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Broadband in Appalachia

Broadband Analysis: Scrappy Wireless ISPs Get the Job Done

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Rural areas don’t need to wait on expensive and hard-to-build fiber-to-the-home networks to start using broadband. In many cases, fixed wireless can provide a fast and affordable last-mile connection in underserved areas. And some communities are building the system themselves.

WISPs – Wireless Internet Service Providers – are the un-song heroes closing the digital divide in rural communities. New technology makes WISPs faster than ever, much more affordable than fiber, and a great option in areas where terrain and population density make wired systems problematic.

WISPs started in 1992, mostly in rural areas in response to a philosophy deeply rooted in the American frontier: There’s no need to wait for someone else; we’ll just do it ourselves. And they did. WISPs are also starting to make a difference in metropolitan areas.

WISPs use fixed wireless, in which a transmitter “fixed” in one location transports data back and forth between one or more receivers fixed on homes, buildings, or other structures. Fixed wireless is different from, and performs better than, cellular data networks. WISPs generally don’t have strict data caps and high overage charges, the way many cellular data plans do.

There are more than 3,000 WISPs in the U.S., each one usually run by a handful of people who do everything: engineering design, hanging routers, marketing, customer service, and tech support. Some WISPs are integrating fiber technology into hybrid systems that use both wireless and wired communications technology.

Matt Larsen, owner of WISP Vistabeam in Nebraska, believes highspeed wireless delivers faster speed and lower costs to get broadband to underserved rural and urban communities. “A WISP can deploy a five-mile network with line-of-site, point-to-point wireless in one or two days,” Larsen says. “There are many variables in pricing for fiber buildouts, but a five-mile fiber run will cost tens of thousands of dollars.”

More Communities Turn to WISPs

As widespread as WISPs are, they ought to have an even more prominent role in community broadband. Unfortunately, marketers and internet service providers (ISPs) with vested interest in fiber have positioned wireless as a second-string network infrastructure. They’ve made fiber the only standard by which we evaluate the progress and value of broadband. It shouldn’t be. Wireless networks delivering at least 20 to 25 Mega bits per second (Mbps) are more than adequate for the common internet needs of families and small businesses, plus new technologies exist that help wireless deliver up to a gig of speed.

“Research tells us that even for a family of four, the biggest use of their home connection is for video, specifically Amazon and Netflix,” observes Jimmy Carr, CEO of All Points Broadband, a WISP. “Speed tests show Netflix takes at most 4 or 5 Mbps of bandwidth per person.” That means fixed wireless internet service is adequate for most families.

Even some traditional fiber providers are seeing value in adopting a WISP mindset. Hiawatha Broadband Communications in Minnesota has been selling residents in 10 towns 25 Mbps symmetrical wireless since 2015. An internet service provider might take several years to finish a fiber network, but Hiawatha got wireless up and running much more quickly. Rather than wait for fiber, Hiawatha’s customers are overjoyed to get wireless because the only other option was dial up.

“Rather than focus on speed, the policy makers, funding agencies, and others should focus on unlimited data because if you listen to consumers, that’s what they want,” says Carr. “Fixed wireless with no data caps is the sweet spot where WISPs play. This bias against wireless in some quarters is no longer grounded in reality.”

WISPs and Partnerships

A WISP in Franklin County, Virginia, B2X, formed a public-private partnership that’s gets the credit for the company’s success. In 2005, the county seat of Rocky Mount had some DSL but the rest of the 721 square-mile county had mostly dial-up or satellite access. The county government issued a request for proposals to find a company to provide broadband to cover the needs of the government and residents. Given the terrain and low-density population, B2X determined that fiber was not the best option.

Franklin County embraced the tiny start-up WISP in a full-on partnership. The county provided space on towers, water tanks, and poles in exchange for reduced-cost services for county offices, fire and rescue stations, and the government wide-area network. This arrangement lowered deployment costs for the B2X and expedited growth.

B2X’s customer base went from 98 in early 2005 to over 1,000 residential customers and 143 businesses in just three years. Since then, the WISP formed another partnership with a nearby county and expanded to serve cities and towns in 15 counties. As new, faster wireless technology became available, B2X has kept pace.

