DOCKET NO. 21834 ORDER Page 30 of 30

DOCKET NO. 21834

APPLICATIONS OF VALOR § TELECOMMUNICATIONS OF TEXAS, L.P. § FOR APPROVAL OF SALE, TRANSFER OR § MERGER, ISSUANCE OF A CERTIFICATE § PUBLIC UTILITY COMMISSION OF CONVENIENCE AND NECESSITY, § DESIGNATION AS AN ELIGIBLE § OF TEXAS TELECOMMUNICATIONS PROVIDER, AND § DESIGNATION AS AN ELIGIBLE § TELECOMMUNICATIONS CARRIER §

This Order approves the applications of Valor Telecommunications of Texas, LP (Valor or Applicant) for the acquisition of certain exchanges from GTE Southwest Inc., issuance of certificate of convenience and necessity, designation as an eligible telecommunications provider, and designation as an eligible telecommunications carrier. The docket was processed in accordance with applicable statutes and Commission rules. Valor, the Commission’s Office of Regulatory Affairs, the Office of Public Utility Counsel, the Texas ISDN Users Group, and the Texas Internet Service Providers Association filed stipulated findings of fact and conclusions of law, recommending approval of the application. The Texas Telecommunications Users Group and Mr. Robert Wade Brown opposed approval of the applications. Valor, the Commission’s Office of Regulatory Affairs and the Office of Public Utility Counsel filed an amended stipulation addressing several of the concerns raised by the Commission at the open meetings of May 18 and 31, 2000. Valor, the Commission’s Office of Regulatory Affairs, Office of Public Utility Counsel, the Texas Telecommunications Users Group, and Robert Wade Brown subsequently filed a supplemental stipulation addressing the Commission’s remaining concerns. The signatories to the supplemental stipulation agreed to the approval of the Revised Proposed Order, filed on June 7, 2000, as amended by the supplemental stipulation. The Commission adopts the parties’ stipulations with minor modifications. The applications are approved.

I. Findings of Fact

Procedural History

1. On December 13, 1999 Valor filed with the Public Utility Commission of Texas (Commission) applications for the acquisition of certain exchanges from GTE Southwest Incorporated (GTE) and the issuance of a certificate of convenience and necessity (CCN), designation as an eligible DOCKET NO. 21834 ORDER Page 2 of 30

telecommunications carrier (ETC), and designation as an eligible telecommunications provider (ETP).1 A list of the exchanges to be acquired is shown in Attachment A to this Order. Valor requested the Commission enter a final order approving the above referenced applications by June 1, 2000, and approving its proposed tariffs effective on or about September 1, 2000.

2. Concurrent with the filing of Valor’s applications, GTE filed an application requesting approval to amend its existing CCN to remove the exchanges being acquired by Valor, and to remove the exchanges from the area in which GTE has been designated an ETC and ETP.2

3. The Texas Telecommunications Users Group (TTUG), Mr. Robert Wade Brown, the Commission on State Emergency Communications (CSEC) and certain Emergency Communication Districts (collectively 9-1-1 Agencies), the Texas ISDN Users Group, the Texas Internet Service Providers Association (TISPA), the Office of Public Utility Counsel (OPC), Mr. Joseph Buck, Ms. Mary Perkins, Mr. Lee Sterling, XIT Telecommunication & Technology, Inc., W.T. Services, Inc., Tech Telephone Company, Ltd., Santa Rosa Telephone Cooperative, Inc., and Panhandle Telecommunications Systems, Inc. filed motions to intervene in this proceeding. The motions to intervene were granted. XIT Telecommunication & Technology, Inc., W.T. Services, Inc., Tech Telephone Company, Ltd., Santa Rosa Telephone Cooperative, Inc., and Panhandle Telecommunications Systems, Inc. subsequently withdrew as parties to this proceeding.

4. On February 22, 2000, Valor requested an extension of the deadlines for filing motions to intervene in this proceeding and requests for hearing. Valor subsequently filed numerous requests for further extension of the procedural deadlines in this docket. The requests for extension were granted and the statutory/regulatory deadlines for processing the above referenced applications were extended day-for-day.

1 Valor’s application for designation as an eligible telecommunications carrier was filed in Application of Valor Telecommunications of Texas, LP, for Designation as an Eligible Telecommunications Carrier Under 47 U.S.C. § 214(e), Docket No. 21833 (Dec. 17, 1999). Valor’s application for designation as an eligible telecommunications provider was filed in Application of Valor Telecommunications Of Texas, LP, for Designation as an Eligible Telecommunications Provider Pursuant to P.U.C. SUBST. R. 26.417, Docket 21832 (Dec. 12, 1999). The applications were consolidated in the instant docket. Order No. 1 (December 17, 1999).

2 Application of GTE Southwest, Inc. to Amend Certificate of Convenience and Necessity and Universal Service Fund Service Area for Which It Receives Support as an Eligible Telecommunications Provider and Eligible Telecommunications Carrier, Docket 21830 (pending). DOCKET NO. 21834 ORDER Page 3 of 30

5. On April 3, 2000, Mr. Robert Wade Brown, on behalf of TTUG, filed a request for hearing and statement of position. The request for hearing and statement of position included a list of concerns which TTUG sought to have addressed in this proceeding. TTUG seeks additional concessions from Valor regarding service. Valor represents that Mr. Joseph Buck joins in TTUG’s request for hearing and statement of position. Valor requested TTUG’s request for hearing be dismissed on the grounds that the issues raised therein are inappropriate for consideration in this proceeding.

6. On April 20, 2000, Valor, the Commission’s Office of Regulatory Affairs (ORA), OPC, the Texas ISDN Users Group, and TISPA filed a proposed order containing stipulated findings of fact and conclusions of law. The signatory parties requested approval of the consolidated application.

7. On April 24, 2000, Mr. Robert Wade Brown, on behalf of TTUG, filed a reply to Valor’s response to the request for hearing. In its reply, TTUG requested the Commission not adopt the stipulated findings of fact and conclusions of law, asserting that the acquisition of the affected exchanges by Valor does not present the best deal for the public. TTUG does not challenge the underlying facts supporting a finding that the transaction is in the public interest, but seeks additional concessions from Valor regarding service. Valor represents that Mr. Joseph Buck and Mr. Lee Sterling similarly oppose adoption of the proposed order. Ms. Mary Perkins took no position concerning adoption of the proposed order.

8. On May 1, 2000, the presiding officer issued a proposed order in this docket. The Proposed Order was consistent with the stipulated findings of fact and conclusions of law, filed on April 20, 2000.

9. The Commission considered the Proposed Order in this docket at the open meeting of May 18, 2000. The Commission remanded the Proposed Order for clarification and further findings regarding Valor’s commitments in the exchanges to be acquired.

