FCC chairman doubles down on political hubris after court decision
© Greg Nash

Last year, the Federal Communications Commission (FCC), at the urging of the White House, voted along party lines to preempt portions of Tennessee and North Carolina laws designed to delineate the terms and conditions under which municipalities may construct and deploy broadband internet networks in order to offer advanced communications services to the general public.

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Notwithstanding clear Supreme Court precedent holding that this type of preemption is unconstitutional, the FCC nonetheless plowed ahead with its efforts to have the federal government dictate to a state how it governs its municipal subdivisions. For this reason, many leading telecom lawyers predicted that the FCC's order was dead on arrival. Seeing the hopelessness of the FCC's case, even the Department of Justice refused to back the agency on appeal — a very rare refrain.

As expected, earlier this month, the Sixth Circuit Court of Appeals in the case of Tennessee v. FCC trounced the FCC's constitutional end-run, finding that "nowhere in [the Communications Act's] general charge to 'promote competition in the telecommunications market' is a directive to do so by pre-empting a state’s allocation of powers between itself and its subdivision." According to the court, this is "fundamental constitutional policy."

By pursuing this nakedly political agenda, FCC Chairman Tom Wheeler has wasted significant federal and state resources litigating his patently unconstitutional power grab. Nevertheless, Wheeler is far from contrite. If anything, Wheeler is doubling down on his political hubris. In response to the Sixth Circuit's ruling in Tennessee, Wheeler retorted that the case perpetuated "anti-competitive broadband statutes" and thus "thwarted" the "efforts of communities wanting better broadband ... by the political power of those who, by protecting their monopoly, have failed to deliver acceptable service at an acceptable price." Moreover, Wheeler boasted that he would be "happy to testify on behalf of consumer choice" should other "states seek to limit the right of people to act for better broadband."

What Wheeler steadfastly refuses to understand is that this case was not about "broadband statutes" or "communities wanting better broadband." As the Supreme Court clearly explained in Nixon v. Missouri Municipal League, "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 constitutional law and, as explicitly recognized by the court in Nixon, "the issue does not turn on the merits of municipal telecommunications services." In essence, the court determined that it matters not how sweet municipal broadband can be made to sound, nor how bountiful its alleged benefits — as a matter of constitutional law, the FCC has no legal authority to preempt state laws restricting or prohibiting municipal broadband.

To Wheeler's misfortune, the case was not litigated in the court of public opinion, but in a court of law bound by the tenants of U.S. Constitution — constraints Wheeler apparently believes do not apply to him.

That said, if Wheeler wants to have a policy debate about municipal broadband, then let's have it.

Wheeler contends that state laws designed to protect taxpayers are anticompetitive. In fact, the exact opposite is true. Basic economic analysis offers no alternative to the nakedly anticompetitive nature of municipal broadband. As demonstrated by a recent comprehensive study on the topic, municipal broadband requires massive taxpayer subsidies, is predatory to private investment and contributes nothing to expanding economic well-being.

Wheeler also likes to tout the competitive benefits of municipal broadband, but the evidence is not with him. The only careful analyses of relative prices across municipal and private broadband providers reveals no substantial discounts. In fact, for the standard triple-play package, municipal systems charge higher prices.

And, though Wheeler likes to complain about "high" prices for cable set-top boxes charged by cable and satellite companies, the fact is that municipal systems charge higher prices than do their private counterparts. Though these municipal systems sometimes offer very high connection speeds not historically available from private providers (though that is changing fast), there is today no real consumer demand for such speed because no known applications require it.

Despite the lack of any apparent benefits, consumers are typically left holding the financial bag for the inevitable financial losses racked up by these municipal networks. Municipal broadband has proven financially disastrous by any relevant standard, a fact Wheeler ignores as he unscrupulously shows city governments the way to financial ruin.

Most egregious, Wheeler apparently has no problem when the government concurrently acts as both a competitor and a regulator to the private sector. Fortunately, the courts do. As the U.S. Court of Appeals for the D.C. Circuit recently found in Association of American Railroads v. Department of Transportation, when the government acts as both regulator and a competitor to the private sector, such an arrangement violates the Due Process Clause of the Fifth Amendment. Eventually, if the private sector chooses to litigate, then Association of American Railroads could summarily put an end to municipal broadband.

While Wheeler correctly notes that the FCC is charged with "remov[ing] barriers to broadband deployment wherever they exist," the FCC may not treat the Constitution with impunity. The Supreme Court in Nixon made clear that federal efforts "threatening to trench on the States' arrangements for conducting their own governments should be treated with great skepticism, and read in a way that preserves a State's chosen disposition of its own power."

As such, rather than continue with this folly, perhaps Chairman Wheeler should, as Republican Commissioner Ajit Pai recommends, "focus on implementing a broadband deployment agenda to eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks."

That would be constructive indeed.

Spiwak is the president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a nonprofit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.

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