Tennessee v. Federal Communications Commission

ROGERS, J., delivered the opinion of the court in which HOOD, D.J., joined, and WHITE, J., joined in part. WHITE, J. (pp. 614-15),, delivered a separate opinion concurring in part and dissenting in part.

OPINION

Municipalities in Tennessee and North Carolina providing broadband service would like to expand their networks be*600yond their current territorial boundaries to underserved nearby areas. The legislatures of Tennessee and North Carolina have passed laws either forbidding or putting onerous restrictions on such expansion by municipal telecommunications providers. The Federal Communications Commission (FCC), citing its statutory mandates to remove barriers to broadband service and to promote competition in the telecommunications market, has issued an order purporting to preempt these state statutory provisions. Tennessee and North Carolina now seek review of the FCC’s order.

The FCC order essentially serves to reallocate decision-making power between the states and their municipalities. This is shown by the fact that no federal statute or FCC regulation requires the municipalities to expand or otherwise to act in contravention of the preempted state statutory provisions. This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon § 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed.

Tennessee Law

Under a Tennessee law enacted in 1999, any municipality operating an electric plant is authorized to offer cable services, video services, and Internet services. Tenn. Code Ann. § 7-52-601. However, this authority is limited — the statute grants a municipality this authority only “within its service area.” Id. This geographic limitation forbids a municipality from offering Internet services to surrounding areas that are not served by that municipality’s electric plant.

The territorial restriction in § 601 does not require municipalities to violate any FCC requirement. There are no FCC rules or regulations requiring municipalities to expand their service offerings beyond their territorial boundaries. Tennessee, in enacting § 601, has simply made the choice for its municipalities on the issue of expansion, which is a discretionary decision under the current FCC regulatory scheme.

Chattanooga, Tennessee operates an electric provider known as the Electric Power Board (EPB). In re City of Wilson, North Carolina, 30 FCC Rcd. 2408, 2015 WL 1120113, at *7 (2015). The EPB offers high-speed broadband Internet service with speeds up to one Gigabit per second (Gbps). Id. The EPB offers this service to 170,000 residential and commercial customers in its 600-square-mile service area, which includes counties in Tennessee and Georgia. Id. at *7, *10. In 1996, the EPB began developing a high-capacity fiber-optic communications infrastructure. Id. at *10. In 2009, the EPB made its fiber-optic communications services available to residential customers and, in 2010, became the first broadband provider in the nation to offer Gigabit services to all its customers. Id. About 63,000 of the EPB’s electric service customers subscribe to the fiber services. Id.

The EPB’s fiber-optic network has received uniform praise. It has led to job growth and attracted businesses to the area. Id. at *7-8. Its introduction led established Internet providers to lower rates while increasing the quality of their services. Id. at *7. The fiber network has also put more money in Chattanooga’s coffers, which contributed to Standard and Poor’s upgrading of the EPB’s bond rating to AA+ in 2012. Id. at *8.

Educational institutions within the EPB’s service area have benefitted from *601the fiber network. Id. The high-speed network is available to Chattanooga schools and allows the schools to offer services not available in many parts of the country. Id. Further, Chattanooga’s public library system — -with a 14,000 square foot space dedicated to innovation — is a leading one in the nation*. Id. The New York Public Library has announced that it sees Chattanooga’s library as a model for its renovations. Id.

Neighboring communities outside of the EPB’s service area, however, cannot partake in the EPB’s high-speed Internet service due to the geographic limitation in § 601. Residents from those communities have repeatedly requested expansions of the EPB’s services to the surrounding areas. Id. at *9. The EPB’s surrounding communities allegedly constitute a “digital desert” in which the Internet services are abysmal or nonexistent. Id. These areas are known as “unserved” and “under-served” areas. Id.

