7. Do the Proposed Transactions Meet the
Public Interest Tests Contained in § 854(c)?
As noted above, we have elected to conduct a review using the § 854(c) to guide our determination of whether this transaction is in the public interest. The § 854(c) criteria cause us to ask whether this transaction:
Maintains or improves the financial condition of the resulting public utilities doing business in California?
Maintains or improves the quality of service to California ratepayers?
Maintains or improves the quality of management of the resulting utility doing business in California?
Is fair and reasonable to the affected utility employees?
Is fair and reasonable to a majority of the utility shareholders?
Is beneficial on an overall basis to state and local economies and communities in the area served by the resulting public utility? And
Preserves the jurisdiction of the Commission and its capacity to effectively regulate and audit public utility operations in California?130
Finally, the Commission must consider the implications for competitive markets of the application as well as any environmental impacts.
7.1. Will the Change of Control Maintain or Improve the Financial Condition of the Resulting Utilities Doing Business in California?
Section 845(c)(1) requires that we determine the effect of the proposed merger on the financial condition of the resulting utilities doing business in California.
The Joint Applicants assert that the organization created by this merger will enjoy financial health.131 SBC is an established communications provider with a strong balance sheet, investment grade credit and the financial, technological and managerial resources to invest in AT&T's network and systems.
Applicants state that "[t]ogether, SBC and AT&T will be poised to deliver better, innovative products and services to consumers and business customers, and to accelerate the deployment of advanced, next-generation Internet Protocol ("IP") networks and services than either company can provide on a stand alone basis."132 Applicants also state that, "AT&T has experienced increasing financial challenges which have resulted in thousands of layoffs and created financial uncertainty for workers and shareholders. The merger creates a stronger combined company able to thrive in the telecommunications markets of the future."133 They add that the merger will strengthen both AT&T and SBC's financial condition. "AT&T and its affiliates will benefit from SBC's stronger balance sheet and better access to capital, while the post-merger company will achieve financial benefits through increased efficiencies, lower costs and increased revenues."134
Applicants also state that "before its decision to merger with SBC, AT&T was no longer a price constraining force for the mass market, and consummation of the merger therefore obviously should have no adverse effect on competition in that market. Because AT&T has ceased actively competing in the mass market, the merger will not deprive residential customers of a major player in that segment."135
In addition Applicants state that the increased financial strength of the combined company will support additional investments in advanced technologies. "SBC expects higher capital spending totaling approximately $2 billion over the first several years after closing than would likely have been incurred by the two companies absent the merger."136
ORA argues that the merger may adversely impact SBC California's financial condition137 because "[u]nder a holding company structure, a regulated utility may be exploited by its parent and affiliates."138 ORA raises the concern that SBC California's regulated revenues could be eroded by SBC affiliates' unregulated VoIP offerings which contribute substantially to SBC California's intrastate revenues.139
ORA argues that the Commission should seek to ensure that a merger that may benefit SBC's holding company does not result in long-term harm to the subsidiaries providing telecommunications services in California. In particular, ORA recommends that the Commission require SBC to mitigate the possible exploitation of SBC California by other SBC affiliates.140 Specifically, ORA recommends requiring the merged company not to cannibalize SBC California's revenues and abide by the Commission's affiliate transaction and cost allocation rules. ORA also recommends that the Commission should reiterate to SBC that it must fully cooperate in ORA's affiliate transactions audit.141
TURN argues that the applicants have failed to show that the proposed merger will maintain or improve the financial condition of the resulting public utility doing business in California.142
7.1.2. Discussion: The Merger will maintain or improve the Financial Condition of the resulting public utility
We find that this merger will maintain or improve the financial condition of the resulting public utility. We believe that the Joint Applicants have demonstrated that the merger will strengthen the post-merger company's financial condition, and that the benefits of this increased financial strength will accrue to all of the post-merger company's affiliates.143
ORA's claim that the holding company structure will lead to adverse financial consequences for the California utilities owned by SBC is not credible, given that SBC California is already a small part of a large holding company. Despite the fact that this holding company structure has been in place for some time, the Commission has seen no negative consequences for the SBC's California utility as a result. Moreover, ORA has not demonstrated any that any such consequences are even plausible. Thus, ORA's concern that this transaction will have adverse financial consequences for SBC's regulated California subsidiary is not credible and there is no reasonable basis for imposing ORA's recommended "first priority condition" on SBC.
