CTC approves Verizon-PTI deal

The Commonwealth Telecommunications Commission’s three-man board unanimously voted last night to conditionally approve the sale of Verizon from Micronesian Telecommunications Corp. to Pacific Telecom Inc.

The CTC, however, declared that Verizon’s fiber optic cable is a monopoly service, ruling to look further into the competitive issue in a separate proceeding.

CTC chair Norman Tenorio said the decision would send a strong signal to the investment community that the commission has been fair and has abided by its rules.

“We have also sent a signal to the investment community that our telecom business is important, and that there will be changes to ensure that we are competitive,” Tenorio said.

With the decision, PTI can now proceed to take over Verizon’s operations. The CTC approved the licensing of PTI subject to the settlement agreement reached between the companies, MTC and PTI, and the intervenors in the proceeding, Gov. Juan N. Babauta and CNMI consumer counsel Brian Caldwell.

Once PTI takes over Verizon’s operations, there will be an end to interisland long distance charges for calls within the CNMI, pursuant to the settlement agreement. PTI had also assured that there would be no local rate hike for two years from the transaction’s closing and that it would invest a minimum of $20 million in capital expenditures during the next five years.

The license, however, will include conditions that “the usage, pricing and nature of the service provided by the fiber optic cable would be studied further in a contested case proceeding.”

Verizon general manager Tony Mosley and the companies’ attorneys would not comment on the CTC’s decision after last night’s proceeding, which lasted about 20 minutes at the Governor’s conference room. PTI executive vice president for business development Jose Ricardo P.R. Delgado was not available for comments.

MTC is selling Verizon to PTI for about $60 million. PTI, a direct, wholly owned subsidiary of Prospector Investment Holdings Inc., is a registered corporation in the Cayman Islands owned by father-and-son Ricardo and Jose Ricardo P.R. Delgado.

Babauta’s camp viewed CTC’s decision as a victory. “The governor was vindicated. He was saying for months that Verizon’s monopoly is anti-business, that pricing was holding back our economy, and that CTC had jurisdiction to fix the problem,” said Babauta’s lawyer, assistant attorney general James Livingstone. “We’re pleased with the decision.”

“I think the commission is right that there should be access to information,” added Caldwell. “We’re happy with that. The public will benefit as a result.”

The CTC’s decision came more than a year and five months after MTC and PTI jointly filed with the commission on Sept. 5, 2003 an application for the transfer of all common stock. This, however, does not totally end the dispute, with the impending contested case proceeding on the cable “monopoly.”

The commission ruled that Verizon’s provision of the cable is a monopoly service and that it has the power to regulate the facility. It said that it is obliged to encourage open markets and competition between telecom carriers and ensure that holders of franchises do not utilize their market power to the prejudice of service users.

“With plenty of excess capacity and historical revenues indicating the cable has been paid, it is justified that service is priced so high,” the CTC said.

Babauta and Caldwell had asked the CTC to compel Verizon to sell a portion of the cable to other parties but CTC said it is hard to justify this “when we have been provided no evidence of similar divestment in the United States and definitive data and procedures have not been presented regarding this issue. …There is a need to evaluate these situations further to determine our final disposition but it is prudent and reasonable to move ahead with licensing.”

The CTC effectively denied the governor’s request to junk the application for sale approval but it granted his request for an alternative relief through a contested case proceeding. The CTC vowed to use all available regulatory tools to implement findings of the contested case proceeding.

Tenorio and commissioners Mike Fitzgerald and Josephine Mesta read prepared statements one by one, before Fitzgerald read the commission’s findings and moved that it be formally adopted. It was Fitzgerald who moved to grant the conditional approval.

“The notion of keeping Verizon and doing nothing is not a solution. For the last few years, they have not made improvement and have not sought to upgrade their systems. They have decided to sell the company and they will not make any more investments,” Fitzgerald said.

Fitzgerald said the CTC should look closely into the cable monopoly, citing high costs despite Verizon not using some 85 percent of the facility. He said MTC would not respond to the monopoly issue, considering that it is selling the telecom firm.

Mesta narrated some of the benefits that would be derived from the settlement agreement, voting in favor of the conditional licensing of PTI.

“I have still some reservations regarding this sale and there are several unanswered questions regarding the track record and commitment of this company,” Mesta said. “But I’m also convinced that this settlement is good for the community and we have the funding, so I also vote to move forward and review the competitive issue more carefully.”

Tenorio said that the CNMI would be better off with PTI than MTC, but said that competitive conditions arising from the cable monopoly warrant further evaluation.

“This week, an investor who wanted to start a call center contacted us. This would have created 20 jobs but the investment is on hold because of the high cost of telecom service,” disclosed Tenorio.

CTC executive director Adam Turner described that prospective investor as an American-Dutch company.