States Again Can Restrict Community Broadband's Growth

Submitted on August 12, 2016

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Round-Up for the Week of August 6-12, 2016

On August 11, a three-judge panel of the US Court of Appeals for the Sixth Circuit ruled in favor of two states that opposed the Federal Communications Commission’s attempt to preempt state laws that restrict the growth of municipal broadband networks. The decision is a victory to cable and telephone companies that oppose community broadband.

In North Carolina, the City of Wilson built a broadband network prior to the adoption of state-level legislation restricting such networks. The City of Wilson was allowed to continue to operate its existing network but was not allowed to expand broadband service to other communities as it wanted to do.

In Tennessee, the publicly-owned local power company EPB had built a broadband network in Chattanooga, where the company is also the local power provider. EPB protested state laws that prevented the company from offering broadband outside Chattanooga. And the FCC struck down those restrictions.

The states of North Carolina and Tennessee protested the FCC order that would have given the City of Wilson and EPB the ability to expand into surrounding communities. The appeals court municipal broadband decision essentially puts the state-level legislation back in place.

About 20 states have laws -- literally written by large, commercial broadband providers -- restricting the rights of cities and towns to compete against private Internet service providers (ISPs). If the FCC had won, cities and towns in other states could have followed suit and asked the FCC to overturn restrictive laws throughout the nation.

The FCC claimed it could preempt the laws because Congress, in Section 706 of the Telecommunications Act of 1996, authorizes the commission to promote telecommunications competition by removing barriers to investment. The FCC had claimed that its preemption authority "falls within the 'measures to promote competition in the local telecommunications market' and 'other regulating methods' of section 706(a) that Congress directed the Commission to use to remove barriers to infrastructure investment." The FCC argued that Congress doesn't need to "explicitly delegate" the authority to preempt state laws, but failed to persuade the judges.

"The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities," the judges wrote. "This is shown by the fact that no federal statute or FCC regulation requires the municipalities to expand or otherwise to act in contravention of the preempted state statutory provisions. This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon Section 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed."

The ruling will allow states to keep restrictions in place that make it harder for cities, towns and public utilities to compete with for-profit companies like AT&T and Comcast. But the ruling left unresolved key questions about whether the FCC has any power to overrule the states by using Section 706 of the Telecommunications Act, a controversial portion of its guiding law which urges the agency to promote broadband competition in local markets. The court also went out of its way to say, “We do not question the public benefits that the FCC identifies in permitting municipalities to expand Gigabit Internet coverage.”

Reaction at the FCC

At the FCC, Commissioners reacted along the lines of how they had voted on the issue. FCC Chairman Tom Wheeler, who led the effort to adopt the preemption, said the ruling “appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina.” He reiterated that the FCC’s action “highlighted the benefits of competition and the need of communities to take their broadband futures in their own hands.” He concluded:

The FCC’s mandate is to make sure that Americans have access to the best possible broadband. We will consider all our legal and policy options to remove barriers to broadband deployment wherever they exist so that all Americans can have access to 21st Century communications. Should states seek to repeal their anti-competitive broadband statutes, I will be happy to testify on behalf of better broadband and consumer choice. Should states seek to limit the right of people to act for better broadband, I will be happy to testify on behalf of consumer choice.

“I am extremely disappointed," Commissioner Mignon Clyburn said, "that our long-standing mission to promote the deployment of broadband to every American has been dealt a blow by today’s decision. Local governments that want to bring connectivity to their communities, particularly when the private sector has failed to do so, should be able to ensure that their citizens have access to the enabling opportunities broadband brings. State laws like the ones upheld today are part of the reason why families on one street may have gigabit service, while those on the other have nothing. It is sad that those laws will still stand tall and act as a barrier to digital inclusion and universal opportunity for all.”

Commissioner Jessica Rosenworcel called the decision a set-back. “It makes it harder for communities struggling when existing providers fail to meet their needs because it makes it more difficult for them to come together and build it themselves. I fully respect this decision, but regret that it is at odds with our history of self-reliance—and constrains our options for new infrastructure in the future.”