As for TURN's claim that SBC has failed to demonstrate that the merger will produce no adverse financial consequences for SBC California, we disagree. Nothing in the record suggests that SBC California will be weakened in any way by the holding company's acquisition of AT&T. In fact, the evidence in the record leads to the opposite conclusion, that a financially healthier, merged company will expend significantly greater capital in California than the two separated companies would expend absent the merger.
Consequently, we conclude that this transaction will not have an adverse impact on SBC's California utilities and accordingly, the merger meets the standard of § 854(c)(1).
7.2. Will the Merger of the Parent Companies and the Change of Control Maintain or Improve the Quality of Service to California Ratepayers?
Section 854(c)(2) provides calls for the Commission to examine whether the transaction is likely to "maintain or improve the quality of service to public utility ratepayers" in California.
Applicants state that, service quality will be maintained or improve as a result of the merger.144
While they are not able to engage in detailed planning until the transaction closes, they anticipate that the integration of AT&T's national and global IP network with SBC's in-region data network will create efficiencies that improve service quality for the combined company's IP-based services.145 Increasing the amount of traffic that flows over a single network allows for better management of that traffic. An integrated network is easier to monitor, repair and maintain, all of which allow for better service to the customer. SBC expects that this integration process will allow the combined company to maintain or improve the quality of IP-based services of its California operating subsidiaries, for both mass market and large business customers.146 Applicants further state that the increased financial strength and the investment that will follow the merger will support future service quality.147 Finally, SBC cites testimonials given at the public participation hearings as supporting its view that the stronger company will be able to provide better service quality.148
TURN raises the concern that merger-related workforce reductions and system consolidation will increase the risk of harm to service quality in California, particularly in the short run. Service quality may affect some types of customers more than others.149
ORA states that, "SBC should be required to improve service quality in those areas that the Commission identified as below the industry standard and at least maintain service quality in the areas in which it exceeds or is statistically indistinguishable from the industry standard."150
ORA urges the Commission to adopt service quality standards that, "[w]hen customers suffer service outages that should be compensated significantly more than the pro rata share of their monthly charges" and that "[s]ervice monitoring should be expanded to include a requirement for SBC to track the deployment of new technology by wire center and to provide reports on that deployment, along with statistics about wire center demography."151 ORA argues therefore that the Commission should hold SBC to its claims concerning service quality standards.
DRA states, "[c]onsumers with disabilities are concerned that the proposed merger will limit the quality and accessibility of the programs and services provided by the new entity".152 DRA alleges that a shift in focus to the enterprise market "threatens service quality for people with disabilities."153
DRA states the merger is "not in the interests of public utility ratepayers with disabilities."154 DRA alleges that a shift in focus to the enterprise market "threatens service quality for people with disabilities."155
7.2.2. Discussion: Merger Will Maintain or Improve Service Quality
We find that the merger will maintain or improve service quality. On the one hand, current operations and networks are largely complementary, with little overlap, and will continue to be operated as separate units following the merger. As a result, it is unlikely that the merger will have any impact on service quality in the short run. However, as the Applicant's experts testified, network integration over time will result in more efficient traffic handling, system maintenance and repair, all of which will tend to improve service quality.
Furthermore, in our recent NRF proceeding we found that SBC California offers generally good service. The company remains subject to our existing tariffs, general orders and other regulations that set a service quality floor and provide effective remedies when service quality falls below that floor. Nothing in the merger will alter or reduce the California subsidiaries service quality obligations.
SBC has a demonstrated commitment to enabling access for persons with varying forms of disability. Nothing in the merger will reduce SBC's provision of disabled access and we are confident that over time the merger will result in improved service quality for both the general customer base and the disabled community.
Finally, there is no credible basis for ordering investigations into service quality as ORA recommends. The Commission has a comprehensive service quality program in place today, and there is no rational basis for changing it.
7.3. Will the Merger of the Parent Companies and Changes of Control Maintain or Improve the Quality of the Management of the Resulting Utility Doing Business in California?
Section 854(c)(3) calls for an examination of whether the transaction will "maintain or improve the quality of management of the resulting public utility" subsidiaries.
Applicants state that the overall management of the combined company will be enhanced by combining the separate strengths of the two companies. Both SBC and AT&T have management teams with substantial experience in the telecommunications industry. This will not change as a result of the merger"156
ORA has raised issues over potential management practices relating to how resources are allocated between regulated and unregulated operations. We address that issue separately in our discussion of how the merger will affect the financial health of the combined utility and our ability to regulate effectively.
