FCC Loses It’s Muni Broadband Test Case. What Comes Next?

Sometimes the law is clear. Sometimes it isn’t.

 

While that seems obvious, we often miss it in policy debates. But it is rather important to keep in mind when reading Tennessee v. FCC. In a case released August 10, the Sixth Circuit reversed the Federal Communications Commission (FCC) 2015 Order preempting restrictions the state of Tennessee and the state of North Carolina imposed on their municipalities with regard to providing broadband service. While Commissioners Pai and O’Reilly are certainly entitled to their victory laps, it is equally important to applaud Chairman Wheeler and Commissioners Rosenworcel and Clyburn for doing what they believed was both the right policy and the right call under the law. The petitions from the City of Wilson, NC and from the Electric Power Board of Chattanooga, TN raised novel questions of law. The FCC’s Order was a test case. On a very narrow and murky legal question, the FCC majority bet wrong — at least according to the 6th Circuit.

 

For myself, not surprisingly, I thought the FCC majority had the better argument. But I can’t say the Sixth Circuit was utterly wrong in holding the contrary. The limits of the Tenth Amendment and preemption power are generally unclear. The interpretation of Section 706 (47 U.S.C. 1302) as providing authority to the FCC remains relatively undefined. Based on the language in the dissent in Verizon v. FCC, which inspired munibroadband proponents to bring the petition and support the case, it looked like a good shot. Similarly, the facts of the case — already existing munibroadband providers, clear demand for them to expand their services, a willingness to expand service but for the relevant state laws restricting service — made this a favorable fact pattern.

 

Unfortunately, sometimes the best bet in the world doesn’t pay off. But that is why people bring test cases — to try to resolve questions in the law that move policy in the direction those bringing the case favor. It is neither an overreach nor illegal for Petitioners to bring test cases, to have an agency resolve them, and for the agency and those who brought the petition to the agency to defend them in court. To the contrary, this is how the rule of law works under the principles of the common law.

 

I stress this point because whether you bring conservative test cases to challenge laws and test limits or progressive cases to challenge laws and test limits — or cases that don’t easily fit in the conservative/progressive paradigm — we want agencies to actually address these cases in a timely fashion. As I remarked many years ago, when the FCC’s efforts to encourage competition in the 700 MHz auction resulted in a mixed result, we need  agencies to be willing to actually address novel circumstances and try new things because otherwise the law will ossify and we lose one of the most important elements of administrative law, the ability of an agency to respond to changing circumstances and provide a suitable record for Congressional action where necessary.

 

Bellow, I give a brief recap of the case and a forecast on what comes next for the muni broadband movement . . .

 

I’ve been talking about the fight between muni broadband and incumbent providers for over a decade now. The idea of municipal broadband is a fairly straightforward one. A local government, for whatever reason, decides to build a broadband network or contribute assets to it or enter into a contract with a non-incumbent provider either because the locality doesn’t have a local provider or because they don’t like the local service or to attract business or whatever. A lot of people like this idea for various reasons (I recommend reading Susan Crawford and Chris Mitchell on the subject if you want to know more). I personally believe that every locality ought to have the right to do what it pleases in building out local infrastructure, but that any locality needs to weigh such an investment with care, and determine whether it makes sense or what flavor of public broadband makes sense for that localities specific purposes (compare, for example, the full soup-to-nuts residential triple play ISP of Lafayette, LA, with NYC contract with LinkNYC for local hotspots to get a sense of the potential variety of “muni broadband” systems).

 

Needless to say, incumbent providers don’t like competition at all, let alone competition provided by local government. Incumbents have therefore pushed laws at the state level barring localities from providing commercial broadband service, or putting in lots of barriers making it really difficult for localities to provide service. At this point, about 20 states have some kind of restriction on the books.

 

Legal Background.

 

Incumbents getting state legislatures to pass laws protecting them from competition of any flavor are about as old as incumbents and state legislatures. When Congress passed the Telecom Act of 1996, it sought to encourage competition by explicitly prohibiting any state (or local) government from “preventing any entity” from providing telecom service. (47 U.S.C. 253) It did not take long for some local governments, unhappy with their local monopoly provider and eager to build new infrastructure to attract tech businesses, started looking at providing their own municipally owned telecom service. Incumbents responded predictably by getting states to pass laws preventing local governments from providing telecom service.

 

Local governments invoked Section 253. The FCC and the courts generally held that Section 253 did not apply to laws restricting municipalities from providing service, despite the very broad language of Section 253 preventing states from prohibiting “any entity” from offering telecom service. When the 8th Circuit disagreed and said that “any entity” includes municipalities — striking down a Missouri law that prohibited local governments from offering telecom services — the case went to the Supreme Court. There, in Nixon v. MO Municipal League, the Supreme Court agreed with the FCC and other jurisdictions that Section 253 did not give the FCC authority to preempt state prohibition on local government providing telecom services.

 

Enter the 10th Amendment.

