Title 52—PUBLIC UTILITIES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[ 52 PA. CODE CH. 63 ] [L-00070188/57-260]
Abbreviated Procedure for Review of Transfer of Control and Affiliate Filings for Telecommunications Carriers The Pennsylvania Public Utility Commission (Commission), on April 22, 2010, adopted a final rulemaking order which sets forth amendments to Chapter 63 (relating to telephone service) to streamline transfer of control and affiliate filings by telecommunications carriers.
Executive Summary
On April 22, 2010, the Commission adopted an Opinion and Order approving final-form rulemaking for §§ 63.321—63.326. The rules streamline the time period for reviewing and approving an application for a transfer of control filed with the Commission for a Certificate of Public Convenience under 66 Pa.C.S. §§ 1102 and 1103(a) (the April final-form rulemaking). The April final-form rulemaking addresses a proposed rulemaking issued on October 27, 2007, in the docket (the October Rulemaking Order).
The final-form rulemaking contains revisions from the proposed rulemaking. The revisions respond to Comments and Reply Comments filed by many parties. The final-form rulemaking also adopts suggestions made to the Commission from a Working Group. The Commission convened that group at the suggestion of the Independent Regulatory Review Commission (IRRC) and the parties. The group met starting in June 2008 and filed the last round of responses in November 2009, 4 months before this final-form rulemaking.
The final-form rulemaking establishes time lines for the review and approval of an application that reflect the pace of technological change in the telecommunications industry. Under the current practice, there is no time line for reviewing applications that require a Certificate of Public Convenience under 66 Pa.C.S. §§ 1102 and 1103.
The final-form rulemaking establishes a three-tier structure for reviewing an application and issuing a Certificate of Public Convenience. These are Pro Forma, General Rule and Traditional Review.
Pro Forma review occurs no later than 30 days after notice in the Pennsylvania Bulletin and expiration of the protest period. General Rule occurs no later than 60 days after notice in the Pennsylvania Bulletin and expiration of the protest period. Traditional Rule review occurs if a formal protest or complaint is filed to any Pro Forma or General Rule application or if an application presents novel issues or is in the public interest.
Pro Forma review applies to applications that do not affect rates or conditions of service or do not involve a transfer greater than 20%. General Rule review applies to applications that also change rates or conditions of service or involve a transfer of control greater than 20%. Traditional Rule review occurs if a protest is filed or if longer review is needed because an application presents new or novel issues.
The final-form rulemaking requires that an application is published in the Pennsylvania Bulletin with a 15-day protest period. The notice will notify the public of any reclassification of an application. The final-form rulemaking also provides that the filing of any formal protest or complaint within the protest period will subject an application to the unlimited timeline for review and approval now in place for every application under the existing Traditional Rule.
The final-form rulemaking contains filing requirements that reflect FCC filing mandates or suggestions of the parties. Also, there are Pennsylvania-specific requirements that reflect State law. These include the obligation to demonstrate that an application will affirmatively benefit the public, contain findings concluding that issuance of a Certificate of Public Convenience is warranted, and analyze the impact that an application will have on competition. An applicant must provide a copy and updates to the Commission and the Statutory Advocates.
The final-form rulemaking abandons proposed affiliate interest filing requirements that were aimed at ensuring compliance with 66 Pa.C.S. §§ 3016(f)(1) and 3019(b)(4) (relating to competitive services; and additional powers and duties). Instead, an applicant must file statements verifying that an application does not violate the prohibition against cross-subsidization and that the application complies with any broadband deployment or universal service commitments.
Public Meeting held
April 22, 2010Commissioners Present: James H. Cawley, Chairperson; Tyrone J. Christy, Vice Chairperson; Wayne E. Gardner; Robert F. Powelson
Rulemaking to Amend Chapter 63 Regulations
so as to Streamline Procedures for Commission Review of Transfer of Control and Affiliate Filings for Telecommunications Carriers;
Doc. No. L-00070188
Petition of Level 3 Communications, LLC
to Amend the Public Utility Commission Regulations
to Streamline Transfer of Control and Affiliate Filing Requirements for Competitive Carriers;
Doc. No. P-00062222
Final Rulemaking Order By the Commission:
Before the Commission for disposition is a staff recommendation on the final-form rulemaking addressing a proposed rulemaking adopted on September 27, 2007. The proposed rulemaking order granted an earlier Petition of Level 3 Communications, LLC (Level 3). Level 3 sought revision of the Commission's rules and procedures governing transfers of control and affiliate filing requirements under 66 Pa.C.S. §§ 1102(a)(3) and 1103 for telecommunications public utilities, including the ancillary Certificate of Public Convenience evidencing Commission approval of a transfer.
The current regulations are set out as application filing requirements in §§ 5.1, 5.11 and 5.43. Those procedural rules were substantially revised in 2006. The Commission has not revised its practice on reviewing applications for transfer of control other than issuance of a nonbinding Policy Statement issued under 66 Pa.C.S. § 1102(a), and set forth in § 69.901 of our regulations.
