Burlington city officials are mired in controversy over the legality of a recently revealed $17 million dollar unpaid loan given to Burlington Telecom, an apparent violation of the terms of its license issued by the Vermont Public Service board. While the municipally-owned fiber optic network is permitted to borrow money from the city, it must be repaid within 60 days, because the city charter insists that Burlington Telecom be an independently financed venture that does not become a taxpayer liability.
Dubbed by some as TelecomGate, it has become a major media story in Vermont’s largest city. Some taxpayers are upset by the perceived “bailout” of Burlington Telecom after the company exhausted its commercial loans of almost $34 million dollars to construct a fiber network serving homes and businesses. The Burlington Free Press has reported the city began quietly funding Burlington Telecom as early as late 2007, for both capital expenditures and some operating costs. As of today, Burlington Telecom has an accumulated debt of $50 million dollars, $17 million of which is owed to the city.
WCAX-TV in Burlington breaks the story about the funding controversy on October 16th. (3 minutes)
Burlington officials admit they underestimated construction costs, in part because they failed to complete a comprehensive engineering study prior to construction. Installing underground fiber cabling has literally hit a rock ledge, part of the geological character of underground Burlington, that will require an additional $10 million to cope with.
The fact the public is just finding out about it now is a major reason for the controversy. Jonathan Leopold, the city’s chief administrative officer, said he learned that the financing violated the company’s license terms last November. The Free Press reports he only informed the city council responsible for overseeing the operation in May of this year, six months later. The city council itself waited four months until late September before it notified Vermont state officials about the apparent violation, which led to the matter finally going public.
State officials publicly criticized the Burlington city government for the apparent transgression and for what some have called a cover-up, and State Auditor Thomas Salmon called on Burlington Telecom to have greater openness and transparency. State Public Service Commissioner David O’Brien called the funding irregularity a potential violation of law and that Burlington Telecom was “in debt beyond their ability to recover,” a charge which brought a hot response from Burlington mayor Bob Kiss:
“Commissioner O’Brien’s statements as quoted in today’s Burlington Free Press are inaccurate, inflammatory and totally inappropriate given there is a present proceeding before the Vermont Public Service Board in which his Department is supposed to be representing the public interest. Commissioner O’Brien knew or should have known of the City’s use of pooled cash to fund BT’s capital expenses and start up costs for almost a year. His comments only serve to undermine the confidence of BT’s customers, the interests of whom his Department is charged by statute to protect.”
O’Brien responded that Kiss was “shooting the messenger.”
WCAX-TV reports Burlington city council members had tough words for Jonathan Leopold at a meeting on October 20th, but Burlington mayor Bob Kiss is standing by Leopold. (3 minutes)
City council members have scurried for cover after the local press revealed they approved Burlington Telecom’s funding 13-1 at a city council meeting held October 5th. That may serve to back up Leopold’s position that he never hid any details about the loan arrangements — city officials and lawyers were well aware of these transactions, he says. Several public venting sessions were rapidly scheduled to allow constituents to express their concerns.
The Burlington Free-Press editorialized that the city can no longer keep information about city-owned Burlington Telecom’s problems and violations from residents by saying the secrets are necessary for business reasons and is calling for an independent investigation and audit.
State and local politics have also become deeply ingrained into the debate, with accusations flying between political parties that the flap has now become more about undermining the current administration than ferreting out and resolving issues with Burlington Telecom.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh – Taxpayers Give City Council Piece Of Their Mind 10-22-09.flv[/flv]
WPTZ-TV in Plattsburgh covered the public venting session on October 22 set up by the city council to allow residents to speak their minds. (2 minutes)
Leopold, whose administration duties involve Burlington Telecom, and who has been the most visible figure in the middle of the dispute, called attacks on him by some local politicians part of a scapegoating witch hunt.
City council voted 8-6 at 1:30am this morning approving a resolution to ask for the suspension of Jonathan Leopold anyway. So far Mayor Kiss won’t hear of it. At a press conference he reiterated his full support for Leopold, saying his suspension is “not warranted by the facts and is not in the best interests of the city. As mayor, I will not suspend the CAO from his service to the city.”
Caught in the middle is Burlington Telecom and its 4,600 subscribers. The provider is in apparent violation of its license for its loan arrangements, needs additional money to complete its buildout, and will likely also be cited for not completing that buildout on the schedule it committed to as part of its license to operate.
Commentary: Our Take
Too often municipal broadband projects end up as political footballs kicked all over town, especially when controversy erupts.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh State Demands Repayment 10-20-09.flv[/flv]
WPTZ-TV covers the political repercussions and damage control operations in full force after news of the controversy erupted. (10/20/2009 – 2 minutes)
Burlington Telecom made a crucial mistake when it failed to undertake a detailed engineering study to determine the true costs of wiring Burlington with fiber optics, something incumbents Comcast and FairPoint have not been willing to undertake. A true picture of the start-up costs would have resulted in a better understanding of initial construction costs and the financing required to pay for it.
City officials also erred in how they began funding some of the costs to administer the system after initial financing ran out. Good intentions or not, the fact there is a perceived cover-up makes things much more attractive to a media that often ignores or buries telecommunications stories on the business pages.
