_BEFORE THE - PUC



BEFORE THE

PENNSYLVANIA PUBLIC UTILITY COMMISSION

Joint Application of The United Telephone :

Company of Pennsylvania LLC d/b/a Embarq :

Pennsylvania and Embarq Communications, Inc. : A-2008-2076038

for approval of the Indirect Transfer of Control :

to CenturyTel, Inc. :

INITIAL DECISION

Before

Wayne L. Weismandel

Administrative Law Judge

PUBLIC VERSION

HISTORY OF THE PROCEEDINGS

On November 21, 2008, The United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania (Embarq PA) and Embarq Communications, Inc. (ECI) (collectively, Joint Applicants) filed with the Pennsylvania Public Utility Commission (Commission) an Application (Application) for all approvals required under the Pennsylvania Public Utility Code (Code), 66 Pa.C.S.A. §101 et seq., for the indirect transfer of control to CenturyTel, Inc. (CenturyTel), Docket Number A-2008-2076038.

By letter dated November 26, 2008, the Commission’s Secretary advised Joint Applicants to publish a notice once in a newspaper of general circulation in the area involved and file proof of publication with the Commission on or before December 23, 2008. The form of notice was included with the Secretary’s letter.

By Notice dated November 26, 2008, an Initial Prehearing Conference (Prehearing Conference) was scheduled for January 9, 2009, and the case was assigned to me.

On December 13, 2008, notice of the filing of the Application was published in the Pennsylvania Bulletin, with formal protests and petitions to intervene due on or before December 23, 2008.

On December 22, 2008, CenturyTel filed a Petition To Intervene (CenturyTel Petition).

On December 22, 2008, the Communications Workers of America (CWA) filed a Petition To Intervene (CWA Petition).

On December 23, 2008, Joint Applicants filed proof of publication of notice of filing of the Application in the Gettysburg Times, the Lewistown Sentinel, the Butler Eagle, the Fulton County News and the Harrisburg Patriot News during the period December 6–11, 2008.

On December 23, 2008, Comcast Business Communications, LLC d/b/a Comcast Long Distance (CBC) filed a Petition To Intervene (CBC Petition).

On December 23, 2008, the Office of Consumer Advocate (OCA) filed a formal Protest (OCA Protest) to the Application.

On December 23, 2008, the Office of Small Business Advocate (OSBA) filed a formal Protest (OSBA Protest) to the Application.

On December 23, 2008, the Broadband Cable Association of Pennsylvania (BCAP) filed a formal Protest (BCAP Protest) to the Application.

On December 24, 2008, I issued a Prehearing Conference Order (Prehearing Conference Order). Among other things, the Prehearing Conference Order advised the parties about the need for attorney representation, the purposes of a prehearing conference, and how and when to request a continuance. The Prehearing Conference Order also required the submission of Prehearing Conference memoranda on or before January 8, 2009, and specified the minimum contents thereof. Finally, the Prehearing Conference Order reminded the parties of the date, time and location of the scheduled Prehearing Conference.

On January 6, 2009, CWA filed and served its Prehearing Conference Memorandum.

On January 7, 2009, both Joint Applicants and OSBA filed and served their respective Prehearing Conference Memorandum.

On January 8, 2009, CenturyTel, OCA, BCAP, and CBC each filed and served their respective Prehearing Conference Memorandum.

The Prehearing Conference convened as scheduled on January 9, 2009. Representatives on behalf of Joint Applicants, CenturyTel, CWA, CBC, OCA, OSBA, and BCAP participated. There being no objection, the CenturyTel Petition, the CWA Petition, and the CBC Petition were each granted. Counsel for BCAP advised that it would identify its witnesses as soon as possible. A motion for admission pro hac vice of an attorney representing CBC, being unopposed, was granted. Finally, an expedited litigation schedule was developed with the concurrence of all parties. A transcript of the proceeding containing 39 pages was produced.

On January 9, 2009, Level 3 Communications, LLC (Level 3) filed and served an untimely Petition To Intervene (Level 3 Petition).[1]

By letter dated January 9, 2009, to Chief Administrative Law Judge Veronica A. Smith, Joint Applicants and CenturyTel requested that an abbreviated schedule for Exceptions and Reply Exceptions be established for this case. The Joint Applicants/CenturyTel letter requested that Exceptions be due no later than 5 business days after the issuance of my decision and that Reply Exceptions be due no later than 5 business days after the date that Exceptions are due. Finally, the Joint Applicants/CenturyTel letter stated that no other party opposed their request.

By separate Order Granting Petition To Intervene, each dated January 12, 2009, the CenturyTel Petition, the CWA Petition, and the CBC Petition were each granted.

By Order Granting Admission Pro Hac Vice dated January 12, 2009, Michael H. Pryor, Esquire, on the motion of Deanne M. O’Dell, Esquire, was admitted pro hac vice to represent CBC in this case.

By Scheduling And Briefing Order dated January 12, 2009, the litigation and briefing schedule agreed upon at the Prehearing Conference was confirmed.

Under cover letter dated January 12, 2009, Joint Applicants and CenturyTel filed and served Objections to Set I Interrogatories propounded by CWA.

Under cover letter dated January 13, 2009, Joint Applicants and CenturyTel filed and served a Certificate of Service regarding their responses to Set I Interrogatories propounded by OCA.

Under cover letter dated January 13, 2009, Joint Applicants and CenturyTel filed and served Objections to Set I Interrogatories propounded by OCA.

On January 15, 2009, Level 3 filed and served a Petition To Withdraw (Level 3 Withdrawal Petition) the untimely Level 3 Petition.

On January 21, 2009, CenturyTel filed and served a Motion For Entry Of Protective Order (Protective Order Motion) that was unopposed by any other party. A proposed Protective Order was attached to the Protective Order Motion.

On January 22, 2009, I issued a Protective Order (Protective Order) in the form submitted by CenturyTel and unopposed by all other parties.

By letter dated February 4, 2009, BCAP identified a potential witness who would be serving written testimony on its behalf.

Under cover letters dated February 5, 2009, OSBA, OCA, BCAP, CBC, and CWA each served written direct testimony.

Under cover letter dated February 5, 2009, CWA filed and served a Motion To Dismiss Objection And Compel Answer To Interrogatory CWA-39(b) (CWA Motion To Compel).

Under cover letter dated February 6, 2009, CenturyTel filed and served an Answer to the CWA Motion To Compel (Motion To Compel Answer).

By Order Granting Motion To Compel dated February 9, 2009, the CWA Motion To Compel was granted.

By two separate Hearing Notices, both dated February 10, 2009, an Initial and further Hearing were scheduled for March 3 and 4, 2009.

On February 17, 2009, CBC filed and served a Petition To Withdraw (CBC Withdrawal Petition) the CBC Petition.

Under cover letters dated February 19, 2009, Joint Applicants, CenturyTel, and OSBA served written rebuttal testimony.

By separate letters, both dated February 19, 2009, OCA and BCAP each advised that they would not be serving written rebuttal testimony.

On February 26, 2009, CWA electronically filed a Petition To Withdraw (CWA Withdrawal Petition) the CWA Petition.

Under cover letters dated February 26, 2009, OSBA, OCA, and BCAP each served written surrebuttal testimony.

By letter dated February 26, 2009, Joint Applicants and CenturyTel advised that they would not be serving written surrebuttal testimony.

On March 2, 2009, Joint Applicants and CenturyTel served outlines of oral rejoinder testimony to be presented by witnesses at the Initial Hearing on March 3, 2009.

The Initial Hearing convened as scheduled on March 3, 2009. Counsel for Joint Applicants, CenturyTel, OSBA, OCA, and BCAP participated. No one attended on behalf of CWA, CBC, or Level 3. By agreement of the parties, all previously served written testimony[2] was admitted into evidence upon affidavit of the sponsoring witness and with cross-examination waived. This applied to Embarq Statements Nos.1.0, 1.1, 2.0, 2.1 (Redacted), 3.0, 4.0, and 5.0, OSBA Statements Nos. 1, 2, and 3, OCA Statements Nos. 1 and 1-S, and BCAP Statements Nos. 1 and 1-S. Oral rejoinder testimony was presented by three witnesses on behalf of Joint Applicants and the other parties were afforded an opportunity to cross-examine the witnesses on their oral rejoinder testimony. The Application was received into evidence as Embarq Exhibit No. 1. Two cross-examination exhibits were received into evidence; Embarq Cross-examination Exhibit No. 1 and OCA Cross-examination Exhibit No. 1. A transcript of the proceeding containing 79 pages (numbered 40 through 118) was produced.

