Voices for Choices, an activist coalition, has won two lawsuits against SBC in Illinois recently, even as SBC got its anti-regulation law passed in the state legislature.

by Alex Goldman ISP-Planet Associate Editor [June 13, 2003]

Voices for Choices has recently won not one but two court cases against SBC. In one, the activists got an SBC-sponsored law ruled unconstitutional, and in another, the court ruled that SBC's attempts to violate the activists' free speech rights through a lawsuit for slander were wrong. Charles P. Kocoras is the Chief District judge of the court of the Northern District of Illinois. He ruled on both cases.

The freedom to speak against the phone company
The first was a lawsuit for slander and defamation. Lawsuits for "slander" are rare in the U.S. They are allowed when someone's reputation is unjustifiably tarnished. The Voices for Choices coalition had circulated direct mail to phone customers in Illinois warning of price increases if an SBC-sponsored law passed.

In his decision of May 12, 2003, Kocoras said that he could not agree with SBC and provide an injunction against Voices for Choices because "not only would such an injunction offend the First Amendment's guarantee to free speech, it would detrimentally affect democracy generally."

He went on to note that what SBC really objected to was legitimate lobbying against a bill that SBC supported. He said, "What SBC requests (and what we must deny) is an order enjoining Voices from carrying out a public lobbying campaign in opposition to a bill pending in the Illinois state legislature."

He concluded, "while the public has an interest in honest public debate, we believe silencing one side of a public debate is a drastic measure that would severely harm the public interest in freedom of speech and the legislative process."

Peter Arnold, spokesperson for Voices for Choices, goes even farther. He says, "There was no factual basis for this lawsuit. The motive was intimidation. SBC has shown a continuous pattern of lawbreaking during the last seven years, and the company gets upset when we point that out."

The coalition's website has a Bell Fine Watch feature that tracks the total dollar amount of fines the four Bells have paid during the past seven years. SBC is by far the most fined, and has managed to be fined in almost every month since January, 2000. The list of SBC fines runs to 16 pages. The total amount of fines paid the Bells (as listed on the site—if you know of fines not listed, contact the coalition) are:

• Bell South: $20,744,120
• Qwest: $930,470,000 (mostly one payment to New Mexico)
• SBC: $1,124,160,826
• Verizon: $314,654,814

Arnold reminded us that when the FCC fined SBC the statutory maximum of $6 million in October, 2002, Michael Powell, no enemy of the Bells, said, "Such unlawful, anti-competitive behavior is unacceptable. Instead of sharing, as the law requires, SBC withheld and litigated, forcing competitors to expend valuable time and resources."

SBC spokesperson Andrea Brands countered, "They were saying that a broadband bill would affect telephone rates. That was not true. There was, however, no point in pursuing the case after the law passed and the advertising stopped."

The SBC-sponsored bill had already passed on May 9, 2003 when Kocoras handed down his decision. Voices for Choices then sued the Illinois Communications Commission, saying that the bill exceeded the authority of the state legislature. The bill enacted changes that could only be made by expert regulators, not elected legislators (who had been bought, presumably, by SBC).

What's right about regulation
On June 9, 2003, Kocoras handed down another decision, this time granting a "temporary restraining order and preliminary injunction" prohibiting the defendants from implementing the law that had just been passed.

Voices for Choices argued that the Illinois law was drafted to contradict the Telecommunications Act of 1996, the law that made CLECs possible. The U.S. Constitution says that federal laws supercede any state laws. The federal law says that prices must be set according to TELRIC, a series of specific items that say a Bell must sell elements of its network as if that network were perfectly efficient, instead of at prices that reflect the actual cost of its network.

The intent is to force the Bells to upgrade their networks. Instead, the Bells seem to prefer to spend money on what former FCC Chairman William Kennard called "regulatory capitalism." He said, "Regulatory capitalism is when companies invest in lawyers, lobbyists, and politicians, instead of plant, people, and customer service."

It seems like there's been a lot of "regulatory capitalism" in Illinois lately. Rather than upgrade their network, SBC decided to spend money making laws and suing the activist organizations that support competition. Judge Kocoras found six areas where SBC's legislation clashed with federal law, noting that it:

1. repealed TELRIC
2. relieved SBC of having to prove that its rates, terms, and conditions are "just and reasonable"
3. created a "deemed" arbitration that Kocoras called "in truth, specious and hollow"
4. substituted the "will of the legislature" for the expertise of the Illinois Communications Commission
5. eliminated "procedural safeguards, designed to insure fairness in rate-setting"
6. the legislators were not required to say why they had voted as they did, making judicial review of their decision impossible, whereas commissioners are required to explain their decisions

Kocoras noted that SBC had promised to refund any unfair profits if its prices were later deemed unfair, but Kocoras rebuffed SBC, saying that SBC was unconvincing and that the plaintiffs had pointed out that SBC had only made the offer in court. He said, "there is no guarantee that SBC will adhere to its word."

Kocoras' conclusion was especially harsh. He said that the plaintiffs had called the Illinois legislation "special interest legislation of the rankest sort, designed solely to benefit the incumbent local telephone monopolist in Illinois and twelve other states." He also noted that the plaintiffs called it, "a legislative fix to the sponsors' fear that the ICC might not agree with their view of the issues."

Against this, he balanced SBC's claim that TELRIC prices force it to subsidize its competition. He concluded, "The ICC, and this Court, are perfectly capable of determining whether SBC has been forced to subsidize its competitors in some unlawful way such that its own competitive abilities have been compromised."

Kennard would probably have agreed that TELRIC was necessary, and might have added that the monopoly's power made it necessary. He said, "is it a fair fight to expect a start-up just out of the incubator to take on a hundred-year-old incumbent—an incumbent which, thanks to an exclusive franchise given by government, owns 96 percent of the local market?"

The eventual object of the FCC, Kennard noted, was to remove regulation, but only after true competition was possible. He said, "I think treating incumbents and newcomers in a market the same would only result in creating barriers to new entrants and killing innovation."

That probably won't stop the incumbents from trying to kill the competitors with every tool at their disposal. State by state, the tentacles of the old Bell monopoly are gradually reducing the rights of private citizens to subscribe to or own non-Bell Internet services over their own phone lines, all in the name of deregulation. The bills they sponsor will surely succeed in some states, especially in areas with judges who are less experienced than Kocoras. Judge Kocoras' decisions can be viewed here.

The Bell will keep fighting. SBC's Brands told us, "It's our belief that what we presented was consistent with federal law. This is just one judge's opinion. The entire matter has not yet been decided. We are still contemplating our options. We don't know which legal remedy we'll use. We can take it up with the Seventh Court or we can continue to argue our case in front of him."

In a statement, Carrie Hightman, president of SBC Illinois, said:

We are very disappointed the judge concluded that the Illinois General Assembly—the elected representatives of the people of this state—has no role in telecommunications policy in this state. The law has already resulted in 500 jobs saved; SBC's commitment of no new layoffs for at least twelve months; and $90 million in DSL investment in Illinois—all of which benefits Illinois consumers.

The state legislature acted properly in issuing direction on this issue in a manner consistent with the 1996 Telecom Act. The preliminary injunction is not a final decision in the case; we believe that the law will ultimately withstand this legal challenge.

This ruling will not affect our commitment to keep jobs and invest in Illinois

The legislation was necessary in order to correct a long-time problem: Under current wholesale pricing in Illinois—the lowest in the country—SBC isn't even recouping half of its costs. Instead, SBC has been subsidizing big companies like AT&T and MCI WorldCom so that they could make an average of 56 percent profit. Clearly, this is not what was intended under the 1996 Telecom Act.

— End