Frontier, under state investigation for its service, has received over $100 million in federal grants

Frontier Communications has received over $100 million in federal grants to improve rural broadband in Minnesota over the past four years, yet complaints about its internet service suffuse a state investigation of the company.

Minnesota regulators last year commissioned an inquiry into Frontier after fielding numerous complaints. In January, the Minnesota Department of Commerce issued a report concluding Frontier may have broken at least 35 state laws and failed its customers with shoddy service and inadequate network investment.

The report also questioned how Frontier used the federal grant money. Information submitted to the state by Frontier "has been too minimal" for utility regulators to certify that the grants from the Federal Communications Commission's (FCC) Connect America Fund were used appropriately, the Commerce Department said.

"It is obvious to anyone who bothers to look that Frontier is a terrible investment for the federal government," said Christopher Mitchell, community broadband director for the Minneapolis-based nonprofit Institute for Local Self-Reliance.

Frontier strongly disputes the entire Commerce Department report and expects this week to file a formal response with the Minnesota Public Utilities Commission (PUC). The company said in a statement that it is in compliance with all FCC requirements for the Connect America money.

The Stamford, Conn.-based company rejected the characterization that its work wasn't a good investment, saying it has extended faster internet to 28,635 homes in Minnesota through the Connect America program and is committed to connect 46,910 homes by the end of 2021.

The company, which also operates under the name Citizens Communications, is Minnesota's second largest wireline phone provider with 90,000 to 100,000 customers, many in rural northeastern and southern parts of the state.

Not alone collecting millions

It is one of several large phone companies collecting hundreds of millions of dollars from the Connect America Fund, and it says it has filed all requisite FCC reports and met all its obligations.

Connect America is aimed at FCC-designated rural areas where broadband is deemed too costly for private investment without public subsidies. The program has been criticized for requirements on broadband speed that use outdated government standards.

In 2015 the fund awarded $9 billion over six years to several large U.S. wireline carriers. Money from the 2015 allotment, dubbed Phase 2, has been used extensively in Minnesota by both Frontier and Monroe, La.-based CenturyLink.

Companies participating in Phase 2 must provide download speeds of at least 10 megabits per second (Mbps) and upload speeds of 1 Mbps. That target was set when the FCC standard for download speeds was 4 Mbps. But by 2015, the FCC had redefined broadband as 25 Mbps for downloads and 3 Mbps for uploads.

Essentially, Connect America phase 2 projects were obsolete before they rolled out, Mitchell said. "It's totally wasteful."

Bill Coleman, owner of St. Paul-based Community Technology Advisors, said that 10 Mbps service is an improvement for some remote areas. Also, the lower — and therefore less costly — standard allowed the FCC to spread Connect America funding over a larger area, he noted.

"But whether it positions Minnesota or any state for rural economic vitality, I would say no," said Coleman, who works with small communities on telecommunications issues.

Connect America is fueled by levies on telecommunications providers, which they usually pass on to consumers as "Universal Service Fund" fees.

Publicly traded Frontier was awarded $283.4 million annually for six years in Connect America's Phase 2. That included $27.6 million annually for Minnesota work alone.

Federal records show that Frontier has already been allotted $109.5 million for Minnesota through 2018. The company completed more Connect America projects by the end of 2017 than it was obligated to finish, records show, and Frontier said that was also true for 2018.

CenturyLink, Minnesota's largest wireline provider with 430,000 customers, received Phase 2 Connect America funding of $505.7 million annually for six years. For Minnesota, CenturyLink gets $54 million each year. The company says it expects to have completed more than 60,000 Connect America-funded projects by the end of March.

CenturyLink and Frontier, not surprising given their size, have been targets of various grievances to the PUC.

The PUC logged 216 service complaints about CenturyLink from Jan. 1, 2017, through Feb. 28, 2018, said Dan Wolf, the PUC's executive director, in an e-mail. During the same time, 63 were filed about Frontier.

The rate of complaints per customer at Frontier was slightly higher, Wolf said. There also was a "marked difference" in response times, he said. Frontier took 31 days on average to correct an issue, while CenturyLink took 12.

After the PUC opened its Frontier inquiry in March 2018, it received over 1,000 new consumer complaints, according to the Department of Commerce, which conducted the investigation. Of those complaints, 400 concerned both telephone and internet access, 325 internet only and 250 telephone service only.

At a series of seven public hearings on Frontier last year, a common complaint was that internet speeds were much slower than expected.

The Commerce Department concluded that Frontier's physical network had "stunning" deficiencies due to the company's "failure to keep its plant and equipment in a good state of repair." That failure was manifested in quality problems for phone and internet service, the report said.

Frontier said complaints about its investment have been largely related to rural areas that were not funded by Connect America. Frontier also says most of the issues raised by the Commerce Department are about telephone service.

'Lack of transparency'

The Commerce Department took up the issue of federal funding for Frontier — and all wireline companies that accepted money from Phase 2 of Connect America.

The companies' reports to the PUC have been "insufficient" to determine whether households that receive internet service from Phase 2 funding "are in fact offered service at internet access speeds of 10/1 Mbps," according to the department.

Frontier and CenturyLink said they annually report the status of Connect America projects to the FCC. Both companies said that many locations under the program are eligible for download and upload speeds that are faster than 10/1 Mbps.

A report last summer from the Grand Rapids-based Blandin Foundation concluded that it is difficult to gauge the effects of Phase 2 Connect America investments in Minnesota. "The lack of transparency and accountability in [the program] has been challenging and frustrating," the report said.

Connect America-funded networks don't meet Minnesota's own definition of broadband, which is the same as the FCC's current characterization: 25 Mbps for downloads and 3 Mbps for uploads.

Federal funding "has not been enough to incent participating providers to invest in the kind of world-class networks rural areas need to survive and thrive," the Blandin study said.

Coleman, of Community Technology Advisors, who was lead researcher for the Blandin study, said that outside of the Connect America Fund, Frontier may have limitations in the investments it can make. The company, which had $8.6 billion in revenue in 2018, has lost money in each of the last four years.

Frontier said in its statement that "while capital dollars are a finite resource, Frontier continues to invest in its Minnesota network."

Mike Hughlett • 612-673-7003