7. Application of § 854(c)

Since we have found that all of § 854 applies to the Verizon/MCI merger, we are required to conduct a review using § 854(c) to guide our determination of whether this transaction is in the public interest. The § 854(c) criteria cause us to ask whether this transaction:

1. Maintains or improves the financial condition of the resulting public utilities doing business in California?

2. Maintains or improves the quality of service to California ratepayers?

3. Maintains or improves the quality of management of the resulting utility doing business in California?

4. Is fair and reasonable to the affected utility employees?

5. Is fair and reasonable to a majority of the utility shareholders?

6. Is beneficial on an overall basis to state and local economies and communities in the area served by the resulting public utility?

7. Preserves the jurisdiction of the Commission and its capacity to effectively regulate and audit public utility operations in California?

8. Provides mitigation measures to prevent significant adverse consequences which may result.

Finally, the Commission must consider the implications for competitive markets of the application as well as any environmental impacts.

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

Applicants state that "because this transaction will occur at the level of the parent holding companies, it will have no structural impact on any of the MCI subsidiaries. The transaction will maintain or improve the financial condition of the MCI subsidiaries," since the new company will have the resources to invest in MCI's facilities.⁴⁴ Beyond this, Verizon is an established communications provider with a strong balance sheet, investment grade credit and the financial, technological and managerial resources to invest in MCI's network and systems.

MCI states that "the combined company will be in a strong financial position to invest in the existing IP network at a lower cost of capital than MCI could obtain on its own,"⁴⁵ and Verizon states that "absent this transaction, Verizon would have to spend its resources duplicating, at least to some extent, the presence and network assets MCI already has in place."⁴⁶ They add that "the combined company will have greater financial strength and flexibility than either company could achieve alone because of its greater size and complementary strengths and assets."⁴⁷

Applicants also state that "with respect to the mass market, MCI's business is already in decline due to a variety of factors unrelated to this transaction, and MCI would not, absent its deal with Verizon, be one of the more significant competitors going forward for mass market customers."⁴⁸ The decline of MCI's mass market business is explained in detail in Ex. Verizon/MCI 4, Section IV.

In addition, Applicants state that the increased financial strength of the combined company will support additional investments in advanced technologies. Verizon notes a commitment to invest $2 billion in MCI's networks and information technology systems, including its Internet backbone. In addition, Verizon states that it examined whether this transaction would be expected to impair the parent company's ability to attract capital, and determined that it would not. No credit downgrade has occurred and Verizon reports that none is expected. Applicants conclude that: "consistent with Commission precedent, the transaction will maintain or improve the financial condition of the affected California utility subsidiaries and thus satisfies the concerns of § 854(c)(1)."⁴⁹

ORA argues that the merger may increase the potential for the parent company and affiliates to exploit the regulated utility and cause the latter financial harm. ORA states that Verizon California's revenues make up only a small percentage of its parent company's revenues and that after the merger, that percentage will be even smaller. Therefore, ORA concludes that is unlikely the holding company will make decisions based on the interests of Verizon California and its California ratepayers. In ORA's view, inappropriate cost allocation and the overcharging of regulated entities by their unregulated affiliates have occurred in the past. ORA recommends that the Commission require the imposition of a "first priority condition" for Verizon to mitigate possible exploitations that affiliates may place upon Verizon California.⁵⁰

TURN argues that the Applicants have failed to show that the proposed merger will maintain or improve the financial condition of the resulting public utility doing business in California. In particular, TURN contends that the Applicants merger will have a negative financial impact on the merged entity for several years. TURN concludes that it is "implausible that the merger could improve the financial condition of the Verizon-CA utility in the short-run and it is likely to do at least some harm."⁵¹

We find that this merger will maintain or improve the financial condition of the resulting public utility. First, the transaction, with the resulting influx of $2 billion investment into MCI, will improve the financial condition of that utility. Second, Verizon has demonstrated that the transaction will not impair the holding company's ability to attract capital, and no credit downgrade has occurred or is expected.