10. On May 30, 2000, Valor filed draft revised, proposed findings of fact and conclusions of law for the Commission’s consideration. The language was the result of negotiation and compromise between the active parties to this docket. The Commission was requested to comment on the draft language at the open meeting of May 31, 2000. DOCKET NO. 21834 ORDER Page 4 of 30

11. On May 31, 2000, the Commission requested further clarification of Valor’s commitments and offered guidance on the specific issues to be addressed.

12. On June 6, 2000, Valor, ORA and OPC filed an amended stipulation, including revised proposed findings of fact and conclusions of law. The stipulation addressed all but one of the concerns raised by the Commission. Valor indicated that it would file an agreed finding of fact addressing the remaining issue on remand, not later than June 9, 2000.

13. On June 9, 2000, Valor, ORA, OPC, TTUG, and Robert Wade Brown filed a supplemental stipulation addressing additional issues. The signatories to the supplemental stipulation agree to the approval of the Revised Proposed Order, filed on June 7, 2000, as amended by the supplemental stipulation.

Notice 14. Valor filed affidavits that notice of this proceeding was sent to all neighboring utilities, cities and political subdivisions and was published in newspapers of general circulation in each county in Texas where the affected exchanges are located. In addition, GTE filed affidavits stating that direct notice was provided to the Texas retail and wholesale customers in the affected exchanges.

15. Notice of the application was published in the Texas Register on December 31, 1999.

Evidence of Record 16. The following items are admitted into evidence: (a) Valor’s Applications for Approval of Sale, Transfer and Merger, Issuance of Certificate of Convenience and Necessity, Designation as an Eligible Telecommunications Provider, and Designation as an Eligible Telecommunications Carrier; (b) Texas Register Submission Form; (c) Affidavits of Notice; (d) proposed order containing stipulated findings of fact and conclusions of law including attachments, filed on April 21, 2000; (e) Valor’s proposed tariff, with revisions filed on April 21, 2000; (f) the agreements between the individual cities and Valor (filed in this proceeding on March 16, 2000) and letters reflecting support of the application by various cities (filed in this proceeding on May 31, 2000); (g) Valor’s responses to the following requests for information: Valor’s Response to ORA’s First Request for Information, Attachment No. 1-5(a)-(c); Valor’s Response to ORA’s First Request for Information, Attachment No. 2-3; and Valor’s Response to ORA’s Second Request for Information No. 4-5, including Attachment No. 4-5; (Attachment No. 1-5(a)-(c) and Attachment No. 2-3 contain confidential information and remain subject to the Protective Order in this DOCKET NO. 21834 ORDER Page 5 of 30

proceeding.); (h) Stipulation filed on June 6, 2000; (i) Addendum to stipulation, filed on June 7, 2000, and (j) Supplemental Stipulation, filed on June 9, 2000. DOCKET NO. 21834 ORDER Page 6 of 30

Background

17. Valor is a new entity, created to acquire from GTE the exchanges being sold by GTE within the State of Texas. Valor is a limited partnership, created under the laws of the State of Delaware, and registered to do business in Texas on September 7, 1999, under Filing No. 00124206-11. Valor’s general partner is Valor Telecommunications Texas Partner, L.L.C., a Delaware limited liability corporation and a wholly owned subsidiary of Valor Telecommunications Southwest, LLC (Valor Southwest). The Applicant’s limited partner, Valor Telecommunications Texas Holding Co., L.L.C., is also a wholly-owned subsidiary of Valor Southwest.

18. In addition to Valor, Valor Southwest owns two (2) other telephone operating companies, Valor Telecommunications of Oklahoma, L.L.C., and Valor Telecommunications of New Mexico, L.L.C., formed to acquire the telephone properties owned by GTE in the states of New Mexico and Oklahoma.

19. Valor Southwest is owned by Valor Telecommunications, L.L.C. (Valor Telecommunications), and twelve (12) individual Hispanic investors. Biographies of the individual Hispanic investors are provided in Attachment B. Valor Telecommunications is owned by the principal institutional investors.

20. Valor Telecommunication’s principal institutional investors are Welsh, Carson, Anderson & Stowe, Vestar Capital Partners, and Citicorp Venture Capital Ltd. Together, these institutional investors have committed to invest equity and subordinated debt in excess of $635 million.

21. Welsh, Carson, Anderson & Stowe (WCAS) is a private investment firm founded in 1979. It specializes in investments in health care and information services, including the telecommunications industry, and is one of the largest firms in the United States providing private equity capital. It currently manages limited partnerships with over $8 billion in capital investment.

22. Vestar Capital Partners (VCP) is a leading private equity investment firm founded in 1988 by seven (7) former principals of The First Boston Corporation’s Management Buyout Group. The firm has offices in New York and Denver. Since the firm’s founding in 1988, it has completed investments in companies with a total value of approximately $7 billion. The investors in VCP’s partnerships include leading institutional investors and public pension funds. DOCKET NO. 21834 ORDER Page 7 of 30

23. Citicorp Venture Capital Ltd. (CVC), is a New York corporation with offices located 399 Park Avenue, New York, New York 10043. CVC was founded in 1969 and is a leading private equity investment firm. CVC currently has investments in over 150 companies with aggregate revenues exceeding $35 billion.

24. Additionally, Valor and its sister operating companies in New Mexico and Oklahoma have secured senior debt financing of $1.175 billion. The senior debt financing is underwritten by Bank of America, N.A., The Chase Manhattan Bank, Canadian Imperial Bank of Commerce, and Lehman Commercial Paper, Inc. The total senior credit facility will be divided into a term loan of $1 billion and a revolving credit facility of $175 million.

25. Although neither Valor nor its affiliated companies have previously provided telecommunications services, Valor’s management team has substantial experience in the telecommunications field. Their biographies are provided in Attachment C.

26. Valor’s strategic focus is the provision of high-quality telephone service in the rural areas it will acquire. It is committed to be a full-service telecommunications provider within its service areas. Its capital resources and the attention of its management will be focused on rural, small and medium-size communities.

