The Sixth Circuit Court of Appeals heard oral arguments last Thursday on appeals of the FCC’s decision last year to preempt Tennessee and North Carolina state laws that limit the expansion of municipal broadband networks into surrounding areas. The “discretionary” nature of the FCC’s actions, and the extent to which FCC intervention in state affairs corresponds with clear statement of Congressional intent were spotlighted during the arguments. Both states have asked the Sixth Circuit to assess the constitutionality of the FCC order, which was issued at the behest of the Electric Power Board of Chattanooga, Tennessee (EPBC) and the City of Wilson, North Carolina.

In addition to operating electric utilities, the EPBC and the City of Wilson both operate gigabit-speed broadband networks that provide data, video and voice services to customers. Adopted by a 3-2 margin, the FCC order under appeal preempted geographic restrictions in Tennessee law that bar the EPBC and other utilities from offering broadband and video services beyond their electric service area boundaries. With respect to the City of Wilson, the order also preempted “numerous conditions” imposed by North Carolina law that “effectively precluded Wilson from expanding broadband into neighboring counties, even if requested.”

While the FCC admits it lacks the power to preempt state laws that prohibit construction of new municipal broadband networks, the FCC has premised its authority to preempt laws restricting the expansion of such networks upon Section 706 of the Telecommunications Act, which directs the FCC to act when advanced telecommunications capability is not being deployed in a timely and reasonable manner. While questioning FCC attorney Matthew Dunne, however, Judge John Rogers drew a line between (1) the FCC’s right to forestall state mandates that prevent municipal broadband operators from complying with FCC rules that apply to all broadband providers, and (2) agency activities that are purely discretionary. As Dunne acknowledged that the FCC has no right to force municipal broadband operators to expand their service areas absent state law that requires such expansion, Rogers replied: “it seems like you’ve conceded the case away.”

Meanwhile, counsel for the State of Tennessee distinguished between sovereign state law, which the FCC lacks authority to preempt, and hypothetical state decisions, which the FCC can preempt, such as state rulings that ignore radio frequency assignments. In addition, Judge Rogers referred to Supreme Court precedent in Gregory v. Ashcroft in which the high court decreed that Congress must provide a clear statement of intent in statute if Congress wishes to provide a federal agency with authority to intervene in disputes between the states and their political subdivisions. Stressing that other appellate venues have treated Section 706 as ambiguous and have therefore granted “Chevron” deference to the FCC as the expert agency on telecommunications matters, state counsel advised Rogers that Section 706 thus fails to provide a clear statement of Congressional intent to grant the FCC preemption authority as required by Gregory. A ruling on the case is expected later this year.