ORA's financial concerns largely focus on the holding-company structure of organization rather than the specifics of the transaction. ORA claims that the holding company structure will lead to adverse financial consequences for the California utilities owned by Verizon. ORA fails to note that Verizon's California utility is already a small part of a large holding company, and thus ORA's concerns are largely unrelated to this transaction. Despite the fact that this holding company structure has been in place for some time, the Commission has seen no negative consequences for the Verizon California utility that have resulted. Moreover, ORA has not demonstrated that any adverse consequences are even plausible.

TURN claims that Verizon has simply failed to demonstrate that the merger will produce no adverse consequences, and notes that the initial impact of the merger is projected to have negative consequences on finances. Our examination of the evidence leads to a different conclusion. We find that Verizon has demonstrated that this transaction will improve the financial situation of MCI's California utilities and that the transaction will not have an adverse impact on Verizon's California utilities. We conclude that the merger will meet the standard of § 854(c)(1). Moreover, we note that TURN's focus on short-term financial flows adopts a "cash" approach, which treats investments as an expense in the year in which it they are made, instead of converting investments into an annual expense based on depreciation and a return on unamortized investment. This later approach is the one more typically used by the Commission.

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

Verizon, citing D.03-10-088, notes that the Commission has found that Verizon provides exceptional and high-quality service, and that its overall service is consistent with the Commission standards set forth in General Order 133-B. It further states that its continuing commitment to providing high quality service will not be affected by the transaction. In support of this position, the Applicants state that the "structure and operation of the various utility subsidiaries will remain in place, as will the skilled workforce required to operate them."⁵² The Applicants note that the current companies are the products of numerous prior mergers, and therefore "possess the technical and managerial expertise to maintain focus on customer service and service quality both during and after corporate reorganizations."⁵³ The Applicants further state that the increased financial strength and the investments that will follow the merger will support future service quality. Finally, the Applicants cite testimonials given at the public participation hearings as supporting its view that the stronger company will be able to provide better service quality.

ORA states that it does not dispute Verizon's claim that it had excellent service quality in the period 1990-2001, but argues that service quality, especially as measured by "residential repair interval," has declined since 2001. ORA also states that there has been "a substantial volume of customer complaints about MCI's service"⁵⁴ and recommends an investigation of MCI's local service quality. In addition, ORA recommends the imposition of penalties for service outages and a requirement to maintain or improve service quality. In particular, ORA recommends an investigation of service quality in the Verizon West Coast service territory.

TURN argues that the Applicants have failed to prove that the merger will maintain or improve the quality of service provided to California ratepayers. TURN speculates that MCI's poor practices will infect Verizon and states that the Applicants' assertions concerning quality as vague. TURN also argues that the poor financial situation of MCI is more likely to be a drag on investment by Verizon and more likely to slow down Verizon's network investments.

DRA states the merger is "not in the interests of public utility ratepayers with disabilities."⁵⁵ DRA alleges that a shift in focus to the enterprise market "threatens service quality for people with disabilities."⁵⁶

On the evidence before us, we find that the merger is likely to maintain or improve service quality. Current operations and networks are largely complementary, with little overlap. No integration of the two companies at the operational level is contemplated at this time. As a result, it is unlikely that the merger will have any impact on service quality in the short run.

Verizon has a record of excellent service quality, and it seems to us more likely than not that the service quality orientation of the larger acquiring entity will cause an improvement in the service of the acquired company. Verizon's record concerning the provision of telecommunications services to the disabled community and its demonstrated commitment to disabled access make the concerns raised by DRA dubious. In the long run, the record before us suggests that the merger will result in improved service quality for both the general customer base and the disabled community.

Had evidentiary hearings and cross-examination been conducted in this proceeding, we might have more evidence before us dealing with service problems, particularly in the Verizon West Coast service territory. As it is, however, there is no credible basis in this record for ordering the investigations into service quality that ORA recommends.

