Tennessee v. Fed. Commc'ns Comm'n

• Decision Date: 10 August 2016
• Docket Number: Nos. 15-3291/3555,s. 15-3291/3555
• Parties: State of Tennessee (15–3291); State of North Carolina (15–3555), Petitioners, National Association of Regulatory Utility Commissioners, Intervenor, v. Federal Communications Commission; United States of America, Respondents, Electric Power Board of Chattanooga ; City Of Wilson, N.C., Intervenors.
• Court: U.S. Court of Appeals — Sixth Circuit

832 F.3d 597

State of Tennessee (15–3291); State of North Carolina (15–3555), Petitioners,National Association of Regulatory Utility Commissioners, Intervenor,

v. Federal Communications Commission; United States of America, Respondents,Electric Power Board of Chattanooga ; City Of Wilson, N.C., Intervenors.

Nos. 15-3291/3555

United States Court of Appeals, Sixth Circuit.

Argued: March 17, 2016

Decided and Filed: August 10, 2016

ARGUED: Joshua S. Turner, Wiley Rein LLP, Washington, D.C., for Petitioner in 15–3291. John F. Maddrey, North Carolina Department of Justice, Raleigh, North Carolina, for Petitioner in 15–3555. Matthew J. Dunne, Federal Communications Commission, Washington, D.C., for Respondents. ON BRIEF: Joshua S. Turner, Megan L. Brown, Wiley Rein LLP, Washington, D.C., for Petitioner in 15–3291. John F. Maddrey, North Carolina Department of Justice, Raleigh, North Carolina, for Petitioner in 15–3555. Matthew J. Dunne, Richard K. Welch, Federal Communications Commission, Washington, D.C., for Respondents. James Bradford Ramsay, National Association of Regulatory Utility Commissioners, Washington, D.C., for Intervenor National Association of Regulatory Utility Commissioners. James Baller, Sean A. Stokes, Ashley Stelfox, Baller Herbst Stokes & Lide, PC, Washington, D.C., James P. Cauley III, Gabriel Du Sablon, Cauley Pridgen, P.A., Wilson, North Carolina, for Intervenor City of Wilson. Frederick L. Hitchcock, Willa B. Kalaidjian, Chambliss, Bahner & Stophel, P.C., Chattanooga, Tennessee, for Intervenor Electric Power Board of Chattanooga. William J. Kirsch, Arlington, Virginia, Andrew L. Brasher, Office of the Alabama Attorney General, Montgomery, Alabama, Conor B. Dugan, Warner Norcross & Judd LLP, Grand Rapids, Michigan, Richard A. Samp, Washington Legal Foundation, Washington, D.C., David Parkhurst, National Governors Association, Washington, D.C., Bartlett Cleland, Jonathan Hauenschild, American Legislative Exchange Council, Arlington, Virginia, Ashley Stelfox, Baller Herbst Stokes & Lide, PC, Washington, D.C., Mark C. Del Bianco, Law Office of Mark C. Del Bianco, Kensington, Maryland, Andrew Jay Schwartzman, Eric G. Null, Institute for Public Representation, Washington, D.C., Lani L. Williams, Local Government Lawyer's Roundtable, Inc., Oconomowoc, Wisconsin, Kimberly Hibbard, North Carolina League of Municipalities, Raleigh, North Carolina, Markham C. Erickson, Steptoe & Johnson LLP, Washington, D.C., for Amici Curiae.

Before: ROGERS and WHITE, Circuit Judges; HOOD, District Judge.^*

ROGERS

, J., delivered the opinion of the court in which HOOD, D.J., joined, and WHITE, J., joined in part. WHITE, J. (pp. –––– – ––––), delivered a separate opinion concurring in part and dissenting in part.

OPINION

ROGERS

, Circuit Judge.

Municipalities in Tennessee and North Carolina providing broadband service would like to expand their networks beyond their current territorial boundaries to underserved nearby areas. The legislatures of Tennessee and North Carolina have passed laws either forbidding or putting onerous restrictions on such expansion by municipal telecommunications providers. The Federal Communications Commission (FCC), citing its statutory mandates to remove barriers to broadband service and to promote competition in the telecommunications market, has issued an order purporting to preempt these state statutory provisions. Tennessee and North Carolina now seek review of the FCC's order.

The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities. This is shown by the fact that no federal statute or FCC regulation requires the municipalities to expand or otherwise to act in contravention of the preempted state statutory provisions. This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon § 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed.

Tennessee Law

Under a Tennessee law enacted in 1999, any municipality operating an electric plant is authorized to offer cable services, video services, and Internet services. Tenn. Code Ann. § 7–52–601

. However, this authority is limited—the statute grants a municipality this authority only “within its service area.” Id. This geographic limitation forbids a municipality from offering Internet services to surrounding areas that are not served by that municipality's electric plant.

