Supreme Court rules against city

The decision says Columbia is an unfair competitor in the telecom market.
Thursday, March 25, 2004 | 12:00 a.m. CST; updated 8:32 p.m. CDT, Friday, July 11, 2008

The U.S. Supreme Court ruled Wednesday in an 8-to-1 decision that Missouri had the right to restrict the ability of municipalities such as Columbia and other political subdivisions to sell telecommunications services.

“We lost,” said Bill Johnson, deputy director of the Missouri Municipal League, which represented the cities of Columbia, Springfield and Sikeston in the case.

Columbia completed a fiber-optics network in 1998, and has been making it available to public-sector clients such as Columbia Public Schools, MU and Boone Hospital Center. The city later began providing fiber-optic service to First National Bank & Trust Co., but in a settlement with CenturyTel agreed not to take on any additional contracts with private businesses until legal issues were resolved.

Neither City Manager Ray Beck, nor representatives of the Missouri Municipal League and the state attorney general’s office were certain on Wednesday how the high court’s ruling affects the bank contract. City attorney Fred Boeckmann was not available for comment.

“I’m not anticipating it having an impact on what we’re doing,” Beck said.

The municipal league challenged a state law that prohibited subdivisions of the state government from providing telecommunications services for sale, citing part of the 1996 Telecommunications Act, which authorized the Federal Communications Commission to preempt any state law that “prohibited the ability of any entity” to enter the telecom market.

The Supreme Court held that Congress intended “any entity” to refer to any private entity, not any public or private entity.

The Supreme Court opinion, issued by Justice David Souter, stated it was highly unlikely that Congress intended to limit state government self-regulation. A political subdivision is just that, a subdivision of the state government, and therefore the state has the right to limit its own functions, the ruling held, adding that the Telecommunications Act is not itself a source of federal authority granting municipalities power that state law does not.

Also enacted in the mid-1990s, the Missouri law had few exceptions to its prohibition of public entities entering the telecom market. The law “ameliorated” that problem somewhat when it was changed a few years later to allow for some selling in cases of excess fiber capacity, Johnson said.

The law now provides exceptions in its restrictions of a political subdivision’s telecommunications activities for its own use, emergency services, medical or educational purposes, use by students in an educational system and “Internet-type services.”

“It’s not as devastating as it would have been had the legislature not changed the law,” Johnson said.

The high court overturned a 2002 decision by the 8th U.S. Circuit Court of Appeals, which ruled that the FCC did have the right to preempt state law because municipalities count as “any entity.”

Following the appeals court’s ruling, Columbia began providing service for the First National Bank & Trust Co. in 2003. The bank uses the fiber-optic cable for its internal network that connects its offices to each other for more efficient communication.

Later that year, CenturyTel sued Columbia under the state law, saying that the city could engage in unfair competition because it was not seeking a profit. The city settled with CenturyTel, agreeing to limit its private business contracts to the First National Bank until the Supreme Court ruled.

“Cities and towns are created by the legislature and the legislature retains its ability to define the scope of their authority,” James Layton, state solicitor for the Missouri Attorney General’s office, said.

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