February 26, 2015 is going to be a historic day for the FCC. Not only is the Commission expected to adopt net neutrality rules that would reclassify broadband Internet access as a telecommunications service and set off years of legal and political battles, it is also expected to follow the lead of President Obama and vote to preempt state law and permit local municipalities to build their own broadband networks to compete with ISPs and cable companies. Currently, nineteen states prohibit their local municipalities from building or owning their own broadband networks.

The genesis of this current ruling began when petitions were filed last July by the Electric Power Board in Chattanooga Tennessee and the government of Wilson, North Carolina. Both agencies requested the FCC to overturn state law and allow them to extend their existing gigabit networks.

FCC Chairman Tom Wheeler, joined by the other two Democrats on the Commission, apparently has concluded that the Commission has the authority to preempt state law on this issue. Specifically, the Democratic commissioners believe that section 706 of the Telecommunications Act, which permits the Commission to support the advancement of advanced services to the public, including “remov[ing] barriers to infrastructure investment,” is the guiding principle.

This belief was bolstered by the DC Circuit Court last year. Even while it rejected the FCC’s Net Neutrality Order, the Court affirmed the Commission’s section 706 broadband Internet authority. Moreover, in his dissent to the court’s decision, Judge Lawrence Silberman explained that section 706 permits the FCC to regulate many aspects of Internet access, including barriers that forbid local municipalities from building their own competing networks.

The Commission received additional public support on January 14, 2015 from President Obama. In a speech in Iowa, the President urged the FCC to strike down state laws so communities can build their own faster broadband networks.

As you might imagine, Republicans, who tend to be more supportive of state rights, have reacted very negatively to the proposal. Commissioner Michael O’Rielly, speaking at the American Enterprise Institute Luncheon on January 21^st, stated:

First, the Commission lacks authority to preempt these laws. Proponents rely on section 706 of the Telecom Act, but I have made clear that I do not think that the provision gives the FCC affirmative authority to do anything. Yet even if it could be read to authorize something, the provision still does not contain the clear statement of Congressional intent necessary to preempt state laws…Actually. Section 706 calls upon both the FCC and state commissions to act, so it is hard to see how this provision could limit state action.

Further complicating the situation is the fact that Congress is attempting to take control over Internet regulation before the FCC February 26 vote. The current (similar) bills being debated in the House and Senate would end all FCC section 706 authority over the Internet and presumably end any attempt by the Commission to preempt state laws forbidding city build broadband networks using section 706.

It is clear that if Congress does not act before February 26th, the Commission is going to vote to use section 706 to overturn state law. The Democrats, with a 3-2 majority and bolstered by President have made their intentions clear. Such a vote would set off yet another multi-court multi-year legal battle with an uncertain conclusion.

A Supreme Court with five conservatives would be expected to favor strong state rights. As Commissioner O’Rielly pointed out in his American Enterprise Institute speech, the Supreme Court has already ruled on a similar case:

[W]e’ve been down this path before. Certain municipalities argued that section 253 of the Communications Act preempted a state law barring its political subdivisions from offering telecommunications services. Even though section 253 contained preemption language, the Supreme Court held that there was no clear statement that Congress intended the provision to be used in that manner. In contrast, section 706 does not even contain preemption language.

I’m afraid that the rapidly growing intersection between partisan politics and the FCC is not going to bode well for the industry. At best, we are going to have a lot of politically decided issues subject to reversal when the opposing party gains power. At worst, the decisions will lead to bad economic policies that will hurt investment and employment and lead to years of litigation. The year is not off to a good start.

By Andrew Regitsky, CCMI