In our review of the record in this proceeding no party directly alleged that the merger would have an adverse impact on the management of the California subsidiaries of the resulting company.
7.3.2. Discussion: Proposed Transaction Will Maintain or Improve Management Quality
We find that the new company will maintain the quality of its management. First, there is no reason to doubt the statements of the applicants that a goal of the transfer is to acquire the expertise of AT&T in the enterprise market. Moreover, the proposed transfer of control will have no immediate impact on the management of the subsidiaries offering telecommunications services within California. Second, we find no evidence in the record that the proposed transaction will have an adverse impact on management. Thus, the Applicants' statements that there will be no diminution of managerial quality stand unrebutted.
In summary, we find that the proposed transaction will maintain or improve the quality of management.
7.3.3. Will the Merger of the Parent Companies and Change of Control Be Fair and Reasonable to the Affected Employees?
Section 854(c)(4) provides for an examination as to whether the transaction will be fair and reasonable to the affected utility employees, including both union and non-union.
The Applicants state that
(a) The merger of SBC and AT&T will create a much stronger job outlook for the combined organization.157
(b) A strong combined SBC and AT&T will be able to deliver the advanced networks and services required by American businesses and create more jobs in the overall economy.158
(c) News of the proposed merger was received well by union representatives.159
(d) AT&T has reduced its overall workforce from over 100,000 employees to approximately 47,000. Out of AT&T's remaining workforce, less than 5% are California employees.160
(e) The merger will result in a strengthened post-merger company which will provide greater opportunities for California workers.161
(f) The combined long term employment outlook, both nationally and in California, following the merger is better than if the two companies continued operation independently.162
ORA argues that the transaction will have a negative effect on employees and recommends the imposition of a merger condition limiting California job cuts to no more than 5% of total post-merger headcount reductions.163 ORA foresees the possible loss of several thousand California jobs with the associated burden on the state's economy,164 and fears that after the merger SBC's California workforce may be re-deployed to SBC carriers in other states. 165
TURN states that, "the Applicants refuse to provide any information to the Commission regarding how many California jobs they will be eliminating should the merger be approved".166 TURN argues that Applicants' claim that the merger will create more jobs in the overall economy can only be considered an empty promise.167
7.3.5. Discussion: Changes will be Fair to Utility Employees
The changes proposed will be fair to utility employees. First, the transaction will have no direct impact on either SBC's or AT&T's California operations because they are complementary and have zero local and consumer synergies.168 Moreover, the emergence of a stronger combined company will "allow expansion into new markets, development of new technologies, and improvement of its currently existing services," which in turn will provide overall benefits to the economy, resulting in more jobs and employment opportunities.169
ORA's calculation of massive job losses is flawed. In addition, TURN's concern that the new company will eliminate redundant positions is less a criticism of this proposed transaction than of mergers in general. Both fail to acknowledge that much of AT&T's business is in irreversible decline and that without the merger its workforce will continue to shrink. The fact that the employee unions representing SBC and AT&T workers strongly support this transaction for the very reason that "The combination will stop the hemorrhaging of jobs at AT&T"170 belies intervenors' arguments. Intervenor's testimony fails to demonstrate that this transaction will have any adverse impact on employment.
For these reasons, we find that that the changes resulting from the merger will be fair to employees.
7.3.6. Will the Merger of the Parent Companies and Change of Control Be Fair and Reasonable to a Majority of the Utility Shareholders?
Section 854(c)(5) requires an examination of whether the transaction will be fair and reasonable to the majority of affected utility shareholders.
Applicants state that the merger will create an organization that will enjoy enhanced financial health and vigor171 and increased long-term financial stability.172 The Applicants further state that the Boards of Directors of both SBC and AT&T concluded that the transaction is in the best interest of their respective shareholders.
Although TURN's protest to the merger raised questions concerning whether the offer of Qwest would be better for MCI's shareholders, TURN submitted no testimony or evidence pursuing this part of its protest.
7.3.8. Discussion: Transaction is in the Interest of Shareholders
In the Pacific Bell/ SBC merger, the Commission found that the approval of boards of directors, financial advisors and shareholders meets the test of "preponderance of evidence."173 Further, there is no evidence in the record alleging that the merger conditions, if accepted by a majority of shareholders, will not be "fair and reasonable to a majority of the utility shareholders."
