STATE OF NEW YORK PUBLIC SERVICE COMMISSION

At a session of the Public Service Commission held in the City of Albany on September 21, 2005

COMMISSIONERS PRESENT:

William M. Flynn, Chairman Thomas J. Dunleavy Leonard A. Weiss Neal N. Galvin Patricia L. Acampora

CASE 05-C-0242 – Joint Petition of SBC Communications Inc., AT&T Corp., together with its Certificated New York Subsidiaries for Approval of Merger.

ORDER APPROVING MERGER (Issued and Effective September 21, 2005)

BY THE COMMISSION: By joint petition filed February 28, 2005, pursuant to Sections 99 (2) and 100 of the New York Public Service Law, SBC Communications Inc. (SBC), AT&T Corporation (AT&T) and the AT&T subsidiaries certified to provide telecommunications services in the State of New York (collectively Joint Petitioners), have requested Commission approval of the merger of SBC and AT&T in accordance with the Agreement and Plan of Merger (Merger Agreement) jointly executed on January 30, 2005. Following the merger, AT&T will become a wholly-owned subsidiary of SBC.

PROPOSED TRANSACTION SBC is a Delaware corporation with headquarters at 175 East Houston Street, San Antonio, Texas 78205-2233. SBC is a holding company and does not directly provide any services in New York or elsewhere. SBC wholly owns four subsidiaries (SBC Long Distance, SBC Telecom Inc., SNET America, Inc and SNET Diversified CASE 05-C-0242

Group) that are certified to provide voice, data, and Internet services for residential, business and government customers in New York. SBC Long Distance, Inc. f/k/a Southwestern Bell Communications Services, Inc., is a Delaware corporation headquartered at 5850 W. Las Positas Boulevard, Pleasanton, CA 94588. SBC Long Distance, Inc. is authorized to operate as a facilities-based provider and reseller of telephone service, with authority to provide local exchange service, pursuant to a Certificate of Public Convenience and Necessity granted by the Commission effective October 13, 2004 in Case 04-C-0874. SBC Long Distance was previously certified to provide resold telephone services in New York in Case 96-C-0944 on December 18, 1996, and to provide resold facilities based telephone service in Case 04-C-0157 on April 30, 2004. SBC Telecom, Inc., is a Delaware corporation headquartered at 1010 N. St. Mary's Street, Room 13-K, San Antonio, TX 78215. SBC Telecom, Inc is authorized as a facilities-based common carrier and reseller of telephone service, including local exchange service, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on March 29, 2000 in Case 00-C-0018. In December 2004, SBC Telecom and SBC Long Distance filed a Joint Petition for the consolidation of both entities into SBC Long Distance, LLC in Case 04-C-0717. In January 2005, the petition was approved in accordance with Sections 99 and 100 of the Public Service Law. SNET America, Inc. d/b/a SBC Long Distance East, a Connecticut corporation, is headquartered at 310 Orange Street, New Haven, CT 06510. SBC Long Distance East is a wholly-owned subsidiary of Southern New England Telecommunications Corporation, which, in turn, is a wholly-owned subsidiary of SBC. SBC Long Distance East is authorized as a reseller of telecommunications services pursuant to a Certificate of Public Convenience and Necessity granted by this Commission effective June 20, 1994, in Case 94-C-0311. SNET Diversified Group, Inc. (SNET DG) is a wholly-owned subsidiary of Southern New England Telecommunications Corporation, which, in turn, is a wholly- owned subsidiary of SBC. SNET DG received a Certificate of Public Convenience and

