4. Jurisdiction and Scope of Proceeding

The scope of this proceeding is governed by Pub. Util. Code §§ 851-856.

4.1. § 854(a) Applies to This Transaction

Pub. Util. Code § 854(a) specifies that "[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from this Commission. The Commission may establish by order or rule the definitions of what constitute merger, acquisition, or control activities that are subject to this section of the statute."¹⁵

In the Scoping Memo, the Assigned Commissioner directed the Applicants to continue to provide all the information they believed necessary and appropriate to demonstrate compliance with all of the provisions of Pub. Util. Code §§ 854(a), (b) and (c) to ensure that there would be no unnecessary delay in processing of the application. There is no dispute as to the applicability of

§ 854(a) to this transaction.

4.2. Application of §§ 854(b) and (c) to This Transaction

The plain language of § 853(b), prior Commission decisions, and legislative history guide our application of §§ 854(b) and (c) to this transaction.

4.2.1. The plain language of § 853(b) affords the Commission significant discretion in determining whether to apply § 854 (b) and (c).

Pub. Util. Code § 854(b) states:

Before authorizing the merger, acquisition, or control of any electric, gas, or telephone utility organized and doing business in this state, where any of the utilities that are parties to the proposed transaction has gross annual California revenues exceeding five hundred million dollars ($500,000,000), the commission shall find that the proposal does all of the following:

(1) Provides short-term and long-term economic benefits to ratepayers.

(2) Equitably allocates, where the commission has ratemaking authority, the total short-term and long-term forecasted economic benefits, as determined by the commission, of the proposed merger, acquisition, or control, between shareholders and ratepayers. Ratepayers shall receive not less than 50 percent of those benefits.

(3) Not adversely affect competition. In making this finding, the commission shall request an advisory opinion from the Attorney General regarding whether competition will be adversely affected and what mitigation measures could be adopted to avoid this result.¹⁶

Pub. Util. Code § 854(c) further instructs the Commission to review eight enumerated factors and to determine if "on balance, that the merger, acquisition, or control proposal is in the public interest."¹⁷ The § 854(c) inquiry only applies to transactions where any utility that is a party to the transaction has gross annual California revenues exceeding $500 million.¹⁸

The Commission, however, has "the authority to exempt a utility from...[§] 854 if we find the public interest does not require that we apply them."¹⁹ Public Util. Code § 853(b) provides that the "commission may from time to time by order or rule...exempt any public utility...from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest."²⁰ While it is not clear that the plain language of § 854(b) applies to this transaction, the text of § 853(b) establishes that an exemption may apply to transactions of any scale, so long as application of §§ 854(b) and (c) "is not necessary in the public interest."

4.2.2. Prior Commission decisions recognize our broad power to exempt mergers from review under §§ 854(b) and (c).

Many past Commission decisions affirm our ability to exercise substantial discretion in deciding whether to subject a transaction to § 854 scrutiny. In examining the plain language of § 853(b) in the British Telecom-MCI merger, we held that the statute grants us sweeping authority: "the extent of our broad exemptive powers in § 853(b) is clear on the face of that statute."²¹ Later, in the AT&T-TCI merger, we reiterated that § 853(b) "confer[s] broad discretion upon us to determine whether...§§ 854(b) and (c) should apply to a particular merger."²²

Given this broad discretion, we have granted exemption from §§ 854(b) and (c) in many proceedings before the Commission.²³ Our review of proposed mergers covers i) specific characteristics of the merger applicants; ii) the state of and the impact on the market as a whole; and iii) the likelihood that competitive pressures and our regulatory regime will cause benefits achieved through the combination to flow through to consumers. In considering these factors, our past decisions have been tailored to the specific transactions before the Commission and consistent with our determination that the waiver statute "give[s] us discretion to decide on a case-by-case basis whether waiver is appropriate."²⁴

One such case where we decided it was not necessary to apply §§ 854(b) and (c) was the British Telecom-MCI merger.²⁵ There we observed that the transaction did not involve putting together two traditionally regulated telephone systems. Also we examined elements that explicitly referred only to the transferred entity. We concluded that we did not exercise the type of ratemaking authority that would facilitate an allocation of the merger benefits as contemplated under § 854(b), and we found that the acquired company grew under competitive forces at the sole risk of it shareholders. For these reasons we decided that "competitive market forces, rather than mandated rate reductions," should distribute merger benefits to ratepayers, and review of the transaction under § 854(b) would be a "futile exercise" that was "not in the public interest."

