Verizon/MCI Merger

Joint Application 05-04-020

Verizon and MCI (collectively, Applicants) filed a joint application on April 21, 2005 for CPUC authority to transfer control of MCI’s California utility subsidiaries to Verizon.

• Initially, MCI will merge into ELI Acquisitions, LLC, a wholly-owned subsidiary of Verizon created solely to facilitate the merger transaction. When the transaction is completed, the new company – which will be called MCI, LLC. – will be a subsidiary of Verizon.
   
• The transaction does not involve any change or assignment of existing licenses or authorizations. As such, MCI and Verizon will continue to provide service to the public under licenses and authorizations held respectively prior to the transaction.
   
• Applicants are seeking concurrent approval from the FCC, SEC, DOJ and 23 state commissions (including the CPUC).

The merger seeks to enhance the abilities of each company to compete and provide a more comprehensive suite of services to consumers, business and government through the combined company.

• MCI states that its consumer business is in an irreversible decline and that it must focus on its enterprise market and Internet backbone. MCI’s substantial Internet backbone, specifically, will complement Verizon’s existing local exchange, wireless networks, and consumer market share.
   
• The new company will deliver broadband to a greater share of the mass market and provide a full array of services using the latest technologies.

Merger benefits are estimated at $8.6 million over four years with a present value of $6.2 million.

• Applicants believe they are exempt from Public Utility Code Sections 854(b) and (c) and that no mitigation measures or distribution of economic benefits to ratepayers are necessary.
   
• They are nonetheless providing the Commission with full information about the nature and scope of the economic benefits associated with the merger agreement.
   
• If required, Applicants propose two approaches to share merger benefits with ratepayers.

A community project to increase broadband access in low income areas, and

A surcredit on Verizon customer bills to distribute any remaining benefits.

Sixteen parties filed protests or responses, May 24-25, 2005:

CALTEL, Covad, Cox, “Joint Intervenors” (Consumers Federation, Consumers Union, Disability Rights Advocate, Greenlining, Latino Issues Forum, TURN, and UCAN), Level 3, Navigator, ORA, Pac-West, Qwest, Telscape and XO.

• The protests state that the merger is detrimental to the public interest as the combined entity would have dominant market power in retail local and long distance telecommunications services, wholesale market circuit-switched and broadband access facilities.
   
• They contend, also, that merged company would have significant market presence in unregulated markets (wireless and advanced services).
   
• Commenters request merger conditions that will ensure California’s pro-competitive telecommunications policies are enforceable after the merger.

Applicants replied to the comments on June 6, 2005.

• Applicants ask the Commission to reject attempts to block the transaction subject to a prolonged regulatory inquiry into onerous, unnecessary and unrelated conditions.
   
• Instead they request expeditious review and approval of the merger so benefits can be delivered quickly and so the Applicants can keep pace with technological and structural changes which are rapidly transforming the communications industry.

A Prehearing Conference (PHC) will be held at the Commission on June 21, 2005.

• At the PHC, Assigned ALJ Glen Walker and Assigned Commissioner Kennedy will hear the parties’ views on such procedural matters as the need for Public Participation Hearings, evidentiary hearings, and expedited discovery procedures.
   
• A scoping memo will be issued, following the PHC, setting the procedural schedule and defining the scope of the issues.