A business news service that has traditionally supported private, free-market business interests has called on the government to declare broadband essential for navigating daily life and to get more involved in assuring every American has access to it.

The editorial board of Bloomberg News published an extraordinary opinion piece this morning urging government involvement and oversight to resolve the rural broadband gap once and for all.

It is often said that internet service, like electricity or water, should be treated (and regulated) more like a public utility. Without wading into the contentious and long-running debate about that, it’s easy enough to point out that the government can do more, at the margins, to help bring better internet service to places where the market hasn’t. Fast internet service is to the 21st century what a telephone line was to the 20th: essential to navigating daily life.

The editors point out that 39% of rural America — 23 million people — still lack suitable internet access despite years of speeches from politicians, targeted or restricted-use public funding, government grants, and public-private “partnerships.”

Bloomberg rightly calls out the biggest impediment to rural broadband expansion — funding for last-mile infrastructure projects that actually deliver broadband service to unserved homes and businesses, not just public institutions or exclusive office parks. Because private phone companies (and to a lesser degree cable operators) either do not want the funding to come with strings attached or seek taxpayer funds to transfer the cost of rural investment away from shareholders and on to the government, the results have been patchy service and scandals.

Some companies, like Verizon, have shown almost no interest in government subsidies to further expand DSL service into its most rural territories. Others, like Frontier Communications, are aggressively seeking funding to defray the cost of wiring rural areas and, alleges one government oversight report, discovered a ‘revenue opportunity’ for itself along the way.

A report by the U.S. Commerce Department’s Office of Inspector General alleged Frontier has become an expert on gaming the system with padded invoices that overcharged a federal grant program $4.7 million dollars. Company employees reportedly even boasted about their ability to creatively ripoff taxpayers:

The scathing, 31-page report declared the payments “unreasonable” and “unallowable.” Meanwhile, Frontier saw the tacked-on charges as a “revenue opportunity,” according to an internal company email cited in the report. Frontier employees referred to the extra fees as “markups” and “profit.”

Bloomberg’s editors think the FCC should keep rural broadband expansion funding simple and avoid favoring one technology over another. Various grant programs have failed in the past because they are exceptionally specific about the kinds of technologies that qualify for funding, set unreasonable deadlines, improperly vet the financial capabilities of applicants, and attract some applicants that tailor-write applications to fit funding opportunities instead of creating sustainable and meaningful projects that can remain solvent and operating after the grant funding ends.

The different approach advocated by Bloomberg calls on the government to set goals and benchmarks and avoid micromanaging how applicants achieve them. For example, Bloomberg supports the FCC’s 25Mbps minimum definition of broadband, but could care less how providers deliver that speed to rural consumers — via satellite, cable, or something else. It also thinks the current grant system favors incumbent rural phone companies and that has not benefited consumers. Bloomberg’s editors believe startups can bring innovative solutions to rural broadband problems that rural phone companies may not have the ability or flexibility to deliver themselves.

Some comments on the piece believe Bloomberg can find its “win-win” solution to the problem by targeting funding on rural, member-owned energy and telephone co-ops, instead of investor-owned utilities like Frontier, CenturyLink, and Windstream.

“The same entities that were responsible for bringing power to rural areas would be the perfect vehicle for stringing internet cable to those same customers,” wrote one commenter. “Namely, the rural electric co-ops who continue to serve this vital need.”

AT&T: Using taxpayer and ratepayer dollars to subsidize 4G LTE upgrades for its customers.

With taxpayer subsidies on the horizon, phone companies cut back investing their own money on rural broadband expansion hoping taxpayers would cover funding themselves.

That is the conclusion of Dave Burstein, a long-standing and well-respected industry observer and publisher of Net Policy News. Burstein is concerned the unintentional consequence of Obama and Trump Administration rural broadband funding programs has been fewer homes connected than what some carriers would have managed on their own without government subsidies.

“Since 2009, carrier investment in broadband in rural areas has gone down drastically,” Burstein wrote.