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?

Applicants state that MCI's "consumer business is in a continuing and irreversible decline due to an array of factors," which include competition from wireless and other technologies, and that the merger will allow MCI to "capitalize on its strongest assets...by teaming with a company that needs those assets and will invest in them."⁵⁷

Applicants further contend that the merger "will have no immediate effect on the management of Verizon's California subsidiaries." They also state that there "will be no diminution in the management quality of MCI's subsidiaries ...Verizon has an interest in preserving this quality because access to MCI management's skills and expertise in one the reason Verizon entered into the Agreement." In addition, they state that "the management of the combined company will be drawn from the current management of both Verizon and MCI."⁵⁸

Intervenors do not question the impact of the merger on the new company's quality of management. We do not find any evidence that the proposed merger will have a negative affect on the resulting public utility's quality of management. We find that the merger will maintain or improve the quality of management of the resulting public utility.

7.3.1.1. Will the Merger of the Parent companies and Change of Control Be Fair and Reasonable to the Affected Employees?

Applicants state that "the Agreement does not call for a combination of the operations of Verizon's and MCI's operating subsidiaries. Employee reduction from the transaction will most likely occur due to the consolidation and elimination of redundant positions,"⁵⁹ and that "planned staffing reductions will eliminate redundant positions and will primarily be accomplished, to the extent possible, by attrition, retirement and other voluntary means."⁶⁰ In addition, "the synergies created by the Verizon-MCI transaction should benefit the employees of both companies' California subsidiaries by providing additional opportunities for employment," and that "by creating a far stronger company with the ability to grow and prosper, there should be a higher degree of stability and certainty for employees."⁶¹

TURN questions Applicants' assertion that the operations of the merging companies are not being combined, if at they same time they are reducing their workforce. TURN states, "Whether or not the merger results in a structural consolidation of operations, it will result in fewer employees in those operations."⁶²

ORA argues that the merger will have a negative effect on both employees and the California economy. It claims that the merger "has a potential to eliminate hundreds of high-paying California jobs"⁶³ and estimates a loss of at least $807 million to the state economy. ORA recommends that the Commission "limit California job counts to no more than 5% of MCI's total headcount reductions"⁶⁴ as a condition of the merger.

Applicants refute ORA's analysis of potential headcount reductions, which Applicants say "assumes that an arbitrary percentage of California employees would be let go, without regard for how MCI's current operations are geographically organized or the new company's likely business strategy."⁶⁵ They state that MCI is not planning on making proportional reductions in each state. Instead, Applicants state that there will be reductions of particular staff positions that will become redundant after the merger, and that "the impact of such cutbacks on California employment will be negligible, because MCI has few such employees located in California to begin with."⁶⁶ Verizon also addresses this issue by stating that "The companies have not yet begun post-merger planning and it is unknown how many California positions might be affected, but certainly there are no facts which lead to a conclusion that any job cuts or post merger employment conditions will be unfair."⁶⁷

Verizon and MCI state that they have, respectively, approximately 18,000 and 2,500 employees in the state of California, representing 8.6% of Verizon's national workforce and 5.9% of MCI's international workforce. Verizon's website states that approximate 7,000 jobs will be lost due to this merger.⁶⁸ If the California layoffs are proportionate to the companies' workforce as a whole, between 400 and 600 jobs will be lost in the state. Applicants state that the layoffs will not be proportionate, because of the type of jobs considered redundant are most likely not located in California facilities. However, Applicants do not estimate how many California-based jobs will be lost by this merger, which California facilities will be affected, or how these jobs losses will affect employee diversity. They also do not state whether employees laid off in the short term will be given preference for new positions created in the future when the expected growth of the merged company occurs, or about any other arrangement being made to ease the transition for affected workers.

