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UNITED STATES COURT OF APPEALS: The State of Tennessee and State of North Carolina petitions for review of FCC order No. 15-25


Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 16a0189p.06





CAROLINA (15-3555),












Nos. 15-3291/3555

On Petitions for Review of an Order of

the Federal Communications Commission.

No. 15-25.

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.


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

by designation.

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


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


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,


GOVERNMENT LAWYER’S ROUNDTABLE, INC., Oconomowoc, Wisconsin, Kimberly


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.

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

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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

certain limitations.

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

increases competition.

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.

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