2. The Transaction

Frontier Communications Corporation ("Frontier"), New Communications Holdings, Inc. ("NCH"), New Communications ILEC Holdings, Inc. ("NCIH"), New Communications of the Southwest Inc. ("NewILEC"), Verizon West
Coast Inc. ("Verizon West Coast"), Verizon California Inc. ("Verizon California"), New Communications Online and Long Distance, Inc. ("NewLD"), Verizon Long Distance, LLC ("VLD"), and Verizon Enterprise Solutions, LLC ("VES"), seek approval of the transfer of a portion of Verizon Communications Inc. ("Verizon") local exchange and long distance business in California to companies to be owned and controlled by Frontier and for such other approvals as may be deemed necessary to complete this transaction.

This application concerns a small part of a multi-state transaction in which Verizon proposes to transfer its operating companies in a number of states to Frontier. Frontier and its operating companies in those states have significant experience in serving rural areas, including California. Frontier asserts that the transfer will enhance its local presence in the communities it serves and will provide enhanced services. The proposed transaction will also bolster Frontier's financial strength and enable it to expand broadband and other service offerings.

In California, the transaction involves property in 13 exchanges.
Six exchanges comprise the entire serving territory of Verizon West Coast, a wholly owned subsidiary of Verizon Northwest Inc. ("Verizon Northwest"), the operating company serving Oregon, Washington, and Idaho, which will also be transferred to Frontier. Another seven Verizon California exchanges are being transferred to Frontier; these border Arizona and Nevada, and are contiguous to the Verizon California properties in those states that are also being transferred. Also, certain long distance customers in those 13 exchanges, currently served by Verizon affiliates, will be transferred to Frontier entities. Upon closing, Frontier will own and control both the Verizon assets transferred to it as part of this transaction as well as its existing operations in California.

Frontier is a corporation organized under the laws of Delaware and is a publicly traded holding company. Frontier is a full-service communications provider and is one of the largest rural local telephone exchange companies in the country. Frontier offers telephone, television, and Internet services, as well as bundled offerings, wireless Internet data access, data security solutions, and specialized bundles for small/medium/large businesses and home offices to customers in 24 states. In 2008, Frontier's revenue was $2.2 billion, with a net income of $182.7 million. The company has approximately 5,600 employees and serves a total of 2.8 million voice and broadband connections, including
2.3 million access lines.

Frontier does not conduct business directly in California but owns and controls one local exchange carrier in California, Citizens Telecommunications Company of California, Inc. doing business as Frontier Communications of California (U1024C) ("Frontier California"). Frontier's subsidiary, Frontier Communications of America, Inc., is a reseller of interexchange service in California.

Verizon West Coast holds a Certificate of Public Convenience and Necessity ("CPCN") to provide local exchange services in six exchanges¹ in the northwest corner of California in Del Norte and Humboldt Counties. Verizon West Coast has approximately 13,000 access lines in its territory. Verizon West Coast is a direct, wholly owned subsidiary of Verizon Northwest which provides local exchange service in Washington, Oregon, and Idaho, and is an indirect, wholly owned subsidiary of Verizon.

Verizon California holds a CPCN to provide local exchange services in California,² primarily in southern California, and has approximately 3.4 million access lines in its territory, only a very small portion of which - approximately 11,000 access lines - is being transferred to Frontier. Verizon California is an indirect, wholly owned subsidiary of Verizon.

VLD holds a CPCN to provide inter Local Access and Transport Area ("LATA") and intraLATA resold telecommunications services (excluding local exchange services) in California pursuant to Decision (D.) 97-02-011. VLD is an indirect, wholly owned subsidiary of Verizon.

VES holds a CPCN to provide interLATA and intraLATA resold telecommunications services (excluding local exchange services) in California pursuant to D.96-09-004. VES is an indirect, wholly owned subsidiary of Verizon.

NCH, NCIH, NewILEC, and NewLD are Delaware corporations formed for the purposes of the series of internal reorganizations and transactions described in this application.

On May 13, 2009, Frontier, Verizon, and NCH entered into an Agreement and Plan of Merger ("Merger Agreement") under which Frontier will acquire approximately 4.8 million access lines (and certain related assets) currently owned by subsidiaries of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, Wisconsin, and West Virginia as well as portions of California bordering Arizona, Nevada, and Oregon.³ The Merger Agreement filed with the Securities and Exchange Commission ("SEC") is attached as Exhibit 1 to the application. On the same date, Verizon and NCH entered into a Distribution Agreement. A copy of the Distribution Agreement filed with the SEC is attached as Exhibit 2 to the application.

