A trade group representing ISPs rejoiced over a court decision that allows states to limit the growth of municipal broadband networks.

The "decision is a victory for the rule of law," said Walter McCormick, president of the United States Telecom Association (USTelecom). "The FCC’s authority is not unbridled; it is limited to powers specifically delegated by the Congress, and it does not extend to preemption of state legislatures’ exercise of jurisdiction over their own political subdivisions."

The best way for the FCC to accelerate broadband deployment is to "eliminat[e] federal regulatory impediments to innovation and investment—where there remains to be much that can and should be done," he said.

USTelecom represents both large and small Internet providers, with AT&T, Verizon, CenturyLink, and Frontier sitting on its board of directors. AT&T in particular has been active in supporting laws that restrict the spread of public broadband networks that could compete against incumbent ISPs.

About 20 states have municipal broadband restrictions. The FCC last year voted to preempt state laws in North Carolina and Tennessee that prevent municipal providers from expanding outside their territories. But the states sued to preserve their laws, and yesterday they won their case at the US Court of Appeals for the Sixth Circuit (full text).

FCC Republicans Michael O'Rielly and Ajit Pai also cheered the ruling that went against the commission's Democratic majority.

"The FCC clearly tried to invoke imaginary authority and finally was called out by a court for doing so," O'Rielly said. "Unless Congress specifically authorizes FCC intervention, States rightly can limit government-operated broadband networks in order to protect their citizens’ pocketbooks and good senses. Contrary to some beliefs, municipal networks are not panaceas to solving any lack of ubiquitous broadband, but instead unfairly distort the marketplace.”

Pai said that the ruling is "an opportunity for the FCC to turn the page. Rather than wasting its time on illegal efforts to intrude on the prerogatives of state governments, the FCC should focus on implementing a broadband deployment agenda to eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks."

FCC Chairman Tom Wheeler's regulatory agenda has been frequently criticized by Republicans, ISPs, and conservative advocacy groups. His critics were disappointed two months ago when a federal appeals court upheld the FCC's imposition of net neutrality rules and the related reclassification of Internet service providers as common carriers.

Wheeler critics from advocacy groups TechFreedom and the Free State Foundation celebrated yesterday's decision.

"This was Federalism 101: the FCC was unconstitutionally interfering with the division of power between state legislatures and municipalities by doing so without a ‘clear statement’ of authorization from Congress," TechFreedom President Berin Szóka said.

Limits on FCC authority

Szóka was disappointed only that the court did not rule on a broader question related to the FCC's authority. In preempting the state laws, the FCC relied upon Section 706 of the Telecommunications Act of 1996, which requires the FCC to accelerate broadband deployment using "measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment."

TechFreedom says that Section 706 should not be treated as "a grant of authority" but that "unfortunately," the Sixth Circuit didn't need to reach that question in order to rule on the municipal broadband case. If Section 706 continues to be treated as a grant of authority, Szóka argues that the FCC would have "carte blanche to regulate not just broadband but any form of communications—the entire Internet economy—in any way that the FCC can claim, however tenuously, somehow promotes broadband and that isn’t prohibited by law."

Free State Foundation President Randolph May, who worked for the FCC as counsel from 1978 to 1981, called the court decision "a welcome rebuke to the agency's continuing overreach and efforts to extend its bureaucratic powers."

Losing side looks to small silver lining

Supporters of municipal broadband, including the cities that spurred the court case, were disappointed in the decision.

The FCC took up the case because the Electric Power Board of Chattanooga, Tennessee and the City of Wilson, North Carolina wanted to expand fiber to nearby towns that were asking for Internet service.

"We are obviously disappointed by today’s outcome," said the cities' lead counsel, Baller Stokes & Lide. "The Court based its decision on a single point of law—that the FCC lacks statutory to preempt state barriers to public broadband initiatives."

The cities' law firm called it notable that "the Court did not dispute the FCC’s factual findings, based on a massive public record, that the laws of Tennessee and North Carolina at issue are anticompetitive and contrary to the public interest. In fact, the Court stated that it did not question 'the public benefits that the FCC identifies in permitting municipalities to expand Gigabit Internet coverage.'"

The ruling also did not address whether Section 706 "provides the FCC any preemptive power at all" or whether Congress could give the FCC the power to preempt state laws like the ones in North Carolina and Tennessee.

Wheeler said the FCC will review its legal and policy options, while Democratic Commissioners Jessica Rosenworcel and Mignon Clyburn said the ruling will make it harder to promote broadband competition. "Local governments that want to bring connectivity to their communities, particularly when the private sector has failed to do so, should be able to ensure that their citizens have access to the enabling opportunities broadband brings," Clyburn said. "State laws like the ones upheld today are part of the reason why families on one street may have gigabit service, while those on the other have nothing."

Rosenworcel said the ruling will make it harder for communities to solve their broadband problems themselves. "I fully respect this decision, but regret that it is at odds with our history of self-reliance—and constrains our options for new infrastructure in the future," she said.

US Sen. Edward Markey (D-Mass.) said he will "continue to fight" to give local communities the authority to build their own telecommunications infrastructure, but didn't suggest any specific proposals.

The Coalition for Local Internet Choice, another advocacy group, applauded officials in Chattanooga and Wilson for trying to improve local broadband. The cities "st[ood] up against unwise and counterproductive barriers to broadband investment and competition," the group said.