Thus, we find that the proposed transaction is fair and reasonable to shareholders.
7.3.9. Will the Proposed Merger of the Parent Companies and Change of Control Be Beneficial on an Overall Basis to State and Local Economies and the Communities Served by the Resulting Utility?
Section 854(c)(6) calls for the Commission to consider whether the merger will be "beneficial on an overall basis to state and local economies, and the communities in the area served by the resulting utility."
The Applicants argue that the transaction will result in overall benefits to the State of California and all of its constituencies. The Applicants state that the transaction will promote competition and result in improved service quality and more competitive prices. The Applicants further note that during the public participation hearings held throughout the state, many customers and community groups expressed this view. Furthermore, the Applicants note that SBC has a strong tradition of community support, community service, and corporate philanthropy, which it states it "continue well into the future."174 The Applicants state further that an agreement reached with Greenlining ("Greenlining Agreement") and LIF further demonstrates the Applicants' commitment to the community. The Applicants note that under the Greenlining Agreement, they will:
· Participate in the creation of a statewide Broadband Task Force
· Increase corporate philanthropy over the next 5 years by an additional $47 million above current levels, with a good faith goal of giving 60% of the new incremental dollars in California either to underserved communities or to non-profit organizations whose primary mission is to serve underserved communities, minorities and the poor.
· Make a good faith effort to increase the supplier diversity goal for minority business enterprises from 25% in 2006 to 27% in 2010.
· Continue to provide in-language services to non-English speaking customers.
· Maintain current rates for primary line basic residential service and continue to support the Commission's State and Federal Universal Service Lifeline programs to ensure the availability of affordable service to low income customers, including working to overcome language barriers that impede higher subscription rates.
· Extend the California Disability Advisory Group until December 31, 2009 and expand it.
Greenlining supports the Greenlining Agreement, and urges that the Greenlining Agreement be considered in the Commission's determination of whether the transaction meets the public interest standard of § 854.
LIF also supports the Greenlining Agreement and urges the Commission to approve it and the pending merger,175 arguing that they "promote sound public policy and meet the § 854 benefits tests."176 To buttress this position, LIF cites demographic evidence that it states "dictates that a significant part of § 854 benefits should be directed at low-income communities"177 and evidence of the so-called "digital divide" that demonstrates a need for the initiatives contained in the Greenlining Agreement.178 Finally, LIF cites prior Commission decisions as precedents for adoption of the Agreement.179
ORA, in contrast, argues that the transaction will have a negative effect on the California economy, primarily because of anticipated job cuts resulting from the consolidation of the two companies.180 ORA argues that the Greenlining Agreement is "procedurally defective"181 under Rule. 51.1(b) of the Commission's Rules of Practice and Procedure because it is a settlement and the cited Rule requires settling parties to give other parties notice and an opportunity to comment on any proposed settlement"182
TURN argues that the Applicants have failed to meet a reasonable burden of proof that the proposed [merger] will not harm the state and local economies in California. TURN agrees with ORA that the Greenlining Agreement requires a noticed conference under Rule 51.1(b) and states that the Commission should defer action on the Agreement.183
We find that the transaction will benefit Californians particularly in light of the Greenlining Agreement among SBC, Greenlining and LIF.
Pub. Util. Code § 709 identifies access to advanced telecommunications service as a key public policy objective 184. Several parties to the proceeding identified enhanced access to high speed Internet ("broadband") and advanced telecommunications services as a primary benefit to consumers embodied in this transaction. Applicants state that the merger will "result in increased innovation, lead to more rapid introduction of new services and prompt the development of services that would not otherwise exist."185
Greenlining and LIF and their respective affiliates intervened in the instant Application proceeding primarily for the purpose of ensuring that underserved communities receive benefits as a result of the proposed change of control between SBC and AT&T and to ensure that the merger is not adverse to the public interest.
As described above, on September 6, 2005, Greenlining, LIF and SBC California entered into the Greenlining Agreement that includes a five-year commitment by SBC California to continue to be a leader in serving underserved communities with a focus, among other things, on bridging the digital divide. As part of the Greenlining Agreement, SBC California commits to more than double its charitable contributions in the categories "SBC Foundation" and "Corporate Contributions" from $6.6 million a year to $15 million a year for two years and increased to $20 million for three years thereafter following the close of SBC's merger with AT&T. Based on AT&T's contributions of approximately $2 million per year, this results in a combined total increase of $47 million over the five year period. SBC has also agreed to a good faith goal of giving at least 60% of the new incremental dollars in charitable contributions in California over the next 5 years to underserved communities or to nonprofit organizations whose primary mission is to serve underserved communities, minorities and the poor. Specifically, SBC has committed to address issues of "digital divide" in underserved communities.