Analysis by our Telecommunications Division staff of proprietary information tends to support the conclusions of ORA as to the impact on California jobs. We conclude that because Applicants have not yet offered any significant data on the impact of headcount reductions in the state of California, it is important that the Commission have a means by which to examine this issue in the future. We determine that as a condition of the merger, Applicants shall be required to report to the Commission in one year's time on the impact of employee layoffs, on both union and non-union employees, in the state of California, and the Commission reserves its right to impose mitigating conditions at that time if necessary.

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

Applicants state that the merger will benefit their shareholders because of the proposed economic growth of the new company and because it will "eliminate duplicative expenses and create operational efficiencies."⁶⁹ Applicants also point out that both Verizon and MCI's board of directors voted for this transaction and that a majority of MCI's shareholders have voted to accept the merger. Accordingly, we find that § 854(b)(5) has been satisfied.

7.3.1.3. 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?

The Applicants argue that the transaction "will result in overall benefits to the State of California and all of its constituencies."⁷⁰ The Applicants state that the transaction will promote competition and result in improved service quality and more competitive prices. The Applicants further state that the transaction will be beneficial on an overall basis to state and local economies, and the communities in the areas served by the resulting public utility. Specifically, the Applicants state that the merger will produce cost savings and other synergies that will be passed through to California customers through competition and market forces. They also state that transaction will also result in the combined company's ability to offer a broader range of services, and more advanced services, to California consumers. The Applicants argue that the transaction will promote competition in communications in California, resulting in improved quality of service, more competitive prices, and greater technological innovation that will inure to the benefit of customers. Furthermore, the Applicants state that Verizon has a strong tradition of community support, community service, and corporate philanthropy, which it states it "will continue after this transaction."⁷¹

ORA argues that the transaction will have a negative effect on the California economy, citing its testimony and arguments concerning employment. TURN argues that the Applicants have failed to "meet a reasonable burden of proof that the proposed [merger] will not harm the state and local economies in California."⁷²

We find that with the mitigating conditions that we adopt in our order, the transaction will benefit Californians. Pub. Util. Code § 709 identifies access to advanced telecommunications service as a key public policy objective. Several parties to the proceeding identified enhanced access to high speed Internet (broadband) and advanced telecommunications services as a primary benefit to consumers embodied in this transaction. Applicants state that "the transaction is intended to complement and accelerate Verizon's continuing transformation into a premier wireless and broadband provider," and will "further its investment strategy to bring enhanced broadband capabilities to the mass market."⁷³ We are presented with no evidence that contradicts that assessment.

7.3.1.4. 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?

Applicants state that because the transaction will not affect the structure of MCI Subsidiaries, the Commission's ability to regulate those subsidiaries will not be diminished. Applicants state that all MCI subsidiaries will continue to be subject to all the terms and conditions that the Commission previously required. Applicants further state that the transaction will not adversely affect the Commission's jurisdiction nor its ability effectively to regulate the combined company's public utility operations in California.

Although no party alleges that the transaction diminishes the Commission's jurisdiction, several raise questions concerning the capacity of the Commission to continue to regulate utility operations in a new market environment. ORA states that "MCI, with AT&T, has been one of the most vigorous CLEC voices in Commission proceedings, frequently representing interests in conflict with those of SBC and Verizon."⁷⁴ In addition, both ORA and TURN claim that the regulatory task of auditing will become more complex, and ORA proposes that the Applicants fund two $1 million audits after the merger.

We find that the transaction will not diminish the jurisdiction of the Commission or its capacity to regulate and audit utility operations in California. First, we note that nothing in this transaction affects the jurisdictional authority of this Commission. Second, the allegations by TURN and ORA that the merger will decrease the Commission's regulatory capacity are unsubstantiated.

