Conclusions of Law

1. This proceeding is a ratesetting proceeding.

2. The proposed transaction is subject to scrutiny under Pub. Util. Code
§ 854(a).

3. Pursuant to § 854(a), Applicants must demonstrate, by a preponderance of the evidence, that the proposed transaction is, on balance, in the public interest.

4. § 853 (b) grants the Commission the authority to determine that §§ 854 (b) and (c) do not apply to a transaction if application of the subsections is not necessary in the public interest.

5. In order to determine whether the transaction is in the public interest pursuant to § 854(a), it is reasonable for the Commission to assess the public interest factors enumerated in § 854(c) and undertakes an analysis of antitrust and environmental considerations.

6. Applicants have demonstrated that all of the criteria enumerated in

§ 854(c) are satisfied by this transaction.

7. In order to determine if the transaction will have an adverse effect on competition, the sole material question is whether the elimination of AT&T as an independent competitor in any properly defined markets would confer market power on SBC or enhance any market power it currently possesses.

8. The transaction will not cause an adverse effect on competition in the mass market for local exchange telecommunications services.

9. The transaction will not cause an adverse effect on competition in the mass market for long distance telecommunications services.

10. The transaction will not cause an adverse effect on competition in the enterprise market.

11. The transaction will not cause an adverse effect on competition for the provision of special access services, with the adoption of the Attorney General's recommendation for a one-year freeze on rates paid by current AT&T customers receiving DS1 or DS3 private network service.

12. The transaction will not cause an adverse effect on competition in the market for Internet Backbone services.

13. The transaction will not have an adverse effect on competition in any properly defined market and it therefore raises no antitrust concerns.

14. Cross-subsidization is unlikely because SBC California's rates are not set with reference to its costs and because the Commission will continue to enforce affiliate transaction rules.

15. The California Environmental Quality Act (CEQA) requires the Commission to consider the environmental consequences of projects that are subject to the Commission's review and approval.

16. It is reasonable for the Commission to approve this transaction, subject to the conditions proposed herein.

17. It is in the public interest to grant an exemption as provided for in § 853 (b) to allow Applicants to comply with the mandates of the Department of Justice and the Federal Communications Commission without having to file a formal application.