Supreme Court: States can stop municipal telecom

The U.S. Supreme Court has struck down an appeals court ruling that would have allowed local authorities in Missouri to be their own telecommunications providers, throwing into doubt efforts by cities and municipalities around the country to give residents and businesses modern telephone, Internet and other telecom services.

Officials from the Missouri Municipal League have argued that the terms of The Telecommunications Act of 1996, which says that no state or local statute can limit "any entity" from providing interstate or intrastate telecom services, gave local authorities the right to permit municipal telecom services. Missouri Attorney General Jay Nixon believes the act does not give any express permission for those services.

That interpretation is central to a Missouri state law forbidding its political subdivisions to provide or offer for sale any telecommunications service or facility. As many as a dozen states around the country have similar laws preventing municipalities from providing telecom services. Nevertheless, municipalities and public utilities have been major drivers for some areas of the telecom industry. They made up one third of the fiber-to-the-home (FTTH) market in 2003, for example.

In the 8-to-1 decision published today and written by Justice David Souter, the Court declared that the class of entities contemplated under the 1996 Telecommunications Act "does not include the state's own subdivisions." It also rejected the municipal league's claim that allowing municipalities to offer telecom services would necessarily enhance the public interest by promoting competition for those services.

Justice John Paul Stevens was the sole dissenter. Stevens wrote: "The assertion that Congress could have used the term 'any entity' to include utilities generally, but not municipally owned utilities, must rest on one of two assumptions: Either Congress was unaware that such utilities exist, or it deliberately ignored their existence when drafting ... Both propositions are manifestly implausible, given the sheer number of public utilities in the United States."

The stakes are high. Commercial telecom providers have been reluctant to supply services to many of these areas, which they see as unprofitable regions. As a result, many municipalities around the country, particularly those in rural and other isolated areas, have taken on the task of supplying their residents and businesses with services such as Internet access, as a way of boosting their economic competitiveness.

"The decision is disappointing," said Andy Dalton, general counsel for City Utilities of Springfield, MO. "In this case we thought that federal law should control what we are able to do."

Today's ruling shouldn't materially affect what City Utilities is currently offering since the Missouri law allows for limited Internet services to be provided to customers such as schools, medical establishments and so on, Dalton said. But other municipalities in Missouri had been hoping to expand their offerings to products such as voice over fiber, he said.

In a brief filed with the Supreme Court last year, the FTTH Council, and industry body, said that the municipalities are "an important link in enhancing broadband penetration, especially in rural and less densely populated areas."

Robinson is a freelance journalist based in Portland, Ore. He can be reached at hullite@mindspring.com.