At the same time, fiber’s role in the WISP’s hybrid deployments is increasing. B2X, for example, is testing fiber to create stronger connections between all of the WISP’s networks. Wireless equipment vendors are announcing products that facilitate fiber deployment. Expect to see WISPs building hybrid networks on their own and in public private partnerships.

“Cellular is good, but fixed wireless has room in the market to grow,” says Steve Manning, CEO of Southern Tier Network in New York. “The cell carriers now buy additional fiber from us that pushes wireless deeper into rural areas. WISPs understand they either have to partner with traditional ISPs to integrate fiber in their networks, or they need to start building hybrid networks.” WISPS are helping by alerting Southern Tier Network to areas where they can expand the fiber ring so WISPs can sign up more customers.

Hints for Policymakers

Politics and industry lobbyists can impede the nurturing of good broadband policies. At the local level, bipartisanship tends to be the norm when it comes to community broadband. At the state and federal level, not so much. State and federal broadband policies can be detrimental to the communities they are designed to help.

For stepping into areas that are underserved, WISPs should be recognized and funded by state and federal agencies that support broadband. WISPs as well as regional and local telecom companies often are best suited to meet their communities’ broadband needs.

Lon Whelchel, CEO of AcelaNet, LLC, says people – and by extension, policymakers – should stop judging wireless by older or immature technology or bad implementation. “Policymakers need to realize there is more to wireless than previous experiences. Google’s actions [to cut back on deploying fiber] seem to indicate they realize fiber is not the only way to get Internet access to people.”

State policymakers should encourage communities to focus on encouraging affordability and reliability, not just speed. Whelchel believes “too many communities get focused on fiber because they get grant money, but then find they can’t cover everyone unless they get more money. In some cases, if they had used wireless, everyone would have gotten internet access.”

Another policy area that could use attention from state and federal policymakers is “spectrum hoarding.” Spectrum is the radio frequencies on which WISPs transmit their wireless signals. Those frequencies are managed through the Federal Communications Commission, which could create policies to prevent artificial shortages of spectrum, which can limit WISPs.

“Most spectrum goes to the highest bidder and gets stockpiled rather distributed to those willing to deploy now,” says Andreas Wiatowski, CEO of the Canadian firm Silo Wireless Inc. “Make more spectrum available to organizations that invest in rural communities or areas where broadband is unavailable. Claw back spectrum that incumbents do not deploy. Support standards like LTE (long-term evolution) that make spectrum sharing/deployment a reality and create a usable ubiquitous wireless ecosystem.”

Craig Settles is a broadband industry analyst, consultant, and author of “Building the Gigabit City.” He also wrote a primer on hybrid wired/wireless networks.

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Broadband in Appalachia

SOAR At Six: Group’s Lofty Goals For Coal Country Meet Challenges On The Ground

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Rep. Hal Rogers and Gov. Matt Bevin announce the completion of east Kentucky’s “middle mile” of high-speed internet. Photo: Sydney Boles/Ohio Valley ReSource

This article was originally published by Ohio Valley ReSource.

In a conference hall in Pikeville, Kentucky, this September, Gov. Matt Bevin led an eager audience in a countdown. When the audience reached “One!,” a map on the screen behind the governor lit up with the promise of a high-tech future.

After years of delay and scandal, major portions of the commonwealth’s “middle mile” of high-speed internet were complete.

“There are so many negative haters, so many people who pooh-pooh things and say this can’t happen, it’s not possible,” Bevin told the crowd. “But I’ll tell you what. We’ve never quit.”

The event was the annual summit of a group called Shaping Our Appalachian Region, or SOAR, founded in 2013 to help guide the flagging counties of Appalachian Kentucky into a new, post-coal economy.

SOAR leaders have largely emphasized improved internet service and increased industrial development. But despite the organization’s recent progress, local development officials struggle to fill vacant industrial parks, large areas still lack high-speed internet and many coalfield residents remain unconvinced that the organization holds the key to a new future.

Limited Scope

SOAR began in the winter of 2013, when 1,700 east Kentucky business leaders, elected officials, agency heads and concerned citizens gathered in that same Pikeville conference center to hatch a bold new agenda. With 27 percent of east Kentucky coal mining jobs lost in just one year and no turnaround on the horizon, the only option was to chart a new path towards a more diverse central Appalachian economy.