 

The reason provided by the Supreme Court — and all the other courts besides the 8th Circuit — has nothing to do with the Communications Act and everything to do with our concept of “federalism.” To recap your high school civics class, we start with the states as sovereign entities. In 1787, the states have a constitutional convention and come up with a stronger federal government which makes the federal government supreme over state governments. But state governments are still “sovereign.” We even pass the Tenth Amendment as part of the Bill of Rights to emphasize the point.

 

How precisely this works, a federal government whose laws are the “supreme law of the land” and a collection of “sovereign” states, is a bit tricky and has varied a lot of over time. For purposes of understanding this case, all you need to know is that the Supreme Court reconciles this conflict with something called the Gregory Rule for the case Gregory v. Ashcroft, 501 U.S. 452 (1990). The Gregory Rule stands for the proposition that when Congress intends to intrude on a core responsibility of a sovereign state, rather than a mere economic activity, Congress must very explicitly state that it intends the law to apply.

 

Essentially, this is a rule of Constitutional avoidance. You duck the 10th Amendment question (whether Congress can intrude on state sovereignty in this specific instance) by presuming Congress wanted to avoid a 10th Amendment conflict unless it specifically says “yes, this applies to states acting in their traditional sovereign capacity of doing something very sovereign.” In Gregory, the question was whether the Age Discrimination in Employment Act (ADEA), which prohibits mandatory retirement age, prohibited MO from imposing a mandatory retirement age on state judges. Answer: No, because the ADEA did not explicitly say it applied to the state setting terms for critical offices traditionally under the control of state government and essential to performing the function of sovereign states, i.e., who gets to be a judge.

 

In Nixon, the Court extended the Gregory rule to the management by a state of its local government. Yes, local governments are independent incorporated entities for most purposes. But they are also, in legal theory, an extension of the state. The Nixon court held that how a state manages a locality — including whether or not the locality can get into a particular line of business like providing telecom services — is a core sovereign state thingy like determining what qualifications you need to be a judge. Therefore, because Section 253 did not explicitly say that “any entity” includes a local government, Congress has not been specific enough under the Gregory Rule and Section 253 did not prohibit states from restricting their local governments from providing telecom.

 

So Why Did The FCC Try Again?

 

Needless to say, lawyers do not give up easily. For ten years, I and other lawyers developed legal theories to try to distinguish Nixon‘s holding on telecom and find a way for the FCC to preempt state laws prohibiting muni broadband. (We also tried to get Congress to pass a law specifically prohibiting states from limiting the ability of localities to provide broadband, but this went nowhere.)

 

In 2014, however, the case for FCC authority to preempt the restrictions on muni broadband got a significant push from the D.C. Circuit’s decision striking down the 2010 net neutrality rules, Verizon v. FCC. There, the D.C. Circuit found that Section 706 of the Telecom Act of 1996 (47 U.S.C. 1302) provided the FCC with a source of authority to promote broadband deployment and remove barriers to deployment of broadband infrastructure. The dissent disagreed with the breadth of authority conferred on the FCC by Section 706, but agreed that it provided some authority. In footnote 2, dissenting Senior Judge Silberman highlighted state laws prohibiting municipalities from offering broadband as the “paradigmatic barrier to infrastructure investment” that Section 706 authorized the FCC to eliminate.

 

So with even the dissenting judge saying that Section 706 gives the FCC the power to preempt state laws prohibiting muni broadband, and the other two judges saying that Section 706 was even stronger, this looked like a fairly broad endorsement that Section 706 provided sufficient authority even under the Gregory Rule to preempt state anti-muni laws.

 

Constructing the Best Test Case.

 

A lot of people get confused on what happened next. The FCC did not do a rulemaking or a general effort to preempt. A general rulemaking to preempt all barriers to muni broadband in all cases have presented a fairly huge jump in FCC exercise of authority. Remember, while the legal theory looked good, it was still just a theory based on one court case interpreting the relevant statute. Both the FCC and muni broadband advocates understood that to provide the best test case for the legal theory that Section 706 provided sufficiently explicit authority to preempt state laws, the record would need to be as favorable as possible and as consistent as possible with the purpose of Section 706 (encouraging deployment of broadband infrastructure) as possible.

 

So advocates found the two best cases. The Electric Power Board of Chattanooga is a muni corp created by the city of Chattanooga from back in the day when munis played a role in bringing electricity as a basic service to all Americans (which, unsurprisingly, was resisted at the time by private power companies). EPB started offering telecom and Internet access service in certain sections of Chattanooga before TN passed its anti-muni law in 1999. EPB is grandfathered, but can’t expand. These days EPB offers 1 gig residential broadband at one of the cheapest rates in the country. Neighboring communities keep asking EPB to expand service, and state legislators for the various neighborhoods keep trying to pass a law that would allow EPB to expand its footprint. But the law remains in effect and EPB cannot expand. The City of Wilson, NC also provides fast, affordable broadband. When North Carolina passed its anti-muni in 2011, it effectively stopped Wilson from expanding its footprint, despite considerable demand from the surrounding community to expand service.