North Carolina Law

Under a 'North Carolina law originally enacted in 1971, municipalities were authorized to provide broadband Internet services. See N.C. Gen. Stat. Ann. § 160A-311; BellSouth Telecomm., Inc. v. City of Laurinburg, 168 N.C.App. 75, 606 S.E.2d 721, 726-28 (2005). In 2011, North Carolina’s General Assembly passed Session Law 2011-84, entitled “An Act to Protect Jobs and Investment by Regulating Local Government Competition with Private Business,” which among other things imposed requirements on city-owned communications service providers. See N.C. Gen. Stat. Ann. §§ 160A-340 to -340.6. Under § 160A-340.1(a)(3), city-owned communications service providers are directed to “[l]imit the provision of communications service to within the corporate limits of the city providing the communications service.” Thus, municipalities in North Carolina may not offer Internet services to anyone beyond their municipal boundaries.

The Session Law contains additional restrictions that focus on the financial operation of municipal providers. Sections 160A-340.1(a)(9) and -340.5 of Session Law 2011-84 require municipalities to make payments in lieu of taxes that would equal the amount a private-sector provider would have to pay in taxes and fees. Section 340.1(a)(8) requires municipalities to impute the costs of private providers when pricing the municipal services. Section 340.1(a)(1) requires municipalities to comply with all of the laws and rules that apply to private providers (without exempting municipalities from generally applicable municipal regulations). Section 340.1(a)(5) requires municipalities to open their facilities for private providers at no charge if the municipalities themselves would not have to pay. Section 340.1(a)(7) forbids municipalities from subsidizing their “communications service with funds from any other non-communications service.” A separate part of Session Law 2011-84 amended the state’s definition of “public utility” to include municipal providers of broadband, which exposes them to regulation from the state’s Utilities Commission.

The Session Law also contains restrictions on the implementation of municipal services. Section 340.3 requires a 75-day public hearing process before a municipality can provide communications services, and § 340.4 requires a special election on the issue of municipal entry into communications services. Section 3 of Session Law 2011-84 mandates a period for private providers to comment on municipal entry. Under § 340.6, municipalities must solicit public-private partnership proposals before a municipality can begin construction on a communications network.

The Session Law, in § 340.2, includes three provisions that exempt municipalities from the restrictions. The first of these *602provisions, § 340.2(a), exempts city providers from the Session Law restrictions if the providers use the telecommunications services only for “internal governmental purposes” or within another city’s corporate limits so long as the other city is a party to an “interlocal agreement.” Section 340.2(b)' exempts municipalities serving “unserved areas” from the restrictions. An “unserved area” is defined as a “census block ... in which at least fifty percent (50%) of households either have no access to high-speed Internet service or have access to [such] service only from a satellite provider.” Lastly, in § 340.2(c), there is a series of “grandfather” exemptions, which exempt municipalities “providing communications service as of January 1, 2011,” from the restrictions so long as those municipalities abide by certain limitations.

Like Tennessee’s restriction, the North Carolina provisions do not require municipalities to violate any FCC rule or regulation. This is clear from the record, and in any event was conceded by the FCC’s counsel at oral argument. The Session Law is simply an instance of North Carolina making choices for its municipalities on the issues of expansion and municipal offering of telecommunications services.

In 2005, the City of Wilson, North Carolina constructed the backbone of a fiber-optic network connecting all City-owned facilities. In re City of Wilson, 2015 WL 1120113, at *10. Many residents, medical facilities, businesses, and educational institutions requested access to and expansion of the network. Id. at *11. In 2006, the Wilson City Council responded to these requests by unanimously voting to build a municipal broadband network that would eventually become known as “Greenlight.” Id. at *10. In 2013, Wilson rolled out Greenlight to residential customers, offering Gigabit Internet service. Id.

Greenlight has provided benefits for Wilson. Wilson states that its “triple play” services' — phone, Internet, and cable — are cheaper than its competitors’ and that it offers its Gigabit Internet while maintaining a positive cash flow. Id. at *11. Wilson also provides free Wi-Fi to its entire downtown area, which in turn frees up money that downtown businesses would normally spend for Internet. Id. Each of the top seven employers in Wilson is a customer of the fiber network. Id. Local schools benefit from using Greenlight, as does the City’s main public library. Id.

