PacTel-SBC Plan Approved Conditionally

A panel of administrative law judges at the California Public Utilities Commission on Friday recommended approval of the $16.7-billion merger of Pacific Telesis Group with SBC Communications Inc., but only on condition that the companies refund as much $750 million in savings to California customers.

The companies called that sum a “crippling penalty” and said it could jeopardize the deal if it is adopted by the full commission when it issues a final ruling on the merger in late March.

The ruling “appears designed to severely penalize the companies and discourage the merger,” said Philip Quigley, chairman and chief executive of Pacific Telesis. Quigley said that no penalty was warranted.

Critics of the deal, however, have recommended even larger rebates to customers. The PUC’s Office of Ratepayer Advocate, for instance, in October called for $2.1 billion in ratepayer credits over five years. The office argued that California customers had subsidized most of the cost of building the asset base of PacTel’s telephone unit, Pacific Bell, and should reap a higher benefit.

The companies, however, argued that the administrative law judges had misinterpreted the nature of the merging entities when they cited a state law that entitles customers to share in the benefits of a utility merger.

Quigley argued in a statement issued late Friday that PacTel and SBC are diversified holding companies, not utilities, and thus should be exempt from the provision. He also argued that the merger would benefit customers by lowering prices.

The judges, whose ruling is not binding on the commission but is advisory, forecasted that the merger would produce economic benefits to the companies of $1.181 billion. They directed a refund of $590.5 million, or half that sum, to ratepayers. Mandated rate reductions, further adjustments for inflation and other charges brought the total refund to $750 million, the companies said.

The judges, however, did find that the merger would not adversely affect competition in the state’s telephone market and approved the transaction subject to the refund.

PacTel said it will ask the full commission to lower the amount of savings to be shared with ratepayers to $200 million.

San Francisco-based PacTel and San Antonio-based SBC announced their proposed merger on April 1. Since then, it has been approved by shareholders of both companies, as well as federal and state antitrust regulators and the Federal Communications Commission. But it has been opposed by other major telecommunications companies, which complain that the merged company may make it difficult for them to compete in the local telephone market in the state.

SBC and Pacific Telesis are among the seven regional Bell operating companies that were spun off in the 1984 breakup of AT&T.; SBC operates in Arkansas, Kansas, Missouri, Oklahoma and Texas. PacTel customers are in California and Nevada.