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FCC Move May Spur City-Owned Competition for Broadband Service

On the same day that the FCC was to hold an historic vote on net neutrality, the commission made another decision that also may have have major consequences on the Internet landscape.

By a vote of 3-2, it lifted state laws that restrict the expansion of broadband service offered by municipal governments in Chattanooga, Tenn., and Wilson, N.C.

Although it applies only to those localities, the FCC’s move could usher in other cities offering Internet service as competition to major Internet providers like Comcast and AT&T.

FCC chairman Tom Wheeler has criticized laws in 19 states that prevent or limit cities from offering broadband service. He has suggested that such laws are in place largely because of heavy industry lobbying of state governments, limiting the scope of municipal broadband offerings.

“What we are doing today is cutting away … red tape consistent with Congress’ instruction ‘to promote deployment of broadband’ and ‘promote competition in broadband,'” he said.

During the meeting, Wheeler introduced residents of North Carolina and Tennessee whom he said were affected by the limits on broadband service, calling them “human faces of those who are condemned to second-rate broadband.”

The FCC’s move means that the Electric Power Board of Chattanooga and the city of Wilson, N.C., can expand their services to neighboring areas. It sets a precedent for other cities to appeal to the FCC to preempt certain state regulations.

“Today we tear down barriers that prevent them from expanding their broadband service and offering consumers more choice,” said FCC commissioner Jessica Rosenworcel, who voted to preempt the state laws along with Wheeler and commissioner Mignon Clyburn.

FCC commissioner Ajit Pai, who along with commissioner Michael O’Rielly voted against the FCC’s move, called the agency’s action “odd and unlawful.”

“In taking this step the FCC usurps fundamental aspects of state sovereignty,” said Pai, who said that he otherwise was not rendering an opinion on the merits of cities and other municipalities offering their own Internet service.

He suggested that the action could lead to “perverse consequences” because the FCC still could not preempt state laws that ban city-owned Internet service outright, only laws that limit their reach or expansion.

O’Rielly called the FCC’s action “legally infirm and bad public policy,” adding that it may merely encourage states to just ban municipal broadband service altogether as a way of getting outside the FCC’s scope.

Last month, Michael Powell, president and CEO of the National Cable & Telecommunications Assn., said that “while government run networks may be appropriate in rare cases, many such enterprises have ended up in failure, saddling taxpayers with significant long-term financial liabilities and diverting scarce resources from other pressing local needs.”

FCC officials have challenged that assertion, and say that the vast majority of government-owned Internet service providers do not end in failure and, in some cases, have led to private providers decreasing prices and improving service.

Some lawsuits are expected if the FCC votes to circumvent state laws, and House and Senate Republicans have proposed net neutrality legislation that includes provisions preventing the agency from taking such an action.

Wheeler’s staff believes that it is on solid legal footing in preempting state laws, citing the federal government’s authority to regulate interstate commerce, as well as Section 706 of the Telecommunications Act of 1996. The latter directed the FCC to take action to remove barriers to broadband investment and competition.

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