Can the FCC preempt state laws restricting taxpayer-funded municipal broadband without violating the Constitution? In June, sixty House Republicans posed this very question to FCC Chairman Tom Wheeler. Last week, Wheeler responded — but essentially refused to answer the question. He concluded a three page letter with this insightful legal analysis: “When state laws come into direct conflict with critically important federal law and policy, it is a long-standing principle of Constitutional law that state laws can be subject to federal preemption in appropriate cases.”

This is essentially like asking a waiter, “What’s the soup du jour?,” and the waiter answers “It’s the soup of the day.” Obviously, you want to know which soup it is. Just as obviously, those Congressmen wanted to know why Wheeler thought that muni broadband is  one of those “appropriate cases.”

It should also be obvious to the Chairman that playing “Twenty Questions” with lawmakers — who, in theory, are his bosses — isn’t a good way to build bridges on Capitol Hill.  This is especially true  since Wheeler kicked up a political firestorm by proposing to re-open the key definitional foundations that have governed the Internet since  the last time Congress overhauled telecom law in 1996.

Wheeler’s response will, no doubt, infuriate lawmakers concerned about FCC overreach– particularly  given widespread speculation that the FCC orchestrated the two petitions recently filed by cities in Tennessee and North Carolina seeking to have the FCC overturn laws restricting muni broadband in those states. Specifically, these cities want the Commission to invoke the same sweeping power the agency has claimed to regulate net neutrality: Section 706 of the 1996 Telecommunications Act. In 1998, the FCC interpreted this provision as a deregulatory command to promote broadband using authority found elsewhere in the Act, rather than as an independent grant of authority (IGOA). But in 2010, the FCC re-interpreted this section as an IGOA that allows the FCC to regulate “communications” in any way that promotes broadband deployment, so long as it doesn’t directly violate some other law — such as the Tenth Amendment, which codifies states’ rights.

Back in January, the D.C. Circuit upheld the FCC’s re-interpretation under the deferential standard of Chevron, whereby courts generally defer to agencies on how to implement and exercise their authority when Congress’s commands are ambiguous. The decision upheld part of the FCC’s 2010 net neutrality rules (even as the court struck down most of the rules as violating other provisions of the Communications Act).  But Chevron isn’t a blank check: courts are supposed to carefully analyze whether the the statute is actually ambiguous and, if so, whether the agency’s statutory interpretation is plausible.

We think the court simply botched its analysis — and because Verizon chose not to appeal, we still don’t have a definitive answer. The Tenth Circuit reached a similar conclusion a few months later, but with no greater analysis — and, because reading Section 706 as an IGOA wasn’t necessary for the holding of that case (the FCC’s expansion of Universal Service Fund subsidies to support broadband deployment), it’s not a binding precedent anyway. Our lengthy legal comments on the FCC’s proposed net neutrality rules explain why the FCC’s re-interpretation of Section 706 is preposterous, as it essentially gives the FCC a blank check to craft a new Communications Act piecemeal through either regulation or case-by-case rulings.

But even if Section 706 could reasonably be interpreted as an IGOA, that authority still falls far short of the “clear statement” required to preempt state laws. The states are sovereign powers with full authority over the municipalities they create. Under the Supreme Court’s 1991 ruling in Gregory v. Ashcroft, Congress can supersede state sovereignty only if it makes its intent to do so “unmistakably clear” in the statute, and any statutory ambiguity will be resolved in favor of state sovereignty. Requiring Congress to make a clear statement before state laws are preempted gives effect to both the Supremacy Clause (federal laws, if constitutional, trump state laws) and the Tenth Amendment (powers not specifically granted to the federal government are reserved to the states and the people). The clear statement rule also recognizes the “numerous advantages” offered by our federalist system of dual sovereignty:

It assures a decentralized government that will be more sensitive to the diverse needs of a heterogeneous society; it increases opportunity for citizen involvement in democratic processes; it allows for more innovation and experimentation in government; and it makes government more responsive by putting the States in competition for a mobile citizenry.

