2004 Update:

Links to the Future

The Role of Information and Telecommunications

Technology in Appalachian Economic Development

By Michael Oden and Sharon Strover

With Nobuya Inagaki and Chris Lucas

University of Texas

Prepared for the Appalachian Regional Commission June 2004 
A Report to the Appalachian Regional Commission 

2004 Update: Links to the Future: 

The Role of Information and Telecommunications Technology In 

Appalachian Economic Development 

by 

Michael Oden and Sharon Strover 

with 

Nobuya Inagaki and Chris Lucas 

University of Texas 

June 28, 2004 

The views, findings, conclusions, and recommendations expressed in this report are those of 

the authors and do not necessarily represent the official views, opinions, or policy of the 

Appalachian Regional Commission. 

i

A. Introduction: Updates of Data and Policy Analysis of Links to the 

Future

This study updates parts of the analysis found in the Links to the Future report published 

in June 2002. This update focuses on analyzing the changes in access to advanced 

information technologies and telecommunications services over the 2001-2003 period. 

We also review changes in the policy environment that have occurred over this period 

and highlight federal and state level legislative proposals that may have important 

implications for future deployment of advanced information and telecommunications 

infrastructure (ICT) services.

To better understand patterns of growth and change affecting ICT infrastructure in the 

Appalachian region, this report updates key measures of access and use of ICT across the 

region. The most current data available is used to update key telecommunications 

infrastructure measures in the tables, figures and maps from the Links to the Future report 

of June 2002 (see: http://www.arc.gov/index.do?nodeId=57#telecom). 

Fast-paced changes in the character and deployment of the technologies have been 

accompanied by changes and adjustments in regulatory and investment policies by the 

various government levels. This report details prominent Federal Communications 

Commission (FCC) rulings, congressional legislation, and actions by state governments 

in the Appalachian Regional Commission (ARC) region related to cable modem, Digital 

Subscriber Lines (DSL) and other high-speed telecommunications services.

Highlights of Findings

The pace of change in ICT adoption has been extremely rapid. The use of computers and 

Internet services continues to expand across all population segments and the extension of 

broadband services is reaching into previously underserved areas. This report shows that 

broadband access has expanded significantly in all parts of ARC region. Especially 

encouraging is the increased availability of broadband in many rural counties that 

previously did not have access to this service.

However, the counties of the ARC region still lag significantly behind the rest of the 

nation in access to cable modem services, DSL services and other forms of high-speed 

Internet access. It is noteworthy that the gap between the share of zip codes in ARC 

counties with high-speed providers and the national share widened over the period. The 

broadband service gap grew to 29 percentage points between the Appalachian region and 

nation. In December 1999 there were 43 percent Appalachian zip codes with at least one 

high-speed provider compared to 60 percent for the nation. In December 2002 there were 

59 percent in the Appalachian Region compared to 88 percent for the nation.

The recent market environment and proposed and actual changes in regulatory structures 

have not promoted increased competition among local carriers. In the earlier report we 

emphasized that the presence of several competing local exchange carriers offering 

advanced services improved choices for businesses and increased the information 

available to customers about the adoption and use of new technologies.
ii

Policy makers should carefully consider recent initiatives at federal and state levels that 

make new network investment by incumbents unavailable to competitors through the 

unbundled network element platform (UNE-P). While these regulations may promote 

greater investments by incumbent local exchange carriers, they will limit market entry by 

competitive local exchange carriers. The overall effect on deployment and service 

choices from these regulatory changes is not clear.

This update report finds that federal and state investments over the past six years have 

encouraged broadband deployment and more effective adoption of ICTs in underserved 

regions. State policies including investments in schools and e-government networks have 

also encouraged adoption of advanced services. Finally, the report profiles more 

innovative non-regulatory interventions by state governments such as demand 

aggregation, resource sharing and partnerships with private providers, and anchor 

tenancy. These approaches have improved the quality and accessibility of government 

networks and have provided access to underserved customers in rural areas.
1

B. Cable Modem Services

1. The National Picture

Cable operators are the single biggest provider of advanced telecommunications services 

at the national level. This industry provides broadband services via their cable networks, 

which, to date, account for more broadband connectivity to residential and small 

businesses than does the wireline industry (such as DSL or T-1 and T-2 lines). In the 

broadband domain, cable modem services operate quite differently from telephone line 

based-Digital Subscriber Lines. Cable modem services are more widespread than digital 

subscriber line services, and although they offer less security they are often faster than 

DSL. 

Crucially, cable modem service providers are not required to unbundle their services—a 

sore point with the telecommunications companies. Cable operators throughout the 

country were well positioned to move into Internet service provision because they had 

made substantial investment in their physical plant in the 1990s in order to offer digital 

television. Having a digital plant meant that adding on cable modem services as another 

revenue stream was an easy and profitable move for the industry. Some critics believe 

the entry of the telephone companies into DSL services was a late response to the early 

lead that cable television operators established, and that without the spur of cable modem 

competition, the telephone companies would have moved into broadband later and more 

slowly. 

Figure 1: Cable Modem Subscribers

Source: NCTA, statistics as of December 2002

Of the nation’s 107 million television households, the cable industry states that it can 

provide cable modem service to 83 million, and that 11.3 million households currently 

subscribe (NCTA, 2003). FCC statistics on households served are considerably lower 

than National Cable Television Association’s statistics (the FCC statistics are from 2002), 

but still indicate that cable modem outstrips telephone-based broadband services: 5.2 

million lines are cable modem services while 2.7 million lines are DSL (FCC, 2002b). 
2

2. The Policy Environment

On March 14, 2002, the FCC adopted a major rulemaking change that sought to grapple 

with policy uncertainty regarding the regulation of cable modem services. In a 

declaratory ruling, the agency classified cable modem service as an “interstate 

information service” subject to FCC jurisdiction. In stating that modem service is not part 

of "cable service," the agency undercut state claims to regulate cable modem access. 

Further, the FCC explicitly stated that cable modem service is not a separate 

"telecommunications service" and therefore cannot be subject to common carrier 

regulations. This was prompted in part by state claims that cable modem service is more 

properly treated as a common carrier component of cable service and therefore should be 

regulated in such as way as to require cable operators to open their networks so that other 

would-be competitors could use those facilities to provide broadband access. 

One very significant impact of this ruling is to eliminate state jurisdiction over Internet 

services provided via cable operators. In the current environment, there remains little that 

state or local jurisdictions can do to directly accelerate the deployment of cable modem 

services to underserved areas. However, as noted above, the extension of basic cable 

services involving digital plant and equipment often brings with it the extension of cable 

modem broadband services.

3. Cable Modem Service in the ARC Region

The two maps below show cable modem access characteristics in ARC counties. The first 

map in Figure 2(A) shows that Appalachian region was sparsely served by this 

technology in 2000 (this map is equivalent to Figure 3 on page 27 of the original Links to 

the Future Report). The second map in Figure 2(B) shows some significant expansion of 

cable modem service by 2003. There were a number of counties in Ohio, Tennessee, 

Northern Alabama and Mississippi that acquired cable service between 2000 and 2003. 

Yet there are still wide swaths of central Appalachia that remain without cable services of 

any type.

Furthermore, it is important to note that these maps overstate cable access because they 

display counties where there is cable modem service available anywhere in a county even 

though many parts of a county may not actually receive service. Cable modem service 

typically is available only within towns, not in outlying rural areas. On balance the 

Appalachian region seems underserved in this type of Internet access in both 2000 and 

2003, although service has undoubtedly improved over the period.
3

Figure 2(A): Cable Internet Access Available, 2000

(In Parts or Whole of County)

Figure 2(B): Cable Internet Access Available, 2003

(In Parts or Whole of County)
4

4. Sources and Methods for Cable Modem Service Estimates in the ARC:

CableDataCom News. (2001, March 7). Commercial Cable Modem Launches

in North America. [Online]. Available: 

http://www.cabledatacomnews.com/cmic/cmic7.html; Cable Modem Deployment 

Update. (2000, March). Communications, Engineering and Design (CED)

Magazine. M, cited in National Telecommunications and Information Administration & 

Rural Utilities Service. (2000, April). Advanced Telecommunications in Rural America: 

The Challenge of Bringing Broadband Service to All Americans. pp. 46-59. [Online]. 

