3. Discussion

3.1. Holding's Fitness to Provide Telecommunications Services

Since Holding does not currently hold a CPCN to provide telecommunications services in California, it is necessary to perform the same review of Holding as if it were requesting authorization for a CPCN.

Pursuant to Rule 4.B of D.95-12-056, an Applicant for a CPCN for authority to provide resold local exchange service must demonstrate that it has $25,000 cash or cash equivalent to meet the firm's start-up expenses. Applicant must also demonstrate that it has sufficient additional resources to cover all deposits required by other telecommunications carriers in order to provide service in California.

In Responses A and B, applicants provided recent bank statements for Holding, demonstrating that it has access to $25,000 cash or cash equivalent, an amount sufficient to cover start-up expenses that is reasonably liquid and available.

To be granted a CPCN for authority to provide local exchange and interexchange service, an Applicant must make a reasonable showing of managerial and technical expertise in telecommunications or a related business.3 Holding supplied biographical information on its management in Response A that demonstrated that it has sufficient expertise and training to operate as a telecommunications provider.

Holding also verified that no one associated with or employed by it as an affiliate, officer, director, partner, or owner of more than 10% of Holding was previously associated with a telecommunications carrier that filed for bankruptcy, or was sanctioned by the Federal Communications Commission or any state regulatory agency for failure to comply with any regulatory statute, rule, or order, except for two instances involving NobelTel which have both been resolved. In the first instance, NobelTel late-filed its Customer Proprietary Network Information (CPNI) Compliance Certificate with the FCC and paid a penalty of $20,000.4 In the second instance, NobelTel entered into a stipulation with the Nebraska Telecommunications Infrastructure and Pubic Safety (NTIPS) Director, resolving allegations in the NTIPS Directors complaint, and paid a fine.5

Holding also verified that no one associated with or employed by it as an affiliate, officer, director, partner, or owner of more than 10% of it was previously associated with any telecommunication carrier that filed for bankruptcy, or has been found either civilly or criminally liable by a court of appropriate jurisdiction for a violation of §§ 17000, et seq. of the California Business and Professions Code, or for any actions which involved misrepresentations to consumers, or is currently under investigation for similar violations.

The Commission discovered a tax lien against NobelTel from San Diego County for outstanding 2007 communications unitary tax and associated penalties owed. NobelTel has resolved this matter by paying the outstanding tax and penalties.6

Since Holding has resolved the issues in question, applicants are in compliance with the requirements of Rule 4.A. of D.95-12-056. We find, therefore, that Holding satisfies the requirements of Rule 4.A.

3.2. Rates and Tariffs

Through NobelTel, Holding intends to provide resold services throughout the state. Holding must file a revised tariff reflecting its ownership.

3.3. Indirect Transfer versus Transfer

An indirect transfer of control occurs when a parent company is reorganized or if there is a partial change in the level of investment of various entities in the parent. A transfer of control occurs when there is a complete change of ownership in either the utility or its parent.

In the current case, Holding, an entity that has had no ownership interest at all in Nobel, Inc. or NobelTel, is acquiring a 100% interest in the parent company, Nobel, Inc. Therefore, instead of the requested authority for an indirect transfer of ownership, we treat this application as a request for transfer of ownership.

3.4. Transfer Should be Approved on a Prospective Basis Only

In this application, Applicants request authority under § 854 for Holding to acquire control of NobelTel through the purchase of 100% of its capital stock. Section 854(a) states, in pertinent part:

No person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control . . . any public utility organized and doing business in this state without first securing authorization to do so from the commission . . . Any merger, acquisition, or control without that prior authorization shall be void and of no effect.

The purpose of § 854 is to enable the Commission, before any transfer of public utility authority is consummated, to review the situation, determine whether the public interest is served by the transaction, and take such action (such as a condition of approval) as the public interest may require.7

Since there will be no change to the rates, services, day-to-day management, or operations of NobelTel as a result of the transaction and Holding's management has the necessary telecommunications managerial and technical experience, NobelTel's customers and the public will not be harmed by the change in control. Holding also meets the Commission's financial requirements applicable to obtaining control of NobelTel and its CPCN. Lastly, there is no opposition to this application. For these reasons, we conclude that it is reasonable to grant authority for the transfer of control, on a prospective basis only.

Granting of this application on a retroactive basis would have thwarted the purpose of § 854(a). The Commission has enacted careful guidelines for scrutiny of the owners of telecommunications utilities, and we cannot condone the transfer of control of a telecommunications utility to an owner that has not passed through our approval process in advance. Since we will not grant retroactive authority, Holding's acquisition of control over NobelTel is void under § 854(a) for the period of time before the effective date of this decision. Applicants are at risk for any adverse consequences that may result from their having completed the transfer of control without Commission authority.

3.5. Applicants Should be Fined for Their Failure to Comply with Pub. Util. Code § 854(a)

Applicants failed to comply with § 854(a) by transferring control of NobelTel to Holding without Commission authorization. Violations of § 854(a) are subject to monetary penalties under § 2107, which states as follows:

For the following reasons, we conclude that the Applicants should be fined for their failure to comply with § 854(a). First, any violation of § 854(a), regardless of the circumstances, is a serious offense that should be subject to fines. Second, the imposition of a fine will help to deter future violations of § 854(a) by the Applicants and others.

To determine the size of the fine, we rely on the criteria adopted by the Commission in D.98-12-075. We address these criteria below.

