Two Large Telcos Miss Connect America Fund Deployment Milestones

This month, both Frontier Communications and CenturyLink put the FCC on notice that neither company expected to meet deployment milestones related to Connect America Fund Phase II (CAF II). In total, rural households in 23 states will have to wait for connectivity that the two large companies were tasked with developing using federal subsidies.

Not-So-Great Expectations

When Frontier and CenturyLink accepted the funding in 2015, they agreed to provide deployment of Internet access speed of at least 10 Megabits per second (Mbps) download and 1 Mbps upload. By the end of 2018, they agreed to have at least 60 percent of the premises within each state connected and 80 percent of the premises connected by the end of 2019.

In their letter to the FCC, Frontier claims that of the contracted 774,000+ locations in 29 states waiting for connectivity through the CAF II program, they have deployed to around 596,000 in CAF II census blocks. They calculate that these deployments come to at least 70 percent in each state where they've accepted funding. The company also says that in 13 states they "may not have met" the 80 percent milestone.

The failure was a continuation of last year, when they reported that they had met the 60 percent milestone in 27 states, but had failed to make the grade in New Mexico and Nebraska.

logo-frontier.png Frontier accepted more than $283 million in CAF II funding soon after the FCC redefined broadband to 25 Mbps / 3 Mbps. The CAF II program had also increased minimum connections from 4 Mbps / 1 Mbps to 10 Mbps / 1 Mbps, which seemed outdated almost from the beginning. 

The company has been the subject of investigation in Minnesota and other states, due to complaints stemming from poor services, bad treatment from customer service representatives, and generally, the feeling that rural folks were being ripped off and ignored. Both Internet access and telephone services have prompted concern. Check out our fact sheet, Frontier Has Failed Rural America, to see all the events that we've documented that have spelled trouble for the monopoly rural Internet access provider.

Frontier has found itself in a bad light and, under the weight of some crushing debt, reported to be more than $17 billion in the red. Phil Dampier from Stop the Cap! writes:

Many Frontier legacy customers have fled to other providers because of poor or inadequate service and a lack of network upgrades to offer acceptable Internet service. Frontier has largely avoided undertaking major fiber optic upgrades in its legacy service territories, where the company still sells slow DSL service over a deteriorating copper wire network that is often decades old.

Dampier notes that Fiber-to-the-Home (FTTH) acquisitions were considered overpriced by analysts and the transition in billing and service not handed well, which angered existing customers. He also points out that the company has toyed with the idea to liquidate portions of their network to salvage their stock standing, but that investors weren't satisfied with that approach.

Bloomberg published a January 16th piece describing the company's decision to file for Chapter 11 bankruptcy reorganization, allowing the company to continue operation. Whether this move will affect the CAF II deployment remains to be seen.

Still No Turn of the Century for These Places

CenturyLink is having problems as well and sent a similar letter, which was an echo of a letter sent to the FCC last year, as reported by the Benton Foundation for Broadband & Society. At that time, CenturyLink reported that it only reached the 2018 milestone in 10 of 33 states where the company accepted CAF II funding.

This year's letter reflects identical numbers: the company failed to reach deployment requirements in 23 of 33 states.

In 2015, CenturyLink accepted more CAF II funding than any other company — around $500 million to connect about 1 million premises. In their letter to the FCC, they state that they’ve deployed to “nearly 900,000 locations in CAF II census blocks in those states.”

CenturyLink, however, seems more in tune with the times. Last summer, the company entered into an agreement with Springfield, Missouri's City Utilities to use the muncipality fiber optic infrastructure in order to offer connectivity. It's the first time we've seen one of the national providers work with a muncipality to offer broadband.

Accountability Questions

As word spread that again this year these two national companies and recipients of large CAF II subsidies had not met the minimum deployment milestones, the question of accountability arose from folks on Twitter:



Last year, Doug Dawson raised the topic of accountability when the telcos reported the same issue. In February 2018, his POTs and PANs blog, he wrote that the failure of these large companies to meet milestones was not hard to predict:

To us, the announcement that the telcos were going to upgrade DSL set off red flag alarms. In a lot of rural counties there are only a small number of towns, and those towns are the only places where the big telcos have DSLAMs (the DSL hub). Rural telephone exchanges tend to be large and the vast majority of rural customers have always been far out of range of DSL that originates in the small towns. One only has to go a few miles – barely outside the towns – to see DSL speeds fall off to nothing.

The only way to make DSL work in the CAF II areas would be to build fiber to rural locations and establish new DSL hub sites. As any independent telco can tell you who deployed DSL the right way, this is expensive because it takes a lot of the rural DSLAMs to get within range of every customer. By electing DSL upgrades, the big telcos like CenturyLink and Frontier had essentially agreed to build a dozen or more fiber DSLAMs in each of the rural counties covered by CAF II. My back-of-the-envelope math showed that was going to cost a lot more than what the companies were receiving from the CAF fund. Since I knew these telcos didn’t want to spend their own money in rural America, I predicted execution failures for many of the planned DSL deployments.

Dawson described how large telcos, such as CenturyLink and Frontier, had backed themselves in to a corner by accepting the CAF II funding:

I believe the big telcos are now facing a huge dilemma. They’ve reached 60% of customers in many places (but not all). However, it is going to cost two to three times more per home to reach the remaining 40% of homes. The remaining customers are the ones on extremely long copper loops and DSL is an expensive technology use for reaching these last customers. A DSLAM built to serve the customers at the ends of these loops might only serve a few customers – and it’s hard to justify the cost of the fiber and electronics needed to reach them.

…and how folks in the most rural areas of CAF II census blocks that are supposed to be served by these big telcos with DSL will miss out:

I’ve believed from the beginning that the big telcos building DSL for the CAF II program would take the approach of covering the low hanging fruit – those customers that can be reached by the deployment of a few DSLAMs in a given rural area. If that’s true, then the big telcos aren’t going to spend the money to reach the most remote customers, meaning a huge number of CAF II customers are going to see zero improvements in broadband. The telcos mostly met their 60% targets by serving the low-hanging fruit. They are going to have a huge challenge meeting the next milestones of 80% and 100%.

Dawson, like others who study the results of the CAF II program and advocate for better connectivity in rural areas, also wondered if there would be consequences for large Internet access providers that don’t live up to their promises, even with huge subsidies. 

The CAF II program will be finished soon and I’m already wondering how the telcos are going to report the results to the FCC if they took shortcuts and didn’t make all of the CAF II upgrades. Will they say they’ve covered everybody when some homes saw no improvement? Will they claim 10/1 Mbps speeds when many households were upgraded to something slower? If they come clean, how will the FCC react? Will the FCC try to find the truth or sweep it under the rug?

CAF II funded projects are required to be completed by the end of 2020; will they be finished? If not, will there be any penalties?

Moving forward, the FCC needs to consider these results as they distribute federal grants and loans for rural broadband deployment. Funding projects by rural cooperatives and local governments instill an innate sense of accountability that doesn’t motivate giant and distant corporations.

Image by Dimitris Vetsikas from Pixabay