Sale, Transfer, and Merger and CCN

27. On September 3, 1999, Valor’s predecessor, d/b/a Texas Operating Co., L.P., entered into an Asset Purchase Agreement with GTE to purchase 197 exchanges currently certificated to GTE. Valor will acquire all GTE plant facilities in the acquired exchanges, including all central offices, switches, wire line network facilities (aerial, buried, underground, conduit), poles, radio equipment, vehicles, office equipment, real property, leases, towers and other assets used to provide telecommunications services. Valor will also acquire all licenses, permits and other authorizations which pertain to the use and operation of these assets. Additionally, Valor will acquire from GTE approximately 320 employees who currently perform job functions within the affected exchanges. The primary job functions held by the GTE employees Valor will acquire are: installation and maintenance, access design and engineering, vehicle maintenance, central office maintenance and engineering, construction and retail sales. The number of employees, by job function, as of March 1, 2000 are shown on Attachment D. These employees will be based at the same locations at which they currently work for GTE, as shown on DOCKET NO. 21834 ORDER Page 8 of 30

Attachment J. Valor will pay these employees at their current salaries and will furnish comparable benefits as provided by GTE, including health, 401K and pension benefits.

28. The acquired exchanges comprise approximately 313,800 access lines, as of June 1999. The service area of each exchange is shown in the maps contained in Attachment D, Binder 2 to Valor’s application. All central offices in the acquired exchanges are currently served by digital switches.

29. The purchase price of the exchanges acquired by Valor is $942,000,000 or $3,002.00 per line, for the 313,800 lines in the affected exchanges. The transaction shows an original utility plant cost of $920,412,000 with a net acquisition adjustment of $641,804,707. Accumulated depreciation on the plant totaled $574,762,000.3 See Attachment E for development of the original plant cost and the calculation of the net acquisition adjustment.

30. The sale does not affect Valor’s income tax expenses or liability since it is a newly formed entity.

31. Valor plans to implement capital improvements in the affected exchanges. The proposed improvements include:

(a) Upgrade of existing central office facilities to support the deployment of Custom Local Area Signaling Services (CLASS) and advanced services;

(b) Provision of CLASS services, including Caller ID, to all exchanges within 18 months after closing;

(c) Provision of upgrades to central office facilities necessary to offer CLASS features, including Caller ID, to all Valor exchanges in Texas as soon as commercially feasible, and in no event later than 24 months after closing;

(d) Provision of Digital Subscriber Line (DSL) service to at least 10 exchanges within 18 months after closing;

(e) Commitment to DSL deployment to any requesting exchange that has bona fide service requests for 75 DSL lines from Valor Texas subscribers within 15 months; and

3 These entries are projected entries as of the anticipated closing date of September 1, 2000. The final entries may vary as a result of accounting changes, plant additions and retirements up through closing. DOCKET NO. 21834 ORDER Page 9 of 30

(f) Commitment to increase support personnel serving Texas exchanges by at least 10 percent above the 320 employees referenced in the application within 18 months of closing.

These commitments are detailed in findings of fact 36 and 39.

32. Valor’s projected capitalization and financial ratios demonstrate that it is well positioned to offer and support these improvements. Valor’s projected financial ratios are as follows:

Financial Ratios Year 1 Year 2 Year 3 Year 4 Year 5

Times Interest Earned 1.07 1.19 1.35 1.53 1.79

Debt Service Coverage 97.11 113.27 117.02 112.88 118.53

Operating Margin 26.14 27.02 28.00 28.58 28.90

Equity/Capital Ratio 27.63 28.15 29.96 32.21 36.99

The supporting calculations for these ratios are developed from Valor’s detailed financials and business plan, as shown in Valor’s response to the ORA’s First Request for Information, Attachment No. 1-5(a)- (c), provided pursuant to the protective order in this docket.

33. In developing its projected financial statements and ratios, Valor used actual revenue and demand information and applied certain assumptions to forecast revenues and expenses. ORA and OPC have reviewed the assumptions used to develop the financial statements. No party disputes the assumptions used in development of the financial statements. The projected financial ratios indicate sufficient funding to support the acquisition and operation of the acquired exchanges, and to permit the planned capital improvements.

34. Valor’s times interest earned ratio shows an improving trend throughout the post-acquisition period.

35. Valor’s debt service coverage improves as the newly acquired exchanges contribute to operations without additional debt. DOCKET NO. 21834 ORDER Page 10 of 30

36. Valor’s operating margin is projected to improve over the five-year projected period. Efficiencies gained by capital improvements to the newly acquired exchanges can be reasonably foreseen to stabilize and improve the operating margin in the long run.

37. The equity-to-capitalization ratio strengthens throughout the projected period. Valor’s equity capitalization is projected to increase 27 percent from $285.4 million recorded in Year 1 to $363.6 million in Year 5.

38. Valor agrees to adopt GTE’s existing depreciation rates. The current GTE depreciation rates were established by GTE after its election of incentive regulation under Chapter 58 of the Public Utility Regulatory Act (PURA).4 Valor will evaluate the sufficiency of these rates in the normal course of business.

39. Valor has also committed to elect incentive regulation under PURA Chapter 59. 5 Valor will file its election the first business day following the close of the transaction with GTE. Under this election, except as otherwise permitted under Chapter 59, Valor may not increase existing rates for a six-year period.

40. Valor agrees not to seek recovery of the net acquisition adjustment of $641,804,707 in any future rate proceeding. Rate payers will not bear any cost above net book value of original plant assets in any future rate proceeding as a result of recording a plant acquisition adjustment on the books of Valor. GTE will recognize a gain estimated to be approximately $596,350,000 over the net book value of assets, which may accrue to the benefit of the stockholders due to its election to operate under incentive regulation of PURA Chapter 58.6

4 TEX. UTIL. CODE ANN. §§ 58.001 – 58.303 (Vernon 1998 & Supp. 2000).

5 TEX. UTIL. CODE ANN. §§ 59.001 – 59.082 (Vernon 1998 & Supp. 2000). PURA § 59.021 provides in part: “(a) An incumbent local exchange company may elect to make an infrastructure commitment and to be subject to the corresponding regulation under this chapter if the company: (1) serves less than five percent of the access lines in the state; and (2) has not elected incentive regulation under Chapter 58.”

6 This amount is estimated. GTE will provide summaries of the actual journal entries which reflect the sale on the books of GTE Southwest Incorporated to the Public Utility Commission as soon after such entries are recorded as is practical. The sale of Texas exchanges will be recorded on the books of GTE Southwest Incorporated in accordance with Part 32Uniform System of Accounts for Telecommunications Companies. Under Part 32, gains or losses from the disposition of plant with traffic are recorded to account 7350Gains or Losses from the Disposition of Certain Property. DOCKET NO. 21834 ORDER Page 11 of 30

41. Valor’s acquisition of the affected exchanges will result in improved service quality. Local access line customers will receive improved service quality and infrastructure improvements at rates equivalent to those charged by GTE prior to the acquisition in the following ways:

(a) Service Quality and Capital Expenditures: Service quality within the affected exchanges will improve as a result of Valor’s improvement of existing facilities to support CLASS and advanced services, including DSL, and its commitment to increase current staffing levels. Valor’s total planned capital commitment to the affected exchanges in Texas in the initial five years of operations is $287,780,234. Valor’s planned capital budget for the first five years of operations is detailed in its response to ORA’s First Request for Information, Attachment 2-3, provided pursuant to the Protective Order in this proceeding. Capital outlays have been developed as a relatively uniform amount by year over the planning period. Actual capital deployment will likely fluctuate over the planning period. Planned capital expenditures are developed for Valor’s core business in five categories: maintenance, digital switching, circuit equipment, distribution plant and interoffice facilities. The plan also includes expenditures to support enhanced services and for the conversion of operating systems such as billing, provisioning and financial systems.