A frank and open discussion explaining the challenges and resolutions to them might have brought about temporary city loans with the consent of the community, without melodramatic political theater. Residents have a unique buy-in with Burlington Telecom because it’s municipally-owned. Many would be more than willing to see that and some additional investments pay off instead of collapsing with a complete shutdown.
[flv]http://www.phillipdampier.com/video/WCAX Burlington Mayor Defends Administration Over Telecom Issue 10-26-09.flv[/flv]
WCAX-TV covers Burlington mayor Bob Kiss who held a press conference yesterday to defend his administration’s role in Burlington Telecom (3 minutes)
When the story broke, the usual and very predictable campaign of finger-pointing, ducking for cover, and scapegoating began. This time-honored political damage control method is voter approved, if you stick your finger to the wind and see where voter sentiment seems to be blowing. That’s precisely what state Commissioner O’Brien did, only he overplayed his populist hand. This is, after all, the same commissioner who initially made excuses on behalf of FairPoint and seemed all too willing to give that company the benefit of the doubt, right up until it became politically untenable. You cannot be a credible torch-bearer in a populist mob if you helped build the castle you now seek to burn to the ground.
Mayor Kiss was correct in calling O’Brien out, not just for his convenient criticism, but for trying to win the Self-fulfilling Prophecy Award by predicting Burlington Telecom’s demise. Vermont residents should ask him where his clairvoyance was when he was publicly stating FairPoint was doing “pretty well” a year ago. O’Brien needs to be part of the solution for a change, not part of the problem.
Leopold appears to be a classic scapegoat. As he struggled to keep Burlington Telecom afloat, it is inconceivable he was cutting loan deals without the knowledge and consent of others in the city administration. The same city council now demanding his suspension seemed all too willing to go along just a few weeks ago when it voted almost unanimously with going forward. That speaks volumes. But when the media lights fire up, and angry residents start writing and calling, the complete turnaround is a site to behold. A series of self-serving, concern trolling speeches followed, along with complaints they were never given enough information or were confused by what they heard. If that is the kind of leadership Burlington has, perhaps residents need to consider making some changes.
[flv]http://www.phillipdampier.com/video/WCAX Burlington City Council Undecided About Burlington Telecom 10-26-09.flv[/flv]
Late last night, WCAX reported city council was still undecided about what to do about the Burlington Telecom controversy. (3 minutes)
The public has a right to be upset, but are all too often satisfied with the political theater designed to quickly “resolve” the problem by expelling the designated scapegoat from their midst. Mayor Kiss has remarkably withstood the usual pattern very well thus far.
While the politicians play “not my fault,” Burlington Telecom customers need answers to know if their provider is endangered. An independent audit and review, free of political know-nothings would be a start. How about bringing in those with actual expertise in deploying municipal networks. How about excluding involved, self-interest-protecting elected officials, especially those who had any hand in the FairPoint debacle.
It’s also time to fund that engineering study for the unwired portions of Burlington to get a true cost analysis. A review as to why Burlington Telecom is not attracting a larger segment of the market is also needed.
In broadband, at least, that’s a no-brainer. Burlington Telecom’s speeds on the download side are too slow and too expensive. Comcast offers faster downstream service at lower prices, so why would anyone want to switch? Burlington Telecom is trying to market their synchronous speed network (your downstream speed and upstream speed is the same), which would normally be appealing to a segment of Internet customers frustrated with cable and DSL shortchanging them on upload speeds. But the customers who understand and appreciate the difference will not accept a broadband service that tops out at 8Mbps for an enormous $71.80 a month. That’s far too slow and too expensive when Comcast is offering 12Mbps/2Mbps (upload speed with PowerBoost) for $42.95 per month. Service for 16Mbps/2Mbps is $10 more, still twenty dollars less than Burlington Telecom is charging for half the speed. Burlington Telecom can attract a larger base of broadband customers by accelerating speeds on their network beyond what Comcast provides.
Municipal broadband projects can be successful, but should be based on a true and honest appraisal of the costs, a complete understanding of the competitive landscape, a flexibility to respond to changing markets, and a good reason why they should exist in the first place. Fulfilling the needs residents want, but incumbent providers will not provide is always the best answer. Customers don’t want anemic broadband at high prices. Provide that and a municipal broadband project will fail, even without political grandstanding and finger-pointing.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh Kiss Refuses To Punish Leopold Over Telecom Flap 10-27-09.flv[/flv]
This morning Burlington residents learned Burlington mayor Bob Kiss was still standing behind Jonathan Leopold, despite their calls for Leopold to be suspended. (WPTZ) (2 minutes)
Below the jump, find a one hour video interview between The Burlington Free Press and city officials on the Burlington Telecom matter.
Phillip Dampier resides in Frontier's largest service area: Rochester, New York
Consumers across 13 states impacted by the proposed Verizon sale to Frontier Communications, as well as existing Frontier customers, should tell regulators to reject the deal.
Those of us living and working in Rochester, New York are extremely familiar with Frontier Communications. For more than 100 years, Rochester Telephone Corporation provided excellent, independent telephone service to Rochester and a significant part of the Genesee Valley. The company had a reputation for excellent reliability and charged rates considerably lower than New York Telephone, a Bell subsidiary, in other upstate cities like Buffalo and Syracuse. In 1995, Rochester Telephone was renamed Frontier Communications, because the company wanted to position itself as something more than just a phone company.