To be clear, we’re not against all preemption of state laws (even though some states-rights Republicans seem to be talking that way). Preemption is perfectly valid if it’s clearly intended by Congress — and it can do a lot of good. For example, back in 1996, the FCC preempted local zoning laws that had made it hard for Americans to install satellite dishes. This preemption was vital for satellite television to become a viable alternative to cable. But Congress had clearly stated its intent: Section 207 of the 1996 Telecommunications Act specifically required the FCC to “promulgate regulations to prohibit restrictions that impair a viewer’s ability to receive video programming services through [satellite dishes].” It’s hard to imagine a clearer statement of preemption. By contrast, Section 706(a) says simply that the FCC “shall encourage” broadband deployment , and 706(b) says the FCC shall “take immediate action” (if it finds that broadband is not being deployed in a reasonable and timely fashion).

We think there are a host of good reasons why government, at any level, shouldn’t be running broadband service. To start… Edward Snowden, call your office! In a remarkable display of political tone-deafness, Wilson, North Carolina’s petition actually cites easier surveillance as a benefit of the city owning its own fiber network: “The network has enhanced the capabilities of public safety agencies by facilitating the extensive deployment and interconnection of surveillance cameras.” Well, that will certainly delight privacy activists!

Whether or not Section 706 can reasonably be interpreted under Chevron as an IGOA, the clear point of it is to promote broadband overall. We’re skeptical that the best way to do that is to make it easier for cities compete with private companies using taxpayer dollars. The cities say they’re providing service that private companies won’t provide and also forcing private companies to lower prices. But are they, really? Muni broadband has a mixed track record, at best. Provo, Utah, for example, spent $39 million in taxpayer dollars building a broadband network, then tried to cover operating losses by throwing in another $1.2 million and charging all electricity subscribers an extra $5.35/month. Finally, having realized it wasn’t so good at running a high-tech network, Provo sold the network to Google Fiber for $1 — but still remained responsible for making $3.3 million in annual bond payments for 12 years. Google quickly reported that another $30 million would be required to upgrade the network to its standards. In short, those networks that do succeed in the short term are artificially propped up by bottomless taxpayer funds and favorable treatment from local regulators.

You’d think the unelected bureaucrats at the FCC might want to collect hard data before rushing to supersede the decisions made by elected state legislators. In fact, why not have economists study whether whatever positive effects muni broadband might have are outweighed by the negative effects on discouraging private deployment, not only by incumbents (cable and telcos) but also new would-be fiber companies?

Yes, unfortunately, it’s not easy for new companies to enter the broadband market today, but what if cities were to focus on making that easier — instead of simply building their own networks? At a minimum that could mean:

  • Public/private partnerships, such as leasing office space or unused municipal “dark fiber” to private companies.
  • Clearing the red tape that has made deployment painful — for example, even in San Francisco, one of the tech-iest cities in the world, scrappy has struggled to deploy a fiber-to-the-home as a “third pipe” because NIMBY activists have protested the cabinets the company has to install on sidewalks to make their system work, and because the city issues permits for fiber deployment block-by-block, a regulatory nightmare. Similarly, putting up small cell antennas to make wireless broadband work well in cities remains a nightmare despite some efforts to address the enormous backlog of tower siting and modification applications.
  • Ensuring that new entrants can get fair pricing for using rights of ways or pole attachments owned by the city, municipal utility or even the private companies who receive what are essentially monopolies to put up towers. Chattanooga’s muni broadband effort didn’t face these problems because the electric company itself did the deployment. But why shouldn’t it be just as easy for Google Fiber or Chattanooga’s version of Sonic.Net to deal with the power company to get access to rights of way and utility poles?

