Providers attempting to wire rural communities to offer broadband service or a competitive alternative to cable and phone companies face unfair tax and pole attachment fees that often give the advantage to existing companies and deter would-be competitors.

Those differences have a meaningful impact on rural broadband providers in states like New York, where wiring rural upstate communities is being made difficult by bureaucratic pole attachment fee policies and wide differences in property taxation that give an edge to existing cable giants like Charter Communications while hampering small start-ups with costly and confusing tax policies that slow down broadband rollouts.

The Watertown Daily Times recently published an in-depth special report on the broadband challenges impacting northern New York, where fast internet access has evaded some communities for more than two decades. That lack of access is becoming a critical problem for a growing number of employers who are now considering exiting those communities because companies like Verizon, Frontier Communications and Charter/Spectrum are refusing to provide 21st century broadband service in rural upstate communities.

One example is Tupper Lake Hardware in Tupper Lake, N.Y., which wanted to expand, but considered exiting the area instead after being stuck using satellite internet access because no phone or cable company offered broadband service in the area.

“It came to the point where if you are going to make a $1 million investment, we actually talked about this, we said ‘do we put our money into this place or do we just pick up and move?’” general manager Chris Dewyea told the newspaper. “It is real. It sounds dramatic, but that is the way it goes. The connectivity speed that we had with satellite internet was not good enough, so that is when we started on our journey to get high-speed here.”

Calling Verizon, Frontier, or Spectrum was fruitless, so the company picked up the phone and called… the Empire State Forest Products Association, a group that has tangled with internet connectivity problems in upstate New York before. The group pointed the company to Slic Network Solutions, owned by the independent Nicholville Telephone Company, which has spent the last several years slowly expanding the reach of its fiber optic network in the north country. Slic currently provides service to about 10,000 homes in small communities like Belmont, Lake Placid, Schroon Lake, and Titus Mountain.

Like many fiber overbuilders operating in New York, Slic has to plan its network expansion carefully, as it lacks the financial resources and staff of a company like Verizon or Charter. Slic’s fiber service is in very high demand, because the alternatives are almost always satellite internet access or appallingly slow DSL service from Verizon or Frontier, neither of which have shown much interest in delivering the FCC’s 25Mbps definition of broadband. Charter’s Spectrum service is available only in larger concentrated communities that can meet the cable company’s return on investment property density test. Many rural upstate communities don’t.

“In most of the places, there really was the option of satellite. Some places had DSL but it was usually pretty marginal,” said Kevin Lynch, vice president of technical operations & chief operations officer of Slic Network Solutions. “There are a few areas, but very limited, that might have had Spectrum.”

Slic is one of several small fiber providers operating in New York, each trying to cover territories larger phone and cable companies have ignored for years. Cooperation in commonplace among some companies operating in similar regional areas to keep construction and operating costs down. Some providers share their networks to extend their reach. Most target commercial or institutional users but will lease out their networks for residential providers. Some of the state’s middle mile fiber networks were built with economic stimulus money or through other grant or government programs. Others are privately funded. Many are underutilized but lack the funds to expand.

Westelcom, based in Watertown, counts Slic as one of its partners. Westelcom currently limits its business to commercial accounts in its six county service area, which includes Watertown, Malone, Clayton, Elizabethtown, Ticonderoga and Plattsburgh. But it is willing to provide wholesale access to third-party companies that want to serve residential customers.

One of the biggest and most surprising impediments to serving “last-mile” residential customers isn’t the cost of construction or the return on investment. It’s New York’s tax laws. Current tax policy requires fiber providers to pay taxes on the value of the infrastructure being used, regardless of revenue. At present, that tax rate can cost between $25,000 and $30,000 per fiber route mile. If it takes five miles of fiber to reach only a half-dozen homes, the provider would owe New York over $100,000 in taxes alone, making it impossible to recoup costs and drain the provider’s finances.

