JAR/hkr 6/3/2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Investigation on the Commission's own motion into the Pacific Telesis Group's "spin-off" proposal.

Investigation 93-02-028 (Filed February 17, 1993)

ADMINISTRATIVE LAW JUDGE'S RULING
SOLICITING COMMENTS ON CONCLUDING PROCEEDING

Background

In December 1992, the Pacific Telesis Group (Telesis)¹ Board of Directors voted to divest its wireless companies and to spin-off these subsidiaries into a separate company (referred to as PacTel Corporation or PacTel²). PacTel was to include the wireless operations of PacTel Cellular, Pacific Telesis International, PacTel Paging, PacTel Services, Locations Technologies, and 51% of PacTel Teletrac. The remaining corporate entity was to consist primarily of the holding company (Telesis) and the wireline regional Bell Operating Companies, Pacific Bell Telephone Company (currently doing business as SBC California³) and Nevada Bell Telephone Company (dba SBC Nevada).

In February 1993, the Commission initiated this proceeding by issuing an order instituting investigation into the Telesis spin-off proposal.⁴ Posing a series of questions, the order required Telesis to "provide a comprehensive description of the spin-off and a showing as to its effects." (51 CPUC 2d 728, 734 (1993).) Ultimately, after examining the Telesis proposal in light of Pub. Util. Code § 851 and two other key statutes,⁵ the interim decision determined that "no assets used and useful in the conduct of a utility business" were to be transferred away from any of the operating utilities.⁶ The Commission also required Telesis and AirTouch to transfer or allocate "any assets necessary or useful to the California operating utility . . . or the California wireless utilities" to the appropriate entity.

Since the terms of the proposed transaction were not finalized during the pendency of the investigation and there was the possibility that utility property might be transferred after it was consummated, the Commission ordered a compliance report of the separation transaction by an independent auditor. The Commission directed the immediate commencement of the compliance report, and the auditor was to complete it as soon after the date of final separation as reasonably possible.

Pursuant to D.93-11-011,⁷ Telesis selected the independent auditing firm of Frederick & Warinner (F&W) with the Commission's approval. The consulting contract was between F&W and the Commission, with Telesis obligated to reimburse the Commission "for all consultant expenses incurred to accomplish the report." (Id.) The Telecommunications Division administered the contract. F&W submitted its report⁸ on November 7, 1994. No further action took place following submission of the report.

¹ Telesis, one of the original seven regional holding companies, was the parent of two Bell Operating Companies and certain diversified subsidiaries listed herein.

² Initially named PacTel, but subsequently renamed AirTouch.

³ In March 1997, pursuant to Decision (D.) 97-03-067, Telesis merged with SBC Communications, Inc. (SBC).

⁴ In January 1993, the Telesis Board, asserting that the proposal did not require Commission authorization, provided the Commission with a written description of the plan to spin-off its wireless subsidiaries.

⁵ Pub. Util. Code §§ 818 and 854.

⁶ Including Pacific and the California wireless utilities.

⁷ The decision provided that the auditing firm should be selected so as to avoid conflicts of interest relating to the firm's other business, if any, with Telesis, Pacific, or PacTel. (51 CPUC 2d at 770.)

⁸ Confidential and redacted versions of "Results of the Audit of the Separation of the Pacific Telesis Group of Companies Prepared for the California Public Utilities Commission."