Comments to the FCC re: Government Owned Networks

Tom Wheeler
Federal Communications Commission
445 12th Street, SW
Washington, DC 20554

RE: MB Docket No. 14-115

Dear Chairman Wheeler,

These comments are in response to the Electric Power Board of Chattanooga, Tennessee, and the City of Wilson, North Carolina asking that the Commission act pursuant to section 706 of the Telecommunications Act of 1996 to preempt portions of Tennessee and North Carolina state statutes regarding the municipal provision of broadband services.

Both entities are complaining that state laws are constraining them from doing what they want to do, and so are encouraging the federal government, via the FCC, to preempt state law and empower municipalities in ways that upset the political structure of the U.S.

Models of municipality creation vary widely around the world but in the United States how they are created is fairly clear. The U.S. Constitution empowers states as the primary political entity. The federal government itself is a creation of the power of the states, and of the people, with the Constitution placing restraints on government broadly, at the agreement of the states. States are also empowered to arbitrarily create subdivisions, generically referred to as municipalities. Ultimately then, responsibility for the municipalities generally falls to the states.

Given this fact, it is appropriate for state government to protect its citizens as it sees fit as expressed through state elected officials. A long history of spectacular failures of municipal broadband makes clear that it is not unreasonable for many states to have stepped in and placed prudent restrictions on whether and how municipalities can create or operate broadband networks. Such restrictions are entirely supportable and defensible as a proper exercise of state authority to protect its taxpayers from bad deals.

FCC intervention into this relationship would have profound negative effects. Municipalities, untethered from responsibility to the state, could partake in risky schemes of tax funded adventurism. But when inevitably the bill comes due who will pay? Will the FCC bear the responsibility for cost overruns, upgrades, the syphoning of resources from other budget priorities to support the broadband system? Who will pay for abject failures? Is the FCC prepared to be responsible or will it instead merely set up a predictably disastrous situation and then walk away, leaving a mess for the future?

An excellent analysis by Lawrence Spiwak shows that the FCC has no legal authority to act to preempt state laws limiting municipal broadband. “However one feels about municipal broadband as a matter of public policy, as a matter of law the FCC has no authority to preempt state laws limiting municipal entry into the broadband marketplace under Section 706. Indeed, when the Supreme Court first looked at the issue of preemption in municipal broadband in Nixon, the Supreme Court went out of its way to note that “it is well to put aside” the public policy arguments favoring municipal broadband to support any “generous conception of preemption.” Why? Because the issue of preemption is one of statutory interpretation and, as such, “the issue does not turn on the merits of municipal telecommunications services.” Nothing has changed over the last ten years. The FCC has no more legal authority to preempt state laws limiting municipalities from offering broadband under Section 706 than it did under Section 253. Accordingly, not only will granting Chattanooga’s request ultimately end in a rebuke from the courts, but such litigation could bring the FCC’s broader authority under Section 706 crashing down with it.”

In addition several states and state organizations have already made clear that they will bring a lawsuit to sweep aside laws properly debated and passed by the people’s duly elected state representatives. Regardless of the outcome of those lawsuits communications policy will once again be plunged into uncertainty. One certainty remains — citizens will lose again as their federal and state tax dollars are funneled into unproductive litigation where the outcome is all but certain as state law will stand. In general, rulemaking should always be subordinate to legislation, with greater power resting in the hands of elected officials but particularly where a federal agency is trying to overturn state law where no such power has been given to the federal government by the states.

While no constitutional provision can anticipate or foresee every emergency, crisis, power conflict or advance of technology the Tenth Amendment lays down a principle in general terms: namely, that states could follow their best judgment in matters the Constitution had neither given to the national government nor prohibited the states from undertaking. Although the Constitution prohibits the states from declaring war or coining money, states were left a considerable scope of activity such as building and operating their own infrastructure, regulating their own affairs and impose their own taxes for their own purposes.

State legislatures are in no sense puppets of Congress. State lawmakers may meet whenever they want for as long as they want, and address issues peculiar to the needs of those who have chosen them. No national “permission” is needed; the Tenth Amendment, in a sense, constitutes permission as the amendment asserts that those powers not delegated to the federal government don’t belong to it. That power belongs to the states or the people.

The Tenth Amendment creates a balance of power between the states and the federal government, which is what is meant by “federalism.” Supreme Court Justice Antonin Scalia’s writing in Printz v. New York is relevant, “The Federal Government may neither issue directives requiring the States to address particular problems, nor command the States’ officers, or those of their political subdivisions, to administer or enforce a federal regulatory program. It matters not whether policymaking is involved, and no case by case weighing of the burdens or benefits is necessary; such commands are fundamentally incompatible with our constitutional system of dual sovereignty.”

States are imbued with the power to regulate their internal matters, including if the state will allow municipalities to build broadband systems subjecting all citizens of the state to the risk of failure.

