Can a Tennessee electric cooperative offer broadband Internet to its members on its own, and could HB 2364 change that?

Subject

Opinion No. 14-33, Authority of Electric Cooperative to Provide Broadband Internet Service, March 18, 2014

Plain-English summary

Senator Ferrell Haile asked five related questions about whether and how a Tennessee electric cooperative could provide broadband Internet service to rural members, with or without a fee. The AG worked through the Rural Electric and Community Services Cooperative Act (Tenn. Code Ann. §§ 65-25-201 to -235), which defines what these cooperatives can and cannot do, and reached four important conclusions.

First, electric cooperatives are creatures of state statute with only the powers the General Assembly grants. The Act defines a "primary" purpose (selling electric power) and "secondary" purposes (community utility services as defined). The secondary-purpose category includes telecommunications services as defined in § 65-25-202(3) and (13), but Internet service is not telecommunications under that definition. The AG followed the U.S. Supreme Court's decision in National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005), which classified cable broadband Internet as an information service rather than a telecommunications service, and Tennessee's Court of Appeals decision in Level 3 Communications v. Roberts, which held that broadband Internet is not a "telecommunication service" under Tennessee tax law. So electric cooperatives generally cannot provide Internet service on their own.

The single statutory carve-out is Tenn. Code Ann. § 65-25-205(c), which authorizes an electric cooperative to "contract to establish a cable joint venture with an entity that is a current franchise holder under title 7, chapter 59, within the cooperative's service area" that has been operating for at least three years. A cable joint venture can provide Internet service. That is the only intra-Cooperative-Act path.

Second, a county cannot use a private act to expand a cooperative's authority. The AG cited State ex rel. Strader v. Word, 508 S.W.2d 539, 546 (Tenn. 1974), for the rule that a private act yields to a general statutory plan. Granting a single cooperative additional powers by private act would override the safeguards in the general Act and create an unequal regulatory landscape.

Third, a county can participate with a cooperative in a § 7-59-316 telecommunications joint venture to deliver broadband over an existing dark fiber network, but only after the Tennessee Regulatory Authority (TRA) certifies that the target area qualifies as an "historically unserved area." The statute defines that term: no current broadband access, residentially developed for more than five years, outside any video/cable franchise area. The TRA must find both that the area is historically unserved and that no private provider intends to serve it.

Fourth, HB 2364 (the 2014 bill) would not have changed the answer. It would have amended the definition of "telecommunications" in § 65-25-202(13) to remove the existing carve-out of telephone service for cooperatives in the seven smallest Tennessee counties by population (Pickett, Van Buren, Moore, Hancock, Lake, Clay, and Trousdale), provided the cooperative owned an existing dark-fiber network in the county and did not already serve any residents with broadband. The AG concluded the bill could survive a class-legislation challenge: it was a population-bracket classification (not a single-county targeting), and there was a rational basis to give the smallest counties more flexibility. But the bill's drafting did not actually expand the "telecommunications" definition to include "broadband Internet service." The bill defined broadband Internet service only to identify when the substituted telecommunications definition applied, not to include broadband in telecommunications. So even if enacted, HB 2364 would not have given any cooperative the authority to provide Internet service. The drafting gap is meaningful.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Tennessee electric cooperative offer broadband on its own?

No, generally. The Rural Electric and Community Services Cooperative Act defines what cooperatives can do, and Internet service is not on the list. The "telecommunications" secondary purpose does not reach Internet service because, under both Brand X and Tennessee tax law, broadband Internet is an information service rather than a telecommunications service.

What about a cable joint venture?

Yes, this is the one available pathway. Tenn. Code Ann. § 65-25-205(c) lets an electric cooperative form a cable joint venture with a current cable franchise holder (operating at least three years) in the cooperative's service area. That joint venture can offer Internet service. The cooperative cannot do it solo, but it can do it through the joint venture.

Why can't a county fix the problem with a private act?

Because the general Act sets a uniform regulatory framework, and the Tennessee Supreme Court held in State ex rel. Strader v. Word that a private act yields to a general statutory plan when needed to preserve the plan. A private act giving one cooperative extra power would undermine the safeguards in the Act and create unequal treatment among cooperatives.

What is a § 7-59-316 telecommunications joint venture?

Tenn. Code Ann. § 7-59-316 authorizes a county, municipality, authorized agent, or cooperative to participate in a telecommunications joint venture that provides broadband services in areas certified as historically unserved. The certification, made by the TRA, requires that the area (1) has no broadband Internet access, (2) has been developed for residential use for more than five years, and (3) lies outside the service area of any video, cable, or franchise holder. The applicant must also show that no private provider intends to serve the area.

