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Utah Opens Formal Investigation Into Frontier Communications; Poor Service Cited

The Utah Division of Public Utilities (DPU) has launched a formal investigation into the performance of Frontier Communications of Utah after the state received an “abnormal number of complaints” over the past few years about the company’s ability to provide adequate landline phone and internet service in the state.

Frontier only services a small part of Utah, and many of the complaints come from the community of Castle Valley, a small town in Grand County in east-central Utah. The community has a population of just over 300 residents. Frontier is the sole telecommunications provider for much of the area.

“Providing adequate, reliable telecommunications services to the residents of Utah does not happen by chance. It is the result of monitoring a number of factors such as capacity, trouble reporting, and aging of infrastructure,” writes the DPU in a discussion about the investigation. “This monitoring provides support for wise capital investments that prevent outages, such as those being investigated in the current dockets. However, operating conditions can create unique challenges even with optimal investments. The DPU has also observed (through annual reports filed with the DPU) that in recent years Frontier has reported declining levels of annual capital investment. For these reasons the DPU initiated its own investigation into Frontier’s service quality.”

Castle Valley, Utah

The regulator noted Frontier has (so far) ignored a request for information filed with the phone company on June 11, 2019.

The DPU’s primary concern is with Frontier’s lack of investment in its legacy networks, which include those in Utah. Without appropriate investment, service quality deteriorates, particularly in rural areas where long stretches of copper cable have much greater exposure to the elements and have more opportunities for failure. Frontier has already indicated it plans no significant investments in its legacy copper service areas in 2019.

New York PSC Approves Settlement Deal With Charter Communications

The New York Public Service Commission on Thursday approved its final settlement proposal with Charter Communications in a 3-1 vote, allowing Spectrum to continue as the dominant cable operator in New York State.

The Commission rejected all recommended changes from consumer groups (including Stop the Cap!), industry trade associations, and service providers, preferring its own Settlement Agreement.

In July 2018, the PSC voted to rescind approval of the 2016 Merger Order that allowed Charter to assume control of Time Warner Cable franchise areas in New York. The Commission found that Charter had violated a key merger condition requiring the cable operator to expand its service area on a timely basis to reach 145,000 rural homes and businesses that lack broadband service. The Commission found Charter was attempting to count newly constructed condos and multi-dwelling units in the New York City area towards that commitment, which the Commission claimed violated the terms of the agreement. After Charter argued it had the legal standing to define its network buildout more broadly and on its own terms, the Commission held an emergency meeting where it took the unprecedented step of voting to de-certify the merger and throw the cable company out of New York.

The Commission and Charter’s lawyers began private negotiations almost immediately after the vote, signaling the Commission was amenable to settlement talks.

The final settlement approved last week, nearly one year after the vote, narrowly focuses on Charter’s rural broadband commitment, reaffirms and expands it with a new $12 million rural broadband fund paid for by Charter. The cable company also agreed to stop counting addresses in the New York City area towards it broadband expansion commitment, and will deposit a $2,800 payment to escrow for each address where Charter misses its target construction deadline.

“We’re pleased the PSC has approved the agreement, and we look forward to continuing to serve our customers and expanding the availability of high-speed broadband in New York State,” Andrew Russell, Charter spokesman told the (Albany) Times-Union. “We thank the PSC, Chairman Rhodes, the commissioners and staff for working with us throughout this process.”

The settlement details:

  • Charter will complete the expansion of its existing network to pass 145,000 addresses entirely in Upstate New York. This expansion will not include New York City addresses, which the company had previously planned to include in an earlier buildout plan. To date, Charter has passed approximately 65,000 of the required 145,000 addresses. To comply with the settlement, the Department estimates that the company will invest more than $600 million, more than double the public benefit value estimated by the Commission in its 2016 merger approval.
  • Charter’s expansion will be completed by September 30, 2021, in accordance with a schedule providing frequent interim enforceable milestone requirements, with corresponding reporting and accountability.
  • Charter will also pay $12 million for additional broadband expansion projects at locations to be selected by the Department of Public Service and the New York State Broadband Program Office. Of the $12 million payments, $6 million will be administered by the New York State Broadband Program Office and $6 million will be paid into an escrow fund for work that will be completed by Charter at the State’s direction.

In Rochester, Stop the Cap! was disappointed to learn the PSC had rejected recommendations on improving the settlement.

