Regulatory Reform

Why the FCC Should Stay Out of the Local Broadband Business

This appeared on May 20, 2014.
By: Rep. Blair Thoreson

Despite two failed federal attempts to assume new powers over the Internet, the Federal Communications Commission (FCC) is taking its third shot at regulating broadband Internet services, and this time there’s a strange twist.

FCC Chairman Tom Wheeler plans to follow up the latest FCC proposal to impose regulations on aspects of the Internet with a proposal to remove state-level safeguards on broadband businesses owned by local governments. Some 20 states either prohibit their local governments from going into the broadband Internet business or at least impose restrictions on those municipalities. For instance, some states require local voter approval before municipal governments can risk public financial health by using taxpayer dollars to build and operate broadband networks that compete against private businesses.

Chairman Wheeler’s plans for federal preemption of state-level safeguards on local-government-owned networks pose at least three major problems:

First, preempting state-level safeguards undermines state-government structure and destroys local-government accountability. Local governments are not federal field offices; they are the products of state constitutions and state laws. Typically, state laws delegate and define the powers of local government, but FCC preemption would interfere with state constitutional and legal authority. In this bizarre scenario, local governments would become autonomous enclaves enjoying a federal right against their states. This federal power grab turns federalism inside-out.

Suppose a state doesn’t want its local municipalities to enter the broadband business and expose citizens and taxpayers to financial risk? Or suppose a state wants a local government to leave the broadband business because of steep financial losses or curtailed local competition among private providers? Preemption could make local-government-owned broadband networks a one-way street. Local governments would essentially be immune from future state policy decision-making. In short, FCC preemption would make a mess of state structural federalism.

Second, preemption of state-level safeguards on local-government-owned networks strips taxpayer protections and poses serious local public-debt burdens. The broadband Internet services industry is capital-intensive; its financiers take serious risks. Local governments almost inevitably lack business know-how, and in many noteworthy cases they’ve run their broadband networks into deep financial difficulties. Enormous operating losses and the mounting debts of local-government-owned networks have had spill-over effects on local budgets. In some cases, local governments have sought tax increases or rate hikes on water or energy services to cover those steep losses.

Not surprisingly, some states require local voter approval before their local governments can go into the broadband business. Will the FCC preempt and thereby eliminate local voter-approval protections? Or will it preempt state restrictions on the use of local taxing power to safeguard citizens’ pocketbooks?

Third, preemption of state-level safeguards on local-government-owned networks improperly blurs the relationship between government and private business and threatens government’s impartial upholding of the law. To their credit, many states uphold the critical distinction between government and the private sector. All governments are responsible for efficient public administration and for upholding the rule of law. But local government’s impartiality is called into question when it goes head-to-head in business competition with free-market broadband Internet providers.

Conflicts of interest arise when broadband-network-owning local governments are able to exert power over the private businesses against which they compete. For example, local governments that own their own broadband networks may be tempted to give themselves a competitive advantage in setting rights-of-way fees. By preempting state restrictions on local-government-owned networks, the FCC may encourage further confusion and conflicts regarding the proper role of local governments.

Federal communications laws from the early- and mid-1990s barely mention the Internet, and instead primarily address broadcasting, telephone service and cable. Instead of finding troubling new ways to give itself power over the Internet, the FCC should pursue ways to foster a pro-investment atmosphere for private-sector broadband service providers. Big government shouldn’t be in the business of regulating broadband Internet services, nor should it be in charge of directing local governments into the Internet business.

Blair Thoreson is the public-sector co-chair of the Communications and Technology Task Force.

In Depth: Regulatory Reform

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