|7th Circuit Rules in Illinois
11/10. The U.S. Court of Appeals
(7thCir) issued its
opinion [15 pages in PDF] in AT&T v. Illinois Bell, an
appeal from a District Court decision that held that portions of the state of
Illinois's Public Utilities Act are preempted by
Section 251 of the
Communications Act, pertaining to interconnection and unbundling.
Introduction. This is a dispute over the rates that competitive
carriers pay incumbents for access to unbundled network elements. AT&T filed a
lawsuit in federal court in Illinois alleging that a just enacted Illinois
statute pertaining to rates is preempted by federal law. The District Court
granted summary judgment to AT&T, held the state statute unlawful, and enjoined
implementation of this state statute. The Appeals Court affirmed.
But, this is a complex case, and the Appeals Court opinion is densely packed
with significant interpretations and analysis of the 1996 Act, interconnection,
unbundling, total element long-run incremental cost (TELRIC) pricing, state
authority, and procedure. Readers interested in this area
of law will want to carefully read the entire opinion.
To start with, the case caption is confusing. The case was filed, and
proceeded through the District Court, as Voices for Choices v. Illinois Bell.
The Appeals Court changed the caption. It wrote in the present opinion that
"AT&T tried to give the suit a public-interest patina by making ``Voices for
Choices´´ -- which despite its name is a trade association rather than a
consumers' group -- the lead plaintiff. The appellate brief reveals that AT&T's
lawyers also represent Voices for Choices, which presents no arguments on its
own behalf; we have changed the caption to reflect the real parties in
This is not the first time that this Appeals Court has expressed
disapproval of the posturing in this case. On August 6, Judge
Richard Posner issued
opinion [7 pages in PDF] in which he explained his reasons for refusing to
accept two amicus curiae briefs submitted by state legislators and an interest
group. He wrote that individual legislators and interests groups should not
attempt to lobby in the judicial process. See, story titled "Judge Posner Opines
On Amicus Briefs" in
TLJ Daily E-Mail
Alert No. 714, August 8, 2003.
Parties and Proceedings Below. When the dispute underlying this case
began, in the aftermath of the Telecommunications Act of 1996, Illinois Bell was
a subsidiary of Ameritech, one of the Regional Bell Operating Companies (RBOCs).
Competitive entrants AT&T and
MCI both demanded access to the unbundled
network element platform (UNE-P) of Illinois Bell. The companies could not agree
on a price. So, in 1997, the Illinois
Commerce Commission (ICC) set a price of about $5 per month per UNE-P in
Chicago, and about $12 on average statewide. Retail customers pay an average of
about $36 per month for the service one UNE-P creates.
Ameritech subsequently merged with SBC. Five years after the original ICC
proceeding, Illinois Bell (SBC)
asked the ICC to raise the rates. SBC argues that it costs it $29 per month to
supply the UNE-P that fetches $36 from a retail customer but only $12 on average
from AT&T or MCI.
While the ICC was considering this matter (ICC Docket
02-0864), the Illinois State Legislature enacted a statute (which the Appeals
Court opinion quotes at length) regarding unbundled network element rates. It is
codified at 220 ILCS 5/13-408.
The Court of Appeals summarized the statute: "In other words,
within 30 days the ICC had to adjust SBC's rates using its current fill factors
and depreciation schedules from its financial statements. Depreciation, like
fill factor, is inversely related to price under TELRIC. If economically and
technologically efficient equipment would have a useful life of five years, then
the TELRIC price to rivals is greater (because cost must be covered faster) than
if the life is ten years. The statute told the ICC to use the equipment life
spans that SBC had adopted for purposes of financial reporting—and for that
purpose firms often use lives as short as the IRS will accept, because shorter
lives mean faster depreciation and lower taxes. Through 220 ILCS 5/13-408 the
tax-and-accounting lives of SBC’s assets became their economic lives too. The
legislation added that AT&T and SBC could not use the ensuing higher wholesale
prices as justifications for increased retail rates."