As a result, FCC Chairman Ajit Pai announced plans to spend $4.53 billion from a public-financed Mobility Fund over the next decade to advance 4G LTE service, primarily in rural areas that would not be served in the absence of government support. Burstein suspects much of that money could end up being unnecessarily wasted.

“Under current plans, most of the money is likely to go where telcos would build [4G] without a subsidy, [or will be used to] buy obsolete technology, or give the telcos two or three times what the job should cost,” Burstein wrote. “Any spending on wireless except where towers or backhaul is unavailable should be assumed wasteful until proven otherwise.  Realistic costs need to be developed and subsidies allocated on that basis.”

AT&T’s rural fixed wireless expansion program, funded substantially by U.S. taxpayers and ratepayers, is a case in point. AT&T is receiving almost $428 million a year in public funds to extend wireless access to 1.1 million customers in 18 states, the FCC says. Much of that investment is claimed to be spent retrofitting and upgrading existing cell towers to support 4G LTE service. But AT&T claims 98% of its customers already have access to 4G LTE service — more than any other carrier in the country, so AT&T is actually spending the money to bolster its existing 4G LTE network, something more likely to benefit its cell customers, not a few thousand fixed wireless customers.

(Source: AT&T)

“An AT&T exec in California said communities didn’t need to worry about the impact of the CAF-funded project, since it was almost all going to be on existing towers,” Burstein wrote, allaying fears among members of the public that money would be spent on lots of new cell towers. “I don’t know what loophole AT&T is using to get the money, but it’s a pretty safe guess they would have upgraded most of them without the government paying. 4G service now reaches all but 3-5 million of the 110-126 million U.S. households. Probably half [of the less than five million] targeted would soon be served without a subsidy – if the telcos knew no subsidy was likely. Before spending a penny on subsidies, the FCC needs to do a thorough assessment of what would be built without government money.”

Burstein

Wireless executives were delighted when the U.S. government in 2009 committed to spending $7 billion in taxpayer funds on broadband stimulus funding as part of a full-scale economic stimulus program to combat the Great Recession.

“Both George Bush in 2004 and Barack Obama in 2008 had promised to bring affordable broadband to all Americans,” Burstein noted. “The clamor to reach these last few million was so loud, telcos became confident the government would pay for it if they just stopped their own investment. They aren’t stupid and refused to spend their own money. Before 2009 and the expected huge stimulus program, most telcos expanded their networks each year, based on available capital funds.”

Burstein believes some phone companies became better experts at milking government money to pay for needed network upgrades than frugally spending public funds on rural broadband expansion. As a result, after eight years and massive spending, Burstein notes fewer than two million of the “unserved” six million homes were reached by wireline or wireless broadband service when the funding ran out.

Under Chairman Pai’s latest round of rural broadband funding, Burstein believes much of this new money is also at risk of being wasted.

“[Pai] needs to dig into the details of what he’s proposing,” Burstein wrote. “Nearly all cells with decent backhaul will be upgraded to 4G; Verizon and AT&T have already reached 98% of homes. Government money should go to building towers and backhaul where that’s missing, not filling in network holes the carriers would likely cover.”

Rural advocacy groups have been frustrated for years watching rural telephone companies deliver piecemeal upgrades and service expansion, often to only a few hundred customers at any one time. When they learn how much was spent to extend broadband service to a relatively few number of customers, they are confused because companies often spend much less when they budget and pay for projects on their own without government subsidies.

Gov. Andrew Cuomo announcing rural broadband initiatives in New York.

Burstein is currently suspicious about the $200 million approved in subsidy funding to extend rural broadband in parts of upstate New York. Burstein notes Pai is factually wrong about his claim that the hundreds of millions set aside for New York would be spent on “unserved areas of rural New York.”

“Most of that money will not go to unserved areas,” Burstein reports. “Some grants are going to politically connected groups. I’ve read the rules and the approved proposals. The amounts look excessive based on the limited public details.”