Available: http://www.ntia.doc.gov/reports/ruralbb42600.pdf; CNET Networks. (no 

date). The Ultimate Guide to Cable Internet Access. [Online]. Available: 

http://att.cnet.com/internet/0-3762-8-3741984-2.html; CNET Networks. (no date). 

CNET’s Ultimate Guide to Cable Access for 2003. [Online]. Available: 

http://att.cnet.com/internet/0-3762-8-20828110-1.html?tag=hl; Authors’ search in the 

Cable Service Locator database at Cable Television Laboratories website, 

http://cpss.go2broadband.com/default.asp?id=10790000000000000000; Authors’ search 

in the Deployment by States database at CATV CyberLab website, 

http://www.catv.org/frame/cmsa_state.html 

The Cable Service Locator website (see above) that was used for cable Internet data 

collection runs searches based on a unique street address. To fill the gap between this 

feature and our goal (i.e., the county-level data for cable Internet availability), we first 

chose the county seat of each county as the representative location, then, used the street 

addresses of the chamber of commerce and/or Post Office locations in each county seat 

municipality as the representative addresses to perform our search. County seats and 

their chambers of commerce or Post Office locations typically represent the locus of 

economic resources and activities in most counties, and we thus reasoned that these were 

appropriate samples for our purpose, which was to identify counties with at least one 

cable Internet system in operation (and not necessarily to study the extent of cable 

Internet deployment among the communities within each county). 
5

C. Digital Subscriber Line Services (DSL)

1. The National Picture

DSL is a second major broadband service. DSL is based on new switching and line 

conditioning technologies to provide high-speed access to households and businesses. 

This service is especially important to potential small business users because it is usually 

affordable and offers more secure lines than cable modem service. The FCC estimates 

that there were 2.7 million DSL lines to households in 2002, although this number is 

likely greater and has continued to grow over the past five years (FCC, 2002b).

The deployment of DSL and other business oriented high-speed services such as T-1 

lines (which provide a dedicated circuit of 1.544 megabits per second bandwidth—

significantly faster than DSL) comes under the purview of FCC and state regulation. 

Deployment of these technologies is strongly influenced by the competitive actions of 

private telecommunications companies both large and small. 

The landscape of competing telecommunications providers pits the services of incumbent 

telecommunications companies (ILECs), composed of the former Regional Bell 

Operating Companies (RBOCs) and various smaller, often rural telephone companies, 

against competing telecommunications companies (CLECs) that may enter local markets. 

CLEC companies have three choices in establishing their services: they can build new 

facilities; they can lease or purchase unbundled network elements facilities from the 

incumbent at discounted rates under the unbundled network element platform, or they can 

take advantage of resale opportunities to use the incumbent’s network. The latter two 

options are under threat from the pressures of the large ILEC firms and recent FCC 

rulings that are discussed below. 

Over the past three years, CLECs have been hurt by the technology sector downturn of 

the last several years, as funding for expansion and new ventures in new service areas 

dried up. Many CLEC companies have downsized or closed. The remaining companies 

often rely heavily on the unbundled network element access to compete with incumbents. 

The Links to the Future report argued that CLEC activity is an important driver of 

competition in area markets and an important indicator of service alternatives. The 

potential changes being proposed at the federal level that limit access of CLECs to the 

unbundled network elements of the ILECs is a policy change that in our view warrants 

close scrutiny as it may further limit competition, especially in rural markets.

2. The Policy Environment

With the passing of the 1996 Telecommunications Act, Congress envisioned that 

incumbent telephone companies would make their physical facilities such as switches and 

lines available to would-be competitors on a lease or resale basis. In this way, 

competitive services would grow without the initial, large expense of building entirely 

new facilities. The dominant ILECs are the former Regional Bell Operating Companies 

(RBOCs), including Verizon (the product of Bell Atlantic’s merger with GTE), but they 

also may be small rural telephone companies. After the 1996 Act, telecommunications 

companies and the FCC decided which equipment at a central office was to be 

“unbundled,” and made available to competitors. CLECs could challenge the ILECs in 
6

providing local services by tying into the existing infrastructure. Most studies report that 

CLECs target businesses rather than residential users.

The FCC began to gather data on what it calls ‘advanced services’ in 1999 as part of its 

obligations under Section 706 of the Telecommunications Act. Its definition of advanced 

services is a conservative 200 kbps (kilobits per second) or greater, and distinguishes 

symmetric services from asymmetric services (designated as ‘high speed’ by the FCC), in 

which upload times or speeds are slower than are download speeds. Its reports have 

examined the national telecommunications backbone, so-called middle mile facilities, as 

well as last mile infrastructure (FCC, 1999, 2000, 2002). To date, each of its three 

reports concludes that broadband deployment is proceeding in a “reasonable and timely 

fashion,” (FCC, 2002, p. 2) although it notes that certain groups of consumers (for 

example, people on Indian reservations, rural populations) are more vulnerable to 

“untimely” access than others. 

The FCC’s recent Triennial Review of February 2003 is a controversial regulatory 

development that will affect the viability of CLECs and possibly broadband deployment. 

That decision addresses the unfolding of competition—local services, long-distance and 

data—between incumbent service providers and competitors, and alters the terms under 

which the would-be competitors can use incumbents’ networks in order to provide local 

and advanced (broadband) services (FCC, 2003). In specific terms, the 1996 

Telecommunications Act anticipated that competition in telecommunications services 

would unfold through three mechanisms: facilities-based entry, in which a competitor 

would make the substantial investment in building entirely new infrastructure; the 

purchase or lease of unbundled network elements from the incumbent local exchange 

company; and resale of the incumbent’s retail services. The 2003 Review sought to 

assess how well these mechanisms are working, and to modify the conditions of 

competition if necessary. 

The full elaboration of the new rules was released in August 2003, and its language 

signals that competitors’ access to unbundled network elements will change in the near 

term. The original decision (in February 2003) itself elicited five separate statements 

from the FCC Commissioners, and was the product of internal brokering among them. 

So too, the final implementation document, hundreds of pages long, was the product of 

much internal negotiating. 

The Triennial Review includes the decision that incumbents do not need to unbundle any 

fiber-to-the-home loops, nor do they need to unbundle bandwidth for providing 

broadband services that use fiber loops for loops deployed further into the neighborhood 

but short of the customer’s home (hybrid loops). However, competing carriers that 

currently provide broadband services over high capacity facilities will continue to get that 

same access. But, the Commission will no longer require that line-sharing be available as 

an unbundled element. The net effect may well be that certain competing companies that 

have not invested in facilities will drop out of the marketplace. 

The Commission also found that switching, a key element of the unbundled network 

element platform, for business customers served by high-capacity loops will no longer be 
7

unbundled based on a presumptive finding of no impairment.1 States had 90 days to 

rebut the national finding, but this process was halted in early 2004 as a result of a court 

decision. For mass market customers, the Commission establishes criteria that states can 

apply to determine whether economic and operational conditions exist in a particular 

market that merit different treatment. The decision anticipated a three-year period for 

competing carriers to move from the unbundled network element platform (UNE-P) to 

facilities-based services. 

Pertinent to DSL and more advanced broadband services, the intention of the Triennial 

Review decision is to make new network investment by incumbents unavailable to 

competitors through the unbundled network element platform (UNE-P). This is a 

response to claims by ILECs that there is a severe disincentive for new investment when 

facilities must immediately be shared with competitors. The overall prospect for spurring 

new competition in broadband under the Triennial Review’s orders appears dim. 

Commissioner Copps was particularly pessimistic about the new rules’ effect on 

competition in the broadband arena. 

The argument that the unbundled network element platform requirement of the 1996 Act 

suppresses investment by the large telecoms has also influenced several legislative 

initiatives at the federal level. The most famous is the Tauzin-Dingell bill. 

Neither this bill nor its siblings has been passed by Congress as of early 2004, but its 

provisions are similar to many others that have been submitted. It includes major 

provisions that would allow the Regional Bell Operating Companies (RBOCs) to engage 

in inter-LATA data transport, a line of business that currently is available to them only 

when they are in compliance with Section 271 of the Telecommunications Act.2 More 

widespread and speedy deployment of broadband services was offered as the primary 

benefit of the bill, 3 with the justification that such infrastructure is linked to improved 

economic development opportunities (Curtis, 1998). Indeed, the Tauzin-Dingell bill 

(H.R. 1542) has been lauded as a rural broadband deployment opportunity by incumbent 

telecommunications operators.4

 

1

 The FCC defines impairment in its press release on the Triennial Review as follows: “Impairment 

Standard – A requesting carrier is impaired when lack of access to an incumbent LEC network element 

poses a barrier or barriers to entry, including operational and economic barriers, which are likely to make 

entry into a market uneconomic. Such barriers include scale economies, sunk costs, first-mover 

advantages, and barriers within the control of the incumbent LEC. The Commission’s unbundling analysis 

specifically considers market-specific variations, including considerations of customer class, geography, 

and service.” FCC (2003) FCC adopted new rules for network unbundling and obligations of incumbent 

local phone carriers. 

