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A federal judge on April 24, 2017 ordered the Canadian-based Axia to keep running the state's middle mile network while a breach of contract dispute with the state is pending. Meanwhile, the Massachusetts Technology Collaborative is scoping out other "qualified network operators." The network connects schools, hospitals, public safety complexes and more in dozens of Massachusetts towns.
(Axia)
BOSTON -- The parent company of the state's bankrupt "middle-mile" broadband internet operator can't just cut and run, a federal judge ruled this week.
A temporary restraining order, issued April 24 in Worcester's U.S. District Court, orders Axia NetMedia Corp. to keep running the state-owned MassBroadband 123 network while its breach of contract dispute with the state is pending.
The ruling seems to assure that schools, libraries, town halls and public safety complexes across Central and Western Massachusetts won't lose their broadband internet service as a result of KCST, an Axia NetMedia subsidiary, declaring bankruptcy in March.
Judge Timothy S. Hillman ordered Axia to pay its vendors, including Verizon. Verizon had threatened to remove state-owned fiber optic cable from its poles for non-payment, which would "cause an immediate shutdown of the 123 network."
MassTech in a statement said it is "pleased that Axia NetMedia's obligation to perform under its Guaranty has been confirmed by the Court, and that the continued operation of the Network is assured going forward, as MTC considers its alternatives for maintaining the long-term health of the Network."
As for alternatives, MassTech said it is planning for various contingencies.
The agency said it will "work to find an equitable long term solution with Axia, per the terms of the existing contract." At the same time, it has issued an open request for proposals "to identify qualified network operators" in case things don't work out.
MassTech said it will "continue to explore all available measures to ensure that there are no interruptions in service on the MassBroadband 123 network."
The temporary restraining order is good until May 8, but may be extended for cause.
Long-standing conflict between MassTech and Axia
The 1,200-mile middle-mile fiber optic network was built with $90 million in 2010 federal stimulus funding, and connects "anchor institutions" in more than 100 communities.
In addition to schools and libraries, MassBroadband 123 provides services to Massachusetts State Police, to medical centers, and to other public safety and emergency preparedness entities, documents show.
According to the court, Axia USA in 2011 signed a 10-year contract to operate the state-owned network, and also signed a $4 million performance guarantee. Under the contract, MassTech would build and own the network, and Axia would run the operation, drum up customers, and make payments to MassTech.
In 2014, MassTech sued Axia in Suffolk Superior Court after it threatened to withhold payments. MassTech gained a temporary restraining order and preliminary injunction forcing Axia to perform its contractual duties.
In early 2016, without telling MassTech, Axia NetMedia -- which had been acquired by a Swiss investment firm -- petitioned the Federal Communications Commission to transfer its telecommunications license into a trust, of which Axia NetMedia is the sole beneficiary. A subsequent motion by MassTech to revoke the transfer was denied by the FCC.
Months later, Axia USA changed its name to KCST USA Inc., filed for Chapter 11 bankruptcy protection, and sued MassTech seeking judgment that its performance guarantee to run MassBroadband 123 is unenforceable.
In addition to its breach of contract claim, Axia NetMedia claims it would be violating federal law if it kept operating the Massachusetts network, because its FCC license, known as a "Section 214 authorization," is now owned by the trust.
Judge Hillman rejected those arguments on Monday, saying the technology collaborative has shown a likelihood of success on the merits of its claim that Axia NetMedia must comply with the "continued performance" provision of its contract.
Hillman wrote that MassTech faces the "serious risk of irreparable harm" if Axia does not continue to operate the network. He also determined that allowing Axia to pay its $4 million performance guarantee and walk away "would be an inadequate remedy."
Axia-KCST claims it saw net losses of more than $10 million since 2014. Its parent company last month promised loans to keep the network operational for 13 weeks.
KCST's president is Terrence Fergus, a principal of FSM Capital Management. KCST's income is substantially derived from operating MassBroadband 123.
The Massachusetts Technology Collaborative is a quasi-public entity under Gov. Charlie Baker's Executive Office of Housing and Economic Development. Among other duties, it is in charge of the Massachusetts Broadband Institute.