Posted: 09/1999

Rights-of-Way Rifts Sidetrack Long Distance
Carriers
By Kim Sunderland

Abandoned railroad right-of-way property has put the nation’s largest long distance
carriers on a fast track to the courthouse steps in an issue that’s gaining speed and
notoriety throughout the country.

In a nutshell, several interexchange carriers (IXCs) are up the creek for laying cable
on land underlying or adjoining abandoned railroad corridors. The IXCs and other telecom
companies use these corridors as part of their nationwide expansions and to interconnect
their fiber optic cable networks. The lawsuits against them cover such corridors in
virtually every state and include a major chunk of the entire industry’s fiber optic
network. In Indiana, AT&T Corp. has become the first to agree to a proposed landowner
class-action settlement in what surely sets the course for more state settlements to come.

"This appears to have become a major problem as telecom companies have laid fiber
optic cables on accessible routes without dealing with the legitimate landowners,"
explains Nels Ackerson, a Washington lawyer who is the lead attorney on these class
actions. "This is a pattern that has spanned the course of many years, as fiber optic
cables have become the dominant telecom carriage. And it’s become more dominant because
more cable is needed to handle Internet growth."

Companies such as MCI WorldCom Inc., Sprint Corp. and Denver-based Qwest Communications
International Inc. collectively face hundreds of millions of dollars of potential
liability, Ackerson says, "for trespass, slander of title and unjust enrichment. Even
worse, their most valuable assets and their core businesses may be vulnerable to loss or
interruption."

Ackerson has established a joint venture with four law firms and attorneys in 20 states
to manage coordination of the lawsuits against telecom firms, railroads and utilities. The
lead firms have offices in Washington, Indianapolis, Minneapolis, Boston, San Francisco,
Los Angeles and Dallas. And Ackerson says "more class actions will be filed in order
to retain recovery for the rightful landowners" against Qwest in Texas, MCI WorldCom
in Indiana and Sprint in Illinois.

While the IXCs thought they had been paying the rightful property owners for use of
these rights-of-way, their assumptions have turned out to be largely false. As a way to
build a fiber optic network quickly and inexpensively, many telecom companies made
agreements with railroads and utility companies to install tons of their fiber optic cable
on railroad and utility corridors. But railroads and utilities often don’t own the land;
they have easements permitting them to use the corridor only for their limited purposes.
And previous state court decisions have ruled that the railroads owning these easements
can’t transfer rights to another company hoping to use the land for other purposes.

"Because the right-of-way easements were granted for the limited purposes of
either railroad or pipeline or other utility purposes, the holders of the right-of-way
easements could not grant, lease, license or otherwise convey to AT&T the right to use
or control the right-of-way land for fiber optic or other telecommunications
purposes," according to Vera J. Hinshaw et al. v. AT&T Corp. et al., which
is filed with the Superior Court in Hamilton County, Indiana. This settlement covers
abandoned railroad lines in Indiana, but it’s part of the process to settle all national
claims against AT&T on abandoned railroad lines, Ackerson says.

In response to this problem, some telecom companies have started negotiating easements
with the landowners. Such negotiations, though, give landowners the short end of the
stick, their attorneys say. Small landowners, for instance, must negotiate with
deep-pocketed, well-represented telecom companies that may persuade landowners to sell
their land rights for a fraction of its value. The landowners, Ackerson says, often don’t
realize that a corridor’s value may be higher for fiber optic cable use. These class
actions, he adds, have "leveled the litigation playing field for landowners."

In AT&T’s case in Indiana, for example, the settlement involves hundreds of miles
of operating and abandoned railroad and utility corridors from Indianapolis to
Bloomington, Palmer to Chicago, Richmond to Muncie and Sheridan to Indianapolis.
Specifically, the AT&T settlement proposal seeks conditional certification of a
nonmandatory (opt-out) class of plaintiffs and preliminary approval of a proposed
class-action settlement, under which AT&T agrees to pay claimants net compensation
benefits averaging $45,000 per linear mile along the inactive railroad corridors.
"The proposal also seeks a court hearing to determine the fairness, adequacy and
reasonableness of the proposed settlement," says Mike Pruyn, AT&T’s public
relations director. A court decision is due this month.

