Federal Communications Commission plans to boost competition for broadband services have taken a knock. An appeals court says the commission can’t override state laws that block cities from building their own networks.

19 states have some form of law that stop such building, in most cases with the logic that local government building and potentially operating broadband networks would stifle competition among private businesses.

The FCC believes the opposite is true in that the sheer cost of creating broadband infrastructure is so high that it creates natural monopolies, often run by major cable firms. Instead it argues that municipal broadband is the only realistic way to add competition.

That’s led to a legal battle that, as so often, is about the rul-making process more than the specific issues. The FCC gave the go-ahead for municipal broadband in Wilson in North Carolina and Chattanooga in Tennessee, despite state laws to the contrary.

The FCC argument was that the 1996 Telecommunications Act gives it the power to override state law where doing so removes barriers to competition in broadband.

However, state officials in North Carolina and Chattanooga have successfully argued in a federal appeals court that this is trumped by the 10th amendment, which specifically gives states legal authority over municipal matters.

The only way round that is if a federal law (in this case the Telecommunications Act) clearly and explicitly gives a federal agency the ability to override the state law. The appeals court agreed that the Telecommunications Act isn’t clear-cut enough for that to apply here.

The FCC could ask for a fresh hearing with nine rather than three judges, or could try to take it to the Supreme Court. Given that the political split there means the Supreme Court is unlikely to overturn many rulings any time soon, the chances are the commission will abandon the battle.