The Proposed Rulemaking. The proposed rulemaking created a three-tier process for reviewing and approving applications for approval of transfers of control. The applications would be subject to 66 Pa.C.S. § 1102(a) and require issuance of a Certificate of Public Convenience under 66 Pa.C.S. § 1103(a). The first tier was the existing unlimited time span for an application. This was called Traditional Review. The second tier was a General Review. It was a shorter sixty day review and approval period for applications that involved rate changes, changed terms of service, or were a change of control exceeding twenty percent. The third tier was Pro Forma review. This was an even shorter thirty-day review and approval period for applications that did not change rates, that did not change terms of service, or that did not constitute a change of control greater than twenty percent.
Section 63.324 of the proposed rulemaking addresses General Rule review and approval. Section 63.325 of the proposed rulemaking addresses Pro Forma review and approval. The topics in proposed § 63.324(a)—(l) were mirrored in § 63.325(a)—(l).
The Final-Form Rulemaking. The final-form rulemaking is promulgated even though some comments question the need for the regulations. IRRC asked the Commission to explain why this final-form rulemaking is appropriate. The comments of the Office of Consumer Advocate (OCA) and the Office of Small Business Advocate (OSBA) (collectively Statutory Advocates) question whether this regulation is necessary. The Statutory Advocates urged the Commission to abandon the rulemaking.
We adopt the final-form rulemaking to address changes in technology and public utility regulation. The final-form rulemaking reflects suggestions we received after we convened a working group, a group suggested by IRRC and Verizon. Commission staff met with and solicited concrete suggestions from the parties. Meetings were held starting in the Summer of 2008. The final filing was submitted in October 2009 and the final response was filed in November 2009. There was no consensus. The final-form rulemaking addresses areas of disagreement and the comments, particularly from IRRC, for our consideration.
The final-form rulemaking retains three tiers of review but with modifications addressing IRRC's concern for due process, notice, and reclassification. The final-form rulemaking retains the Traditional Rule (current practice in which there is no limit to review), General Rule (review is completed within sixty days), and Pro Forma (review is completed within thirty days).1 The final-form rulemaking reinstates the twenty percent threshold, will publish every application in the Pennsylvania Bulletin, and establish a fifteen day protest period. There is prior consumer notice. Reclassification notice occurs in the Pennsylvania Bulletin. The trigger for review and approval now starts with expiration of the protest period.
There are new filing requirements that address comments asking for more detail. The rules publish an application, establish a fifteen day protest period, and will subject an application to Traditional Rule review if a formal protest or complaint is filed. Prior notice must be provided to consumers using a notice developed by the applicant with approval from the Bureau of Consumer Services. Any dispute between the applicant and the Bureau of Consumer Services can be appealed to the Commission mirroring the rules in § 5.44 governing appeals from an action of staff. Commission approval will occur by Secretarial Letter or Order based on a review conducted under § 63.324(h) of material filed in § 63.324(d). This applies to Pro Forma as well.
Background Level 3 filed their Petition to open a Rulemaking on May 31, 2006. Level 3 provided copies to the OCA, OTS, OSBA consistent with § 5.41(c) of the Commission's regulations. Level 3 also provided a copy to Verizon and the PTA as persons affected, consistent with § 5.41(c).
The Level 3 Petition asked the Commission to initiate a rulemaking to streamline the administrative process by which certificated competitive carriers may complete transfers of control and affiliate transactions. Level 3 sought revision to the Commission's regulations arguing that the process imposes unnecessary and burdensome requirements on non-dominant, competitive carriers. Level 3 also contended that the public interest in a competitive environment does not require strict scrutiny of non-dominant carriers' transactions because those carriers lack control over bottleneck facilities and generally lack market power compared to other carriers.
The Commission's proposed rulemaking addressed acquisitions, diminutions in control, mergers, stock sales or transfers, and transfers of assets of a telecommunications public utility. We also concluded that affiliate interest filings should be addressed.
The Commission published the Proposed Rulemaking Order on February 9, 2008 in the Pennsylvania Bulletin, 38 Pa.B. 758. The Commission solicited Comments by April 8, 2008 and Reply Comments by May 8, 2008. Multiple parties submitted Comments and Reply Comments. IRRC submitted comments on June 9, 2009.
Discussion A. Disposition of IRRC's Comments
IRRC submitted general concerns as well as comments on specific provisions of the proposed rulemaking. IRRC's comments on specific provisions are addressed in more detail in the Extended Discussion of Annex A where we address the Comments and Replies of the other parties on the proposed sections.
This section will address IRRC's general concerns. We do so because those concerns raise basic issues about the need for this regulation. Disposition of those concerns also resolves many of IRRC's more specific comments as well.
The Need for the Regulation. IRRC questioned the need for the regulation and asked the Commission to provide information on the average length of time it takes to review applications and the number of applications that would be subject to the proposed three-tier levels of review. IRRC Comments, p. 2.