Frontier was acquired in 2001 by Citizens Communications of Stamford, Connecticut, who has provided service ever since. Ironically, that company thought Frontier was a better name than the one they had used for decades, and Citizens renamed themselves Frontier Communications in 2008.
Today, Frontier Communications serves just under three million customers, primarily in suburban and rural communities in 24 states.
Since Citizens acquired Frontier, and its largest operating service area in metropolitan Rochester, the company has made some changes to the local telephone network. Fiber optic connections are now common between their central offices and smaller “satellite” central offices. A local wi-fi network was installed in association with Monroe County, in part as a political maneuver to stop municipally owned and operated affordable wi-fi networks from getting off the ground. As a concession to the county, a much smaller “free” wi-fi network was also included. (See below the jump for video news coverage of Frontier’s promises vs. reality)
The company’s broadband service relies on ADSL technology delivered by traditional copper telephone wiring, providing service in Rochester at speeds up to a theoretical 10Mbps. Actual speeds vary tremendously depending on the distance between your home or business and the telephone company central office serving it. In most smaller communities, speeds are far lower. In Cowen, West Virginia, Frontier markets broadband service at just 3Mbps, a typical speed for Frontier’s smaller service areas.
Unfortunately, Frontier has shown no initiative to move beyond offering traditional DSL service to its customers, including those in western New York. Across other New York State cities, Verizon is taking a far different approach. In larger communities, it is aggressively installing fiber optic wiring to both homes and businesses. Verizon FiOS positions the company to effectively compete against their traditionally closest competitor – cable television. For several years, cable operators have offered a better deal for its “digital phone” service, which works with existing home phones but delivered over cable TV lines, often charging less than a traditional phone line, and cable throws in free long distance on many of its plans.
The ubiquitous cell phone has not helped. Many younger Americans can’t understand why they would want to bother getting a traditional phone line, when the mobile phone in their pocket works just fine, and they can take it with them wherever they go. The result has been a steady erosion of traditional “wireline” phone lines, and a corresponding decline in the revenue earned from the service in many areas.
The Communications Workers of America contract Verizon promises with reality for consumers impacted by earlier deals. (click to enlarge)
In September Verizon CEO Ivan Seidenberg told a Goldman Sachs investor conference that the wired phone line business was effectively dead. Seidenberg recognized that trying to guess when the company would stop losing “landline” customers was like guessing when a dog will stop chasing a bus. In other words, the future of Ma Bell is not delivering phone service — it’s deploying advanced networks that are capable of providing customers with video, broadband, and phone service across one wire, preferably a fiber optic one. Those that can manage the transition will succeed, those who cannot or won’t will face a steady decline to obsolescence.
There is only one major problem — it costs a lot of money to rewire entire communities, much less states, with fiber optic wiring. It’s like building a phone network from scratch. A company contemplating such a challenging undertaking starts by asking how much it is going to cost and when will it profit from its investment. Many on Wall Street don’t like either question because of the up front cost, and are even less happy with the prospect of taking the long view waiting for those costs to be recouped from customers.
To date, Verizon is the most aggressive major phone company in the nation building a pure fiber optic system in its larger service areas. AT&T, which provides phone service in many states, has taken a more cautious approach using a hybrid fiber-copper wire design they market as U-verse. A handful of independent phone companies and municipally owned providers have undertaken to wire fiber optics to the home as well, so they can sell video, telephone and broadband service to their customers.
A major challenge confronts phone companies servicing more distant suburban and rural phone customers, often living far apart from one another in sparsely populated regions. It costs more to service these customers, and the potential revenue gained is often not as great as what can be earned from their urban cousins. Verizon doesn’t see many rural customers as part of their future business plans and have begun to systematically sell some areas off to other phone companies, usually in tax-free transactions. One company that sees an ambitious future in serving rural America is Frontier Communications. For them, finding a niche among the big boys gives them safety and security, particularly in areas that don’t have a cable competitor (or any competitor at all).
Frontier’s acquisition strategy is to sell regulators and the public on the idea that allowing Frontier in guarantees a much better chance for broadband service to reach the communities Verizon skipped over. Their argument for success in a business seeing steady declines in customers is that broadband service will stem the tide, and help them remain profitable. More than doubling their size with the acquisition of Verizon’s latest castoffs means more opportunity to market broadband service to those underserved communities. Frontier argues it can be a more nimble player than Verizon because it has marketing and service experience in rural communities previously ignored by Verizon.
Frontier’s ability to provide broadband service is not the most important question. More important is how Frontier will define broadband and at what speed. Also critically important is how Frontier will be prepared to deliver the next generation broadband platform that other communities will see with speeds up to 100Mbps, often on fiber optic networks.
Frontier’s reliance on ADSL technology, which worked fine for 1990s Internet connectivity, is increasingly falling behind in the speed race, and for much of the next generation of online content, speed will matter very much.
