SUPREME COURT UPHOLDS STATE BANS ON MUNICIPAL TELCOS

The 8th Circuit’s ruling had put it in conflict with an earlier D.C. circuit opinion, which backed the FCC’s position that the term “any entity” wasn’t intended to include political subdivisions of a state but “appeared to prohibit restriction on market entry” by independent entities subject to state regulation. The Supreme Court noted that even as the Commission rejected preemption of the Mo. statute, it “denounced the policy behind the Missouri statute.” Statements by then-Chmn. William Kennard and then-Comrs. Gloria Tristani and Susan Ness had said barring municipalities from providing telecom services “substantially dis-served the policy behind” the Act, the court noted.

Referring to the observations by Kennard and other former commissioners, the court said the municipalities’ preemption argument on public policy grounds had an answer -- govt. participation in a business regulated substantially at the state level could turn into a “public providers’ weapon against private competitors.” The court said preempting state and local barriers to govt. entry into the market wouldn’t be an effective way to draw municipalities into the business. However, the issue at stake wasn’t the merits of municipal competition, it said.

The court said the 8th Circuit had based its analysis on the term “any entity,” undefined by the statute, and put much weight on the modifier “any.” While an entity could be private or public, there was no “convention of omitting the modifiers ‘public and private’ when both are meant to be covered,” the high court said. Nor was coverage of public entities reliably signaled by “any entity,” it said, because the term “can and does mean different things depending on the setting.” Writing the court’s opinion, Justice David Souter said: “We think that the strange and indeterminate results of using federal preemption to free public entities from state or local limitations is the key to understanding that Congress used ‘any entity’ with a limited reference to any private entity when it cast the preemption net.”

In dissent, Justice John Stevens said Sec. 253 barred states from withdrawing municipalities’ “preexisting authority” to enter the telecom business, but didn’t order that states affirmatively grant that authority or the means to carry it out. So if a state left the preexisting authority on the books and legislated a ban on telecom entry, the new statute would be preempted, Justice Souter said, and “presumably preemption would also defeat a state’s attempted withdrawal of municipalities’ authority by repealing the preexisting authorization itself.” In a concurring opinion, Justice Antonin Scalia agreed with the majority’s analysis that reading “any entity” to mean political subdivisions of a state would have “unhappy consequences.” However, he said he would reverse the appeals court’s decision on the ground that it didn’t provide “the clear statement which would be required by Gregory v Ashcroft… for a statute to limit the power of states to restrict the delivery of telecommunications services by their political subdivisions.”

Expressing disappointment at the Supreme Court’s ruling, attorney James Baller, who represents municipalities, took heart in the court’s observation that the decision wasn’t a ruling on the merits of municipal telecommunications. He said only a handful of states currently have barriers to municipal entry, and “we hope that other states will take to heart the FCC’s admonition that such barriers are unwise, unnecessary to achieve any legitimate state interest, and contrary to the purposes of the Telecommunications Act.”

Baller said some states had already reversed or relaxed barriers, and “we hope that this trend will continue as well.” “A victory in the Missouri case would have been helpful, but it is by no means the end of the road. The economic, educational, occupational, environmental, quality- of-life and other stakes for communities across the United States are so high, that they have no real option but to continue to press forward whenever and wherever necessary.”

FCC Chmn. Powell said the ruling brought “needed clarity to the legal landscape.” The FCC, he pointed out, had been subject to conflicting lower court decisions about the proper interpretation of Sec. 253. “The Court’s decision resolves that conflict and lifts the cloud of uncertainty.”

Sprint Vp Denton Roberts said the court ruling allowed good public policy. It left it to states to decide whether it was prudent to let municipalities risk their budgets by investing in a “risky” industry, he said, and states could decide whether to encourage private investment. “If states decide they want a competitive marketplace which encourages private investment, the overhang potential municipal entry would not encourage private investment,” Roberts said. Both incumbent and potential private competitors would be wary of investing in a municipality that wanted to do telecom business because of the potential for subsidization through taxpayer money, he said.

Saying the court decision was a setback to competition in the telecom market, the American Public Power Assn. (APPA) added many localities may want to seek congressional clarification on whether they were covered by Sec. 253(a). APPA Gen Counsel Richard Geltman said municipal utilities hoped state legislators would heed the FCC’s admonition not to create competitive barriers for municipal provision of telecom services. Welcoming the ruling, SBC said local govts. should focus on creating a “fair and equitable regulatory and legislative environment” for all communications companies rather than trying to compete themselves using public money. Calling the ruling a major victory for private telecom providers,” NTCA CEO Michael Brunner said local govt. entry into the telecom market “often works against the public interest and states should be free to impose restraints where they believe doing so would constitute sound public policy.”

USTA Senior Vp-Law & Policy Ed Merlis said the ruling was a victory for consumers and the economy. “Free markets are far more capable of delivering the many benefits of American innovation to our communities than heavy-handed government intervention.” With its tax and regulatory advantages, the govt. shouldn’t compete directly with private enterprise, he said. Studies show such an approach ultimately hinders development of a healthy market that can attract real investment and competition, he said.