The Hearing having been completed on March 3, 2009, by Cancellation Notice dated March 3, 2009, the further Hearing scheduled for March 4, 2009, was cancelled.

Under cover letters dated March 13, 2009, timely Main Briefs were filed and served by Joint Applicants/CenturyTel[3], OCA, OSBA, and BCAP.

Under cover letter dated March 16, 2009, Joint Applicants/CenturyTel filed proposed transcript corrections in accordance with the provisions of 52 Pa.Code §5.253.[4]

Under cover letters dated March 20, 2009, timely Reply Briefs were filed and served by Joint Applicants/CenturyTel,[5] OCA, OSBA, and BCAP.

FINDINGS OF FACT

1. Embarq Corporation (Embarq) is a publicly traded Delaware corporation with headquarters at 5454 West 110th Street, Overland Park, Kansas, 66211. Embarq is in the Fortune 500’s list of America’s largest corporations.

2. Embarq has incumbent local operations in 18 states, and nationally, as of December 31, 2007, Embarq ILEC operations serve approximately 6.5 million local access lines in 18 states.

3. Embarq subsidiaries offer a complete suite of communications services to residential consumers and businesses, including local, long distance, high speed data, wireless and video services.

4. Joint Applicants are direct wholly-owned subsidiaries of Embarq.

5. In the Commonwealth of Pennsylvania the Joint Applicants both hold certificates of public convenience issued by the Commission.

6. Embarq PA is a certificated Incumbent Local Exchange Carrier (ILEC) in Pennsylvania, authorized to provide local exchange services in 92 exchanges in all or parts of 25 counties in Pennsylvania.

7. Embarq PA is subject to alternative rate regulation, with a revised amended alternative regulation plan approved by the Commission pursuant to Act 183.

8. As of December 31, 2007, Embarq PA served approximately 326,078 total access lines in Pennsylvania.

9. ECI was certificated as an interexchange toll reseller by Commission Order on October 11, 2005, and had approximately 160,000 customers in Pennsylvania as of December 31, 2007.

10. CenturyTel is a Louisiana corporation, headquartered at 100 CenturyTel Drive, Monroe, Louisiana, 71211-4065. Included in the S&P 500 Index, CenturyTel is a provider of communications, high-speed Internet and entertainment services in small-to-mid-size cities through its broadband and fiber transport networks.

11. As of December 31, 2007, CenturyTel’s ILEC operations served approximately 2.1 million local access lines in 25 states.

12. On October 26, 2008, Embarq, CenturyTel, and Cajun Acquisition Company (CAC) entered into an Agreement and Plan of Merger (Merger Agreement).

13. CAC, a Delaware corporation, is a newly formed wholly-owned subsidiary of CenturyTel created to effectuate this transaction.

14. Under the terms of the Merger Agreement, Embarq and CAC will merge, with Embarq being the surviving corporation and CAC ceasing to exist. Embarq will be the surviving corporation but will adopt the By-Laws and Certificate of Incorporation of CAC.

15. Under the terms of the Merger Agreement, Embarq will become a direct wholly-owned subsidiary of CenturyTel. The terms of the Merger Agreement provide that Embarq’s Pennsylvania operating subsidiaries will remain subsidiaries of Embarq.

16. The transaction will be accomplished through a stock-for-stock transaction. As a result of the stock transaction, a change of control of the Joint Applicants’ parent will occur. Immediately following the completion of the transaction, the shareholders of pre-transaction Embarq are expected to own approximately 66% of the post-transaction CenturyTel and the shareholders of pre-transaction CenturyTel, Inc. are expected to own approximately 34% of post-transaction CenturyTel.

17. Following the completion of the merger, the CenturyTel Board of Directors will be composed of 8 members designated by the pre-transaction CenturyTel Board of Directors and 7 members designated by the pre-transaction Embarq Board of Directors.

18. CenturyTel expects to refinance Embarq’s bank debt at closing and has commitments in place, but no incremental debt will be incurred as a result of the transaction.

19. [BEGIN PROPRIETARY] [END PROPRIETARY]

20. The transaction contemplates a parent-level transfer of equity. The ultimate parent company of Embarq PA will change from Embarq to CenturyTel.

21. The transaction will not result in any transfer of assets or facilities in Pennsylvania or change in regulatory status of the Pennsylvania regulated companies. Embarq PA and ECI will continue as certificated carriers in Pennsylvania.

22. The transaction was overwhelmingly approved by the Embarq and CenturyTel shareholders, with approximately 99% of votes cast in favor by Embarq’s shareholders and with the support of over 96% of votes cast by CenturyTel’s shareholders.

23. To date, a full one-third of the states with ILEC operations requiring regulatory approvals of this transaction have done so, including Ohio, Minnesota, Mississippi, Nebraska and Georgia, all without imposed conditions.

24. CenturyTel is an established and experienced telecommunications provider, conducting its business principally through ILEC operating subsidiaries that have a footprint in 25 states.

25. Headquartered in Monroe, Louisiana, CenturyTel’s telecommunications experience dates back to 1930, when it started as a single family-run local telephone company in Oak Ridge, Louisiana.

26. CenturyTel has acquired and integrated more access lines than any other telecommunications carrier with the exceptions of the RBOC re-combinations at Verizon and AT&T. Through these acquisitions as well as internal growth and expansion, CenturyTel has developed to a point where it is currently serving approximately 2.1 million access lines and 600,000 broadband connections.

27. CenturyTel’s six-member senior management team has not seen any personnel changes in over five years.

28. The CenturyTel management team has the fundamental acquisition-related skill-set that has been developed and tested over a long period of time.

29. The CenturyTel workforce is highly skilled and includes engineers and technicians that have long been operating networks.

30. CenturyTel has annual sales of approximately $2.6 billion and operating cash flow of approximately $1.2 billion based on the last twelve months ended September 30, 2008.

31. CenturyTel’s leverage is 2.4x operating cash flow and its fixed charge coverage is approximately 6.4:1, supporting its investment grade credit rating.

32. CenturyTel maintains a state-of-the-art fiber network (consisting of more than 37,000 miles of fiber) that provides wholesale and retail fiber transport services to customers in the central United States.

33. CenturyTel has 89% DSL availability in its markets, although it only has an average 14 customers per square mile.

34. CenturyTel has extensive experience with successful integration of acquired access lines. CenturyTel integrated at the same time approximately 490,500 lines in 2000 in three different states drawn from differing GTE/Verizon operations, and in 2002 it integrated approximately 654,000 lines sold by Verizon from two separate regional operations (Missouri and Alabama).

35. CenturyTel has had extensive experience with conversions of large numbers of customers to new systems. For instance, in 2000 and in 2002, CenturyTel effectively converted more than 1.1 million RBOC lines in Missouri, Wisconsin, Arkansas and Alabama in five distinct transitions. Additionally, CenturyTel converted all of its customers (in excess of 2 million access lines) to a new billing system, “Ensemble,” by October 2004.

36. CenturyTel has sophisticated systems to care for customers and ensure effective operations. The company has performed these transition functions many times, including distinct transitions at the same time in several states.

37. CenturyTel and Embarq are very similar companies with complimentary cultures. They are both holding companies whose primary focus has been the ownership and operation of subsidiary ILECs on a multi-state basis in predominantly rural areas.

38. CenturyTel and Embarq are the only mid-size ILECs that possess investment-grade ratings from the major credit rating agencies.

39. Both CenturyTel and Embarq have dividend yields and payout ratios that are lower than those of their peers in the telecom sector.

40. Recent changes have affected the telecommunications industry. These include new market structure; rapid technological advances affecting business planning; intense intermodal competition; and altered business incentives.

