RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 16a0189p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
STATE OF TENNESSEE (15-3291); STATE OF NORTH
NATIONAL ASSOCIATION OF REGULATORY UTILITY
FEDERAL COMMUNICATIONS COMMISSION; UNITED
STATES OF AMERICA,
ELECTRIC POWER BOARD OF CHATTANOOGA; CITY
OF WILSON, N.C.,
On Petitions for Review of an Order of
the Federal Communications Commission.
Argued: March 17, 2016
Decided and Filed: August 10, 2016
Before: ROGERS and WHITE, Circuit Judges; HOOD, District Judge.*
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
*The Honorable Joseph M. Hood, United States District Judge for the Eastern District of Kentucky, sitting
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 2
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.
ROGERS, J., delivered the opinion of the court in which HOOD, D.J., joined, and
WHITE, J., joined in part. WHITE, J. (pp. 23–25), delivered a separate opinion concurring in
part and dissenting in part.
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.
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 3
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.
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
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 4
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, 606 S.E.2d 721, 726–28 (N.C. Ct. App. 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), cityowned
communications service providers are directed to “[l]imit the provision of
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 5
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 publicprivate
partnership proposals before a municipality can begin construction on a communications
The Session Law, in § 340.2, includes three provisions that exempt municipalities from
the restrictions. The first of these provisions, § 340.2(a), exempts city providers from the
Session Law restrictions if the providers use the telecommunications services only for “internal
governmental purposes” or within another city’s corporate limits so long as the other city is a
party to an “interlocal agreement.” Section 340.2(b) exempts municipalities serving “unserved
areas” from the restrictions. An “unserved area” is defined as a “census block . . . in which at
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 6
least fifty percent (50%) of households either have no access to high-speed Internet service or
have access to [such] service only from a satellite provider.” Lastly, in § 340.2(c), there is a
series of “grandfather” exemptions, which exempt municipalities “providing communications
service as of January 1, 2011,” from the restrictions so long as those municipalities abide by
Like Tennessee’s restriction, the North Carolina provisions do not require municipalities
to violate any FCC rule or regulation. This is clear from the record, and in any event was
conceded by the FCC’s counsel at oral argument. The Session Law is simply an instance of
North Carolina making choices for its municipalities on the issues of expansion and municipal
offering of telecommunications services.
In 2005, the City of Wilson, North Carolina constructed the backbone of a fiber-optic
network connecting all City-owned facilities. In re City of Wilson, 2015 WL 1120113, at *10.
Many residents, medical facilities, businesses, and educational institutions requested access to
and expansion of the network. Id. at *11. In 2006, the Wilson City Council responded to these
requests by unanimously voting to build a municipal broadband network that would eventually
become known as “Greenlight.” Id. at *10. In 2013, Wilson rolled out Greenlight to residential
customers, offering Gigabit Internet service. Id.
Greenlight has provided benefits for Wilson. Wilson states that its “triple play”
services—phone, Internet, and cable—are cheaper than its competitors’ and that it offers its
Gigabit Internet while maintaining a positive cash flow. Id. at *11. Wilson also provides free
Wi-Fi to its entire downtown area, which in turn frees up money that downtown businesses
would normally spend for Internet. Id. Each of the top seven employers in Wilson is a customer
of the fiber network. Id. Local schools benefit from using Greenlight, as does the City’s main
public library. Id.
Wilson has only deployed Greenlight in one county, Wilson County. Id. at *10. It has
five other counties for which it provides electric service. Id. Individuals in those five counties
have repeatedly requested that Wilson expand its offering of Greenlight. Id. at *13. Wilson is
currently exempt from the restrictions in §§ 160A-340 to -340.6 due to the grandfather
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 7
provisions contained in § 340.2. If Wilson attempted to expand its offering beyond its corporate
limits, however, it would no longer fall under the grandfather exemption and would have to
abide by all of the restrictions, which would include the territorial restriction in § 340.1(a)(3).
Therefore, due to the restrictions in §§ 160A-340 to -340.6, Wilson is unable to expand its
offering beyond its municipal limits.
