Monday, September 28, 2015


Last week, briefs were filed in the court of appeals by parties challenging the FCC’s preemption of a Tennessee law imposing restrictions on a local government’s ownership and operation of a broadband network. In the same order, the Commission also preempted a similar North Carolina law. In FCC acronym-land, a government-owned network is commonly referred to as a GON.

As in … FCC GON wild.

I have never suggested that, as a matter of policy, GONS should be prohibited in all circumstances at all times. If there are particular areas that private sector broadband providers simply are not serving, and do not intend to serve, then a GONS, or some form of public-private partnership, may be appropriate. But these cases, by far, should be the exception, not the rule.

As my colleague Seth Copper and I explained in a May 2015 article, FCC Preemption of State Restrictions on Government-owned Networks: An Affront to Federalism, in the Federalist Society publication Engage:

A threshold issue is the problematic nature of government assuming the dual role of both enforcer of public law and competitor to private sector providers. This duality poses inherent conflicts-of-interest. For example, local governments may excuse their own networks from running the bureaucratic permitting and licensing gauntlet through which private providers must pass. Fear of disfavored treatment deters private market investment in broadband infrastructure. In addition, questions concerning the institutional incentives and competency of local governments operating capital-intensive advanced communications networks in rapidly innovating markets heighten the concerns of local taxpayers. And speech restrictions that are common in the terms of services of government-owned networks raise significant First Amendment issues.

So GONS are problematic from a policy perspective. But I want to use the occasion of the filing of the initial appellate briefs to emphasize the highly questionable nature of the FCC’s preemptive action as a matter of law. The FCC’s action raises rule of law concerns that are at the heart of our federalist constitutional system.

Our Federalist Society article focused primarily on theses serious legal issues. To my mind, the FCC’s preemption order is sufficiently beyond the authority delegated to the agency by Congress, and beyond the bounds of the Constitution’s federalist structure, that I suggest this is a case of the FCC GON wild. Below are a few excerpts from the article that highlight why the Commission’s action is likely to be overturned in court.

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“The most obvious difficulty with basing preemptive authority on Section 706 is that the statute’s language nowhere authorizes it. Section 706(a) provides:

The 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 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.

Preemption is not one of the enumerated measures or methods. Inferring preemption from Section 706(a) is also difficult because of its poor fit with the statutory structure. Section 706(a) recognizes a role both for ‘[t]he Commission and each State commission with regulatory jurisdiction over telecommunications services.’ Federal preemption of state laws imposing geographic or other forms of restrictions or safeguards on government ownership of broadband networks disregards the role of state officials that the statute explicitly acknowledges.”

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“In a 1997 order, the FCC rejected a petition requesting it to preempt state law restrictions on municipal telecommunications networks based on Section 253(a) of the Communications Act. … As the FCC’s 1997 order declared: ‘[S]tates maintain authority to determine, as an initial matter, whether or to what extent their political subdivisions may engage in proprietary activities.’ It also observed that preemption ‘effectively would prevent states from prohibiting their political subdivisions from providing telecommunications services, despite the fact that states could limit the authority of their political subdivisions in all other respects.’

This agency precedent cannot be avoided simply because Section 706 is now invoked as opposed to Section 253. The states’ authority to decide ‘whether or to what extent their political subdivisions may engage in proprietary activities’ is not altered just because a particular FCC majority wants local governments to offer broadband services. Federalism principles previously recognized by the FCC, grounded in the Constitution, do not lend themselves to dismissals based on ‘reasonable explanations’ about current Commission policy objectives. For that matter, the 1997 Order recommended states consider restrictions on government-owned networks rather than totals bans. The FCC’s present about-face regarding such restrictions hardly seems reasonable. Indeed, it seems arbitrary and capricious.”

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“The clear statement doctrine requires that Congress speak with unmistakable clarity before federal preemption of ‘a decision of the most fundamental sort for a sovereign entity’ will be considered. The rule is in ‘acknowledgment that the States retain substantial sovereign powers under our constitutional scheme, powers with which Congress does not readily interfere.’ In Gregory v. Ashcroft (1991), the Court reiterated its longstanding jurisprudential requirement that “[I]f Congress intends to alter the ‘usual constitutional balance between the States and the Federal Government,’ it must make its intention to do so ‘unmistakably clear in the language of the statute,’” and that “Congress should make its intention ‘clear and manifest’ if it intends to pre-empt the historic powers of the States…. No fair reading of Section 706 can find any clear statement of congressional intent that the FCC can interpose itself between states and their political subdivisions. And Section 706 cannot be read to clearly state that Congress intended to preempt state authority over decisions about whether and to what extent to allow its political subdivisions to offer proprietary services.”

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“Finally, and importantly, the FCC’s preemption of state restrictions on government-owned broadband networks violates constitutional federalism principles. The Supreme Court has stressed that: ‘The Framers explicitly chose a Constitution that confers upon Congress the power to regulate individuals, not States.’ The Constitution established ‘two orders of government, each with its own direct relationship, its own privity, its own set of mutual rights and obligations to the people who sustain it and are governed by it.’ Indeed, ‘[t]he Constitution thus contemplates that a State’s government will represent and remain accountable to its own citizens.’
Local governments are created by state constitutions through state legislation. They are accountable to the citizens of the respective states in which they exist. Thus, the Supreme Court has long recognized that “[s]tate political subdivisions are ‘merely ... department[s] of the State, and the State may withhold, grant, or withdraw powers and privileges as it sees fit.’” Our constitutional regime does not recognize, as a matter of legal status, ‘citizens’ of Chattanooga or Wilson. It does recognize citizens of Tennessee and North Carolina. And the Constitution confers upon these citizens of states the authority to exert their will through their elected representatives to adopt laws that restrict municipal activities. In essence, this is what the Supreme Court reaffirmed in Nixon, declaring that ‘preemption would come only by interposing federal authority between a State and its municipal subdivisions, which our precedents teach, are created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them in its absolute discretion.’”