Funding | Legal and Regulatory

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

That statement might come as a surprise to some folks. 

Some articles have stated – without qualification — that Missouri law bars political subdivisions (such as cities, counties, municipal utilities, school districts and other local government entities from offering internet access service to their citizens, or even owning the equipment that others use to provide that service. 

The authority given for this conclusion is Section 392.410.7 of the Missouri Revised Statutes.  That statute does generally prohibit Missouri political subdivisions from owning telecommunication equipment or offering telecommunication services, and in Nixon v. Missouri Municipal League, the United States Supreme Court did decide that federal law does not prohibit the Missouri legislature from restricting or prohibiting political subdivisions from providing any type of telecommunication service.  Since one reason the Missouri Municipal League challenged Section 397.410.7 was to allow municipalities to offer internet access service as part of a municipal telecommunication utility, it is not all that surprising that commentators have raised concerns about the statute. 

However, the issue actually addressed by the United States Supreme Court in the lawsuit, was whether federal law (the Telecommunications Act) prevented the Missouri legislature from restricting political subdivisions that wished to offer telecommunication services.  The case did not decide whether the particular statute in question (Section 392.410.7) actually did restrict political subdivisions from offering the public access to the Internet (as opposed to other types of telecommunication services).  In the twenty-plus years since the statute was passed, technologies and business models related to Internet access have evolved.  Today a number of Missouri cities now offer public access to the Internet directly or through partnerships with private ISPs.  While the approaches adopted by these political subdivisions have varied, in each case a way has been found to navigate Section 392.410.7 to avoid violating the limits imposed by that statute.

Just what does Section 392.410.7 prohibit – and why is it no longer particularly relevant to the Internet access offered by political subdivisions today? 

The Missouri legislature passed Section 392.410.7 in 1997 in response to federal legislation that deregulated the telecommunications industry.  Faced with the prospect of increased competition from the private sector, legacy telecommunication companies, convinced legislators that it would be unfair to allow municipalities (political subdivisions of the State) to offer traditional telecommunication services.  The rationale was that, unlike private competitors, a political subdivision (or for-profit entities that partnered with them) would have an unfair competitive advantage over existing “legacy” telecommunication companies because political subdivisions do not pay income or property tax and they are able to raise capital to finance operations through taxation.

For that reason Section 392.410.7 generally prohibits a political subdivision from “providing or offering for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to [Section 392.410].”  A “certificate of service authority” (issued by the Missouri Public Service Commission (PSC)) was, and continues to be required before some telecommunication services may be offered, but Section 392.611.2 specifically excludes “Broadband and other internet protocol-enabled services” from regulation by the PSC, except to the extent the provider offers voice over internet protocol service (“VoIP” or “internet telephone” service). 

Additionally, the general “prohibition” against offering telecommunication services contained in Section 392.410.7 contains additional exceptions.  First, and most importantly, the statute does not prohibit a political subdivision from providing “Internet-type services” (as opposed to telephony service).  Second, it does not prohibit political subdivisions from providing any type of telecommunications services for its general governmental purposes, to students at educational institutions or for any educational or medical purpose.  Third, political subdivisions may own and/or operate telecommunications equipment to provide E911 or other types of emergency telecommunications services.  Finally, a city’s municipal utility (water, gas, electric, etc.) is expressly authorized to provide other telecommunication companies access to the municipal utility’s telecommunication and other assets on a nondiscriminatory, competitively neutral basis, at a price equal to what the political subdivision would charge if it were a for-profit business.

Read together, these exceptions make the statute largely irrelevant for a political subdivision that today wishes to own and operate a system designed to deliver access to the Internet for its citizens.  Today internet access provides the public multiple opportunities to obtain online healthcare, buy goods and services, obtain an education, and launch a new business – as well as communicate with friends located anywhere in the world.  The services that use the Internet to make this possible are offered by government, business, and nonprofit organizations. Those services are subject to varying degrees of federal, state and local government regulation, but the transfer data over the Internet by a political subdivision is not prohibited by the express language of Section 392.410.7.  Additionally, as noted above, the statute provides wide latitude for political subdivisions to provide any other type of telecommunication service in addition to internet access) in order to deliver governmental services:  public administration, healthcare, education and public safety. 

If Not Specifically Prohibited — Should Political Subdivisions Undertake to Provide Internet Access to the Public?

This is a much harder question to answer.  It requires communities, in consultation with legal and financial advisors, to  carefully consider of a number of other legal questions, as well as economic and local public policy concerns.  For example, a school district considering participation in a public-private partnership with the goal of offering internet access to each student’s home for online learning, would need to be careful that the arrangement did not jeopardize the district’s existing E-rate funding that now provides internet service to school buildings and classrooms.  Many of these questions will be identified and examined in future articles, and developing strategies to address them will be part of a systematic online “Digital Community Guide” that will be made available to local government officials, community stakeholders and their advisors on the Missouri Broadband Resource Rail early next year. 

However, at least part of the answer can be found in the Report published earlier this summer following the University of Missouri System’s online Broadband Internet Workshop.  A core conclusion of the Workshop was that local government (political subdivisions) should actively consider arrangements involving public-private partnerships with internet service providers and other interested stakeholders to speed the deployment of affordable, reliable, high-speed internet service, and the adoption of new digital applications that use the Internet to deliver better health, education and financial opportunities for their citizens.  

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