FCC Preempts Two State Laws That Limit the Geographic Reach of Municipal Broadband Systems

On February 26, 2015, the Federal Communications Commission voted to strike down provisions of North Carolina and Tennessee laws that restrict the area in which municipally-owned broadband systems in those states are allowed to operate. To be clear, the Commission did not open the door to all municipal broadband deployment. The Commission held only that once a state authorizes municipalities to provide broadband, the state cannot limit their service areas. Although the decision is limited on its face to the challenged laws in these two states, similar provisions exist in 17 additional states and so those other states’ restrictions on municipalities may be in jeopardy as well.

The text of the order is not yet available, so our understanding is limited to the Commission’s summary press release and the statements of each Commissioner. We will review the full text when it is released and update our analysis of the order and its practical effects.

The decision rests on a novel interpretation of FCC authority. Section 253 of the Communications Act bars state or local restrictions on “any person” providing telecommunications services and authorizes the FCC to “preempt” any laws that do so. In 1997, the Commission held that 253 did not give it the authority to preempt a Missouri state law that completely prohibited municipalities from providing telecommunications service. The Supreme Court affirmed that FCC decision in Missouri Municipal League v. Nixon on the ground that a state’s decisions as to municipal powers are fundamental sovereign acts that are not preempted by federal law absent a statutory “clear statement” that Congress intended to interfere with those sovereign decisions. Although Section 253 explicitly allows federal preemption of both state and local laws that prohibit telecommunications competition, the Supreme Court found that the provision does not have the necessary “clear statement” of congressional intent to disrupt state control of local governments’ powers.

Recognizing the force of that Supreme Court ruling, the petitions underlying the current case rely instead on Section 706 of the Communications Act and the D.C. Circuit’s analysis of that provision in Verizon Corp. v. FCC. That case is mainly known for invalidating the FCC’s 2010 net neutrality rules; however, in that case the court went out of its way to hold that the Commission has affirmative authority under Section 706 to enact “measures that promote competition in the local telecommunications market, or . . . remove barriers to infrastructure investment.” Judge Silberman’s concurring opinion specifically mentioned state law that prohibits municipal broadband service as “[a]n example of a paradigmatic barrier to infrastructure investment.” Predictably, the petitions, and now the Commission’s decision to grant them, took the Verizon court’s guidance to heart, and rest squarely on Section 706 as interpreted by the court.

The decision is sure to be challenged on the ground that the FCC has no authority to give local governments territorial powers denied to them by state law. Chairman Wheeler’s statement avoided detailed legal analysis and described the geographic and other limits as “‘state-level red tape’ designed to limit competition.” However, the two dissenting statements of Commissioners Pai and O’Rielly provide the only detailed information currently available on the Commission’s legal rationale.

Based on the dissenters’ statements, it appears that the majority concludes that the FCC’s prior Missouri decision and the Supreme Court’s ruling in Nixon do not apply because the Tennessee and North Carolina laws do not outright prohibit municipal provision of service. According to the dissenters, the decision holds that once Tennessee and North Carolina authorized municipal broadband service, they could not then limit the geographic area the municipal systems serve. The FCC apparently concludes that preemption of those state law limits “promote[s] competition in the local telecommunications market, or . . . remove[s] barriers to infrastructure investment” – the test under Section 706. Both Commissioners Pai and O’Reilly point out the logical conflict in this position, i.e., the notion that while a state may lawfully prohibit municipal broadband altogether, if it chooses to allow it, the state cannot then limit the service area. This could lead some states to consider prohibiting municipal broadband entirely rather than risking the FCC overruling geographic – and perhaps other – limitations on municipal broadband.

Although the Commission’s decision technically addresses only the two specific state laws, unless the decision includes some limiting language, the logic of the decision would at least arguably apply to any state with laws similar to Tennessee’s and North Carolina’s. Local governments in other states that have similar limiting statutes could bring “me too” petitions to the Commission. Alternatively, local governments seeking to take advantage of the order may seek amendments to their state statutes, or ask the state to forbear from enforcing geographic limitations currently on the books.