding onto spun-off stock from similar deals with companies like FairPoint Communications and Hawaiian Telcom ended in financial disaster — bankruptcy.  As we predicted last Halloween in our true-to-life telecom horror story, once this deal was completed, Verizon shareholders would rush for the exits, selling their Frontier stock even as the share price plummets.

Shanthi Venkataraman, a reporter for The Street, noted the selloff in progress after the 4th of July holidays.  On Tuesday the stock was down 4.5% to $7.02. More than 30 million shares have changed hands, five times its average trading volume of 6.3 million.  Analysts believe the “turbulence” in Frontier stock is likely to continue for another week as new shareholders from Verizon complete their sell-off.

Zack’s Analyst Blog notes shareholders should be concerned with the future of Frontier’s business model — focusing on a decaying landline business.  Frontier’s revenue is particularly in peril in their biggest service area, Rochester, N.Y., which represents 25 percent of the company’s total access lines.  Customers in the Flower City continue to dump Frontier’s phone and broadband services, preferring Time Warner Cable’s less expensive “digital phone” and far faster Road Runner Internet service.  Time Warner Cable has consistently reported much of their growth in new customers has come from departing landline and DSL broadband customers disconnecting service.

While shareholders have the power to cut ties with Frontier, rural telephone customers in 14 states now confronted with a shotgun wedding to Frontier are not so lucky.  For millions of rural customers, there is no other choice for telephone and broadband service.

Stop the Cap! has reviewed dozens of local news accounts regarding the transition Verizon customers are now confronting as they are introduced to Frontier Communications.  Overall, most of the rural communities are taking a “wait and see” approach, hoping Frontier’s near-universal promises of better broadband and improved customer service will come true.  Verizon effectively slashed spending at least a year or two ago in many of these communities knowing in advance they were not going to be around for much longer.  In states like West Virginia, the results have been devastating for broadband penetration statistics.  While Verizon prepared for a sale, it kept nearly the entire state waiting for better broadband that would never come from the telecom giant.  Now with news Frontier plans to spend millions to improve broadband in the state, residents are hoping that will actually bring a broadband breakthrough in West Virginia.  Time will tell.

Many communities who have long felt ignored as “too small to matter” in Verizon’s larger plans also hope Frontier will manage better customer relationships with residents. After all, Frontier is promoting itself as the phone company with the small-town feel.  But after week one, some customers are feeling Frontier is giving them the big city runaround.  We’ll explore that, and the reactions from community leaders, consumers and businesses to the promises Frontier is making in our multi-part series exploring their transition to Frontier.

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When phone companies like Verizon decide to throw their rural customers under the bus by selling them off, shareholders and executives rake in windfall bonuses, sometimes in the millions.  Now a New York assemblyman and a state senator want ratepayers to get a 40 percent cut of the action.

Assemblyman Richard Brodsky (D-Westchester), is the primary sponsor of Assembly Bill A02208 — An Act Requiring the Public Service Commission to Conduct an In-Depth Public Interest Analysis of Proposed Mergers by Telephone Corporations and Other Telecommunications Services Providers.  A companion New York Senate Bill, S7263, was introduced by Sen. Brian X. Foley (D-Blue Point/Long Island).

The legislation would compel phone companies engaged in the practice of mergers, acquisitions, and sales to share 40 percent of the proceeds with New York’s landline phone customers.

The legislation came as a result of watching Verizon systematically sell off parts of its phone empire to third party companies like FairPoint Communications, Hawaiian Telcom, and Frontier Communications.  More than five million customers have been switched away from Verizon to other companies, most of which have gone bankrupt as a direct result of the sales.

Brodsky

Both Brodsky and Foley don’t want to see New York residents face similar consequences.  They are particularly concerned about Verizon’s upstate operations, particularly in rural areas outside of cities like Buffalo, Binghamton, Rochester, Syracuse, Albany, and northern New York.  In the upstate region, Verizon has constructed fiber to the home service under its FiOS brand in urban and suburban regions where it operates, but has made few changes in the countryside.  As Verizon customers from Washington to North Carolina suddenly find themselves served by Frontier, why couldn’t the same thing happen in communities like Sodus in Wayne County, Penn Yan in Yates County, or just about anywhere in northern New York?

Verizon’s business plan has evolved over the last ten years.  Company president Ivan Seidenberg previously declared the landline business dead, and the company has turned its attention to delivering fiber-based video, phone and broadband services to the major population centers within its service areas.  Because rural customers cost too much to serve with similar packages of services, Verizon has begun selling them off to independent phone companies that still see revenue from copper wire landline service.

Verizon claims it has no plans to sell any of its operations in New York, but Brodsky and Foley want insurance that if they change their mind, no ratepayers in New York will face what happened in northern New England or Hawaii when the companies taking control ended up in Bankruptcy Court.

“It’s a ratepayer protection bill for upstate New York,” Brodsky said.

Brodsky said if Verizon were to sell operations, consumers will not be left with inferior service.

Forcing companies to share proceeds of sales to ratepayers who ultimately indirectly bankroll most of these deals is not unprecedented in New York.  Electric and gas utilities are often required to send refunds or issue credits when they sell assets.  Ratepayers of Rochester Gas & Electric received several compensation checks after the sale of the Ginna nuclear power plant in Ontario, New York to Constellation Energy Group in 2004.

Verizon could also be compelled to reinvest proceeds earmarked for consumers in the company’s infrastructure, such as paying for broadband improvements or upgrading lines.

The legislation would only impact companies earning more than $200 million in gross annual revenue from New Yorkers.  Currently, that means the legislation would only impact Verizon and Frontier Communications.

Not surprisingly, Verizon is vehemently against the proposed legislation and is fighting tooth and nail to kill it in Albany.

Foley

Jim Gerace, president of Verizon’s New York region, told the Albany Times-Union the Brodsky legislation was bad for Verizon and anti-business in general.  Gerace predicted companies would not want to do business in New York because they’d fear similar profit-sharing legislation could eventually target them.

“I’m convinced this is going to have a chilling effect on all businesses,” Gerace said. “They’re sending a very dangerous message to all businesses. It just compounds the state’s woes.”

But the Public Service Commission is intrigued by the legislation and is reviewing it.  If enacted, it could make a mass sell-off of rural landlines untenable in New York.

A02208 passed the Assembly by a wide margin — 103-34 and is now awaiting final action in the Senate.  It narrowly passed the Senate Rules Committee June 16th by a 13-10 vote.

If you want to see the bill passed, consider contacting your New York State senator and asking them to support the immediate passage of S7263.  Let them know you do not want phone deals to be cut at your expense, leaving you with a second-class provider.  If Verizon wants to sell off your community, they owe consumers a piece of the action.  It’s time that phone mergers, acquisitions and sell-offs actually benefit the consumers that ultimately pay for them and live with the results.

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Frontier Communications today announced it was keeping a commitment to use only American-based call centers to provide customer service.  That will be a welcome change for former Verizon customers who often found their customer service calls transferred to overseas help desks and representatives.

“In addition to voice customer service, our broadband Internet help desk jobs will continue to be staffed by a 100 percent U.S.-based workforce. This will include the creation of 500 new US-based jobs replacing work that Verizon sent overseas,” said Maggie Wilderotter, Frontier’s Chairman and CEO.

Many calls for assistance with Frontier’s Internet service end up in Henrietta, New York — near Rochester.  A good deal of Frontier’s general customer service assistance is provided from a large call center in DeLand, Florida — midway between Daytona Beach and Orlando.

Frontier is also pr0mising its customers appointment windows within two hour blocks, making it easier to know exactly when a technician will arrive.  If Frontier keeps its appointments, it means customers don’t have to take an entire day off from work waiting for someone to show up.

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Frenzied stock trading of shares of Frontier Communications began Tuesday as bearish investors placed a record number of bets the company would lose more than a third of its value by August.

Nearly 87,000 “puts” on Frontier changed hands, which is 66 times the monthly average.  This form of derivative trading lets an investor sell stock at a pre-specified, fixed price within a limited time frame, even if the stock price crashes.  These “puts” are comparable to insurance policies, usually sought by investors who believe a stock is about to rapidly decline in value.

Almost all of the volume was generated in two major trades yesterday.  Investors bought July and August puts at the $7.50 level, which suggests at least some investors are betting Frontier stock will decline below that amount.  If it does, they can still sell shares at $7.50.  Frontier fell 17 cents to $7.69 in New York Stock Exchange composite trading Tuesday. It has dropped 1.5 percent so far this year.

Speculation about why the sudden pessimism about Frontier Communications was sprinkled throughout the financial press.

