By Jonathan Walters

As if local governments needed to be reminded of just how low on the intergovernmental pecking order they really are, along comes the Federal Communications Commission to rub it in.

The FCC recently upheld a Missouri law that prohibits municipally operated utilities from getting into the telecommunications business. The Missouri Municipal League and the Missouri Association of Municipal Utilities had filed a challenge with the FCC asking it to preempt the Missouri law. The MoMunis’ argument: The 1996 Telecommunications Act grants “entities” the authority to jump into the telecom game, and certainly Missouri municipal utilities qualify as “entities.”

In a Mobius strip-style decision, however, the FCC said that municipal utilities don’t fall under the provision of the Telecom Act that bars states from preventing “entities” from jumping into the telecom game, because muni utilities are ultimately creatures of state government, and therefore states can restrict them to their hearts’ content.

Several things are troubling about the FCC ruling — besides its half-baked-pretzel logic. First, the whole idea behind the 1996 Telecommunications Act was to bring competition to the marketplace. In a world of mega-mergers and telecom giants, municipal utilities represent at least some hope of challenging the burgeoning power of private telecom companies — one, incidentally, that will be very accountable to constituents. Second, the ruling represents another example of states and feds ganging up on localities to deny them potential sources of much-needed revenue. Most troubling, though, is the Missouri law itself. Bought and paid for by telecom companies, it represents the sort of industry-financed preemption that state legislators seem all too eager to accommodate these days at the expense of their cash-strapped local “partners” in governing.

The FCC did, however, leave open a slight crack in the door. In its statement accompanying the ruling, it acknowledged that municipal utilities were a potentially healthy source of competition for private telecom companies. The FCC also noted that if a municipal utility had an “independent corporate identity” — whatever that means — then it might be protected under the Telecom Act’s “barrier-to-entry” provision; private telecom companies are no doubt already looking for ways to close that opening. Finally, the FCC suggested that Congress amend the Telecom Act to allow more muni participation in the telecom provider game.

And that will happen when pigs start communicating by cell phone. Which is why the newly configured FCC coming in with the Bush administration needs to bone up on the current law and avoid boneheaded rulings based on misinterpretation of the statute.

Jonathan Walters is a staff correspondent for Governing.

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