11. Comments on Draft Decision

The Draft Alternate Decision of Commissioner Geoffrey F. Brown in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g) and Rule 77.6(d) of the Rules of Practice and Procedure.⁸³ Comments on this Alternate Draft Decision of Commissioner Brown were filed by Applicants, ORA, TURN, Qwest, Cox, CALTEL, CISPA, Latino Issues Forum, DRA and Earthlink. Applicants and Latino Issues Forum oppose the Alternate Draft Decision, urging the Commission instead to adopt the Proposed Decision of Commissioners Kennedy and Peevey. All other parties urge adoption of the Alternate Draft Decision, primarily on grounds that it applies all of the provisions of Pub. Util. Code § 854 in evaluating the merger transaction, but most of these parties also urge that the Alternate Decision be modified to add additional conditions in approving the merger. A number of parties, including Applicants and TURN, to some extent reargue positions taken in briefs, and those arguments are accorded little or no weight. (See Rule 77.3 of the Rules of Practice and Procedure.)

Applicants in their comments continue to argue that because the transaction here is between holding companies of Verizon and MCI, no "telephone utility" is a "party" to the transaction, and therefore § 854(b) cannot by its terms apply to this transaction. As we have explained in this decision, the substance of this transaction will have a significant impact on California public utilities and their customers. The Commission has broad statutory powers to ensure that ratepayers are not deprived of the benefit of transactions where the utility (in this case, Verizon California and the MCI subsidiaries) would have been directly involved but for the holding company structure that Applicants decided to employ. Latino Issues Forum supports the arguments of Applicants and contends that its proposed settlement agreement with Applicants provides greater support for low-income and limited-English ratepayers than any alternative available to the Commission.

ORA supports the Alternate Draft Decision, with some modifications, "because it is based on the record and fairly resolves the majority of disputed issues in this proceeding...[and] it correctly analyzes the legal issues presented in this case -specifically, the applicability of PU Code § 854(b) and (c)." (ORA Comments, at 1-2.) While it contends that the Alternate is "more legally sound" and better addresses competitive concerns than the Kennedy/Peevey Proposed Decision, ORA urges that the Alternate be modified to require third-party monitoring of continuing competitive conditions and a "first-priority" requirement of the parent company for the benefit of Verizon California, similar to conditions adopted in the Proposed Decision in the SBC/AT&T merger proceeding.

Cox supports the Alternate Draft Decision, arguing that the Kennedy/Peevey Draft Decision would "overturn" the Commission 1997 decision in SBC-Telesis and render § 854 "meaningless." (Cox Comments, at 5.) While noting that the Brown Alternate adopts two of the three conditions urged by Cox for an opt-in to interconnection agreements, Cox urges that a third condition (requiring Verizon to transit traffic at TELRCI-based rates) should also be adopted based on the unrebutted testimony of its expert witness.

Similar support for the Alternate Draft Decision is voiced by CALTEL, Earthlink and DRA, but CALTEL regards the failure to discuss a wholesale price caps mechanism constitutes "error," (CALTEL Comments, at 2) and Earthlink urges that the Commission make it clear that all customers of Verizon DSL services should be entitled to unfettered stand-alone DSL service. DRA would prefer that the Draft Decision provide further discussion of the effect of the proposed merger on the needs of people with disabilities.

TURN "wholeheartedly supports" the Alternate Draft Decision, but only if the Commission makes numerous amendments based on TURN's view of the record. First, TURN urges a finding that the merger will produce no short-term economic benefits to ratepayers, thus providing the foundation for the proposed five-year freeze on basic rates that the Alternate Draft Decision adopts. Second, TURN recommends that the Commission adopt a long-term view of merger synergies in perpetuity, just as it believes Applicants did in persuading shareholders to approve the merger. TURN contends that the merger will significantly increase concentration in the mass market, in contrast to the Alternate Decision's conclusion that the market already is highly concentrated and will not significantly change as a result of the merger. Like ORA, TURN urges a provision for monitoring market concentration in the future, and it proposes corrections in the analyses of long-distance competition, effects on the enterprise market and the financial condition of the merging utilities.

Qwest urges adoption of the Alternate Draft Decision, but it also urges that additional merger conditions be adopted to prevent competitive harm in the market for special access. Specifically, Qwest would have the Commission analyze and augment proposed FCC conditions addressing special access that were recently announced in an FCC press release. Similarly, while CISPA supports the Alternate Draft Decision, it urges modifications to strengthen and provide enforcement for conditions requiring stand-alone DSL access.

We have carefully considered the comments of all parties, and we find merit in a number of the recommendations. Our principal tasks, however, are to weigh the public interest in the proposed merger transaction and, as Applicants maintain, to impose conditions only when we find that they are necessary to ensure that the competitive effects of the transaction do not adversely affect the public interest. (See Pub. Util. Code §§ 854(b) and (c).) In our judgment, many of the additional conditions proposed by parties are not justified by the record that we have before us, and a number of what we would deem new factual assertions cannot be considered because they are "untested by cross-examination," as required by Rule 77.3 Nevertheless, pursuant to Rule 77.3, six of the commenting parties have attached appendices to their comments setting forth proposed changes and corrections in our findings of fact and conclusions of law, and we have made changes in the Alternate Draft Decision, where appropriate, based on those recommended changes.

⁸³ See Pub. Util. Code § 311(g), and Rule 77.