We’ve heavily covered the proposed sale of Verizon landline service to Frontier Communications since the deal was announced last spring.  This should not come as a big surprise, considering Frontier Communications’ decision to insert a 5GB monthly usage limit in their Acceptable Use Policy in the summer of 2008 was what instigated the launch of Stop the Cap! in the first place.  Frontier’s decision was boneheaded at best in a city like Rochester with a very aggressive cable competitor only too willing to bash Frontier for implementing it if they thought it would win more customers.

But of course Frontier Communications’ Rochester operation is an anomaly for ‘rural America’s phone company.’  For the majority of rural customers, it’s far easier to slap customers around with a usage cap and 1-3Mbps DSL service when those customers have few, if any practical alternatives.  Unfortunately, there is real money to be made from their business plan serving frequently non-competitive communities with incrementally-upgraded “just enough” broadband service with unfriendly terms and conditions attached.

In several of the 14 states impacted by the proposed sale, the relatively small number of customers involved made it easy for regulators to quickly approve the proposal with few conditions attached. The deal flew under the radar and got scant press in most of these states.  Washington, Ohio, and West Virginia are another matter.  Regulators are taking a closer look at the deal in all three states where most of the controversy is taking place.  The deal is most contentious in West Virginia, where Verizon’s exit threatens to turn most of the state’s landline business over to Frontier Communications.

Stop the Cap! has been reviewing the public comments left on more than a dozen news sites, forums, and printed letters to the editor regarding the deal.  We’ve seen comments obviously coming from Frontier employees, union members, politicians, business leaders, and competitors.  But the vast majority come from ordinary consumers who have concerns about what the deal will do to their telephone and broadband service.  Most of the comments from consumers that embrace the sale don’t do so because they are fans of Frontier.  They simply loathe Verizon and want an alternative.  Boiled down, the consensus among those in favor of Frontier taking over is “let them try… they can’t do any worse than Verizon.”

[flv]http://www.phillipdampier.com/video/WCHS Charleston PSC Phone Hearing 1-12-2010.flv[/flv]

WCHS-TV in Charleston covers West Virginia’s Public Service Commission hearings reviewing the proposed deal.  Frontier employees arrived in Charleston to lobby for the sale. (1 minute)

Desperate for Broadband

There are a lot of West Virginians who still have no broadband options.  Frontier claims Verizon provides only 60 percent of their customers with a broadband option — DSL service that tops out at 7Mpbs, if you live in an urban area.  Those that don’t have often waited years for Verizon to extend DSL service into their communities or neighborhoods.  It’s a problem common in mountainous, often rural states like West Virginia where infrastructure costs can be prohibitive.  Customers believe that Frontier Communications will tolerate a lower return on their investment providing DSL service to those customers Verizon ignored.

Promising to expand broadband service in rural, unserved areas is a common sales point for all of the prior Verizon sell-offs.  Hawaiian Telcom promised improved broadband service and speed.  Fairpoint promised to expand DSL availability to 75 percent of all access lines within 18 months of the sale, 85 percent within two years and 95 percent within five years.  Frontier Communications promises to expand broadband service as well, claiming they already provide 92 percent of their existing West Virginia customers with the option.  Of course, Hawaiian Telcom and FairPoint both reneged on their commitments before going bankrupt.  Frontier Communications hasn’t yet been held to any specific commitment or timeline in West Virginia as part of their proposed takeover of service.

Consumer Reports rated TV, phone, and Internet providers, including Verizon and Frontier, in its February 2010 issue

To those suffering with dial-up or satellite fraudband, -any- broadband option seems like a miracle, even if it turns out to be 1-3Mbps DSL service with a 5GB allowance.  But as those kinds of anemic speeds arrive, cutting edge multimedia-rich broadband applications will become increasingly mainstream and leave these customers behind, again.  With a 5GB usage limit, it wouldn’t matter anyway, because customers will never be able to take advantage of services that will rapidly blow through those limits.  Make no mistake, a user’s broadband experience at 1.5Mbps with a 5GB allowance is going to be considerably different than a customer enjoying online multimedia from a cable provider or the next generation broadband service from Verizon FiOS or AT&T’s U-verse.  Think e-mail and basic web browsing, and that’s about all.

