DATE:	August 4, 2006
TO:	Director, Division of the Commission Clerk & Administrative Services (Bayó)
FROM:	Office of the General Counsel (Fudge, Wiggins) Division of Competitive Markets & Enforcement (Buys, Kennedy)
RE:	Docket No. 060308-TP – Joint application for approval of indirect transfer of control of telecommunications facilities resulting from agreement and plan of merger between AT&T Inc. (parent company of AT&T Communications of the Southern States, LLC, CLEC Cert. No. 4037, IXC Registration No. TJ615, and PATS Cert. No. 8019; TCG South Florida, IXC Registration No. TI327 and CLEC Cert. No. 3519; SBC Long Distance, LLC, CLEC Cert. No. 8452, and IXC Registration No. TI684; and SNET America, Inc., IXC Registration No. TI389) and BellSouth Corporation (parent company of BellSouth Telecommunications, Inc., ILEC Cert. No. 8 and CLEC Cert. No. 4455); and BellSouth Long Distance, Inc. (CLEC Cert. No. 5261 and IXC Registration No. TI554).
AGENDA:	08/15/06 – Regular Agenda – Interested Persons May Participate
COMMISSIONERS ASSIGNED:		All Commissioners
PREHEARING OFFICER:		Deason
CRITICAL DATES:		None
SPECIAL INSTRUCTIONS:		None
FILE NAME AND LOCATION:		S:\PSC\GCL\WP\060308.RCM.DOC

 

 Case Background

On March 31, 2006, AT&T Inc., BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance, Inc. (collectively referred to as “Joint Applicants”) submitted a joint application for approval of indirect transfer of control of telecommunications facilities from BellSouth Corporation to AT&T Inc. resulting from an Agreement and Plan of Merger jointly executed by the two companies.  By Order No. PSC-06-0531-PAA-TP, issued June 23, 2006, the Commission approved the transfer of control (“PAA Order”). 

On July 14, 2006, ITC^DeltaCom Communications, Inc. (ITC^DeltaCom), NuVox Communications, Inc. (NuVox), XO Communications Services, Inc. (XO), and Xspedius Management Co. Switched Services, LLC and Xspedius Management Co. of Jacksonville, LLC (Xspedius) (collectively “Joint CLECs”) filed a protest of the PAA Order.  Also on July 14, 2006, Time Warner Telecom of Florida, L.P. (Time Warner Telecom) filed a protest of the PAA Order and Request for Formal Proceeding. 

On July 18, 2006, Joint Applicants[1] filed a Response in Opposition for Lack of Standing to Joint CLECs’ and Time Warner’s Protests and Petitions for a Formal Proceeding. 

On July 25, 2006, Joint CLECs filed a Response to ‘Opposition for Lack of Standing’.

 

Discussion of Issues

Issue 1: 

Are the filings by Joint CLECs and Time Warner a valid protest of proposed agency action under Rule 28-106.201, Florida Administrative Code?

Recommendation: 

 No.  The protests and subsequent filings fail to demonstrate standing because they do not show that the alleged injury is of sufficient immediacy to confer standing and they do not demonstrate Joint CLECs or Time Warner have suffered a type of injury that the underlying transfer of control proceeding is designed to protect.  (Fudge)

Staff Analysis:

STANDARD OF REVIEW

When a petitioner files a protest to a proposed agency action, he has the burden to demonstrate that he does, in fact, have standing to participate in the case.  Department of Health and Rehabilitative Services v. Alice P., 367 So. 2d 1045, 1052 (Fla. 1st DCA 1979).  To prove standing, the petitioner must demonstrate that he will suffer an injury in fact which is of sufficient immediacy to entitle him to a section 120.57 hearing, and that his substantial injury is of a type or nature which the proceeding is designed to protect.  Agrico Chemical Co. v. Dept. of Environmental Reg., 406 So. 2d 478, 482 (Fla. 1st DCA 1981). 

Joint CLECs Petition

Joint CLECs allege that the Joint Applicants failed to meet the “public interest” standard stated by Commission and that the Commission failed to consider all that 364.01, Florida Statutes, requires.  Joint CLECs contend that 364.01, Florida Statutes, requires the Commission to:  

·       Encourage competition through flexible regulatory treatment among providers of telecommunications services in order to ensure availability of the widest possible range of consumer choice in the provision of all telecommunications services;

·       Promote competition by encouraging innovation and investment in telecommunications markets;

·       Encourage all providers of telecommunications services to introduce new or experimental telecommunications services;

·       Ensure that all providers of telecommunications services are treated fairly, by preventing anticompetitive behavior.