“We feel all New Yorkers have paid a price for this bad merger, including skyrocketing cable bills and a yet to be determined number of rural residents that will fall through the cracks and end up serviced by no one,” said Phillip Dampier, the group’s founder and president. “We applaud the PSC requiring Charter to serve additional rural households, but every customer should get better service from Charter, including the 200 Mbps download speed that customers in many other states receive, and there must be a better solution for low-income residents that don’t qualify for Spectrum’s restrictive Internet Assist program and cannot afford $65 a month for internet access.”

Stop the Cap! today also filed a clarification request with the PSC about Charter’s internet speed commitment.

“There seems to be confusion about exactly what internet speed Spectrum should be offering its New York customers,” Dampier added. “The PSC seems to imply Charter has not yet met its obligation to increase internet speed to 300 Mbps by the end of 2019, while Charter considers the fact it offers gigabit service as evidence it has completed all of its speed obligations to New York State regulators. We want the PSC to clarify if it still expects Charter to offer 300 Mbps as a base speed to customers by the end of this year or whether the mere availability of speeds at or above 300 Mbps (which Time Warner Cable was already offering a significant part of New York a year before the Charter merger) has satisfied this merger condition.”

Frontier Admits Its Rural Phone Business is Now “Unsustainable”

Frontier Communications has publicly admitted its residential telephone service in rural and “high-cost” service areas is “unsustainable,” resulting in an increasing number of lengthy service outages and unreliable service.

Javier Mendoza, vice president of Frontier Communications, made the admission in response to a growing chorus of complaints about rapidly deteriorating landline service in the state of West Virginia. Service has gotten so bad it prompted the senior senator from West Virginia to complain directly to Frontier CEO Dan McCarthy.

“In times of crisis, no one should ever have to think twice about whether he or she will be able to call for help,” Sen. Joe Manchin (D-W.V.) wrote in a letter directed to McCarthy. “Unfortunately, I have been alerted of several instances where my constituents who utilize Frontier’s landline service have not been able to complete calls due to service outages.”

The West Virginia Public Service Commission is currently auditing Frontier’s operations in the state after seeing “a large increase” in complaints about Frontier’s service. Frontier has been the state’s largest telecom company since 2010, when it acquired Verizon’s wireline network in West Virginia.

According to some customers, service has been going downhill ever since.

“I don’t always depend on it to work because I know it is probably not going to do that,” Frontier customer Lawrence Gray told WSAZ-TV. “So it used to be a real shock when you picked it up and it didn’t work. The other day when I picked it up and you couldn’t get a dial tone, I was like well here we are again. It is the way it is.”

Frontier is the dominant phone company in West Virginia.

Lawrence’s wife Patrecia notes they are both in their 70s and are anxious about being able to reach 911 in an emergency. Frontier has experienced several 911 outages in West Virginia as well.

“If we ever want to call 911 and it is not working, what do you do because we have no call phone service here,” Patrecia said.

The Gray family reports that it typically takes Frontier five to seven days to restore their phone service after an outage. That is unacceptable to Sen. Manchin.

“The safety of my constituents is my highest priority and the fact that so many of them are unable to do something as basic as calling 911 for assistance is unacceptable,” Manchin wrote Frontier. “Access to phone service is not a luxury; it is a critical lifeline that could mean the difference between life and death and I implore you to resolve this problem within your company immediately.”

Frontier’s response, through Mendoza, is to blame the situation on the unprofitability of Frontier’s landline network in rural West Virginia, after choosing to buy it nine years ago.

“Frontier serves only about ten percent of the state voice lines in its service area—and falling—but has 100 percent of the universal service obligation to serve the most rural and high-cost areas,” Mendoza said in a statement. “Our customer base continues to decline, while the cost of service per line has increased dramatically. This has resulted in an unsustainable model for providing service in rural and high-cost areas, manifesting in increased numbers of service complaints. We plan to reach out to the state’s leaders to collaboratively find solutions to this difficult challenge.”

Those challenges may be more difficult than imagined, considering the frequent complaints received by the Public Service Commission about the ongoing service problems experienced by customers.

Doug and Patricia Stowers represent a case in point. The Stowers family lives in Griffithsville, an unincorporated community in eastern Lincoln County. The nearest cell phone coverage in this part of West Virginia is a 14-mile drive into the town of West Hamlin. A landline is essential in Griffithsville and many other parts of West Virginia where cell service is spotty at best. The only choice of provider is often Frontier Communications.