41. Embarq PA faces significant intermodal competition in many of its operating territories in Pennsylvania.

42. While competitive entry has not been widespread in all of Embarq PA’s exchanges, Embarq PA has lost nearly one-third of its total retail access lines since 2001.

43. CenturyTel’s service region in other parts of the country is more rural than Embarq’s service territory, and the switched access line loss in rural regions is slower resulting in lesser financial pressures.

44. CenturyTel’s operations are expected to experience lower rates of line loss than those pressuring Embarq.

45. CenturyTel has experienced less revenue pressure (a decline of 2.3%) compared to that of Embarq.

46. Based upon data from Fourth Quarter 2008, Embarq experienced a quarter-over-quarter Total Net Operating Revenue decline of 6.2%. The combined company is expected to realize more modest levels of revenue declines than at Embarq alone.

47. While the combined entity may have higher exposure to Universal Service Funding (USF) and access revenues, because CenturyTel has higher levels of USF funding and access revenues than Embarq, the combined entity will have less exposure to access line loss and competitive pressures.

48. As a result of the merger, the combined entity will have less exposure to access line losses than that of Embarq as a stand-alone company.

49. The companies are incurring no new incremental debt to fund the purchase price and are not accelerating the schedules of any debt as a result of the transaction.

50. By combining assets, resources, and complementary strengths, the merged company can achieve greater economics of scale and scope than the two companies operating independently.

51. The combined companies expect to realize enhanced cash flows through operating efficiencies as well as revenue opportunities achieved through improved focus on services such as broadband and reduced losses of local customers.

52. CenturyTel conservatively estimates that “synergies” will reach $400 million annually, composed of approximately $300 million in cost savings, around $75 million in additional revenue opportunities, and almost $30 million in capital efficiencies.

53. CenturyTel is projecting cost savings that are approximately [BEGIN HIGHLY CONFIDENTIAL] [END HIGHLY CONFIDENTIAL] of target cash operating expenses, compared with 14-25% in comparable transactions, and [BEGIN HIGHLY CONFIDENTIAL] [END HIGHLY CONFIDENTIAL] of target earnings before taxes, interest, depreciation and amortization (EBITDA), compared with 15-53% in comparable transactions.

54. The combined company will result in the largest mid-sized communications company, with approximately 8 million access lines, and on a pro forma basis, revenue of $8.8 billion, EBITDA of $4.2 billion, modest pro forma leverage ratios of [BEGIN PROPRIETARY] [END PROPRIETARY] excluding expected synergies and [BEGIN PROPRIETARY] [END PROPRIETARY] including expected synergies, and free cash flow of approximately $1.8 billion based on anticipated full run-rate synergies and operating results for the twelve months ended September 30, 2008.

55. CenturyTel’s credit ratings are slightly higher than Embarq’s credit ratings; this is expected to result in a better credit profile for the combined company compared with the credit profile of Embarq today.

56. The credit of the combined company is expected to be rated investment grade. An investment grade rating for the combined company debt will allow the combined company to access capital at favorable interest rates, leading to lower borrowing costs.

57. The combined company will have the flexibility to access capital for strategic investment opportunities.

58. The bond market views the proposed transaction positively: since just before the transaction was announced up to recent trading levels there has been a tightening of (a decline in) the Embarq bond spreads (which corresponds to an increase in the price of the bonds) and the CenturyTel bond spreads have not widened.

59. The strengthening of the operating characteristics and credit profile of Embarq through the proposed combination with CenturyTel will result in the company having greater access to both equity and debt capital. The greater access should provide the combined company with an enhanced ability to tap reasonably-priced external capital sources, to the extent necessary, to fund ongoing levels of high investment in infrastructure and services.

60. The combined company has indicated that it will target a 50% dividend payout ratio, which is below the payout ratio for comparable companies.

61. The payout ratio targeted for the combined company reflects the dividend levels for publicly-traded ILECs so that an appropriate balance between debt and equity can be maintained.

62. The two companies are financially stronger on a combined basis than they are on a stand-alone basis. This should provide a better basis for engaging in intermodal competition.

63. Regardless of whether products or services are brought to Pennsylvania, just the threat of strong intermodal competition has the effect of constraining prices in the marketplace and forcing market participants to enhance their service offerings.

64. The combined companies are committed to focusing on the advancement of products and services, including DSL, fiber-based data services, long-haul transport, and possibly video products in markets where the economics support deployment.

65. The proposed combination allows the companies to develop core competencies as it relates to emerging technologies such as 700 MHz and IPTV which will allow the companies to bring advanced services to Pennsylvania at some point in the future.

66. The proposed merger provides the opportunity for Embarq PA to connect to CenturyTel’s extensive fiber backbone network, which opportunity would not exist but for this transaction.

67. Customers of the combined company will benefit from pooling the expertise of Embarq’s and CenturyTel’s employees to serve the needs of customers.

68. Better technical testing and research will permit the combined company to deploy the best network technologies in Pennsylvania.

69. Through the implementation of new processes or modifications to existing processes, the merged companies will be able to incorporate the best practices of each company and the introduction of new products.

70. The combined company will utilize CenturyTel’s Ensemble billing system, a robust customer care platform that is a customer-focused system rather than a product-focused system.

71. The combined company will utilize CenturyTel’s SAP (Systems, Applications, and Products in data processing) accounting system, a resource planning system that includes modules for finance, human resources and materials management.

72. CenturyTel’s business office and call center operations have additional capabilities and processes that represent enhancements to the existing Embarq systems, including the following: integrated ordering, provision and billing system that creates less manual intervention and error; presentation of all pricing, offers, and service requirements to the call center associate on a market-specific basis; employee evaluation mechanisms that enable automated monitoring and reporting of customer service representative performance; and connection of call center teams supporting specific states with the local (in-market) service teams, technicians, and local servicing centers.

73. Embarq PA is currently in full compliance with the requirements of Pennsylvania’s alternative regulation statute, Act 183 of 2004, as well as with the conditions agreed to in the stipulation approved by the Commission in Embarq’s separation from Sprint Nextel.

74. CenturyTel, through a filing with the Securities and Exchange Commission (SEC), told its shareholders of numerous risks associated with this transaction. These risks include achieving the anticipated cost savings and revenue synergies, loss of customers who decide not to do business with the combined company, complexities associated with managing the combined business, integrating personnel, increased expenses, performance shortfalls and diversion of management attention.

75. (BEGIN HIGHLY CONFIDENTIAL) (END HIGHLY CONFIDENTIAL).

76. CenturyTel identifies (BEGIN HIGHLY CONFIDENTIAL) (END HIGHLY CONFIDENTIAL) CenturyTel’s management projects that its “revenue synergy” strategy for the three services will generate, over a five-year period (BEGIN HIGHLY CONFIDENTIAL) (END HIGHLY CONFIDENTIAL).

77. Embarq PA has discretion whether to implement the annual increase in rates for non-competitive services authorized under Chapter 30 and the company’s alternative form of regulation plan, whether to “bank” some or all of that increase for possible future recovery, or whether to forgo all or part of that increase entirely.

(Rest of page left blank to match pagination of Proprietary/Confidential Version)

78. CenturyTel’s fiber backbone does not provide such service in Pennsylvania at this time and there are no current plans for deployment in Pennsylvania.

79. CenturyTel’s 700 Mhz licenses contain two counties in Pennsylvania, neither of which contains, traverses, or intersects any Embarq PA exchange.

DISCUSSION

The burden of proof in this proceeding is upon the Joint Applicants. 66 Pa.C.S.A. §332(a).

The Merger Agreement requires the approval of the Commission as evidenced by its issuance of a certificate of public convenience. 66 Pa.C.S.A. §1102(a)(3).

Before the Commission may issue a certificate of public convenience it must find that the granting of such certificate is necessary or proper for the service, accommodation, convenience, or safety of the public. 66 Pa.C.S.A. §1103(a).