What kind of broadband experience does Frontier Communications bring?  This month, Consumer Reports rated Frontier dead last among DSL providers that own and operate their own broadband networks (subscription required).  The magazine rated 27 regional fiber, cable, and satellite providers and Frontier’s DSL ended up #19 on the list, the lowest rating of any DSL provider selling service on its own network.  Only Earthlink, which usually buys access on other providers’ networks came in lower among DSL providers.  Verizon actually scored higher than Frontier.

Frontier’s DSL service merited a 67 out of 100 score, rating only fair on value, speed, reliability, and customer support, based on 56,080 Consumer Reports subscribers who have a home Internet account.

Frontier’s phone service rated even lower, second to last in the survey.  Frontier was rated fair on value, reliability and call quality.  Only Mediacom did worse.  Verizon scored much better on reliability.  The magazine’s survey of phone companies was based on 37,484 respondents with phone service and was completed in the spring of 2009.

The consumer magazine did not recommend DSL for broadband access, suggesting consumers would do better with fiber optic broadband first, and cable modem service second.

Union Bashing – The enemy of my enemy is my friend

A significant minority of comments were focused entirely on union bashing, completely ignoring the specifics of the Frontier-Verizon sale.  All these people knew was that if the Communications Workers of America or other union was involved, they were the “real problem,” accusing union bosses of opposing the deal until they were paid off.

Nonsense.

Reality trumps anti-union talking points.  Consumers can review for themselves who correctly predicted the outcome of the last two deals of the recent past.  They were the CWA and the International Brotherhood of Electrical Workers, who accurately identified the service problems, the network transition problems, the debt load that prevented service expansion and upgrades, and the eventual bankruptcies experienced at Hawaiian Telcom and FairPoint Communications.  It turns out that asking front line employees who work in the office and out in the field maintaining the network are well positioned to give an honest assessment of these transactions that others seek to candy coat to get the deal done.

[flv]http://www.phillipdampier.com/video/WSAZ Charleston Frontier Defends Deal 1-12-2010.flv[/flv]

WSAZ-TV in Charleston delivered this decidedly pro-Frontier news report on the company’s efforts to counter opposition to the proposed sale. (3 minutes)

The Opposition

A large number of comments from those who oppose the deal believe they will actually be far worse off with Frontier.  Most relate the experiences of themselves or their friends and family who live in Frontier service areas, and they’re unhappy with Frontier’s poor customer service, reliability, and slow speed DSL.  Many were also unhappy with Frontier’s automatically-renewing contracts committing customers to stay with the company or face a steep early cancellation penalty.  Many more lament the lack of a future with Verizon fiber optics.

David Swanson, who blogs from his home in Golden Valley, Arizona just dumped Frontier for his local cable provider – Golden Valley Cable & Communications.  He says he was overpaying for Frontier’s DSL and phone package.  Together, after fees and taxes, $90 a month went to Frontier and $73 a month went to DirecTV for television service.  With his new cable bundle, he pays $100 a month for everything.  He uses Boost mobile for his phone, and has no need for a landline.

Reviews on DSL Reports aren’t exactly positive about Frontier either.

One Rochester customer isn’t happy with the “spotty service” he’s experienced on Frontier’s aging copper wire infrastructure, noting they don’t seem to be in any hurry to upgrade facilities in western New York.  He’s stuck with unreliable DSL service far slower than what Time Warner Cable’s Road Runner service can provide. Another customer in Lowville, New York admits he has to live with Frontier’s slow speed DSL because there is no other provider available.  In Kingman, Arizona one customer rated the company’s DSL service “slightly better than nothing.”

Even customers who had had good things to say about Frontier in forums often acknowledge their service simply isn’t a good value when considering the high cost charged for the slow speed received.

What Can Be Done?

At this point, it is critical impacted customers contact their state utility commission and state representatives and tell them this deal does not work for you.  It is true Verizon wants out of these service areas, and should they win the right to withdraw someone will have to assume control of landline operations in these communities.  But the terms and conditions for the company seeking to provide service should favor customers and not the Wall Street dealmakers.  Strict financial pre-conditions should be in place to guarantee the buyer is up to the task of providing service and upgrades.  Historically, it’s been far too easy to simply renege on the deal with a quick trip to Bankruptcy Court to shed the debt these deals pile on, and be rid of the service commitments that were part of the approval process.