Unfortunately, the track record for the success of these spinoffs has been universally lousy for consumers and for many employees who live and work in the impacted communities. Promises made quickly become promises delayed, and later broken as companies like Hawaii Telecom and FairPoint tried to integrate former Verizon operations into their own. Service outages, billing errors, confusion, and finally a mass exodus by customers looking for better alternatives has been the repeated result. The faster customers depart, combined with the enormous debt these transactions create for the buyer, the faster the journey ends in Bankruptcy Court. There is nothing about the Frontier deal proposal that suggests their experience will be any different.
Shouldn’t Three Strikes Mean You Are Out?
Consumers should tell state regulators they should pay careful attention to the failures Verizon has left in its wake from previous deals:
FairPoint Communications, which assumed control of phone service in Maine, New Hampshire and Vermont just last year declared bankruptcy this morning, even now still plaguing customers with billing and service problems. The company choked on the debt it incurred from financing the deal. Before this morning’s bankruptcy, their stock price had lost 95% of its value, and customers were leaving in droves, only accelerating the company’s demise. FairPoint thought it could integrate Verizon’s byzantine billing system into its own. Thinking and doing turned out to be two entirely different things. Frontier has experience integrating other small independent phone companies into its billing system, but now faces the same prospect of dealing with Verizon’s own way of doing everything, and for twice the number of customers Frontier serves today.
Hawaii Telecom and its 715,000 customers were dumped by Verizon in 2005. Once again, transition issues plagued the post-sale experience for those customers, and almost a quarter fled the company over three years. Last December, Hawaii Telecom declared bankruptcy.
Verizon’s yellow pages unit was also thrown overboard by the company to Idearc in November 2006. Saddled with $9.5 billion in debt and interest payments representing almost one quarter of the entire company’s revenues, Idearc finally had enough in March 2009 when it also declared bankruptcy.
The deal between Verizon and Frontier could easily follow the same path, as Frontier gets loaded down with massive debt financing the purchase, and has to immediately provide better service than Verizon did, or face a stampede of customers heading for the exit. The impact of a debt-laden Frontier could be felt by more than just the newcomers. Existing Frontier customers could also be impacted as the company turns its attention to a potentially lengthy integration process.
The Promise of Anemic Broadband, The Fiber Myth & The 5GB Acceptable Use Policy
Time Warner Cable competes effectively against Frontier DSL in the phone company's largest service area
Frontier’s plan to bring broadband to a larger number of customers is a noble gesture, particularly for households that currently do not receive any broadband service. Unfortunately, a short term gain of what will likely be 1-3Mbps DSL service will leave these communities behind in the next few years as broadband speeds accelerate far faster than what Frontier is prepared to provide.
Some press accounts in West Virginia have left residents with the impression fiber optic service will reach their individual homes should Frontier be successful in purchasing Verizon’s assets. There is no evidence to suggest this is true.
In earlier deals, these kinds of rumors started when companies advocating the sale staged press-friendly events announcing a fiber connection between hospitals, schools, or community centers, allowing the media to give the impression there would be fiber upgrades for all… if the deal gets approved. In the case of Frontier, they have suggested they will continue work on Verizon’s FiOS system in the communities where construction was already underway. That’s an important distinction for the millions of customers who don’t live in those communities. Verizon’s FiOS network that is part of this transaction serves less than 70,000 residents.
Residents should consider what possibility their community has of obtaining this type of advanced service when Frontier refuses to provide anything comparable in their largest service area – Rochester, New York.
If they are not doing it in Rochester, do you really believe they will do it in your community?
The company certainly has a competitive need to provide such service in our city where Time Warner Cable has accelerated speeds beyond what Frontier is capable of providing. Indeed, Time Warner Cable officials tout their largest number of new Road Runner broadband sign-ups comes from departing DSL customers who are fed up with the anemic, inconsistent speeds offered by this aging technology.
In the town of Brighton, I gave Frontier DSL service a try this past spring. The company promises up to 10Mbps of service to my area, which is less than 1/2 mile from the city of Rochester, and literally just a few blocks from the town’s business center. After installation, the company was only able to provide me with service at 3.1Mbps, just less than one-third of the speed marketed to local residents. Even more surprising was the fact they charged a higher price for that service (including taxes, fees, and modem rental charge) than their competitor, Time Warner Cable.
This website was founded after Frontier inserted language into its Acceptable Use Policy defining “reasonable” broadband usage at just five gigabytes per month. That’s right, the same limit your mobile phone provider applies to their wireless broadband service. Viewing one HD movie over Frontier’s DSL service would put you perilously close to unreasonable use.
Are consumers willing to give up unlimited Verizon DSL service for a company that refuses to drop a 5GB acceptable usage definition from their terms and conditions?
America is on the threshold of 50-100Mbps broadband service, with some communities already enjoying those speeds. If your community isn’t served by a competing provider, do you want to limit your future to yesterday’s DSL technology, and then told it is inappropriate for you to actually use it beyond five gigabytes per month?
The Billing and Customer Service Nightmare
The days of local customer service are over with Frontier. Back during the days of Rochester Telephone, there were several occasions when a local customer service representative would recognize me by name. Those days are long gone. Now, a good deal of Frontier’s customer service is handled by a call center in DeLand, Florida. While the representatives mean well, experiences with them suggest many are not well equipped to understand and consistently market Frontier’s products to existing customers. Pile on more than double the number of new customers, and the problems are likely to become much worse.