Wilson has only deployed Greenlight in one county, Wilson County. Id. at *10. It has five other counties for which it provides electric service. Id. Individuals in those five counties have repeatedly requested that Wilson expand its offering of Greenlight. Id. at *13. Wilson is currently exempt from the restrictions in §§ 160A-340 to -340.6 due to the grandfather provisions contained in § 340.2. If Wilson attempted to expand its offering beyond its corporate limits, however, it would no longer fall under the grandfather exemption and would have to abide by all of the restrictions, which would include the territorial restriction in § 340.1(a)(3). Therefore, due to the restrictions in §§ 160A-340 to -340.6, Wilson is unable to expand its offering beyond its municipal limits.

The FCC’s Order

The EPB and the City of Wilson separately petitioned the FCC to preempt the restrictions in their respective states’ laws. The EPB asked the FCC to preempt the phrase “within its service area” and excise those four words from § 7-52-601. In re City of Wilson, 2015 WL 1120113, at *10. Wilson asked the FCC to preempt the entirety of Session Law 2011-84. Id. at *13.

The FCC concluded that preemption of most of the Tennessee and North Carolina statutes at issue would further the pur*603poses of § 706 of the Telecommunications Act of 1996 by increasing broadband investment. Both Wilson and the EPB sought expansion because the private cable providers in their areas were unsatisfactory to the local residents and businesses. Id. at *14. The EPB deployed its Internet services to “take advantages of synergies with existing municipal services,” such as its smart power grid for its electric service. Id. Wilson likewise deployed Internet in part to save money. Id. Further, by virtue of their being municipal providers, the EPB and Wilson are concerned with more than just the “bottom line” — they are also concerned with benefitting the communities they serve. Id. According to the FCC, these differing interests support the conclusion that municipal-provider entry into the surrounding areas would increase investment in broadband Internet.

The FCC additionally concluded that preemption of the Tennessee restrictions and allowing the EPB to serve the surrounding areas would promote competition in the broadband marketplace, which is a goal of § 706. In response to the EPB’s constructing its fiber network, Comcast stopped raising its rates — which had risen sharply for years — and subsequently reduced them. Id. at *15. Both of the private providers in the EPB’s electric service area, Comcast and AT&T, have vastly improved their Internet download speeds since the EPB’s entry. Id. This demonstrates the benefits of increased broadband competition and how a possible expansion for the EPB could promote such competition.

The FCC likewise found that preemption of most of the North Carolina restrictions would promote and increase competition. In response to Wilson’s entry into the broadband market, Time Warner held rates steady in Wilson while simultaneously raising rates in places without such competition. Id. Like the private providers’ responses to the EPB’s entry, Time Warner improved its top download speeds in response to Wilson’s entry. Id. The FCC concluded that these reactions from Time Warner show that municipal-provider entry into the broadband market increases competition.

Commenters’ objections to preemption failed to persuade the FCC. The arguments that municipal providers and private providers are not on “a level playing field” were unpersuasive because, according to the FCC, they show only that municipal providers like the EPB and Wilson differ from private providers but not that the differences are problematic. Id. at *16. Some commenters argued that municipal entry would “crowd out” or be unfair to private providers, but the FCC found that Wilson’s 33.7% market penetration indeed left room for private providers. Id. at *17. The FCC likewise found no evidence to support some commenters’ claims that municipal-service providers would act anti-competitively or that such providers would be economically inefficient. Id. In response to claims that municipal-broadband providers fail at a high rate, the FCC stated: “We do not read [§ ] 706 to require us to find that any particular municipal system is certain to succeed if barriers are removed; only that the law is a barrier and that removal is reasonably likely to lead to increased broadband deployment or promote competition.” Id. at *18. Addressing the substance of the failure claims, the FCC found them meritless. Id. at *18-21. Finally, the FCC disposed of what it considered to be weaker objections, finding them unpersuasive or underdeveloped. Id. at *21.