“The motivation for the trades could be outright bearish,” Caitlin Duffy, an equity options analyst at Greenwich, Connecticut-based Interactive Brokers Group told Bloomberg News. “But it could also be someone buying downside protection if they’re long with a large position in Frontier.”

One factor they may be forgetting is the recent completion of Frontier’s acquisition of Verizon landlines in more than a dozen states.  On July 1st, Verizon will spin off its entity New Communications Holdings Inc., created specifically for the tax-free sale, to Frontier.  In effect, Verizon shareholders will suddenly own between 66 and 71 percent of the shares of Frontier and Frontier stockholders will be left with the remaining 29-34 percent.

Should Verizon shareholders decide that Frontier could follow earlier Verizon spinoffs into financial disaster, they’ll want to dump their shares of Frontier stock as fast as possible, causing the share price to plummet.  Those investors buying “puts” may be guessing that is precisely what is about to happen, and they’re hedging their bets.

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Frontier Communications filed suit Tuesday against Google claiming the search giant stole its patent for giving users one phone number connecting their home, work and cell phones, the core feature of Google Voice.

Frontier, the independent phone company based in Stamford, Connecticut, claims it holds the patent for allowing a subscriber to “be reached on multiple telephone lines from a single dial-in number.”

“Google’s deliberate infringement of the patent has greatly and irreparably damaged Frontier,” the lawsuit charges.  Frontier is seeking unspecified damages and an injunction to stop the use of the technology.

The lawsuit distracted from Google’s announcement that Google Voice was out of beta and now available to anyone in the United States.  Google Voice lets users obtain a free phone number that will ring multiple telephones and screen calls.

The one number follow-me feature is hardly new to either Google or Frontier.  Phone companies have offered similar features to businesses through telephone products like Centrex since the 1960s.

Frontier filed its lawsuit hours after the U.S. Patent and Trademark Office issued Frontier’s requested patent.

“We believe these claims are entirely without merit, and we’ll defend against them vigorously,” said Google spokesman Andrew Pederson.

Frontier will likely face an uphill battle in its lawsuit, because the company’s patent request from 2007 comes two years after Google Voice’s predecessor, GrandCentral launched service in 2005.  Google acquired GrandCentral in 2007, rebranding it as Google Voice. GrandCentral offered the same “one number” feature Frontier is complaining about two years before the phone company applied for its patent.

Perhaps Frontier’s lawyers might acquaint themselves with the concepts of “prior art” and “first-to-invent.”

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Time Warner Cable is back again with another offer to existing Frontier Communications customers trapped in multi-year service agreements.  If you dump your Frontier landline overboard for Time Warner Cable’s Digital Phone service, the cable company will send you a gift card worth $200 good towards defraying your early termination fee, if any.  If you don’t have such a fee, you pocket the $200.  A year ago on this date the company ran a similar promotion heavily promoted in local cable television ad spots.

Time Warner will provide free installation of the phone line including unlimited nationwide long distance for $24.95 a month for 12 months.  With the $200 gift card, that’s above and beyond their usual promotion.  The company is also extending a bundled discount if a customer also takes Road Runner broadband service with their “digital phone” service.

For Frontier customers looking for an early exit, this offers one opportunity.

Existing cable subscribers can take advantage of the offer.  There are terms and conditions to consider, starting with where the offer is available.  The following Time Warner Cable service areas qualify:

• TWC Western New York
• TWC Central New York
• TWC Albany, NY
• TWC New England
• TWC Dothan, AL
• TWC Enterprise, AL
• TWC Yuma, AZ
• TWC El Centro, CA
• TWC Gunnison, CO
• TWC Telluride, CO
• TWC Coeur d’Alene, ID
• TWC Moscow, ID
• TWC Madison, IN
• TWC Newburgh, IN
• TWC Terre Haute, IN
• TWC Ashland, KY
• TWC Owensboro, KY
• TWC Richmond, KY
• TWC Kansas City, MO
• TWC Lincoln, NE
• TWC Ironton, OH
• TWC Richlands, VA
• TWC Pullman, WA
• TWC Clarksburg, WV

Next, the offer is only good for residential customers switching from Frontier’s landline service.  Limit one gift card per customer.  Your final Frontier phone bill showing a disconnect request must be furnished to Time Warner Cable within 30 days to qualify.  Your name and address must match on both bills.  Offer is not available to customers with past due balances with Time Warner Cable, defined as any money owed in the past 30-60 days or customers who have been disconnected for non-payment in the twelve (12) month period preceding this offer.  Service must be ordered by Dec. 31, 2010, and installation must occur within thirty (30) days of order date.

If you’ve contemplated a change in providers but didn’t want to be subjected to a steep early cancellation fee, this isn’t a bad offer.  Although I don’t use Time Warner Cable Digital Phone myself, others in my family do and they are satisfied with the service, although there have been at least two serious outages so far this year that ran several hours.  Since most people also carry a cell phone, any cable outage or power interruption that also takes out your phone line isn’t as serious as it might have been in earlier years.

And, ahem, unlike Time Warner Cable’s attitude towards broadband, they really do provide unlimited calling with their “digital phone” service.

Time Warner Cable is mailing this letter to Frontier Communications customers in the Rochester, N.Y. market. (Click to enlarge)

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Goldman Sachs has reviewed the implications of Frontier Communications assuming control of millions of Verizon landline customers, and promptly downgraded their stock to a Neutral rating, telling investors the upcoming consolidation will hasten eroding revenues at Frontier.

“Consolidation of the underperforming acquired assets causes an immediate step-up in revenue erosion for FTR (-6.3% in 2010). In addition, the combined company’s initial EBITDA margins will be significantly below those of legacy FTR (pro forma of 48.0% in 2010, 470 bp below legacy FTR).”

Analysts added, “We expect longer term EBITDA margins of 50%-plus, driven by synergy realization (we forecast $450 mn/year by 2013), and moderating revenue declines, as FTR is able to bring a more localized focus to assets that were not a primary focus inside of a much larger Verizon entity. We forecast 2011/2012 FCF of $950 mn/$921 mn, as synergies and margin expansion only partially offset continued (but moderating) revenue erosion.”

In English, that means Frontier will benefit from its larger customer base in reducing expenses on a per-customer basis, and could become a big enough player to realize some benefits from rolling out services to a larger number of customers nationwide, but those benefits will be tempered by the ongoing loss of revenue as customers dump Frontier landlines for wireless and, where available, switch to a cable modem product to get better speeds and consistent service that Frontier DSL does not provide.  Losing that 5 GB monthly usage allowance won’t hurt either.

Frontier is betting a good deal of the company on expanding broadband service in its largely rural service areas, where many Americans are still stuck relying on dial-up or satellite fraudband, the service that promises a broadband experience but doesn’t come close to actually delivering one.

As long as Frontier doesn’t face competition in its markets, it can deliver 1-3 Mbps DSL service for up to $50 a month and bank those profits as a firewall against ongoing loss of landline revenue.  But if new players arrive, such as LTE wireless, WiMax, cable, or municipal fiber, Frontier’s business plan could go awry in a hurry.

Frontier also continues to pin its hopes on its enormous payout of dividends — sometimes exceeding 12 percent.  The stock is currently the best dividend payer in the S&P 500.  With dependable dividends and the ability to throw back free cash to investors, shareholders can’t ask for anything more.  In the first quarter alone, free cash flow amounted to $152 million and the company paid a dividend to shareholders representing 52 percent of that amount.  That’s $152 million Frontier won’t be spending to upgrade their service or have on hand to pay down debt.

For independent legacy landline providers like Frontier, reducing that dividend could spell disaster for the company’s stock price. Even investors understand this, which is why these kinds of cautionary notes are often attached to coverage about the company:

A cautionary note: telecoms companies with large fixed line exposure generally yield high dividends presently because investors do not believe their revenues and income levels are sustainable as people continue to substitute mobile phones for fixed lines.

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The West Virginia Public Service Commission has denied a request from the agency’s Consumer Advocate Division to reconsider the sale of Verizon landlines to Frontier Communications.

The CAD criticized the proposed sale, pointing to earlier failures of similar transactions in Hawaii and northern New England which harmed consumers and businesses in those areas.  The consumer advocate sought a formal independent audit of the deal and increased safeguards to protect service quality and the customers soon to be served by Frontier.

The PSC claimed the CAD didn’t supply any new evidence in its filing justifying a reconsideration of its earlier order approving the sale.  It turned the request down on Monday.

Both Verizon and Frontier had asked the commission to reject the CAD’s request.

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Take the money and run

The Federal Communications Commission’s approval of Frontier’s takeover of 4.8 million Verizon landline customers in 14 states comes a year after the company announced the deal.  Frontier joins three other independent phone companies — FairPoint Communications, Windstream Communications, and CenturyLink zealously trying to grow their companies with additional mergers and acquisitions to avoid being swallowed up themselves.