If cities really wanted to spend tax dollars to promote broadband, the most cost-effective thing they could do would be to install conduits under streets that any broadband company could lease. This would avoid the need for broadband companies to dig up the street for their own deployment. Adding a “Dig Once” conduit is supposed to add about 1% to the cost of a road project — if the street is going to be dug up anyway — while lowering the cost of broadband deployment by 90%. The city would supply the “pipes and tubes” — the “dumb” part of the network” — while letting private companies, with private capital (instead of tax dollars) actually run the network and be responsible for upgrading it in the future. Democrat Congresswoman Anna Eshoo, who represents Silicon Valley, proposed that federal road projects (highways and major arterial streets) include adding Dig Once conduits. Even the cable trade association supported the bill, which would help them as well as new entrants, but the bill never really took off before the Administration offered a toothless compromise in a 2012 Executive Order, requiring federal agencies merely to “review” and offer “guidance” on Dig Once initiatives to state departments of transportation.

In short, there are plenty of things that could be done to lower barriers to private broadband deployment. It’s possible that existing state laws would get in the way if they hamper cities merely from helping new entrants. But it’s far from clear that ordering states to allow government-run broadband is really the best way to promote broadband deployment.

Again, you’d think the FCC might want to study these questions carefully. Indeed, the FCC usually sits on petitions filed by outside parties for some time before leaping into action. But here, the FCC took the highly unusual step of immediately ordering comments to be filed on the petitions filed within a month, giving scant time for commenters to address the issue properly — especially since this is the month of August, when many take vacations, and everyone is already working on reply comments on the FCC’s proposed net neutrality rules, due September 10, as  well as comments on two pending mergers (Comcast/Time Warner Cable and AT&T/DirecTV).

Indeed, you might think the FCC would do what Bill Clinton ordered Executive branch regulatory agencies to do back in his 1999 Executive Order on Federalism, which President Obama recently reaffirmed:

National action limiting the policymaking discretion of the States shall be taken only where there is constitutional and statutory authority for the action and the national activity is appropriate in light of the presence of a problem of national significance. Where there are significant uncertainties as to whether national action is authorized or appropriate, agencies shall consult with appropriate State and local officials to determine whether Federal objectives can be attained by other means.

(Thanks to the eagle-eyed Alton Drew for pointing out these two orders.)

Given the ongoing debate about what Section 706 means (two out of five FCC Commissioners agree with us) and the debate in Congress over whether preemption is appropriate, this seems like exactly the kind of situation where President Clinton wanted regulators to at least consider whether the national objective — promoting broadband — could be achieved through the alternatives we suggest. Technically, of course, the Clinton and Obama Executive Orders don’t apply to the FCC because it’s an independent agency, not part of the Executive Branch (like the Department of Justice). But the fact remains: by refusing to do this kind of consultation, Chairman Wheeler isn’t thumbing his nose at just today’s Congressional Republicans, but also two Democratic Presidents who understood that preemption is a serious matter not to be undertaken lightly.

Again, we’re not necessarily against preemption. We’d support legislation that helped remove barriers to private deployment. But these decisions have to be made by the people’s elected representatives in Congress, not the FCC. Meanwhile, we’d support getting model state legislation adopted by groups like the National Conference of State Legislators and the American Legislative Exchange Council to address these issues as well as promoting Dig Once as common sense infrastructure policy for the digital age, as essential a part of streetscapes as roads and trees.

But of course, in politics, the right answer often matters a lot less than optics. And optics seem to be the main point here. Chairman Wheeler is engaged in an elaborate game of political theatre — or, if you prefer, a genuine, good ol’ fashioned five-ring political circus. The main attraction, with the fire-eaters on elephants, is of course net neutrality: How should the FCC craft rules to replace those struck down by the D.C. Circuit in January? But in the last few months, the audience has turned its attention to what is normally a sleepy sideshow — the Bearded Lady giving a legal lecture, if you will: On what legal theory should the FCC base its rules? Is Section 706 sufficient, or should the FCC re-open the key definitions in the Act so as to ”reclassify” broadband from Title I (lightly regulated “information services”) to Title II (heavily regulated “telecommunications services”)? Rings three and four are about Comcast/Time Warner Cable and AT&T/DirecTV mergers — telecom mergers always stoke up hysteria. Muni broadband preemption is the fifth ring. And Wheeler stands at the center, the increasingly haggard impresario who would normally light up at the chance to talk your ear off about President Lincoln’s newfangled telegraph network, but who’s currently been running on fumes, trying to keep his tired troupe of actors lively enough in all five rings that the rowdy audience doesn’t set fire to the circus tent.

