Cities, FCC Lose Fight to Expand High-Speed Internet by Jeff John Roberts @FortuneMagazine August 10, 2016, 6:06 PM EDT E-mail Tweet Facebook Linkedin Share icons An appeals court on Wednesday sided with the telecom industry, and with North Carolina and Tennessee, in a major decision that upheld the ability of states to pass laws that restrict municipalities from offering broadband internet services. The focus of the decision was a high-speed fiber network operated by the city of Chattanooga, and a similar project in Wilson, North Carolina, in which the towns had supplied fast broadband to nearby homes and businesses. The projects violated laws in each states that banned or restricted towns from selling internet services outside their borders. The court’s decision to side with the states comes as a major defeat for the Federal Communications Commission, which claims it has the power to preempt such laws, and for consumer groups who argue municipal internet services are provide consumers with cheaper and faster internet. Get Data Sheet, Fortune’s technology newsletter. In a technical 25-page ruling, a three judge panel of the Sixth Circuit Court of Appeals in Cincinnati found the FCC had over-stepped its bounds. While a section of the Telecommunications Act allows the agency to overrule state laws that interfere with federal broadband policy, the court found the law lacked clear language to say the FCC could interfere with municipal arrangements. “Any attempt by the federal government to interpose itself into this state–subdivision relationship therefore must come about by a clear directive from Congress, and the FCC can only pick the decision maker here if there exists a clear statement to do so in § 706,” wrote Circuit Judge John Rogers. The ruling means North Carolina and Tennessee can now force the cities to curtail their broadband offerings, and gives the green light to more than a dozen other states, which have similar laws, to do the same. The court, however, took pains to say it did not necessarily agree with the wisdom of the state laws, and praised both cities’ projects for offering speedy internet to not just consumers, but to libraries, schools and businesses as well. The decision also observed how the Chattanooga fiber network had resulted in the telecom giant Comcast CMCSA lowering rates, and how the Wilson project led Time Warner Cable TWC to stop raising them. The Politics of Broadband The court’s ruling comes as a blow to FCC Chairman Tom Wheeler, who announced the decision to pre-empt the state laws in 2015, and who considered it a key part of his agenda to expand the speed and availability of high speed broadband across the country. “While we continue to review the decision, it appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina,” said Wheeler in a statement blasting the decision. “In the end, I believe the Commission’s decision to champion municipal efforts highlighted the benefits of competition and the need of communities to take their broadband futures in their own hands.” The decision will also come as a disappointment to consumer groups, who have long complained the telecom industry has used money and lobbying clout in state capitols to thwart community broadband, and preserve their monopolies. Telecom companies, meanwhile, have countered that taxpayers should not pay for broadband projects, and that they should not have to compete with government offerings. This position has been echoed with certain conservative groups. FCC Says Internet Subsidy for Low-Income Americans Could Create Jobs. For his part, Wheeler characterized the companies’ position as self-serving in his statement: In the past 18 months, over 50 communities have taken steps to build their own bridges across the digital divide. The efforts of communities wanting better broadband should not be thwarted by the political power of those who, by protecting their monopoly, have failed to deliver acceptable service at an acceptable price. The FCC can appeal Wednesday’s decision to the Supreme Court, though it’s not clear if it will do so. Wheeler is currently winding down his term as Chairman, and its possible he and the other Commissioners will not make any major decisions until after the Presidential elections. The legal issue at stake—whether the FCC can pre-empt state laws restricting municipalities’ decisions concerning the scope of telecom construction—had been a point of contention among scholars. The most recent Supreme Court case on the matter came in 2004, and saw the Justices side with the state of Missouri over a law barring municipalities from building cable networks. The appeals court decision on Wednesday cited the Missouri case favorably. “The Supreme Court agreed with the FCC and held that a clear statement was needed because federal preemption of Missouri’s law threatened “to trench on the States’ arrangements for conducting their own governments,” wrote the court. You can read a copy of the ruling here. (I underlined some of the relevant bits).