Federal officials want the money to benefit publicly-owned networks, but Pa. law gives phone companies a “virtual veto.”
Charlotte Keith of Spotlight PA
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An obscure provision tucked into Pennsylvania law nearly two decades ago could complicate the state’s access to a massive influx of federal funding to expand broadband by creating roadblocks for local governments seeking to build their own networks.
Access to high-speed internet has for years been a top priority for many of the state’s rural counties, where outdated infrastructure affects everyone from farmers to students to small business owners.
While broadband is increasingly seen as a basic necessity, the underlying infrastructure is almost entirely owned by private companies with little financial incentive to deliver higher speeds to rural areas with few customers.
As a result, hundreds of communities across the country have built their own broadband networks.
“If we sit back and wait, no one’s going to do it — we had to take the bull by the horns,” said Anthony Ventello, executive director of the Central Bradford Progress Authority, a local government agency building a fiber-optic network in the state’s remote Northern Tier.
The infrastructure bill signed into law by President Joe Biden last November includes the largest-ever federal investment in broadband. Pennsylvania could receive as much as $1 billion — enough to seriously move the needle.
But the state may now have another, more unique problem.
In 2004, Pennsylvania lawmakers gave telephone companies what one critic at the time described as a “virtual veto” over publicly-owned networks they saw as unwelcome competition. But for years afterward, the law was rarely invoked.
More recently, local governments flush with federal dollars from two pandemic stimulus packages have begun ambitious broadband projects that place them directly in the crosshairs of that law, which is facing new challenges and fresh scrutiny.
Already, the restrictions have prompted officials in the Southern Alleghenies region to get creative. Instead of working within the confines of the law, local officials decided to sidestep it altogether by creating a separate nonprofit to deal with broadband expansion.
In the Central Susquehanna region, local subsidiaries of some of the nation’s largest landline phone companies are playing hardball with a tiny economic development organization trying to comply with the law. The companies worry a surge of similar projects could be on the way.
In legal proceedings in front of the state Public Utility Commission, the state agency that oversees the phone companies, fundamental questions about how the almost two-decades old law should work are being hashed out for the first time.
While state law creates obstacles for local governments trying to build their own broadband networks, newly released guidance from the federal government “strongly encourages” states to suspend restrictions like this as they work out how to spend billions in new grant dollars.
Now, Pennsylvania faces a choice: Roll back the restrictions or risk defying the federal government.
The current broadband rule “clearly doesn’t serve the best interests of Pennsylvania residents,” said Sascha Meinrath, a professor of telecommunications at Pennsylvania State University and lead author of a landmark 2019 report on broadband access in the state.
“Now we’re at the point where we have this unprecedented opportunity, we’ve shot ourselves in both feet.”
A ‘virtual veto’
The power struggle over who would provide high-speed internet in Pennsylvania can be traced back to the early 1990s, when lawmakers struck an ambitious deal they hoped would put the state ahead of the curve.
A sweeping 1993 bill overhauled the way that landline phone service was regulated, opening the market to new competition and offering the existing phone companies a tradeoff. They would be subject to less regulation and allowed to earn higher profits. In exchange, they had to make broadband available to everyone in the state — even those in unprofitable rural areas — by 2015. (The law didn’t apply to other internet service providers, like cable companies.)
The bill would “help all of Pennsylvania reap the rewards of advanced telecommunications which only selected customers in our largest cities presently enjoy,” former Senate Majority Leader J. William Lincoln (D., Fayette) wrote in remarks submitted for the legislative record, underlining “all.”
Ten years later, some municipalities were embarking on locally-controlled broadband efforts. Kutztown, in Berks County, built its own fiber network in 2002, and Philadelphia had announced plans for a city-wide wireless system.
The phone companies, already locked in a fierce battle for customers with cable and cell phone providers, pushed lawmakers to limit local governments’ ability to build new networks. The 1993 deal required the companies to make major investments in their own networks, they argued, and it wasn’t fair to let local governments potentially undercut them.
In response, lawmakers agreed to ban local governments from offering broadband services — unless they first asked the original phone company in the area whether it would provide the service itself. The local government could only move forward if the company declined; otherwise, the company had to provide the requested service within 14 months.