As the parties bearing the burden of proof, the Joint Applicants must prove by a preponderance of the evidence that the Commission’s issuance of a certificate of public convenience approving the Merger Agreement is in the public interest because it will affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way. City Of York v. Pa. Public Utility Comm’n, 449 Pa. 136, 295 A.2d 825 (1972). However, the Commission is not required to secure legally binding commitments or to quantify benefits where this may be impractical, burdensome, or impossible in determining if the proposed merger will affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way. Popowsky v. Pa. Public Utility Comm’n, 594 Pa. 583, 937 A.2d 1040 (2007). Instead, the Commission “applies a preponderance of the evidence standard to make factually-based determinations (including predictive ones informed by expert judgment) concerning certification matters.” Id. at 611, 937 A.2d at 1057. A preponderance of the evidence means that the party or parties with the burden of proof presents evidence more convincing, by even the smallest amount, than that presented by the party or parties in opposition. Additionally, any finding of fact necessary to support the Commission’s adjudication must be based upon substantial evidence. Substantial evidence has been defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Bethenergy Mines, Inc. v. Workmen’s Compensation Appeal Bd. (Skirpan), 531 Pa. 287, 612 A.2d 434 (1992). More is required than a mere trace of evidence or a suspicion of the existence of a fact sought to be established. Norfolk and Western Ry. v. Pa. Public Utility Comm’n, 489 Pa. 109, 413 A.2d 1037 (1980); Erie Resistor Corp. v. Unemployment Compensation Bd. of Review, 194 Pa.Super. 278, 166 A.2d 96 (1960); Murphy v. Dep’t. of Public Welfare, White Haven Center, 85 Pa.Cmwlth. 23, 480 A.2d 382 (1984).

Even where the Commission finds sufficient public benefit to find that the granting of a certificate of public convenience is necessary or proper for the service, accommodation, convenience, or safety of the public without imposing any conditions, the Commission nevertheless has discretion to impose conditions which it deems to be just and reasonable. 66 Pa.C.S.A. §1103(a). However, the Commission has refrained from exercising the power to impose conditions when the proposed merger provides affirmative public benefits unless the record indicates service deficiencies or infrastructure deterioration to the point of impairing the technical, managerial, or financial fitness of the merging companies. Joint Application of SBC Communications, Inc. and AT&T Corp. Together with its Certificated Pennsylvania Subsidiaries for Approval of Merger, Docket Numbers A-311163F0006, A-310213F0008, A-310258F0005, Opinion and Order adopted and entered October 6, 2005.

In an acquisition context, when the Commission considers the public interest it is contemplated that the benefits and detriments of the acquisition will be measured as they impact on all affected parties and not merely on one particular group or geographic subdivision. Middletown Twp. v. Pa. Public Utility Comm’n, 85 Pa.Cmwlth. 191, 482 A.2d 674 (1984).

Competitive impact is a substantial component of a rational net public benefits evaluation in a merger context. Popowsky v. Pa. Public Utility Comm’n, 594 Pa. 583, 937 A.2d 1040 (2007).

With the foregoing legal principles in mind, the Merger Agreement that is the subject of the instant Application should be approved without conditions.

On October 26, 2008, Embarq, CenturyTel, and CAC entered into the Merger Agreement. Under the terms of the Merger Agreement, CenturyTel formed a new direct, wholly-owned subsidiary, CAC. Embarq and CAC will merge, with Embarq being the surviving corporation. The transaction will be accomplished through a stock-for-stock transaction.

As a result of the merger, Embarq will become a direct wholly-owned subsidiary of CenturyTel. Post-merger, Embarq’s Pennsylvania operating subsidiaries, including Embarq PA and ECI, will be wholly-owned subsidiaries of Embarq and will continue to exist in their current form after the merger, with the exception of a potential name change.

As a result of the stock transaction, a change of control of Joint Applicants’ parent will occur. The shareholders of pre-transaction Embarq are expected to own approximately 66% of the post-transaction CenturyTel and the shareholders of pre-transaction CenturyTel are expected to own approximately 34% of post-transaction CenturyTel. Following the completion of the proposed merger, the CenturyTel Board of Directors will be composed of 8 members designated by the pre-transaction CenturyTel Board of Directors and 7 members designated by the pre-transaction Embarq Board of Directors.

The transaction contemplates a parent level transfer of equity. The ultimate parent company of Embarq PA will change from Embarq to CenturyTel. However, the transaction will not result in any transfer of assets or facilities in Pennsylvania nor change in regulatory status of Embarq PA and ECI. Embarq PA and ECI will continue as certificated carriers in Pennsylvania

and will continue to have the requisite managerial, technical and financial capability to provide services to its customers.[6]

Upon completion of the transaction, end-user customers will continue to receive service from the same local company and at the same rates, terms and conditions as immediately prior to the transaction. Any subsequent service or price changes will be made in accordance with all applicable rules and laws. Similarly, any existing interconnection agreements with CLECs will remain unchanged and will continue in force according to their current terms and conditions.

What will be Joint Applicants’ new parent company, CenturyTel, is an established and experienced telecommunications provider, conducting its business principally through ILEC operating subsidiaries that have a footprint in 25 states. CenturyTel now has approximately 6,500 employees and annual sales of approximately $2.6 billion, and its common stock is listed on the New York Stock Exchange and included in the S&P 500 index.

Joint Applicants produced credible evidence that CenturyTel has a proven track record of successful business acquisitions. CenturyTel has acquired and integrated more access lines than any other telecommunications carrier with the exceptions of the RBOC re-combinations at Verizon and AT&T.

CenturyTel maintains a state-of-the-art fiber network (consisting of more than 37,000 miles of fiber) that provides wholesale and retail fiber transport services to customers in the central United States. CenturyTel has 89% DSL availability in its markets, although it only has an average 14 customers per square mile.

Finally, CenturyTel has the financial strength to support the acquisition and the delivery of high quality services. CenturyTel’s Form 10-Q for the period ending September 30, 2008 was received into evidence as Appendix C to the Joint Application. CenturyTel has annual sales of approximately $2.6 billion and operating cash flow of approximately $1.2 billion based on the last twelve months ended September 30, 2008. As evidenced by its investment grade ratings, CenturyTel’s leverage is a very reasonable 2.4x operating cash flow and its fixed charge coverage is approximately 6.4:1.

The record in this proceeding establishes that the transaction will provide affirmative benefits for the public and for Embarq’s Pennsylvania ratepayers. In particular, the combined company will be a financially stronger entity in terms of its balance sheet, operating efficiencies, access to capital for investment, adoption of best practices, and the integration of technical expertise and a strong employee base. Both the public and Embarq PA’s ratepayers will benefit from: strengthened intermodal competition; the application of best practices derived from both companies; the development of core competencies in emerging technologies, such as 700 MHz wireless service and IPTV, and the opportunity to connect in the future to CenturyTel’s Lightcore fiber backbone network. These are exactly the kind of affirmative benefits that the Commission has previously found to satisfy the standards for approving a merger. See, In re PG Energy, Inc., 1999 WL 1036580 (Pa. PUC 1999). As a result of these affirmative benefits to Pennsylvania, no conditions are necessary. No party adduced credible evidence that deficiencies or infrastructure deterioration to the point of impairing the technical, managerial, or financial fitness of the merging companies either exist or will result from approval of the merger.

Joint Applicants’ witnesses testified that the combined company will be a stronger and more financially capable company than if either CenturyTel or Embarq were to continue to exist independently. As part of the transaction, the companies are incurring no new incremental debt to fund the purchase price and are not accelerating the schedules of any debt. Moreover, the combined companies are expecting to realize cash flows through operating efficiencies as well as revenue opportunities achieved through improved focus on services such as broadband and reduced losses of local customers realized through superior service.

CenturyTel has announced that it believes “synergies” will reach $400 million annually, composed of approximately $300 million in cost savings, around $75 million in additional revenue opportunities, and almost $30 million in capital efficiencies. These estimates are conservative when compared with the metrics for other transactions in the industry. CenturyTel is projecting cost savings that are approximately [BEGIN HIGHLY CONFIDENTIAL] [END HIGHLY CONFIDENTIAL] of target cash operating expenses, compared with 14-25% in comparable transactions, and [BEGIN HIGHLY CONFIDENTIAL] [END HIGHLY CONFIDENTIAL] of target EBITDA, compared with 15-53% in comparable transactions. Importantly, for each of the comparable transactions (except FairPoint-Verizon which is too recent to evaluate), all of the announced estimated cost savings have been achieved, are on track to be achieved, or have been exceeded.

