DE 98-147 KEARSARGE TELEPHONE COMPANY, CHICHESTER TELEPHONE COMPANY, MERIDEN TELEPHONE COMPANY Consolidation, Implementation of 2-Way Home and Contiguous EAS, Expansion of EAS Between Boscawen and Concord Order Nisi Approving Stipulation O R D E R N O. 23,147 February 18, 1999 APPEARANCES: Murray Plumb & Murray by John C. Lightbody, Esq. for Kearsarge Telephone Company, Chichester Telephone Company, Meriden Telephone Company, William Homeyer for the Office of the Consumer Advocate on behalf of residential ratepayers, E. Barclay Jackson, Esq. for the Staff of the New Hampshire Public Utilities Commission. I. PROCEDURAL HISTORY By Order No. 22,861, on March 9, 1998, the Commission approved 2-Way Home and Contiguous Extended Area Service (EAS) for all of Bell Atlantic's territory and ordered that independent local exchange carriers (ICOs) meet with the Staff of the Commission (Staff) and the Office of the Consumer Advocate to determine what rate changes, if any, would be necessary to implement 2-Way Home and Contiguous EAS in ICO territories. Kearsarge Telephone Company (Kearsarge), Chichester Telephone Company (Chichester), and Meriden Telephone Company (Meriden) are all ICOs and all subsidiaries of TDS Telecom. Collectively, Kearsarge, Chichester, and Meriden are hereinafter referred to as the TDS Companies. The TDS Companies, Staff, and the OCA held technical discussions as ordered. On August 19, 1998, the TDS Companies filed a Petition to consolidate into a single company, Kearsarge, that would continue to provide local exchange service, doing business under the name TDS Telecom, in all of the exchanges and territories previously served by the TDS Companies. The petition to consolidate also included a proposal for the implementation of 2-Way Home and Contiguous EAS for the merged company. On September 18, 1998, in response to Staff's on-going inquiry into the earnings of the TDS Companies, the Commission opened Docket Nos. DR 98-157, 98-158, and 98-159 to investigate possible over-earnings. By Order No. 23,092 (December 21, 1998), the Commission established temporary rates for each of the TDS Companies at current rates. On May 18, 1998, subscribers of Kearsarge filed a petition with the Commission, pursuant to N.H. Admin. Rules Chapter Puc 410, for 2-Way EAS service between the Boscawen and Concord exchanges. The Commission assigned docket number DE 98-086 to the petition. After a duly noticed public hearing on DE 98-086, the Commission issued Order No. 23,039 (October 7, 1998) finding that Concord is the community of interest for at least a sizable group of the residents of Boscawen and ordering Staff and Kearsarge to develop a cost proposal for balloting of the Boscawen subscribers pursuant to N.H. Admin. Rule Puc 410.0. Staff, the OCA, and Kearsarge agreed that, in the context of the consolidation, implementing Boscawen to Concord EAS could occur at a cost to ratepayers of $4.22 for residential ratepayers and $8.23 for business ratepayers. If approved by Boscawen voting customers, the residential rate of $4.22 will result in a total amount no greater than the Bell Atlantic rate, when added to the agreed upon cost to implement Home and Contiguous EAS. By Order No. 23,115 (January 26, 1999), the Commission ordered Staff to commence the balloting of the customers in the Boscawen Exchange for EAS expansion to Concord (a Bell Atlantic exchange) at those rate levels. By motion filed February 4, 1999, Kearsarge requested that the Commission stay Order No. 23,115 until after the Commission's decision in this Docket No. DE 98-147. On January 14, 1999, the TDS Companies, Staff, and the OCA filed a Stipulation and Agreement (Stipulation) purporting to resolve all the issues pertaining to consolidation and to implementation of 2-Way Home and Contiguous EAS for the TDS Companies' territories, including a process for resolving the Boscawen to Concord EAS question. A public hearing on the Stipulation was held at the Commission on February 2, 1999, at 6:30 p.m. II. POSITIONS OF THE PARTIES AND STAFF The TDS Companies, Staff, and the OCA agree that upon completion of the consolidation, Kearsarge would assume all the rights and obligations of the other TDS Companies to provide local exchange telephone service throughout the exchanges currently served, in accord with the terms and conditions of the current tariffs, as modified by the EAS provisions of the Stipulation. As a result of consolidation, intrastate access rates would be averaged on a revenue neutral basis, and non-basic and non-recurring rates would be uniform for all exchanges. The TDS Companies, Staff and the OCA agree that the merger would enhance the management and operation of the companies by permitting closer integration of activities such as customer billing, plant records systems, and repair service, among others. In support, the TDS Companies aver that efficiencies will occur because of combining books and records, simplifying planning for growth and plant deployment. No consolidation of offices or reductions in staff would now be necessary because of consolidations undertaken previously when each company was acquired by the TDS parent company. However, the merged company would prepare a single set of financial statements, audits would occur for a single entity, and inter-company billing would be eliminated. The merger would result in no changes in the operation or personnel of local offices in New Hampshire. Customers of the merged company, TDS Telecom, would not experience name change confusion because the TDS Companies each discontinued using their individual company name over the last few years. Furthermore, billing format would not change; office telephone numbers, fax numbers, and e-mail addresses would remain in place. In order to protect against cross-subsidization by existing individual company customers, the Stipulation prohibits TDS Telecom from averaging any of the basic residential or business rates for any of the exchanges of the consolidated company. The Stipulation also provides a two year moratorium during which TDS Telecom may not seek rate increases except for exogenous changes such as federal access rate changes or local number portability. The Stipulation directs Staff and TDS Telecom to jointly develop a program of customer education about the consolidation. The panel of witnesses presenting the Stipulation at hearing testified that the consolidation will cause no net harm and in fact may result in benefits to