IX. Discussion of § 854 (a)

The primary question to be determined in a transfer of control proceeding under § 854(a) is whether the proposed transfer will be adverse to the public interest. Questions relating to public convenience and necessity usually are not relevant to the transfer proceeding because they were determined in the proceeding in which the certificate was granted.⁹

As stated in D.97-07-060,¹⁰ our decisions over the years have laid out a number of factors that should be considered in making the determination of whether a transaction will be adverse to the public interest. Antitrust considerations are also relevant to our consideration of the public interest.¹¹ In transfer applications we require an applicant to demonstrate that the proposed utility operation will be economically and financially feasible.¹² Part of this analysis is a consideration of the price to be paid considering the value to both the seller and buyer.¹³ We have also considered efficiencies and operating costs savings that should result from the proposed merger.¹⁴ Another factor is whether a merger will produce a broader base for financing with more resultant flexibility.¹⁵ As noted in Union Water Co. of California:¹⁶

"The Commission is primarily concerned with the question of whether or not the transfer of this property from one ownership to another...will serve the best interests of the public. To determine this, consideration must be given to whether or not the proposed transfer will better service conditions, effect economies in expenditures and efficiencies in operation."¹⁷

We have also ascertained whether the new owner is experienced, financially responsible, and adequately equipped to continue the business sought to be acquired. ¹⁸ We also look to the technical and managerial competence of the acquiring entity to assure customers of the continuance of the kind and quality of service they have experienced in the past.¹⁹

A. Assessment of Public Interest Factors

As we did in D.97-07-060, we assess the relevant factors under § 854(c) in our analysis of the public interest.²⁰ However, outside the mandates of that statute, consideration of public interest factors must have some nexus to areas that are properly our concern as regulators in order to pass muster under the doctrine which limits this Commission's ability to meddle in the management of a utility's business affairs.²¹ After our public interest assessment has been made, we may impose conditions on the transfer pursuant to the statutory power contained in § 853(b).²²

1. Maintain or Improve the Financial Condition

A review of Applicants' financial data discloses that the transfer of control is economically and financially feasible. This transaction does not involve the issuance of any new debt. As shown in their respective annual reports and 10-Ks attached to the application, both entities are healthy financially. With Qwest Inc. acquiring control of US West, Inc.'s California CLC and IEC operations, Qwest Inc.'s telecommunications entities under our jurisdiction will have available additional financing options for improving infrastructure and technology in an increasingly competitive market.

2. Maintain or Improve the Quality of Service

One of ORA's objections to the proposed merger was Applicants' failure to identify the quality of service currently being provided to their customers and the effect that the merger will have on the quality of service. Of specific concern to ORA was the number of slamming and cramming complaints against Qwest Inc.'s subsidiaries and a FCC Notice of Apparent Liability for Forfeiture against Qwest Inc. for slamming. Although ORA identified two California customers as being a part of the FCC complaint against Qwest Inc., those complaints are within the FCC's, not this Commission's, jurisdiction.

A review of complaints filed with CSD supports ORA's quality of service concern. For the time period from September 1, 1999, a few weeks prior to the filing of this application, to March 6, 2000, CSD had not received any informal complaints against the U S West subsidiaries that offer telecommunications services within California. However, during the same time period, CSD received a substantial number of complaints, averaging more than one a day, against Qwest Inc.'s affiliates that offer telecommunications services within California.

Informal complaints against Qwest Inc.'s subsidiaries operating within California indicated that a service problem existed. Any approval of the proposed merger that did not examine the source of the service problem would run the risk of exposing this quality of service problem customers of the U S West, Inc. subsidiaries offering telecommunications services within California.

