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Illinois Bell Telephone Co. v. Illinois Commerce Commission

August 29, 2003

ILLINOIS BELL TELEPHONE COMPANY, PETITIONER-APPELLANT,
v.
ILLINOIS COMMERCE COMMISSION, AT&T COMMUNICATIONS OF ILLINOIS, INC., TCG ILLINOIS, TCG CHICAGO, TCG ST. LOUIS, WORLDCOM, INC., MCLEODUSA TELECOMMUNICATIONS SERVICES, INC., XO ILLINOIS, INC., NORTHPOINT COMMUNICATIONS, INC., RHYTHMS NETCONNECTION AND RHYTHMS LINKS, INC., SPRINT COMMUNICATIONS L.P., FOCAL COMMUNICATIONS CORPORATION OF ILLINOIS, AND GABRIEL COMMUNICATIONS OF ILLINOIS, INC. INC., RESPONDENTS-APPELLEES.



The opinion of the court was delivered by: Justice Schmidt

UNPUBLISHED

This is an appeal from a series of orders issued by the Illinois Commerce Commission (the Commission). The orders set forth parameters to which the petitioner, Illinois Bell Telephone Company (d/b/a Ameritech Illinois), must adhere when allowing competing local exchange carriers (CLECs) access to its local network. Petitioner takes issue with three mandates contained within the orders.

The orders forced the petitioner to file a tariff relating to its local network. Petitioner claims that the Commission lacked the authority to order certain provisions contained within the tariff. Petitioner further claims that other aspects of the orders, related to ensuring petitioner's compliance with performance goals, were arbitrary and capricious and not supported in fact.

The CLECs and the Commission, respondents, believe the Commission acted properly when issuing its orders.

BACKGROUND

In 1998, Ameritech Illinois (and its parent company, Ameritech Corporation) and SBC Communications, Inc., began the merger process. Ameritech Illinois filed an application seeking the Commission's approval of the merger. The Commission approved the application in September of 1999 subject to certain conditions. These conditions were contained within the "merger approval order" (merger order) which took effect on the merger closing date of October 8, 1999. The merger order was consented to by Ameritech Illinois, SBC Communications, Inc., and the Commission.

The merger order contained language noting that "[e]xcept where other termination dates are specifically established, all conditions set out below shall cease to be effective and shall no longer be binding in any respect three years after the Merger Closing Date." At issue in this appeal is Condition 30, titled "Performance Measuring, Benchmarks and Liquidated Damages," which did not specifically establish an alternative closing date.

True to its title, Condition 30 directed petitioners to "establish performance measurements, benchmarks and provide for liquidated damages." The merger order then described a process through which these items would be established. Approximately 150 performance measurements divided into 3,000 categories were established. The liquidated damages established took the form of automatic payments to be made to the CLECs and State of Illinois in the event that performance standards were not met. This plan of determining performance measurements and then paying liquidated damages for not meeting acceptable standards became known as the "remedy plan." The remedy plan agreed to by petitioners at the time the merger order was entered was premised on a similar plan in effect in Texas.

A system containing such a large number of performance measurements broken down into an even greater number of categories lends itself to random variations. These random variations may give the appearance of noncompliance with performance standards when in fact compliance is occurring. The Texas remedy plan originally proposed contained a " k-table," which is a statistical mechanism put in place to prevent the imposition of payments based solely on random variation.

Condition 30 further set forth a collaborative process by which performance measurements, standards, benchmarks and remedies could be adjusted. The collaborative process included representatives from Ameritech, the CLECs and the Commission. The final paragraph of Condition 30 allowed any participant in the collaborative process to recommend amendments to the remedy plan. If a dispute over the recommended amendment could not be resolved by the parties through the collaborative process, then the party recommending the amendment could ask the Commission to resolve the dispute.

Ameritech and the CLECs came to terms regarding many items during the collaborative process but could not agree on the level of payments Ameritech would be required to pay if it failed to meet performance standards. A joint petition was filed by Ameritech and the CLECs asking the Commission to resolve this dispute. For the next 17 months, hearings were held, testimony presented and multiple briefs filed by both parties. Eventually, the Commission ruled on the disputed items and entered a "final order" on July 10, 2002.

The final order put in place the "revised remedy plan," which doubled the amount of liquidated damages set forth in the merger order to be paid by Ameritech in the event it fails to meet performance standards. Moreover, the final order eliminated the k-table, opting to set a standard 5% error rate to account for the effect of random variation.

The Commission also commented on the duration of the remedy plan in the final order. The Commission noted:

"The only conclusion that can be reached is that Condition 30, and consequently the Remedy Plan, expires in three years. *** Additionally, no party has given us a legal basis for extending the deadlines included in the Merger Order. We are therefore left with the conclusion that the Remedy Plan, as a condition to merger approval, expires in three years from the merger closing date, or October 2002."

The final order discusses who may avail themselves to the revised remedy plan. Commission's staff recommended:

"Ameritech should also be required to revise its existing tariff to reflect the changes made pursuant to this Order. This will ensure that those carriers that do not have an Interconnection Agreement with Ameritech will have the benefit of the Remedy Plan. Additionally, Staff proposes that pending the filing of such a tariff, the Modified Remedy Plan ordered in this docket should be offered to the CLECs that are currently using the Plan through an 'opt-in.'

In its analysis and conclusions section, the Commission noted:

"We also agree with Staff that Ameritech should be required to file a tariff to reflect the changes made pursuant to this Order. At present, Ameritech's tariff and Interconnection Agreements incorporate the current Remedy Plan. The Performance Remedy Plan in this Docket shall replace the current Remedy Plan in Ameritech's pertinent tariff, and, it shall be incorporated into all currently ...


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