For Now, Municipalities Remain Subject to Anti-consumer Municipal Broadband Barriers Imposed by their States

Blog Post
Aug. 23, 2016

We all hate the high broadband prices brought on by a lack of competition among Internet service providers (“ISPs”). Unfortunately, earlier this month, the Sixth Circuit Court of Appeals overturned the FCC’s latest attempt to help consumers by removing state-level barriers to ISP competition.

At issue in the case was an FCC order that “preempted,” or removed, certain state laws in Tennessee and North Carolina that imposed barriers on municipalities attempting to build or expand their own broadband networks (rather than wait for private investment that may never appear). The two states appealed the FCC’s order, alleging the FCC lacked authority to preempt state laws in this area, an argument the court ultimately agreed with. (Disclaimer: I was legal counsel to both New America’s Open Technology Institute [“OTI”] and Senator Edward J. Markey separately.) This was an unfortunate defeat for the FCC, whose motives were laudable, and an unfortunate victory for large ISPs, who have resisted competition and have used every arrow in their quiver to crush it.

But how did we get to this point? This article describes why municipalities want to provide their own networks, and why so many states have enacted barriers to municipal broadband. It concludes with a discussion of the court’s decision and its impact.

Serving Un(der)served Municipalities

Universal service has long been the cornerstone of American communications policy. The concept has applied to the telephone network for nearly a century and now constitutes an important goal in broadband policy. For example, the FCC administers the “universal service fund,” which provides funds to low-income people to purchase broadband through the Lifeline program and broadband subsidies for schools and libraries through a program called “E-Rate”, among other things. Yet there are still areas of the country that are unserved and underserved by broadband, which is where municipalities can play a role.

Unquestionably, many municipalities are unserved or underserved by high-speed broadband, particularly in rural areas. Recently, the FCC determined that 39 percent of rural Americans — that’s 23 million people — lack access to broadband speeds of 25 Mbps download and 3 Mbps upload. Mid-sized cities can also be unserved or underserved. In that situation, a municipality can either wait until the area becomes economically viable for private investment, which is unlikely without a major population density increase, or it can take matters into its own hands and build the broadband network itself. Hundreds of municipalities of varying shapes and sizes have built various types of broadband networks with amazing success and economic benefit. tracks them here.

Municipal broadband networks have brought about untold economic and social benefits. OTI’s amicus brief went into great detail on successful rural and mid-sized municipal networks in Tullahoma, Tenn. (pop. 19,000), Longmont, Colo. (pop. 90,000), and Lafayette, La. (pop. 120,000). Each network brought with it economic prosperity by attracting companies and start-ups to their areas with promises of lightning-fast broadband connections. Longmont’s network attracted several companies to the area and lined up about three dozen business customers. Lafayette’s network helped create thousands of jobs with high average incomes. Tullahoma’s job growth outpaced that of Tennessee between 2009 and 2014 thanks, in part, to the high-speed municipal network.

Municipal networks also provide high speed broadband connections at low cost, which gives more residents across a broader range of income access to high-speed broadband. Chattanooga’s network charges a mere $70/month for 1 Gbps service and has relatively inexpensive 100 Mbps and 10 Gbps services; Tullahoma’s network charges $40/month for 30 Mbps, and $90/month for 1 Gbps services and has other tiers as well; Longmont’s network charges $50/month for 1 Gbps service for “charter” members (who sign up within the first three months of when the network is available), otherwise it is $100/month. Another network, in Sandy, Or. (pop. 10,000), charges $40/month for a symmetrical 100 Mbps service or $60/month for a 1 Gbps service. Even better, many of these networks led to lower rates and better services from the private ISP competition in the area.

States Enact Barriers to Municipal Networks

Rather than provide better service or compete with municipalities on price, ISPs have focused on a different tactic: legislating municipal broadband networks out of existence. ISPs have been largely successful in lobbying for new anticompetitive laws in 20 states, particularly through the efforts of the American Legislative Exchange Council and telecom lobbyists. Your state may have such restrictions, you can view a comprehensive list here and a map here.

The restrictions vary by state. Some common themes include the following: prevent buildout beyond the municipality itself; impose many onerous procedural requirements on municipalities (that do not apply to private firms) before it can begin building a broadband network, such as holding referenda where incumbents outspend community network advocates by up to 60:1; and impose financial burdens such as requiring municipal networks to impute ongoing phantom costs that the municipality does not actually incur, or prevent the municipality from using general treasury funds to build the network, which is not a common practice but nonetheless precludes one potential funding mechanism.

These laws effectively ensure that municipal networks do not present a competitive option to private ISPs and prevent many unserved towns from investing in their own infrastructure.

FCC Order and Subsequent Appeal

Two cities with unquestionably successful municipal networks, Chattanooga, Tenn., and Wilson, N.C., both received requests from people outside their service area to expand their service, but state law either prevented them from doing so or made it extremely burdensome to expand. Thus, the cities petitioned the FCC to remove the state law barriers to municipal broadband buildout. In 2015, the FCC granted these petitions and removed the state laws because they constituted a barrier to broadband infrastructure investment.[1]

Tennessee and North Carolina quickly appealed the decision, arguing that the FCC did not have the authority to preempt state laws in this area. The FCC, for its part, argued that it did have authority, primarily because communications policy is a federal issue, and the state laws were nothing more than a reflection of the states’ policy decision that municipal broadband networks should not compete with private ISPs. After a heated oral argument and a lengthy waiting period, the Sixth Circuit Court of Appeals overturned the FCC’s order on the very narrow grounds that the FCC lacked the authority to preempt the state laws at issue in this case. (For a more thorough legal explanation, see this article.)

What’s Next

This decision means little for the policy rationale behind municipal broadband networks and the general desire to remove barriers to those networks. The court explicitly did not question the FCC’s determination that more municipal networks would be a good thing. The networks in Chattanooga, Wilson, Tullahoma, Lafayette, Longmont, Sandy, and the myriad other areas with municipal networks will continue to benefit their residents. Unfortunately, those networks and others may experience difficulty expanding absent state law changes.

In July 2016, while the court was still writing its opinion, the Tennessee Department of Economic and Community Development issued a report describing the extensive municipal broadband barriers in Tennessee, stating “[t]he State of Tennessee could consider lifting administrative burdens and restrictions to broadband infrastructure investment to fostering a more open regulatory environment.” (Section B, p. 13 of Report) Thus, there appears to be some disconnect between the state legislature and the Department about what is best for the state and its residents.

Undoubtedly, it would have been preferable for the court to find in favor of the FCC in this case. But even so, we are better off for having the FCC engage in this debate; there is now a thorough official record of the successes and benefits of municipal networks. The FCC proceeding also led to more attention into how local governments can invest in their citizens.

This fight is far from over. It continues at the local level in the hopes of increasing competition and ensuring everyone has access to high-speed, affordable broadband.

[1] This argument was not new. In the 2014 network neutrality case, Verizon v. FCC, the dissenting judge remarked in a footnote that laws that burden municipal broadband networks were the “paradigmatic” example of a “barrier to infrastructure investment.” Verizon v. FCC, 740 F.3d 623, 660 n.2 (2014) (Silberman, J. dissenting).