U.S. Supreme Court Rules That Section 253 of the Communications Act Does Not Preempt State Laws that Limit Municipal Provision of Telecommunications Services; Localities Must Get State Permission to Enter Telecom Business

Earlier today the United States Supreme Court ruled 8-1 that Section 253 of the Telecommunications Act of 1996—which preempts state and local laws that effectively or directly prohibit “any entity” from providing telecommunications service—does not apply to a state law that limits the power of local governments to provide telecommunications services. Rather, the Court ruled, Congress did not intend to interfere with the power of a state to restrict municipal provision of telecommunications services.

The decision in Nixon v. Missouri Municipal League overturns the decision of the United States Court of Appeals for the 8th Circuit, which held that “any entity” under Section 253 included municipalities. The case began at the FCC, which held that Section 253 could not pre-empt state laws that limited the power of their subdivisions to enter telecommunications markets. On appeal, the Eighth Circuit reversed the FCC, and decided that Section 253’s pre-emption of laws that limit the provision of services by “any entity” plainly included municipalities, and would authorize the pre-emption of a Missouri law that restricted the ability of Missouri cities to provide telecommunications service.

The Supreme Court readily dismissed the Eighth Circuit’s view that the “plain language” of Section 253 allowed the preemption of state laws that prevented municipalities from providing telecommunications services. Instead, the Court observed that “the strange and indeterminate results of using federal pre-emption to free public entities from state or local limitations is the key to understanding that Congress used ‘any entity’ with a limited reference to any private entity when it cast the pre-emption net.” As the Court noted, when a state regulates its subdivisions, “there is no clear distinction between the regulator and the entity regulated,” and that pre-emption of a state’s efforts to regulate its subdivisions simply would not operate like the pre-emption of laws that restrict private behavior. The Court thus reaffirmed the principle that, absent a “clear statement” of Congress’ intent to interfere with a state’s relationship with its subdivisions, the Court would read the law to preserve “a State’s chosen disposition of its own power.”

The effect of this ruling is immediate and could be profound. At least eight states (Missouri, Arkansas, Iowa, Minnesota, Nebraska, Nevada, Tennessee, Texas, and Virginia) currently have laws precluding or limiting localities’ ability to enter telecom ventures, and these laws are now insulated from attack under Section 253. In the remaining states the question becomes whether municipalities are limited by state constitution or statute to enumerated powers (e.g., “general law” states), or whether they have implied powers to enter nontraditional, commercial ventures like telecommunications (e.g., “home rule” states). We anticipate even greater legislative activity at the state level as municipalities seek to clarify their telecom authority, and as some legislators seek to impede the aggressive efforts of some municipalities to enter the telecommunications business.

Please let us know if you have any questions concerning this matter or would like a copy of the decision.