The case centers on whether municipalities or public-owned utilities, such as electric companies, can offer telecom services. Missouri attorney general Jay Nixon is among those arguing that the Telecommunications Act of 1996 doesn’t expressly permit municipal telecom services, while the Missouri Municipal League says it doesn’t prohibit them, either.
Last year, the U.S. Court of Appeals for the Eighth Circuit overturned Missouri’s ban on telecom services. The Supreme Court's decision on the matter is expected this summer and will affect the dozen or so other states that have similar restrictions.
The Supreme Court’s decision will also affect the fiber-to-the-home (FTTH) sector. “In 2003, municipalities and public utility districts (PUDs) made up 32 percent of the FTTH market and have accounted for the single largest builds," according to Render, Vanderslice & Associates.
“In 2002, municipalities and PUDs made up 26 percent of the market. So they are not only the largest market segment, but they are growing robustly, as well,” says Leonard Ray, vice president of the FTTH Council.
The Supremes heard oral arguments in Nixon v. Missouri Municipal League on January 12. “We should see an opinion near the end of the court's term in late June,” says E. Ashton Johnston, a partner at Piper Rudnick. A major part of the case centers on part of the '96 Telecom Act that says that no state, local statute, etc., may "prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” The court must clarify whether “any entity” includes municipalities and municipal-owned utilities.
Recent decisions suggest that the Supreme Court will rule in favor of municipalities. The debate can be traced back to City of Abilene v. FCC, where the D.C. Circuit Court of Appeals ruled against municipalities. Since then, three other courts have interpreted “any entity” to include municipalities, freeing them to offer telecom services.
As is usually the case in the telecom business, either decision involving potential RBOC competition will line the pockets of lobbyists and lawyers.
If the Supremes strike down the Eighth Circuit’s decision, the incumbent carriers will "lobby hard at the state level to have new anti-municipal laws enacted in states where they currently don't exist,” says Ray.
If the Supremes uphold the Eighth Circuit’s decision, it paves the way for more municipal deployments in Missouri and elsewhere. States with similar restrictions would then take up the matter with the FCC, which would have to determine whether each state is competitively neutral.
But the court has a third option: Defer to the FCC. During oral arguments, one justice mulled that option before it was dismissed. “I don’t see any realistic way that the Supreme Court can send the ‘any entity’ issue to the FCC or defer to the FCC’s interpretation,” says one attorney involved in the case, speaking on the condition of anonymity.
The Supreme's decision in Nixon v. Missouri Municipal League will affect several other states that limit municipal telecom services. According to the FTTH Council:
- Arkansas prohibits municipal LEC services.
- Florida levies special taxes on telecom services provided by public entities.
- Minnesota requires 65 percent of voters to approve a municipal telecom service.
- Nebraska prohibits government agencies and municipalities from becoming common carriers.
- Nevada prohibits cities with populations over 25,000 from providing telecom services.
- South Carolina has significant restrictions on municipal telecom providers.
- Tennessee and Utah permit some municipal telecom services if they pass a stringent set of anti-competitive guidelines and hearings.
- Texas prohibits municipalities and city-owned utilities from providing telecom services or facilities.
- Virginia electric utilities can become LECs as long as they don’t cross-subsidize services and meet guidelines not applied to private carriers.
- Washington public utilities can provide only wholesale telecom services.
— Tim Kridel, Senior Editor, Heavy Reading