Qwest Inc. recently has taken actions to reduce complaints by implementing a comprehensive set of policies and procedures aimed at reducing slamming incidents. All telemarketing orders for Qwest Inc.'s 1+ services are currently submitted for verification by an independent third-party verifier and processed or submitted to a local exchange carrier only upon a successful verification. In-person sales of Qwest Inc.'s 1+ services require a Letter of Authorization (LOA). The LOA is scanned into an electronic database for review by several individuals to ensure that it has been signed and appears to have a valid signature prior to being processed or submitted to a local exchange carrier.

Qwest Inc. now also provides training to its employees and third-party distributors that explains its policies and procedures for the sale of Qwest Inc.'s long distance services. Agreements with third-party distributors forbid slamming and explicitly authorize Qwest Inc. to take any action necessary to protect against slamming, including the termination of the distributor sales agent relationship. Further, Qwest Inc. requires third-party distributors to certify that all of their employees have reviewed and acknowledge the existence of Qwest Inc.'s. anti-slamming policies.

Applicants maintained that approval of the merger would not undermine this Commission's or the FCC's authority to address slamming or cramming complaints. Rather, applicants argue that the merger will advance a multitude of public interest competitive service offerings that will lead to substantial benefits for the combined companies' current and future California customers, including the bringing together of Qwest Inc.'s advanced network, offering broadband Internet communications with U S West, Inc.'s technological expertise in advanced services.

The Agreement is structured to be a seamless transaction transparent to telephone customers. Such customers will not face unexpected changes with respect to charges, services provided, provider of telecommunications services or quality of service. After the proposed transaction is completed, those subsidiaries offering telecommunications services within California will continue to offer their local exchange service customers a choice of long distance carriers. The transaction will also enable Qwest Inc. to bring facilities-based local exchange competition to customers who have limited facilities-based alternatives to their incumbent local telephone provider and to expand its provision of local exchange service in California.

There are several positive quality of service aspects to this proposed merger beginning with Qwest Inc.'s undertaking of remedial measures to slamming issues. In addition, Qwest Inc.'s subsidiaries offering telecommunications services within California will continue to operate independently of each other, thereby limiting the spread of any potential negative customer service practices of one affiliate to another affiliate. This independence of subsidiaries demonstrates the entities' ability to maintain their individual quality of service. The merger will further bring to Qwest Inc.'s subsidiaries the benefit of U S West, Inc.'s service experience through the sharing of Board of Director responsibilities between Qwest and U.S. West, as addressed in the prior transaction discussion.

This merger application will also provide an opportune time to alleviate, if not to eradicate, Qwest Inc.'s subsidiaries' complaints and enhance the quality of customer telecommunications services within California. Further, approval will provide a solid foundation for quality of service improvements. However, prior to the approval of any merger, specific mitigation measures over and above those already implemented by Qwest need to be required of the Applicants to ensure against any future adverse service consequences. We rely upon §§ 853(b) and 854(c)(8) for the necessary authority to require Applicants to implement mitigation measures to improve the subsidiaries overall reliability of service within California. These mitigation measures are addressed in our subsequent public interest factors discussion.²³ Consistent with the FCC's recent order designating primary responsibility for administering slamming rules to the State Commissions, we direct CSD to closely monitor any future complaints. To assist CSD in their monitoring efforts we are requiring applicants to submit quarterly reports detailing complaints, as set forth in the mitigation measures being adopted in this order. We further request CSD to investigate the prior complaints and to report the results of their analysis to the Commission. We conclude that this proposed transaction, with mitigation measures, would have no adverse impact on the quality of service.

3. Maintain or Improve the Quality of Management of the Resulting Utility Doing Business in California

The proposed transfer of control will have no immediate impact on management of the California telephone utilities. The Form 10-K for both Qwest Inc. and U S West, Inc., which were attached to the application as Exhibit D and E, respectively, provided an update regarding the qualifications and telecommunications experience of their officers and managers.

