Potential FCC Examination of State Municipal Broadband Laws Raises Concerns

The pronouncement raised questions of how much authority the FCC actually gets from Section 706 of the Communications Act, which directs the agency to remove barriers to broadband buildout. In his separate opinion, Judge Laurence Silberman said the directive to promote competition in the local telecom market could be used for different measures than net neutrality. One such “paradigmatic barrier to infrastructure investment,” Silberman said, is “state laws that prohibit municipalities from creating their own broadband infrastructure to compete against private companies.” Wheeler cited that language as an “obvious candidate for close examination” by the commission as it looks for “opportunities to enhance Internet access competition” (http://fcc.us/1c2RBzv).

"I have long advocated that the FCC use its Section 706 authority for the reasons it was created -- to remove barriers to infrastructure deployment,” said Christopher Mitchell, director of the Telecommunications as Commons Initiative at the Institute for Local Self-Reliance. Removing state municipal barriers is “well within the FCC’s authority,” Mitchell said. “Preemption is a power that used to be used wisely and rarely. However, in this case, the FCC could possibly preempt state laws that are preempting local authority -- so the net effect is to remove preemptions of power. This would restore decision-making at the most accountable layer of government -- the local layer where elected officials are very close to those they govern."

Telling local governments they can’t build fiber networks is clearly a barrier to infrastructure development, Mitchell said. “The only question is whether the courts will still agree when the cable and telephone companies challenge the FCC for doing so,” he said. Mitchell said such a challenge is practically certain, “because they take every opportunity to reduce the possibility of competition for their services, no matter what entity could create it."

"That Judge Silberman provided this example is especially noteworthy because he is often hostile to FCC claims of authority,” said James Baller of the Baller Herbst Law Group, which has done work on behalf of municipal broadband projects. Silberman’s words are especially important since he otherwise took issue with the majority “for going too far in discussing the scope of the FCC’s authority under Section 706,” Baller told us.

Constitutional Concerns Raised

The FCC can use its newfound Section 706 powers as long as it doesn’t violate the Constitution, but trying to preempt state laws or local ordinances might get the agency into trouble, said TechFreedom President Berin Szoka. Whether federal preemption is constitutional depends on whether the law contains an “unmistakably clear” statement of Congress’ intent “to trench on the States’ arrangements for conducting their own governments,” Szoka said, quoting language in the Supreme Court case Nixon v. Missouri Municipal League. That 2004 case upheld the right of states to prevent municipalities from providing telecom services. “If the FCC loses on preemption, that’s the end of the matter,” Szoka said.

Observers disagree on how much of a barrier Nixon is. To the American Legislative Exchange Council, the case clearly applies. It’s a clear rejection of federal law preemption of state prohibitions on telecom services, wrote Seth Cooper of the Free State Foundation on ALEC’s blog Thursday (http://bit.ly/1cyH8PX). “According to the Court’s majority, ’there is, after all, no argument that the Telecommunications Act of 1996 is itself a source of federal authority granting municipalities local power that state law does not,'” the blog entry said, quoting the decision.

"There is a lot of misunderstanding about what happened” in Nixon, said Harold Feld, senior vice president at Public Knowledge. The court said a general statute prohibiting states from preventing “any entity” from providing telecom service does not “automatically” stop states from regulating themselves by prohibiting localities from offering services, Feld said. The opinion, however, “said nothing about FCC preemption under its own authority,” he said. It’s “pretty clear” the FCC has authority to override state laws in this area, Feld said. The entire point of City of Arlington v. FCC (CD May 21 p1) was that the agency has authority to interpret its own statute and find preemption power, he said.

Extensive case law, many FCC dockets and even an executive order touch on various aspects of the preemption question, said Geoffrey Manne, executive director at the International Center for Law and Economics. “There is not, to my mind, anything like a clear answer on the question,” he told us. “Suffice it to say if the FCC tries to use 706 to preempt state laws there will be a lawsuit."

Wheeler is “clearly” signaling he believes there’s not enough competition in the local broadband market, said Phoenix Center President Lawrence Spiwak. It’s interesting that Wheeler is pushing for municipal broadband as a potential way to enhance competition, Spiwak said. “We've never been opposed per se to municipal broadband,” which might make sense in areas where the private sector doesn’t want to serve, he said; it’s another thing if private competition already exists.

Econometric Analysis Needed?

The Phoenix Center has found that municipal broadband prices can sometimes be higher than prices at private ISPs (http://bit.ly/1mPncJN). And the idea that adding municipal broadband will increase competition doesn’t always hold true, Spiwak said, because it can “upset the equilibrium” in how many providers each market can provide. That might mean “somebody’s going to go out of business,” he said. But Wheeler seems to assume municipal broadband is a good idea, Spiwak said. “I don’t know if he’s read our study, and just doesn’t like it, and is going to ignore our results."