The Merger Agreement and the Distribution Agreement are designed to:
(a) establish a separate entity (i.e., NCH) as the holding company for Verizon's local exchange, long distance, and related business activities in the acquired areas described above; (b) spin-off the stock of that new entity to Verizon shareholders; and then (c) immediately merge the new entity into Frontier.

The transaction will be completed through several steps:

(1) NCH will serve as the holding company for the local exchange, long distance, and related businesses in California and the other affected states that are being transferred to Frontier. NCH currently is a subsidiary of Verizon; after the transactions described below, it will be merged into Frontier. Frontier will be the surviving entity, and will then own and control the Verizon assets being transferred to it through the transaction at issue here as well as its current properties in the state.

(2) NCH has two newly formed subsidiaries: (a) NCIH, which will own the stock of NewILEC, Verizon West Coast, and the other operating Incumbent Local Exchange Carriers ("ILECs") in the affected states; and
(b) NewLD, which will hold the accounts receivables and customer relationships related to the long distance operations (and other operations) in California and the other affected states.

(3) Through a series of intra-corporate stock transfers, Verizon will transfer (or cause to be transferred) the stock of NewILEC, Verizon West Coast and the other affected ILECs to NCIH.⁴ Similarly, VLD and VES will transfer their accounts receivables and customer relationships related to their long distance operations in California and the other affected states to NewLD.

(4) The stock of NCH will then be distributed to Verizon shareholders - that is, NCH will be "spun off" from Verizon to Verizon's shareholders so that NCH and Verizon will be separate corporations. Immediately following this spin-off, NCH will be merged into Frontier, and Frontier will be the surviving holding company, operating under its existing name and corporate structure, but also owning all of the stock of NCH's subsidiaries, NCIH and NewLD. Once the merger is completed, NCH will cease to exist; thus, NCIH and NewLD will be direct subsidiaries of Frontier, and NewILEC will be an indirect subsidiary through NCIH.

As noted above, Frontier will acquire Verizon West Coast in its entirety, but will acquire only a small portion of Verizon California's territory near the Arizona and Nevada borders.⁵ Accordingly, prior to the spin-off of NCH and its merger into Frontier, Verizon California will transfer its assets, liabilities, and customer relationships in seven exchanges (five bordering Arizona and two bordering Nevada) relating to its local exchange, intrastate toll, and exchange access operations along the Arizona and Nevada borders to NewILEC.⁶
Verizon California also will transfer the stock of NewILEC to NCIH through a series of intermediate transfers, such that NewILEC will become a direct,
wholly owned subsidiary of NCIH and an indirect, wholly owned subsidiary of NCH. In this way, after the merger, Frontier Communications will be the ultimate parent of Verizon West Coast and NewILEC. (Verizon West Coast will be renamed, because Frontier will not operate under the Verizon name in any state. For purposes of this application, however, the name "Verizon West Coast" is used in describing the pre- and post-transaction structures.) The corporate structure and transaction as it relates to California and the other affected states are illustrated in Exhibit 3 to the application.

In order to provide service to existing customers and new customers, NewILEC and NewLD are required to obtain CPCNs from this Commission. NewILEC and NewLD seek the required CPCNs as part of this transfer application because NewILEC will be acquiring operating telephone exchanges and NewLD will likewise be acquiring existing customers and operations. NewILEC will assume any existing Verizon California wholesale obligations, including contracts, to California wholesale customers and to other carriers to the extent applicable, and Verizon West Coast will retain its existing obligations, if any. Upon completion of the transaction, Frontier may elect to change the names of these entities; if so, it will make the necessary filings.

No change of control will occur with respect to Frontier's existing operating entities in California, including Frontier California and Frontier Communications of America, Inc., or with respect to any entity holding a controlling interest in them, because the control of these companies will remain with Frontier. At the completion of the transaction, Frontier will own and control three incumbent local exchange companies in California: Frontier California, Verizon West Coast, and NewILEC. In addition, Frontier will own and control two long distance companies: Frontier Communications of
America, Inc. and NewLD.

Frontier Communications is a Delaware corporation with its principal place of business in Stamford, Connecticut. Verizon West Coast and Verizon California are California corporations with their principal place of business in Thousand Oaks, California. VLD and VES are Delaware corporations with their principal places of business in Arlington, Virginia. NCH, NCIH, NewILEC, and NewLD are Delaware corporations formed for the purposes of the series of internal reorganizations and transactions described in this application.