Community leaders fanned out across the 54 counties comprising Appalachian Kentucky. They held listening sessions with thousands of Kentuckians and turned in recommendations that included items like involving incarcerated people in community gardens, supporting local artists and identifying hotspots of air and water pollution resulting from coal mining.

The effort was bipartisan, spearheaded by east Kentucky’s longtime congressman, Republican Hal Rogers, and Democratic former governor Steve Beshear.

The Rural Policy Research Institute said of the inaugural summit, “Everyone there knew the region was ready to respond to the urgency of the moment with a renewed commitment to working in greater unison, toward a preferred future.”

But when SOAR’s leaders turned the working groups’ recommendations into a blueprint for the organization, working group members found them somewhat changed. The organization would start by championing KentuckyWired, the commonwealth’s fiber-optic internet system, and then, with that critical 21st-century infrastructure in place, it would go full throttle on improving health outcomes, developing a tech-savvy workforce, and germinating growth in the region’s industrial and small-business ecosystem. As Congressman Rogers put it in 2019, the focus was “Jobs, jobs, jobs.”

Joyce Pinson of Friends Drift Inn Kitchen displays jams and jellies. Photo: Sydney Boles/Ohio Valley ReSource

But KentuckyWired quickly became mired as costs ballooned and its timeline extended. As most of the eastern Kentucky lagged behind the rest of the country in access to internet, communities continued to struggle to retain residents and build a sustainable economy.

“[SOAR] started as a really great idea, where they were seeking a lot of input from a lot of different people,” said Ivy Brashear, Appalachian Transition Coordinator for MACED, an economic development organization that was involved in SOAR’s early working groups, but has since stepped back. “Over time it has shifted into their approach being outside investment and industrial recruitment,” she said.

Brashear pointed to a recent solar energy project MACED had financed, which helped four Letcher County groups adopt solar energy. “We believe that shifting the way that energy works is a big deal, and it matters to communities, it matters to them saving money, it matters to what they then are able to do with the money they saved. And what we see in places where we’ve helped people transition to solar is, it can be the difference between them staying open and them closing their doors.”

SOAR officials did not return a request for comment, but its principals told the Lexington Herald-Leader last year that its objectives were long-term, and it had been successful in building connections across eastern Kentucky.

The crowd at SOAR’s sixth conference was a bit thinner – about 800, according to executive director Jared Arnett. The event featured a start-up pitch competition and 92 booths running the gambit from addiction recovery programs to an international drone port. Highly produced videos touted projects conceived of and championed by SOAR, projects like the high-tech greenhouse AppHarvest, and teleworks operation Digital Careers Now.

Kentucky entrepreneurs show their products at the 2019 SOAR Summit. Photo: Sydney Boles/Ohio Valley ReSource

Infrastructure and Industry

Some working at the ground level see a long way to go to meet SOAR’s goals.

“There’s tremendous opportunity that people can take advantage of with our workforce down here, and they don’t realize that,” said Bill McIntosh, who worked as a coal miner for 40 years before taking a grant-funded position as Perry County’s economic development coordinator. Part of his job is luring new businesses to the 236-acre Coalfield Industrial Park that Perry County shares with four nearby counties. Like other industrial parks in the region, this one was built on reclaimed surface mines in the hopes of attracting new businesses to a region desperate for a new source of employment.

McIntosh lamented that as more mine land across the region has been turned into build-ready land, companies have their pick of locations, and businesses he hopes to bring to the industrial park often find one thing or another to make them decide against it.

Siting industrial parks on mine land brings its own challenges. “Sometimes it is remote in that it doesn’t have gas, or it doesn’t have broadband or it doesn’t have rail,” McIntosh said. “That’s going to disqualify you as far as having your site selected for a company to come in and set up shop.”

Part of McIntosh’s job, he said, is shifting outsiders’ perceptions of who Appalachians are. “A lot of people are still seeing negative stereotypes: poverty-stricken area, uneducated workforce. That’s not true,” he said. “The major population group in our workforce, [people aged] 45-64, these are people that come from an industrial background. They can easily be cross-trained in other sectors of industry.”

Perry County’s Coalfields Industrial Park is currently home to a FedEx distribution facility, a trucking company, and a call center that is known for its frequent layoffs. A potential new development was recently announced for the industrial park, an aluminum company that could employ as many as 265 people once it’s up and running. The community in 2018 received nearly a million dollars to bring natural gas to the industrial park.

