A federal appeals court in Nashville could decide the fate of last year’s FCC decision that overruled state laws in North Carolina and Tennessee prohibiting municipal networks from offering broadband services outside city limits.

The court held an initial hearing earlier this month.

Tennessee and North Carolina both previously passed laws preventing the expansion of super-fast Internet service in their respective cities of Chattanooga and Wilson to surrounding areas.

AT&T is fighting the FCC decision.

The FCC last year voted 3-2 to override those laws. FCC Chairman Tom Wheeler, who voted with the majority, said at the time that some states have created “thickets of red tape designed to limit competition.”

“AT&T believes municipal broadband networks should be limited to locations where no private sector broadband service is available and is not likely to be available in a reasonable timeframe,” the company said in a statement provided to WRAL TechWire.

“Governments should concentrate on investing taxpayer dollars in areas such as education or public safety, not in competing with or over-building the private sector, which has a proven history of funding, building, operating and upgrading broadband networks. In the event a government chooses to construct a municipal network, it should operate by the same rules, terms and conditions which all other broadband providers must follow.

“Here in North Carolina, we have seen tremendous success in the public-private partnership approach to broadband, such as the North Carolina Next Generation Network project. Policies that discourage private sector investment put at risk the world-class broadband infrastructure American consumers deserve and enjoy today.”

Chattanooga markets itself as the “Gig City” for the widespread availability of gigabit-speed Internet service. Such service is about 50 times the national broadband average — or enough bandwidth to download an entire movie in about two minutes.

At an appeal of the FCC ruling on March 17 before the 6th U.S. Circuit Court of Appeals,FCC attorney Matt Dunne called the areas around Chattanooga “digital deserts that are imploring Chattanooga to come to them,” according to arguments posted on the court’s website.

State lawmakers have argued that private broadband providers will have difficulty competing with service subsidized by local governments. But at Thursday’s hearing, attorneys for Tennessee and North Carolina argued the issue is one of state sovereignty. They said the FCC is unlawfully inserting itself between the states and their subdivisions.

Judge Helene White said Congress has stated clearly that it wants the FCC to remove barriers preventing access to broadband because access affects education and other core government interests. Referring to the FCC’s ruling, she asked the attorneys for the states, “Why isn’t that exactly what they’re doing?”

Joshua Turner, a private attorney representing Tennessee, argued that Congress hasn’t given the FCC any special authority to promulgate broadband.