FCC Releases Full Text of Order Preempting State Laws Limiting Municipal Broadband

by Davis Wright Tremaine LLP
Contact

On March 12, 2015, the Federal Communications Commission released the text of its order preempting provisions of North Carolina and Tennessee law that allow municipalities to provide broadband service but otherwise limit the geographic area they may serve and impose other conditions on their operations. As previously explained in our summary of the Commission’s press release and statements announcing the decision, the Commission relied on Section 706 of the Communications Act in holding that once a state authorizes municipalities to provide broadband, the state cannot limit their service areas. Although the decision is technically limited to preemption of the challenged laws in these two states, the Commission’s broad analysis calls into question similar or related provisions in 17 other states.

Legal Justification

Twice before the Commission has concluded that it does not have power under Section 253 of the Act to preempt state laws imposing outright bans on municipal telecommunications systems. In each instance, the reasoning was the same – Section 253 does not contain a “clear statement” of Congressional intent to disrupt the state’s inherent power to determine the extent of local governmental powers. Unlike Section 706, Section 253 explicitly allows federal preemption of both state and local laws that prohibit telecommunications competition, but in the earlier cases, both the Commission and the Supreme Court found that Section 253 is not a “clear statement” of congressional intent to interfere with a state’s control of its political subdivisions.

In affirming the Commission’s rationale in Missouri Municipal League v. Nixon, the Supreme Court confirmed the legal “assumption that federal legislation threatening to trench on the States’ arrangements for conducting their own governments should be treated with great skepticism, and read in a way that preserves a State’s chosen disposition of its own power.” Notably, three of the former FCC Commissioners who voted against preemption of the Missouri law voiced their strong opinion that municipal broadband would be good as a policy matter, but they had no power to preempt it under the prevailing Supreme Court standards. The current Commission spends much of the order explaining how important municipal provision of broadband is to further the goals of Section 706 of advanced telecommunications infrastructure investment and competition.

The only vestige of these prior decisions that survives in the Commission’s new order is the principle that the FCC may not preempt a state law that completely bans municipal provision of telecommunications or broadband service – the precise situation in the earlier cases that rejected preemption. But now, once a state allows municipal provision of telecommunications or broadband service, the Commission deems that municipality’s activities to be part of interstate commerce. As a consequence, the Commission concludes, the “clear statement” rule simply does not apply because “the issue before us concerns federal oversight of interstate commerce . . . not the inherent structure of state government itself.”

The Commission finds it has the power to preempt these state laws because it considers them to be “communications policy regulations, as opposed to a core state function in controlling political subdivisions.” Thus, if state law limits on the power of local governments can be characterized as “communications policy regulations” which interfere with investment in telecommunications infrastructure or competition, the FCC finds that it is free to preempt those laws under Section 706.

The Commission’s reasoning goes beyond known precedent on the authority of a federal agency to preempt state laws. Given the implications of the Commission’s decision, it is sure to be challenged in court.

Specific Laws Preempted

Although the Commission emphasizes that its order preempts only the provisions of these two state laws, it seems likely that similar laws in other states would be preempted absent some strong differentiating factor. 

The Chattanooga petition asked the FCC to preempt only a phrase in Tennessee law that authorized municipal broadband operation only “within its service area.” The Tennessee legislature has considered and rejected a series of bills in recent sessions that would have removed the geographic service limitation. The Commission took the issue out of the state’s hands, and granted Chattanooga’s request on grounds that the limitation stood as a barrier to the Chattanooga system’s further investment in the provision of broadband outside of its existing electric service area and as an obstacle to competition. 

In contrast, Wilson, North Carolina asked the FCC to preempt every section of a North Carolina law that allows municipal provision of broadband service subject to a number of conditions. The Commission did not strike down the entire statute, but preempted various subsections which it found to constitute barriers to infrastructure investment and broadband competition.

Among the provisions it preempted were a group the Commission referred to as “measures that raise economic costs.” These included a limit on the territory the municipality could serve; payments required “in lieu of taxes” to approximate those paid by private operators; and the imputation of capital costs, taxes, and other government fees a private company would incur in the same locality. The Commission also preempted a provision that prohibits municipalities from pricing service below cost – a concept well established in antitrust law governing private parties.

Within this category, the FCC further preempted a provision of North Carolina law that required the municipal system to impute to its own financial accounts the same pole attachment fees it charges to private operators for access to municipal utility poles. The Commission also preempted a second set of provisions of North Carolina law that it categorized as “level playing field” obligations. These included a prohibition on municipal cross-subsidization of the service with revenue from other sources – a common element in similar laws in other states. The Commission similarly struck down a provision giving private competitors nondiscriminatory access to utility poles, conduits and rights of way owned or used by the municipal utility, and a provision that gave the state public utility commission oversight of the municipal system’s operations.

Finally, the FCC preempted a set of measures in the North Carolina law it labelled “measures to impose delay.” This set of provisions addressed the processes required by the state for municipal entry into the broadband market, such as making public any feasibility study, business plan, or public survey of the proposal. Also preempted was a provision that required public hearings to assess whether the municipality should enter the business. The Commission even struck down a requirement for voter approval – one of the most fundamental tools of democracy – before the municipality can obtain new debt to pay for construction of a municipal communications system. The Commission concluded all of these provisions of North Carolina law constituted barriers to broadband investment and competition, and preempted them under Section 706.

If the decision survives, municipal broadband systems in North Carolina will appear to enjoy numerous cost advantages by virtue of their electric utility and government status, have the power to drive up the costs of private competitors, and be free to undercut private competitors with subsidized, below cost rates. Indeed, according to the Commission, municipal systems may not be held to nondiscrimination requirements or PUC oversight as a condition of state authority to provide competitive broadband service.

The Commission’s approach to municipal broadband also diverges from its decision in the Open Internet Order , where it encouraged private investment in broadband by extending pole attachment rights under Section 224 of the Communications Act to entities that provide broadband services only (e.g. Google Fiber), which previously were not “telecommunications carriers” qualified for protection under the Act. Those federal pole attachment rights do not cover municipal broadband systems. Yet the FCC ruled that North Carolina’s effort to address the federal gap by assuring private service providers nondiscriminatory access to municipal utility poles creates a barrier to investment and competition.

* * *

The provisions in Tennessee and North Carolina law that the FCC preempted are not unique to those states: similar provisions exist in the laws of many other states. The Commission’s willingness to characterize these state law limits on municipal broadband systems, including requirements for public participation and voter approval, as “communications policy” rather than core government functions poses a threat to any number of state laws regulating municipal communications activities. Indeed, taken to its logical conclusion, the Commission’s Order may present grounds for private companies to use Section 706 to challenge state and local laws imposing fees or other “measures that raise economic costs” and thereby impede investment in infrastructure and competition. We will advise of key future developments and the ensuing litigation.

Written by:

Davis Wright Tremaine LLP
Contact
more
less

Davis Wright Tremaine LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.