A company that believes they’ll earn plenty from this deal should be spending plenty to provide quality broadband service starting at 10Mbps, not the 1-3Mbps service Frontier provides most of its rural service areas.  What chance do communities in West Virginia have to stay competitive in a digital economy that requires faster broadband access without the ridiculously low usage limits Frontier includes in their customer agreements?  In fact, usage limits and other Internet Overcharging schemes should be explicitly banned as part of any sales agreement.

Holding Verizon responsible for the outcome of deals that benefit them and their shareholders while sticking customers with a bankrupt provider must be considered.  An important component of past Verizon’s landline-dumping-deals involves the Reverse Morris Trust — delivering a tax-free transaction for Verizon and piles of debt for the buyer. That puts all the risk on ratepayers, lower level employees who are among the first to go when cost-cutting begins, and head-scratching regulators wondering where it all went wrong.  The only ones not doing any hand-wringing are Verizon’s accountants and the executive management of both companies who conjure up such deals.  That’s because they are rarely held accountable, and often win retention bonuses even while a company is mired in bankruptcy.

Regulators should insist Verizon play a fundamental role in insuring that customers are protected even after the deal closes, honoring commitments and financing operations should the buyer fail soon after the sale is complete.  Under these conditions, customers are protected and Verizon might think twice about structuring a deal that loads the buyer down in insurmountable debt.

“This deal is driven by greed — and we can learn from Northern New England’s and Hawaii’s experience to make sure it does not come to pass here or in the other 13 states,” said CWA’s District Two Vice-President Ron Collins, who has been leading the campaign in West Virginia.

Some of the crowd at Sunday's rally in Charleston

Verizon employees affiliated with the Communications Workers of America turned out in force Sunday to protest the proposed sale of Verizon’s West Virginia operations to Frontier Communications of Connecticut.

Hundreds of workers and union members rallied at the West Virginia Culture Center in Charleston, the state capital, to protest the deal.

The CWA is concerned the transaction will enrich a handful of corporate executives and Wall Street bankers while saddling the state with sub-standard phone and Internet service for years to come.  Frontier Communications will assume enormous debt to make the deal happen with Verizon, and set itself down the same path that ended in bankruptcy for two similar deals in the recent past involving FairPoint Communications and Hawaiian Telcom.

Union members are, of course, concerned about their future employment prospects at a Frontier-owned operation, but insist they are also concerned with the citizens of West Virginia.

“I work in the community and live in the community. I want to be able to go out to the stores with nobody yelling at me for not being able to provide service for them,” said Jim Radcliff, a Verizon employee.

(from left to right) CWA Pres. Larry Cohen, Local 2003 Pres. Anekia Greiner, and CWA District 2 VP Ron Collins

West Virginia’s governor Joe Manchin made an appearance at the rally, saying he has concerns about the proposed sale, and joined labor and community leaders to say he would do everything in his power to make the proposed deal work for working families in the state, not just Wall Street bankers.

Other rally speakers included Sen. Jack Yost, Del. Mike Caputo, state AFL-CIO President Kenny Perdue, and representatives from the firefighters, nurses and senior citizens.

Firefighters and other public safety officials are concerned about potential disruptions of 911 service, which were an ongoing problem after FairPoint Communications took control of Verizon lines in northern New England.

[flv]http://www.phillipdampier.com/video/CWA 911 Service At Risk Ad.flv[/flv]

The Communications Workers of America is concerned the sale of Verizon’s phone lines to Frontier Communications could cause disruptions in 911 service, as happened with FairPoint Communications in northern New England.  The CWA is running this ad in West Virginia.

“We need to bring high speed broadband to West Virginia and communities across the country, to foster economic growth,” CWA President Larry Cohen said.  “Instead, Verizon is using an obscure tax loophole to do a tax free deal that will leave West Virginia without a platform for achieving the speeds that are necessary for economic development.  This deal is only good for Wall Street, not Main Street.”

Cohen was speaking about Verizon’s use of the Reverse Morris Trust provision in corporate tax law, which Stop the Cap! explored last fall in detail.  This transaction could cost taxpayers as much as $600 million in lost tax revenue.

Audio Clip: Communications Workers of America Frontier-Verizon Radio Ad (30 seconds)
You must remain on this page to hear the clip, or you can download the clip and listen later.

