As the deputy director of the Office of Cable Communications and Franchise Management in Portland, Ore., Henry wrote and signed franchise agreements with these and more than 12 other firms during the telecom boom of the late 1990s.
Now she and hundreds of other government officials across the country are relying on bankruptcy courts to determine the fate of the thousands of miles of cable these companies control.
From Boom to Bust
When Congress passed and President Clinton signed the Telecommunications Act of 1996, they freed telecoms from their bonds of old. Cable companies could now deal in telephony services; telephone companies could offer cable access; and local telephone companies could sell interstate services outside their previously approved markets.
The rise of the Internet in the early 1990s emphasized the commonality of what these companies dealt in - access to information through data channels. The Telecommunications Act acknowledged that change by opening markets to increased competition for telecom services.
Typically, telecoms sign franchise agreements with cities to lease access to sections of a city's rights of way for a certain number of years. The fiber optics that carry cable, telephone and broadband data services are generally installed underground in downtown areas and aboveground on poles in more suburban areas.
But no matter how it's laid out, the cable itself is still owned by the telecoms.
With telecoms filing bankruptcy claims left and right - thanks largely to huge up-front costs and an excess of fiber capacity in business districts - what happens to the "dark" fiber already in place and the outstanding contracts?
Nothing Has Changed ...
Initially, a Chapter 11 bankruptcy filing - in which a company seeks to reorganize its debts - has little effect on existing agreements between cities and businesses. The telecom retains ownership of the cable, and the city cannot void a contract or refuse its renewal even if the telecom is behind in its payments. Everything operates as before while the bankruptcy court tries to help the business work out a solution to its financial woes.
"Once in bankruptcy proceedings, there are several possible outcomes," Henry said. "Of course, the one we prefer is that they emerge from bankruptcy and continue to provide service."
Such rebirths aren't impossible. GST Telecommunications filed for bankruptcy in May 2000, and then sold most of its assets three months later to Time Warner Telecom, thereby providing continued service for its customers.
With the WorldCom and Adelphia Communications Chapter 11 filings being the largest and sixth-largest bankruptcy cases in U.S. history - not to mention the 60-plus other filings over the past two years - it's unlikely that most telecoms will live to see another day.
Hope still runs rampant among those involved, though.
"Adelphia isn't dead yet," said Libby Beaty, executive director of the National Association of Telecommunications Officers and Advisors. "We still think they can pull themselves out of this - like a phoenix from the ashes."
Yet Everything Has Changed
Once a telecom files for bankruptcy, there's suddenly a third partner involved in the franchise agreement, and that partner can have a lot of pull.
"Franchise [agreements] typically say that if the cable company leaves the area, those assets revert to the city," said Garth Ashpaw, who consults municipalities on rights-of-way pricing. "While the franchise says that, the bankruptcy court might have another opinion. That's something that many communities are trying to resolve right now."
As Ashpaw notes, all the variables involved - state laws, the level of the telecom's community involvement, the language of each franchise agreement - make the resolution of each bankruptcy case unique.
Metricom, which filed for Chapter 11 bankruptcy in July 2001, abandoned the physical assets of its wireless Ricochet system to the host communities, but sold the software needed to use the system to Aerie Networks for $8.25 million - a far cry below its one-time valuation of $1 billion.
"We were using Ricochet redundantly for public safety, and it's a great way to supplement your other fiber and wireless technology," said Jane Lawton, cable administrator of Maryland's Montgomery County. "But you have to get the two parts together to use the system."
With the hardware now in the hands of municipalities, Aerie Networks would need to strike a partnership of some sort with each potential customer.
Protecting Their Rights
At a minimum, communities affected by telecom bankruptcies should file a notice of appearance with the court designating which individuals or city attorneys should receive updates from the court suggests Gerry Lederer, an attorney with Miller & Van Eaton, a Washington, D.C.-based law firm that often represents municipalities in telecom cases.
Due to the automatic stay normally issued by bankruptcy courts in Chapter 11 cases, a community can't sue a telecom for delinquent franchise fees, but it can act to protect public health and welfare in regard to construction requirements and customer-service standards. Lederer notes that such actions should be made only after consulting counsel to ensure that the court's automatic stay is not violated.
The bankruptcy court's automatic stay also prevents a municipality from taking over a telecom's assets in lieu of payment - but, in many cases, playing repoman isn't an activity cities want to take on.
"We don't have any interest in competing with the private sector," said Henry, who wrote Portland's franchise agreements to specify that the city's fiber network will be used solely for its schools, libraries and government buildings.
Even in the residential market, which has little in the way of competition, Henry said Portland prefers to create policy to encourage competition.
"We don't want to take it on ourselves," she said.
As for the potential sale of franchise agreements to other entities, the rights of the city run headlong into the details of bankruptcy code, which allow debtors to assign contracts to others even when such contracts explicitly prohibit reassignment without approval by the other party.
Communities can possibly argue to the court that they don't have to accept agreements reassigned to other parties, and their best bet is stay involved with the bankruptcy proceedings every step of the way.
The difficulties municipalities are now encountering with troubled telecoms have helped temper their enthusiasm for future deals.
"I've seen a mounting effort to protect local government in terms of who we do business with, both as consumers and regulators," said Denise Brady, deputy director of telecommunication services of San Francisco. "We are much more aware and cautious when assessing risk relating to procurement of services and the granting of licenses to companies wanting to provide services to our citizens."
This is to say nothing of the untold miles of dark fiber still waiting underground for a market revival to call them back into service. Fiber ages well, so no matter the fate of its owner, it will still be waiting when the call finally comes.
Bio: W. Eric Martin