2

 Local Access and Transport Areas, or LATAs, are the basic geographic units differentiating local from 

long distance service.

3

 1542 essentially would allow the former RBOCs to carry long distance data traffic without meeting the 

section 271 standards established in the 1996 Telecommunications Act. Section 271 establishes the 

process by which local exchange providers are allowed to offer long distance services.

4 Ordinarily, compliance with 271 requirements depends on having demonstrated to both state-level utility 

commissions and the FCC that these incumbent networks have sufficiently opened their markets to 

competitors such that they should be allowed to enter competitive, inter-LATA services such as long 

distance telephony. The idea is to allow competitors access to incumbents’ network elements so that they 

can offer new services such as Internet connections and high speed data connections. H.R. 1542 would 

permit RBOCs to provide high speed data transmission service without demonstrating that their networks 
8

H.R. 1542 essentially would allow the former RBOCs to carry long distance data traffic 

without meeting the section 271 standards established in the 1996 Telecommunications 

Act. Section 271 of the 1996 Act establishes the process by which local exchange 

providers are allowed to offer long distance services. H.R.1542 forbids the Federal 

Communication Commission or any State from regulating the rates, charges, terms or 

conditions for offering or entering into high-speed data services, Internet backbone 

service or Internet access service. It likewise prescribes that Bell companies must 

upgrade their central offices to provide high-speed data services within the five years 

following the bill’s passage, although the definition of upgradeable loops is limited to 

those under three miles from the central office. In other words, the logical candidate 

loops for Digital Subscriber Line (DSL) services would receive the appropriate 

infrastructure so that the former RBOCs could offer high-speed data services to 

subscribers. 

In summary, some federal policymakers approach the problem as one of greater 

investment in networks, but that investment always seems to carry “strings” that 

advantage one element of the industry at the expense of others, or at the expense of 

ratepayers. The deregulatory thrust of the 1996 Act prompts policymakers to find 

solutions to such problems in market dynamics rather than government subsidies, 

although government incentives can be favored mechanisms. On the whole, various 

approaches at the state and federal levels aim to enhance broadband infrastructure. Some 

proposed legislation as well as FCC regulations attempt to enhance competitive 

circumstances by prescribing which network elements an incumbent must share with a

competitor. Some agencies channel subsidies directly to telecommunications providers, 

as with the Rural Utility Service’s low interest loans. Some proposals would reduce 

entirely state government restrictions or oversight of industry behaviors in the broadband 

arena.5 The prospect of additional high-speed or “advanced” services serving rural 

regions is highly attractive, but may come with high prices for service if competition is 

stifled.6 

It is unclear how the recent policy discussions from FCC Triennial Review 

recommendation, the never-passed Tauzin-Dingell bill, and similar bills offered in State 

Legislatures have affected the deployment of DSL over our study period (2000-2003). 

However, in the near term, these policy discussions may well affect the market and 

investment climate and slow the entry of competitors into underserved areas. 

 

are available to competitors as well. A corollary provision of the bill withdraws or modifies some of the 

obligations on incumbents (BOC and others) to share network elements that enable would-be competitors 

to use their facilities for high speed data services, limiting that obligation to line sharing provisions already 

spelled out in Section 251 of the 1996 Telecommunications Act, but exempting access to remote terminals. 

Previously, such access had been permitted. For access to the high frequency portion of a loop, incumbents 

can charge requesting carriers an amount equivalent to what they impute to their own provision of the 

service. H.R.1542 mandates that incumbents must resell, at wholesale rates, any high speed data service 

they offer for a three year period following the bill’s enactment.

5

 Several state-level Tauzin-Dingell types of bills, often called ‘broadband parity’ legislation, are currently 

under consideration. 

6

 The National Exchange Carriers Association has defined broadband as a service supporting data rates 

above 1.544 megabits per second, a much higher threshold than the FCC’s definition. In H.R. 1542, high 

speed service is defined as transmitting data at 384 kilobits per second in at least one direction, using 

packet-switched technology. This exempts technologies such as ISDN service from the definition. Dial-up 

modems can support speeds of only up to 56 kilobits per second (although the typical top speed is less).
9

3. DSL-Equipped Central Offices in the ARC Region 

The two maps below show that the number and locations of DSL-equipped central offices 

in the ARC counties have expanded significantly between 2000 and 2003. The first map 

in Figure 3(A) shows that DSL was not broadly available to subscribers in the ARC 

region in 2000 (this is the equivalent of Figure 4 on page 28, Links to the Future report).

Kentucky, Ohio, Virginia and West Virginia were especially light in DSL-equipped 

central offices. The second map in Figure 3(B) shows evidence of significant expansion 

of DSL service, especially in Central Appalachian states such as Kentucky and West 

Virginia, and Ohio.

In 2000, we found that 81 percent of ARC distressed counties had no DSL-ready central 

offices. By 2003 only 39 percent of ARC distressed counties had no DSL-ready central 

offices. In the case of transitional counties, 63 percent had no DSL-ready central offices 

in 2000, but by 2003 only 32 percent had no DSL-ready central offices.

Table 1: DSL Capable Office by County Type (September 2003)

RAW NUMBERS Distressed Transitional Competitive Attainment

0 DSL switches 46 83 3 2

1-3 DSL switches 63 133 8 3

4 or more DSL switches 9 42 7 7

Total 118 258 18 12

PERCENTAGE Distressed Transitional Competitive Attainment

0 DSL switches 39% 32% 17% 17%

1-3 DSL switches 53% 52% 44% 25%

4 or more DSL switches 8% 16% 39% 58%

Total 100% 100% 100% 100%

Two important caveats to this generally positive picture should be borne in mind. First, as 

in the case of cable modem service, the presence of central office DSL switches does not 

mean that service is widely available throughout a county, especially in more remote 

rural areas. Even if the telecommunications company’s local central office is equipped 

with the appropriate technology in order to offer DSL to its neighborhood, DSL services 

are limited to about 18,000 feet from a central office location. Therefore, in counties 

with between 1-3 switches it is more likely that significant areas still cannot access the 

service. In addition, as we found out in research for Links to the Future, the presence of a 

DSL-ready central office does not necessarily mean that the local service provider is 

actively offering and marketing the service to customers.
10

 

Figure 3(A): DSL-Equipped Central Offices, 2000

(by County)

Figure 3(B): DSL-Equipped Central Offices, 2003

(by County)
11

4. Sources and Methods for DSL-Equipped Central Offices the ARC:

Author’s search in the Central Office Finder database at DSL Reports website, 

http://www.dslreports.com/coinfo; National Telecommunications and Information 

Administration & Rural Utilities Service. (2000, April). Advanced Telecommunications 

in Rural America: The Challenge of Bringing Broadband Service to All Americans, pp. 

60-72. [Online]. Available: http://www.ntia.doc.gov/reports/ruralbb42600.pdf
12

D. All High-speed Service Activity

1. The National Picture

The deployment of DSL and higher capacity services for larger business and government 

users has advanced at a rapid pace over the past three years. In addition, wireless 

broadband services have been spreading over the past three years, and are seen by some 

to offer attractive lower cost broadband access in rural regions with accommodating 

topographic and geographic features. We do not, however, present data on wireless 

services. 

The rapid pace of telecommunications company consolidation was not entirely 

anticipated by the 1996 Telecommunications Act. The original eight “Baby Bells” now 

stand at four (BellSouth, Southwestern Bell or SBC, Verizon, and Qwest), and these 

companies dominate wireline high-speed services. The range of regulatory issues 

discussed above in the context of DSL services apply to all of wireline advanced services. 

In addition, the 1996 Act shifted much of the regulatory burden over these services to the 

states. This reality was not entirely anticipated and many states took years to build the 

capacity and expertise to design regulatory and investment responses to the new market 

environment and the spread of new ICT technologies. In what follows we profile the 

various regulatory and non-regulatory approaches that the Federal government and the 

ARC states have carried out to encourage quality basic and advanced telecommunications 

services.