The FCC also found that the Tennessee statute constitutes a “barrier” to broadband investment and competition. Tennessee’s territorial restriction in § 601 — the language “within its service area” — is, ac*604cording to the FCC, “an explicit barrier to broadband infrastructure investment and competition under [§ ] 706.” Id. at *22. Furthermore, “[the] EPB would likely meet the substantial customer demand in surrounding areas absent [§ ] 601’s territorial restriction.” Id. at *23. Thus, the FCC stated that Tennessee’s territorial restriction falls under the FCC’s authorized power to preempt “barriers to infrastructure investment” pursuant to § 706.

North Carolina’s Session Law 2011-84, however, required a more in-depth analysis. The law as a general matter was found to constitute a barrier to infrastructure investment and competition. According to the FCC, “this is so even though any single regulatory provision of the statute, if considered independently, might not appear to impose a significant burden.” Id. at *27. The FCC found that the passage of 2011-84 chilled deployment of municipal broadband in North Carolina. Id.

The FCC divided the North Carolina provisions into three categories of restrictions: measures to raise economic costs, obligations that would “level the playing field,” and measures to impose delay. Id. at *23.

The FCC first considered multiple measures to raise economic costs in Session law 2011-84 and deemed them to constitute barriers. The first provision analyzed was the territorial restriction contained in § 160A-340.1(3), which limits the provision of telecommunication services to “within the corporate limits” of the municipal provider. Id. at *28. According to the FCC, there is “no doubt” that the territorial restriction is a “barrier to deployment and competition.” Id. This is because, absent the restriction, “Wilson and other North Carolina municipalities would ... be able to invest in broadband networks outside a city’s corporate limits ‘within reasonable limitations.’ ” Id. Finally, the three limited exemptions to the territorial restriction' — labeled the “grandfathering,” “interlocal,” and “unserved” exemptions— fail to provide meaningful opportunities for municipal-provider entry, according to the FCC. Id. The first two exemptions do not allow for municipalities to serve residents and businesses outside of their current service areas, and the “unserved” exemption uses improperly low benchmarks for determining what was an “unserved” location. Id. at *28-29. Further, the real-world application of the “unserved” exemption would render service to those areas “economically infeasible” due to the impracticability of obtaining the required information for an area to be labeled “un-served.” Id. at *30.

The next provisions analyzed were §§ 340.1(a)(9) and 340.5 of Session Law 2011-84, which are provisions requiring payments in lieu of taxes. Id. According to the FCC, these provisions, “on their face,” constitute barriers by raising the cost of providing service. Id.

The third and final “measure to raise economic costs” in the North Carolina law that the FCC analyzed was § 160A-340.1(a)(8), which requires municipalities to impute the costs of private providers when pricing the municipal services. The FCC found that this provision hampers municipalities’ ability to offer introductory or other discounts to compete for customers and therefore “limits the competitive pressure on the [private providers] to lower their rates.” Id. at *30-31.

The FCC next considered North Carolina’s provisions that sought to “level the playing field” between municipal providers and private providers. The FCC stated that § 340.1(a)(1), which requires the municipalities to comply with all of the laws and rules that apply to private providers but does not exempt those municipalities from regulations that apply to general municipal operations, results in a double bur*605den for municipal providers rather than a level playing field. Id. at *31. The FCC reached a similar conclusion regarding § 340.1(a)(5), which requires the municipalities to open their facilities for private providers at no charge if the municipalities themselves would not have to pay. Id. at *32. Private providers of telecommunications services are also exempt from regulation by the state’s Utilities Commission, but a separate part of Session Law 2011-84 subjects municipal providers to such regulation. Id. With regard to § 340.1(a)(7), which forbids a municipal provider from subsidizing its “communications service with funds from any other non-communications service,” the FCC noted that there is no similar limitation on private providers, who could use funds from multiple lines of business to subsidize their communications-service offerings. Id. These provisions, the FCC concluded, do not “level the playing field” but rather “function as barriers to and have the effect of increasing the expense of and causing delay in broadband deployment and infrastructure investment.” Id. at *33.