Joint CLECs argue that the Commission fails to address these statutory requirements and how they will be affected by the transfer.  Joint CLEC Petition pg. 6 ¶ 16.  In addition, Joint CLECs contend that the Applicants were required to demonstrate that the proposed merger will not harm competition by “for example, reducing competitive alternatives, increasing market concentration, and increasing prices throughout the state.” Joint CLEC Petition pg. 6 ¶ 17.  Joint CLECs claim that “[t]hough several parties have sought to intervene in this docket and to formally oppose the merger or to oppose the merger without certain conditions, the Commission has not considered the positions of such parties.”[2]  Joint CLEC Petition pg. 8 ¶ 20. 

Joint CLECs claim that their substantial interests are affected by the Commission’s approval of the transfer “without a thorough investigation as to how the proposed transaction will affect competitors, the competitive marketplace, and the ultimate provision of telecommunications services to end users.”  Joint CLEC Petition pg. 10 ¶ 23.  Next, Joint CLECs claim that with the approval of the transfer, one of the most vigorous competitors to BellSouth’s monopoly power will be silenced.  The transfer will result in a huge market consolidation that will reduce consumer choice, on both a retail and wholesale level and harm Joint CLECs’ ability to compete in the consolidated market.  Joint CLEC Petition pg. 11 ¶ 24.  Joint CLECs then cite to Order No. PSC-98-0562-PCO-TX (“BSE Order”) in which the Commission found MCI to be an appropriate party in a certification proceeding because MCI “alleged an immediate threat of harm.” 

Time Warner Petition

Time Warner also alleges that the Commission has failed to examine the transfer in light of the other relevant provisions of 364.01, Florida Statutes.  Time Warner claims that the assertions made by Joint Applicants concerning the merger and relied upon by the Commission have not been tested “by production of evidence, cross-examination of witnesses or review of those assertions.”  Time Warner Petition ¶ 6.  Time Warner claims that as a competitive local exchange carrier, its substantial interests will be affected by losing further market power and competitive influence over segments of the marketplace. 

Next, Time Warner alleges that “[i]f special access services are classified as broadband access, Time Warner could be without access to a competitive environment or without any effective remedy or jurisdictional review at the [Commission].  This lack of ability to access jurisdictional review would be detrimental to Time Warner’s competitive abilities in Florida.”  Time Warner Petition ¶ 9c.  Time Warner also claims that “[w]ithout a specific merger condition obligating AT&T and BellSouth to peer their IP networks, the Applicants could block access to their immensely large base of customers . . . .  BellSouth and AT&T could refuse to accept terminating and transit traffic on their IP network or make onerous demands for peering [which] could result in the loss of customers who would move to an IP network with the greatest amount of coverage.” Time Warner Petition ¶ 9d. (emphasis added).   

Joint Applicants’ Response

Joint Applicants state that Joint CLECs and Time Warner bear the burden of establishing standing by proving that: (1) they will suffer injury in fact that is of sufficient immediacy to entitle the petitioner to a Section 120.57 hearing, and (2) the substantial injury is of a type or nature that the proceeding is designed to protect.  See Agrico, 406 So. 2d at 482.  If a protesting party fails to make either showing under the Agrico test, their protests and petitions must fail.  See Order No. PSC-00-421-PAA-TP at 7.  Joint Applicants states that based on Commission precedent “general assertions of future competitive harm” are insufficient to establish standing.  In addition, the alleged competitive injury sought to be remedied is not the type of injury that a transfer of control proceeding is designed to protect.  See Order No. PSC-98-0702-FOF-TP, issued, in Docket No. 971604-TP[3] (“MCI Order”); Order No. PSC-00-0421-PAA-TP, issued March 1, 2000, in Docket No. 991799-TP[4] (“Sprint Order”); Order No. PSC-06-0033-FOF-TP, issued January 10, 2006, in Docket No. 050551-TP[5] (“Nextel Order”).

