Federal Communications Commission FCC 15-25 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) City of Wilson, North Carolina ) WC Docket No. 14-115 Petition for Preemption of North Carolina General ) Statute Sections 160A-340 et seq. ) ) The Electric Power Board of ) WC Docket No. 14-116 Chattanooga, Tennessee ) Petition for Preemption of a Portion of Tennessee ) Code Annotated Section 7-52-601 ) MEMORANDUM OPINION AND ORDER Adopted: February 26, 2015 Released: March 12, 2015 By the Commission: Chairman Wheeler and Commissioners Clyburn and Rosenworcel issuing separate statements; Commissioners Pai and O’Rielly dissenting and issuing separate statements. TABLE OF CONTENTS Para. I. INTRODUCTION.................................................................................................................................. 1 A. Executive Summary......................................................................................................................... 1 B. Background.................................................................................................................................... 17 1. The Commission’s Mandate Under Section 706 of the Telecommunications Act ................. 18 2. The EPB Petition and Territorial Restriction in Section 601 .................................................. 22 3. The Wilson Petition and H.B.129 ........................................................................................... 33 II. PREEMPTION OF PROHIBITIONS ON MUNICIPAL PROVISION OF BROADBAND WILL LIKELY LEAD TO INCREASED OVERALL BROADBAND INFRASTRUCTURE INVESTMENT AND PROMOTE OVERALL BROADBAND COMPETITION IN TENNESSEE AND NORTH CAROLINA, CONSISTENT WITH SECTION 706 ........................... 42 A. EPB and Wilson Provide Service Because Pre-Existing Service Did Not Meet Community Needs ......................................................................................................................... 43 B. The Private Sector in Wilson and Chattanooga Improved Services and Reduced Rates or Halted Rate Increases in Response to Municipal Entry................................................................. 49 C. Objections Raised in the Record Fail to Support a Different Outcome......................................... 56 1. So-Called “Level Playing Field” and “Crowding Out” Arguments Do Not Justify Denying the Petitions .............................................................................................................. 57 2. Claims That There Is a High Rate of Municipal Broadband Failure Are Misplaced.............. 61 3. Other Objections...................................................................................................................... 71 III. THE TENNESSEE AND NORTH CAROLINA STATUTORY PROVISIONS ARE BARRIERS TO BROADBAND INVESTMENT AND COMPETITION FOR EPB AND WILSON .............................................................................................................................................. 75 A. The Tennessee Statutory Provision, Section 7-52-601 .................................................................. 77 1. The Territorial Restriction in Section 601 is a Barrier to Broadband Investment and Competition............................................................................................................................. 77 Federal Communications Commission FCC 15-25 2. EPB Would Deploy Additional Facilities and Expand Competitive Entry Absent the Territorial Restriction in Section 601...................................................................................... 80 B. North Carolina Statutory Provisions.............................................................................................. 81 1. Background ............................................................................................................................. 81 a. Measures to Raise Economic Costs .................................................................................. 82 b. “Level Playing Field” Obligations.................................................................................... 85 c. Measures to Impose Delay................................................................................................ 88 2. The North Carolina General Statute, H.B. 129, is a Barrier to Broadband Investment and Competition ...................................................................................................................... 93 a. Measures to Raise Economic Costs .................................................................................. 96 b. “Level Playing Field” Obligations.................................................................................. 108 c. Measures to Impose Delay.............................................................................................. 114 3. Wilson Would Deploy Additional Facilities and Expand Competitive Entry Absent H.B.129 ................................................................................................................................. 120 4. Statutory Provisions That Do Not Constitute Barriers .......................................................... 123 IV. COMMISSION AUTHORITY TO PREEMPT THESE LAWS ....................................................... 130 A. The Mandate of Section 706........................................................................................................ 131 B. General Authority to Preempt under Section 706........................................................................ 140 C. Authority to Preempt Certain State Regulations of Community Broadband Providers............... 146 D. Counterarguments........................................................................................................................ 151 1. Arguments Based on the Act................................................................................................. 151 2. Gregory v. Ashcroft ............................................................................................................... 154 3. Nixon v. Missouri Municipal League .................................................................................... 159 4. The 10th Amendment............................................................................................................. 167 E. Application to Tennessee’s Section 601...................................................................................... 168 F. Application to North Carolina’s H.B. 129 ................................................................................... 170 1. “Level Playing Field” Obligations ........................................................................................ 173 2. Measures to Raise Economic Costs....................................................................................... 175 3. Measures to Impose Delay .................................................................................................... 179 4. Not Preempted....................................................................................................................... 182 V. ORDERING CLAUSES..................................................................................................................... 183 ATTACHMENT A: EPB / TENNESSEE MAP ATTACHMENT B: WILSON / NORTH CAROLINA MAP ATTACHMENT C: TENNESSEE LAW SUBJECT TO PETITION ATTACHMENT D: NORTH CAROLINA LAW SUBJECT TO PETITION I. INTRODUCTION A. Executive Summary 1. In this proceeding, we grant the petition of the Electric Power Board of Chattanooga, Tennessee (EPB), and grant to the extent described herein and otherwise deny the petition of the City of Wilson, North Carolina (Wilson),1 and preempt certain challenged provisions of Tennessee and North Carolina law restricting municipal provision of broadband service pursuant to section 706 of the 1 Petition of the Electric Power Board of Chattanooga, Tennessee, Pursuant to Section 706 of the Telecommunications Act of 1996, for Removal of Barriers to Broadband Investment and Competition, WC Docket No. 14-116 (filed July 24, 2014) (EPB Petition); Petition of the City of Wilson, North Carolina, Pursuant to Section 706 of the Telecommunications Act of 1996, for Removal of Barriers to Broadband Investment and Competition, WC Docket No. 14-115 (filed July 24, 2014) (Wilson Petition). 2 Federal Communications Commission FCC 15-25 Telecommunications Act of 19962 because we find that they are barriers to broadband infrastructure investment and thwart competition. 2. Americans recognize the critical importance of high quality broadband internet access as necessary infrastructure in today’s world.3 As we recently found in our 2015 Broadband Progress Report: Today, Americans turn to broadband Internet access service for every facet of daily life, from finding a job to finding a doctor, from connecting with family to making new friends, from becoming educated to being entertained. The availability of sufficient broadband capability can erase the distance to high-quality health care and education, bring the world into homes and schools, drive American economic growth, and improve the nation’s global competitiveness. New technologies and services such as real-time distance learning, telemedicine, and higher quality video services are being offered in the market today and are pushing demand for higher broadband speeds.4 3. The private sector has invested billions of dollars upgrading their broadband networks throughout the United States, and