The beleaguered Chairman is in a terribly awkward political bind on net neutrality. He’s tried to chart a moderate course, using Section 706 to craft rules that could actually stand up in court (assuming that 706 is actually a grant of authority at all — and we think a court will eventually say it isn’t). He’s been demonized by a radical fringe that has stoked up popular hysteria, effectively changing the subject from the net neutrality ring to the to Title II ring — think of those 1.2 million comments the FCC received as locals who heard the circus was coming to town, and poured into the tent with pitchforks in hand, tanks of gasoline back in their trucks (just in case), but little clue about what’s really going on.

Wheeler and the other Democrat Commissioners know that Title II a bad idea, but if they’re going to keep the crowd from rioting, they need to seem tough on broadband. So they’re trying to “CRANK IT UP” in the other four rings. That’s why Wheeler has been looking to pick fights with broadband companies over net neutrality, like asserting that throttling the very heaviest users during congestion on wireless networks isn’t a valid network management practice that helps all other users — even though the FCC pretty clear said this would be back in 2010. It’s also why many speculate that Wheeler may decide to block both mergers, even though neither poses a significant competitive problem — just to help keep the mob happy when he announces that the FCC won’t be re-opening TItle II.

But if this is really about optics, what better way for Wheeler to placate the radical fringe? After all, it’s pretty clear that those pushing Title II consider regulating broadband like a public utility (but still a private company) to be a distant second best to their real goal: government-run broadband.

The FCC’s lawyers are too smart not to know how weak the FCC’s legal arguments are for using Section 706 to preempt any state laws. That’s probably why Chairman Wheeler simply dodged the question — and why you won’t hear anything from the FCC about those Clinton and Obama Executive Orders, like this bit from the Clinton Order:

“(a) Agencies shall construe, in regulations and otherwise, a Federal statute to preempt State law only where the statute contains an express preemption provision or there is some other clear evidence that the Congress intended preemption of State law, or where the exercise of State authority conflicts with the exercise of Federal authority under the Federal statute.

(b) Where a Federal statute does not preempt State law (as addressed in subsection (a) of this section), agencies shall construe any authorization in the statute for the issuance of regulations as authorizing preemption of State law by rulemaking only when the exercise of State authority directly conflicts with the exercise of Federal authority under the Federal statute or there is clear evidence to conclude that the Congress intended the agency to have the authority to preempt State law

Wheeler just doesn’t have time for these legal details or constitutional niceties. He has a huge political problem, which has become an enormous political headache for the White House. He needs to make the mob go home so he can get back to running the FCC.

If that’s what this is really about, getting political cover in the short term, then of course it doesn’t matter whether a court eventually strikes down the FCC’s preemption push. Wheeler will be long gone by the time that happens anyway. There’s a term for that in Washington: kicking the can down the road.

Meanwhile, companies like Sonic.Net and Google Fiber will continue to struggle with broadband deployment. Even giants like Verizon have found fiber deployment so difficult in some cities, like Boston, Baltimore and Alexandria, that they just gave up. If Wheeler actually wanted to do something about that mess, the best thing he could do would be to present specific legislative reforms, including preemption of state barriers to private deployment, to Congress.

We’ll be holding a teach-in outside the circus tent for anyone who’s interested in actually promoting broadband deployment. We’ll be handing out copies of Google Fiber’s City Checklist, and the Fiber to the Home Council’s Fiber Friendly Communities report. Look for us just past the Bearded Lady’s trailer. (We don’t agree on Title II but we did go to law school together, so we’re cool.)