More than a dozen states have laws that either prohibit counties and cities from operating their own broadband internet networks, selling service directly to consumers, or expanding their service behind a prescribed footprint. In 2015, the FCC voted to preempt two of these laws — in Tennessee and North Carolina — but this morning a federal appeals court says the FCC lacks the legal authority to do so.

As he hinted at during the oral arguments for this case back in March, Judge John Rogers of the Sixth Circuit Court of Appeals sees the FCC’s efforts as an attempt to reverse the local government pecking order.

“The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities,” writes Rogers [PDF] for the three-judge panel.

Counties and cities must follow state law, contends the court, and if that state law forbids local governments from building networks or selling access to a municipally owned network, then the FCC has no business to say otherwise.

The FCC had argued that it has a statutory obligation under Section 706 of the Telecommunications Act, which mandates the Commission “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.”

So when the cities of cities of Wilson, NC, and Chattanooga, TN, separately petitioned the FCC to preempt state laws that bar these cities from expanding their broadband service, the Commission ultimately concluded that the respective laws were too restrictive and primarily served to protect the interests of the cable and phone companies — who help to draft and push these laws through state legislatures — over consumers, many of whom have few choices for broadband.

“For scores of Americans, the choice of one, let alone multiple, broadband networks, is a dream deferred, and the promise of universal access remains unkept,” said FCC Commissioner Mignon Clyburn at the time.

Both North Carolina and Tennessee sued the FCC, arguing that the preemptions were effectively forcing the states to displace the structure of their own subdivisions — a violation of a core tenet of state sovereignty.

In the majority opinion for the Sixth Circuit, Rogers concludes that the FCC was overstepping its bounds because, while Sec. 706 might require the Commission to encourage broadband deployment, “no federal statute or FCC regulation requires the municipalities to expand.”

For the FCC to preempt the state laws, Rogers says it would need “at least a clear statement in the authorizing federal legislation,” and that the requirement set out in Sec. 706 “falls far short of such a clear statement.”

The opinion acknowledges that the municipal broadband providers involved here have provided benefits to consumers.

EPB, the name for the Chattanooga utility that sells broadband within its electrical service footprint but which is forbidden from selling service to communities outside that footprint, is noted as have “received uniform praise… led to job growth and attracted businesses to the area.”

Chattanooga schools and student in formerly underserved areas have also benefited from EPB’s broadband service, admits the court.

Additionally, notes Rogers, by introducing EPB to the marketplace, it’s resulted in lower rates and improved service from existing providers in the area. And counter to claims made by opponents of muni broadband who say it’s always a money-losing venture, the court points out that EPB “has also put more money in Chattanooga’s coffers, which contributed to Standard and Poor’s upgrading of the EPB’s bond rating to AA+ in 2012.”

Likewise in Wilson, NC, the introduction of the municipally owned Greenlight service has also been a net positive, offering more affordable service, providing free WiFi throughout the hole downtown area, and maintaining a positive cash flow.

“Each of the top seven employers in Wilson is a customer of the fiber network,” writes the court. “Local schools benefit from using Greenlight, as does the City’s main public library.”

Yet a North Carolina law prohibits Wilson from selling Greenlight outside its home county, even to locations that request it.

So why can the states decide if/when a city or county can sell broadband service? The court says that’s just the way the governmental food chain works.

“What the FCC seeks to accomplish through preemption is to decide who — the state or its political subdivisions — gets to make these choices,” writes Rogers. “The FCC wants to pick the decision maker for the discretionary issues of expansion, rate setting, and timeliness of rollout of services. It wants to provide the EPB and the City of Wilson with these options notwithstanding Tennessee’s and North Carolina’s statutes that have already made these choices.”

Rogers cautions that today’s ruling is limited in scope and should not be misread to imply that the FCC has no preemptive authority under Sec. 706.

In a statement emailed to Consumerist, FCC Chair Tom Wheeler says his office is reviewing the decision, but that it “appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina.”

“The FCC’s mandate is to make sure that Americans have access to the best possible broadband,” says Wheeler. “We will consider all our legal and policy options to remove barriers to broadband deployment wherever they exist so that all Americans can have access to 21st Century communications.”

Meanwhile, FCC Commissioner Ajit Pai — an outspoken advocate of telecom providers and one of the two commissioners to vote against preemption of the Tennessee and North Carolina laws — says “Today’s decision also represents an opportunity for the FCC to turn the page. Rather than wasting its time on illegal efforts to intrude on the prerogatives of state governments, the FCC should focus on implementing a broadband deployment agenda to eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks.”

EPB president David Wade says this issue isn’t just about his network, but about the need to find a way to connect Tennesseans who don’t have access to reliable or affordable broadband.

“Ultimately, Tennessee’s broadband gap is a problem for Tennesseans, and we need a Tennessee solution,” said Wade. “We will continue to work with the growing number of state legislators and grassroots citizens interested in removing the barriers that prevent EPB and other municipal providers from serving our neighbors in surrounding areas who have little or no access to broadband.”

Lawmakers in Tennessee have tried to pass legislation that would have made the FCC preemption unnecessary, but lobbyists from AT&T and Comcast successfully pushed the state legislature to kill the most recent attempt in March 2016.

Greenlight in Wilson, NC, says it is “disheartened” by today’s decision.

“We are currently reviewing specifics of the opinion and its full impact on our ability to continue service in areas such as Pinetops. The purpose of our request for preemption was to allow us to provide broadband infrastructure to all existing utility customers that desired access,” reads a statement from the company. “No matter the impact on services in Pinetops, the infrastructure will continue to provide its primary purpose of supporting continued smart grid deployments.”

Former FCC Chair Michael Copps — now a special adviser to Common Cause — derided the Sixth Circuit’s ruling, pointing out that the laws the FCC tried to preempt aren’t exactly the will of the people.

“Let’s be clear: industry-backed state laws to block municipal broadband only exist because pliant legislators are listening to their Big Cable and Big Telecom paymasters,” explains Copps. “These corporate providers invest in campaign contributions rather than in deploying high-quality broadband.”

He continues, “This decision does not benefit our broadband nation. Nor is it a good reading of the law. But if the FCC cannot set aside these bad laws, then the people must. We will redouble our state-by-state efforts to repeal these odious policies.”

Likewise, Deb Socia, Executive Director of Next Century Cities — a coalition of pro-muni broadband city leaders from around the country — calls today’s ruling a “blow to communities in Tennessee and North Carolina that were fighting for more accessible, affordable internet access for their residents, [that] will sadly prevent the expansion of each city’s broadband network to neighboring underserved communities.”

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