What is common among all four companies is they rely heavily on dividend payouts to keep their stock price as high as possible.  That was a formula for disaster for FairPoint, the first of the four to end up in bankruptcy after a similar deal with Verizon in northern New England caused the company to falter.  Service and billing deteriorated, customers fled, and promises for better broadband were broken.  Now Frontier is following in FairPoint’s footsteps with more than 4.8 million new customers Frontier hopes they can swallow.

The FCC’s statement approving the merger reads like a press release for all involved, and delighted FCC Chairman Genachowski, who called these meager requirements “robust”:

Coming one week after the final state approval for the transaction, the FCC’s Order holds the applicants, Verizon and Frontier, to enforceable voluntary commitments, including:

• Extend faster broadband to more Americans: Frontier will significantly increase broadband deployment for the lines involved in this transaction, only 62 percent of which are broadband-capable today. Specifically, Frontier will deploy broadband with actual speeds of at least 3 Mbps downstream to at least 85 percent of transferred lines by the end of 2013, and actual speeds of at least 4 Mbps downstream to at least 85 percent of the transferred lines by the end of 2015, with all new broadband deployment offering actual speeds of at least 1 Mbps upstream.

Frontier's Fast One: 3 Mbps DSL Service with a 5GB Monthly Usage Allowance

Frontier’s broadband commitment gives the company a full five years to meet the bare minimum speed considered to constitute broadband in the National Broadband Plan.  One hopes Frontier doesn’t break into a sweat offering a piddly 3 Mbps service to homes using yesterday’s DSL service until then.  While Verizon’s rural castoffs get stuck eventually with 4 Mbps DSL, many of the company’s remaining customers are enjoying 50Mbps service over an all fiber network.  The FCC is accepting an urban-rural divide for broadband which will benefit the phone companies while leaving rural customers in the dirt.

Deploy fiber to libraries, hospitals, and other anchor institutions: Frontier will launch an anchor institution initiative to deploy fiber to libraries, hospitals, and government buildings, particularly in unserved and underserved communities.

Fiber for these locations sure, but no fiber for you or I.  Frontier, like most other telecom companies, loves to promote the benefits of fiber without actually deploying it to homes.

Promote competition: Frontier and Verizon have made a series of commitments to protect wholesale customers, including honoring all obligations under Verizon’s current wholesale arrangements that are in effect at closing.

Since wholesale customers often depend on the same network other customers do, if a company doesn’t deliver robust broadband into a state like West Virginia, there isn’t a robust service to sell to those wholesalers.

Improve data quality and collection: Frontier will make available to the Commission data on its broadband deployment progress at an unprecedented level of detail to enable effective monitoring of Frontier’s compliance with its commitments.

The Commission concluded that the commitments that applicants have offered, coupled with monitoring and enforcement by the Commission, will minimize the risks of harm and ensure that this transaction is in the public interest.

Phillip "Living on the Frontier" Dampier

Considering how weakly the FCC is committing itself to protecting rural customers from being dumped into the broadband backwater Frontier has on offer (complete with the 5GB monthly usage allowance), does collecting statistics help when things go sour?  Regulators collected statistics in New England when FairPoint failed, but that didn’t get service levels back until Maine, New Hampshire, and Vermont threatened to toss FairPoint out.  Now the company is in bankruptcy and regulators are negotiating which of the promises FairPoint made can be let go ‘for the sake of the company.’

That’s why it’s so ironic to read editorials that proclaim the FCC is on some sort of power grab when they seek to restore what meager authority they exercised over broadband before a DC Court effectively excluded broadband oversight from their portfolio.

It will be a good day when federal agencies like the FCC start worrying first and foremost about consumers instead of how to make a parade of overpriced mergers and acquisitions succeed for the companies involved.

Click here to view the embedded video.

WANE-TV in Fort Wayne warns viewers their landline company is about to change asVerizon vacates the area by July 1st.  (1 minute)

Click here to view the embedded video.

Too late.  The Communications Workers of America ran this ad spot asking the West Virginia governor to intervene and stop the sale.  (1 minute)

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West Virginia residents are assured of an indefinite future with 1-3Mbps usage-capped “broadband” as Frontier won conditional approval of its plan to assume control of the majority of the state’s landlines.

Frontier Communications, the phone company with the 5 gigabyte monthly acceptable usage allowance, won approval from West Virginia’s Public Service Commission after nearly a year of opposition from several unions and consumer advocacy groups.  The opposition, led by the Communications Workers of America, charged that Frontier’s balance sheet made it impossible for the company to fulfill promises to deliver quality phone and broadband service to the majority of the state’s residents.  Consumer groups, including Stop the Cap!, argued Frontier’s DSL broadband service is inadequate for the state’s needs, because it typically only provides 1-3Mbps speed and is usage-limited for residential customers.

Verizon’s history of bad service in the state helped drive some to believe Frontier can do better

Verizon’s West Virginia division has frequently achieved a poor rating among many West Virginians upset with the company’s service record and broadband deployment.  Last Monday, the PSC announced that Verizon’s service in the state was so poor, it ordered the company to place $72.4 million in an irrevocable escrow account to be used to improve the quality of service.  The PSC found Verizon’s disinterest in delivering service in West Virginia had resulted in the deterioration of Verizon’s essential infrastructure.

The PSC-ordered escrow account will be used to maintain and improve everything from restoring copper wiring to vegetation control and pole replacement.

With a history of complaints like that, it comes as no surprise West Virginians are ready to wave goodbye to Verizon, hoping for better times with Frontier Communications.

Bray Cary

Bray Cary, a TV station owner in West Virginia, has hosted editorials on his network of local stations across the state promoting the transaction, believing it will bring a better future for the state’s telecommunications needs.  Just two weeks ago, he demanded the PSC make a decision on the proposed merger, claiming the state needs a “modern, cutting edge communication system that will bring high-speed Internet to every corner of this state.”  Unfortunately for Cary, there is nothing from Frontier that comes close to “cutting edge,” with the exception of the company’s brazen Internet Overcharging scheme now being tested in Minnesota that threatens to bring $250 monthly broadband bills to some residents.

Click here to view the embedded video.

WOWK-TV’s Bray Cary criticized the West Virginia Public Service Commission for stalling on a decision to move forward the Verizon-Frontier landline transfer in the state.  Just about ten days later, the PSC conditionally approved the deal.  [Video problems were a part of the original clip] (Aired: May 4, 2010 — 1 minute)

Frontier specializes in delivering slow-speed DSL service to most of its rural service areas, usually less than 3Mbps in speed.  Even in its largest service area, Rochester, N.Y., the company’s broadband options are an also-ran against the far faster and more reliable cable modem service from Time Warner Cable, which also beats Frontier’s out-the-door price.

Unfortunately, West Virginian media has never given important details to residents about the specific services Frontier is willing and able to offer residential customers.  It also never informed customers about the important limitations the company attaches to its “high speed Internet” Cary hopes to see available in every corner of the state.

Sometimes change for change’s sake is not an improvement.

The PSC attaches conditions to its approval

The Commission did not grant blanket approval to the transaction.  The PSC is requiring that Frontier:

• Honors all existing obligations of Verizon following the close of the sale, including the currently effective Retail Quality Service Plan approved by the Commission to continue through at least July 2, 2011.
• Makes capital investments in Verizon of $30 million during the second half of 2010, $75 million in 2011 (including $12 million targeted at service quality), $63 million in 2012 and $63 million in 2013.
• Makes additional capital investments of at least $48 million to increase broadband deployment and subscription in the Verizon service territory.
• Expands broadband availability in Verizon service areas so that by no later than the end of the fourth year following the close of the sale, access to broadband service will be available to no less than 85 percent of the households within Verizon service areas.
• Locates its Southeast regional headquarters in Charleston, WV, after closing the sale. Charleston will be Frontier’s Southeastern regional headquarters, and will be a major employment center for Frontier in the region. It will be the hub for engineering, technical, operation and executive personnel for Frontier’s operations in West Virginia, Tennessee, North Carolina, South Carolina, Mississippi, Alabama, Georgia and Florida.
• Adopts all of Verizon’s tariffs, price lists and contracts, including long distance, under the same terms and conditions at closing.
• Caps all regulated rates subject to jurisdiction of the Commission for one year after close of the transaction.
• Provides E-911 functionality provided by Verizon prior to close.
• Waives early termination fees for current Verizon customers participating in a Verizon bundled service package for the first 90 days after closing.

Reactions from all over

“We’re pleased the commission has approved the transaction. The record developed in this case provides comprehensive evidence and assurances that the transaction with Frontier Communications is in the public interest and will provide many benefits to West Virginia residents, including increased investment and broadband availability in the state, while protecting jobs and promoting employment.”