In response, the Commission notes that five applications seeking Commission approval for transactions in 2006 and 2007 that did not involve changes in rates or terms and conditions of service, that is, Pro Forma transactions, were approved in time spans that ranged from 142 days to 310 days. One of these was litigated but the other four were settled by the parties. PTA Comments, p. 3.
The OCA also submitted a later filing to the working group in November 2009 that responded to a Level 3 filing (OCA Response). The OCA Response appended a chart supporting a claim that of the 114 applications filed by telephone companies pursuant to 66 Pa.C.S. § 1102 in 2008, two were protested and a hearing was held for one. All other Applications were not protested and there was no hearing. Moreover, the majority of those were decided in less than 90 days. OCA Response, pp. 6 and 7.
In this battle of the statistics, we conclude that a two-year span of evidence showing review periods for five applications in 2006 and 2007 support the rulemaking compared to a one-year sample. However, we recognize that these same statistics and staff claims about a decline in the volume of applications could support a different result.
Complexity of the Regulations and a Working Group. IRRC provided a summary of the major provisions of the proposed rulemaking. IRRC raised concern about whether the complexity will undermine abbreviated review. IRRC urged the Commission to convene a working group to address the regulations. IRRC Comments, pp. 2 and 3.
The Commission agreed with IRRC and convened a working group on the proposed rulemaking. The working group met from June 2008 through May 2009. The working group solicited filings with suggestions. The last filing was submitted by Level 3 in October 2009. This triggered the OCA Response filed in November 2009. The Commission concludes that reliance on this working group's contribution, hopefully, has produced a better result compared to sole reliance on Comments and Replies.
Secretarial Letters. IRRC asked the Commission to explain how the proposed reliance on Secretarial Letters to approve applications in the proposed rulemaking was consistent with 66 Pa.C.S. § 1103(a). Section 1103(a) of 66 Pa.C.S. mandates that a certificate of public convenience issued in response to an application must be done so by order of the Commission. IRRC Comments, pp. 1 and 2.
The Commission proposes to use Secretarial Letters for streamlined review and approval except in very limited circumstances where an Order may be better. Secretarial Letters may be issued at any time and are not limited to the Commission's public meeting schedule. Pennsylvania caselaw, particularly West Penn Power v. PaPUC, 100 A.2d 110, 113 (Pa. Super. Ct. 1953), holds that Secretarial Letters can be equivalent to a final and appealable order of the Commission. We use that approach in light of that precedent.
Affiliate Interest Agreement Review. IRRC also questioned whether the extensive proposal for reviewing telecommunications providers' affiliated interest agreements was consistent with 66 Pa.C.S. § 3019(b)(1). Section 3019(b)(1) of 66 Pa.C.S. requires submission of affiliated interest agreements unless the service is declared competitive. Any filing is for notice only and does not require Commission approval. IRRC Comments, p. 3.
Section 3019(b)(4) of 66 Pa.C.S. authorizes the Commission to condition any approval under of 66 Pa.C.S. § 1101(a)(3), the subject of this rulemaking, to ensure there is no reduction in the broadband deployment obligations of the affected property or facilities. Moreover, 66 Pa.C.S. § 3016(f)(1) prohibits a carrier from using revenues from noncompetitive services to subsidize competitive service. The Commission relied on those ongoing mandates to develop a detailed filing and approval requirement.
In response to IRRC's concern, this provision is deleted in its entirety. Instead, the Commission provides a Filing Requirement in §§ 63.324(d) and 63.325(d) that makes an applicant verify that the transaction complies with the cross-subsidization prohibition of 66 Pa.C.S. § 3016(f)(1). An applicant subject to any broadband deployment commitment or Carrier-of-Last-Resort obligation must also verify compliance with those requirements. Finally, an applicant must address competitive impact. These filing statement substitutes address IRRC's concern with new definitions and provisions that tried to do the same thing in § 63.626 and throughout the proposed rulemaking.
The City of York Standard. IRRC asked the Commission to explain why the Commission's proposal does not violate the caselaw mandate ''that a merger will affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way'' as set out in Popowsky v. Pa. PUC, 937 A.2d 1040 (Pa. 2007) and City of York, 295 A.2d 825 (Pa. 1972). IRRC Comments, pp. 3 and 4.
Initially, proposed § 63.324(d)(11)(i) and (ii) for General Rule applications and § 63.325(d)(11)(i) and (ii) for Pro Forma applications required the applicant to append a verified statement. The statement would show how the transaction (i) will service the public interest, convenience, and necessity and (ii) describe the general and specific affirmative public benefit to Pennsylvania consumers.
The proposed rule created two separate mandates for two distinct purposes. Sections 63.324(d)(11)(i) and 63.325(d)(11)(i) required the applicant to meet the Certificate of Public Convenience standard of 66 Pa.C.S. § 1103(a). Sections 63.324(d)(11)(ii) and 63.325(d)(11)(ii), respectively, addressed the City of York standard.