"The FCC should at least have to produce some econometric analysis of the net effects of allowing government-run competitors on private investment,” Szoka said. Even if the FCC gets deference on how it uses Section 706 -- which it “almost certainly” will -- “that doesn’t mean it would be wise -- or in the spirit of Congress’ intent -- to focus solely on allowing more government-run broadband,” he said.

The problem, said Manne, is the idea of deference “simply doesn’t require anything approaching even ’some econometric analysis.’ If the ‘evidence’ in the [net neutrality order] filtered through the court’s infamous ’triple cushion shot’ is enough to satisfy the requirement,” then “just about anything” will satisfy that requirement, Manne said.

There’s “no question” the FCC can preempt state laws blocking municipal broadband; the question is “whether it makes sense from a policy perspective,” Feld said. To Feld, it does: Where providers are deploying services, there isn’t much interest in municipal fiber. Interest exists mainly where providers are offering “lousy service or none at all,” he said. “In a number of cases, the threat of munifiber forces providers to start getting serious about providing service."

"The commission would be wise to tread very carefully in this area,” said Jeffrey Silva, senior policy director at Medley Global Advisors. “Federal-state disputes can become volatile and mushroom into long-running conflagrations with heavy political overtones whose outcomes are unpredictable and sometimes have unintended consequences. Rather than charging forward with a prescriptive bright-line rule, Chairman Wheeler might better be able to achieve his desired objectives by strategic use of the bully pulpit and perhaps targeted federal intervention in any given case. This seems like an area ripe for potential litigation, if not a Pandora’s Box still largely closed at the moment."

No Municipal Flood Said Likely

Local regulators and advocates differed in interviews Friday on the idea of FCC intervention. National Association of Telecommunications Officers and Advisors Executive Director Steve Traylor praised the FCC. Concerns that undoing restrictive state laws would “open the floodgates” on municipalities starting networks are unfounded, he said: Many cities would never consider offering their own broadband, due to the expense or expertise needed. But for communities that do not have broadband and face little prospect of getting it from a private provider, a municipal network is one tool that should be looked at, he said.

"The real question is: If the state imposes tougher restriction and the community has no broadband, is the state going to step in and do anything for those communities? What’s the alternative? Industry, if you're so concerned, come and serve us or listen to what our needs are."

"The FCC will quickly find that the issue of government competition against private business is intrinsically a state/local issue,” said Marcus Trathen, counsel to the North Carolina Cable Telecommunications Association by email. “At least in states where cities are creatures of the legislative process, the argument that the state legislators have no role in ensuring that decisions about governmental forays into the private market are made in an environment with protections for taxpayers and the public at large doesn’t hold water."

In Utah, where the Legislature has debated two municipal broadband bills this year, the idea of FCC intervention drew varying responses, based on the commenter’s stance on municipal broadband. Royce Van Tassell, vice president of the Utah Taxpayers Association, which has supported bills criticized as being anti-municipal broadband, blasted the idea of the FCC getting involved. “It’s very troubling that the federal government might tell states how to regulate cities in their state,” he said. “The reasons states have passed [anti-municipal broadband] laws is that they were not comfortable with municipalities getting involved in a fast-moving area with competition. They were not confident about success and they don’t want cities to be exposed."

The Taxpayers Association supported a bill this session that would have required cities where the Utah Telecommunications Open Infrastructure Agency (UTOPIA) operates its fiber network to join the agency (http://1.usa.gov/MJ6dxU). The agency is a consortium of 11 cities that have banded together to build the network. A second bill, SB 190 (http://1.usa.gov/1nU1Ziy), supported by the Taxpayers Association would prevent cities from levying a utilities fee for UTOPIA service. Van Tassell said the House bill appears dead this year, focusing the debate on the Senate bill.

"Whether or not the FCC has the authority largely comes down to how you interpret the Commerce Clause,” said Jesse Harris, founder of freeutopia.org, an advocacy group in support of UTOPIA. Since municipal networks are almost always going to be within state borders, most strict constructionists wouldn’t accept it as a legitimate action affecting interstate commerce, he said.

Municipal broadband advocate Pete Ashdown applauded any FCC efforts to “get incumbents out of meddling with cities’ and towns’ decisions to do broadband.” The “feds have waited too long and stayed out too long,” said Ashdown, president of Salt Lake City’s ISP XMission and former Democratic candidate for U.S. Senate. “I want them to do more getting funds for municipal broadband and promoting it.”