– Verizon-West Virginia President B. Keith Fulton

“We’re in the process of evaluating the order. After full review we’ll look at what we can do that will best serve West Virginia consumers and CWA members. Of course, we’re disappointed but we’re heartened by the fact that at least one person on the three-member commission agreed with us and more than 80 legislators, several county commissions and a broad coalition of consumer, union and first responder organizations that this deal is too risky and not in the public’s interest. The split decision shows our arguments about the deal had validity.”

– Communications Workers of America, District 2 Vice President Ron Collins

Byron L. Harris heads the Consumer Advocate Division of the West Virginia Public Service Commission

“There are many areas of West Virginia that will always be dependent on landlines, absent some sea of change in technology. Those are the people I’m most concerned about. They’re the truly captive customers of now Verizon and, in the future, Frontier.”

– West Virginia Public Service Commission’s consumer advocate Byron Harris

“We’ve seen how Wall Street’s investments can backfire. Like Frontier today, Wall Street once put its confidence in Global Crossing and that led to a disastrous bankruptcy. We’re concerned that the Rochester-area and other existing Frontier properties may be starved to fund this expansion.”

– John Pusloskie, President of CWA Local 1170 in Rochester, N.Y.

“Today’s approval is a welcome and important step. Our goal is to gain the approval of the FCC so that we can close the transaction and begin bringing its benefits to consumers and businesses.”

– Maggie Wilderotter, Chairman and Chief Executive Officer of Frontier

West Virginian media covers the conditional approval

A handful of television stations covered the conditional approval, most without much depth.  West Virginian newspapers covered the fight between Verizon and Frontier and the unions and consumer groups, but no paper really provided in-depth coverage into the challenges of West Virginia broadband and what precisely Frontier is capable of providing to solve it.  Consumers will discover soon enough that West Virginia has yet again gotten the short end of the online stick.  Only this time, they better not wave it around too much — it might exceed your monthly stick-waving allowance.

Click here to view the embedded video.

WOWK-TV in Charleston delivered the most substantial report on the sale, including this brief interview with PSC spokeswoman Sarah Robertson.  (2 minutes)

Click here to view the embedded video.

WTAP-TV in Parkersburg ran this brief in-studio report about the Verizon-Frontier approval.  (1 minute)

Click here to view the embedded video.

WDTV-TV in Bridgeport explained the requirements of the conditional approval.  This was the only report on the approval that included the opposition’s perspective.  (1 minute)

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While several residents of Mound, Minnesota try to negotiate to keep their broadband service from Frontier Communications after the company sent them letters threatening to cut off their service, a Rochester, N.Y. television station handed over five minutes of airtime during its morning newscast that was little more than a promotion piece for Frontier’s broadband packages, right down to quoting inaccurate pricing, but no time to mention to viewers the company maintains a 5GB “appropriate usage limit” in its Acceptable Use Policy.

WHAM-TV ran a virtual infomercial (thanks to PreventCAPS for the tip) that was supposed to be about changing service providers, but devolved into a promotional puff piece for Frontier.  Among the services promoted were high bandwidth applications you can ostensibly use with Frontier DSL, despite the company’s continued insistence on defining an acceptable amount of usage at a level so low, you can’t possibly use those applications much and stay within the limits.

Michael Johns, from Frontier’s Network Operations Center misquoted Frontier’s own rates for DSL service, claiming the company sells service for between $18-26 a month, which seemed quite low.  We called Frontier Communications this morning to ask for those prices, telling the representative we saw them on WHAM’s sister CW Network station “CW16.”  The customer service representative in DeLand, Florida didn’t know what we were talking about.

In fact, we were quoted a far higher price for Frontier High-Speed Internet Lite – 768kbps service, with no term commitments starting at $39.99 a month. The representative claimed they could reduce the price, but only with a multi-year term commitment and a service bundle that included phone service. Even with those discounts, the price was still more than $20 a month. Considering Frontier’s term commitments carry a steep early disconnect penalty, there isn’t much value to be found here.

For standard 10Mbps DSL service, $26 a month isn’t going to get you far. In fact, Frontier wants around $45 a month for the service, not including a modem rental fee/equipment charge of $4 per month. Again, there were some discounts available for bundling, but they always carried those pesky term commitments and never brought the price down to what Johns claimed was available.

Michael Johns (left) from Frontier speaks with WHAM reporter Evan Dawson (right)

Also along for the ride was a hard sell for add on products like “anti-spam technology,” hard drive backup, technical support for your computer and Internet service — each carrying an additional monthly price.

Getting Frontier pinned down on prices is next to impossible as the representative kept coming back with new offers when I didn’t agree to “begin the sign up process today.” Apparently there is plenty of room for negotiation when signing up for Frontier service in a market where Time Warner Cable eats their DSL service for breakfast.

But the most fun came last when I asked about Frontier 5GB monthly usage allowance. The representative promised me “we don’t do that in your area so you can ignore that,” and “we’re never going to hold you to that. It’s there so we can control the pirate downloaders.” When I asked why Mound, Minnesota was apparently a hotbed of pirates (who knew?) the representative didn’t understand what I was talking about. When I explained, she put me on hold and came back apparently now acquainted with Frontier’s experimental hard capping in Mound, and asked me how I found out about that.

How did I, indeed.

If such experiments are deemed successful by the company, all of Frontier’s customers will find out about them soon enough.

Click here to view the embedded video.

On Monday, WHAM-TV’s sister station “CW16″ handed over five minutes of the morning news for an extended-length commercial for Frontier Communications.  Judge for yourself whether this story was about how to change providers or how to change to Frontier DSL.  (5 minutes)

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Plans by Frontier Communications to clamp down on “excessive usage” of their DSL service and overcharge customers who exceed 100GB of usage per month brought a strong negative reaction from a consumer group, who called Frontier’s limits “divorced from the underlying economics.”

Sources also tell Stop the Cap! the company is actively working on changing language in their Acceptable Use Policy that, as of this morning, is still misleading customers in Minnesota about their service.

A Frontier spokesperson also told an Oregon newspaper Frontier’s acquired FiOS service areas are not guaranteed cap-free service — the company may implement some restrictions there as well.

But first, Frontier Communications’ Acceptable Use Policy no longer matches reality for customers in Mound, Minnesota who are getting notified that their service is at risk of being shut off if they don’t agree to new, dramatically-higher priced service plans.  But such e-mails run contrary to several sections in the company’s own published policies:

Frontier’s Residential Acceptable Use Policy (Last Update: December 23, 2008) (PDF Archived 4/15)

The Company has made no decision about potential charges for monthly usage in excess of 5GB.

Frontier’s Supplementary “5GB” Addendum to their Acceptable Use Policy (PDF Archived 4/15)

Frontier has not implemented tiered usage plans and will continue to evaluate if and when they would be necessary. If and when Frontier implements a tiered usage plan pricing and usage information will be communicated to all High-Speed customers.

Does Frontier plan to limit my use of the Internet?
Frontier is providing (NOT LIMITING) all customers with a minimum of 5GB of usage on a monthly basis. The Company has made no decision at this time to charge for additional usage but wants to start to educate customers about their usage.

If I hit 5GB will my service be interrupted?
No. Your service will not be interrupted at 5Gb. You will continue to use our High Speed Internet service without disruption.

How will I know how many Gigabytes I am using?
Sometime in the future, Frontier will provide to all customers visibility as to what your usage is on a daily, weekly and monthly basis. We will also provide a the ability to estimate bandwidth usage for different types of activities – like streaming video downloads or file sharing. These tools will give our customers the ability to make informed decisions about broadband usage consumption.

Tell that to the customers in Mound who have 14 or fewer days and counting to either pay extortionist broadband pricing, curtail their usage, or go elsewhere for service (if they can).

It’s no surprise some customers in Mound are outraged when receiving the company’s e-mailed notification about paying higher prices for usage because it runs completely contrary to the published policies of Frontier’s broadband service.

That’s just one more mistake in a series of mistakes Frontier has made in marketing its broadband service, especially in areas where consumers can take their business elsewhere and not have to worry about exceeding Frontier’s minuscule usage allowance.

Wendy Davis at MediaPost quotes a statement released by Free Press research director S. Derek Turner: “While there may be a place for discussing reasonable usage-based billing, the scheme Frontier is testing is completely divorced from the underlying economics. Even worse than their price-gouging is Frontier’s assertion that a mere 5 gigabytes per month is a ‘reasonable’ amount of usage when just last month the National Broadband Plan reported that average Internet users with a fixed connection consume 9 gigabytes of data per month.”

