The U.S. Court of Appeals for the Sixth Circuit has struck a major blow to the FCC’s efforts to remove barriers to broadband service and promote competition in broadband markets. In State of Tennessee v. FCC, the court invalidated an FCC order preempting laws in Tennessee and North Carolina that limited the ability of municipalities offering broadband services to expand beyond their current service areas. It held that the FCC required a “clear statement” from Congress under the Communications Act authorizing it to exercise such preemptive power, and absent such a statement, the FCC could not interfere with state oversight of municipal broadband providers. This decision creates a serious impediment to FCC Chairman Tom Wheeler’s plans to increase competition in broadband markets across the United States, and it limits the FCC’s authority where state governments have already made decisions regarding geographic service areas. This update describes the Tennessee case in more detail and the extent to which this decision will impact the FCC’s efforts to regulate state and local broadband markets going forward.
Background
The Tennessee and North Carolina legislatures both enacted laws limiting the expansion of municipal broadband providers beyond their defined service areas. Tennessee provided that municipalities operating an electric plant can offer cable, video and Internet services but only within the service area of the electric plant. North Carolina similarly placed geographical limitations on municipal broadband networks, but it also raised the cost for such networks through an assortment of regulations and attempted to “level the playing field” with private broadband providers. Both sets of laws were challenged before the FCC by state municipalities that operated successful broadband networks under state law that had increased competition. The petitioners asked the FCC to intervene and preempt the Tennessee and North Carolina statutory geographic limitations on expanding their municipal broadband services through an exercise of the Commission’s statutory mandate to remove barriers to broadband service and to promote competition in the telecommunications market.
The FCC granted the petition and struck the relevant parts of both state laws. The Commission asserted that Congress gave it broad authority over telecommunications, particularly under Section 706 of the Telecommunications Act of 1996, and the ability to preempt state laws where necessary to advance the Commission’s statutory goals. The FCC also rebuffed counterarguments that it could not exercise such preemptive power without explicit authority from Congress.
The Sixth Circuit’s Decision
In a 2-1 decision authored by Judge Rogers and with Judge White dissenting in part, the Sixth Circuit invalidated the FCC order for lacking clear authority from Congress. Relying extensively on the 2004 Supreme Court decision in Nixon v. Missouri Municipal League, 541 U.S. 125, the Sixth Circuit emphasized that “[w]hat the FCC seeks to accomplish through preemption is to decide who--the state or its political subdivisions--gets to make . . . choices” over how broadband should be regulated, including discretionary issues of expansion, rate setting and the timeliness of rollout of services. Any attempt by the federal government to reorder the decision-making structure of a state and its municipalities “trenches on the core sovereignty of that state.” And the FCC can only preempt a state from making such decisions rather than its political subdivisions when Congress has the power to allocate state decision making, and Congress is very clear that it is doing so. Rejecting the FCC’s attempts to distinguish Nixon, the court concluded that Congress has not so clearly interposed federal authority between states and municipalities with respect to broadband service, and that “the force of the clear statement rule … makes the intent of Congress clear in this case: [Section] 706 does not authorize the preemption attempted by the FCC.” It thus reversed the FCC’s order preempting the Tennessee and North Carolina laws.
Implications
Republican Commissioners Pai and O’Rielly, who both dissented from the FCC’s municipal broadband order, were quick to laud the decision and its broader impact. Commissioner Pai, who had cited Nixon in his dissent (as noted by the Sixth Circuit), characterized the decision as a “big victory for the rule of law and federalism,” expressing hope that it would lead the FCC to take a more modest approach to broadband policy in the future. Commissioner O’Rielly stated that the “FCC clearly tried to invoke imaginary authority and finally was called out by a court for doing so” and opined that “[c]ontrary to some beliefs, municipal networks are not panaceas to solving any lack of ubiquitous broadband, but instead unfairly distort the marketplace.”
In response, Chairman Wheeler also issued a statement explaining that the FCC would “consider all our legal and policy options” following the decision, adding that it appears to halt progress in growing community broadband services and competition. He then encouraged states to repeal such “anti-competitive broadband statutes.” Chairman Wheeler’s initial remarks thus suggest that the FCC may focus on policy rather than legal options to help build community-backed broadband networks.
While the decision clarifies the relationship between federal and state broadband regulations, its reach may not extend far beyond the status quo. For one thing, the Sixth Circuit was careful to narrow the issues underlying its decision to whether the FCC can restrict a state’s ability to legislate limitations on a municipality’s geographic service area. Unlike the dissenting Commissioners, the Sixth Circuit did not question the public benefits related to existing municipal broadband networks in Tennessee and North Carolina or in allowing such municipalities to expand coverage, and this decision likely will have little effect on the underlying policy debates around the operation of such municipal networks. The decision also left open the ability of states to make legislative decisions supporting and expanding such operations, and it expressly declined to address numerous other arguments on appeal, including whether Section 706 provides the FCC any preemptive power at all.
Finally, the full impact of this decision may depend on the upcoming election results, with a Democratic administration more likely to follow the FCC’s current roadmap to strengthen community-backed broadband networks. By contrast, a Republican administration may seek a more restrained role for the FCC in state affairs and align more with the Sixth Circuit and dissenting commissioners in supporting state rights. In addition, if the Democrats take control of Congress, they could have an opportunity to give the FCC the clear preemptive authority it lacked here.
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