This branch was left hanging on Frontier’s phone line… after a service call reporting branches on Frontier’s cable was finished. (Image courtesy of the Stowers family)

The Stowers family installed their landline in 2012. A single Frontier technician laid nearly one-quarter of a mile of phone cable, sections of which were laid on the ground next to the roadway.

“Since 2012, coverage has been sporadic. It took us a few service interruptions before we noticed a connection of when the county mowed [along the roadway] and the phone going out,” wrote Patricia Stowers. “When we found a long section of main line had been laid along the edge of the road, we walked the road, and made sure the line was thrown over edge out of the reach of the mowers.”

That is where Frontier’s phone cable stayed, for years. In areas where the phone cable was hung above ground, tree limbs and brush often cover the line, even after Frontier dispatches repair crews to address the latest service outage. At one point, the family discovered parts of their phone cable were now exposed to the core. A Frontier technician temporarily “patched” the cable and then placed it back on the ground, this time at the bottom of a dry creek bed.

When the family reports service outages to Frontier, having patience is a virtue.

“When we call for repairs, we are scheduled three to seven days out. To me this is unacceptable,” writes Patricia. “If we had a choice, trust me, we would not have phone service from Frontier, however, we are at their mercy.”

An attorney for Frontier Communications in Charleston disputed parts of the Stowers family complaint, noting that each time the family reported an outage, the company dispatched a technician to repair the trouble and the family was given credit on their bill.

The attorney also noted that the service address in question was a “weekend/vacation residence.” The cable lying in the creek bed was “not in service” and was “scheduled to be removed.” Further, despite the Stowers’ claims that branches were left laying on their phone line, the attorney claimed Frontier found only “a small branch lying on the 2-pair cable servicing the weekend/vacation residence” and it would be removed “with a pole saw.”

Frontier routinely responds to service complaints filed with the PSC with this declaration:

Pending final resolution and dismissal of this matter, Frontier respectfully reserves all defenses and objections, including without limitation the right to demand strict proof of each and every allegation of the Complaint not expressly admitted in this Answer.

WSAZ-TV in Huntington, W.V. reports Frontier’s landline service in the state is deteriorating, and Frontier admits its rural phone service is “unsustainable. (2:41)

Wall Street Hates CenturyLink’s Dividend Cut; Company Punished for Upgrade Spending

CenturyLink’s stock is being pummeled after the company announced a cut in divided payouts to shareholders earlier this year, preferring to keep the money in-house to reduce debt and increase spending on necessary broadband upgrades.

Last fall, CenturyLink stock was trading for over $23 a share. By January, rumors that CenturyLink was going to cut its dividend put the stock on a downward trajectory, falling to an all-time-low below $11 this month. Company officials argued that with tightening credit opportunities and increasing interest rates, the company needed to devote money normally paid back to shareholders towards paying down its $35.5 billion long-term debt and provide better service to its customers.

A half billion dollars of that money will also be spent on upgrading CenturyLink’s broadband service, particularly in rural areas where the company is receiving Connect America Fund (CAF) dollars from the federal government.

“Our plan for 2019 includes investing to improve the trajectory of the business increasing CapEx by roughly $500 million,” Jeff Storey, president and CEO of CenturyLink said on a January analyst conference call. “As I mentioned earlier those investments include expanding the fiber network, adding new buildings throughout our footprint, enhancing our enterprise product portfolio, continuing our investments in CAF-II, and transforming our customer and employee experience.”

Investors were not impressed with those plans, and CenturyLink’s share price cratered.

Independent phone companies have traditionally attracted investors with handsome dividend payouts, but the realities of their aging infrastructure and the inability to compete effectively with cable companies on lucrative broadband services have left companies like CenturyLink, Windstream, and Frontier Communications in a quandary. Shareholders do not perceive value investing in fiber optic network upgrades and punish companies that announce dramatic increases in network investments. Customers left on slow-speed ADSL networks are increasingly dissatisfied with their internet experience and seek alternative providers — usually the local cable company. As Frontier Communications has discovered, attempting to win back ex-customers has been exceedingly difficult, often only possible with lucrative promotional offers that undercut the cable company. But such offers attract customers with above-average price sensitivity, making it difficult to extract increased revenue from them going forward.

