The Question of Preemption: The FCC Considers Lifting Municipal Broadband Restrictions

One of the most controversial issues the Federal Communications Commission will face this fall is whether it can and should preempt (i.e., invalidate) state laws that restrict their municipalities from constructing and operating their own broadband networks. This post does not address the wisdom of these projects, but rather whether the FCC has the legal authority to preempt those state laws.

Twenty states have enacted laws restricting municipalities from building their own broadband networks. While some localities and public interest groups have long advocated preemption, the topic gained great currency early this year from an appeals court decision. In Verizon v. FCC, decided in January, the U.S. Court of Appeals rejected most of the FCC’s efforts to impose network neutrality rules under Section 706 of the Telecommunications Act of 1996. However, while the Court found that the particular regulations at issue were beyond the FCC’s power, the decision nonetheless gave an expansive reading of the statute. Moreover, in his opinion concurring in part and dissenting in part, Judge Lawrence Silberman cited “state laws that prohibit municipalities from creating their own broadband infrastructure to compete against private companies” as a “paradigmatic barrier to infrastructure investment” to which Section 706 might be applied.

Proponents of preemption argue that, while Section 706 does not explicitly mention preemption, it is an unusually expansive provision which gives the FCC ample authority to preempt state laws that inhibit broadband deployment and competition. Opponents of preemption argue that a 2004 Supreme Court decision sets a very high bar for FCC preemption, and that Section 706 cannot meet that test.

As the Benton Foundation recently explained, the cities of Wilson, NC and Chattanooga, TN have petitioned the FCC to preempt laws prohibiting them from expanding their existing municipal networks. (The laws were passed after the cities built their networks, but restrict them from expansion.) The FCC moved with unusual speed to solicit public comment on the petitions, and FCC Chairman Wheeler has indicated that he is inclined to act favorably, and promptly, on them.

Article I, Section 8 of the Constitution gives Congress the power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” State laws which directly interfere with federal regulation of commerce are therefore invalid on their face. In other instances, Congress expressly or implicitly gives a federal agency the affirmative power to invalidate, or “preempt,” a state law. Since state prohibitions on municipal broadband are not invalid on their face, the question then is whether Section 706 of the Telecommunications Act of 1996 gives the FCC the power to preempt them.

Section 706 reads in pertinent part as follows:

a) In General: The [Federal Communications] Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

(b) Inquiry: The Commission shall, within 30 months after the date of enactment of this Act, and regularly thereafter, initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) and shall complete the inquiry within 180 days after its initiation. In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission's determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.

(Emphases added.)

Thus, Section 706(a) empowers the FCC to take action to “promote competition in the local telecommunications market,” and to use “regulating methods that remove barriers to infrastructure investment.” Moreover, the courts have upheld the FCC’s interpretation that Section 706(b) contains an additional, independent mandate; since the FCC has previously found that broadband is not “being deployed to all Americans in a reasonable and timely fashion,” it also has not just the power, but the duty, to “take immediate action to accelerate removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”

Since neither Section 706(a) nor Section 706(b) specifically mention preemption, the first question which arises is whether the state laws interfere with “competition in the local telecommunications market,” constitute a “barrier to infrastructure investment,” or interfere with “reasonable and timely” deployment of broadband. Preemption supporters say that municipally-owned broadband brings high speed service to many who would not otherwise have it, and that by offering competition to existing networks, it provides incentives for the private sector to improve and expand service and to reduce prices. Thus, they say, state prohibitions interfere with “timely” deployment and impede competition.

Assuming that the FCC concludes that its Section 706 powers can be employed, the next question is whether preemption is one of the “methods” that the Commission can utilize to achieve its goals. The broad and unqualified language of Section 706(a) covering “other regulatory methods” and the emphatic command of Section 706(b) to “take immediate action” seems to give broad powers to the FCC. It is important to note in this regard that should the FCC decide that Section 706 empowers it to use preemption of state anti-municipal broadband laws as a “method,” its interpretation gets the benefit of doubt from a reviewing court. Under the so-called “Chevron Doctrine,” courts defer to an agency’s construction of the statutes it administers. This is the case even where the ambiguity relates to the FCC’s jurisdiction to act at all; just last year, in City of Arlington v. FCC, the Supreme Court of the United States held that the FCC receives deference in deciding whether the Communications Act gives it a particular power.

