High Court: States Can Bar City Munis

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States are within their rights to prevent municipal governments from moving into the telecommunications business, the U.S. Supreme Court said in a decision issued last Wednesday.

The high court voted 8-1 to overturn a decision by the 8th U.S. Circuit Court of Appeals concerning municipal overbuilds in Missouri.

The Missouri Attorney General, defending a 1997 law barring municipalities from entering telecommunications businesses, asked the high court to interpret Section 253 of the federal Cable Act.

Language in that section prevents legislators from barring “any entity” that wishes to enter the telecom business.

The Missouri Municipal League argued that “any entity” includes such political subdivisions as cities and municipal utilities, so the state couldn’t ban city-owned municipal telecom ventures.

The league had first sought help from the Federal Communications Commission, which denounced the law but declined to call it illegal. The cities then went to the 8th Circuit and prevailed.

But the Supreme Court said March 24 that the pre-emption in Section 253 would not work normally if applied to a government unit, because the regulator and the regulated entity would essentially be the same party.

Also, regulation of a public and private entity would be so different that it is unlikely Congress intended to set off on “such uncertain adventures,” Justice David Souter wrote.

The federal regulation should be read in a way that preserves states’ chosen disposition of their own powers, the court said.

The National Cable & Telecommunications Association was not a party to the suit, but spokesman Brian Dietz said the trade group believes it’s inappropriate for municipalities to use taxpayer money to subsidize enterprises that compete with private businesses.

Missouri officials were pleased. “We’re glad the court affirmed that the Missouri General Assembly has the authority to do what it did, since it created those entities [cities],” Missouri state solicitor James Layton said.

The decision did not address whether or not it’s good public policy for governments to deliver telecom services, noted James Baller, attorney for the Missouri Municipal League.

“As to the future, we note that only a handful of states currently have barriers to municipal entry and we hope that other states will take to heart the FCC’s admonition that such barriers are unwise, unnecessary to achieve any state interest, and contrary to the purposes of the Telecommunications Act,” Baller said.

While the high court decision gives some clarity in the realm of municipal competition, other turf wars continue in both the private and commercial competitive sector that will also hinge on the interpretation of the Telecommunications Act.

On March 23, Service Electric Cablevision Inc. filed suit in the U.S. District Court for the Middle District of Pennsylvania to challenge a competitive franchise awarded by Hazleton, Pa., regulators. According to the lawsuit, Service Electric had signed an exclusive 17-year franchise with the city in 1987. The suit asserts Hazleton breached Service Electric’s contract by franchising NuNet.

But the 1996 act banned exclusive cable franchises.

Previous suits have resulted in opposing rulings on whether or not the ban can be applied to franchises that predate the act.

A suit brought by Cox Communications Corp. ended when a panel from the 11th U.S. Circuit Court of Appeals ruled cities can’t sign exclusive contracts.

But in a later challenge — this time in the 6th Circuit in a suit by James Cable Partners — the court found that the Cable Act can’t infer retroactivity.

Service Electric wants the court to permanently enjoin Hazleton from acting on NuNet’s franchise.

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