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Necessity to operate as a facilities-based common carrier and reseller of telephone services effective June 14, 2001 in Case 01-C-0363. SBC holds a 60 percent economic and 50 percent voting interest in Cingular Wireless, which serves 49.1 million wireless customers in 170 countries worldwide. SBC is also making a $4 billion investment to bring next generation Internet Protocol-based (IP-based) services to market within 3 years.1 SBC's retail wireline revenues are about split between business services and consumer services.2 AT&T is a New York holding corporation with headquarters at One AT&T Way in Bedminster, New Jersey 07921. AT&T, through its subsidiaries, is authorized to provide domestic and international telecommunications services throughout the United States. AT&T operates the world's largest communications network and offers a global presence in more than 50 countries, national and global IP-based networks, a portfolio of data and IP services, hosting, security and professional services, technology leadership through its AT&T Labs, networking capabilities and a significant base of government and large business customers. AT&T and its subsidiaries have approximately 375,000 facilities-based access lines in New York State.3 Business services account for about 74% of AT&T's revenue.4 AT&T has five subsidiaries (AT&T Communications of New York, Teleport Communications Group, TC Systems, Teleport Communications of New York and ACC Corporation) that provide services in New York.

1 SBC/AT&T Merger Petition, page 2. It is noted that over the past several years, SBC has completed several acquisitions to establish itself as a national provider: Pacific Telesis Group (1997); Southern New England Telecommunications (1998); and Ameritech (1999).

2 FCC Docket No. 05-65, Merger of SBC Communications Inc. and AT&T Corporation, Description of the Transaction, Public Interest Showing, and Related Demonstrations (SBC/AT&T FCC Application), filed February 21, 2005, Carlton & Sider Decl. ¶ 14.

3 The source of this information is data filed by carriers, as required by 16 NYCRR 603.

4 SBC/AT&T FCC Application, Carlton & Sider Decl. ¶ 8. -3- CASE 05-C-0242

AT&T Communications of New York, Inc. (AT&T-NY) is a New York corporation and a wholly-owned subsidiary of AT&T authorized to provide full, statewide services on an intraLATA, intercity basis, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on June 26, 1991 in Case 90-C-0262. Teleport Communications Group (TCG) is a Delaware corporation and a wholly-owned subsidiary of AT&T. TCG is a holding company which holds all the stock of TC Systems, Inc. and all of the interest of Teleport Communications New York, Inc., a New York partnership. TCG is authorized to provide intracity switched services in its shared tenant services offerings, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on October 18, 1991 in Case 91-C-0590. TC System, Inc. (TC Systems), a Delaware corporation, is a wholly-owned subsidiary of TCG, which, in turn, is a wholly-owned subsidiary of AT&T. TC Systems is authorized to provide all forms of telephone services on an intraLATA, intracity basis, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on March 17, 1992 in Case 91-C-0702, and is also authorized to provide all forms of telephone service as a reseller via landline telephone company or other common carrier facilities, pursuant to a Certificate of Public Convenience and Necessity issued by this Commission on May 25, 1990 in Case 90-C-0220. Teleport Communications of New York, Inc. is a wholly-owned subsidiary of TCG which, in turn, is a wholly-owned subsidiary of AT&T. Teleport Communications of New York, Inc. (Teleport Communications) is authorized to provide inter-tenant calling capabilities at the teleport on Staten Island, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on January 14, 1987 in Case 29361. Teleport Communications is also authorized to resell telephone services and to provide shared tenant service, pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on June 17, 1986, and to provide interLATA and intraLATA, intracity private line services, pursuant to a Certificate of Public

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Convenience and Necessity granted by this Commission on January 7, 1985 in Case 28891. ACC Corporation (ACC), a Delaware corporation, is a wholly-owned subsidiary of AT&T and owns all of the stock of ACC Long Distance, which was authorized to provide resold interexchange telecommunications services pursuant to a Certificate of Public Convenience and Necessity granted by this Commission on January 6, 1987 in Case 29450. By order issued January 23, 1998, in Case 97-C-2166, the Commission granted the joint petition of Teleport Communications Group and ACC Corp. seeking approval of a transaction whereby TCG would directly acquire control of ACC Corp. through the purchase of all shares of ACC stock and the transfer of acquired assets. ACC adopted the tariff of ACC National Telecom Corp. on October 22, 2004. As a result of the merger, AT&T will become a subsidiary of SBC and shareholders of AT&T will exchange their stock for SBC stock. All entities will continue to operate and hold all state certificates that they currently hold. In connection with the merger, AT&T shareholders will receive 0.77942 shares of SBC stock for each share of AT&T stock they own, as well as a one-time cash dividend from AT&T of $1.30 per AT&T share. SBC shareholders will continue to own SBC stock and otherwise will not be affected by the transaction. Shareholders of AT&T will receive total consideration currently valued at $19.71 per share, or approximately $16 billion. Upon completion of the transaction, former AT&T shareholders will hold approximately 16% of SBC's outstanding shares.