The National Conference of State Legislatures, a bi-partisan group, published Property Taxation on Communications Providers: A Primer for State Legislatures in 2015, outlining a legacy of inconsistent and often outdated state and local taxation policies across the United States that treat communications providers differently on issues like property tax. The group points out New York’s tax authorities treat cable and phone companies very differently than upstart fiber providers. Mobile phone companies are taxed differently as well:

The taxation of communications property varies widely in New York. There are several types of property taxes that are applied in varying ways to the communications sector. While New York does not generally tax tangible personal property, the state considers lines, wires, poles, electrical conductors, fiber optic equipment, and related equipment to be real property. Landline companies and cable companies are subject to a real property tax on “Special Franchise” property which is centrally administered and assessed using the reproduction cost method by the Office of Real Property Tax Services (ORPTS). The Special Franchise property tax applies to equipment located on public property. In addition, Nassau County and New York City have a “split roll” which  requires higher taxes on the “utility” class which includes landline telephone companies. Wireless companies and cable companies are assessed locally for their real property (land and buildings,  e.g., towers)

In plainer English, Lynch points out Slic is taxed about $465 per mile per year in St. Lawrence County, which is “significantly higher” than what cable companies like Charter pay, because they are taxed differently.

In the college town of Potsdam, Slic pays more than double the school and property taxes paid by Charter Communications, even though it serves fewer customers and earns much less. That disparity forces providers to target their networks in more dense areas like inside towns and villages, which means more customers per fiber route mile, reducing the bite of the tax man.

“Broadband infrastructure is considered real property, so it is taxed just like a house when it is in the right of way. So when we attach to these poles which are in the public right-of-way, we pay taxes on it and it is based on construction costs,” Lynch added. “There are a certain number of customers we have just to break even on those two operational costs and that does not include any of the other overhead and the content, the electronics and all that.”

After paying New York, Slic then faces the bureaucratic challenge of pole attachment permitting and fees. Every pole on which Slic attaches its fiber wiring is owned by someone else, typically utility companies like National Grid, Verizon, or Frontier. Some poles are jointly owned and maintained by the phone and electric company in the area. Fees and procedures vary in different parts of the state. There is generally a very costly pole attachment application fee and ongoing pole rental fees, which in this part of New York can run $400 a mile, per year.

Lynch said the costs of pole attachment fees alone can account for up to 40 percent of Slic’s expansion budget, and those initial fees can run between $10,000-14,000 per mile. This is why fiber overbuilders frequently decide on coverage areas based on customer commitments to sign up for service if it becomes available. This allows companies like Slic to secure the financing required to provision the service. But money alone doesn’t buy instant access.

“We apply to National Grid or whoever the pole owner is and say, ‘We would like to attach to these 30 poles on this road,’ and do a pole application and pay a fee,” Mr. Lynch explained to the newspaper. “They come out, they look at each pole and they determine if there is space on the pole, do they need to rearrange the electrical wires so they are in compliance with the electrical code, do they need to move down the phone lines. A lot of times these poles are jointly owned. It will be National Grid and Verizon, so they have to coordinate and then there might be a section that has Spectrum on it, so you have three or four companies that have to coordinate this effort.”

The state adds its own layer of bureaucracy with different Department of Transportation regions, regional economic regions, and Department of Environmental Conservation regions, each with its own rules and procedures. It is common for fiber projects to cross from one region into another, requiring additional paperwork and likely delays. If a project has to cross into the Adirondack Park, the rules and permits required to manage that are byzantine.

The result of all this is usually a significant delay in getting started, but once the paperwork is complete and fees are paid, the work can go faster than many realize.

“In these areas where we are constructing right now, Schroon Lake and Belmont and Lyon Mountain, we are building three to five miles of fiber per week. Our next group of projects that has been funded by New York state is 300-plus miles of fiber,” Lynch said. “And when I say three to five miles per week, that is per area.”

Fiber providers would like to see tax fairness and a lot less bureaucracy. The rules in states like New York may eventually leave fiber to the home service at a distinct disadvantage, because wireless networks don’t face pole attachment complications and pay lower taxes because their real property is generally a cell tower and the fiber line that connects to it. As it stands, some internet providers may gravitate towards wireless internet solutions in rural areas instead of fiber just to avoid excessive taxes and the pole attachment bureaucracy. Most homes and businesses prefer fiber optic service when given a choice, but without some changes to tax laws and a more centralized, less bureaucratic approach to pole attachments, fiber optics may never make financial sense in rural upstate New York.

Frontier’s stock has reached the lowest level of the year after another disappointing earnings report.

Frontier Communications turned in lackluster numbers for the third quarter of 2017, resulting in a wide selloff of Frontier’s stock, driving it to the lowest level it has seen in a year.