One critic said the new provision, called the “right of first refusal,” gave the phone companies a “virtual veto” over local efforts to expand broadband access.
“Since when does a city need a permission slip from the phone company before providing a necessary service for its own citizens?” an advocate at a national consumer advocacy group asked the Philadelphia Inquirer after the bill passed in November 2004.
It’s hard to tell whether the restrictions have stalled broadband growth in the state. Sending a letter to the phone company isn’t always a big obstacle. And many local governments don’t want the risk and responsibility of owning a network in the first place.
In 2019, however, a study by the Center for Rural Pennsylvania, a state agency, noted that the law deters many communities from even trying to navigate the restrictions “out of an abundance of caution regarding the real threat of lawsuits” from phone companies.
And the 1993 deal that gave rise to the restrictions ultimately failed to deliver everything lawmakers hoped for.
The phone companies kept up their end of the bargain, meeting the state’s deadlines to make broadband available to anyone who wanted it, a legislative report confirmed in 2020.
But in hindsight, the law contained a serious flaw: Despite warnings from industry experts, lawmakers never updated the minimum download speeds the companies had to offer to qualify as broadband. The federal government, by contrast, has increased its own definition twice. By 2015, the state’s final deadline for the network upgrades, the federal standard for download speeds was 16 times faster than the state’s.
Industry representatives say the state’s definition is just a baseline, and note that the phone companies offer faster speeds to most of their customers. Yet in some rural areas, speeds still lag.
The law’s goal of “universally available, state-of-the-art” broadband remains elusive. But the phone companies kept their “virtual veto.”
A workaround
In early 2020, a survey of broadband access across the Southern Alleghenies region was yielding thousands of desperate responses.
“We are always looking at the spinning loading signs on our devices.”
“Plz give us better wifi I am begging u. I will do anything.”
“No work at home here!!!!”
The regional planning commission had created a task force and hired a prominent national broadband consultant to study the issue. Their conclusion: if the counties wanted things to improve, they would have to step in themselves.
Cities like Chattanooga, Tennessee, and Wilson, North Carolina, have become high-profile broadband success stories by acting as their own internet service providers, which entails running their networks day-to-day and dealing with customers.
The Southern Alleghenies shouldn’t take this approach, the consultants said.
Instead, they urged the six counties to invest in broadband infrastructure and lease it to private companies.
It soon became clear that the state’s 2004 law would be a stumbling block.
It’s one thing to ask a single phone company for “right of first refusal,” explained Brandon Carson, the agency’s former director of planning. But in a region that spans the territories of five telephone companies, it could become an administrative nightmare.
“We quickly concluded without some sort of relief this would apply to us and dash our hopes,” said Todd Stewart, an attorney for the planning commission. “It would make life impossible.”
So they developed a workaround.
In late 2020, the planning commission created a nonprofit, Alleghenies Broadband, Inc. The new organization, they argued, was not a government entity and therefore did not have to offer the phone companies “right of first refusal.” In their view, the nonprofit should be able to lay miles of fiber-optic cable without jumping through the same hoops as a city or county.
It was a novel approach, and ABI wanted the blessing of the Public Utility Commission.
On the legal question of whether ABI was free from the “right of first refusal” requirement, “there is room for uncertainty,” chairman Gladys Brown Dutrieuille wrote in an opinion. But the importance of expanding broadband trumped any concerns about legal gray areas, she concluded. And none of the phone companies in the region objected, she noted.
Regulators approved ABI’s request early last year.
Carson, until recently ABI’s executive director, says the new model is already proving a success. The nonprofit has several wireless projects underway, is working on a longer-term plan for the fiber network, and earlier this year was part of a partnership that received a $20 million federal broadband grant, one of only 13 awarded nationwide. In April, Carson was chosen to lead the state’s new broadband development authority.
Unanswered questions
The legal ambiguities that worked to ABI’s advantage threatened to smother another broadband initiative a few counties to the east.
In late 2020, DRIVE, an economic development organization created by two counties in the Central Susquehanna region, was planning to use federal funding from the first coronavirus relief bill to expand a broadband network it had built a year earlier.