The territorial restriction in § 601 does not require municipalities to violate any FCC requirement. There are no FCC rules or regulations requiring municipalities to expand their service offerings beyond their territorial boundaries. Tennessee, in enacting § 601, has simply made the choice for its municipalities on the issue of expansion, which is a discretionary decision under the current FCC regulatory scheme.

Chattanooga, Tennessee operates an electric provider known as the Electric Power Board (EPB). In re City of Wilson, North Carolina , 30 FCC Rcd. 2408, 2015 WL 1120113, at *7 (2015)

. The EPB offers high-speed broadband Internet service with speeds up to one Gigabit per second (Gbps). Id. The EPB offers this service to 170,000 residential and commercial customers in its 600–square–mile service area, which includes counties in Tennessee and Georgia. Id. at *7, *10. In 1996, the EPB began developing a high-capacity fiber-optic communications infrastructure. Id. at *10. In 2009, the EPB made its fiber-optic communications services available to residential customers and, in 2010, became the first broadband provider in the nation to offer Gigabit services to all its customers. Id. About 63,000 of the EPB's electric service customers subscribe to the fiber services. Id.

The EPB's fiber-optic network has received uniform praise. It has led to job growth and attracted businesses to the area. Id. at *7–8

. Its introduction led established Internet providers to lower rates while increasing the quality of their services. Id. at *7. The fiber network has also put more money in Chattanooga's coffers, which contributed to Standard and Poor's upgrading of the EPB's bond rating to AA+ in 2012. Id. at *8.

Educational institutions within the EPB's service area have benefitted from the fiber network. Id. The high-speed network is available to Chattanooga schools and allows the schools to offer services not available in many parts of the country. Id. Further, Chattanooga's public library system—with a 14,000 square foot space dedicated to innovation—is a leading one in the nation. Id. The New York Public Library has announced that it sees Chattanooga's library as a model for its renovations. Id.

Neighboring communities outside of the EPB's service area, however, cannot partake in the EPB's high-speed Internet service due to the geographic limitation in § 601. Residents from those communities have repeatedly requested expansions of the EPB's services to the surrounding areas. Id. at *9

. The EPB's surrounding communities allegedly constitute a “digital desert” in which the Internet services are abysmal or nonexistent. Id. These areas are known as “unserved” and “underserved” areas. Id.

North Carolina Law

Under a North Carolina law originally enacted in 1971, municipalities were authorized to provide broadband Internet services. See N.C. Gen. Stat. Ann. § 160A–311

; BellSouth Telecomm., Inc. v. City of Laurinburg , 168 N.C.App. 75, 606 S.E.2d 721, 726–28 (2005). In 2011, North Carolina's General Assembly passed Session Law 2011–84, entitled “An Act to Protect Jobs and Investment by Regulating Local Government Competition with Private Business,” which among other things imposed requirements on city-owned communications service providers. See N.C. Gen. Stat. Ann. §§ 160A–340 to –340.6. Under § 160A–340.1(a)(3), city-owned communications service providers are directed to “[l]imit the provision of communications service to within the corporate limits of the city providing the communications service.” Thus, municipalities in North Carolina may not offer Internet services to anyone beyond their municipal boundaries.

The Session Law contains additional restrictions that focus on the financial operation of municipal providers. Sections 160A–340.1(a)(9) and –340.5 of Session Law 2011–84 require municipalities to make payments in lieu of taxes that would equal the amount a private-sector provider would have to pay in taxes and fees. Section 340.1(a)(8) requires municipalities to impute the costs of private providers when pricing the municipal services. Section 340.1(a)(1) requires municipalities to comply with all of the laws and rules that apply to private providers (without exempting municipalities from generally applicable municipal regulations). Section 340.1(a)(5) requires municipalities to open their facilities for private providers at no charge if the municipalities themselves would not have to pay. Section 340.1(a)(7) forbids municipalities from subsidizing their “communications service with funds from any other non-communications service.” A separate part of Session Law 2011–84 amended the state's definition of “public utility” to include municipal providers of broadband, which exposes them to regulation from the state's Utilities Commission.

The Session Law also contains restrictions on the implementation of municipal services. Section 340.3 requires a 75–day public hearing process before a municipality can provide communications services, and § 340.4 requires a special election on the issue of municipal entry into communications services. Section 3 of Session Law 2011–84 mandates a period for private providers to comment on municipal entry. Under § 340.6, municipalities must solicit public-private partnership proposals before a municipality can begin construction on a communications network.

The...