Communications
DECEMBER 2004
Pennsylvania Enacts Broadband Law Limiting Municipal
Deployment of Broadband Technology
On November 30, 2004, Pennsylvania Governor Edward
G. Rendell signed House bill 30 that amends the
Pennsylvania Public Utility Code to limit competition
from any municipality seeking to provide broadband
services (including, notably, the City of Philadelphia)
by requiring such municipality to provide: (i) provide
broadband services to its residents without charge,
and (ii) the incumbent local exchange carrier (ILEC) with
an opportunity to exercise a statutory right of first
refusal to provide broadband services to the
municipality’s residents (the “PA Broadband Law”).
These limitations on the provision of broadband
services by municipalities represent a retreat from earlier
versions of the PA Broadband Law that prohibited
Pennsylvania municipalities from providing broadband
services. While the PA Broadband Law primarily
concerns ILECs, it also has competitive implications
for Internet service providers, wireless carriers, cable
broadband service providers and broadband over
powerline service providers.
BROADBAND DEPLOYMENT
The original Chapter 30 established indexed price caps
for all ILECs to provide them more flexibility in setting
local telephone rates, provided that they fully deployed
broadband information services in their service
territories by the year 2015. The price cap formula allows
for annual rate increases equal to the inflation rate minus
productivity offsets. Under the PA Broadband Law,
acceleration of broadband deployment prior to the
deadline will allow companies to reduce or eliminate
the productivity offsets. ILECS that commit to full
deployment by 2013 will have the productivity factor
eliminated, while ILECs that agree to full deployment
by 2015 will have the factor reduced to .5 percent. Rural
companies that commit to deployment by 2008 will be
relieved of other regulatory requirements imposed by
the Act. A “clawback” provision enforces the carrier’s
commitment to accelerate its deployment of broadband
services. If the company fails to meet its accelerated
deployment commitment, the provision requires the
carrier to refund to rate payers the difference in rates
between the revised indexing formula and the prior
formula under the old Chapter 30. The Act also
establishes a minimum uplink speed for broadband
service.
LIMITATIONS ON MUNICIPAL DEPLOYMENT
Several municipalities in Pennsylvania have announced
their intention to deploy high-speed broadband
Internet services in their communities. These
municipalities include the City of Philadelphia (among
others) which has announced its intention to construct
a city-wide municipal network to offer low-priced high
speed wireless Internet access to its residents. In an
effort to seemingly insulate ILECs from competition
from municipalities in the broadband market, prior
versions of PA Broadband Law originally precluded
communities from developing their own high-speed
networks. The enacted Bill allows existing municipal
systems to continue to operate and provides local
governments and authorities a one-year window to
develop these networks. The municipalities that are
providing local telecommunications service to a
municipally owned or created system as of January 1,
2006 can continue to offer and provide these services
“to the extent and scope” that the municipality provided
these services before that date. After January 1, 2006,
Kirkpatrick & Lockhart LLP
municipalities must offer the ILECs a right of first refusal
to provide the service. If the ILEC waives its right of
first refusal, then the municipality can proceed with its
proposed network. As a concession to encourage
enactment of the revised Chapter 30, Verizon has
already agreed to waive its rights of first refusal in regard
to Philadelphia’s proposed municipal Wi-Fi network,
permitting that project to proceed without interference
from the new law.
ECONOMIC DEVELOPMENT
The legislation establishes a procedure to allow the
Commonwealth’s Department of Community and
Economic Development (DCED) to accelerate
broadband deployment in order to serve economic
development projects. DCED can designate specific
rural communities for accelerated broadband
deployment to serve local economic development
projects. Under this provision, ILECs must provide
broadband service to DCED-designated communities
within 12 months of the request from the agency.
BROADBAND DEPLOYMENT IN SCHOOLS
The Act also contains several provisions designed to
accelerate broadband deployment to Pennsylvania
schools (K-12). The Bill requires ILECs to provide
broadband services to schools at a discounted rate—
the lower of 30 percent off its usual and customary rate
or the actual incremental cost of deploying the service.
The Act also establishes an Education Technology
Fund (E-Fund) to be administered by the Pennsylvania
Department of Education, which must prescribe the
grant process and application form within 90 days. The
E-Fund will support deploying broadband services to
individual schools, including costs of interconnection,
interschool networks and technology enabling schools
to employ distance learning. The school must provide
matching funds for each E-Fund grant. The Act requires
Verizon to contribute $7 million a year and the other
incumbent companies to contribute ten percent of any
inflationary increase in their charges.
