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OAH Docket No. 11-2500-21391-2 PUC Docket No. P-421, et al./PA-10-456 |
STATE OF
OFFICE OF
ADMINISTRATIVE HEARINGS
FOR THE PUBLIC
UTILITIES COMMISSION
|
In the Matter of the Joint Petition for Approval of Indirect Transfer
of Control of Qwest Operating Companies to CenturyLink |
FINDINGS
OF FACT, CONCLUSIONS OF LAW, AND
RECOMMENDATION |
The above-entitled matter
came before Administrative Law Judge Barbara L. Neilson for evidentiary
hearings on
Michael J. Ahern and Karly Baraga Werner, Dorsey & Whitney, LLP, and Susan S. Masterton, CenturyLink, appeared on behalf of CenturyLink.
Jason D. Topp, Qwest Corporation Law Department, appeared on behalf of Qwest.
Dan Lipschultz, Moss & Barnett, P.A., appeared on behalf of McLeodUSA Telecommunications Services, Inc. d/b/a PAETEC Business Services; OrbitCom, Inc.; TDS Metrocom; POPP.com, Inc.; tw telecom of minnesota, llc; DIECA Communications, Inc., d/b/a Covad Communications Company; Crystal Communications, Inc., d/b/a Hickory Tech; and Enventis Telecom, Inc., and CP Telecom, Inc. d/b/a Enventis. Mr. Lipschultz also appeared on behalf of the “Rural CLECS,” which are composed of Ace Link Telecom., C-I Communications, Consolidated Telephone Co., Consolidated West, Farmers Mutual Telephone Co., Hometown Solutions, Hutchinson Telecommunications Co., Mainstreet Communications, New Ulm Telecom, Otter Telcom, Paul Bunyan Rural Telephone Cooperative, and Wikstrom Telephone Co.
Gregory Merz, Gray, Plant, Mooty, Mooty & Bennett, P.A., appeared on behalf of Integra Telecom of Minnesota, Inc. and Eschelon Telecom of Minnesota, Inc. (collectively “Integra”) and Velocity Telephone, Inc.
Rogelio Pena, Pena & Associates, appeared on behalf of Level 3 Communications.
K.C. Halm, Davis Wright Tremaine LLP, appeared on behalf of Charter
Fiberlink CCO, LLC.
Tom Bailey, Briggs
& Morgan, P.A., appeared on behalf of Sprint Communications Company, L.P.,
d/b/a Sprint, Sprint Spectrum, L.P. d/b/a Sprint PCS, Nextel West Corp. d/b/a
Nextel, and NPCR, Inc. d/b/a Nextel Partners (“Sprint”); T-Mobile Central, LLC
(“T-Mobile”); and Cbeyond Communications, LLC.
Scott Rubin, Attorney at Law, appeared on behalf of the Communication Workers of America, accompanied by Gregg Corwin and Cristina Parra Herrera, Gregg M. Corwin & Associate Law Office, P.C.
Julia E. Anderson, Assistant Attorney General, appeared on behalf of the Minnesota Department of Commerce, Office of Energy Security (OES).
Robert
Vose, Kennedy & Graven, appeared on behalf of the Suburban Rate Authority.
STATEMENT OF ISSUES
Minn. Stat. § 237.23[1] specifies that it is unlawful for telephone companies or other entities subject to the provisions of Chapter 237 to “purchase or acquire the property, capital stock, bonds, securities, or other obligations, or the franchises, rights, privileges, and immunities of any telephone company doing business within the state without first obtaining the consent of the [C]ommission.” Similarly, Minn. Stat. § 237.74, subd. 12, states that:
No telecommunications carrier shall construct or operate any line, plant, or system, or any extension of it, or acquire ownership or control of it, either directly or indirectly, without first obtaining from the [C]ommission a determination that the present or future public convenience and necessity require or will require the construction, operation, or acquisition, and a new certificate of territorial authority. . . .
The overall issue to be addressed in this case is whether the proposed acquisition of Qwest by CenturyLink is in the public interest under Minn. Stat. § 237.23 and 237.74, subd. 12. As set forth in the Public Utilities Commission’s Notice and Order for Hearing, that issue includes the following three inquiries:
a.
Whether the post-merger company would have the
financial, technical, and managerial resources to enable the Qwest and
CenturyLink Operating Companies to continue providing reliable, quality
telecommunications services in
b.
What impact the transaction would have on
c. What impact the transaction would have on Commission authority.
Based upon the record herein the Administrative Law Judge makes the following:
1. The Joint Petitioners in this proceeding are (1) Qwest Communications International, Inc.; (2) Qwest Corporation (“Qwest”); (3) Qwest LD Corp. and Qwest Communications Company LLC (collectively the “Qwest Operating Companies”); (4) CenturyLink, Inc. (“CenturyLink”), along with CenturyTel Holdings Inc. and CenturyTel of the Northwest, Inc; and (5) CenturyTel of Minnesota, Inc. d/b/a CenturyTel of Chester, Inc. d/b/a CenturyLink; CenturyTel of Northwest Wisconsin, LLC d/b/a CenturyLink; CenturyTel Acquisition LLC d/b/a CenturyLink Acquisition; CenturyTel Solutions, LLC d/b/a CenturyTel Solutions; CenturyTel Fiber Company II, LLC d/b/a LightCore, a CenturyLink Company; CenturyTel Long Distance, LLC d/b/a CenturyTel Long Distance; Embarq Corporation; Embarq Minnesota Inc. d/b/a CenturyLink; and Embarq Communications, Inc. d/b/a CenturyLink Communications (collectively the “CenturyLink Operating Companies”).[2]
2.
The Joint Petitioners are incumbent local
exchange carriers ("ILECs") operating in
3.
Qwest is
4.
CenturyLink (formerly known as CenturyTel) is a
publicly-traded
5.
A group of CLECs actively participated in this
matter, jointly sponsored some witnesses, and jointly filed briefs.[6]
6.
Sprint Communications Company, L.P. d/b/a
Sprint, Sprint Spectrum, L.P. d/b/a Sprint PCS, Nextel West Corp. d/b/a Nextel,
and NPCR, Inc. d/b/a Nextel Partners (“Sprint”) and T-Mobile Central, LLC
(“T-Mobile”) also were active participants in this proceeding. Sprint is certified by the Commission as a
CLEC and an interexchange carrier (“IXC”) and currently provides local,
intraexchange, and interexchange telecommunications services in
7.
Prior to reaching a settlement with the Joint
Petitioners shortly after the evidentiary hearing concluded, the Communications
Workers of America also actively participated in this matter. The CWA is an international union with 8,764
members in
8. The Department of Commerce (DOC) reached a settlement agreement with the Joint Petitioners just prior to the start of the hearing and did not offer the testimony that previously had been prefiled on its behalf. The DOC presented testimony at the hearing concerning the settlement agreement and also provided post-hearing briefs on the settlement.
9. The Suburban Rate Authority, which is a joint powers association comprised of 27 municipalities in the Twin Cities metropolitan area, filed a post-hearing brief but otherwise did not participate actively during this proceeding.
B. Procedural History
10. On May 14, 2010, Qwest and CenturyLink filed with the Public Utilities Commission a Joint Petition for approval of the indirect transfer of control of Qwest Communications International, Inc., Qwest Corporation, Qwest Communications Company, LLC, and Qwest LD Corp. under an Agreement and Plan of Merger as of April 21, 2010 (the “Merger Agreement”).
11.
On May 19, 2010, and May 20, 2010, the
Commission issued notices seeking comments on the Joint Petitioners' filing and
the appropriate procedural framework and schedule. On
12. On June 15, 2010, the Commission issued a Notice and Order for Hearing; Order Approving Protective Order, Requiring Customer Notices, and Requiring Filing of Settlements. The Commission directed that a contested case proceeding pursuant to the Administrative Procedure Act, Minnesota Statutes §§14.57 – 14.62, be held on the issue of whether the proposed merger is consistent with the public interest, including the specific inquires set forth in the Statement of Issues above.[12] In the Notice of Hearing, the Commission noted that the Joint Petitioners wished to complete the proposed merger as soon as possible and had requested expedited action, and indicated that the “Commission concurs, subject to the requirements of proper record development and informed decision-making.”[13] The Commission therefore asked that the Administrative Law Judge “conduct contested case proceedings as expeditiously as possible” and requested that the Report of the Administrative Law Judge be submitted by November 30, 2010, “if that can be done consistent with due process, full evidentiary development, and due deliberation.”[14] The Commission also approved the draft Protective Order filed by the Joint Petitioners and the DOC; directed that any settlement reached between any of the parties in this case be transparent and filed as part of the case record; and required that the Joint Petitioners notify all Minnesota customers of the proposed merger and the opportunity to comment on it in a mailing separate from the customers’ normal billings.[15]
13.
The Joint Petitioners mailed the customer
notices required by the Commission’s Oder of June 15, 2010, to their
14. The Minnesota Department of Commerce (DOC or Department) intervened in this matter as of right. Prior to issuance of the Notice of Hearing, the Commission granted the intervention petitions of Integra Telecom of Minnesota, Inc. and Eschelon Telecom of Minnesota, Inc. (collectively “Integra”); and Velocity Telephone, Inc. After the matter was referred to the Office of Administrative Hearings, additional petitions to intervene in this proceeding were filed pursuant to Minnesota Rules Part 1400.6200, and the following were made parties to this Proceeding:
·
McLeodUSA Telecommunications Services, Inc.
d/b/a PAETEC Business Services; OrbitCom, Inc.; TDS Metrocom; POPP.com,
Inc.; tw telecom of minnesota, llc; and
DIECA Communications, Inc., d/b/a Covad Communications Company;
·
Ace Link
Telecom., C-I Communications, Consolidated Telephone Co., Consolidated West,
Farmers Mutual Telephone Co., Hometown Solutions, Hutchinson Telecommunications
Co., Mainstreet Communications, New Ulm Telecom, Otter Telcom, Paul Bunyan
Rural Telephone Cooperative, and Wikstrom Telephone Co. (collectively “Rural
CLECs”);
·
Crystal Communications, Inc., d/b/a
·
Enventis Telecom, Inc., and CP Telecom, Inc.
d/b/a Enventis;
·
Level 3 Communications;
·
Sprint;
·
T-Mobile;
·
Cbeyond
Communications, LLC;
·
Verizon;
·
the Communication Workers of
· the Suburban Rate Authority.
15. The Administrative Law Judge denied the petition of Midcontinent Communications to intervene by order dated August 13, 2010. However, Midcontinent was permitted to participate in the proceeding pursuant to Minn. R. 1400.6200, subp. 5, and 1400.7150. Mary Lohnes, Regulatory Affairs Manager for Midcontinent Communications, filed comments on September 10, 2010.
16. On July 15, 2010, Verizon filed a Withdrawal and Dismissal of its intervention. The CWA and 360 networks also subsequently withdrew after reaching settlement agreements with the Joint Petitioners.
17.
A prehearing conference was held before the
Administrative Law Judge on July 7, 2010.
On
18.
On August 11, 2010, Sprint filed a Motion to
Compel Qwest and CenturyLink (the Joint Petitioners) to respond to seventeen
Information Requests. By letter dated
19. On August 16, 2010, the Communications Workers of America (CWA) filed a Motion to Compel the Joint Petitioners to respond to eight Information Requests.
20. On August 23, 2010, Integra Telecom filed a Motion to Compel the Joint Petitioners to respond to one Information Request.
21. On August 31, 2010, the Joint Petitioners filed their Response to the Motions to Compel of CWA and Integra. At the same time, they also filed a Motion for a Supplemental Protective Order.
22. On September 2, 2010, the CWA filed a Reply Brief regarding its Motion to Compel.
23. On September 8, 2010, oral argument regarding all three Motions to Compel was heard in the Large Conference Room at the Public Utilities Commission.
24. On September 13, 2010, Sprint, T-Mobile, and Cbeyond Communications filed a Joint Response Opposing the Joint Petitioners’ Motion for Supplemental Protective Order. On the same date, Integra, the CWA, and the CLEC Coalition also filed Responses in Opposition to the Joint Petitioners’ Motion for Supplemental Protective Order.
25. The Joint Petitioners filed their Reply Brief regarding the Motion for Supplemental Protective Order on September 15, 2010.
26. On September 21, 2010, the Administrative Law Judge issued an Order regarding the Motions to Compel filed by Sprint, Integra, and the CWA, and the Motion for a Supplemental Protective Order filed by the Joint Petitioners. In that Order, the Administrative Law Judge granted Sprint’s Motion to Compel the Joint Petitioners to respond to two Information Requests; granted Integra’s Motion to Compel the Joint Petitioners to respond to one Information Request; granted the CWA’s Motion to Compel the Joint Petitioners to respond to six Information Requests; and granted in part and denied in part the CWA’s Motion to Compel the Joint Petitioners to respond to two other information requests. The September 21 Order directed the parties to “confer and attempt to reach agreement on what, if any, adjustments are needed to the schedule set forth in the First Prehearing Order as a result of the required production of the additional information encompassed by this Order” and indicated that a telephone conference call would be held to consider the matter if the parties were unable to reach agreement.
27. In the September 21, 2010, Order, the Administrative Law Judge also granted in part and denied in part the Joint Petitioners’ Motion for Supplemental Protective Order, and issued a Supplemental Protective Order that, where applicable, would govern the information produced in response to the Ruling on the Integra and CWA Motions to Compel. The Supplemental Protective Order modified the Small Company exception set forth in Section 4 of the Protective Order issued by the Commission on June 15, 2010, to restrict disclosure to a reasonable number of outside attorneys; a reasonable number of outside consultants; a reasonable number of in-house attorneys who have direct responsibility for matters relating to Highly Sensitive Trade Secret Information; and no more than three non-attorney in-house regulatory personnel. The Supplemental Protective Order continued to specify that such persons should not be primarily involved in marketing activities for the company, absent agreement or an order to the contrary. The Order did not modify the June 15 Protective Order governing disclosure to companies that did not fall within the Small Company exception. Finally, the Administrative Law Judge denied the Joint Petitioners’ request to restrict dissemination of information to certain representatives of the CWA.
28. On September 22, 2010, the Joint Petitioners filed a Motion for the Administrative Law Judge to Reconsider the September 21, 2010 Order on a Limited Basis or, in the Alternative, to Certify the Motion for a Supplemental Protective Order to the MPUC and a Request for a Stay. In their motion, the Joint Petitioners contended that the September 21, 2010, Order issued by the Administrative Law Judge failed to adequately protect a limited number of “extraordinarily sensitive” documents, and sought to have those documents disclosed only to outside counsel and outside experts of the private Intervenors.
29.
On September 23, 2010, a telephone conference
call was held with the parties to discuss a request to adjust the deadline for
filing the surrebuttal testimony, procedures for e-filing documents subject to
the Supplemental Protective Order, and the Joint Petitioners’ motion. During the conference call, the Joint Petitioners
proposed that the deadline for the filing of the Intervenors’ surrebuttal be
extended from September 27 to October 1, but otherwise argued that the schedule
should remain unchanged. The Intervenors
proposed that the dates for filing testimony and the evidentiary hearing itself
be extended. The Administrative Law
Judge extended the deadline for the filing of the Intervenors’ surrebuttal to
30.
On September 24, 2010, the Administrative Law
Judge issued a Fourth Prehearing Order confirming the rulings that were made
during the September 23, 2010, conference call.
In the Order, the Administrative Law Judge noted: “The evidentiary hearing shall remain
scheduled for
31. On September 27, 2010; Integra Telecom, Sprint, and T-Mobile filed responses in opposition to the Motion to Reconsider or Certify.
32. By Order dated September 28, 2010, the Administrative Law Judge required the Joint Petitioners to submit copies of the documents at issue in the Motion to Reconsider or Certify for in camera inspection by the Administrative Law Judge by the next day.
33.
On September 30, 2010, the Administrative Law
Judge issued an Order which granted in part and denied in part the Joint
Petitioners’ Motion to Reconsider or Certify and issued a Second Supplemental
Protective Order that, where applicable, would govern the information produced
in response to the Ruling. The Joint
Petitioners were required to provide the information at issue to the
appropriate parties by
34.
On October 1, 2010, the Administrative Law Judge
granted the Joint Petitioners’ motion to modify the portions of the First
Prehearing Order relating to objections to the qualifications of a witness or
the admissibility of prefiled testimony, and discussion of new information in
witnesses’ summaries of prefiled testimony.
Under the Order, the Joint Petitioners were permitted to file any
objections to the Intervenors’ Surrebuttal Testimony by
35. On October 4, 2010, the Joint Petitioners and the Department of Commerce filed a Stipulation and Agreement and a Joint Motion for Approval by the Commission of the Stipulation and Agreement.
36.
On October 4, 2010, the CWA filed a Motion to
Change the Confidentiality Designation of Particular Information Produced by
Qwest. Qwest filed a Response to the
Motion on
37. The Joint Petitioners and intervening parties submitted prefiled direct and responsive testimony on June 14, 2010, August 19, 2010, September 13, 2010, September 27, 2010, and October 1, 2010.
38. The initial portion of the hearing was held as scheduled on October 5-7, 2010.
39. During the hearing on October 6, 2010, the Intervenors informed the Administrative Law Judge that they wished to submit additional testimony and schedule an additional day of hearing to address the discovery that had been provided by the Joint Petitioners after September 24, 2010, as well as the settlement agreement reached by the Joint Petitioners and the DOC that was filed on October 4, 2010.[16] After the parties presented their respective positions,[17] the Administrative Law Judge granted the Intervenors’ proposed adjustment to the schedule, noting that their proposal was granted because of “due process concerns and the fact that documents have been provided late in this proceeding.”[18] The modified schedule called for the submission of supplemental testimony on October 22 and October 29, 2010; an additional day of hearing on November 1, 2010; the submission of initial and reply briefs on November 9 and November 22, 2010; and issuance of the Report of the Administrative Law Judge on December 22, 2010.[19]
40.
On October 8, 2010, Integra filed a Motion to
Compel CenturyLink to produce all documents and information responsive to
Integra’s Third Set of Information Requests.
CenturyLink filed a Response to the Motion on
41.
Oral argument on the Integra and CWA Motions was
heard via telephone conference call on October 15, 2010. On
42.
On October 18, 2010, PAETEC, OrbitCom, TDS
Metrocom, POPP.com, tw telecom of
43. On October 25, 2010, the Administrative Law Judge issued an Order denying the Joint CLECs’ Motion to Strike. The Order clarified that the motion for approval of the Stipulation and Agreement reached between the Joint Petitioners and the Department of Commerce, along with the Joint CLECs’ response in opposition, the Joint Petitioners’ reply brief, and further discussion of this matter in hearing testimony and post-hearing submissions by the parties, would be addressed in the Findings of Fact, Conclusions of Law, and Recommendation issued by the Administrative Law Judge.
44. After receiving input from the parties, an Order for Settlement Conference was issued on October 27, 2010.
45. Additional prefiled surrebuttal and rejoinder testimony was submitted by the Intervenors and the Joint Petitioners on October 22 and 29, 2010.
46. An additional day of hearing was held on November 1, 2010.
47. During the hearing on October 5-7 and November 1, 2010, the prefiled testimony of eighteen witnesses was admitted into evidence. This included:
· the prefiled testimony of Duane Ring, John Jones, Mark Gast, Michael Hunsucker, John Stanoch, Michael Williams, Karen Stewart, and Robert Brigham sponsored by Joint Petitioners’;
· the prefiled testimony of James Appleby sponsored by Sprint;
· the prefiled testimony of Billy Pruitt sponsored by Charter;
· the prefiled testimony of Bonnie Johnson and Douglas Denney sponsored by Integra;
· the prefiled testimony of Richard Thayer sponsored by Level 3;
· the prefiled testimony of Timothy Gates and August Ankum sponsored by Cbeyond, Integra, Charter, Level 3, PAETEC, TDS Metrocom, tw telecom, OrbitCom, and Popp.com;
· the prefiled testimony of William Haas sponsored by McLeodUSA d/b/a PAETEC; and
· the prefiled testimony of Randy Barber and Jasper Gurganus sponsored by the CWA.
48.
A settlement conference was held before
Administrative Law Judge Kathleen D. Sheehy on
49. On November 8, 2010, the Joint Petitioners filed a Settlement Agreement that they had reached with Integra Telecom in the above matter.
50.
On November 10, 2010, Cbeyond, PAETEC, TDS
Metrocom, tw telecom, OrbitCom and POPP.com filed a Motion on behalf of the
Joint CLECS for Leave to File Additional Supplemental Testimony and for Modification
of the Schedule. On
51. On November 12, 2010, the Administrative Law Judge granted the Joint CLECs’ Motion for Leave to File Additional Supplemental Testimony and for Modification of the Schedule. Because the presentation of evidence during the hearing did not focus on the differing interests of the CLECs as they related to the Integra Settlement and any such differences would appear to be relevant to the Commission’s consideration of whether the terms of that settlement adequately protected the public interest, wholesale customers and competition, the Administrative Law Judge determined that the receipt of limited additional factual information on this issue was consistent with principles of due process and full evidentiary development. Accordingly, the Administrative Law Judge ordered a limited adjustment to the schedule to allow the record to be supplemented to address this issue. The schedule was modified to require the filing of initial post-hearing briefs on November 24, 2010, along with affidavits by the Joint CLECs regarding the Integra Settlement as it related to their interests and the broader public interest; the filing of reply briefs on December 8, 2010, along with affidavits by the Joint Petitioners responding to the Joint CLEC affidavits; notification by December 10, 2010, of whether cross-examination is desired as to the affidavits; issuance of the Report of the Administrative Law Judge on January 10, 2011; and the filing of exceptions and replies to exceptions on January 24 and 31, 2011.
52.
On November 15, 2010, the Joint Petitioners
filed an Emergency Motion for Reconsideration of the November 12, 2010
Scheduling Order. On
53. On November 17, 2010, the Administrative Law Judge modified the schedule set forth in the November 12, 2010, Order to shorten the deadlines for the filing of exceptions and replies to exceptions to January 18, 2011, and January 25, 2011, respectively, but denied the Joint Petitioners’ Emergency Motion in all other respects. In the Order, the Administrative Law Judge stated:
The Administrative Law Judge recognizes that the circumstances presented in this case are unique. Integra was a significant participant in this proceeding and one of the major proponents of the joint testimony offered in this matter. Its entry into a settlement agreement at this stage of the proceedings undoubtedly has an impact on the remaining CLECs. Because it appears that any differences in the interests of the CLECs would be relevant to the Commission’s consideration of whether the terms of the Integra Settlement provide adequate protection of wholesale customers and competition, the Administrative Law Judge remains convinced that a limited adjustment to the schedule to allow supplementation of the record to address this issue is proper and in keeping with due process principles.
54. On November 24, 2010, initial post-hearing briefs were filed by the Joint Petitioners; the Joint CLECs;[20] Level 3; Sprint and T-Mobile; the Suburban Rate Authority; and the DOC. The Joint CLECs filed eight affidavits with their initial brief. Sprint and T-Mobile filed one affidavit with their initial brief.
55. On December 8, 2010, reply briefs were filed by the Joint Petitioners; the Joint CLECs; Level 3; Sprint and T-Mobile; and the DOC. The Joint Petitioners did not file any affidavits with their reply brief.[21]
56. By December 10, 2010, no party had requested that additional cross-examination be conducted of the individuals who filed affidavits. The OAH record closed on that date.
57.
The Qwest entities currently operating in
58.
QCII, which indirectly owns the Qwest Operating
Companies, is a publicly-traded holding company. QCII’s subsidiaries provide incumbent local
exchange carrier (“ILEC”) operations in 14 states and nationwide competitive
local exchange and interexchange operations.
QCII is the indirect sole shareowner of QC, which provides
telecommunications services in
59.
QCII is the indirect sole shareowner of QLDC, which
provides resold interexchange services under the regulation of this Commission.
QLDC was formed by Qwest for the purpose of providing interLATA interexchange
services originating in
60.
