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Bottleneck on the high-speed highway

Letters are going out to more than 50,000 people across 16 states--along with a few thousand dollars in cash--asking them to become owners of a new fiber-optic network.

A few days from now, letters will go out to more than 50,000 people across 16 states--along with a few thousand dollars in cash--asking them to become owners of a new fiber-optic network.

see story: Railroads ride broadband boom This isn't some new dot-com promotion. It's one of the first major settlements in a controversial string of class-action suits that have targeted nearly every big telecommunications company in the United States, potentially putting AT&T, Sprint, Qwest Communications International, Level 3 Communications and others collectively at risk of billions of dollars in legal judgments.

All of these companies have built long-haul fiber-optic data networks along railroad lines. Some of these, such as Qwest's, were born from the fragments of railroad companies, while others simply saw the tracks as perfect stretches of cheap real estate stretching everywhere the networks needed to go.

For their part, railroads were happy to license the land to the network companies. But now it looks like they might not have had clear ownership of the land in the first place, putting network companies that have already laid their networks there in an awkward legal position.

The upcoming settlement is the first of its kind, with the class-action plaintiffs getting cash, fiber-optic assets and a cut of future profits from Thoroughbred Technology and Telecommunications (T-Cubed), a division of Norfolk Southern Railroad. But AT&T has also settled one similar case dealing with unused railroad rights of way.

"If you add up all the (miles of fiber in the same situation) it's an astronomical figure," said Nels Ackerson, a plaintiffs' attorney who has led the charge against the telecommunications and railroad companies for the last several years. "It's an accident of history, but this is where Sprint, Qwest, WorldCom (and others) have laid their lines."

A profitable crusade
Along with three other law firms, Ackerson has spent much of the last half-decade dedicated to these rights-of-way cases.

According to his firm's interpretation of the property law, in many cases railroads bought the surface rights from original property owners to lay tracks. But those rights didn't include so-called subsurface rights, which traditionally allow for activities such as mining or oil drilling.

In the modern age, it's not oil underneath farmland that gives those underground rights a price tag--it's fiber optics. And Ackerson says hundreds of thousands of property owners who have seen data cables laid along railroad tracks just the other side of their backyard fence should have been paid for use of their property, whether they knew it or not.

That's still a controversial notion. None of the dozens of cases that Ackerson and the affiliated law firms have brought has gone all the way to trial, so there is no court judgment that serves as established precedent.

Most of the network companies are still fighting the idea, and privately, executives bitterly criticize AT&T for settling one of the early suits.

"We believe these lawsuits are without merit and intend to fight them vigorously," a Qwest spokesman said. Qwest has been sued in eight states, according to its most recent filing with federal securities regulators.

Nor is Wall Street giving much credence to the risk of judgments potentially worth hundreds of millions of dollars, despite AT&T's previous agreement to settle one such case earlier this year. AT&T agreed to pay $45,000 per mile for short stretches of land in Ohio, Connecticut and Maine.

"If the companies are not concerned, we're not concerned," said one Wall Street telecommunications analyst who asked not to be named. "Most of us aren't lawyers."

Despite this corporate dismissal of the suits, class-action status continues to be granted to the lawsuits. The unique settlement now under way with T-Cubed is being viewed as a potential model for other suits.

Under that settlement, the roughly 20,000 property owners whose land adjoined railroad tracks used to lay data cables will get about $6,000 in cash per mile, as well as 10 percent to 15 percent of any profits that T-Cubed gets from leasing its fiber-optic network to other companies. They're guaranteed a $30,000 minimum on these profits, hedging against a downturn in the bandwidth market.

But above this comes the interesting part: The property owners are also getting their own fiber, which will be owned by a corporation owned in aggregate by all of them. The attorneys will take about 25 percent of the cash settlement and future profits as fees.

The network companies abhor the notion of giving up fiber, or of settling at all with the class-action suits, which could collectively put them on the hook for hundreds of millions or even billions of dollars. And since T-Cubed is a relatively new company, it's unlikely that that model will extend to networks owned by the telecommunications giants. But Ackerson says he'll continue to pursue the model.

"This way the cost is not a huge cash drain. It's based on how successful the (company) is," Ackerson said. "I think similar gains can be achieved by realizing that working together...works for everyone."