2. The Policy Environment: Federal and State Initiatives for Broadband 

Deployment

Federal Investments to Encourage Access to Advanced Services

Federal activities around advanced services deployment have occurred in several 

agencies that administer programs to encourage investment in broadband. The most 

prominent set of investment programs are related to the FCC’s universal service 

programs, which are administered by the Universal Service Administrative Company. 

These include the High-Cost, Interstate Access, Interstate Common Line, Low-Income, 

Rural Health Care, and Schools and Libraries programs. The last program, commonly 

called E-rate, is probably the best known of the universal service programs oriented to 

broadband deployment, and it accounts for roughly half the universal service budget (the 

High-Cost fund is somewhat higher, at $3.15 billion in 2002). With the amount of E-rate 

funding indexed against a school’s percentage of students eligible to participate in the 

National School Lunch Program and a school’s or library’s rural location, the discounts 

can be sizable (up to 90% off of market charges). The E-rate program is currently capped 

at an annual funding level of $2.25 billion. There is an analogous program that supports 

connections and equipment for rural, not-for-profit medical facilities under the Rural 

Health Care label. As noted in the Links to the Future report the E-rate program has had a 

very important impact on rural communities in Appalachia, although a number of states 

in the region seemed not to be capturing their fair share of funding as of 2000. 

The Rural Utility Service (RUS) within the Department of Agriculture has several 

programs designed to improve telecommunications, including broadband deployment, in 

rural regions. Its loan program is available to rural telephone carriers and has been 
13

credited with dramatically improving Internet access in rural regions. For 2003, the RUS 

announced $1.4 billion in loans and loan guarantees for broadband access, defined at 200 

kpbs or more, available to communities with up to 20,000 people. It also maintains a 

Distance Learning and Telemedicine program directed at providing funds to schools and 

health facilities in rural regions. This sub-agency supported a Broadband Pilot Program 

that provided $100 million in loans to enhance the rate of technology deployment 

technology to rural areas, and this has been superceded by the larger loan program. 

Finally, a number of agencies within the federal government including the Department of 

Education (DoE), Housing and Urban Development (HUD), and the National 

Telecommunications and Information Administration (NTIA) within the Department of 

Commerce have initiated certain programs that support broadband deployment. NTIA’s 

Technology Opportunities Program is probably the best known and oldest of these 

programs. It began funding telecommunications-based projects that reflect innovative 

technologies targeting underserved communities, but as of 2003 its funding was cut to 

only about $15 million dollars. The Department of Education’s Community Technology 

Center program provided matching grants to states and localities for programs to improve 

technology training for low-income communities, but in the budget downturn of 2000 

onward it too has had its budget cut and its future threatened. HUD has supported some 

technology programs within housing units. While this set of programs received relatively 

positive performance evaluations and helped bring both improved connectivity and 

training to underserved communities, they have been severely cut over the past two years 

Overview of State Initiatives

A review of how states have addressed broadband deployment and related issues may 

help to initiate policy discussions and frame possible approaches that other states might 

consider. The following is a brief review of some state-level programs or endeavors to 

encourage broadband deployment. They represent a varied collection, ranging from 

explicit state legislation to state agency efforts to Governor’s “blue ribbon” studies or 

commissions, to using state-controlled networks to leverage the infrastructure capabilities 

more broadly available to the public. 

Many states have initiated programs designed to use telecommunications more 

effectively or to broaden capabilities, with many focusing programs on broadband 

infrastructure. Some states have used programs such as state universal service funds or 

special initiatives—often under the aegis of Governor’s Commissions or Task Forces— 

while others, such as Mississippi and Maryland, have enacted explicit legislation to 

address broadband deployment and access. Each state has a unique context in terms of its 

telecommunications regulatory systems and relationships with dominant incumbents 

(typically the Bell South or Verizon), and existing infrastructure. 

Ohio’s National Regulatory Research Institute undertook a survey of state strategies 

regarding broadband in 2001 (National Regulatory Research Institute, 2001). Their 

results, based on 39 responses from state regulatory commissions, sought to ascertain 

state definitions of advanced services, how states handled advanced services, their 

approaches to open access, and their programs on advanced services. The overwhelming 

finding was that at that time, the state regulatory commissions were not regulating 

advanced services. The public utility commissions’ most direct approach occurred 

through their work to insure fair competition through interconnection agreements, 
14

handling service quality complaints, or configuring universal service funds. Most of the 

state regulatory attention is directed at the large ILECs. Several commissions reported 

that their states have other non-regulatory mechanisms that are being used to encourage 

broadband (tax incentives, line discounts, grants), and some noted that their state 

networks are being used to leverage better consumer network capabilities. Many of such 

efforts are documented below. 

State Legislative Actions on Deregulation

The RBOCs, particularly SBC, introduced Tauzin-Dingell-style legislation in several 

states in 2002-2003. These legislative efforts were labeled “broadband parity”—referring 

to parity with cable companies’ lack of an unbundling requirement. These bills were 

introduced in a number of states as of 2004 and had passed in Oklahoma (SB 2796), 

Indiana, Illinois and South Carolina.7 Bills in Texas, Connecticut, and Missouri have not 

yet passed. Such bills represent a way to bypass the federal layer of authority on 

regulating high-speed Internet services. Most of these bills are extremely brief (and 

many are identical). They generally prohibit any regulation of high-speed Internet 

services. Language from the pending bill in Texas (H.B. 1658, 2003) below is typical:

“Notwithstanding any othe r provision of this title, the commission may 

not require the unbundling of a network element used in the provision of 

high-speed Internet access service or broadband service, the resale at a 

discount of a high-speed Internet access service or broadband service, or 

any other obligation prescribed by 47 U.S.C. Section 251(c), as amended, 

as that obligation relates to the provision of high-speed Internet access 

service or broadband service, unless the Federal Communications 

Commission specifically authorizes state regulatory agencies to impose 

such a requirement.”

 

7 A bill advanced by BellSouth in the South Carolina legislature in January 2003 would have deregulated 

all broadband services capable of transmitting information at rates exceeding 144 kb/s in at least one 

direction, or services that combine wire routing and transmission to allow users to access the Internet.
15

Non-regulatory State Strategies for Encouraging Broadband Deployment

States have adopted other non-regulatory strategies in order to push faster network 

capabilities out toward rural regions and different user groups. The three modes that 

characterize such efforts (and discussed in Links to the Future) include demand 

aggregation, resource sharing, and using the state’s own telecommunications traffic as an 

anchor tenant for build and finance a network that can be used more broadly by 

additional users. Various purchasing programs, consortium-building efforts, and statesponsored grants can facilitate these approaches. Some of them are detailed in Appendix 

1, which provides thumbnail descriptions of different state practices.

Table 2: State Network Strategies

Goals Mechanism Adopted in

a. Demand 

Aggregation

• To lower 

telecommunications 

costs for the state and 

other government users.

The state government receives 

volume discounts from telcos by 

consolidating telecommunications 

service demands of various state 

government agencies and offices into 

a single large purchasing unit. 

• Virginia

b. ResourceSharing

• To lower 

telecommunications 

costs for the sate and 

other government users.

• To maximize the 

efficiency of existing 

and new 

telecommunications 

infrastructures in key 

routes. 

The state government and a telco 

barter free access to the state’s 

highway rights of way and free 

telecommunications services to the 

state government and/or 

telecommunications infrastructure 

ownership. The state government 

and the vendor usually make a 

commitment to a long-term 

partnership that may last for several 

decades. 

• Maryland

• New York

• South Carolina

c. Anchor 

Tenancy

• To lower 

telecommunications 

costs for the sate and 

other government users

• To upgrade public 

telecommunications 

infrastructure in all 

parts of the state.

The state government and a telco or 

telcos enter a contract to make 

advanced telecommunications 

available to the state government. 

Telecommunications service to the 

state government is provided through 

public telecommunications networks, 

which would receive switching and 

transport capability upgrading as 

specified in the contract. Such an 

infrastructure improvement benefits 

all telecommunications users in the 

state (i.e., businesses and residents) 

because all types of users use public 

telecommunications networks. 