The subsidiaries of CenturyLink that are operating
in Minnesota and are regulated by the Commission include CenturyTel of Chester,
Inc., d/b/a CenturyLink, CenturyTel of Northwest Wisconsin LLC d/b/a
CenturyLink, CenturyTel of Minnesota, Inc. d/b/a CenturyLink, and Embarq
Minnesota, Inc. d/b/a CenturyLink (collectively “the CTL Minnesota ILECs”). The CTL Minnesota ILECs provide service to
approximately 143,600 access lines in
61. The other regulated, indirect subsidiaries of CenturyLink registered in Minnesota are CenturyTel Long Distance, LLC d/b/a CenturyLink Long Distance, Embarq Communications, Inc. d/b/a CenturyLink Communications, CenturyTel Fiber Company II, LLC d/b/a LightCore, a CenturyLink Company, CenturyTel Solutions, LLC d/b/a CenturyLink Solutions, and CenturyTel Acquisition LLC d/b/a CenturyLink Acquisition (collectively “the CTL Regulated Entities”). None of the CTL Regulated Entities or any entity that holds a controlling interest in them is experiencing a change in control as a result of this Transaction. The control of these companies will remain with CenturyLink.[26]
62. On April 21, 2010, QCII, CenturyTel, Inc. (which is now named CenturyLink, Inc.), and SB44 Acquisition Company ("Acquisition Company") entered into an Agreement and Plan of Merger. Acquisition Company is a direct wholly-owned subsidiary of CenturyLink created to effectuate the merger. Under the terms of the Merger Agreement, QCII and the Acquisition Company will merge, after which QCII will be the surviving entity and will become a wholly-owned, first-tier subsidiary of CenturyLink.[27]
63. Administrative notice was taken of the merger agreement, which was not offered as an exhibit in this proceeding. The merger agreement may be found at www.centurylinkqwestmerger.com/downloads/sec-filings/Qwest-8K%204-22-10.pdf .[28]
64. After the proposed transaction is closed, QCII shareholders will receive 0.1664 CenturyLink shares for each share of QCII common stock they own at closing. Upon completion of the transaction, the shareholders of pre-merger CenturyLink will own approximately 50.5% of post-merger CenturyLink, and the shareholders of pre-merger QCII will own approximately 49.5% of post-merger CenturyLink. CenturyLink will issue new stock to acquire QCII, and the proposed transaction does not involve the payment of cash.[29]
65. The proposed merger is designed to result in a non-taxable, stock-for-stock business transaction with no new debt or refinancing required.[30]
66. After the merger, the CTL Regulated Entities will retain their individual corporate identities and continue to operate as they do today. The Applicants committed that each company would continue to abide by all applicable statutes, rules, regulations, Commission orders, obligations, tariffs and pricelists under which they are currently regulated.[31]
67. The Transaction will not result in the transfer of assets, exchanges or operations to a wholly different provider. QCII will become a wholly owned subsidiary of CenturyLink. QCII’s operating subsidiaries, QC, QCC and QLDC, will remain subsidiaries of QCII.[32]
68. Following the completion of the Transaction, the CenturyLink Board of Directors will increase from 13 members to 17 members. Four directors from the QCII Board of Directors will be added to the CenturyLink Board of Directors, including Edward A. Mueller, QCII’s Chairman and Chief Executive Officer.[33]
69. The Transaction will result in a parent-level transfer of control of QCII only. QC, QCC, and QLDC will each continue to operate as separate carriers, providing services to their customers under the same regulatory regime in existence prior to the merger. The Joint Petitioners indicated that, after the transaction is completed, “there may be a change in the names under which the companies are doing business (i.e., the ‘d/b/a’ name) and certain billing and certain billing operations may be combined, but otherwise the transaction will be transparent for customers.” The Joint Petitioners noted that retail end users and wholesale customers will continue to receive service from the same carrier that served them before the merger.[34] In addition, the Joint Petitioners indicated that, following the merger, “customers will continue to receive the same full range of products and services at the same rates, terms and under the same conditions as they did immediately before the close of the Transaction.”[35]
70. The DOC stressed the fact that there will be no change in corporate structure of the CenturyLink and Qwest operating entities as a result of the transaction. The proposed transaction is a parent level transfer of control, and the existing separate operating entities will continue to exist after the merger. Accordingly, the pre-merger obligations of these entitles will continue to apply after the merger. It was in this context that the DOC entered into a settlement agreement with the Joint Petitioners.[36]
71. A substantial number of public comments were filed in this proceeding with both the Administrative Law Judge and the Commission. All of the comments received have been e-Filed in this Docket.
72. In general, the comments filed by retail customers focused on broadband speeds and deployment, service quality and price, and loss of competition. Some individuals objected to the merger because they felt it would result in too large a company and benefit only corporate executives. Others expressed concern that the post-merger company would ultimately reduce services and increase costs. Several customers sought clarification on the effect of the merger on the “Price for Life” contracts they have with Qwest. Businesses and local units of government, particularly those in predominantly rural areas, tended to support the merger based on the belief that a larger, well-funded post-merger company would invest in the facilities needed to provide high speed internet access and other telecommunication services. Current customers of CLECs encouraged the Commission to condition the merger on (1) protecting the terms and conditions under which CLECs interconnect with Qwest, and (2) ensuring that any changes to Qwest’s OSS are adequately tested with CLECs before implementation, so that their businesses are not disrupted. In addition, several individuals who have retired from Qwest expressed concern about what, if any, impact the merger would have on their pension benefits.
73. A more detailed summary of a representative sample of the public comments is attached to this Report as Appendix A.
IV. Settlement Agreements
74. Between October 1, 2010, and the date of this Report, four separate settlement agreements between the Joint Petitioners and certain interested parties were filed in this matter. As discussed below, these agreements were reached by the Joint Petitioners and the following parties: 360 networks; the DOC; the CWA; and Integra.
75. An overview of each of these Settlement Agreements is provided below.
A. 360networks
Settlement Agreement
76.
360networks is authorized to provide both local
exchange and interexchange services in
77.
On September 28, 2010, Joint Petitioners and
360networks entered into a Settlement Agreement that resolved all issues
between them, including the manner in which the company's interconnection
agreements with Qwest will be handled after the merger. The Settlement Agreement was filed in this
docket on
78. Under the terms of the agreement reached with 360networks, Qwest Corporation and any successor entity operating in current Qwest territories (1) agreed to honor all obligations under its existing ICAs with 360networks; (2) agreed not to terminate or change the conditions of certain of 360networks’ ICAs (those that have either not expired as of the transaction closing date or have been expired less than three years as of the closing date) for 36 months after the closing date with the exception of changes of law, unless the parties agreed otherwise or a default or other triggering event occurred; and (3) agreed to allow 360networks to use its currently existing ICA as the basis for negotiating the initial successor agreement, and to incorporate the amendments to the existing ICA into the body of the agreement. The agreement specifies that 360networks will not be precluded from obtaining the benefits of additional FCC conditions not addressed in this agreement. In exchange, 360networks agreed that it would immediately take all necessary steps to withdraw from or cease participation in all pending merger review dockets.
B. DOC Settlement Agreement
79.
The Joint Petitioners and the Department reached
an agreement in principle on Friday morning, October 1, 2010. Rebuttal testimony was to be filed by the end
of the day on
80.
The Joint Petitioners and the DOC filed their
Stipulation and Agreement and a Joint Motion for Approval of Stipulation and
Agreement on October 4, 2010. Based on
the commitments contained in the Stipulation and Agreement, the DOC “finds that
the transaction at issue in this docket is in the public interest as
contemplated by
81.
As noted in the Procedural Findings above, a
formal Notice of Opposition to the DOC Settlement was filed on October 18,
2010, by PAETEC, OrbitCom, TDS Metrocom, POPP.com, tw telecom of
82. By letter dated October 20, 2010, the DOC responded to the Joint CLECs’ Notice of Opposition. The DOC maintained in its letter that the Settlement Agreement between the Joint Petitioners and the DOC was appropriately negotiated, is in the public interest and should be approved.
83.
On October 20, 2010, the Joint Petitioners filed
a letter brief in support of their Motion for Approval of the DOC Stipulation
and Agreement. The Joint Petitioners
argued that the separate settlement talks and Proposed Agreement between the
Joint Petitioners and the DOC were not unusual, and pointed out that
participants in this proceeding would have adequate opportunity to advocate
their respective positions on the Settlement Agreement. They asserted that the
Settlement Agreement is in the public interest and that the commitments
reflected in the Agreement provide important benefits regarding broadband
investment and rates for
84. The Stipulation and Agreement between the Joint Petitioners and the DOC was admitted into evidence during the hearing,[40] along with a subsequent Supplemental Stipulation and Agreement clarifying the terms and conditions of the agreement.[41] In addition, Diane Wells, Manager, DOC Telecommunications Division, provided testimony during the evidentiary hearing regarding the settlement, and provided an affidavit at the time that the DOC filed its reply brief.
85. The primary commitments made by the Joint Petitioners in the DOC Settlement Agreement (as further clarified in the Supplemental Stipulation and Agreement) are summarized below:
Broadband Commitment
·
The post-merger Company will invest $50 million
in broadband infrastructure in
· This commitment applies to investments to serve retail broadband customers only. The term "unserved" means "areas that do not have access to broadband service of 256 Kbs (or above) download speed from any wireline provider.” The term "underserved" means "areas that do not have 1.5 mps or below broadband download speeds available from any wireline provider.” The geographic area associated with this commitment is measured by "living units" (individual street address).[43]
Wholesale Commitments
Operational System
Support
· Qwest Corporation or any successor entity will not discontinue their wholesale Operations Support Systems (OSS) for a minimum of 24 months after the date the transaction closes. If any Qwest OSS is later changed or retired, Qwest Corporation will utilize the terms and conditions set forth in the Change Management Process (CMP). At least 6 months notice will be provided prior to the retirement of the legacy Qwest OSS from current Qwest territories.[44]
· If any CenturyLink OSS is introduced, changed, or retired, CenturyLink will provide 6 months advance notice to the affected interconnecting carriers.[45]
·
During the 6-month period established for
retiring a Qwest or CenturyLink OSS, any interconnected CLEC or Commercial
Mobile Radio Service (CMRS) provider will be permitted to test the proposed
replacement
·
The Supplemental Stipulation and Agreement
clarified that notices of changes or retirements to Qwest OSS will be done in
accordance with the time frames of Qwest's CMP.
The provision for a minimum six months notice applies to changes to
CenturyLink’s
Interconnection
Agreement Negotiations
· Qwest Corporation or any successor entity operating in current Qwest territories will honor all obligations under its existing interconnection agreements.[48]
· Extension: Qwest Corporation will not terminate or change the conditions (including the rates and terms)[49] of any CLEC or CMRS interconnection agreement, with the exception of changes required by law or to the extent Qwest is relieved by law of a current wholesale obligation, unless requested or agreed to by the CLEC or CMRS provider, or in the event of default or other triggering event expressly contemplated by the terms of the agreement, for a period of:
1. 36 months from the transaction closing date for any CLEC or CMRS interconnection agreement that is not expired as of the closing date and for any CLEC or CMRS interconnection agreement that has been expired less than 3 years as of the closing date;
2. 24 months from the closing date for any CLEC interconnection agreement that has been expired for more than 3 years and has been amended to include Qwest’s TRRO (Triennial Review Remand Order) language and for any other CMRS interconnection agreement; or
3. 12 months from the closing date for any CLEC interconnection agreement that has been expired for more than 3 years and not amended to include Qwest’s TRRO language as of the closing date.[50]
As clarified by the parties in the Supplemental Stipulation and Agreement, the reference to “Qwest’s TRRO language” is intended to encompass TRRO language included in any Qwest ICA that has been approved by the Commission, regardless of which party may have drafted the approved language.[51]
· Negotiation and Opting-In: Where parties are in negotiations for the initial successor agreement to an agreement covered in subpart 1, the interconnecting CLEC or CMRS provider may at its option use its currently existing agreement as the basis for negotiating the initial successor agreement with Qwest Corporation. Unless mutually agreed otherwise, the parties agree to incorporate the amendments to the existing agreement into the body of the agreement used as the basis for such negotiations of the initial successor agreement.
· An interconnecting CLEC or CMRS provider may opt-in to an interconnection agreement in its initial term or the extended term provided for in subpart 1, if applicable. This provision does not limit any opt-in rights a carrier may have under Section 252(i) or FCC rules or orders.
· If Qwest Corporation and a requesting CLEC or CMRS provider are in negotiations for a replacement interconnection agreement before the closing date, Qwest Corporation will allow the requesting CLEC or CMRS provider to continue to use the negotiation draft upon which the negotiations prior to the closing date have been conducted as the basis for negotiating the replacement interconnection agreement.[52]
Protection Against Tariff Changes
· Unless otherwise required by law or FCC or Minnesota regulatory commission decision, Qwest Corporation will not seek Approval for new tariff rates to establish any new wholesale charges for service order processing, including, but not limited to, fees associated with Access Service Requests and Local Service Requests, directory listings or directory listing storage, non-published number charges, local number portability charges, or E911 records transaction or storage charges for 36 months from the closing date.[53]
· In the Supplemental Stipulation and Agreement, the parties clarified that this commitment is intended to apply to Qwest charges from any source, not just tariff charges. The list of prohibited Qwest charges also includes charges to access the NID enclosure by a competitor with its own loop. In addition, the reference to Qwest is intended to include successor entities.[54]
MPAP
· Qwest Corporation will not discontinue the use of the Minnesota Performance Assurance Plan (MPAP) for 36 months after the transaction closing.
· CenturyLink and Qwest Corporation did not wave their right to seek modifications under the terms and conditions outlined in the Qwest MPAP.
· Qwest Corporation will continue to provide the monthly reports of wholesale performance metrics to staff and to each CLEC as set forth in the MPAP, unless modified under the MPAP terms and conditions.[55]
Change Management Process
· Qwest Corporation will maintain the current Qwest Corporation Change Management Process ("CMP") for 36 months after the transaction closing, utilizing the terms and conditions set forth in the CMP document. CenturyLink and Qwest Corporation do not waive their rights to modify the CMP consistent with the provisions contained in the CMP document. Pending CLEC Change Requests shall continue to be processed in a commercially reasonable timeframe consistent with the CMP.[56]
FCC Obligations
· Any required terms and conditions applicable to CLECs or CMRS providers contained in the FCC's order approving the merger will, to the extent inconsistent, automatically be incorporated into and supersede the terms in the DOC Settlement (except to the extent the terms are state-specific).
·
Nothing in the DOC Agreement precludes CLECs and
CMRS providers from obtaining in
·
In the Supplemental Stipulation and Agreement,
the parties clarified that the reference to “state-specific” terms is intended
to refer to FCC conditions that may be specific to a state other than
Retail Price Commitments
· The post-merger Company agreed that it would not obtain a one-party flat rate residential (“1FR”) standalone, a one-party measured rate residential ("1MR") standalone, or a one-party flat rate business ("1FB") standalone increase through 2012 for all operating companies post-merger (Qwest, legacy Embarq, and legacy CenturyTel).
· The Company did, however, reserve the right to increase 1FR, 1MR, and 1FB standalone rates in a revenue neutral manner to offset revenue losses from exogenous events consistent with applicable Alternative Form of Regulation (AFOR) requirements in the legacy Qwest and legacy Embarq plans. The legacy CenturyTel companies similarly reserved the right to increase those standalone rates in a revenue neutral manner to offset revenue losses from exogenous events as defined in the legacy Embarq AFOR without having to file a rate case.[59]
86. The DOC Settlement Agreement noted that the parties intended to settle and resolve the issues identified by the Commission in the Notice and Order for Hearing in a manner that is consistent with the public interest. The parties agreed to represent to the Commission that they recommended acceptance of the Stipulation and Agreement without reservation (apart from the rights and privileges reserved in the Agreement). The parties further agreed that the resolutions reached were for settlement purposes only and no precedent would be established by the resolution of the contested matters made in the Agreement. The parties specifically reserved the right to take positions contrary to the resolutions set forth in the Settlement in any future proceeding before the Commission or any other judicial or administrative body and to argue for entirely different results in such proceedings.[60]
87.
The DOC Settlement incorporates many of the
terms to which the parties involved in a parallel proceeding in the State of
88.
The
89. The Department did not contact any CLEC representatives for their opinion on any of the issues it was discussing with the Joint Petitioners during their negotiations, or ask any CLEC representatives to prioritize their proposed conditions in order to obtain a better sense of what was more or less important to wholesale customers.[65] Based upon the FCC filings and discussions with CenturyLink representatives, the Department understood that CenturyLink was attempting to negotiate separately with various CLECs.[66] While CenturyLink has had discussions with various CLECs regarding their concerns, it did not reach out to CLECs in an attempt to involve them in the DOC Settlement Agreement.[67]
90. Although the DOC's Office of Energy Security (OES) may have a policy of inviting other parties in a docket to participate when it is involved in settlement negotiations,[68] there is no evidence that the Telecommunications Division of the DOC (a separate business unit from the OES) has a similar policy or that there is a DOC-wide settlement policy or practice.[69] Accordingly, there is no evidence that the DOC violated any agency settlement practice or policy when it entered into the Settlement Agreement with the Joint Petitioners without consulting with or including other intervenors. The parties to this proceeding have had a reasonable opportunity to review the terms of the DOC Settlement, challenge the terms of the agreement through cross examination of witnesses, and offer additional testimony concerning the terms of the agreement.
91. Approximately 60% of Qwest's ICAs fall within category one of the provision of the DOC Settlement governing extension of ICAs (relating to ICAs that have not expired as of the closing date or have been expired for less than three years). Approximately 38-39% fall within category two (relating to ICAs that have been expired for three or more years and contain TRRO language), and less than 1% falls within category three (relating to ICAs that have been expired for three or more years and do not contain TRRO language).[70]
92.
Under the existing Qwest AFOR, Qwest is not
entitled to take an increase in the 1 FR or 1 MR standalone rates in 2011 or
2012 unless it is in a manner that is authorized by the exogenous cost
provisions of the AFOR. Therefore, given
that Qwest accounts for 90% of the Joint Petitioners’ access lines in
93. The existing AFOR plan for the legacy Embarq territory already prohibits rate increases for 1 FR and 1 FB business exchange service through 2011. Embarq does not offer 1 MR. Accordingly, the rate caps in the DOC Settlement Agreement will provide one additional year of rate protection for legacy Embarq customers.[74]
94. Because legacy CenturyTel has no AFOR, the DOC Settlement Agreement will cap its 1 FR, 1 MR, and 1 FB rates through 2012 unless an increase is warranted by exogenous events.[75]
95. Therefore, the DOC Settlement Agreement would likely constrain Qwest’s 1 FB rates and CenturyLink’s 1 FR, 1 MR, and 1FB rates for about 1½ years, and Embarq’s 1 FR and 1FB rates for one year.[76]
96. The purpose of the exogenous cost provision is to allow the Company to petition the Commission to adjust rates if a significant change in regulation occurs which affects costs or revenue of the company.[77] An entity under an AFOR may petition the Commission to be freed from rate freeze commitments if the Commission, legislature, or other government entities impose new costs, including cost changes stemming from Extended Area Service routing, intercarrier compensation, local service rate restructuring, state or federal universal service funding, telephone numbering or conservation, or governmental mandates regarding infrastructure build-out.[78]
97. The impact of the retail rate caps set forth in the DOC Settlement Agreement is somewhat limited in scope and there is a mechanism for lifting the caps under the exogenous cost provision. However, the Administrative Law Judge concludes that the DOC Settlement Agreement does in fact impose some rate limitations that were not already in place under the AFORs applicable to the Joint Petitioners, and that this aspect of the DOC Settlement Agreement is in the public interest. Despite the Joint CLECs’ arguments,[79] the Administrative Law Judge is not persuaded that the retail price caps provide no significant value to Minnesota retail customers or that they are likely to create a potential anti-competitive price squeeze that could harm wholesale customers.
98.
At the time it entered into the Settlement
Agreement, the DOC did not have information about Qwest’s historical spending
on broadband infrastructure, nor did it request such information from Qwest.[80] During the hearing, Qwest disclosed the
amounts it had invested in broadband infrastructure in
99. The Joint Petitioners have demonstrated that it is not reasonable to make direct comparisons between the amount of the broadband commitment in the DOC Settlement Agreement and Qwest’s historical broadband expenditures. The $50 million commitment for broadband investment contained in the DOC Settlement Agreement relates only to investments associated with providing broadband service to retail end user customers. Future fiber-to-the-cell-site investment will not count towards meeting that commitment. In addition, one-third of that amount is entirely for the benefit of providing service to unserved and underserved retail customers. In contrast, Qwest’s historical broadband investment figures include both retail last-mile services and services for wholesale customers, and fiber-to-the-cell-site investment has been a significant component of Qwest’s broadband investment in recent years.[83]
100. In the absence of this merger proceeding and the targeted investment amount included in the DOC Settlement Agreement, it is unlikely that Qwest would proceed with broadband deployment in unserved or underserved areas as defined in the Agreement. Those areas tend to be low density areas that involve high costs to serve.[84]
101. The Administrative Law Judge concludes that the broadband investment provision of the DOC Settlement Agreement does provide a significant benefit to the public (particularly “unserved” and “underserved” retail customers, as defined in the Agreement). The Joint Petitioners had not included a commitment to any particular level of broadband investment in their petition for approval of the merger, many of the public comments filed in this proceeding focused on a desire for broadband, and the Agreement secured a commitment from the Joint Petitioners to invest resources in areas that otherwise likely would not have been pursued.[85]
C. CWA
Settlement Agreement
102.
On
103. As reflected in the Letter of Agreement, the settlement agreement reached by the CWA, IBEW, and the Joint Petitioners includes provisions relating to post-merger employment levels, call center employees, a National Employee Transfer Plan, investments, the use of contractors, discussion of possible combination of bargaining units or collective bargaining agreements, continued participation in the National Health Care Advisory Committee, and organizing and neutrality.
104. In the cover letter transmitting the Letter of Agreement, the CWA indicated that its concern about the apparent intention of CenturyLink to move quickly to integrate billing, customer service, dispatch, and other operational support systems was resolved satisfactorily by the Joint Petitioners' commitment in the DOC Settlement Agreement to wait at least two years after closing before it begins to integrate the Qwest and CenturyLink wholesale OSS.[87]
105. The CWA indicated that its other major concerns in this docket were addressed by various provisions in the Letter of Agreement. With respect to its concern about the effect of the proposed transaction on employment levels, the CWA indicated that its outside consultant had had an opportunity to review synergy estimates prepared by the Joint Petitioners and "it does not appear that substantial reductions are anticipated in the field workforce." In addition, the CWA noted that CenturyLink had agreed as part of the settlement to a process whereby CWA and the Joint Petitioners will attempt to maximize employment levels throughout the CenturyLink/Qwest service areas. The settlement provides a transition period of approximately one year after the closing date (until May 15, 2012) during which CenturyLink agrees not to close any Qwest call center comprised of union-represented employees. CenturyLink also committed to certain enhanced separation benefits for a limited period of time (until October 6, 2012) for any affected call center employees, providing a further monetary incentive for CenturyLink to retain these call centers in service for an additional five months after the May 2012 commitment.[88]
106. With respect to its concern about the combined company's commitment to broadband deployment and other necessary network investments, the CWA indicated that the Joint Petitioners were not willing to commit at this time to specific broadband and other infrastructure investment targets. However, the CWA noted that the settlement agreement recognizes that such investments are essential to the financial health of Qwest and CenturyLink as well as the communities they serve, and that the parties will work together to facilitate this investment.[89]
107. Many of the other provisions contained in the CWA Letter of Agreement reaffirm commitments that were made by the Joint Petitioners in the merger agreement to keep collective bargaining agreements and various terms and conditions of those agreements in place after the transaction closes.[90]
D. Integra
Settlement Agreement
108.
On
109. The Integra Settlement Agreement addresses issues relating to rates and charges, operational systems support, change management, wholesale performance requirements and remedy plans, extensions of interconnection agreements and other commercial and wholesale agreements, compliance, dedicated wholesale resources, communications with wholesale customers, non-impaired wire centers, and line conditioning.