The final provisions that the FCC analyzed were the “measures to impose delay.” The FCC found that “these interrelated provisions lead to significant delay” and that “the time period ... could be approximately 27 months before a municipality can even launch a municipal broadband project.” Id. at *34. Thus, the FCC concluded that §§ 340.3, 340.4, 340.6, and § 3 of Session Law 2011-84 are collectively “a barrier to timely deployment of broadband and infrastructure investment.” Id. The FCC also concluded that the provisions’ application to video and phone services — which are necessary for a municipality’s offering of “triple play service”— was a barrier, because municipalities needed to bundle those services with Internet in order to maintain profitability. Id. at *35.

The FCC order preempted portions of the Tennessee and North Carolina statutes. The FCC found that Congress, in enacting § 706(a)-(b) of the Telecommunications Act of 1996, vested the agency with the authority to preempt the laws. Id. at *37-43. Section 706, entitled “Advanced Telecommunications Incentives” and codified at 47 U.S.C. § 1302, reads in part:

(a) In general

The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

(b) Inquiry

The Commission shall, within 30 months after February 8, 1996, and annually thereafter, initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) and shall complete the inquiry within 180 days after its initiation. In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission’s determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by pro*606moting competition in the telecommunications market.

The FCC, in its order, seized upon language in both subsections. The FCC stated at the outset that Congress desired to give the FCC broad authority regarding telecommunications:

131. Encouraging broadband deployment is central to federal communications policy. ... Section 2 of the Communications Act grants the Commission jurisdiction over “all interstate and foreign communication by wire or radio,” and broadband Internet access “falls comfortably within the Commission’s jurisdiction” under section 2, and has historically been supervised by the Commission.

132. Within the bounds of these jurisdictional grants, Congress has empowered the Commission with broad authority to “make the major policy decisions and select the mix of regulatory and deregulatory tools the Commission deems most appropriate in the public interest to facilitate broadband deployment and competition.”

Id. at *38 (footnotes omitted).

The FCC discussed how the preamble of the Telecommunications Act of 1996 states the Act’s purposes: the promotion of competition in the telecommunications market and the encouragement of both infrastructure investment and deployment of technologies. Id. Section 706, according to the FCC, is the statute that authorizes the FCC to further these purposes:

135. Section 706 shows a unique level of Congressional concern with broadband deployment. Both sections 706(a) and (b) direct that the Commission “shall” take action to promote broadband deployment. Section 706(b), moreover, is unique in requiring the Commission to study broadband deployment and requiring it to take action if the Commission finds that broadband is not being deployed to all Americans in a reasonable and timely fashion. Both sections, in targeting broadband deployment to “all Americans,” also reflect Congress’s concern with unserved and underserved areas. ...

137. We have found, ... in our 2015 Broadband Progress Report, adopted on January 29, 2015, that broadband has not been deployed in a reasonable and timely fashion to all Americans. In light of this negative finding, section 706(b) commands that we “take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.” Preemption constitutes one such “immediate action” available to us under this independent grant of authority to “fulfill Congress’s broadband deployment objectives.” ...

139. In sum, Congress has granted us broad jurisdiction over broadband in the United States, and has specifically mandated that we promote broadband deployment, in section 706.

Id. at *39^0 (footnotes omitted).