Davis also managed to get a Frontier spokesperson on the record about the debacle, telling MediaPost, “the company is only trying to prevent some exceptionally heavy bandwidth users from degrading service for others on the network. She also says that people who received the letters were given an option of decreasing their bandwidth consumption or switching to a different, higher-priced plan.”

Yet the concept of DSL customers degrading the broadband experience of other customers on the network is itself controversial, as DSL providers have always emphasized they do not suffer from slowdowns like shared networks used by cable broadband providers.  While heavy consumption can theoretically congest “middle mile” networks that serve regional areas or connect telephone company switching offices, those congestion issues are not difficult to address when companies use fiber connections to connect them, as Frontier frequently does.  Indeed, Frontier is far more likely to suffer congestion issues when millions of former Verizon customers are piled on Frontier’s network.

Nowhere in Frontier’s e-mail does it tell customers they can reduce usage to retain service.  It only says “if you do not wish to switch to this new rate plan, you can have your service disconnected.”  Mound residents are faced with the prospect of immediately reducing usage from 100GB to just 5GB to stay within Frontier’s terms and conditions.  Under those conditions, they could do better with dial-up.

Meanwhile, those soon-to-be-discarded Verizon customers facing a transition to Frontier Communications may soon find themselves potentially impacted by some sort of usage limit as well, which could also apply to the areas served by FiOS.

Mike Rogoway at The Oregonian talked with Frontier spokesman Steven Crosby about Frontier’s plans:

I talked this afternoon with Frontier spokesman Steven Crosby, who said there won’t be tight bandwidth restrictions after Frontier acquires FiOS — but he indicated that there may be some restrictions.

Currently, Frontier’s user agreement sets a nominal 5 gigabyte cap on monthly bandwidth usage.

“You know, I know and everyone knows that’s a very low number,” Crosby said. “We don’t hold people to that.”

The letters that went out in Minnesota went to a small group of very heavy bandwidth users in one community, Crosby told me. It’s not meant to reflect a broader policy.

As Frontier prepares to take over Verizon’s operations in Oregon and other states — Crosby says the deal is on track and likely to close in late June or early July — Frontier is reviewing its Internet use policies.

I pointed out Comcast’s bandwidth cap, and told Crosby that it seems likely his company will do something similar. He left that possibility open, but said any Internet limits are still under discussion.

“I don’t know what that limit will be,” he said. “The one thing I do know is we don’t want to impact our customers.”

St0p the Cap! responds:

• This is the first time Frontier has hinted that usage limits could eventually apply to the FiOS fiber-to-the-home service it is acquiring from Verizon, a network constructed to manage 21st century broadband traffic Frontier now also seems willing to limit;
• Frontier does hold people to the 5GB usage cap when they are in violation of it, using it as an excuse to expose customers to far-higher-priced service plans or service disconnection.  If Frontier isn’t serious about it, why retain the language in customer agreements?
• If Frontier’s Mound e-mail notifications do not reflect a broader policy, than the only customers who will see a change in the Acceptable Use Policy will be those in the Mound, Minnesota area.  If customers elsewhere see a change, it -does- reflect a broader policy after all.
• As part of Frontier’s “review of Internet use policies,” the company should not defray expenses surrounding the Frontier-Verizon deal by dumping them on broadband customers with outrageously punitive pricing plans.
• As for not wanting to impact customers, our response is “too late.”  Frontier’s original introduction of the 5GB usage allowance in the summer of 2008 impacted customers far and wide, and for its largest service area — Rochester, NY, gave Time Warner Cable happy hunting grounds to experiment with a usage cap of their own.

Wendy Davis at MediaPost offers some food for thought:

Frontier’s letters could well trigger regulatory or judicial scrutiny, especially given the seeming disconnect between the company’s acceptable use policy and its recent actions.

Of course, the underlying problem is the lack of competition. If consumers had more options for broadband providers, a company that threatened to disconnect its customers, or charge $99 or $250 a month for broadband service, might quickly find itself dealing with more pressing problems than public criticism.

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Karl Bode over at Broadband Reports offers an additional detail on Frontier’s Internet Overcharging experiment which is now being tested in Minnesota:

Late last week, someone familiar with business operations at Frontier Communications indicated to Broadband Reports that the company was going to begin testing a new capping scheme for heavy users. “Just wanted to let you know that Frontier is sending out letters to the top 50 bandwidth users in Mound Minnesota,” said the individual.

The city of Mound, a suburb located 19 miles to the west of Minneapolis/St. Paul, is home to 9,800 residents.  Mound is the birthplace of the Tonka truck, named after Lake Minnetonka, which surrounds Mound.  Residents of Hennepin County have watched their local phone company change hands several times over the years from Contel to GTE of Minnesota to Verizon to Citizens Telecommunications Company of Minnesota, which does business as Frontier Communications. Frontier has served this part of Minnesota since the end of August, 2000.

Hanus

For a community aggressively pursuing a downtown revitalization and redevelopment program designed to make the community attractive to new residents and businesses, news that the local DSL provider is now going to limit broadband usage and overcharge those who exceed their arbitrary limits is not good.

Among city officials, Mayor Mark Hanus and councilman David Osmek are both Frontier broadband customers.  The city is proud to stream its regular city council meetings online, something Frontier DSL customers will now have to avoid if they want to preserve as much of their 5GB monthly usage allowance as possible.

Action Alert and Alternatives for Mound, Minnesota

For Mound residents who do not want to be forced to limit their broadband activities to the ridiculously low 5GB allowance Frontier is now enforcing, we recommend these actions:

1) Call Frontier Communications at 1-800-921-8101 and tell them you will not keep your Frontier broadband service with a usage cap and you are prepared to take your business elsewhere immediately if they do not rescind their “experiment.”  If they attempt to charge you an early termination fee or cancellation fee if you do decide to cancel, let us know through the Contact link at the top of the page or in the comments attached to this article.

2) Contact your local media — the Minneapolis Star-Tribune, the Lakeshore Weekly News, The Laker, local news radio and television stations and let them know you think they should be covering this story and its potential impact on the local economy in Mound.

3) Your best alternative broadband provider is cable operator Mediacom which does not have a usage limitation on their broadband accounts.  Their speeds and pricing are also much better, based on Frontier’s advertised pricing of  “as low as” $49.99 a month for Frontier High-Speed Internet Max 3Mbps service or “prices starting at” $39.99 a month for Frontier High-Speed Internet Lite 768kps service.

Mediacom offers 3, 12 and 20Mbps broadband service in Mound.  Here are the details:

For New Mediacom customers:

Mediacom offers soon-to-be-ex Frontier customers free standard installation and a 12-month introductory offer for 12/1Mbps service for $49.95 a month.  Telephone service is also available through Mediacom with a bundled service discount.  Customers looking for a budget broadband alternative can sign up for 3Mbps service for $29.95 a month if they also take digital cable or digital phone.  For customers looking for the highest speeds, Mediacom offers 20/2Mbps service for $59.95 a month if you also get digital cable or phone service.

Mediacom is Mound's incumbent cable company

For Current Mediacom Non-Broadband customers:

If you have cable from Mediacom but use Frontier for broadband, you can switch to Mediacom cable modem service and obtain special discounts.  Add Mediacom’s 12/1Mbps service to your existing cable TV account for $19.95 a month for 12 months, or 20/2Mbps service for $59.95 a month for 12 months.  Installation is done by the customer.

Questions about Mediacom service in Mound can be directed to 1-800-332-0245.  Mediacom’s local offices in and around Mound are at:

4) Customers who are absolutely stuck with Frontier broadband who anticipate approaching or exceeding the 100/250GB usage levels should explore a business broadband account with Frontier.  Although pricing may vary from city to city, residents of Rochester who confronted the original effort to impose a 5GB usage cap in western New York found business account DSL service was not much more expensive than residential service, and carried no usage limitations.  Pricing is likely to be less than the punitive rates Frontier wants to charge residential customers for exceeding their allowances.

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Frontier Communications has quietly begun testing an Internet Overcharging scheme in Minnesota designed to charge confiscatory prices to residents who exceed the company’s usage allowances, demanding customers pay up to $249.99 a month to keep their broadband service running.

Stop the Cap! has learned Frontier has begun measuring customers’ broadband usage, and for those in Minnesota who exceed 100GB of usage during a month, Frontier is dispatching e-mail messages telling them they’ll have to agree to pay more — much more — or their service will be cut off in 15 days.

Two e-mail messages are being sent to customers who break the 100 and 250GB usage barriers.  Both reference Frontier’s 5GB usage allowance that Stop the Cap! has strongly and repeatedly criticized the company for implementing in the first place.  Using that usage allowance as a baseline, Frontier calls out its customers using more demanding they switch to a higher priced service plan if they want to continue service with the company.