California Emerging Technology Fund (CETF)
As part of applicants' commitment to ensure that this transaction is beneficial on an overall basis; to enhance the Broadband Connectivity section of the Greenlining Agreement, and to ensure that this transaction is consistent with statutory objectives to make advanced telecommunications services available to underserved communities, we order that applicants commit $9 million per year for 5 years in charitable contributions ($45 million total), to a non-profit corporation, the California Emerging Technology Fund (CETF), to be established by the Commission for the purpose of achieving ubiquitous access to broadband and advanced services in California, particularly in underserved communities, through the use of emerging technologies by 2010. No more than half of Applicant's total commitment of $45 million to the CETF may be counted toward satisfaction of the Greenlining Agreement to increase charitable contributions by $47 million over 5 years.
The CETF will be organized under the Nonprofit Public Benefit Corporation Law for charitable and public purposes as a nonprofit public benefit corporation, and not organized for the private gain of any person or entity.
In addition to the goal of providing ubiquitous access to broadband and advanced services in California, the CETF should also have the goals should be expanded to include adoption and usage. We note that the Greenlining Agreement and SB 909, proposed legislation sponsored by Senator Escutia, included these components in the broader vision for addressing the Digital Divide and believe that we should do so as well.186
Consistent with the diverse needs of California's low income, ethnically diverse, rural and disabled communities, the members of the Governing Board should have a broad array of backgrounds, experiences and expertise. SB 909 proposed the establishment of a California Broadband Access Council, and we will use this as a guide in constituting the Governing Board of CETF.187
The governing board of the CETF will be composed as follows: The Commission will select four appointees. Assuming that this proposal is also adopted in the pending Verizon and MCI proceeding, SBC shall nominate three appointees and Verizon shall nominate one appointee. We encourage SBC to appoint members with a diverse set of skills, backgrounds, and strengths. Therefore, SBC can appoint no more than one SBC employee among its three appointees.
These eight appointees shall determine the remaining four appointees to the governing board. We encourage the board to make the final four appointments based upon the goal of making broadband as ubiquitous as possible in California.
The Commission will bring together representatives of this Commission, authors of the Broadband Task Force concept and the Broadband Access Council proposal, and CETF to work collaboratively from the outset to maximize effectiveness. In order to facilitate implementation of this program, our Telecommunications Division will assist in the logistics of collecting the names of the appointees and arranging the initial meeting. The Applicants should forward the list of appointees and their availability to the Director of the Telecommunications Division. There is no additional role for the Telecommunications Division after the initial meeting occurs.
Funds dedicated to the CETF will be used to attract matching funds in like amounts from other non-profit public benefit corporations, corporate entities or government agencies. It is anticipated that initial funding provided by the applicants in this proceeding ($45 million) will be combined with funds from other sources for a total initial endowment for the CETF of $60 million over 5 years. It is further anticipated that a majority of CETF funds will be matched by other private, non-profit, or government entities for specific projects to reach a total goal of at least $100 million in funding over 5 years.
The CETF should earmark at least $5 million to fund telemedicine applications that serve California's underserved communities, particularly those that serve rural areas of the state or serve a large number of indigent patients. Grants for telemedicine applications may be made directly to health care providers that operate under a not-for-profit structure or not-for-profit public charities that provide telecommunications or technology grants. Such grants shall be used to provide telemedicine applications for the direct benefit of underserved communities and may not be used for policy advocacy work in any area including telecommunications or health care policy. Consistent with the federal telemedicine program, the funds earmarked for telemedicine applications should not be used to construct broadband transmission facilities outside of the consumer's premise, although the CETF may fund such investments with other funds.
The Articles of Incorporation, Bylaws and Charter for the CETF will be established by the governing board. The Charter will specify that the purpose of the CETF is to fund deployment of broadband facilities and advanced services to underserved communities. "Underserved communities" is defined as communities with access to no more than two broadband service providers, including satellite, or broadband adoption rates below a statewide average. Communities with below average broadband adoption rates primarily include: low-income households, ethnic minority communities, disabled citizens, seniors, small businesses and rural or high-cost geographic areas.