After concluding that § 706 gives the FCC some authority, the FCC analyzed whether that authority includes the ability to preempt state law:

142. In light of Congress’s delegation of authority to the Commission to “encourage” and “accelerate” the deployment of broadband to all Americans, we interpret Sections 706(a) and (b) to give us authority to preempt state laws that stand as barriers to broadband infrastructure investment or as barriers to competition. ... [U]nder City of New York and Crisp, the relevant inquiry when an agency acts to preempt state law is whether Congress delegated the authority to act in this sphere. In both of those cases, the Supreme Court found *607“that the Commission’s authority” over cable video programming “extends- to all regulatory actions ‘necessary to ensure the achievement of the Commission’s statutory responsibilities,’ ” including the preemption of otherwise valid state laws. ...

144. Our preemption authority falls within the “measures to promote competition in the local telecommunications market” and “other regulating methods” of section 706(a) that Congress directed the Commission to use to remove barriers to infrastructure investment. It likewise falls within the available “actionfs] to accelerate deployment” we may take in order to “remove barriers to infrastructure investment” and to “promote competition” described in section 706(b). As Congress would have been aware in passing the 1996 Act, the Commission has in the past used preemption as a regulatory tool where state regulation conflicts with federal communications policy. Given this history against which Congress legislated, the best reading of section 706 is therefore that Congress-understood preemption to be among the regulatory tools that the Commission might use to act under section 706.

Id. at *40-41 (footnotes omitted). The FCC defended this conclusion against various counterarguments to the effect that Congress may authorize preemption only with explicit statutory language:

145. ... The law is clear that Congress need not “explicitly delegate” the authority to preempt. In fact, Congress’s decision not to specifically identify preemption is to be expected where, as here, the Commission had previously preempted state law even where the relevant statutes contained no express discussion of preemption. Consistent with that practice, Congress drafted section 706 in broad terms, directing the Commission to use “measures that promote competition” and to do so in “a manner consistent with the public interest, convenience, and necessity.” That Congress provided a small number of specific examples in section 706(a), such as price cap regulation and regulatory forbearance, does not exclude other measures within the Commission’s authority. Indeed, the language of section 706(a) supports this understanding, directing the Commission and State commissions to use “measures that promote competition in the local telecommunications market” or “other regulating methods that remove 'barriers to infrastructure investment.” Such methods would of course include those listed, but would also include additional methods, including preemption, rulemaking, or other appropriate methods. In sum, we find that section 706 incorporates the rule common throughout communications law: the Commission may preempt state laws regarding interstate communications where they conflict with federal communications policy.

Id. at *41 (footnotes omitted).

After reaching the conclusion that § 706 delegates to the FCC the general authority to preempt state laws, the FCC then analyzed whether § 706 authorizes preemption in the context of state laws regulating municipal subdivisions:

146.... [W]e now address whether [§ 706] may at least sometimes provide authority to preempt state laws that regulate the provision of broadband by a state’s political subdivisions. We find that sections 706(a) and (b) both do give us that authority in certain circumstances. Two different views support our authority. First, the Commission has concluded that broadband services are jurisdictionally interstate for regulatory purposes. Congress has delegated authority to the Commission to regulate interstate services. Second, *608even if that were not sufficient, section 706 makes clear that Congress has mandated that the Commission remove “barriers” to broadband deployment and infrastructure investment and promote competition in the local telecommunications market. Whether something constitutes a barrier or promotes competition is a question of the kind that Congress intended the Commission, as the Nation’s expert agency of communications, to answer and to govern. For these reasons, we find that where a state law regulating the provision of broadband by a political subdivision serves to effectuate communications policy as opposed to core state control of political subdivisions, and where that law stands as a barrier to broadband infrastructure investment or an impediment to competition, such laws conflict with our authority to ensure the deployment of broadband to all Americans on a reasonable and timely basis and so may be preempted. ...