• Alabama

• Georgia

• Kentucky

• Mississippi

• New York

• North Carolina

• Ohio

• Pennsylvania

• Tennessee

• West Virginia

Source: Oden and Strover (2002)

Mechanisms include using state networks to extend broadband communications 

opportunities to non-profits or small businesses, using utility commission approval over 

mergers or network unbundling proceedings to leverage concessions from carriers, 

establishing special programs targeting rural digital inequities, and establishing unique 

joint ventures with carriers in order to achieve improved statewide infrastructure. Certain 
16

cities and towns also have initiated telecommunications projects to enhance local 

connectivity and opportunities for economic development. Table 2 above shows the 

different approaches that the ARC states have used. 

3. Advanced Services Deployment in the ARC Region 

It is important to assess whether these various policy and regulatory efforts have 

contributed to more rapid deployment of all forms of high-speed services across the ARC 

region. In particular it is noteworthy that broadband deployment over the 2000–2003 

period was influenced by a slightly higher level of federal investment which occurred 

prior to the effects of recent regulatory initiatives limiting CLEC access to the unbundled 

network element platform (UNE-P) of incumbent service providers (ILECs).

The FCC’s data from Form 477 categorizes high-speed providers as any service 

providing at least 200 kbps in at least one direction (user-to-provider or provider-to-user). 

In the original Links to the Future Report, only about 48 percent of the Appalachian 

region’s zip codes had one or more high-speed service subscribers in 2000, compared to 

the nationwide average of 60 percent—a statistically significant difference. 

This update reports zip code data on high-speed service providers from December 1999 

through December of 2002. The maps in Figures 4(A) and 4(B) below are corrected and 

presented using a clearer mapping procedure than in Links to the Future (these figures are 

similar to Figure 5 on page 29 of the Links to the Future report although the original 2000 

map used dots rather than centroids to plot occurrences in the 2002 map). Here, the data 

and maps also provide evidence of significant broadband growth across the region.
17

Figure 4(A): Competition & Service of High-Speed Internet Providers, 2000

(by ZIP Code)

Figure 4(B): Competition & Service of High-Speed Internet Providers, 2003

(by ZIP Code)
18

In Table 3, below, we can see that percentage of ARC zip codes with at least 1 highspeed service provider grew from 43 percent of the region’s zip codes in December of 

1999, to 59 percent by December of 2002. It is noteworthy that the gap between the share 

of zip codes in ARC counties with high-speed providers and the national share widened 

over the period. The broadband service gap grew to 29 percentage points between 

Appalachia and the nation by December of 2002. In December 1999 there were 43

percent Appalachian zip codes with at least one high-speed provider compared to 60 

percent for the nation (a 17 percentage point difference). In December 2002 there were 

59 percent in the Appalachian Region compared to 88 percent for the nation.

Moreover, the FCC data are somewhat misleading in that the high-speed provider is 

indicated through the existence of any provider serving in a zip code however the type of 

service the customer receives is not specified. Therefore, the high-speed service could be 

one T-1 line to one company, or it could be residential cable modem service to a broad 

community. Moreover, the FCC aggregates its data at the low end, grouping 1 to 3 

services providers in one single category. Thus, the data cannot provide evidence on 

competition or choice among high-speed services in much of the U.S. These data 

generally illustrate that the more populous regions of Appalachia have obtained highspeed services, but many other regions have none.

Hence, the availability of high-speed service can be extremely misleading as an indicator 

of broader regional connectivity. In our fieldwork for Links to the Future, we saw that 

even in economically distressed counties, the largest businesses had T-1 connectivity or 

better, but that fact said nothing about broader connections and capabilities in the county 

or zip code. Again, a T-1 line registers in the FCC database simply as a “1-3” 

subscribership entry in a zip code.

Table 3: Percentage of Zip Codes with at Least One High-speed Provider (1999-

2002)

State Dec-99 Dec-00 Dec-01 Dec-02

Alabama 46% 60% 66% 69%

Georgia 40% 60% 70% 70%

Kentucky 13% 28% 36% 44%

Maryland 52% 61% 44% 56%

Mississippi 32% 51% 60% 73%

New York 38% 72% 68% 72%

North Carolina 52% 58% 66% 67%

Ohio 42% 51% 56% 64%

Pennsylvania 49% 54% 49% 57%

South Carolina 59% 57% 60% 61%

Tennessee 53% 55% 67% 75%

Virginia 50% 67% 49% 62%

West Virginia 44% 47% 33% 46%

ARC average 43% 53% 51% 59%

National average 60% 73% 79% 88%

Note: Annual variations in state percentages by zip code may be due to sampling or reporting differences in 

the FCC Survey (http://www.fcc.gov/wcb/iatd/comp.html).
19

An additional important measure of the degree and quality of high-speed service 

provision is the percentage of zip codes in the ARC counties in each state that have four 

or more service providers. This measure is a better indicator of areas that have more 

extensive service and adoption of broadband services. Unfortunately we did not develop 

this data for the earlier report so we report data for 2001 and 2002 for the ARC counties 

in the various states in Table 4.

Table 4: Percentage of Zip Codes with Four or More High-speed Providers (2001-

2002)

State Dec-01 Dec-02

Alabama 15% 26%

Georgia 23% 46%

Kentucky 0% 6%

Maryland 9% 17%

Mississippi 2% 15%

New York 14% 21%

North Carolina 12% 35%

Ohio 5% 18%

Pennsylvania 12% 20%

South Carolina 11% 45%

Tennessee 11% 36%

Virginia 3% 9%

West Virginia 0% 8%

ARC average 9% 23%

These data on the availability of high-speed services paint a generally encouraging 

picture, but with some causes for continued concern. Clearly advanced services have 

reached a number of previously underserved areas over the past three years. And from 

Table 4 the number of zip code areas with multiple service providers has increased 

significantly signaling both increased adoption of high-speed services and perhaps 

increasing competition in a number of areas. 

On the other hand, 37 percent of zip code areas in the ARC region still have no advanced 

service provision, a much higher percentage number than in the nation as a whole. 

Moreover, in all but six ARC states the number of zip codes with four or more providers 

is less than 20 percent. While this percentage is strongly influenced by population density 

or the number of urban ARC counties in each state, this result suggests that levels of 

adoption and competition may remain somewhat limited in a number of areas. 
20

4. Sources and Methods for High-Speed Internet Access Tables and Maps 

Federal Communications Commission (2003, June). Zip Codes by Number of HighSpeed Service Providers. [Online]. Available: http://www.fcc.gov/wcb/iatd/comp.html
21

E. Conclusions

This report shows that broadband access has expanded significantly in all major parts of 

ARC region. Especially encouraging is the increased availability of broadband in many 

rural counties that previously did not have access to this service. The issue of access to 

advanced telecommunications services in underserved areas remains, however, an 

important concern in light of the new data presented in this report. 

An important question to address is whether the mix of state investment and policy 

initiatives correlates with these rough measures of access and use of advanced services. 

The evidence developed here does not provide a clear cut answer to this question. 

Federal and state investments have clearly made a difference over the past six years as 

schools and e-government networks have also encouraged adoption of advanced services 

and helped with the building of skills by youth and adult ICT users. 

Many states that saw the greatest growth in the number of zip codes with at least one 

high-speed service provider (Alabama, Georgia, Kentucky, Mississippi, New York and 

Ohio) have implemented some form of an “anchor tenancy” strategy to push broadband 

into underserved areas. While numerous other factors clearly influenced deployment 

rates, it is noteworthy that this strategy was employed in all of the states that saw the 

greatest increase in broadband access. At the same time states that had more multilayered and systematic strategies such as North Carolina seem to have a greater number 

of zip codes with multiple high-speed providers. A more systematic analysis would be 

required to link deployment rates to specific regulatory and non-regulatory actions by 

state governments.

The relationship between cable modem services and DSL or other wireline high-speed 

services is also important to consider. The FCC’s 2002 ruling that classified cable 

modem service as an “interstate information service” subject to FCC jurisdiction took 

away any ability of state or local governments to directly push for extension of services 

to underserved areas. Large areas of the ARC region do not have cable services. Policy 

makers at the state and local levels might consider indirect ways to encourage cable and 

cable modem deployment to underserved areas.