Credit: Alexandra Kanik/Ohio Valley ReSource

The focus on industrial growth hints, too, at an unstable future for the region. A recent Brookings Institution report found that manufacturing sector jobs are among the most vulnerable to automation. With other job losses likely in foodservice and transportation sectors, it is projected that the Ohio Valley could lose about one-quarter of its jobs to automation. Some counties in the SOAR region could lose up to 65 percent of their jobs.

MACED’s Brashear said the region’s transition would require work on multiple fronts, but she worried about focusing too heavily on industrial development. “I think our history shows that that doesn’t necessarily work, it doesn’t necessarily build a sustainable economy that isn’t trying to figure it out every 10 years or so.”

Wired for Growth

Broadband access is a challenge across the Ohio Valley. The internet provider data service BroadbandNow estimates that 7 percent of Ohioans, 9 percent of Kentuckians and 22 percent of West Virginians lack the critical 21st-century infrastructure. Those figures mark an improvement from just a few years ago. In 2017, for example, nearly 20 percent of Kentucky homes lacked broadband service.

Credit: Alexandra Kanik/Ohio Valley ReSource

SOAR officials hope that reliable, fast internet will help the region retain its workforce and compete for high-tech industries. In fact, SOAR was a part of early conversations about a statewide broadband network, for which bids were solicited in the summer of 2014. The Kentucky Communications Network Authority, a government agency, would spearhead the construction of 3,000 miles of fiber-optic cable, a “middle mile” that would bring high-speed internet to government offices and other key buildings, and would allow private internet service providers to hook in, for a price, to bring wireless internet to businesses and communities across the region.

But the “last mile” to connect rural, dispersed homes and businesses, is still a challenge. KCNA interim executive director Deck Decker says residents may have to wait anywhere from six months to several years before broadband is available in their homes and businesses.

“We’re going to try to get in local civic leaders, business leaders, we’re going to get in a room and start discussing this last mile and see who has the best plan,” Decker told a small crowd at the SOAR summit. “I don’t think anybody in this room will tell you they’ve got a magic bullet that’s just going to automatically make the last mile appear in, you know, Harlan County, but we’re going to give it our best,” he said.

Decker said each community would need to find the best way for it to make use of the fiber-optic network, whether it be a private company, a public investment or a public-private partnership. But the investment will likely be a hurdle for rural counties with far-flung communities.

“I’ve had major providers sit in my office and say, if they can’t get a payback on their investment in 18 months, they can’t do it, because they can’t build a business case for it,” Lonnie Lawson said. Lawson is a KentuckyWired board member and CEO of the Center for Rural Development. He hopes to provide some seed money to help internet service providers justify the investment expense.

Lawson said he hopes the network will allow more Kentuckians to work from home or in high-tech careers and will help Kentucky students complete digital homework in their own homes.

“It’s about the only solution of trying to keep our best and brightest in the region,” Lawson said. “Otherwise, if we don’t have job opportunities, then our young people are going to leave, and our region is going to suffer year, after year, after year.”

Sydney Boles is the ReSource reporter covering the economic transition in the heart of Appalachia’s coal country.

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Broadband in Appalachia

How Kentucky Gambled for Hundreds of Millions of Dollars From a Broadband Program It Didn’t Qualify For

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Former Governor Steve Beshear. Photo: AP Photo/David Stephenson

In the spring of 2015, KentuckyWired, the Bluegrass State’s ambitious plan to bring high-speed internet access into rural areas, had ground to a halt.

Officials were in talks with Macquarie Capital, an Australian investment bank known for organizing big infrastructure projects around the globe, to build and manage the new network. But the bank wanted $1.2 billion over three decades — money Kentucky didn’t have on its own.

To make the unique public-private partnership work, then-Gov. Steve Beshear and his administration needed to tap into a federal program that awarded money for broadband projects. And it was a long shot; the Federal Communications Commission had already signaled concern over Kentucky’s eligibility.

That’s when Macquarie brought in a consultant to help: Frank Lassiter.

The pick was surprising. Neither Lassiter nor his consulting firm, HealthTech Solutions of Frankfort, had any experience in telecommunications or in navigating the FCC’s complex program rules. Lassiter’s own background was in forestry and landscaping; he spent his early career teaching landowners about forest management and later opened a landscaping business named Four Seasons.

