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FCC trumps state laws on local broadband limits

A 3-2 vote is the first step in allowing municipalities all over the country to offer their own Internet service in the name of competition.

The Federal Communications Commission has fired the opening shot at state governments that restrict local municipalities from building their own broadband networks.

In a 3-2 decision, which was split between Democrats favoring the measure and Republicans voting against it, the FCC approved two petitions filed by municipal broadband providers asking the agency to pre-empt, or override, provisions of laws in North Carolina and Tennessee that restrict the ability of communities to offer Internet service. The FCC concluded that certain provisions of laws in those states are barriers to broadband investment and competition, and that it has authority to strike down the laws.

Thursday's decision sets a precedent that could be applied across the nation to ease the deployment of broadband services. In 20 states, laws prohibit or severely restrict municipalities from creating and running their own service. FCC Chairman Tom Wheeler said this needs to change if Americans are to expect more competition in broadband, and noted that few communities have access to high-speed Internet. He believes communities should have the right to choose whether their local governments or municipally owned utilities should build broadband networks to provide these services.

"The bottom line of these matters is that some states have created thickets of red tape designed to limit competition," Wheeler said during the FCC's open commission meeting Thursday. "What we are doing is cutting away that red tape."

The FCC's vote comes on the same day that the agency is also voting to reinstate Net neutrality rules designed to protect the Internet from broadband providers that may take advantage of their market power to may slow down or squeeze competitors out of business. The reason this regulation is needed, the FCC has argued, is because competition is largely lacking in the broadband market.

The competitive picture looks worse since the FCC earlier this year redefined broadband as a service that delivers download speeds of 25 megabits per second. Previously, the FCC defined broadband as a service with 4 Mbps downloads. With this new speed requirement, cable companies are the only true suppliers of broadband in most markets because DSL service from phone companies doesn't get over that new bar.

The FCC and President Obama, who also supports striking down state laws that prevent or limit municipal broadband networks, believe that community-owned broadband networks can help bridge this gap and offer more competition to consumers.

"In too many places across America, some big companies are doing everything they can to keep out competitors," Obama said last month. "In some states it is virtually impossible to create networks like the one you have in Cedar Falls. Enough is enough; we're going to change that."

One state at a time

Today's FCC action represents only a first step toward dismantling all state laws that severely limit the deployment or expansion of community owned networks, with the decision only applying to Tennessee and North Carolina. Other communities affected by similar laws in other states will have to petition the FCC separately.

The Electric Power Board in Chattanooga, Tenn., and the government of Wilson, N.C., filed their petitions with the FCC in July. Each had already built a gigabit broadband network, and each was looking to expand those networks. But state laws limited their ability to expand.

The government of Wilson argued in its petition that onerous requirements of the state law made it impossible for the municipality to expand its offering to other parts of the community including areas where private sector broadband companies are offering download speeds of only 768 kilobits per second, a far cry from the FCC's new definition of advanced broadband services.

The Tennessee law bars communities from offering discounts on their broadband services that are similar to promotions offered by private sector companies. And it imposes extensive delays to building the infrastructure by requiring a voter referendum for any debt that is used to finance construction or expansion of municipal networks.

Jim Baller, senior principal of Baller Herbst Stokes & Lide, the law firm that represented Wilson and Chattanooga's EPB in their proceedings before the FCC, applauded the agency's decision.

"This is an important moment for communities in North Carolina, Tennessee, and other states that have barriers to local investments in advanced communications networks," he said in a statement. "Not only has the Commission confirmed that it has authority to remove such barriers, but it has also compiled a massive record documenting the critical role that local Internet choice can play in fostering strong, vibrant communities and in ensuring that the United States will remain a leading nation in the emerging knowledge-based global economy."

The FCC believes it has authority to pre-empt these state laws through a provision of the 1996 Telecommunications Act, called Section 706, which the agency uses as a basis for all of its regulatory authority over the Internet.

That section says the FCC "shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans." It also says the agency should use that authority to "promote competition" in local markets and "remove barriers to infrastructure investment."

But opponents, such as Republican FCC commissioner Ajit Pai, say that the FCC does not have this authority.

"Judicial precedent makes clear that the FCC simply does not have the power to do this," he said during the Thursday meeting. "In taking this step, the FCC usurps fundamental aspects of state sovereignty."

It's likely the issue will end up in court.