110. The primary commitments made by the Joint Petitioners in the Integra Settlement Agreement are summarized below:
· The Merged Company will not recover through wholesale service rates or other fees paid by Integra any costs related to or resulting from the transaction (including one-time transition or branding costs or any related transition, conversion, or migration costs); any acquisition premium paid by CenturyLink for QCI; or any increases in overall management costs that result from the transaction, including those incurred by the operating companies. These costs are not limited in time to costs incurred only through the closing date.[92]
· In the legacy Qwest ILEC service territory, the Merged Company will comply with all wholesale performance requirements and associated remedy or penalty regimes for all wholesale services, including those set forth in regulations, tariffs, interconnection agreements, and commercial agreements applicable as of the closing date, and will continue to provide Integra (or, on request, state commission staff and the FCC) with reports of wholesale performance metrics that legacy Qwest made available as of the closing date.[93]
For at least 18 months after the closing date, the parties will not seek to reduce or modify the Qwest Performance Indicator Definition (PID) or Qwest Performance Assurance Plan (QPAP) that is offered as of the closing date. After the 18-month period, the parties may seek modifications in accordance with the QPAP’s terms and conditions. The Merged Company will not seek to eliminate or withdraw the QPAP for at least three years after the closing date.[94]
For at least three years after the closing date, the Merged Company will meet or exceed the average wholesale performance provided by Qwest to Integra in the legacy Qwest ILEC service territory. During the first three months after the closing date, Qwest’s performance will be compared to its performance for the 12 months prior to the closing date. Thereafter, each successive month of Qwest's performance will be added to the three-month period in determining Qwest’s performance until 12 months after the closing date. Beginning one year after the closing date, Qwest’s performance will be measured by a rolling 12-month average performance.[95]
If the Merged Company fails to provide wholesale performance levels as measured above, the Merged Company must conduct a root cause analysis for the discrepancies, develop proposals to remedy each deficiency within 30 days, and provide this information to Integra for review and comment. If performance deficiencies are not resolved, Integra may request a resolution or wholesale service quality proceeding before the state commission.[96]
· Unless required by a change of law or upon agreement of Integra, the Merged Company will not terminate, change the terms and conditions, or increase the rates of any “extended agreements” (defined to include interconnection agreements, commercial agreements, wholesale agreements, interstate tariffs, intrastate tariffs, and other wholesale agreements between Qwest Corporation and Integra) during the unexpired term or for at least the applicable time period identified below, whichever occurs later:[97]
Interconnection
Agreements: The applicable time
period for Qwest's interconnection agreements is at least 36 months after the
closing date (regardless of whether or not the initial or current term has
expired or is in evergreen status).
Integra will be allowed to use its pre-existing
Commercial Agreements: The applicable time period for commercial agreements is at least 18 months after the closing date for Qwest's commercial agreements, including Broadband for Resale, Commercial Broadband Services, Commercial Dark Fiber, High Speed Commercial Internet Service, Local Services Platform, Internetwork Calling Name, and Commercial Line Sharing, as well as other commercial agreements to which Qwest and Integra were parties as of the closing date. After the 18-month period, Qwest reserves the right to modify rates. If a commercial agreement later becomes unavailable on a going forward basis, the agreement will remain available to Integra for at least 18 months on a grandparented basis to serve Integra's embedded base of customers already being served via services purchased under that commercial agreement, subject to Qwest's right to modify rates.[99]
Wholesale Agreements. The applicable time period for wholesale agreements is at least 18 months after the closing date and applies to offerings made available after a tariffed offering becomes unavailable via tariff (such as Wholesale Data Services Agreements or other agreements to which Qwest and Integra were parties as of the closing date). Similar to the commercial agreement provision discussed above, Qwest has the right to modify rates after the 18-month period and wholesale agreements that later become unavailable will remain available to Integra on grandparented basis to serve its embedded base of customers for at least 18 months.[100]
Tariffs. The applicable time period for Qwest wholesale tariff offerings that Integra ordered from Qwest via tariff as of the closing date is at least 12 months after the closing date. Qwest is permitted to engage in Competitive Response pricing as set forth in its tariffs. Term and volume discount plans offered by Qwest as of the closing date will be extended by 12 months beyond the expiration of the then-existing term, unless Integra opts out of this one-year extension. The Merged Company will honor any existing contracts for services on an individualized term pricing plan arrangement for the duration of the contracted term.[101]
·
The Merged Company agrees not to increase the
rates in Qwest ICAs during the extended time period. If the Merged Company
offers a new Section 251 product or service during the extended time period
that is not offered under an
The Merged Company may initiate or seek rate increases in a cost docket before the expiration of the 36-month period for extension of ICA terms only if the rate elements, charges or functionalities are not already provided under rates as of the closing date, or the cost docket is not initiated until at least 18 months after the closing date and any approved rate increases will not become effective until after expiration of the 36-month period.[102]
After the closing date, the Merged Company may not assess any fees or charges in the legacy Qwest ILEC serving territory for activities that arise during the subscriber acquisition and migration process unless those fees were approved by the applicable commission and charged by Qwest before the closing date or Qwest first receives Commission approval. This condition prohibits the Merged Company from imposing (1) service order charges upon submission of local service requests for number porting; (ii) access or "use" fees for connecting a competitor’s own self-provisioned loop or last mile facility to the customer side of the Merged Company’s network interface device enclosure or box; and (iii) storage or related fee assessed upon Integra’s submission of subscriber directory listings information to the Merged Company for publication in a directory listing or inclusion in a directory assistance database.[103]
·
In the legacy Qwest ILEC service territory, if
an ICA is silent as to an interval for the provision of a product or refers to
Qwest website or Service Interval Guide (SIG), the applicable interval after
the closing date shall be no longer than the interval in Qwest's SIG as of the
closing date. After the 36-month period for extension of
· CenturyLink and its ILEC affiliates agreed to comply with 47 U.S.C. §§ 251 and 252. The Merged Company agreed that it would not seek to avoid any of its obligations in the legacy Qwest ILEC service territory on the grounds that Qwest Corporation is exempt under Section 251(f)(1) or 251(f)(2).[105]
· After the closing date, Qwest Corporation shall be classified as a Bell Operating Company in the legacy Qwest ILEC service territory and shall comply with applicable requirements, including 47 U.S.C. §§ 271 and 272.[106]
· Qwest will not seek to reclassify any Qwest wire centers as “non-impaired” or file any new petition seeking forbearance from any Section 251 or 271 obligation or dominant carrier regulation in any Qwest wire center prior to June 1, 2012.[107]
· The Merged Company shall provide escalation information, contact lists, and account manager information thirty days prior to the closing date if possible, or within five business days. The company will provide at least 30 days advance written notice to wholesale carriers of changes to support center location, and reasonable notice of other changes.[108]
· The Merged Company will make available to each wholesale carrier in the legacy Qwest ILEC service territory the types and level of data, information, and assistance that Qwest made available as of the Closing Date concerning Qwest’s wholesale OSS functions and wholesale business practices and procedures, including information provided via the wholesale web site, notices, industry letters, the change management process, and databases/tools (loop qualification tools, loop make-up tool, raw loop data tool, ICONN database, etc.[109]
· The Merged Company will ensure that wholesale and CLEC operations are sufficiently staffed and supported by personnel who are adequately trained on the Qwest and CenturyLink systems and process and are dedicated exclusively to wholesale operations.[110]
· In legacy Qwest ILEC service territory, the Merged Company will use the legacy Qwest OSS after the closing date for at least two years, or until July 1, 2013, whichever is later, and will thereafter provide a level of wholesale service quality that is not materially less than that provided by Qwest prior to the closing date. After that time, the Merged Company will comply with the following procedures before replacing or integrating the Qwest systems:
Detailed Plan. The Merged Company will establish a detailed transition plan including a contingency plan if significant problems are encountered and provide 270 days’ advance notice to the FCC, affected state commissions, and parties to the Settlement Agreement.
CMP. The Merged Company will follow the procedures in the Qwest Change Management Process (CMP).
Replacement or Retirement of a
Qwest
Billing Systems. The Merged Company will not begin integration
of billing systems before the end of the minimum two-year period or July 1,
2013, whichever is longer, or without following the above procedures unless the
integration will not impact data, connectivity and system functions that
support or affect Integra and its customers.
Any changes to the legacy Qwest non-retail
· After the closing date, the Merged Company will engineer and maintain its network in compliance with applicable ICAs and federal and state law. It will not engineer the transmission capabilities of its network in a manner that disrupts or degrades access to the local loop or engage in any other practice that has that result.[113] The Merged Company will retire copper in compliance with applicable ICAs and federal and state law.[114]
·
Within 30 days after the closing date, the
parties agreed to amend existing Qwest-Integra ICAs by executing the line
conditioning amendment attached to the Integra Settlement Agreement and filing
the amendment with the applicable state commissions. The terms of the amendment will be included
in the ICAs between the parties for the extended time period contemplated in
the Settlement Agreement. In
111. The Settlement Agreement between the Joint Petitioners and Integra specifies that the terms of the Agreement also will be available to other carriers:
After fully executed, filed with and, where necessary, approved by a Commission, this Agreement will be made available to any requesting carrier. Additionally, if an order approving this transaction includes any condition not contained in this Agreement or includes provisions inconsistent with those contained in this Agreement, the Merged Company will make that condition or provision available to other carriers in that state upon request, to the extent applicable.[116]
112.
The Integra Settlement Agreement addresses a number
of the risks and potential harms of the proposed merger and provides a number
of substantial benefits to CLECs who choose to opt into the Agreement. However,
it expressly focuses on Integra’s concerns and perspectives and represents
compromises reached between Integra and the Joint Petitioners.[117] None
of the other eight Joint CLECs were parties to the Integra Settlement Agreement
or participants in its negotiation.[118] They remain opposed to the proposed merger unless
additional conditions are imposed to ensure that they are adequately protected
from the risks of the proposed merger. The
remaining Joint CLECs assert that there are significant differences between
Integra and other CLECs, including differences in their internal systems, the
types of customers they target, the geographical areas they serve, and the mix of
wholesale products they require from the ILEC.[119]
They maintain that the terms and
compromises reflected in the Integra Settlement Agreement are not adequate to
address issues critical to other CLECs or protect the broader public interest
in competition in
113.
The affidavits filed by the Joint CLECs with
their initial post-hearing brief provide support for their view that their
operations and interests differ from those of Integra. For example, several other CLECs rely more heavily
than Integra on a Qwest non-UNE combined
loop/transport/switching platform product called Qwest Local Services Platform
(QLSP). Qwest has offered QLSP under its
Commercial QLSP Agreement as a replacement for UNE-P following non-impairment
designations.[121] OrbitCom serves primarily rural customers in
contrast to Integra, which serves customers primarily in the Twin Cities
Metropolitan Area. Because nearly all of
OrbitCom’s wholesale facilities are purchased from Qwest under the QLSP
Agreement, OrbitCom depends far more than Integra on Qwest’s QLSP. Moreover, because there is no comparable UNE
that OrbitCom would purchase under an
114.
Another participant in the Joint CLECs, tw telecom
of Minnesota (TWTC), provides facilities-based local and long distance
telecommunications services in
115.
One of the central components of the Integra
Settlement appears to be the line conditioning commitments related to xDSL. Because Integra relies upon Qwest’s UNE loops
to provide telecommunications and internet service to its customers, it is
likely that these commitments were important from its perspective. However, these provisions have no value to
several of the other CLECs who have intervened in this proceeding. For example, Charter serves primarily
residential and some business customers in more rural areas of the state using
the network facilities of its cable affiliate for last mile connections, while
relying on interconnection and
116.
There are also differences between CLECs’ internal
back-office systems. Integra uses manual
processes to complete various steps in pre-order, ordering, trouble ticket
management, and billing. In contrast, PAETEC’s
systems are far more automated and integrated into Qwest’s current
117.
Because of these differences between Integra and
the remaining Joint CLECs, it should not be assumed that the terms of the
Integra Settlement will adequately protect the interests of all wholesale
customers in
118.
Apart from the 36-month
V. Is the Proposed Transaction in the Public Interest under
A. Positions of Parties
119. The Joint Petitioners assert that the proposed merger will provide numerous public benefits and is in the public interest. They allege that the “combined company will be positioned to compete effectively for customers in the increasingly competitive telecommunications market, in Minnesota and nationally” and that the transaction will “create a financially stronger and stable provider that has an enhanced ability to invest in local and national networks, deploy broadband and other advanced services, and provide outstanding service quality to its customers.”[132] The Joint Petitioners maintain that the combination of CenturyLink’s core fiber network and Qwest’s national fiber-optic network and data centers will allow the post-merger company “to deliver strategic and customized product solutions to residential, business, wholesale, and government customers throughout the nation . . . .”[133] In addition, they generally contend that the transaction will provide the post-merger company with greater financial resources and access to capital, and thereby enable it to “invest in networks, systems and employees that can reach more customers with a broad range of innovative products and voice, data and entertainment services over an advanced network.”[134]
120. The Joint Petitioners also assert that the increased economies of scale associated with the proposed merger will allow the post-merger company to offer a more diverse product mix and focus on providing advanced services to customers, such as higher speed broadband and IPTV. They contend that the broadband platform and related network infrastructure of both companies will support the wider deployment of advanced IP services, particularly because CenturyLink will be able to use Qwest’s transport services to serve customers in lower density areas with high-bandwidth services.[135] The Joint Petitioners further argue that their view that the transaction is in the public interest is enhanced by the settlement agreements they have reached with the DOC, the CWA, Integra, and 360networks.[136]
121. The Joint CLECs argue that the Joint Petitioners have not borne their burden to demonstrate that the proposed merger will produce significant public interest benefits that outweigh the serious public interest risks associated with the transaction. They maintain that the Joint Petitioners’ vague and general assertions that combining the two ILECs’ networks will “optimize network capacity,” bring about “great economies in scale and scope,” and enhance their ability to “deploy broadband and other advanced services” and “additional bandwidth-intensive services” are commonly made in all telecommunications mergers and are not sufficient to satisfy the Joint Petitioners’ burden of demonstrating that the merger is in the public interest. They assert that the Joint Petitioners have failed to provide specific, credible evidentiary support for their claim that the proposed merger is in the public interest.[137] In particular, the Joint CLECs allege that the Joint Petitioners have not offered any specific evidence explaining how combining the two ILECs’ networks will make each ILEC’s network more efficient or result in more broadband services in Minnesota, what additional broadband services will be deployed in Minnesota by virtue of the merger (beyond what would otherwise be deployed by each ILEC individually), or what specific concrete benefits (such as lower prices or higher service quality) Minnesota consumers will obtain from this transaction.[138] To the contrary, they contend that the evidence shows that the larger combined ILEC would enhance the market power of both ILECs to the detriment of competition.[139]
122.
The Joint CLECs also are critical of the Joint
Petitioners’ repeated references to the post-closing entities as the “combined
company”[140]
and the implication that CenturyLink and Qwest will “combine forces” and
resources to create one large incumbent telephone company that is better able
to serve Minnesotans and compete in the marketplace. The Joint CLECs contend that this is not an accurate
reflection of the two companies’ relative positions post merger since the two
companies will not be combined and Qwest will continue to be operated as a
separate legal entity.[141] The Joint CLECs argue that, to the extent
that the two companies can, or do, combine resources (if not operations) in the
future, there is no reason to believe that a larger incumbent telephone company
benefits
123. Level 3 contends in its separate post-hearing brief that the Joint Petitioners have not shown that the post-merger company will not engage in certain anticompetitive behavior that can occur only as a result of the transaction. As a result, Level 3 contends that the transaction fails to meet the present or future public convenience and necessity test and other criteria set forth in Minn. Stat. § 237.74, subd. 12, and 237.011. It asserts that the Commission should not approve the transaction unless the Commission imposes the conditions urged by the Joint CLECS as well as those proposed by Level 3.[143] Level 3 further argues that the portion of the DOC Settlement Agreement pertaining to the 12- 24- or 36-month extension of ICAs should be rejected and the Commission should instead require a uniform three-year extension period.[144]
124.
Sprint and T-Mobile (collectively the Joint
Wireless Carriers) contend that the proposed transaction is not in the public
interest unless the Commission adopts the additional proposed conditions they
propose. They assert that the
post-merger company will enjoy unwarranted market power in
125. The DOC contends that the terms of the DOC Settlement Agreement[146] and the clarifying Supplemental Stipulation and Agreement[147] reasonably balance the needs of retail customers, wholesale customers, and the Joint Petitioners and are in the public interest. If the DOC Settlement is approved, the DOC agrees that the proposed merger is in the public interest. The DOC also has no opposition to the separate settlements reached with 360networks, the CWA, and Integra. The DOC believes that the post-merger company would have the financial, managerial and technical ability to continue to provide reliable, quality telephone service. It also maintains that the DOC Settlement ensures that the impact of the transaction on retail and wholesale customers is reasonable.[148]
B. Would
the post-merger company have the financial, technical, and managerial resources
to enable the Qwest and CenturyLink Operating Companies to continue providing
reliable, quality telecommunications services in
1.
Financial
Resources
126. The pro forma profile of the post-merger company will include 17 million access lines, approximately 5 million broadband subscribers, and more than 1 million enterprise customers.[149]
127. The pro forma financial profile of the merged company as of year-end 2009, would include pro forma revenues of $19.8 billion, earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $8.2 billion, and free cash flow (cash flow available after all cash operating expenses and capital expenditures) of $3.4 billion, without giving consideration to any synergies and before payment of $1.7 billion in dividends.[150]
128. The post-merger company will have one of the strongest balance sheets in the industry. Pro forma 2009 net debt-to-EBITDA was 2.4 times before synergies and 2.2 times after synergies on a full run-rate basis, excluding integration costs. These leverage ratios compare favorably with those of other similarly-situated ILECs.[151]
129. It is projected that the merged company will be able to create annual run-rate operating expense synergies of approximately $575 million, fully-recognized over a three-to-five-year period after the close of the transaction. The Joint Petitioners also project annual run-rate capital expenditure synergies of $50 million, for a total expected increase of $625 million in annual cash flow due to operating and capital synergies.[152]
130. The estimate of $575 million in operating expense savings is approximately 7% of Qwest’s 2009 cash operating costs, while the estimate of $625 million in total synergies (including capital expenditure synergies) is less than 8% of Qwest’s cash operating costs. These anticipated synergies are modest compared with other publicly-available ILEC merger synergy expectations. An 11% expected cost savings was announced at the time of the CenturyTel merger with Embarq. Other merger-related synergies from ILEC transactions have generally been 20% or more of the target company’s cash operating costs in recent years.[153]
131. The Merged Company expects to be financially sound and therefore anticipates that it will not be unduly pressured by investors or other stakeholders to achieve the expected financial synergies.[154]
132. Even without assuming any synergies, the Joint Petitioners project that, after meeting all operating, capital, and financial costs, the Merged Company will have approximately $1.7 billion in remaining cash flow that could be used for additional investment, debt repayments, and other appropriate uses.[155]
133.
Over time, the Joint Petitioners expect that the
proposed transaction will improve the ability of their operating companies in
134.
Several recent mergers and acquisitions
involving ILECs demonstrate the financial challenges and risks associated with
such transactions, particularly where a small ILEC attempts to integrate the
·
In 2005, the Carlyle Group acquired Verizon
·
In 2008, FairPoint Communications acquired
Verizon’s ILEC operations in
·
The system cutovers and transitions occurring in
connection with Frontier’s recent acquisition of Verizon exchanges in fourteen
states have been criticized by Integra, PAETEC, and FiberNet as adversely
affecting their operations and the retail customers they serve. In particular, these companies have
complained of increased response times for Access Service Requests, increased
Access Ordering system errors, lengthy delays when calling Access Order
centers, reductions in Access Ordering staff, inexperienced or
inadequately-trained call center staff, problems with pre-ordering, ordering,
and installation functions of Frontier’s wholesale
135.
Many Minnesotans are substituting wireless
service for wireline service today. The
wireless share of the total access line market has grown so significantly since
2001 that wireline and VoIP access lines now account for less than 40% of all
wireline/wireless connections in
136. In addition, if the proposed transaction is consummated, CenturyLink will have grown from a small rural company with about 1.3 million lines to a nationwide company of about 17 million lines over the course of only three years. CenturyTel acquired approximately 5.7 million access lines in its acquisition of Embarq in July 2009, has not yet completed that integration, and is now proposing to acquire and integrate Qwest, a 10-million line RBOC.[162]
137. In its S-4 filing with the SEC, CenturyLink itself recognized the risks associated with the Embarq transaction, stating:
138. On April 22, 2010, Standard & Poor’s Ratings services placed its ratings on CenturyTel on CreditWatch with negative implications, including the BBB- corporate credit, A-3 commercial paper, and all other issue ratings.[164] In its rationale for the CreditWatch Negative, Standard & Poor’s noted:
While the
transaction [the proposed acquisition of Qwest] improves CenturyTel’s scale,
making it the third-largest wireline operator in the
Moody’s
Rating Service also gave CenturyLink a negative rating outlook on
2. Managerial
Resources
139. The management team that has been identified for the Merged Company includes Chief Executive Officer Glen F. Post III, the current CEO and President of CenturyLink; Chief Financial Officer R. Stewart Ewing, Jr., the current CFO of CenturyLink; and Chief Operating Officer Karen A. Puckett, the current COO of CenturyLink. Combined, the CenturyLink senior leadership team has over 88 years of experience in the communications industry, including significant expertise relating to mergers and acquisitions.[167]
140. Christopher K. Ancell, currently the Executive Vice President of Business Markets Group for Qwest, has been named as the President of Business Markets Group for the post-merger company. The Wholesale Operations Tier 2 leaders for the Merged Company include two Qwest executives and three CenturyLink executives.[168]
141.
CenturyLink recently announced that five of the
Merged Company’s six regional presidents will be current CenturyLink
executives.[169]
142. The majority of Qwest employees are expected to be retained by the post-merger company.[171] CenturyLink made commitments to retain experienced front-line workers in its Letter of Agreement with the CWA.[172]
3. Technical
Resources
143. CenturyLink has had substantial experience with the integration of past mergers including, most recently, the Embarq/CenturyLink merger that closed in July 2009. That merger involved CenturyLink's integration of more than 5 million access lines in 18 states. The human resources and financial systems were successfully integrated shortly after the closing, and 50% of the billing system integration has been successfully completed.[173]
144. CenturyLink currently offers local and long distance voice, wholesale local network access, high-speed Internet, and information and video services in 33 states. It uses a regional operating model and local "go-to-market" strategies.[174] Its skilled workforce includes engineers, IT personnel, and technicians who have significant experience operating networks and systems. The post-merger company will be able to draw on the network and operational strength of both Qwest and CenturyLink.[175]
145. CenturyLink works with 400 CLECs, approximately the same number of CLECs as Qwest, and many of those customers are the same companies for which Qwest currently provides service.[176]
146. The transaction is structured in a manner that ensures that CenturyLink will be acquiring the personnel, systems, and technical expertise of Qwest in this area.[177]
147.
The DOC “agrees generally with Joint Petitioners
that the post-merger company will possess the requisite financial, technical
and managerial resources to continue to provide reliable, quality
telecommunications services in
148.
While the proposed transaction presents risks
and challenges, the Administrative Law Judge concludes that the Merged Company
is likely to have the financial, technical, and managerial resources to enable
the Qwest and CenturyLink Operating Companies to continue providing reliable,
quality telecommunications services in
C. What impact would the
transaction have on Minnesota
customers
and on competition in the local telecommunications market?
1. Impact on Retail Customers
149. It is likely that the merger will create a stronger company that will be of benefit to retail customers. The increased economies of scale and the broadband platform and infrastructure of both companies will likely enable the Merged Company to provide a more diverse product mix and enhance its ability to deploy advanced services such as higher speed broadband and IPTV.[179]
150.
The proposed transaction will be virtually
seamless for the customers of Qwest and CenturyLink in
151. The broadband infrastructure investment made in the DOC Settlement Agreement will be of benefit to Minnesota retail customers, particularly those in “unserved” and “underserved” areas as defined in that Agreement.[181]
152.
Some of the retail price caps contained in the
DOC Settlement Agreement exceed those that were already in place under the
AFORs applicable to the Joint Petitioners, and will be of benefit to
153.
The Administrative Law Judge concludes that it
is likely that the proposed transaction will provide some benefit to
2. Impact
on Competition in the Local Market
154.
The Joint Petitioners argue that the
155. The impact on local competition is an important consideration in the Commission’s public interest determination. As the Commission has stated:
[A] key public
interest consideration when evaluating a proposed sale is whether it will have
a negative impact upon competition in the local market. The Commission has a particular relationship
to this public interest concern because the Minnesota Legislature has
identified fair and reasonable competition for local exchange telephone
services as a priority public interest goal and has given the Commission major
responsibilities for promoting that goal.[185]
156. Minn. Stat. § 237.011 directs the Commission to consider a number of state goals as it executes its regulatory duties with respect to telecommunications services. These goals include “maintaining just and reasonable rates;” “encouraging economically efficient deployment of infrastructure for higher speed telecommunication services and greater capacity for voice, video, and data transmission;” “encouraging fair and reasonable competition for local exchange telephone service in a competitively neutral regulatory manner;” “maintaining or improving quality of service;” and “promoting customer choice.” The Commission’s public interest determination in connection with proposed mergers must also take these goals into consideration.[186]
157. In July of 2010, the Federal Trade Commission and the Department of Justice notified the Joint Petitioners that the merger review received early termination under the Hart-Scott-Rodino Act. Accordingly, the proposed merger has received clearance from an antitrust perspective.[187]
158.
With limited exceptions, Qwest and CenturyLink
provide service in predominately complementary service areas in
159.
Qwest has demonstrated that it is facing
increasing competitive pressure in
160. Because the post-merger company is likely to be better able to offer voice and broadband services in a more efficient manner, it is likely that the transaction will enable the post-merger company to better compete with wireless products.[191]
161.