Can a § 7-59-316 joint venture use existing dark fiber?

Yes, according to the AG. The joint venture can deliver broadband using an existing dark fiber network. HB 2364 defined "dark fiber network" as "an existing network of fiber optic cables capable of hosting or facilitating the transmission of laser signals that is not in use," which captures the standard meaning.

What did HB 2364 try to do?

It targeted the seven smallest Tennessee counties by population (Pickett, Van Buren, Moore, Hancock, Lake, Clay, Trousdale). For cooperatives operating in those counties that owned an existing dark fiber network and did not already provide broadband Internet, the bill would have flipped the existing "telecommunications" definition to include the furnishing of telephone service rather than exclude it. The conditions were narrow.

Did the population-bracket classification survive class-legislation scrutiny?

Probably yes. The AG distinguished classifications targeting a single county (suspicious under earlier AG opinions and cases like Knoxville's Community Development Corp. v. Knox County) from classifications using population brackets that capture multiple counties. A bracket capturing the seven smallest counties had a rational basis (those counties likely receive fewer modern communication services), so the AG saw no fatal class-legislation defect.

So if HB 2364 had passed, would cooperatives in those small counties have been able to offer Internet?

No. The AG found that the bill never actually folded "broadband Internet service" into the definition of "telecommunications." The bill defined broadband Internet service only to specify when the substitute "telecommunications" definition would apply, not to include broadband in the substantive definition itself. As drafted, the bill would have allowed those cooperatives to provide telephone service but not Internet service. The drafting gap kept the bill from accomplishing its evident purpose.

Background and statutory framework

The Rural Electric and Community Services Cooperative Act, Tenn. Code Ann. §§ 65-25-201 to -235, governs Tennessee's electric cooperatives. The Act distinguishes between primary purposes (selling electric power) and secondary purposes (other utility services and community functions defined by the Act). The definition of "telecommunications" in § 65-25-202(13) is one of the gating provisions: a service must fit that definition to be a permissible secondary purpose.

The federal Brand X decision (545 U.S. 967 (2005)) is the seminal case that classified cable broadband Internet as an information service under the Telecommunications Act of 1996. That classification has rippled through state law, including Tennessee tax law (Level 3 Communications v. Roberts) and now Tennessee cooperative law.

The § 7-59-316 joint-venture mechanism is Tennessee's narrow tool for rural broadband expansion. It was designed to balance the desire to extend service to underserved rural areas against private telecom providers' interest in not facing government-affiliated competition. The "historically unserved area" certification requires both an absence-of-service finding and a private-provider-intent finding from the TRA.

The class-legislation doctrine, articulated in Knoxville's Community Development Corp. v. Knox County, 665 S.W.2d 704 (Tenn. 1984), targets statutes that single out a particular locality without a rational basis. Population brackets can survive class-legislation scrutiny when they capture more than one county and rest on a defensible policy distinction.

Citations

• Tenn. Code Ann. §§ 65-25-201 to -235 (Rural Electric and Community Services Cooperative Act)
• Tenn. Code Ann. § 65-25-202(3), (13) (definitions)
• Tenn. Code Ann. § 65-25-204(a)(2)(A) (secondary purposes)
• Tenn. Code Ann. § 65-25-205(c) (cable joint venture authority)
• Tenn. Code Ann. § 65-25-230 (joint venture requirements)
• Tenn. Code Ann. § 65-25-231 (telecommunications joint venture)
• Tenn. Code Ann. § 7-59-316 (telecommunications joint ventures in historically unserved areas)
• 47 U.S.C. § 153 (federal Telecommunications Act definitions)
• National Cable & Telecommunications Ass'n v. Brand X Internet Services, 545 U.S. 967 (2005) (U.S. Supreme Court)
• Level 3 Communications, LLC v. Roberts, 2013 WL 5373143 (Tenn. Ct. App. Sept. 20, 2013)
• State ex rel. Strader v. Word, 508 S.W.2d 539 (Tenn. 1974) (Tennessee Supreme Court)
• Knoxville's Cmty. Dev. Corp. v. Knox Cnty., 665 S.W.2d 704 (Tenn. 1984) (Tennessee Supreme Court)
• Chattanooga Metro. Airport Auth. v. Thompson, 1997 WL 129366 (Tenn. Ct. App. Mar. 24, 1997)
• Tenn. Att'y Gen. Op. 13-37 (May 2, 2013)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-033.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
March 18, 2014
Opinion No. 14-33
Authority of Electric Cooperative to Provide Broadband Internet Service

QUESTIONS

1. May a cooperative presently providing electric service to county residents provide hardwire broadband Internet service (hereinafter "Internet service") to county residents with or without fee or charge?

