17. Assignment of Proceeding

Rachelle B. Chong is the assigned Commissioner and Bertram D. Patrick is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. Joint Applicants request that the Commission issue an order pursuant to § 854, approving the merger of Frontier Tuolumne, Frontier-Golden State and Frontier-Global Valley into Frontier-California.

2. DRA filed a protest to the application identifying the following concerns: (i) Frontier-California should not be allowed to include its affiliate territories in calculating its High Cost Fund-B draw since the affiliates currently do not draw from the High Cost Fund-A and of the potential impact on the B Fund and (ii) Frontier should be directed to file a petition to modify D.97-09-115 in order to address procedurally the incorporation of affiliates into the one legal entity that was approved as a competitive entity in the decision.

3. To address DRA's concerns, the Parties negotiated a Settlement Agreement attached to this decision as Attachment A. Under the Settlement Agreement, Frontier-California will not include the three merged service areas in its Fund-B draw until the Commission has concluded its review of the B-Fund as ordered in D.07-09-020. Also, Joint Applicants provided notice to the parties in the D.97-09-115 proceeding regarding the pending merger application thereby resolving the need to reopen that proceeding to address the expansion of competition in Frontier-California's service area.

4. Notice of this application was provided to the customers of Frontier-Tuolumne, Frontier-Golden State, and Frontier-Global Valley.

5. Frontier-California is a mid-sized ILEC regulated under the Commission's Uniform Regulatory Framework (URF), as outlined in D.06-08-030 and other decisions in Rulemaking 05-04-005. Currently, the remaining three smaller ILECs (Frontier-Tuolumne, Frontier-Golden State and Frontier-Global Valley) operate under a rate-of-return regulatory structure.

6. Once the merger transaction is consummated, Frontier-California will be the surviving company and will continue to serve the same service areas previously served by the four separate ILECs.

7. Following the merger, Frontier-California will continue to be regulated as an URF ILEC. Under URF, the combined entity will adhere to URF requirements and guidelines, including the required freeze on basic residential rates until January 1, 2009. Joint Applicants will initially integrate Frontier-Golden State's, Frontier-Tuolumne's, and Frontier-Global Valley's existing rates and charges into the Frontier-California tariff.

8. 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.

9. Currently, Frontier-Golden State, Frontier-Tuolumne, Frontier-Global Valley, are small rate-of-return ILECs and the Commission has not authorized competition in their service areas. As such, these small ILECs are restricted in their abilities to offer bundled services at a discount, and to provide extended special promotions. They also lack the pricing flexibility of mid-sized ILECs to meet the demands of the market.

10. Once all four ILECs 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. Also, all four ILECs would have the same regulatory flexibility with respect to providing bundled services at a discount, and extended special promotions and pricing.

11. Granting this application will benefit competition by opening up the three small LEC territories to wireline competition.

12. The increased efficiencies and streamlined regulatory requirements that would result from the proposed consolidation will benefit ratepayers.

13. The merged companies would continue to operate as an URF ILEC, subject to the Commission's regulation.

Conclusions of Law

1. This is a ratesetting proceeding and no hearing is necessary.

2. DRA and Joint Applicants are the only two parties in this proceeding, and the July 30, 2008, Settlement Agreement (Attachment A) is an all party settlement covering the full range of interests and issues in this proceeding.

3. The Settlement Agreement reflects a reasonable compromise on many items and provides a certain level of customer rate protection.

4. The Settlement Agreement is reasonable in light of the whole record, consistent with law, and in the public interest.

5. This application should be approved and become effective immediately because it is not adverse to the public interest.

6. Since the D.97-09-115 proceeding is over a decade old and should not be reopened, it is reasonable to address the question of opening the three small ILECs to CLEC competition in this proceeding, and thereby modifying D.97-09-115.

7. Approval of this application is not a finding of value of the rights and property being transferred.

ORDER

IT IS ORDERED that:

1. The Joint Application of Citizens Telecommunications Company of California, Inc., doing business as Frontier Communications of California (U1024C), Citizens Telecommunications Company of Tuolumne, doing business as Frontier Communications of Tuolumne (U1023C), Citizens Telecommunications of the Golden State (U1025C), and Global Valley Networks, Inc., doing business as Frontier Communications of Global Valley (U1008C) (Joint Applicants), for authority to consolidate and merge into Citizens Telecommunications Company of California, Inc. doing business as Frontier Communications of California (Frontier-California), is granted.

2. The July 30, 2008, Settlement Agreement between Division of Ratepayer Advocates and Joint Applicants, appended to this decision as Attachment A, is reasonable in light of the whole record, consistent with law, and in the public interest.

3. The Settlement Agreement is adopted. Consistent with the Settlement Agreement:

(a) Frontier will not include the merged affiliate properties, Frontier-Golden State, Frontier-Tuolumne and Frontier-Global Valley into the High Cost Fund-B claims process until the Commission has concluded its review of the B-Fund as ordered in D.07-09-020, specifically, the resolution of the remaining issues contained in Ordering Paragraph 13.

(b) The Commission finds that the service territory of Frontier-California identified in D.97-09-115, includes the expanded territory of Frontier-Golden State, Frontier-Tuolumne and Frontier-Global Valley and that with the merger of the three small Frontier ILECs into Frontier-California, Frontier-California has expanded the geographic scope of Frontier-California's service area subject to local exchange competition.

4. Decision (D.) 97-09-115 is modified to reflect the granting of this merger application and the expansion of competition in Frontier-California's merged service area.

5. All sealed information shall remain sealed for a period of two years after the effective date of this order. After two years, all such information shall be made public. If Joint Applicants believe that further protection of the sealed information is needed beyond two years, Joint Applicants may file a motion stating the justification for further withholding of the sealed information from public inspection. This motion shall be filed no later than 30 days before the expiration of the two-year period granted by this order.

6. Joint Applicants shall notify the Director of the Commission's Communications Division in writing upon completion of the merger, as authorized herein, within 30 days of completion of the transaction.

7. Following the merger, Joint Applicants shall be subject to the detariffing option and provisions per D.07-09-018. Joint Applicants shall retain four separate local tariffs until a Tier II Advice Letter to detariff is filed.

8. Application 08-02-014 is closed.

This order is effective today.

Dated October 2, 2008, at San Francisco, California.

Commissioners

D0810010 Appendix A Settlement Agreement

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