Opponents of preemption base their case on a 2004 decision of the Supreme Court, Nixon v. Missouri Municipal League. In that case, the Court construed a different statute, Section 253 of Communications Act. That measure specifically permits the FCC to preempt state laws that prohibit “any entity” from providing “telecommunications services.” The issue presented to the Supreme Court was whether a municipality is an “entity” within the meaning of Section 253. The Court concluded that it is not such an “entity,” so that the Section 253 does not allow the FCC to preempt state laws restricting municipalities from offering such services.

If the Court had simply focused on the term “entity” in Section 253, the Nixon decision would not have had a significant impact on the interpretation of Section 706, which does not use that word. However, the Court’s analysis swept broadly. It said that if Congress had intended “any entity” to include municipalities, it would have to have been much more explicit. Even though Section 253 contemplated that there should be some preemption, Congress didn’t specifically say that municipalities were “entities,” and “neither statutory structure nor legislative history points unequivocally to a commitment by Congress to treat governmental telecommunications providers on par with private firms.” Moreover, the Court said that Section 253 “would not work like a normal preemptive statute if it applied to a governmental unit.” The opponents of preemption say that Nixon teaches that preemption requires a clear Congressional intention, and neither the words nor the history of Section 706 support preemption.

Opponents also argue that the legislative history supports their view. They point to the fact that the Senate version of Section 706(a) expressly contemplated that the FCC could preempt action of “state commissions,” but that this language was removed from the final version of the law as adopted by the House-Senate Conference Committee. This suggests that the Conference Committee considered, and rejected, preemption as one of the “methods” available under Section 706(a).

Opponents of preemption make one more argument. They note that Section 706(a) refers to both the FCC and “each State commission with regulatory jurisdiction over telecommunications services....” Allowing the FCC to preempt the actions of state commissions seems inconsistent with a statute that is supposed to empower those bodies, and as the Court said in Nixon, “[i]t would often accomplish nothing . . . and it would hold no promise of a national consistency.”

Those who favor preemption point to a major difference between Section 253, considered in the Nixon case, and Section 706. The former provision deals with “telecommunications services,” and the latter deals with “advanced telecommunications services.” The difference is important, because in Section 706 Congress was dealing with technology that was nascent in 1996 and was trying to contemplate future developments. As the D.C. Circuit said in its Verizon v. FCC decision,

[S]ection 706(a)'s legislative history suggests that Congress may have, somewhat presciently, viewed that provision as an affirmative grant of authority to the Commission whose existence would become necessary if other contemplated grants of statutory authority were for some reason unavailable.

(Readers who are following the debate over whether the FCC should adopt Network Neutrality rules will know that one of the issues the FCC is considering is whether to “reclassify” broadband service as a “telecommunications service.” Doing so would raise the question of whether the Supreme Court’s reading of Section 253 would then preclude preemption of what would then be a “telecommuncations service.” The answer is that it would not, since Section 706 is an independent grant of authority which is not limited by Section 253.)

With respect to the language about “state commissions” in the Senate version of Section 706, proponents argue that the FCC is not being asked to preempt action of state commissions, such as the North Carolina Utilities Commission, but a state law which actually restricts the power of such commissions.

There is one final, practical problem for preemption advocates. While the FCC evidently intends to move promptly on the preemption issue, it is hard to predict how quickly the issue will be resolved in the Courts. It is highly unlikely that any new projects could be approved and funded, much less built, until the judicial cloud is removed. For that reason, it will be a long time before consumers in much of the country can benefit from municipally-provided broadband.

Andrew Jay Schwartzman is the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation (IPR).

By Andrew Jay Schwartzman.