2. May a county government, through a private act of the General Assembly, enable such a cooperative to provide Internet service for a fee or charge to residents?

3. May a county that has wireless access to the Internet provided by a private business entity enter into a joint venture with a cooperative pursuant to Tenn. Code Ann. § 7-59-316 to provide Internet service to county residents via an existing dark fiber network?

4. If enacted as introduced, would House Bill 2364/Senate Bill 2428 of the 108th General Assembly (hereinafter "HB2364") be constitutional?

5. If HB2364 became law, would the answer to Question 1 change?

OPINIONS

1. Except in the case of a cable joint venture, the providing of Internet service is neither a "primary" nor a "secondary" purpose in which electric cooperatives may engage, as defined in Tenn. Code Ann. § 65-25-204(a). A cable joint venture established under Tenn. Code Ann. § 65-25-205(c) by an electric cooperative and a current holder of a cable television franchise may provide Internet service.

2. No. Such a private act would conflict with the general statutory plan that authorizes the activities of electric cooperatives.

3. Yes, but only after a determination by the Tennessee Regulatory Authority that the county qualifies as an "historically unserved area" as defined in Tenn. Code Ann. § 7-59-316.

4. Yes.

5. No. The bill does not authorize any cooperative to provide Internet service.

ANALYSIS

1. Electric cooperatives may exercise only those powers expressly granted by the General Assembly in the Rural Electric and Community Services Cooperative Act, Tenn. Code Ann. §§ 65-25-201 to -235 (the "Act"). In addition to the "primary" purpose of selling electric power, a cooperative may also carry out "secondary" purposes, which include "[s]upplying or furnishing other community utility services as provided in §§ 65-25-202(3), 65-25-205(c) and 65-25-231." Tenn. Code Ann. § 65-25-204(a)(2)(A). Under Tenn. Code Ann. § 65-25-202(3), common utility services include telecommunications services, but Internet service is not a "telecommunications service" as defined in Tenn. Code Ann. § 65-25-202(3), (13); that defined term is most clearly linked to cable television service. Nor does Internet service constitute a "telecommunications joint venture" under Tenn. Code Ann. § 65-25-231. The term "telecommunications" does not inherently include Internet service. Cable broadband Internet service, for example, has been classified as an information service, not a telecommunications service as defined in 47 U.S.C. § 153. See National Cable & Telecommunications Ass'n v. Brand X Internet Services, 545 U.S. 967, 987-88 (2005); see also Level 3 Communications, LLC v. Roberts, No. M2012-01085-COA-R3-CV, 2013 WL 5373143, at *9 (Tenn. Ct. App. Sept. 20, 2013). Unless the term "telecommunications" is expressly defined to include Internet services, therefore, that term cannot be construed as including such services.

Internet service can be provided by a cable joint venture established pursuant to Tenn. Code Ann. § 65-25-205(c). That section authorizes an electric cooperative to "contract to establish a cable joint venture with an entity that is a current franchise holder under title 7, chapter 59, within the cooperative's service area and has been operating, either itself or its predecessor franchise holder, for not less than three (3) years at the time of the establishment of the cable joint venture." Any such cable joint venture "shall comply in all respects with the requirements of § 65-25-230," and "[t]he authority to establish a cable joint venture shall not apply to areas served by any existing telephone cooperative that has been providing cable service for not less than ten (10) years under the authority of the federal communications commission." Tenn. Code Ann. § 65-25-205(c). Formation of a cable joint venture is the only means by which an electric cooperative is authorized to provide Internet service.

2. Electric cooperatives are creatures of State law, and the Act is the source of authority under which all such cooperatives in Tennessee operate. Private acts are superseded to the extent necessary to give effect to a general statutory plan. State ex rel. Strader v. Word, 508 S.W.2d 539, 546 (Tenn. 1974). The Act places a number of restrictions on the ability of electric cooperatives to engage in activities beyond their primary purpose of selling electric power, all of which are designed to ensure that that primary purpose is reliably performed. A private act that authorizes a county to grant to a cooperative the authority to provide Internet service would conflict with the Act, which does not confer such authority. Such a private act would override the safeguards built into the Act and at the same time would deny similar opportunities to cooperatives not covered by the private act.