Likewise we decided it was not necessary to apply §§ 854(b) and (c) to the WorldCom-Intermedia merger.²⁶ In that proceeding we found that the acquired company was not a major provider of telecommunications services in California, so "there would be little benefit to conducting a full Section 854(b) and (c) review." Also we observed that the acquired company primarily served business customers in a market "where there is a great deal of competition," and we held that conditions imposed by a settlement with the Department of Justice mitigated any resulting disruption to consumers.

As established by these and other cases, the Commission consistently has exercised its broad authority under § 853(b) to exempt individual transactions from review under §§ 854(b) and (c), regardless of the presence of gross annual revenues in excess of the $500 million threshold.²⁷ Thus it would not be a significant departure from our prior decisions if we recognized an exemption was warranted due to the specific facts and circumstances presented in the merger before us.

4.2.3. Legislative history reaffirms the Commission's ability to exercise substantial discretion in determining whether to exempt a transaction from § 854 scrutiny.

Legislative history confirms that the Legislature intended to grant the Commission significant flexibility in deciding whether to apply §§ 854(b) and (c) to telecommunications transactions. Subsections (b) and (c) were added to § 854 in 1989, following a series of proposed mergers in the electric industry. Specifically Senate Bill 52, which revised § 854, responded to the change in control of San Diego Gas & Electric (SDG&E). After being subject to two different takeover attempts, SDG&E ultimately reached an agreement to merge with Southern California Edison (Edison). The combination of the two companies would have formed the largest energy utility in the United States, and legislators knew that subsections (b) and (c), which became known as the "Edison conditions," could block the transaction.²⁸

Legislative history indicates that the Legislature did not specifically intend for § 854 to apply to other transactions in other markets. Indeed, the Assembly Committee on Utilities and Commerce maintained that "[w]hether the Edison conditions will apply to any transaction other than the pending Southern California Edison/San Diego Gas & Electric merger proposal may depend to a large extent on the definitions of control activities that the PUC adopts pursuant to the bill's directive."²⁹ This statement evinces a legislative intent to allow the Commission to use its powers under both § 853(b) and § 854(a) to exempt transactions from §§ 854(b) and (c) review, regardless of the presence of gross annual California revenues in excess of $500 million.³⁰

We thus conclude that the legislative history reaffirms that the Commission is well within its discretionary authority under § 853(b) to exempt the transaction from the allocation of economic benefits vis-à-vis a traditional ratemaking mechanism contemplated under § 854(b). We also find that these amendments were not intended to countermand the statutory obligation that any such transaction be approved only if it is in the public interest.

4.2.4. The specific facts and circumstances surrounding the Verizon-MCI merger indicate that we should not subject the transaction to §§ 854(b) and (c) review.

In determining whether an § 853(b) exemption is warranted in the case of the Verizon-MCI merger, we examine i) specific characteristics of the merger applicants; ii) the state of and the impact on the market as a whole; and iii) the likelihood that competitive pressures and our regulatory regime will cause benefits achieved through the combination to flow through to consumers. This approach is consistent with the plain meaning of § 853(b), prior Commission decisions, and the legislative history reviewed above.

First, we look to the specific characteristics of both the acquired and the acquiring company. Here, like we noted in prior acquisitions of MCI,³¹ the proposed merger does not involve the acquisition of an ILEC. Instead all of MCI's California subsidiaries are non-dominant inter-exchange carriers (NDIECs) and competitive carriers (CLECS). Commission treatment of similar cases involving acquisition of NDIECs and CLECs has been clear and consistent. The last two times MCI was acquired we exempted the transactions from §§ 854(b) and (c) review.³² Also this pattern extends beyond just MCI. In the past decade, the Commission has authorized scores of transactions involving NDIECs and CLECs, but uniformly has exempted them from the detailed requirements of § 854(b) and, with limited exception, § 854(c). Forty-one decisions reaching this result are listed in Appendix A.