The increased financial strength of the
post-merger company will assist it in pursuing its Fiber to the Node and Fiber
to the
162.
As
163.
CLECs rely on interconnection with Qwest and
number porting to provide competitive local service in
164.
The record reflects that CenturyLink assesses
some charges and engages in some other practices affecting CLECs that Qwest
does not employ. For example,
CenturyLink has assessed charges to Charter when Charter requests a number port,
connects to the customer’s premises
through the customer side of the Network Interface Device (“NID”) enclosure, or
submits a directory listing/directory assistance listing to CenturyLink.[198] CenturyLink also required a CLEC, McLeodUSA,
to negotiate a new resale agreement using CenturyLink’s template agreement
following its acquisition of several Ameritech exchanges in
165. In addition, CenturyLink does not provide the range of wholesale services that Qwest provides. For example, CenturyLink does not provide anything comparable to Qwest’s Commercial Local Services Platform (“QLSP”) product on which many CLECs depend, particularly in less densely populated areas of the state. Nor does CenturyLink provide anything comparable to Qwest’s Commercial Dark Fiber offering.[202]
166.
The continued availability of facilities
purchased from Qwest is important to the ability of a number of Minnesota CLECs
to serve their customers and compete in
167. Because CLECs rely extensively on Joint Petitioners’ interconnection and wholesale network inputs, they are largely captive customers of these two ILECs. Moreover, since the Joint Petitioners also compete with CLECs, the Joint Petitioners may have disincentives to provide CLECs with quality, reasonably priced, nondiscriminatory wholesale services and network access. Under the pressure of its debt load, the promises of merger savings to shareholders and regulators, and significant integration costs, there is a risk that CenturyLink will be forced to cut costs when integrating the two companies, leading to a degradation of services to wholesale customers and harm to competition.[204]
168. Competitors are concerned that the Merged Company may direct its integration efforts to the detriment of wholesale customers by withdrawing services, or significantly changing the offerings Qwest currently makes available. As Dr. Ankum testified:
wholesale customers need certainty with regard to
the elements and services they purchase from Qwest (or the Merged Company) for
business planning purposes, and based on the transaction as filed, there is no
such certainty. CLECs cannot simply go
elsewhere for the wholesale services they need from Qwest and CenturyLink both
now and post-merger, so certainty in this area is absolutely essential.[205]
169.
As a general matter, the majority of mergers (often
estimated at two out of three) fail.[206] The record contains evidence regarding three
recent ILEC mergers that illustrate the substantial associated risks, particularly
where a smaller ILEC is acquiring a larger one:
(1) Hawaiian Telcom’s acquisition
of
170.
The record further reflects that CenturyLink has
experienced post-merger problems in conjunction with its recent acquisition of
Embarq. Shortly after the Embarq
acquisition, CLECs were affected by failures in CenturyLink’s
…workers being
dispatched to incorrect locations for service; workers reported being
dispatched for service with insufficient or incorrect information; longer out
of service periods and longer delays in initiating service; differing and
confusing software that dispatches/assigns technicians; the [CenturyTel and
Embarq] systems do not appear to be interconnected or coordinated; negative
impacts on work flow; inefficiencies in the new systems; and consumer
frustration about installation and service appointments not being met and long
hold times.[211]
The CWA also
reported “insufficient training or resources provided to former Embarq
employees about the new systems.”[212] CenturyLink acknowledged that these problems
in
171. CenturyLink’s service integration challenges associated with its acquisition of Qwest are likely to be substantially greater than those it experienced with its Embarq acquisition given Qwest’s unique BOC responsibilities and its substantially larger size and wholesale volumes.[217] Moreover, since CenturyLink is still in the process of integrating Embarq, the overlap between the two transactions may increase the risk of problems.
172. CenturyLink’s relative lack of wholesale experience compared to Qwest may pose a risk of harm to the Merged Company’s wholesale customers and competition. The record establishes that CenturyLink’s level of experience in providing wholesale services and facilities to CLECs is significantly less than Qwest’s.[218] In addition, CenturyLink has historically operated primarily in less-densely populated areas of the country[219] and has no experience operating as a BOC with its attendant Section 271 responsibilities. Although CenturyLink asserts that it will draw upon the expertise and systems of Qwest, there is no assurance that CenturyLink will leave Qwest’s wholesale operations and staffing levels unaffected.
173. It is evident that the proposed merger presents certain risks to wholesale customers and competition in the local market. Because the Joint Petitioners presented little detailed information in this proceeding regarding the specific approaches that will be taken by the post-merger company with regard to wholesale services, it is difficult to predict what impact the proposed transaction will have on competition. However, taking into account the substantial protections afforded by the Settlement Agreements the Joint Petitioners have reached with the DOC, the CWA, 360networks, and, most significantly, Integra, it is concluded that it is not likely that the merger will have a harmful effect on wholesale customers or local competition. As illustrated in the overview of the Integra Settlement terms set forth in Section IV (D) above and further discussed in Section VI below, the terms of the Integra Settlement Agreement address a large number of the concerns expressed by the Intervenors in this matter and will provide competing carriers with significant levels of certainty and stability.
D.
What
impact would the transaction have on Commission
authority?
174. The proposed transaction will not result in any changes in the manner in which the CenturyLink Operating Companies or the Qwest Operating Companies are regulated by the Commission. They will continue to be subject to applicable statutes, rules, Commission orders, and other obligations.[220]
175. There is no evidence that the proposed transaction will have any impact on the Commission's authority over the post-merger company.
VI. What, if any, additional conditions are necessary to ensure that the Proposed Transaction is in the public interest?
A. Joint CLECs’ Proposed Conditions
176. Timothy Gates and August Ankum of QSI Consulting in Cambridge, Massachusetts, initially provided testimony in this manner proposing that the Commission’s approval of the merger be subject to 30 conditions. Their testimony was sponsored by Cbeyond Communications, Charter, Integra, Level 3, PAETEC, TDS Metrocom, t.w. telecom, OrbitCom, and POPP.com.[221] Some of these conditions are incorporated to some extent in the Settlement Agreements that the Joint Petitioners have reached with the DOC and Integra.[222] As noted above, the Settlement Agreement between the Joint Petitioners and Integra specifies that the terms of that Agreement, once approved, will be available to any other carrier who so requests. In addition, the Agreement states that, if an order approving the transaction includes any condition not contained in the Agreement or any provision that is inconsistent with the terms of the Agreement, the merged company will make that condition or provision available to other carriers upon request, to the extent applicable.[223]
177. In their post-hearing briefs, the Joint CLECs acknowledge that the Integra Settlement addresses a number of the risks and potential harms of the proposed transaction; however, they contend that the Integra Settlement fails to adequately address other issues that are critical to other CLECs and competition generally. Consequently, they urge the Commission to adopt not only the Integra Settlement conditions but also eight additional conditions that they argue are necessary to ensure adequate protection of the broader public interest in local competition.[224]
176. Accordingly, based on differences among CLECs that distinguish them from Integra, the Joint CLECs propose the following additional commitments as conditions for approval of the proposed merger:
(a) a commitment to extend current
wholesale/commercial agreements for at least 36 months from the date the
Transaction closes subject to the current rates, terms and conditions in effect
as of the date the proposed merger was filed with the Commission - May 14,
2010;[225]
(b) a commitment that permits CLECs to opt-in
to ICAs in Minnesota and “port” such agreements to another state or opt-in to
ICAs in another state and “port” such agreements into Minnesota, provided
Commission-required terms and pricing are added to the agreements ported into
Minnesota;[226]
(c) a commitment to retain Qwest’s current OSS
for at least three years from the date the Transaction closes and implement
third-party testing at commercial volumes with specific performance benchmarks
to ensure that any successor OSS performs at no less than the level of Qwest’s
current OSS;[227]
(e) a commitment to ensure open and reasonable
access to and interconnection with the merged company’s combined network
through a single point of interconnection, provided that the Merged Company’s
affiliates’ networks in a LATA are interconnected;[229]
(f) a commitment to provide directory
services in compliance with existing law;[230]
(g) a commitment to a minimum 36-month
moratorium on any further non-impairment or forbearance filings;[231]
and
(h) a commitment to implement the additional
performance assurance plan (“APAP”) proposed by the Joint CLECs as an
enforceable mechanism to prevent or discourage any decline in wholesale service
quality post merger.[232]
177. Each of these proposed conditions is discussed below.
1. 36-Month Extension of Current Wholesale/Commercial Agreements at
Current Rates, Terms and Conditions
178. In the Integra Settlement Agreement, the Joint Petitioners committed to extend ICAs for three years from the closing date of the transaction. The Joint CLECs agree that this provides a minimally adequate period of stability for ICAs during which no CLEC will face any change in UNE terms or prices.[233]
179. As part of the Integra Settlement Agreement, the Joint Petitioners committed to a more limited extension of Qwest’s commercial and wholesale agreements.[234] Such commercial and wholesale agreements or offerings will be extended by 18 months from the Transaction Closing Date with a price cap. After the 18-month period, Qwest reserves the right to modify rates. If the commercial or wholesale agreement later becomes unavailable on a going forward basis, “the agreement will remain available to CLEC on a grandparented basis to serve CLEC's embedded base of customers already being served via services purchased under that [commercial or wholesale] agreement” for at least eighteen months after Qwest has notified CLEC that the agreement is no longer available, “subject to Qwest’s right to modify rates.”[235] Qwest wholesale tariff offerings that CLECs ordered from Qwest via tariff as of the Closing Date, including Wholesale Regional Commitment Plan (“RCP”) Agreements, will be extended by 12 months from the transaction Closing Date or, at a CLEC’s option, by 12 months beyond the termination date in the particular CLEC’s Agreement.[236]
180. The Joint CLECs contend that the limited extensions for commercial/wholesale agreements contained in the Integra Settlement Agreement are unreasonable and do not adequately protect local competition from the risks associated with the proposed merger. They argue that a majority of CLECs rely more extensively than Integra on a number of Qwest’s non-UNE wholesale offerings and thus recommend that the proposed merger should be further conditioned on a commitment to uniformly extend current commercial/wholesale agreements for three years after the Transaction’s closing date, consistent with the extension of ICAs in the Integra Settlement and in accordance with the minimum three-year synergy period anticipated by the Joint Petitioners. They further contend that these agreements should be extended based on the rates that were in effect as of the date the Joint Petitioners filed their petition for approval of the transaction (May 14, 2010) rather than the rates that are in effect on the date the transaction closes, even if those rates were raised during the pendency of proceedings seeking approval of the proposed merger. The Joint CLECs emphasize the differences between the UNE rates and the rates under wholesale/commercial agreements, and maintain that extending those agreements at current rates would not cause competitive harm to the Joint Petitioners. Finally, they argue that the additional 18-month extension set forth in the Integra Settlement Agreement for embedded base customers without a price cap provides little if any benefit to CLECs or local competition.[237]
181.
The Joint Petitioners argue that they made
substantial concessions in the Integra Settlement Agreement, and assert that
the approach in that agreement “represent[s] more than a reasonable compromise.” They emphasize that the commercial agreements
that the Joint CLECs want to be extended for three years may not even be
covered under the Telecommunications Act or fall within the Commission’s
jurisdiction.[238] They maintain that this proposed condition
“has nothing to do with the merger” and involves the same issues that have
existed for some time between Qwest and the CLECs.[239] They also assert that the Joint CLECs ignore
fundamental differences between ICAs (which primarily involve UNEs that must be
provided at a cost-based rate under 47 U.S.C. § 251) and commercial/wholesale
offerings (which are offered under 47 U.S.C. § 271 or voluntarily, and which primarily
relate to services that formerly were within the scope of § 251(c) but are no
longer subject to the restraints on pricing that apply to UNEs). Citing the Southwestern
Bell Telephone v. Missouri Public Service Commission[240] case,
the Joint Petitioners argue that the Commission has no authority to interpret
or enforce the obligations of 47 U.S.C. § 271 because the FCC has exclusive
jurisdiction in that area.[241] The Joint Petitioners acknowledged that the
Commission has taken the position that it has such authority and noted that an
appeal by Qwest is pending in federal district court in
182.
Regardless of the outcome of the appeal, the Joint
Petitioners contend that it is reasonable to provide different treatment for
commercial/wholesale agreements and ICAs in light of the differing regulatory
standards and the fact that CLECs have a choice whether or not to purchase from
Qwest, another carrier, or self-provision the service.[243] They urge that the comparison between UNE and
commercial rates made in the affidavits filed by the Joint CLECs is not
relevant and should be rejected here as it was in the 271 Pricing proceeding.[244] They also point out that Qwest’s QLSP
agreements expire on
183. The Joint CLECs demonstrated that many CLECs rely to a significant degree on non-UNEs purchased from Qwest under wholesale or commercial agreements. As Dr. Ankum observed, CLECs that rely on wholesale facilities under wholesale agreements have:
. . . built their business plans significantly around the availability of the products provided under those commercial agreements and the specific terms set forth in those agreements. Retail customers in turn receive competitive services based on CLEC access to these wholesale services from Qwest under these commercial agreements. Importantly, these CLECs generally have no alternative to Qwest for the products or services, such as dark fiber or line sharing, provided under these commercial agreements.[246]
184. Continued access to wholesale facilities (such as Qwest’s commercial dark fiber transport product, Qwest’s commercial QLSP product, Qwest Wholesale Broadband, Qwest Broadband for Resale, QMOE, and various special services to obtain critical network inputs such as loops and transport that are no longer available as UNEs) is critical to the ability of a number of Minnesota CLECs to serve their customers and compete in Minnesota’s local exchange markets.[247] If these wholesale facilities are no longer offered or if the prices charged for those offerings are raised, there would be an impact on retail as well as wholesale customers:
[A] decision to
not continue those commercial wholesale offerings or to raise the prices charged
for those offerings affects retail customers as well as the wholesale customers
(i.e., CLECs) who purchase those commercial offerings from Qwest. Affected retail customers that need the same
service will either be disconnected or, if any service is available to them,
moved to a service that is not from the customer’s carrier of choice.[248]
185. The public’s interest in and benefit from competition depends on the availability of services from more providers than just the ILEC and a single CLEC. Competition encompasses multiple CLEC options for consumers, each with different network approaches, target markets and business plans, as well as a marketplace that is sufficiently open to new competitors in the future.[249]
186.
The majority of CLECs participating in this case
rely considerably more than Integra on non-UNE wholesale offerings such as
Qwest’s QLSP product and dark fiber transport.[250] OrbitCom, for example, relies almost entirely
on non-UNE facilities purchased under Qwest’s Commercial QLSP Agreement to
serve its customers.[251] TDSM also relies significantly on Qwest’s
QLSP product to serve its
187. CenturyLink does not currently make products such as dark fiber or line sharing available under commercial agreements (although it may offer them through grandfathered contracts that are not available to other CLECs). This increases the risk that these products will be withdrawn or the terms of their availability materially changed as a result of the merger.[256] CenturyLink has indicated little interest in providing certain wholesale services, such as dark fiber, after the merger unless it is required to do so.[257]
188. Because the Joint Petitioners have not extended existing non-UNE wholesale agreements at current prices by the same length as their agreed-upon extension of ICAs, the Joint CLECs are concerned that the Joint Petitioners may intend to increase the prices of non-UNEs early in the three- to five-year synergy timeframe.[258]
189. Since the merger announcement date, Qwest has taken some steps that will increase the expenses of wholesale customers.[259] Specifically:
·
On April 30, 2010, Qwest filed a “Product Notification”
with an effective date of June 1, 2010, indicating that it would change its
Regional Commitment Program (RCP) from a unit-based plan to a revenue-based
plan and raise the commitment level from 90% to 95% of the total
Company-provided in-service DS1 and DS3 Revenue. An RCP is a pricing plan that allows DS1
and/or DS3 customers to receive price reductions for committing to a minimum
volume on DS1 and/or DS3 circuits for a certain period of time. As of May 31, 2010, the former RCP provisions
were no longer available to wholesale customers. New, less favorable terms are required going
forward.[260]
·
More recently, Qwest introduced a new QLSP
Agreement to take effect January 4, 2011, when the current QLSP agreement is
set to expire.[261] On
·
Even more recently, on
190. As part of the DOC Settlement, the Joint Petitioners committed to cap the Merged Company’s basic retail residential and business rates at current levels through 2012.[267] The Joint CLECs are concerned that the Joint Petitioners’ decision to increase wholesale QLSP rates while capping their own basic retail rates could create a potential anti-competitive price squeeze in which CLECs relying on QLSP face higher prices for the wholesale inputs they use to compete in the retail market while their primary competitors, Qwest and CenturyLink, keep their retail rates flat.[268]
191. It is not clear from the record how long the old QLSP Agreement had been in effect or what factors Qwest took into account in ordering the rate increase.
192. Some CLECs subscribe to the terms of various tariffed plans offered by Qwest, such as Qwest’s Regional Commitment Plan (RCP) and Qwest’s Annual Incentive Plan (AIP). The AIP is a 12-month offering that provides additional discounts associated with revenue growth over the year. Once a year, those discounts are provided as a billing credit. The AIP contract of one of the Joint CLECs, tw telecom of Minnesota (TWTC), will expire in January 2011 unless the conditions proposed by the Joint CLECs are adopted.[269] TWTC also has an RCP Agreement with Qwest that is set to expire in June 2011. Under that RCP Agreement, TWTC agrees to maintain a base of at least 90% of the existing circuits purchased from Qwest as special access and receives in exchange a 22% discount off the tariffed monthly rate of those circuits. The RCP guarantees rate stabilization at the then-tariffed monthly rate, regardless of whether Qwest files for tariffed price increases. However, Qwest has already filed with the FCC to eliminate the existing RCP plan (grandfathering existing RCP agreements), change the RCP from a circuit-based plan to a revenue-based commitment, and increase the commitment levels required from 90% of circuits to 95% of revenue. If the terms of the current RCP agreement expire without the extension requested by the Joint CLECs as part of the merger conditions, TWTC will see its special access costs increase 22%.[270]
193. The Joint CLECs contend that the commitment made in the Integra Settlement Agreement to extend RCP Agreements by 12 months after the transaction closes or by 12 months after an Agreement’s expiration may provide sufficient price stability for a CLEC such as Integra and others that have RCP Agreements set to expire well after the transaction closes. By extending their RCP Agreements by an additional year as provided in the Integra Settlement Agreement, those CLECs will effectively cap the rates they pay for their special access services for at least the minimum three-year synergy period. But the Joint CLECs assert that that term of the Integra Agreement will provide far less benefit to CLECs whose RCP Agreements are set to expire prior to the transaction closing date because they will be forced onto the higher effective RCP rates well before other CLECs. As a result, they maintain some CLECs will receive less rate stability than others, some CLECs will be forced to pay higher prices than others depending on when their RCP Agreements are due to expire, and some CLECs will gain a competitive advantage over others.[271] As noted by Mr. Gates, “Such disparate treatment of CLECs by operation of the settlement will harm the efficient operation of the market by systematically identifying winners and losers based on an expiration date in an agreement instead of on a company’s ability to efficiently compete in the market.”[272]
194. Under the Integra Settlement Agreement, if the post-merger company decides to eliminate a wholesale or commercial offering after the initial 18-month extension period, the company will make the offering available to CLECs on a grandparented basis to serve embedded base customers for at least an additional 18 months after notification is given that it is no longer available, subject to rate modifications that the post-merger company deems appropriate. The Joint CLECs contend that this commitment is inadequate for several reasons:
· Because there is no price cap for the additional 18-month period, they argue that there will be no stability or certainty regarding the price that CLECs will have to pay for these wholesale services. The post-merger company would be free to offer the wholesale service at a price that is beyond the reach of CLECs and effectively eliminate the availability of the service.[273]
· Limiting the availability of wholesale inputs purchased under these agreements to a CLEC’s embedded customer base will prevent CLECs from using wholesale services to expand their business and add new customers, and the Joint CLECs contend that this could have a chilling effect on the ability of CLECs to compete with Qwest using those services.[274]
· Finally, according to the Joint CLECs, limiting wholesale agreements to a CLEC’s embedded base would defeat the use of those agreements as an effective ongoing alternative to UNEs that are no longer available because of non-impairment designations.[275]
195. The Administrative Law Judge concludes that the Joint CLECs have not demonstrated that this proposed condition is reasonable or necessary for the transaction to be deemed to be in the public interest. As the Joint Petitioners emphasize, commercial agreements arise under 47 U.S.C. § 271 or because Qwest has made a voluntary decision to offer such agreements. Most of these agreements relate to services that formerly were within the scope of unbundled network elements under Section 251(c), but subsequently have been found by the FCC to not meet the impairment standard. Because a BOC is free to offer such elements at rates that are market-based, the Joint CLECs’ attempt to compare the prices that they used to receive under Section 251 with rates they currently receive under commercial agreements or federal tariffs is not appropriate and has been rejected in prior Commission proceedings. Accordingly, providing different treatment for ICAs and commercial agreements comports with the differing regulatory standards governing such agreements and the fact that CLECs have a choice as to whether to purchase from Qwest, purchase from another carrier, or self-provision.
196. Qwest’s current QLSP agreements expired on January 4, 2011. The RCPs expire at varying time periods, as do other agreements. As a result, the termination dates of various commercial agreements and tariffed services will inevitably vary between CLECs, and the differences between CLECs that exist under the Integra Settlement Agreement will exist regardless of whether the Integra Settlement and the proposed merger are approved. Moreover, regardless of the proposed merger or the terms of the Integra Settlement Agreement, prices for commercial/wholesale agreements could be altered and services could be terminated at any time, as long as consistent with the terms of the agreement. As a result, the additional price stability assurances contained in the Integra Settlement Agreement provide a benefit to CLECs to which they would not otherwise be entitled. The provisions of the Integra Agreement provide a level of certainty and stability for wholesale customers following the proposed merger that would not otherwise exist, and lessen the impact of any future changes in such product offers.
197. Therefore, the Administrative Law Judge recommends that this condition not be adopted by the Commission.
198. The Administrative Law Judge is sympathetic, however, to the arguments posed by the Joint CLECs. In particular, it appears that CLECs whose contracts expire during the pendency of this case find themselves in a difficult position. The Joint Petitioners have consistently pressed for an expedited schedule in this case so that the merger closing can take place as soon as possible. The settlement agreements generally extend contracts that are in place at the time of closing, as opposed to the date the merger petition was filed. CLECs whose agreements expired while this case has been pending have been forced to accept new agreements, with higher prices, to ensure that they will have some agreement in place at the time of closing. The Commission may wish to consider whether there is some permissible mechanism to require that the extension apply to contracts that lapsed while this case was pending, and not just to the contracts that are in place on the Closing Date.
2.
Ability
to Port ICAs
199. The Integra Settlement Agreement does not include any commitment by the Joint Petitioners to allow the “porting” of interconnection agreements (also known as cross-state adoption). The Joint CLECs contend that this constitutes a significant omission in the Integra Settlement, and argue that approval of the proposed merger should be further conditioned on a commitment by the Joint Petitioners to allow ICAs approved in one state to be ported to Minnesota and vice versa, provided that Commission-required terms and pricing are added to the agreements ported into Minnesota.[276]
200. As noted above, the Merged Company will control 17 million access lines in 37 states and will have a combined pro forma revenue of $19.8 billion (as of year-end 2009),[277] making it the third largest ILEC in the nation.[278] The Merged Company will be significantly larger than either of the two Joint Petitioners with a larger combined network footprint, a greater number of lines, and significantly more revenue. In accordance with the “Big Footprint” theory,[279] the Joint CLECs argue that the size and operating power accruing from the merger will give the Merged Company a cost advantage over its customers and competitors, and will provide it with a strong incentive to use its market power as leverage during negotiations and dealings with competitors. In their view, any benefits to the Merged Company from this increase in size and resources should also accrue in part to the benefit of captive wholesale customers and the general public as well as the Merged Company. The Joint CLECs maintain that, as incumbent LECs increase in size and scope, their ability to leverage such size and scope to the disadvantage of competitors also increases, with the possibility that service to end user customers will suffer. As a result, they argue that it is important to ensure that competitors’ transaction costs do not increase as a result of this merger.[280]
201.