[flv]http://www.phillipdampier.com/video/WCHS Charleston Union Opposes Sale of Verizon Landlines 1-10-10.flv[/flv]

WCHS-TV in Charleston covered the weekend rally by CWA opposing the sale of Verizon’s landlines to Frontier Communications. (2 minutes)

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/CWA Rally Excerpts 1-10-10.flv[/flv]

Here are some excerpts from Sunday’s rally including speakers protesting the proposed sale and praising union involvement in consumer protection. (courtesy: LairdWilliam) (10 minutes)

Phillip "Doesn't Worship Wall Street" Dampier

Bray Cary, president and CEO of a group of West Virginia television stations enjoying advertising revenue from Frontier Communications, was back on his Decision Makers program to allow an opposing viewpoint to the puff piece interview he held earlier with Frontier’s Ken Arndt, Frontier’s Southeast region chief.  This time, he invited Ron Collins, vice-president of the Communications Workers of America to give the CWA side.  Cary’s Tea-‘N-Cookies Breakfast Club With Ken this was not.  Cary decided to play hardball with Collins, leaving no viewer in doubt where Cary stood on the question of Frontier’s proposed purchase of West Virginia’s phone lines from Verizon.

Unfortunately, Collins was not completely prepared to rebut Cary’s pro-Wall Street, pro-deal propaganda and looked ill at ease at times during the interview.  We’re not, and Cary’s “facts” deserve some investigation.  After all, how hard should it be to rebut a guy who believes Wall Street and the banks have all the right answers for West Virginians’ phone service?

• Video No Longer Available.

Right from the outset, Cary wants to play “devil’s advocate” with Collins, asking why in the world the CWA is opposed to this deal.  That was a major departure from his cheerleading session with Arndt.

Bray Cary, Host of Decision Makers

“I’ve looked at this […] their stock has been extremely stable.  Wall Street appears to be signaling their financial viability is okay.  Why is the stock market not reacting negatively?  If it’s good for stockholders, how can it be bad for their financial stability.  Stockholders want financial stability,” Cary said in a series of statements about the deal, including mentioning a Moody’s report on the deal.

The Moody’s report Cary talks about is for shareholders who will reap the rewards or suffer the losses based on the success or failure of the deal.  Moody doesn’t rate the deal’s impact on consumers who have to live with the results.  What’s good for Wall Street is not necessarily what’s best for customers.

“What you don’t have is anyone in the financial community suggesting this is a bad financial deal,” Cary said December 13th.

Wrong.  Almost a week earlier, on December 7th, D.A. Davidson, a respected Wall Street analyst said the opposite.  In a story published in Barron’s: “Frontier Communications’ Shares Not Wired for Success,” the analyst firm argued the regional telecom’s acquisition of Verizon’s rural lines will be… wait for it… bad for the stock.

Cary’s claim that Wall Street is concerned with the long term viability of companies belies the growing reality that much of the investment culture in America has a long term obsession with short term results.  Your company is only as good as your last quarter’s financial earnings statement, and several bad ones in a row are usually enough to bring a recommendation to dump shares.  Frontier has kept its stock value stable largely as a result of their steady dividend payment.  Collins claims Frontier has gone beyond reason, paying 125% of earnings in dividends.  That may make the stock a popular choice for income investors, but is also eerily familiar.

FairPoint Communications also enjoyed a healthy stock price because of its high dividend payout.  Wall Street only got concerned when they thought that deal might not go through.  Morgan Stanley issued a report in 2007 suggesting the deal between FairPoint and Verizon to take control of landline customers in Vermont, New Hampshire, and Maine, was itself helping to prop up the stock’s value.  We saw how far that got FairPoint when the company declared bankruptcy a few months ago.

Ron Collins, CWA's vice president

Indeed, smaller independent phone companies commonly use high dividends to remain attractive to investors and stay viable in a tough market.  Windstream is another such company and even CNBC’s Jim Cramer gave due diligence to the fact high dividends and stock value by themselves don’t necessarily predict the company’s long term success or failure.

Make no mistake, Frontier has sold this deal to investors based on dividend payouts, claimed cost savings, and a safe bet that any broadband in rural America will earn them increased revenue, especially where consumers have no other place to go for service.

Frontier will take on massive additional debt to finance the deal, but on paper it actually appears to reduce their debt ratio.  That’s because when you add millions of new customers, the debt doesn’t look so big next to the increased revenue those additional customers will bring, assuming they stay with Frontier.  Should Frontier’s performance underwhelm customers, they’ll drop service if they can.  If mobile phone networks do a better job of reaching these rural customers, many will drop landline service anyway.  When wireless broadband service becomes a more realistic option, customers might toss Frontier’s slow speed DSL overboard.

