The United States Supreme Court today dealt a blow to municipalities offering telecom services by leaving the door open for state law to prohibit the practice.

The case decided today questions the validity of a 1997 Missouri state law that forbids municipalities from providing telecommunications services. On behalf of the state's 63 municipal electric utilities, the Missouri Municipal League asked the Federal Communications Commission to intervene and declare the statute unlawful in light of the Telecom Act of 1996, which states that no state or local government "may prohibit…the ability of any entity to provide any interstate or intrastate telecommunications service."

Much of the Missouri case centers around whether the phrase "any entity" includes municipalities, given the natural advantage cities could enjoy (regarding taxes, etc.) while competing with private telecom firms and the precedent it could set in allowing the FCC to interfere with a state’s sovereignty.

Supreme Court Justice John Paul Stevens argued that "any entity" included cities because the Telecom Act clearly included utility companies, and many utility companies are owned by municipalities, a fact that Congress was probably aware of when it passed the act.

"There is little reason to think that legislation that targets municipalities’ ability to provide telecommunications services is…designed to do anything other than impede competition rather than enhance it," Stevens wrote in his dissenting opinion.

The majority maintained that the phrase "any entity" is not specific enough to allow federal intervention of state sovereignty, claiming, "While an ‘entity’ can be either public or private…there is no convention of omitting the modifiers ‘public and private’ when both are meant to be covered."

"We think that the strange and indeterminate results of using federal preemption to free public entities from state or local limitations is the key to understanding that Congress used ‘any entity’ with a limited reference to any private entity when it cast the preemption net," the majority opinion continued.

The FCC has long supported the entry of municipalities into telecom markets to spur competition. But the commission originally denied the MML's request for help, based on a precedent set by an earlier case in Abilene, Texas, which asserted that the FCC could not intervene between a state and its right to govern its cities as it sees fit. Former FCC chairman William Kennard and former Commissioner Gloria Tristani wrote, "We vote reluctantly to deny [the MML's] petition…Such a result, while legally required, is not the right result for consumers in Missouri." They urged Congress to amend the language of the telecom act to give them more authority.

“Only a handful of states currently have barriers to municipal entry, and we hope that other states will take to heart the FCC's admonition that such barriers are unwise, unnecessary…and contrary to the purposes of the Telecommunications Act,” said Jim Baller, who represented the MML in this case, in an e-mail to Telephony today. “Some states have already reversed or relaxed barriers enacted in the past, and we hope that this trend will continue as well.”

“A victory in Missouri case would have been helpful, but it is by no means the end of the road,” he added.