XII. Discussion of § 854(a)

The primary question to be determined in a transfer of control proceeding under § 854(a) is whether the proposed transfer would be adverse to the public interest. Questions relating to public convenience and necessity usually are not relevant to the transfer proceeding because they were determined in the proceeding in which the certificate was granted."7 We have a longstanding Commission policy against the re-litigation of public convenience and necessity issues in transfer applications.8 Thus we carry out our responsibility to insure that our proceedings are not abused by regulated companies as a means to destroy or harass competitors.9

As stated in D.97-07-060,10 our decisions over the years have laid out a number of factors that should be considered in making the determination of whether a transaction is adverse to the public interest. Antitrust considerations are also relevant to our consideration of the public interest.11 In transfer applications we require an applicant to demonstrate that the proposed utility operation will be economically and financially feasible.12 Part of this analysis is a consideration of the price to be paid considering the value to both the seller and buyer.13 We have also considered efficiencies and operating costs savings that should result from the proposed merger.14 Another factor is whether a merger would produce a broader base for financing with more resultant flexibility.15 As noted in Union Water Co. of California:16


"The Commission is primarily concerned with the question of whether or not the transfer of this property from one ownership to another...will serve the best interests of the public. To determine this, consideration must be given to whether or not the proposed transfer will better service conditions, effect economies in expenditures and efficiencies in operation."17

We have also ascertained whether the new owner is experienced, financially responsible, and adequately equipped to continue the business sought to be acquired. 18 We also look to the technical and managerial competence of the acquiring entity to assure customers of the continuance of the kind and quality of service they have experienced in the past.19

As we did in D.97-07-060, we assess the relevant factors under § 854(c) in our analysis of the public interest.20 However, outside the mandates of that statue, consideration of the public interest factors must have some nexus to rates and service in order to pass muster under the doctrine prohibiting our unnecessary intermeddling into management affairs.21 After our assessment of the public interest is made, we may impose any necessary conditions on a transfer.22 Additionally, although we have granted the Applicants an exemption from §§ 854(b) and (c), we may impose conditions we deem necessary under § 853(b).

A review of the financial data from the Applicants disclosed that the transfer of control is economically and financially feasible. This transaction does not involve the issuance of any new debt. As shown in their respective annual reports and Form 10-Ks attached to the application, both entities are financially healthy. With AT&T acquiring control of MediaOne Group's operations, AT&T's family of telecommunications entities under our jurisdiction will have available to itself additional financing options for improving infrastructure and technology in an increasing competitive market.

The Agreement is structured to be a seamless transaction transparent to the telephone customers. Such customers will not face unexpected changes in charges, services provided, or quality of service. After the proposed transaction is completed, the California utilities will continue to offer their local exchange service customers a choice of long distance carriers. The transaction will also enable AT&T to bring facilities-based local exchange competition to customers who have few facilities-based alternatives to their incumbent local telephone provider and to expand its provision of local exchange service in California. Thus, this proposed transaction would have no adverse impact on the quality of service.

The proposed transfer of control will have no immediate impact on management of the California telephone utilities. AT&T previously provided the qualifications and experience of its management to transact intrastate business in California in Exhibit B to Application No. 93-08-035. AT&T's Form 10-K attached to the application as Exhibit E updates the qualification and telecommunications experience of its officers and managers.

Following the proposed transfer of control, the California utilities would continue to be led by a team of qualified telecommunications managers. The combining of experienced managers of both entities, would enable AT&T to maintain and improve the quality of its management of its California telecommunications utilities. Hence, the criterion of quality of management of the resulting utility doing business in California is satisfied.

The proposed transaction will not have any impact on the affected utility employees. It involves only a change in the underlying ownership of the facilities. Applicants do not anticipate any overall employee reductions in the California public utility work force or any change in the union status of these employees. And, although AT&T is not required to continue the employment of any specific person or continue any specific employee plan or benefit arrangement, it is committed to honoring the terms of all MediaOne Group's employee plans and benefit arrangements. As substantiated in the Agreement, the proposed transaction is fair and reasonable to the affected utility employees.

The ultimate shareholders of the affected California telecommunications entities are the parent companies and Applicants. AT&T and MediaOne Group have sophisticated and experienced financial managers who have determined the proposed transaction is fair and reasonable. This judgement determination has been affirmed by the opinions of investment bankers for the principals to this transaction.