Telephone companies have become skilled negotiators when it comes to wiring their rural service areas. Most want more money than the government has previously been willing to offer to help them meet their Return On Investment expectations. Burstein noted that under normal circumstances, a government program offering a 25% subsidy to extend rural broadband into areas considered unprofitable to serve would be enough in most cases to get approval from rural phone companies like CenturyLink and Frontier Communications. But many phone companies, including AT&T, Verizon, and Qwest (now a part of CenturyLink) did not even file applications to participate in early funding rounds. Qwest’s lack of interest was especially problematic, because the former Baby Bell served the Pacific Northwest and Rocky Mountain regions where some of the worst broadband accessibility problems persisted.

Burstein claims Jonathan Adelstein, then Rural Utilities Administrator, had to double his subsidy offer to get Qwest’s attention with a 50% subsidy.

Rural backhaul connectivity is often provided by fiber optic cabling.

“Qwest refused, demanding 75%,” Burstein noted. “That was probably twice the amount necessary and Adelstein rightly refused. They knew the government had few ways to reach those unserved without paying whatever the telcos demanded. A few years later, Qwest is part of Centurylink. Many of those lines are now upgrading under [public] Connect America Funds with what amounts to a greater than 100% subsidy.”

Net Neutrality appeared to have no impact on telephone company investment decisions, even in rural areas. The investment cuts followed a trend that began even before President Barack Obama took office. Wireless carriers slash investments in rural areas when management is confident the government is motivated to step in and offer taxpayer dollars to expand rural broadband service. When those funds do become available, a significant percentage of the money isn’t spent on constructing new infrastructure to extend the reach of wired and wireless networks into unserved rural areas. Instead, it pays for expanding existing infrastructure that may coincidentally reach some rural customers, but is still primarily used by existing cellular customers.

“In many extreme rural areas, only the local telco has the ability to deliver broadband at a reasonable cost,” noted Burstein. “You need to have affordable backhaul and a local staff for repairs. Because the ‘unserved’ are in very small clusters, often less than 100 homes, it’s usually impractical for a new entrant to bring in a backhaul connection.”

Instead, AT&T is attempting to fill some of the gaps with fixed wireless service from existing cell towers. While good news for customers without access to cable or DSL broadband but do have adequate cellular coverage to subscribe to AT&T’s Fixed Wireless service, that is not much help for those in deeply rural areas where AT&T isn’t investing in additional cell towers to extend coverage. In effect, AT&T enjoys a win-win for itself — adding taxpayer-funded capacity to their existing 4G LTE networks at the same time it markets data-cap free access to its bandwidth-heavy online video services like DirecTV Now. That frees up capital and reduces costs for AT&T’s investors. But it also alienates AT&T’s competitors that recognize the additional network capacity available to AT&T also allows it to offer steep discounts on its DirecTV Now service exclusively for its own wireless customers.

A requirement that Comcast must operate in the public interest of the people of Vermont may result in the cable company filing suit against the state.

Comcast is upset about the state’s “Certificate of Public Good,” which puts a responsibility on Comcast to support Vermont’s public access channels, include their programming lineups in electronic program guides, and expand service with 550 additional miles of cable line extensions over 11 years.

Comcast lobbied the Vermont Public Utility Commission to drop the requirements, but their request was turned down last week.

“We are disappointed the Vermont Public Utility Commission chose to deny our motion for important amendments necessary to fairly compete in Vermont,” Comcast spokeswoman Kristen Roberts told Vermont Public Radio. “We are still reviewing the order and have not yet determined our next steps.”

Comcast told the Commission upgrades would be costly and cumbersome, particularly because many of its systems in the state were acquired from Adelphia, a cable company that declared bankruptcy in 2002 as a result of executive corruption. Most of its cable systems, some in disrepair, were sold to Time Warner Cable and Comcast, who were forced to commit additional funding to upgrade them soon after the acquisitions were complete.

The Commission was not impressed with Comcast’s arguments, suggesting the requests in the Certificate were achievable and given a long lead time to complete.

Comcast may appeal the order in court.

Frontier Communications employees continue to send unsolicited news tips and insider gossip about a phone company in decline, not only losing customers but middle management that have either left voluntary or been asked to leave in a frantic effort to cut costs.

