The Journal of The DuPage County Bar Association

Back Issues > Vol. 16 (2003-04)

Northern’s Exposure
Why the 7th Circuit Should Affirm the Unconstitutionality of SBC’s Rate Increase Legislation
By Laura J. Hodge

The United States District Court for the Northern District of Illinois, has recently ruled that a bill proposed by SBC is contrary to federal law.2 The bill would have raised phone rates paid by consumers, and was passed through the legislature after SBC had been trying to raise rates through arbitration with the Illinois Commerce Commission (ICC).3 This article first explains what led communications company SBC to seek higher rates, and how it got involved in the judicial process. Next, the article will examine the court ruling, and what has happened since. Finally, this article explains why the SBC ruling should be affirmed by the appellate court.

SBC Communications owns the infrastructure for the local telecommunications network in Illinois.4 It is bound by the FTA to let competing telecommunication companies lease access to this infrastructure.5 SBC has been doing so under a rate that it claims is costing it too much money, while allowing its competitors to profit, thus reducing SBC’s ability to compete.6 SBC claims that this effectively means that it is being forced to subsidize its competition.7 Originally, SBC had tried to negotiate higher rates with its competitors.8 After having no success in negotiations, SBC then initiated into arbitration governed by the Illinois Commerce Commission.9 The ICC was set to decide the matter on November 9, 2003.10

Instead of waiting for the ICC’s decision, SBC and the telecommunications union backed Illinois legislation that would allow SBC to get the rate increases that it wanted.11 Such legislation would effectively increase the state-wide per line fee from $12.38 to $19.24.12 The bill (SB885), which was written by SBC, flew through the Illinois General Assembly; it was passed around ninety-six hours after it was introduced.13 The bill was introduced on May 5, 2003, and passed by the Illinois House on May 7, 2003.14 The bill then passed in the Illinois Senate, only receiving the minimum amount of votes required, and within hours Illinois Governor Rod Blagojevich signed the bill into law.15 The quick passage of the bill as well as the sudden switch from the ICC to the Illinois legislature raises questions about why SBC chose to alter its route after spending so much time in arbitration with the ICC.16 Critics of SB885 say SBC sold the bill as a jobs bill to move it quickly through the Illinois legislature.17 SBC employs over 21,000 people in Illinois, and made it sound as though these jobs were at stake if the rate increase did not happen.18 Additionally, the bill has been criticized because of SBC’s political ties.19

The new rates which would raise the cost of the leases were to take effect on June 9, 2003.20 Before that could happen, SBC was defending itself in the United States District Court for the Northern District of Illinois against a petition for temporary injunction, which would stop the rate increase.21 The increase would mean substantially higher rates for carriers with over 35,000 lines, but would not affect the smaller companies for two more years.22 The two companies immediately affected by the rate increase would have been MCI and AT&T.23

Many companies and groups joined together as plaintiffs, to stop the new legislation from being put into effect.24 The legislation would enact sections 13-408 and 13-409 to the Illinois’ Public Utilities Act.25 Plaintiffs argued “that these new provisions, sections 408 and 409, violate the Supremacy Clause of the U.S. Constitution, U.S. Const. art. VI, § 1, because they conflict with the Federal Telecommunications Act of 1996, 47 U.S.C. § 251-261, and related FCC regulations.”26 Judge Charles Kocoras agreed, finding two major problems with the legislation.27 First, the legislation takes away the power of the ICC to arbitrate the dispute.28 This power was given to the ICC by the Telecommunications Act of 1996.29 If the ICC chooses not to arbitrate, the power to do so should revert back to the FCC, not the state legislature.30 Second, the legislation changes the formula that the ICC (or FCC) must use to determine the rate increases.31 The new formula instructs the ICC to base the increases on actual costs that SBC faces.32 The original formula did not use actual costs, which prevents a mismanaged company from passing costs generated from its poor management onto the lessee’s; instead it called for the formula to reflect the most efficient use of the network.33

In addition to SBC, ICC com-missioners were named as defendants in this suit. The commissioners claimed legislative immunity citing a case giving legislatures such immunity.34 Their argument was unsuccessful, although Judge Kocoras had this to say:

The Plaintiffs claim that the Illinois legislation sought to be enjoined is special interest legislation of the rankest sort, designed solely to benefit the incumbent local telephone monopolist in Illinois and twelve other states. It has been called a legislative fix to the sponsors’ fear that the ICC might not agree with their view of the issues.35

After the preliminary injunction, Judge Charles Kocoras made the injunction permanent; ruling that, “portions of the Illinois Public Utilities Act are preempted by the provisions of the Federal Telecommunications Act of 1996.”36 SBC has since appealed the decision, and according to an opinion written by United States Court of Appeals, Seventh Circuit Judge Posner, who was ruling on whether or not to allow amicus curiae briefs in the appeal, the following summarizes SBC’s appellate argument:

SBC’s brief on appeal argues that the Federal Telecommunications Act does not deprive the state legislature of the power to adopt standards for rate setting, that the district court’s ruling is contrary to the general principles governing preemption, that anyway the standards adopted by the legislature for fill and depreciation are consistent with federal pricing rules, and that the district court improperly substituted its own view for that of the Illinois legislature in concluding that the public interest would not be served by the leasing rates that the Illinois statute would permit.37
Interestingly, the ICC chose not to appeal the Court’s decision. This choice was made after pressure was put on the Commission to not waste any more taxpayer money litigating this issue.38

Judge Charles Kocoras, who made the ruling, is the Chief Judge of the U.S. District Court for the Northern District of Illinois (Chicago). He also served as ICC chairman from 1977-1979.39 This makes him specially qualified to understand the intricacies of the case. In his opinion, Judge Kocoras showed his belief that SBC’s original complaint of subsidizing its competitors would have been heard and well considered by the ICC. Therefore, there really was no reason to pass the legislation.40 His decision was not against the rate increases, only the way in which they were obtained.41