• For those achieving 100GB of usage, the new monthly rate is $99.99 per month
• For those achieving 250GB of usage, the new monthly rate is an incredible $249.99 per month

Sources tell Stop the Cap! the Internet Overcharging scheme Frontier is running is an experiment to gauge customer reaction.  If the furious customer e-mail reaching us is any indication, it’s another public relations disaster for Frontier Communications.  One customer didn’t even realize there was a 5GB usage allowance to begin with, much less a vastly higher new monthly price if he wants to stay with Frontier DSL.  He’s not.

"You can earn this much money just from overcharging Minnesotans for their Internet service!"

Ironically, the experimental pricing plan comes at a time when Frontier is still trying to get state regulators to approve its deal with Verizon to assume control of landline and broadband service in several states.  Residents in West Virginia and a dozen other states might be a bit concerned that their unlimited Verizon DSL broadband service, often the only service provider available, could be replaced with a company that is willing to punish its customers with $250 in monthly charges once a customer hits 250GB in usage.  Even worse, Frontier takes the overlimit penalty concept to a whole new level, telling customers that new high price represents their new monthly rate plan, not just a temporary penalty.

To add insult to injury, Frontier continues to mislead its customers about the experimental pricing on its own website.  As of this writing, Frontier’s Acceptable Use Policy still states:

Customers may not resell High Speed Internet Access Service (“Service”) without a legal and written agency agreement with Frontier. Customers may not retransmit the Service or make the Service available to anyone outside the premises (i.e., wi-fi or other methods of networking). Customers may not use the Service to host any type of commercial server. Customers must comply with all Frontier network, bandwidth, data storage and usage limitations. Frontier may suspend, terminate or apply additional charges to the Service if such usage exceeds a reasonable amount of usage. A reasonable amount of usage is defined as 5GB combined upload and download consumption during the course of a 30-day billing period. The Company has made no decision about potential charges for monthly usage in excess of 5GB.

For customers receiving Frontier’s Scare-o-Gram, it sure sounds like they made up their minds… to charge a lot more for the exact same level of service.

For state regulators, watching Frontier charge ludicrous pricing for broadband service that would make most providers blush should be more than enough evidence that approving Frontier’s plans to take over Internet and landline service in their state is not in the best interests of consumers.  For many, it saddles them with a broadband provider that can charge these kinds of prices knowing full well many customers have nowhere else to go.

Copy of E-Mail Sent to Minnesota Customers Exceeding 100 GB of usage a month [emphasis in bold is ours]:

Dear [Customer]:

Frontier is focused on providing the best possible internet experience across our entire customer base.  We bring you a quality service at a fair price, dependent upon an average monthly bandwidth usage of 5GB.  Over the past months, your account is in violation of our Residential Internet Acceptable Use Policy.

Our policy states that Frontier reserves the right to suspend, terminate or apply additional charges to the Service if such usage exceeds a reasonable amount of usage. A reasonable amount of usage is defined as 5GB combined upload and download consumption during the course of a 30-day billing period.

We realize there are times when our customers use the internet for services such as video and music downloads, however your specific usage has consistently exceeded 100GB over a 30 day period.

We would like to provide you with the option of keeping your Frontier internet service at a monthly rate of $99.99 which is reflective of your average monthly usage.  Please call us within 7 days of the date of this email at 1-877-273-0489 Monday – Friday, 8AM – 5PM CST to review your options.  If you do not wish to switch to this new rate plan, you can have your service disconnected.  If we do not hear from you within 15 days, your internet service will be automatically disconnected.

We continue to manage our network to ensure all of our customers have equal access to the internet and the ability to enjoy all of its available content, at our committed level of service quality.

Sincerely,

Frontier Communications

Copy of E-Mail Sent to Minnesota Customers Exceeding 250 GB of usage a month [emphasis in bold is ours]:

Dear [Customer]:

Frontier is focused on providing the best possible internet experience across our entire customer base.  We bring you a quality service at a fair price, dependent upon an average monthly bandwidth usage of 5GB.  Over the past months, your account is in violation of our Residential Internet Acceptable Use Policy.

Our policy states that Frontier reserves the right to suspend, terminate or apply additional charges to the Service if such usage exceeds a reasonable amount of usage. A reasonable amount of usage is defined as 5GB combined upload and download consumption during the course of a 30-day billing period.

We realize there are times when our customers use the internet for services such as video and music downloads, however your specific usage has consistently exceeded 250GB over a 30 day period.

We would like to provide you with the option of keeping your Frontier internet service at a monthly rate of $249.99 which is reflective of your average monthly usage.  Please call us within 7 days of the date of this email at 1-877-273-0489 Monday – Friday, 8AM – 5PM CST to review your options.  If you do not wish to switch to this new rate plan, you can have your service disconnected.  If we do not hear from you within 15 days, your internet service will be automatically disconnected.

We continue to manage our network to ensure all of our customers have equal access to the internet and the ability to enjoy all of its available content, at our committed level of service quality.

Sincerely,

Frontier Communications

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“It’s FairPoint Communications all over again,” writes Stop the Cap! reader Jenna who is mad as hell with Verizon Communications who first locked her out of her e-mail account, and then accidentally deleted it, along with all of her e-mail, in preparation for the handover to Frontier Communications.

Jenna is referring to similar debacles which caused billing and service nightmares for residents in northern New England who lost their Internet access for days, along with e-mail accounts, followed by months of inaccurate bills when FairPoint moved away from Verizon’s internal systems.

Her problems started the last weekend of March, when Verizon notified Jenna and other Fort Wayne, Indiana residents who use Verizon Yahoo! e-mail service that they would have to take steps to convert their e-mail accounts.

Verizon Yahoo!: Service No Longer Available in Some Areas

Starting March 27, 2010, Verizon Yahoo! for Broadband will be discontinued in the following areas:

AZ, ID, IL, IN, MI, NV, NC (except Knotts Island), OH, OR, SC, Crows-Hermatite (VA), WA, WI, and the following communities in California that border AZ, NV and OR–Big River, Blythe, Coleville, Crescent City, Desert Center, Eagle Mountain, Earp, Felicity, Fort Dick, Gasquet, Klamath, Kneeland, Markleeville, Merced, Needles, Orick, Parker Dam, Ripley, Smith River, Topaz, Trinidad, Vidal and Winterhaven.

These changes will not impact your Verizon Internet service access plan or pricing, and your Verizon.net email primary and sub-account User names and passwords will stay the same.

“They told us we would have to use this service called Verizon TrueSwitch in order to convert our e-mail box and that all of our contacts and existing e-mail would be transferred from the old Yahoo! webmail account to the new Verizon one,” Jenna writes.

But her experience with Verizon TrueSwitch turned into a TrueNightmare when attempts to use the service resulted in error messages.

“First it popped up with ‘unable to authenticate’ error messages, and then we were locked out of our Yahoo! e-mail account.  The Verizon e-mail account worked, but was empty,” she writes. “I tried to use Verizon’s ‘in-home agent’ online support but it suddenly told me it was ‘only available to Verizon customers.’  Apparently they can’t wait to get rid of us.”

Jenna then did what most customers of a phone company might do — she picked up her phone and called customer service.

“That was the second nightmare — I waited on hold 49 minutes the first time before a representative came on the line, sneezed, and then disconnected me.  The second call was a real marathon — over two hours on hold waiting for someone to help me,” Jenna notes.

When a representative did finally speak to Jenna, she apologized for the delay and candidly admitted their call center was swamped with calls regarding the e-mail conversion.

“When she thought she put me on hold, I was able to overhear her talking with someone else about getting word from a supervisor that the problem was somewhere on their end, and she felt bad because she had spent a good part of the morning blaming TrueSwitch, which I later found out was not even owned by Verizon — it’s a service sold by Esaya, a private third-party company,” Jenna says.

Jenna was transferred to a supervisor when attempts to correct her e-mail account lockout were not working.

“The guy they transferred me to wouldn’t listen to me and kept telling me he knew what the problem was, claiming I had ‘sub-accounts’ and they were messing up their systems,” said Jenna. “But Mr. Expert ended up permanently deleting the account, along with all of my e-mail, contacts, and everything else Verizon claimed I was able to store online.  Years of e-mail and contacts — gone.”

Jenna was right when she noted Verizon’s call centers were jammed with customers experiencing similar problems.

Verizon’s own customer support forum is hot with angry customers who are going through the same thing:

• Verizon/Yahoo! ‘Devilish Switch’
• Verizon Sold Everything to Frontier
• I’m Not Able to Receive E-Mail
• New Set-Up
• Verizon E-Mail Has Been Down for a Week

Verizon spokesman Harry Mitchell acknowledged the significant e-mail conversion issues were partly in preparation for the pending transition some customers face to Frontier Communications.