Before the ICC made its decision, AT&T (Voices for Choices) filed a complaint
in U.S. District Court (NDIll)
against Illinois Bell alleging that the 1996 Telecom Act preempts the Illinois
statute. On June 9, 2003, the District Court held that the state statute is
defective because federal law makes the state regulatory commission the
exclusive source of non-federal substantive rules, and because the particular
statutory rules for the handling of fill factors and depreciation conflict with
Excerpts from the Court's Discussion of TELRIC and the Triennial Review
Order. The Appeals Court wrote that "TELRIC obliges both incumbents and
state regulators to set prices based on the long-run costs that would be
incurred to produce the services in question using the most-efficient
telecommunications technology now available, and the most efficient network
configuration. Incumbents that have aging and inefficient equipment thus must
sell for less than their historical cost; the old system that calculated rates
based on actual cost of equipment plus a reasonable rate of return on capital is
out the window."
In continued that "In
Communications Inc. v. FCC, 535 U.S. 467 (2002), the Supreme Court held
that TELRIC is a choice within the FCC's discretion."
"TELRIC is a framework rather than a formula; there is considerable play in
the joints. See AT&T Corp. v. FCC, 220 F.3d 607, 615-16 (D.C. Cir. 2000); Sprint
Communications Co. v. FCC, 274 F.3d 549, 556 (D.C. Cir. 2001). Incumbent
carriers may be unable to agree with would-be entrants about what the most
efficient technology is, how much it would cost to construct, and what the
incremental costs of a given network element would be. Moreover, even when the
parties can agree on the technology, they may be unable to agree on vital
details. One such detail is the ``fill factor.´´"
The Court added that "TELRIC does not contain an algorithm for determining
the fill factor. The FCC has approved several. In the
Triennial Review Order the FCC explained that many issues have a range of
reasonable answers for the parties—or state regulators, acting under state law
-- to flesh out. See Report and Order, FCC 03-36, 68 Fed. Reg. 52,276, 52,284
(Aug. 21, 2003). Moreover, the Commission has opened an investigation of
TELRIC’s operation to ensure that price does not fall below the level needed to
encourage efficient investment in new facilities by both incumbents and their
Notice of Proposed Rulemaking, FCC 03-224, 68 Fed. Reg. 59,757 (issued Sept.
15, 2003, and published Oct. 17, 2003)."
story titled "Summary of FCC Triennial Review Order", also published in
TLJ Daily E-Mail
Alert No. 725, August 25, 2003. See also, story titled "FCC Releases TELRIC
NPRM and Working Paper" in
TLJ Daily E-Mail
Alert No. 740, September 16, 2003.
Appeals Court Holding. The Appeals Court, reviewed the history of the
breakup of the AT&T monopoly, passage of the 1996 Telecom Act, the nature of
interconnection, and the meaning and legal status of TELRIC. The Court also addresses in detail the problems
created by AT&T's procedural tactic of challenging the lawfulness of the
Illinois statute, rather than the ICC's forthcoming rate ruling (which had to be made within
In the end the Court affirmed the District Court, and offered this
explanation of the consequences of its affirmance. "The injunction still bars
the ICC from using 220 ILCS 5/13-408 to set rates. If the elected branches of
state government want the Commission to proceed along these lines, they must
enact new legislation that addresses fill factors and asset lives as elements of
a comprehensive process designed to generate a rate that complies with TELRIC.
The ICC also is compelled by the injunction to reinstate the proceeding in its
Docket 02-0864, which the state law had terminated, and to proceed to decision
as expeditiously as possible. The ICC must attempt to produce a rate that
complies with TELRIC as of 2003 -- and if doing this entails use of SBC’s
current fill factors, the ICC is free to use them. And it must do this speedily.
A rate that is long out of date, as this 1997 rate is, frustrates the goals of
TELRIC every bit as much as does a rate generated under the flawed state
legislation. SBC and its rivals alike are entitled to an updated rate that
comports with federal law."
Easterbrook wrote the opinion of the Appeals Court. Judges Dianne Wood and
This case is AT&T Communications of Illinois, Inc., et al. v. Illinois
Bell Telephone Co. and Ameritech Corp., U.S. Court of Appeals for the 7th
Circuit, Nos. 03-2735 & 03-2766, an appeal from the U.S. District Court for
the Northern District of Illinois, D.C. Nos. 03 C 3290 and 03 C 3643, Judge
Charles Kocoras presiding.
|NIST Releases Draft Information Security
Guidelines for Federal Agencies
10/31. The National Institute of Standards
and Technology (NIST) released the first
[238 pages in PDF] of NIST Special Publication (SP) 800-53, titled "Recommended
Security Controls for Federal Information Systems". See also, NIST
Last year, the Congress enacted
(107th Congress), the "E-Government Act of 2002". President Bush
signed it on December 17, 2002. It then became Public Law No. 107-347. Title III
of this act, which pertains to "Information Security", is also known as the
"Federal Information Security Management Act of 2002".
