19991207Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
LYNN ANDERSON
JUDY STOKES
MADONNA FAUNCE
TERRI CARLOCK
JOE CUSICK
WAYNE HART
WORKING FILE

FROM:

DATE: December 7, 1999

RE: CASE NOS. CAM-T-99-1 AND COU-T-99-1; CAMBRIDGE AND COUNCIL
TELEPHONE COMPANIES’ APPLICATION TO MERGE THEIR
OPERATIONS

On October 20, 1999, Cambridge and Council Telephone Companies filed an Application requesting that the Commission authorize the merger of the two telephone companies with Cambridge as the surviving corporation. Cambridge is a Title 61 regulated telephone company providing service in Cambridge, Indian Valley, Cuprum, and Lowman exchanges. Cambridge is a closely held corporation. Council is a Title 61 telephone company providing service in the Council exchange. Council is a wholly-owned subsidiary of Cambridge.
On November 8, 1999, the Commission issued a Notice of Modified Procedure requesting public comment on the Companies’ Application to merge. The Commission’s Notice of Modified Procedure observed that Council was created as a Cambridge subsidiary when Cambridge purchased the Council exchange from U S WEST in 1994. Given the expiration of the three-year rate freeze (a condition of the sale), the Applicants state that the original rationale for operating Council as a separate subsidiary no longer exists. Moreover, the FCC “treats the two companies as a single entity for purposes of universal service support.” Order No. 28196 at 1.
In their Application, the Companies maintain that the merger is “revenue neutral” and will not affect the rates or charges of either Company. The Company has also noted that the merger must be approved by the lenders for both Companies: Rural Utility Services and CoBank.
The Applicants assert that the merger will provide a number of advantages. First, combining the two entities will result in cost savings from the elimination of duplicative functions such as separate books and records. Second, the merger will eliminate “the regulatory cost” associated with allocating joint and common costs between the two Companies. Finally, the combined entities will have better access to capital. Id. at 1-2. The Commission’s Notice requested that interested parties submit comments no later than November 29, 1999.

COMMENTS
The only party to file comments was the Commission Staff. In its comments, the Staff acknowledged that the original reason for maintaining Council as a separate entity has expired. The Staff agreed that combining the two subsidiaries would reduce operating costs and the difficulty in allocating common costs between the two entities. Staff also noted that once the merger is completed, two separate billing systems will no longer be needed. Staff performed a preliminary audit and concluded that the merger will not result in any subsidy occurring between the two companies. Staff Comments at 2. “When all local rates are adjusted to the 125% statewide average threshold, both Cambridge and Council will be eligible to receive payments from the USF. There will be no additional draw on the Idaho [USF] as a result of the merger.” Id. (emphasis added).
Staff noted that the merger of the Companies will also save the Staff time and expenditures when auditing just one set of Company books. Staff also stated that Council customers already call Cambridge for billing inquiries. “In reality, the two Companies…are already being operated as one company except for accounting and reporting to this Commission.” Id.
The Staff concluded that there is no evidence that the merger “will disadvantage customers as a whole. The accounting cost reductions should actually result in lower USF draws than might otherwise occur absent the merger. Staff believes that the merger is in the public interest” and, consequently, recommended that the Commission approve the merger. Id. at 2-3.

Commission Decision
Does the Commission wish to approve the merger of the two Companies?

vld/M:CAM-T-99-1_COU-T-99-1_dh2

At the time the Companies filed their merger Application, they also filed an Application for a general rate increase in CAM-T-99-2/COU-T-99-2.

DECISION MEMORANDUM 1