Treasury also encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities.
Note that the key verb in that statement is ‘encourages’, meaning that the statement is not actionable and doesn’t commit that funding is to used in this manner. But this is the first time that such language has ever been incorporated in anything federal related to broadband. In the past, the language was just the opposite. Past federal grants have always been aimed at existing carriers and they always threw in a footnote mentioning that the money could also be used by entities like municipalities.
This language has to be ultimately coming from the White House – I can’t think of any other reason why it’s in the document. The new administration has said that it’s in favor of using every tool in the toolbox to get broadband everywhere, including enabling municipalities to find local broadband solutions.
In 2015, the FCC under Tom Wheeler tried to expand the ability of municipalities to provide broadband. The FCC issued an order that overturned state laws in Tennessee and North Carolina that prohibited the municipal ISPs in Chattanooga, TN, and Wilson, NC from expanding broadband outside city boundaries. The FCC was testing the waters on its authority to overturn state restrictions on municipal broadband. In a rejection of the FCC’s authority to preempt states, the FCC order was overturned by the Sixth Court of Appeals in August 2016.
The FCC is in an even weaker position today to try something similar since the Ajit Pai FCC eliminated Title II regulation of broadband. An FCC that doesn’t directly regulate broadband is in no position to challenge state broadband rules. Even if the current FCC was to restore Title II authority or something similar, it’s doubtful that the agency can challenge state laws based upon the 2016 ruling.
This means that the only challenge to state restrictions on broadband will have to come from Congress. There has been talk of adding this provision to several of the bills running through the current Congress. But Congressional action on the issue would set off a set of court challenges, which are almost automatic anytime that federal government tries to usurp state laws of any kind.
I hope that any cities or counties reading the Treasury guidelines don’t think that the Treasury has granted local governments the ability to offer retail broadband. The Treasury statement is not much more than wishful thinking for municipalities in states that don’t allow municipal broadband. A municipality that is in a state that restricts municipal participation in broadband must follow the state laws when using this latest federal funding. A city can’t directly build fiber infrastructure if the state doesn’t allow it; a municipality can’t offer broadband services where that’s prohibited.
I think municipalities probably still appreciate this gesture from Treasury because it signals a change in regulatory philosophy at the federal level. But neither the White House nor any of its agencies currently have the power to grant the right to municipalities to offer broadband. It’s an interesting sentiment in this case, but not much more.