Commissioner Ajit Pai applauded the court’s decision. “The court’s decision is a big victory for the rule of law and federalism—a constitutional principle that lies at the heart of our system of government.” He called on the FCC to “turn the page,” allow state prerogative, and instead “focus on implementing a broadband deployment agenda to eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks.”

Commissioner Michael O’Rielly was heartened by the court’s decision. “Unless Congress specifically authorizes FCC intervention, states rightly can limit government-operated broadband networks in order to protect their citizens’ pocketbooks and good senses. Contrary to some beliefs, municipal networks are not panaceas to solving any lack of ubiquitous broadband, but instead unfairly distort the marketplace.”

More Reaction to the Ruling

Tennessee Attorney General Herbert Slatery hailed the court for “preventing the federal government from exercising power over the state of Tennessee that it does not have.”

Jim Baller, an attorney who represented both cities in the case, said the state laws hurt community efforts to provide cheaper Internet access. “We hope that state legislatures will appreciate that local choice should be encouraged, not thwarted,” Baller said. He noted the judges did not address the state laws' merits. "In fact, these are bad laws; whether the FCC has authority to deal with them or not is the question the court decided," Baller said. "But the underlying reality is that these laws are anti-competitive; they're bad for the communities involved; they're bad for the private sector; and they're bad for America's global competitiveness."

Andrew Schwartzman, who filed amicus briefs in support of the FCC on behalf of Sen. Ed Markey (D-MA) and a coalition of public interest groups, said the court's acknowledgment of the benefits of municipal broadband could give states pause when it comes to restricting networks. "It may encourage some ISPs to try to lobby to get similar state laws in other jurisdictions; but on the other hand, by pointing out the benefits that can come from [municipal] networks, it could dissuade states from adopting new restrictions," said Schwartzman, the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation.

“I think the facts are on the FCC’s side,” said Todd O’Boyle, Program Director for Common Cause's Media and Democracy Reform Initiative. “The industry-backed bills that wall off municipal broadband, they’re clearly barriers to municipal broadband, and that was the real question at hand. The FCC clearly has statutory authority to remove barriers to broadband deployment.”

Indeed, Chris Mitchell — Director Community Broadband Networks Initiative for the Institute for Local Self-Reliance — argues that “states have gotten away with pulling a fast one in terms of lying about their intentions,” claiming that the matter isn’t so easily dismissed as a question of federalism. “The challenge is understanding whether these states are regulating their cities or regulating interstate commerce, as the FCC argued, and I think that these states are clearly trying to regulate internet access, as opposed to just what these cities could do,” Mitchell said. “I don’t think the court really got that.”

Deb Socia, Executive Director of Next Century Cities, which supports municipal broadband efforts, called the ruling “a blow to communities in Tennessee and North Carolina that were fighting for more accessible, affordable Internet access for their residents, and will sadly prevent the expansion of each city’s broadband network to neighboring underserved communities.”

House Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) said, “The court made the right call. The FCC’s regulatory overreach was not only ill-conceived but illegal, and this direct rebuke should serve as yet another wake up call for the commission to heed the limits of its authority,” said Upton and Walden. “States have been and will continue to be best suited to determine whether municipalities should build out broadband networks using tax-payers’ dollars. The FCC should refocus its efforts on promoting private investment in broadband deployment, embracing the will of states and their citizens.”

“Today’s decision is a victory for the rule of law," said USTelecom President Walter McCormick . "The FCC’s authority is not unbridled, it is limited to powers specifically delegated by the Congress, and it does not extend to preemption of state legislatures’ exercise of jurisdiction over their own political subdivisions. As an industry that shares the commission’s interest in accelerating broadband deployment, we would suggest that the best way for the FCC to accomplish its goals is to concentrate on eliminating federal regulatory impediments to innovation and investment – where there remains to be much that can and should be done.”

AT&T policy chief Jim Cicconi praised the court’s decision. “This case was never about the best way to get broadband into rural communities,” he said. “It was about whether the FCC had legal authority to pre-empt state law.”

What's Next?

