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PETITION FOR INQUIRY INTO THE PROPOSED MERGER BETWEEN MCI WORLDCOM, INC., AND SPRINT CORPORATION |
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OF TEXAS |
NOW COMES the Office of Public Utility Counsel, Consumers Union-Southwest Regional Office, and the City of Troup, Texas and files this Petition for Inquiry into the Proposed Merger of MCI WorldCom, Inc. (MCIW) and Sprint Corporation (Sprint). In support thereof, Petitioners would show as follows:
1. Sprint owns two Incumbent Local Exchange Carriers (ILECs) in Texas, to wit: United Telephone Company of Texas, Inc. and Central Telephone Company of Texas.
2. United Telephone Company of Texas, Inc., a subsidiary of Sprint Corporation, (hereinafter referred to as "Sprint/United") is a public utility under state law. PURA § 51.002(a). It is also an incumbent local exchange carrier (ILEC) serving approximately 161,657 lines (CY1998) in sixty-one exchanges in Texas. On August 25, 1995, Sprint/United notified the Texas Public Utility Commission (Commission) of its election under former PURA 95 Subtitle I: Infrastructure Plan for Rate of Return Companies. Sprint/United agreed to abide by all the requirements of that Subtitle.
3. Central Telephone Company of Texas d/b/a/ Sprint, a subsidiary of Sprint Corporation, (hereinafter referred to as "Sprint/Centel") is a public utility under state law. PURA § 51.002(a). It is also an ILEC serving approximately 229,416 lines (CY1998) in forty-eight (48) exchanges in Texas. On February 21, 1997, Sprint/Centel notified the Commission of its election under former PURA 95 Subtitle I: Infrastructure Plan for Rate of Return Companies. Sprint/Centel agreed to abide by all the requirements of that Subtitle.
4. Sprint owns and operates for compensation in this state equipment or facilities to convey, transmit, or receive communications over a telephone system as a dominant carrier.
5. Sprint is, among other things, a provider of various telecommunications services in this state including long distance. It is the holding company for both Sprint/United and Sprint/Centel.
6. Both Sprint/United and Sprint/Centel are known as Sprint to their Texas customers.
7. Both Sprint/United and Sprint/Centel are alter egos for the Sprint Corporation.
8. On November 16, 1999 MCIW and Sprint filed at the Federal Communications Commission an application for approval of the transfer of certain operating certificates held by various Sprint affiliates from Sprint to MCIW.
9. MCIW and Sprint have filed or will file for regulatory approval of the merger with numerous other state public utility commissions.
10. MCIW and Sprint have not demonstrated any intention to file for Commission review of the proposed merger under PURA § 14.101.
11. The representative for the Sprint affiliated entities is as follows:
Stephen D. Minnis
SPRINT-WESTERN OPERATIONS
5454 West 110th Street
Overland Park, KS 66211
(913) 345-7918
(913) 345-7568 FAX
12. MCIW is a provider of long distance service in this state as well as competitive local services through various affiliates. The representative for this entity is as follows:
Neal R. Larsen, Regional Director
Alfred R. Herrera, Senior Counsel
MCI WORLDCOM CORPORATION
701 Brazos, Suite 600
Austin, Texas 78701
(512) 495-6848
(512) 495-6854 FAX
13. The Texas Office of Public Utility Counsel is the state agency designated by Texas law to represent the interests of residential and small commercial consumers before the Commission, as well as federal agencies and the courts. PURA §§ 13.001 et seq. The authorized representative for OPC in this proceeding is as follows:
Rick Guzman
Texas Office of Public Utility Counsel
P.O. Box 12397
Austin, Texas 78711-2397
(512) 936-7500
(512) 936-7520 FAX
14. Consumers Union Southwest Regional Office is the Texas regional office of Consumers Union of U.S., Inc., a non-profit corporation. Consumers Union is a nonprofit membership organization chartered in 1936 to provide information, education, and counsel about consumer goods and services and the management of family income. The authorized representative for Consumers Union Southwest Regional Office in this proceeding is as follows:
Janee Briesemeister
Senior Policy Analyst
CONSUMERS UNION
Southwest Regional Office
1300 Guadalupe, Ste. 100
Austin, Texas 78701
(512) 477-4431
(512) 477-8934 FAX
15. The City of Troup, Texas is located in a Sprint/United exchange and as such its citizens receive local telecommunications service from Sprint/United. The authorized representative for the City of Troup, Texas, in this proceeding is as follows:
Jim Boyle
Law Offices of Jim Boyle
1005 Congress, Suite 550
Austin, Texas 78701
(512) 474-1492
(512) 474-2507 FAX
16. On October 5, 1999, MCIW announced that it had entered into an Agreement and Plan of Merger dated as of October 4, 1999 (the "Merger Agreement"), between MCIW and Sprint. Under the terms of the Merger Agreement, Sprint shall be merged with and into MCIW.
