Dissent of Commissioner Brown on Verizon/MCI
Dissent of Commissioner Grueneich re. Verizon/MCI

COM/SK1/MP1/cvm Mailed 11/23/2005

Decision 05-11-029 November 18, 2005

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Joint Application of Verizon Communications, Inc. (Verizon) and MCI, Inc. (MCI) to Transfer Control of MCI's California Utility Subsidiaries to Verizon, Which Will Occur Indirectly as a Result of Verizon's Acquisition of MCI

Application 05-04-020
(Filed April 21, 2005)

DECISION AUTHORIZING CHANGE IN CONTROL

TABLE OF CONTENTS

Title Page 1

DECISION AUTHORIZING CHANGE IN CONTROL 1 1

1. Summary 1 1

2. Procedural Background 1 1

3. The Corporate Entities and the Financial Transaction 1 1

3.1. Verizon 1 1

3.2. MCI 1 1

3.3. Description of Financial Transaction Transferring Control 1 1

4. Jurisdiction and Scope of Proceeding 1 1

4.1. § 854(a) Applies to This Transaction 1 1

4.2. Application of §§ 854(b) and (c) to This Transaction 1 1

4.2.1. The plain language of § 853(b) affords the Commission significant discretion in determining whether to apply § 854 (b) and (c). 1 1

4.2.2. Prior Commission decisions recognize our broad power to exempt mergers from review under §§ 854(b) and (c). 1 1

4.2.3. Legislative history reaffirms the Commission's ability to exercise substantial discretion in determining whether to exempt a transaction from § 854 scrutiny. 1 1

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. 1 1

4.2.5. Commission precedent and § 854(c) provide the appropriate guidelines for determining whether this transaction is in the public interest. 1 1

4.3. Summary of Applicable Law 1 1

5. Are Evidentiary hearings Necessary To Decide This Matter? 1 1

5.1. No statute or Commission rule requires evidentiary hearings 1 1

5.2. There is sufficient evidence in the record to permit the Commission to decide this matter 1 1

5.3. The public has had ample opportunity to participate in this proceeding 1 1

5.4. Since § 854(b) does not apply to this transaction, many issues raised by parties become moot. 1 1

5.5. Many remaining issues identified conflate policy issues with issues of fact. 1 1

5.6. The Commission can and has frequently resolved issues of fact without evidentiary hearings, 1 1

5.7. Consistent with Rule 6.5(b), the Assigned Commissioner's Ruling of September 19 determining that evidentiary hearings are not necessary is affirmed. 1 1

6. Does the Proposed Merger of the Parent Companies and Change in Control "Not Adversely Affect Competition?" 1 1

6.1. Mass Market Local Exchange 1 1

6.1.1. Advisory Opinion finds merger "will not have adverse effects upon competition in local markets" 1 1

6.1.2. Position of Parties 1 1

6.1.3. Discussion 1 1

6.2. Mass Market Long Distance 1 1

6.2.1. Advisory Opinion finds long distance services "readily available" and that merger will "have minimal effects in concentration." 1 1

6.2.2. Position of Parties 1 1

6.2.3. Discussion 1 1

6.3. Enterprise Services 1 1

6.3.1. Advisory Opinion finds merger tentatively concludes that "merger will not cause undue increases in concentration levels." 1 1

6.3.2. Position of Parties 1 1

6.3.3. Discussion 1 1

6.4. Special Access Services 1 1

6.4.1. Advisory Opinion finds "potential entry here should be sufficient ... to counteract any potential anticompetitive effects." 1 1

6.4.2. Position of Parties 1 1

6.4.3. Discussion 1 1

6.5. Internet Backbone 1 1

6.5.1. Advisory Opinion finds markets "are unconcentrated and will remain so after completion of the merger." 1 1

6.5.2. Position of Parties 1 1

6.5.3. Discussion 1 1

7. Do the Proposed Transactions Meet the Public Interest Tests Contained in § 854(c)? 1 1

7.1. Will the Change of Control Maintain or Improve the Financial Condition of the Resulting Utilities Doing Business in California? 1 1

7.1.1. Position of Parties 1 1

7.1.2. Discussion: The Merger Will Maintain or Improve the Financial Condition of the Resulting Public Utility. 1 1

7.2. Will the Merger of the Parent Companies and the Change of Control Maintain or Improve the Quality of Service to California Ratepayers? 1 1

7.2.1. Position of Parties 1 1

7.2.2. Discussion: Merger Will Maintain or Improve Service Quality 1 1

7.3. Will the Merger of the Parent Companies and Changes of Control Maintain or Improve the Quality of the Management of the Resulting Utility Doing Business in California? 1 1