The different regulatory environments among cable and wireline carriers has also driven 

the pressure on the FCC and State Legislatures to consider the demands of large ILEC 

companies for “broadband parity.” The large companies (mostly the Regional Bell 

Operating Companies) have claimed that doing away with unbundling requirements 

would stimulate investments in new digital facilities and level the playing field with cable 

operators. This is a critical issue that should draw careful scrutiny from regulators and 

policy makers at all levels of government to ensure that real competition and more rapid 

deployment occurs.
22

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FCC (1999). Deployment of Advanced Telecommunications Capability to all Americans 

in a Reasonable and Timely Fashion: First Report. CC Docket 98-146, 14 FCC Rcd 

2398. Washington, D.C. Available at: www.fcc.gov/broadband.

FCC (2000, August). Deployment of Advanced Telecommunications Capability: 

Second Report. CC Docket 98-146. Washington, D.C. Available at: 

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FCC (2002b, February). In the Matter of Inquiry Concerning the Deployment of 

Advanced Telecommunications Capability to All Americans in a Reasonable And 

Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to 

Section 706 of the Telecommunications Act of 1996 (Third Report). Washington, 

D.C. Available at: www.fcc.gov/broadband. 

FCC (2003) FCC adopted new rules for network unbundling and obligations of 

incumbent local phone carriers [Triennial Review]. Available at: 

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-231344A1.doc

Glasmeier, A., L. Wood, A. Kleit (2003). Broadband Internet Service in Rural and 

Urban Pennsylvania: A Commonwealth or Digital Divide? Unpublished report for the 

Center for Rural Pennsylvania. Last accessed 1/10/04 at http://www.onenation.psu.edu/

H.B. 1658, State of Texas (2003). A bill to be entitled An Act relating to regulation of 

high-speed Internet access and broadband services. 

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http://www.ncta.com/industry_overview/indStat.cfm?indOverviewID=2.

National Exchange Carriers Association (2000). Keeping America Connected: The 

Broadband Challenge. Access Market Survey of NECA’s Traffic Sensitive Pool 

Members. Available at www.neca.org. 
23

National Regulatory Research Institute (2001, March). State regulatory commission 

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http://www.urban.org/UploadedPDF/410579_ERateFinalReport.pdf
24

Appendix 1: Activity in ARC States: Infrastructure and Policy 

Initiatives to Encourage Broadband Services

Some states implemented deregulation in advance of the 1996 Telecommunications Act. 

Most utilized price cap or so-called incentive regulation plans to reduce explicit pricing 

obligations. New York’s aggressive pro-competition activities are broadly taken as 

models for several other states around the country, although the size and expertise of its 

regulatory staff are not duplicated in any other state. New York was one of the first states 

to adopt incentive regulation, whereby a carrier would meet certain performance 

thresholds in one realm and have an incentive to undertake (or to price) other activities 

without regulatory policies or tariffs defining them; prices for the latter would be set at 

“market rates” rather than rates determined within a utility commission’s hearings. New 

York’s policies attempted to ease competition into an environment in order to create a 

level playing field for new entrants.

Ohio joined several other states grappling with a competitive push from the dominant 

exchange companies. It deregulated in 1995, and revisited its rules in 1999 in order to 

make adjustments for a competitive process that seemed to be working for businesses but 

not for residential users. Pennsylvania had numerous hearings and regulatory actions 

around deregulating telecommunications within the state as early as 1993 when it adopted 

a competitive telephone framework (Chapter 30, Public Utility Code, 66 Pa C. S. 

Sections 3001-3009) that provided for alternative regulation. 

Subsequent to these deregulation efforts, complaints escalated around the country 

regarding service quality as well as incumbent reticence to comply with opening their 

networks to competitors. CLECs alleged that the Bell Operating Companies were 

unfairly slow in making their networks available to competitors, and many states held 

hearings on that matter, levied fines against the incumbents, and attempted to establish 

standards to cope with the RBOCs’ behaviors. 

Since the late 1990s, states have developed a number of regulatory and non-regulatory 

strategies to expand and extend advanced services to underserved areas. In what follows 

we offer an industry assessment of state environments for broadband deployment and 

access and follow with thumbnail sketches of recent state initiatives in the ARC Region.
25

Assessments of Broadband Activities

The Technology Network (TechNet), with over 200 CEOs and senior executives of the 

technology and biotechnology industries, released an assessment of state policies that 

they believe affect broadband deployment. According to the assessment, Michigan was 

first on the list, while Georgia was not listed in the 25 rankings provided. The report 

ranks the top 25 states and includes a Best Practices Guide to the most innovative state 

broadband initiatives. The report’s indicators include: the absence or presence of 

legislation that streamlines rights-of-way permitting; whether a state has adopted a statewide broadband strategy and created a broadband agency; whether it has undertaken 

comprehensive infrastructure mapping; what sorts of policies it has adopted to facilitate 

municipal networks; how it facilitates increased private sector deployment of broadband; 

any plans for financial incentives for reaching underserved communities; and its efforts to 

promote consumer use of broadband, including enhanced e-government. The report 

breaks out specific rankings in terms of supply-side and demand-side programs, as well 

as state “regulatory climate.” The ARC states that are noted in the top 25 are: Ohio at 

#5; Virginia at #8; North Carolina at #19; South Carolina at #20; Pennsylvania at #22; 

and Kentucky at #24. [http://www.technet.org/resources/State_Broadband_Index.pdf] 

Another study focusing specifically broadband deployment in rural regions of the 

world— many of them in the US—was released by the US Telecommunications Industry 

Association. While this study does not offer statistical comparisons, it profiles several 

efforts to develop broadband. The cases of LaGrange, Georgia and Danville, Virginia are 

among the examples offered here. [See The Telecommunications Industry Association, 

The Economic and Social Benefits of broadband deployment, October, 2003, available at 

http://www.tiaonline.org/policy/broadband/Broadbandpaperoct03.pdf.]

Recent State Actions toward Broadband Deployment (as of January 2004)

Alabama

Alabama has undertaken no new regulatory activity with regards to broadband since 

2002. Currently under comment before the Public Service Commission are two issues 

that may have implications for telecommunication users, including a tangential impact on 

broadband users: the commission is taking comments on a policy to clarify rules 

governing IP telephony, and taking comments on a revision to its price cap and local 

competition regulatory structure. [ http://www.psc.state.al.us/Telecom/webpage3.htm ]

Georgia

We find no recent broadband policy activity in Georgia. The FCC granted BellSouth 

Section 271 entry into the long distance markets in Georgia in May 2002. 

Kentucky

With the exception of the low-income housing initiative described below, there have been 

few notable broadband policy developments in Kentucky in the last two years. 

In February 2003, the Kentucky Housing Corporation mandated that all housing funded 

with more than 50 percent state funding must be wired for broadband Internet access. 
26

This policy is believed the first policy of its type in the United States. The KHC is also 

taking steps to get computers and low-cost Internet service to residents so they can find 

useful information on things such as employment and health care online. 

[ http://www.kyhousing.org/news/resources/PR10-01-02.pdf ]

In May 2002, the Kentucky Office of the New Economy (established by HB 572, The 

Kentucky Innovation Act of 2000), several private companies (including Bellsouth, 

Qwest, Cincinnati Bell, and others), Kentucky's universities and the Center for 

Information Technology Enterprise formed connectkentucky to promote high tech within 

the state. The connectkentucky project has three goals: increase public awareness of ecommerce, e-government, and e-learning; create and implement market-driven strategies 

to increase use of technology; and implement public policy initiatives to promote 

competition and eliminate regulatory barriers to Internet and broadband. 

connectkentucky has implemented a program of e-Business workshops around the state 

and funded an initiative, KY120, to promote best practices for technology in each of 

Kentucky’s 120 counties. [ http://www.connectkentucky.org ]

The FCC granted BellSouth Section 271 entry into the long distance markets in Kentucky 

in August 2002. In December 2002, the Kentucky Public Service Commission began a 

review of the contracting practices of BellSouth in response to complaints from two ISPs, 

accusing BellSouth of providing preferential pricing to some wholesale and large volume 

customers. The Kentucky PSC had earlier alleged in a 2001 ruling that BellSouth was 

engaged in discriminatory pricing. No other action on these complaints has been 

reported. [ http://psc.ky.gov/agencies/psc/press/122002/1219_r03.pdf ]

The Kentucky General Assembly used a small portion of the state’s tobacco settlement 

money to fund the Rural e-Learning Agricultural Program (REAP) in 2003. The Center 

for Information Technology Enterprise will administer the project, which is based on a 

$48,750 grant to bring computers, high-speed Internet access and online learning to 

Kentucky tobacco growers dealing with deep quota cuts and attempting to find alternative 

crops. [ http://www.connectkentucky.org/Report2003/ruralelearning.html ]

Maryland

Most significant for our purposes, the state legislature passed House Bill 697 in April 

2003, which would establish a Task Force on Broadband Communications Deployment 

in Underserved Rural Areas. The legislation focuses on bringing broadband capabilities 

to state government units all over the state, and to facilitate providing high bandwidth 

services to other users as well. The bill states tha t it does not intend to compete with 

commercial access providers, “but rather to complement it where it exists, to provide 

access where commercial access is lacking, and to foster fundamental efficiencies in 

government and education for the public good” (HB 697, Section 7, 2003). 