But Lassiter had connections. His wife, Mary Lassiter, was Gov. Beshear’s cabinet secretary, the highest appointed position in the executive branch.

Over the next couple of months, Frank Lassiter’s firm reassured state officials that federal support was winnable, coaching them on how to reapply with the FCC to win the millions they needed to make the Macquarie payments. It even produced a report suggesting additional millions were readily available from the federal government to offset construction costs.

Lassiter’s firm was wrong.

By November of that year, scarcely two months after the state signed its deal with Macquarie, the bid for federal aid fell apart, leaving Kentucky taxpayers on the hook for nearly half the $1.2 billion the state now owes the investment bank.

The previously unreported hiring of Lassiter was part of a series of fateful decisions that set KentuckyWired on a disastrous financial path, a joint Courier-Journal and ProPublica investigation has found.

Eager to launch KentuckyWired in the waning days of the Beshear administration, state officials disregarded warnings that they might not qualify for the FCC money and instead attempted to work around federal procurement rules, according to a review of thousands of pages of documents and dozens of interviews.

In the project, Beshear, a Democrat, saw his legacy: economic revival for a poor state, spurred by new access to broadband. Macquarie, headquartered in Sydney, Australia, saw dollars: KentuckyWired could serve as a blueprint for a new line of lucrative business in America.

Today, project leaders say KentuckyWired won’t be completed until October 2020 — two years behind schedule — at a cost that is more than $100 million over budget. The deal is now the subject of an ongoing inquiry from the state auditor’s office, which is examining the “lengthy and unorthodox procurement process” that resulted in the agreement with Macquarie.

Meanwhile, over the past four years, state officials have been forced to make across-the-board budget cuts in the face of skyrocketing pension and Medicaid costs, slicing deeply into higher education.

Macquarie declined to comment for this story. The Lassiters, through their attorney, Guthrie True, have denied any wrongdoing.

He said Frank Lassiter’s consulting firm, which was paid nearly $26,000, lost money on KentuckyWired, resulting in “no financial benefit,” but did not explain how that was the case. And Mary Lassiter, he added, didn’t participate in “any decision-making” related to the consulting firm’s work on KentuckyWired or any other project.

But Mary Lassiter was deeply involved in KentuckyWired discussions. In fact, records show, she ultimately chaired the state authority charged with overseeing the ambitious broadband initiative.

For longtime critics of the project, revelations about Frank Lassiter’s hiring raises new “red flags as to the motivations of the previous administration,” said state Sen. Chris McDaniel, a Republican who chairs the Senate Appropriations and Revenue Committee, the upper chamber’s powerful budget-writing panel.

“It continues to go from bad to worse,” McDaniel told the Courier-Journal before calling for an investigation by the state attorney general, Andy Beshear, a Democrat and the son of the former governor.

Andy Beshear was not involved in KentuckyWired but is himself now running for governor. A spokeswoman for him said, “The Office of the Attorney General has not received any information that would warrant an investigation into this matter.”

A Risky Bet

From the outset, Kentucky’s play for federal funds was risky.

Officials hoped to tap an FCC program known as E-rate, which subsidizes broadband access in public schools. In Kentucky, AT&T provided internet service across state government, receiving $11 million a year from the program. But with KentuckyWired, Steve Beshear’s administration saw an opportunity to compete with — and eventually supplant — the telecommunications giant.

The money, in turn, would cover nearly half the state’s payments to Macquarie each year as state government used the new network.

In February 2015, Mary Lassiter, as secretary of the governor’s executive cabinet, convened a meeting with state education officials to discuss the plan, according to an invitation and emails obtained through a public records request.

Then-Kentucky Commissioner of Education Terry Holliday told Lassiter that KentuckyWired wouldn’t qualify for the federal funds. The FCC’s rules were clear: The state must pick its internet provider based primarily on price, a rule designed to protect federal taxpayers.

But in choosing Macquarie as its partner, the state had weighed other factors more heavily, such as business plan and viability. Holliday declined to comment to the Courier-Journal.

Weeks later, in mid-March, an FCC program official confirmed KentuckyWired wasn’t eligible for the E-rate money, according to records obtained through a public records request.

And yet, state officials pressed forward in talks with Macquarie.

