North Carolina’s second highest court last week clarified under what circumstances a city or town can engage in activities that private business ordinarily provide.

The ruling comes in a case about the legality of the fiber-optic network Laurinburg was using to provide Internet access to itself and outside governmental and institutional users. The Court of Appeals held that because the wording of state law defining what constitutes a cable television system was ambiguous, the town could operate the network, even if it didn’t offer cable TV.

In 1996, Laurinburg established a fiber-optic link between its city hall and its public works building. Two years later, it laid additional fiber-optics lines to create what amounted to a 19-mile loop. The town soon entered into an agreement with School Link, Inc, under which the company would become the town’s Internet service provider. To generate the volume of business needed to make the arrangement feasible, Scotland County government, the Scotland County schools, St. Andrews College, and Scotland Memorial Hospital also hooked into the town’s fiber-optic lines and received their Internet service from School Link.

Though technically able to carry cable television signals via its network, Laurinburg has never offered that service and has no plans to.

BellSouth, which had previous been the ISP for most of the governmental and institutional users that School Link serves via the town’s network, sued contending in part that Laurinburg lacked the legal authority to offer the service.

What are municipalities allowed to do?

The answer to whether the town could legally offer the service depends greatly, the Court of Appeals acknowledged, upon how one views the powers of municipal government. North Carolina has traditional followed “Dillion’s Rule”, named after the 19th century jurist John Dillon:

“[A] municipal corporation possesses and can exercise the following powers and no others: First, those granted in express words; second, those necessarily or fairly implied in or incident to the powers expressly granted; third, those essential to the accomplishment of the declared objects and purposes of the corporation, — not simply convenient, but indispensable.”

In 1971, however, the General Assembly adopted N.C. Gen. Stat. § 160A-4, which states that municipal charters “shall be broadly construed and grants of power shall be construed to include any additional and supplementary powers that are reasonably necessary or expedient to carry them into execution and effect.”

North Carolina appellate courts have been less than clear in the past in reconciling the two visions of town authority; indeed, the N.C. Supreme Court had carefully avoided addressing the issue in several past rulings.

As a first step in determining whether Laurinburg could operate the system, the Court of Appeals addressed this issue. “The narrow Dillon’s Rule of statutory construction used when interpreting municipal powers has been replaced by N.C. Gen. Stat. § 160A-4’s mandate that the language of Chapter 160A be construed in favor of extending powers to a municipality where there is an ambiguity in the authorizing language, or the powers clearly authorized reasonably necessitate ‘additional and supplementary powers’ ‘to carry them into execution and effect’”, wrote Judge Douglas McCullough for the court. “However, where the plain meaning of the statute is without ambiguity, it ‘must be enforced as written.’”

What’s a cable system?

The appeals court then turned to the language of the 1971 law allowing towns to operate cable television systems. The statue defines a cable television system as: “any system or facility that, by means of … wires or cables alone, receives, amplifies, modifies, transmits, or distributes any television, radio, or electronic signal, audio or video or both, to subscribing members of the public for compensation.”

The Court of Appeals noted that the law does not restrict a municipal cable system to any particular technology or define or limit the content of the electronic signals.

“Stated differently,” wrote the appellate court, “the language of this statute is ambiguous as to whether the fiber optic network run by Laurinburg falls within its contours. Thus, we apply N.C. Gen. Stat. § 160A-4’s broad rule of construction.”

“Laurinburg’s network is run over fiber optic ‘wires or cable,’ providing a ‘system‘ for ‘transmit[ting]‘ and ‘receiv[ing]‘ electronic signals capable of being converted to ‘audio’ and/or ‘video’ streams of information… We believe this fits within a broad construction of the definition of a CTS.“

The court thus found that Laurinburg was authorized to operate the system.

“We acknowledge that Laurinburg’s fiber optics network was most likely not something the legislature envisioned in 1971 when they enacted the statute allowing a municipality to operate a CTS as a public enterprise,” wrote Judge McCullough. “However, if Laurinburg were currently offering the kind of cable programming in place in 1971, and doing so over their fiber optic network, they clearly would be authorized to offer the current bundle of network services over these same lines as ‘additional and supplementary powers that are reasonably necessary or expedient.’”

“Without authority to offer the bundled CTS services, no municipality could effectively operate in today’s market. Moreover, just as BellSouth is able to leverage its telephone infrastructure to provide low cost DSL broadband services in the market, so too should a municipality be able to leverage its CTS infrastructure. We believe it would elevate form over function, against the intent of our legislature’s mandate for broad construction, to first demand 1971-type cable programming be in place before a 2004 CTS could be authorized as a public enterprise. Rather, the legislature’s intent in 1971 was to enable the municipality’s public enterprise to grow in reasonable stride with technological advancements, as it is this advancement which marks the ever-approaching horizon of necessity.”

Rulings by the N.C. Court of Appeals are controlling interpretations of North Carolina law unless overturned by the N.C. Supreme Court. Because the ruling by the three-judge panel of the appeals court was unanimous, if BellSouth seeks further review before the N.C. Supreme Court, the high court would not have to hear the case unless it chooses to.

The case is BellSouth Telecomms., Inc. v. City of Laurinburg, (04-145).

Michael Lowrey is associate editor of Carolina Journal.