Network.Maryland, the statewide fiber backbone built in the late 1990s, had been the 

focus of some discussion. A 2003 study titled eReadiness Maryland: Assessing our 

Digital Opportunities, commissioned by Maryland Technology Economic Development 

Corporation (a task force created by the Governor), concluded that the network is not 

operational, much of the fiber is still dark, and few public buildings in the state are 

connected to the network. [ http://www.marylandtedco.org/programs/eReadiness.html ] 
27

Part of the intent of the HB 697 would be to better manage the state’s own 

telecommunications infrastructure.

The Public Service Commission of Maryland had been engaged in a court action (Verizon 

Maryland v. Public Service Commission of Maryland) that was argued before the US 

Supreme Court over federal jurisdiction in state utility board disputes. On May 20, 2002, 

the U.S. Supreme Court issued its opinion holding that federal courts have jurisdiction 

over a claim that a state utility commission decision violates federal law. The case was 

based on Verizon’s refusal to follow the PSC’s order to compensate a competitive carrier 

for calls routed to the Internet under Verizon’s interconnection agreement with MCI 

Worldcom. The decision allows PSC orders to be challenged in both state and federal 

court if an argument can be made that the order violates federal law. 

[http://www.oyez.org/oyez/resource/case/1481/ ] This case may be related to 

telecommunications decisions in the future. 

Mississippi

Following the passage of the Mississippi Broadband Technology

Development Act in 2003, BellSouth announced its intent to extend broadband services 

throughout the entire state. The new law provides tax credits of up to 10% and sales tax 

exemptions of up to 100% to companies who expand their broadband capabilities to the 

least populated areas in the state. BellSouth announced it would invest approximately $10 

million dollars in the project. The Mississippi legislation is available at 

http://www.mississippi.gov/frameset.

[Source: Office of Governor Ronnie Musgrove, USA Today] 

New York

Deregulation began in 1985 well before similar efforts at the federal level were 

successful. The state opened competition with the local exchange companies by lifting 

the previous regime of price controls. In 2001, the New York Public Service 

Commission created a new incentive regulation framework for Verizon (formerly BellAtlantic). By creating incentive mechanisms and measuring the performance of the 

carrier in meeting customer satisfaction (as well as other metrics), New York has 

enhanced its competitive environment and expanded services into underserved areas. An 

evaluation of the progress of this system can be viewed on the Public Service 

Commission’s website: http://www.dps.state.ny.us/telecom/telanalysis.htm.

The Wired Buildings program, which was first outlined by Governor Pataki in his 2000 

State of the State Address, helps developers to wire and outfit existing buildings to 

accommodate the needs of small information technology businesses by providing grants 

for the deployment of advanced telecommunications infrastructure and related amenities 

necessary for business growth. The program also works in conjunction with the Quality

Communities Technology Advancement Task Force to expand access to broadband 

services in rural areas of New York. A number of grant projects in the second round of 

funding will target the North Country and Catskill Watershed regions for demonstration 

projects.
28

North Carolina

North Carolina took a detailed approach to infrastructure assessment as it mapped 

telecommunications infrastructure at the wire exchange level of detail for each county in 

the state. This became the basis for a state program attempting to ensure that every 

county has flat-rate dial-up modem access to the Internet. In its second phase the 

program is attempting to insure that each county has broadband access to the Internet 

through its Rural Internet Access Initiative (created through SB 1343, An Act to Create 

the North Carolina Rural Internet Access Authority and to Direct the Regional 

Partnerships, with the Assistance of the North Carolina Rural Economic Development 

Center, to Study and Report on the Information Technology Infrastructure and 

Information Technology Needs of the State, passed in August, 2000). The Rural Internet 

Access Authority was charged with enabling local dial-up Internet access in every 

telephone exchange by the close of 2001, making high-speed Internet access available to 

each NC citizen within three years, and establishing two Telework Centers in the state’s 

most distressed areas. 

In 2002 the legislature approved a bill that expands the definitions for the types of 

infrastructure that can be funded with money from its Industrial Development Fund (IDF) 

(Ch. SL 2002-172). The expanded definition includes expenditures on 

telecommunications and high-speed broadband lines and equipment.

In 2003, BellSouth teamed with America Connect to test wireless broadband in two rural 

North Carolina counties. BellSouth holds FCC licenses throughout the Southeast in the 

2.3 GHz WCS band, and the two companies will make use of that band to conduct the 

trials with a view to providing fixed wireless services to underserved rural areas. The 

state’s Rural Internet Access Authority is helping fund the trial. 

The Internet Access Authority’s website at http://www.e-nc.org/ is a resource that allows 

users to identify public Internet access points in each county and to examine GIS maps of 

telecommunications infrastructure. The goal of the e-NC initiative is to work through the 

social structures in localities to ensure that not only is high quality Internet access 

available but also that communities learn how to use that access creatively and for their 

own local development purposes. 

Ohio

The Ohio Community Computing Network (OCCN) was established in 1995 as the 

oversight and evaluation organization for the 14-community computing centers created 

and funded by the Ameritech Advantage Ohio alternative regulation case settlement. This 

marked the first time in the United States that a settlement before a state public utility 

commission included the funding of community computing centers in low-income 

neighborhoods. This settlement has made computers and telecommunications technology 

accessible to people of all incomes through community technology centers. OCCN has 

expanded and is currently working with over 40 community technology centers in urban 

and rural areas of Ohio. The centers are located in libraries, community centers, schools, 

churches, social service agencies, and residential housing complexes. Since its inception, 

OCCN has received or distributed to community technology centers $4.45 million from 

Ameritech and $90,000 from Cincinnati Bell.
29

Pennsylvania

Pennsylvania joined other states in approving price cap regulation for incumbent local 

service providers in the early 1990s. Around the country at that time several 

telecommunications companies sought to deregulate certain categories of service, and in 

exchange for opportunities to move into new lines of business with charges that were 

supposedly responsive to the market, they agreed to cap or freeze their prices on certain 

other services. Pennsylvania’s rate deregulation is embedded in the Public Utility Code, 

particularly under Chapter 30, and the incumbents subject to its provisions, particularly 

Bell Atlantic and later Verizon, have been scrutinized and criticized repeatedly for not 

conforming to the intent of the reform. 

Pennsylvania adopted a competitive telephone framework in 1993 (Chapter 30, Public 

Utility Code, 66 Pa C. S. Sections 3001-3009) that provided for alternative regulation. 

Even though it contains language regarding competitive local service, the focus of the 

reform was on non-basic telephone services. The promises associated with Chapter 30 

greatly outstrip the actual language in the legislation. A report on Chapter 30 was issued 

by the Pennsylvania Legislative Budget and Finance Committee in June, 2003 that 

elaborates the history and intent of Chapter 30. 

Chapter 30 provisions traded pricing flexibility for the incumbent in some retail service 

classes in return for promises of substantial infrastructure upgrades throughout the state. 

For example, broadband services were supposed to be available throughout the state by 

2015; in fact, at the time that Chapter 30 was being formulated, it was sometimes referred 

to as the ‘fiber optics bill.’ The intent of the network upgrade commitment was to 

improve the voice network (especially by establishing fiber links among central offices) 

and to eliminate analog switches and multiparty lines, in spite of contemporary 

interpretations that suggest that network modernization in 1993 had to do with providing 

DSL service. (DSL is barely mentioned in Chapter 30.) The network modernization 

component thus had more to do with modernizing the existing voice network than with

delivering a mass market Internet connection. The Internet was not mentioned in the 

legislation, and indeed, with just over 100 sites in 1993, the World Wide Web was 

inconsequential to this reform at its inception.

