(FORTUNE Magazine) – Peer idly out the window of a moving train, and you might catch a glimpse of small warning signs posted along the track. Fiber-optic cables, owned perhaps by AT&T, MCI, Sprint, or Qwest, are buried here, the signs announce, and woe betide anyone who rips them up or damages them. The warning works. Even farmers living along the track are afraid to plow too close, for fear of running afoul of the mighty railroads and telecom companies that apparently control the land. The signs are everywhere. In their haste to install tens of thousands of miles of fiber-optic lines, telecom companies have paid millions to pipeline companies and electric utilities, as well as the railroads, for permission to use the rights of way.

There's just one problem. The railroads and utilities often don't own the land they blithely leased to the telecoms for as much as $25,000 per mile. In some cases, all the railroad ever had was an easement to lay track and run trains over Farmer Brown's land. Farmer Brown, it seems, often still owns the land for any other use.

For telecom companies, that could be a pricey complication. AT&T has agreed to pay $45,000 per mile to landowners along 70 miles of abandoned Penn Central tracks in Indiana, where it put down fiber on what turned out to be private property. Nels Ackerson, the Washington, D.C., lawyer who won the Indiana settlement, says AT&T had little choice but to settle quickly. "AT&T was very exposed on abandoned railroad right of way. If a line was cut, it didn't even have the right to go back and fix it."

Just how expensive this will be for the telecom industry is anybody's guess. But as a legal headache, it's about to attain migraine status. Ackerson is filing nationwide class-action suits against a dozen big railroads, pipelines, utilities, and telecom companies.

A lawyer for AT&T pooh-poohs the right-of-way problem. The Indiana settlement was prompted by the peculiarities of state law and because the land in question had been abandoned by Penn Central, says the lawyer, who asked to remain anonymous. "It is a completely different situation with the rest of the fiber network." Nationwide, AT&T has installed 55,000 miles of fiber, he notes. Only 8,800 are along railroad rights of way, and only 350 miles, 70 of them in Indiana, were laid along abandoned rail, he says.

But a ruling by a superior court judge in Indiana suggests that AT&T knew the danger of putting fiber lines on railroad rights of way. Judge Steven Nation noted AT&T internal documents showing that in the 1980s, Ma Bell was racing to build parts of its fiber network in a quarter of the usual time. At the same time, an AT&T executive was cautioning against putting the fiber along railroad rights of way because of lack of clear title. The phone company did it anyway, observed the judge, although it was "fully aware" that the railroad was limited in what uses were permitted along the right of way. Judge Nation ruled in August that Ackerson could proceed with a national class-action suit against AT&T.

Other telecom companies may have even bigger problems. Qwest was originally part of the Southern Pacific Railroad. Before SP merged with Union Pacific in 1996, Southern Pacific's biggest shareholder, Philip Anschutz, spun off Qwest and got permission from SP to lay fiber along its right of way. Now more than two-thirds of Qwest's 20,000 miles of fiber runs along the Southern Pacific and other track beds. (Qwest did not reply to questions about right-of-way problems.) MCI and Sprint have placed more than half their networks along rail and utility easements too.

How many fiber lines are in the wrong place? Ackerson says his research suggests that railroads own a third or so of the land where their tracks run; the rest traverses easements that limit what can be done on the land. Utilities and pipelines face the same problems. "It will cost these companies billions," says Ackerson.

The railroads see it differently, of course. Merill Bryan, a lawyer for Union Pacific, notes that western railroads got federal land grants and own much of the land beneath their tracks. Where the railroads operate on easements, landowners are limited. "They can't arrange to put a petroleum pipeline under the track," he says, "and if they find gold nuggets alongside the track, they can't start mining underneath it." But one expert at appraising the value of railroad rights of way says the issue is murky and will take scores of lawyers years to settle. "I've studied thousands of miles of railroad corridor," says Charles Seymour, an appraiser at Insignia/ESG in Philadelphia. "There are all sorts of defects in the railroads' titles to the land." Odds are good, however, that if anyone pays, it will be the telcos, not the railroads. Generally, says Seymour, the railroads just sell or lease "whatever their interest in the land happens to be. They don't promise that the telecommunications companies have the right to put a line there. They just say they won't object."

No matter what happens, existing cables won't get torn up. Telecom companies have the right to condemn (i.e., take) the property they need--it's a tedious process involving negotiations with thousands of landowners, which is why they prefer to work with railroad, pipeline, and electric companies. A likelier scenario: if judges in a few more states approve class-action suits against the utilities and railroads, telecom companies will move quickly to settle.

It's the audacity of the railroads that seems to bother Ackerson more than anything. "They know they don't own the land, but they behave as if they do," he says. "They're selling the Brooklyn Bridge."

REPORTER ASSOCIATE Natasha A. Tarpley