17. Under the Merger Agreement, each share of Sprint's FON common stock will be exchanged for $76.00 of MCIW common stock, subject to a collar. In addition, each share of Sprint's PCS common stock will be exchanged for one share of a new WorldCom PCS tracking stock and 0.1547 shares of MCIW common stock. The terms of the WorldCom PCS tracking stock will be equivalent to those of Sprint's PCS common stock and will track the performance of the PCS business of the surviving company in the Merger. The Merger will be accounted for as a purchase and will be tax-free to Sprint stockholders.
18. The Merger states that it is subject to various conditions set forth in the Merger Agreement, including required regulatory approvals. The Companies anticipate that the Merger will close in the second half of 2000.
19. As a result of the proposed merger, the separate corporate identity of Sprint shall cease to exist following the merger. MCIW shall continue as the surviving corporation.
20. All property, rights, privileges, powers and franchises of Sprint shall be rested with the Surviving Corporation, MCIW.
21. The Commission has jurisdiction over the proposed merger under PURA §§ 14.101, 51.010, 52.001, 52.002, 52.051, 54.052-54.054, and 54.255. Specifically, as part of the proposed merger all of the telephone plant of both Sprint/United and Sprint/Centel will be acquired by MCIW. The sale, merger or transfer of these assets triggers PURA § 14.101.
22. MCIW has already filed with the Federal Communications Commission its application for approval of the MCIW/Sprint merger. Petitioners submit that the Texas Commission is required by state law to conduct a public interest review of any merger involving the sale of at least 50 percent of the stock of the utility. PURA § 14.101(b) (Commission "shall investigate the transaction"). More importantly, that provision requires that a public utility, such as Sprint/United and Sprint/Centel, must report to the Commission within a reasonable period of time transactions such as those involving the MCIW/Sprint merger. PURA § 14.101(b). The Commission is required under that statute to determine whether the proposed merger is in the public interest. Certain specific criteria must be considered in reaching that determination. PURA § 14.101(b)(1) - (4).
23. Under PURA § 51.010 the Commission has 180 days to complete its investigation of a sale or merger and issue a final order. The 180-day period begins once the public utility has filed its case in support of the proposed merger pursuant to PURA § 14.101.
24. Section 51.010(b) exempts companies electing under Chapter 58 from having to comply with § 14.101, but Chapter 59 companies are not exempted from such review. In particular PURA § 51.010 provides only two exemptions from public interest review: (1) for CLECs based on their COA or SPCOA, PURA § 51.010(c)(1); and (2) for a company electing under Chapter 58. PURA § 51.010(c)(2). Neither exemption applies to Sprint/United or Sprint/Centel. Both companies hold CCN certificates not the CLEC certificate (COA or SPCOA). Moreover, both companies have chosen to elect in under Chapter 59 'Infrastructure Plan' (formerly PURA 95 Subtitle I) and agreed to abide by the statutory provisions applicable to that Chapter. Companies electing in under Chapter 59 are clearly not exempted from merger public interest review under PURA § 51.010. Accordingly, given the absence of any applicable exemption, Petitioners respectfully submit that the affected companies have a statutory duty to seek Commission review of the proposed MCI WorldCom/Sprint merger as it affects the two public utilities operating in this state to determine whether the proposal is in the public interest.