(b) Infrastructure Commitments: GTE has met and Valor has committed to continue all infrastructure requirements currently imposed on GTE as a result of GTE’s PURA Chapter 58 incentive regulation election. These commitments are found in the following sections of PURA Chapter 58: PURA §§ 58.003(b) and 58.201-58.206.

(c) Valor’s Provision of Advanced Services, Caller Identification and Custom Calling Features Addressed by PURA § 55.014: The Commission finds that, with the commitments to provide advanced services, caller identification and custom calling features according to the following schedules, customers in the transferred exchanges will receive from Valor not just comparable but better access to advanced services, caller identification and custom calling features than PURA § 55.014 would require if GTE retained these properties, at the same or comparable rates, terms and conditions: DOCKET NO. 21834 ORDER Page 12 of 30

(1) Caller Identification Services and Custom Calling Features Guaranteed to All Exchanges in 18 Months: Within 18 months of the close of the transaction with GTE, without regard to a bona fide request, Valor commits to upgrade all central office switches in all exchanges to provide caller identification and CLASS services (Caller ID, Caller Name ID, Call Waiting, Three-Way Calling, Call Forwarding, Call Return, Call Blocker and Auto Redial). Switches serving at least 50 percent of the lines not having CLASS features will be upgraded in 12 months. The remaining switches will be upgraded in the next six months. The exchanges that do not currently have CLASS features are identified in Attachment F.

(A) Valor’s commitment ensures that Valor’s exchanges acquired from GTE will receive these services without regard to receipt of a bona fide request otherwise required under PURA § 55.014 and on a time schedule at least comparable to and, for a majority of customers, in advance of the date upon which § 55.014 would require installation if GTE retained these exchanges.

(B) These features will be offered in all exchanges at the same rates as currently charged by GTE. These rates are contained in the proposed Valor tariff. Thus, these features will be offered at comparable rates, terms and conditions as charged by GTE in urban exchanges.

(2) Advanced Services  Guaranteed DSL Deployment to 10 Exchanges (32 percent of Lines) in 18 Months: To ensure that customers in the transferred exchanges receive from Valor better access to DSL services than they would have received if GTE retained these properties, Valor commits to deploy DSL service to ten exchanges within 18 months of the close of the transaction with GTE, without regard to any bona fide request. The initial ten (10) exchanges are; Andrews, Brownfield, Crockett, Dumas, Glen Rose, Lamesa, Levelland, Pecos, Texarkana and Perryton. DOCKET NO. 21834 ORDER Page 13 of 30

(A) This schedule ensures that customers in these ten exchanges, which comprise 32 percent of the lines being acquired by Valor, will receive DSL service without regard to the PURA § 55.014 requirement for a bona fide request, and fully 12 months in advance of the first date upon which PURA § 55.014 would require GTE to have installed DSL in any one exchange if GTE retained these exchanges.

(B) Rates charged for DSL services will be consistent with the current GTE DSL tariff which Valor has proposed to adopt. Thus, these services will be offered at comparable rates, terms and conditions as offered by GTE in urban areas.

(3) Advanced Services to be Deployed on Bona Fide Request Within 15 Months: To ensure rapid and broad deployment of advanced services in Valor’s remaining exchanges in a manner at least comparable to or better than PURA § 55.014 would require if GTE retained these exchanges, Valor commits to deploy DSL service or equivalent broadband technology, alone or in a joint venture or marketing arrangement, within 15 months of receiving a bona fide request, as follows:

(A) For the purposes of this subsection only, “bona fide request” means a written request for DSL service, showing the name, address and telephone number of the person requesting the service, plus a commitment to subscribe for 12 months or pay a termination fee, received from customers for no less than 75 lines in an exchange meeting the technical requirements for installing DSL service. The termination fee shall be equal to the monthly charge times the number of months remaining prior to expiration of the 12-month period or, if service is not taken, the entire 12-month amount.

(B) Valor shall provide these services to customers in its rural exchanges at prices, terms and conditions reasonably comparable to the prices, terms and conditions charged by GTE or other local exchange carriers in Texas for similar service in urban exchanges. DOCKET NO. 21834 ORDER Page 14 of 30

(C) The procedures outlined in paragraph (d) below shall be followed by Valor to assist communities in obtaining customer service requests to meet the bona fide request requirement.

(D) Valor will work with the local community to establish a time period in which requests for DSL service are solicited (campaign period). During the campaign period, Valor will make available to interested customers a form of DSL service agreement, which shall provide that (i) the customer shall have the right to terminate the agreement, without penalty or further obligation, by delivering to Valor a written termination notice any time before the end of the campaign period and (ii) in the event that 31 days following the end of the campaign period Valor does not have in force and effect agreements for a total of at least 75 lines which meet the technical requirements for installing DSL services (qualified lines), the agreement shall immediately terminate in accordance with its terms, with no further obligation or liability thereunder. The contract shall also specify the mailing address (with both street address and P.O. Box, if a P.O. Box is used) and toll-free fax number to which the customer may send written notice of cancellation. Within three days following the end of the campaign period, Valor will make a good faith determination of the number of lines for which it has received executed DSL Service Agreements in force and effect and will so notify customers, local officials and the Commission of the result, and of the date of deployment if the campaign is successful. If the initial campaign does not result in a bona fide request for a minimum of 75 qualified lines, Valor will continue to work with the local communities to achieve commitments for the required 75 qualified lines of service. At any time that an exchange presents to Valor a bona fide request for a minimum of 75 qualified lines, whether as a result of a local campaign or by other means, the obligation to deploy DSL will apply, and Valor will notify the affected customers, local officials and the Commission of the date of deployment. Upon request by the local communities, Valor will participate in any subsequent DSL campaign, but may not be required to provide notice by DOCKET NO. 21834 ORDER Page 15 of 30

bill insert or to advertise or conduct a public meeting more frequently than once every 24 months.

