5. Protest of the Consumer Protection
and Safety Division
On April 10, 2008, the Consumer Protection and Safety Division (CPSD) filed a protest to the Application. ATC filed a reply on May 16, 2008.
CPSD protests ATC's application for reasons relating to alleged lack of full disclosure regarding matters related to the company's fitness to operate a business in California. The issues raised by CPSD are discussed below.
5.1. Failure to Disclose Civil Judgment
Involving Rule Violations
CPSD states that ATC failed to disclose a civil proceeding involving rule violations. In December of 2001, a parent company to the Applicant, American Tower Corporation (American Tower), received a civil judgment against them in an action brought by the District Attorney for the County of Santa Clara, California. The judgment was for record keeping, registration, hazardous materials management and filing violations under California environmental laws. American Tower paid penalties of $150,000, reimbursed the county for more than $25,000 in costs and attorney's fees, and agreed to operate their facilities in the county in compliance with the relevant environmental requirements in the future. According to CPSD, ATC's failure to disclose this sanction against its parent company in the Application may constitute a Rule 1.1.violation.1
ATC agrees that CPSD is correct that Decision (D.) 97-06-107 requires that certain disclosures be made by applicants for interexchange authority. However, ATC contends that CPSD is incorrect that ATC was required to make such disclosures in this instance. ATC argues that both D.97-06-107 and Pub. Util. Code § 1013 relate to the Registration Process that certain competitive wireline carriers are permitted (but not required) to follow in lieu of the more extensive CPCN application process. According to ATC, in this case, since ATC is electing to obtain both facilities-based CLEC authority (which requires a traditional CPCN application), and Non-Dominant Interexchange Carrier (NDIEC) authorization, ATC elected to file for both types of authority via a traditional CPCN application.
ATC says it could locate nothing in the Commission's rules governing CPCN applications that requires disclosure of bankruptcy or prior regulatory sanctions.2 According to ATC, the rules for CPCN applications require (more broadly) that an applicant demonstrate technical, financial and managerial capability to provide telecommunications services in the state and, as required, ATC made such a showing in its application. ATC believes that none of the legal actions involving ATC's parent or affiliates described in CPSD's protest undercuts that showing or detracts from that capability.
ATC also says it has not attempted to keep any of the information alleged in CPSD's Protest secret. ATC points out that this information is contained in the publicly available 10-K annual reports for ATC's ultimate parent entity, American Tower. These documents are posted on American Tower's website, and ATC even submitted portions of its parent American Tower's 2006 10-K with it Application.
5.2. Failure to Disclose a Regulatory Matter
with the Environmental Protection Agency
CPSD states that ATC failed to disclose a 2005 regulatory matter with the Environmental Protection Agency (EPA), where a Facilities Audit Agreement (FAA) was signed between ATC's parent, American Tower, and the EPA in November of 2005. CPSD considers the FAA to be a sanction against ATC's parent company which should have been disclosed under D.97-06-107.
ATC argues that D.97-06-107 does not require such disclosure in a CPCN application because the FAA was a voluntary agreement and does not constitute a "sanction." According to ATC, the FAA is a mutual agreement based on the EPA's policy of voluntary self-policing. The purpose of the FAA is "to enhance protection of human health and the environment by encouraging regulated entities to voluntarily discover, promptly disclose and expeditiously correct violations of Federal environmental requirements." In the event that American Tower discovers any non-compliant locations, the FAA provides that American Tower will pay any specified civil penalties according to the terms of the FAA, even though any payment of penalties does "not constitute an admission of any violation . . . ." In return for ATC's disclosure of any non-compliant locations discovered during the self-audit process, the EPA agreed to "not impose gravity-based penalties . . . if they are disclosed and corrected."3
ATC submits that this EPA regulatory matter has no bearing on ATC's lack of fitness. Rather, according to ATC, that its parent entity has demonstrated that it is willing to conduct a voluntary audit and report itself for failing to comply with certain environmental provisions is telling not only of ATC's parent company's ethics and character, but also of the company's willingness to ensure that ATC likewise abides by California's applicable regulations.
5.3. Failure to Disclose 2003
Bankruptcy of Verestar Inc.
CPSD states that Verestar, an affiliated entity to ATC, filed for bankruptcy in 2003 and some officers of ATC were also affiliated with Verestar at the time of the bankruptcy. CPSD questions whether Verestar is an interexchange carrier (IEC). According to CPSD, if Verestar is an IEC, then applicant would be in violation of Rule 1.1 for failing to disclose the bankruptcy. CPSD notes that D.97-06-107 requires that applicants requesting interexchange authority divulge in their application whether any affiliate, officer, or director held a position with an IEC that filed for bankruptcy.
ATC responds that this requirement of D.97-06-107 does not apply to CPCN applicants who are not electing to use the NDIEC registration form, and even if it did, it is not clear that the disclosure requirement would have been triggered in this instance. ATC states that prior to its integration into SES Americom, Inc., Verestar was a reseller of satellite transponder space capacity and provider of teleport (earth station uplink/downlink) services, whose customers included broadcasters, multi-national corporations, communications companies and government agencies. Verestar held no California State authority, and thus was not an IEC in California. ATC says that it is possible that Verestar was an EX under Federal law, but because it was a distant affiliate and was sold off a number of years ago, ATC has not been able to ascertain its regulatory status.
ATC argues that, in any case, the bankruptcy of Verestar, a distant former affiliate, has no bearing on the Applicant's financial fitness or ability to provide service in California. As noted in its application, ATC will rely, in large part, upon the financial resources of American Tower, a large, financially healthy company. ATC believes it has shown through its submission of audited financial statements that it indeed has the financial resources necessary to provide service.
5.4. Failure to Disclose a Pending 2006
Securities Class Action Lawsuit
CPSD states that a 2006 securities class action lawsuit was filed against ATC's parent, American Tower, in which claims are made that American Tower allegedly violated federal securities laws by issuing a series of material misrepresentations to the market, thereby artificially inflating the price of the company's securities. CPSD also lists another pending investigation.
ATC responds that even if D.97-06-107 did apply in this case, the decision does not require a company to report pending litigation or settlements. According to ATC, the presence of litigation is simply a reality for any large company like American Tower. Moreover, ATC argues that there has been no admission of wrongdoing on American Tower's behalf in the securities matter, and points out that the stipulation agreed to by the parties specifically provides:
"Defendants deny any wrongdoing, fault, liability, violation of law or damage alleged in the Complaint and do not admit or concede any wrongdoing, fault, liability, violation of law or damage in connection with any fact or claims that have been or could have been alleged against them . . . . but consider it desirable for the Action to be settled because the proposed Settlement will (i) bring to an end the substantial expenses, burdens, risks, and uncertainties associated with continued litigation . . . ."
ATC submits that to consider disputed allegations against ATC's parent entity as a criterion of whether to grant ATC's application would be legally unsound and patently unfair.
1 Rule 1.1 of the Commission's Rules of Practice and Procedure provides that any person who transacts business with the Commission agrees never to mislead the Commission or its staff by an artifice or false statement of fact or law.
2 ATC refers to the Commission's Rules of Practice and Procedure, §§ 1-3; also California CLC Application Guidelines, available at http://www.cpuc.ca.gov/PUC/Telco/Information+for+providing+service/clcapps.htm.
3 Incentives for Self-Policing; Discovery, Disclosure, Correction and Prevention of Violations," 65 FR 19, 68 (April 11, 2000).
