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A judge on Monday granted a preliminary injunction blocking the Illinois telecom regulator from imposing new wholesale phone rates that would have allowed SBC Communications Inc. to charge rivals more money to lease its local network.

Charles P. Kocoras, chief judge of the U.S. District Court for the Northern District of Illinois, ruled that a state law requiring the new rates to go into effect beginning today violated federal law.

The judge said the state regulator – not the Illinois legislature – had the authority to negotiate the setting of wholesale phone rates under the Telecommunications Act of 1996. He also said the new formula the Illinois Commerce Commission (ICC) used to calculate the rates clashed with federal rules and no longer requires SBC “to prove rates, terms and conditions are `just’ and `reasonable.'”

“The Illinois legislation conflicts with federal law in several respects,” said the judge, who chaired the ICC in the late `70s.

Illinois telephone companies fearing SBC and the other three Bell companies would introduce similar legislation elsewhere breathed a sigh of relief.

“This is great news for competition and it’s also great news because in a sense this is a template the Bells were hoping they could duplicate in other states,” said Lance Honea, chief executive of Access One Inc.

On May 9 Illinois Gov. Rod Blagojevich signed a bill into law requiring the Illinois Commerce Commission to use a new formula in calculating the rates SBC can charge competitors to lease its telephone network. The five commissioners voted unanimously this morning to enact new rates that would require AT&T Corp. and MCI to pay SBC $19.16 on average to lease a line to the home, down from $12.38.

Under Senate Bill 885, the new rates would affect a company’s first 35,000 lines, but AT&T and MCI are the only companies that currently exceed the threshold, according to the judge. However, smaller phone companies, he said, “are clearly discouraged from expanding beyond 35,000 lines.”

Carrie Hightman, president of SBC Illinois, said the company plans to challenge the judge’s order, possibly appealing before the 7th Circuit Court of Appeals in Chicago or pursuing another recourse.

“We are extremely disappointed that the judge concluded that the Illinois General Assembly has virtually no role in telecommunications policy in this state,” Hightman said.

Nevertheless, SBC will honor its pledge to invest $90 million in the state and refrain from job cuts for at least a year, Hightman said. SBC, the No. 2 local phone company, last month attributed pledges to salvage jobs and expand broadband access in Illinois to the new state law.

SBC has long maintained it is being required to subsidize competitors by leasing its phone network to rivals below its actual costs. Last month the ICC had begun a proceeding to take a fresh look at the wholesale phone rates based on a forward-looking cost model. The new law negated that pending action.

In his order today, Kocoras said there is no evidence at the Illinois General Assembly to show that SBC is subsidizing its rivals.

“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,” the judge wrote. “There is no evidentiary or procedural record of this kind in legislative considerations, so there is no present basis to test SBC’s thesis that is has been shortchanged lo these many years.”