Under the Agreement, MediaOne Group's shareholders will receive 0.95 shares of AT&T Common Stock and $30.85 in cash for each share of MediaOne Group representing an interest in both its California utility operations and its other operations. The cash portion of this transaction is subject to an upward adjustment to offset any decline of up to 10% from AT&T's closing price of $57 per share on April 21st, to maintain an $85 per share value to MediaOne Group shareholders. To the extent that any of MediaOne Group shareholder's dissent, that shareholder may request an appraisal of the holder's shares in accordance with Delaware law.

Based on a review of MediaOne Group's 1998 Form 10-K and the Agreement, we find that shareholders of the California utilities being transferred to AT&T are receiving a very reasonable price for the California utility operations.

AT&T's proposed acquisition of the California telecommunications utilities will enable AT&T to expand and accelerate its ability to compete with local exchange carriers in residential local exchange markets where MediaOne Group does business. It will also provide increased competition in the California market for telecommunications services. This competition will bring to California customers a broad range of telecommunications service benefits through competition among facilities-based local exchange carriers.

The coordination of financial resources, complementary managerial skills, network facilities and market capabilities of AT&T and MediaOne Group will also enhance AT&T's ability to provide telecommunications services to a broad range of customers in California. With this ability to enhance competition within the California telecommunications market comes the ability to develop new and expanded telecommunications services, a benefit to the state and local economies.

Approval of this change in control will have no adverse impact on the Commission's jurisdiction over AT&T's current telecommunications companies under our jurisdiction, or over MediaOne Telecom and TWT-California being acquired from MediaOne Group. The California telecommunications utilities are all nondominant carriers. Each of the California utilities subject to this application are currently under our jurisdiction and will continue to be under our jurisdiction. Hence, the proposed transaction would not affect the Commission's ability to effectively regulate and audit the California public utility operations.

The final aspect of the public interest determination we must make under § 854(a) is whether the proposed transaction raises any antitrust concerns. 23


      "By considering antitrust issues, the Commission merely carries out its legislative mandate to determine whether the public convenience and necessity require a proposed development. That task does not impinge upon the jurisdiction of the federal courts in federal antitrust cases. The Commission may approve projects even though they would otherwise violate the antitrust laws; it may also disprove projects that do not violate such laws. Its consideration of antitrust problems is for purposes quite different from those of the courts; it does not usurp their function."24

Although Applicants represent that the proposed transaction does not raise any antitrust concerns, both TURN and GTE contend that approval of the transaction, as requested, will inflict anticompetitive harm on California consumers, competitors, and other providers of Internet content and applications. The Protestants also contend that approval of the transaction is contrary to the public interest because it will allow AT&T to dominate the broadband Internet service market. The Protestants assert that this anticompetitive issue must be resolved prior to any approval of the proposed transaction.

Applicants counter that broadband Internet service is not part of this application. Applicants represent that they only seek approval for a change in control of MediaOne Telecom and, if found necessary, a minority interest in TWT. They also explain that AT&T and MediaOne Group taken together provide only a small fraction of residential local exchange and exchange access services in California. This is because all of the relevant service areas are dominated by incumbent local exchange carriers that have more than 90% of the customers and revenue where AT&T or MediaOne Group provide local telephone service. Furthermore, there is no location in California where both AT&T and MediaOne Group provide residential local telephone service.

Applicants conclude that approval of the proposed transaction would promote competition in the provision of local residential telephone service in areas where MediaOne Group has existing network infrastructure.

We do not have before us a request to approve any change in control of broadband, cable, or Internet services. Even if such a request were made, we have no authority to address a change in control of broadband, cable or Internet services. The Cable Act prohibits the regulation of a cable system as a common carrier or utility by reason of providing any cable services.25 Further, no part of the Cable Act authorizes us to dictate who the providers of Internet services should be over the cable systems.

Our concern in this application is the telecommunications markets over which we have jurisdiction. In those markets, no valid issue has been raised about adverse impacts flowing from the acquisition of MediaOne Telecom or the minority interest of TWT.

Protestants' concern about the acquisition's effect on the broadband, cable, and Internet markets involve issues outside our jurisdiction. Although TURN acknowledged the fact, its protest nevertheless requests that we act because:


      "... it is entirely possible that the California Public Utilities Commission (CPUC) will soon be able to exercise jurisdiction over Internet access provided over cable networks and that it will become a duty of this Commission to ensure that this market is developing in a fashion that best meets California's goals of promoting lower prices and the `ubiquitous availability of a wide choice of state-of-the-art services.'"