The combined company will result in the largest mid-sized communications company, with approximately 8 million access lines, and on a pro forma basis, revenue of $8.8 billion, EBITDA of $4.2 billion, modest pro forma leverage ratios of [BEGIN PROPRIETARY] [END PROPRIETARY] excluding expected synergies and [BEGIN PROPRIETARY] [END PROPRIETARY] including expected synergies, and free cash flow of approximately $1.8 billion based on anticipated full run-rate synergies and operating results for the twelve months ended September 30, 2008.

The credit of the combined company is expected to be rated investment grade. No other pure-play wireline incumbent local exchange carrier has such a strong credit rating. Moreover, the expectations are shared by the broader market: the bond market is positive on the outlook for the combined company, since just before the transaction was announced up to recent trading levels there has been a tightening of (a decline in) the Embarq bond spreads (which corresponds to an increase in the price of the bonds) and the CenturyTel bond spreads have not widened.

An “investment grade” rating for the combined CenturyTel/Embarq company debt will allow the merged company to access capital at favorable interest rates, leading to lower borrowing costs. In addition, the combined company will have the flexibility to access capital for strategic investment opportunities.

CenturyTel and Embarq, as stand-alone companies, were industry-leading telecommunications providers in terms of their size, services, balance sheets and access to capital, but this combination makes them more capable of coping with revolutionary and remarkable new market conditions. The strengthening of the operating characteristics and credit profile of Embarq through the proposed combination with CenturyTel will result in the company having greater access to both equity and debt capital that should provide the company with an enhanced ability to tap reasonably-priced external capital sources, to the extent necessary, to fund ongoing levels of high investment in infrastructure and services. This improved capital availability will provide Pennsylvania customers with the benefit of a truly advanced communications service provider.

In challenging the desirability of the proposed merger, the OCA argues that the Joint Applicants have not provided specific plans for the deployment of certain specific new products and services in Pennsylvania and that the process of consolidation and integration might actually interfere with the deployment of new services.

The affirmative benefits arising from this transaction are not the immediacy of specific new products and services, but rather the creation of a combined company with strong resources – and therefore stronger access to capital markets – enhanced infrastructure, and increased operating efficiencies that substantially benefit the public interest in Pennsylvania in the long term.

Joint Applicants’ witnesses offered credible testimony that the combined companies are committed to focusing on the advancement of products and services, including DSL, fiber-based data services, long-haul transport, and possibly video products in markets where the economics support deployment. Both Embarq and CenturyTel have a proven track record of being innovative and bringing new services to market, and expanding the availability of broadband access and the suite of services that utilize the broadband connection are key objectives of the merged entity.

Joint Applicants also provided credible testimony that the proposed combination allows the companies to develop core competencies as it relates to emerging technologies such as 700 MHz and IPTV which will allow the companies to bring advanced services to Pennsylvania at some point in the future. Similarly, the proposed merger provides the opportunity for Embarq PA to connect to CenturyTel’s extensive fiber backbone network at a point in the future.

The transaction creates a financially stronger entity that is better positioned to invest in the expansion and advancement of its network infrastructure and bring new products and services to Pennsylvania consumers at some point in the future.

Another important affirmative benefit of the proposed merger is its positive impact on the state of competition in Pennsylvania. Currently, the two companies do not compete against each other and do not serve the same markets in Pennsylvania. Consequently, the transaction will not result in the elimination of a competitor in Pennsylvania. The combination of these companies is entirely complementary to the competitive landscape in Pennsylvania.

As to that competitive landscape, the record demonstrates that Embarq PA faces significant intermodal competition in many of its operating territories in Pennsylvania. While competitive entry has not been widespread in all of Embarq PA’s exchanges, Embarq PA has lost nearly one-third of its total retail access lines since 2001. These losses and the competitive pressures make it difficult to achieve the economies of scale desired. The merger will lead to improved economies of scale and provide strategic strength which, in turn, provides the regulated entities with opportunities to remain competitive in an ever-changing telecommunications market.

Intermodal competition takes on many forms, including wireless providers and cable companies as well as CLECs (both resellers and facilities based). Intermodal competition continually forces ILECs, like Embarq, to rethink business strategies. The proposed merger of CenturyTel and Embarq is a direct result of the need for both companies to create greater financial stability to provide reliable and innovative services in the intermodal competitive marketplace.

Intermodal competition is advantageous for consumers and the financial strengthening of a competitor in the Pennsylvania intermodal marketplace is an affirmative public benefit of this transaction.

The combined companies’ financial strength promotes intermodal competition in the state of Pennsylvania. As Joint Applicants’ witness G. Clay Bailey noted, regardless of whether specific products or services are brought to the state of Pennsylvania, just the threat of strong intermodal competition has an effect of constraining prices in the marketplace and forcing market participants to enhance their service offerings.

Another benefit to Pennsylvania consumers is the pooling of dedicated employees, expertise, and systems to serve the needs of predominantly rural customers. Better technical testing and research will permit the combined companies to deploy in Pennsylvania the best network technologies and apply the best practices of each. CenturyTel and Embarq are inventorying their respective operations for the purpose of identifying best practices and integration opportunities. Through the implementation of new processes or modifications to existing processes, the merged companies will be able to incorporate the best practices of each company so that employees can be focused on customer satisfaction and services, as well as the introduction of new products.

One example of a “best practice” is CenturyTel’s Ensemble billing system which will be used following the merger. This system is a robust customer care platform that is a customer-focused system rather than a product-focused system, with clear benefits for consumers. Using the CenturyTel Ensemble billing system, the company can bill local, voice, Internet and long distance all from the same billing system, whereas today Embarq uses several systems to perform that function. This allows a customer service representative, when a customer calls into the service center, to view all of the information about a particular customer in one place at the fingertips of the customer service representative. Consequently, a customer service representative would know specifically which services are available to that specific customer and the customer service representative would know which promotional offers are available to that specific customer. Additionally, the Ensemble billing system is plain-text driven, so that a customer service representative does not have to memorize codes. If they want to add voicemail onto a particular bundle, it says “voicemail.” The customer service representative does not have to memorize a digit code in order to do that. The simplicity of the system creates an environment where the customer service representative will make fewer errors as it relates to the customer.

Another “best practice” the combined company will utilize is CenturyTel’s SAP (Systems, Applications, and Products in data processing) accounting system, a resource planning system that includes modules for finance, human resources and materials management. CenturyTel’s business office and call center operations have additional capabilities and processes that represent enhancements to the existing Embarq systems, including the following: an integrated ordering, provision and billing system that creates less manual intervention and error; presentation of all pricing, offers, and service requirements to the call center associate on a market-specific basis; employee evaluation mechanisms that enable automated monitoring and reporting of customer service representative performance; and, connection of call center teams supporting specific states with the local (in-market) service teams, technicians, and local servicing centers.

An additional affirmative benefit of the proposed combination of Embarq and CenturyTel is that the combined companies are better able to share not only the risks associated with the operations of their merger partner, but also the benefits. CenturyTel’s service region in other parts of the country is more rural than Embarq’s service territory, and the switched access line loss in rural regions is slower resulting in lesser financial pressures. CenturyTel’s year-over-year access line losses totaled approximately 6.4% as of the fourth quarter of 2008, whereas Embarq’s annual line loss rate was approximately 9.8%. The discrepancy in these line loss trends is expected to continue in the future, with CenturyTel’s operations experiencing lower rates of line loss than those pressuring Embarq. As a result of the merger, the combined entity will have less exposure to access line losses than that of Embarq as a stand-alone company. In addition, CenturyTel has experienced less revenue pressure (a decline of 2.3%) compared to that of Embarq. Based upon data from the Fourth Quarter 2008, Embarq experienced a quarter-over-quarter Total Net Operating Revenue decline of 6.2%. The combined company is expected to realize more modest levels of revenue declines than at Embarq alone.