Frontier has personally plagued me with billing errors this past year, gave inconsistent and inaccurate answers to pricing and service inquiries, and created major runaround hassles to correct them. From the DSL self-install kit that never arrived (requiring me to visit a local office to pick one up myself), to the impenetrable and inaccurate bills that resulted, the company could not correct the problems without consulting someone with supervisor status. I canceled service within the month.
Customers signing up for service have been pressured into “peace of mind” agreements that lock customers into long term contracts that automatically renew unless the customer actively cancels them (and is certain the request to cancel was processed correctly.) Frontier has been fined twice by the New York State Attorney General for “misleading advertising and marketing tactics,” once in 2006 and again just a few weeks ago. Some customers are now waiting for substantial refunds ranging from $50-400 dollars for “early termination fees” charged when they tried to cancel service.
Are you comfortable knowing some customers have been inappropriately placed on a one to three year contract without their full informed consent, and billed hundreds of dollars when they tried to cancel?
The Art of the Deal
By no means will a Verizon-Frontier transaction be the last. As the industry continues to consolidate around a dwindling number of wired phone line customers, it’s a safe bet there will be more phone customers thrown away by the bigger players. Nothing guarantees Frontier itself will be freestanding when the consolidation wave ends. While these deals may make sense for some shareholders and company executives, they often don’t for local experienced employees who know the network and how to provide quality service. They never have for consumers who will always have to foot the bill to pay off these transactions and have to live with the company trying to integrate Verizon’s bureaucracy with their own.
Some consumer groups and local workers correctly predicted, in each instance, the horrific outcome of these kinds of deals. Their uncanny knack to correctly predict disaster contrasts with company marketing, lobbying, and astroturf efforts that promise the sky and tell each successive news reporter covering the latest atrocity that “things are getting better” and “will be fixed soon.” Unfortunately for too many customers, the fix has to come from a judge in Bankruptcy Court.
The International Brotherhood of Electrical Workers who repeatedly warned about the perils of FairPoint, now warns state regulators about Frontier, and direct attention to the numbers:
If the transaction is approved, Frontier management will have to deal with a 300% increase in access lines (from 2.2 million access lines now to 7 million after the sale) and a 200% increase in employees (from 5,700 employees now to 16,700 after the sale).
Frontier’s debt will increase from $4.55 billion to $8 billion—an increase of over $3.4 billion. Servicing this debt will mean less money for infrastructure, service quality, and high-speed internet build out.
While Frontier argues that somehow this deal will make it stronger, the issue for the states being sold is how much weaker it will make the operations in those states.
The leverage ratio is one way to measure the financial health of a company. The leverage ratio is calculated by taking net debt and dividing it by earnings (before interest, taxes, depreciation and amortization). The leverage ratio for the states being sold will increase from 1.7 immediately before the transaction closes to 2.6 after the sale. The entire deal revolves around Frontier’s ability to cut its operational expenses by $500 million or 21%.
This is significantly greater than the 8-10% cut that FairPoint hoped to achieve—and much of these savings were to be generated from replacing Verizon’s network and back-office systems. Yet, Frontier states that all of the operations except for West Virginia will continue on Verizon’s existing systems—for which Frontier will pay a fee.
Where will Frontier generate the savings—from reduced service quality, workforce, or maintenance of the communications infrastructure? In spite of brave talk from Verizon and Frontier, as recent events have demonstrated, obtaining financing for a transaction this size can be difficult. Frontier does not currently have financing for the additional debt it will take on for this transaction.
As an existing Frontier customer, I’d like an answer myself.
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Watch these two Wall Street guys talk about the previous Verizon deals that threw customers under the bus. Plenty of praise for the skilled deal maker Verizon CEO Ivan Seidenberg, and no concern for you, the consumer and telephone customer impacted by a deal that got a few people very rich and left you with a bankrupt phone company. (3 minutes)
It’s Not Worth the Risk
Unfortunately, for too many rural Americans impacted by this deal, there is only one phone company. Cable television is not in their future, and in mountainous regions like West Virginia, wireless phones may not be suitable as a phone line replacement. Risking 100 years of solvent phone service on a deal that could ultimately follow earlier deals into bankruptcy is not worth the risk. The nightmares of converting operations from one provider to another is a hassle consumers should not have to face.
For decades, you faithfully paid your Verizon telephone bill and made the company the telecommunications powerhouse it is today. Now they want to abandon you because, frankly, you just aren’t important enough to them anymore. It doesn’t have to be this way. State regulators can tell Verizon they need to make different plans — by forgetting about trying to cash in on a deal that is good for them and bad for you, and by staying put and providing consumers with the same kinds of network upgrades they are building in communities across the country.
Unfortunately, Frontier before this deal was ill-equipped to embark on the kind of investment necessary to provide fiber optic broadband connectivity to its customers. Now pile on billions of additional debt and the challenge of trying to more than double their size and integrate diverse phone networks in 13 different states and ponder what the chances will be for fiber service after the deal is done. Far more likely for residents is a company that will rely on slow speed DSL service, providing “good enough for them” broadband for the indefinite future.
