By Josh Long

An appellate court has overturned a Federal Communications Commission order that sought to preempt state laws restricting or prohibiting municipalities from expanding their broadband networks.

The decision by the U.S. Court of Appeals for the Sixth Circuit marked a victory for states’ rights but a loss for FCC Chairman Tom Wheeler, who was seeking to foster broadband deployment in underserved areas.

The case pitted the FCC and two municipalities in Tennessee and North Carolina against the state legislatures and a national association representing state utilities.

“While we continue to review the decision, it appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina,” Wheeler said. “In the end, I believe the Commission’s decision to champion municipal efforts highlighted the benefits of competition and the need of communities to take their broadband futures in their own hands.”{ad}

Seeking to expand high-speed networks beyond their territorial boundaries, the Chattanooga, Tennessee’s Electric Power Board (EPB) and the City of Wilson, North Carolina petitioned the FCC to preempt the state laws’ restrictions.

The situation in Chattanooga illustrated the conundrum that FCC sought to solve. While neighboring communities outside of EPB’s 600-mile service area requested service, state statute only granted the municipality authority to offer cable, Internet and video services “within its service area.”

“The EPB’s surrounding communities allegedly constitute a ‘digital desert’ in which the Internet services are abysmal or nonexistent,” Circuit Judge John M. Rogers observed in the opinion nonetheless reversing the agency’s preemption order.

Wilson, a city established in 1849, told the FCC in its petition that it has received requests from government agencies, businesses and others in five counties to deliver services over its fiber-optic network.

In siding with the municipalities and voting to preempt the state laws, the FCC had reasoned preemption would support the Telecommunications of 1996 by supporting broadband investment and promoting competition in the market.

But Tennessee argued “the FCC’s order violates the Constitution by infringing on the state’s right to determine the boundaries of its political subdivisions,” Rogers noted.

The panel of appellate judges disagreed that the FCC had been …

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… granted the authority under the 1996 Telecom Act to issue its preemption order.

District Judge Joseph M. Good of the Eastern District of Kentucky joined Rogers in the opinion, and Circuit Judge Helene N. White agreed with the decision, in part.

“The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities,” Rogers 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 § 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 National Association of Regulatory Utility Commissioners (NARUC), which intervened in the case in opposition to the FCC’s order, lauded the court decision.

“Municipal governments are creations of state law, and their powers exist only because a state has given them a right to exercise them,” said Travis Kavulla, president of the organization. “For the FCC to attempt to remove the restrictions states have imposed on the operation of city governments was an offense to the Constitution, and I am delighted that the Court reversed the decision.”

The case may not be over, since the FCC could seek an en banc review by the entire Sixth Circuit panel of judges.

FCC Commissioner Michael O’Rielly, a Republican who voted last year against the FCC’s preemption order, said the court ruling “heartened” him.

“The FCC clearly tried to invoke imaginary authority and finally was called out by a court for doing so,” O’Rielly said.

“Contrary to some beliefs,” the commissioner added, “municipal networks are not panaceas to solving any lack of ubiquitous broadband, but instead unfairly distort the marketplace.”