ALJ/BDP/avs Date of Issuance 10/3/2008

Decision 08-10-010 October 2, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of 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 Company of the Golden State, doing business as Frontier Communications of the Golden State (U1025C), and Global Valley Networks, Inc., doing business as Frontier Communications of Global Valley (U1008C), for Authority to Consolidate and Merge Into Citizens Telecommunications Company of California, Inc. doing business as Frontier Communications of California (U1024C).

Application 08-02-014 (Filed February 13, 2008)

DECISION GRANTING APPLICATION
TO CONSOLIDATE AND MERGE

TABLE OF CONTENTS

Title Page

DECISION GRANTING APPLICATION TO CONSOLIDATE AND MERGE 22

1. Summary 22

2. Procedural Summary 33

3. The Joint Applicants 33

4. Joint Applicants' Request 44

5. The Proposed Merger Transaction 66

6. Financial Showing 77

7. California Environment Quality Act (CEQA) 77

8. Competition 88

9. DRA's Protest 99

10. Joint Applicants' Response 1111

11. The Settlement Agreement 1313

11.1. Standard of Review 1313

11.2. Reasonable in Light of the Whole Record 1313

11.3. Consistent with the Law 1515

11.4. In the Public Interest 1515

12. Discussion 1616

13. Federal and State Regulatory Impact 1717

14. Motion for Protective Order 1818

15. Categorization and Need for Hearing 1919

16. Reduction on Comment Period 1919

17. Assignment of Proceeding 1919

Findings of Fact 1919

Conclusions of Law 2121

ORDER 2222

ATTACHMENT A Settlement Agreement

DECISION GRANTING APPLICATION
TO CONSOLIDATE AND MERGE

1. Summary

This decision authorizes the consolidation of Citizens Communications Company's four California Incumbent Local Exchange Carriers (ILECs) by merging its three smaller ILECs into the largest of those four:¹ Citizens Telecommunications Company of California Inc., dba Frontier Communications of California (Frontier-California).

Frontier-California is a mid-sized ILEC regulated under the Commission's Uniform Regulatory Framework (URF), and its service territory is open to competition. The three smaller ILECs operate under a rate-of-return regulatory structure and their service areas are not open for competition. With the granting of this application, the service territories of the three smaller ILECs will be incorporated into the service territory of Frontier-California and be subject to competition.

This decision adopts a Settlement Agreement negotiated between the Division of Ratepayer Advocates (DRA) and Joint Applicants. Under the Settlement Agreement, the Parties agreed that up to January 1, 2011, the basic primary residential rate for each of the three smaller ILECs will be capped at their current levels as of the date of the Commission's order approving the merger. Following approval of the proposed transaction by the Commission until January 1, 2010, Caller ID, call waiting, single line business, directory assistance, non-published listings and inside wire maintenance plan rates for each of the three smaller ILECs will be capped at their current levels as of the date of the Commission's order approving the merger. Thereafter, the three smaller ILECs will be subject to applicable Commission orders governing service rate caps for URF companies.

Also, under the Settlement Agreement, the three smaller ILECs will not be included in the High Cost Fund B claims process until the Commission concludes its review of the B-Fund as ordered in Decision (D.) 07-09-020. The three smaller ILECs will be included in the rate reductions ordered by D.07-12-020, which requires midsize URF companies to implement intrastate access rate reductions effective January 1, 2009. The Settlement Agreement is appended to this decision as Attachment A. This proceeding is closed.

¹ The four ILECs are generally referred to as Joint Applicants or Citizens, herein.