Furthermore MCI is a global company that derives only a small percentage of its operations to California intrastate services, and post-merger, the acquired company's California operations will comprise a very small proportion of the combined company's total operations.³³ MCI's California intrastate revenues account for less than 3 percent of MCI's total revenues.³⁴

Verizon's California revenues similarly account for only a small percentage of the company's overall revenues. Verizon California's revenues comprise just 2.8 percent of Verizon's overall revenues.³⁵ Together the California subsidiaries of the combined company will account for only 2.7 to 3 percent of the combined company's revenues and expenses.³⁶ Hence, we are looking at only a small portion of a much bigger transaction, and one in which California's interests are not uniquely affected.

Also none of these parties to the merger is subject to traditional rate regulation. MCI and its California subsidiaries never have been subject to traditional cost-of-service regulation. Verizon California, while an incumbent local exchange carrier (ILEC), is no longer subject to traditional cost-of-service rate regulation. In 1998 the Commission took steps to remove the last vestiges of traditional rate of return regulation when I t suspended the sharing mechanisms for both Verizon and SBC. Instead Verizon now is governed by the "New Regulatory Framework" (NRF), which provides significant or complete pricing flexibility for all services other than basic local exchange service.

Second, we assess the state of and impact on the market as a whole. Here we find that the telecommunications market is more competitive now than ever before. As we recognized earlier this year in our Order Instituting Rulemaking for the Purpose of Assessing and Revising the Regulation of Telecommunications Utilities, recent years have witnessed a dramatic increase in number of telecommunications service providers and offerings:

ILECs now compete with cellular and cable TV companies in both the local and long-distance markets.  Although there is vigorous competition for long distance services, "long-distance" is disappearing as a stand-alone service as more and more consumers opt for bundled service packages or use Internet Protocol based networks.  In fact, consumers are increasingly communicating in ways that bypass traditional telephone networks entirely.  For example, it is now common to exchange voice and text messages through cell phones, computers, and other means without ever having to use the public switched telephone network.³⁷ 

In particular the long distance market, where MCI primarily operates, is competitive and rapidly declining.³⁸ MCI has no guaranteed franchise territory to buffer risk and reward. The company has grown (and shrunk) under competitive market forces at the sole risk of its shareholders; it has no captive ratepayer base.³⁹

The Attorney General of California reviewed the California conditions specific to the proposed merger and issued an Advisory Opinion stating that no significant adverse consequences would arise from this transaction. The Advisory Opinion reported that MCI's "absence will have inconsequential effects on price and output levels" in both the mass market (facilities-based) long distance and enterprise services.⁴⁰ Also the Advisory Opinion concluded that "the merger will not adversely affect competition for DS1 and DS3 special access services supplies to enterprise customers."⁴¹ This report and supporting evidence in the record are discussed at length below.

The merger was further subjected to antitrust review by the DOJ, which entered into a consent decree with Verizon for divestiture of certain local assets outside of California.⁴² The DOJ, by not requiring a similar divestiture in the California markets, further supports our conclusion that the merger will not adversely affect competition.

Moreover Verizon has agreed to abide by additional conditions that will ensure that the general benefits of this merger stretch to California consumers participating in the telecommunications marketplace. § 853(b) provides that the "commission may...impose requirements deemed necessary to protect the interest of the customers or subscribers of the public utility... exempted under this subsection."⁴³ And pursuant to this authority, we require Applicants to contribute a total of $15 million over five years to the California Emerging Technology Fund (CETF). CETF is a non-profit organization tasked with ensuring that all California residents have ubiquitous access to broadband and advanced services by 2010. A significant portion of CETF's efforts will be targeted to underserved communities.