The CETF will form advisory groups on deployment of broadband facilities and access to critical advanced services, such as online education and telemedicine, in rural and high-cost areas. The CETF will work with these advisory groups as well as organizations and agencies such as, the California Telemedicine and eHealth Center (CTEC), the Corporation for Education Network Initiatives in California (CENIC), the California Business and Transportation Agency (BTH), the Broadband Institute of California, Greenlining Institute, and other organizations representing underserved, minority or disabled communities, to identify ways in which the CETF can coordinate and fund projects to link primary care health clinics and educational facilities in rural and high-cost areas to high-speed broadband networks, and promote economic development in underserved communities.
It is the intent of this Commission that broadband facilities funded by the CETF will be owned and operated by private corporations, non-governmental organizations (such as universities or health facilities) and/or local governments, or some public-private partnerships involving a combination of these entities, and not owned and operated by the CETF. Any remuneration for CETF facilities transferred to other entities will be returned to the CETF fund for use in future projects.
In D. 03-12-035, the Commission established a similar fund as part of the PG&E bankruptcy reorganization plan. The California Clean Energy Fund, a non-profit public benefit corporation, was established by the Commission for the purpose of supporting research and investment in clean energy technologies in California.
Broadband Expansion
Numerous commenters at the Public Participation Hearings articulated concerns that, absent conditions set by the CPUC, the merger will not benefit underserved communities in California. Commenter Pedro Amorrquin, representing a San Francisco non-profit community program stated that to ensure this transaction is not adverse to the public interest, "SBC must protect the interests of the disadvantaged with low priced Internet access and make the technology available to all communities."188 Commenter Van Lam from Fresno stated that underserved communities "want more dollars after the merger to help reduce the `digital divide.'"189
In response to these and other concerns expressed at the Public Participation Hearings, and to ensure that this transaction is beneficial on an overall basis and meets the objectives of § 709 to assist in bridging the `digital divide,' we find that SBC should commit to continue its deployment of Broadband Internet Access in rural and underserved communities until at least 95% of all homes within its current footprint are provided with Broadband Internet Access capability. We order SBC to submit an annual report to this Commission until December 31, 2010 or as soon as this objective is reached, whichever occurs first, on the progress toward meeting this objective.
Low-Income Families, Small and Minority Businesses, Senior and Disabled Citizens
Public commenters also expressed concerns that the combined company will focus its technology investments in affluent areas, and not maintain its commitment to assist low-income communities, small and minority-owned businesses, seniors and the disabled community in the wake of the merger.
Several commenters at the PPH expressed concern that the merger will result in the underserved communities [rural, low income and ethnic], non-profit organizations and the disabled being forgotten.
· "My main concern is that the company will only deploy the newest advanced network to high-end users allowing for added advantages and opportunities to a privileged few. And that underserved rural communities will not be offered the same technological capacities."190
· "I am here tonight to speak about the issues facing persons with developmental disabilities and our concerns about the merger of SBC and AT&T and to urge the Commission to ensure that people with developmental disabilities not be left behind as a result of this merger."191
· "We want to make sure that any merger should result in an intense investment to underrepresented and underserved communities, particularly low-income and ethnic minority communities."192
· "I think it will be good if they make a foundation to fund urban kids in California to be updated with technology and stuff, because I think that decision will be -- help them in the future, because we will all grow into technology and nobody will be left behind."193
In response to these concerns, and to ensure that this transaction is beneficial on an overall basis to the communities served, SBC should commit to maintain its current efforts to provide technology training and assistance to underserved communities, and develop specific initiatives to enhance technology training for low-income families, seniors, disabled persons, and small, minority and rural businesses in conjunction with community-based organizations. As a condition of approval for this transaction, we order SBC to file an Advice Letter with the Commission outlining specific initiatives to address these issues no later than 30 days after the close of the merger with AT&T.
In summary, we find that SBC's commitments as described herein, in conjunction with the commitments contained in the Agreement among Greenlining, LIF and SBC California, ensure that this transaction is beneficial on an overall basis to state and local economies and not adverse to the public interest.
Finally, we find little merit in the procedural and substantive objections of TURN and ORA. First, we do not deem the Greenlining Agreement to be a "Settlement" governed by Rule 51. Rule 51(c) defines a "Settlement" as "an agreement...on a mutually accepted outcome to a Commission proceeding." An outcome to the proceeding would be a decision to approve or deny the application.
