The FCC recently preempted the ability of the states of North Carolina and Tennessee to apply competitive restrictions on municipal-owned communications systems. States may still restrict municipalities from building and operating communications networks, but the FCC’s Order says that if a state allows a municipal system to be built, it cannot restrict the municipality from expanding beyond its municipal limits, impose unique pricing rules, or require allocations of shared facilities or personnel. Essentially, once a municipality is permitted to offer broadband and other communications services, they must fall under the same rules as any other CLEC or broadband provider.

Governmental entities entering into commercial business have always been controversial since they might be subsidized by taxes. Some states have proactively restricted municipalities from entering the telecom business, and these restrictions have been upheld in the Order. However, according to the Order, states which have allowed municipal-owned networks may not limit them to serve only within their municipal territories or place restrictions that would promote a level playing field for competition with a commercial entity.

The FCC determined that level playing field restrictions — such as imputation of taxes, right of way costs, pole attachments, and shared personnel and equipment — did not promote broadband competition and limited broadband investment. The FCC also cited cases where the broadband service levels have increased while the prices have decreased for both the municipal system and the competitive response.

Although this Order currently is limited to the two states, the FCC will not hesitate to apply the same treatment to other similar state statutory provisions. Given the controversial nature of the ruling, it is possible that court challenges to the ruling or efforts to overturn the ruling in Congress may arise.  Unless and until the ruling is overturned, JSI clients that are competing with or are adjacent to a municipal broadband provider should be prepared to have any existing level playing field restrictions dropped in the future.

If you have any questions about the FCC’s Order and how this might affect your company in the future, please contact Valerie Wimer in JSI’s Maryland office at 301-459-7590.

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