(4) Guaranteed Local Access to Local Internet Service to Every Valor Exchange: Because availability of dial-up Internet access service to all rural exchanges in Texas is a crucial component of availability of broadband and advanced services in these areas, Valor further commits that it or an affiliate will provide local dial-up Internet access service to every acquired exchange which is without a local dial-up Internet Service Provider within 18 months of close of the transaction. Because this is an unregulated service, PURA § 55.014 does not require the provision of such service. The Commission finds that, based on Valor’s commitment to provide these services as part of this proceeding, customers in GTE’s exchanges being transferred to Valor are placed in a position better than they would be if GTE retained these exchanges.

(5) Development Of Policy In PURA § 51.001 Paralleling Policy Set Forth In PURA § 55.014 Concerning Provision In Rural Areas Of Advanced Services Reasonably Comparable To Advanced Services Provided In Urban Areas At Reasonably Comparable Prices, Terms And Conditions: As required by PURA § 51.001, the Commission has begun a review and evaluation of the availability and pricing of telecommunications services, including advanced services, in rural and high cost areas of the state and will, not later than January 1, 2001, file a report with the Legislature including recommendations on the issues reviewed. The Commission expects Valor and GTE to participate in these proceedings, and to aid the Commission in its task of formulating the standards for deployment of advanced services in rural areas which are reasonably comparable to services and prices for those services in urban areas.

Effective September 1, 2001, Valor will provide in its rural exchanges, advanced telecommunications services reasonably comparable to the services provided by Valor in its urban exchanges: (1) at prices, terms and conditions that are reasonably comparable to the prices, terms, and conditions for similar advanced services in its urban exchanges; and (2) within fifteen (15) months DOCKET NO. 21834 ORDER Page 16 of 30

after receipt of a bona fide retail request, as defined by the Commission, for the advanced service.

The Commission anticipates that the standards governing the deployment of advanced services in rural areas of the state which are reasonably comparable to advanced services in urban areas of the state will become effective either through legislation adopted in the 2001 Legislative Session, or through rulemaking proceedings to be conducted by the Commission on or before September 1, 2001, the date that the provisions of PURA § 55.014 regarding deployment of advanced services become effective.

Valor’s commitment ascertained in this paragraph (5) will be superceded in the event the Commission adopts by rule or the Legislature adopts by statute, policies that govern the deployment of advanced services in rural areas of the state that are applicable to Valor.

(d) Community Notice Process: Upon completion of DSL deployment in the initial ten exchanges, Valor will notify city officials, local community leaders and the state representative(s) and senator(s) in the acquired exchanges of Valor’s commitment to deploy DSL service upon the receipt of bona fide requests for Valor DSL service for 75 lines in their exchange. At least 45 days prior to the date this notice is sent, Valor will provide a copy of the notice and its proposed mailing list for the notice to the Commission and the OPC for their review. This notice will advise local community leaders and state officials of Valor’s commitment to possible DSL deployment in their communities. Valor will work with local community leaders and state officials to develop an appropriate plan for educating the community of the opportunity to request DSL service. Valor will provide notice by mail or bill insert to all customers within the exchange of the opportunity to request DSL service. It is Valor’s intent to design this customer education process to the needs expressed by the local community. Valor further commits to holding a public meeting within each exchange in conjunction with local community officials to discuss DSL deployment. Valor will advertise to the public in advance of the meeting the date and time for the meeting. DOCKET NO. 21834 ORDER Page 17 of 30

(e) Reporting Obligations: To inform the Commission as to the status of deployment of advanced services, the Commission further requires that, twelve (12) months following the close of the transaction with GTE, Valor will file a report with the Commission and the OPC which identifies (1) the exchanges in which services described in paragraph (c) have been deployed, (2) the exchanges in which a bona fide request for DSL services has been obtained and the due date for deployment of DSL, and (3) any exchanges without toll-free internet service. The initial report will address activity in the first 12 months following the date of closing. The report will be filed semi- annually thereafter, for a period of 48 months from the date of closing. Upon request, Valor will meet with Commission Staff to discuss this report.

(f) Advertising of Caller Identification, CLASS Features and DSL Services: Valor will use various forms of media to advise its customers of the availability of CLASS features, Caller ID and DSL services, including direct marketing, bill inserts and advertising in other forms of general media.

(g) Staffing Increase: Valor will also increase personnel serving the affected exchanges by at least ten percent above the 320 employees acquired at closing, within 18 months of closing.

(h) Cap on ELCS Surcharge: Valor will continue all existing ELCS services within the affected exchanges. Valor has committed that it will not increase the existing ELCS surcharge for a period of two years after the closing. As an investor-owned company, Valor does not qualify for the ELCS exemption available to telephone cooperatives.

(i) Maintenance of Discounted Rates for Schools, Libraries and Hospitals: Valor will continue the same rates as charged by GTE at the time of this Order for providing broadband services to schools, hospitals, and libraries in its service area, pursuant to PURA §§ 58.251 through 58.267. This commitment will continue for the period Valor is regulated under incentive regulation.

(j) Service Quality Assurance Plan: Valor has committed to file a Service Quality Assurance Plan as outlined in Attachment G to this Order, to ensure that service levels in all exchanges will meet the Commission’s quality of service measures. This plan may be enforced by the Commission pursuant to PURA § 59.028. DOCKET NO. 21834 ORDER Page 18 of 30

42. Valor selected the initial ten (10) exchanges identified in Finding of Fact No. 40(c)(2) above to receive DSL service principally on the basis of (a) the number of access lines within these exchanges and (b) the strong interest of the communities expressed for DSL services. These ten (10) exchanges are among the largest exchanges to be acquired by Valor in Texas. All indicated in meetings held by Valor with local community officials a strong interest in DSL services. Glen Rose, the thirteenth (13th) largest exchange in size to be acquired by Valor, is included based on its demographic characteristics (high degree of new business activity, and proximity to the Dallas metro area), which indicated a greater expected demand for DSL services, as well as repeated expressions of interest by Glen Rose city officials with Valor for DSL services. All of the selected exchanges are also county seats of government.

43. The use of 75 service requests as a threshold number to be considered a “bona fide request” is based on review of the initial equipment pricing from DSL vendors. The initial capital cost includes the cost of the Digital Subscriber Line Access Multiplexer (DSLAM). In addition to the DSLAM cost, deployment of DSL will require further initial and incremental capital costs for routers, ATM switches (if the DSL technology is ATM-based), ATM aggregators, and the Network Management System. Required recurring expenses associated with DSL deployment include network monitoring, traffic management, maintenance and the cost of transport from the central office to the closest Internet backbone point of presence. The 75 customer service request is a reasonable demand requirement necessary to justify DSL deployment.