The Greenlining Agreement constitutes little more than a common position by certain parties and their experts that offers an appropriate way to address issues of specific concern to California communities, including those issues known as the "digital divide" issues.
Moreover, as noted above, we have used our oversight to amend and augment the Greenlining Agreement to specifically address issues relating to the digital divide and this Commission's obligation pursuant to §709 in the context of the merger. Thus, not only is the Greenlining Agreement not a "Settlement" within the meaning of Rule 51, we have not given it the deference reserved for a Settlement. We have treated it for what it is - an agreement among parties and their experts as to the specific benefits that will accrue to underserved communities resulting from this transaction.
7.4. Will the Proposed Merger of the Parent Companies and Change of Control Preserve the Jurisdiction of the Commission and its Capacity to Effectively Regulate and Audit Public Utility Operations in California?
Section 854(c)(7) requires that the Commission consider whether the change of control preserves the jurisdiction of the Commission and its capacity "to effectively regulate and audit public utility operations in the state."194
Applicants state that because the transaction will not alter the legal status of any presently regulated California subsidiaries of SBC or AT&T, the Commission's ability to regulate those subsidiaries will not be impaired, compromised, or altered in any respect. Applicants state that all regulated subsidiaries of both companies will continue to be subject to all the terms and conditions that the Commission has previously imposed.195 The merger will thus have no impact on either the Commission's jurisdiction or its ability to effectively regulate the combined company's public utility operations in California.
Several parties raise questions concerning the jurisdiction and capacity of the Commission to continue to regulate the California subsidiaries of SBC and AT&T following the merger. ORA states that "ORA and other parties have presented testimony showing that this transaction will diminish the authority and jurisdiction of the Commission"196 In addition, ORA argues that the disappearance of AT&T, as a well funded pro-competitive voice, may adversely affect this Commission's proceedings.197 TURN argues that the Commission should impose various monitoring requirements, claims that the regulatory task of auditing will become more complex following the merger, and proposes that the Applicants fund two $1 million audits post merger.198 TURN further argues that the merger will complicate discovery processes.199
7.4.2. Discussion: Transaction Will not Diminish Jurisdiction of Commission or its Capacity to Regulate and Audit Utility Operations in California.
We find that the transaction will not diminish the jurisdiction of the Commission or its capacity to regulate and audit utility operations in California. First, we note that nothing in this transaction in anyway affects the jurisdictional authority of this Commission.
Second, the allegations by TURN and ORA that the merger will decrease the Commission's regulatory capacity are in error. Monitoring the compliance of the merged company with applicable laws and regulations will certainly require no more Commission resources than monitoring the separate companies and probably will require fewer such resources because fewer separate proceedings will be initiated.
Similarly, concerning audits, TURN and ORA fail to acknowledge that as competition emerges audits play a less central role in the exercise of regulatory oversight. For example, we note that the complex audit issues discussed in the D.04-02-063 and D.04-09-061, albeit leading to a series of regulatory adjustments, had no impact on the rates that SBC charged. Thus, even as corporate structures have become more complex, the ability of the Commission to exercise regulatory oversight has improved with regulatory structures more attuned to the competitive environment. In particular, the level of audit oversight needed to regulate companies subject to market competition is very different than that needed to review a company which uses regulatory authority to pass all incurred costs on to ratepayers who have no choice of service provider.
130 As noted earlier, § 854(c)(8) enables the Commission "Provide mitigation measures to address significant adverse consequences that may result." Since this does not create a standard of review, but provides authority to impose mitigation measures, we will not address this section explicitly here. Instead, we will use the authority to propose any needed mitigation measures in conjunction with our review of criteria 1 through 7. In addition, we will also explicitly address § 854(c)(8) in section 8 (below) in conjunction with our § 854(d) analysis, which gives us the authority to consider "reasonable options" offered by other parties.
