The U.S. Court of Appeals for the Sixth Circuit, a federal appellate court, ruled that the Federal Communications Commission overstepped its authority in its effort to eliminate state laws preventing municipal broadband networks. The FCC wanted cities to be able to build their own broadband networks. Last year, Wilson, North Carolina and Chattanooga, Tennessee petitioned the FCC for permission to be able to build out their own networks, to increase competition in their municipalities despite state laws that prevent that.

The Verge notes that such state laws exist in 19 states, “all of which could have been affected by future FCC orders had the court ruled in its favor.” The denial hung on the language of the Telecommunications Act of 1996: the FCC’s argument pointed to “remov[ing] barriers to broadband investment and competition,” but the language did not specifically permit the FCC to overrule state law.

The court’s decision was that, although government agencies “are generally given deference to interpret their own powers where a law has left them unclear,” the agency’s power to overrule a state law was not “clearly stated in federal law.”

The ruling presents a major obstacle to the FCC’s plan to encourage the growth of municipal broadband networks. The agency’s options now are to ask for a full court hearing, not a good move since three judges have already ruled against it. Taking the case to the Supreme Court “risks facing a court with an empty seat.”

“While we continue to review the decision, it appears to halt the promise of jobs, investment and opportunity that community broadband has provided in Tennessee and North Carolina,” stated FCC chair Tom Wheeler, who added the FCC will “consider all our legal and policy options to remove barriers to broadband deployment.” Wheeler also said he would happily testify to remove “anti-competitive broadband statutes.”

For now, however, major Internet service providers can rest easy knowing that the specter of competition is on hold. “Let’s be clear: industry-backed state laws to block municipal broadband only exist because pliant legislators are listening to their Big Cable and Big Telecom paymasters,” said Common Cause advisor Michael Copps. “This decision does not benefit our broadband nation.”