Telco Challengers Win Case in Illinois


A federal appeals court has invalidated an Illinois state law that competitors argued would greatly increase the rates SBC Communications Inc. charges to lease unbundled elements of its telephone network.

Competitors filed suit immediately after Gov. Rod Blagojevich signed the bill into law this year.

SBC lobbied heavily for the law, which directs the Illinois Commerce Commission to set rates using different formulas than traditionally utilized. For example, the law would have allowed incumbent SBC to use the most rapid depreciation rates for hardware when calculating UNE rates.

That would save SBC on taxes, but the shorter depreciation time would also increase the replacement costs passed through to network users.

Competitors argued the bill was pre-empted by federal policy but were unsuccessful in derailing it.

Challengers included AT&T Corp. and the Association for Local Telecommunications Services, a trade group that includes MSO-affiliated Adelphia Business Solutions, Cox Enterprises Inc. and Time Warner Telecommunications Inc. They sued in June in U.S District Court for the Northern District of Illinois, Eastern Division.

That federal court struck down the law, a ruling affirmed on appeal on Nov. 10 by the 7th U.S. Circuit Court of Appeals, although for different reasons than stated by the lower court.

The lower court invalidated the law, citing federal pre-emption.

But the appeals panel said state legislators and regulators are not specifically barred from setting utility policy under the federal Telecommunications Act.

What invalidated this law, the appeals panel ruled, is a rate scheme that mixes historic rate formulas with newer, forward-looking computations. Such an approach violates federal policy, the appellate judges said.

The appeals panel added that the current rate policy governing SBC is outdated. Technology has changed since the rates were set in 1997, the panel wrote, and it directed the ICC to "speedily" come up with a legal rate structure that reflects the current market and the need for frequent technological upgrades.

The panel also tweaked competitors for their prompt lawsuit. Issues are usually litigated after a policy is implemented, the court noted.

It is now possible the ICC will set rates utilizing some of the directions competitors objected to in the contested bill, the panel wrote, now that the courts have provided direction as to which formula elements pass judicial muster.

SBC Illinois president Carrie Hightman issued a statement indicating the company's disappointment that the court did not let the law go into effect.

Company officials were encouraged, however, by the court's affirmation of the state legislature's role in directing state regulators on rate setting.

"We hope the ICC acts quickly as a result of this opinion to produce real benefits for Illinois," she said.