3. Tenn. Code Ann. § 7-59-316(a)(1) provides:

[A] county or municipality, or any entity otherwise authorized by law to act on a county or municipality's behalf, or a cooperative is authorized to participate in a telecommunications joint venture that is created to provide broadband services to areas within the jurisdiction of the municipality, county or cooperative that has been determined to be an historically unserved area, meaning that the area does not have access to broadband Internet services, has been an area developed for residential use for more than five (5) years, and is outside the service area of a video or cable service local franchise holder or the franchise area of a holder of a state-issued certificate of franchise authority.

Further, "[a]ny municipality or county government seeking to establish a joint venture as provided in this part shall apply to the [Tennessee Regulatory Authority] for a finding that the area is historically unserved and that no private provider intends to serve that area." Tenn. Code Ann. § 7-59-316(d). Accordingly, a county may participate in a joint venture that provides Internet service, including service via an existing dark fiber network, but only in an area certified by the Tennessee Regulatory Authority as meeting the statutory criteria for "an historically unserved area."

4. HB2364 would amend the current definition of "telecommunications" in Tenn. Code Ann. § 65-25-202(13) to include "the furnishing of telephone service, either local or long distance, leased lines or equipment for the vocal or written transmission of messages, or any related services for which a charge is made" provided that: (1) "[t]he entity furnishing telecommunications is a cooperative"; (2) "[t]he cooperative provides electric service to any county having a population of no more than seven thousand nine hundred (7,900), according to the 2010 federal census or any subsequent federal census"; (3) "[t]he cooperative owns an existing dark fiber network in the county set out in [(2)]"; and (4) "[t]he cooperative does not provide broadband Internet service to any residents of the county served by a rural telephone cooperative as of January 1, 2014." HB2364, § 1. Accordingly, the bill would remove the current restriction on the type of telecommunications service a cooperative may provide for the seven smallest counties by population (Pickett, Van Buren, Moore, Hancock, Lake, Clay, and Trousdale). The bill also states that if these conditions are not met, the current restrictions on the definition of "telecommunications," which exclude the furnishing of telephone service, would still apply.

This Office has opined that classifications identifying only a single county through the use of narrow population brackets are unconstitutional class legislation, absent a rational basis. See Tenn. Att'y Gen. Op. 13-37 at 3 (May 2, 2013) (citing Knoxville's Cmty. Dev. Corp. v. Knox Cnty., 665 S.W.2d 704, 705 (Tenn. 1984); Chattanooga Metro. Airport Auth. v. Thompson, No. 03A01-9610-CH-00319, 1997 WL 129366, at *3 (Tenn. Ct. App. Mar. 24, 1997)). HB2364, however, applies to counties that are below a certain population rather than to a particular county, and a rational basis can be identified for limiting the scope of the proposed definition to the seven smallest counties by population. The residents of those counties likely receive fewer and less adequate modern communication and information services of all types than do residents in more densely populated areas, a fact that justifies allowing electric cooperatives to provide additional communication or information services in only those areas.

5. HB2364 does not authorize any cooperative to provide Internet service. For cooperatives in counties in the defined population range, the bill would merely amend the definition of "telecommunications," which is an allowed "secondary purpose" under Tenn. Code Ann. § 65-25-204(a)(2)(A), to include rather than exclude "the furnishing of telephone service, either local or long distance, leased lines or equipment for the vocal or written transmission of messages, or any related services for which a charge is made." HB2364, § 1. In order for that definition to apply, the cooperative must "not provide broadband Internet service to any residents of the county served by a rural telephone cooperative as of January 1, 2014." Id. The bill defines "broadband Internet service" as "an asymmetrical connection to the Internet from a home computer with an expected download transfer rate of at least one and one half megabits per second (1.5 Mbps)." Id.

But the bill, even though it defines "broadband Internet service," does not include "broadband Internet service" within the scope of "telecommunications." As stated above, the term "telecommunications" does not inherently include Internet service. Brand X Internet Services, 545 U.S. at 987-88; Level 3 Communications, 2013 WL 5373143, at *9. "Broadband Internet service" is used in the bill only to help identify when the substituted definition of "telecommunications" would apply, not to include broadband Internet service within the term "telecommunications." Accordingly, the bill as presently written fails to allow any cooperative to provide Internet service.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

JONATHAN N. WIKE
Senior Counsel

Requested by:
The Honorable Ferrell Haile
State Senator
10A Legislative Plaza
Nashville, Tennessee 37243