The long winning streak of FCC Chairman Tom Wheeler ended on August 10, 2016, when the Sixth Circuit Court of Appeals in Cincinnati sided with North Carolina and Tennessee in upholding the authority of states to pass laws that restrict municipalities from offering broadband internet services. The decision was a major defeat for the Chairman and the two other Democrats on the Commission because for the first time limits have been set on the Commission’s use of section 706 of the 1996 Telecommunications Act to advance broadband services. It is also a big victory for state rights.  

Here is the background for the decision:

On February 25, 2015, the FCC released an Order preempting state law in Tennessee and North Carolina to authorize local municipalities in those states to build out their own broadband networks outside of their local jurisdictions to compete with ISPs and cable companies. The agency used as its legal justification section 706 of the Act, claiming this section permitted it to support the advancement of advanced services to the public, including “remov[ing] barriers to infrastructure investment.”

The decision was immediately appealed by Tennessee and North Carolina, but could have also been appealed by 18 other states that have enacted similar restrictions. Appellants claimed that the language in section 706 was not specific enough to enable the Commission to preempt states rights whenever it deemed it necessary, even for increasing the availability of advanced services such as broadband. If the Court had sided with the FCC, the Commission would have gained virtually unlimited power over broadband development.

The Tennessee and North Carolina lawsuits were consolidated into one case at the Sixth Circuit Court of Appeals in Cincinnati, a Court that is known to lean right. In its ruling, a three judge panel stated that needed to be specific language in section 706 to allow the FCC to preempt state municipal arrangements.

Any attempt by the federal government to interpose itself into this state–subdivision relationship therefore must come about by a clear directive from Congress, and the FCC can only pick the decision maker here if there exists a clear statement to do so in § 706 (U.S. Court of Appeals for the Sixth Circuit, Case Nos. 15-3291/3555, August 10, 2016 Decision, p. 18).

And the Court found no such language existed.

Section 706 does not contain a clear statement authorizing preemption of Tennessee’s and North Carolina’s statutes that govern the decisions of their municipal subdivisions. Section 706(a) instructs the FCC to utilize “measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.” Subsection (b) is a similar but broader instruction—it directs the FCC to “remov[e] barriers to infrastructure investment and . . . promot[e] competition in the telecommunications market.”  “Remove barriers to infrastructure investment” is unclear regarding whether it applies to public and private infrastructure investment or only private infrastructure investment. “Infrastructure,” by itself, is not specific to the public sphere. Furthermore, nowhere in the general charge to “promote competition in the telecommunications market” is a directive to do so by preempting a state’s allocation of powers between itself and its subdivisions (Id. at p. 21).

The FCC is likely to appeal this decision. Since it was decided by a three judge panel, the Commission could request the entire Court to review its Order by filing an “en banc” request. However, those requests are rarely granted and since the Court primarily consists of Republicans, the Commission is likely to lose even if the request is granted.

The Commission is more likely to appeal the decision to the U.S. Supreme Court. The Sixth Circuit Court has had more of its decisions overturned by the High Court than any other appeals court. Moreover, if Hillary Clinton becomes president, she will most probably appoint a left-leaning justice likely to side with the Commission. That would provide a 5-4 majority at the Supreme Court for justices appointed by Democratic presidents and increasing substantially the chance the decision is overturned. 

There is one factor not in the Commission’s favor that could hurt an appeal. In the original appeal to the Sixth Circuit, the FCC was not backed by the Department of Justice (DOJ). Without that support, the Supreme Court would presumably be less likely to take the case. We will see.   

Finally, it is important to note that this is a particular case in which it is easy for one to sympathize with the Commission’s intent. Authorizing municipal governments to provide broadband services to consumers who are not served by private companies or who are paying exorbitant rates would seem to make sense. However, government intrusion into markets tends to distort competition over time and the capital for broadband infrastructure is not free, it must be paid by taxpayers. If broadband is important enough for the government to ensure all Americans have access to it, then let Congress specifically say so.  

 By: Andy Regitsky, CCMI