Investors are reacting to news the company missed earnings estimates once again, and many are losing confidence in Frontier’s CEO Daniel McCarthy, who has promised better results for more than a year. Frontier is rare among broadband providers, losing customers in virtually every segment of its business, including in its acquired FiOS service areas.

Frontier’s stock has lost more than 80% of its marketplace value so far this year — a stunning decline for a company selling broadband service in many areas where it maintains a monopoly.

McCarthy once again made a commitment his efforts will “stabilize” customer losses, but spent most of his time trying to reassure investors on a Tuesday conference call that those stabilization efforts will primarily target areas where Frontier sells FiOS fiber to the home service. Customer churn continues to be a problem, with many customers leaving either because the company alienated them or dramatically raised their rates after a discounted promotion expires. Either way, many of those customers switch back to a cable provider. McCarthy claimed Frontier plans to adjust promotional pricing to soften the blow of a steep rate hike after a promotion expires.

McCarthy said almost nothing about Frontier’s legacy service areas, where Frontier still sells copper-based DSL service. Some of the company’s biggest losses have been in areas where it cannot compete effectively with cable broadband. McCarthy offered to enhance customer retention efforts and increase marketing to reduce losses, but there are no indications Frontier plans to spend significantly on major network upgrades in these areas anytime soon.

Frontier declared an unexpected dividend of $0.60 a share, which some analysts consider excessive and represents a “red flag atop this toxic value destroyer.”

One analyst remarked, “I’m not buying it; Frontier is a business in free fall.”

Credit challenged AT&T customers may be out hundreds of dollars if they fail to understand the difference between AT&T’s service deposit and a “credit management fee” for new customers. 

For years, postpaid customers with damaged/no credit have been asked by AT&T employees to post a significant deposit to establish service. For many U-verse and cell phone customers that amount can reach $449 or more. Customers complain AT&T sales employees rarely explain whether they are being asked to put down a refundable deposit or being billed AT&T’s novel “credit management fee,” especially after they are reassured the “deposit” will eventually be returned to customers.

In Ohio, one customer is upset that AT&T has misrepresented its $449 one time “credit management fee” as a refundable deposit and claims AT&T now wants to keep that money for itself, despite his perfect payment record.

Michael Tedesco told FOX 28 in Columbus when he signed up for cable provider AT&T, he was required to spend $449 towards a deposit to get U-verse service activated.

“I was 19 and didn’t have any established credit, so they told me I had to put down a deposit,” said Tedesco. He claims AT&T promised to return $5 of that money each month as a credit on his bill, which means Tedesco would receive his full deposit back only after approximately 7 1/2 years of staying with AT&T. Tedesco also claimed AT&T promised to immediately return the balance of any remaining deposit if he canceled service.

But that isn’t what happened.

“I’d been with them for two years, so that’s $120,” said Tedesco. “So $329 should be returned to me. But now they’re saying they changed their story. That it’s a non-refundable fee.”

AT&T’s non-refundable “Credit Management Fee” is often called a deposit by AT&T’s salespeople. But it isn’t.

A Google search about the non-refundable nature of AT&T’s “deposit” has revealed considerable controversy over AT&T’s “credit management fee” and how it is represented by AT&T employees trying to make a sale. When customers return to complain, they are told to read AT&T’s voluminous terms and conditions, which claim the fee might or might not be refundable.

Telecom companies have traditionally used refundable deposits as a way to insure themselves against a customer considered more likely to default on their bill. For decades, phone companies usually returned deposits back to customers, with interest, after 12-24 months of a satisfactory payment history.

AT&T has instead turned that insurance protection into another way to earn revenue for itself, and critics contend AT&T employees are misrepresenting the costly fee and how customers can get it back.

An AT&T spokesperson admitted shareholders come before customers.

“The credit management fee is in place to cover the upfront cost of service while protecting our shareholders against loss in the event a customer isn’t able to pay their bill,” wrote the spokesperson in a written statement. AT&T also claimed it tells customers up front it is not a deposit. “We communicate to these customers before they sign-up that this is a one-time non-refundable fee.”

If AT&T returns a portion of its “Credit Management Fee” at its discretion, it comes in $5 increments, which means it will take over seven years to get your money back.

The Ohio Attorney General has little power over AT&T’s contracts, language, or sales practices, and offered that consumers need to protect themselves from companies like AT&T.