The Greenlining Agreement imposes additional California-specific conditions on the Applicants. It provides that the Applicants will boost corporate philanthropy over the next five years by an additional $20 million above current levels, participate in a statewide Broadband Task Force, and increase its supplier diversity goal for minority business enterprises from its current level of 15% to a minimum of 20% by 2010.⁴⁴

Also we recognize that Verizon accepted additional merger conditions imposed by the FCC. The FCC conditions require the Applicants to freeze special access rates for thirty months, refrain from seeking an increase in rates for unbundled network elements (UNEs) for two years, maintain the same number of peering partners for the next three years, and enforce the FCC's net neutrality principles for two years.⁴⁵

Third, we assess the likelihood that competitive pressures and our regulatory regime will cause benefits achieved through the combination to flow through to California consumers. To begin this analysis we observe that the regulatory regime has changed markedly in recent years. Five years have passed since the Commission last distributed merger benefits via a sur-credit.⁴⁶ In those years we have worked to develop a new regulatory regime that depends more on market forces, rather than the artificial distribution of merger benefits through formula and other traditional ratemaking mechanisms contemplated by § 854(b). Any attempt to use traditional cost-based rate of return mechanisms to mandate distribution of merger benefits would be detrimental to the operation of market forces and contrary to the main thrust of the 1996 Telecommunications Act, state telecommunications policy, and this Commission's stated policies under NRF.

The impact of this modern regulatory regime has been to spur competition in all areas of telecommunications services. No present-day telecommunications provider is able to escape competition. Under our current price-cap based regulatory structure, Verizon must achieve efficiency gains to offset inflation, because prices are not indexed to inflation. Merger synergies are simply efficiencies gained from the combination of the two companies, and in this context competitive pressures will no doubt push the Applicants to distribute significant benefits to their consumers.

In contrast any regulatory attempt to enumerate merger benefits would result in a deadweight loss. The difficulty of adjudicating the benefit amount is indicated by the wide disparity of estimates provided by the parties in this proceeding.⁴⁷ Any such Commission calculation of merger benefits would be time-consuming, costly, and highly speculative. Attempting to enumerate an exact dollar amount for the merger benefits is complicated by the international scope and scale of these entities. MCI and Verizon engage in many activities beyond our jurisdiction. Both have international operations. The companies also offer services not subject to state regulation, such as interstate telecommunications and information services. One could scarcely think of firms more different in their operations than SDG&E and Edison, the cost-of-service rate-of-return franchise monopolies that led to the passage of § 854 (b). Thus we conclude that it is preferable to rely on the market to distribute California-based merger benefits to California consumers.

In sum, our consideration of i) specific characteristics of the merger applicants; ii) the state of and the impact on the market as a whole; and iii) the likelihood that competitive pressures and our regulatory regime will cause the merger benefits to flow through to consumers convinces us that granting an exemption under § 853(b) in this case is consistent with past Commission practice and is in the public interest. The market and Verizon's acceptance of additional merger-related conditions will ensure that benefits from the transaction reach all segments of California ratepayers. Thus, subjecting such a transaction to § 854(b) "is not necessary in the public interest," and pursuant to the authority granted us in PU Code § 853(b) and § 854(a), we find that this transaction is exempt from §§ 854(b) and (c).

4.2.5. Commission precedent and § 854(c) provide the appropriate guidelines for determining whether this transaction is in the public interest.

Over time, the Commission has used its discretion in different ways in reviewing mergers. In D.70829 the Commission approved a transfer of control after determining that the transaction "would not be adverse to the public

interest."⁴⁸ Historically, the Commission has sought more broadly to determine whether a change in control is in the public interest:

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.⁴⁹

D.97-07-060 notes that over the years, our decisions have identified a number of factors that should be considered in making the determination of whether a transaction will be adverse to the public interest.⁵⁰ More recently, D.00-06-079 provides an overview of these factors:

Antitrust considerations are also relevant to our consideration of the public interest.⁵¹ In transfer applications we require an applicant to demonstrate that the proposed utility operation will be economically and financially feasible.⁵² Part of this analysis is a consideration of the price to be paid considering the value to both the seller and buyer.⁵³ We have also considered efficiencies and operating costs savings that should result from the proposed merger.⁵⁴ Another factor is whether a merger will produce a broader base for financing with more resultant flexibility.⁵⁵

We have also ascertained whether the new owner is experienced, financially responsible, and adequately equipped to continue the business sought to be acquired. ⁵⁶ 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.⁵⁷"⁵⁸ (Note: footnotes in this text, with the exception of footnote 44 appeared in the original, but have been renumbered consistent with this sequence).