CenturyTel receives more Universal Service Fund (USF) support than Embarq because of the more costly rural regions it presently serves. While this characteristic therefore makes the combined companies more vulnerable to a loss of such revenue, it also means that the combined entity will have less exposure to access line loss and competitive pressures.

The diversification in the combined company with respect to properties and other characteristics, including reduced exposure to access line losses and improved expected financial performance, makes the new company a lower risk operation.

OCA, OSBA, and BCAP have all suggested conditions that the Commission should impose on the approval of this transaction. None of the proposed conditions are supported by substantial evidence as to their necessity. Joint Applicants, the Pennsylvania certificated operating companies, will remain unchanged after the merger except for the initiation of best practices that will only serve to improve service. This is not a case where a marginally adequate or inadequate utility is being taken over by a better company and conditions are required to insure that improvements are made. OCA, OSBA, and BCAP must remember that the imposition of conditions is in no respect a compulsory aspect of merger approval.

OCA advocates for the imposition of 10 conditions. Based upon its own calculation OCA estimates cumulative synergies associated with Embarq PA of $44 million through the end of 2012. Then OCA uses this self-generated figure to propose numerous conditions for Commission approval of this merger.

OCA proposes that the Commission should continue the cap on Embarq PA’s R1 rate at the existing $18.00 per month level until the end of 2012. OCA estimates that this particular aspect of its proposed condition will cost an estimated $10 million. OCA further recommends that Embarq PA should not be allowed to bank any basic residential rate increases during this period and should not be allowed to draw from the Pennsylvania USF to recover increases in the R1 rates above the $18.00 per month level. Finally, OCA’s rate freeze condition also would not allow Embarq PA to raise any other non-competitive service rates by amounts that are greater than the rate of inflation.

The $18.00 per month cap was established in 2003 as a result of the Commission’s adoption of settlement agreement involving Pennsylvania’s rural ILECs.[7] OCA has failed to provide any justification for continuing the existing cap for another three years – i.e., for a total of over nine years. This is particularly unnecessary given that the Commission is addressing rate caps in its on-going USF investigation.

Moreover, in affirming the Commission’s decision in the Verizon/MCI merger, the Pennsylvania Supreme Court noted that rate conditions were not required because of “the recent and revolutionary changes affecting the telecommunications industry.” Popowsky v. Pa. Public Utility Comm’n, 594 Pa. 583, 614 937 A.2d 1040 1058-1059 (2007). These changes are ongoing and no less revolutionary today.

Finally, the Commission’s on-going USF investigation may impact rate caps, banked revenues, and the interrelationship of the state USF. OCA has failed to explain the necessity and reasonableness of this proposed condition in light of the Commission’s on-going investigation.

Through the period ending December 31, 2012, OCA also recommends that Embarq PA be required to invest an additional $34 million to accelerate deployment of broadband services with the objective of achieving as close to 100% deployment as quickly as possible. OCA also recommends filing of quarterly reports with the Commission identifying the impact of expending the additional $34 million above its baseline expenditures.

OCA’s proposal to condition the transaction to require acceleration of Embarq PA’s existing, statutorily-imposed deployment of broadband is legally suspect. Embarq PA’s modified amended alternative regulation plan cannot be amended without Embarq PA’s consent. 66 Pa.C.S.A. §3013(b). The Code, therefore, expressly prohibits OCA’s proposed condition. Embarq PA is in full compliance with the requirements of Pennsylvania’s alternative regulation statute, as well as with the conditions agreed to in the stipulation approved by the Commission in Embarq’s separation from Sprint Nextel. There has been no demonstration that Embarq PA has failed to meet its regulatory or statutory obligations to date. There has been no demonstration that the combined company will be unable to meet its regulatory or statutory obligations. The proposed condition is beyond the Commission’s power to unilaterally impose and is also unnecessary.

In the alternative to acceleration of Embarq PA’s statutory broadband commitments, OCA would require the combined company to increase the number of communities to which Embarq PA provides advanced services through Embarq PA’s Bona Fide Retail Request (BFRR) program, by, for instance, lowering the BFRR threshold percentages from the statutorily-mandated 50 lines, or 25% of lines, whichever is fewer, to the lesser of 30 lines or 15% of lines, in any given community. OCA would also require no annual limit on the number of BFRRs performed.

OCA’s proposal again contravenes Pennsylvania law. Administration of the BFRR program is governed by statutory requirements and Embarq PA’s amended modified Alternative Regulation Plan. OCA offers no legal justification that would authorize the Commission to approve this condition.

Moreover, the record adduced in this proceeding renders OCA’s proposed condition unnecessary. Embarq PA’s BFRR program is already working well as a consumer aggregation tool.

OCA proposes that “if” monies become available from any subsequent Pennsylvania or Federal program targeted at improving broadband deployment, then the Commission should require reports filed: (a) to show how broadband monies have been allocated to Embarq PA and (b) to show that the $34 million over and above any state or Federal broadband deployment monies will be expended in Embarq PA’s service area.

This proposed condition is both vague and speculative. It also presumes Commission authority over possible broadband stimulus funds when that is not known or certain. The proposed condition is unreasonable and should be rejected.

The three additional reporting requirements OCA would impose as conditions of approval of the Merger Agreement are: that the combined company file a quarterly report with the Commission on the integration of business and repair office operations and billing systems and provide this report to the OCA and other interested parties; that the service quality reporting obligations set forth in Embarq PA’s 2005 spin-off settlement would continue for three (3) years the out-of-service repair index of 90% restored/repaired within 24 hours in any month across Embarq PA’s service territory or within three consecutive months in any one exchange; and, that for the first 3 years following merger the combined company would file quarterly reports identifying the number of company personnel associated with the maintenance of Embarq PA’s network facilities, including outside plant with annual reports.

OCA adduced no evidentiary support other than supposition and conjecture that the combined company will experience adverse consequences with respect to the integration of billing systems and call centers, changes in network employee levels, or service quality. Consequently, there is no basis for imposing additional reporting requirements on the combined company in these respects, beyond what the Commission already requires. Finally, 66 Pa.C.S.A. Chapter 30 prescribes the general filing requirements for local exchange telecommunications companies. While additional reports can be imposed by the Commission, the General Assembly has explicitly required that the Commission make specific findings in support of any conclusion to impose additional reports in addition to those set forth in the statute. There is no substantial evidence in the record in this case that would support specific findings justifying the imposition of additional reporting requirements.

OCA also proposes as a condition of approval that the combined company be required to provide a stand-alone DSL service for $29.95 per month for a minimum of three years. However, DSL service is an interstate service that this Commission does not regulate. It would be improper and unreasonable for the Commission to condition the transaction to restrict the combined company’s ability to price DSL services. In the Verizon/MCI merger, the Commission rejected an OCA proposed condition to require a stand-alone DSL product and the same result should apply here.

It is also noted that OCA’s proposed imposition of a price of $29.95 is a CenturyTel promotional rate. The highly competitive broadband market should be the determinant for what service should be offered and at what price point. OCA’s selective application of pricing for non-regulated services would be an unauthorized intrusion on management discretion.

OCA would further condition the transaction to require the combined company to take specific steps to increase the number of customers enrolled in Embarq PA’s current LifeLine program. Specifically, OCA would require publishing of a brochure unique to Embarq PA and distribution to County welfare offices and other appropriate locations in each county in Embarq PA’s service territory. Also, the company would be required to undertake two bill inserts per year for 3 years and would be required to submit another report to the Commission of changes in the combined company’s approach to Lifeline. Finally, confirmation of customer eligibility for Lifeline service would be obtained orally, rather than by submission of a written application.

Once again, 66 Pa.C.S.A. Chapter 30 addresses the requirements of publication, including the requirement of biannual customer notices and the means of enrollment. Use of a written application and verification of eligibility has been endorsed by the General Assembly because verbal self-certification leads to abuse. The imposition of OCA’s Lifeline conditions is not justified by this record. OCA merely asserts that the combined company should be required to expand promotion of the program and change eligibility verification procedures without any record support for the necessity or reasonableness of such conditions.