Following the proposed transfer of control, the subsidiaries offering telecommunications services within California will continue to be led by a team of qualified telecommunications managers. The combining of experienced managers of both entities will enable Qwest Inc. to maintain and improve the quality of its management of all the California telecommunications subsidiaries. In addition, the Board of Directors, following consummation of the merger, will consist of representatives from both Qwest Inc. and U S West, Inc. Designees on the Board of Directors will be represented equally on all Board committees. Hence, the quality of management of the resulting utility doing business in California criterion has been satisfied.

4. Fair & Reasonable to the Affected Utility Employees

The impact, if any, of the merger on the Applicants' employees in California has not yet been determined. However, Applicants represent that as with the WorldCom, Inc. and MCI Communications Corporation merger approved by D.98-08-068, the synergistic efficiencies and strengthened competitive position of the merged companies have the potential to foster better employment opportunities. Applicants agree that unless otherwise mutually agreed, the surviving corporation and its subsidiaries may, but shall have no obligation to, maintain both the U S West, Inc. and Qwest Inc. benefit plans as separate plans with respect to employees covered by such plans immediately prior to the "Effective Time." The parties further agree that benefits provided pursuant to U S West, Inc.'s severance and retention programs and agreements will be provided in accordance with the terms of those programs and agreements. For these reasons, we conclude that the proposed transaction is fair and reasonable to the affected utility employees.

5. Fair & Reasonable to a Majority of Utility Stockholders

The ultimate stockholders of the affected California telecommunications entities are the parent companies. Qwest Inc. and U S West, Inc. have sophisticated and experienced financial managers who have determined the proposed transaction is fair and reasonable. This judgement determination has been affirmed by the opinions of investment bankers for the principals rendered in connection with the transaction.

Under the Agreement, U S West, Inc.'s shareholders will receive $69.00 in cash for each share of U S West, Inc. subject to a collar as explained in our prior discussion of the transaction. The Board of Directors of both Qwest Inc. and U S West, Inc. have unanimously determined that the transactions before us are in the best interest of their stockholders and have resolved to recommend to their stockholders that they vote in favor thereof.

We do not make any finding of the value of the rights and property being transferred. However, based on a review of Qwest Inc.'s and U S West, Inc.'s 1998 Form 10K and the Agreement, stockholders are receiving a fair price for the California utilities' operations.

6. Beneficial on an Overall Basis

Qwest Inc.'s proposed acquisition of the California telecommunications utilities will enable Qwest, Inc. to expand and accelerate its ability to compete with local exchange carriers in residential local exchange markets where USW-LD and Interprise does business. It also has the potential to provide increased competition in the California market for fiber optic telecommunications services.

The coordination of financial resources, complementary managerial skills, network facilities and market capabilities of Qwest Inc. and U S West, Inc. would also enhance Qwest, Inc.'s ability to provide telecommunications services to a broad range of customers in California.

7. Preserve the Jurisdiction of the Commission

Approval of this change in control will have no adverse impact on the Commission's jurisdiction over Qwest Inc.'s current telecommunications companies or over U S West-LD and Interprise being acquired from U S West, Inc. The subsidiaries offering telecommunications services within California are all nondominant carriers. Each of these subsidiaries currently under our jurisdiction will continue to be under our jurisdiction. Hence, the proposed transaction will not affect the Commission's ability to effectively regulate and audit the California operations of Qwest Inc.'s subsidiaries.

8. Antitrust Considerations

Consistent with the requirement that we take into account the antitrust aspects of the application before us,²⁴ the final aspect of the public interest determination we must make under § 854(a) is whether the proposed transaction raises any antitrust concerns.

