On August 10, 2016, the Sixth Circuit Court of Appeals overturned a Federal Communications Commission (FCC) Order that had sought to preempt Tennessee’s and North Carolina’s laws restricting local municipalities’ ability to provide broadband service. The Court found that the FCC had exceeded its statutory authority by preempting state laws without clear authorization from Congress.

The FCC had voted in February 2015 to preempt (or invalidate) laws in Tennessee and North Carolina that curtailed local governmental agencies’ abilities to provide broadband service. In Tennessee, state law prohibited municipal electric utility companies from providing broadband or video service outside of their electric service territory. In North Carolina, state regulations prevented municipalities from incurring significant amounts of debt to finance broadband networks and from offering communications services outside of their corporate limits. Such provisions generally are intended to protect public taxpayer funds and maintain fiscal accountability. In an effort to promote greater broadband deployment, the FCC struck down these provisions based on its authority to “remove barriers to infrastructure investment.”

The Sixth Circuit determined that municipal entities are subdivisions of the state – created and controlled by the state – and that the FCC had impermissibly re-allocated decision-making power between the states and their own subordinate municipalities. The Court held that preemption by the FCC of the allocation of power between a state and its subdivisions requires, at a minimum, a clear statement by Congress that it intends to authorize preemption. The FCC in this case had relied on Section 706 of the Telecommunications Act of 1996, which directs the FCC to encourage the deployment of advanced telecommunications capability by, among other things, removing barriers to infrastructure investment, but the Court explained that this statute falls far short of the required clear Congressional statement authorizing preemption.

The Court’s decision, however, did not address whether Section 706 provides the FCC with any preemption power at all, or whether Congress, even if it spoke clearly enough, could give the FCC the power to preempt state restrictions on its own municipalities. The Court also did not decide whether, and to what extent, a clear statutory statement is required for the FCC to preempt a state law that requires its municipality to act contrary to otherwise valid FCC regulations. It remains unclear whether the FCC will attempt to preempt other narrower state restrictions on municipal broadband systems, such as restrictions that pertain to the regulation of broadband instead of the state’s authority to govern its municipalities.