AT&T and Verizon have read the writing on the wall — an ongoing decline in landline service and the eventual death of the kind of service Frontier is providing its customers on its legacy network.  Would you be better off with a company that recognizes the truth about the future of wired basic phone service, or the one that wants to buy up obsolete networks and hang on until the last customer leaves?

Cary’s concern starts and stops with shareholder value, not the individual long term needs of consumers across West Virginia.

“All of the bankers and all of Wall Street are saying financially this is a good deal financially for Frontier,” Cary argued.

“Good for Wall Street, bad for West Virginia,” Collins replied.

“Well, see I disagree… that has been a myth put out there, and the reason we don’t have any jobs in this state is companies don’t want to come here just because of that mentality.  People need to make money.  You look at where companies are flourishing, the workers flourish when they do,” Cary said.

Really.  Then why are several of these telecommunications companies awash in revenue also continuing to reduce their workforce in their relentless effort to obtain “cost savings.”  Someone is making money, just not the average employee.  Every state has pro-business acolytes claiming businesses don’t want to come to their state because of regulation and a hostile business climate, even those with the fewest regulations, lowest taxes, and little protection for employees and consumers.

Cary does make one valid point: Verizon wants out of West Virginia and refuses to invest a dime in the state as it looks for a quick exit.  Instead the company has diverted resources from serving smaller states’ phone service needs into its larger city FiOS fiber to the home system where it believes it can reap more revenue.  Whether that disinvestment should be permitted in the first place is a question that needs to be asked.

Verizon is a regulated utility that is required to meet certain performance standards, and the company’s long history of operations under that framework, under which it profited handsomely, does require consideration.  But the state can also provide additional incentives to make it more attractive for Verizon to commit more resources in the state, ranging from tax credits, public-private investment, rewards for performance and service improvements, etc.  It can also find someone else to provide the service, or let local communities band together into cooperatives to run their own networks, should customers find that could deliver better service.

At the very minimum, Frontier should he held to strict conditions that require a fiscally responsible transaction for ratepayers, not just for shareholders and management.  Verizon’s workforce, already cut to the bone, should not bear the brunt of “cost savings” either, both now and into the future.  If Frontier wants to deliver broadband, they should commit to offering 21st century speed (not the 1-3Mbps service typical for their smaller service areas) without their draconian 5GB usage limit in their Acceptable Use Policy.

Cary doesn’t concern himself with those kinds of details, but consumers and small businesses in his state sure do.

Cary wants more jobs and more earnings for West Virginia.  In the changing digital economy, high speed broadband isn’t an option — it’s a necessity.  Verizon has a proven track record of being able to provide 21st century broadband — Frontier does not (sorry, 1-3Mbps DSL is more 1999, not 2010).

Cary makes an astonishing statement in the third segment of the interview which makes me question his ability to grasp the reality-based community most Americans live in today.

“I have great faith in the banking system in America, in Wall Street, to evaluate these things.”

That stunned Collins, who asked, “even after the 2008 crash?”

Cary seems to think “everything is back to normal.”  Unfortunately, after the bailouts and big lobbying dollars being spent in Washington to preserve the status quo as much as possible, everything is back to normal… for Wall Street and the banks.  The rest of the country, including West Virginia, is another matter.

FairPoint's Stock Price from 2007, when it announced the deal with Verizon, to late 2009 when the company declared bankruptcy. By late 2008/early 2009, what seemed like a great deal for investors was apparently not, as the panicked rushed for the exits.

I’ll put my trust in the wisdom of West Virginians who want good service and reasonable prices.  If Cary wants to read from the Good Book of the “paragons of virtue” like AIG, Bear-Stearns and Goldman Sachs, let him sell his TV stations to help finance the bailouts.  Remember that when we went through this before with Hawaii Telecom and FairPoint Communications, the cheerleading session on Wall Street lasted only as long as the quarterly balance sheets looked good.  At the first sign of trouble, they bailed on the stock and both companies ended up in bankruptcy.

For them, it represented just another roll of the dice in the giant financial casino we call Wall Street.

For the rural residents of states like West Virginia who ultimately have to live with the results, this is their phone and broadband service we are talking about.  Before all bets are placed and the dice are thrown, isn’t it worth considering them?

