The Future of Broadband

The FCC Has Ruled on Net Neutrality; Do States Get a Say?

How much states can get involved has a lot to do with whether the FCC decides broadband inherently crosses state lines.

National Journal
Kaveh Waddell
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Kaveh Waddell
March 3, 2015, 3 p.m.

Among the many de­tails of the FCC’s net-neut­ral­ity plan that re­main vague is the role of states in im­ple­ment­ing the reg­u­la­tions, set­ting in a mod­ern con­text one of the old­est de­bates in Amer­ic­an polit­ics: the over­lap­ping and some­times con­flict­ing roles of state and fed­er­al gov­ern­ment.

The Con­sti­tu­tion af­fords the fed­er­al gov­ern­ment jur­is­dic­tion over com­merce that bleeds over state lines. State gov­ern­ments have the au­thor­ity to reg­u­late what’s left over: activ­it­ies that take place with­in the bor­ders of the state. That dis­tinc­tion is en­shrined, with a few ex­cep­tions, in the Tele­com­mu­nic­a­tions Act of 1996, which gives the FCC the au­thor­ity to reg­u­late in­ter­state trade and un­der cer­tain cir­cum­stances pree­mpt state reg­u­la­tions.

Broad­band has been re­garded as an “in­her­ently in­ter­state ser­vice,” says Rus­sell Hanser, an at­tor­ney at Wilkin­son Bark­er Knauer who rep­res­ents sev­er­al large cable and tele­com com­pan­ies. That means the In­ter­net has gen­er­ally been sub­ject to “ex­clus­ive fed­er­al reg­u­la­tion,” Hanser says.

“What the states have been more con­cerned about is con­sumer pro­tec­tion and pri­vacy,” says Jon Adame, dir­ect­or of com­mu­nic­a­tions, fin­an­cial ser­vices, and in­ter­state com­merce at the Na­tion­al Con­fer­ence of State Le­gis­latures. State reg­u­la­tion has been “more based on the con­tent that’s on the In­ter­net in a speech ca­pa­city as op­posed to what kind of pack­ets are mov­ing across the net­work,” Adame says.

But the FCC on Thursday re­clas­si­fied broad­band so that it could reg­u­late it as a com­mon car­ri­er, un­der the rules of Title II of the Com­mu­nic­a­tions Act — the same rules it uses to over­see phone ser­vices such as AT&T. Be­cause states have some reg­u­lat­ory au­thor­ity over tele­com ser­vices, there could be space for them to step in un­der the new reg­u­lat­ory frame­work.

The FCC has two op­tions: It can cre­ate a single, uni­fied set of rules that it says all 50 states have to fol­low, says Hanser, or it can “let a thou­sand flowers bloom — or at least 50 flowers bloom,” and al­low states to build on the net-neut­ral­ity reg­u­la­tions it voted on.

Hanser says he’s wor­ried a lais­sez-faire ap­proach to state reg­u­la­tions could lead to a “patch­work quilt” of stand­ards. In­ter­net ser­vice pro­viders would have to either raise their prices to make up the cost of com­ply­ing with the var­ied reg­u­la­tions, he says, or drop out of cer­tain mar­kets en­tirely.

Of course, a pro­vider could just com­ply with the state that im­poses the most rig­or­ous reg­u­la­tions. Hanser says that’s un­fair — it means that one state gets to set na­tion­al policy — but op­pon­ents point out that the same is true for con­sumer pro­tec­tion stand­ards, which tend to be most re­strict­ive in lib­er­al states such as Cali­for­nia and Mas­sachu­setts.

The au­thor­ity of states to im­pose taxes and fees is an­oth­er un­re­solved ques­tion. If the FCC de­cides to al­low states to get in­volved, re­spons­ib­il­ity for en­for­cing net-neut­ral­ity rules could fall in part on state util­ity com­mis­sions. These com­mis­sions have the au­thor­ity to reg­u­late pub­lic util­it­ies such as wa­ter, en­ergy, and tele­com­mu­nic­a­tions, and many op­pon­ents of Title II reg­u­la­tions are afraid that the taxes and fees these com­mis­sions levy on pub­lic util­it­ies will soon come to broad­band as well.

But Brad Ram­say, gen­er­al coun­sel for the Na­tion­al As­so­ci­ation of Reg­u­lat­ory Util­ity Com­mis­sions, says the FCC’s de­cision changes little for states in the short term. “The no­tion that states are go­ing to sud­denly start as­sess­ing fees that they wer­en’t as­se­ing be­fore is a joke,” Ram­say said. “Most states are prob­ably go­ing to need le­gis­lat­ive changes be­fore they can even think about it.”

Taxes are largely off the table be­cause of the In­ter­net Tax Free­dom Act, a law Con­gress passed late last year that bans most new state and fed­er­al taxes on In­ter­net ac­cess.

But the FCC rul­ing still leaves the door open for states to col­lect fees, ac­cord­ing to Tracy Gor­don, a seni­or fel­low and tax policy ex­pert at the Urb­an In­sti­tute. “States have already shown some pro­cliv­ity to­ward tax­ing tele­com,” Gor­don says, but it re­mains un­clear to what ex­tent they’d pur­sue In­ter­net fees.

At least one fee is off the table for now: The FCC or­der will ini­tially dis­al­low states from col­lect­ing a fee that goes in­to the state Uni­ver­sal Ser­vice Fund, which is used for pro­jects such as sub­sid­iz­ing In­ter­net and phone ac­cess in rur­al areas, trade pub­lic­a­tion Com­mu­nic­a­tions Daily re­por­ted Tues­day. (Broad­band cus­tom­ers will not pay in­to the fed­er­al USF, either.)

At Thursday’s FCC vote, Com­mis­sion­er Mignon Cly­burn said the or­der’s treat­ment of USF fees was one of her dis­agree­ments with the fi­nal plan. “I think we should tread lightly when it comes to pre-empt­ing the states’ abil­ity to ad­opt and im­ple­ment their own uni­ver­sal ser­vice funds,” Cly­burn said at the meet­ing. “Not do­ing so could put a strain on the tre­mend­ous fed­er­al-state part­ner­ship that I have worked so hard to cre­ate, and state uni­ver­sal ser­vice funds are com­pletely dis­tinct from any fed­er­al pro­gram.”

For state reg­u­la­tions and fees, a lot rides on wheth­er the FCC de­clares broad­band an in­her­ently in­ter­state ser­vice in its reg­u­lat­ory plan. If it does, states couldn’t charge taxes and fees they levy on in­trastate util­it­ies, and would likely not have a lot of room to reg­u­late In­ter­net ser­vice pro­viders past the fed­er­al gov­ern­ment’s plan.

Mean­while, both sides con­tin­ue play­ing polit­ics: FCC Chair­man Tom Wheel­er is on a net-neut­ral­ity charm of­fens­ive at a gath­er­ing of tech and tele­com ex­ec­ut­ives in Bar­celona, and Re­pub­lic­an mem­bers of Con­gress are cook­ing up a le­gis­lat­ive al­tern­at­ive to the FCC’s plan.

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