It seeks to provide "a comprehensive framework for ensuring the effectiveness
of information security controls over information resources that support Federal
operations and assets". And it tasks the NIST, among other things, with
"developing and overseeing the implementation of policies, principles,
standards, and guidelines on information security"
In particular, the Act requires the NIST shall "(1) have the mission of
developing standards, guidelines, and associated methods and techniques for
information systems; (2) develop standards and guidelines, including minimum
requirements, for information systems used or operated by an agency or by a
contractor of an agency or other organization on behalf of an agency, other than
national security systems (as defined in section 3542(b)(2) of title 44, United
States Code); and (3) develop standards and guidelines, including minimum
requirements, for providing adequate information security for all agency
operations and assets, but such standards and guidelines shall not apply to
national security systems."
SP 800-53 states that "The purpose of this special publication is to
provide guidelines for selecting and specifying security controls for information
systems. These guidelines have been developed to help achieve more secure
information systems by: Facilitating a more consistent, comparable, and repeatable
approach for selecting and specifying security controls for information systems;
Providing a recommendation for baseline (minimum) security controls for information
systems categorized in accordance with FIPS Publication 199, Standards for Security
Categorization of Federal Information and Information Systems; Promoting a dynamic,
extensible catalog of security controls for information systems to meet the demands
of changing requirements and technologies; and Creating a foundation for the development
of verification techniques and procedures for determining security control
SP 800-53 provides a method for categorizing security risk levels based
upon another recent NIST document, the
[13 pages in PDF] of Federal Information Processing Standards (FIPS) Publication 199,
titled "Standards for Security Categorization of Federal Information and
Information Systems", and dated "December 2003".
SP 800-53 is applicable to most federal agency information systems; it
excludes national security systems. However, the NIST predicts that it is
"expected to have a wide audience beyond the federal government."
SP 800-53 was authored by Ron Ross, Gary Stoneburner, Stuart Katzke, Arnold
Johnson, and Marianne Swanson.
The NIST seeks public comments. Comments are due by January 31, 2003.
Comments may be submitted to
SEC-CERT@NIST.GOV or to the Computer Security Division, 100 Bureau Drive
(Mail Stop 8930), Gaithersburg, MD, 20899-8930
|Washington Tech Calendar
New items are highlighted in red.
|Wednesday, November 12
The House will meet at 2:00 PM for legislative
business. It will consider numerous non tech related items under suspension of
the rules. Votes will be postponed until 6:30 PM. See,
Republican Whip Notice.
? TIME? The Senate Commerce
Committee will hold a business meeting to consider pending calendar
business. Press contact: Rebecca Hanks (McCain) at 202 224-2670 or Andy Davis
(Hollings) at 202 224-6654. Location: Room S-216, Capitol Building.
10:00 AM. The
Senate Judiciary Committee
will hold a hearing to examine judicial and executive nominations. Press contact:
Margarita Tapia (Hatch) at 202 224-5225 or David Carle (Leahy) at 202 224-4242.
Location: Room 226, Dirksen Building.
11:00 AM. The Cato Institute
will host a book forum on Black Ice: The Invisible Threat of Cyberterrorism.
Author Dan Verton will speak. See,
Amazon page and Cato
notice. Lunch will follow the program. Location: 1000 Massachusetts Ave.,
3:00 PM. The Center
for Strategic and International Studies (CSIS) will release a report titled
"Spectrum Management For The 21st Century". The speakers at this
event will be Rep. Tom Davis (R-VA),
Rep. Christopher Shays (R-CT),
Michael Gallagher (acting head of the National Telecommunications and
Information Administration), James Schlesinger, and Janice Obuchowski (former
Nextwave EVP). Press contact: Mark Schoeff at 202 775-3242 or
email@example.com. Location: Room 2154,
Deadline to submit comments to the U.S.
