In Appalachia, a public broadband project hits snags

Kentucky's plan to build one of the country's largest publicly owned broadband networks was touted as a cornerstone of the effort to save the Appalachian economy by bringing high-speed internet to some of the poorest counties in America.

It was supposed to take a year to finish, but three years later only a fraction of the 3,000 mile network of fiber optic cables known as Kentucky Wired has been built. Construction has been plagued by delays, forcing the state to pay $7 million in penalties to its private-sector partners with the potential of "tens of millions" more. State officials had been counting on public schools and libraries to help pay some of the bills but that plan has fallen through, and project officials plan to ask state lawmakers for millions of dollars in taxpayer money to make up the difference.

Now, some of the state's most influential lawmakers want to pull the plug, and have asked project leaders how much that would cost.

"This is the 21st century version of the big dig in Boston," said Chris McDaniel, chairman of the state Senate's budget-writing committee, referring to a project that took decades to complete and cost twice as much as planned.

Launched with considerable fanfare in August 2015, Kentucky Wired was designed to touch all of Kentucky's 120 counties to ensure even the most remote hollers of the Appalachian mountains would have access to high-speed internet — widely viewed as crucial to jumpstarting economic development.

The undertaking requires a 3,000-mile network of fiber optic cables, 85 percent of them strung from existing telephone poles while the rest run underground.

It was supposed to have been completed by the fall of 2016. Instead, crews have installed only 68 miles of tubing for the cables, nearly 13 miles of glass fiber and 6 miles of aerial fiber cables.

"Kentucky Wired is pioneering the use of the public-private partnership model in a new sector, and therefore the model is subject to temporary setbacks," said Nicholas Hann, senior managing director for Macquarie Capital, the Australian venture capital firm that has a contract to build and operate the network. "We have the utmost confidence that we can work through these challenges."

Part of the problem is getting permission to hang cables onto existing telephone poles. In many cases, project leaders have to negotiate with private property owners who are often wary of granting an easement to the government. And they have to woo officials with local governments, some of whom already own and operate their own broadband networks.

"You don't expect a new entrant financed by the government to come along and compete with you," said Billy Ray, superintendent of a city-owned utility with a broadband network in Glasgow, a town of about 15,000 people in western Kentucky. "We have some concerns about what is their ultimate goal."

Officials have leased more than 300 miles of existing fiber-optic cables to save money and time. But the project has still encountered 158 "supervening events" that delayed construction. The delays have caused losses for Macquarie Capital and its partners. Kentucky taxpayers are contractually obligated to cover some of those losses. The state has paid $7 million so far, with "tens of millions" more on the horizon, according to Phillip Brown, executive director of the Kentucky Communications Network Authority that is overseeing the project.

While the project was mostly financed by $288 million in public bonds issued by Macquarie Capital, the contract requires Kentucky taxpayers to help companies pay down that debt. State officials had promised that government agencies and public schools would be the network's first customers, using that money to help pay off the debt. But with the network not built, that money is not available. Brown said officials will likely ask the state legislature to cover those costs. McDaniel said he would not support that.

"These folks that came in there and participated from the private sector may have to take a haircut," he said.

Republican Rep. Phil Moffett went further, saying "the people that bought those bonds ought to sue us."

The network is one of the featured projects between former Democratic Gov. Steve Beshear and longtime Republican U.S. Rep. Hal Rogers. The two joined forces to form SOAR, a nonprofit organization designed to spur growth in Kentucky's Appalachian region that has been devastated by the declining coal industry.

Republicans who criticize the network often blame Beshear, who approved the project before he left office. But Rogers also played a key role, securing a $23 million federal grant and declaring the project crucial to turning Appalachia into "silicon holler." Republican Gov. Matt Bevin, a frequent critic of Beshear's time in office, has promised to complete the network because it "will make a profound difference in the lives of many across the Commonwealth," according to a spokesman.

Beshear declined to comment for this story. Rogers said the state can't afford not to finish the project.

"The contract is complicated and costly, but more importantly, our businesses owners are begging for it in Eastern Kentucky to expand operations and new industry recruits often require it before committing to our state," Rogers said.