WASHINGTON — Amidst a round of regulatory defeats and a big court loss on net neutrality, cable ISPs scored a win with the 6th U.S. Circuit Court of Appeals’s smackdown of the Federal Communications Commission’s pre-emption of state laws limiting municipal broadband buildouts.

That court concluded that the FCC’s authority to promote advanced telecommunications deployment in a reasonable and timely manner did not extend to deciding whether a state or its municipal subdivision gets to control broadband buildouts, unless Congress has explicitly granted the FCC that power.

The states of North Carolina and Tennessee had asked the court to review the FCC order, which allowed muni broadband buildouts in the communities of Wilson, N.C., and Chattanooga, Tenn.

The fight is likely not over. The Democrat-controlled Wheeler FCC has pushed muni broadband, as has the Obama Administration and as likely will a Hillary Clinton administration if she wins the White House in November. Like President Obama, Democratic candidate Clinton has made affordable, ubiquitous broadband a campaign pledge and platform plank.

The court decision came just after two cable industry defeats in D.C. that stung: the appeals court backing of FCC net-neutrality rules and the FCC’s decision not to ban retrans blackouts or mandate arbitration.

FCC AMBITIONS

Asked if the FCC would seek a rehearing of the muni broadband case by the full court of appeals or, alternately, the Supreme Court, a spokesperson said the commission was still reviewing its options. It has 45 days from the decision date to seek en banc re-hearing and 90 days to appeal it to the Supreme Court.

“The FCC has sweeping ambitions for what muni broadband can be,” Scott Cleland, chairman of the ISP-backed NetCompetition, said.

The FCC spokesperson would not discount appealing the 6th Circuit panel decision. But even backers of the FCC’s pre-emption see challenging it in court as a long shot. Harold Feld, legal director for Public Knowledge, said that while either the FCC or the two cities that petitioned the FCC to pre-empt broadband-limiting laws can appeal in either venue, “this isn’t really a good case for either sort of appeal.”

The FCC asserted the state statutes at issue were barriers to broadband investment and competition that Section 706 of the Communications Act empowered the FCC to remove.

The court said not so. It ruled that Section 706 would have to explicitly say that Congress was giving the FCC the right to trump states’ sovereignty when it comes to laws affecting their subdivisions, and the section does not explicitly do that.

“Even as someone who actively supported the FCC on this, I can’t say that’s an obviously wrong interpretation,” Feld said.

ISPs have long argued the FCC was using Section 706 too broadly as an excuse to regulate broadband, particularly when many interpret the provision as a deregulatory one meant to clear away regs impeding broadband expansion.

SEC. 706 AUTHORITY UNRESOLVED

“The clear statutory context of what Congress’ intent was is the deregulatory 1996 Act,” said Cleland, who called Section 706 “transitional deregulatory authority.”

The 6th Circuit clearly signaled that pre-empting states’ rights was not within that broad authority, though that leaves other Sec. 706 authority questions unresolved.

The push for muni broadband will likely move to the states, and getting laws limiting broadband buildouts repealed. Feld said roughly 20 states have such laws on the books. “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,” Feld blogged last week.

The latter is a tough slog, so the most likely venue for pro-muni activism is getting states to reverse their prohibitions. Of course, ISPs will be pushing back, since they argue that those buildouts can be both unfair government-subsidized competition that discourages private investment or can leave taxpayers holding the bag when those government buildouts don’t pan out as advertised.

Wheeler, in opining on the court loss, said he would be happy to help an effort to repeal state laws. “Should states seek to repeal their anti-competitive broadband statutes, I will be happy to testify on behalf of better broadband and consumer choice,” he said.

The Federal Communications Commission was in full release mode Thursday (March 12), following its online posting of the final Open Internet order with the final order on pre-empting Tennessee and North Carolina laws limiting municipal broadband. Both were adopted on straight, and contentious, party lines Feb. 26. ().

The FCC majority said the agency had the power and the duty to step in when states were limiting broadband buildouts. The commission confirmed it did not have the power to overturn state laws preventing municipal broadband buildouts, but if those states allows such networks, the FCC can pre-empt laws that would limit them.

FCC chairman Tom Wheeler has tabbed those laws as the handiwork of incumbent Internet service providers trying to prevent competition.

The order grants the petitions by the Electric Power Board of Chattanooga, Tenn., and the City of Wilson, N.C., "to pre-empt certain challenged provisions of Tennessee and North Carolina law restricting municipal provision of broadband service."

The pre-emption only applies to those two cities, but others are expected to follow suit, and Wheeler has conceded this decision provides guidance on what the FCC would do with similarly situated municipal networks.

"We conclude, contrary to the thrust of some commenter claims, that pre-emption will remove barriers to overall broadband investment and promote overall competition in Tennessee and North Carolina," the order states, adding: "We conclude that the Tennessee and North Carolina laws are barriers to broadband infrastructure investment and that pre-emption will promote competition in the telecommunications market by removing statutory barriers to such competition. In other words, we find that removal of such barriers would likely result in more overall broadband investment and competition. We next turn to considering our statutory authority to act."

The FCC is justifying the move under its Sec. 706 authority to regulate if it concludes that advanced telecommunications is not being deployed in a reasonable and timely manner, which it has concluded in its recent reports to Congress on the state of high-speed broadband. "We read section 706 to permit the commission to preempt state laws that primarily serve to regulate competition in the broadband market," the order states.