Joint Applicants question the “undue competitive advantages” raised by Joint CLECs and claim that such harm is unlikely since the Joint Applicants remain subject to the same nondiscriminatory wholesale access and interconnection obligations as they are today. Joint Applicants Response pg. 9.  Consequently, because of the Commission’s ongoing regulatory oversight over BellSouth, the Commission will have the ability to address any actual claims that may arise after the merger.  Joint Applicants Response pg. 9. 

Next, Joint Applicants summarize the holdings of previous transfer of control proceedings and assert that those same holdings are applicable to this proceeding.  Joint Applicants allege that the competitive harm alleged by Joint CLECs and Time Warner is insufficient to satisfy the degree-of-injury prong of the Agrico test.  Joint Applicants Response pg. 9 citing MCI Order at 14 (“Speculation as to the effect that the merger . . . will have on the competitive market amounts to conjecture about future economic detriment.”); Sprint Order at 7 (“Accordingly, we find that TRA’s speculation as to the effect that the merger of MCI WorldCom and Sprint will have on the competitive market amounts to conjecture about future economic detriment.  Such conjecture is too remote to establish standing.”); Nextel Order at 5 (“The ‘injury in fact’ must be both real and immediate and not speculative or conjectural.”). 

Joint CLECs’ Response to Joint Applicant’s Response

On July 25, 2006, Joint CLECs filed a Response to ‘Opposition for Lack of Standing’ claiming that the Joint Applicant’s Response is in the nature of a motion to dismiss and as such Joint CLECs are entitled to respond.  Joint CLECs explain that the Commission order cited by the Joint Applicants involved a petition to intervene in a wastewater certificate proceeding.  When the utility responded to the petition to intervene, the intervening parties filed a memorandum in opposition to the response.  The Commission ruled that the memorandum in opposition was an unauthorized reply. 

Joint CLECs contend that, in this case, the Joint Applicants have filed an affirmative pleading seeking to dismiss the protest.  Consequently, Joint CLECs’ Response is not an unauthorized reply, but a response to a motion.  Joint CLECs state that in ruling on the Joint Applicants’ motion to dismiss the Commission must take all of Joint CLECs’ allegations as true, and in doing so it is clear that the standing requirements have been met.  Joint CLEC Response pg. 3 ¶ 10. 

Joint CLECs allege that they meet the “injury in fact” prong of the Agrico test, because “this transaction will create a critical resource imbalance in the State of Florida between CLECs and the newly-created mammoth incumbent.”  Joint CLEC Response pg. 5 ¶ 16.  Joint CLECs state that the merged company will have little incentive to make the needed elements available at fair and reasonable prices. 

Next, Joint CLECs argue that they meet the “zone of interest” test because the Commission has articulated that a public interest standard as enumerated in section 364.01, Florida Statutes, should be applied in transfer proceedings.  Joint CLEC Response pg. 6 ¶ 21, citing Nextel Order. 

Joint CLECs claim that the Joint Applicants cannot rely on the Sprint Order because it was vacated by Order No. PSC-00-1667-FOF-TP and as such it is a nullity and cannot be relied upon for any purpose.[6]  Joint CLECs then attempt to distinguish the MCI Order and the Nextel Order because of the magnitude of the impact of this transaction on local exchange competition and the loss of a vigorous competitor from the market.  The MCI Order is also distinguishable because it involved the consolidation of two CLECs, not an incumbent. 

Again, Joint CLECs claim that the BSE Order most closely fits the instant facts, because the merger and consolidation of two huge telecommunications giants poses an immediate threat of harm to Joint CLECs.  Joint CLEC Response pg. 12 ¶ 35. 

Staff Analysis 

Joint CLECs contend that the Joint Applicants’ Response is in the nature of a motion to dismiss and should be treated as such.  Regardless of whether Joint Applicants filed a response/motion, any protest to a Proposed Agency Action seeking a 120.57, Florida Statutes, hearing must meet the substantial interest test.  See Rule 28-106.201(2), Florida Statutes.  As stated above, section 120.569, Florida Statutes, requires the agency to carefully review petitions for legal sufficiency, including a review of whether the petitioner has demonstrated that it has standing under the statutes involved.  So, while the pleadings by all parties have illuminated the issues surrounding standing, staff has examined the protests in light of the requirements of Rule 25-106.201, Florida Administrative Code, and applicable law. 