Earlier this year, Frontier CEO Dan McCarthy ended a long-term effort heralded by former CEO Maggie Wilderotter that gave significant autonomy to local and regional managers to handle problems in their respective service areas without having to consult a centralized bureaucracy. McCarthy elected instead to adopt more rigid company-wide policies and practices that often require consultation with senior management. For many mid-level managers already frustrated with the company, that change proved a bridge too far that and several are now working for Frontier’s cable competition.

One of the senior managers responsible for Frontier’s web presence became so frustrated with Frontier’s corporate roadblocks, he dropped his Frontier service in favor of the competition because accomplishing almost anything on Frontier’s website proved frustrating and often impossible.

“Instead of focusing their leadership on ways to turn the company around they seem to be doubling down on their efforts to get as many employees to leave the company as possible,” a Frontier insider tells Stop the Cap!

Some of the employees likely to leave are Frontier’s telecommuting workforce. Senior executives now want many of those workers back in the office.

“[The new policy says] if we live less than 50 miles from a Frontier Office, we have to be in the office every day and could no longer work at home,” our source tells us. “There are employees who had Permanent Work At Home status by HR who are [now] being told they have to relocate to another city [or] come into an office or they will be let go.”

Frontier’s network continues to be criticized as great for some, lousy for everyone else. Our source notes a few years ago Frontier was speed-limiting some of its DSL customers in congested areas because they were using too much broadband and slowing down the network for others. While Frontier’s legacy copper areas continue to endure copper-based DSL with its inherent capacity and speed limitations, Frontier is planning a feast for its acquired FiOS fiber customers, including free automatic speed upgrades.

Less technically conscious customers pay more. In addition to a $4.50 convenience fee that now applies to customers phoning customer care centers to make a payment, our source warns Frontier is about to launch a paper billing fee, reportedly $1 a month, in an attempt to convert customers to electronic paperless billing.

“We are so at a loss as to the direction this company is taking and there is zero vision from senior leadership that is being passed down,” our source said, noting executives are preoccupied with their compensation plans and bonuses. “The directions we’re given change daily, projects and promotions only seem to be reactionary to try to stop the bleeding, but Frontier is in need of major surgery starting with the CEO and every single member of our executive leadership.”

AT&T will spend $9.7 million in annual public subsidies to bolster its cell tower network in South Carolina in part to expand its rural wireless broadband program. Perhaps services like mobile tower lease would come in handy.

The Federal Communications Commission approved the funding, which is expected to cost Americans nearly $10 million annually until 2020 to boost wireless coverage in 20 mostly rural counties in South Carolina to reach an estimated 12,000 new homes and businesses by the end of this year. Nationwide, the company is getting almost $428 million a year to extend access to 1.1 million customers in 18 states, the FCC says.

AT&T plans to spend the money to improve cell towers it already has in place for its mobile phone customers. The company admitted it will rely on existing infrastructure and won’t lay a single new strand of fiber optics. Instead, wireless broadband customers will share space with AT&T’s existing mobile customers on AT&T’s backhaul network.

“Because of the wireless aspect of it and the greater ability to deliver that last-mile connection, it does help to overcome any obstacles that may be in the cost equation,” Hayes said. “This initial build, with it being infrastructure that we have in place with these towers, that comes from years of investment.”

AT&T will also be able to promote its own products and offer customers discounts and free installation when they agree to sign up for other AT&T services. Hayes said the service will cost $60 a month for everyone else, along with a one-time installation fee of $99.

“Because of the wireless aspect of it and the greater ability to deliver that last-mile connection, it does help to overcome any obstacles that may be in the cost equation,” spokesman Daniel Hayes told The Post and Courier. “This initial build, with it being infrastructure that we have in place with these towers, that comes from years of investment.”

AT&T is treating the fixed wireless program, which offers up to 10Mbps service, as an alternative to wiring fiber optics in outer suburban and rural areas.

With taxpayer/ratepayer dollars financing a significant part of the cost, AT&T will have a de facto monopoly in its rural service areas where it has traditionally declined to offer or maintain DSL service or consider fiber optic upgrades, leaving these areas without broadband service until the subsidy program began.