Tales of the Sausage Factory: It Depends What Your Definition of “Any” Is

Fans of municipal community networks were dealt a blow by a Supreme Court decision last month in Nixon v. Missouri Municipal League. The Supreme Court found that Congress needed to be more explicit in preempting the states when it said “the states shall not prevent any entity from offering telecom services” as part of the 1996 Telecom Act. Odd as it may seem to speakers of the English language, I think the Supremes may have got this one right.

I’m not happy about the result, but it makes a weird sort of legal sense. It also does satisfy one of my basic rules of advocacy: do not count on someone else to save your butt.

Broadband deployment has become the great cliche of telecom policy. According to enthusiasts, deployment of broadband will foster economic growth, bring us together, solve world hunger, and let you dowload all the porn you can whank to in real time. And, as usual, enthusiasts are: (a) utterly convinced the U.S. has fallen way behind everyone else on the planet; (b) convinced SOMETHING must be done, or other nations will eat our technolunch and we will all emigrate to India to find jobs at local Kwick-E-Marts; and (c) have a tremendously brilliant plan for how to accomplish this.

In 1996, Congress passed the Telecom Act of 1996 (catchy). One of the purposes of the Act was to replace the old “natural monopoly” regulation of telecom (where there was one tightly regulated local provider) with competition at all levels. In theory, cable, electric companies, and anyone else who could figure out how could now offer telephony services.

Now Congress was worried that incumbent telcos, with their long hooks into state public utilities commissions and state legislatures, would use their influence at the state level to get laws or regs passed to block competition from emerging. To prevent this, Congress explicitly preempted the states from legislating in this area. Section 253 of the Communications Act (47 USC 253(a)) prevents any state or local statute or regulation from prohibiting or having the effect of prohibiting any entity from providing any telecom service.

This was pretty explicit language. You might think “oh wow. Those incumbent telcos are in trouble now.” But ho ho ho. You underestimate teh ingenuity of incumbent telcos (don’t feel bad, so did most CLECs in the late 1990s).

Almost immediate, hundreds of plucky entrpreneurs rushed to deploy competing telecom services through a new technology called IPO. Sadly, there were still a few bugs in the new technology, and most of these systems never deployed off the NASDAQ.

Many municipalities got tired of waiting because, despite my sarcasm above, it turns out high-speed internet access is importnat for attracting and keeping businesses. Worse, while ILECs and CLECs and cable cos were rushing to deploy in major cities or affluent suburbs, a very large number of rural or midsize markets got left behind as uninteresting or presenting too costly a technical challenge.

(This, btw, is not a new problem in telecom. It’s one of the reasons we used to regulate it as a natural monopoly– to ensure that everyone in the country received service. When AT&T actually stood for American Telephone and Telegraph and was the monopoly provider of all telecom services, your high long distance rates subsidized the cost of connecting rural communities.)

But to get back to our story, lots of local municipalities started to decide that they didn’t want to wait forever to pay for overpriced T1 lines. This wasn’t only an issue of citizens wanting to download music files faster. It has become just about impossible to attract serious business development without a reliable broadband pipe to your community. (Anyone interested in municipal broadband efforts can get more data at muniwirelss.com or by reading this CNET article. )

Rather like the Grinch, ILECs dislike the thought of all those Whos down in Whoville getting broadband — from somebody else at any rate. So the ILECs started going to their captive critters in the state legislatures and expounding how it was _unfair_ for public entities to compete with private companies — even where the private companies were dragging their heels providing this service to the localities.

Not surprisingly, a number of state legislatures swallowed this and passed laws prohibiting municipalities from providing telecom services. The municipalities, reading the statute, complained to the FCC that this violated Section 253(a).

The FCC concluded that municipalities were not actually entities. Huh? Well, while states allow municipalities to separately incorporate as legal entites for contracting purposes, etc. municipalities are considered a part of the state. So, the FCC reasoned, if a state legislature tells another part of a state not to offer telecom, it is not a state preventing an “entity” from doing anythingy; it is the state exercising its authority to set statewide policy through legislation.

Oddly, from a legal perspective, this makes sense. The whole notion that incorporation creates a legal entity is pure legal fiction. Furthermore, we hold municipalities to the same standards as states for things like antidiscrimination, clean water act, etc. municipal oficials are treated teh same way as state officials generally for purposes of detrmining whether something is an “official” act. So, while it may seem whacky in English, it actually makes sense.

Yeah, absolutely true that it is a pure giveaway to

ILECs. But ya know what? Those citizens of the municipalities and of the rest of the state vote for those state legislators. If they don’t like the result, let ’em vote these guys out of office. Let local activists get this stuff on ballot referenda. As in so many cases, the courts will not save you from random acts of Congress or random acts of state legislatures, and there is no substitute for being politically active.

Anyway, various courts have reviewed this FCC determination over the years, and affirmed. Until it reached the 8th Circuit, which has a history of considering itself infinitly smarter than the FCC, and getting reversed in the Supreme Court. This proved no exception.

In Nixon v. Missouri Municipal League, the Supreme Court agreed with the FCC and several other circuit courts and held that “any” did not include municipalities. While the statute demonstrated a specific intent to preempt the states, meeting the first hurdle in the Court’s every increasing love affair with federalism, it did not display a specific intent to interfere with the state’s management of its own sub-units.

While I love municpal broadband as another competitor in a world that desparately needs them, I gotta say I think the Supremes were right on the merits. Congress is just not that eager to come between the states and the entities it regulates as part of itself.

This doesn’t mean the end of municipal broadband. Not by a longshot. But it does mean that any hope that the federal courts will overide the bad acts of state legislators are dead and buried.

Stay tuned . . . .