David Couch, the state Education Department’s tech chief, recalled later to the state auditor’s office that project leaders “somehow got the impression that they had the power, influence, connections, backing and/or ability to bluntly force to be done what they wanted done,” including overriding federal regulations.

Couch declined requests for comment.

A New Consultant, a New Path

In spring 2015, as negotiations with the state stalled, Macquarie hired Frank Lassiter.

According to its website, Lassiter’s firm, HealthTech, typically focuses on health care with its clients. The company had no previous experience in procuring E-rate funds, Lassiter’s lawyer confirmed to the Courier-Journal.

Nevertheless, Frank Lassiter had been corresponding regularly with state technology officials about the program for months, according to emails the newspaper obtained.

The Lassiters’ attorney said in an email that it’s normal for companies to “explore business opportunities that may not be directly related to their core business.” And KentuckyWired, which is designed to serve all state government agencies, was “expected to have a significant component related to healthcare.”

Local health departments are expected to be part of the new network, but they are small in comparison to Kentucky public schools.

In addition to its consulting fee, the firm saw an opportunity to make much more by helping to sell the new network’s excess broadband capacity to private-sector customers, something Macquarie estimated would generate nearly $2 billion in revenue over 30 years.

To make up for its lack of expertise, HealthTech hired another consultant named Joe Freddoso, the former head of a North Carolina broadband network similar to KentuckyWired. He dangled the possibility that KentuckyWired could “recover a significant percentage” of the new network’s construction costs by taking advantage of a recent change to FCC rules.

Freddoso was in a strong position to know. At the time, the consultant was also working as a researcher for the FCC program.

Together, Lassiter and Freddoso charted a new path to win federal funds, records show. A HealthTech memo obtained by the Courier-Journal explained the strategy. Instead of replacing AT&T as the state’s internet provider in one shot, the state would take a more surgical approach and seek to win a broadband contract for public schools.

And this time, the state would follow the federal government’s strict procurement rules.

The plan still tested those restrictions; as it stood, Kentucky and its private-sector partner, Macquarie, would be both the applicant and the service provider, typically a violation of regulations.

Guided by HealthTech, the state set up bureaucratic firewalls to appease the federal agency. A new state authority would be created to oversee KentuckyWired, so that when the state asked for new bids for school internet service, this ostensibly independent entity — the Kentucky Communications Network Authority — rather than Macquarie would be making a case to replace AT&T.

Friends in High Places

As secretary of Beshear’s executive cabinet, Mary Lassiter was aware that having her husband consult on a major state project could pose at least the appearance of a conflict of interest.

Years before, Lassiter promised Beshear she would abstain from involvement in matters related to her husband’s employment, including his nursery, which had previously won a state contract with the forestry division.

And in a subsequent update in 2013, she added HealthTech to the roster of potential conflicts. She said that it was “highly unlikely that an actual or potential conflict would arise related to Frank’s business interests” because she did not oversee awarding contracts.

But if her husband were to work on a state project, Mary Lassiter nevertheless pledged to “abstain from any involvement whatsoever in the process.” She would also notify the governor immediately of her husband’s hiring.

KentuckyWired would put both of those promises to the test.

The Lassiters’ attorney said Mary Lassiter avoided potential conflicts because she did not “participate in any decision-making” related to her husband’s firm on KentuckyWired or any other project.

But in the months leading up to the 2015 negotiations, Mary Lassiter provided the governor updates on an eastern Kentucky economic development group that hatched the idea for KentuckyWired, according to cabinet meeting agendas. And, as the talks with Macquarie progressed, she convened the meeting to discuss the Education Department’s role in the new network.

For its part, HealthTech appeared to prefer working behind the scenes, offering “very confidential” suggestions for nudging the FCC and saying in [a May 2015 memo that it would “help communicate between the parties,” but that its employees would “recuse themselves from any formal meetings.”

It’s unclear whether Mary Lassiter told Beshear about HealthTech’s role in KentuckyWired. Neither the Lassiters’ attorney nor Beshear responded to requests for comment on the matter.

A Different Kind of Conflict

Reassured by HealthTech that they could win the FCC money, state officials tried again.

Wall Street was aflutter with anticipation as the state would soon be selling bonds to support the project. In August 2015, the rating agency Fitch told potential investors in KentuckyWired bonds that the project would serve as the “primary means of internet and network access” for K-12 schools, an important piece of the network.