In response to IRRC's concerns, the final-form rulemaking deletes these two sections in their entirety. Instead, the final-form rulemaking at §§ 63.324(d)(11)(i) and 63.325(d)(11)(i) reiterates word-for-word the standard referenced in the comment on the City of York standard language applicable to a merger. Sections 63.324(d)(11)(ii) and 63.325(d)(11)(ii) require an applicant to append verifications establishing how the transaction ''is necessary or proper for the service, accommodation, convenience, or safety of the public'' in order to address the finding mandate set out in 66 Pa.C.S. § 1103(a). Finally, the applicant must provide a verified statement on the transaction's impact on competition. This addresses that legal requirement. These provisions effectively negate the proposed rulemaking addressing market power, market share, or competitive impact.
Adequate Review Periods for Pro Forma and General Rule Applications. The next issue IRRC raises is whether the proposed thirty and sixty day review periods for Pro Forma and General Rule applications is sufficient for interested parties to review the filings. IRRC is particularly concerned that very short review periods will simply encourage more formal protests to allow more time for review. IRRC Comments, p. 4.
The final regulations retain the thirty and sixty day review periods in §§ 63.324 and 63.325, respectively. There are four important revisions which address IRRC's concern about adequate review time for participants and inadvertently encouraging the filing of formal protests or complaints to get more review time.
The Commission revised the final-form rulemaking to address IRRC's concerns. Sections 63.324(c) and 63.325(c) require that a copy of an application and update be provided to the Statutory Advocates. Sections 63.324(f)(1) and 63.325(f)(2) publish an application in the Pennsylvania Bulletin to provide notice. Sections 63.324(f)(2) and 63.325(f)(2) establish a fifteen day protest period. Sections 63.324(g) and 63.325(g) require prior consumer notice absent a waiver from the Commission. Sections 63.324(f)(3) and 63.325(f)(3) provide that the filing of a formal protest or complaint subjects an application to Traditional review.
Sections 63.324(h)(1)—(4) and 63.325(h)(1)—(4) explains how Commission review is conducted. Sections 63.324(k) and 63.325(k) provide that Commission approval will occur by Secretarial Letter or Order as permitted by Pennsylvania law.
Incumbent Broadband Deployment and COLR Obligations. IRRC asked the Commission to explain why applications of an incumbent carrier are treated like those of a competitive carrier. IRRC questioned regulatory parity between incumbent and competitive carriers because incumbents have broadband deployment commitments in 66 Pa.C.S. § 3019(b)(4), and Carrier-of-Last-Resort (COLR) obligations as an Eligible Telecommunications Carrier (ETC) under 47 U.S.C.A. § 214(e)(1) and (2). IRRC Comments, p. 4.
In response to IRRC's concern, the final-form rulemaking revises the applicant's filing requirements in §§ 63.624(d) and 63.625(d). Sections 63.324(d)(21) and 63.325(d)(21) require an applicant with a broadband deployment commitment under State or Federal law to verify compliance with that obligation. Sections 63.324(d)(22) and 63.324(d)(22) require an application with an Eligible Telecommunications Carrier (ETC) obligation to verify compliance with that obligation.
The Commission notes that ETC designation is not, strictly speaking, equivalent to the COLR mandate associated with electric and/or gas utilities. Incumbent or competitive carriers can seek ETC status. The Commission has granted ETC status to incumbent and competitive providers. The FCC granted ETC status for some wireless carriers in Pennsylvania because the Commission was initially reluctant to exercise jurisdiction on those requests. The Commission has since affirmatively decided to make wireless ETC designations as well.2
Any Commission or FCC grant of ETC status allows the provider to get Federal universal service support to provide narrowband voice service throughout the service area for which the designation is received. ETC designation requests may, or may not, be equivalent to an incumbent carrier's entire service area depending on the designation. Any carrier can relinquish that designation and the ''service area'' is equivalent to a ''study area'' but only for rural carriers. The FCC is actively considering transitioning this ETC support from narrowband voice to broadband as well.
Consumer Notification. IRRC expressed concern with the different treatment of prior consumer notices and the filing of formal protests or complaints in Pro Forma applications compared to General Rule transactions. IRRC suggested uniformity. IRRC Comments, pp. 5 and 8.
The final form rules treat every formal protest or complaint as subjecting an application to Traditional review. An applicant must provide prior notice to consumers, a practice consistent with the current rules for Abandonment of Service in § 63.301 et seq. The notice is prepared by the applicant and approved by the Commission's Bureau of Consumer Services (BCS) to ensure that consumers receive an understandable notice and to discourage the filing of formal protests or complaints. An Applicant can appeal any disagreement or determination directly to the Commission.
B. Disposition of the Parties' Comments and Replies.
As an initial matter, we note that any specific objection or proposal not otherwise addressed in the final rulemaking is denied.
