Frontier Communications Caught (Again) Ripping Off West Virginia Taxpayers

from the your-estimates-seem-a-little-high dept

So (for good reason), we keep noting that if you want to see how the American broadband market really works, you should take a close look at West Virginia. As in most states, a lack of competition keeps broadband prices high and speeds slow, with far too many consumers forced to pay a tidy sum for DSL speeds circa 2002. But the state has also been embroiled in scandal after scandal involving Frontier Communication's mismanagement of taxpayer subsidies that were intended to try and resolve this problem.

Local Charleston Gazette reporter Eric Eyre has quietly done an amazing job the last few years chronicling West Virginia's immense broadband dysfunction, from the State's use of broadband stimulus subsidies on unused, overpowered routers and overpaid, redundant consultants, to state leaders' attempts to bury reports supporting allegations that Frontier engaged in systemic, statewide fraud on the taxpayer dime.

Eyre is back again directing readers to a new report by the US Commerce Department's Office of Inspector General (pdf) which found that Frontier pretty consistently tried to game the subsidy system, imposing various "loading" and "invoice processing" fees -- outlawed by federal grant rules governing stimulus funding -- on to invoices submitted to the state. Frontier consistently used these fees to pad their bills to the tune of $4.7 million, and internal memos feature employees clearly demonstrating that Frontier saw this bill padding as a way to glean some additional profit on the taxpayer's dime:

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

Keep in mind Frontier had already been fighting a lawsuit alleging that it used a wide variety of tricks to both jack up its original estimates for broadband deployment -- and ensure any subsidies would only be used to shore up Frontier's internal networks, and not to improve overall broadband penetration and competition in the state. This new report notes that one of the tricks used by Frontier was to order and store a massive amount of unused fiber for future "repairs," allowing it to bill more than projects actually cost:

"What’s more, Frontier misled the public about the amount of unused fiber cable — called “maintenance coil” — the company installed across the state, according to the report. The extra fiber, which is stored at public facilities and used for repairs, drove up the broadband expansion project’s cost. Frontier wound up placing 49 miles of spooled-up, unused fiber across West Virginia — four times the amount the company had disclosed to state officials, according to the report.

Unsurprisingly, Frontier insists it has done nothing wrong, despite years of similar allegations across the state. This is the same Frontier that just got done firing a seven year employee because, at his part-time job as West Virginia senate leader, he voted for a new law that would actually help improve broadband penetration and competition in the state. Oddly, state officials (many of the same ones that tried to bury reports alleging the same sort of thing earlier) aren't commenting on the report's findings.

It should be noted that this is how state politics has worked for years for the likes of AT&T and Verizon, who long found it easy to gobble up subsidies and tax breaks, then pay state lawmakers and regulators to look the other way when it came time for accountability over how subsidies are spent. More often than not, these companies are simultaneously being allowed to quite literally write state telecommunications law ensuring that competition in the broadband sector remains muted. All while everybody in the chain professes their unwavering dedication to free markets and consumer welfare.

But Frontier has neither the competency nor the legal and accounting firepower of its larger counterparts, and as it has stumbled closer to bankruptcy courtesy of some questionable business decisions over the last few years, keeping formerly loyal state politicians and regulators consistently looking the other direction has proven increasingly difficult. Still, believing that this ends with anything even remotely resembling accountability and justice remains a very risky wager.

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Filed Under: broadband, stimulus, subsidies, west virginia

Companies: frontier communications