147. ... [W]here a state has authorized municipalities to provide broadband, and then chooses to impose regulations on that municipal provider in order to effectuate the state’s preferred communications policy objectives, we find that such laws fall within our authority to preempt. To take an example, where a state allows political subdivisions to provide broadband, but then imposes regulations to “level the playing field” by creating obligations apparently intended to mirror those borne by private providers, it does so in order to further' its own policy goals about optimal competitive and investment conditions in the broadband marketplace. The states here are deciding that incumbent broadband providers require protection from what they regard as unfair competition and regulating to restrict that competition. This steps into the federal role in regulating interstate communications. Where those laws conflict with federal communications policy and regulation, they may be preempted. We thus interpret [sub-jections 706(a) and 706(b) to give us authority to preempt state laws that regulate the provision of broadband by political subdivisions, provided that the law in question serves to effect communications policy and would frustrate broadband deployment “on a reasonable and timely basis ... to all Americans.”

Id. at *42 (footnotes omitted).

According to the FCC, § 706 provides this preemption authority because telecommunications is an area in which a federal law preempts a state law when the two laws conflict. Further, the FCC reasoned that “a state law that effectuates a policy preference regarding the provisions of broadband is not shielded from all scrutiny simply because it is cast in terms that affect only municipal providers.” The FCC, however, noted limitations on its ability to preempt such state laws:

149. Conversely, we do not read this preemptive authority under section 706 to reach all state laws that may have an effect, however indirect, on the provision of broadband by municipalities. Although a law could have an indirect effect of restricting the class of entities that may provide broadband in the state, it may not rise to the level of a restriction on competition or barrier to broadband deployment or infrastructure investment within our section 706 authority to preempt.

150. We have before us specific petitions to preempt specific laws. ... [0]ur authority to preempt is limited to laws that serve to effect state policy regarding the provision of broadband, as opposed to laws that have an indirect ef-*609feet on the provision of broadband, such as those that serve the traditional state function of granting or withholding authority to political subdivisions.

Id. at *43 (footnotes omitted). The FCC thus found that Congress granted it authority to preempt most of the Tennessee and North Carolina laws. It found this authority notwithstanding commenters’ counterarguments based on the Telecommunications Act as well as Supreme Court decisions and the Tenth Amendment.1 Id. at *43-44.

Bringing its analyses together, the FCC preempted the territorial restriction in the Tennessee statute as well as the provisions in the North Carolina Session Law that it deemed to be “barriers.” Because the territorial restriction in Tennessee’s § 601 “serves as a state law communications policy regulation, as opposed to a core state function in controlling its political subdivisions,” the FCC found the restriction to fall within its authority to preempt under § 706 of the Telecommunications Act of 1996. Id. at *49-50. It further reasoned that the “level playing field” provisions, “measures to raise economic costs,” and “measures to impose delay” of North Carolina’s Session Law 2011-84 regulated “not issues of state sovereignty and political determination, but rather the mechanics of how a city may provide a service it is authorized to provide.”2 Id. at *50-54. The sections of the Session Law that were not deemed to constitute barriers were left untouched by the FCC’s preemption.3 The FCC therefore granted the EPB’s petition and granted in part the City of Wilson’s petition.

The FCC’s grant of these petitions did not result in a requirement for either the EPB or the City of Wilson to expand their offerings, to charge a certain rate, or to roll out their services promptly. Instead, the FCC’s grant required Tennessee and North Carolina to give their municipalities the choice of whether to undertake these discretionary actions.

Commissioner Pai, in dissent, contended that Nixon v. Missouri Municipal League, 541 U.S. 125, 124 S.Ct. 1555, 158 L.Ed.2d 291 (2004), interpreting principles underlying the Constitution, compelled the conclusion that the FCC had no power to preempt the Tennessee and North Carolina laws without a clear statement from Congress. Id. at *71-76. Commissioner Pai also contended that § 706 did not grant the FCC any preemption authority whatsoever. Id. at *78-81.

Judicial Review

Tennessee filed a petition for review of the FCC’s order with this court. North Carolina filed its petition for review with the Fourth Circuit. The Fourth Circuit then transferred the case to this court, and the cases were consolidated. We granted petitions to intervene brought by the National Association of Regulatory Utility Commissioners (NARUC), the EPB, and the City of Wilson. The United States is also a party, but the Department of Justice’s Antitrust Division — on behalf of the United States — filed a letter stating without elaboration that it “takes no position in these cases.”