1. Summary of the Comments and Replies.
Level 3. Level 3 supported the proposed regulation. Level 3 particularly supported the solicitation of Comments and Reply Comments following publication in the Pennsylvania Bulletin. Level 3 argued that the filing of a formal protest or complaint should not derail abbreviated review because doing so allows the filing party to effectively delay a proceeding for unrelated business or commercial purposes. Level 3 filed suggestions on §§ 63.324 and 63.326 that will be discussed at the appropriate section. Level 3 Comments, pp. 1—3.
Level 3 supported the IRRC and Verizon suggestion to convene a stakeholders' meetings. Level 3 would not deny incumbents an opportunity to use abbreviated review but would use Comments and Replies to qualify for that review. Level 3 Reply Comments, pp. 1—3.
Level 3 disputed the OCA's conclusion that procedural reformation violated applicable law. Level 3 noted the Pennsylvania Supreme Court's conclusion in Elite Industries v. Pa. PUC, 832 A.2d 428, 431-432 (Pa. 2003), that the Commission's mandate on regulations is ''broad'' and the courts defer to Commission regulations so long as they are not ''so entirely at odds with fundamental principle so as to be a whim and not an exercise in judgment.'' Level 3 noted that Pennsylvania law has long considered Secretarial Letters to be equivalent to a final Commission Order. Level 3 disputed OCA's claim that thirty and sixty day review periods are impermissibly short. Level 3 notes that the regulations allow transactions to be reclassified and, moreover, contain substantially more filing requirement at the initial stage of an application. Those requirements bolster the ability to review and grant an application while issuing a Certificate of Public Convenience in a shorter timeframe. This is consistent with 66 Pa.C.S. §§ 1102 and 1103.
Level 3 cited the Chester Water Authority v. Pa. PUC, 868 A.2d 384, 390 (Pa. 2005) precedent to refute the OCA's claim that denial of a formal proceeding or hearing whenever a formal protest is filed violated Pennsylvania due process. Level 3 concluded that the same approach can be taken here regarding the formal protests filed by entities other than the Statutory Advocates. This is preferable to the current practice of mandating hearings every time someone files a formal protest or complaint. Level 3 Reply Comments, pp. 5-15. PTA agrees. PTA Reply Comments, p. 19.
Neutral Tandem. Neutral Tandem supported the proposed rulemaking. Neutral Tandem was concerned that the Filing Requirements set out in §§ 63.324(d)(12) and 63.325(d)(12) did not include provisions requiring applicants to disclose information about their regulatory compliance, including violations of federal or state law within the last three years; and alleged violations of federal or state law in a currently pending proceeding. Neutral Tandem Comments, pp. 1—4.
Verizon. Verizon generally supported the proposed rulemaking. Verizon proposed changes to simplify the rules using definitions in the Public Utility Code. Verizon also claimed that the City of York, 295 A.2d 825 (1972) standard, which requires that a merger affirmatively benefit the public, applies only to mergers so language expanding it beyond mergers is inappropriate. Finally, Verizon claimed that provisions which require Commission review and approval of affiliate transactions contradict 66 Pa.C.S. § 3019(b)(1). Verizon Comments, pp. 1—11.
Verizon dismissed the due process concerns raised by OCA, OSBA, and BCAP. Verizon noted that regulatory review of regulated carriers remains a burden, particularly when competitive carriers like cable companies can freely complete the type of transactions contemplated under 66 Pa.C.S. §§ 1102 and 1103 devoid of Commission review. Verizon Reply Comments, pp. 1—4. Verizon saw no basis for allowing competitors to obtain abbreviated review of their applications while denying that same option to incumbents. Verizon also opposed allowing any formal protest or complaint to interfere with a carrier's abbreviated review. Verizon opposed the increased filing requirements given their cost and burden on an applicant. Verizon Reply Comments, pp. 8—11.
Windstream. Windstream applauded the Commission's recognition of the need to change the Commission's review and approval process for regulated company transactions. Windstream asked the Commission to eliminate unlimited review under the Traditional Rule and replace it with a two-track system with strict timelines. Windstream noted that other regulatory agencies have streamlined their review and approval process to sixty to ninety days. Instead, Windstream proposed an additional review period of thirty days to accommodate a hearing. Windstream Comments, pp. 1—16.
PTA. PTA endorsed a rapid review process. The PTA noted that other states approve applications with no changes in rates or services much faster than Pennsylvania. PTA was concerned that entities used the Commission's process to file formal protests or complaints to extract some gain from the applicant regardless of the issues raised in a protest or complaint. PTA proposed that no protest or complaint automatically subject an application to longer review. The Commission should examine the interest in the application, the fact-specific basis for the protest, a demonstrated nexus to the transaction, and novel or important issues before the Commission sustains any protest or complaint. The PTA opposed changing the transfer of control threshold from 20% in the Policy Statement to 10% in the proposed rule. The affiliate interest requirements were a possible violation of 66 Pa.C.S. § 3019(b)(1) as well. PTA Comments, pp. 1—12.
PTA noted that the overwhelming number of mergers and acquisitions subject to Chapter 11 do not involve rates or changes in service and would be appropriate for abbreviated review. PTA Reply Comments, pp. 1—20.