Take Action!
As has been the case with Hawaii Telecom and FairPoint, naive regulators believed the false promises and approved earlier deals, and are frankly responsible for part of the blame. Face-saving telecommunications regulators in New England initially even tried to cheerlead for FairPoint as they stumbled through one customer service nightmare after another. Too late, they realized the grim reality that their approval saddled their states with a phone company totally unequipped to do the job.
Consumers who do not want a repeat performance can contact their state representatives and tell them to put pressure on each state’s public utility commission to reject the deal. You should also contact your state’s public utility commission yourself.
No amount of concessions and written agreements will make a difference if that phone company ends up in financial distress and takes a walk to Bankruptcy Court. Regulators should not even bother trying, after witnessing the debacle with FairPoint.
In your polite, persuasive and persistent communication with state officials, let them know:
We’ve been down this road with Verizon before, with FairPoint Communications and Hawaii Telecom, leaving a litany of broken service promises, unfulfilled broadband commitments, unacceptable billing mistakes, and poor quality customer service. In both instances, customers fled and the companies ended up in bankruptcy;
Frontier has been unable or unwilling to wire its largest service area, Rochester, New York, with the advanced fiber connectivity that Verizon is wiring throughout the rest of upstate New York. If the company cannot meet the needs of customers in their largest service area, what in the world makes you think they’ll do it for us?
The company has been fined twice by the New York State Attorney General for dubious business practices, costing consumers hundreds of dollars the company has now agreed to return to those customers;
A broadband service for our community’s future should not come with a 5 gigabyte monthly limit attached in the fine print. How can our community compete in the digital economy if you have to ration your broadband usage to an unprecedented level in wired broadband?
The devil is always in the details. Verizon has an aggressive plan to stay relevant in a digital future, with video, telephone, and Internet service running across advanced fiber optic lines. Frontier has a plan to serve rural communities with yesterday’s technology. Frontier’s vision for video is to “get a satellite dish” and rely on the existing aging copper wiring to do everything else.
What kind of service and growth can we expect from a company mired in debt? As seasoned Verizon employees in our community start retiring, understanding the writing on the wall, what do they know that you and I don’t?
Phone companies are a regulated utility, essential to the public interest. Why permit a risky deal that could ultimately lead to a taxpayer bailout to keep operations running if Frontier follows its predecessors into bankruptcy, all while Verizon walks away with billions in proceeds?
You can locate the names and contact information for your state representative(s) on Congress.org simply by entering your zip code. When calling or writing, always be courteous, and request that your representative respond in writing to your concerns, and share with Stop the Cap! any correspondence you receive in reply. As always, we’ll be holding elected officials accountable.
Your next contact must be with your state public utility commission. If a hearing is planned in your community, share your views in person and feel free to point them here if they want to watch how bad telecommunications deals have unfolded in the past. We have countless hours of news reports archived for their viewing pleasure. Each state has a different procedure for contacting them. In West Virginia, for example, consumers can call the Commission at 1-800-642-8544. Ohio residents can fill out an online form.
Perhaps Frontier can one day take on a transaction like this, but only after it can demonstrate it has the resources and willingness to provide customers with better options for service. Had they done that in our community, local residents would not have taken to signing a petition for Verizon to overbuild, or buyout Frontier’s Rochester operation. Local residents want the advantage fiber optic service can bring our community and its local economy, some even expressing a willingness to send $10 and $20 checks to Verizon for an acquisition fund to get the sale done. When consumers give money to the phone company when they don’t owe anything, that should be a clear signal consumers are dissatisfied and want a change Frontier, thus far, has not provided.
With all of the discussion about Net Neutrality recently, the mainstream media often has a difficult time absorbing what this concept means and ends up confusing it with Internet Overcharging schemes. CNN is the latest to make the mistake — not once but twice in three days as Nicole Lapin and Tony Harris discuss how Net Neutrality policies will impact consumers.
Lapin suggests this week’s decision by the FCC to begin writing a formal Net Neutrality policy was a done deal, and that it would prevent Internet providers from charging higher prices for consumers who use their broadband accounts a lot.
Both statements are incorrect.
The FCC is only at the start of writing a formal Net Neutrality policy. The basic tenets Chairman Julius Genachowski would like to see a part of a formal Net Neutrality rulemaking are on the table, but there is plenty of time between now and a final vote for telecommunications industry lobbyists to sweep several pages from Genachowski’s wish-list to the floor (and replace them with their own.)
Nothing in the proposed Net Neutrality policies would currently prohibit providers from moving to Internet Overcharging schemes like usage allowances, overlimit fees, and other pricing changes that are ultimately designed to reduce usage and extract higher pricing from consumers.
Rep. Eric Massa (D-NY) has a bill to put a stop the Internet Overcharging schemes that continues to need your support and advocacy with your member of Congress. See the Take Action section for further details.
For the record:
Net Neutrality: A set of policies that prevents Internet providers from discriminating against certain broadband services or website content providers with speed throttles, blocks, or other impediments. Providers would not be allowed to set up special premium traffic lanes with faster speed delivery of online web content for “preferred partners,” while leaving everyone else on a slower traffic lane. It preserves the Internet we have today.