DISCUSSION Public Interest Joint Petitioners argue that the merger responds to major technical and marketplace changes and promote facilites-based competition in all communications services markets by bringing together two companies with complementary strengths, product sets and customer bases. Joint Petitioners contended that the transaction will enable the combined organizations to be well positioned to make capital expenditures to upgrade and expand the existing networks, and those expenditures will be more

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efficiently made, given the anticipated increase in capacity utilization and efficiency of traffic flows. Joint Petitioners also suggested that the merger will strengthen national security since AT&T is a significant provider of telecommunications and information services to government, including the White House, the Department of Homeland Security, the Department of State and the Department of Defense as well as other New York State government customers. Finally, SBC and AT&T concluded that the merger will increase innovation, which will make existing services more efficient, lead to the more rapid introduction of those services to customers who might otherwise wait years for them, and create greater incentives and the ability to invest in research and development to the benefit of all customers. On April 1, 2005 the Commission issued a Notice Soliciting Comments5 on the issues raised by the proposed merger, including but not limited to, impacts in New York State on: 1) competition for the high-end business market, mass market, and other markets; 2) service quality and consumer interests; 3) infrastructure issues; 4) financial and operational matters; and 5) the relationship, if any, of this merger to the proposed merger between Verizon New York and MCI, Inc. (Case 05-C-0237). Interested parties were invited to submit comments by April 29, 2005. Joint Petitioners, SBC and AT&T, were invited to respond to initial comments by May 13, 2005. Responses were received from five6 parties regarding SBC/AT&T merger. White Paper Staff reviewed the Joint Petition and analyzed the proposed merger. Staff's analysis included review and consideration of 1) responses by AT&T and SBC to Staff information requests; 2) comments and other information submitted by parties to the

5 Case 05-C-0237, Joint Petition of Verizon New York, Inc. and MCI, Inc. for a Declaratory Ruling Disclaiming Jurisdiction over or in the Alternative for Approval of Agreement and Plan of Merger and Case 05-C-0424, Joint Petition of SBC Communications, Inc. and AT&T Corporation, together with its Certified New York Subsidiaries, for Approval of Merger. A "Notice Soliciting Comments" regarding both proceedings was issued April 1, 2005.

6 Comments were received from: Conversent, Level 3, Rural Independents, US LEC, and Covad (comments were withdrawn May 6, 2005). -6- CASE 05-C-0242

Federal Communications Commission regarding the merger of SBC and AT&T 7; 3) information gathered by the Department in connection with the Triennial Review Order (TRO)8 and Triennial Review Remand Order (TRRO);9 and 4) other publicly available information, including the Horizontal Merger Guidelines of the U.S. Department of Justice and Federal Trade Commission. Staff's preliminary conclusions regarding the SBC/AT&T merger were presented in its White Paper issued July 6, 2005. The Commission solicited comments to the Department's White Paper (which presented analyses and tentative conclusions about the impact of both the SBC/AT&T and Verizon/MCI mergers on New York consumers). Further, to obtain public input, a second notice, issued July 6, 2005, announced three scheduled educational forums and public statement hearings concerning the merger proposals.10 As expressed in the Joint Petition, response to the current competitive telecommunications environment is the rationale for the SBC/AT&T merger. The merger, Joint Petitioners argued, combines two corporations with complementary assets. AT&T made a business decision to stop actively competing in the residential and small business markets, and allow its mass market customer base to decline over time. From

7 Application of AT&T Corp. and SBC Communications Inc. Pursuant to Section 214 of the Communications Act of 1934 and Section 63.04 of the Commission’s Rules for Consent to Transfer Control of AT&T Corp., a Company Controlling Domestic Section 214 Authority (Docket 05-65).