BCAP. The Broadband Coalition of Pennsylvania (BCAP) proposed abbreviated review only for competitor carriers. BCAP opposed abbreviated review for incumbent applications given their market dominance. BCAP argued that 66 Pa.C.S. § 3011(11) only states that the Commission should, not must, make all regulations equal between incumbent and competitive carriers. BCAP also opposed including ''information services'' as a filing requirement because those services are beyond the Commission's authority in 66 Pa.C.S. §§ 1102 and 1103. BCAP Comments, pp. 1—24. BCAP opposed distinguishing between ''rural'' and ''nonrural'' carriers when it came to Commission review and approval of incumbent applications. BCAP Comments, pp. 24—26.
BCAP asked the Commission to allow abbreviated review for applications that contain proprietary information or seek a protective order. BCAP supported using the definitions set out in Chapter 30. BCAP supported automatically subjecting an application to unlimited Traditional Rule review if a Statutory Advocate filed a formal protest or complaint. BCAP also urged the same treatment for private parties. BCAP Reply Comments, pp. 1—7.
OCA. The Consumer Advocate (OCA) filed detailed Comments opposing the rulemaking in its entirety. Alternatively, the OCA proposed a series of limited rules that would be applicable only to competitive carriers. OCA Comments, pp. 1—36. The OCA argued that incumbent carriers should not be able to use abbreviated review because they have Carrier-of-Last-Resort (COLR) obligations under federal law and broadband deployment obligations under 66 Pa.C.S. § 3013(a). The OCA expressed concern that abbreviated review for incumbent applications will undermine those provisions. For those reasons, OCA limits abbreviated review to competitive carriers. OCA Comments, pp. 1—36.
The OCA proposed an alternative that would only be provided to competitive carriers and then only if the Commission persists in this rulemaking as opposed to complete withdrawal in its entirety. OCA Comments, pp. 29—35. The OCA proposed that all retail and wholesale customers, including interconnected carriers, be provided direct notice unless the interconnection agreement waives that notice requirement. The OCA would require that an application and all the accompanying information be provided to the Statutory Advocates and all affected parties on the same day it is filed with the Commission. The OCA would make applications involving abandonment or other consumer protections ineligible for abbreviated review. OCA Comments, pp. 29—32.
The OCA's Reply Comments opposed the proposed modifications of the carriers and PTA as well. OCA Reply Comments, pp. 1—15.
OSBA. The OSBA recognized that the proposed rulemaking will create three levels of review but suggested that all mergers, acquisitions, or similar transactions involving LECs with substantial market shares be subject to Traditional Rule review unless the transaction is unopposed. The OSBA also appended a series of extensive technical amendments to their comments in support of their position. OSBA Comments, pp. 1—24.
The OSBA opposed the PTA's proposals to reduce the filing requirements, rely on competition, and require more specificity in protests or formal complaints because they eliminated review of potential market concentration. The OSBA opposed Verizon's proposals because an intervenor would have to meet a higher showing for their protest yet be deprived of the information needed to meet it. OSBA Reply Comments, pp. 5—7.
The Working Group
The Commission received comments from the public, industry, the Statutory Advocates and IRRC. In particular, IRRC and other comments urged the Commission to meet with interested stakeholders and resolve concerns about the scope, complexity, limited participation rights of some parties, and the relationship with Chapter 30 before developing the final-form rulemaking.
Commission staff met with stakeholders, particularly industry and the Statutory Advocates, to try and resolve these more contentious issues. Their positions often repeat ones set out in earlier filings. Level 3 did amend its position to support incumbent carrier use of abbreviated review instead of limiting it to only competitive carriers. This was a major concession that aided in developing the final-form rulemaking. It also became evident that there would be no agreement on resolving some particularly contentious issues. These were: (1) What Transactions Are Eligible for Abbreviated Review; (2) Which Carriers are Eligible to use Abbreviated Review; (3) the Effect of a Formal Complaint or Protest; (4) the Reclassification of a Transaction Under Abbreviated Review; and (5) the Commission Process Used to Approve Pro Forma or General Rule transactions.
2. Disposition of the Five Major Issues.
Which Transactions Are Eligible for Abbreviated Review. The final regulations are limited to the acquisitions, mergers, stock sales or transfers, transfers of assets and transfers of control listed in the proposed Purpose. These require submission of an application seeking Commission approval under 66 Pa.C.S. § 1102 and the required Certificate of Public Convenience governed by 66 Pa.C.S. § 1103 evidencing Commission approval of the application. The final-form rulemaking excludes Securities Certificates or similar financial transactions. We prefer to limit the final-form rulemaking to the proposed subjects because there were no extensive objections to these types of transactions. The final-form rulemaking also excludes Diminution in Control based on the comments.
