SBC sued over Illinois wholesale rate hike

The Association for Local Telecommunications Services has filed suit in district court seeking to overturn the law passed a little more than a week ago by the Illinois General Assembly that would double UNE-P rates charged by SBC Communications in most parts of the state. AT&T, MCI and Voices for Choices – the lobbying group primarily funded by AT&T and MCI – joined the suit, which alleges the Illinois law violates the Telecom Act and the FCC’s TELRIC policies.

The law directs the Illinois Commerce Commission to adjust the fill factor and depreciation components of the TELRIC formula and would result in wholesale per-line rates increasing to $11.62 from $2.59 in downtown Chicago, to $23.23 from $11.62 in the rest of the city and suburbs, and to $7.88 from $4.23 in the rest of the state. The ICC staff recommended new rates of $4.23, $26.85 and $9.39, respectively.

ALTS President John Windhausen said Section 252 of the Telecom Act directs CLECs and ILECs to negotiate with each other and designates state commissions to arbite unresolved issues or disputes, but stipulates no role for state legislatures.

The Illinois law also abates the rate proceeding filed by SBC in December 2002, which was expected to conclude in November. For this reason, competitive carriers believe it violates another requirement of Section 252: that a hearing and administrative process must be conducted before wholesale rates can be adjusted.

CLECs also believe that state commissions are bound to follow the instructions of the FCC in TELRIC rate-settings, and that state legislatures lack the authority to subjugate that relationship.

John Roberts, dean emeritus and professor of telecommunications law at Chicago’s DePaul University agreed, and said the act “clearly limited” the states to a role of carrying out FCC policies when it comes to competition issues. “If I were to litigate this, I would argue that the state law preempts federal law,” Roberts said.

The Illinois law also directs the ICC to use current and historical data when it calculates the new fill factor and depreciation formulas, a violation of the FCC's TELRIC policy, which directs state commissions to use forward-looking costs, said Windhausen.

"The Bells have put in so much excess capacity, their fill factors are between 60% and 70%. Allowing them to use these fill factors would reward them for excessive investment," Windhausen said. "That's why the FCC said it had to be based on what an efficient network would be doing, which is how they came up with a fill factor of 85%."

Windhausen noted the irony of SBC seeking price relief from lawmakers that it apparently wasn’t going to get from regulators. “The Bell companies used to maintain that the state regulators were the experts that deserved deference,” Windhausen said. “Now it appears SBC is willing to use back-room tactics to undermine the experts when they reach a decision SBC does not like.”

SBC Illinois Carrie Hightman countered that the real irony concerns competitive carriers fighting a state law after championing for months leading up to the FCC's triennial review of unbundled network elements the notion of "states' rights" in determining the regulatory landscape for local phone competiton and pricing.

"Now they're complaining that one state has acted on those rights," Hightman said.