NTIA’s Effort to Dispense Broadband Funds to Municipalities Is Not Without Obstacles

WASHINGTON, June 9, 2022 – Though the head of the National Telecommunications and Information Administration says he looks to “pressure” states with restrictive laws on municipal broadband builds to use infrastructure money for that end, some aren’t convinced that the federal government can get that deep into state affairs.

The “NTIA lacks the authority to require states that have adopted laws restricting municipal broadband systems to waive or otherwise disregard these state restrictions,” Randolph May, president of the Free State Foundation, told Broadband Breakfast.

“Perhaps NTIA can encourage (strongly or otherwise) states to do so, but it can’t condition their receipt of BEAD grants on states’ refusal to do so,” May added.

The comments come after NTIA administrator Alan Davidson said during Broadband Breakfast event in April that his office is looking to pressure some states to work around their laws to allow the money to go toward municipal broadband builds.

NTIA is  entrusted with handing out to the states $42.5 billion from the Infrastructure, Investment and Jobs Act.

Davidson added during a fireside chat with Broadband Breakfast Editor and Publisher Drew Clark at the Mountain Connect conference in May that the success of the Broadband Equity, Access and Deployment program will depend on getting “every state and territory on board.”

“I do think there will be a lot of deep directions to states,” he said about how the NTIA will administer the BEAD program.

BEAD NOFO bars states from rejecting municipalities

On municipal broadband, Davidson said that the BEAD’s notice of funding opportunity is explicit in that it does not allow eligible entities to not consider public provider types out of hand.

“Eligible Entities may not exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments (‘potential providers’) from eligibility for grant funds,” the NOFO reads.

“We are doing all we can to lean into the idea that we believe there is going to be a variety of approaches that communities play a huge role here,” Davidson said in the exchange with Clark. “You know states have their laws, we are going to try and do all we can under the law to pressure states, and to make sure that states are transparent where they are not able to meet them.”

The BEAD NOFO explicitly points to municipal broadband as broadband providers that should be utilized – asserting that eligible entities need to demonstrate the steps they have taken to “ensure the participation of non-traditional broadband providers,” and listing municipalities as one such entity.

The view on municipal broadband

Depending upon the party in the White House, municipal broadband is often considered a best practice by the Federal Communications Commission. Yet it has been outlawed or circumscribed in more than a dozen states.

Although the NOFO stops short of explicitly endorsing municipal broadband as a preferred model – it merely says that eligible entities cannot reject municipal builds without consideration – earlier versions of White House statements on broadband infrastructure explicitly favored granting funds to municipal entities.

The Telecommunications Act of 1996 was enacted “to let any communications business compete in any market against any other.” In doing so, the act mandated that “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.”

The FCC understood this clause to include state subdivisions within the operational definition of the word, “entity.”

In Nixon v. Missouri Municipal League, however, the Supreme Court of the United States ruled in 2004 against a municipal broadband service that argued that Missouri’s attempts to stifle its work violated the Telecommunications Act of 1996.

The court held that a state’s own subdivisions did not constitute the “entities” protected in the Telecommunications Act. This decision disregarded the FCC’s framework and opened the door to challenges to municipal broadband efforts. Missouri was not the last state to restrict municipal broadband.

Great variety of municipal broadband restrictions

Not all states’ legislation designed to curb municipal networks looks the same, however. States with such legislation exist on a sliding scale.

Some states, such as Nebraska, ban public entities outright from providing broadband services on a retail or wholesale level. South Carolina presents so many obstacles to municipal broadband that such efforts are usually far too expensive or unwieldy to pursue.

The legislators that push these bans often argue that private internet providers are better equipped to provide these services to consumers, and that municipal efforts are a waste of taxpayer money. Advocates for this type of legislation also argue that municipal networks are inherently anticompetitive – as municipalities would compete with the private industry in addition to regulating it – in effect serving as both referee and player in the space.

A limited rollback of restrictions

Though some states have rolled back some restrictions in recent years – namely Arkansas and Washington – municipal efforts are still outright banned or heavily discouraged in 17 states.

In Arkansas, the shift appeared to come as a response to the Covid-19 pandemic. Senate Bill 74 was sponsored by Republican Arkansas State Sen. Ricky Hill and was signed into law by Republican Gov. Asa Hutchinson in February of 2021.

The bill recognized broadband as “necessities” and that citizens who lack broadband “also lack access to healthcare services, education services, and other essential services.” The bill amended the Telecommunication Regulatory Reform Act of 2013 to allow municipal entities to provide broadband services to consumers.

Data gathered prior to the pandemic and published in the International Journal of Digital Economy, Data Sciences, and New Media argues that restrictions on state and municipal broadband decreases broadband penetration by 1-2 percentage points and 3 percentage points, respectively.

“These results make a strong argument that state broadband policies are having a measurable impact on broadband diffusion across the U.S., including in rural areas,” the study’s authors concluded.