Which Carriers Are Eligible for Abbreviated Review. The final-form rulemaking allows any applicant that is, an incumbent or competitive carrier, to seek abbreviated review of their applications. We recognize the continual assertion that abbreviated review should be limited to competitors or entities that clearly lack market power or control over bottleneck facilities. This assertion is less critical than developing a general rule applicable to all applicants. Abbreviated review for all applicants is preferable to allowing some applicants to get abbreviated review while denying that same relief to others based on current allegations about market power.
Market power is an elusive, complex, and changing term. For example, a current competitor with an overall small Pennsylvania market share may have a considerable market share of available Internet backbone facilities. On the other hand, a large Pennsylvania incumbent may have very little market share in critical Internet backbone facilities. This observation is evident in the variation in the comments on the extent and importance that competition should play in the final-form rulemaking. Compare BCAP Comments, pp. 13—17 (minimal competition) with PTA Reply Comments, pp. 8—13 (competition is robust and thriving).
A final rule should not rest on a preliminary determination about the market power of certain regulated carrier categories, where such a determination will then govern whether a carrier obtains abbreviated review for a change of control application.
Therefore, we conclude that is it more evenhanded to allow every applicant to seek abbreviated review so long as an applicant understands that formal protests or complaints may arise based on allegations of market power. This approach, coupled with published notice of all applications and allowing a protest period, is preferable to imposing detailed upfront filing mandates for some carriers while denying abbreviated review to others.
The Effect of a Formal Protest or Complaint. To facilitate abbreviated review, the proposed regulations confined the unlimited time span of the Traditional Rule to applications in which the Statutory Advocates filed a formal protest or review. This limited the ability of others to trigger a Traditional Rule proceeding.
There was substantial opposition to that proposal. The final regulations hold that the filing of any formal protest or complaint by any entity will trigger Traditional Rule review. This is current practice in virtually all other proceedings before the Commission. If, however, the formal protest or complaint does not raise material factual issues, formal evidentiary hearings would not be required as part of Traditional Rule review.3 We conclude that technology and market changes do not justify departing from that rule for a discrete class of applications.
Reclassification of a Transaction and Challenges to Reclassifications. Presently, every application is subject to the unlimited review of the Traditional Rule if a formal protest is filed. The proposed rulemaking continued the Traditional Rule but created two abbreviated review periods for faster review and approval. Most comments do not dispute reclassification although there is considerable disagreement over when the Commission will reclassify and how the applicant should receive notice.
As an initial matter, we adopt IRRC's suggestion that the publication requirements for Pro Forma transactions should mirror those set out for General Rule transactions, that is, publication in the Pennsylvania Bulletin. IRRC Comments, p. 8. This means that reclassification and notice must be reconciled with notice published in the Pennsylvania Bulletin.
We conclude that any challenge to the reclassification should be filed during the fifteen day protest period following publication. The Commission will address challenges to reclassification during consideration of the application based on whether or not a formal protest or complaint to the application has been filed by any entity.
Under the final-form rulemaking, notice will be published for the reclassification of every application in the Pennsylvania Bulletin. A challenge to the Commission's proposed reclassification is not automatically subjected to Traditional Rule review. In cases where the application is reclassified and there is no formal protest or complaint, the Commission or staff will address the challenge during review and approval.
If, however, a formal protest or complaint to the filed transaction is filed in addition to any challenge to the Commission's proposed reclassification, the entire filing will be subject the application to the Traditional Rule. This is consistent with our determination that a filed formal protest or complaint subjects an application to Traditional Rule review. In that case, the reclassification and the formal protest or complaint will be disposed of during the Traditional Rule review.
We do not believe that a challenge standing alone should subject an unprotested Pro Forma or General Rule review to Traditional Rule review. That approach is punitive because a challenge to reclassifying an application becomes tantamount to a formal protest or complaint application even though there is no formal protest or complaint.
Commission Review and Approval. Most comments support abbreviated review for Pro Forma and General Rule applications although the OCA did oppose the rulemaking in its entirety. The final-form rulemaking addresses IRRC concerns with notice of a transaction, due process opportunities to participate, and reclassification of an application, and how the Commission approves an application. IRRC Comments, pp. 4—8.
In response to IRRC concerns, we conclude that abbreviated review and approval of an unprotested Pro Forma or General Rule application should be similar although we modify the rules to address IRRC's concerns in several critical ways. First, every application will be now published in the Pennsylvania Bulletin. Second, every notice will establish a 15 day protest period. Third, every notice will inform the applicant and the public about any reclassification of an application. Also, consumers will receive prior notice.
The Commission will review and approve an unprotested Pro Forma application in a Secretarial Letter no later than 30 days after expiration of the protest period. Review can be completed quickly because there are no formal protests or complaints, there have been no rate changes, no changes in conditions of service, or the change in control is less than 20%.
The Commission will also review and approve an unprotested General Rule application using the same approach with the only difference being the timing of the approval The application will be published, there will be a 15 day protest period, and any reclassification will be contained in the notice. There will also be prior consumer notice. The major difference is that the Commission will review and approve an unprotested General Rule application by a Secretarial Letter at Public Meeting no later than 60 days after the protest period. Review is longer because, although the application is unprotested, the application contains rate changes, a change in the conditions of service, or the change of control exceeds 20%.
