Conclusions of Law
1. This proceeding is a ratesetting proceeding.
2. The proposed transaction is subject to scrutiny under Pub. Util. Code
§ 854(a).
3. Pursuant to §854(a), Applicants must demonstrate, by a preponderance of the evidence, that the proposed transaction is, on balance, in the public interest.
4. Neither of the direct parties to this transaction, the parent holding companies SBC Communications Inc. and AT&T Corp., are utilities within the meaning of § 854(b).
5. In D.97-03-067, In re Pacific Telesis Group, the Commission looked past the formal structure of the transaction at the holding company level because the utility, Pacific Bell, was essentially the only asset of the holding company, Pacific Telesis Group, and the acquisition of the utility was the fundamental reason for the transaction.
6. D.97-03-067 applies only to the specific facts on which it was decided, and does not stand for the proposition that the Commission will pierce the corporate veil separating the utility from its parent whenever a transaction will have an impact on a large California utility.
7. The facts supporting D.97-03-067 are not present here. AT&T's California subsidiaries represent only a small fraction of AT&T's overall business and the transfer of these subsidiaries is not the fundamental reason for this transaction. Further, neither SBC Communications Inc. nor AT&T Corp. was formed around the utilities as a means to escape regulation. Therefore the reasoning of
D.97-03-067 is inapplicable to this transaction.
8. Pursuant to §853 (b) the Commission may exempt a transaction from the requirements of §§ 854 (b) and (c).
9. The Commission has articulated a three-part test for determining whether to grant an exemption from the requirements of §§ 854(b) and (c). An exemption is to be granted where: (1) the transaction does not involve two traditionally regulated telephone systems; (2) the Commission lacks effective ratemaking authority over the transferred entity that the Commission could use to mandate the delivery of benefits under §§ 854(b); and (3) the transferred entity has grown under competitive forces and is subject to competition without a guaranteed franchise territory.
10. All the exemption criteria are met in this transaction. First, the transaction does not combine two traditionally regulated utilities, and because AT&T's California subsidiaries are non-dominant inter-exchange carriers or competitive local exchange carriers. Second, the Commission lacks effective ratemaking authority over AT&T's California subsidiaries. Third, AT&T has grown under competitive conditions without a guaranteed franchise territory since divestiture.
11. Therefore, even if §§ 854 (b) and (c) applied to this transaction, an exemption from those sections would be appropriate under applicable Commission precedent.
12. Because the benefits of the merger will be passed through to California consumers through competition and market forces, there are no policy grounds for mandated sharing of those benefits.
13. In order to determine whether the transaction is in the public interest pursuant to § 854(a), it is reasonable for the Commission to assess the public interest factors enumerated in § 854(c) and undertakes an analysis of antitrust and environmental considerations.
14. Applicants have demonstrated that all of the criteria enumerated in
§ 854(c) are satisfied by this transaction.
15. In order to determine if the transaction will have an adverse effect on competition, the sole material question is whether the elimination of AT&T as an independent competitor in any properly defined markets would confer market power on SBC or enhance any market power it currently possesses.
16. The transaction will not cause an adverse effect on competition in the mass market for local exchange telecommunications services.
17. The transaction will not cause an adverse effect on competition in the mass market for long distance telecommunications services.
18. The transaction will not cause an adverse effect on competition in the enterprise market.
19. The transaction will not cause an adverse effect on competition for the provision of special access services, with the adoption of the Attorney General's recommendation for a one-year freeze on rates paid by current AT&T customers receiving DS1 or DS3 private network service.
20. The transaction will not cause an adverse effect on competition in the market for Internet Backbone services.
21. The transaction will not have an adverse effect on competition in any properly defined market and it therefore raises no antitrust concerns.
22. Cross-subsidization is unlikely because SBC California's rates are not set with reference to its costs and because the Commission will continue to enforce affiliate transaction rules.
23. The California Environmental Quality Act (CEQA) requires the Commission to consider the environmental consequences of projects that are subject to the Commission's review and approval.
24. It is reasonable for the Commission to approve this transaction, subject to the conditions proposed herein.