“The systems realignment will facilitate the closing of the transaction with Frontier, which we expect at the end of the second quarter, subject to conditions including regulatory approval,” Mitchell told the Fort Wayne Journal-Gazette.

Mitchell released a statement to the paper regarding the problems:

“In advance of a planned systems conversion over the weekend of March 27-28, Verizon online users who maintain e-mail accounts with Yahoo were notified that a customer-initiated service change would be required following the systems conversion in order to maintain their e-mail service,” he said in an e-mail.

“Customers were given instructions to use a ‘Trueswitch’ service to migrate their existing e-mail and contact information from Verizon Yahoo to Verizon servers in order to maintain e-mail access. Some customers have experienced difficulty when trying to initiate the service change. We’re working to address this as quickly as possible with those customers.”

Mitchell stressed that customers should make sure they validate their passwords in both the Verizon.net e-mail system and the Verizon Yahoo e-mail system. And they should “take extra care to write down those passwords so that, if they want to migrate their old e-mail and contact information, it will go smoothly through the Trueswitch process.”

Unfortunately, that won’t help Jenna.

A supervisor contacted her this week to apologize for the problems and the loss of her e-mail, which may not be gone for good if Verizon and Yahoo! can figure out a way to get the deleted account back, but for Jenna the damage has been done.

“I have read Stop the Cap! since 2008 and followed the misadventures of FairPoint Communications and the endless promises from Frontier they won’t repeat the mistakes the others have made, but it’s a case of ‘here we go again,’ and Frontier isn’t even in the picture yet,” she says.  “Verizon clearly can’t wait to get rid of us and Frontier will probably make us wish we had Verizon back, which should tell you the people of Fort Wayne now live on the corner of Rock Avenue and Hard Place.”

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A lobbying campaign to add language to a Senate bill that would retroactively apply a federal ban on a tax loophole could derail plans by Verizon to sell off landlines in 14 states to Frontier Communications.

Verizon has relied on provisions of the “Reverse Morris Trust” (RMT) — which lets companies spin-off subsidiaries that merge into smaller companies do so tax free — to dump landlines across the United States, leading to crushing debt and bankruptcy for the buyers.

The House Small Business and Infrastructure Jobs Tax Act of 2010 includes provisions killing off the tax loophole, and the measure passed the House at the end of March by a vote of 246 to 178.  But the House measure only applies to new deals, not to those already on the table.

Union officials and several public interest groups are asking consumers to contact their senators and request insertion of language in the Senate companion bill that would apply the ban retroactively to the latest Verizon deal with Frontier Communications.

Such a ban would prevent Verizon and Frontier from walking away from a $600 million dollar tax obligation.

Ironically, one of the House leaders strongly supporting the loophole-closing legislation is Rep. Louise Slaughter (D-NY), whose district covers Frontier’s largest service area — Rochester, New York.

“This tax avoidance loophole does nothing to help people in rural communities who rely on traditional landlines for their phone service,” Slaughter said. “If these transactions are allowed to go forward, Verizon may drop landlines in 14 different states, a development that would mean a loss of jobs for workers and poor quality phone service for millions of Americans.”

For Rep. Peter Welch (D-VT), passage of the ban represents some late justice for the disastrous tax-free deal between Verizon and FairPoint Communications, which took over phone service in his state and other parts of northern New England.  FairPoint staggered under the debt load from the deal before collapsing in bankruptcy.

Slaughter

“The RMT was used by Verizon to avoid federal taxes when it sold its northern New England landline operations to FairPoint Communications in 2008,” Welch’s office noted.

“This loophole is bad for taxpayers, bad for consumers and bad for workers. By closing it and investing the savings in job creation, hardworking Americans – not corporations – will benefit,” Welch said.

The ban has special importance for West Virginia, which faces the prospect of turning over most of the state’s phone business to Frontier.

“The House has recognized the Reverse Morris Trust as a greedy grab by corporations to avoid paying their fare share of taxes,” said Elaine Harris, spokeswoman for the Communications Workers of America. “We pay our taxes. Why shouldn’t Verizon have to pay one cent on an $8 billion deal?”

“The Reverse Morris Trust was designed by Wall Street for Wall Street, not West Virginians,” said Ron Collins, a union vice president. “We’re happy Congress shares our view that the Reverse Morris Trust is a tax break for corporations, not a job-creating tool. Without this tax loophole, I don’t believe Verizon would be so eager to sell to Frontier.”

The Charleston Gazette attempted to get the views of Verizon and Frontier over the bill’s passage in the House.  Verizon spokeswoman Christy Reap declined comment. A Frontier spokesman couldn’t be reached for comment.

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An administrative law judge reviewing the proposed sale of Verizon landlines to Frontier Communications has formally recommended the Illinois Commerce Commission (ICC) reject the deal.

Allowing Verizon to sell 600,000 Illinois phone lines, mostly in less populated areas of the state, would likely harm the quality of service customers receive from their landline provider according to Judge Lisa Tapia.

Tapia was given the responsibility to review the transaction’s merits before the deal moves before the ICC for final consideration.  Her 46-page report concludes that Frontier’s existing Illinois customers would likely be harmed, along with existing Verizon customers, because of the enormous debt Frontier Communications will take on as part of the deal.  Tapia writes the economic impact of the deal “will diminish Frontier’s ability to perform its duties to provide adequate, reliable, efficient, safe and least-cost public utility service.”

According to Staff witness Mr. McClerren, both Frontier Illinois operating ILECs (local phone companies) and Verizon have, in recent years, had some difficulty meeting the minimum key standards contained in Part 730. The key Part 730 standards are Toll & Assistance Operator Answer Time, Directory Assistance Operator Answer Time, Repair Office Answer Time, Business Office Answer Time, Service Installations, Out of Service for Less Than 24 Hours, and Trouble Reports.

Ms. McClerren characterized the performance of the nine Frontier Illinois operating ILECs as poor relative to the Repair Office Answer Time and Out of Service for Less Than 24 Hours standards and unacceptable relative to the Business Office Answer Time standard. Mr. McClerren concluded that given Frontier’s poorer performance relative to Verizon’s performance on Repair Office Answer Time, Business Office Answer Time, and Out of Service for Less Than 24 Hours , service quality would likely decline in the current Verizon North and Verizon South territories if the proposed reorganization is allowed to occur. Mr. McClerren further stated that because Frontier had continuously failed to satisfy the Business Office Answer Time, Staff expressed to Frontier representatives that it was prepared to initiate a hearing under Section 730.120 of the Act for the purpose of imposing penalties.

The evidence shows there is a significant risk that problems could occur if the transition is made too prematurely so as to create a potential for harm to Illinois customers. When weighed against the many risks of the Transaction, including, among others, the risk of systems integration, the purported benefits of the Transaction do not justify approval.

Of particular concern to Judge Tapia is the impact on Frontier’s finances and operating ability to take on more than 600,000 new customers in Illinois.  Despite company promises to the contrary, Tapia’s report notes we’ve been down this road before, particularly with FairPoint Communications, which went bankrupt late last year.

The evidence shows there is a significant risk that problems could occur if the transition is made too prematurely so as to create a potential for harm to Illinois customers. When weighed against the many risks of the Transaction, including, among others, the risk of systems integration, the purported benefits of the Transaction do not justify approval.

[...]

For instance, Frontier’s total Illinois access lines would be increasing from 97,000 to over 670,000 lines. Frontier would also be almost tripling its size and will be burdened with an enormous amount of approximately $3.3 billion in debt. The financial pressure along with more wirelines to handle leads the Commission to conclude that service quality will certainly be diminished. The ultimate consequences of diminished quality service will be borne by Illinois customers.

What about broadband and Frontier’s promises to expand it into rural communities across Illinois?  Judge Tapia’s report questions whether Frontier will do any better than Verizon did.

The record also does not support a finding that Frontier will be any more effective than Verizon in expanding the scope and quality of broadband services in the Illinois service areas it proposes to acquire from Verizon. To the contrary, the evidence shows that it is very unlikely that a smaller, less experienced operator would be able to support such an investment.

The findings also call attention to Frontier’s practice of paying out more in dividends to shareholders than the company actually earns from customers.  The International Brotherhood of Electrical Workers (IBEW), which has consistently argued against Verizon spinoffs, says no company can expect to succeed by paying out more than they earn just to keep a favorable stock price.  The IBEW has correctly predicted the outcome of other Verizon spinoffs, and warned the Verizon-Frontier deal is simply more of the same.