8 In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, ("Triennial Review Order" or "TRO"), 18 FCC Rcd 16978 (2003).

9 In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, WC Docket No. 04-313, CC Docket No. 01-338, Order on Remand, FCC 04-290 (re. February 4, 2005).

10 Hearings were scheduled as follows: the Buffalo Area on July 21, 2005, the New York City Area on July 26, 2005 and the Albany Area on July 28, 2005.

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June 2004 to December 2004, AT&T lost almost 500,000 customers nationwide.11 AT&T retained, however, a lucrative national network. SBC reasoned that the merger is a means to gain access to AT&T's valuable national and global enterprise customers. SBC has limited out-of-region and long distance assets. SBC concludes that the access to AT&T's customers, facilities, and research element will complement its existing primary local exchange services. SBC estimates that the transaction will result in annual cost savings of almost $2 billion beginning in 2008.12 Joint Petitioners note specifically that the merger does not call for any change in the rates, terms and conditions to the provision of any telecommunications services in New York.13 Comments Staff's White Paper identified commenting parties' major concern, in conjunction with a concurrent merger, Case 05-C-0237 (Verizon and MCI), as the potential opportunity for SBC and Verizon to engage in "tacit collusion." Both SBC and Verizon characterized these concerns as "unfounded." Eleven comments to the Staff White Paper were received in regards to both the SBC/AT&T and Verizon/MCI merger cases. Of the comments received, only seven comments addressed the SBC/AT&T case. Two comments received from Communications Workers of America and Kevin Bronner supported the merger. Qwest's comments suggested that there could be tacitly coordinated "mutual forbearance". Level 3 commented that remedies were necessary, especially in the wholesale special access/high capacity loop market. Conversent commented that the SBC/AT&T merger, coupled with the Verizon/MCI merger, would create unacceptable levels of market concentration for small and medium-sized businesses and for the wholesale transport market. The New York State Attorney General commented that the merger would reduce AT&T's role as a competitor for enterprise customer services and

11 Id., Polumbo Decl., ¶ 35.

12 SBC/AT&T FCC Application, page 23.

13 Ibid. page 6. -8- CASE 05-C-0242

that SBC had not competed out of region even when ordered to by the Federal Communications Commission. PaeTec’s comment expressed concerns about the combined effects of this merger with the Verizon/MCI merger. In reply comments received on August 22, 2005, Verizon commented that the suggestion a merged Verizon/MCI might intentionally abandon business in the SBC region would result in both companies losing business. In their reply comments, SBC and AT&T stated that the merger will benefit competition in New York since the combined company intends to compete for customers and there is no tacit agreement between SBC and Verizon to not compete with one another. Joint Petitioners maintained that the purpose of the merger is to position the combined firm to compete more effectively. The Commission believes this merger will enhance the ability of SBC and AT&T to compete by better meeting customer needs in an increasingly competitive telecommunications market. The Commission concludes that, given the relatively few access lines SBC has in New York, it appears this merger will not result in the loss of a significant competitor in New York's telecommunications markets. While parties expressed concern that the combined SBC/AT&T and Verizon/MCI could mutually forbear from competing with one another, we believe the likelihood of such mutual forbearance is relatively small given SBC's current minimal presence in New York. Regarding the parties' contention that the two merged companies would tacitly engage in a strategy providing each other discounted special access rates, we find nothing in the record to support this possibility, and note that SBC is already competing in Verizon’s territory. However, the Commission will continue to oversee rates in these high capacity markets to ensure that these services and corresponding rates are provided on a non- discriminatory basis. The merger does not call for any change in the rates, terms or conditions for the provision of any telecommunications services provided in New York. Both SBC and AT&T have recently received Commission commendations for excellent service, and overall service quality has been meeting, or exceeding, service quality standards. AT&T currently measures and reports retail service quality

