5. Discussion

Pub. Util. Code § 854 requires Commission authorization before a company may "merge, acquire, or control...any public utility organized and doing business in this state...." The purpose of this and related sections is to enable the Commission, before any transfer of public utility property is consummated, to review the situation and to take such action, as a condition of the transfer, as the public interest may require. (San Jose Water Co. (1916) 10 CRC 56.)

The proposed merger and transfer of control between World Access and Star promises no detriment to the public interest or to California consumers. No changes in the rates, terms or conditions of service to existing customers of Star are proposed and the transaction appears to be seamless to existing customers. World Access has the financial qualifications and telecommunications background necessary to support the operation of Star and its subsidiaries.

As required by D.97-05-089, we have given this transaction careful scrutiny due to the possible future relationship between the parent corporation in this merger and CTS. Based on the information elicited from the administrative law judge's ruling, we understand that World Access will be the parent corporation of the subsidiary created by this merger (STI Merger Co.). World Access will also be the parent corporation of a subsidiary known as WorldxChange if the Commission approves the merger of World Access and CTS. Applicants claim these two subsidiaries will be operated independently and will have "almost entirely different executive officers, directors, and major shareholders than Communications TeleSystems International has now."² Applicants contend there is no factual, legal, or policy justification to extend the sanctions imposed on CTS to the successor corporation (i.e. WorldxChange), to World Access, or to Star, although applicants acknowledge that three current officers and/or directors of CTS will be affiliated with the parent, World Access.³ Applicants also explain that CTS shareholders (including current and former CTS officers and directors) will receive shares of World Access common stock upon completion of the World Access-CTS merger, but no shareholder will own more than 10% of World Access' capital stock.⁴

The issue we face in this application is whether the merger of World Access and Star creates a "successor entity" to CTS. The applicants argue that the two mergers create separate subsidiaries, STI Merger Co. and Worldxchange. In applicants' opinion, STI Merger Co. is not a successor entity to CTS. We agree that as long as the two newly created subsidiaries are operated and maintained as separate corporations, STI Merger Co. does not appear to qualify as a successor entity to CTS. We find no reason to apply the sanctions from D.97-05-089 to the merger of World Access and Star at this time. Nevertheless, we cannot ignore the planned involvement of current CTS directors and officers in the future operations of STI Merger Co.'s parent, World Access, as board members, "advisors," and shareholders. We will explore issues surrounding the application of sanctions from D.97-05-089 to World Access or to WorldxChange in the merger under review in A.00-05-059. The joint motion of World Access, CTS, and Star on this issue is granted. Furthermore, we ask our Consumer Services Division to alert the Commission immediately should a pattern of complaints emerge concerning World Access or any of its subsidiaries.

The application makes reference to the possible future sale of Star's current subsidiary PT-1. Today's order should not be construed to grant approval to the sale of PT-1 since no buyer is identified for the company in this application and no details of a sale are provided. Rather, we will require a separate filing to review the sale of PT-1 independently in the event the transaction moves forward.

In Resolution ALJ 176-3042, dated July 6, 2000, the Commission preliminarily categorized this proceeding as ratesetting, and preliminarily determined that hearings were not necessary. Based on the record, we conclude that a public hearing is not necessary, nor is it necessary to alter the preliminary determinations in ALJ 176-3042. The application is granted subject to the terms and conditions set forth below.