LOW-INCOME CUSTOMER ASSISTANCE
The Act also contains provisions designed to assist
low-income households to obtain Lifeline assistance
for their phone service. The Act establishes a process
to automatically inform every low-income household
applying for state assistance that it can receive Lifeline
aid in paying their local phone bill. The federal Lifeline
program provides low-income households with a $100
subsidy to cover the cost of installing a phone and $8
per month to help pay the monthly bill. The legislation
also encourages enrollment in the Lifeline program by
permitting participating households to purchase vertical
services (caller ID, voicemail, call waiting, call
forwarding, etc.). Pennsylvania Lifeline customers were
not previously allowed to have these services.
VERIZON CONCESSIONS
Verizon made a number of concessions in negotiating
with Governor Rendell to encourage enactment of the
revised Chapter 30. As explained above, Verizon has
already agreed to waive its right of first refusal
concerning Philadelphia’s proposed municipal Wi-Fi
network, permitting that project to proceed. Verizon
also agreed to make additional contributions in 20062011 to ensure that the E-Fund will have a minimum of
$10 million per year to support school broadband
services in Pennsylvania. Verizon has also agreed to
offer discounts to Pennsylvania schools for equipment
necessary to bring broadband into classrooms,
agreeing to provide the necessary equipment at a price
not to exceed cost plus five percent. Verizon has also
agreed to provide eligible schools that purchased
managed network services with a 20 percent discount
from list prices.
Verizon has also agreed to encourage telephone
competition in Pennsylvania by allowing competitive
local exchange carriers (“CLECs”) to use Verizon’s
network at a discounted price. Verizon has agreed that
regardless of future decisions concerning federal
jurisdiction over unbundled network services, it will
continue to offer unbundled network services to CLECs
at discounts of up to 40 percent below market rates.
The specific services and terms included in the
commitment will be announced later.
DANIEL P. DELANEY
717.231.4516
ddelaney@kl.com
MARC S. MARTIN
202.778.9859
mmartin@kl.com
Kirkpatrick & Lockhart LLP
2
COMMUNICATIONS PRACTICE
Kirkpatrick & Lockhart LLP was founded in 1946, and, with more than 800 lawyers, is one of the 50 largest
law firms in the United States. K&L attorneys are based in ten offices in key U.S. cities—Boston, Dallas,
Harrisburg, Los Angeles, Miami, Newark, New York, Pittsburgh, San Francisco, and Washington. Our firm
represents a broad range of clients in a wide variety of matters, including corporate and securities,
e-commerce, investment management, insurance coverage, financial institutions, mortgage banking and
consumer finance, creditors’ rights, intellectual property, tax, labor, environmental, antitrust, health care,
and government contracts. K&L and the English firm of Nicholson Graham & Jones have announced that
they will combine effective January 1, 2005. The combined firm will be called Kirkpatrick & Lockhart
Nicholson Graham LLP. You can learn more about our firm by visiting our Internet website at www.kl.com.
The Communications Practice Group provides legal advice and transactional services to the
telecommunications, media and technology industries. We counsel clients engaged in the full range of
FCC regulated activities, including wireless (including private and commercial; fixed, mobile; licensed and
unlicensed wireless) telecommunications, broadcast television and radio, broadband and narrowband
Internet services, satellite, long distance, local exchange carriers, international telecommunications, and
equipment certifications, from both a transactional and regulatory compliance perspective. We also have
experience with state telecommunications regulatory compliance matters. Our clients include FCC licensees,
resellers, system integrators, software developers, wireless and long istance carriers, radio broadcasters,
venture capital funds, investment banks and entrepreneurs. Members of the Communications Practice
Group and their telephone numbers and email addresses are listed below:
Marc S. Martin
Daniel P. Delaney
Michael R. Gordon
Leslie A. Sowle
Eric C. Broyles
Sidney R. Smith III
Henry L. Judy
George D. Dickos
Thomas J. Edgington
Anthony H. Handal
Debra Y. Hughes
Norman R. Miller
Bruce H. Nielson
Daniel J. Sponseller
202.778.9859
717.231.4516
212.536.4855
202.778.9472
202.778.9416
202.778.9236
202.778.9032
412.355.6785
412.355.8303
212.536.4870
212.355.8301
214.939.4906
202.778.9256
412.355.8650
mmartin@kl.com
ddelaney@kl.com
mgordon@kl.com
lsowle@kl.com
ebroyles@kl.com
smith@kl.com
hjudy@kl.com
gdickos@kl.com
tedgington@kl.com
ahandal@kl.com
dhughes@kl.com
nmiller@kl.com
bnielson@kl.com
dsponseller@kl.com
The attorneys resident in all offices, unless otherwise indicated,
are not certified by the Texas Board of Legal Specialization.
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2004 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.