Several staff members working for the Washington Utilities and Transportation Commission (WUTC), the regulatory agency reviewing the proposed Frontier purchase of Verizon territories in Washington state, have reversed their opposition to the Frontier-Verizon deal because of concessions they believe will better serve consumers impacted by the deal.  But the provisions don’t come close to protecting consumer rights and do not sufficiently protect local telephone and broadband service.

The WUTC must be told that broadband expansion from a service provider that insists on a 5 gigabyte usage limit in its Acceptable Use Policy makes such expansion barely worth the effort.  The WUTC must insist on a permanent exemption from any usage limits for Washington state consumers, especially because many may find Frontier DSL to be their only broadband option for years to come.  To allow a company with such a paltry limit to be the monopoly provider of broadband puts Washington residents and small businesses at a serious economic disadvantage in the digital economy.

Would you choose to reside or locate your business in a community with one broadband provider offering a limit so low, your broadband usage will be limited to web page browsing and e-mail?

High Speed Internet Access Service

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.

Frontier will be a part of the lives of almost 500,000 state residents, including those in Wenatchee and other parts of North Central Washington.  That covers a lot of rural residents with no hope of cable competition or other broadband options.  Verizon is the second-largest local telephone service provider in Washington, serving cities such as Redmond, Kirkland, Everett, Bothell, Woodinville, Kennewick, Pullman, Chelan, Richland, Naches, Westport, Lynden, Anacortes, Mount Vernon, Newport, Oakesdale, Republic and Camas-Washougal.  Currently, Verizon has approximately 1,300 employees in Washington, who would be transferred to Frontier once the deal is complete.

Frontier’s concessions don’t come close to assuring residents they can get the kind of broadband service they need in the 21st century, especially from a company that could easily find itself swamped in debt.  Let’s look at what Frontier has offered:

• Invest $40 million to expand high-speed Internet access in Washington.
• Submit quarterly financial reports to identify merger savings.
• Branding and transition costs to be paid by stockholders, not ratepayers.
• Increase financial incentives to prevent a decline in service quality.
• Adopt Verizon’s existing rates and contracts for at least three years.

Frontier would also be required to pay residential customers $35 for missed service repairs or installation appointments. That’s $10 more than Verizon now pays. Current Verizon customers would also have 90 days after the transition to choose another provider without incurring a $5 switching fee. Low-income customers who qualify through the Washington Telephone Assistance Program will also receive a one-time $75 credit if the company fails to offer appropriate discounts or deposit waivers.

Our take:

• Investing $40 million in low speed DSL service with a 5GB usage allowance saddles residents with yesterday’s technology with a usage allowance that rations the Internet.
• Customers don’t care about merger cost reductions because they’ll never enjoy those savings, but they’ll feel their impact if they include layoffs and reduction in investment.
• Consumers will be more concerned about what happens to their phone and broadband service when the “transition” results in service and billing problems.  Will stockholders pay inconvenienced customers?
• Vague promises of increased financial incentives for a company to do… its job, without declines in service quality, exposes just how unnecessary this deal is.  Why not offer incentives for Verizon to stay?
• Freezing rates for three years doesn’t prevent massive increases to make up the difference in year four and beyond.

The WUTC staff had it right the first time when it opposed the deal.  A healthy, financially secure Verizon is still a better deal than a smaller independent company saddled with debt.  Frontier seals the fate of Washington state residents from the benefits of fiber optics wired to the home, delivering high speed broadband for the future because Frontier doesn’t do fiber to the home on its own.  With a tiny usage allowance, just waiting for the company to decide to enforce it means you won’t be using your broadband account too much anyway.

The WUTC is accepting comments and you need to start calling and writing.  Make sure to tell the Commission it must secure a permanent exemption for Washington from any Internet Overcharging schemes like consumption/usage-based Internet billing and any usage limits Frontier defines in its Acceptable Use Policy.  Better yet, tell them Frontier’s concessions don’t come close to making you feel good about Verizon turning over your phone service to a company that is traveling the same road three other companies took all the way to bankruptcy.

Customers who would like to comment on the provisions can call toll-free: (888) 333-9882 or send e-mail to [email protected]. The deadline for comments is January 10th.

Keyser, West Virginia

Frontier Communications’ West Virginia roadshow continued this week as company officials continue to sell the company’s plan to take over telephone service from Verizon across much of the state.  But have they stretched the truth to sell state officials on the deal?