3. Disposition of the Ancillary Issues.
The ancillary issues were: (1) Affiliated Interest filing requirements; (2) the 10% threshold; (3) the Filing Requirements; (4) using a ''deemed approved'' approach if an application is not approved by a date certain; (5) eligibility of applications with propriety information or confidential agreements for abbreviated review; and (6) including ''information services'' and the Herfindahl-Hirschman Index (HHI) test for competition.
Affiliated Interest Transactions. The final-form rulemaking deletes proposed § 63.626 in its entirety. Instead, the final-form rulemaking requires two requirements. Sections 63.324(d)(11)(iii) and 63.325(d)(11)(iii) require an applicant to address competitive impact. Sections 63.324(d)(23) and 63.325(d)(23) require an applicant to verify compliance with the prohibition against cross-subsidization under State and Federal law, a prohibition set out in 66 Pa.C.S. § 3016(f)(1).
The 10% Threshold. The final regulation retains the twenty percent threshold figure. This provides guidance to all applicants seeking review and approval of a transfer of control better than adherence to an FCC requirement for a discrete class of applicants.
Revised Filing Requirements. The Filing Requirements are revised to include Neutral Tandem's suggestion to address regulatory compliance with state and federal law. The Filing Requirements also contain a verified statement in §§ 63.324(d)11) and 63.325(d)(11) addressing the impact on competition in Pennsylvania.
Deemed Approved. The final-form rulemaking abandons the ''deemed approved'' approach. Final-form regulations in §§ 63.324(k) and 63.325(k) require the Commission to issue a determination based on facts set out in §§ 63.324(d)(11) and 63.325(d)(11).
This includes a holding that a merger will ''affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way'' as set out in Popowsky v. Pa. PUC, 937 A.2d 1040 (Pa. 2007) and City of York, 295 A.2d 825 (Pa. 1972). This includes findings to warrant issuance of a Certificate of Public Convenience in 66 Pa.C.S. § 1103(a) and addressing competitive impact.
The Commission will review an application in §§ 63.324(h)(1)—(4) and 63.325(h)(1)—(4) when determining whether to approve an application in § 63.324(k) or § 63.325(k), respectively.
The Commission will act on an unprotested Pro Forma application no later than 30 days after expiration of the protest period. The Commission will act on an unprotested General Rule application no later than 60 days after expiration of the same protest period. However, a failure by the Commission to meet these deadlines will not result in a transaction being ''deemed approved'' under these regulations.
Review of Applications Containing Proprietary Information. The final regulations do not differentiate between applications with or without proprietary information. The final regulations publish all applications and establish a protest period of 15 days under § 5.14(d). This reflects IRRC's suggestion that all transactions be treated alike for public notice. Parties seeking access to that information can execute the necessary confidentiality agreement or seek appropriate relief from the Commission. The Statutory Advocates will receive a copy of the proposed transaction and they can execute any confidentiality agreement while the Commission sets the application for publication. This is consistent with BCAP's comments stating that transactions involving proprietary information should not be denied abbreviated review. BCAP Reply Comments, p. 2.
Consequently, there is no need to treat applications with proprietary information differently from applications that do not classify information as proprietary. We agree that there is no need to deny an applicant the opportunity to use abbreviated review simply because their filing may contain proprietary information or require an interested party to execute a confidentiality agreement.
Inclusion of ''Information Services'' and the ''Herfindahl-Hirschman Index'' Competition Test. The final regulations delete inclusion of Information Services, notwithstanding the increased convergence of telecommunications and information services. This avoids unsettled law on controversial issues. The Commission can revisit this issue later as appropriate.
The final regulations also delete the mandatory Herfindahl-Hirschman Index filing in favor of a general statement in the §§ 63.324(d)(11) and 63.325(d)(11) Filing Requirements. An applicant must address competitive impact to meet that requirement of Pennsylvania law although a general statement is better than requiring an applicant to develop and fund a Herfindahl-Hirschman Index study that may not even interest anyone. That triggers unnecessary expense. Equally important, a party with that concern can file a formal protest or complaint and ensure a detailed consideration under Traditional Rule review. We conclude it is better to examine a detailed concern afterwards instead of imposing a preliminary mandate to prepare a Herfindahl-Hirschman Index filing.
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1 Appendix B contains a chart that summarizes the abbreviated processes for review of these applications.
2 Commission Exercise of Jurisdiction to Designate Wireless Carriers As An Eligible Telecommunications Carrier (ETC) Pursuant 47 U.S.C. § 214(e)(2) of the Telecommunications Act of 1996 (TA-96), Docket No, M-00960799 (M-2009-2091317), Secretarial Letter issued on February 26, 2009.
3 The Chester Water decision held that 66 Pa.C.S. § 1103(b) did not require the Commission to hold evidentiary hearings when there were no material factual issues in dispute.
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