Tennessee argues that the FCC’s order violates the Constitution by infringing on *610the state’s right to determine the boundaries of its political subdivisions. Tennessee, North Carolina, and NARUC argue that even if Congress has the power to authorize such orders, it has failed to provide the necessary clear statement as required by Nixon. The latter argument is persuasive, at least where — as here — the FCC order purports only to restrict the states’ power to make decisions for municipalities that the FCC does not otherwise forbid.

The Clear Statement Rule Applies

Under federal law, municipal telecommunications providers currently have the option to expand their geographic service areas or to restrict their service areas to their municipal boundaries. There are no federal statutes or regulations requiring telecommunications providers to have a set geographic service area. Providers thus have discretion to choose the geographic areas that they serve, whether that means expansion or restriction. Providers likewise have discretion to choose the rates they charge for their services and how long the services-rollout process takes.

What the FCC seeks to accomplish through preemption is to decide wM — the state or its political subdivisions — gets to make these choices. The FCC wants to pick the decision maker for the discretionary issues of expansion, rate setting, and timeliness of rollout of services. It wants to provide the EPB and the City of Wilson with these options notwithstanding Tennessee’s and North Carolina’s statutes that have already made these choices.

Precedent makes clear, however, that if Congress has the power to allocate state decision making, it must be very clear that it is doing so. As the Supreme Court stated in Nixon, the clear statement rule applies when federal-government preemption results in “interposing federal authority between a State and its municipal subdivisions, which our precedents teach, ‘are created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them in its absolute discretion.’ ” 541 U.S. 125, 140, 124 S.Ct. 1555, 158 L.Ed.2d 291 (2004) (citing Wis. Public Intervenor v. Mortier, 501 U.S. 597, 607-08, 111 S.Ct. 2476, 115 L.Ed.2d 532 (1991); Columbus v. Ours Garage & Wrecker Serv., Inc., 536 U.S. 424, 433, 122 S.Ct. 2226, 153 L.Ed.2d 430 (2002)); see also City of Abilene, Tex. v. F.C.C., 164 F.3d 49, 53 (D.C. Cir. 1999). The political subdivisions of a state are nothing more than that state’s “convenient agencies,” and the state generally retains the power to make discretionary decisions for its subdivisions, just as a board of directors generally retains the power to make discretionary decisions for a company. Any attempt by the federal government to interpose itself into this state-subdivision relationship therefore must come about by a clear directive from Congress, and the FCC can only pick the decision maker here if there exists a clear statement to do so in § 706.

Nixon supports the conclusion that the clear statement rule applies here. In Nixon, a Missouri state statute forbade municipalities from entering the telecommunications market altogether. 541 U.S. at 129, 124 S.Ct. 1555. The FCC, under § 253 of the same Telecommunications Act at issue in this case, held that there was no clear statement from Congress to' preempt the Missouri law. Id. The Supreme Court agreed with the FCC and held that a clear statement was needed because federal preemption of Missouri’s law threatened “to trench on the States’ arrangements for conducting their own governments.” Id. at 140-41, 124 S.Ct. 1555. This case similarly involves Tennessee’s and North Carolina’s arrangements for conducting their own governments: if there is a decision to make, one way for *611states to conduct their own governments is to make the decision for their municipalities. Any attempt by the federal government to reorder the decision-making structure of a state and its municipalities trenches on the core sovereignty of that state. Nixon involved Missouri’s making a choice for its municipalities on the issue of whether to provide telecommunications services at all. No federal regulation or statute existed that required municipalities to provide telecommunications; the decision whether to provide services was left to the discretion of the provider. The present case involves two states that likewise have made discretionary determinations for their political subdivisions. Nixon is therefore analogous regarding the clear statement rule and supports the rule’s applicability in this case.

The FCC sought to distinguish Nixon on