Municipal Broadband? Federal Court Tells FCC 'No'

The U.S. Court of Appeals told the Federal Communications Commission it was overstepping its powers in allowing municipalities to ignore state laws prohibiting public broadband rollouts.

by / August 11, 2016
FCC Chairman Tom Wheeler Flickr/The Cable Show

On Aug. 10, a federal appellate court ruled against a Federal Communications Commission (FCC) plan that would have allowed municipalities to build their own broadband networks, despite state laws explicitly prohibiting such buildouts. Such laws limiting government entry into the commercial broadband market exist in varying forms across 19 states. The ruling is seen by many broadband advocates as a blow to the vision of a future broadband market brimming with competition, and that provides cheap and equal access.

While the ruling represents a milestone in the long-running debate of how the nation’s infrastructure ought to be managed, there are more immediate consequences too. Wilson, N.C., and EPB in Chattanooga, Tenn., intended to use the FCC’s now-overturned power to build or extend their networks in competition with existing broadband providers. These buildouts are now illegal, as the FCC’s claim that the Telecommunications Act of 1996 granted implicit power to supersede state’s rights were deemed illegitimate by United States Court of Appeals for the Sixth Circuit. The three-judge panel ruled that such power must be explicitly granted somewhere to be legally tenable.

"While we continue to review the decision, it appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina," FCC Chairman Tom Wheeler said in a statement, adding that he will "consider all our legal and policy options to remove barriers to broadband deployment."

Many broadband advocacy groups criticized the court’s ruling, including Next Century Cities (NCC), which called the decision “a blow to communities … fighting for more accessible, affordable Internet access for their residents.” Groups like NCC are built around the philosophy that broadband networks are indispensable for the success of a community’s businesses, education systems and residents, and therefore it’s the right of communities to take their future into their own hands and build a network themselves if they believe the private sector isn’t doing a sufficient job providing access.

This ruling is problematic and anti-consumer, said NCC Executive Director Deb Socia.

“The issue here is whether or not people who really need broadband can receive that broadband from a willing provider,” Socia told Government Technology. “In the case of EPB and Wilson, there are people across the street from their electric utility boundary on dial-up and satellite, paying exorbitant amounts, who would love to have that service. And on the other side, EPB is saying they are happy to provide it, and current law prevents them from doing this. It’s just nonsensical to me that this continues to be the case.”

As a non-lawyer, Socia said she can’t argue the legal decision the court made, but looking at the impact of the decision is enough for her to know it’s not right.

“I’ve spoken with so many people who are struggling mightily to run their businesses,” she said. “I spoke with one woman [outside of Chattanooga] who has to drive 5 miles so she can get free Wi-Fi so she can manage her business. That kind of story is just heartbreaking. It’s anti-consumer, but it’s also problematic for economic development and education and public safety and all the things we know we benefit from when we have access to high-speed broadband.”

There’s a possibility the decision will be appealed to the Supreme Court, Socia said, or that Congress may grant the FCC the explicit power the courts say it needs to circumvent state laws. Another option available to the FCC is to request an en banc review in front of all the Sixth Circuit judges. Or states could overturn the laws preventing municipal rollouts themselves.

Debates in the technology world, and especially on the topic of broadband, often devolve into a narrative of good versus evil. In this case, the FCC is painted as a shining champion of the people and the court is the cowboy wearing the black hat, with no motive other than to prevent progress and further his own devious, nihilistic designs. Putting aside the fact that it’s the court’s job to make a legal interpretation of the existing laws and precedents – not to moralize or make planning decisions about the nation’s infrastructure – the issue is not so simple, argued Doug Brake, telecommunications policy analyst at the Information Technology and Innovation Foundation (ITIF).

“We filed with the FCC for them not to encourage municipal overbuilds,” Brake explained. “Setting aside the ideological or political concerns about the government competing with private industry, we think there is a legitimate concern where a municipality essentially cherry-picks the lowest cost to serve users where customers are most densely located within cities, more cheaply than in rural areas, they end up taking away customers from the larger network that serves both urban and rural customers. I think absolutely in an area where a community is legitimately not served, it’s a great model for municipal networks. But in general, states have a legitimate interest in blocking that.”

ITIF is a think tank whose concerns lie in analyzing the market economics and identifying models that are healthiest for innovation in the long term, Brake explained. And overbuilding networks in the name of increased competition is not the panacea that many believe it to be. It would probably be favorable to allow Chattanooga to expand their network, Brake said, but to redraw the boundaries of authority for all cases is to miss the big picture.

“Our position is that competition is not an unalloyed good in these sorts of markets,” he explained. “In industries like broadband, you have extremely high fixed costs and relatively low marginal costs. We think that competition follows an inverted U where either too many competitors or too few competitors is problematic. We don’t like monopoly, but imagine there are four or five competitors in a market. Then everyone has the same fixed costs of building the network and there are more competitors, so there’s less revenue per network to go around. So that’s less money that gets put into actual research and development investment or upgrades to improve network speeds or performance. There’s a sweet spot in-between there with the ideal number of competitors.”

Municipal broadband advocates are typically more interested in efficiencies around price or service, but they’re not looking at the business side that these companies have to contend with to keep the technology moving forward. There’s also another option, a la Gig.U or Google Fiber, where a company uses existing infrastructure and its own technological prowess to further local access, without putting the onus on a community that may not have the resources to compete effectively in the market, while also continuing research and development.

“Municipal networks are not in the best position to be keeping up with the rapid change of different access technologies,” Brake said. “You get folks like [Harvard Law School's] Susan Crawford who think you should just get dark fiber in the ground and unbundle it, and get service competition on top of that, and she literally says that’s ‘future proof.’ We think that technology will continue to amaze us and want to have the incentives in place to develop the new forms of technology. Fiber isn’t necessarily the end game."

Colin Wood former staff writer

Colin wrote for Government Technology from 2010 through most of 2016.