Patent and Trademark Office (USPTO) regarding proposed changes to its
rules of practice to support the implementation of the 21st Century Strategic
Plan. The proposed changes include permitting electronic signatures on a
number of submissions, streamlining the requirements for incorporation by reference
of prior filed applications, and clarifying the qualifications for claiming
small entity status for purposes of paying reduced patent fees. See,
notice in the Federal Register, September 12, 2003, Vol. 68, No. 177, at
Pages 53815 - 53859.
Deadline to submit comments to the
Federal Communications Commission (FCC) in
response to its Notice of Inquiry (NOI) regarding the impact that communications
towers may have on migratory birds. See,
notice in the Federal Register, September 12, 2003, Vol. 68, No. 177, at
Pages 53696 - 53702. This is Docket No. WT 03-187, and FCC 03-205. The FCC
adopted this NOI on August 8, 2003, and released it on August 20, 2003. See
also, story titled "FCC Release NOI On Communications Towers and Migratory
Birds" in TLJ Daily E-Mail Alert No. 723, August 21, 2003.
|Thursday, November 13
The House will meet at 10:00 AM for legislative
Republican Whip Notice.
9:00 AM - 12:00 NOON. The Telecommunications Service Priority (TSP) System
Oversight Committee will meet. See,
notice in the Federal Register, October
10, 2003, Vol. 68, No. 197, at Page 58725. Location: 2nd floor conference
room, National Communications System (NCS), 701 South Courthouse Road,
9:00 AM - 3:45 PM. The National
Institute of Standards and Technology's (NIST) Advanced Technology Program Advisory
Committee hold a partially closed meeting. See,
notice in the Federal Register, October 27, 2003, Vol. 68, No. 207, at
Page 61189. Location: NIST, Administration Building, Employees' Lounge,
9:30 AM. The
Senate Commerce Committee will
hold a hearing to examine the General Accounting
Office's (GAO) study
[94 pages in PDF] titled "Telecommunications: Issues Related to Competition
and Subscriber Rates in the Cable Television Industry". The witnesses will
be Mark Goldstein (GAO), James Robbins (P/CEO of Cox Communications), George
Bodenheimer (President of ESPN and ABC Sports), Gene Kimmelman (Consumers
Union), Robert Sachs (P/CEO of the NCTA), Rodger Johnson (P/CEO of Knology).
See, story titled "GAO Releases Study on Cable Industry", in TLJ Daily E-Mail
Alert No. 766, October 27, 2003. Press contact: Rebecca Hanks (McCain) at 202
224-2670 or Andy Davis (Hollings) at 202 224-6654. Location: Room 253, Russell
9:30 AM. The Federal Communications
Commission (FCC) will hold a meeting. Location: FCC, 445 12th Street, SW,
Room TW-C05 (Commission Meeting Room).
9:30 AM. The U.S. Court of Appeals (DCCir)
will hear oral argument in Adams Comm Corp v. FCC, No. 02-1232. Judges
Randolph, Roberts and Williams will preside. Location: Courtroom 20, 333 Constitution Ave.
10:00 AM. The Internal Revenue Service
(IRS) will hold a hearing regarding its notice of proposed rulemaking (NPRM)
regarding computation and allocation of the credit for increasing research
activities for members of a controlled group of corporations or a group of
trades or businesses under common control. The rules implement the research
and development tax credit codified at
26 U.S.C. § 41.
Location: IRS Auditorium, 7th Floor, 1111 Constitution Ave., NW. See,
notice in the Federal Register, July 29, 2003, Vol. 68, No. 145, at Pages
44499 - 44506.
2:00 - 3:00 PM. The
will host an event titled "Beyond Do-Not-Call: The FTC Agenda". The speakers
will be Timothy Muris, Chairman of the
Federal Trade Commission (FTC), and James Gattuso of the Heritage
Foundation. Refreshments will be provided. See,
notice. Location: Heritage Foundation, Lehrman Auditorium, 214
Massachusetts Ave., NE.
6:00 - 9:15 PM. The D.C. Bar Association will host a CLE course titled "How
to Litigate an Intellectual Property Case Series: Part 1 How to Litigate a
Trademark Case". Prices vary. For more information, call 202 626-3488.
Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 level.
|Friday, November 14
RESCHEDULED FOR NOVEMBER 20.
9:30 AM. The
U.S. Court of Appeals (DCCir)
will hear oral argument in CA Metro Mobile Comm v. FCC, No. 02-1370. Judges
Sentelle, Henderson and Garland will preside. Location: 333 Constitution Ave.
12:00 NOON - 2:00 PM. The
Progress and Freedom Foundation (PFF) will host
a panel discussion titled "Copyright
Protection and the Broadcast Flag". The speakers will be Rick Chessen
(Chair of the FCC's Digital Television Task Force), Mike Godwin (Public
Knowledge), William Adkinson
(PFF), Robert Atkinson (Progressive Policy Institute), and James DeLong (PFF).
There will be a buffet lunch. See,
notice [PDF]. Location: Room 1539, Longworth Building.
12:30 PM. The
Federal Communications Bar Association's (FCBA)
Legislation Committee will host a brown bag lunch. The topic will be
the "The Northpoint Issue: Will Congress Provide Spectrum Without an Auction?
The View From the Hill". For more information, contact Lee Carosi at 202
Lee_Carosi@commerce.senate.gov. Location: Wiley
Rein & Fielding, 1750 K Street Building, 5th Floor Conference Room.
|Monday, November 17
11:00 - 12:30 PM. The
Heritage Foundation will host an event titled
"Preserving Privacy, Providing Security: Information And Technology At The
DHS". The speakers will be Nuala Kelly (Chief Privacy Officer of the
Department of Homeland Security) and Paul Rosenzweig (Heritage Foundation). See,
Heritage Foundation, Lehrman Auditorium, 214 Massachusetts Ave., NE.
Deadline to submit written comments to the Trade Policy Staff Committee (TPSC)
regarding negotiations with Bahrain on a free trade agreement (FTA). The TPSC
seeks comments and testimony to assist the
Office of the U.S. Trade Representative (USTR) on many topics, including
"Relevant trade-related intellectual property rights issues that should be
addressed in the negotiations" and "Existing barriers to trade in services
between the United States and Bahrain that should be addressed in the
notice in the Federal Register, August 25, 2003, Vol. 68, No. 164, at
Pages 51062 - 51064.
|Tuesday, November 18
8:00 AM - 5:30 PM. The Department of Commerce's (DOC)
National Institute of Standards and Technology's
(NIST), Judges Panel of the Malcolm Baldrige National Quality Award will hold
the first day of a four day closed meeting. See,
notice in the Federal Register, October 27, 2003, Vol. 68, No. 207, at
Pages 61189 - 61190. Location: NIST, Building 222, Red Training Room,
9:00 AM - 4:15 PM. The Federal
Communications Commission (FCC) will hold electronic licensing and filing
systems training (ECFS, EDOCS, ULS, CDBS and IBFS). Location: FCC, 445 12th
Street, SW, Room TW-C305 (Commission Meeting Room).
9:30 AM. The U.S.
Court of Appeals (DCCir) will hear oral argument in Mountain Communications,
Inc. v. FCC, No. 02-1255. Judges Sentelle, Garland and Silberman will preside.
Location: 333 Constitution Ave., NW.
12:15 PM. The Federal
Communications Bar Association's (FCBA)
Cable Practice Committee will host a brown bag lunch. The speaker will be
Stacy Fuller, Legal Advisor to FCC Commissioner Kathleen Abernathy. RSVP
to firstname.lastname@example.org. Location: Dow
Lohnes & Albertson, 1200 New Hampshire Ave., NW, 8th Floor.
2:30 PM. The Senate
Governmental Affairs Committee will hold a hearing on the nomination of
James Loy to be Deputy Secretary of Homeland Security. Room 342, Dirksen
|People and Appointments
11/11. Microsoft's shareholders
approved the addition of two members to its Board or Directors, Helmut Panke
(BMW Bayerische Motoren Werke AG Chairman of the board of management) and
Charles Noski (former AT&T Vice Chairman). Before joining AT&T, Noski was
COO of Hughes Electronics Corp., a satellite and wireless communications
business. Microsoft also announced committee assignments for its expanded board.
release. On September 18, Microsoft announced that it had proposed these
additions. See, Microsoft
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