IBEW pointed to a 2007 Montana Public Service Commission (“PSC”) decision in which the PSC rejected a proposed merger and acquisition because “In normal utility operations, retained earnings provide a vital source of financial strength for capital investment and as reserves that are available during unexpected financial strains.  Regularly paying out dividends in excess of net earnings by a utility is inappropriate and risky because having insufficient reserves on hand could adversely affect the utility’s ability to provide adequate service.”

IBEW stated that the Montana PSC’s findings apply equally to Frontier. The IBEW endorsed the reasoning of the Montana PSC and reached the same conclusion about Frontier.

According to IBEW, Frontier only has two or three more years before it will have paid out all of its retained earnings to stockholders, based on its performance in the first half of 2009. IBEW also stated that two Wall Street financial analysts have independently found that Frontier’s shareholders’ equity is likely to become negative in 2012 or 2013. After that, Frontier’s dividend would have to be reduced to no more than its net income – a likely dividend cut of 60% or more. IBEW argued that without this Transaction, Frontier’s business model will fail within two or three years. IBEW asserted that Frontier does not plan to change its approach to business. Frontier still plans to pay out more to shareholders than it earns in net income and that there is no scenario where Frontier plans to pay out less in dividends than it earns in net income during the 2010 to 2014 period examined.

The report agrees with the IBEW position:

Frontier’s risky business model is a concern. The Commission agrees with IBEW that in normal utility operations, retained earnings provide a vital source of financial strength for capital investment and as reserves that are available during unexpected financial strains. Regularly paying out dividends in excess of net earnings by a utility is inappropriate and risky because having insufficient reserves on hand could adversely affect the utility’s ability to provide adequate service. Based on the record, this has been Frontier’s business practice. However, Frontier testified that it has revised its dividend policy. According to Frontier, it currently pays an annual cash dividend of $1.00 per share of Frontier common stock. Frontier after the closing of the proposed Transaction, intends to change its dividend policy to pay an annual cash dividend of $0.75 per share of Frontier common stock, reducing its dividend by 25% – from $1.00 to $0.75 per share – effective with the close of the Transaction.

The Commission does not find Frontier’s assertion credible. Specifically, that it plans to revise its dividend policy (at the discretion of it Board of Directors) because of this proposed Transaction when this has been Frontier’s approach to business for years.

Hundreds of pages of comments from consumers and other interested parties have been recorded by the ICC, many in opposition to the proposed deal.  The ICC’s next step is to accept comments about the report, which have already been forthcoming.

McCarthy

Dan McCarthy, Chief Operating Officer of Frontier Communications was among the first.

“Today’s proposed order by an administrative law judge in Illinois ignores the numerous public interest benefits outlined in the complete record developed in the Frontier/Verizon transaction. This record fully addresses the issues raised by the ALJ. We are confident that once the full Illinois Commerce Commission reviews the record, they will vote to support the transaction,” McCarthy said in a prepared statement.

“Frontier has formally committed to expand broadband to 85 percent of the households in the Verizon Illinois service areas covered by the transaction and spend in excess of $40 million to accomplish this effort,” the statement says, further noting that the company already provides DSL broadband service to 90 percent of its existing footprint in the state.

The full ICC is expected to rule by the end of April.

Among the Illinois communities impacted by the transaction:

Chatham, Divernon, Elkhart, Illiopolis, Jacksonville, Lincoln, Loami, New Berlin, Pawnee, Pleasant Plains, Sherman, Virden, Waverly and Williamsville.

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Oregon's telephone company service areas

Frontier Communications has won approval to assume control of telephone lines serving 310,000 Oregonians.

The Oregon Public Utilities Commission Friday unanimously approved the transfer of service from Verizon to Frontier as part of a 14-state transaction.

“First and foremost we want to ensure that customers are not harmed by this transaction.  That’s why we are requiring more than 50 conditions, all aimed at making sure customers are not harmed by this sale,” Chairman Lee Beyer said. “In addition, we are requiring Frontier Communications to spend $25 million on expanding high-speed internet access to its Oregon customers by July 2013.”

In return for approval, Frontier agreed to PUC demands for customer service protections:

• A commitment that Frontier spend at least $25 million to expand high-speed broadband in Oregon by July 2013;
• No changes in “commission-regulated” retail service plans for at least three years;
• Costs of the transition must not be paid by customers in the form of rate increases;
• 90-day window to change long distance carrier without any fees;
• An independent audit, paid for by Verizon, to ensure Frontier can handle service for those customers affected by the deal;
• An opt-out provision letting Oregon’s FiOS subscribers terminate their contracts without penalty if Frontier reduces Internet speeds or drops any of its television channels.

What is missing from Oregon’s agreement?

• A prohibition of Internet Overcharging schemes like Frontier’s 5 gigabyte “acceptable use” policy that potentially limits customer’s broadband use.  Expanded broadband that customers can only use for basic web browsing and e-mail, without fear of exceeding the limit, indefinitely punishes rural Oregonians with no broadband alternatives;
• A specific definition of what constitutes “broadband” speeds.  Frontier can continue to deliver the 1-3 Mbps it routinely provides to its less urban service areas.  While better than nothing, Oregon regulators could have used the deal as leverage to win 21st century broadband speeds from Frontier, not yesterday’s ‘barely broadband;’
• Fines and penalties that will punish a provider that does not invest appropriately in high service standards to provide quality service, and a trigger to permit automatic cancellation of operating certificates should Frontier go bankrupt.

Too many of these deals offer upsides for Wall Street and little benefit to consumers, especially those dependent on their landline phone company for basic communications services.  By forcing requirements that prove costly for a provider to renege on, investors will understand their gains will only happen when they are assured Frontier is doing right by their customers, as well as their shareholders.

Oregon is the sixth state to approve the sale.

Frontier currently serves only 12,000 customers in the state, mostly in southwest Oregon, including the communities of Azalea, Canyonville, Cave Junction, Days Creek, Glendale, Myrtle Creek, O’Brien, Riddle, Selma, and Wolf Creek.

The company’s new customers will come mostly from Washington County, east Multnomah County, and from several pockets of customers in the northwestern part of the state.  Oregon’s largest telephone provider is Qwest Communications, but the state has numerous smaller independent providers as well.

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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.

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Frontier's broadband stimulus requests were also shot down when West Virginian cable operators objected

Even companies whose raison d’être these days is to provide better phone and broadband service to rural Americans are being turned down. Frontier Communications, who wants to take control of 617,000 phone lines in West Virginia from Verizon was, in part, promoting rural broadband stimulus funding as a benefit of the deal. After all, a phone company specializing in serving the underserved would stand a better chance of securing broadband stimulus money than a telephone behemoth like Verizon.

Apparently not. The feds turned down their $55 million dollar broadband stimulus application, too.

Frontier applied for two stimulus grants, one to provide fiber optic connections to schools, libraries and health care facilities, the other to fund broadband expansion in West Virginia.

West Virginia’s incumbent cable companies teamed up and just said no.

Opposition piled on from Armstrong Cable Services, Comcast, JetBroadband and Suddenlink urging federal officials to deny Frontier’s applications. They claimed the phone company was trying to secure taxpayer money to provide broadband service in their territories, making the application redundant.

“They had said this was a reason to grant approval, that this would really boost broadband deployment,” Patrick Pearlman, deputy director of the state PSC’s Consumer Advocate Division, which is opposing the Frontier-Verizon sale told the Charleston Gazette. “They went on about how they’re going to get all this money and bring all this, but apparently they couldn’t count on the feds.”

Frontier didn’t blame themselves for the failure, of course. They blamed state officials for holding up their deal with Verizon.

“This is one of the reasons why we have asked this and other commissions to act expeditiously in their review of the proposed transaction,” Daniel McCarthy, Frontier’s chief operating officer told the Gazette.

State regulators should take the rejection as a lesson learned if they believed Frontier’s claims that approving the deal would result in an improved position for broadband stimulus funding. It was not to be. Even small cable companies will pounce on applications that suggest competition might be on the way.

More and more, it appears likely the grand plan for vastly improved broadband will be reduced to funding a handful of showcase rural broadband projects that solve some of the nation’s broadband deficiency woes, but after telecommunications industry and their lobbyist friends are done chewing up the project, plans of expanded broadband providing Americans with better choices at reasonable prices will remain a broadband pipe dream.

Click here to view the embedded video.

TDS Telecom’s grant for broadband expansion is an example of showcasing hit or miss rural broadband projects.  The company secured $8.6 million to expand broadband Internet services to TDS customers in one Chatham Telephone Company exchange in northern Michigan.  Considering TDS serves largely rural customers in 30 states, winning expansive broadband improvement for all Americans is about as likely as winning the Powerball jackpot. TDS CEO Dave Wittwer explains the stimulus funding to customers in this video. (1 minute)

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