TEST FOR SUFFICIENCY OF PETITION

In order to meet the standard for a valid protest under Rule 28-106.201(2), Florida Administrative Code, a petitioner must explain how the petitioner’s substantial interest will be affected by the agency determination.  "Before one can be considered to have a substantial interest in the outcome of the proceeding he must show 1) that he will suffer injury in fact which is of sufficient immediacy to entitle him to a section 120.57 hearing, and 2) that this substantial injury is of a type or nature which the proceeding is designed to protect. The first aspect of the test deals with the degree of injury. The second deals with the nature of the injury."  Agrico, 406 So. 2d at 482. The "injury in fact" must be both real and immediate and not speculative or conjectural. International Jai-Alai Players Assn. v. Florida Pari-Mutuel Commission, 561 So. 2d 1224, 1225-26 (Fla. 3rd DCA 1990).  See also Village Park Mobile Home Assn., Inc. v. State Dept. of Business Regulation, 506 So. 2d 426, 434 (Fla. 1st DCA 1987)(speculation on the possible occurrence of injurious events is too remote). 

            A.        Degree of Injury

            Staff believes that Joint CLECs and Time Warner have failed to meet the first prong of the Agrico test.  Joint CLECs’ and Time Warner’s  allegations fail to demonstrate that either will suffer an injury in fact which is of sufficient immediacy to warrant a Section 120.57 hearing.  The alleged injuries raised by Joint CLECs and Time Warner are mere speculation as to perceived future economic harm.  See Joint CLEC Petition pg. 11 ¶ 24; Time Warner Petition ¶ 9.  Such speculation is too remote to establish standing.  See MCI Order (finding that GTE failed to demonstrate that its substantial interests will be affected either as a competitor or as a customer); citing Ameristeel Corp. v. Clark, 691 So. 2d 473 (Fla. 1997)(threatened viability of plant and possible relocation do not constitute injury in fact of sufficient immediacy to warrant a Section 120.57, Florida Statutes hearing); citing Florida Society of Ophthalmology v. State Bd. Of Optometry, 532 So. 2d 1279, 1285 (Fla. 1st DCA 1988)(some degree of loss due to economic competition is not of sufficient immediacy to establish standing).

                        1)         Sufficient Immediacy

            Joint CLECs and Time Warner claim that their substantial interests are affected by the loss of a competitor and the resulting resource imbalance.  Joint CLEC Petition pg. 11 ¶ 24 ; Time Warner Petition ¶ 9b; Joint CLEC Response pg. 5 ¶ 16.  However, the Commission has consistently held that the loss of a competitor is insufficient to establish standing.  See MCI Order at 18 (stating that “the ‘loss’ of a competitor in the market does not, in itself demonstrate a harm . . . .”); Sprint Order at 7 (“We do not believe that the ‘loss’ of a competitor in the market, in itself, demonstrates harm . . . .”).

Next, Time Warner presents a scenario of events that would have to occur before it “could be without access to a competitive environment or without any effective remedy or jurisdictional review at the [Commission]”.  Time Warner Petition ¶ 9c.  While it may be possible to trace these effects back to the proposed merger “the causal chain has too many links in it to view the downstream effects are ‘direct’ or ‘immediate’.”  Nextel Order at 6.

            B.        Nature of Injury

            Joint CLECs and Time Warner allege deficiencies in the Commission’s review of the transfer of control and seek to expand the proceeding beyond the scope of what the Commission has held is relevant in a transfer of control proceeding.  While Joint CLECs and Time Warner may allege that a transfer of control proceeding should protect against certain alleged injuries, the relevant question for the purposes of determining standing is whether the proceeding is designed to protect the injuries alleged. 

Joint CLECs’ and Time Warner’s reliance on the Commission’s citation of 364.01, Florida Statutes, is misplaced.  The Commission explained that the public interest is examined within the framework of sections 364.33 and 364.335, Florida Statutes.  PAA Order pg. 4.  This is consistent with the rule of statutory construction which requires that the more specific statute controls over the general.  See State v. J.M., 824 So. 2d 105, 112 (Fla. 2002) citing State ex rel. Johnson v. Vizzini, 227 So. 2d 205, 207 (Fla. 1969). 