25. Before transfer of control and ownership of Sprint/United and Sprint/Centel exchanges to MCIW can take place, the Commission should take steps to ensure that consumers in the state will not be harmed (1) by the loss of local competitive alternatives due to the concentration of ownership and control in one company of both the ILEC and CLEC service providers in the Sprint/United and Sprint/Centel areas; (2) by the weakening of long distance competition due to the elimination of one of the major suppliers of in-state long distance service; and (3) by the decrease in CLEC alternatives to ILEC local service due to the merger of two major providers of competitive local services in the state. Moreover, in these times of higher and higher telephone bills due to the proliferation of customer surcharges and rate restructuring efforts, the cost savings program to be implemented upon approval of this merger (through which MCIW expects to realize substantial merger synergies) must not be allowed to take place at the expense of state consumers through higher telephone bills, reduced quality of service, a lessening of competitive alternatives and a reduction of the availability of technologically advanced services to all parts of the state.
26. The Commission may grant or deny a certificate of convenience or necessity under PURA § 54.054. The sale, assignment, or lease of a telecommunication utility CCN can take place only as provided by PURA § 54.255 and only in accordance with such terms and conditions as the Commission may prescribe. PURA § 54.255(b).
27. Regardless of how the merger will be implemented, Petitioners believe that control of the CCNs for the service areas of Sprint/United (CCN No. 40039) and Sprint/Centel (CCN No. 40096) will be transferred from Sprint to MCIW. Before such transfer takes place, PURA requires that the Commission determine whether the transfer accords with the public interest. PURA § 54.255.
28. While MCIW does not have a CCN issued under § 54.052 to serve the Sprint local exchange areas in Texas, its affiliate MCIMetro Access Transmission Services, Inc., is a provider of competitive local service to the affected areas. Significantly, the Company amended its CLEC COA certificate in Docket No. 17706 to provide competitive local service in the service areas of both Sprint/United and Sprint/Centel on October 1, 1999.
29. While the Commission must authorize any transfer of CCN certificates to other telecommunications companies, the need for such review becomes essential when transfer is to one of the certificated providers of competitive local service in the Sprint/United and Sprint/Centel serving areas. Even if affiliates may hold competing certificates, the merger's potential impact on local competition in the affected service areas is a significant enough question to warrant review by the Commission through the proposed regulatory proceeding. Accordingly, Commission review must be undertaken before any transfer may take place.
30. Based on the foregoing, the Petitioners respectfully request that the Commission require Sprint and MCIW to comply with § 14.101 and Subchapter B of Chapter 54 and order those companies to make the required filings in an expeditious manner as possible. Given the statutory deadline and in order to expedite the review process in a reasonable manner, it is important that a proceeding be initiated in which the merger may be reviewed through the formal discovery process by the Commission and all affected parties. Accordingly, the Petitioners respectfully request that the Commission:
(1). Docket this proceeding and require the merging parties to answer;
(2). Conduct a Prehearing Conference to establish a schedule for filing of the merger application with the Commission and review of the proposed merger;
(3). Conduct a contested case proceeding leading to a determination by the Commission as to whether the proposed merger is in the public interest and complies with the requirements of PURA; and
(4). Grant Petitioners such other and further relief to which they should be justly entitled.
WHEREFORE PREMISES, CONSIDERED, the Office of Public Utility Counsel, Consumers Union-Southwest Regional Office, and the City of Troup, Texas, pray that this Inquiry be docketed, that discovery commence, and that a proceeding be initiated that will lead to a thorough public interest review of the proposed merger.
Respectfully submitted,
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