The Joint CLECs argue that significant
operational uncertainty arises from the Merged Company’s apparent plans to
consolidate
202. In light of these concerns, the Joint CLECs urged that the following condition be imposed by the Commission:
In the legacy CenturyLink ILEC territory, the Merged Company will permit a requesting carrier to opt in to any interconnection agreement to which Qwest is a party in the same states, including agreements in evergreen status. If there is no Qwest ILEC in the state, the Merged Company will permit a requesting carrier to opt into any interconnection agreement to which Qwest is a party in any state in which Qwest is an ILEC. Agreements subject to the opt-in rates described in this condition will apply in full, without modification and subject to the other conditions set forth herein. To the extent that the Merged Company seeks to modify agreements subject to the opt-in rights described in this condition, the Merged Company will permit the opt-in and the agreement shall become effective, subject to the Merged Company’s right to subsequently seek from the applicable state commission an order modifying the agreement. The state commission may require modification of the agreement to the extent that the commission determines that the Merged Company has established that (1) it is not Technically Feasible for the Merged Company to comply with one or more provisions of the agreement or (2) the price(s) set forth in the agreement are inconsistent with TELRIC-based prices in the state in question. More consistency in interconnection agreement offerings will provide more consistency for wholesale customers dealing with CenturyLink in multiple states, and will enable the industry to rely on interconnection agreement terms from the pre-closing entity that both has been through Section 271 approval proceedings and has the greater volume of CLEC wholesale business.
a. "CenturyLink ILEC territory," as used in this condition, excludes any CenturyLink ILEC for which a state commission has granted CenturyLink a rural exemption pursuant to Section 251(f) of the Federal Communications Act of 1934, as amended, 47 U.S.C. § 151 et seq, (the Communications Act) before the Merger Filing Date.
b. Nothing in this condition precludes a regulatory body from determining that any operating company of the Merged Company, which as of the Merger Closing Date operates under a Section 251(f) exemption or a 251(f)(2) suspension or modification, must cease to do so. In the event that such a ruling is made, this condition would then apply to the applicable operating company as well.[283]
203. In the AT&T/BellSouth merger, a porting condition was among the commitments to which the companies voluntarily agreed. Under that condition, AT&T/BellSouth were required to make available to any CLEC any ICA (negotiated or arbitrated) to which an AT&T/BellSouth ILEC is a party in any state within the AT&T 22-state footprint, subject to state-specific pricing and technical feasibility. That condition was adopted by the FCC.[284] In a subsequent decision involving that merger, the Illinois Commission found it had authority to enforce that requirement post-merger.[285]
204.
The Joint Petitioners oppose the imposition of
this condition and argue that it goes “far beyond the requirements of the
Telecommunications Act and beyond any need for certainty and stability that may
arguably rise as a result of the proposed transaction.” They contend that allowing a CLEC to port an
agreement from another state would undermine the parties' expectations that the
original state’s rules and network configurations would apply, not
205.
The DOC is also opposed to this condition
because it would require the Commission to accept, interpret, and enforce ICAs
approved by other state commissions. The
DOC believes that this would have a negative impact on the Commission’s
authority to approve and enforce ICAs. Although
interconnecting parties are free to negotiate an
206.
There are a number of practical, operational,
and legal issues that would arise if this condition were imposed. Because CenturyLink and Qwest ICAs have been
negotiated with the particular network and facilities in mind, it would be
contrary to the expectations of the parties that an
207. The Administrative Law Judge concludes that the Intervenors have not shown by a preponderance of the evidence that the imposition of this proposed condition is reasonable or necessary to ensure that the proposed transaction is in the public interest within the meaning of Minn. Stat. §§ 237.23 and 237.74, subd. 12. Although this condition has been adopted in other merger situations, it appears that the merging companies had already voluntarily agreed to make that commitment. In addition, as the DOC and Joint Petitioners have pointed out, adoption of this condition could have a negative effect on the Commission’s authority and create other operational and legal issues.
3. Additional
208.
The Joint CLECs contend that the Integra
Settlement does not adequately address the Operations Support Systems (OSS)
risks associated with the proposed merger in several respects. Therefore, they recommend the following
additional
a. an extension of Qwest’s
b. a
commitment by the Merged Company that any successor OSS will perform at the
same level as Qwest’s current OSS as confirmed by third-party testing at
commercial volumes; and
c. a commitment to specific benchmarks to ensure that specific components of wholesale OSS service quality, including support, data, billing, functionality, performance, electronic flow through and electronic bonding, are not degraded. Without a benchmark to current standards, the Joint Petitioners commitment to Integra that such functionalities will not be degraded in the future is essentially meaningless.
209. The specific language of the proposed condition is as follows:
In legacy Qwest ILEC territory, after the Closing Date, the Merged Company will use and offer to wholesale customers the legacy Qwest Operational Support Systems (OSS) for at least three years and provide at least the same level of wholesale service quality, including support, data, functionality, performance, and electronic bonding, provided by Qwest prior to the Merger Filing Date. After the minimum three-year period, the Merged Company will not replace or integrate Qwest systems without first complying with the following procedures:
a. The Merged Company will prepare and submit a detailed plan to the Wireline Competition Bureau of the FCC and the state commission of any affected state before replacing or integrating Qwest system(s). The Merged Company’s plan will describe the system to be replaced or integrated, the surviving system, and why the change is being made. The plan will describe steps to be taken to ensure data integrity is maintained. The plan will describe CenturyLink's previous experience with replacing or integrating systems in other jurisdictions, specifying any problems that occurred during that process and what is been done to prevent those problems in the planned transition for the affected states. The Merged Company’s plan will also identify planned contingency actions in the event that the Merged Company encounters any significant problems with the planned transition. The plan submitted by the Merged Company will be prepared by information technology professionals, retained at the Merged Company’s expense, with substantial experience and knowledge regarding legacy CenturyLink and legacy Qwest systems processes and requirements. Interested carriers will have the opportunity to comment on the Merged Company’s plan.
b. For any Qwest system that was subject to third-party testing (e.g., as part of a Section 271 process), robust, transparent third party testing will be conducted for the replacement system to ensure that it provides the needed functionality and can appropriately handle existing and continuing wholesale services in commercial volumes. The types and extent of testing conducted during the Qwest Section 271 proceedings will provide guidance as to the types and extent of testing needed for the replacement systems. The Merged Company will not limit CLEC use of, or retire, the existing system until after third party testing has been successfully completed for the replacement system.
c. Before implementation of any replacement
or to be integrated system, the Merged Company will allow for coordinated
testing with CLECs, including a stable testing environment that mirrors
production and, when applicable, controlled production testing. The Merged Company will provide the wholesale
carriers training and education on any wholesale
210.
The Joint Petitioners contend that the
211.
The FCC defines
212.
The ability of CLECs to access the ILEC’s
213.
The FCC has found that CLECs would be “severely
disadvantaged, if not precluded altogether, from fairly competing,” if they did
not have nondiscriminatory access to
214.
215.
CenturyLink and Qwest currently use different
216.
In contrast,
CenturyLink’s
217.
218.
Michael Hunsucker, CenturyLink’s Director of
CLEC Management, generally testified that the Joint Petitioners "are each
dedicated to having strong
Because the immediate plan is to
maintain both companies' separate
219.
CenturyLink witnesses further testified that
they are committed to giving CLEC customers ample notice of any changes and
will involve CLEC customers in testing of
220.
The Joint CLECs assert that, if Qwest’s
221.
The record includes two examples of deficiencies
in the functionality of CenturyLink’s
The Wholesale customer will call in to the SSO (Special Service Operations) and CenturyLink will record all the pertinent information on the ticket. If SSO has remote test access, SSO will then do a diagnostic test to isolate the trouble. Once it is determined if it is a central office, cable, or premise issue, the SSO will request dispatch to the proper technician to resolve the issue. Once the field technician has fixed the issue, they will call back into SSO to test the circuit to confirm the repair. CenturyLink will then call the reporting party and do acceptance testing, if the circuit is working and they accept it, the ticket is closed.[318]
In legacy Embarq territory, CLECs have the option to submit and track trouble tickets for unbundled loops and features electronically via a web-based repair ticket ordering system (“WebRRS”). This comparison demonstrates that Qwest allows electronic bonding capability for maintenance and repair that permits a direct connection between the CLEC’s M&R query and the Qwest repair technicians – a capability that is not available through either CenturyLink’s web-based WebRRS or CenturyLink’s Access Care (SSO) process (which requires multiple phone calls and increased manual intervention, with the increased possibility of error).[319]
222. The second example relates to CEMR (Qwest’s web-based maintenance and repair GUI [Graphic User Interface] and WebRRS (CenturyLink’s web-based maintenance and repair GUI). The Joint CLECs contend that CEMR has functionality that WebRRS does not have. For instance, CLECs can submit trouble tickets for special access circuits through Qwest’s CEMR, but that is not permitted through CenturyLink’s WebRRS.[320]
223. The FCC evaluates the amount of electronic flow through offered by a BOC when evaluating its 271 capabilities. Generally, the more orders electronically flow through, the less manual intervention and risk of human error. The FCC has concluded that, to meet a BOC’s ongoing 271 obligations, the BOC must show that its OSS are capable of flowing through orders in a manner that affords competing carriers a meaningful opportunity to compete and its OSS are capable of flowing through orders in substantially the same time and manner as for retail orders.[321]
224.
Discovery responses submitted by the Joint
Petitioners indicate that, at a minimum, Qwest’s CLEC-facing
225.
CenturyLink has indicated that it does not plan
to engage in third-party testing of any
226.
The FCC has concluded that “[t]he most probative
evidence that
Absent sufficient and reliable data
on commercial usage, the Commission will consider the results of carrier-to-carrier
testing, independent third-party testing, and internal testing in assessing the
commercial readiness of a BOC’s
227.
If the Merged Company modifies or replaces Qwest’s
228.
The systems
integration problems experienced in the WorldCom/MCI, US West/Qwest, Carlyle
Group/Verizon
229.
The Joint Petitioners contend that the Joint
CLECs' concerns about potential
230.
The Administrative Law Judge concludes that the
Joint CLECs have not demonstrated that the additional
231. The Joint CLECs have not convincingly demonstrated that the public interest requires that Qwest OSS be extended one additional year, any new OSS undergo third-party testing, or current wholesale service quality benchmarks be specified. The Joint CLECs correctly note that the Integra Agreement’s requirement that the Merged Company provide a level of wholesale service quality following the discontinuance of the Qwest OSS that is “not materially less” than that provided by Qwest prior to the merger is somewhat imprecise, and will likely require resort to dispute resolution processes in the future. However, the use of such a standard does not necessarily mean that the Merged Company will be permitted to “backslide” on Qwest’s 271 obligations or otherwise suggest that the Agreement is contrary to the public interest.
232. A “rural telephone company” is defined in the Federal Telecommunications Act as “a local exchange carrier operating entity” that meets one of the following four requirements:
(A) provides common carrier service to any local exchange carrier study area that does not include either—
(i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based on the most recently available population statistics of the Bureau of the Census; or
(ii) any territory, incorporated or unincorporated, included in an urbanized area, as defined by the Bureau of the Census as of August 10, 1993;
(B) provides telephone exchange service, including exchange access, to fewer than 50,000 access lines;
(C) provides telephone exchange service to any local exchange carrier study area with fewer than 100,000 access lines; or
(D) has less than 15 percent of its access lines in communities of more than 50,000 on February 8, 1996.[338]
233. The rural exemption set forth in the Act provisionally exempts rural carriers from the obligations set forth in section 251(c) of the Act until they receive a bona fide request for interconnection from a telecommunications carrier. Once they receive such a request, the exemption may be terminated by a state commission if the commission finds that the request is not unduly burdensome, is technically feasible, and is consistent with universal service policies set forth in certain portions of Section 254.[339] Under Section 251(f)(2) of the Act, “[a] local exchange carrier with fewer than 2 percent of the Nation’s subscriber lines in the aggregate nationwide to petition a State commission for a suspension or modification of the application of a requirement of 251(b) or (c) to telephone exchange service facilities specified in the petition.”[340]
234. The Joint CLECs contend that the Merged Company should not be permitted to use the rural exemption. Under their proposed condition:
The Merged Company will not seek to avoid any of the obligations of CenturyLink under the Assumed Agreements on the grounds that CenturyLink is not an incumbent local exchange carrier (“ILEC”) under the Communications Act. The Merged Company will waive its right to seek the exemption for rural telephone companies under Section 251(f)(1) and its right to seek suspensions and modifications for rural carriers under Section 251(f)(2) of the Communications Act.[341]
Charter proposes as a further
condition of approval of this transaction that any operating company affiliates
of CenturyLink or Qwest that currently operate under a Section 251(f) exemption
or waiver should be required to relinquish and surrender such legal rights upon
the Closing Date.[342]
235.
Given the circumstances of this transaction and
the fact that CenturyLink will become the third-largest ILEC in the nation, the
Joint CLECs contend that it is appropriate to predicate approval of the
transaction on this condition. They
noted that CenturyLink has recently agreed to at least partially waive certain
protections from the rural exemption in
236. The Integra Settlement Agreement addresses the rural exemption issue to a certain extent in Paragraph 6, which states:
CenturyLink and all of its incumbent local exchange carrier (“ILEC”) affiliates will comply with 47 U.S.C. Sections 251 and 252. In the legacy Qwest ILEC service territory, the Merged Company will not seek to avoid any of its obligations on the grounds that Qwest Corporation is exempt from any of the obligations pursuant to Section 251(f)(1) or Section 251(f)(2) of the Communications Act.
237.
Three of CenturyLink’s four affiliates in
238. Currently, less than 15 percent of CenturyLink’s access lines are covered by the rural exemption.[346]
239.
The Joint CLECs point out that the language in
the Integra Settlement Agreement applies only to “the legacy Qwest ILEC service
territory,” and argue that the Integra Settlement does not adequately address
their concern that CenturyLink has a practice of using the rural exemption in
an anticompetitive manner. The Joint
CLECs assert that the protections afforded by the Integra Settlement Agreement
are of limited utility to competitors like Charter who provide service in
240. The Joint CLECs argue that CenturyLink’s current reliance on “rural” company status for many of its separate operating companies has the effect of increasing competitors’ operating costs because competitors cannot rely upon access to interconnection, UNEs, and collocation rights provided under Section 251(c) to support their service arrangements. They contend that CenturyLink’s use of the rural exemption is another example of the “worst practices” in which CenturyLink engages at the expense of competition and the public interest.[348]
241. According to the Joint CLECs, “the rural exemption is intended for small rural carriers whose economic viability may be threatened if they were obligated to incur costs to implement all the unbundling and resale provisions of the Telecommunications Act of 1996, such as the costs associated with the development of sophisticated OSS,”[349] and not companies as large as the Merged Company. The Joint CLECs point out that the Commission has previously denied another Minnesota ILEC’s attempt to invoke the rural exemption because it determined that there were “close operational ties” between the ILEC’s local operating company and its national parent company,[350] and contend that the evidence in this case shows that CenturyLink’s operating companies have “close operational ties” with the parent company.
242.
John Jones, CenturyLink’s Vice President of
State Government Affairs, acknowledged that the CenturyLink operating companies
in
243. The Joint CLECs also argue that there is precedent for requiring this type of condition. They contend that the FCC found that a similar condition was appropriate in the Verizon/Frontier merger proceeding.[356] That case did not, however, involve the imposition of a condition that had been resisted by the carrier, nor did it involve approval of a condition requiring waiver of the rural exemption with respect to the acquiring company’s existing service territory or affiliates. In that case, Frontier voluntarily committed “not to assert that it is exempt from section 251(c) obligations pursuant to section 251(f)(1) in the areas transferred from Verizon that are rural telephone companies outside of West Virginia, or ‘to move or reclassify any exchanges or wire centers currently located in Verizon West Virginia’s legacy service areas so as to . . . take advantage of the rural exemption under Section 251(f)(1).’” The FCC later concluded that these commitments adequately addressed concerns expressed by those commenting on the proposed transaction, and approved the transaction.[357]
244. The Joint Petitioners contend that the proposed waiver of the rural exemption in legacy CenturyLink territories is beyond the scope of a merger approval proceeding. They assert that the Federal Telecommunications Act and the FCC have granted certain rights to rural ILECs in recognition of the unique characteristics of serving rural, sparsely populated territories. They contend that the conditions that trigger eligibility for the rural exemption remain the same after the merger as they did before. In addition, they point out that the rural exemption requires a petition to the Commission, Commission review of pertinent facts and mitigating factors, and subsequent findings, and argue that these legal processes should not be circumvented. Accordingly, they assert that this condition should not be imposed as part of a merger approval proceeding.[358]
245. The Administrative Law Judge recommends that the Commission reject the attempt by the Joint CLECs to impose this condition in the current proceeding. The proposed transaction is structured as parent-level transfer of control that will not result in any change in the corporate structure of the CenturyLink and Qwest operating entities as a result of the transaction. Because nothing about the merger changes the operations of those entities, there is no proper basis to require as a condition of the merger that CenturyLink affiliates relinquish their current rights to the rural exemption. The Merged Company’s voluntary commitment in the Integra Settlement Agreement that it will not seek to change the status quo by asserting that Qwest is entitled to the rural exemption applies in the legacy Qwest ILEC service territory is an adequate safeguard that is logically related to the merger. In fact, this commitment accomplishes the same purpose as the condition approved by the FCC in the Frontier/Verizon merger proceeding. In any event, the Joint CLECs did not demonstrate in this record that the rural exemption does not apply to the CenturyLink affiliates that currently claim it. Moreover, because the Act provides a process to challenge the exemption, other remedies are available to CLECs that believe the exemption has been inappropriately claimed.
5. Commitment to Single Point
of Interconnection per LATA
246. The Joint CLECs propose that the following additional condition be imposed on the Joint Petitioners:
At CLEC’s option, the Merged Company will interconnect with CLEC at a single point of interconnection per LATA, regardless of whether the Merged Company provides service in such LATA via multiple operating company affiliates or a single operating company.[359]
The Integra Settlement does not include any language that addresses this topic.
247.
In
248.
Billy Pruitt, Manager of Interconnection
Services for Charter, provided testimony regarding Charter’s recent experiences
with CenturyLink in
249.
The dispute between Charter and CenturyLink’s
The Commission sustains the panel award’s determination [sic] of this issue because it has not been shown to be inconsistent with federal law. The award modified CenturyTel’s language to define a POI as the network point where (1) local traffic is exchanged and (2) cost responsibility for facilities is divided between the parties. The award is thus consistent with federal law that does not require non-Bell Operating companies, such as CenturyTel, Inc., to give a competitor a single POI in each LATA for several legally separate operating companies. The award properly establishes a separate POI in each LATA within the network of each CenturyTel operating affiliate, and thereupon reasonably directs the parties to mutually agree upon specific trunking arrangements.[369]
Accordingly, it appears that Charter did not prevail on this issue.[370]
250. The Joint Petitioners oppose imposition of this proposed condition. They maintain that existing law requires that interconnection be on a single point on an ILEC’s network, and contend that the proposed condition goes beyond the requirements of the Act and relevant FCC orders. They argue that the proposed condition involves a complex and fact-specific issue for which adequate forums already exist. They also contend that this issue is beyond the scope of a merger approval proceeding.[371]
251. The Administrative Law Judge concludes that the Joint CLECs have failed to meet their burden to demonstrate that this proposed condition is relevant to any potential harm caused by the merger or is otherwise appropriately addressed in this proceeding. Disputes between Charter and CenturyLink regarding the type of interconnection required by the Act are more appropriately addressed in interconnection proceedings in which a full evidentiary record can be developed, rather than being summarily decided in this proceeding. Accordingly, the Administrative Law Judge recommends that the Commission not impose this proposed condition.
6. Directory Listing and Directory Assistance Practices
252. The Joint CLECS have proposed that the following condition be imposed:
The Merged Company will provide nondiscriminatory access to directory listings and directory assistance in compliance with federal and state law. Specifically, the Merged Company will be responsible for ensuring that all directory listings submitted by CLECs for inclusion in directory assistance or listings databases are properly incorporated into such databases (whether such databases are maintained by the Merged Company or a third party vendor). Further the Merged Company will ensure that CLECs’ subscriber listings are accessible to any requesting person on the same terms and conditions that the Merged Company’s subscriber listings are available to any requesting person.[372]
253. Section 251(b)(3) of the Act states that all local exchange carriers have the duty to permit all competing providers to have “nondiscriminatory access to telephone numbers, . . . directory assistance, and directory listing.”[373] The Joint CLECs allege that CenturyLink has failed to comply with the Act by shifting its obligations under Section 251(b)(3) to third-party vendors and refusing to contract with competitors (in an interconnection agreement) for certain basic directory listing and directory assistance functions, such as the obligation to publish competitor’s listings in the same directories in which it publishes its own customers listings, and the obligation to ensure that competitor’s listings are available to its own customers who request directory assistance.[374] Although the Joint CLECs acknowledge that it is not uncommon or improper for ILECs to use third-party vendors for directory assistance activities, they contend that provisions regarding the ILEC’s responsibilities must still be included in interconnection agreements and the ILEC must accept responsibility (and ultimately liability) for addressing and resolving the problems.
254. The record contains one example of this issue. Within the last several years, CenturyLink subscribers who called directory assistance by dialing “4-1-1” were not able to obtain Charter subscribers’ listing information from CenturyLink’s directory assistance service. The subscriber was told that such information was not available. After some investigation, Charter determined that the problem arose because CenturyLink had contracted with a third-party vendor to operate its directory assistance database. That third-party vendor did not have Charter’s listings in its local database and was not querying the correct national database. According to Charter, CenturyLink disclaimed any obligation to remedy the situation, and asserted that the practices of its directory assistance database vendor were not subject to scrutiny from competitors like Charter.[375] However, CenturyLink has since asserted that it had remedied the problem by contracting with a different third-party directory assistance vendor.[376]
255. The Joint CLECs express concern that CenturyLink will employ such practices in the Qwest ILEC markets after the merger, and that directory services provided by competitors will be degraded if CenturyLink, or its third-party vendor, fails to properly maintain directory assistance and directory listings databases in the same manner that Qwest does throughout its ILEC serving territory.[377] They argue that the proposed condition merely requires that the Merged Company provide wholesale directory services in compliance with existing law and does not impose any additional operational burdens.[378]
256. The Joint Petitioners contend that this condition is unnecessary because the record demonstrates that the Joint Petitioners have committed to complying with all federal and state laws as well as with the terms of applicable interconnection agreements.[379] In addition, the Integra Settlement Agreement requires compliance with Sections 251 and 252 of the Federal Communications Act, which includes laws related to directory listings.
257. The Administrative Law Judge concludes that the Joint CLECs have not demonstrated that this condition is needed for the transaction to be deemed to be in the public interest. The Joint CLECs argue that the proposed condition “simply requires that the Merged Company provide wholesale directory services in compliance with existing law.”[380] If that is the case, the Joint Petitioners’ Settlement Agreement with Integra already explicitly addresses this concern by stating that “CenturyLink and all of its incumbent local exchange carrier (“ILEC”) affiliates will comply with 47 U.S.C. Sections 251 and 252.”[381] Should CenturyLink improperly deny its responsibility to provide access to directory services in the future, any affected CLEC would have the right to file a complaint with the Commission, in which all the relevant facts and applicable law can be fully presented and considered. Imposition of this condition on the merger is simply not necessary.
7. Moratorium on Non-Impairment and Forbearance
Filings
258. The Integra Settlement Agreement includes the following provision:
Qwest will not seek to reclassify as “non-impaired” any Qwest wire centers for purposes of Section 251 of the Communications Act, nor will the Merged Company file any new petition under Section 10 of the Communications Act seeking forbearance from any Section 251 or 271 obligation or dominant carrier regulation in any Qwest wire center before June 1, 2012.[382]
259. While the Joint CLECs agree that a moratorium on non-impairment filings and petitions for forbearance is warranted, they contend that the June 1, 2012, expiration date in the Integra Settlement is inadequate. Accordingly, they have continued to urge the adoption of proposed Condition 14, which states:
For at least the Defined Time Period [defined as a time period of at least 5-7 years after the Closing Date or, alternatively, a time period that is a minimum of 42 months (i.e., 3.5 years) and continues thereafter until the Applicants are granted Section 10 forbearance from the condition], the Merged Company will not seek to reclassify as “non-impaired” any wire centers for purposes of Section 251 of the Communications Act, nor will the Merged Company file any new petition under Section 10 of the Communications Act seeking forbearance from any Section 251 or 271 obligation or dominant carrier regulation in any wire center. [383]
260. The Joint CLECs propose that such a moratorium should remain in effect during the Defined Time Period (which corresponds to the Joint Petitioners’ own synergy time period). The Joint CLECs point out that the June 1, 2012, expiration date set forth in the Integra Settlement Agreement falls far short of the three-to-five year time period during which the Joint Petitioners will be integrating the two companies and pursuing merger-related synergy savings. They also emphasize that it falls far short of the 42-month moratorium adopted by the FCC in relation to the AT&T/BellSouth merger.[384]
261. The Joint CLECs argue that the time period of the moratorium should under no circumstances be less than the minimum three-year period associated with the Joint Petitioners’ synergy estimate. They contend that at least a three-year moratorium is necessary to adequately protect the public’s interest in competition and provide an appropriate level of certainty for wholesale customers related to the bottleneck inputs they purchase from the Merged Company.