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performance data in New York by operating entity. AT&T and SBC have stated that they plan to continue to measure and report retail service performance data by operating entity until or unless these are consolidated. Environmental Quality Review Under the State Environmental Quality Review Act (SEQRA), Article 8 of the Environmental Conservation Law, and its implementing regulations, (6 NYCRR Part 617 and 16 NYCRR Part 7), all State agencies must determine whether the actions they are requested to approve may have a significant impact on the environment. Other than our approval of the action proposed here, no additional State or local permits or approvals are required, and, therefore, a coordinated review under SEQRA is not needed. We will assume lead agency status under SEQRA for review of this action. SEQRA (6 NYCRR § 617.6 (a) (3)) requires applicants to submit a completed environmental assessment form (EAF) describing and disclosing the likely impacts of the proposed actions. Joint Petitioners submitted a short-form Part I EAF. The proposed action is the approval of the merger of SBC Communications, Inc. and AT&T Corporation and its certificated New York subsidiaries. The proposed action does not meet the definition of either Type 1 or Type 2 actions that are contained in 6 NYCRR §’s 617.4, 617.5, and 16 NYCRR § 7.2, and, therefore, is classified as an “unlisted “action requiring SEQRA review. A review of the EAF and the petition demonstrates that, based upon the criteria for determining significance listed in 6 NYCRR § 617.7(c), the action proposed in this proceeding will not have a significant adverse impact on the environment. Our Staff has completed the short-form EAF Part 2. The EAF demonstrates that the proposed action will not have a significant impact on the environment. Therefore, we adopt a negative declaration pursuant to SEQRA. Because no adverse environmental impacts were found, no Public Notice Requesting Comments is required or will be issued. A Notice of Determination of Non- Significance for this unlisted action is attached. The completed EAF will be retained in our files.

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CONCLUSION The transactions as proposed by the petitioners are in the public interest and, pursuant to Sections 99 (2) and 100 of the New York Public Service Law, the Commission approves the merger of SBC Communications Inc. (SBC), AT&T Corporation (AT&T) and the AT&T subsidiaries certified to provide telecommunications services in New York State.

The Commission orders: 1. The merger between SBC Communications Inc., AT&T Corporation, and the AT&T subsidiaries, in accordance with the Agreement and Plan of Merger, jointly executed on January 30, 2005, and as described in this order, is approved. 2. This proceeding is closed. By the Commission,

(SIGNED) JACLYN A. BRILLING Secretary

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CASE 05-C-0242 - Joint Petition of SBC Communications Inc., AT&T Corp., together with its Certificated New York Subsidiaries for Approval of Merger.

NOTICE OF DETERMINATION OF NON-SIGNIFICANCE

NOTICE is hereby given that an Environmental Impact Statement will not be prepared in connection with the approval by the Public Service Commission of the merger of SBC Communications Inc. and AT&T Corporation and its certificated New York subsidiaries, based upon our determination, in accordance with Article 8 of the Environmental Conservation Law, that such action will not have a significant adverse effect on the environment. The approval of this action is an Unlisted Action as defined under 6 NYCRR Section 17.7(c). Based upon our review of the record, the action proposed in this proceeding, approval of the transfer of certain communications facilities under Sections 99(2) and 100 of the Public Service Law, will not have a significant adverse impact on the environment. The address of the Public Service Commission, the lead agency for the purposes of the Environmental Quality Review of this project is Three Empire State Plaza, Albany, New York 12223-1350. Questions may be directed to Richard H. Powell at (518) 486-2885 or at the address listed above.

JACLYN A. BRILLING Secretary