3. Financial Qualifications and Technical Expertise

Pub. Util. Code § 854 requires Commission authorization before a company may "merge, acquire, or control any public utility organized and doing business in this state." The purpose of this and related sections is to enable the Commission, before any transfer of a public utility is consummated, to review the situation and to take such action, as a condition of the transfer, as the public interest may require. (San Jose Water Co. (1916) 10 CRC 56.)

Where a company that does not possess a Certificate of Public Convenience and Necessity (CPCN) desires to acquire control of a company or companies that do possess a CPCN, the Commission will apply the same requirements to the acquiring company as would be applied to an initial applicant seeking a CPCN. The Commission has established two major criteria for determining whether a CPCN should be granted, or transferred. First, an applicant who desires to operate as a provider of facilities-based local exchange and interexchange services must demonstrate that it has a minimum of $100,000 in cash or cash equivalent for operations of the company plus the costs of deposits to be paid to other carriers. Second, an applicant is required to make a reasonable showing of technical expertise in telecommunications or a related business.

3.1. Financial Qualifications

The instant application includes a copy of financial statements for both Parent and West. These documents demonstrate that each has sufficient resources to meet the Commission's financial requirements.

With their application, the Applicants filed a Motion for Leave to File Confidential Materials Exhibit F (Acquisition Agreement) and Exhibit H (Parent Consolidated Financial Statements) Under Seal pursuant to Pub. Util. Code § 583 and General Order 66-C (2.2)(b). Applicants assert that the information contained in Exhibit F is a non-public acquisition agreement and that Exhibits H contains private financial documentation of Hypercube. Joint Applicants assert that public disclosure of this private, confidential information could subject them to potential fraud and unfair competitive disadvantage in connection with the business negotiations and dealings with vendors, customers, potential business partners and others. That motion is granted.

3.2. Technical Expertise

In this case, HyperCube, which holds a CPCN in California, is being indirectly acquired by West. Both Applicants have submitted significant information relative to the technical expertise of both companies, both in the original filing on December 2, 2011 and in a filing in compliance with a January 11, 2012 ruling of the assigned Administrative Law Judge (ALJ). The Applicants assert that they possess the level of technical expertise necessary to qualify for a CPCN in California. Nothing before us contradicts that assertion.

Exhibit J to the application contains the Applicants' disclosures relative to "Regulatory and Financial History of Joint Applicants, Officers, Directors and Major Shareholders." Most of the 12 entries involve minor and relatively minor regulatory actions related to West subsidiaries involved in debt collection activities. One debt collection related regulatory action, however, is quite serious and must be noted by this Commission in this Decision. Applicants reveal that the Federal Trade Commission conducted a non-public inquiry into the 2005 through 2007 debt collection practices of West Asset Management and ultimately alleged that West had violated the federal Fair Debt Collection Practices Act. Applicants further reveal that on March 15, 2011, "without admitting liability, West agreed to settle the case and pay $2,800,000 to avoid the costs of defense and the negative publicity." We trust that the settlement of this matter between the FTC and West has resulted in West making the necessary consumer protection changes needed in its debt collection practices.

Applicants also reveal, in Exhibit J, that the CEO of Parent and Hypercube, Ronald Beaumont, was the Chief Operating Officer of WorldCom at the time WorldCom filed for Chapter 11 bankruptcy in 2002, and that Clay Myers, the Executive Vice President and CFO of Parent served as Senior Vice President of Finance at Allegiance Telecom when it filed a petition for Chapter 11 bankruptcy in May of 2003.

Applicants assert that Mr. Beaumont was investigated by a variety of government agencies relative to the WorldCom bankruptcy. In a January 13, 2012 filing in compliance with a ruling from the ALJ, applicants assert that Mr. Beaumont has over 30 years experience in different aspects of telecommunications and management, is one of the founders and CEO of Parent, plays an active role within the CLEC industry, and serves on the Comptel Board of Directors and its CEO Council.

Applicants assert that Mr. Myers was Senior Vice President for Finance at Allegiance Telecom from 1999 through 2004, that Allegiance filed a plan of reorganization in June 2004, emerged from Chapter 11 that same month and was acquired by XO Communications later that year.

Applicant represents that no other persons associated with or employed by Applicant as an affiliate, officer, director, partner, or owner of more than 10% of Applicant was previously associated with any telecommunication 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. Nothing before us contradicts that assertion.