131 Joint Applicants' Opening Brief, p. 21, Exhibit 43
132 Joint Applicants' Application, p. 2.
133 Joint Applicants' Opening Brief, p. 16.
134 Joint Applicants' Reply Brief, p. 54.
135 Joint Applicants' Application, p. 29-30
136 Joint Applicants' Application, p. 25.
137 ORA, Opening Brief, p. 76.
138 ORA, Opening Brief, p. 77.
139 ORA, Opening Brief, p. 62, Exhibit 12C
140 ORA, Opening Brief, p. 94.
141 Id.
142 TURN, Opening Brief, p. 114.
143 Joint Applicants Reply Brief, p. 54.
144 Joint Applicants Application, p. 30.
145 Joint Applicant's Opening Brief, p. 16.
146 Joint Applicant's Opening Brief, p. 17
147 Id.
148 Joint Applicants' Opening Brief, p. 24-25.
149 Murray Reply Testimony, p. 127-128.
150 ORA Opening Brief, p. 87.
151 ORA Opening Brief, p. 95.
152 DRA Opening Brief, p. 6.
153 DRA Opening Brief, p. 9
154 DRA Opening Brief, p. 2.
155 DRA Opening Brief, p. 3
156 Kahan Opening Testimony, p. 22.
157 SBC/ATT Joint Application, pg. 33.
158 Id.
159 Id.
160 SBC/ATT Joint Application, pg. 34.
161 SBC/ATT Reply Brief, pg. 58.
162 Id.
163 ORA Opening Brief, p. 95.
164 ORA Opening Brief, p. 87.
165 ORA Opening Brief, p. 88.
166 TURN, Opening Brief, p. 115.
167 Id.
168 SBC/ATT Joint Reply Brief, p. 11.
169 SBC/ATT Joint Application, p. 33.
170 Kahan (JAs) Ex. 44, p. 24.
171 SBC/ATT Joint Application, p. 33.
172 SBC/ATT Joint Brief, p. 1.
173 D.97-03-067, 1997 Cal. PUC LEXIS 629.
174 Joint Applicants Opening Brief, p. 22.
175 Latino Issues Forum, Opening Brief, p. 1
176 Latino Issues Forum, Opening Brief, p. _4
177 Latino Issues Forum, Opening Brief, p. 5.
178 Exhibit LIF 1 and Exhibit LIF 2.
179 Latino Issues Forum, Opening Brief, 16.
180 ORA, Opening Brief, p. 2.
181 ORA, Reply Brief, p. 33.
182 ORA, Reply Brief, p. 33. Rule 51.1(b) says, in relevant part: "Prior to signing any stipulation or settlement, the settling parties shall convene at least one conference with notice and opportunity to participate provided to all parties for the purpose of discussing stipulations and settlements in a given proceeding."
183 TURN, Reply Brief, p. 47.
184 California Public Utilities Code §709 says in relevant part: "The Legislature hereby finds and declares that the policies for telecommunications in California are as follows: (c) To encourage the development and deployment of new technologies...(d) To assist in bridging the "digital divide" by encouraging expanded access to state-of-the-art technologies for rural, inner city, low income and disabled Californians."
185 Joint Application of SBC Communications, Inc. and AT&T Corp., at 2
186 We understand that without computers and computer literacy neither availability nor access will ensure use. It is low use that is at the heart of the digital divide. CETF should consider the possibility of private/public partnerships to develop community broadband access points that provide both.
187 Consistent with the vision of SB 909, the governing board should consist of representatives of a broad range of interests. In particular, the composition of the governor board should include, to the extent possible consistent with the size limitations of the governing board, representatives of this Commission, the Legislature, SBC-AT&T, Verizon-MCI, Greenlining, Latino Issues Forum, consumer advocates, groups supporting rural economic development (such as the Great Valley Center), the small business community (such as the California Small Business Association), the disability community (such as the World Institute on Disability), computer and equipment manufacturing, high-technology corporations, Broadband Institute of California, California Telemedicine and ehealth Center ("CTEC"), the Corporation for Education Network Initiatives in California ("CENIC"), the California Business, Housing and Transportation Agency ("BTH"), as well as individuals with experience in grant making and non-profit management.
188 Oakland PPH, June 14, 2005.
189 Fresno PPH, June 20, 2005.
190 Fresno PPH, June 20, 2005, Tr. P. 408.
191 Fresno PPH, June 20, 2005, Tr. P. 611.
192 Sacramento PPH, June 15, 2005, Tr. P. 209.
193 Anaheim PPH, June 28, 2005, Tr. P. 673.
194 § 854(c)(7)
195 SBC/AT&T Joint Application, p. 39..
196 ORA Opening Brief, p. 89.
197 ORA Opening Brief, p. 90.
198 TURN Opening Brief, p. 130.
199 Id.