The first phase of the project had gone smoothly. The original network only served Montour County, and the PUC gave DRIVE the go-ahead after Verizon declined to provide the service. DRIVE owned the network and leased access to internet service providers.
The proposed expansion, however, would add four more counties — Columbia, Northumberland, Snyder, and Union — which meant DRIVE would need permission from not one but seven phone companies.
With offices closed during the pandemic, even getting the “right of first refusal” letters in front of the correct people proved difficult.
And this time, some of the phone companies pushed back.
Local subsidiaries of TDS Telecom and Windstream argued that DRIVE’s letter wasn’t detailed enough. In legal filings, the companies accused the group of “trying to rig the outcome by rendering an informed reply impossible” and “paying lip service” to the legal restrictions.
The case went before the Public Utility Commission, which DRIVE had asked to approve the expansion plans. With little legal precedent to draw on, the two sides clashed for months over basic questions about how the 2004 law was supposed to work.
“I picked a fight I really didn’t mean to pick,” said Jennifer Wakeman, DRIVE’s executive director. “I wasn’t trying to pick a fight at all.”
With no clear answers from the utility commission, and a looming deadline for spending CARES Act money, Wakeman decided to press forward and build the network anyway.
By the end of 2021, the expanded network was up and running, the two sides were at an impasse, and DRIVE asked to withdraw its request for PUC approval.
Wakeman had expected to spend about $25,000 on legal fees for the network expansion; the case has so far cost more than four times that amount, she said.
TDS did not respond to requests for comment. Windstream declined to comment on the specifics of the case but said that since 2010 the company had only received three requests from local governments seeking to build their own networks, including DRIVE’s.
In legal filings, though, the companies argued that the case raised fundamental questions about the law that urgently needed to be resolved, because the coming “tsunami” of federal broadband funding would inevitably prompt a flurry of similar proposals from local governments, raising the same issues in other parts of the state.
The PUC hasn’t yet issued a final ruling.
Still unsettled
In newly released guidance, the federal government “strongly encourages” states with laws like Pennsylvania’s to waive them as the new funding starts to flow — a change that would need approval from state lawmakers.
Previous attempts to roll back the restrictions have stalled in the Pennsylvania legislature.
In 2019, and again in 2021, state Rep. Pam Snyder (D., Greene) introduced legislation to do so, but both bills died in committee without coming up for a vote.
One of the committee chairs, state Rep. Dan Moul (R., Adams) did not respond to a request for comment; the other, state Rep. Jim Marshall (R., Beaver), declined to comment. The Pennsylvania Telephone Association, which represents all but one of the phone companies that benefit from the state restrictions, opposed the change.
Lawmakers agreed to have the legislature’s nonpartisan research agency study the problem of broadband access and chart a course for the future.
In 2020, the Joint State Government Commission released a sweeping, 220-page report, with input from an advisory committee of state officials and a handful of industry representatives, that examined broadband’s impact on health care, agriculture, education, and economic development.
But while the report discussed arguments for and against letting municipalities build their own networks, it didn’t come to a firm conclusion on whether Pennsylvania should keep its restrictions.
Read one way, the commission’s recommendation seemed to say the rules should be scrapped; read another, it appeared to endorse the status quo.
The federal infrastructure law leaves many of the decisions about how to award billions in broadband grants up to the states and territories, but says recipients can’t disqualify local governments from applying for the funding.
Guidance from the federal National Telecommunications and Information Administration released in May doesn’t fully explain the consequences for states that don’t heed the recommendation to suspend their restrictions.
The NTIA did not respond to questions from Spotlight PA about the guidance.
The apparent conflict between federal and state law, and the lack of clarity about how it will be resolved, could prompt legal battles, said Meinrath, the Penn State professor.
At a recent meeting of the Pennsylvania Broadband Development Authority, Meinrath pressed board members to clarify how the state would respond to the federal guidance.
“Shouldn’t we proactively address this issue?” he asked in the meeting web chat.
There was a long pause.
Then, Budget Secretary Gregory Thall, who chairs the board, replied: “I’ve long ago given up trying to tell the General Assembly what is wise and what is not wise for them to do.”
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