Sixth Circuit Kills FCC's Municipal Broadband State Preemption Order

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By Kyle Daly

Aug. 10 — The U.S. Court of Appeals for the Sixth Circuit Aug. 10 reversed a 2015 Federal Communications Commission order preempting state laws that hinder localities' ability to build their own municipal broadband networks, scoring a win for state sovereignty and striking a blow to communities in Tennessee and North Carolina that had installed their own high-speed internet connections ( North Carolina v. FCC, 6th Cir., 15-03555, decision 8/10/16 ).

The FCC would need a clear directive from Congress to step in and tip market power toward or against any one telecom provider, public or private, the court ruled.

The court found that the FCC's authority under Sec. 706 of the Communications Act — a provision added to the statute with the Telecommunications Act of 1996 authorizing the FCC to make regulatory efforts to expand broadband access availability throughout the U.S. — “falls far short” of clear statutory justification to preempt state municipal broadband laws.

The ruling came after Tennessee and North Carolina sued the FCC, challenging the order. The Sixth Circuit heard oral arguments in March, and the case has been widely watched as a barometer for the interplay among the federal and state governments over municipal broadband.

Chattanooga, Tenn., and Wilson, N.C., sought to expand or establish municipal broadband networks only to be challenged by their states, which prompted the FCC order.

Win for State Sovereignty

Opponents and backers of the FCC order told Bloomberg BNA that they see dim prospects for the U.S. Supreme Court to take up the case, but municipal broadband proponents told Bloomberg BNA they still see options for expanding publicly run broadband services around the country.

The court didn't dispute that municipal broadband networks did lead to greater price and performance competition from incumbent broadband providers in each of the relevant communities — Comcast Corp. and AT&T Inc. in Chattanooga and Time Warner Cable Inc., now a subsidiary of Charter Communications, in Wilson. Nor did it take issue with the overall public interest benefits of municipal broadband.

In its ruling the Sixth Circuit drew heavily from the Supreme Court's 2004 decision in Nixon v. Missouri Municipal League, 541 U.S. 125 (2004), in which an 8-1 majority said states have sovereignty over telecommunications policies affecting the municipalities within, which can only be circumvented by a clear statement from Congress.

Supreme Court: Long Shot

The FCC has the option to seek review of the case to the Supreme Court. In a statement on the order, FCC Chairman Tom Wheeler said he intends to consider “all our legal and policy options” to promote broadband deployment, including municipal broadband, and an FCC spokesman told Bloomberg BNA the agency will consider all options while mulling its next steps.

Deb Socia, executive director of municipal broadband advocate Next Century Cities, told Bloomberg BNA that she hopes the agency will seek high court review.

Socia added that a Supreme Court petition for review “may not be the easiest pathway,” given that the Sixth Circuit based its reasoning on a near-unanimous high court ruling from 12 years ago. James Bradford Ramsay, general counsel for the National Association of Regulatory Utility Commissioners (NARUC), which joined the case as an intervenor alongside Tennessee and North Carolina, said he also thinks it's highly unlikely the Supreme Court would take the case.

“If the FCC were to be inclined to appeal this to the Supreme Court, I have absolutely no doubt they'd deny [certiorari]” and decline to review the case, he said. “Whether municipal broadband is a good idea or bad idea is not the issue before the court. The question is, is it bad policy for a federal bureaucracy to tell a state entity that it has authority the state hasn't given it?”

Next Steps

NARUC, Ramsay stressed, takes no position on the merits of municipal broadband and intervened strictly on the matter of states' authority. Other opponents of the order, however, have used the opportunity to suggest that the ruling could be the death knell for municipal broadband.

Republican FCC Commissioner Michael O'Rielly said in a statement that municipal broadband networks “unfairly distort the marketplace” and that limiting them will “protect ... citizens' pocketbooks and good senses.” Berin Szoka, president of free-market think tank TechFreedom, said in a statement that “government-run broadband should be a last resort, not a go-to solution,” and that the FCC should focus on loosening regulations and fees to encourage private companies to grow into underserved areas. Ajit Pai, O'Rielly's fellow Republican FCC commissioner, echoed that sentiment, saying the FCC should “eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks.”

Municipal broadband proponents, however, told Bloomberg BNA they believe the development could be an opportunity.

“This case is disappointing. [But] if the FCC had been affirmed, there would've been an appeal. We would've had another 18 months of uncertainty,” said Christopher Mitchell, director of the Institute for Local Self-Reliance (ILSR)'s Community Broadband Networks Initiative. “The FCC brought a lot of attention to the need for more [broadband] investment, and a lot of communities around the country have heard that. Even though the FCC had a setback, I think we're much better off since the FCC stepped in.”

Jim Baller, senior principal with Baller Herbst Stokes & Lide, the firm that represented the cities of Chattanooga and Wilson, noted that the decision affirmed the FCC's conclusions on the competitive and public interest benefits of municipal broadband networks — leaving intact a record on which arguments for municipal broadband could be made.

Mitchell and Socia both said the most immediate next step for those arguments may be to make them locally, engaging interested communities in the 31 states that, according to the ILSR, have no laws limiting municipal broadband and potentially working to put pressure on lawmakers in the 19 states that do have such laws in place. Tennessee has already this year seen efforts led by state Rep. Kevin Brooks (R) to loosen municipal broadband restrictions.

Similar cases in North Carolina and Tennessee were filed as separate appeals but were consolidated in the Sixth Circuit.

To contact the reporter on this story: Kyle Daly in Washington at kdaly@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

The Sixth Circuit decision is available at http://src.bna.com/hB2

The FCC's 2015 order is available at http://src.bna.com/hc3

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