CenturyLink’s stock price has dropped to an all-time low over the last six months.

Investors are also increasingly concerned about the financial viability of investor-owned phone companies that are stuck between leveraging their old networks and facing down shareholders when upgrades become essential. AT&T and Verizon have wireless units responsible for much of the revenue earned by those two Baby Bells. Traditional phone companies have had less luck trying to sell ancillary support services like Frontier’s “Peace of Mind” technical support service, or bundling satellite TV service into packages.

CenturyLink’s Local Service Territory (Source: CenturyLink)

CenturyLink is increasingly depending on its enterprise and wholesale businesses to earn revenue. That fact has prompted some shareholders to ask why the company hasn’t spun off or sold off its traditional landline network and consumer businesses, which currently account for only 25% of its revenue. In May, CenturyLink seemed determined to placate those investors with an announcement it was exploring “strategic options” for its consumer business. Investors theorize that CenturyLink could “unlock value” from its legacy landline networks in such a sale or spinoff that would benefit shareholder value. It would also be much cheaper than investing in that network to upgrade it.

The chorus for a sale increased after Frontier Communications announced it was spinning off its landline territories in the Pacific Northwest to a company specializing in upgrading legacy networks to support better broadband. Frontier, mired in debt and facing a concerning due date for some of its bonds, made the sale to give a boost to its balance sheet. Frontier had also been facing increasing scrutiny about a potential Chapter 11 bankruptcy filing. Windstream declared bankruptcy earlier this year, reminding investors that a trip to bankruptcy court could quickly wipe out all shareholder value.

MoffettNathanson, a Wall Street analyst firm that specializes in telecommunications, finds little to like about CenturyLink shedding its own landline operations. Frontier’s sale benefited from the fact a significant part of its Pacific Northwest territory was built from an acquisition from Verizon, which had already installed its FiOS fiber to the home network in parts of Washington and Oregon. About 30% of the territory Frontier is selling is fiber-enabled. In comparison, CenturyLink has installed fiber to the home service in only about 10% of its territory, dramatically reducing any potential sale price. Much of CenturyLink’s core fiber network powers its enterprise and wholesale operations — businesses CenturyLink would likely keep for itself.

MoffettNathanson also sees little value from the proposition a buyer could leverage CenturyLink’s network to provide backhaul fiber capacity for future 5G services, because CenturyLink provides service mostly in smaller communities likely to be bypassed by 5G, at least for the near term.

Wall Street’s idea of a win-win strategy for CenturyLink is to keep its consumer business and expand its broadband service footprint and capability, if the federal government offers to cover much of the cost through more rounds of CAF subsidies. Taxpayers would subsidize broadband expansion while CenturyLink and shareholders share all the profits.

N.Y. and California Head 10-State Lawsuit to Block T-Mobile/Sprint Merger

 James

New York Attorney General Letitia James and California Attorney General Xavier Becerra today filed an unusual multi-state lawsuit, along with eight other State Attorneys General to halt the proposed merger of telecom giants T-Mobile and Sprint, deciding not to wait for a decision from the Department of Justice, which is also reviewing the merger. The complaint, filed in the federal Southern District of New York court in coordination with Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia, and Wisconsin alleges that the merger of two of the four largest national mobile network operators would deprive consumers of the benefits of competition and drive up prices for cellphone services.

“When it comes to corporate power, bigger isn’t always better,” said Attorney General Letitia James. “The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country. That’s why we are going to court to stop this merger and protect our consumers, because this is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.”

“Although T-Mobile and Sprint may be promising faster, better, and cheaper service with this merger, the evidence weighs against it,” said Attorney General Xavier Becerra. “This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices. Today, along with New York and eight other partner states, we’ve filed a lawsuit to block this merger and protect the residents of our state.”

The states departed from traditional courtesies in the case, deciding to launch a pre-emptive legal challenge to the transaction without providing Justice Department officials advance notice of their decision to sue. That decision may have come after FCC Chairman Ajit Pai gave his full support for the merger, with indications the Republican majority on the FCC would also vote in favor of approving the deal. Staffers in the Antitrust Division of the Justice Department object to the merger, and are recommending it be rejected. But the Justice Department’s unpredictability, and its poor track record trying to block the AT&T-Time Warner (Entertainment) merger in court may have pushed the state attorneys general to also act on their own.

