Byron L. Harris' testimony as filed with the state Public Service Commission:

Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A. My name is Byron L. Harris. My business address is 723 Kanawha Boulevard, East, 700 Union Building, Charleston, West Virginia 25301.

Q. PLEASE STATE YOUR EMPLOYER AND POSITION.
A. I am the Director of the Consumer Advocate Division of the Public Service Commission of West Virginia.

Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND.
A. In 1976, I obtained a Bachelor of Arts Degree from Indiana University, where I majored in history and economics. I received my Master of Arts in Economics from Indiana University in 1980. My Master's Thesis was entitled, "A Forecast of the Residential Demand for Electricity in the Public Service Indiana Region."

Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS COMMISSION?
A. Yes. I have testified on numerous occasions in natural gas and electric cases.

Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE ANY OTHER ADMINISTRATIVE BODIES?
A. Yes, I have testified before the Public Service Commissions of Indiana, Wisconsin and Minnesota. I have also testified before the Minnesota Energy Agency and the Minnesota Pollution Control Agency.

Q. DO YOU SERVE ON ANY COMMITTEES ON BEHALF OF THE CONSUMER ADVOCATE DIVISION?
A. Yes. I am on the Executive Committee of the National Association of State Utility Consumer Advocates (NASUCA). I was formerly the chair of the NASUCA Gas Committee. I am also a member of the Staff Subcommittee on Accounting and Finance of the National Association of Regulatory Utility Commissioners.

Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. I will present the position of the Consumer Advocate Division (CAD) regarding the Joint Application of Frontier Communications Corporation (Frontier), New Communications Holdings, Inc. (“NCH”), New Communications ILEC Holdings, Inc. (NCIH), New Communications Online and Long Distance, Inc. (NewLD), Verizon West Virginia Inc. (Verizon-WV), Verizon Long Distance, LLC (VLD), and Verizon Enterprise Solutions, LLC (VES) (collectively, Applicants), filed with the Commission on May 29, 2009, requesting Commission approval of for approval of Frontier’s acquisition of Verizon-WV and for approval of the transfer of long distance customer accounts of VLD and VES to a company to be owned and controlled by Frontier, i.e., NewLD (generally, the proposed transaction). The CAD’s position is based upon the recommendations of the CAD’s other witnesses in this proceeding, Stephen G. Hill and Trevor R. Roycroft.

Q. PLEASE EXPLAIN HOW YOU WILL REFER TO THE VARIOUS ENTITIES INVOLVED IN THIS TRANSACTION?
A. Although the Joint Application requests the Commission to transfer certain services from Verizon-WV to Frontier, the Merger Agreement attached to the Joint Application is for the total transaction involving West Virginia and 13 other states. Under the Merger Agreement, Verizon will establish a new entity, Spinco, to own the assets to be transferred. I will refer to the Verizon parent company as Verizon, Verizon’s operations in West Virginia will be referred to as Verizon-WV and the Verizon entity to be acquired as Spinco. I will refer to the Frontier parent company as Frontier and Frontier’s operations in West Virginia will be referred to as Frontier-WV.

Q. HOW IS YOUR TESTIMONY ORGANIZED?
A. My testimony is organized into several sections. In the first section, I discuss the legal standards governing the Commission’s review of the proposed transaction, as set forth in the W. Va. Code and Commission decisions implementing the Code, as well as what actions the Commission may take in discharging its statutory duties with respect to the proposed transaction. In the second section, I summarize the CAD’s conclusions and explain why the proposed transaction does not meet the statutory requirements for approval. In the third section I will explain why the CAD believes that the terms of the proposed transaction are unreasonable. In the fourth section of my testimony, I address why the CAD believes the proposed transaction will adversely affect the using and consuming public in West Virginia, including other utilities that are wholesale customers of Verizon-WV, and depend upon Verizon-WV to provision communications services provided to their own end users and customers. In the fifth and final section of my testimony, I address conditions that the Commission should attach if it, notwithstanding the grounds that warrant the proposed merger’s rejection, is determined to approve the transaction.