44. Valor will establish a customer call center in Texarkana, Texas. This call center will handle customer service orders, billing inquiries and repair calls for both Texas and New Mexico. Toll-free numbers will be provided to each call center to facilitate customer calling. Calls will be handled in the manner described in Attachment I. Repair calls will be answered at the Texarkana call center 24 hours a day, seven days a week. The Texarkana call center will be backed up by the Carlsbad, New Mexico call center. Local service crews to perform installation and repair services will be located throughout the service areas, at the same locations where they reside currently. A local crew will be assigned to each central office throughout Valor’s Texas service area. Dispatch of these local crews for repair, maintenance and installation will be handled from the Texarkana call center. Inquiries regarding deposits, toll billing issues, including toll fraud, and collections will be handled by a call center located in Espanola, New Mexico. DOCKET NO. 21834 ORDER Page 19 of 30

45. Valor’s increased staffing levels and its Quality Assurance Plan should enable it to meet the

Commission’s service quality objectives of P.U.C. SUBST. R. 23.54(c). Lack of available manpower has contributed to current service quality measurements in some of the affected exchanges that are not in compliance with Commission requirements, as shown by the quarterly Quality of Service Reports filed by GTE with the Commission in Project 20367. 7 The exchanges to be acquired by Valor in which service quality measurements have not been met are shown in Valor’s response to ORA’s Second Request for Information, No. 4-5. The attachment to this response details the specific causes identified by GTE for not meeting service parameters. Valor’s increased staffing and its Quality Assurance Plan should resolve these problems.

46. There is no complaint history regarding Valor or any Valor affiliate in any state, as Valor and its affiliates are start-up entities. Neither Valor nor any affiliate provides services as of this date in any state.

47. Business office and repair service operations will not be adversely affected as a result of the proposed sale. Valor’s preparations and planning indicate that it is capable of rendering continuous and adequate service.

48. Valor will maintain the current retail store in Texarkana, Texas, which also services a bill payment location, and will enter into contracts to continue all existing third-party bill payment agents in local communities. The exchanges where third-party bill payment agents are located are identified in Attachment K. Upon the close of the transaction with GTE, Valor will offer the following forms of bill payment: payment by mail; payment at payment stores and through local payment agents; payment by credit card  by calling the customer care center; payment by telephone authorization to debit checking accounts (month-by-month authorization); payment by “Quick Collect” for accounts in immediate jeopardy (through Western Union). Within six months after the close of the transaction, Valor will send forms to all customers which will authorize automatic withdrawal from checking accounts. The automatic bank draft option will not be available immediately at the close as customers will have to execute authorizations to Valor to permit Valor (rather than GTE) to debit their accounts. Due to other tasks associated with the closing and the likelihood that customers will want to become familiar with Valor before authorizing an automatic draft, implementation of automatic withdrawal within six months of the close of the transaction is reasonable. Valor will not charge a fee for customers to pay bills at

7 1999 & 2000 Telephone Utilities Service Quality Reports Pursuant to P.U.C. SUBST. R. 26.81, Project No. 20367 (pending). DOCKET NO. 21834 ORDER Page 20 of 30

Valor Bill Payment or agent locations. It is Valor’s intent to evaluate customer bill payment locations and potential locations for additional retail locations in Texas at which customers can pay their Valor bill in person. Within 12 months of the close of the transaction, Valor will advise the Commission as to the status of its efforts to establish additional payment locations and retail stores in the service area.

49. Valor can not determine at this time the implementation time frames or cost associated with

compliance with P.U.C. SUBST. R. 26.54(b)(3) regarding the upgrading of voice circuits to allow transmission rates of 14,400 bits of data per second. Until such time as Valor has operational responsibility for these exchanges, Valor is unable to perform the detailed engineering studies necessary to determine the extent of non-compliant loop facilities and the upgrades necessary to

conform these loops to the rule. Valor will file its implementation plan pursuant to P.U.C. SUBST. R. 26.53(b)(4)(B) within 180 days of the close of the transaction with GTE, rather than by June 30, 2000, and if a waiver is necessary, will file its waiver request within 270 days of the close of the transaction with GTE. In addition, GTE has agreed to cooperate with Valor by providing available data regarding the capability of facilities in the repositioned exchanges to meet the new

service requirements. Valor’s preliminary estimate of the cost of compliance with P.U.C. SUBST. R. 26.54(b)(3) is contained in Attachment L.

50. Valor has committed to monitor customer service following the acquisition to ensure that the service quality improves to meet the requirements of P.U.C. SUBST. R. 26.54(c). Valor has also committed to filing a Service Quality Assurance Plan containing the commitments outlined in the attachment to the proposed order within 60 days of the close of the transaction with GTE.

51. Valor will provide interconnection to all competitive local exchange carriers (CLECs) within the repositioned exchanges with whom GTE has an existing interconnection agreement. Valor will either assume the existing interconnection agreement or negotiate a revised agreement with each CLEC. Valor has reached agreements with a number of CLECs and wireless carriers as of this date.

52. Valor will provide 9-1-1 emergency telephone service in accordance with Chapters 771 and 772 of the Texas Health and Safety Code, regarding state and local administration of emergency communications, as applicable.8

53. Valor commits that its services, facilities and equipment will comply with all 9-1-1 requirements.

8 Tex. Health & Safety Code Ann. §§ 771.001 – 772.455 (Vernon 1992 and Supp. 2000). DOCKET NO. 21834 ORDER Page 21 of 30

54. To the extent that Customer Premises Equipment sold by GTE, GTE of the Southwest, or GTE of Texas to a PSAP within the repositioned exchanges remains under warranty or is covered by a maintenance contract, Valor will assume the obligations under the contract. Where the payments under such agreements have been assigned to GTE Leasing, the payments will continue to be made to GTE Leasing after the close of the transaction between Valor and GTE. Compensation due under the contracts will not change as a result of the assignment of the contracts to Valor.

55. Valor agrees to work in good faith with CSEC and the 9-1-1 Agencies to ensure that billing for 9- 1-1 records on a per-records basis includes only dial tone generating lines. Valor will work with CSEC, the ALI Host Database Provider and the 9-1-1 Agencies to develop an acceptable method

to identify and address records for non-dial-tone-generating lines consistent with P.U.C. SUBST. R. 26.433. Valor will also work with the CSEC and 9-1-1 Agencies to determine where additional personnel training and support may be appropriate.

56. Valor agrees to work in good faith to execute agreements with SCC Communications (SCC) regarding 9-1-1 operational procedures by the close of the transaction with GTE.9

57. Valor will ensure that its 9-1-1 tandems support the provision of wireless 9-1-1 Phase I services. Valor agrees to work in good faith to develop by the close of the transaction with GTE, procedures related to the provision and ordering of wireless Phase I E9-1-1 service. Valor will consult with CSEC and other 9-1-1 Agencies regarding such procedures.