We have previously considered and concluded on several occasions that we have no jurisdiction to address or condition the use of broadband, cable, and Internet access. In D.98-10-058,26 we concluded that we should not impose an obligation to provide access to telecommunications carriers upon the cable companies because cable companies are not public utilities as defined in § 216(a), and that our jurisdiction is limited to the regulation of public utilities.

We considered and concluded in D.98-08-06827 that Internet services are offered in an arena unregulated by this Commission or any other State or Federal regulatory body. Subsequently, in D.99-03-01928 we again concluded that Internet services are offered in an arena unregulated by this Commission or any other State or Federal regulatory body. We also concluded that we await whatever action the Federal Communications Commission, local cable authorities and the courts may ultimately take in connection with it. We decline to impose and exercise our jurisdiction on those entities on the basis that we may soon be given authority to regulate Internet access provided over cable networks. Should the time come that Internet access over cable networks becomes a part of our jurisdiction, we will take the appropriate steps29 to assess whether anticompetitive matters exist and, if so, resolve those anticompetitive matters to protect the public interest.

Our task in this application is to balance the benefits of this merger against any anticompetitive effects of the MediaOne Telecom and minority interest in TWT merger, and to determine whether the benefits outweigh the anticompetitive effects to make this merger consistent with the public interest.30 In so doing, we are not strictly bound by the dictates of the antitrust laws. We can approve actions that violate antitrust policies when other economic, social, or political considerations are found to be of overriding importance.31 We need not choose another course of action if our proposed course has anti-competitive effects, as long as our course of action is in the public interest.32 Consistent with this identified task we conclude that the proposed transaction does not raise any antitrust or anticompetitive issues requiring our intervention and that the proposed transaction is in the public interest because it will bring more facilities-based competition to the local business market in California.

7 M. Lee (Radio Paging Co.), 65 CPUC 635, 637 (1966). 8 BellSouth Corporation, D.86-12-090, [23 CPUC2d 82] (1996). 9 Id. 10 MCI Communications Corporation and British Telecommunications change in control application. 11 M. Lee (Radio Paging Co.), 65 CPUC at 637, n.1. 12 R. L. Mohr (Advanced Electronics), 69 CPUC 275, 277 (1969). See also, Santa Barbara Cellular, Inc. 32 CPUC2d 478 (1989). 13 Union Water Co. of California, 19CRRC 199, 202 (1920). 14 Southern Counties Gas Co. of California, 70 CPUC 836, 837 (1970). 15 Southern California Gas Co. of California, 74 CPUC 30, 50, modified on other grounds, 74 CPUC 259 (1972). 16 19 CRRC 199, 202 (1920). 17 Id. 18 City Transfer and Storage Co., 46 CRRC 5, 7 (1945). 19 Communications Industries, Inc. 13 CPUC2d 595, 598 (1993). 20 The Public interest factors enumerated under this code section are whether the merger will: (1) maintain or improve the financial condition of the resulting public utility doing business in California; (2) maintain or improve the quality of service to California ratepayers; (3) maintain or improve the quality of management of the resulting utility doing business in California; (4) be fair and reasonable to the affected utility employees; (5) be fair and reasonable to a majority of the utility shareholders; (6) be beneficial on an overall basis to state and local economies and communities in the area served by the resulting public utility; and (7) preserve the jurisdiction of the Commission and our capacity to effectively regulate and audit public utility operations in California. 21 See, Stepak v. AT&T, 186 Cal.App.3rd 636, (1986) and Pacific Telephone & Telegraph Co. v. Public Utilities Commission, 34 Cal.2d 282 (1950). 22 Outingdale Water Co., 70 CPUC 639, 640-41, (1970). 23 RE: Northern California Power Agency v. Public Utilities Commission, 5 Cal.3d 370, 379 (1971). 24 Id, at 378. 25 47 U.S.C. § 541 (c). 26 RE: Investigation into Competition for Local Exchange Service, I.95-04-044, (1995). 27 RE: WorldCom and MCI, 1998 Cal PUC LEXIS 912. 28 RE: AT&T-TCI, 1999 Cal PUC LEXIS 382. 29 For example issue a Rulemaking, Investigation or other form of generic proceeding. 30 Pacific Southwest Airlines, 75 CPUC 1, 19 (1973). 31 SCEcorp, 40 CPUC2d at 179 (1991). 32 Pacific Gas & Electric Co. D.93-02-018, [48 CPUC2d 162] (1993).

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