Money and performance at center of CETF’s fight with Frontier

by Steve Blum • , , , ,

Frontier Communications says the California Emerging Technology Fund (CETF) has to return $714,000, if it asks for it. CETF’s response on Friday was we don’t have it anymore.

When Frontier won California Public Utilities Commission approval in 2015 to buy Verizon’s landline telephone systems in California, a long list of conditions was attached. Among them was a contract that committed “up to” $3 million to achieve the “aspirational goal” of signing up 200,000 low income Californian households for broadband service – from any provider, not just Frontier. In return, CETF dropped its opposition to the Verizon deal.

A second implementation contract spelled out more detailed terms: Frontier would pay $60 to non-profit groups recruited by CETF for each new, qualified broadband subscriber. Frontier also agreed to periodically advance portions of the money, and CETF agreed to return any unused funds after the contract expired on 30 June 2018.

The non-profits only signed up 4,300 subs, while Frontier advanced CETF $1 million. By Frontier’s math, that leaves $714,000 in the bank.

CETF wants the program to continue. Frontier is willing to go along with that for another year, up to a point. Which wasn’t enough for CETF, so the dispute landed at the CPUC. CETF wants the commission to rewrite the contracts by fiat. Frontier prefers them as they are and hinted in a reply filed with the CPUC that it might come looking for its money.

CETF says it only has $294,000 left in “trust” it because it similarly advanced cash to its non-profit clients, with the expectation that they would be signing up a lot more new subscribers than they did. A sample CETF grant contract, included in one of Frontier’s CPUC filings, says that unearned money has to be paid back. That might be, um, difficult for some non-profits. Without favorable intervention by the CPUC, CETF might be on the hook for the difference. Which would be, um, inconvenient.

There’s more.

In a rhetorical back flip, CETF argues that it wasn’t the 200,000 household goal that was “aspirational” (even though the contract said it was). Instead, CETF says it was the clear contract expiration date that was a fuzzy target.

CETF then makes what ought to be Frontier’s case. It argues that because the program is a failure, Frontier needs to fix it…

Instead of 200,000 low-income broadband home adoptions, there are only 11,038, which means the shortfall is a staggering 188,962 households. This is prima facie evidence that Frontier’s approach was in need of revision to fulfill its obligations.

Only 39% of those new subscribers were signed up by CETF’s non-profit clients. The remaining 61% were directly acquired by Frontier. Even if you assume that Frontier is obliged to continue its efforts to bring more low income households into the online world, the numbers don’t suggest that the best way to do it is to continue working through CETF’s non-profit sales channel.

A hearing in front of a CPUC administrative law judge is scheduled for 28 November 2018.