Subsequently, D.00-06-079 assessed the proposed transaction against the seven criteria identified in § 854(c),⁵⁹ and included a broad discussion of antitrust and environmental considerations.⁶⁰ Thus, even though § 854(c) does not apply to this transaction, it is reasonable to consider these factors. Therefore, a review of this transaction in terms of § 854(c), as well as a consideration of environmental and competitive issues, constitutes the appropriate scope of this proceeding.

4.3. Summary of Applicable Law

In summary, we find that § 854(a) applies to this transaction, but §§ 854(b) and (c) do not. We note that on September 28, ORA filed a motion asking for full Commission review of the legal determinations reached in the Assigned Commissioner's Ruling of September 19. Consistent with the discussion above, we affirm the ruling of the Assigned Commissioner concerning the applicable law and deny ORA's motion for further review.

To determine whether this transaction is in the public interest, the proposed transaction will be assessed against the seven criteria identified in

§ 854(c),⁶¹ and will include a broad discussion of antitrust and environmental considerations, as has been done in previous cases.

¹⁵ § 854(a).

¹⁶ § 854(b).

¹⁷ § 854(c).

¹⁸ Id.

¹⁹ In re Application of WorldCom, Inc. Pursuant to Public Utilities Code Section 853(b) for Exemption from the Requirements of Section 851 and 854 of the Public Utilities Code With Respect to its Bankruptcy Reorganizations, Decision 03-11-015, 2003 Cal. PUC LEXIS 554, *10 (Aug. 20, 2003).

²⁰ §853(b).

²¹ In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certified Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340, *24 (May 21, 1997) (emphasis added).

²² In the Matter of the Joint Application of AT&T Corp., Italy Merger Corp. and Tele-Communications, Inc. for Approval Required for the Change in Control of TCI Telephony Services of California, Inc. (U-5698-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and Tele-Communications, Inc., Decision 99-03-019, 1999 Cal. PUC LEXIS 382, *21 (March 4, 1999) (emphasis added) (citing Decisions 97-05-092, 98-05-022, and 98-08-068 in support of this assessment). See also In re Application of WorldCom, Inc. Pursuant to Public Utilities Code Section 853(b) for Exemption from the Requirements of Section 851 and 854 of the Public Utilities Code With Respect to its Bankruptcy Reorganizations, Decision 03-11-015, 2003 Cal. PUC LEXIS 554, *10 (Aug. 20, 2003) ("[T]here is no question that §853(b) grants the full Commission the power to exempt a transaction from the requirements of...[§] 854."). In rebuttal, ORA points to other Commission decisions that maintain that § 853(b) should only be applied in "extraordinary" situations. ORA Opening Brief, p. 14 (citing, for example, Application of Pacific Gas and Electric Company for an Order Under Section 853 of the California Public Utilities Code for an Exemption from the Requirements of PUC Section 851, or Alternatively for an Order Under PUC Section 851 Approving 6 Sales Transactions for Certain Public Utilities Properties, Decision 02-01-055, 2002 Cal. PUC LEXIS 3, *7 (Jan. 23, 2002) (declaring "the Commission does not grant exemptions except in extraordinary situations"); Application of Pacific Gas and Electric Company (U 39 E) for an Order under Section 853 of the California Public Utilities Code for an Exemption from the Requirements of PUC Section 851, or Alternatively for an Order Under PUC Section 851 Approving 73 Sales Transaction for Certain Public Utility Properties, Decision 99-04-047, 1999 Cal. PUC LEXIS 194, *10 (stating "this seldom-used procedure is invoked in extraordinary cases")). But unlike the holdings of the merger decisions discussed above, the assertion cited by the ORA originated in an altogether different context than the one at issue here: The "extraordinary" language originated in decisions considering whether a company should be granted an exemption from § 851 requirements after it failed to abide by the statute and sold utility assets without Commission approval. Id. Indeed, ORA does not cite a single Commission decision that involves a merger and references this "extraordinary" language.