As to audits, we note that the Commission's decisions in D.04-02-063 and D.04-09-061 demonstrate that changes in industry structure have not diminished the Commission's authority or capacity to audit utility operations. Even as corporate structures have become more complex, the ability of the Commission to exercise regulatory oversight has adapted with regulatory structures more attuned to the competitive environment, including a shift from traditional rate-of-return regulation to price cap regulation in the telecommunications industry, while at the same time maintaining the Commission's auditing authority.

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

The Applicants state "this transaction is occurring at the parent, holding company level and involves no creation or consolidation of existing physical assets."⁷⁵ The Applicants state that "The Commission has consistently held that the indirect transfer of ownership of facilities, as is the case with this transaction, does not raise significant environmental concerns."⁷⁶

No party has raised environmental issues concerning the proposed financial transaction. We find that this application raises no environmental issues of concern.

7.3.1.6. Does the Transaction Provide Mitigation Measures to Prevent Significant Adverse Consequences Which May Result?

The Applicants argue that, consistent with the wording of Pub. Util. Code § 854(d), "mitigation measures should be imposed only if necessary to mitigate some `significant adverse consequences that may result' from the transaction." The Applicants argue that the Commission has consistently refused to approve merger conditions unrelated to the issues raised by the merger itself. The Applicants accuse the Intervenors of using this proceeding as an opportunity to satisfy their own agendas by attempting to impose merger conditions unrelated to the transaction itself. The Applicants argue that the "Commission should not accede to Intervenors' attempts to fulfill their wish-lists by imposing conditions that have little or nothing to do with the transaction itself."⁷⁷ Applicants claim that since the transaction does not produce significant adverse consequences, no conditions are appropriate.

CALTEL proposes a series of mitigation measures, including: 1) a price cap plan for Verizon's wholesale network elements; 2) a requirement that Verizon provide fair interconnection prices, terms and conditions for IP facilities and capabilities; 3) the imposition of a cap on Verizon's intrastate special access rates for five years.

Cox cites § 854(c)(8) and argues that the Commission is required to provide mitigation measures. Cox then argues that three conditions are needed: 1) a condition allowing CLECs to opt-in to interconnection agreements that Verizon has negotiated and/or interconnection agreement provisions that Verizon has arbitrated in California; 2) a condition requiring Verizon to transit traffic consistent with TELRIC pricing and free of burdensome and unnecessary restrictions; and 3) a condition requiring Verizon to offer extensions on existing IP backbone agreements.

Level 3 asks for 1) divestiture of overlapping in-region facilities; 2) a series of conditions on special access pricing; 3) a requirement that Verizon exchange all VoIP traffic at the local compensation rate; 4) a requirement that the merged company return unused telephone number blocks; and 5) a requirement that Verizon offer stand-alone DSL.

ORRA proposes an extensive set of requirements tied specifically to the various elements of § 854(b) and § 854(c). A summary is provided on pages 54-59 in ORA's Opening Brief.

Pac-West proposes a merger condition to "ensure the availability of non-discriminatory interconnection with the packet-switched network facilities of Verizon."⁷⁸ The condition is:

In the absence of a negotiated agreement acceptable to any requesting CLEC, Verizon's affiliates certificated as public utilities in California shall consent to participate in arbitration proceedings conducted by this Commission pursuant to Section 252 of the Communications Act, the purpose of which shall be to establish reasonable and non-discriminatory terms and conditions of interconnection between the networks of Verizon's certificated affiliates in California and the network of the requesting CLEC. This interconnection shall include all technologies and network architectures deployed by the Verizon affiliates in California, including but not limited to all packet-switched network technologies. As a condition of this merger, Verizon shall further waive any claims that such interconnection obligation involving all of its deployed network architectures exceeds the scope of permissible arbitration under Section 252.⁷⁹

Qwest proposes six conditions for the merger: (1) divest all overlapping facilities;(2) institute a price freeze on special access; (3) show no favoritism post-merger to new affiliates; (4) agree to resell services purchased from other ILECs out of region; (5) give a "fresh look" right for customers to terminate all contracts; (6) agree to offer stand-alone DSL.

