Can the FCC clear the way for cities to build broadband? Legal fight heats up over agency’s powers

Gripes about internet speed are common across the country, but in certain towns the complaints have a special twist: the fact that local utilities want to offer faster broadband infrastructure, but state governments — at the apparent behest of the telecom industry — have passed laws to prevent them from doing so.

In response, cities in Tennessee and North Carolina are asking the [company]FCC[/company] to sweep aside those state laws in favor of a national mandate to promote high-speed broadband connection. And on Friday, a bevy of interest groups filed comments to explain why the agency does or doesn’t have the legal authority to help local governments.

The outcome of the dispute, which turns on a single legal phrase, will not only determine the future of broadband in cities across the country, but will also be a test of strength for the FCC as it tries to regulate powerful cable and broadband providers.

The fight in a nutshell: small cities and big corporations

The recent dispute at the FCC involves petitions from Chattanooga, Tennessee (pop. 170,000) and Wilson, North Carolina (pop. 49,000). Both places have ambitious plans for their municipal utilities to build up their local broadband infrastructure, in part to attract companies that rely on fast internet to create jobs and commerce.

State laws, however, restrict the state utilities from expanding their services to outlying areas. Supporters of the laws say they ensure that taxpayers don’t get stuck with boondoggle infrastructure projects, and ensure that private companies aren’t forced to compete with government-backed rivals.

Skeptics, however, claim the state laws are no more than favors bought and paid for by telecom giants like AT&T. In this view, the corporations have shoveled money to state legislations to cut off potential competitors, while leaving many small-sized cities with pokey internet speeds.

The skeptics might have a point: in a withering investigative report this week, the Center for Public Integrity described a pattern in which [company]AT&T[/company] and others browbeat local utilities into halting projects intended to give residents better internet. The pattern involves spending heavily on state-level lobbying, threatening towns with expensive lawsuits and leaning on politicians to pass laws that handcuff local utilities.

The city utilities have countered that they’re competent to run broadband services, and that their investments in fiber-related projects would not only result in faster internet options but spur the large corporations to invest in regions they would otherwise have ignored.

The FCC will now have to decide whether to step in and sort out the dispute by invoking federal power to override the state laws. The stakes are high, especially since not everyone believes the agency has the power to roll back the laws in the first place.

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Fate of future broadband speeds turns on a few words

FCC Chairman Tom Wheeler has left no doubt about what he thinks the answer should be: he has stated publicly that cities like Chattanooga should be able to build out their own broadband powers if they so choose. In particular, he has also used one word — “preempt” — that represents a legal dagger aimed at the state laws.

Wheeler’s word choice stands for the idea of “preemption,” a concept expressed in the Supremacy Clause of the U.S. Constitution that, simply put, means the federal government can sweep aside state laws under certain circumstances. In some cases, like copyright or immigration, the federal preemption power is unambiguous, but in others it is not.

The FCC’s right to overrule state telecoms law is one example of an area in which the federal preemption power is unclear. In 1996, for instance, the Supreme Court held 8-1 that the FCC was right to refuse to invoke powers of pre-emption to strike down a Missouri law that barred local governments from offering telecommunications services (see Todd Giffen’s remarks in the comments below).

This time around, the public utilities and their supporters claim the FCC can use a different source of authority than the one it unsuccessfully relied upon in the Missouri case. Specifically, they point to Section 706 of the Communications Act, which instructs the agency to promote broadband adoption, in part by removing obstacles to infrastructure investment.

So what’s the legal issue? As it turns out, the public utilities’ argument for FCC power turns on the meaning of a four-word phrase: “or other regulating methods.”

That phrase amounts to a catch-all description at the end of a list of other items — such as “price cap regulation” — that Congress included in the law to give the FCC the tools it needed to eliminate barriers to broadband infrastructure investment.

According to the Fiber to the Home Council, a nonprofit group that advocates for better bandwidth resources, the phrase provides the FCC with the legal power it needs to preempt the state laws in Tennessee and North Carolina. The group, whose legal submission to the FCC is embedded below, also claims that the agency’s power is even more apparent in cases where there is “a history of federal presence” — such as, the group says, building broadband.

Opposing groups, however, are not so sure. Conservative organizations like the Free State Foundation claim the 706 argument is a sham, and that states clearly have a right to pass laws limiting municipal utilities without federal preemption. The group also points to the Supreme Court’s decision in the Missouri case to argue that states are only prohibited from restricting private companies, not public ones.

Federal Communications Commission (FCC) Chairman Tom Wheeler listens during an open meeting to receive public comment on proposed open Internet notice of proposed rulemaking and spectrum auctions May 15, 2014 at the FCC headquarters in Washington, DC. The FCC has voted in favor of a proposal to reform net neutrality and could allow Internet service providers to charge for faster and higher-quality service. (Photo by Alex Wong/Getty Images)

Showdown and what happens next

For now, it’s too hard to predict the outcome of the petitions since everyone involved — including the FCC — is on untested legal ground here. Given the earlier comments of FCC Chairman Wheeler, it seems likely that the agency will go ahead and tell the cities of Chattanooga and Wilson that they can disregard the state laws and expand their broadband offerings.

If this occurs, AT&T or one of its allies will almost certainly sue the city utilities and trigger a larger court case over the scope of the FCC’s preemption powers. The final outcome resolution will likely take a year or more. (In the meantime, the FCC will receive replies to the now-closed initial round of comments at the end of September, and then make a decision on what the city utilities can do.)

While they wait for the legal rumblings to shake out, many citizens of small and mid-sized cities are likely to chafe at the absence of proper internet infrastructure. Some may also wonder why the same state lawmakers that are regularly willing to let taxpayers foot the bill for money-losing private stadiums now want to obstruct the growth of broadband that is becoming the backbone of many businesses.

There may, however, be an upside to all the legal wrangling. According to Heather Gold, president of the Fiber to the Home Council, it may induce the AT&T and other telcos to hedge their bets by expanding broadband.

“Incumbents have always pushed back on municipal deployments,” she said. “But we’ve seen that just the threat of municipal utilities building their own enables more fiber deployment.”

This story was updated on Tuesday at 9:30am ET to clarify that the FCC refused to pre-empt the Missouri statute in the Nixon case, and to refer to the discussion in the comments below.

FTTH Comments in Support of Muni Petitions

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