States must designate providers, service areas under FCC reclassification of Internet delivered services as telecommunications utility.

A key task facing states following the Federal Communication Commission’s adoption of its Open Internet rulemaking April 25 classifying Internet protocol communications as a telecommunications utility under Title II of the Communications Act is designating service areas of providers for the purpose of determining the law’s universal service obligations and support mechanisms. The relevant statute is at 47 USC § 214(e)(5):

(5) “Service area” defined: The term “service area” means a geographic area established by a State commission (or the Commission under paragraph (6)) for the purpose of determining universal service obligations and support mechanisms. In the case of an area served by a rural telephone company, “service area” means such company’s “study area” unless and until the Commission and the States, after taking into account recommendations of a Federal-State Joint Board instituted under section 410(c) of this title , establish a different definition of service area for such company.

The task is complicated by a FCC rulemaking issued in 2019 (DA/FCC #: FCC-19-80) that bars states from regulating most non-cable services including Internet access service offered over a cable system by an incumbent cable operator. That FCC rulemaking concluded the federal Cable Communications Policy Act of 1984 preempts state and local governments from regulating Internet and VOIP services under their video franchising authority. The FCC’s reclassification of Internet delivered services as telecommunications services under its Open Internet rulemaking effectively abrogates this component of its 2019 rulemaking.

Cable TV franchises effectively became Internet service areas in the 2000s as cable companies began offering Internet connectivity and VOIP service in addition to video, putting them on a par with telephone companies’ Internet and VOIP services. That led a shift in regulatory policy, creating "video franchises."

A 2020 report prepared by the Congressional Research Service describes the history and rationale of the shift to states of local government video franchising authority in order to get out from under local government requirements that franchisees connect all addresses within their jurisdictions as constituent demand for Internet connectivity rose in the 2000s:

As the LECs (telephone companies) sought to enter the video distribution market, they pursued statewide reforms to speed their entry, rather than seeking franchises in individual municipalities. The LECs’ competitors, the incumbent cable operators, contended that state-level franchising would present new entrants with fewer obligations than cable companies had faced when they entered the market, specifically the obligation to build networks serving all parts of a community.  

Pending California legislation (AB 1826) demonstrates the need for common carrier utility regulation of IP services. It states legislative findings that despite 2006 legislation that shifted video franchising authority to the California Public Utilities Commission from local governments predicated on the questionable rationale it would increase competition to improve access and affordability, thousands of Golden State households lack access to video or broadband service, including households that are within the service territories of video franchise holders.