²³ See, e.g., In re Request of WorldCom, Inc. and Intermedia Communications Inc., For Approval to Transfer Control of Intermedia Communications Inc. and its Wholly-owned Subsidiary to WorldCom, Inc., Decision 01-03-079, 2001 Cal. PUC LEXIS 219 (Mar. 27, 2001); In the Matter of the Joint Application of AT&T Corp., Meteor Acquisition Inc., and MediaOne Group, Inc. for Approval of the Change in Control of MediaOne Telecommunications of California, Inc., (U-5549-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and MediaOne Group, Inc., Decision 00-05-023, 2000 Cal. PUC LEXIS 355 (May 4, 2000); In the Matter of the Joint Application of AT&T Corp., Italy Merger Corp. and Tele-Communications, Inc. for Approval Required for the Change in Control of TCI Telephony Services of California, Inc. (U-5698-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and Tele-Communications, Inc., Decision 99-03-019, 1999 Cal. PUC LEXIS 382 (Mar. 4, 1999); In re Application of WorldCom, Inc. and MCI Communications Corporation for Approval to Transfer Control of MCI Communications Corporation to WorldCom, Inc., Decision 98-08-068, 1998 Cal. PUC LEXIS 912 (Aug. 31, 1998); In the Matter of the Joint Application of AT&T Corp. ("AT&T"), Teleport Communications Group Inc. ("TCG") and TA Merger Corp. for Approval Required For the Change in Control of TCG's California Subsidiaries That Will Occur Indirectly as a Result of the Merger of AT&T and TCG, Decision 98-05-022, 1998 Cal. PUC LEXIS 533 (May 7, 1998); In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certified Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340 (May 21, 1997).

²⁴ In re Request of WorldCom, Inc. and Intermedia Communications Inc., For Approval to Transfer Control of Intermedia Communications Inc. and its Wholly-owned Subsidiary to WorldCom, Inc., Decision 01-03-079, 2001 Cal. PUC LEXIS 219, *8 (Mar. 27, 2001).

²⁵ Decision 97-05-092, 1997 Cal. PUC LEXIS 340, *27-31 (May 21, 1997).

²⁶ Decision 01-03-079, 2001 Cal. PUC LEXIS 219 (Mar. 27, 2001).

²⁷ See, e.g., In re Request of WorldCom, Inc. and Intermedia Communications Inc., For Approval to Transfer Control of Intermedia Communications Inc. and its Wholly-owned Subsidiary to WorldCom, Inc., Decision 01-03-079, 2001 Cal. PUC LEXIS 219 (Mar. 27, 2001); In the Matter of the Joint Application of AT&T Corp., Meteor Acquisition Inc., and MediaOne Group, Inc. for Approval of the Change in Control of MediaOne Telecommunications of California, Inc., (U-5549-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and MediaOne Group, Inc., Decision 00-05-023, 2000 Cal. PUC LEXIS 355 (May 4, 2000); In the Matter of the Joint Application of AT&T Corp., Italy Merger Corp. and Tele-Communications, Inc. for Approval Required for the Change in Control of TCI Telephony Services of California, Inc. (U-5698-C) That Will Occur Indirectly as a Result of the Merger of AT&T Corp. and Tele-Communications, Inc., Decision 99-03-019, 1999 Cal. PUC LEXIS 382 (Mar. 4, 1999); In re Application of WorldCom, Inc. and MCI Communications Corporation for Approval to Transfer Control of MCI Communications Corporation to WorldCom, Inc., Decision 98-08-068, 1998 Cal. PUC LEXIS 912 (Aug. 31, 1998); In the Matter of the Joint Application of AT&T Corp. ("AT&T"), Teleport Communications Group Inc. ("TCG") and TA Merger Corp. for Approval Required For the Change in Control of TCG's California Subsidiaries That Will Occur Indirectly as a Result of the Merger of AT&T and TCG, Decision 98-05-022, 1998 Cal. PUC LEXIS 533 (May 7, 1998); In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certified Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340 (May 21, 1997).