Telscape asks that the Commission require Verizon to sell its UNE-L facilities at a 50 percent discount.

TURN's chief focus is in contesting approval of the merger, and proposed conditions are only part of TURN's showing. If the application is approved, TURN proposes these conditions:

1. A five-year rate freeze for residential and small business basic exchange rates;

2. A requirement that the 1FR, 1MR, 1MB, and local measured usage and ZUM services be available on a stand-alone basis.

3. A requirement that Applicants agree to prominently list the availability of these services in phone books, on the web, and in bill inserts;

4. A requirement that Applicants offer intrastate long distance calling without a minimum monthly fee;

5. A requirement that Verizon provide a competitive alternative for residential and small business customers in SBC's service territory no later than 18 months from the consummation of the merger.

6. The submission of quarterly reports on the progress of competitive offerings.

7. The imposition of a non-trivial penalty, "e.g., $10 million," each month if Verizon fails to meet a "target of providing meaningful competitive alternative within 18 months."⁸⁰

8. Adopt a cost of capital now for use in upcoming UNE proceedings;

9. Make approval conditional upon Applicants' agreement to fund independent third-party monitoring of competitive conditions in California;

10. Require corporate affiliates to cooperate with third-party monitoring;

11. Reequire Applicants to agree to the service quality monitoring recommendation outlined in TURN's Comments in the Rulemaking on General Order 133-B;

12. Adopt further conditions to require the tracking of the deployment of new technology by wire center, along with statistics about wire center demography;

13. Make Commission approval contingent on Applicants' agreement to fund two independent audits of Verizon's affiliate transactions;

14. Require Applicants to commit in writing that all corporate affiliates of Verizon will make their books and records available for inspection by Commission staff and the third-party auditor;

15. Require that Applicants modify their standard non-disclosure and protective agreement so that it allows parties to use material obtained in one Commission docket in any other regulatory proceeding as long as the confidentiality of the information is maintained.

DRA argues that the Commission should adopt merger conditions in six areas: (1) ensure that Applicants maintain and improve customer service for customers with disabilities; (2) require that Applicants renew their commitment to universal design principles; (3) require improvements in accessibility of all communications; (4) improve polices related to bundled services and basic phone service; (5) ensure that an internal committee for voicing the concerns of the disability community is created; (6) establish auditing and reporting requirements.

Finally, we note that the AG Opinion expresses a concern arising from the merger: that the merger will "produce incentives for the two `independent' entities to engage in anticompetitive cross-subsidization that could occur in which Verizon ratepayers end up paying for purchases made by MCI at inflated prices."⁸¹ The AG Opinion makes no recommendation on mitigation measures, but encourages the Commission to "scrutinize post-merger transactions between Verizon's regulated and non-regulated affiliates" to ensure that anti-competitive cross-subsidization does not occur.

7.3.1.7. Adopted Mitigation Conditions

For the reasons that we have discussed, we conclude that a number of conditions are necessary for approval of this application if we are to comply with the legislative mandate set forth in § 854. Accordingly, our order today imposes the following conditions on this transaction:

· Applicants shall flow through to their customers $103 million, or 50% of the $206 million net synergies attributable to California. (See discussion in Section 5.)

· Applicants shall maintain a five-year rate freeze for residential and small business basic local exchange services, including 1FR, 1MR, 1MB customers, and residential inside wire maintenance plans. (See discussion in Section 6.)

· Applicants shall for five years make these basic services available on a stand-alone basis, separately list the service in web sites and through bill inserts, and retain a pricing option for long distance calling with no minimum monthly fee. (See discussion in Section 6.)

· Applicants shall report to the Commission one year after the effective date of this decision on the impact of employee layoffs on both union and non-union employees in the state of California. (See discussion in Section 7(d).)

