4. Joint Applicants' Request

Joint Applicants seek authority from the Commission, pursuant to Pub. Util. Code § 854, to permit Frontier-Tuolumne, Frontier-Golden State, and Frontier-Global Valley to merge into Frontier-California. Citizens would remain the sole shareholder of Frontier-California.

Joint Applicants claim that the proposed consolidation would confer operational efficiencies on the Citizens California ILECs and create advantages for the companies, for their customers, and for Commission regulation of these companies, as follows:

(1) The merger would bring together four separate legal entities into one entity, thereby realizing managerial, administrative, and operating efficiencies, thereby conferring benefits on the companies, their customers, and regulators.

(2) The merger would result in one regulatory framework for all of Citizens' California access lines, thereby reducing the regulatory complexity required to operate in California.

(3) Citizens ILEC entities share boundary lines in several areas. Citizens would like to have increased flexibility to manage and operate these companies not based on legal entity, but on a geographic basis.

(4) Currently, each ILEC entity is treated separately for accounting, reporting, and regulatory purposes. From an operations and efficiency standpoint, it makes sense to treat these companies as one entity.

(5) In August 2006, the Commission adopted the URF which allows extensive regulatory freedom in terms of pricing, promotions, bundling, price deaveraging, and tariffing. Frontier-California, as a mid-sized ILEC, is regulated under the URF, as are AT&T, Verizon and SureWest. On the other hand, Frontier-Golden State, Frontier-Tuolumne, and Frontier-Global Valley are rate-of-return regulated, as are the remaining small ILECs in California. As such, these carriers are restricted in their abilities to offer bundled services at a discount, and to provide extended special promotions.

(6) Granting this application would benefit competition by opening up the three small ILEC territories to wireline competition.

(7) The smaller ILECs lack the pricing flexibility of mid-sized ILECs to meet the demands of the market. In merging into one entity, all four Citizens ILECs would have the same regulatory flexibility with respect to bundling services at a discount, and providing special promotions, and pricing.

(8) With a combined entity, the Citizens ILECs would be able to eliminate existing situations in which a marketing and product promotion package available to customers of Frontier-California, which is regulated under URF, is not available nor allowed for the Citizens ILEC entities operating under rate-of-return regulation. Because many of the customers of these companies are in close proximity to each other, customers could potentially be confused when the marketing messages are different due to the types of regulation under which each company operates.

(9) Citizens California ILECs are facing intermodal competition from wireless, cable companies, and Voice Over Internal Protocol (VoIP) via broadband. Once all the companies are merged under one company, the combined entity would be able to offer consistent and timely products and services to all of its customers in a much more efficient and competitive manner.

(10) When the Citizens ILEC entities respond to data requests or make regulatory filings with the Commission, each ILEC entity must currently prepare separate documents and separate filings as opposed to providing one filing for all of the California ILEC operations. It would create efficiencies for the Citizens ILEC entities if the four ILEC entities were no longer regulated separately and differently. These efficiencies would also streamline the Commission's regulation of the Citizens ILECs, and reduce confusion for customers that stems from regulatory-induced disparities between otherwise similarly-situated service offerings.