The order points out that the FCC has taken other pre-emption actions to further competition, including state laws on deployment of wireless facilities or restrictions on competitive cable franchises.

Critics of the decision have 30 days after publication of the just-released final order in the Federal Register to either petition the FCC to reconsider the decision or take it directly to court. Look for one or both to happen.

As expected, the Federal Communications Commission voted 3-2 Thursday (Feb. 26) along party lines to pre-empt state laws in Tennessee and North Carolina that limit expansion of municipal broadband, citing its authority under the Sec. 706 mandate to insure advance telecommunications services are being deployed in a reasonable and timely manner.

The order pre-empts geographic limitations on the expansion of municipal broadband systems in Chattanooga, Tenn., and Wilson, N.C., though it does not compel any action on either. The decision does not affect laws in other states, but signals how the FCC might act on similar petitions, which are expected from other municipal broadband providers now that the FCC has fired this shot across the bow at state broadband laws.

The cities of Chattanooga and Wilson asked the FCC to pre-empt their limiting state laws, saying that without those restrictions, they are willing and able to expand their gigabit service to surrounding neighborhoods that had asked for it.

The state laws prevented expansion beyond the footprints of the utilities that are providing the broadband service, or as the FCC Wireline Bureau said, to a "sea of little or no" broadband options. The bureau said the decision was simply letting communities serve their neighbors.

The bureau pointed to the FCC's recent 706 finding that advanced telecom was not being deployed in a reasonable and timely manner, and the section's instructions to act immediately to try and rectify that.

Democratic Commissioner Jessica Rosenworcel, who enthusiastically supported the decision, likened municipal service to a broadband barn raising, an analogy that pleased FCC chairman Tom Wheeler. Commissioner Mignon Clyburn was also strongly supportive.

"Today’s vote seeks to draw a line in the sand once and for all by removing barriers to deployment and fostering competition consistent with the FCC’s core mission and values," Clyburn said.

"For scores of Americans the choice of one, let alone multiple broadband networks, is a dream deferred, and the promise of universal access remains un-kept," she added, leaving many in "digital darkness."

Clyburn pointed out that at one time both Republicans and Democrats supported bills to "block states from restricting local governments’ ability to provide Internet service," notably, the Community Broadband Act of 2005. She also noted that essentially the same bill has been reintroduced, this time by Democrats only. "The only thing that has changed is the lack of bipartisan support."

Commissioner Ajit Pai dissented from the decision, saying flatly that the FCC did not have the authority to pre-empt. He called the decision unlawful and odd.

"Judicial precedent makes clear that the FCC simply does not have the power to do this," Pai said. "In taking this step, the FCC usurps fundamental aspects of state sovereignty. And it disrupts the balance of power between the federal government and state governments that lies at the core of our constitutional system of government."

Pai said he was not taking any position on any municipal broadband project, but was simply saying -- though in a lengthy dissent -- that the FCC did not have the authority to do what it was doing, and dissented.

"The FCC does not have the legal authority to override the decisions made by Tennessee and North Carolina," he said. "Under the law, it is up to the people of those two states and their elected representatives — not the Commission — to decide whether and to what extent to allow municipalities to operate broadband projects. Today’s order is therefore unlawful."

Fellow Republican commssioner Michael O'Rielly, in his stinging and lengthy dissent, called the FCC's reading of Sec. 706 authority distorted and said the agency was using it arrogantly to rewrite state laws; that the decision was legally infirm and bad public policy; that the overly broad restrictions would pre-empt voting requirements and meeting requirements; that the order was hostile to states; that it seemed no restriction would seem to survive the FCC's "unvarnished skepticism"; and that an unintended consequence could be that states pre-empt municipal broadband altogether rather than limit it, since the FCC has recognized it can't pre-empt those laws, only ones that limit it once it is allowed.

Additionally, O'Rielly said the FCC appeared to be using Sec. 706 as carte blanche for regulation.

Wheeler, in his statement on the item, said it was a broadband truth that you can't say you are for broadband and then turn around and endorse limits on who can offer it and you can't reduce barriers to broadband investment and then erect them. That dog won't hunt, he said.

He said the states have authorized municipal broadband, then tried to limit it. The FCC's decision, he noted, was to cut through that red tape in these two specific instances.

But Wheeler also said he hoped it put a spotlight on an ongoing effort to put restrictions on what elected officials can do, and he called out out the "activities of incumbents to block consumer choice and competition through legislation" and the "thickets" of red tape meant to discourage competition.

The chairman also pointed to various audience members who he said had various issues with state limits on expanding gigabit muni broadband -- such as lack of access, kids having to drive elsewhere to get homework online and businesses moving. He said the decision is pro-broadband and pro-competition.

House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Communications Subcommittee Chairman Greg Walden (R-Ore.) said the FCC should leave the preempting to Congress.

“Preemption of state law is a limited power reserved to the U.S. Congress," they said. "Today’s 3-2 vote is as disappointing as it ispredictable with this commission where political victory is so often put ahead of the rule of law and the economy’s best interest. The FCC should respect the decisions of each state - whether to allow their municipalities to build out broadband networks or not. A one-size-fits-all approach from unelected Washington bureaucrats prevents states and municipalities from making the tough choices to allocate precious taxpayer dollars.”

Like the Title II vote that is to follow Thursday, the municipal broadband decision is expected to be challenged in court, and a bill has already been introduced to block the FCC preemption and any similar effort.