PacTel, SBC Help Fund State’s Study of Merger
In the hopes of securing speedy passage for their proposed $24-billion merger, Pacific Telesis and SBC Communications have handed over $150,000 to the consumer rights division of the state’s Public Utilities Commission to be used for a legally mandated study of the merger.
The unusual arrangement is the result of PUC budget cuts at a time when deregulation--most significantly the recent passage of the Telecommunications Act--has made the commission’s workload particularly heavy.
“We’ve been losing about 5% or more of our funding for the last few years,” said Jerry Thayer, general counsel for the Division of Ratepayer Advocates. “At the same time, there’s been a tremendous upsurge in the number of issues and transactions we have to look at.”
The PUC’s review of the PacTel and SBC merger had been postponed indefinitely before it received the $150,000.
It’s unclear whether the companies may be liable for the entire cost of the PUC’s merger study. In the state’s new budget, which goes into effect July 1, a clause in the PUC’s allocation calls for any utilities submitting merger applications to pay for any studies required by the commission.
Although uncomfortable with the $150,000 payment, consumer advocates were somewhat muted in their criticism Tuesday. “The PUC is essentially being starved into submission when a utility has to fund what is supposed to be an independent state study,” said Michael Shamus, executive director of the Utility Consumers’ Action Network. “It’s a sad state of affairs.”
Nettie Hogue, executive director of Toward Utility Rate Normalization, a particularly vocal consumer rights group, said, “If the utilities weren’t paying for it, there wouldn’t be a review at all.” This represents the second time PacTel has paid the PUC’s Division of Ratepayer Advocates for what should be an independent analysis of a major transaction for which it is seeking commission approval. In 1984, PacTel paid the consumer-rights division $237,000 for a study of its proposal to spin off its wireless services, AirTouch Communications, but not without several months of haggling between PUC and PacTel officials.
In the end, PacTel was allowed no direct contact with the consultants conducting the review.
Michael Runzler, director of public policy for PacTel, said the money was given to accelerate an often slow process likely to have been made more so as the result of an overworked and underfunded PUC. “The money is not meant to influence, it’s meant to hurry things along,” Runzler said.
Should approval be held up, the merger could come apart, Runzler warned. A clause in the merger contract states that either side is free to walk away from the deal if it is not finalized by March 31.
“Even though we’re engaged, so to speak, we can’t plan anything together until we get all the approvals,” he said. “We don’t want to continue to be in a state of limbo.”
The merger, proposed April 1, would result in the first union among the Baby Bell companies created by the 1994 breakup of AT&T.;
PUC approval is only one of a number of hurdles the merger must clear if it is to go forward. On July 31, both companies will hold special meetings for a vote of their respective shareholders, and the Justice Department is still evaluating the merger for possible antitrust violations. But California’s PUC, with its reputation for thoroughness, is expected to be the biggest obstacle.
PacTel and SBC want the PUC to finish its deliberations by the end of the year, something Thayer said is unlikely. “The $150,000 is a drop in the bucket,” he said. A thorough analysis is likely to cost anywhere from $1 million to $4 million, and once the report is complete, the PUC must hold a series of hearings on the merger, he said.
A vote on the merger will probably take place in October or November 1997, Thayer said.
