Bans on local telecom service are upheld

A recent U.S. Supreme Court decision could mean that some local governments will have to hang up their efforts to provide commercial telephone service. In March, the high court, by an 8-1 vote, upheld state laws that prohibit local governments from offering telecommunications services. The decision reversed an earlier ruling by the 8th U.S. Circuit Court of Appeals.

At issue was language in a federal law commonly known as the Telecommunications Act, which was passed in 1996 in part to create more choices for consumers in the phone-service marketplace. The law says that states cannot bar “any entity” from providing telecommunications services. Citing the act, the Missouri Municipal League several years ago petitioned the Washington, D.C.-based Federal Communications Commission (FCC) to overturn a 1997 state law prohibiting local governments from entering the telecommunications market. When the FCC did not do so, the league appealed to the 8th U.S. Circuit Court of Appeals, which ruled in its favor.

In its decision, the Supreme Court said that if Congress meant for the phrase “any entity” to include public entities such as cities and counties, it should have explicitly said so. The court’s majority opinion, written by Justice David Souter, states that “there is no convention of omitting the modifiers ‘pubic and private’ when both are meant to be covered.”

“The Supreme Court for many years has said that when a federal law is [designed] to pre-empt a state exercise of a traditional power — in this case it was the power of the state to tell its political subdivisions what services they can or can’t provide — Congress can do this, but it must make its intent so clear that there is no doubt in anyone’s mind [about] what Congress intended,” says James Baller, a Washington, D.C.-based lawyer who served as counsel for the Missouri Municipal League. “The court said, ‘Well, Congress may have intended this, but it didn’t make its intent clear enough to convince us that this is absolutely the case.’” The court specifically said that it was not ruling on the merits of state bans against local government provision of telecommunications, Baller adds.

The impact of the decision remains to be seen, in part because there is considerable debate about exactly what services the word “telecommunications” encompasses. According to the 1996 law, it clearly covers telephone service but not cable television. Less clearly covered are services offered over a cable modem such as high-speed Internet access. The FCC has declared such services as “information services,” but the 9th U.S. Circuit Court of Appeals has ruled that they are telecommunications services. “What exactly telecommunications service is today [and] what it will be in the future needs to be more sharply defined,” Baller says.

Approximately 10 states have laws that work against cities and counties offering telecommunications services, says Libby Beaty, the executive director of the Alexandria, Va.-based National Association of Telecommunications Officers and Advisors, an organization that represents and advises local governments on telecommunications issues. Some of the laws are outright bans, while others place significant obstacles in the way of such services. For example, Minnesota has a law that, before a local government can provide commercial telecommunications, 65 percent of voters in an election must approve the provision of such services. “Hundreds” of local governments offer some type of telecommunications service, she adds. The cities and counties that do are typically located in rural areas that are underserved by private carriers, she adds.

Beaty says that one likely result of the decision may be that private carriers will try to use it when lobbying state legislators for bans, even though the court did not evaluate the merits of such laws. “That’s an unfortunate consequence,” she says.