SECTION I: RELEVANT LEGAL STANDARDS

Q. WHAT ARE THE LEGAL STANDARDS GOVERNING THE COMMISSION’S REVIEW THE PROPOSED ACQUISITON?
A. The legal standards governing the Commission’s review of the proposed transaction are set forth in several sections of the W. Va. Code, chiefly in W. Va. Code § 24-2-12. That section of the Code states, in pertinent part: Unless the consent and approval of the public service commission of West Virginia is first obtained: . . . (b) no public utility subject to the provisions of this chapter, except railroads other than street railroads, may purchase, lease, or in any other manner acquire control, direct or indirect, over the franchises, licenses, permits, plants, equipment, business or other property of any other utility; (c) no public utility subject to the provisions of this chapter, except railroads other than street railroads, may assign, transfer, lease, sell, or otherwise dispose of its franchises, licenses, permits, plants, equipment, business or other property or any part thereof . . . ; (d) no public utility subject to the provisions of this chapter . . . may, by any means, direct or indirect, merge or consolidate its franchises, licenses, permits, plants, equipment, business or other property with that of any other public utility; (e) no public utility subject to the provisions of this chapter . . . may purchase, acquire, take or receive any stock, stock certificates, bonds, notes or other evidence of indebtedness of any other public utility . . . ; (g) no person or corporation, whether or not organized under the laws of this state, may acquire either directly or indirectly a majority of the common stock of any public utility organized and doing business in this state.

The proposed transaction consists of a complex series of transactions that appear to implicate each of the subsections of W. Va. Code § 24-2-12 quoted above. The Code establishes a three-part test that the Commission is to apply in reviewing the proposed transaction and determining what action to take with regard to it, providing: The commission may grant its consent in advance or exempt from the requirements of this section all . . . transaction[s] referred to in this section, upon proper showing that [1] the terms and conditions thereof are reasonable and [2] that neither party thereto is given an undue advantage over the other, and [3] do not adversely affect the public in this state.

Finally, W. Va. Code § 24-2-12 specifies the actions the Commission may take in its orders issued in connection with transactions submitted for its review under this section, providing that: [T]he commission shall, if the public will be convenienced thereby, enter such order as it may deem proper and as the circumstances may require, attaching thereto such conditions as it may deem proper, consent to the entering into or doing of the things herein provided, without approving the terms and conditions thereof, and thereupon it shall be lawful to do the things provided for in such order.

Q. IS W. VA. CODE § 24-2-12 THE ONLY PROVISION OF THE CODE GOVERNING THE COMMISSION’S REVIEW OF THE PROPOSED TRANSACTION?
A. No. W. Va. Code § 24-1-1(a) provides further guidance regarding the Commission’s review of the proposed transaction and its ultimate decision regarding whether to reject it, approve it, or approve it with conditions attached. This section of the Code sets forth the Legislature’s statement of the purposes and policies governing the Commission’s discharge of its statutory duties generally and “confer[s] upon [it] the authority and duty to enforce and regulate the practices, services and rates of public utilities in order to: (1) Ensure fair and prompt regulation of public utilities in the interest of the using and consuming public;

(2) Provide the availability of adequate, economical and reliable utility services throughout the state; [and]

(3) Encourage the well-planned development of utility resources in a manner consistent with state needs . . . .

In addition, W. Va. Code § 24-1-1(b) provides further guidance to the Commission in carrying out its statutory authority and purposes. This section of the Code provides that the Commission is: [C]harged with the responsibility for appraising and balancing the interests of current and future utility service customers, the general interests of the state's economy and the interests of the utilities subject to its jurisdiction in its deliberations and decisions.