"By considering antitrust issues, the Commission merely carries out its legislative mandate to determine whether the public convenience and necessity require a proposed development. That task does not impinge upon the jurisdiction of the federal courts in federal antitrust cases. The Commission may approve projects even though they would otherwise violate the antitrust laws; it may also disprove projects that do not violate such laws. Its consideration of antitrust problems is for purposes quite different from those of the courts; it does not usurp their function."²⁵

Applicants only seek approval for a change in control of USW-LD and Interprise. Hence, our task in this application is to balance whether the benefits of Qwest Inc.'s acquisition of USW-LD and outweigh any public interest concerns.²⁶ In so doing, we are not strictly bound by the dictates of the antitrust laws. We can approve actions that violate antitrust policies when other economic, social, or political considerations are found to be of overriding importance.²⁷ We need not choose another course of action if our proposed course has anti-competitive effects, as long as our course of action is in the public interest.²⁸

No anti-trust issue has been raised about Qwest Inc.'s acquisition of USW-LD and Interprise. We conclude that the proposed merger does not raise any antitrust or anticompetitive issues needing our intervention and that the proposed merger is in the public interest for the reasons identified above.

9. Mitigation Measures

Consistent with § 853 (b) and § 854 (c)(8) and as addressed in our public interest quality of service discussion, mitigation measures are needed to ensure that the quality of service is maintained and improved. The following mitigation measures should be implemented as a condition to our approval of this merger.

· Qwest Inc. should categorize each complaint against itself or any of its affiliates as either slamming, cramming, or other.

· Complaints identified as slamming, which involves the switching of a customer's long distance carrier without the customer's knowledge or consent, should be identified and tracked by the number of Personal Identification Code (PIC) disputes involving California consumers made with all local exchange carriers (LECs) and ultimately attributable to Qwest Inc. or its affiliates. Qwest Inc. will take all necessary action to obtain this information including those PIC disputes reported by the LEC as a dispute against the underlying carrier but determined by the underlying carrier to be a dispute involving Qwest Inc. or its affiliates. Qwest Inc. should also work with the underlying carriers to track this information if it is not currently tracked.

· Complaints identified as cramming should be identified and tracked by the product or service that was billed but not ordered by Qwest Inc. or its affiliates' California customers.

· Complaints involving California customers and identified as other should be identified and tracked by a general description that briefly explains what each complaint in this category is about.

· Qwest Inc. should provide to CSD a contact person or persons accessible by a toll free 800 number to research and resolve informal complaints lodged with CSD against its subsidiaries offering telecommunications service in California in 30 days upon being notified of the complaint.

· Qwest Inc. should track all direct and indirect complaints submitted to its subsidiaries offering telecommunications services within California, including any forwarded by CSD.

· Qwest Inc. should submit to CSD and ORA copies of all California customers' complaints which are received at the Federal Communications Commission and which are served on the merged company or otherwise are made known to the merged company.

· Qwest Inc. should submit quarterly reports to CSD summarizing the number of California complaints. The quarterly report should identify by subsidiary, the date of each complaint, brief description of actual complaint, action taken to resolve the complaint, and the date the complaint was resolved, if resolved, and status of complaint if not resolved. For slamming complaints, the quarterly complaint report also should identify the PIC disputes by month, the Automatic Number Identification (ANI) associated with each PIC dispute, the Carrier Identification Code (CIC) the dispute was recorded against, and by the Local Exchange Company (LEC).

· Qwest Inc. should submit additional information relating to complaints upon request by CSD or ORA.

· Qwest Inc. should report to ORA and the Commission, subject to confidential treatment under General Order No. 66-Cl, on an annual basis, the number of customers it has in California for both residential and business services.

· Quarterly complaint reports should be submitted to CSD and ORA within 60 days after the end of each quarter (May 30^th, August 29^th, November 29^th, and March 1^st). These quarterly complaint reports should be submitted to CSD for five years following the effective date of this order.

· CSD should review each of the quarterly complaint reports and promptly recommend to the Commission further action, if deemed necessary, to resolve complaints related to Qwest Inc. subsidiaries offering telecommunications services within California.

· Qwest Inc. should, if it becomes necessary in connection with any proceeding before the Commission, make any officer, director, or other employee of the merged company available for deposition at the Commission's office in San Francisco, regardless of where that person lives or works.