Finally, OCA would condition the transaction to require modification of Embarq PA’s web site regarding a product entitled “Basic Phone Service.” According to OCA, the product fails to address the availability of stand-alone basic service. However, OCA failed to provide evidence of any consumer complaining of alleged confusion with respect to the nature of that product. Absent such proof, this condition would be Commission overreaching on managerial authority.

In sum, OCA presents a veritable laundry list of proposed conditions, but can point to nothing in the record or within the Commission’s statutory authority requiring or even supporting their imposition. As such, the OCA’s proposed conditions are rejected as unreasonable, burdensome, and unnecessary.

Like OCA, the OSBA seeks Commission imposition of conditions on approval of the Merger Agreement. Specifically, OSBA has proposed the following conditions: that Embarq PA should freeze all local exchange rates for five years and freeze all non-competitive services’ rates for five years; that Embarq PA should finish their broadband commitment earlier and use synergy savings to accelerate the date for 100% deployment; and, that Embarq PA should remove competitive revenue from its annual Chapter 30 price stability mechanism (PSM) filings.

OSBA’s proposed rate freeze conditions are unreasonable and inappropriate. The applicable legal standard requires demonstration, by a preponderance of the evidence that affirmative benefits are likely to occur. The Pennsylvania Supreme Court has held that an examination of the “probable general effect of the merger upon rates” is all that is required by the Code. City Of York v. Pa. Public Utility Comm’n, 449 Pa. 136, ___, 295 A.2d 825, 829 (1972). Thus, OSBA’s generalized premise that Joint Applicants have failed to show substantial benefits is flawed.

It is also important to realize that OSBA’s proposed freeze on local exchange rates and a wide array of non-competitive services effectively seeks an additional five-year freeze on rates on top of the rate freezes arising from Embarq PA’s spin-off from Sprint Nextel.[8] Clearly, the further rate freezes proposed by OSBA are inconsistent with the rapidly changing telecommunications market and with competitive conditions.

OSBA also asks the Commission to accelerate Embarq PA’s deployment of broadband services. There has been no demonstration made in this record of the legal authority for the Commission to impose this condition. Nor has there been evidence adduced that such a condition is just and reasonable.

Finally, OSBA asserts that Embarq PA should remove allegedly “competitive” revenue from Embarq PA’s annual PSM filings. Again, OSBA produces no evidence to establish that Embarq PA has ever included such revenue in its annual PSM filings. Joint Applicants witness credibly testified that Embarq never includes competitive revenue in its PSM filings. Each annual PSM filing made by Embarq PA has been approved by the Commission and at no point did the Commission reject the filing for the grounds now claimed by OSBA. Indeed, OSBA has intervened in many of those annual Embarq PA PSM filings and the proposal now suggested by OSBA has not been raised. There is absolutely no basis for the imposition of this OSBA proposed condition.

BCAP has provided to the Commission an exceedingly long list of proposed conditions for the approval of the merger, presenting in effect a “wish list” of terms and conditions for future interconnection agreements that would displace those to be negotiated in good faith by the parties. BCAP’s attempt to use this proceeding as a substitute for legally mandated-negotiations under Sections 251 and 252 of the Telecom Act is inappropriate for three reasons.

First and foremost, BCAP has not satisfied its burden of demonstrating that the conditions it has proposed are necessary for the merger to create affirmative public benefits. Indeed, although the joint testimony offered by BCAP launches into a litany of proposed conditions, BCAP makes no attempt to refute the evidence offered by the Joint Applicants that the merger of CenturyTel and Embarq will provide substantial affirmative benefits not only to consumers and competition in Pennsylvania, but also to the CLECs that are BCAP’s members. That the combination might strengthen competition against BCAP at some time in the distant future is not a valid ground for disapproving or conditioning the transaction. As noted earlier, having weighed and measured the impacts on all affected parties, the Commission is not required to disallow a transaction simply because it might be detrimental to one particular party. Middletown Twp. v. Pa. Public Utility Comm’n, 85 Pa.Cmwlth. 191, 482 A.2d 674 (1984).

Second, the proposed transaction cannot in fact be detrimental to BCAP because all Pennsylvania interconnection arrangements with BCAP members are and will continue to be governed by the existing interconnection agreements. These existing interconnection agreements are held only with Embarq PA and will remain in full force and effect until their expiration at the mutually agreed-upon date contained in the agreements. BCAP members therefore will experience no material change in Pennsylvania as a result of the proposed transaction.

Finally, the conditions sought by BCAP individually and collectively ask the Commission to far exceed its statutory duty, which, in the context of a telecommunications merger, is to ensure there is no reduction in the advanced service or broadband deployment obligations as a result of the proposed transaction. The extensive conditions proposed by BCAP are precisely the sort that should be negotiated in an interconnection agreement, in accordance with Sections 251 and 252 of the Telecom Act, or resolved through the agreed-to procedures contained in an operative interconnection agreement or by the Commission in an arbitration proceeding. This proceeding should not be used as an opportunity for BCAP to circumvent negotiated agreement terms or bypass the good faith negotiations called for by Sections 251 and 252 of the Telecom Act.

BCAP identifies four categories of concessions it seeks in the form of approval conditions: interconnection rights; number porting and other operational issues; interconnection facilities; and carrier dispute procedures.

In the category of interconnection rights, BCAP first requests that the Commission order the combined company to enter into good faith negotiations with all requesting competitive providers pursuant to Sections 251 and 252 of the Telecom Act. Nothing more need be said than that this is already an existing federal regulatory requirement. See, 47 C.F.R. § 51.301(a). It is inappropriate for BCAP to suggest that the Commission condition the merger on the combined company’s compliance with a pre-existing regulatory duty.

Second, BCAP asks for Embarq PA to be precluded in all instances, with the exception of fitness challenges, from challenging or protesting any CLEC application, including challenging the right of wholesale entities, partnering with cable, voice, or other VoIP providers, to interconnect. Joint Applicants testified that Embarq PA will not challenge the right of a wholesaler to interconnect due to the nature of the service it is providing. It is unimaginable that BCAP could believe that the Commission would essentially strip away the right of an ILEC to refuse interconnection or challenge a CLEC application for any reason except for a fitness challenge. BCAP’s proposed condition far overreaches anything reasonable.

Third, the Commission is asked to require that CLECs currently interconnecting with Embarq PA be permitted, at their option, to extend their current interconnection agreements for up to three years. Again, BCAP offers absolutely no evidence that would support such an onerous condition. The terms of the current interconnection agreements were voluntarily negotiated at arms length, including the length of the agreement itself. It is inappropriate for BCAP to seek for its members to unilaterally extend those agreements at their own option merely because the parent company of the ILEC entering into that agreement is changing its ultimate parent.

Finally, BCAP requests that the Commission order that all future interconnection agreement negotiations should use the current agreements as a starting point, rather than “starting from scratch.” It is completely unclear how such a vague condition would work. Moreover, as Joint Applicants’ witness testified, the combined company will consider the use of existing terms and operations in a renegotiation process, but at the same time those negotiations also occur subject to changes of law, updating of processes and capabilities that make the relationship function more smoothly, and competitive industry issues and conditions that did not exist at the time of the first negotiation.

With respect to BCAP’s operational issues, many of these conditions are, in essence, a shopping list of the interconnection preferences favored by some BCAP entities, with little thought given to the cost of implementing these changes or the preference of other BCAP members. Most of these conditions, again, should be resolved in the course of good faith negotiations pursuant to Sections 251 and 252 of the Telecom Act. At any rate, this case is not the proper forum for the resolution of such requests.