262.
The Joint Petitioners argue that the moratorium
period set forth in the Integra Settlement Agreement adequately resolves any
issue raised by the Joint CLECs in Proposed Condition 14. They further contend that the proposed
condition is not consistent with the rules and guidelines the FCC established
in the Triennial Review Order and the Triennial Review Remand Order, which
require that filings for non-impaired status be based on the competitive
marketplace and the alternatives that CLECs have in that marketplace to buy or
self-provision network elements they need to compete. Finally, the Joint Petitioners emphasize that
the Commission, Qwest, and a representative body of CLECs worked cooperatively
in
263. The Administrative Law Judge concludes that the Joint CLECs have not demonstrated that this condition should be required in this proceeding. Specific procedures were developed with the input of CLECs to govern the process for determining impairment of a wire center, and it is not appropriate to circumvent those procedures by imposing the condition urged by the Joint CLECs in this proceeding. Moreover, the moratorium until June 1, 2012, to which the Joint Petitioners agreed in the Integra Settlement, provides a reasonable period of certainty to the CLECs while the merger is in its early stages.
8. Commitment to Implement APAP
264. The Joint CLECs proposed the imposition of an Additional Performance Assurance Plan as described in part (a) of recommended Condition 4. That condition specifies in its entirety:
In the legacy Qwest ILEC territory, the Merged Company shall comply with all wholesale performance requirements and associated remedy or penalty regimes for all wholesale services, including those set forth in regulations, tariffs, interconnection agreements, and Commercial agreements applicable to legacy Qwest as of the Merger Filing Date. The Merged Company shall continue to provide to CLECs at least the reports of wholesale performance metrics that legacy Qwest made available, or was required to make available, to the CLECs as of the Merger Filing Date. The Merged Company shall also provide these reports to state commission staff or the FCC, when requested. The state commission and/or the FCC may determine that additional remedies are required, if the remedies described in this condition do not result in the required wholesale service quality performance or if the Merged Company violates the merger conditions.
a. No Qwest Performance Indicator Definition (PID) or Performance Assurance Plan (PAP) that is offered, or provided via contract or Commission approved plan, as of the Merger Filing Date (“Current PAP”) will be reduced, eliminated, or withdrawn for at least five years after the Closing Date and will be available to all requesting CLECs until the Merged Company obtains approval from the applicable state commission, after the minimum 5-year period, to reduce, eliminate, or withdraw it. For at least the Defined Time Period, in the legacy Qwest ILEC territory, the Merged Company shall meet or exceed the average wholesale performance provided by Qwest to each CLEC for one year prior to the Merger Filing Date for each PID, product, and disaggregation. If the Merged Company fails to provide wholesale performance as described in the preceding sentence, the Merged Company will also make remedy payments to each affected CLEC in an amount as would be calculated using the methodology (e.g., modified Z test, critical Z values, and escalation payments) in the Current PAP, for each missed occurrence when comparing performance post- and pre- Closing Date (“Additional PAP”).
b. In the legacy Qwest ILEC territory, for at least the Defined Time Period, the Merged Company will meet or exceed the average monthly performance provided by Qwest to each CLEC for one year prior to the Merger Filing Date for each metric contained in the CLEC-specific monthly special access performance reports that Qwest provides, or was required to provide, to CLECs as of the Merger Filing Date. For each month that the Merged Company fails to meet Qwest’s average monthly performance for any of these metrics, the Merged Company will make remedy payments (calculated on a basis to be determined by the state commission or FCC) on a per-month, per-metric basis to each affected CLEC.[386]
265. The Integra Settlement Agreement did not adopt the APAP, but did include the following provision:
In the legacy Qwest ILEC service territory, the Merged Company shall comply with all wholesale performance requirements and associated remedy or penalty regimes for all wholesale services, including those set forth in regulations, tariffs, interconnection agreements, and Commercial agreements applicable to legacy Qwest as of the Merger Closing Date. In the legacy Qwest service territory, the Merged Company shall continue to provide to CLECs at least the reports of wholesale performance metrics that legacy Qwest made available, or was required to make available, to CLECs as of the Merger Closing Date, or as subsequently modified or eliminated as permitted under this Agreement or pursuant to any changes in law. The Merged Company shall also provide these reports to state commission staff or the FCC, when requested. The state commission and/or the FCC may determine that additional remedies are required, to the extent of state commission or FCC finds it is consistent with its jurisdiction. The Merged Company does not waive its right to oppose such a request.
a. The Parties will not seek to reduce or modify the Qwest Performance Indicator Definition (PID) or Qwest Performance Assurance Plan (QPAP) that is offered, or provided via contract or Commission approved plan, as of the Merger Closing Date for at least eighteen months after the Closing Date. After the eighteen month period, the Parties may seek modifications under the terms and conditions outlined in the QPAP. The Merged Company will not seek to eliminate or withdraw the QPAP for at least three years after the Closing Date. The QPAP will be available to all requesting CLECs unless the Merged Company obtains approval from the applicable state commission to eliminate or withdraw it.
i. For at least three years after the Closing Date, and consistent with the FCC's required conditions of the Embarq-CenturyTel merger, in the legacy Qwest ILEC service territory, the Merged Company shall meet or exceed the average wholesale performance provided by Qwest to CLEC, measured as follows:
(a.) For the first three months after Closing Date, Qwest’s performance will be compared to Qwest's performance for the twelve months prior to Closing Date.
(b) Thereafter, each successive month of Qwest's performance will be added to the three-month period in (a.) in determining Qwest's performance until twelve months after Closing Date.
(c) Beginning one year after Closing Date, Qwest’s performance will be measured by a rolling twelve month average performance.
b. If the Merged Company fails to provide wholesale performance levels as measured by the methodology described in this condition, the Merged Company must conduct a root cause analysis for the discrepancies and develop proposals to remedy each deficiency within thirty days and provide this to CLEC for review and comment.
i. CLEC may invoke the root cause procedure for deterioration in wholesale performance for any PID, product, or disaggregation included within a PID measure if CLEC determines that the performance it received for that PID, product, or disaggregation is materially different and provides the basis for CLEC's determination.
ii. If performance deficiencies are not resolved, CLEC may request a resolution or wholesale service quality proceeding before the state commission. The Merged Company does not waive its right to oppose such a request.[387]
266. The APAP proposed by the Joint CLECs is a minimum five-year performance assurance plan applicable to the legacy Qwest ILEC territory which would compare the Merged Company’s post merger monthly performance with the performance that existed twelve months prior to the merger filing date.[388] The APAP would compare the Merged Company’s post merger monthly performance (“current performance”) with the performance that existed in the twelve months prior to the merger filing date (i.e., May 2009 through April 2010) (“prior performance”).[389] This comparison would be made using the current Minnesota Performance Assurance Indicators (“PIDs”), products and disaggregation, as well as the same statistical methodology that exists in the Minnesota PAP to determine whether a statistical significant deterioration in performance exists. If such a deterioration is found to exist, then the APAP would calculate payments for each missed occurrence using the methodology from the Minnesota PAP, including one allowable miss and escalation payments for consecutive months of below-standard performance.[390]
267. The Joint CLECs contend that the Merged Company must maintain service quality at current levels to ensure that the proposed merger is in the public interest. According to the Joint CLECs, this cannot be accomplished without a strong disincentive for the Merged Company to achieve its promised synergies at the expense of the CLECs through a deterioration of its wholesale market operations. The Joint CLECs argue that the APAP is necessary to (1) ensure that wholesale quality does not decline post merger, and (2) provide a truly enforceable mechanism to protect impacted CLECs if wholesale quality does decline.
268. The APAP proposed by the CLECs would not replace the Minnesota PAP, but would work in addition to the existing PAP. The current Minnesota PAP is a part of many carriers' interconnection agreements. It compares Qwest’s wholesale performance for CLECs to Qwest’s retail performance and is designed to ensure that Qwest does not treat itself more favorably than it treats CLECs who rely upon Qwest’s wholesale facilities. The Minnesota PAP was put in place when Qwest entered the interLATA long distance market to help ensure that local markets remained open to competition. The Minnesota PAP was not developed to identify merger-related harm and would not capture deteriorating performance if the Merged Companies performance deteriorated for both wholesale and retail services simultaneously or if wholesale performance deteriorated but remained above the minimum benchmarks.[391]
269. The Joint CLECs argue that the APAP is needed to provide the proper incentives to the Merged Company not to pursue savings at the expense of its wholesale customers.[392] The APAP compares pre-merger wholesale service quality to post-merger wholesale service quality to determine whether there has been a merger-related deterioration in wholesale service quality. If significant deterioration in performance exists, then the APAP would calculate payments for each missed occurrence using the methodology from the Minnesota PAP.[393]
270. The Joint Petitioners contend that this issue has been addressed and sufficiently resolved in the Integra Settlement Agreement, which keeps in place existing wholesale service standards and reports. They further contend that the record shows that the APAP does not address nondiscrimination or accurately measure performance degradation.[394] They maintain that the proposed APAP does not accurately measure performance against the standard required by the Act and would result in a windfall to CLECs.[395] The Joint Petitioners assert that the APAP is flawed and emphasize that even the company that sponsored the plan--Integra--has agreed to a significantly modified approach to ensure that wholesale service quality does not deteriorate after the merger.[396]
271. The Administrative Law Judge concludes that the APAP recommended by the Joint CLECs should not be required as a condition of approval of the proposed merger. The Joint Petitioners provided convincing evidence that the APAP has serious flaws and should not be adopted. Most significantly, they demonstrated that substantial payments would be due under the proposed APAP even if service levels remained exactly the same, resulting in a windfall to CLECs.[397] Moreover, if the Commission were to condition its approval of the merger upon the adoption of the proposed APAP, its action arguably would amount to requiring the Joint Petitioners to make self-executing payments to their competitors and thus exceed the Commission’s authority.[398]
272. The Administrative Law Judge also finds that the Integra Settlement Agreement provides an adequate mechanism to discourage any decline in wholesale service quality and is consistent with the public interest. The Integra Settlement provides for a comparison of service quality before and after the Transaction; requires the Merged Company to meet or exceed the average wholesale performance provided by Qwest to the CLEC for at least three years after the transaction closing date; and requires the Merged Company to conduct a root cause analysis if service deteriorates and develop proposals to remedy deficiencies within thirty days. A CLEC may also invoke the root cause procedure if the CLEC determines that the performance it received for a PID, product, or disaggregation is materially different post-merger.
B. Additional Level 3 Proposed Conditions
273. Level 3, which is a member of the Joint CLECs, asserts that this transaction should only be approved by the Commission if the Commission imposes the conditions urged by the Joint CLECs as well as six additional conditions urged by Level 3.[399]
274. Each of Level 3’s additional proposed conditions is discussed below.
1. Leveraging of Billing Disputes
275. Level 3 alleges that the merger creates an opportunity for the Merged Company to leverage a billing dispute that one of its entities may have with a CLEC by refusing to deliver services or by “slow rolling” the delivery of services that the CLEC is purchasing in another state or from another affiliate of the Merged Company. Level 3 alleges that this behavior would not occur in the absence of the merger, and contends that a transaction that creates an entity that can leverage billing disputes across its footprint, in Minnesota or elsewhere, fails to meet the public interest test set forth in Minn. Stat. § 237.74, subd. 12. Level 3 further contends that allowing the Merged Company to leverage billing disputes will have a negative impact on the goal of maintaining just and reasonable rates required by Minn. Stat. § 237.011(2) because it will force competitive carriers to pay rates that are excessive or inappropriate in order to provide services. As a result, Level 3 contends that, before the Commission can approve the transaction, it must impose a condition that prohibits the Combined Entity from leveraging billing disputes. Level 3 asserts that this will eliminate any ambiguity that such action is permissible and will establish a framework for rapid Commission resolution in the event such conduct is attempted.[400]
276.
The Joint Petitioners oppose this proposed
condition. They point out that, although the Joint Petitioners operate multiple
affiliates today, Level 3 has provided no evidence that the behavior it seeks
to sanction has ever occurred or in fact has any causal relationship to the
merger. They argue that billing disputes
typically are handled through the terms of the applicable
277. In its Reply Brief, the DOC agreed that, should the post-merger company leverage billing disputes or engage in rural CLEC arbitrage as described by Level 3, that would constitute anti-competitive conduct of concern. However, the DOC asserted that it is not alleged that such anti-competitive conduct is likely nor does the record suggests that it is. In the event such conduct were to occur at some future time, the DOC argues that the Commission is well-equipped with broad powers to determine the particular facts and to prohibit the specific anti-competitive behavior.[402]
278. The Administrative Law Judge finds that Level 3 has not demonstrated the need for this condition or the appropriateness of imposing it in connection with this proceeding. Accordingly, it is recommended that the Commission not require this condition for approval of the transaction. As noted by the DOC and the Joint Petitioners, if the behavior described by Level 3 does, in fact, occur, or if the Merged Company does not abide by the terms of the applicable ICA, the appropriate proceeding to address those concerns is a complaint before the Commission where the facts can be determined and a remedy ordered if shown to be warranted.
2. Rural CLEC Arbitrage
279. Level 3 also contends that the Commission should prohibit the Combined Entity from engaging in "rural CLEC arbitrage." In this regard, Level 3 asserts that the proposed transaction eliminates the potential competitive entry by either party into the territories of the other and provides an economic incentive for the Combined Entity to take advantage of the rural exemption by having “a CenturyLink ILEC affiliate operating in an adjoining Qwest serving area set up a rural CLEC affiliate and let Qwest lose customers to that rural CLEC, which can then charge the higher CenturyLink access rates.” Level 3 argues that such an arrangement would hurt competition by forcing competitive terminating carriers to pay for more services. It urges the Commission to prohibit the Combined Entity from establishing a rural CLEC that will compete in Qwest territory or, in the alternative, require that the Combined Entity cap access rates at the Qwest rate if rural CLECs are created to compete in adjoining Qwest territories.[403]
280. The Joint Petitioners argue that there is no evidence apart from Level 3’s “rank speculation” to show that the merged company has any intent to engage in the behavior that Level 3 has described or that such behavior has ever occurred as a result of a merger proceeding involving either of the Joint Petitioners or any other rural ILECs. They emphasize that Level 3’s witness Mr. Thayer acknowledged that "the applicants have not indicated they will act in such a manner."[404] They point out that no other intervenor has raised this issue, and argue that there is no legitimate basis for granting this condition.[405]
281. The DOC again noted that the type of conduct described by Level 3 would constitute anti-competitive conduct, but emphasized that it has not been alleged or shown that this conduct is likely to occur. The DOC noted that avenues were available to address such issues should the conduct occur in the future.[406]
282. The Administrative Law Judge concludes that Level 3 has not borne its burden to show that this condition is needed or reasonable in connection with this proceeding. As noted by the DOC, if the behavior described by Level 3 does, in fact, occur, the appropriate proceeding to address those concerns is a complaint before the Commission where the facts can be determined and a remedy ordered if shown to be necessary. Accordingly, it is recommended that the Commission not require this condition for approval of the transaction.
3. Uniform
3-Year Extension of ICAs
283.
Level 3 urged the Commission to reject the
staggered periods of
284.
The Integra Settlement Agreement does provide
for a 36-month extension period for Qwest’s ICAs regardless of whether or not
the initial or current term has expired or is in evergreen status.[408] The terms of the Integra Agreement are
available to any requesting carrier.[409] Accordingly, it appears that Level 3’s
interest in having a uniform 3-year
4. 8YY Traffic
285. Level 3 contends that CenturyLink is routing 8YY traffic in a manner that incurs artificially high transport charges. It contends that, when 8YY calls originate on a wireless network, CenturyLink receives the calls from the wireless carriers and routes them to Level 3 which is providing services to the 800 customer. When a call originates with a wireless carrier and then is handed to CenturyLink, Level 3 asserts that CenturyLink is not routing the call to the nearest tandem capable of providing the 8YY dip and then to Level 3, but is instead routing the call to a distant tandem. Level 3 maintains that CenturyLink then charges the full transport to the distant tandem rather than charging for the minimal transport that would have been charged had the traffic been routed to the nearest, network efficient tandem. Level 3 expressed concern that this practice might be imported throughout the Qwest operating territory and argued that such a practice is both contrary to the public interest and inconsistent with the policy favoring just and reasonable rates. Level 3 urges that the Commission require the Combined Entity to route traffic for 8YY to its nearest tandem. It further recommends that this condition encompass traffic of a customer of the Combined Entity without regard to the entity that has the contractual relationship. For example, the traffic of an Embarq customer should be routed to the nearest Qwest, CenturyLink, or Embarq tandem capable of 8YY dips. In the alternative, Level 3 urged the Commission to cap the mileage that the Combined Entity can charge to the actual distance or 8 miles, whichever is less.[410]
286. The Joint Petitioners argued that the Commission should decline to consider imposition of this condition. They argue that issues relating to 8YY traffic are complex and require a thorough understanding of the governing law as well as the operational and economic interests of all affected parties. They assert that these issues have existed in the industry and between the companies for some time, entirely independently of the merger transaction, and contend that such issues are far beyond the public interest considerations involved in this merger proceeding.[411]
287. The Administrative Law Judge finds that Level 3 has not demonstrated that it is necessary to impose this condition in order to find that the transaction is in the public interest. The consideration of this issue is more appropriately considered in a setting where a full factual record can be developed and considered.
5. Billing
Dispute Deadlines
288.
Level 3 contends that within the last year Qwest
unilaterally implemented a 90-day deadline for accepting billing disputes. It contends that the mere extension of the
ICAs under the Settlement Agreements in this proceeding will not preclude the
Joint Petitioners from implementing unilateral policy changes that alter
289. In response, the Joint Petitioners contend that this is an issue that specifically relates to Level 3 and is not relevant to whether or not the merger should be approved.[413]
290.
The Administrative Law Judge recommends that
this proposed condition not be imposed in this proceeding. This is a matter that should be negotiated in
an
6. ISP-Bound Traffic
291. In the view of Level 3, it is imperative and in the public interest to impose a condition to ensure that the Joint Petitioners will abide by the requirements of the Core Mandamus Order issued by the U.S. Court of Appeals for the DC Circuit on January 10, 2010.[414] Level 3 proposes that the Commission impose a condition relating to how the Combined Entity will treat ISP-bound traffic for purposes of compensation and relative use charges. Specifically, Level 3 recommends that the Combined Entity be required to compensate terminating carriers at the appropriate rate for ISP-bound traffic and direct that ISP-bound traffic include traffic provisioned using virtual NXX codes. In addition, they urge that the Combined Entity be required to treat all locally-dialed ISP-bound traffic, including virtual NXX traffic, as local traffic in the calculation of relative use factors pursuant to 47 C.F.R. § 703 (b).[415]
292. The Joint Petitioners contend that issues involving the appropriate compensation for ISP-bound traffic are not affected by the proposed merger and are appropriately addressed in separate arbitration or complaint proceedings before the Commission. In fact, they point out that this issue has already been the subject of a Commission proceeding,[416] and assert that the Commission has already ruled on this issue against Level 3’s position in prior proceedings.[417] The Joint Petitioners contend that the issue of appropriate compensation for ISP-bound traffic is far outside the scope of the public interest considerations involved in the evaluation of the proposed transaction. They further assert that this issue has far-reaching implications for the industry as well as the Joint Petitioners.
293. The Administrative Law Judge concludes that Level 3 has not demonstrated that it is necessary or reasonable to address this issue in the context of this proceeding. Issues involving intercarrier compensation for ISP-bound traffic and the treatment of virtual NXX traffic are complex and have been the subject of several Commission dockets and other litigation. It is also possible that these issues may involve differing interpretations of state and federal law. Other avenues available to address these issues will allow for more appropriate development and consideration of the factual and legal arguments involved.
C. Joint
Wireless Carriers’ Proposed Conditions
294. The Joint Wireless Carriers, Sprint and T-Mobile, urged that the Commission impose five additional conditions on any finding that the merger is in the public interest. Their proposed conditions relate to reduction of access charges, consolidation/porting of existing ICAs, extension of existing ICAs for 48 months, one-day number porting, and enforcement provisions.[418]
295. Each of the conditions proposed by the Joint Wireless Carriers is discussed below.
1. Reduction
of Access Charges
296. The Joint Wireless Carriers propose the following condition relating to reduction of access charges:
a. No later than 30 days after the closing date of the Merger, all legacy CenturyLink ILECs in Minnesota (CenturyTel and Embarq) must reduce their intrastate switched access rates to mirror the intrastate switched access rates and rate structure of the legacy Qwest ILEC in Minnesota.
b. No later than 120 days after the closing date of the Merger, all post-merger CenturyLink ILECs in Minnesota (CenturyTel, Embarq, and Qwest) must reduce their intrastate switched access rates to mirror the interstate switched access rates and rate structure of the legacy Qwest ILEC in Minnesota.[419]
297.
In support of this condition, the Joint Wireless
Carriers argue that the post-merger company “will enjoy unwarranted market
power in
298.
The Joint Wireless Carriers contend that their
proposed condition “is necessary to prevent the Merged Firm from continuing to
burden its competitors with exorbitant switched access rates, a burden the
Merged Firm itself will not have to bear due to owner’s economics.”[426] They
argue that, as a first step, the Commission should require all the legacy
CenturyLink ILECs (CenturyTel and Embarq) to reduce their intrastate switched
access rates to the intrastate rates of the legacy Qwest ILEC in
299. The Joint Petitioners argued that the Joint Wireless Carriers have failed to show the facts supporting its proposed condition by a preponderance of the evidence. They also contend that this proposed condition is unnecessary for the proposed merger to meet the required statutory requirements. They contend that, after the merger, Qwest will continue to pay the same access rate to CenturyLink as any other long-distance company, eliminating the risk of a perceived competitive advantage.[428] The Joint Petitioners emphasize that the Commission already has two open proceedings to investigate the access charges of CenturyLink’s legacy Embarq and legacy CenturyTel ILECs, respectively, as well as a generic docket to consider the issue as it affects the entire industry, and argue that these issues are more properly dealt with in those dockets than in this merger proceeding.[429] They assert that this issue involves complex financial, legal, and policy issues that are not related to the merger and are outside the scope of the public interest standard that applies to the consideration of the merger. They further contend that the Joint Wireless Carriers’ position is based on a flawed understanding of the concept of market power; Mr. Appleby's calculations regarding the merged company's financial metrics ignore the realities of the market and the benefits Joint Petitioners hope to realize from the merger; and Mr. Appleby’s cost calculations oversimplify and ignore the various inputs that have gone into the development of intrastate access rates by state commissions over the years.[430]
300.
In their Reply Brief, the Joint Wireless
Carriers contend that it is not just Sprint and T-mobile who must pay the Joint
Petitioners' excessive access rates, but also all CLECs and interexchange
carriers that terminate interLATA. or interMTA traffic to the Joint
Petitioners' customers. They argue that
this issue should not be put aside simply because the Commission has an open
rulemaking docket considering comprehensive reform of the access charge
structure for all
301. The DOC also opposed imposition of this condition and emphasized that several pending matters before the Commission directly address potential changes to access charges as to all telecommunications carriers as well as the access charges of the legacy Embarq and CenturyTel operating companies.[432] In the view of the DOC, access charge reform is an industry-wide issue that is not unique or specific to the companies requesting approval in this merger proceeding. For this reason, the DOC believes the inclusion of changes in access charges as a condition of the proposed merger is inappropriate. In addition, the DOC argued that the facts concerning the application of Minn. Stat. § 237.12, subd. 3, to access charge changes have not been adequately developed in the record of this proceeding. Finally, the DOC noted that imposing such a condition could negatively impact the Commission's authority because the condition would be adopted without the full development of a record beyond the merger analyses involved in this proceeding.[433]
302. The Administrative Law Judge concludes that the Joint Wireless Carriers have not adequately demonstrated the underlying factual basis for their proposal or that the public interest requires it to be imposed in this proceeding. The complex and industry-wide issues involved are more appropriately considered in the other dockets that are pending involving this issue.
