The 6th U.S. Circuit Court of Appeals handed the states of North Carolina and Tennessee a victory on Wednesday when it struck down a Federal Communications Commission rule that pre-empted the states’ regulation of municipal broadband service within their borders.

The three-judge panel said that the FCC overstepped its authority. The ruling noted that municipalities are subdivisions of states and that a state has “absolute discretion” to entrust powers to cities and towns.

“Any attempt by the federal government to interpose itself into this state-subdivision relationship therefore must come about by a clear directive from Congress, and the FCC can only pick the decision maker here if there exists a clear statement to do so [in] federal law,” the ruling says.

Federal law “does not contain a clear statement authorizing pre-emption of Tennessee’s and North Carolina’s statutes that govern the decisions of their municipal subdivisions,” the ruling says.

Berin Szoka, president of Tech Freedom, a free-market think-tank, said Wednesday’s decision came as no surprise to him.

“It should have been obvious that the FCC was going to lose before [it] started down this path,” Szoka said. “And if it wasn’t obvious then, it should have been crystal clear after oral arguments because the decision is exactly what the arguments laid out, what the judges said.”

Szoka said the decision is a win for federalism.

“It reaffirms that federal agencies can only pre-empt state authority when they have a clear statement from Congress that Congress is asserting the ultimate supremacy of the federal government and absent that, they can’t regulate or pre-empt,” Szoka said.

Tennessee enacted a statute in 1999 allowing some municipalities to provide broadband service within its service area.

The N.C. General Assembly passed a law in 2011 placing regulations on municipalities that wanted to engage in broadband service. Those regulations included requirements that cities make payments in lieu of taxes that would be equal to the amount a private provider would have had to pay. It also forbids municipalities from subsidizing broadband operations from general tax revenue or other sources and required a referendum on the issue before the municipality could launch a broadband service.

At the request of the city of Wilson, N.C., which operates its Greenlight broadband service, and Chattanooga, Tenn., which also operates a broadband service, in 2015 the FCC issued its rule pre-empting state laws.

In response to the court’s decision, Common Cause said state laws limiting local broadband exist only because lawmakers have received campaign contributions from big cable interests.

“This decision does not benefit our broadband nation,” Common Cause’s Michael Copps said.

“Nor is it a good reading of the law. But if the FCC cannot set aside these bad laws, then the people must. We will redouble our state-by-state efforts to repeal these odious policies.”

In contrast, FCC Commissioner Ajit Pai, who opposed last year’s FCC intervention, praised the ruling.

“In my statement last year dissenting from the commission’s decision, I warned that the FCC lacked the power to pre-empt these Tennessee and North Carolina laws and that doing so would usurp fundamental aspects of state sovereignty,” Pai said. “I am pleased that the 6th Circuit vindicated these concerns. The court’s decision is a big victory for the rule of law and federalism — a constitutional principle that lies at the heart of our system of government.”

Pai continued: “Today’s decision also represents an opportunity for the FCC to turn the page. Rather than wasting its time on illegal efforts to intrude on the prerogatives of state governments, the FCC should focus on implementing a broadband deployment agenda to eliminate regulatory barriers that discourage those in the private sector from deploying and upgrading next-generation networks.”