For years, municipalities around the country have tried, and ultimately failed, to either set up their own communications networks or to partner with private companies to get into the business of broadband. The reasons for the failures are numerous, most typically resulting in taxpayer funds being wasted. And while some would nit-pick the details of the failures, the fact remains that taxpayer money was put at risk, often without approval of taxpayers, and most often squandered.

Even still, some municipalities want to plow forward, heedless of the lessons, believing that they are somehow different. Some have been frustrated by state laws designed to prevent fiscal folly on behalf of the localities, laws that shield all citizens of the state from financial risk. Adopting the failed model of municipal provision of communications services is the wrong idea, as many municipalities across the country can attest.

Municipalities face many risks in building and operating broadband networks. As has been seen in the routine failures, governments chronically underestimate the cost of building out and maintaining networks, and chronically overestimate adoption rates.

Technology infrastructure investment, like most infrastructure investment, is not for the faint of heart or the partially committed. Municipalities and states across the country are constantly challenged by maintaining the relatively static infrastructure that they have already taken on, such as streets, sidewalks, bridges and buildings.

Technology is vastly more challenging. One must jump in with both feet, constantly updating the technology and business models. As online services grow more sophisticated, customers have become accustomed to regular upgrades, challenging the ability of governments to keep up with demand. Those challenges are multiplied a hundred fold when the complications of delivering video and voice are added. Video services alone are in a constant state of upgrade, either in providing more channels, more programming, or providing services to customers to allow them to customize their own video experience, such as video on demand.

Of course as a greater variety of more complicated technology and services is offered, the more expensive the building of the system and overall operations becomes. In turn even more taxpayer money is placed at risk, because when these systems fail it is not private investors who lose money but taxpayers across the state. When local and state coffers are depleted because of these sorts of risky government bets, the cry is for more tax revenue or for an outright bailout.

In general, technological innovation continues to far outpace the speed of government, which simply cannot compete with the market. So, in the case where a municipal system is competing against a private system, about the time the municipal system is up and running, private networks will offer something better, cheaper, and faster. Even in cases where there is no private sector competition, government operated networks will never keep pace with public expectations. Broadband systems are not like a water public utility where the same pipes are used for one hundred years to deliver the same product in the same way.

The challenges of government owned networks and the preservation of free speech is also daunting. The theoretical became real in San Francisco, a city that often brags of its rich tradition of civil liberties. There, a municipal communications system was purposely shut down to prevent people from engaging in specific, legal communications. In a chilling statement, city officials pointedly said, “Cellphone users may not have liked being incommunicado, but BART officials told the SF Appeal, an online paper, that it was well within its rights. After all, since it pays for the cell service underground, it can cut it off.”

Whether San Francisco should be paying for municipal communications systems at all is a question for the city and state. The more pressing concern is the freedom of speech problems that arise when a municipality owns a communications system.

A common argument from those who support and prefer government built communications systems is that they simply trust government to protect their interests. But any entity, regardless of how it is organized, that uses its power to restrict Constitutional freedoms should be anathema to all. Unfortunately, in this case the government used its power to stop speech, arguing that since it owns the communications system it can do as it likes. If this were a private entity acting improperly then law enforcement, courts and regulatory bodies would be monitoring, but when government owns the system it may do as it wants, and better options are rarely considered.

In North Carolina they have already addressed municipal involvement in broadband provision by passing a law that safeguards its citizens. The law does not create an outright ban, which would be far more preferable, but rather imposes certain requirements intended to provide a level playing field with any competing private sector participant and also provides transparency for taxpayers. This would seem to be a minimum standard. At the very least, governments should have to be open and play by the same rules, not rigging the game in government’s favor.

The law allows communities in North Carolina to provide phone, cable and broadband services, even in competition with private providers, but they must:
• Comply with laws and regulations applicable to private providers—including the payment of taxes;
• Not cross-subsidize their competitive activity using taxpayer or other public monies;
• Not price below cost, after imputing costs that would be incurred by a private provider;
• Not discriminate against private providers in access to rights-of-way;
• Those funding the venture, the citizens, must be allowed a vote before incurring debt, when the venture competes against a private sector company.
• Have a local government commission evaluate the competitive environment before approving loans for a competitive purpose, as a further taxpayer protection.

Policymakers should sponsor initiatives to encourage broadband deployment into unserved areas using incentives for private sector companies that risk their own capital.

Where state officials of any sort are calling for FCC action, their arguments are merely an attempt to end run the state’s political process and the will of the people. They seek to create public policy where they were not able to do so within their own state through proper channels. This is policy making by the ruling class rather than by will of the people. State policies should be determined through state legislation or at least through state rule making.

Allowing the states to continue to experiment with how to broadband will be delivered to the greatest number of their residents is absolutely the right policy to pursue. We look forward to the FCC standing on the side of greater creativity and innovation, and the law, and not intervening in state law.


Bartlett Cleland

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