“It’s helpful to ask things like ‘is there a schedule of when money will be credited to my account? What happens if I leave? How long do I have to stay with the company?'” Melissa Smith, from the AG’s Consumer Division, told the Columbus FOX affiliate. “But what’s most important, no matter what that operator says, is to make sure it lines up with what’s in the contract.”

In dozens of pages of terms and conditions for AT&T’s products and services, the relevant language is found under the Billing section (emphasis ours in the language below), and it is highly confusing because it conflates a traditional deposit program with AT&T’s newer, non-refundable “credit management fee,” making it next to impossible for consumers to understand which applies  until after their first bill arrives:

Advance Payments, Deposits, Fees and Limits.

We may require you to make deposits or advance payments for Services, which we may use to satisfy your initial bill for Services, to offset against any unpaid balance on your account, or as otherwise set forth in these TOS or permitted by law. Interest will not be paid on advance payments or deposits unless required by law. We may require additional advance payments or deposits if we determine that the initial payment was inadequate. Upon determination solely by AT&T of satisfactory payment history or as required by law, AT&T may begin refunding of the deposit or advance payment through bill credits, cash payments, or as otherwise determined solely by AT&T. Based on your creditworthiness, a non-refundable fee may be required to establish service and we may require you to enroll, and remain enrolled, in an automatic payment or electronic funds transfer plan. We may establish additional limits and restrict service or features as we deem appropriate. If your account balance goes beyond the limit we set for you, we may immediately interrupt or suspend service until your balance is brought below the limit. Any charges you incur in excess of your limit become immediately due.

Many customers learn about the fee only after receiving their first bill, which usually arrives after the contract grace period deadline offered to customers who change their mind and exit the contract penalty-free.

“I recently ordered new service and I was told ‘Congratulations you don’t require a deposit,'” wrote ‘Susanja.’ “That’s great, right? Not! I just opened my first bill and there’s a $500 credit management fee for a total of $600+ for my first month’s bill.”

By the time the first bill arrived, she was already locked into a contract with a substantial cancellation penalty.

WTTE-TV in Columbus investigates AT&T’s “Credit Management Fee.” (3:29)

After months of negotiations, it all came down to a matter of control.

Softbank Group Corp., owner of Sprint Corp., has abandoned a long-expected merger between Sprint and Deutsche Telekom’s T-Mobile USA, citing concerns about which company would have effective control of the combined wireless carrier.

At the 11th hour, Softbank’s board of directors in Japan expressed concern the merger would leave Deutsche Telekom with majority control of Sprint’s assets and network, leaving Softbank effectively out of the U.S. market at a time when companies like Sprint and T-Mobile are preparing for the future launch of 5G wireless networks that will likely be a backbone for the future multi-billion dollar Internet of Things (IoT) marketplace. Multiple sources have told both Japanese and American newspapers that SoftBank’s founder and CEO Masayoshi Son had always been reluctant to give up control of Sprint, but had not made the issue a potential deal breaker until the talks were nearly complete and final decisions had to be made.

Deutsche Telekom considered the issue practically non-negotiable, because the international telecommunications company has relied heavily on the financial performance of T-Mobile USA to brighten its financial reports. Deutsche Telekom subsidiaries in Europe have struggled financially as a result of competition and other factors and international accounting rules require DT to have control of assets it wishes to include in its financial reports. Had T-Mobile ceded control of the merged company to Softbank, it could not include its U.S. business in its financial reports.

T-Mobile USA is regarded as the stronger of the two companies, and its German parent is very happy with its U.S. subsidiary. Most analysts argue Sprint needs the merger with T-Mobile far more than T-Mobile needs Sprint, so there was reportedly little disappointment from Deutsche Telekom over the merger talks achieving an impasse. To calm nervous investors, Softbank plans to announce it will step up its investment in Sprint to improve its network and coverage. Sprint customers have heard such promises before, but the fourth largest wireless carrier has continued to lose market share, mostly to the benefit of T-Mobile. Independent tests have shown Sprint’s network often performs worse than its three major competitors in many areas.

Hoitenga

In what must be a new speed record, Michigan’s Republican state Representative Michele Hoitenga introduced and then effectively pulled support for her bill that would have banned community broadband initiatives across the state.

Introduced Oct. 12, the bill succinctly banned any use of public funds to construct a municipal internet alternative to the phone and cable companies. The bill came under immediate criticism for its content and accuracy, erroneously transposing speeds of a “qualified internet service” as one offering at least 10Mbps upload speed and 1Mbps download speed.