At the completion of the transaction, Verizon West Coast will continue to operate as a stand-alone company in California (subject to being renamed), and will become a direct, wholly owned subsidiary of NCIH and an indirect,
wholly owned subsidiary of NCH. Verizon West Coast, therefore, requests that its CPCN be transferred accordingly.

The seven Verizon California exchanges along the Arizona and Nevada borders will no longer be operated as part of Verizon California but will be transferred to NewILEC, a newly-formed corporation which will operate in California as well as Arizona and Nevada (just as Verizon California does today). Accordingly, NewILEC requests a new CPCN from the Commission to permit it to operate those California exchanges transferred from Verizon California on the same terms. Verizon California will continue to operate in California, minus the seven exchanges adjacent to the Arizona and Nevada borders that it has transferred to NewILEC.

NewLD requests a CPCN to provide interLATA and intraLATA resold telecommunications services (except local exchange services). This will enable NewLD to conduct the long distance business transferred to it by VLD and VES. VLD and VES will continue to provide some long distance telecommunications services in California, and, therefore, will maintain their CPCNs. In accordance with applicable Commission precedent as set forth in D.06-10-021 and prior decisions, slamming requirements do not apply to customer base transfers such as this. The parties will comply with all applicable customer notice requirements set forth in 47 C.F.R. Section 64.1120(e), Pub. Util. Code § 2889.3, and D.06-10-021.

NewILEC requests that the Commission allow it to adopt the prices, terms, and conditions of Verizon California with respect to the transferred exchanges, and NewLD requests that the Commission allow it to adopt the prices, terms, and conditions of VLD and VES. NewILEC also requests that it be designated an Eligible Telecommunications Carrier ("ETC") under 47 U.S.C. Section 214. Verizon California is currently an ETC with respect to the wire centers being acquired by NewILEC, and this ETC status should be transferred to NewILEC when it assumes control of the facilities. NewILEC will provide the same services as Verizon California after the proposed transaction closes. Like Verizon's current services, NewILEC's services contain each of the service elements necessary for ETC designation, including each of those in 47 U.S.C. Section 214(e). To obtain ETC designation in California, once the transaction closes NewILEC must file an advice letter in conformance with General Order 96-B and in compliance with the ETC designation rules contained in Resolution T-17002. Like Verizon, NewILEC must comply with each of the ongoing compliance requirements for ETCs under California Public Utilities Commission Resolution T-17002. NewILEC requests the Commission grant it the same ETC status that Verizon California possessed prior to the acquisition.

In a nutshell, Applicants request: (1) transfer of Verizon West Coast's CPCN to NCIH; (2) a new CPCN for NewILEC for local exchange service to allow it to operate the seven former Verizon California exchanges along the Arizona and Nevada borders under the same terms; (3) NewILEC adoption of the prices, terms, and conditions of Verizon California for the transferred exchanges; (4) NewILEC designation as an ETC and transfer of existing Verizon California status as such in the affected exchanges; (5) a new CPCN for NewLD to provide interLATA and intraLATA resold telecommunications services (except local exchange services); and (6) transfer of the long distance customers in the affected exchanges from VLD and VES to NewLD.

¹ These exchanges are: Crescent City, Klamath, Smith River, Hiouchi, and Gasquet in Del Norte County and Orick in Humboldt County.

² Verizon California is also authorized to provide local exchange service in portions of Arizona and Nevada contiguous to California, and serves approximately
6,000 customers in Arizona and 36,000 customers in Nevada.

³ Because Verizon California is only transferring a few border exchanges in California to Frontier, its circumstances differ from those that exist in other states that are part of this transaction.

⁴ The assets and business to be transferred to NCIH (as well as the assets and business that are not being transferred) are more fully described in the Distribution Agreement between Verizon and NCH.

⁵ The exchanges to be transferred are: (1) Adjacent to Nevada: Alpine (Alpine Co.) and Coleville (Mono Co.); (2) Adjacent to Arizona: Earp Big River, Havasu Landing, and Parker Dam (San Bernardino Co.), Blythe (Riverside Co.), and Palo Verde
(Imperial Co.).

⁶ Verizon California also operates in Arizona and Nevada, and will transfer its assets in those states to NewILEC as well, because these operations are included in the transaction.