In their Response, Joint CLECs claim that the standing principles at issue here are the same as in rule challenge proceedings.  Joint Response pg. 6 n. 12.  Staff disagrees.  The courts have recognized a distinction between the meaning of the concept, “substantially affected,” as used in 120.56, Florida Statutes, (which deals with challenges to agency rules) and the meaning of the concept, “substantial interest,” as used in 120.57, Florida Statutes (which deals with challenges to agency actions other than rules).  See Dept. of Prof. Reg. v. Florida Dental Hygienist Assoc., 612 So. 2d 646, 651 (Fla. 1st DCA 1993).  More importantly, Agrico set out the standing requirements in permitting proceedings which are analogous to the merger at issue in this proceeding.  In Agrico, competitors challenged the issuance of Agrico’s permits.  The court held that “[w]hile petitioners []were able to show a high degree of potential economic injury, they were wholly unable to show that the nature of the injury was one under the protection of chapter 403.”  406 So. 2d at 482; see also Florida Medical Assoc. v. Dept. of Bus. And Prof. Reg., 426 So. 2d 1112, 1118 (stating the general principle that “in licensing or permitting proceedings a claim of standing by third parties based solely upon economic interests is not sufficient unless the permitting or licensing statute itself contemplates consideration of such interests, or unless standing is conferred by rule or statute, or based upon constitutional grounds.”). 

Likewise, in this case, accepting the Petitioners’ allegations as true there may be a high degree of potential economic injury.  However, neither section 364.33 nor section 364.335, Florida Statutes, was designed to protect competitors’ interests.  The Commission has consistently held that a transfer of control proceeding under Section 364.33, Florida Statutes, is not designed to protect alleged competitive injuries.  The Commission has held that the appropriate inquiry in a transfer of control proceeding is the effect of the transfer of control on service to consumers, not on the interests of competitors.  See MCI Order at 20 (holding that “Section 364.33, Florida Statutes, gives us jurisdiction to approve the transfer of control of telecommunications facilities for the purpose of providing service to Florida consumers. It does not give us the ability to protect the competitive interests asserted by GTE and CWA.”); Sprint Order at 8 (“Section 364.33, Florida Statutes, gives us jurisdiction to approve the transfer of control of telecommunications facilities for the purpose of providing service to Florida consumers.”).

While it is true that under section 364.01, Florida Statutes, the Commission should encourage and promote competition, the method in which the Commission carries out that duty is found elsewhere in chapter 364, Florida Statutes.  See e.g., 364.09, Florida Statutes, (prohibiting rebates or special rates); 364.16, Florida Statutes (governing local interconnection and number portability); 364.161, Florida Statutes, (unbundling and resale); 364.12, Florida Statutes, (negotiated prices for interconnection and resale). In this proceeding, the Commission is operating under sections 364.33 and 364.335, Florida Statutes, which governs whether the transfer of majority organizational control is in the public interest in light of the criteria enumerated therein. 

Staff also believes that Joint CLECs’ reliance on the BSE Order, for standing based on an “alleged immediate threat of harm” from a PAA Order, is in error.  In that Order, the Commission was examining whether BellSouth BSE should be granted an ALEC certificate.  The Commission found that “MCI has standing because it is a competitor-ALEC which has alleged an immediate threat of harm by the very granting of ALEC authority to the subsidiary of the ILEC to serve in the ILEC’s incumbent territory.”  However, in the MCI Order the Commission distinguished the granting of a certificate from a transfer of control proceeding, because MCI and WorldCom were not seeking a certificate.  MCI Order pg. 17.  

For the foregoing reasons staff recommends that the Protests filed by Joint CLECs and Time Warner and Joint CLEC Response are insufficient to establish standing; and that the defects in these pleadings cannot be cured.  Therefore, Order No. PSC-06-0531-PAA-TP should be made final and effective the date of the vote at the Commission’s Agenda Conference. 

 

Issue 2: 

 Should this docket be closed?

Recommendation: 

 Yes.  If the Commission approves staff’s recommendation in Issue 1, all outstanding Petitions to Intervene in this proceeding will be rendered moot.  Consequently, no other issues will remain for the Commission to address in this docket.  (Fudge)

Staff Analysis: 

 If the Commission approves staff’s recommendation in Issue 1, all outstanding Petitions to Intervene in this proceeding will be rendered moot.  Consequently, no other issues will remain for the Commission to address in this docket.  This docket should be closed.