“We’ve known all along that there’d be several rounds to this fight.” -- Todd O’Boyle

The decision was essentially unanimous, with Judges John Rogers, Joseph Hood, and Helene White all voting to reverse the FCC's order. Judge White concurred in part and dissented in part, writing a separate opinion to address a few issues not covered in the majority opinion. The FCC could ask the full panel of judges on the Sixth Circuit to review the case, or take it to the Supreme Court, an outcome Common Cause's O’Boyle believes is “certainly a possibility.”

Paul Werner -- a partner with the firm Sheppard, Mullin, Richter & Hampton -- said he’d be “shocked” if the FCC took the case to the high court. “The political reality is that the case will be remanded back to the commission, and, ultimately, it’s going to fall to a different commission to deal with it,” Werner said. “How that commission ultimately decides to move forward on this item is likely going to be influenced by the outcome of the election in November.”

The Institute for Local Self-Reliance's Mitchell feels it may be easiest for municipal broadband advocates to go “state-by-state” to confront laws limiting these networks. "Once there's light shined on those laws, enough state legislators will decide it's time to stand up to the incumbents," said Mark C. Del Bianco, an attorney who represented Next Century Cities and the Institute for Local Self-Reliance.

Apparently, that’s just the approach Chattanooga’s EPB Fiber Optic will be taking in the wake of the ruling.

"Ultimately, Tennessee’s broadband gap is a problem for Tennesseans, and we need a Tennessee solution," EPB President David Wade said. "We will continue to work with the growing number of state legislators and grassroots citizens interested in removing the barriers that prevent EPB and other municipal providers from serving our neighbors in surrounding areas who have little or no access to broadband.”

Tennessee State Senator Janice Bowling (R-Tullahoma) said, "I'm surprised that the [Circuit Court] ruling came so quickly, but now it solidly puts the ball in the court of the state legislature." She said that she plans to reintroduce legislation next year to remove state limits on municipalities and power co-ops offering broadband. "Is the state going to continue to block its citizens from having access to 21st century technology so key to our economic future?" she asked.

In Wilson, officials offered similar perspectives. The "Greenlight Community Broadband Project" in Wilson, which was expanded into the neighboring Pinetops area in 2010 will not be affected immediately as the decision is reviewed, but "disconnection could happen."

“There is a possibility we could have to withdraw the broadband service from Pinetops, but it will depend on what happens next,” said Greenlight General Manager Will Aycock. “If we have to, we’ll work with partners to do so as painlessly as possible.”

Pinetops town administrator Lorenzo Carmon said other options pale in comparison to the Greenlight Service, which is run by the city in competition with Time Warner Cable and CenturyLink local broadband services.

“This is a digital economy that we are a part of even though Pinetops has a population of about 1,500 people,” he said. “We’re still a part of the global economy, and having high-speed access to that through the Internet helps us to stay competitive.”

Pinetops isn't alone. The latest FCC statistics show that Americans still have little choice of high-speed broadband providers.

The FCC is collecting more granular data that better illustrates the lack of choice for most Americans. Things are probably getting a little better as providers boost speeds and new entrants like Google Fiber and municipal ISPs offer service. But the FCC's improved statistical analysis shows how far there is to go.

At the FCC's 25Mbps download/3Mbps upload broadband standard, there are no ISPs at all in 30 percent of developed census blocks and only one offering service that fast in 48 percent of the blocks. About 55 percent of census blocks have no 100Mbps/10Mbps providers, and only about 10 percent have multiple options at that speed.

Moreover, the longstanding disparity between urban and rural users persists and that disparity has emerged in the adoption of new technologies such as the smartphone and social media, according to the latest computer and Internet use data collected for the National Telecommunications and Information Administration.

While the digital divide appears to be closing for some demographic communities, the gap between rural and urban populations has remained remarkably consistent for at least as long as NTIA has been gathering data on Internet use. It appears there is a continuing need to address the obstacles rural residents face in Internet use. For instance, some households may require subsidies to make the Internet more affordable, while others may need digital literacy training to make the Internet more useful to them. Even today, some remote rural communities still lack Internet access at all or the service available may be poor or prohibitively expensive.

Especially in these rural areas, community leaders need as many tools as possible to meet today's broadband needs -- as well as future connectivity demands. This week's ruling means that, in some states, communities have less options to accelerate the deployment of next generation networks.

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