"This has gone on long enough," Pruyn says. "We are the first telecom
company to address this issue, which could set a precedent for the others involved."
The other IXCs have not yet reached such a settlement.

Pruyn says AT&T and class-action counsel jointly have proposed approval of the
Indiana Telecom-munications Cable Class Settlement to U.S. District Judge David F.
Hamilton. The proposed settlement, he adds, will resolve claims in the case brought by
people who own or owned land underlying or adjoining certain inactive railroad corridors
in Indiana formerly used for railway service, and where AT&T now has installed fiber
optic cable.

"Although AT&T has agreed to the proposed settlement as a reasonable
compromise for all parties, AT&T believes that it is innocent of any wrongdoing and
denies any legal liability of any kind," Pruyn says. "AT&T has agreed to the
settlement not only because of the risk of litigation, but because of the substantial
time, expense and other burdens involved even in successfully defending against such
claims. AT&T has reserved the right to withdraw from the proposed settlement if, in
its opinion, the number of persons opting out of the settlement is excessive."

In return for its settlement in Indiana, AT&T will obtain legal security for its
fiber optic cable network. The company also avoids the potential risk of disrupted
business if a court were to restrict AT&T’s use of fiber optic cable on these
corridors.

Deeply Local

Rights-of-way issues are of concern to both local and state regulators, says James
Bradford Ramsay, assistant general counsel for the National Association of Regulatory
Utility Commissioners (NARUC), which represents state regulators. The issue is among those
being studied by the Federal Communi-cations Commission’s (FCC’s) state and local
government advisory committee, while related issues such as building access, shared-tenant
services, plant demarcation, inside wiring and collocation have drawn more direct focus
from state regulators, Ramsay says. "Certainly to the extent that access to
rights-of-way hinder competitive entry," he adds, "the PUCs (public utility
commissions) have to take interest."

In a related rights-of-way squabble, local governments hoping to snatch what they
believe is their slice of the big, fat apple pie of telecommunications are erecting an
emerging market barrier. Telecom competitors moving into some of the nation’s small cities
are facing local council members who don’t give a squat about state or federal laws, and
they charge telecom companies a portion of their profits when their cables or wires cross
public land.

"This is a huge issue," says Scott C. Cleland, director of the Legg Mason
Precursor Group in Washington. "This is the dark side of competition, and it will be
fought all the way to the U.S. Supreme Court."

The Telecommunications Act of 1996 encourages a policy of competition, Cleland says,
which means competitors have a right to dig up the streets to lay their cables. But voters
don’t want snarled traffic or huge potholes that flatten their tires. "Local
governments will allow it," he says, "but they don’t want to have to redig for
every competitor. They only want to do it once." Charging more fees, local officials
say, compensates citizens for the disruptions.

Several federal judges have ordered local governments to stop charging telecom
companies rent to use public rights-of-way, basing their decisions on the Telecom Act’s
rules that states and localities can recoup only administrative costs from telecom
companies using public property, not use it as a new revenue source. Other federal
district judges, however, have agreed with local ordinances that charge telecom carriers
these extra "franchise" fees.

"Local jurisdictions perceive rights-of-way as marketable real estate to earn
money on, as if they own the land," says Carl E. Smith, an area manager of external
affairs for Bell Atlantic-Maryland Inc. "They see a lot of energy and competition in
our business and they figure we’re gonna make all this money and they want to get some of
it. This has turned it into a revenue issue."

Cleland says the FCC may have to get involved in the issue, maybe through a rulemaking
that explores pre-empting the locals in these incidences. The FCC has initiated an inquiry
to develop a record on whether and how state and local rights-of-way and tax policies are
having an impact on facilities-based competition. Proposed legislation on these
rights-of-way issues also is being drafted in Congress, according to one source, who says
competitors would support such a bill "because it offers consistency in the
market."

"This is fairly bizarre," says one Washington attorney not involved in these
lawsuits. "These companies usually have someone skilled in right-of-way access issues
who would help them avoid such problems. Seems to me the carriers have been
snookered."

Kim Sunderland is Washington bureau chief for PHONE+ magazine.