58. The Commission considered in Project No. 19203 the roles and responsibilities of 9-1-1 service providers.10 The rulemaking addresses outstanding issues regarding charges for 9-1-1 services.

Valor agrees that appropriate tariff revisions will be made consistent with P.U.C. SUBST. R. 26.433—the final rule adopted in Project No. 19203. Valor further agrees that approval of this order does not prejudice the position of CSEC or the 9-1-1 Agencies with regard to any challenge to Valor’s tariffs regarding the compensation for submitting subscriber records for the provision of Selective Routing and Automatic Location Identification. The CSEC and the 9-1-1 Agencies reserve all rights to challenge the reasonableness or applicability of these tariffs. Valor, CSEC and the 9-1-1 Agencies further agree to work to resolve these issues, and if agreement cannot be reached, that these issues will be presented to the Commission for resolution. In the event these matters are not resolved by the effective date of Valor’s tariffs, Valor agrees that it will not

9 SCC is a provider of 9-1-1 database services and telecommunication technology systems. SCC provides 9-1-1 data to GTE.

10 9-1-1 Rulemaking Relating to Roles and Responsibilities of 9-1-1 Service Providers, Project 19203 (April 12, 2000). DOCKET NO. 21834 ORDER Page 22 of 30

charge the 9-1-1 Agencies any added charge for file formatting resulting from the acquisition of the repositioned exchanges by Valor unless the issue is finally resolved by the Commission in Valor’s favor.

59. Valor further agrees that approval of this order does not prejudice the position of CSEC or the 9-1-1 Agencies with regard to any challenge to Valor’s tariffs regarding compensation for the database portion of 9-1-1 services relating to Selective Routing and Automatic Location Identification in cases where a 9-1-1 Agency chooses to purchase 9-1-1 database services from a provider other than Valor. To the extent these issues regarding such compensation are not resolved in Project 19203, Valor agrees to work with CSEC and the 9-1-1 Agencies to resolve any remaining issues. If agreement cannot be reached, Valor agrees that these issues will be submitted to the Commission for resolution, with the request that the issues be resolved by the close of the transaction with GTE.

60. The current interim GTE ELCS surcharge of $0.73 per month shall apply as the ELCS surcharge for Valor. This rate will be in effect for a duration of two years from the date of the close of the transaction with GTE. At the end of this two-year period, the surcharge will be zero. Valor may file an application to establish a surcharge to recover continuing ELCS costs incurred and revenues lost, if any, after expiration of the two-year period.

61. The balance of customer deposits in the affected exchanges, as of February 3, 2000, is $52,302.00, with accrued interest of $2,341.48.

62. Valor’s acquisition is supported by a broad group of customers as shown by the support of a number of cities in the proposed service areas. Cities affirmatively supporting the acquisition include: Levelland, Perryton, Abernathy, Panhandle, Dumas, Andrews, Lorenzo, Crosbyton, Tulia, Brownfield, Dimmit, Crockett, Glen Rose and Texarkana. Each city had knowledge of the ten cities scheduled for the initial DSL deployment prior to their support of the application. To the best of Valor’s knowledge, no Texas city opposes the transaction.

63. In conjunction with the implementation of House Bill 1777 as passed by the 76th Legislature,11 GTE terminated all existing franchise agreements with cities in its service area. Fee per line payments to cities for use of municipal rights-of-way have been established in all municipalities in the exchanges to be acquired by Valor. Valor will comply with all lawful ordinances of municipalities in its service area with regard to the use of municipal rights-of-way.

11 Act of June 18, 1999, 76th Leg., R.S., ch. 840, 1999 TEX. SESS. LAW. SERV. 2499 (Vernon). DOCKET NO. 21834 ORDER Page 23 of 30

64. Valor commits that it will assume and agree to fulfill the obligations imposed on GTE under the Commission’s final order in Docket 15042,12 in the exchanges purchased from GTE.

65. Valor commits to maintain the terms of the GTE ISDN tariffs adopted, until modified or discontinued as provided by law. Valor further commits, consistent with its election of incentive regulation under PURA Chapter 59, that it will not seek to increase the charges contained in its ISDN tariffs above the current level, except to the extent permitted under PURA Chapter 59.

66. Valor commits to treat third-party Internet service providers in a nondiscriminatory manner in comparison to any affiliate internet service provider in terms of ordering, provisioning and availability of network services and features. When installing services ordered by customers for use with third-party internet service providers (such as ISDN or DSL), Valor representatives will not initiate efforts to market or sell any Valor affiliate internet service provider’s services in addition to or instead of those by the third-party internet service provider, and will not disparage the services of the affiliate Internet service provider to those of the third-party Internet service provider. This commitment, however, will not restrict Valor in its ability to respond to customer-initiated inquiries regarding its services, or to package or bundle its services with services offered by an affiliate Internet Service Provider in any manner not otherwise prohibited by law.

67. Valor commits to establish an ISDN working group that will be open to all interested ISDN customers in the purchased exchanges. The purpose of the working group will be to (1) review any changes proposed by Valor to ISDN tariffs; (2) review any changes to Valor tariffs proposed by ISDN users, and (3) provide a forum for discussion of ISDN issues. Valor agrees to convene a meeting of this working group within 90 days of the close of the transaction with GTE. Valor will provide notice of this meeting to the Commission, Texas ISDN Users Group, TISPA, TTUG, and other interested ISDN customers, and the meetings will be scheduled at a place and date convenient to the majority of attendees. Valor further commits that it will negotiate in good faith any issues brought before the ISDN working group.

68. Valor commits to work with Internet service provider and ISDN customers in the acquired exchanges to develop methods to inform customers and communities regarding telecommunications services, and to further the deployment of advanced services.

12 Application. to Revise General Exchange Tariff to Incorporate all CentraNet and Integrated Services Digital Network (ISDN) Services Pursuant to P.U.C. SUBST. R. 23.69, Docket No. 15042 (Dec. 18, 1997). DOCKET NO. 21834 ORDER Page 24 of 30

69. TTUG has inquired regarding whether Valor will provide intercept referral services (referred to by TTUG as “mechanized intercept”) at no charge. Intercept referral service is a service used when a customer disconnects or changes their telephone number. Calls to a discontinued telephone number are referred to an operator or recorded message. If the new number is available, and the customer requests referral service, the calling party is provided the new telephone number. This service is available only in selected GTE exchanges today. Valor will provide this service where it is provided by GTE today under existing tariffs.

