7. Discussion of Settlement and Transaction, as Modified by the Settlement

We first discuss the Settlement Agreement, then review whether the Settlement Agreement meets the "preconditions" of D.92-12-019. Finally, we review the entire transaction, as modified by the Settlement Agreement, and the terms of the Settlement Agreement in the larger context of the financial transaction.

7.1. Settlement Meets D.92-12-019 Preconditions of an "All Party"
Settlement

As noted above, there are four preconditions that an all party Settlement Agreement must meet.

The Settlement Agreement meets the first precondition of an "all party" settlement - it has the unanimous sponsorship of all active parties in the proceeding. Consolidated, the SureWest Companies, TURN, DRA and Frontier are the only parties in this proceeding.

The Settlement Agreement meets the second "precondition" set in D.92-12-019, namely that sponsoring parties represent the full range of affected interests. TURN and DRA represent the interests of ratepayers. Consolidated and the SureWest Companies represent the interests of the corporations and owners directly affected by the transaction. Frontier represents the interests of the major competitor affected by the transaction. There are no other affected interests.

Our review of the Settlement Agreement indicates that it meets the third "precondition" set in D.92-12-019, that no term of the settlement contravenes any statutory provision or prior Commission decision.

Finally, the Settlement Agreement meets the last precondition because it provides the Commission with sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests. In particular, the terms of the Settlement Agreement are simple and require no complex ratemaking. The parties themselves should be able to enforce the terms of the agreement. Thus, the Settlement Agreement provides all information needed to execute its terms and sets a blueprint that ensures unambiguous implementation.

7.2. The Transaction, as Modified by the Settlement Should Be Authorized; the Settlement Agreeement, when Conjoined to the Transaction, Meets Rule 12.1(d)

In reviewing the transaction, as modified by the Settlement Agreement, we need both to determine whether the transaction meets the standards for a change of control, and whether the transaction, as modified by the Settlement Agreement, meets the public interest standard of § 854(a). Finally, we must also consider whether the Settlement Agreement, when conjoined to the transaction, meets Rule 12.1(d), a requirement that all settlements must meet.

Since this transaction involves a change of control to a company that does not possess a California CPCN from a company or companies that do possess a CPCN, the Commission applies the same requirements to the acquiring company as would be applied to an initial applicant seeking a CPCN. As noted above, the Commission has established two major criteria for determining whether a CPCN should be granted, or transferred. These include financial and technological fitness.

First, an applicant who desires to operate as a provider of facilities-based local exchange and interexchange services must demonstrate that it has a minimum of $100,000 in cash or cash equivalent for operations of the company plus the costs of deposits to be paid to other carriers. The instant application includes a copy of Consolidated's most recent financial statements from its Securities and Exchange Commission Form 10-K filing for the year ended December 31, 2010 which demonstrate that Consolidated has sufficient resources to meet the Commission's financial requirements.

Second, the applicant is required to make a reasonable showing of technical expertise in telecommunications or a related business. In this case, Consolidated provides a wide range of telecommunications services to residential and business customers in Illinois, Texas and Pennsylvania, including: local and long-distance telephone service, high-speed broadband Internet access, standard and high-definition digital television, digital telephone service, custom calling features, private line services, carrier access services, network capacity services over regional fiber optic networks, and directory publishing. In addition, the SureWest Companies hold CPCNs in California and will retain much of their personnel and technical expertise. Thus, Consolidated and the SureWest Companies have each demonstrated through their ownership and operations that they possess the level of technical expertise necessary to qualify for a CPCN in California.

Next, in reviewing the specifics of this transaction, the Commission, in reviewing a change of owners and the encumbrance of assets, must determine whether the proposed transaction complies with the provisions of § 854. As noted above, all parties agree that the transaction, when subject to the conditions specified in the Settlement Agreement, "provides enough customer benefits to ensure it is in the public interest."

In reviewing the Settlement Agreement, it is clear that it provides many benefits to customers and workers. Specifically, the Settlement Agreement maintains walk-in service centers, freezes rates, and sets infrastructure investment minimums for two years following the transaction. These terms clearly benefit customers.

The Settlement Agreement's provisions concerning service quality ensure that during the period following the change of control, service quality will remain a priority.

The provisions of the Settlement Agreement that commit the new owners to maintaining broadband facilities will benefit both residential and business customers.

The provisions of the Settlement Agreement pertaining to employee benefits ensure that existing benefits will continue for a set period into the transition.

Furthermore, the provisions that waive the early-termination fee for certain business customers during a 60-day period provide business customers with the ability to exercise choice in the face of the changing ownership.

The parties state that the settlement represents a "compromise of the disputed positions of the Protesters and the Joint Applicants and is fundamentally fair, reasonable in the light of the whole record, consistent with the law, and in the public interest."³⁸ Based on our review of the filings, we concur.

The terms of the proposed transaction are specified in Exhibit A of A.12-02-011, "Agreement and Plan of Merger," and are included as Attachment A to this decision.

Based on the terms of the Settlement Agreement and a consideration of the terms of the proposed transaction, including the encumbrance of assets and the terms of the settlement, we find that approving this transaction, including the terms of the Settlement Agreement, is in the public interest. Since the transaction, including the terms of the settlement, is in the public interest, it is also not adverse to the public interest. Thus, the proposed transaction, as described in the application and as modified by the terms of the Settlement Agreement, which is Attachment A to this decision, and as further modified by the Amendment, which is Attachment B to this decision, fulfills the requirements of § 854 and it is reasonable for the Commission to approve this transaction, as modified by the settlement agreement.

Finally, we note that all settlements must meet Rule 12.1(d), which states:

12.1.(d) The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

This Settlement Agreement permits a change of control that is in the public interest to proceed expeditiously. In addition, the terms of the Settlement Agreement enhance the benefits provided to California consumers and the public in general. Each term of the Settlement Agreement, and the transaction as a whole, is consistent with the law and reasonable in light of the record of this proceeding. Thus, our review of the terms of the Settlement Agreement and the modifications and additions that it makes to the transaction, and of the record in this proceeding, makes clear that the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

³⁸ Joint Motion at 7.