The legal battle against one of the least reported, but potentially most significant FCC orders in recent times, continues to proceed under the radar. That is the lawsuit filed by the states of Tennessee and North Carolina against the FCC’s decision to preempt state law in order to permit local municipalities in those states to build out their own broadband networks outside of their local jurisdictions to compete with Internet service providers and cable companies. 

The significance of the final outcome in this case cannot be overstated.  Although the FCC’s Order directly applied to only Tennessee and North Carolina, at least 20 states have enacted similar restrictions on municipal broadband deployment that almost certainly would also be impacted. 

More importantly, the final outcome will impact the FCC’s ability to utilize its authority under section 706 of the Telecommunications Act to bring broadband and other advanced services to the public.  A court decision favorable to the FCC would extraordinarily increase the Commission’s authority to such an extent that a federal agency could presumably preempt state rights whenever it deems such an action necessary.  A decision against the FCC would bolster advocates of state rights and set a firm limit on the power of the Commission and other federal agencies.

Unfortunately, like almost all telecommunications issues these days, the positions in this case have become heavily politicized. The Municipal Broadband Order was supported by the three Democratic commissioners only, while the two Republicans decried the FCC’s increasing encroachment into state authority. Democrats and Republicans in Congress quickly chirped in taking their usual sides on the issue.      

Those arguing for removal of the broadband restrictions claim that these rules in the 20 states are the product of lobbying by incumbent broadband providers who do not want competition. However, states that have passed them say the restrictions are designed to prevent taxpayers from paying for failed projects, and that government-run networks amount to unfair, subsidized competition that stifles private-sector investment.

The Tennessee and North Carolina lawsuits were consolidated into one case at the 6^th Circuit Court of Appeals in Cincinnati with the Tennessee lawsuit heard first, so we discuss that case today. 

First some background:

On February 26, 2015, the FCC adopted its Municipal Broadband Order, which preempted Tennessee state law regarding the operation of municipal electric plants, including the Electric Power Board (EPB) of Chattanooga, an agency of the City of Chattanooga, created and controlled by the State of Tennessee. 

ECB stated in a press release:

There are vast areas of Tennessee, surrounding EPB’s electric service territory, where citizens and businesses have little or no broadband Internet connectivity.  For several years EPB has received regular requests to help some of these communities obtain critical broadband Internet infrastructure.  However, since 1999, while state law has allowed EPB to provide phone services outside its electric service territory, it has prohibited EPB from offering Internet and video services to any areas outside its electric service area.

In its Order, the FCC agreed with EPB and claimed that Section 706 of the 1996 Telecom Act provided it with the authority to preempt state rights to take actions that encourage the deployment of advanced services such as broadband to all Americans. 

In March, Tennessee appealed the decision, echoing the sentiments of the FCC’s Republican Commissioners. It argued that:

The FCC unlawfully inserted itself between the State of Tennessee and the State’s own political subdivisions. The State of Tennessee, as a sovereign and a party to the proceeding is aggrieved and seeks relief on the grounds that the Order: (1) is contrary to the United States Constitution; (2) is in excess of the Commission’s authority; (3) is arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act; and (4) is otherwise contrary to law (Tennessee Petition at p. 2).

The state made the same argument in its brief recently filed on September 18, 2015, asserting that “far from being a simple matter of preemption, as the FCC claims, this intervention between the State and its subordinate entities is a manifest infringement on State sovereignty," (ars technica report). 

The FCC’s reply brief is due on November 5.

While it is debatable whether section 706 permits the Commission to usurp the states and force them to allow city companies to offer broadband throughout a state, it is not debatable that both federal and state authorities need to find a way to work together to bring broadband service to rural end users. It is disgraceful that winning a battle between government agencies has become more important to some than actually helping the public.

By Andy Regitsky, CCMI