Court Setback for Municipal Competition

Scale_of_justice_2_newThe Sixth Circuit Court of Appeals in Cincinnati ruled that the FCC didn’t have the authority to overturn state limitations on municipal broadband. Specifically the case looked at the two FCC orders that would have overturned state restrictions for Chattanooga, Tennessee and Wilson, North Carolina to expand their municipal systems to serve customers outside of their base service territory.

While this ruling has only been to one court so far, I could foresee an opposite reading from another court on the same facts. This is one of those cases working in the gray areas where the court has to interpret the intent of a law, not just the specific language.

The specific issue at hand in these cases was whether the FCC had the authority to overturn the state prohibitions against broadband under Section 706 of the Telecommunications Act of 1996. In that Act the Congress had instructed the FCC and State Commissions as follows:

The Commission and each State commission with regulatory Jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment. (Bold emphasis is mine)

In that Act the Congress clearly told the FCC and State regulatory commissions to encourage broadband competition and to remove barriers to infrastructure investment. The judges in this case did not dispute that the FCC was tackling a barrier to infrastructure investment in their orders.

Interestingly, the court didn’t dispute any of the facts in the case. They recognized the benefits of fiber broadband and acknowledged that the areas where Chattanooga and Wilson want to build have no existing competition (or even any broadband). The court also recognized that the state laws in the two states were clearly barriers to infrastructure investment by the cities.

It would seem by accepting the facts presented by the cities that the court would then rule in their favor. But they didn’t and the court’s ruling boiled down to deciding that the FCC didn’t have a clear mandate to preempt state law under the authority of Section 706. The court says that the language in Section 706 is not strong enough to support preemption.

I guess it all comes down to an interpretation of language. Certainly the statute uses the word ‘encourage’ (instead of some stronger word). But the Act goes on to suggest that the FCC use the regulatory rules at its disposal (such as regulatory forbearance) to effectuate this encouragement. To me, a non-lawyer, that sounds like Section 706 is instructing the FCC to act, not just to passively encourage competition.

As is usual with these kinds of appeals, this case is not only an interpretation of the language that I’ve highlighted above. Various parties intervened in the case and argued that this was an issue of states’ rights versus federal authority. And I am sure that the politics and the underlying judicial philosophy on that larger issue had a lot to do with the decision.

The FCC is an interesting federal agency because they regularly preempt states’ rights on telecom issues. The most recent such decision was one that ordered state and local calling rates from prisons be reduced in line with federal rate guidelines. The agency has a long history of overriding state Commissions to bring state telecom rules in lines with FCC policies.

I’m not enough of a lawyer to understand if there is an obvious appeal to the Supreme Court, or what the likelihood of winning such an appeal might be. But I have followed appeals of FCC decisions for a long enough time in my career to see that this ruling is not strong enough to be the final word on the issue. I am sure we’ll see this topic come up again.

 

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