The court decision “affirms the fact that unelected bureaucrats at the F.C.C. completely overstepped their authority by attempting to deny states like North Carolina from setting their own laws to protect hardworking taxpayers and maintain the fairness of the free market,” Thom Tillis, a Republican United States senator who pushed through the 2011 bill when he was North Carolina’s House speaker, said in a statement.

CenturyLink, one of the broadband providers serving Wilson and surrounding areas, says it offers competitive internet speeds and has upgraded its networks. The company says it wants to partner with municipalities but is concerned that city-run networks may have an unfair advantage.

“If local governments choose to compete with private internet service providers, there needs to be a level playing field,” said Rondi Furgason, CenturyLink’s vice president for operations in North Carolina.

The F.C.C. does not plan to appeal the federal court’s decision “after determining that doing so would not be the best use of commission resources,” Mark Wigfield, a spokesman for the agency, said in a statement. That means municipalities that want to keep expanding their municipal broadband networks will have to fight to overturn state laws on their own.

The legal fight is being closely watched by other cities in states that have similar broadband restrictions, such as Colorado and Washington. Even big cities like Los Angeles and San Francisco are in the early stages of exploring municipal broadband networks, which they view as crucial to serving low-income families who cannot afford service from cable and telecom companies.

“It’s bad news for projects looking to expand beyond their borders in hostile, anti-muni broadband states,” said Robert Wack, president of the City Council in Westminster, Md., which began its own gigabit municipal network last year.