Q. HAS THE COMMISSION ADDRESSED HOW IT IMPLEMENTS THE STANDARDS AND GUIDANCE ESTABLISHED BY THE LEGISLATURE IN THESE PROVISIONS OF THE CODE?
A. Yes, in a series of orders that it has entered in connection with its review of various transactions submitted to it for review and approval under W. Va. Code § 24-2-12, the Commission has articulated how it applies these provisions of the Code to its decision making. First, the Commission has explained that the primary purpose of its inquiry under W. Va. Code § 24-2-12, is “the protection of the using and consuming public.” This purpose, in my opinion, must be the “filter” through which the Commission must sieve all the evidence and testimony submitted in this case. This purpose also provides the bar against which the proposed transaction is measured: Unless the Joint Applicants are able to demonstrate that the using and consuming public is protected under the proposed transaction, then it should be rejected. What matters is whether either any members of the using and consuming public – including current Verizon-WV and current Frontier-WV retail customers, as well as current Verizon-WV and current Frontier-WV wholesale customers – are exposed, under the proposed transaction, to such adverse consequences as (to name a few) higher rates, diminished service quality, reduced service offerings, or exposure to business practices that could be considered unreasonable. Second, W. Va. Code § 24-2-12, the Commission has concluded that, in considering any potentially adverse impact on the consuming public, parties seeking approval of proposed transactions “need not prove that the public will be better off or that a net positive benefit to the public occurs due to the transaction.” Rather the Commission must find that “the acquiring entity has, or as part of the transaction will acquire the knowledge, experience and resources sufficient to conduct the utility operation in a manner designed to provide adequate and reliable service at reasonable rates.” Put another way, the Commission has determined that “a demonstration must be made as to whether West Virginia consumers will be no worse off if the merger takes place than they would be if the merger did not take place.” Third, the Commission has concluded that W. Va. Code § 24-2-12 requires a showing that “the [proposed] transaction likely will have no effect on other utilities.” This element of the Commission’s review of the proposed transaction is particularly important given that many entities who provide communications services in West Virginia depend on Verizon facilities, personnel and operations support systems (“OSS”) to provide their own services. Fourth, with respect to the second element of the standard set forth in W. Va. Code § 24-2-12, i.e., neither party is given an undue advantage over the other, the Commission has determined that means that “the transaction was negotiated at arms length.” However, the Commission has also found that inter-utility contracts that include an inordinately high profit embedded in the contract’s rates are not only unreasonable (under the statutory test’s first prong) but also indicate that the contract was not the product of arms-length negotiations and therefore failed the second prong of the statutory analysis as well. The foregoing provides a comprehensive overview of the relevant statutory standards governing the Commission’s review of the proposed transaction, and its ultimate decision regarding that transaction, as well as relevant Commission precedent relating to the application of those statutory standards to transactions submitted for its review and approval under W. Va. Code § 24-2-12.

SECTION II. SUMMARY OF THE CAD’S TESTIMONY

Q. WHAT IS THE CAD’S POSITION WITH REGARD TO THE PROPOSED TRANSACTION?
A. Based on the above discussion of the relevant statutory standards, as further defined by the Commission, the CAD concludes that the proposed transaction is not in the public interest and should be rejected. For the reasons discussed herein, and as discussed in the testimonies of Messrs. Hill and Roycroft, the Commission can – and should – conclude that: (1) the terms and conditions of the proposed transaction are not reasonable, and (2) the proposed transaction will have an adverse effect upon the using and consuming public in West Virginia. The “public” includes not only Verizon-WV’s customers who would be served by the combined company post-merger, but also Frontier-WV’s existing customers. Likewise, the using and consuming public in this case includes all the entities that are wholesale customers of the two utilities and their ultimate end users. As the testimonies of Messrs. Hill and Roycroft amply show, the proposed transaction poses too many risks for retail telephone customers in West Virginia from both a financial and an operational standpoint. The proposed transaction also poses too many risks for Verizon-WV’s wholesale customers and, ultimately, the tens of thousands of West Virginians served by these entities. In his testimony on behalf of the CAD, Mr. Roycroft explains the operational difficulties that Frontier will face in assimilating the Spinco properties and operating systems. As Mr. Roycroft makes clear, the operational difficulties associated with a transaction as large as the one proposed are exacerbated by the fact that the proposed transaction – from an operational standpoint – actually involves two mergers in one: (1) the acquisition of the legacy Bell Atlantic network and OSS in West Virginia, and (2) the acquisition of the old GTE network and systems in 13 other states. Mr. Roycroft details the multitude of risks that the proposed transaction presents for retail and wholesale telephone customers in West Virginia. Not only do customers face service and service quality risks, but they also face the risk of higher rates and/or other adverse terms and conditions of service such as early termination fees. Mr. Hill points out, in his testimony, the many unrealistically optimistic financial projections Frontier makes in support of the proposed transaction. As Mr. Hill points out, Frontier’s projections rely too much on financial information that has been provided by the seller, Verizon, without independently verifying Verizon’s numbers. Frontier’s projections similarly rely on a number of assumptions about reducing access line loss, cutting operating expenses and capital expenditures, and realizing merger savings that would require Frontier to substantially reverse recent trends. The fallout from the proposed merger not going well obviously affects retail and wholesale customers currently served by Verizon-WV and Frontier-WV as well. As discussed below, and in Mr. Roycroft’s testimony, Verizon-WV’s customers already have experienced sharp declines in their service quality, which is the predictable result of years of falling investment in the company’s telephone plant and workforce in West Virginia, as Verizon has focused its attention on other markets in other states and other service offerings, such as wireless service and video/Internet/telephone service provided via its FiOS offering (which is not offered in West Virginia). While Verizon-WV is subject to the Retail Service Quality Plan (“Plan”) approved by the Commission in Case No. 08-0761-T-GI, to improve its retail service quality, the results under that plan are still very much mixed. CLECs likewise have alleged problems about the quality of service their customers receive via Verizon-WV’s wholesale facilities and services. The financial and operational risks associated with the proposed transaction jeopardize the combined company’s ability to maintain even current service quality in Verizon-WV’s service territory, let alone follow through on Verizon-WV’s obligation to improve that service quality going forward under the Plan. Although the CAD obviously is (and has for some time been) concerned with the poor service quality currently provided to customers by Verizon-WV, the CAD believes that service is likely to get even worse under Frontier’s ownership. The proposed transaction will result in a post-closing Frontier that will not have the financial resources to be able to improve service quality for “plain old telephone service” – as voice-grade traditional telephone service is often called - in Verizon-WV’s service territory, much less to deploy broadband to the extent suggested in Frontier’s direct testimony.

SECTION III. UNREASONABLE TERMS AND CONDITIONS

Q. PLEASE EXPLAIN WHY YOU STATE THAT THE TERMS AND CONDITIONS OF THE PROPOSED TRANSACTION ARE UNREASONABLE?
A. As is clear from the testimonies of Mr. Hill and Mr. Roycroft, the Merger and Acquisition Agreement (“Merger Agreement”) contains provisions (Paragraphs 1.144 and 1.167) that eliminate the ability of any state commission to require meaningful financial conditions on the acquisition. Under these provisions, any Commission order that conditioned approval on either a lower sales price or on a financial contribution from Verizon, the amount ordered by the Commission would be paid by Frontier, not Verizon. The Applicants have basically presented the Commission with a “take it or leave it” proposition. To the best of my knowledge, the Commission has never been presented with a utility acquisition application that contains this type of provision. I believe that any provision that attempts to eliminate the ability of the Commission to require meaningful financial conditions is unreasonable.

SECTION IV. ADVERSE EFFECT UPON THE PUBLIC

Q. PLEASE EXPLAIN WHY YOU STATE THAT THE PROPOSED TRANSACTION IS NOT IN THE PUBLIC INTEREST?
A. As is clear from the testimonies of Mr. Hill and Mr. Roycroft, the proposed transaction presents a large number of financial and operational risks to both retail and wholesale telephone customers in West Virginia. I will not attempt to catalogue all of the risks addressed in those testimonies but will instead highlight just some issues that I have found to be particularly troubling with regards to the transaction. Of course, it is not possible at this time to quantify the impact of all of the risks entailed in this transaction, but given the large scope of the risks presented, as reflected in Messrs. Hill’s and Roycroft’s testimony, I believe it would be foolhardy to assume that none of these risks will be realized. First, Frontier has not done any in-depth analysis of the quality of the Spinco facilities that it is acquiring. This lack of analysis is disturbing on its face, as it would seem to be a fundamental area of inquiry for any prospective buyer. But the importance of this lack of meaningful review is magnified in West Virginia by the fact that Frontier knows, or reasonably should know, that Verizon-WV’s outside plant facilities in West Virginia are not in good shape. The Commission is well aware of the significant decline in service that Verizon-WV’s customers have experienced over the last several years. This decline is documented in the public record (in both the informal complaint records maintained by the Commission’s Staff, and in the record in proceedings related to Verizon-WV’s service quality docketed in the last few years). That record should have triggered a much more searching analysis by Frontier. This lack of analysis also impacts the overly optimistic assumptions that Frontier has used in its financial analysis of the transaction. Second, Frontier’s overly optimistic financial projections increase the risk that the post-merger company will not be able to remedy Verizon-WV’s current poor service quality or to provide its promised broadband deployment. Verizon is obviously a larger and more financially sound company than Frontier. For a company such as Frontier which historically pays out greater dividends than its net income, the risk that the optimistic financial projections will not transpire is magnified. Third, as of October 14, 2009, Frontier still had not determined how it will handle the additional call center volumes that will occur when the company acquires access lines in West Virginia. Obviously, the proposed transaction would adversely affect the public if it is approved without a concrete plan to handle service calls from current Verizon-WV customers. Fourth, similarly, no concrete plan has been put forth by Verizon for serving customers in West Virginia who are currently served out of central offices in Maryland. Again, the proposed transaction would adversely affect the public if it is approved without a concrete plan to serve Verizon-WV customers who are currently served from central offices in Maryland. Fifth, current Verizon-WV retail customers face the prospect of increased rates and/or early termination fees as a result of having their current package or bundle service migrated to a similar package or bundle offered by Frontier. In discovery, Frontier has to date refused to identify the packages that will be offered to replace current Verizon-WV packages or to state at what price the packages will be offered to such customers. Verizon-WV customers with bundles that include Verizon broadband service also appear to likely face significant early termination fees of at least $120 if they elect not to transition or migrate to Frontier’s service after closing. This likelihood appears even greater when the companies’ obtuse response on this subject is considered. When the CAD asked whether Verizon-WV customers who elected not to remain with Frontier post-closing, would be charged any early termination fees, the companies merely stated that they will “honor the terms of their contracts with customers.” Obviously, “honoring” the terms of a contract that includes an early termination fee could very well mean enforcing that provision of the service agreement. This abbreviated list should in and of itself provide the Commission with ample evidence that the transaction is not in the public interest because it is likely to adversely affect the using and consuming public in West Virginia.. However, this short list of risks will be combined with the inherent risks associated with Frontier-WV’s cutover of all of Verizon-WV’s customers to its various operating systems. As discussed in Mr. Roycroft’s testimony, this cutover in West Virginia is extremely complicated and will involve more than quadrupling the access lines served by Frontier-WV in the state. In addition, the cutover will occurs as part of a larger transaction in which Frontier is tripling in size.

Q. FRONTIER HAS TOUTED ITS PLANS TO INCREASE THE DEPLOYMENT OF BROADBAND IN WEST VIRGINIA AS A PRIMARY BENEFIT OF THE TRANSACTION. DO YOU BELIEVE THAT THE COMMISSION’S PRIMARY CONCERN SHOULD BE BROADBAND DEPLOYMENT?
A. No. While increased broadband deployment would obviously be a benefit, I believe that the Commission should be just as concerned if not more concerned about the quality of service provided to customers using voice, or “plain old telephone service” (“POTS”). As noted in the testimony of Frontier’s witness Mr. Gregg, only 40% of West Virginia households subscribe to broadband services even though broadband is available to 77% of West Virginia’s households. This relatively low subscription rate means that there are likely to be hundreds of thousands of West Virginia households who will not subscribe to broadband services. These households will continue to rely upon landline telephone service for access to the outside world. The continued ability of customers to have access and the quality of this access is an important public health and safety issue that I believe is more important than the deployment of broadband. As I will explain in greater detail below, Verizon-WV’s service quality does not provide customers with the necessary access to the outside world. Unfortunately, it appears to be a common experience for customers to be without service for a week or more. The testimonies of Mr. Hill and Mr. Roycroft indicate that Frontier has not examined the service quality in the Spinco service territories that it is acquiring. Frontier’s only mention of the state of Verizon-WV’s service quality in the testimony of Messrs. Swatts and McCarthy is a brief discussion of the Retail service Quality Plan established in Case No. 08-0761-T-GI.

Q. SHOULD THE COMMISSION BE CONCERNED WITH VERIZON’S QUALITY OF SERVICE IN THE CONTEXT OF THE JOINT APPLICATION?
A. Yes. As noted by Messrs. Hill and Roycroft, Frontier did not attempt to analyze the quality of Spinco’s plant and equipment that it will be acquiring. Similarly, Frontier did not analyze the quality of Verizon-WV’s plant and equipment. The Commission should be concerned about whether Frontier will have the financial resources necessary to remedy the quality of service problems on the Verizon-WV system. As the Commission is well aware, the quality of service provided by Verizon-WV has been declining over several years and is currently an issue of significant concern to the Commission, to the CAD and Commission Staff (“Staff”), to the Company’s union and its members, and to several CLECs. In 2008, the Commission initiated a general investigation (Case No. 08-0761-T-GI) into Verizon-WV’s quality of service. On December 19, 2008, the Commission issued an order in the general investigation proceeding approving a Joint Stipulation. The primary feature of the Joint Stipulation was a Retail Quality Service Plan (Plan). The Plan set forth certain benchmarks for Verizon to meet regarding: (1) clearing Out of Service (“OOS”) network troubles in less than 48 hours (“OOS<48”); (2) clearing Service Affecting (“AS”) troubles within 72 hours (“AS<72”); (3) Repair Appointments Met; and (4) Repeat Troubles (i.e., network repair reports that repeat within 30 days). In addition, Verizon pledged to add 49 technicians to its installation and maintenance workforce and to invest $11 million in infrastructure improvements through at least June 2009. Based upon my review of the data on Verizon’s service quality metrics submitted to date, I do not believe that Verizon has made substantial progress towards improving its quality of service. Verizon-WV’s lack of substantial progress toward improving the actual (as opposed to reported) quality of service its customers receive – retail customers in particular though wholesale customers have similarly complained about the impact of diminished service quality upon their own customers and operations – makes it clear that Frontier will have to substantially increase its investment in Verizon’s infrastructure and/or hire additional technicians to achieve an acceptable level of service quality. The degree of effort and investment that Frontier will have to make to restore Verizon-WV’s service quality to acceptable levels does not appear to have been factored into the company’s financial or operational projections.

Q. FRONTIER’S WITNESSES HAVE ALREADY PLEDGED TO ABIDE BY THE RETAIL QUALITY SERVICE PLAN. SHOULDN’T THIS PLEDGE ASSUAGE ANY CONCERNS ABOUT THE COMBINED COMPANY’S SERVICE QUALITY POST-TRANSACTION?
A. No. I think the Commission should be very concerned about Frontier’s apparent lack of analysis if the properties that it is acquiring. If Frontier has not sufficiently examined the Spinco properties – and in particular Verizon’s network in West Virginia – then not only will its shareholders be at risk, but hundreds of thousands of West Virginia telephone customers will also be at risk. As the Commission is aware, due to West Virginia’s rugged terrain, its dispersed and largely rural population wireless and/or cable alternatives are simply not practical or available for many households. Many West Virginians simply have no alternatives to being served over Verizon’s landline network. This includes even those West Virginians who have switched their telephone service to a CLEC since most CLECs must utilize at least some of Verizon-WV’s network (particularly the local loop), in order to provision their service. Also, it is fair to say that the Plan is still a work in progress. If Frontier intends to implement the Plan in the same manner as Verizon-WV, then it is unlikely that service quality will improve. At the November 12, 2009 hearing in Case No. 08-0761-T-GI, the CAD submitted testimony addressing several concerns regarding the lack of substantial progress on improving actual service quality by Verizon-WV and the company’s aggressive use of exclusions under the Plan to instead improve “reported” service quality. Rather than repeat all of my testimony here, the CAD respectfully requests that the Commission take administrative notice of the CAD’s testimony filed on November 10, 2009 in connection with the November 12, 2009 progress hearing in Case No. 08-0761-T-GI. All of that testimony is in the public domain, as is Verizon-WV’s monthly service quality reports submitted to the CAD and Staff under the Plan. Frontier has essentially agreed to purchase a used car without first having the car examined by a mechanic. Without a thorough investigation of Verizon-WV’s plant, Frontier has no way of knowing whether its buying a pre-owned car that has had regular oil changes and proper tune-ups, or whether it is buying a clunker with a new paintjob and a blown transmission. If Verizon-WV’s network has not been properly maintained (as the evidence seems to suggest), just like a car that hasn’t been properly maintained, getting it back to serviceable condition will be a very expensive proposition .

Q. NOTWITHSTANDING ALL THE FLAWS AND CRITICISMS YOU AND MESSRS. HILL AND ROYCROFT NOTE IN THE PROPOSED TRANSACTION, DO YOU BELIEVE THAT THERE ARE ANY POTENTIALLY POSITIVE ASPECTS OF THE PROPOSED TRANSACTION?
A. Yes. While the CAD believes that the negative aspects of the transaction warrant rejection of the Joint Application, the CAD recognizes there are admittedly some potential positive aspects of the transaction. First, West Virginia rids itself of a utility that apparently no longer wants to provide service in the state. Verizon clearly does not want to provide landline service in West Virginia and, given its declining investment in its voice network and lagging deployment of broadband, and the company’s apparent tolerance for worsening service quality, I suspect that Verizon has not wanted to serve West Virginia for quite some time. Frontier, at least, shows some enthusiasm for replacing Verizon-WV. If Frontier were able to muster the necessary human and financial resources to deal with the legacy of Verizon-WV’s lack of investment and maintenance of its facilities, state citizens would at least gain a willing service provider that presumably would have a greater interest in improving service quality. Second, Frontier-WV has apparently been more successful in deploying broadband in West Virginia – at least in terms of availability and willingness to offer incentives to increase broadband subscription. Given the challenging topography and demographics of much of Frontier-WV’s service territory, Frontier’s success in making broadband available to more than 90% of its customers is noteworthy. Finally, Frontier’s proposal to establish its regional headquarters for the Southeastern United States in West Virginia is obviously an economic benefit of the transaction. The commitment to establish the regional headquarters here indicates a corporate recognition of the importance of West Virginia to Frontier’s operations

V. MITIGATING CONDITIONS OF APPROVAL

Q. WHAT IF THE COMMISSION DETERMINES NONETHELESS TO APPROVE THE PROPOSED TRANSACTION?
A. Obviously, the CAD believes that the wiser course – and indeed the course that appears most consistent with the Commission’s statutory obligation to act to “protect the public interest” and the standards for approval framed by W. Va. Code § 24-2-12 – is to simply reject the proposed transaction and deny the Joint Application. However, the CAD recognizes that the Commission may be inclined to conclude otherwise. If the Commission is determined to approve the proposed transaction, notwithstanding the unreasonable nature of the merger’s terms and the adverse impact on the using and consuming public in West Virginia if the merger is consummated, then the CAD urges it to consider conditioning approval upon compliance with various provisions that, hopefully, will mitigate some of the flaws in the companies’ proposed transaction.

Q. COULD THE COMMISSION ATTACH CONDITIONS TO AN APPROVAL OF THE TRANSACTION THAT WOULD ALLOW THE TRANSACTION TO MEET THE STATUTORY TEST?
A. Both Mr. Hill and Mr. Roycroft have put forward a number of conditions that would improve, at least somewhat, the transaction and would help to avoid some of the obvious harms that will result from the transaction as it has been proposed. The Commission should not consider these conditions to be inclusive of all of the conditions that may be necessary. There are a number of other intervenors in this proceeding who are also examining this transaction. If those intervenors reveal issues that the Commission should also consider as conditions on the transaction, the CAD will address those issues in rebuttal testimony. Likewise similar proceedings are underway in several other states where commissions are receiving testimony and conducting hearings under their own statutes to determine if the proposed transaction should be rejected. The CAD has not had an opportunity to fully review the testimony provided in those proceedings. While the standards for approval may vary from state to state, the CAD anticipates that conditions of approval recommended in other states’ proceedings may be worth incorporating into the Commission’s decision and will address those issues in supplemental testimony.

Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes, it does. However, like Messrs. Hill and Roycroft, I too wish to note that, at the time my testimony was prepared, discovery was still being conducted by the parties and new facts or matters may come to light that may alter some of the matters I have testified to. In addition, the Joint Applicants may raise new facts or matters in their rebuttal testimony filed with the Commission later and that may alter some of the matters I have testified to. In such an event, I will address such facts or matters either in supplemental testimony filed with the Commission or during my testimony at the evidentiary hearing previously scheduled by the Commission.