The size of a fine should be proportionate to the severity of the offense, based on the level of physical harm, economic harm, harm to the regulatory process, and the number and scope of violations.8 Applicants' violation of § 854(a), while serious, did not cause any physical or economic harm to others. Further, the violation of § 854(a) affected few, if any, consumers, and is a single offense. The only factor that indicates the violation should be considered a grave offense is our general policy of according a high level of severity to any violation of the Public Utilities Code. However, this factor must be weighed against the other factors in determining the amount of the fine.

The size of a fine should also reflect the conduct of the utility. When assessing the conduct of the utility, the Commission considers the utility's actions to prevent a violation, its actions to detect a violation, and its actions to detect and rectify a violation.9 Applicants disclosed their violation of § 854(a) via a phone call on December 29, 2009 and written notification on December 30, 2009, not quite two months after filing of this application. Also, Applicants have not claimed that they violated § 854(a) inadvertently or unintentionally. This factor in particular, suggests that a larger fine may be appropriate. However, we must balance these factors against Applicants' other conduct. There is no evidence that the Applicants have previously failed to comply with applicable statutes and regulations in California.

The financial resources of a utility are also considered when determining the size of a fine, based on the need for deterrence of future violations and constitutional limitations on excessive fines.10 Holding's bank statement shows that, in addition to having sufficient funds to be in compliance with the financial requirements for being authorized a CPCN, it also has sufficient funds to pay a reasonable fine for violating Public Utilities Code.

A fine should also be tailored to the unique facts of each case. When assessing the unique facts of each case, the Commission considers the degree of wrongdoing and the public interest.11 The facts of this case indicate that the degree of wrongdoing, though serious, was not egregious. Although the applicants did not file this application sufficiently in advance to obtain prior Commission approval of the transfer of NobelTel to Holding, applicants did take steps to report and remedy their violation of § 854(a). Also, no one was harmed by applicants' failure to comply with § 854(a). These same facts also indicate that the public interest was not significantly harmed by applicants' violation of § 854(a).

The Commission must also address previous decisions that involve reasonably comparable factual circumstances and explain any substantial differences in outcome in a decision that imposes a fine.12 In D.00-12-053, the Commission stated that although it had approved applications for transfer of control on a nunc pro tunc basis,13 it does not have a policy in favor of nunc pro tunc approvals.14 The Commission also stated that it may deny such applications and may impose penalties for failure to obtain advance Commission authorization as required by § 854(a).15 Applicants and other public utilities have therefore been given notice that the Commission will require compliance with the requirements of § 854(a) and may impose penalties for violations. Applicants had a duty to comply with § 854(a).

In D.00-12-053, the Commission held that its precedent of meting out lenient treatment to those who violate § 854(a) had failed to deter additional violations, and stated a policy of imposing fines for violations of § 854(a) in order to deter future violations.16 Therefore, assessment of a fine on applicants for violating § 854(a) is consistent with D.00-12-053.

We have concluded that the Applicants should be fined for their violation of § 854(a). The application of the criteria adopted by the Commission in
D.98-12-075 to the facts of this case indicates that a relatively small fine is warranted. First, Applicants' violation of § 854(a), though serious, was not a particularly severe offense. Second, Applicants' conduct was not egregious. Third, Holding appears to have sufficient resources to pay a relatively small fine. Fourth, the degree of wrongdoing was relatively minor. Finally, the public interest was not significantly harmed by the Applicants' violation of § 854(a).

We note that the Commission has imposed fines of $5,000 in other cases which involve similar transfers of control of telecommunications entities without our prior authorization, in violation of § 854(a).17

We conclude based on the facts of this case that the Applicants should be fined $5,000 for violating § 854(a). The fine we impose today is meant to deter future violations § 854(a) by the Applicants and other parties. We emphasize that the size of the fine we impose today is tailored to the unique facts and circumstances before us in this proceeding. We may impose larger fines in other proceedings if the facts so warrant, or if Applicants again violate § 854(a).

3 D.95-12-056 at Appendix C, Rule 4.A.

4 On February 25, 2009, the FCC Enforcement Bureau released an Omnibus Notice of Apparent Liability for Forfeiture, citing approximately 650 telecommunications service providers for apparent violation of the FCC's requirement to submit an annual CPNI Compliance Certificate on or before March 1, 2008. NobelTel and each of the companies cited were each assessed a proposed forfeiture penalty of $20,000.

5 On January 8, 2008, the NTIPS Director filed a Complaint against NobelTel, seeking to fine NobelTel on the grounds that it failed to file its required remittance worksheet or remittance payment by the 15th day following the end of the remittance periods, pursuant to § 003.02 and/or § 003.03 of Title 291, Nebraska Administrative Rules and Regulations, Chapter 10. NobelTel and the NTIPS Director entered into a stipulation resolving the allegations and NobelTel paid its fine. The Nebraska Public Service Commission approved the stipulation and dismissed the Complaint on February 26, 2008.

6 Response B, Exhibit B.

7 See D.09-08-017 at 7 and D.05-12-007 at 6.

8 See D.98-12-075, 1998 Cal. PUC LEXIS 1016, *71 - *73.

9 See D.98-12-075, 1998 Cal. PUC LEXIS 1016, *73 - *75.

10 See D.98-12-075, 1998 Cal. PUC LEXIS 1016, *75 - *76.

11 See D.98-12-075, 1998 Cal. PUC LEXIS 1016, *76.

12 See D.98-12-075, 1998 Cal. PUC LEXIS 1016, *77.

13 The phrase "nunc pro tunc," means "now for then," referring to the retroactive correction of an act that occurred at an earlier date.

14 See D.00-12-053 at 4-5.

15 See D.00-12-053 at 8.

16 See D.00-12-053 at 13-14.

17 See D.00-12-053 at 14 and D.04-09-023 at 14.

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