The FCC Can’t Use Section 706 to Preempt State Laws Prohibiting Municipal Broadband…

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Ten years ago, the United States Supreme Court held in Nixon v. Missouri Municipal League that the Federal Communications Commission (“FCC”) may not use its authority under Section 253 of the Communications Act to preempt state laws which restrict or prohibit municipal broadband deployment.  Despite this defeat, proponents of municipal broadband have spent the last decade trying to find an alternative legal theory and, with the D.C. Circuit’s recent ruling in Verizon v. FCC, believe they now may have finally found one—namely, the FCC’s new-found authority in Section 706(a) of the Communications Act.  Section 706(a) states that the agency may use, “in a manner consistent with the public interest, convenience and necessity, … regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”  And, with the agency’s new Section 706 authority now firmly ensconced, FCC Chairman Tom Wheeler boldly stated at the NCTA Cable show yesterday that “I believe the FCC has the power—and I intend to exercise that power—to preempt state laws that ban competition from community broadband.

Not that I want to be the skunk at the picnic, but some basic lawyering reveals three glaring infirmities (although I’m sure there’s more) in the argument that Section 706 gives the FCC the legal authority to preempt state laws.

First, it is important to note that nowhere in Section 706 does any derivation of the word “preemption” appear—only the word “forbearance”—and there is a big legal difference between the two concepts.

To wit, Black’s Law Dictionary defines the concept of forbearance simply as “refraining from action.”  In contrast, Black’s defines preemption as the “doctrine adopted by the U.S. Supreme Court holding that certain matters are of such a national, as opposed to local character that federal laws pre-empt or take precedence over state laws.”  Given the Constitutional implications of preemption, therefore, there is a much higher legal standard to meet if an agency of the federal government would like to preempt a state law. Indeed, as the Supreme Court observed in Wyeth v. Levine, there are

two cornerstones of our pre-emption jurisprudence. First, “the purpose of Congress is the ultimate touchstone in every pre-emption case.” Second, “[i]n all pre-emption cases, and particularly in those in which Congress has ‘legislated … in a field which the States have traditionally occupied,’ … we ‘start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’” (555 U.S. 555 at 565 (citations omitted).)

So, given that Congress deliberately chose to exclude the term “preemption” from Section 706(a), it is difficult to see how the Commission’s use of Section 706 to preempt state laws would reflect a “clear and manifest purpose of Congress.”

Which brings me to the second infirmity in the theory that Section 706 authorizes federal preemption of state laws.  Under the D.C. Circuit’s holding in Verizon, “any regulatory action authorized by Section 706(a) [must] fall within the Commission’s subject matter jurisdiction over such communications—a limitation whose importance this court has recognized in delineating the reach of the Commission’s ancillary jurisdiction.” (740 F.3d 623 at 639-40 (emphasis supplied).)  According to the D.C. Circuit’s holding in Comcast v. FCC, this means that any use of Section 706 must be tied directly to a specific delegation of authority in “Title II, Title III, or Title VI…” (600 F.3d 642 at 654.)  Given this requirement, let’s take a look at what the Communications Act says:

As Section 706 focuses on forbearance (and not preemption), we need to look at where Congress specifically delegated to the Commission its forbearance authority—namely, Section 10 of the Communications Act.  Well guess what?  There is absolutely nothing in Section 10 which permits the FCC to preempt any state law or regulation.  To the contrary, Section 10 is limited to the FCC exercising forbearance only over its own implementation of certain portions of the Communications Act. (And, as we have demonstrated, the FCC does not have a particularly good track record in this regard.)

To the extent the Commission does have any direct preemption authority over state laws and regulations, that authority rests exclusively in Section 253.  So, while the Commission has legitimately (and effectively) used this preemption authority to strike down state laws and regulations to promote competition, as noted above the Supreme Court in Nixon has conclusively held that the agency’s Section 253 preemption authority does not extend to state laws that limit or prohibit municipal broadband.  Thus, if—as Verizon and Comcast instruct—the Commission’s use of Section 706 must be tied to a direct delegation of authority under Title II, Title II and Title VI, then it is unclear how the Commission may use Section 706 to preempt state laws which restrict or prohibit municipal broadband.

Finally, proponents of the Section 706 preemption authority argument fail to grasp the most salient point about the way the statute is written: that is, Section 706(a) provides co-equal jurisdiction to both the FCC and state commissions “with regulatory jurisdiction over telecommunications services” to encourage the deployment broadband on a “reasonable and timely basis…”  (While one could argue that many states have legislated that their respective public utility commissions (“PUCs”) may not impose price regulation, the fact that residual consumer protection and public safety regulations remain counts in my book as “regulatory authority.”)  Thus, because Verizon now gives the FCC the power to oversee broadband service providers under Section 706, then Verizon a fortiori also provides state PUCs with the same ability to regulate broadband service providers.  (As I noted in an earlier blog, whether and how state PUCs should exercise this new-found authority was the hot topic at this year’s NARUC Winter Meeting.)

So, let’s assume arguendo the FCC attempts to use Section 706 to preempt a state law restricting municipal broadband but the local state PUC (exercising the same authority) says “go to hell.”  Who wins?  My money is on the state PUC:  if the FCC can’t preempt using its direct authority under Section 253, then the chances of using its indirect authority under Section 706 are slim to none.

In sum, regardless of where you might fall in the municipal broadband debate, it appears that the FCC has no authority to preempt state laws limiting municipalities from offering broadband. Indeed, given the legal infirmities outlined above, it is unclear why Mr. Wheeler is so vocal on the preemption argument (unless it’s just part of the show).  With the upcoming voluntary incentive auction, the IP Transition and another bite at the Open Internet Rules (among other things) on its plate, surely the agency has plenty of other opportunities to make good policy on issues that fall squarely within its wheelhouse.