3. The Corporate Entities and the Financial Transaction

The primary corporate entities involved in this financial transaction are Verizon and MCI. The financial transaction is one that places MCI under the control of Verizon.

3.1. Verizon

Verizon is a corporation created and existing under the laws of the State of Delaware.⁹ Verizon directly or indirectly owns telephone operating companies that provide telecommunications services on a regulated and unregulated basis in 29 states, Puerto Rico and the District of Columbia, serving 53 million access lines. Although Verizon provides no services and is not a regulated telephone company within California or elsewhere, Verizon's local telephone subsidiaries are subject to public utility regulation in the jurisdictions in which they operate. They are also subject to regulation by the Federal Communications Commission (FCC) for the services they provide pursuant to federal tariffs and the Federal Communications Act of 1934.

Verizon California Inc. provides regulated telecommunications services, primarily in southern California. Another entity, Verizon West Coast Inc., provides regulated telecommunications services to a small number of customers near the Oregon border. Other Verizon corporate entities provide long distance service throughout California, as well as local private line and other competitive services to customers, including multi-dwelling unit customers. Verizon Wireless provides wireless voice and data services in California, across the United States and internationally. Stressing diversity and a commitment to the communities in which it operates, Verizon has a highly diverse national workforce of 210,000 employees, including approximately 18,000 employees in California. Verizon has a strong balance sheet and investment-grade credit rating and is a stable, viable enterprise.

3.2. MCI

MCI is a corporation created and existing under the laws of the State of Delaware.¹⁰ MCI's subsidiaries provide telecommunications services on a regulated and unregulated basis throughout the United States and in several foreign countries. They provide services to business and government customers, including 75 federal government agencies. MCI is also a significant provider of services to the State of California. Among the enterprise services MCI provides through its subsidiaries are a comprehensive portfolio of local-to-global business, Internet, and voice services, including Internet Protocol (IP) network technology, Virtual Private Networking, synchronous optical network (SONET) private line, frame relay, ATM and a full range of dedicated, dial and value-added Internet services. MCI's subsidiaries also provide mass market services, including interstate long distance services, intrastate toll services, competitive local exchange services, and other communications services. Although MCI is not a regulated telephone company within California or elsewhere, some of MCI's subsidiaries are deemed public utilities in the jurisdictions in which they operate. MCI's subsidiaries are also subject to regulation by the FCC with respect to interstate services.

Several of MCI's operating subsidiaries are certificated to provide services in California. MCIMetro Access Transmission Services LLC (MCIMetro) is licensed by the Commission and provides local and long distance services in the State. MCI WorldCom Communications, Inc. (MWC) and MCI WorldCom Network Services, Inc. (MWNS) both provide long-distance services. Teleconnect Long Distance Services and Systems Co. (Telecom*USA) and TTI National, Inc. (TTI) also provide interexchange services. Another subsidiary, SkyTel Corp. d/b/a SkyTel Communications, Inc. (SkyTel) provides various wireless messaging services. Collectively, these certificated entities operating in California are referred to as the MCI "California Subsidiaries."¹¹

3.3. Description of Financial Transaction Transferring Control

The proposed transaction involves a merger of Verizon and MCI, the parent holding companies, as a result of which MCI will become a subsidiary of Verizon. The MCI California Subsidiaries will remain subsidiaries of MCI, and the authorizations and licenses currently held by those MCI California Subsidiaries will continue to be held by the respective entities.

The specific terms of the transaction are set forth in the Agreement and Plan of Merger between Verizon and MCI as approved by the boards of directors of both companies on February 14, 2005 (Agreement) as amended on March 29, 2005 (Amendment).¹² Under the Agreement as amended, MCI's shareholders will receive for each share of MCI common stock (i) Verizon common stock equal to the greater of 0.5743 shares or the quotient obtained by dividing $20.40 by the Average Parent Stock Price (as defined in the Agreement); and (ii) a special dividend in the amount of $5.60 per share, less the per share amount of any dividends declared by MCI between February 14, 2005 and the consummation of the transaction.

The Agreement does not call for the merger of any assets, operations, lines, plants, franchises, or permits of the MCI California Subsidiaries with the assets, operations, lines, plants, franchises, or permits of any Verizon entity.¹³ To the extent that any such reorganization might be made at a later date, it will be made in the normal course of business and subject to such regulatory approvals as may be required. Similarly, the Agreement does not call for any change in the rates, terms, or conditions for the provision of any communications services provided in California. Applicants acknowledge that to the extent any such changes might be made at a later date, they too will be subject to such regulatory approvals as may be required.

The Applicants state that the transaction will not affect the regulatory authority of the Commission over any of Verizon's regulated subsidiaries or over the MCI California Subsidiaries. Verizon's subsidiaries and the MCI California Subsidiaries will continue to meet all of their obligations and commitments under the Commission's rules, regulations, and orders.¹⁴

⁹ See Exhibit Verizon/MCI 3 for description.

¹⁰ The description of MCI and its business and subsidiaries in base on Ex. Verizon/MCI 4.

¹¹ Four other subsidiaries were recently decertified in California. These include include: Teleconnect Company; Nationwide Cellular Service, Inc.; Choice Communications, Inc. d/b/a WorldCom Wireless, Inc.' and Nationwide Cellular Services, Inc. d/b/a MCI Wireless, Inc.

¹² The Agreement is identified as Ex. Verizon/MCI 1 and the Amendment as Ex. Verizon/MCI 2.

¹³ Ex. Verizon/MCI 3, ¶¶ 14-15

¹⁴ Id.