Frontier’s Bankruptcy Shows Why ISPs Shouldn’t Be in Charge of the Internet

Let’s state the obvious: Internet in the U.S. sucks. Unless you already have fiber, you’re probably stuck with cable, DSL, or no internet at all because no ISP wants to expand into your area. If you live in a rural area and are lucky to get some form of broadband, you’re probably paying an exorbitant amount for slower than molasses speeds. And most people, about 83.3 million according to a recent report from the Institute for Local Self-Reliance (ILSR), can only access broadband through a single provider. There’s no incentive for major ISPs to actually offer their customers good service. Instead, their focus is on short-term profits—even if that means leaving money on the table and customers on DSL.



a man talking on a cell phone: David Palencia from JFK helps Angel, 13, to connect his computer to the Wifi Hotspot provided by a parked van from JFK Transportation in order to follow his online classes, September 16, 2020, in Santa Ana, California.


© Photo: Valerie Macon / AFP (Getty Images)
David Palencia from JFK helps Angel, 13, to connect his computer to the Wifi Hotspot provided by a parked van from JFK Transportation in order to follow his online classes, September 16, 2020, in Santa Ana, California.

Our own Alex Cranz and Brian Kahn recently spoke with Electronic Frontier Foundation special adviser Cory Doctorow about how ISPs continue to wreck their own internet service, overcharge customers, shut out competition, and leave a significant chunk of urban and rural America pleading for more affordable and better broadband. (You can listen to this first episode of the System Reboot podcast here.) The podcast is a nice overview of the problems with ISPs, but I wanted to dig a bit further into one key element of Doctorow’s focus in the episode: The case of Frontier’s bankruptcy. It’s especially illuminating when it comes to tracing the steps of how ISPs got this monopolistic power over consumers and continue to wield it to absolute ill effects.

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The Internet Is Broken, and ISPs Are to Blame

As Doctorow, along with EFF’s Ernesto Falcon and Katharine Trendacosta, wrote in a report for the EFF not too long after the bankruptcy announcement in April 2020, Frontier refused to upgrade many of its DSL customers to much faster and more stable fiber because it was too focused on short-term profits. “Instead of being incentivized to grow a satisfied consumer base by investing in better service and expanding to underserved customers, publicly traded companies’ incentives are dominated by quarterly reporting,” the EFF report said.

Frontier isn’t the only one doing this. All major ISPs do this: throw the majority of their effort and money toward programs and investments that will pay out in a few years instead of decade. This literal short-sighted mentality has left significant coverage gaps across both urban and rural America. Instead of investing money in upgrading old DSL lines, ISPs have selectivity chosen to upgrade connections located in more populated, affluent areas. Major ISPs have maintained for years there isn’t the demand for fiber or another type of high-speed internet in undercovered areas. There is demand, just not enough people demanding it for the ISPs to reap the benefits of their investment in a short amount of time.

In its bankruptcy filing, Frontier admitted that it could generate about $1 billion in profits starting in 2031 by—wait for it—upgrading 3 million DSL connections to fiber broadband. As EFF points out, the company’s bankruptcy filing has freed it from its investors’ tendrils, and where it once would never even consider a paltry $1 billion return on investment, now it is. And all of this requires exactly $0 in government subsidies.

Not only that but before it filed for bankruptcy, Frontier straight-up told its investors that if it had replaced all that DSL it bought from AT&T and Verizon with fiber, it wouldn’t have lost as many customers as it eventually lost.

“So long as major national ISPs continue to operate with that same short-term mindset, they will never deliver high-speed fiber to the home broadband of their own accord. If they will not do it, then policymakers need to be thinking about incentivizing others to do it,” said Doctorow, Falcon and Trendacosta.

So long as policymakers make the right incentives for the right ISPs, like local municipal broadband, policy at the federal or state level could work. Giving billions of dollars under the Rural Digital Opportunity Fund (formerly the Connect America Fund) to major ISPs? That’s been done. As soon as the government cheese is gone, the ISPs stop expanding their fiber networks. Frontier wasn’t able to deploy all the fiber it said it would by January 2020 under its agreement. The company said it faced delays due to “tribal permitting and rights of way,” yet by March 2020 there were serious talks of bankruptcy. The company officially filed for bankruptcy a month later.

Incentives should go further than money, though. They should also come in tangible reform. Major ISPs hold effective monopolies over certain states and certain cities within those states, and a big reason why this has been allowed to happen, other than a massive lack of oversight, is that many states keep banning local municipalities from creating their own broadband service.

According to BroadbandNow, 22 states roadblock or completely outlaw municipal broadband. Yet out of the states that do allow it, only 55% of the population has access to wired broadband that costs $60 or less a month. California is one of those states that does allow local broadband, and yet its state assembly recently killed a bill, without explanation, that would have “secured more than 100 million dollars a year to secure access to high-speed Internet for families, first responders, and seniors across the state,” said EFF. Only six of the 17 municipal broadband providers in California offer residential services, by the way. So 26% of households don’t have broadband and rely heavily on their mobile data plans for internet access. Not ideal for distance learning and remote work.

On one side, ISPs don’t want to invest the money necessary to outfit the entire country with fast, reliable internet. On the other side, government regulators allow these monopolistic practices to keep happening by banning municipal broadband and killing bills like California’s SB 1130, enabling the ISPs to keep doing what they’re doing. One of these groups is going to have change what they’re doing for real change to happen, for fiber to spread across the country as widely as DSL and dial-up. My confidence is not in the ISPs.

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