· Verizon California shall continue to increase the supplier diversity goal for minority business enterprises from the current 15% to a minimum of 20% by the year 2010, and it shall make a good faith effort to commit $200,000 per year in development costs for five years to enhance an internal infrastructure supporting its diversity goal. (See discussion in Section 8.)

· In addition to synergy benefits, Verizon California shall increase its 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. (See discussion in Section 8.)

· Applicants shall make stand-alone DSL service for high-speed Internet access available to consumers, and the DSL shall be based on industry standards to be compatible with competing providers' VoIP and other advanced services. (See discussion in Section 9.)

· Verizon shall be required for five years to allow any CLEC to adopt in California any agreement (except for state-specific prices and performance schedules) that Verizon has negotiated in any other state or any provision (or set of interrelated provisions) that Verizon has included in an agreement as the result of arbitration in California. We adopt this requirement because CALTEL has made a persuasive showing that this "opt-in" requirement is necessary to safeguard competition after the elimination of MCI and AT&T as competing carriers. (See discussion in Section 6.1.)

· We adopt a rate freeze on intrastate special access rates for both Verizon and MCI for a five-year period as a mitigation against excessive rate increases. We adopt this requirement on the recommendation of CALTEL and other parties.

· We adopt the recommendation of Internet service providers that Applicants agree to honor all of their existing Internet peering arrangements and to offer extensions, if requested by a carrier, at existing terms, conditions and prices. This condition shall remain in effect for a five-year period from the effective date of this decision. We conclude that this peering condition is necessary to support our finding that the merger is not anticompetitive. (See discussion at Section 6.2(c).

⁴⁴ Application Section X(A) and Verizon/MCI 3, Section VII(A).

⁴⁵ Verizon/MCI 4, Section VI.

⁴⁶ Verizon/MCI 3, Section V(A).

⁴⁷ Verizon/MCI 3, Section VII(A).

⁴⁸ Verizon/MCI 3, Section VI.

⁴⁹ Joint Applicants Opening Brief, p. 46.

⁵⁰ ORA, Opening Brief, p. 41, citing Ex. ORA 3, pp. 12-13.

⁵¹ TURN, Opening Brief, p. 71.

⁵² Joint Applicants' Opening Brief, at 47.

⁵³ Id.

⁵⁴ ORA Opening Brief, p. 47.

⁵⁵ DRA Opening Brief, at 2.

⁵⁶ DRA Opening Brief, at 3.

⁵⁷ Application at 13

⁵⁸ Application at 30.

⁵⁹ Verizon/MCI 3 at 25.

⁶⁰ Application at 32.

⁶¹ Verizon/MCI 3 at 25.

⁶² TURN Opening Brief at 75.

⁶³ ORA Opening Brief at 48

⁶⁴ ORA Opening Brief at 58.

⁶⁵ Applicants' Opening Brief at 49.

⁶⁶ Verizon/MCI 24(c) at 23-24.

⁶⁷ Verizon/MCI 23(c) at 28.

⁶⁸ http://investor.verizon.com/news/20050214/20050214_bw.pdf, p. 28.

⁶⁹ Applicant Opening Brief at 50.

⁷⁰ Joint Applicants Opening Brief, p. 51.

⁷¹ Joint Applicants Opening Brief, at 52.

⁷² TURN Opening Brief, at 76-79; TURN Reply Brief, at 50.

⁷³ Application, at 12 and 13.

⁷⁴ ORA Opening Brief, at 50.

⁷⁵ Joint Applicants Opening Brief, at 55.

⁷⁶ Joint Applicants Opening Brief, at 56 (footnotes omitted).

⁷⁷ Joint Applicants Opening Brief, p. 57.

⁷⁸ Pac-West Opening Brief, at 25.

⁷⁹ Pac-West, Opening Brief, p. 25, citing Pac-West Ex. 1, p. 28.

⁸⁰ TURN Opening Brief, p. 166.

⁸¹ Advisory Opinion, p. 24.