The FCC’s Order
The EPB and the City of Wilson separately petitioned the FCC to preempt the restrictions
in their respective states’ laws. The EPB asked the FCC to preempt the phrase “within its service
area” and excise those four words from § 7-52-601. In re City of Wilson, 2015 WL 1120113, at
*10. Wilson asked the FCC to preempt the entirety of Session Law 2011-84. Id. at *13.
The FCC concluded that preemption of most of the Tennessee and North Carolina
statutes at issue would further the purposes of § 706 of the Telecommunications Act of 1996 by
increasing broadband investment. Both Wilson and the EPB sought expansion because the
private cable providers in their areas were unsatisfactory to the local residents and businesses.
Id. at *14. The EPB deployed its Internet services to “take advantages of synergies with existing
municipal services,” such as its smart power grid for its electric service. Id. Wilson likewise
deployed Internet in part to save money. Id. Further, by virtue of their being municipal
providers, the EPB and Wilson are concerned with more than just the “bottom line”—they are
also concerned with benefitting the communities they serve. Id. According to the FCC, these
differing interests support the conclusion that municipal-provider entry into the surrounding
areas would increase investment in broadband Internet.
The FCC additionally concluded that preemption of the Tennessee restrictions and
allowing the EPB to serve the surrounding areas would promote competition in the broadband
marketplace, which is a goal of § 706. In response to the EPB’s constructing its fiber network,
Comcast stopped raising its rates—which had risen sharply for years—and subsequently reduced
them. Id. at *15. Both of the private providers in the EPB’s electric service area, Comcast and
AT&T, have vastly improved their Internet download speeds since the EPB’s entry. Id. This
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 8
demonstrates the benefits of increased broadband competition and how a possible expansion for
the EPB could promote such competition.
The FCC likewise found that preemption of most of the North Carolina restrictions would
promote and increase competition. In response to Wilson’s entry into the broadband market,
Time Warner held rates steady in Wilson while simultaneously raising rates in places without
such competition. Id. Like the private providers’ responses to the EPB’s entry, Time Warner
improved its top download speeds in response to Wilson’s entry. Id. The FCC concluded that
these reactions from Time Warner show that municipal-provider entry into the broadband market
Commenters’ objections to preemption failed to persuade the FCC. The arguments that
municipal providers and private providers are not on “a level playing field” were unpersuasive
because, according to the FCC, they show only that municipal providers like the EPB and
Wilson differ from private providers but not that the differences are problematic. Id. at *16.
Some commenters argued that municipal entry would “crowd out” or be unfair to private
providers, but the FCC found that Wilson’s 33.7% market penetration indeed left room for
private providers. Id. at *17. The FCC likewise found no evidence to support some
commenters’ claims that municipal-service providers would act anti-competitively or that such
providers would be economically inefficient. Id. In response to claims that municipalbroadband
providers fail at a high rate, the FCC stated: “We do not read [§] 706 to require us to
find that any particular municipal system is certain to succeed if barriers are removed; only that
the law is a barrier and that removal is reasonably likely to lead to increased broadband
deployment or promote competition.” Id. at *18. Addressing the substance of the failure claims,
the FCC found them meritless. Id. at *18–21. Finally, the FCC disposed of what it considered to
be weaker objections, finding them unpersuasive or underdeveloped. Id. at *21.
The FCC also found that the Tennessee statute constitutes a “barrier” to broadband
investment and competition. Tennessee’s territorial restriction in § 601—the language “within
its service area”—is, according to the FCC, “an explicit barrier to broadband infrastructure
investment and competition under [§] 706.” Id. at *22. Furthermore, “[the] EPB would likely
meet the substantial customer demand in surrounding areas absent [§] 601’s territorial
Nos. 15-3291/3555 State of Tenn., et al. v. FCC, et al. Page 9
restriction.” Id. at *23. Thus, the FCC stated that Tennessee’s territorial restriction falls under
the FCC’s authorized power to preempt “barriers to infrastructure investment” pursuant to § 706.