Internet Overcharging: Practices by broadband providers to limit usage of your broadband service and/or charge higher pricing based on arbitrary claims that consumers are “overusing” their unlimited broadband service. These include usage caps or limits, usage allowances, consumption billing that includes usage allowances, overlimit fees/penalties for exceeding those limits, speed throttles that kick in when a user reaches their usage limit, and any accompanying services sold to consumers who think they might exceed their plan allowance (overlimit “insurance” policies, extra usage blocks sold at premium prices, etc.)
[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-21-CNN-FCC Net Neutrality.flv[/flv]
CNN’s Tony Harris talks with Nicole Lapin about Net Neutrality, and how the policy impacts small businesses that sell on the web. (October 21 – 3 minutes)
Earlier today the two revisited the issue of Net Neutrality to explore the outcome of the FCC Net Neutrality decision:
The Hudson Valley of New York, home to a mix of several cities and rural communities between northern New York City and Albany will see Road Runner speed upgrades from DOCSIS 3 early next spring.
Time Warner Cable continues to expand DOCSIS 3-capable broadband service in areas where Verizon is aggressively moving forward with FiOS fiber to the home broadband service. The company previously announced service upgrades have become available in certain areas of New York City, with an aggressive deployment schedule to expand service to upstate communities of Syracuse, Buffalo, and Albany in the coming months.
The expansion into the Hudson Valley brings expanded speeds into comparatively rural communities between metropolitan New York and the state capital, Albany.
The company expects service, with speeds up to 50Mbps, to begin on March 30, 2010 in these areas:
Walden – Orange County (population 6, 164)
Wurtsboro – Sullivan County (population 1,234)
Rhinebeck – Dutchess County (population 3,077)
Saugerties – Ulster County (population 19,868)
Poughkeepsie – Dutchess County (population 29,871)
Port Ewen – Ulster County (population 3,650)
Kingston – Ulster County (population 23,456)
Liberty – Sullivan County (population 9,632)
Monticello – Sullivan County (population 6,512)
Rochester, with a population of 219,773 is not on the upgrade list.
A new online tool on the New York City Time Warner Cable website allows customers to enter their zip codes and determine when the new speeds will be available in their areas. In the boroughs of Queens and Brooklyn, more details have emerged:
Borough of Queens
Maspeth, Middle Village, Ridgewood (Available October 30)
Elmhurst, Corona, East Corona, Jackson Heights, Long Island City, Sunnyside, Woodside (Available November 15)
Borough of Brooklyn
Greenpoint, Brownsville, Williamsburg, Bushwick, Brooklyn Heights, Red Hook, Clinton Hill (Available November 15)
NBC Universal and American Express today announced Sacred Wind Communications (Albuquerque, N.M.) as the winner and most inspiring small business in the “Shine A Light” program, determined by public vote.
Sacred Wind Communications will receive $50,000 in grant money and $50,000 in marketing support from American Express, and will be featured on MSNBC’s small business show, “Your Business.”
John Badal, described by the Shine A Light Foundation as an entrepreneur, founded Sacred Wind to provide service across the largely ignored Navajo Reservation in New Mexico. Fewer than 40% of the homes had access to even basic telephone service, provided by Qwest on what the foundation describes as a “dilapidated telephone system.”
Badal, along with a few others, thought Qwest’s turtle-like-speed to provide basic telephone service was not acceptable.
Badal should know — he was the former president of Qwest New Mexico from 2000-2004, overseeing that phone network.
During his involvement with Qwest, the frustration to wire the economically challenged Native American community in his area was daunting. He told Fierce Broadband Wireless that laying copper cable throughout a rugged, rural desert area to reach a small number of customers who couldn’t afford to pay much for service wasn’t economically feasible for Qwest.
In four years, Qwest only managed to bring phone service to 42 new customers–out of thousands. “It took us two years to get through the rights of way process. Six of those homes had moved by the time the process was completed. It would have taken 45 years to reach 70 percent of the homes in our territory,” Badal said. “We needed a different technology altogether. We needed to go wireless.”
Sacred Wind's service areas (click to enlarge)
Badal decided to build a for-profit telecommunications company with a business plan that would depend on funding from the government.
“The only way any company could hope to provide service to the Navajo Nation is with the help of the Federal Communications Commission’s Universal Services Fund,” Badal toldNew Mexico Business Weekly in 2005.
“We can make this affordable, where Qwest cannot,” says Badal, who expects half of the cost to be picked up by government funding. “That is a necessary part of this equation. Without that, the Navajo cannot be served.”
Virtually every American pays into the Universal Services Fund through a charge levied on telephone bills. The funding underwrites the expense of providing rural America with access to basic telecommunications services.
In 2004, the same year Badal left Qwest, the company agreed to sell its telephone business on the Navajo Reservation to Badal’s new company. Sacred Wind, which the company says “evokes a sense of connection between what we do – to send communications over the air – with a larger-than-life purpose for starting this business,” launched service two years later in 2006.
Sacred Wind uses recently developed wireless technology to provide phone service to 2,700+ customers, using both point-to-point wireless and fixed WiMAX to reach as many customers as possible in the sparsely populated desert region. It’s a challenging proposition for any company, considering most of their service area has less than one home per square mile. Even when finished constructing their network, Badal estimates there will only be two or three homes served per square mile.
