The Dirty Truth about Rural Broadband

The largest Internet service providers have long paid lip service to connecting America’s rural areas to broadband, even as rural residents remain without service because these ISPs fail to connect them.

Consider Verizon’s comments to the Federal Communications Commission in March: “[m]aking broadband available to these unserved, rural areas is a challenge for the Commission and other policymakers that must be a central concern as the Commission develops a national broadband strategy.”

Verizon and other ISPs routinely present rural consumers as their primary concern, suggesting that they are doing all they can to bring them broadband. To call these ISPs hypocritical would be a gross understatement. While they purport to be committed to broadband deployment for rural communities, reality tells a different story.

Now, Verizon has hit a new low with this doozy: The company is abandoning the majority of its rural customers in its service area. Its press release trumpeted, “Verizon to Divest Wireline Businesses in 14 States; Significant Benefits to Verizon Shareholders.” The company is asking the FCC to approve the sale of its rural lines to a smaller company called Frontier Communications.

Verizon simply doesn’t want to interact with anyone but the highest paying customers. In its own financial speak, Verizon hopes “to transform our growth profile and asset base” to focus on “more densely populated markets.” The company is quick to note this move would “return a total value of $8.6 billion to Verizon and shareholders.” The company's statement was made less than two months after Verizon paid lip service to the importance of rural broadband in its comments to the FCC.

Verizon hopes to use a tax loophole known as a reverse Morris trust (RMT) to dump its rural operations on Frontier. In a nutshell, a RMT allows a company to sell something tax free as long as the recipient is a much smaller company.

Verizon already sold its rural operations in Vermont, New Hampshire and Maine to a tiny phone company in 2008 through a RMT. One year later, that company has gone belly-up. It just filed for bankruptcy, and before that wasn't meeting its promises about broadband deployment. Customers also experienced routine service outages and billing issues.

In sum, Verizon’s new business strategy is offloading its rural customers to small (now debt-ridden) companies tax free because it can't be bothered with rural America anymore, preferring to focus on those high-paying urban and suburban customers.

After the FCC asked for public comment on the sale (you can find Free Press’ filing here), Verizon's hypocrisy was on full display. Verizon now needs to convince the FCC that it has neglected these rural areas and that the new company, Frontier, will do a much better job so the agency can determine that the sale is “in the public interest.”

Suddenly, the company that was so concerned with rural America is touting its egregious track record connecting rural communities. In its filing, Verizon states that in the areas being sold, “nearly 40% of households lack access to broadband from Verizon.” The company tells the FCC not to worry about what prices the new company will charge for service because many customers don’t have access to broadband at all (p. 15). The company truly shines when refuting claims that it invested in rural communities at higher levels than the new company would; one Verizon employee’s signed declaration basically says the company invested even less if you just look at the numbers in the right way (Exhibit 2 p. 11). OK, I guess we’ll believe you, Verizon. You didn’t invest jack in rural areas.

While it doesn’t appear that the FCC will act on this sale anytime soon, it certainly presents a difficult nut to crack. Whether the FCC rejects or approves the sale, it seems these rural areas are going to stay on the wrong side of the digital divide – with either no service from Verizon or the possibility of service from a newly debt-ridden company.

One thing is clear: Verizon has done the exact opposite of putting its money where its mouth is. Instead, it has relied on tax loopholes in order to find some way to make a boatload of cash off rural America while not actually providing anything. Just business as usual for the U.S.’s largest ISPs.

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