The opinion draws on a ruling by Judge Ripple that details the reasons for enacting the Telecommunications Act, as well as, how the act affects state telecommunication legislature.42 This ruling concludes that the FCC is to step in if the ICC fails to perform its duties.43 SBC did not take its dispute to the FCC, in fact it did not even wait for the ICC to fail to perform, since the ICC had been hearing the dispute, and was set to rule on it.44 This makes SBC’s appeal unlikely to prevail, since it can be shown that SBC was taking the proper route to begin with.45 SBC’s claim that the FTA does not limit the power to only the ICC or FCC should also fail, because sections of the FTA do specify that the power is given to state commissions.46

Recently the Court of Appeals for the Seventh Circuit ruled that certain amicus curiae briefs would not be admitted in the appeal.47 Judge Posner held that the briefs would not be permitted since they covered the same grounds that the parties’ briefs did.48 The ruling leaves out briefs by Michael Madigan, Speaker of the Illinois House of Representatives, and Emil Jones Jr., President of the Illinois Senate; who claim that filing their brief, “presents the opportunity for the Court to consider certain issues from the viewpoint of state officials who play an instrumental role in establishing telecommunications policy for the States.”49 If the amicus curiae brief was filed on behalf of the state, it would have been allowed as a matter of right. In this case, however, the filers did not claim to be representing the state, only the “viewpoint of state officials.”50

The SBC dispute is likely to end up right back where it started— in front of the ICC. This is because their attempt to use legislation as a tool to avoid the rules set out by the FCC was impermissible.51 SBC saw a way around the ICC to get the rate increase that it wanted, but it remains to be seen whether they will truly win. The appellate court should affirm the lower court’s opinion that the rate hike is unconstitutional, in effect affirming that companies should not be able to make their own laws when they do not agree with the laws that are already in place.

2 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 (N.D. Ill. June 9, 2003),
3 Id.
4 Id. at 6.
5 Id. at 6.
6 Id. at 21.
7 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 21 (N.D. Ill. June 9, 2003),
8 Id. at 6.
9 Id. at 6.
10 Pat Guinane, Judge Stalls Phone Rate Hike Federal Rulings Says SBC Legistature is Anti-Competitive, Peoria J. Star, June 10, 2003, at A1.
11 Id.
12 Pat Guinane, Judge Stalls SBC Rate Hike; Says Charge to Competitors is an Issue for ICC, The State J. Register June 10, 2003.
13 See Jon Van, More Static on SBC Bid for Midwest Long-Distance, Chi. Trib., July 17, 2003, at A3.
14 Id.
15 Id.
16 Steve Neal, Judge Saw Through Deceit in Blocking SBC, Chi. Sun Times, June 16, 2003, at 33.
17 Id.
18 Id.
19 Id. SBC’s president is William Daley, brother of Chicago mayor Richard Daley. Id. There was also criticism about Mayor Daley visiting Springfield while SB885 was considered and passed. Id. In addition, Illinois Governor Rod Blagojevich received $185,000 from SBC for his campaign fund and inauguration committee. Id.
20 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 6 (N.D. Ill. June 9, 2003),
21 Id.
22 Id. at 15.
23 Id. at 15.
24 The Plaintiffs included: Voices for Choices, AT&T Communications of Illinois, MCI Metro Access Transmission Services, and Associations for Local Telecommunications Services, McLeodUSA Telecommunications Services, TDS Metrocom, Mpower Communications Corp., Citizens Utility Board, Talk America Inc., XO Illinois, Globalcom, and Forte Communications. Id. at 1,2.
25 Id. at 2.
26 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 2 (N.D. Ill. June 9, 2003),
27 See id.
28 Id. at 20.
29 See Federal Telecommunications Act, 47 U.S.C. § 252(a) (1996).
30 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 13 (N.D. Ill. June 9, 2003),
31 Id. at 7.
32 Id. at 7. See 220 ILCS 5/13-408(b).
33 47 C.F.R. § 51.505(b)(1) (1996).
34 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 18 (N.D. Ill. June 9, 2003), See Prentis v. Atlantic Coast Line Co., 211 U.S. 210 (1908).
35 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 20 (N.D. Ill. June 9, 2003),
36 Voices for Choices et al v. Illinois Bell Telephone Co. et al, 339 F.3d 542 (2003).
37 Id. at 543.
38 Doug Finke, Madigan, Jones Defend SBC Bills; Brief Filed with Court in Support, State J. Reg., July 18. 2003 at 11. 39 Glenn Bischoff, SBC Agrees to Adjust Illinois Rate Calculation, Telephony Online, June 4, 2003, available at
40 See Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 at 21 (N.D. Ill. June 9, 2003),
41 See id.
42 Id. at 2-4.
43 MCI Telecommunications Corp. v. Illinois Bell Telephone Co., 222 F.3d 323 (7th Cir. 2000).
44 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 (N.D. Ill. June 9, 2003),
45 See id.
46 See 47 U.S.C. § 252 (e)(5) (Supp. II 1996).
47 Voices For Choices et al. v. Illinois Bell Telephone Co. et al., 339 F.3d 542 (2003).
48 Id.
49 Id. at 543, 545.
50 Id. at 545.
51 Voices for Choices et al v. Illinois Bell Telephone Co. et al, No. C-3290 (N.D. Ill. June 9, 2003),

Laura Hodge is a second year law student at Northern Illinois University College of Law. She is a member of the Law Review, and serves as Marshall for Phi Alpha Delta.

DCBA Brief