One third of Sacred Wind’s customers live in Navajo or federal government sponsored public housing, another third live in small clusters of a half dozen homes separated by several miles, and the last third live at least a half mile from the nearest neighbor. Most are economically disadvantaged and have household incomes below $15,000 a year — 57.9% living below the poverty level. More than two-thirds of reservation homes have no telephone, with some driving up to 30 miles to reach the nearest pay phone. Several lack access to electricity, which makes wireless phone service and broadband even more challenging. Sacred Wind is exploring solar options to serve these unpowered homes.
The benefits achieved from Sacred Wind’s focus on their service area are obvious – they know the landscape, the culture, the economics, and the people. The company will work on problems that a large multi-state carrier like Qwest would not. Technicians trying to reach one customer five miles away from the nearest wireless base station could not get service until a technician experimented with bouncing the three gigahertz wireless signal off a granite cliff face to extend coverage, which worked.
A company specializing in providing service to rural Native Americans, that also has a non-profit arm dedicated to computer training, provides scholarships, and e-commerce opportunities for Native Americans, is a natural for recognition, and the public responded, calling Sacred Wind’s mission inspiring.
“It’s a real honor to be voted most inspiring small business in the Shine A Light program,” Badal said. “It’s so exciting and rewarding to start your own business and be able to make an impact on the community. Through the support we will receive from American Express as winner of this program, we will be able to further extend our commitment to serving the Navajo people with advanced technology and educational resources.”
Since August, people across the country have nominated thousands of small businesses for the “Shine A Light” program. Three finalists were ultimately selected with the help of host and entrepreneur Ellen DeGeneres, fashion designer and entrepreneur Diane von Furstenberg and MSNBC’s small business expert and host JJ Ramberg.
A one minute introduction to Sacred Wind Communications
Sacred Wind Broadband Speed/Pricing
In addition to telephone service, Sacred Wind also provides Internet access to its customers, and here is where the story becomes considerably less inspiring.
Sacred Wind’s “broadband” service for most affordable tiers fails to qualify as “broadband” at all, using the FCC standard of 768kbps. Pricing is exorbitant and speeds are slow.
It self-describes its dial-up option as “stable, fast, and affordable.” The “affordable” claim may be true when comparing pricing with the first broadband tier that actually meets the minimum definition of broadband – $49.95 a month for 768kbps service. Paying $79.95 a month will bring you their maximum speed offering — just 3Mbps.
The company also sells customers annual contracts to avoid the $99 installation and $65 equipment fees.
Still, for those who have never had telephone service, much less Internet access, it’s considered by many residents to be a good beginning. The company is amenable to the idea of raising those speeds when technically and financially feasible.
Fujitsu showcases Sacred Wind Communications and how it approached the technological challenges involved in providing service to the Navajo Reservation [8 minutes]
Unfortunately, like its bigger telephone brethren, Sacred Wind is not entirely free from the telephone industry politics that often lobbies for anti-consumer policies. A concerning document on Sacred Wind’s website promotes a questionable legislative agenda, including support of legislation that would permit providers to “create fair compensation in network use by identifying traffic on our networks,” which is a Net Neutrality no-no if it applies to their broadband network. Another mysterious bullet point, not well explained, objects to “video programming and broadcasting practices that make it difficult to provide an affordable product to our customers.” That could apply to wireless frequency allocations or traffic on their broadband network — it’s not well defined.
While the FCC works on its goal of providing broadband access to underserved Americans, actual case studies illustrating “successes” like Sacred Wind that only manage to bring 3Mbps service to rural areas underline the need for Universal Services Fund reform. Dedicating additional economic assistance to construct considerably more advanced networks to meet the needs of an increasingly high bandwidth Internet is essential to correct the urban-rural digital divide. The original purpose of the USF to guarantee basic phone service in rural areas was a noble idea a decade ago, but that was then and this is now.
As the pile of money in the USF continues to grow from Voice Over IP and mobile phone surcharges, it was only a matter of time before waste, fraud, and abuse also turned up. The administrators of the USF have often wasted considerable amounts of that money on questionable projects in decidedly un-rural areas. Redirecting, reforming, and broadening USF resources to cover broadband deployment in areas like the Navajo Reservation may be one of the only ways to build sustainable and equitable broadband access networks that are scalable and affordable, even for the most financially-challenged communities. Providing 256kbps service for $30 a month doesn’t come close to cutting it in poverty-stricken communities.
Additional video coverage of Sacred Wind can be found below the jump.
Be Sure to Read Part One: Astroturf Overload — Broadband for America = One Giant Industry Front Group for an important introduction to what this super-sized industry front group is all about. Members of Broadband for America Red: A company or group actively engaging in anti-consumer lobbying, opposes Net Neutrality, supports Internet Overcharging, belongs to […]
Astroturf: One of the underhanded tactics increasingly being used by telecom companies is “Astroturf lobbying” – creating front groups that try to mimic true grassroots, but that are all about corporate money, not citizen power. Astroturf lobbying is hardly a new approach. Senator Lloyd Bentsen is credited with coining the term in the 1980s to […]
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