Paul Espinosa, general manager of Frontier, told a West Virginia newspaper the company “prides ourselves in taking good care of our customers,” claiming 95 percent of their current residential customers have broadband Internet.

“In some areas it’s DSL. In other markets we do offer fiber,” he told the Mineral Daily News-Tribune in Keyser.

Keyser, a community of just over 5,000, considers broadband high on its list of concerns.  They want it, but they also want to know it is the kind of broadband that will keep Mineral County competitive, particularly for small businesses that depend on it to reach customers.  The county created a Communications Infrastructure Council (CIC) to review broadband communications options considered vital to the community’s economic development.

Rick Welch, who serves on the CIC,  said the economic future of Mineral County depends upon high speed or fiber-optic Internet and not DSL, or Internet service which utilizes existing telephone lines.

Verizon West Virginia has bypassed the state for FiOS development, which provides a fiber-optic connection to the home, claiming the infrastructure costs are too high at today’s prices to satisfy Return On Investment requirements.  Frontier has never had an ambitious broadband agenda centered on fiber optics.

Frontier traditionally offers 1-3Mbps DSL service in most of the smaller communities they serve.  Frontier’s claim that they are currently providing customers in “other markets” with fiber broadband brings these questions:

• Exactly where?
• Under what terms?
• Is this true fiber-to-the-home service, or simply fiber connected central offices?
• Are advanced levels of service are provided to these fiber customers, or are the plans, terms, and speeds identical to traditional DSL plans?

If the deal goes through, Frontier would assume ownership of pre-existing Verizon FiOS deployments, but those were proposed and planned by Verizon, not Frontier.

“DSL will not bring anything to Mineral County as far as economic development is concerned,” he said, noting that high technology businesses require far faster speeds than DSL traditionally provides.

A Verizon representative tasked with trying to sell the deal that gets the company out of the West Virginia’s phone business said that something is better than nothing.

“To hear you say that DSL is not the future is troubling,” Verizon’s John Golden said. “If you are without broadband, DSL would be the future.”

The Mineral County Commission was unimpressed with Golden’s statement.  Commission president Wayne Spiggle told the News-Tribune a lot of businesses and those who work from home would not consider coming to Mineral County when they discovered only low speed DSL service available, commonplace more than a decade ago in other areas. Spiggle said real broadband service was essential to attract the kind of businesses Mineral County needs to succeed.

“Our mission and responsibility to Mineral County is to create an entrepreneurial garden, and high-speed broadband is essential to that,” he said.

The Communications Workers of America are also been fighting to warn state and local officials about the gamble West Virginia will take with Frontier Communications.  Considering the last three deals resulted in bankruptcy for all three, it’s a risk the CWA doesn’t think is worth taking.

“Frontier will wind up taking on at least $3.4 billion in debt from Verizon,” said John Johnston, speaking on behalf of the CWA. “Frontier has said they’ll expand broadband, but will they? With $3.4 billion in debt, that’s a lot of money,” he said.

Chuck Fouts, who serves as local CWA president said bankruptcy brings job losses.  “If you go bankrupt, the first thing that goes is people,” he said.

The union says the state should join their efforts to force Verizon to “do what they said they were going to do” and provide a plan to upgrade the state’s telecommunications system to fiber optics.

As it stands, Verizon sees higher returns from cherry-picking more urban areas for its FiOS service, and isn’t willing to provide the kind of universal service throughout its service areas that phone companies have traditionally provided for decades.

“How can Frontier provide the fiber they claim to offer in “other markets” when Verizon’s deeper pockets have thus far been turned out empty for residents in West Virginia?” asks Stop the Cap! reader Hyatt.

Investment firm D.A. Davidson downgraded Frontier’s stock last week, reporting they felt the deal would be bad for Frontier shareholders.

Moving the stock rating back to “underperform,” the firm was skeptical Frontier would be able to pull off the cost-savings it promised as part of the deal.  They also anticipated Frontier will have to finance as much as $3.3 billion of the debt (at 8-9%) it will take on as part of the transaction.  Perhaps more revealing is their prediction that Verizon shareholders who receive distributed shares of Frontier stock will likely dump them as fast as possible, remembering earlier Verizon deals that quickly led to falling stock prices and eventual bankruptcy.  D.A. Davidson warned potential Frontier investors to “at least move to the sidelines” during the anticipated grand sell-off, moving back into the stock only when it bottoms-out.