When modernization is addressed in Chapter 30, it is in terms of a network reaching 

speeds of at least 1.5 megabits per second (the maximum speed available on existing 

copper lines). Bell Atlantic’s 1994 Chapter 30 proceeding discussed a 45 megabit per 

second network, and partly on that basis the financial terms of its rate reform were 

generous. No particular technology is noted in the legislation. The thrust was to 

encourage incumbents to innovate in competitive services while shielding basic services 

from rate increases. A class of services, including basic local dialtone, was included 

under “protected” services, and their rates were frozen. Each telephone company in the 

state (roughly 40 including Verizon) was supposed to file a Chapter 30 plan, and most of 

these were approved in July, 2001. Verizon North was among the last companies to file 

its Chapter 30 plan (in 1998). 

Chapter 30 provisions were supposed to sunset at the end of 2003, and hearings were held 

beginning in fall, 2002 to evaluate whether Chapter 30 should be revised and extended or 

allowed to die. The Office of the Consumer Advocate in Pennsylvania, for example, has 
30

argued that Chapter 30 should be extended but with substantial modifications that would 

insure broadband deployment (Popowsky, 2002). That office commented:

...it is not enough to throw ratepayer money at their telephone 

companies in the hope that some of that money will "stick" and will be 

spent on providing services to communities that would not be served 

under a business-as-usual approach. Chapter 30 tried to impose such a 

requirement on our telephone companies, but in retrospect it appears 

that the requirements were so long (from the year 1993 to 2015) and so 

vague ("access to broadband service [defined as a bandwidth equal to 

or greater than 1.544 megabits per second] by each bona fide 

telephone customer of a local exchange telecommunications company 

within five day after a request for broadband service is received by any 

telecommunications company") that it is difficult to assure that these 

benefits will be achieved in any particular community in a time frame 

or in a manner that meets that community’s needs (Popowsky, 2002, p. 

11).

Because competition and infrastructure upgrades did not develop quickly even after 

Chapter 30 began and because the federal Telecommunication Act required changes in 

state provisions, the Commission adopted the Global Telephone Order in 1999 to 

promote additional competition and to adapt its provisions to the new federal law. Its 

provisions included:

• Capping Bell Atlantic (now Verizon) local rates until the end of 2003;

• Capping the local telephone rates of rural telephone companies at $16/month 

until the close of 2003;

• Keeping all Internet phone calls local;

• Lowering toll rates; 

• Lowered access charges;

• Increasing the number of households eligible for Lifeline service;

• Creating a $30 million universal service fund to offset costs in higher priced 

areas of the state. 

One issue that has arisen alongside discussion of reforming Chapter 30 concerns the line 

speed assigned to dial-up modem service. The PUC regulations do not require that 

Internet providers guarantee specific line speeds associated with their services. 

Consumers, however, have complained to the PUC that their dial-up services for Internet 

access are sub par, which prompted some critics to query whether guaranteed line speeds 

should be required under a revised Chapter 30. 

The Bell Atlantic-GTE merger in 1999 created another opportunity to examine company 

commitments to building advanced infrastructure. As part of the merger approval, the 

company agreed to deploy a universal broadband network in phases, with 20% of it built 

1998, 50% by 2004, and 100% by 2015. These obligations, however, have come under 

scrutiny in 2002-2003.

Frustrated with the continuing slow pace of competition, particularly Verizon’s practice 

of slow compliance with competitors’ requests to connect to or use elements of its 

network in March, 2001, the PUC ordered functional structural separation: Verizon 
31

would continue to operate as one company but the wholesale and retail divisions would 

be required to operate at arms-length pursuant to a code of conduct. This came on the 

heels of an earlier decision in 1999 to structurally separate the company into two units, a 

move that came under fire from Verizon. The Commission reversed itself on the 

structural separation and adopted functional separation in its stead. 

Regarding the smaller, independent or cooperatively based telephone companies serving 

regions of Pennsylvania, we could find no publicly available information regarding the 

extent of their system upgrades or Internet services. However, smaller telephone 

companies – many in rural regions – are more likely to offer DSL than are larger 

companies serving the same sorts of customers. The National Exchange Carrier 

Association writes that among the rural companies in its pool, 76% of 1076 smaller 

telephone companies function as an Internet Service Provider. This figure is based on a 

survey of its Traffic Sensitive companies (generally serving rural areas, and having fewer 

lines in service) (National Exchange Carriers Association, 2000, Keeping America 

Connected: The Broadband Challenge. Access Market Survey of NECA’s Traffic 

Sensitive Pool Members. Available at www.neca.org). 

A study by Glasmeier et al. (2003) found that rural Pennsylvania residents and small 

businesses frequently lack access to broadband facilities. 

[http://www.ruralpa.org/broadband_report.pdf ]

South Carolina

In March 2003 the South Carolina General Assembly passed H3344, which defined 

broadband as exempt from regulation by the state public service commission. 

[ http://www.computeruser.com/news/03/02/19/news2.html ]

Tennessee

Tennessee has enacted no notable broadband policy since 2002. In August 2002, the 

FCC granted BellSouth Section 271 entry into the long distance markets in Tennessee. In 

2003, the General Assembly considered a controversial measure (HB 457), one of the socalled “super-DMCA” initiatives that stated “it is an offense for any person to possess, 

use, make, develop, assemble, sell, lease, distribute, transfer, import into this state or 

offer, promote or advertise any unlawful communication device for the unauthorized 

acquisition or theft of any communication service.” The proposed law was vaguely 

worded, enough that it could apply equally to theft of cable services or commonplace 

online activities such as the transfer of copyrighted music files. Activities that involved 

more than five “devices” were classified as felony offenses. After much debate, the 

measure was shelved until the 2004 legislative session. [ http://tndf.net/ ]

The city of Chattanooga announced a major initiative to upgrade its telecommunications 

infrastructure. At the Tennessee Valley Summit, the local mayor announced that a report 

commissioned by a consulting company concluded that the region would enjoy robust 

technology company-based growth if it invested in improved telecommunications 

facilities and created an Applied Technology Center, among other things. 
32

Virginia

Advanced Communications Assistance Fund- Virginia created this program which 

provides up to $50,000 per award to communities working to improve local 

telecommunications infrastructure. This is a program to boost connectivity in smaller 

communities.

Through VirginiaLink, contracted service providers will offer businesses throughout 

Virginia "one-stop-shopping" access to unbundled, high-capacity telecommunications 

services. Businesses access the communications services by joining the VirginiaLink, the 

consortium buyers' group. The VirginiaLink Consortium is administered by the Virginia's 

Center for Innovative Technology (CIT), a state-charted, nonprofit organization 

dedicated to the growth of technology and business in Virginia. In order to acquire the 

discount services obtained by VirginiaLink, a consumer must purchase a one-year 

membership, which will cost end users $100 per business location, with a maximum fee 

per firm of $1,000. Service resellers and Internet service providers (ISPs) also will be 

able to join for a $500 fee per location, with a maximum cost of $2,500.

Virginia also recanted its legislative prohibition on utilities offering telecommunications 

services, a response to the City of Bristol’s initiative to extend fiber-based connectivity to 

various clients through its region. 

West Virginia

In early 2003 the state’s Consumer Advocate’s office released its Final Report and 

Recommendations on Advanced Services from the Advanced Services Task Force in 

West Virginia (http://www.cad.state.wv.us/Adv%20Services.htm). The report concludes 

that the deployment of advanced services in West Virginia lags that of national statistics, 

but that it is growing quickly. In West Virginia, 50% of households have access to 

broadband, with only 7.7% actually subscribing whereas comparable national statistics 

are 75% and 15%. The report notes that the best way to monitor deployment of 

broadband in West Virginia is to require periodic reporting to the PSC by broadband 

providers, and that the major impediment to deployment of advanced services is the 

absence of a coherent State plan or policy.

The Task Force’s recommendations are to let market forces continue to work to spur 

deployment, but in the long run the State should promote demand for broadband by 

providing information on broadband deployment and uses, and it should consider using 

tax credits and grants to suppliers and users of broadband. The taskforce also noted that a 

state universal service fund should be considered in order to provide the means to address 

underserved areas in the future.

A pilot effort in Glenville, W.Va., about 160 miles south of Pittsburgh, is testing wireless 

access capabilities in mountainous, rural areas. The project is funded by grants from the 

Appalachian Regional Commission and the Benedum Foundation, each contributing 

$125,000. The research team will conduct a second pilot in a community in southwestern 

Pennsylvania. This effort is spearheaded by faculty from Carnegie Mellon University, 

which established a Center for Appalachian Network Access in 2003. The center works 

to bring high-speed Internet access to depressed Appalachian communities.