2. Consolidation/Porting of
Existing ICAs
303. The Joint Wireless Carriers also support the imposition of a condition relating to the consolidation and porting of existing ICAs. They proposed the following language (which differs from that proposed by the Joint CLECs):
The Merged Firm shall permit a carrier customer to "port” the entirety of an existing interconnection agreement, whether negotiated or arbitrated, entered into with any CenturyLink/Qwest ILEC in Minnesota, to any other CenturyLink/Qwest ILEC within Minnesota and the Merged Firm shall permit a carrier customer to "port" the entirety of an existing interconnection agreement (except for state-specific rates), whether negotiated or arbitrated from another state in the Merged Firm's territory where it is currently effective to Minnesota and apply that agreement (whether it be an in-state agreement or an agreement from another state) to all carrier customer affiliates and aggregate all carrier customer affiliate arrangements under one ported agreement. For purposes of this condition, state-specific rates do not include billing arrangements such as bill-and-keep for the exchange of traffic or contractual provisions to share the costs of interconnection facilities. This condition shall continue for 48 months after the closing date of the merger and shall apply to any existing agreement, whether in its initial term or outside its initial term but where such agreements continue to be effective, and to any new agreements created during the 48 month period. Any agreement so ported more than 12 months after the merger shall be effective for 36 months after the porting request is granted. If an agreement is ported from another Merged Firm entity within a state or across state lines, any interconnection agreement that would otherwise apply is canceled without penalty.[434]
304.
The Joint Wireless Carriers emphasize that, in
Minnesota alone, CenturyLink has 43 ICAs with CLECs and 25 with wireless
companies, and Qwest has 137 ICAs with CLECs, 20 with wireless companies, and
11 with paging companies,[435] and they
argue that the sheer volume of ICAs that the post-merger Company would have in
Minnesota puts competitive carriers at risk of incurring substantial cost to
renegotiate and potentially arbitrate critical function and pricing terms in
existing ICAs after the merger closes.
They further point out that the merger would transform the Joint
Petitioners into the third-largest carrier in the country, with a 75% share of
the wireline market in
305.
The Administrative Law Judge recommended that
the Commission not adopt a separate condition proposed by the Joint CLECs that
would have permitted the porting of an
3. Extension
of Existing ICAs for 48 Months
306. The Joint Wireless Carriers further propose that "[a]ny existing Qwest or CenturyLink interconnection agreement, whether in its initial term or otherwise currently effective, may be extended by carrier customers from the date the merger closes by a requesting carrier for 48 months or for three years after a request is granted, whichever is longer.”[437] In their post-hearing brief, the Joint Wireless Carriers indicated that they proposed this condition in response to the staggered extension dates for different ICAs contained in the DOC Settlement Agreement, and urged that the Commission reject the language contained in the DOC Settlement and instead adopt their proposed language. They also noted that they concurred with the Joint CLECs’ testimony addressing problems with the language of the ICA Commitments contained in the DOC Settlement Agreement.
307. Under the Integra Settlement Agreement, Qwest's ICAs will be extended for at least 36 months after the closing date (regardless of whether or not the initial or current term has expired or is in evergreen status). The Joint Wireless Carriers point out that this provision applies only to Qwest ICAs and argue that it should be modified to apply to both Qwest and CenturyLink agreements.[438]
308. The Joint Petitioners contend that this proposed condition is unnecessary.[439]
309. The Joint Wireless Carriers have not demonstrated that a 48-month extension of ICAs is necessary to ensure that the transaction is in the public interest. In addition, because Qwest is the company that will be acquired, it is reasonable for the Integra Settlement Agreement to focus on the extension of Qwest ICAs. The Administrative Law Judge thus recommends that the Commission not adopt this recommended condition.
4. One-Day Number Porting
310. With respect to the porting of numbers to competitors, the Joint Wireless Carriers proposed the following condition:
The Merged Firm must adopt the best practices of Qwest for porting numbers to competitors. As such, both CenturyLink and Qwest must comply with the FCC’s one-day porting requirement and not degrade the existing Qwest porting capabilities.[440]
311.
In support of this proposed condition, the Joint
Wireless Carriers indicate that they "are aware of several business
practices that are handled differently by legacy Qwest and legacy CenturyLink
entities" and urged the Commission to require that the Merged Firm to
adopt Qwest’s best practices in order to avoid consumers experiencing a lower
quality of service. In particular, the
Joint Wireless Carriers note that Qwest already provides one-day porting in
312. Joint Petitioners argued that the Joint Wireless Carriers have not provided sufficient evidence to support their view that this condition is required. They also contend the proposed condition is unnecessary in any event because the FCC order that granted CenturyLink a waiver from the requirement that number porting requests be completed within one day will expire on February 11, 2011, and make this issue moot.[442]
313. The Joint Wireless Carriers have not demonstrated that this condition is reasonable or necessary to ensure that the proposed transaction is in the public interest. The Administrative Law Judge recommends that this proposed condition not be adopted by the Commission.
5. Enforcement
Provisions for Merger Conditions
314. Finally, the Joint Wireless Carriers proposed the following condition relating to enforcement of the merger conditions:
The Minnesota Public Utilities Commission, the courts, and to the extent appropriate, the FCC if it adopts a similar condition, shall each have jurisdiction to enforce these Merger Conditions and carrier customers shall be granted standing to complain to the foregoing bodies if the Merger Conditions are violated. The Merged Firm will be responsible for paying attorneys fees of complaining parties in any case where complaining parties seek to enforce Merger Conditions and are successful in such enforcement. In addition, in any instance where a complaining party seeks to enforce a Merger Condition through complaints to the Minnesota Public Utilities Commission, the courts, or to the FCC to the extent appropriate if it adopts a similar condition, and is successful in such enforcement, the complaining party may also require, at its option, that the term of any Merger Condition so enforced be extended for an additional 48 months in addition to the initial term.[443]
The Joint Wireless Carriers argue that this provision will erase doubt about merger condition enforcement and encourage the Merged Firm to implement all of the merger conditions approved by the Commission in good faith.
315. The Joint Petitioners contend that this proposed condition is unnecessary because ICAs already contain language allowing a party to seek resolution of disputes before the Commission at any time.[444] They also maintain that this condition would be contrary to the public interest by imposing additional costs on the Joint Petitioners and the Commission. They further assert that the Commission has no authority to accord jurisdiction to the courts or the FCC. In addition, they maintain that asking the Commission to allow the parties to choose alternative forums for dispute resolution may reduce or change the Commission's authority over the parties and the Transaction, in conflict with the third prong of the public interest criteria applicable to this proceeding.[445]
316. The Joint Wireless Carriers have not demonstrated that this proposed condition is necessary to ensure that the proposed transaction is in the public interest, nor have they demonstrated that the Commission can confer jurisdiction on the courts or the FCC. Accordingly, the Administrative Law Judge recommends that this condition not be adopted in this proceeding.
D. Suburban
Rate Authority Concerns
317.
In its post-hearing brief, the Suburban Rate
Authority urged that any merger condition requiring broadband infrastructure
investment clearly preserve Qwest’s obligations under its current Alternative
Form of Regulation (AFOR) plan in
318. The DOC Agreement contains a clause indicating that it “constitutes the Parties’ entire agreement on all matters set forth herein, and it supersedes any and all prior oral and written understandings or agreements on such matters.”[448] Because an AFOR plan is similar to an agreement, the Suburban Rate Authority expressed concern that the broadband obligations in the DOC Settlement Agreement might be construed to supersede Qwest’s AFOR obligations. Accordingly, the Suburban Rate Authority seeks clarification that any merger condition requiring specific broadband investments does not limit or supersede Qwest’s existing broadband obligations under its AFOR, including Qwest’s obligation to target broadband deployment on “distribution areas.”[449]
319. At the request of the Suburban Rate Authority, John Stanoch of Qwest affirmed in his testimony at the evidentiary proceeding that nothing in the DOC Settlement changes the Qwest AFOR infrastructure commitment.[450] The Joint Petitioners argue that no further action on this issue is necessary in light of Mr. Stanoch’s testimony.[451]
320. The DOC also noted its agreement with Mr. Stanoch’s testimony in its post-hearing Reply Brief. The DOC further stated that the present obligations under Qwest's AFOR will continue as obligations of the post-merger entity and the AFOR is not affected by the DOC Settlement Agreement.[452]
321. Accordingly, it is clear on the record of this proceeding that there is no intent on the part of the Joint Petitioners or the DOC that the DOC Settlement Agreement would change the infrastructure commitment made by Qwest in its AFOR. An express statement that commitments made by the Joint Petitioners in Settlement Agreements relating to this merger are in addition to, and do not constitute a limitation on, Qwest’s AFOR obligations has been included in the Conclusions of Law below.
Based upon the foregoing Findings of Fact, the Administrative Law Judge makes the following:
1. The Minnesota Public Utilities Commission and the Administrative Law Judge have jurisdiction over the subject matter of this hearing pursuant to Minn. Stat. §§ 216B.50 and 14.57 - 14.62 and Minn. Rules Parts 1400.5100 - 1400.8300.
2. The Commission gave proper notice of the hearing in this matter, has fulfilled all relevant substantive and procedural requirements of law or rule and has the authority to take the action proposed.
3. The public interest standard under Minn. Stat. §§ 237.23 and 237.74, subd. 12, applies to the proposed merger. As stated by the Commission, the ultimate issue in this case is whether the proposed merger is in the public interest.[453]
4. Pursuant to Minn. Rule 1400.7300, subp. 5, the Joint Petitioners bear the burden of proof in this proceeding to establish facts demonstrating that the proposed transaction is in the public interest. Similarly, any party advocating an affirmative proposal has the burden of proof to establish facts demonstrating that their proposal is reasonable and necessary to ensure that the transaction is in the public interest.[454]
5. The Joint Petitioners’ Settlement Agreements with the DOC, 360networks, the CWA, and Integra are in the public interest and should be approved by the Commission.
6.
The protections afforded by the Integra
Settlement Agreement should be afforded to all requesting carriers operating in
the State of
7. Commitments made by the Joint Petitioners in Settlement Agreements relating to this merger are in addition to, and do not constitute a limitation on, Qwest’s AFOR obligations.
8. The merger proposed by the Joint Petitioners, as modified by the conditions set forth in the DOC, 360networks, CWA, and Integra Settlement Agreements, is consistent with the public interest and should be approved.
9. Any of the above Findings of Fact more properly considered Conclusions of Law are hereby adopted as such.
Based on the foregoing Conclusions, the Administrative Law Judge makes the following:
RECOMMENDATION
IT IS HEREBY RESPECTFULLY RECOMMENDED that the Public Utilities Commission include in its Order in this proceeding a determination that the proposed merger between Qwest and CenturyLink, as modified by the Settlement Agreements with the Department of Commerce, 360networks, the Communications Workers of America, and Integra Communications, is consistent with the public interest, that it approve the Settlement Agreements in their entirety, and that it approve the merger with such Settlement Agreements.
Dated:
_/s/ Barbara L. Neilson____________
BARBARA L. NEILSON
Administrative Law Judge
Notice is hereby given
that pursuant to Minnesota Statute § 14.61, and the Rules of Practice of the
Public Utilities Commission and the Office of Administrative Hearings,
exceptions to this report, if any, by any party adversely affected must be
filed within twenty days of the mailing date hereof or such other date as
established by the Commission’s Executive Secretary or as agreed to by the
Parties with the Commission’s Executive Secretary. Questions regarding filing
of exceptions should be directed to Dr. Burl Haar, Executive Secretary,
Minnesota Public Utilities Commission,
The Minnesota Public Utilities Commission will make the final determination of the matter after the expiration of the period for filing exceptions as set forth above, or after oral argument, if such is requested and had in the matter.
Further notice is hereby given that the Commission may, at its own discretion, accept or reject the Administrative Law Judge’s recommendation and that said recommendation has no legal effect unless expressly adopted by the Commission as its final order.
[1] Unless otherwise specified, references to Minnesota Statutes are to the 2008 edition.
[2] Joint Petition for Expedited Approval of Indirect Transfer of Control (“Joint Petition”) at 1-2 (May 14, 2010).
[3]
[4]
[5]
[6] Level 3 also filed a separate brief.
[7] See
Petition to Intervene of PAETEC, OrbitCom, Popp.com, TDS Metrocom, and tw
telecom (
[8] Ex. 40 (Pruitt Direct) at 6; Tr. Vol. 3 at 142-44 (Test. of Pruitt).
[9]
Sprint’s Petition to Intervene at 1 (
[10]
T-Mobile’s Petition to Intervene at 1 (
[11]
CWA’s Petition to Intervene at 1 (
[12] Notice and Order for Hearing at 2.
[13]
[14]
[15]
[16] Tr. Vol. 2A at 7-13, 17-18.
[17]
[18]
[19]
[20] Cbeyond, Charter Fiberlink, Level 3, PAETEC, OrbitCom, POPP.com, TDS Metrocom, and tw telecom. Integra had entered into a settlement agreement by the time the post-hearing briefs were filed and did not join in the Joint CLECs’ briefs.
[21] Joint Petitioners’ Reply Brief at 4.
[22] Ex. 1 (Stanoch Direct) at 5.
[23] Ex. 1 (Stanoch Direct) at 5.
[24]
[25] Ex. 5 (Jones Direct) at 4 and Ex. JJ-1.
[26] Ex. 5 (Jones Direct) at 4-5.
[27] Ex. 1 (Stanoch Direct) at 6-7; Ex. 5 (Jones Direct) at 4 and Ex. JJ-1; Joint Petition at 4 and Ex. A.
[28] Tr. Vol. 3 at 33; Joint Petition at 4 n. 2.
[29] Ex. 1 (Stanoch Direct) at 6-7; Ex. 5 (Jones Direct) at 3; Joint Petition at 5.
[30]
[31] Ex. 5 (Jones Direct) at 5.
[32] Ex. 1 (Stanoch Direct) at 7.
[33] Joint Petition at 4.
[34] Ex. 1 (Stanoch Direct) at 8.
[35] Ex. 5 (Jones Direct) at 5.
[36] DOC Reply Brief at 3.
[37]
360networks’ Petition to Intervene at 1 (
[38] Tr. Vol. 1 at 160-61.
[39] Ex. 3 (DOC Settlement Agreement) at 1-2, 10-11. Diane Wells provided testimony with respect to the agreement at Tr. Vol. 1 at 156-250.
[40] Ex. 3.
[41]
Ex. 104.
[42] Ex. 3 at 2. The DOC Settlement Agreement indicates that “unserved means no wireline broadband service is available” and “underserved means broadband wireline service up to 1.5 Mbps.”
[43] Ex. 104 at 2; see also Ex. 95 (Stanoch Rejoinder) at 4-5, 6.
[44] Ex. 3 at 3.
[45]
[46]
[47] Ex. 104 at 2.
[48] Ex. 3 at 3.
[49] Ex. 104 at 2.
[50] Ex. 3 at 3-4.
[51] Ex. 104 at 2.
[52] Ex. 3 at 4-5.
[53]
[54]
[55]
[56]
[57]
[58] Ex. 104 at 3.
[59] Ex. 3 at 6-7.
[60]
[61] Tr. Vol. 1 at 226-28, 230, 242.
[62] Tr. Vol. 1 at 242-43, 245.
[63]
See Order Approving Settlement
Agreements, Granting Motions to Withdraw, and Allowing Proposed Reorganization,
Docket No. SPU-2010-0006 (
[64]
Tr. Vol. 1 at 242; Iowa Settlement Agreement at ¶ 1 (
[65] Tr. Vol. 1 at 189-90, 238-39 (Test. of Wells).
[66] Tr. Vol. 1 at 238-39, 244 (Test. of Wells).
[67] Tr. Vol. 2B at 118-19, 141-43, 151-55, 158-60 (Test. of Hunsucker).
[68] Joint Wireless Carriers’ Initial Brief at 30 n. 79.
[69]
See Affidavit of Diane Wells at ¶¶3-6 (
[70] Tr. Vol. 2B at 112-13, 144-45 (Test. of Hunsucker).
[71] Ex. 32 (Ankum Surrebuttal) at 21-22 and n.
52.
[72] Ex. 98 (Gates Supplemental Surrebuttal) at
71-72.
[73] Tr. Vol. 1 at 68-70 (Test. of Stanoch); see also Ex. 98 (Gates Supplemental Surrebuttal) at 70-72.
[74] Tr. Vol. 1 at 136-40 (Test. of Jones); see also Ex. 98 (Gates Supplemental
Surrebuttal) at 70-71.
[75] Tr. Vol. 1 at 137-38 (Test. of Jones).
[76] Ex. 98 (Gates Supplemental Surrebuttal) at 71.
[77] Ex. 95 (Stanoch Rejoinder) at 10.
[78] Ex. 98 (Gates Supplemental Surrebuttal) at 72; Tr. Vol. 1 at 221-22 (Test. of Wells).
[79] See., e.g., Joint CLECs’ Initial Brief at 38-39.
[80] Tr. Vol. 1 at 166-67 (Test. of Wells).
[81] Tr. Vol. 1 at 96, 100-01 (Test. of Stanoch) (information is protected as “Highly Sensitive Trade Secret Information” subject to Appendix B of the First Protective Order).
[82] Ex. 98 (Gates Supplemental Surrebuttal) at 21-22.
[83] Tr. Vol. 1 at 217; Ex. 95 (Stanoch Rejoinder) at 4-5, 6.
[84] Tr. Vol. 1 at 54-55 (Test. of Stanoch); Tr. Vol. 2A at 72-74 (Test. of Ring).
[85] Tr. Vol. 1 at 157-158 (Test. of Wells).
[86]
CWA Letter to ALJ (
[87]
[88]
[89]
[90]
[91] Integra Settlement Agreement at 11-12.
[92]
[93]
[94]
[95]
[96]
[97]
[98]
[99]
[100]
[101]
[102]
[103]
[104]
[105]
[106]
[107]
[108]
[109]
[110]
[111]
[112]
[113]
[114]
[115]
[116]
[117] See, e.g., Integra Settlement Agreement at 1, 12, 13.
[118] Affidavit of Timothy Gates (Nov. 24, 2010),
attached to Joint CLECs’ Post-Hearing Brief as Attachment 1 (hereinafter
referred to as “Gates Aff.”) at ¶ 3.
[119] Joint Petitioners’ Initial Brief at 29.
[120]
[121] Affidavit of Karrie Willis at ¶ 12 (Nov. 24, 2010), attached to Joint CLECs’ Initial Brief as Attachment 8 (hereinafter referred to as “Willis Aff.”).
[122] Affidavit of Brad VanLeur at ¶¶ 2 and 3
(Nov. 24, 2010), attached to Joint CLECs’ Initial Brief as Attachment 2
(hereinafter referred to as “VanLeur Aff.”); Integra’s Highly Sensitive
Responses to Joint CLECs’ Information Request Nos. 1-2 (Nov. 17, 2010),
attached to Joint CLECs’ Initial Brief as Attachment 3 (hereinafter referred to
as “Integra IR Responses 1-2”).
[123] Willis Aff. at ¶ 13.
[124]
Affidavit of Julia Redman-Carter at
¶ 2 (
[125]
Affidavit of Steven Pitterle at ¶¶ 4,
5, and 6 (
[126] Affidavit of Pamela Sherwood,
[127] Affidavit of Billy Pruitt,
[128] VanLeur Aff. at ¶ 15.
[129] Pruitt Aff. at ¶ 14; Sherwood Aff. at ¶ 16.
[130] Redman-Carter Aff. at ¶¶ 8-12.
[131] Joint Wireless Carriers’ Initial Brief at 33-34.
[132] Joint Petitioners’ Initial Brief at 10 -11,
citing Ex. 1 (Stanoch Direct) at 3-4,
26, and 30-31 and Ex. 5 (Jones Direct) at 6-9 and 14-15.
[133] Joint Petitioners’ Initial Brief at 12, citing Ex. 5 (Jones Direct) at 7.
[134] Joint Petitioners’ Initial Brief at 12, citing Ex. 5 (Jones Direct) at 3 and 6-7.
[135] Ex. 5 (Jones Direct) at 6-7; Ex. 6 (Jones Rebuttal) at 11; Ex. 1 (Stanoch Direct) at 13, 15.
[136] Joint Petitioners’ Initial Brief at 12-13.
[137] See, e.g., Tr. Vol. 3 at 99 (Test. of Ankum).
[138] For example, the Joint CLECs point out that
neither Mr. Stanoch nor Mr. Jones was able to provide a detailed explanation of
the infrastructure improvements, increased broadband deployment, or operating
efficiencies of the post-merger company.
Tr. Vol. 1 at 56 (Test. of Stanoch); Tr. Vol. 1 at 122 (Test. of Jones).
[139] See,
e.g., Ex. 31 (Ankum Direct) at 62-63; Ex. 110 (Appleby Direct) at
10-12.
[140] See,
e.g., Joint Petitioners’ Initial Brief at 1, 11, 12, 13, 14, 16, 27, and 32.
[141] See,
e.g., Ex. 17 (Hunsucker Rebuttal) at 3 (“the existing CenturyLink and Qwest
operating entities will stay in place post-merger”).
[142] Tr. Vol. 3 at 84 (Dr. Ankum explained that there is only a fifty percent chance that a given merger will be successful).
[143] See generally Level 3’s Brief at 1-11 and 16-31.
[144]
[145] See generally Joint Wireless Carriers’ Initial Brief at 3-20.
[146] Ex. 3.
[147] Ex. 104.
[148] DOC Brief at 2-4.
[149] Ex. 22 (Gast Direct) at 5.
[150]
[151]
[152]
[153] Ex. 23 (Gast Rebuttal) at 16-18.
[154]
[155]
[156] Ex. 22 (Gast Direct) at 14.
[157] Ex. 27 (Gates Direct) at 85-90.
[158] Ex. 27 (Gates Direct) at 90-99.
[159]
[160]
Ex. 21 (Rebuttal of Brigham) at 12-13 and n. 27 (citing Local Telephone
Competition: Status as of
[161] Ex. 1 (Direct of Stanoch) at 19.
[162] Ex. 31 (Ankum Direct) at 11, 37-38. CenturyLink’s acquisition of Embarq closed by July 2009, as indicated in Ankum Exhibit AHA-2 at 3.
[163] CenturyLink S-4 at 16.
[164] Ex. 31 (Ankum Direct) at 44 n. 77 and Ex. AHA-6. At the same time, Standard & Poor’s placed the BB corporate credit rating on Qwest on CreditWatch with positive implications.
[165] Ex. 31 (Ankum Direct) at 44 n. 77 and Ex. AHA-6.
[166]
[167] Ex. 5 (Jones Direct) at 9.
[168] Ex. 7 (Jones Surrebuttal) at 7; Ex. 18 (Hunsucker Surrebuttal) at 4-5.
[169] Joint CLECs’ Reply Brief, Ex. A; see also CenturyLink News Release, Nov. 30, 2010, available at http://www.centurylinkqwestmerger.com/downloads/news/National%20Region%20HQ%20announcement.pdf .
[170] Ex. 7 (Jones Surrebuttal) at 7.
[171] Ex. 6 (Jones Rebuttal) at 8.
[172] CWA Letter of Agreement at 6.
[173] Ex. 8 (Ring Direct) at 6.
[174] Ex. 22 (Gast Direct) at 7.
[175] Ex. 5 (Jones Direct) at 7, 10-11.
[176] Tr. Vol. 4 at 60 (Test of Hunsucker).
[177] Ex. 5 (Jones Direct) at 7, 9; Ex. 1 (Stanek Direct) at 13-16; Ex. 7 (Jones Surrebuttal) at 7; Ex. 18 (Hunsucker Surrebuttal) at 4; Ex. 6 (Jones Rebuttal) at 6; CWA of Letter of Agreement.
[178] DOC Reply Brief at 2.
[179] Ex. 5 (Jones Direct) at 6-7; Ex. 1 (Stanoch Direct) at 13, 15; Ex. 6 (Jones Rebuttal) at 11.
[180] Ex. 5 (Jones Direct) at 5.
[181] Exs. 3, 104; Tr. Vol. 4 at 141-42 (Test. of Stanoch).
[182] Exs. 3, 104; Ex. 98 (Gates Supplemental Surrebuttal) at 71.
[183] Joint Petitioners’ Initial Brief at 8.
[184] DOC Reply Brief at 2 (citing Joint Petitioners’ Initial Brief at 10-33).
[185] Order Approving Sale, Granting ETC Status,
and Issuing Certificate of Authority and Requiring Filings in In the Matter of the Joint
Petition of Citizens Utilities Company and GTE Corporation for Approval of
Citizens’ Acquisition of GTE Telephone Properties,
Docket P-5316,
407/PA-99-1239, (July 24, 2000) (“Citizens/GTE Order”)
at 6.
[186] Citizens/ GTE Order at 6.
[187] Joint Petitioners’ Initial Brief at 32, citing Form 425 filed with SEC on July 22, 2010, available at: http://investor.qwest.com/qcii-sec-filings .
[188] Ex. 1 (Stanoch Direct) at 18-19.
[189]
[190] Ex. 21 (Brigham Rebuttal) at 13.
[191] Ex. 1 (Stanoch Direct) at 24-27.
[192]
[193] Ex. 1 (Stanoch Direct) at 28-29.
