Net Neutrality and the Future of State Broadband Regulation

Once Democrats finally secured a 3-2 majority in the Federal Communications Commission (FCC) last fall, the agency lost no time in approving a long-anticipated proposal to reintroduce net neutrality by reclassifying broadband providers as common carriers. While its commitment to reclassification seems unwavering, the agency has equivocated about the preemptive effect of agency action. This nuanced shift raises important questions about what role, if any, state authorities will play in future Internet governance.

Historically, states played a vital role in telecommunications regulation. The Communications Act of 1934 divided telephone regulation into two spheres: the FCC governed interstate communication, while intrastate calls were the exclusive province of the states. The 1996 Telecommunications Act replaced this Dual Federalism regime with a more integrated partnership model, as federal and state decisionmakers worked together to manufacture competition within local telephone service.

But as the Internet displaced the telephone as the nation’s primary communications network, state regulation fell by the wayside. The Internet was considered an inherently interstate enterprise, raising concerns that parochial state-by-state regulation would balkanize the network and limit its value. And the traditional telephone industry became increasingly competitive, mitigating the need for monopoly-style regulation. In the 1990s and 2000s, state public utility commissions largely exited the telecom world, leaving policymaking to occur mostly at the federal level.

But there has been a rejuvenation in state broadband regulation since 2016, not because of a belief that states have a unique role to play, but as a vector for opposition to the Trump administration. In 2017, the FCC adopted the Restoring Internet Freedom Order, which reclassified broadband as a Title I information service and repealed Obama-era net neutrality rules. Like the FCC’s earlier broadband classification decisions, this order expressly preempted state broadband regulation inconsistent with the FCC’s scheme. In Mozilla v FCC, the D.C. Circuit largely upheld the reclassification order but invalidated the preemption clause. The court found that if, as the FCC suggested, the agency lacked authority to regulate broadband networks because they were Title I information services, then the agency equally lacked the power to preempt state regulation. Mozilla opened the door for California and other states to adopt net neutrality rules at the state level, effectively reinstating the rules that the FCC repealed as unnecessary and harmful to society.

The current proposal comes in a different posture. The FCC proposes reclassifying broadband as a regulated Title II common carrier service, which provides the statutory hook for preemption that was lacking in Mozilla. But its messaging on preemption has shifted slightly. The original draft specifically sought comment about “how best to exercise our preemption authority to ensure that [broadband] is governed by a national, uniform framework.” But the final version published in the Federal Register was more noncommittal, seeking comment “on the best sources of preemption authority for us, if needed.” This may be a distinction without a difference: the latter version retains a commitment to ensuring that broadband “principally is governed by a federal framework.” But it does not contain the earlier draft’s 2-paragraph ode to uniform national standards. This omission could open the door to the possibility of states adopting regulatory requirements above and beyond the federal minimum.

The difference highlights the tradeoffs associated with regulatory federalism. Preserving residual state authority allows for “laboratories of experimentation,” which the Supreme Court has long recognized as a benefit of the American federal system. Advocates may not be able to convince federal regulators to roll out a policy nationwide, but could overcome the smaller hurdle of convincing one state to serve as a testbed. California’s net neutrality legislation went far beyond the FCC’s 2014 Open Internet Order, addressing issues like usage-based pricing that the FCC consciously left open-ended. On the other hand, allowing states this freedom does risk balkanizing the network into “splinternets.” A patchwork of state and local requirements could mean the consumer experience differs from state to state, undermining the overall utility of the network. It’s worth noting that because of federal preemption, state experimentation is a one-way ratchet: states can conceivably add laws on top of federal regulations, but they cannot nullify federal rules to experiment with more deregulatory approaches.

It’s also important to note that Title II reclassification limits federal preemption in two important ways. First, Section 2(b) generally prevents the FCC from preempting regulation of purely intrastate communications. Second, Section 332(c) specifically preserves state authority to regulate “other terms and conditions” of wireless services beyond rates and market entry. Thus, reclassification could conceivably allow an enterprising state regulator to act in these areas regardless of how the agency addresses the preemption issue. As the Trump FCC learned, it’s important for the agency to think carefully about the role states might play in whatever regime the agency designs moving forward.