With respect to the Embarq PA deposit procedure, BCAP asks that the Commission eliminate altogether Embarq PA’s requirement that an interconnecting CLEC pay a uniform deposit in each state where interconnection takes place. The evidence of record demonstrates, however, that such deposits are necessary to protect ILECs and their ratepayers in the event of an interconnecting CLEC’s default. Specifically, Joint Applicants introduced credible evidence that Embarq has instituted this policy only to protect itself because of losses experienced due to defaulting CLECs. Joint Applicants point out that Embarq is often the largest or one of the largest unsecured creditors in bankruptcy cases filed by CLECs operating in Embarq territory. Likewise, CenturyTel collects security deposits to protect itself and its customers from risk, and does so on a state-by-state basis because with each new state it enters, the competitor is increasing its liability to the ILEC and thereby the ILEC’s exposure and risk is increasing. BCAP is asking the Commission to force the combined company, and its customers, to shoulder the risk that a CLEC will default. There is nothing in the record indicating that shifting risk in this fashion would constitute an affirmative public benefit.

The third category of concessions BCAP seeks in the form of Commission-imposed conditions deals with what it describes as unreasonable interconnection requests. Specifically, BCAP requests that the Commission order the combined company to ensure two-way trunking and other reasonable interconnection points for carriers. However, it is already the policy of CenturyTel to provide two-way trunks. Joint Applicants presented uncontradicted evidence that a BCAP member was offered access by Embarq PA to full two-way trunks over a year ago, but failed to submit the proper order to facilitate full two-way trunking. BCAP therefore seeks for the Commission to order this condition despite its failure to show a single instance where it or any of its members sought but was denied two-way trunking by either Embarq or CenturyTel, and even though it is currently the policy of both companies to permit two-way trunking wherever possible. This condition is therefore unnecessary.

Finally, BCAP seeks for the Commission to impose on the combined company what it calls a “carrier dispute forum” to be held quarterly. Every interconnection agreement contains dispute resolution processes that have been agreed to by the parties, and reflect the most fair and efficient resolution of disputes arising under the agreement. BCAP once more seeks for the Commission to disturb the carefully negotiated relationship established between two consenting parties with no basis for doing so. This proposed condition is burdensome for the combined company and the Commission, is unnecessary, and accordingly rejected.

All aspects of the existing interconnection relationships between BCAP members and Embarq PA are carefully governed by federal law and regulation, and by interconnection agreements that were negotiated at arms-length, in good faith. The rights of BCAP members or future BCAP members who seek to interconnect are likewise protected by Sections 251 and 252 of the Telecom Act. BCAP impermissibly seeks to game the system in the guise of recommending conditions that are not needed nor in the public interest.

In conclusion, the Merger Agreement merits approval without the imposition of any of the conditions proposed by OCA, OSBA, or BCAP.

CONCLUSIONS OF LAW

1. The Commission has jurisdiction over the parties to, and the subject matter of, this proceeding.

2. Pursuant to 66 Pa.C.S.A. §332(a), the burden of proof in this proceeding is upon the Joint Applicants.

3. Pursuant to 66 Pa.C.S.A. §1102(a)(3), the Merger Agreement requires the approval of the Commission as evidenced by its issuance of a certificate of public convenience.

4. Pursuant to 66 Pa.C.S.A. §1103(a), before the Commission may issue a certificate of public convenience it must find that the granting of such certificate is necessary or proper for the service, accommodation, convenience, or safety of the public.

5. As the parties bearing the burden of proof, the Joint Applicants must prove by a preponderance of the evidence that the Commission’s issuance of a certificate of public convenience approving the Merger Agreement is in the public interest because it will affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.

6. In a merger context, the Commission is not required to secure legally binding commitments or to quantify benefits where this may be impractical, burdensome, or impossible in determining if the proposed merger will affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.

7. Pursuant to 66 Pa.C.S.A. §1103(a), even where the Commission finds sufficient public benefit to find that the granting of a certificate of public convenience is necessary or proper for the service, accommodation, convenience, or safety of the public without imposing any conditions, the Commission nevertheless has discretion to impose conditions which it deems to be just and reasonable.

8. Proof by a preponderance of the evidence means that the party or parties with the burden of proof presents evidence more convincing, by even the smallest amount, than that presented by the party or parties in opposition.

9. Any finding of fact necessary to support the Commission’s adjudication must be based upon substantial evidence.

10. Substantial evidence has been defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. More is required than a mere trace of evidence or a suspicion of the existence of a fact sought to be established.

11. In an acquisition context, when the Commission considers the public interest it is contemplated that the benefits and detriments of the acquisition will be measured as they impact on all affected parties and not merely on one particular group or geographic subdivision.

12. In a merger context, competitive impact is a substantial component of a rational net public benefits evaluation.

13. The Joint Applicants have proved by a preponderance of the evidence that issuing a certificate of public convenience approving the Merger Agreement without the imposition of conditions will affirmatively promote the service, accommodation, convenience, or safety of the public in a substantial way.

ORDER

THEREFORE,

IT IS ORDERED:

1. That the Petition To Withdraw its Petition To Intervene filed January 15, 2009 in the above-captioned case by Level 3 Communications, LLC, is granted.

2. That the Petition To Withdraw its Petition To Intervene filed February 17, 2009 in the above-captioned case by Comcast Business Communications, LLC d/b/a Comcast Long Distance, is granted.

3. That the Petition To Withdraw its Petition To Intervene filed February 26, 2009 in the above-captioned case by the Communications Workers of America, is granted.

4. That the Protest to the Application of the United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania and Embarq Communications, Inc. for all approvals required under the Pennsylvania Public Utility Code for the indirect transfer of control to CenturyTel, Inc. filed December 23, 2008 in the above-captioned case by the Office of Consumer Advocate, is dismissed.

5. That the Protest to the Application of the United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania and Embarq Communications, Inc. for all approvals required under the Pennsylvania Public Utility Code for the indirect transfer of control to CenturyTel, Inc. filed December 23, 2008 in the above-captioned case by the Office of Small Business Advocate, is dismissed.

6. That the Protest to the Application of the United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania and Embarq Communications, Inc. for all approvals required under the Pennsylvania Public Utility Code for the indirect transfer of control to CenturyTel, Inc. filed December 23, 2008 in the above-captioned case by the Broadband Cable Association of Pennsylvania, is dismissed.

7. That the Application of the United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania and Embarq Communications, Inc. for all approvals required under the Pennsylvania Public Utility Code for the indirect transfer of control to CenturyTel, Inc. filed November 21, 2008, Docket Number A-2008-2076038, is approved.

8. That a certificate of public convenience be issued evidencing the Pennsylvania Public Utility Commission’s approval of the transaction occurring as a result of the Agreement and Plan of Merger dated October 26, 2008, between the United Telephone Company of Pennsylvania LLC d/b/a Embarq Pennsylvania and Embarq Communications, Inc., CenturyTel, Inc., and Cajun Acquisition Corporation.

9. That the record at Docket Number A-2008-2076038 be marked closed.

Date April 3, 2009

Wayne L. Weismandel

Administrative Law Judge

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[1] I was unaware of the Level 3 Petition until after the conclusion of the Prehearing Conference. No representative of Level 3 attended the Prehearing Conference.

[2] A substitution was made for the previously served written surrebuttal testimony of G. Clay Bailey. What had been marked as Embarq Statement No. 2.1 was replaced by Embarq Statement No. 2.1 (Redacted).

[3] Joint Applicants and CenturyTel jointly filed and served a single Main Brief.

[4] No objections or comments to the proposed transcript corrections were filed within the time required. Consequently, the proposed corrections were deemed granted. 52 Pa.Code §5.253.

[5] Joint Applicants and CenturyTel jointly filed and served a single Reply Brief.

[6] As certificated entities, Embarq PA and ECI enjoy a rebuttable presumption of fitness – technical, financial, and managerial. Cf., Rural Telephone Company Coalition v. Pa. Public Utility Comm’n, 941 A.2d 751 (Pa.Cmwlth. 2008). No evidence to rebut this presumption was adduced.

[7] Access Charge Investigation per Global Order of September 30, 1999 et al., Docket Numbers M-00021596 et al., Opinion and Order entered July 15, 2003.

[8] Joint Application for All Approvals Required Under the Pennsylvania Public Utility Code in Connection with Changes of Control of the United Telephone. Company of Pennsylvania d/b/a Sprint and Sprint Long Distance, Inc., Docket Numbers A-313200F0007 and A-311379F0002, Opinion and Order entered April 7, 2006.

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