Eric Kim, the Fitch analyst responsible for covering Kentucky, says that detail was “repeated several times” in discussions with both state officials and Macquarie team members.

But, as the state prepared to open bids for school internet service, the Kentucky Department of Education again raised concerns, this time about what it described as a potential conflict of interest.

Some of the same state officials writing the request for bids were also in contact with Macquarie, the firm that would be bidding on it, warned Couch, the department’s head of technology, in an Aug. 27 email to the state finance official leading the effort. He cited the FCC’s rule against such behavior.

“This best practice helps avoid a real or perceived impression that a certain vendor got a certain edge,” Couch said.

The potential conflict of interest, however, went deeper. In crafting the new request for bids, state officials were relying heavily on the advice of an FCC contractor — Joe Freddoso. The former HealthTech consultant, who had helped Macquarie and the state devise its E-rate strategy months earlier, had changed roles again and was now working for the agency administering the program, advising states on how to navigate its requirements.

It’s unclear whether federal rules allowed that. Freddoso said he received special permission to work on KentuckyWired. A spokesman for the FCC arm that administers the E-rate program and its lawyer declined to comment.

Either way, Couch complained to his bosses that Freddoso had offered a flawed analysis of broadband prices by repeatedly arguing that Kentucky was “being gouged” by its current provider. The state, Couch later wrote, may “already have the very best prices” from AT&T. He pushed finance officials to deal directly with the FCC.

The administration did not heed the warnings. On Sept. 1, 2015, in a departure from normal protocol, Don Speer, Beshear’s head of procurement services, emailed Couch to say his office was taking over the solicitation.

Speer did not respond to a request for comment.

Two days later, the state finalized its deal with Macquarie.

At a celebration marking the project’s launch, KentuckyWired supporters billed it as the “most historic construction project in our lifetimes.” And state Senate President Robert Stivers singled out Mary Lassiter as a critical contributor who “really kind of made the thing move.”

On Sept. 4, 2015, Mary Lassiter chaired the first meeting of the board of the newly created Kentucky Communications Network Authority.

A month later, in a unanimous vote, Lassiter and her colleagues greenlighted KentuckyWired to submit a bid for school internet service, according to minutes the Courier-Journal obtained through a public records request.

On Nov. 3, 2015, voters picked Republican Matt Bevin in an upset to succeed the term-limited Beshear as governor. Three days later, AT&T filed a complaint regarding the state’s bidding process. The company alleged the state had “stacked the deck” against it and “preordained” that KentuckyWired would win.

AT&T called for “this web of conflicts of interest” to be dissolved and for the state network to be barred from bidding. Weeks later, the state dropped its plans to award a new contract, meaning KentuckyWired would not be eligible for the FCC money.

Beshear’s finance secretary, Lori Flanery, later told the state auditor’s office she halted the E-rate effort so that the broader project could proceed without the delay of a dispute. She said she was not aware of the federal money’s importance, “despite finance officials leading the KentuckyWired effort throughout 2014 and 2015,” investigators wrote in their initial report last year.

“What happened now is different than what we anticipated, certainly,” said Fitch’s Kim, adding that the agency’s relatively high BBB+ rating of KentuckyWired bonds nevertheless hasn’t budged because the state is contractually obligated to make payments to Macquarie.

The Fallout Continues

Now, taxpayers are on the hook.

The state auditor’s office told the Courier-Journal it’s continuing to investigate KentuckyWired. In September 2018, it referred its initial findings to Kentucky’s Executive Branch Ethics Commission. According to Kentucky law, if the commission finds a violation of the code, including conflicts of interest when awarding state contracts, the state’s finance secretary may void any agreement related to that case.

Bevin, a onetime critic who now supports completing KentuckyWired, has also launched an investigation into what his office called the potentially “unsavory and perhaps illegal practices” of his predecessor’s administration. That includes another deal involving the Lassiters — a $3.1 million no-bid contract that Frank helped a software company win on the last day of Beshear’s tenure.

This article was produced in partnership with the Louisville Courier-Journal, which is a member of the ProPublica Local Reporting Network. It was originally published by ProPublica.

This story is part of an ongoing investigation into what went wrong with KentuckyWired. Sign up for the Miswired newsletter to receive updates in this series as soon as they publish.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

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