7.3.1. Position of Parties 1 1

7.3.2. Discussion: Proposed Transaction Will Maintain or Improve Management Quality 1 1

7.4. Will the Merger of the Parent Companies and Change of Control Be Fair and Reasonable to the Affected Employees? 1 1

7.4.1. Position of Parties 1 1

7.4.2. Discussion: Changes will be Fair to Utility Employees 1 1

7.5. Will the Merger of the Parent Companies and Change of Control Be Fair and Reasonable to a Majority of the Utility Shareholders? 1 1

7.5.1. Positions of Parties 1 1

7.5.2. Discussion: Transaction is in the Interest of Shareholders 1 1

7.6. Will the Proposed Merger of the Parent Companies and Change of Control Be Beneficial on an Overall Basis to State and Local Economies and the Communities Served by the Resulting Utility? 1 1

7.6.1. Position of Parties 1 1

7.6.2. Discussion: Transaction Will Benefit Californians 1 1

7.7. Will the Proposed Merger of the Parent Companies and Change of Control Preserve the Jurisdiction of the Commission and its Capacity to Effectively Regulate and Audit Public Utility Operations in California? 1 1

7.7.1. Positions of Parties 1 1

7.7.2. Discussion: Transaction Will not Diminish Jurisdiction of Commission or its Capacity to Regulate and Audit Utility Operations in California. 1 1

8. Does the Proposed Merger of the Parent Companies and Change in Control Create Environmental Issues of Concern? 1 1

9. Other Issues § 854(c) (8) § 854(d) 1 1

9.1. Position of the Parties 1 1

9.2. Discussion 1 1

10. The Commission Should Approve this Application for a Proposed Merger of the Parent Companies and Change in Control at this Time 1 1

11. Comments 1 1

11.1. Position of the Parties 1 1

11.2. Discussion 1 1

12. Assignment of Proceeding 1 1

Findings of Fact 1 1

Conclusions of Law 1 1

ORDER 1 1

Appendix A: Cases Exempting NDIEC and CLEC Transactions from § 854 (b) Review 1 1

DECISION AUTHORIZING CHANGE IN CONTROL

1. Summary

Subject to three conditions, we grant the Joint Application of Verizon Communications, Inc. (Verizon) and MCI, Inc. (MCI) (known together as "Applicants") to transfer control of MCI's California utility subsidiaries to Verizon.

The three conditions are:

1. Verizon shall, by February 28, 2006, cease forcing customers to separately purchase traditional local phone service as a condition for obtaining digital subscriber line (DSL) service (this condition is commonly known as a requirement to provide "naked DSL"). We further order that no later than February 28, 2006 Verizon shall submit an affidavit evidencing compliance with this condition of the merger.

2. Applicants shall adopt the agreement that Verizon California negotiated with The Greenlining Institute (Greenlining) and Latino Issues Forum (LIF) (The Greenlining Agreement). Under the key terms of this agreement, the Applicants agree to:

a. Participate in a statewide Broadband Task Force.

b. Increase corporate philanthropy over the next five years by an additional $20 million above current levels, with a good faith effort to maintain the aggregate contributions to minorities and underserved communities in a manner consistent with its past practice.

c. Make a good faith effort to increase the supplier diversity goal for minority business enterprises from the current 15% to a minimum of 20% by 2010. To achieve this goal, Verizon California anticipates spending $1 million over five years in technical assistance to minority businesses and another $1 million to develop Verizon's internal infrastructure devoted to such efforts.

3. Applicants shall commit $3 million per year for five years in charitable contributions ($15 million total) to a non-profit corporation, the California Emerging Technology Fund (CETF), to be established by the Commission for the purpose of achieving ubiquitous access to broadband and advanced services in California, particularly in underserved communities, through the use of emerging technologies by 2010. No more than half of Applicant's total commitment to the CETF may be counted toward satisfaction of the Applicants' commitment in the Greenlining Agreement to increase charitable contributions by $20 million over five years.

These conditions ensure that the proposed merger will bring the benefits of advanced telecommunications services and telecommunications competition to all Californians.

We find that this transaction raises no "concerns adverse to the public interest" when carefully examined against the criteria enumerated in Pub.Util. Code § 854.¹ Further, our analysis confirms the findings of the Advisory Opinion of the Attorney General² that the transaction raises no antitrust issues that require further mitigating actions. Finally, this is a purely financial transaction, and has no environmental consequences.

As a result of this detailed review, we find that the proposed transaction, subject to the three conditions listed above, is not adverse to the public interest and is therefore approved.

Finally, we affirm the determination in the Assigned Commissioner's Ruling of September 19, 2005 that no evidentiary hearings are necessary in this proceeding.

¹ All code section references are to the Public Utilities Code.

² Opinion of the Attorney General on the Proposed Merger of Verizon Communications, Inc., and MCI, Inc., September 16, 2005 (Advisory Opinion).