[194] Ex. 32 (Ankum Surrebuttal) at 21; see also Ex. 1 (Stanoch Direct) at 12-13.
[195] Ex Parte Comments of the Minnesota Public
Utilities Commission filed in In the Matter of Petition of Qwest
Corporation for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Minneapolis/St. Paul Metropolitan Statistical Area, WC Docket No. 07-97, MPUC
Docket No. P-421/CI-07-661 (
[196] Ex. 40 (Pruitt Direct) at 11; Ex. 27 (Gates
Direct) at 15.
[197] Joint CLECs’ Initial Brief at 33-35; see also Affidavit of Brad VanLeur,
November 24, 2010 (attached to Joint CLEC’s Initial Brief as Attachment 2) at
¶¶ 3-4; Affidavit of Steven Pitterle on Behalf of TDS Metrocom, Inc.
November 24, 2010 (attached to Joint CLEC’s Initial Brief as Attachment 7);
Affidavit of Karrie Willis on Behalf of POPP.com, Inc. November 24, 2010 (attached
to Joint CLEC’s Initial Brief as Attachment 8).
[198] Ex. 40 (Pruitt Direct) at 10.
[199] Ex. 44 (Haas Surrebuttal) at 4.
[200]
[201]
[202] Ex. 31 (Ankum Direct) at 70.
[203] Ex. 98 (Gates Supplemental Surrebuttal) at
74.
[204] Ex. 31 (Ankum Direct) at 13, 45.
[205] Ex. 31 (Ankum Direct) at 65-66.
[206]
[207]
[208] Ex. 31 (Ankum Direct) at 28.
[209]
[210]
[211] Ex. 28 (Gates Surrebuttal) at 16-17.
[212]
[213]
[214] Ex. 9 (Ring Rebuttal) at 5; Ex. 28 (Gates
Surrebuttal) at 17.
[215] Ex. 28 (Gates Surrebuttal) at 20.
[216]
[217] Ex. 31 (Ankum Direct) at 11-12; see also Ex. 27 (Gates Direct) at 25-27,
citing CenturyLink Response to
Integra Minnesota Data Request No. 2, Trade Secret Attachment Integra-2 and
Qwest Response to Integra Minnesota Data Request No. 2, Trade Secret Attachment
D.
[218] Ex. 31 (Ankum Direct) at 10.
[219] Tr. Vol. 2A at 42-43 (Test. of Ring).
[220] Ex. 5 (Jones Direct) at 5, 11-12.
[221] Exs. 27 (Gates Direct) and 31 (Ankum Direct). The proposed conditions are set forth in Ex. TJG 8, attached to Ex. 27 (Gates Direct).
[222] See Joint Petitioners’ Initial Brief, Ex. A and Joint Petitioners’ Proposed Findings (noting that some aspects of Proposed Conditions 1-4, 6-19, 24, 26-27, and 29-30 are addressed in the Integra, DOC, and/or 360networks Settlement Agreements).
[223]
[224] Joint CLECs’ Initial Brief at 29-90.
[225]
[226]
[227]
[228]
[229]
[230]
[231]
[232]
[233]
[234] The Integra Settlement Agreement defines "commercial agreements" as “offerings made available after a UNE(s) becomes unavailable via ICA,” including Broadband for Resale, Commercial Broadband Services (QCBS), Commercial Dark Fiber, High Speed Commercial Internet Service (HSIS), Local Services Platform (QLSP), Internetwork Calling Name (ICNAM), and Commercial Line Sharing, “as well as any other Commercial agreement to which Qwest and CLEC were parties as of the closing date." Integra Settlement Agreement at 5. The Agreement defines "wholesale agreements" as "offerings made available after a tariffed offering becomes unavailable via tariff," including Wholesale Data Services Agreement (ATM, Frame Relay, GeoMax, HDTV-Net, Metro Optical Ethernet, Self-Healing Network, and Synchronous Service Transport), "as well as any other Wholesale agreement to which Qwest and CLEC were parties as of the Closing Date." Integra Settlement Agreement at 6.
[235] Integra Settlement Agreement at 5-6.
[236]
[237] Joint CLECs’ Initial Brief at 32-44.
[238] Joint Petitioners’ Initial Brief at 28.
[239] Joint Petitioners’ Reply Brief at 15.
[240] 530 F.3d (8th Cir. June 20, 2008).
[241] Joint Petitioners’ Reply Brief at 15-19.
[242] Joint Petitioners’ Reply Brief at 18; see Qwest Corp. v.
[243] Joint Petitioners’ Reply Brief at 18-19.
[244]
[245]
[246] Ex. 31 (Ankum Direct) at 70.
[247] Ex. 98 (Gates Supplemental Surrebuttal) at
74-76; Gates Aff. at ¶ 8.
[248]
[249] Gates Aff. at ¶ 3.
[250] See, e.g., Highly Sensitive Trade Secret Information included in Integra Telecom’s Responses to Joint CLECs’ Information Request Nos. 1-2 (Nov. 17, 2010) (“Integra IR Responses”) at 3 (attached to Joint CLECs’ Brief as Attachment 3); VanLeur Affidavit at ¶ 3; Willis Affidavit at ¶ 13; Redman-Carter Affidavit at ¶ 2; Pitterle Affidavit at ¶ 5; Willis Aff. at ¶ ¶ 2, 7, 8.
[251] VanLeur Aff. (Attachment 2) at ¶¶ 3-4.
[252] Pitterle Aff. at ¶ 4.
[253] Willis Aff. at ¶ 7; Redman-Carter Aff. at ¶
2.
[254] Willis Aff. at ¶¶ 7-8.
[255] Sherwood Aff. at ¶¶ 9-10.
[256] Ex. 31 (Ankum Direct) at 70, lines 12-15.
[257] Tr. Vol. 2B at 71-72 (Test. of Hunsucker).
[258] Gates Aff. at ¶ 10.
[259] Ex. 31 (Ankum Direct) at 86.
[260]
[261] Gates Aff. at ¶ 11.
[262] VanLeur Aff. at ¶¶ 8, 10-12; Gates
Aff. at ¶11.
[263] VanLeur Aff. at ¶ 8.
[264] Pitterle Aff. at ¶ 9.
[265]
[266] See
Joint CLECs’ Reply Brief at 26-28 and Attachment B.
[267] Ex. 3 at 6.
[268] Gates Aff. at ¶ 11.
[269] Sherwood Aff. at ¶ 10.
[270]
[271] Gates Aff. at ¶ 12.
[272]
[273]
[274]
[275]
[276] Joint CLECs’ Initial Brief at 44-50.
[277] Ex. 22 (Gast Direct) at 5.
[278] Ex. 31 (Ankum Direct) at 90.
[279]
The FCC has explained that, under this theory, “a merger between two incumbent
LECs may increase the merged entity’s incentive to engage in anticompetitive
behavior by allowing it to capture or internalize a higher proportion of the
benefits of such anticompetitive strategies against regional or national
competitors.” In the Matter of Applications Filed for the Transfer of Control of Embarq Corporation to
CenturyTel, Inc, Memorandum Opinion and Order, 24 FCC Rcd. 8741,
n. 106 (2009) (citing SBC/Ameritech Order, 14 FCC Rcd. at
14798, para. 193).
[280]
Joint CLECs’ Initial Brief at 44-46.
[281]
[282] Joint CLECs’ Initial Brief at 47-48.
[283]
See Ex. 27 (Gates Direct), Ex. TJG-8,
Condition 10. As discussed more fully
below, Charter further proposes as a condition of approval of this transaction
that any operating company affiliates of CenturyLink or Qwest that currently
operate under a Section 251(f) exemption or waiver relinquish and surrender
such legal rights upon the Closing Date.
[284] Ex. 31 (Ankum Direct) at 76; Joint Petitioners’ Brief at In the Matter of AT&T, Inc. and BellSouth Corporation, Application for Transfer, 22 FCC Rcd 5662 (rel. March 26, 2007).
[285]
Sprint Communications Company L.P. v. Illinois Bell Telephone Co., Docket
No. 07-0629 (
[286] Joint Petitioners’ Reply Brief at 24-26.
[287] DOC Reply Brief at 10.
[288] Ex. 17 (Hunsucker Rebuttal) at 26-27.
[289] See Ex. 27 (Gates Direct), Ex. TJG-8, Condition 19.
[290] Joint Petitioners Brief at 25; Ex. 3 (DOC Settlement Agreement) at III.B.1; Tr. Vol. 1 at 158 (Testimony of Wells); Integra Settlement Agreement, ¶ B.12.a.-d.
[291] Ex. 27 (Gates Direct) at 35, citing In the Matter of Application by Qwest Communications International, Inc. for Authorization To Provide In-Region, InterLATA Services in the States of Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington, and Wyoming, Memorandum Opinion and Order, WC Docket No. 02-314, FCC 02-332 (Released Dec. 23, 2002 (“Qwest 9 State 271 Order,” at ¶ 33 and 47 C.F.R. § 51.319(g).
[292] Ex. 27 (Gates Direct) at 34-35.
[293] Id.
at 35, citing In the Matter of Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996, First Report and Order,
CC Docket No. 96-98, FCC 96-325 (rel. Aug. 8, 1996) (“Local Competition Order”) at ¶ 518.
[294] Ex. 27 (Gates Direct) at 35 and 117, citing Qwest Post Hearing Brief filed in
Utah Docket No. 07-2263-03 at 75.
[295] Ex. 27 (Gates Direct) at 35, citing Surrebuttal Testimony of Renee
Albersheim on behalf of Qwest Corp. filed in Utah Docket No. 07-2263-03 (Aug.
10, 2007) at 39.
[297] Ex. 27 (Gates Direct) at 36.
[298]
[299]
[300] Ex. 27 (Gates Direct) at 42, citing Brief of Qwest Corp., WC Docket
No. 02-148,
[301] Ex. 27 (Gates Direct) at 25-28; Ex. 28 (Gates Surrebuttal) at 114-15.
[302] Ex. 27 (Gates Direct) at 37; see also CenturyLink Response to Integra Data Request No. 18 (“While CenturyLink has not conducted third-party testing of its systems....”)
[303] Ex. 27 (Gates Direct) at 25-28; Ex. 28 (Gates Surrebuttal) at 114-15.
[304] See
Exhibit AHA-3 at 1-5, attached to Ex. 31 (Ankum Direct).
[305] See, e.g., Ex. 17 (Hunsucker Rebuttal) at 11.
[306] See, e.g., Ex. 6 (Jones Rebuttal) at 9; Ex. 17 (Hunsucker Rebuttal) at 14.
[307] Ex. 6 (Jones Rebuttal) at 7.
[308]
[309]
[310] Ex. 17 (Hunsucker Rebuttal) at 11.
[311]
[312] See, e.g., Ex. 17 (Hunsucker Rebuttal) at 12.
[313] Ex. 98 (Gates Supplemental Surrebuttal) at
35-36.
[314] Ex. 27 (Gates Direct) at 37-38.
[315]
[316] Id. at 56, citing
Final Report of the Qwest OSS Test, May 3, 2002, Issued by Cap Gemini Ernst
& Young (Third Party Tester), Version 3.0 at p. 247.
[317]
[318] Ex. 27 (Gates Direct) at 56, citing
CenturyLink Response to Integra Data Request No. 16.
[319]
[320]
[321]
[322] Ex. 28 (Gates Surrebuttal) at 23-24.
[323] Ex. 38 (Johnson Surrebuttal), Ex. BJJ-27.
[324] Tr. Vol. 2B at 88-89 (Test. of Hunsucker).
[325] Ex. 28 (Gates Surrebuttal) at 111-12, quoting Qwest 9-State Order, Appendix K “Statutory Requirements” at K-16 (emphasis added).
[326] Ex. 27 (Gates Direct) at 51-53.
[327]
[328]
[329] Redman-Carter Aff. at ¶ 4.
[330]
[331]
[332] Ex. 31 (Ankum Direct) at 24-37; Ex. 27
(Gates Direct) at 84-106.
[333] S. Lichtenberg, "Evaluating the Proposed Merger of CenturyLink and Qwest Communications” (NRRI Paper July 9, 2010) at 5 (filed in this docket by Commission staff on July 12, 2010).
[334] Joint Petitioners’ Initial Brief at 26-27; Ex. 17 (Hunsucker Rebuttal) at 10-12, 39-43.
[335] Integra Settlement Agreement at 9, ¶ 12.
[336]
[337]
[338] 47 U.S.C. § 153 (37). Section 251(f)(2) of the Act permits
[339] 47 U.S.C. § 251(f)(1); Ex. 31 (Ankum
Direct) at 88-89.
[340] 47 U.S.C. § 251(f)(1)
[341] Ex. 27 (Gates Direct), Ex. TJG-8, Condition 12; Ex. 31 (Ankum Direct) at 89-92.
[342]
[343] Ex. 31 (Ankum Direct) at 89-92, citing In the Matter of Western Radio Services Company Request for Interconnection Agreement of CenturyTel of Eastern Oregon, Inc., Order Answering Certified Questions, ARB 864, 2009 Ore. PUC LEXIS 421 at**18-23 (Ore. PUC Dec. 14, 2009).
[344] Pruitt Aff. at ¶ 36; Tr. Vol. 2B at 109 (Test.
of Hunsucker).
[345] Pruitt Aff. at ¶ 35.
[346] Tr. Vol. 2B at 109 (Test. of Hunsucker) (“when you look at the CenturyLink company, more than 85 percent of our access lines are not covered by the rural exemption today”).
[347] Pruitt Aff. at ¶ 34.
[348] Joint CLECs’ Initial Brief at 66.
[349] Ex. 31
(Ankum Direct) at 89-90.
[350] Order Denying Claim to Rural Exemption at 8,
in In the Matter of AT&T
Communications of the Midwest, Inc.’s Petition for Arbitration with GTE
Communications, Inc. Pursuant to Section 252(b) of the Federal
Telecommunications Act of 1996, Docket P-442, 407/M-96-939 (Minn. PUC
1996).
The Commission explained that, although the local operating company
viewed in isolation might qualify as a rural carrier (i.e., since less than 15%
of its access lines were in cities or towns with populations exceeding 50,000),
the national entity did not qualify for such treatment. The Commission reasoned that because there
were “close operational ties” between the local operating company and its
national parent company, it must therefore consider the parent company for
purposes of evaluating the ILEC’s claims for a rural exemption. Further, the Commission concluded that
Congress had no intention of extending the rural exemption to an ILEC (GTE)
which was then one of the nation’s largest local telephone service providers in
the
[351] Tr. Vol. 1 at 127, 130-31 (Test. of Jones).
[352] Id .at 131.
[353] Tr. Vol. 2A at 45 (Test. of Ring).
[354] Tr. Vol. 2A at 46-47 (Test. of Ring).
[355]
[356] FCC Order in In the Matter of Applications Filed by Frontier Communications Corp.
and Verizon Communications Inc. for Assignment of Transfer of Control, WC
Docket No. 09-95; FCC 10-87, ¶¶ 39, 40 (2010).
[357]
[358] Ex. 17 (Hunsucker Rebuttal) at 29-30; Tr. Vol. 2B at 109-10 (Test. of Hunsucker).
[359] Ex. 27 (Gates Direct), Ex. TJG-8,
Condition 28.
[360] Ex. 41 (Pruitt
Surrebuttal) at 20.
[361] Ex. 40 (Pruitt Direct)
at 36.
[362] Ex. 27 (Gates Direct)
at 183; see also Ex. 40 (Pruitt
Direct) at 38.
[363] Ex. 27 (Gates Direct) at
184; Ex. 40 (Pruitt Direct), Exhibit BHP-9 (Map of Qwest and CenturyLink exchanges in Minnesota); Ex. 1 (Stanoch Direct) at 15; Tr. Vol. 1 at 56-57 (Test.
of Stanoch).
[364] Ex. 27 (Gates Direct)
at 185; Ex. 31 (Ankum Direct) at 82. See also Local Competition Order at ¶
209.
[365] Ex. 40 (Pruitt Direct)
at 36. Of the thirteen, Mr. Pruitt indicated that
nine operate under a “rural” designation,
and the other four operate as
“non-rural” companies.
[366]
[367]
[368] Ex. 40 (Pruitt Direct) at 37.
[369] Order Determining Disputed Issues Regarding Arbitration Award in Petition of Charter Fiberlink, LLC, for Arbitration of an Interconnection Agreement Between the CenturyTel Non-Rural Telephone Companies of Wisconsin and Charter Fiberlink, LLC, and Petition of Charter Fiberlink, LLC, for Arbitration of an Interconnection Agreement Between the CenturyTel Rural Telephone Companies of Wisconsin and Charter Fiberlink, LLC, Dockets No. 5-MA-148 and 5-MA-149 (Wis. Pub. Serv. Comm’n, March 16, 2010), at 11.
[370]
[371] Ex. 17 (Hunsucker Rebuttal) at 36-38; Joint Petitioners’ Brief at 28.
[372] Ex. 27 (Gates Direct), Ex. TJG-8,
Condition 23.
[373] 47 U.S.C. § 251(b)(3).
[374] Ex. 27 (Gates Direct) at 162-163.
[375]
[376]
[377]
[378] Tr. Vol. 1 at 48 (Test. of Hunsucker); Tr.
Vol. 1 at 39 (Test. of Stanoch).
[379] Ex. 17 (Hunsucker Rebuttal) at 28-29; Tr. Vol. 2B at 48 (Test. of Hunsucker).
[380] Joint CLECs’ Brief at 78.
[381] Integra Settlement Agreement, ¶ B.6. Of course, the imposition of a condition requiring compliance with particular provisions of federal law appears superfluous in any event, since telecommunication companies covered by the law are obviously obligated to comply.
[382] Integra Settlement Agreement at ¶ B.8.
[383] Ex. 27 (Gates Direct), Ex. TJG-8,
Condition 14.
[384]
[385] Ex. 14 (Stewart Rebuttal) at 15-18, citing Docket Nos. PO-5692, 5643, 465, 6422/M-06-211 and P-999/CI-06-685 (MPUC Order dated Oct. 5, 2007); Ex. 17 (Hunsucker Rebuttal) at 28-29.
[386] Ex. 27 (Gates Direct), Ex. TJG-8, Condition 4; Ex. 35 (Denney Direct) at 9.
[387] Integra Settlement Agreement at ¶ B.2.
[388] Ex. 35 (Denney Direct) at 9; Gates Aff. at
¶ 16.
[389]
[390] Ex. 35 (Denney Direct) at 9-10.
[391]
[392] Gates Aff. at ¶ 16.
[393] Ex. 35 (Denney Direct) at 10.
[394] Ex. 12 (Williams Rebuttal) at 8-19; Tr. Vol. 4 at 117 (Test. of Williams).
[395] Ex. 91 (Williams Rejoinder) at 2.
[396]
Integra Settlement Agreement at ¶ B.2.
[397] Ex. 91 (Williams Rejoinder) at 2 and Ex. MGW-1; Tr. Vol. 4 at 117 (Test. of Williams).
[398]
See In Re Qwest's Wholesale Service Quality Standards, 702 N.W.2d 246 (
[399] Level 3 Brief at 4.
[400] Ex. 42 (Thayer Direct) at 27-28; Level 3 Brief at 4-8.
[401] Joint Petitioners’ Reply Brief at 31-32; Ex. 17 (Hunsucker Rebuttal) at 53; Ex. 14 (Stewart Rebuttal) at 36-37.
[402] DOC Reply Brief at 11.
[403] Level 3 Initial Brief at 8-12; Ex. 42 (Thayer Direct) at 17-20.
[404] Exhibit 42 (Thayer Direct) at 17.
[405] Joint Petitioners' Reply Brief at 32-33.
[406] DOC Reply Brief at 11.
[407] Level 3 Brief at 19-22; Ex. 42 (Thayer Direct) at 3-5.
[408] Integra Settlement Agreement at B.3.a.
[409]
[410] Level 3 Brief at 19-22; Ex. 42 (Thayer Direct) at 25-27.
[411] Joint Petitioners’ Brief at 29-30; Joint Petitioners’ Reply Brief at 33-34; Ex. 17 (Hunsucker Rebuttal) at 53.
[412] Ex. 42 (Thayer Direct) at 29-30.
[413] Ex. 14 (Stewart Rebuttal) at 37-38; Tr. Vol. 2A at 121 (Test. of Stewart).
[414] Core Comm., Inc. v. FCC, 592 F.3d 139 (D.C. Cir. 2010).
[415] Level 3 Brief at 24-30; Ex. 42 (Thayer Direct) at 9-17.
[416] In the Matter of the Complaint of Level 3 Communications Against Qwest Corporation Regarding Compensation for ISP-Bound Traffic, MPUC Docket No. P-421/C-05-721, Order dated May 8, 2006.
[417] Ex. 14 (Stewart Rebuttal) at 36; see also In the Matter of a Joint Application for Approval of an Interconnection Agreement Between Midwestern Telecommunications, Inc. and Qwest Corporation, Docket Number P-6849, 421/IC-10-1173.
[418]
[419]
[420] Joint Wireless Carriers’ Initial Brief at 3.
[421] Ex. 111 (Appleby Supplemental Surrebuttal) at 5; Tr. Vol. 2B at 123-24 (Test. of Hunsucker).
[422] Ex. 46 (Appleby Direct) at 8; Ex. 48 (Appleby Surrebuttal) at 3-4.
[423] Ex. 48 (Appleby Surrebuttal) at 4-5.
[424] Joint Wireless Carriers’ Initial Brief at 4-5.
[425]
[426]
[427] Joint Wireless Carriers’ Initial Brief at 21.
[428] Exhibit 6 (Jones Rebuttal) at 30.
[429] The Joint Petitioners cited MPUC Docket Nos. 06-51, 07-1198, and 08-983.
[430] Joint Petitioners’ Reply Brief at 35-36.
[431] Joint Wireless Carriers’ Reply Brief at 7-9.
[432] The DOC cited In the Matter of the Request for Comments of the MPUC Relating to a Rule to Modify Telephone Access Charges, Docket No. P-999/R-06-51; In the Matter of the Request for Comments of the MPUC Relating to a Rule to Modify Telecommunications Universal Service Funding, Docket No. P-999/R-06-50; In the Matter of Verizon’s Verified Complaint to Reduce the Intrastate Switched Access Charges of Embarq Minnesota, Inc., Docket No. P-3012 et al./C-07-1198; In the Matter of Verizon’s Verified Complaint to Reduce the Intrastate Switched Access Charges of CenturyTel Minnesota, Inc., Docket No. C-08-983.
[433] DOC Reply Brief at 3-4.
[434] Joint Wireless Carriers’ Initial Brief at 28.
[435] Ex. 46 (Appleby Direct) at 24, citing Ex. 59 (Qwest Response to Sprint IR No. 22) and Ex. 63 (Qwest Response to Integra IR No. 76).
[436] Joint Wireless Carriers’ Reply Brief at 9-13; Ex. 46 (Appleby Direct) at 26-28.
[437] Joint Wireless Carriers’ Initial Brief at 31; Ex. 46 (Appleby Direct) at 25-26.
[438] Joint Wireless Carriers’ Reply Brief at 34.
[439] Joint Petitioners’ Reply Brief at 24-25.
[440] Joint Wireless Carriers’ Initial Brief at 32.
[441]
[442] In the Matter of Local Number Portability, Porting, Interval and Validation Requirements, WC Docket No. 07-244; DA 10-1439, ¶ 19; Joint Petitioners Reply Brief at 36.
[443] Joint Wireless Carriers’ Brief at 33; Ex. 46 (Appleby Direct) at 32-33.
[444] Ex. 17 (Hunsucker Rebuttal) at 50.
[445] Joint Petitioners Reply Brief at 36-37.
[446] Ex. 95 (Stanoch Rejoinder) at 2. Appendix C of Qwest’s AFOR, which contains provisions relating to its broadband investment plan, is attached to Ex. 95 (Stanoch Rejoinder) as Ex. JMS-1.
[447] Ex. JMS-1 to Ex. 95 (Stanoch Rejoinder) at 3, 7-9.
[448] Ex. 3 at Section V.D.
[449] Suburban Rate Authority Brief at 2, 6.
[450] Tr. Vol. 4 at 141-42.
[451] Joint Petitioners’ Reply Brief at 37.
[452] DOC Reply Brief at 13.
[453] Notice and Order for Hearing at 2.
[454]
[455] Integra Settlement Agreement at 11, ¶ 15 (“After fully executed, filed with and, where necessary, approved by a Commission, this Agreement will be made available to any requesting carrier. Additionally, if an order approving this transaction includes any condition not contained in this Agreement or includes provisions inconsistent with those contained in this Agreement, the Merged Company will make that condition or provision available to other carriers in that state upon request, to the extent applicable.”)