²⁸ In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certified Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340, *24-26 (May 21, 1997) (reviewing the early legislative history of §§ 854(b) and (c)).

²⁹ Id. (citing the analysis published by the Assembly Committee on Utilities and Commerce).

³⁰ In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certificated Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340, *25-26 (May 21, 1997).

³¹ In re Application of WorldCom, Inc. and MCI Communications Corporation for Approval to Transfer Control of MCI Communications Corporation to WorldCom, Inc., Decision 98-08-068, 1998 Cal. PUC LEXIS 912 (Aug. 31, 1998); In the Matter of the Joint Application of MCI Communications Corporation (MCIC) and British Telecommunications plc (BT) for All Approvals Required for the Change in Control of MCIC's California Certified Subsidiaries That Will Occur Indirectly as a Result of the Merger of MCIC and BT, Decision 97-05-092, 1997 Cal. PUC LEXIS 340 (May 21, 1997). Both of these decisions applied the three factors considered in the British Telecom-MCI merger. While we discuss additional grounds for exemption, we observe that all three of the British Telecom-MCI factors are fulfilled in the Verizon-MCI merger as well. First, the transaction does not involve the two traditionally regulated telephone systems. MCI has never been subject to traditional utility regulation. Second, the Commission lacks effective ratemaking authority over MCI's California subsidiaries. Third, MCI grew under competitive forces without a guaranteed franchise authority.

³² Id.

³³ Applicants Reply Brief, p. 34.

³⁴ Id.

³⁵ Id.

³⁶ Id.

³⁷ Decision 05-04-005 (Apr. 7, 2005).

³⁸ Verizon/MCI 3 Section VI #64.

³⁹ Id.

⁴⁰ Advisory Opinion, p. 11.

⁴¹ Id.

⁴² Joint Applicants Opening Brief, pp. 2-3.

⁴³ § 853(b).

⁴⁴ Greenlining Opening Brief, Exhibit A.

⁴⁵ Joint Applicants Opening Brief, pp. 3-5.

⁴⁶ In the Matter of the Joint Application of GTE Corporation ("GTE") and Bell Atlantic Corporation ("Bell Atlantic") to Transfer Control of GTE's California Utility Subsidiaries to Bell Atlantic, Which Will Occur Indirectly as a Result of GTE's Merger with Bell Atlantic, Decision 00-03-021, 2000 Cal. PUC LEXIS 398 (Mar. 2, 2000).

⁴⁷ Applicants' synergy estimate ($6.9 million in net present value) is significantly smaller than the estimates of TURN ($731.4 million) and ORA ($206 million).

⁴⁸ Ibid., Finding of Fact 3, 645.

⁴⁹ Union Water Co. of California, 19 CRRC 199, 202 (1920) at 200.

⁵⁰ 1997 Cal PUC LEXIS 557 *22-25.

⁵¹ 65 CPUC at 637, n.1.

⁵² R. L. Mohr (Advanced Electronics), 69 CPUC 275, 277 (1969). See also, Santa Barbara Cellular, Inc. 32 CPUC2d 478 (1989).

⁵³ Union Water Co. of California, 19 CRRC 199, 202 (1920).

⁵⁴ Southern Counties Gas Co. of California, 70 CPUC 836, 837 (1970).

⁵⁵ Southern California Gas Co. of California, 74 CPUC 30, 50, modified on other grounds, 74 CPUC 259 (1972).

⁵⁶ City Transfer and Storage Co., 46 CRRC 5, 7 (1945).

⁵⁷ Communications Industries, Inc. 13 CPUC2d 595, 598 (1993).

⁵⁸ D.00-06-079 (2000 Cal PUC LEXIS 645, *17-*20), footnotes included but renumbered into the current sequence.

⁵⁹ 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."

⁶⁰ D.00-06-079 (2000 Cal. PUC LEXIS 645, *17-*38); see also D.01-06-007 (2001 Cal. PUC LEXIS 390 *25-*26) for a similar list of factors.

⁶¹ 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." In addition, § 854(c) asks that the transaction "Provide mitigation measures to address significant adverse consequences that may result." We will address this issue in conjunction with our review of criteria 1 through 7.