Back in February 2015, in the same meeting at which the FCC reclassified broadband providers as Title II common carriers, the Commission also approved an order preempting certain state laws restricting municipal broadband providers.  In June, the D.C. Circuit upheld the Commission’s Title II reclassification.  Yesterday, the Sixth Circuit vacated the muni broadband order.

A bit of background.  In recent years, municipalities around the country have begun to offer broadband service, sometimes (though not always) through city-operated power plants or other utilities. Proponents of muni broadband argue that such service brings much needed competition to the often highly concentrated broadband market.  And indeed, as the FCC detailed in its order, there is evidence that the presence of a municipal broadband provider in an area has a beneficial effect on broadband prices and quality.

At the same time, a number of states have banned or otherwise placed restrictions on municipal providers of broadband.  Defenders of such laws point out that some muni broadband projects have become expensive boondoggles.  Proponents of muni broadband argue that the laws are the result of powerful lobbying efforts by incumbent ISPs like Comcast and AT&T.  The FCC’s order tried to steer a middle course, claiming a case-by-case authority to preempt particular state-law restrictions that in the Commission’s view did more harm than good.  For example, the order preempted North Carolina and Tennessee laws that, among other things, restricted the territorial boundaries of muni broadband providers.

Whatever the policy benefits of the FCC’s approach, it was clear the Commission had a tough climb legally.  To understand why, it’s important to understand what the FCC did not do, which is preempt state laws actually banning muni broadband altogether.  Instead, the Commission said that, if a state authorizes muni broadband but places restrictions on it, the FCC can step in and preempt those restrictions (or some of them).

The reason the FCC did not preempt state laws banning muni broadband completely is because a prior Supreme Court case, Nixon v. Missouri Municipal League, had said that there needed to be a “clear statement” from Congress in order to preempt state laws preventing municipalities from entering communications markets.  On appeal, the FCC argued that Nixon’s clear statement rule did not apply because it was only preempting restrictions on entities the state had, in fact, authorized to enter the market.  Although the Commission’s lawyers made a valiant go at it, that’s not the most intuitively appealing position.  After all, if a state has the absolute power to ban muni broadband, it seems like it should also be free to place restrictions on it.  And so the court held.  (The court also held that section 706 of the Telecommunications Act of 1996, discussed in a prior post, did not provide the necessary clear statement.)

As for what’s next, I think it’s likely that the FCC will not ask for Supreme Court review.  One source of potential hesitance arises from the fact that no Department of Justice lawyers appeared on the FCC’s Sixth Circuit brief.  Although the FCC has independent litigating authority, usually DOJ also appears on its briefs, and the fact that it did not here have led some to speculate that the Department did not think very highly of the Commission’s legal high-wire act.  My understanding is that the FCC could choose to petition without DOJ support, but obviously its chance of success would be lowered (and it would be risking a potentially awkward CVSG).  At the end of the day, the FCC might well conclude that going one-for-two at its big February meeting is good enough.