Description of the Parties and Transaction
Gores AC Holdings, LLC (Gores AC) is a limited liability corporation with its principal office located at 10877 Wilshire Boulevard, Suite 1085, Los Angeles, California 90024. The Gores Group and its managing member, Alec E. Gores, have ultimate control of Gores AC. A limited partnership, Gores Capital Partners III, L.P., owns 95% or more of Gores AC. The Gores Group currently acts as the managing member of the general partner of the investment funds that together hold non-controlling ownership of 13.1% of the voting stock of First Communications, Inc. (FCI) through Gores FC. Applicants assert that the Gores Group is a private investment firm that focuses its investments on opportunities in the technology and telecommunications sectors. Gores Group's private equity fund has combined capital commitments from institutional investors and its own principals. Thus, in addition to its own capital resources, through an established network of debt financing sources and investment partners, the Gores Group provides access to working capital for its portfolio companies on favorable terms and conditions that might not otherwise be available to those companies as stand-alone enterprises.
FCI is a Delaware corporation with its headquarters located at 33440 West Market Street, Akron, OH 44333. FCI, through its operating subsidiaries, First Communications, LLC (FCL), Globalcom, Inc. (Globalcom), Xtension Services, Inc. (Xtension), and First Telecom Services, LLC is authorized to provide local, private line, and/or long distance services to both business and residential customers in 49 states. Its services include, in addition to traditional local and long distance services, toll-free services, conference calling packages, calling cards, Internet access, and dedicated and private line services.
FCL, an Ohio Limited Liability company, is a wholly-owned subsidiary of FCI, and is authorized in California to provide facilities-based and resold local exchange and interexchange telecommunications services.3
Globalcom, an Illinois corporation, is also a wholly-owned subsidiary of FCI, and is authorized in California to provide resold interexchange and resold and facilities-based local exchange telecommunications services.4
Xtension, a Delaware corporation, is another wholly-owned subsidiary of FCI. Xtension is authorized in California to provide resold interexchange telecommunications services in accordance with D.01-03-006.5
Applicants contend that the proposed transaction will serve the public interest by providing FCL, Globalcom, and Xtension access to additional financial and operational resources that will help strengthen their positions in the telecommunications marketplace. Applicants anticipate that the proposed transaction will be entirely transparent to customers of FCL, Globalcom, and Xtension, since the deal will be completed at the holding company level. FCL, Globalcom, and Xtension do not foresee that the proposed transaction will have any effect on their rates, terms, or conditions of service. As a result, Applicants assert, the proposed transaction will not directly affect any end user customers of FCL, Globalcom, or Xtension or the services they currently receive.
Discussion
Where a company acquiring control of a certificated telecommunications carrier does not possess a Certificate of Public Convenience and Necessity (CPCN), the Commission applies the same requirements as to an applicant seeking a CPCN to exercise the type of authority held by the company being acquired: a minimum of $100,000 in cash or cash equivalent, and technical expertise in telecommunications or a related business. Here, Gores AC seeks to have the right to assume de facto control of FCI, the parent of three certificated carriers. Review of the financial documents submitted in support of Gores AC's financial qualifications indicate that it will have more than sufficient resources to meet Commission requirements. Applicants also state that they expect that the proposed transaction will not result in any change to FCL's, Globalcom's, and Xtension's day-to-day operations.
With their application, the Applicants filed a Motion for Leave to File Confidential Materials Exhibit B (Financial Statements) Under Seal pursuant to Public Utilities Code section 583 and General Order 66-C (2.2)(b). Applicants assert that the information contained in Exhibit B is non-public financial information that is critical, commercially sensitive, and competitively significant data. Applicants believe that disclosure of this information would place them at a significant competitive advantage, impede full and fair competition, and undermine its business plans in California. That motion is granted.
In the submitted documents, Applicants indicate that FCL, Globalcom, and Xtension will continue to operate in California and to pay any applicable regulatory fees. It appears that no affiliate, officer, director, partner, or owner of more than 10% of any of the applicants, or any person acting in that capacity, has filed for bankruptcy or been sanctioned by the Federal Communications Commission (FCC) or any state regulatory commission for failure to comply with any regulatory statute, rule, or order; and no such person has been found criminally or civilly liable for a violation of § 17000 et seq. of the California Business and Professions Code or for any actions that involved misrepresentations to consumers, or is currently under investigation for similar violations. Thus, applicants satisfy the Commission's requirements on these factors.
It must be noted, however, our due diligence efforts in reviewing this application revealed that, on March 30, 2010 the FCC issued a Notice of Apparent Liability (NAL) against Globalcom in the amount of $800,700 for alleged "repeated failures to satisfy its obligations to the Universal Service Fund (USF), spanning more than a year's time and amounting to a delinquency of more than $960,000 to the fund."6 In its December 7, 2011 and December 13, 2011 responses to the assigned Administrative Law Judge's (ALJ) supplemental requests, Applicants have represented that they "did not disclose this FCC NAL proceeding in their Application because Globalcom has paid its federal USF obligations, and as of this date, no penalties or sanctions have been imposed by the FCC against Globalcom."7 We are dismayed by Applicants' narrow reading of the current reporting requirements in our CPCN application process. Such a narrow reading does not serve the Commission's interest in open and transparent interactions with those we regulate. We are hopeful that the new rules we are considering in Rulemaking (R.) 11-11-006 will serve to require the reporting of such NALs in the future.8
In all, the proposed transaction will serve the public interest by providing FCL, Globalcom, and Xtension access to additional financial and operational resources that will help to strengthen their positions in the telecommunications marketplace. Access to additional financial resources will also allow FCL, Globalcom, and Xtension to implement their business strategies while continuing to provide high quality services to existing consumers.
3 See, Decision (D.) 03-10-066 and D.07-03-030 issued on October 22, 2003 and March 15, 2007, respectively.
4 See, D.01-07-015, D.99-02-019, and D.98-12-002 granted on July 12, 2001, February 4, 1999 and December 1, 1998 respectively.
5 Issued in Application 01-01-045 on March 5, 2001.
6 See, In the Matter of Globalcom, Inc. Apparent Liability for Forfeiture, FCC File Number EB-09-IH-1176 (2010)
7 See, December 7, 2011 Response to Administrative Law Judge Request at 2 and December 13, 2011 Response at 1.
8 See, R.11-11-006 entitled Order Instituting Rulemaking to Revise the Certification Process for Telephone Corporations and the Registration Process for Wireless Carriers where we consider (among other issues) whether we should require a standardized applicant fitness checklist for Certificate of Public Convenience and Necessity applicants just as we do for those who register as Non-dominant Interexchange Carriers (NDIEC). In R.11-11-006, at 5, we observe that "All new NDIEC registration licensees must submit as part of the application process, resumes of all key officers and owners of 10% or more of outstanding shares that indicate sufficient managerial and technical experiences; disclose prior or current known investigations by any governmental agency, and any settlements with any regulatory agency over its business conduct or practices, disclose voluntary payments made by an applicant or its principals to resolve action by regulatory agencies, attorneys general, or courts, or any other type of monetary forfeitures."