customers. Under the Stipulation, the rates proposed for polling Boscawen subscribers about the EAS expansion to Concord would be $4.22, considerably less than the full cost of implementing the change, should Boscawen subscribers vote favorably. The Home and Contiguous EAS provisions of the Stipulation create Home and Contiguous EAS for all exchanges of TDS Telecom, with a rate increase of $1.95 in the basic residential rates of each exchange and various increases in the business rates of each exchange. The cost of implementing Home and Contiguous EAS, according to Staff and the parties, consists of additional plant and of lost toll and access revenues. The costs are $170,500 more than the additional revenues generated by the rate increases. TDS Telecom will not seek recovery of those costs. III. COMMISSION ANALYSIS In recent years, since enactment of the Telecommunications Act of 1996, New Hampshire's competitive telecommunications carriers have implemented numerous mergers and acquisitions. In Re Eastern Utilities Associates, 76 NH PUC 236, 252(1991), we confirmed that the "no net harm" test, articulated as the public good standard in Grafton County Electric Light and Power Co. State, 77 N.H. 539, (1915) is the standard to be applied to a proposed merger or acquisition. In essence, the "no net harm" test requires approval of a proposed merger if the public interest is not adversely affected. Re Eastern Utilities Associates at 241, cited in Re CCI Telecommunications of New Hampshire, Inc. 81 NH PUC 844, 845 (1996). We have reviewed the testimony and the Stipulation of the parties and Staff and will approve the proposed merger between Kearsarge, Meriden, and Chichester. Based upon the representations of TDS Telecom and the totality of the circumstances, there is no net harm to the public as the result of the Stipulation. Furthermore, the consolidation appears to produce benefits for the merged company and, potentially, for customers in the increasingly competitive environment. We have reviewed the testimony and the Stipulation regarding expansion of EAS to include Home and Contiguous exchanges. Consistent with our findings in Docket No. 97-180, we find that New Hampshire customers will benefit from clear, easily understood, reasonably equitable EAS. Home and Contiguous 2-way EAS is in the public good where it can be achieved (1) without increasing monthly rates for customers who receive no benefit from the EAS change, and (2) without hindering the federally mandated objective of a competitive telecommunications market. Home and Contiguous 2-way EAS permits customers to make calls within their home exchange and every other exchange that is contiguous to the home exchange without incurring toll charges. Any non-contiguous exchange which was formerly included in the local calling area would remain in the local calling area. According to the proposal, in order to achieve Home and Contiguous 2-way EAS, basic residential rates will increase by $1.95 and basic business rates will increase by an amount that keeps them at or below the rates charged by Bell Atlantic. The proposed EAS expansion affects six exchanges: Chichester, Meriden, New London, Andover, Boscawen, and Salisbury. In order to allow for the expansion to occur, if approved, concurrently with the Bell Atlantic exchange expansions so as to minimize confusion, the public notice of the hearing on February 2, 1999, was relatively short. Furthermore, icy weather conditions on the night of the hearing made travel to the hearing difficult. Nonetheless, we heard from numerous members of the public. We made special arrangements for three residents of New London to participate via conference call; approximately ten people attended the hearing; and we received a total of 99 comments both before and after the hearing via telephone, regular mail and e-mail. Of those comments, favorable comments outnumbered negative comments by a wide margin for Meriden, Salisbury, New London, and Andover. Favorable comments regarding Boscawen and Chichester were only slightly more numerous than negative comments. Although, we do not decide EAS cases upon a majority vote, we note that it appears more interested consumers believe this EAS expansion will benefit them than not. Taking this in account, along with our finding that a uniform, equitable EAS is in the public good, we will approve the proposed EAS expansion. We have not acted upon Kearsarge's Motion for Stay of our Order No. 23,115 directing balloting of Boscawen customers regarding expansion of EAS to include the Concord exchange. That motion requested a stay until after our final decision in this docket. Because the rate increase upon which Boscawen customers will be polled is defined by the Stipulation, we will grant the motion. Based upon the foregoing, it is hereby ORDERED NISI, that the proposed merger of Kearsarge, Meriden, and Chichester as outlined above and in the Stipulation is Approved; and it is FURTHER ORDERED NISI, that the proposed expansion to Home and Contiguous 2-way EAS is Approved; and it is FURTHER ORDERED NISI, that the temporary rates currently in effect for Kearsarge, Meriden, and Chichester shall be revised pursuant to Schedules C, D, and E in the Stipulation; and it is FURTHER ORDERED, that The TDS Companies' Motion for Stay of Order No. 23,115 is granted; and it is FURTHER ORDERED, that the TDS Companies shall cause a copy of this order nisi to be published once in a statewide newspaper of general circulation or of circulation in those portions of the state where operations are conducted, such publication to be no later than March 2, 1999 and to be documented by affidavit filed with this office on or before March 10, 1999; and it is FURTHER ORDERED, that all persons interested in responding to this order be notified that they may submit their comments on this matter before the Commission no later than March 10, 1999; and it is FURTHER ORDERED, that this Order nisi shall be effective March 17, 1999, unless the Commission provides otherwise in a supplemental order issued prior to the effective date; and it is FURTHER ORDERED, that the TDS Companies shall file a compliance tariff with the Commission on or before March 24, 1999, in accordance with N.H. Admin. Rules, Puc 1603.02(b). By order of the Public Utilities Commission of New Hampshire this eighteenth day of February, 1999. Douglas L. Patch Susan S. Geiger Nancy Brockway Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary