ALJ/MLC/tcg - Californiadocs.cpuc.ca.gov/PublishedDocs/Published/G000/M199/… · Web viewWe also grant the motion of Applicants for authorization to file certain confidential information

ALJ/RWH/dc3 PROPOSED DECISION Agenda ID #16139

RatesettingDecision

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Joint Application of Astound Broadband, LLC (U6184C), Wave Holdco, LLC and Radiate Holdings, L.P. for Expedite Approval of Indirect Transfer of Control of Astound Broadband, LLC (U6184C), Pursuant to Public Utilities Code Section 854(a)

Application 17-06-018

DECISION APPROVING TRANSFER OF CONTROL OFASTOUND BROADBAND, LLC (U6184C)

SummaryPursuant to Public Utilities Code Section 854,1 this decision

grants the unopposed joint application of Astound Broadband, LLC, Wave Holdco, LLC and Radiate Holdings, LP (i.e., Applicants) for authority to transfer control of Astound Broadband, LLC, as described below. We also grant the motion of Applicants for authorization to file certain confidential information under seal. We conclude that approval of the proposed transfer of control is in conformance with applicable statutory law and Commission rules, and is in the public interest.

Application 17-06-018 is closed.

1 Subsequent statutory references, unless otherwise noted, are to the California Public Utilities Code.

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A.17-06-018 ALJ/RWH/dc3 PROPOSED DECISION

1. Factual Background1.1. Entities Involved in the Transaction Astound Broadband, LLCAstound is a limited liability company formed under the laws of

Washington, with principal offices in Kirkland, Washington. Astound owns and operates a multi-service communications business which provides cable television, broadband Internet access, and voice over Internet Protocol (VoIP) services to residential and commercial subscribers in California, Washington and Oregon. Pursuant to Decision (D.) 05-10-039, Astound has authority to offer local, intra-LATA toll and interexchange telecommunications services in California. Astound also holds a video franchise under the Digital Infrastructure and Video Competition Act of 2006 (DIVCA).2

Wave Holdco, LLCWave Holdco is a limited liability company, formed under the

laws of Delaware with principal offices in Kirkland, Washington. Wave Holdco wholly owns, directly or indirectly, subsidiaries that operate distribution networks in California, Oregon, and Washington (collectively “Wave”), which provide high-speed Internet access, dark fiber, cable television and telephone services to residential, business, and municipal customers, pursuant to federal, state, and local authorizations. Wave gives residential and commercial consumers a competitive alternative to larger companies such as AT&T/DirecTV, Comcast, Charter, Frontier, Dish, CenturyLink, Consolidated Communications, Zayo, Integra, and Level

2 The DIVCA franchise will be separately transferred pursuant to the process established in the California Public Utilities Code and General Order (GO) 169. See Pub. Util. Code § 5800, et seq.; G.O. 169.

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3 in the markets where it operates. Astound is a wholly owned indirect subsidiary of Wave Holdco.

Radiate Holdings, L.P.Radiate, a Delaware limited partnership, is a holding company

that is majority owned and controlled by certain investment funds ultimately controlled by the principals of TPG Global, LLC (“TPG Global” and, together with its affiliates, “TPG”). The principals of TPG Global are each United States citizens. TPG currently has $72 billion of assets under management, and has extensive experience with global public and private investments.3

Radiate Holdings GP, LLC (“Radiate GP”), a Delaware limited liability company, serves as Radiate’s general partner and has responsibility for the management, operation, and control of Radiate’s business and affairs. The Board of Directors of Radiate GP is, and will continue to be, controlled by TPG. At post-closing, Wave Holdco’s properties will be managed by the management team from Patriot Media (which currently manages Radiate’s RCN and Grande operating subsidiaries pursuant to a management agreement with Radiate) and members of Wave Holdco’s existing management team.

1.2. Terms of the TransactionPursuant to a Securities Purchase Agreement dated May 18,

2017 (Purchase Agreement), the proposed transfer of control (Transaction) is subject to the following terms and conditions. Wave

3 At the closing of the Transaction, the following entities will have direct or indirect equity interests in Radiate of ten percent or greater: TPG VII DE AIV Holdings, L.P., TPG VII DE AIV I, L.P., TPG VII Radiate Holdings I, L.P.; TPG VII Wakeboard Holdings, L.P.; TPG VII DE AIV II, L.P.; and TPG VII Wakeboard Coinvest II, L.P. Each of these entities is, or will be, a Delaware partnership controlled by TPG, with Messrs. Bonderman and Coulter having indirect 100 percent control.

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Holdco will become a wholly-owned subsidiary of Radiate. As a result of the transaction, Radiate will acquire indirect control of Astound. The Transaction, however, will not cause any change in the direct ownership or legal structure of Astound, nor will it affect the daily management or operations of Astound. Because the Transaction will be completed at the holding company level, its effects will be seamless to customers of Astound. There are no existing plans to discontinue any service or to implement changes in rates, terms, or conditions in connection with the Transaction. Astound will continue to hold its existing Certificate of Public Convenience and Necessity (CPCN) and will continue provide communications services to its customers without interruption.

The Purchase Agreement provides for Radiate HoldCo’s acquisition of all the outstanding membership interests of Wave Holdco. The acquisition will be consummated directly, through the purchase of membership interests in Wave Holdco from the holders thereof, and indirectly through the purchase of all the outstanding capital stock of OH Wave Blocker I. Inc., OH Wave Blocker II, Inc. and GI Wave UBTI-ECI Blocker, Inc., the sole assets of which, as of the closing of the Transaction, will be membership interests in Wave Holdco. At closing, Wave Holdco will become a wholly-owned subsidiary of Radiate HoldCo and an indirect subsidiary of Radiate.4

Pursuant to Rule 2.2 of the Commission’s Rules, Applicants provided a copy of the Certificates of Formation each for Astound and Wave Holdco.5 Certificates of Status issued by the California

4 The pre-closing ownership structure of Wave is depicted on the structure charts attached to the Application. The post-Transaction ownership structure of Radiate is depicted on the structure charts as Exhibit I of the application.5 See Joint Application Exhibit A.

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Secretary of State on June 2, 2017, showing that Astound and Wave Holdco are both in good standing were also provided, along with Astound’s year-end 2016 financial statements, portions of which were filed under seal, as confidential, trade secret and not for public disclosure.6

A copy of Radiate’s Certificate of Formation was provided as Exhibit D. Radiate transacts no business in California and, as a result, does not require a Certificate of Good Standing from the California Secretary of State. Radiate HoldCo’s first quarter 2017 balance sheet and income statements, along with 2016 balance sheets and income statements from Radiate’s subsidiaries, Grande and Yankee Cable Partners, LLC (the indirect parent of RCN), was attached to the Application as Exhibit E, under seal, as confidential, trade secret and not for public disclosure. Information about the management team for Patriot Media, which currently manages Radiate’s RCN and Grande operating subsidiaries pursuant to a management agreement with Radiate and which will assume managerial control of Astound, was provided in Exhibit F of the Application.

The Wave, RCN and Grande systems are providers of video, voice, and Internet services, dedicated to broad deployment in the communities served. Applicants argue that bringing these smaller, independent operations under one roof, and combining their experience, expertise, and innovation, will benefit consumers by offering stronger competition to the existing larger, well-established providers in the marketplace.

6 Id., Exhibits B and C.

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1.3. Procedural Background The application was filed on May 22, 2017, and duly noticed in

the Commission’s Daily Calendar on June 19, 2017. A telephonic prehearing conference was held on October 24, 2017. The Assigned Commissioner issued a scoping memo on November 9, 2017. Commission in Resolution ALJ 176-3396 preliminarily determined that hearings were required. The Assigned Commissioner’s Scoping Memo changed this preliminary determination and found that hearings were not needed. This application is uncontested. The instant decision has been prepared based upon the record submitted in this proceeding.

2. Jurisdiction Public Utilities Code § 851 provides broad Commission authority

to approve transfers of control which involve public utilities operating within California, as is requested in this proceeding. More specifically, § 854(a) specifies that “[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from this Commission. The Commission may establish by order or rule the definitions of what constitute merger, acquisition, or control activities that are subject to this section of the statute.”7 After the transfer of control is completed, the Commission will retain the same regulatory authority over the Applicants that it currently possesses.

7 Pub. Util. Code § 854(a).

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3. Standard of Review Applicants seek approval of the transaction pursuant to § 854(a)

which requires Commission authorization before a public utility company may “merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state…” The purpose of this and related code sections is to enable the Commission, before any transfer of public utility authority is consummated, to review the proposal and to take such action, as a condition of the transfer, as the public interest may require.8 Absent prior Commission approval, Section 854(a) provides that the transaction is “void and of no effect.”

The Commission has broad discretion under Section 854 to approve or reject a proposed transaction. If necessary and appropriate, the Commission may attach conditions to approval of a transaction to protect and promote the public interest.9 The primary question in a transfer of control proceeding under Section 854(a) is whether the transaction will be “adverse to the public interest. Neither Sections 854(b) nor 854(c) is applicable to this transaction. Section 854(b) applies to transactions where one of the utilities has gross annual California revenues exceeding $500 million. Section 854(c) applies to transactions where any of the parties to the transaction have gross annual California revenues exceeding $500 million. No party to this transaction exceeds the $500 million threshold, and in fact the combined revenues of Joint Applicants in this proceeding are less than half of the $500 million

8 See San Jose Water Co. (1916) 10 CRC 56.9 D.01-06-007, 2001 Cal. PUC LEXIS 390, *24 (approving with conditions the transfer of control of telephone exchanges from GTE California and GTE West Coast to Citizens Telecommunications Company).

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threshold. Thus, Section 854(b) and Section 854(c) are not applicable to this Transaction.

When a company that does not possess a CPCN desires to acquire control of a company or companies that do possess a CPCN, the Commission will apply the same requirements to the acquiring company as would be applied to an initial applicant seeking the type of CPCN held by the company being acquired. An applicant who desires to operate as a provider of resold interexchange services must demonstrate that it has a minimum of $25,000 in cash or cash equivalent for operations of the company, plus the costs of deposits to be paid to other carriers. In addition, the applicant is required to make a reasonable showing of technical expertise in telecommunications or a related business.

4. Request to File Documents Under SealPursuant to Rule 11.4, Applicants filed a motion dated June 14,

2017, for leave to file Exhibits C, E, G, J, and K to the application as confidential materials under seal. Applicants represent that the information is sensitive, and disclosure could place them at an unfair business disadvantage. We have granted similar requests in the past, and do so here.

5. Approval of the Transaction We conclude that the proposed transaction should be approved

consistent with the terms and conditions of the Purchase Agreement. The relevant issue is whether the indirect transfer of control of Astound is adverse to the public interest consistent with Public Utilities Code Section 854(a). Although the Transaction will give Wave, RCN, and Grande (and their operating subsidiaries) increased

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scale to compete effectively, the combined entity will still be of a relatively modest size (approximately 1.1M customers). Accordingly, the transfer of control will not pose any of the competitive risks that have been raised when considering mergers among larger service providers.

The transfer of control will promote competition by strengthening Wave’s ability to offer consumers a strong competitive alternative source of video, high-speed Internet, voice, and business data services, and will not impair competition because Radiate does not currently provide service in Wave’s markets, or even provide service in California. Consumers will face no disruption and will receive the same services as before the Transaction.

The integration of Wave’s networks with the RCN and Grande networks will benefit the customers by allowing Wave, RCN and Grande, to obtain more favorable financing and programming arrangements and other operational efficiencies. This in turn will enable the operating subsidiaries to compete more effectively against larger, national rivals in both the residential and business sectors.

For the reasons discussed above, we find that approval of the proposed transaction is in the public interest in accordance with Section 854(a).

5.1. CEQA Requirements The proposed transfer of control does not constitute a “project”

under the California Environmental Quality Act (CEQA), California Public Resources Code, Section 21000, et. seq. CEQA applies only to “projects,” defined as any “activity which may cause either a direct physical change in the environment, or a reasonably foreseeable

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indirect physical change in the environment.”10 The CEQA Guidelines provide for an exemption “[w]here it can be seen with certainty that there is no possibility that the proposed activity in question may have a significant effect on the environment.”11

We have concluded on numerous occasions that a transaction which simply involves the transfer of equity interests does not require CEQA review because granting such an application would have no adverse impact. The application at issue here proposes no new construction and thus, there is no possibility that the transaction will have a significant adverse impact on the environment.

5.2. Certificate of Public Convenience and Necessity (CPCN) Requirements

We conclude that Applicants have satisfied the applicable requirements relating to certificates of public convenience and necessity. Even though Astound is already certificated by the Commission, operating in the state and is the entity of which control is being transferred, Applicants provided as Exhibit K to the Application a certification for applicants, Astound and Wave Holdco. Applicants represent that this certification is based on a reasonable investigation, is made to the best of the companies’ knowledge and covers the last five years.

D.13-05-035, requires a telephone corporation seeking to transfer control to include with its application a broad certification that neither applicant nor any of its affiliates, officers, directors, partners, agents, or owners (directly or indirectly) of more than 10% of applicant, or anyone acting in a management capacity has, among

10 See Cal. Pub. Res. Code § 21065.11 CEQA Guidelines, § 15061(b)(3).

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other items, held a position with a company that filed for bankruptcy, been found liable for misrepresentations to consumers, or agreed to any other type of monetary forfeitures in resolution of any action by any regulatory body, agency, or attorney general. D.13-05-035 provides, however, that if an applicant cannot make this certification, it shall attach relevant documentation.

Applicant asserts that it would be unreasonably burdensome for Radiate Holdings, L.P. (Radiate) to make the broad certification provided for in D.13-05-035 because it has hundreds of affiliates. Instead, attached to the Application as Exhibit J are certifications for (i) Radiate, as an applicant and the entity acquiring control of Astound; and for (ii) David Bonderman and James G. Coulter, the principals of TPG Global who control the investment funds that ultimately own and control Radiate. Applicants assert that these certifications are based on a reasonable investigation, are made to the best of the certifying entity’s and individuals’ knowledge and cover the last five years.

Because Astound will continue to offer services to its customers after consummation of the Transaction, and there will be no customer transfers, no notice of transfer is required.

6. Categorization and Need for HearingsIn Resolution ALJ 176-3400, dated June 29, 2017, the

Commission preliminarily categorized this proceeding as ratesetting and preliminarily determined that hearings were necessary. Based on the record, we affirm that this is a ratesetting proceeding and conclude that hearings are not necessary.

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7. Waiver of Comment PeriodThis is an uncontested matter in which the decision grants the

relief requested. Therefore, the otherwise applicable 30-day period for public review and comment is waived pursuant to § 311(g)(2).

8. Assignment of ProceedingMichael Picker is the assigned Commissioner and Robert Haga is

the assigned Administrative Law Judge (ALJ). The designated presiding officer is Robert Haga.

Findings of Fact1.Astound Broadband, LLC, is a limited liability company formed

under the laws of Washington, with principal offices in Kirkland, Washington. Astound owns and operates a multi-service communications business which provides cable television, broadband Internet access, and voice over Internet Protocol (VoIP) services to residential and commercial subscribers in California, Washington and Oregon.

2. Wave Holdco is a limited liability company, formed under the laws of Delaware with principal offices in Kirkland, Washington, that wholly owns, directly or indirectly, subsidiaries that operate distribution networks in California, Oregon, and Washington (collectively “Wave”), which provide high-speed Internet access, dark fiber, cable television and telephone services to residential, business, and municipal customers, pursuant to federal, state, and local authorizations.

3. Radiate, a Delaware limited partnership, is a holding company that is majority owned and controlled by certain investment funds ultimately controlled by the principals of TPG Global, LLC (TPG Global and, together with its affiliates, TPG). The principals of TPG Global

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are each United States citizens. TPG currently has $72 billion of assets under management, and has extensive experience with global public and private investments.

4.Under the terms of the proposed transfer of control, Radiate will acquire indirect control of Astound. The Transaction, however, will not cause any change in the direct ownership or legal structure of Astound, nor will it affect the daily management or operations of Astound.

5.Because the proposed transfer of control is a parent-level transaction: (a) retail customers will experience no changes in day-to-day operations of the regulated entities that operate in California; (b) the transaction will be transparent to customers of Astound; and (c) the Commission will retain the same regulatory authority over Astound as existed prior to the transaction.

6.The acquiring company, Radiate, has sufficient managerial and technical expertise and sufficient financial resources to operate the acquired carrier.

7.The application at issue here proposes no new construction and thus, pursuant to the California Environmental Quality Act, there is no possibility that the transaction will have a significant adverse impact on the environment.

8.The combined revenues of Joint Applicants in this proceeding are less than half of the $500 million threshold that applies for purposes of Section 854(b) or (c).

9.Because Astound will continue to offer services to its customers after consummation of the Transaction, and there will be no customer transfers, no notice of transfer is required.

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10. Because it would be unreasonably burdensome for Radiate Holdings, L.P. (Radiate) to make the broad certification provided for in D.13-05-035 because it has hundreds of affiliates, Applicants attached to the Application as Exhibit J, providing certifications for (i) Radiate, as the entity acquiring control of Astound; and for (ii) David Bonderman and James G. Coulter, the principals of TPG Global who control the investment funds that ultimately own and control Radiate.

Conclusions of Law1. Under Public Utilities Code Section 854, any Commission

approval of a transfer of control of a regulated utility must ensure that the transfer is not adverse to the public interest and is not adverse to the interests of customers interested in receiving service.

2.The Commission will apply the same requirements to a request for approval of an agreement for the transfer of control of a provider of telecommunications services within California as it does to an initial applicant for authority to provide such services.

3.Applicants have met the Commission’s requirements for approval of a transfer of control applicable to this proposed transaction.

4.The proposed transaction as set forth in the application is in the public interest.

5.Applicants’ motion to file their application under seal should be granted in accordance with Ordering Paragraph 3 of this decision.

6.Since this matter is uncontested, the decision should be effective on the date it is signed.

O R D E R

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IT IS ORDERED that:1. Application 17-06-018, jointly filed pursuant to § 854(a) by Wave

Holdco, LLC (Wave Holdco), its wholly-owned subsidiary Astound Broadband, LLC (Astound) (U-6184-C), and Radiate Holdings, L.P. (Radiate) is hereby approved for authority for the indirect transfer of control of Astound, a certificated facilities-based local and interexchange service provider, to Radiate.

2. The motion of Joint Applicants, dated June 14, 2017, to file under seal the materials designated as confidential materials as included in EXHIBITS C, E, G, J and K of the Joint Application is granted subject to the conditions of Ordering Paragraph 3.

3. The designated confidential materials referenced in Ordering Paragraph 2 above, shall remain under seal for three years after the date of this order. During this three-year period, the confidential materials shall remain under seal and not be accessible or disclosed to persons other than the Commissioners and Commission staff except on further order or ruling of the Commission, the Assigned Administrative Law Judge, or the designated law and motion judge at the time of such ruling. If any interested party believes it is necessary for any of this information to remain under seal longer than three years, that party shall file a new motion stating the justification of further withholding the information from public inspection. The motion shall be filed at least 30 days before expiration of the instant order.

4. Application 17-06-018 is closed. This order is effective today.Dated _____________________, at San Francisco, California.

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