The U.S. Federal Communications Commission voted on Thursday to adopt a strong legal foundation for new Open Internet regulations, which mirror the principals of Net Neutrality.

But before that historic vote Thursday morning, the FCC addressed one other item on its agenda -- one that touches on a deeper issue for American broadband than keeping Internet providers in line.

The vote that the FCC took, before its adoption of strong Net Neutrality rules understandably stole the spotlight, was a decision to preempt two state laws in Tennessee and North Carolina that hampered the expansion of community-based broadband networks, known as municipal broadband. This is big, and it may set a precedent for further action that addresses a more fundamental issue with American broadband than Net Neutrality: competition.

The action wasn't surprising though, (nor was the three to two vote down party lines). Wheeler spoke about preempting state laws restricting local broadband initiatives early in 2014, and later got support from a campaign-style event at Cedar Falls, Iowa earlier this year, where President Obama called for an end to state laws hampering local broadband initiatives.

According to Wheeler's count, 19 states have laws that prohibit or constrain further development of municipal broadband. Tennessee is one of those states, where the local public broadband, the gigabit-providing Electric Power Board (EPB), was prevented from expanding to service residents in nearby towns.

The FCC now has decided to preempt those laws, as well as similar laws in North Carolina, and seems willing to do so again if petitions roll in.

Deeper Than Net Neutrality

The preemption move is a first step in allowing public utility-style broadband -- which in many places offers low-cost fiber optic connections at connection speeds close to 10 times the national average -- to compete on the same playing field as monopolistic cable companies, some of whom lobbied for the state laws in the first place.

"The bottom line is some states have created thickets of red tape designed to limit competition," as Wheeler put it, also stating, "You can't say you're for broadband, and then turn around and endorse limits on who can offer it." 

In a way, even though it was limited to two particular cases, the municipal broadband decision takes a step toward addressing the competition issue, for which Net Neutrality is actually just a band-aid.

As The New York Times' analysis of the FCC Open Internet decision put it, "the new rules will not ensure competition from new entrants... Instead, strong regulation is intended to prevent the dominant broadband suppliers from abusing their market power."

In a way, the big win for Net Neutrality advocates this week was also a recognition that cable companies like Comcast are currently the only viable broadband game in town -- at least throughout large swaths of the country.

Put more directly: Cable already won, and now the FCC is just making sure it won't abuse its customers. And that's how the FCC's lesser-known municipal broadband decision on Thursday is more fundamental than Net Neutrality. It potentially opens up a new avenue of competition that's been tested and proven to work in the real world.

A Messy Road Ahead

But the action by the FCC this week, and the seeming willingness of the FCC's Democratic majority to preempt laws in favor of local broadband, isn't without its legal complications.

In the FCC's press release announcing the decision, a directive in Section 706 of the Telecommunications Act of 1996 that allows the FCC to take action to remove barriers to broadband competition and investment was brought up as the legal basis for action.

But according to Ars Technica, in his dissension, Republican FCC commissioner Ajit Pai contended that Section 706 contains no specific language about the FCC preempting state laws in following the "competition and investment" directive. Indeed, the FCC's press release only vaguely states, "under federal law, a federal agency may preempt state laws that conflict with its regulations or policies so long as it is acting within the scope of its authority."

Beyond that, Pai claimed that Democrats conceded that the FCC isn't capable of "preempting" state laws that ban municipal broadband completely, but can only address lesser restrictions in state law, such as in the Tennessee and North Carolina cases.

Pai called the regulatory picture after the FCC's preemption "an exceptionally strange result" where "a state would be free to ban municipal broadband projects outright," but "would be forbidden from imposing more modest restrictions."

"In other words, the most severe state law restrictions on municipal broadband projects -- prohibitions -- could not be preempted," said Pai. The result is an incentive for state legislatures to not try any light restrictions and instead go nuclear on municipal broadband if they want it to stick.

Like the Net Neutrality decision, the municipal broadband preemption move is untested, so exactly what consequences follow is still unknown. But not for long: both FCC actions will undoubtedly either live or die in the ensuing court battles to come.