T-Mobile USA and Sprint are the third and fourth largest mobile wireless networks in the U.S., and are the lower-cost carriers among the “Big Four” — with market leaders Verizon Wireless and AT&T controlling the larest share of the wireless market. Intense competition, spurred in particular by T-Mobile and Sprint, has delivered declining prices, increased coverage, and better quality for all mobile phone subscribers. According to the Labor Department, the average cost of mobile service has fallen by roughly 28 percent over the last decade, while mobile data consumption has grown rapidly. The merger, however, would put an end to that fierce competition, argue the attorneys general, which has delivered a great number of benefits to consumers.

States with large urban poor communities are particularly sensitive to the merger, because both T-Mobile and Sprint focus their coverage on urban areas. With the average U.S. household spending $1,100 annually on wireless phone service, even small rate increases can dramatically increase service suspensions or disconnections due to late or non-payment.

“Low-and moderate-income (LMI) New Yorkers put a greater share of their household income toward their phone bill, and when you are looking at a budget that is already stretched thin, every dollar counts,” said Mae Grote, CEO of the Financial Clinic. “Cellphones now not only give us the ability to communicate with friends and family, here and abroad, but are increasingly the way we engage with many critical services. Our customers use cellphone apps to access public information, send and receive money, manage their SNAP benefits, look for a job, and even communicate with their doctors, and maintaining competition in the market for this critical service ensures LMI consumers have the same access to quality, affordable service as the more financially secure. The Clinic is proud to advocate on behalf of the communities we serve to protect their inclusion in the modern economy.”

The attorneys general investigation laid bare many of the alleged merger benefits offered by T-Mobile and Sprint to win approval of the merger. The group found many of the claimed benefits were completely unverifiable and were likely to be delivered years into the future, if ever. But within weeks of approving such a merger, the companies would have an immediate incentive to raise prices and reduce service quality. Sprint’s network, in particular, was scheduled to be largely mothballed as a result of the merger, even though Sprint provides coverage in some areas that T-Mobile does not. Although the two companies could identify several self-serving deal efficiencies that would reduce their costs and staffing needs, there is no evidence the merger would deliver consumers lower prices and were outweighed by the merger’s immediate harm to competition and consumers.

Additionally, the merger would harm thousands of hard-working mobile wireless independent dealers in New York and across the nation. The ten states are concerned that further consolidation at the carrier level would lead to a substantial loss of retail jobs, as well as lower pay for these workers in the near future.

Becerra

“CWA applauds the Attorneys General and especially General Letitia James’ leadership in taking decisive action today to prevent T-Mobile and Sprint from gaining anti-competitive power at the expense of workers, customers, and communities,” added Chris Shelton, president of the Communications Workers of America (CWA). “Reducing the number of national wireless carriers from four to three would mean higher prices for consumers, job loss for retail wireless workers, and downward pressure on all wireless workers’ wages. The states’ action today is a welcome development for American workers and consumers, and a reminder that regulators must take labor market concerns seriously when evaluating mergers.”

Before filing suit, the states gave significant consideration to T-Mobile and Sprint’s claims of increased coverage in rural areas. However, T-Mobile has yet to provide plans to build any new cell sites in areas that would not otherwise be served by either T-Mobile or Sprint. As stated in the complaint, the U.S. previously won the “race to LTE” as a direct result of vigorous competition among wireless carriers. Finally, continued competition, not concentration, is most likely to spur rapid development of a nationwide 5G network and other innovations.

“This merger is bad for competition, and it is bad for consumers, especially those living in or traveling through rural areas, who will experience fewer choices, price increases, and substandard service,” stated Carri Bennet, general counsel for the Rural Wireless Association. “We are pleased that the New York Attorney General, along with nine states have filed their lawsuit to block the merger. The process at the FCC has not been transparent and the FCC appears to be blindly accepting New T-Mobile’s words as truth.”

The complaint was filed under seal, because it contains unredacted confidential information, in United States District Court for the Southern District of New York.  A redacted copy of the lawsuit is likely to be made available later.

T-Mobile currently has more than 79 million subscribers, and is a majority-owned subsidiary of Germany’s Deutsche Telekom AG. Sprint Corp. currently has more than 54 million subscribers, and is a majority-owned subsidiary of Japan’s SoftBank Group Corp.

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