In a case that could have a dramatic impact on the way telephone companies are permitted to make infrastructure decisions, the Illinois Commerce Commission is probing how Ameritech is spending $3 billion it allocated for infrastructure improvement as part of the state's 1992 incentive regulation agreement.

Ameritech claims it is adhering to the original agreement by using the money to improve service in the local telephone network. Local consumer groups say Ameritech is using the funds to bolster its businesses that face competition, a move that would be improper under the price-cap agreement.

Both sides are right, and therein lies the problem.

No one argues that Ameritech is spending the money on infrastructure improvement. What's at issue is how. Challengers point to data that the company's number of new digital switches increased by less than 1% the year after incentive regulation took effect. This dropped from the 19% increase between 1993 and 1994.

Ameritech has a broader reading. With the passage of the Telecom Reform Act of 1996, it says that network improvements that bolster bandwidth and streamline facilities to prepare to offer long-distance service at competitive rates constitute improvement of the local network as much as anything.

Now the ICC must examine Ameritech's spending, and the complaints about it, in light of the legislation and market changes occurring right now.

With the entire local exchange open for competition, the argument that a local exchange carrier cannot spend customer revenues on competitive aspects of the business, when taken to its logical conclusion, means that it can't spend any money at all. Digitization is not the issue-most of that work was completed a few years ago. The infrastructure upgrades that opponents oppose are ISDN, ADSL, fiber in the loop and integrated billing systems-all the components that contribute to a first-class network but also make a carrier a strong competitor. Curiously, one of the most vocal critics of Ameritech is the Cable Television and Communications Association of Illinois.

The benefit of the probe, however, is that it forces the ICC to confront is the tangle of policy messages coming from the state and federal levels. Clearly, the Clinton administration wants to redefine universal service to include broadband access. If interpreted narrowly, using premises that no longer apply, Illinois incentive regulation rules fly in the face of this goal. The antisubsidization aspects of the price-cap plan made sense at the time, but now-with competition leaching into every element of carrier business-it is impossible, even foolish, to try to regulate telcos as if they were are still the only local service provider in town. Amend the plan.