 

So both Wilson and Chattanooga had lots of evidence that if the FCC preempted the state anti-muni laws as applied in their specific circumstances, it would lead to an immediate investment and deployment in infrastructure. The sole barrier to the invest and deployment that Section 706 explicitly directs the FCC to “encourage” and affirmatively instructs the FCC to take steps to achieve if it finds broadband deployment is not happening in a “timely fashion” were the state laws. It created the best test case possible for the FCC to test whether Section 706 provided sufficiently explicit authority to preempt state law as narrowly as possible to achieve the specific objective directed by Congress.

 

Sixth Circuit Rules — Still Not Specific Enough.

 

Which brings us to TN v. FCC and the Sixth Circuit’s decision. The court decided on a very narrow legal question. When the Gregory Rule requires a statute to state an intent to preempt a sovereign state core function with specificity, does that specificity mean “you need to be real specific about what authority you give the agency and real specific about the job Congress wants it to accomplish so that the agency can decide the best way to achieve the job is preempting a state restriction on a municipality?” Or does the Gregory Rule mean that Congress has to explicitly say “we are explicitly preempting the right of the state to govern its municipality in this instance, bring on the 10th Amendment question as to whether we can do that under the Commerce Clause!”

 

Here, the Sixth Circuit ruled for the second interpretation. To meet the “specificity” of the Gregory Rule, as applied in Nixon, Congress must explicitly say “we are preempting a state’s traditional sovereign power to regulate a municipality in this very limited case under our Commerce Clause power to regulate interstate communications. Suck it, states!” Simply telling the agency very specifically “we want you to preempt any barriers to infrastructure deployment and promote competition” isn’t relevant. The “specificity” in question is the expressed intent to preempt a state sovereign activity, not specificity as to the task Congress generally intends the agency to accomplish.

 

Even as someone who actively supported the FCC on this, I can’t say that’s an obviously wrong interpretation. I think the Sixth Circuit should have deferred to the agency’s judgment (it declined to do so for reasons I won’t get into here). But again, I can’t say the Sixth Circuit’s ruling on the deference question was crazy or obviously wrong. It was a test case, brought for the purpose of testing what looked like a very solid legal theory. But sometimes you lose test cases. That’s just a function of the law.

 

What Happens Now With FCC Authority?

 

The FCC, or either Chattanooga or Wilson, can seek rehearing en banc by the full 6th Circuit or seek cert. from the Supreme Court. But this isn’t really a good case for either sort of appeal.  While it conflicts with Footnote 2 of the Verizon dissent, that doesn’t really rise to the level of a circuit split. Additionally, the impact on existing reality is fairly minimal, since it maintains the status quo. I think there is enormous opportunity cost, but it’s not like anyone is losing service they have or that laws that weren’t in effect are now in effect. The basic grounds for appeal would be “we think the Sixth Circuit misapplied the Gregory Rule,” which is not a terribly compelling grounds for either the en banc 6th Cir. or the Supreme Court to grant review, I’m skeptical that anyone will even petition for review.

 

If muni broadband advocates think they would do better in the DC Circuit, they can try to generate another case. Find another good fact pattern test case. Petition again. The FCC will reject on the basis of the 6th Circuit decision. Petitioners can then appeal the rejection of their petition to the D.C. Circuit and see if the D.C. Circuit is up for generating a circuit split. That is, after all, how we ended up with Nixon v. MO Municipal League after a number of other courts had decided that Sec. 253 did not apply to anti-muni laws. But that’s a pretty expensive bet to make, and if advocates did get a better decision in another circuit it would almost certainly end up back in the Supreme Court. So that is two rather intense and expensive dice rolls with the odds looking a lot worse than they did before the 6th Circuit made its decision.

 

The reality is that looking for the FCC to preempt anti-muni laws is probably off the table, at least any time soon. Some new development or clever legal theorist may come up with another theory that seems worth trying. But under the current law finding authority for the FCC to preempt state anti-muni laws has come to a dead end for the foreseeable future.

 

Fortunately, however, that does not mean that the 20+ states with anti-muni laws are permanently screwed. It just means that it will take concerted work by lobbyists to change the law.

 

Back to Organizing!

 

If folks want the option for their town or county to provide some kind of broadband service, it means either changing local law or changing federal law. I know, that’s no small task — especially when you have the incumbent cable and telco industry lobbying to keep these anti-competitive laws in place. But the task is not hopeless either. The industry got these laws in place before broadband became critical infrastructure in our daily lives. It’s much easier to keep anti-competitive laws in place when people think of broadband as a luxury rather than something their kids need to do homework. Additionally, as the muni systems that are out there prove their value, voters in states will repeatedly ask “why can that guy three blocks away get gigabit broadband while I’m stuck with crap broadband at twice the price?”

 

And we are seeing the pendulum start to swing. On state ballot initiatives, in state legislatures, and even to some degree in Congress, we are seeing more of a recognition that government has an important role in providing critical infrastructure and promoting competition. As with most things worth doing in policy land, it’s disheartening that it’s an uphill fight to get to rational policy. The idea that states should tell local people in local communities that they can’t invest in their own local infrastructure runs against traditional Republican ideas about small government and local control as it does against traditional Democratic ideas about the responsibility of government to provide basic services and promote competition. But that’s how things work in public policy sometimes. We can either give up and take what we get, or keep pushing until we change things for the better.

 

Stay tuned . . . .