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09/15/2010
Internet Provider Blasts Broadband Grant

by George Hohmann, The Charleston Daily Mail, (9/15/2010)

The chief executive officer of Citynet has asked the federal government to suspend a $126.4 million grant to the state for broadband deployment, claiming the state's plan is a "complete waste of taxpayer money."

Citynet's Jim Martin wrote a letter of protest on Sept. 9 to Earl Devaney, chairman of the Recovery Accountability and Transparency Board, and Lawrence Strickling, who heads the National Telecommunications and Information Administration, or NTIA.

Martin claimed that although the state said it would use the federal money to build a "middle-mile" fiber optic network that competitors could connect to, it actually plans to award about $40 million to Frontier to build "last mile" fiber facilities.

Frontier bought Verizon's landline business in West Virginia on July 1. As the successor to Verizon, Frontier possesses the so-called Multi Protocol Label Switching, or MPLS, contract to build telecommunications facilities for the state.

Citynet and Frontier are competitors. The companies and the state were among the entities that applied for federal stimulus money to deploy broadband in West Virginia. In February the governor's office was awarded a $126.4 million federal grant - the largest award in the first round of funding. Citynet's application for $34.5 million was denied.

Martin claimed that under the state's plan, state agencies that want broadband "will have the ability to order services from Frontier, and only Frontier . . . In other words, Frontier will be given $40 million in taxpayer funds to build out its network on a last mile basis to West Virginia government agencies and, if the government agency orders services under the MPLS contract, then Frontier will bill the government agency for those services at existing (and exorbitant) prices. A complete windfall for Frontier."

In its application, the state said it would build a network that would "provide a backbone to community anchors," such as schools and libraries, and would provide the "middle mile" that private companies could tap when they build last-mile service to residential and business customers.

The task of overseeing the grant was given to the West Virginia Broadband Council, chaired by State Commerce Secretary Kelley Goes. The council is scheduled to meet at 9 a.m. today in Building 6 at the Capitol Complex.

In March Citynet, FiberNet, nTelos and seven others - firms that are normally competitors - formed the West Virginia Broadband Coalition to express their concerns about the state's plan. They asked the Broadband Council for a 60-day pause to allow further study of the issues.

Goes refused, pointing out that the federal grant requires that the network be substantially completed in 24 months and finished in 36 months. Goes said a 60-day pause would reduce the time available for substantial completion to 22 months. "I don't think the governor would like to put the funding in jeopardy without concrete reasons," she said in March.

Asked on Tuesday to comment on Martin's letter, Goes said through a spokeswoman, "While Mr. Martin is entitled to his own opinions, our views on this topic differ.

"The NTIA has worked diligently to make sure that its administration of broadband stimulus funds is deployed in a fair manner," she said. "After careful review and consideration of the state's proposal, West Virginia was chosen as a recipient of the (Broadband Technology Opportunities Program) funding. With that, we have taken seriously our responsibility to implement and move this project forward in accordance with the terms and conditions of the grant.

"The NTIA has requested that the state respond to Citynet's letter and we are working on that now. The grant speaks for itself."

In his six-page letter, Martin wrote that it is "most disturbing" that under the state plan, "all assets resulting from the expenditure of public funds will automatically be owned by Frontier." He claimed the state "will have no control over the use of the funds by Frontier and will have no knowledge whether Frontier is spending the funds for eligible or ineligible costs."

The state's goals include economic growth and job creation but its project "will result in little or no economic growth," Martin charged. "Certainly, no jobs will be created as the result of paying $40 million to Frontier. Frontier simply will be using existing manpower to construct the last mile fiber to the state agencies if and when orders are placed."

Martin wrote that the Broadband Coalition anticipates it will be portrayed as trying to prevent the state from benefiting from the federal grant. "Nothing could be farther from the truth," he wrote. "Citynet is intently focused on doing what is best for the state. Allowing Frontier to hold state agencies hostage under the MPLS pricing regime in perpetuity is contrary to the goals" of the program.

The "misguided implementation" of the state's plan "introduces serious long-term economic risks for the state. . .limits state agency choice and effectively locks out competitive carriers," Martin wrote. The beneficiary of the state's plan is not the state, "it is clearly Frontier," he wrote. "The citizens of West Virginia will be shocked once these realities take hold. . ."

Martin asked the NTIA to suspend the award until the state provides the agency with a plan that complies with the requirements of the program.

Dana Waldo, senior vice president and general manager of Frontier Communications in West Virginia, said Tuesday that Frontier will abide by all of the federal requirements and the state's contract to fulfill the NTIA's goals.

"If Mr. Martin wishes to expend his energies on thwarting the NTIA policy goals of providing fiber, high bandwidth broadband connectivity to over 1,500 points of interest in West Virginia that includes schools, libraries, primary care facilities, nursing homes, hospitals, rural health and 911 centers, that is his right," Waldo said. "Frontier, however, will devote its energies to turn these NTIA connectivity goals into reality for West Virginia."

In an Aug. 26 commentary in the Daily Mail, Waldo noted that the Broadband Coalition's members are Frontier's competitors.

"Counter to the coalition's claims, the state network will be an open access network," he wrote.

The coalition "falsely asserted that the prices for access to the state network will be too high" when members appeared before a legislative committee, Waldo wrote. "Nothing in the grant, or the recent transfer of Verizon's land lines to Frontier, changed access and transport prices already existing in Frontier's tariffs and interconnection agreements - agreements that coalition members had an opportunity to negotiate prior to the close of the Frontier-Verizon transaction."

"Now that the state is moving forward with the project, the coalition complains that broadband will not be available unless they get special deals that benefit their own business plans," Waldo wrote. "The coalition should not be allowed to slow down or defeat this once-in-a-lifetime, monumental process to bring broadband access to West Virginians."

Contact writer George Hohmann at business@dailymail.com or 304-348-4836.

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