70. Valor’s proposed tariffs reflect the same rates, terms and conditions as GTE’s currently approved intrastate tariffs. All existing services will be continued, including CLASS services and DSL. As such, the proposed tariffs filed by Valor are reasonable. It is further reasonable that the tariffs be amended to include all tariff changes approved by the Commission for GTE’s and Contel’s Texas intrastate tariffs from the date of this Order to the date of closing. This will ensure that customers’ rates and services are the same the day before as the day after Valor’s closing of its transaction with GTE. The parties agree that this finding does not prejudice the rights of CSEC or the 9-1-1 Agencies to challenge Valor’s 9-1-1 tariffs.

71. Valor will begin distributing customer education materials 30 days prior to the closing with GTE to inform customers of the transfer of operations to Valor. The customer education materials will include all appropriate information needed by customers for service orders, repairs and other inquiries. Valor agrees to provide an appropriate explanation to affected 9-1-1 Agencies that while they may remit payments to GTE Leasing, that Valor has assumed GTE’s responsibilities under any warranties and maintenance contracts. Valor will provide these materials to ORA and the Commission’s Office of Customer Protection for review prior to distribution to customers.

PURA § 14.101 Criteria

72. The purchase price reflects a reasonable value to be paid for the assets being acquired, as it is a price negotiated at arm’s length between Valor and GTE. The purchase price correspondingly reflects consideration to be paid to GTE which is equal to the reasonable value of the assets being sold. The values reflected in Finding of Fact No. 28 above as to the original cost of plant and net book value are reasonable. As shown in Finding of Fact No. 39, Valor does not seek to recover in rates any portion of the acquisition adjustment. DOCKET NO. 21834 ORDER Page 25 of 30

73. The transaction has no adverse effect on the health or safety of customers or employees. Valor will continue to provide the services customers currently receive from GTE. Valor will provide 9-1-1 services in accordance with Chapter 771 and 772 of the Texas Health and Safety Code and has committed to work with CSEC and the 9-1-1 agencies to ensure a smooth transition of these services at closing. Further, Valor will continue to employ the GTE personnel who have worked in the service areas to be acquired. These employees will be continued at their current salaries with comparable benefits, including health, 401K and pension benefits.

74. The transaction will not result in the transfer of jobs to workers domiciled outside this state. In fact, the transaction will lead to increased employment in this state, as Valor’s offices, the Texarkana call center, and Valor Southwest’s headquarters will be located in this state. Valor intends to increase technical staffing by 10 percent as discussed in Finding of Fact No. 30 above. Valor expects that more than 300 new jobs will be created in Texas as a result of Valor’s acquisition of these GTE exchanges.

75. As shown by Valor’s commitments detailed in Finding of Fact Nos. 40 through 47 above, the transaction will not result in a decline in service, but should produce an enhancement in service to customers.

PURA § 54.054 Criteria:

Adequacy of Existing Service  PURA § 54.054(c)(1)

76. Valor will acquire the existing facilities used by GTE to provide services within Valor’s proposed service area. Valor will continue to provide all existing services. In addition, as shown in Finding of Fact Nos. 40 through 47, Valor has made substantial commitments to meet the ongoing needs of its customers.

The Need for Additional Service  PURA § 54.054(c)(2)

77. Valor’s application reflects its intent to provide not only quality basic services, but also the advanced services that many customers desire. Valor has committed to expand the availability of vertical services, including Caller ID services, to all acquired exchanges. Valor’s longer-term commitments include the provision of high-speed services such as DSL. In order to better serve these communities, Valor’s application shows that it intends to become a valuable partner with the local communities in meeting their economic development objectives. DOCKET NO. 21834 ORDER Page 26 of 30

The Effect of Granting the Certificate on the Recipient of the Certificate and Any Public Utility of the Same Kind Serving the Proximate Area  PURA § 54.054(c)(3)

78. Approval of the issuance of a CCN is a necessary condition to the closing of the acquisition from GTE. Approval will enable Valor to assume ownership and operational control of the assets to be purchased from GTE. The approval will have no adverse impact on existing customers served by GTE, but should permit improvements in service as described above. The approval will have no impact on adjacent utilities.

Other Factors, Including Community Values, Recreational and Park Areas, Historical and Aesthetic Values, Environmental Integrity, Probable Improvement of Service or Lowering of Cost to Consumers in the Area  PURA § 54.054(c)(4)

79. Valor’s strategic focus is the provision of high-quality telephone service in the rural areas it will acquire, as a full-service telecommunications provider within its service areas. Valor’s capital resources and the attention of its management will be focused on rural, small and medium-size communities. Its focus will permit it to be more responsive to community needs and values than larger companies that serve major urban areas. Valor will also locate its call centers within its service areas. The granting of the application will not have an adverse workforce impact and will increase jobs in Texas as Valor will continue to employ the GTE personnel who have worked in the service areas to be acquired and will locate its corporate headquarters in Texas. The granting of the application will have no harmful effect on recreational or park areas, historical or aesthetic values, or environmental integrity. The granting of the application will likely improve the quality of service to customers, as described in Finding of Fact Nos. 40 through 47. The granting of the application will not increase costs to consumers as Valor will elect incentive regulation under Chapter 59. Under this election, except as permitted by Chapter 59, Valor may not increase rates for a six-year period.

80. Valor possesses the financial integrity to obtain a CCN and to make the necessary investments to provide customers access to the same services they would receive if GTE were to continue to serve these exchanges.

81. Valor’s application for issuance of a CCN is necessary for the service, accommodation, convenience and safety of the public. DOCKET NO. 21834 ORDER Page 27 of 30

ETC Designation

82. Upon closing of the transaction with GTE, Valor will be a common carrier, as that term is defined

by 47 U.S.C. § 153(10) and will qualify as an ETC pursuant to P.U.C. SUBST. R. 26.418.

83. Valor will offer the following federally designated services listed in 47 CFR § 54.101, using its own facilities or a combination of its own facilities and the resale of another carrier’s services:

(a) voice grade access to the public switched network;

(b) local usage;

(c) dual-tone multi-frequency signaling, or equivalent;

(d) single-party service, or equivalent;

(e) access to 9-1-1 or enhanced 9-1-1;

(f) access to operator services;

(g) access to interexchange service;

(h) access to directory assistance; and

(i) toll limitation services.

84. Valor will advertise the availability of, and charges for, the requisite services in media of general distribution.

85. Valor will provide Lifeline and Link-Up services in compliance with P.U.C. SUBST. R 26.412.

86. Valor will offer toll limitation service in accordance with 47 C.F.R. §§ 54.400 and 54.401, regarding universal service support for low-income consumers.

ETP Designation

87. Valor will become a local exchange carrier, as defined by P.U.C. SUBST. R. 26.5 upon the

closing of the transaction with GTE, and will qualify as an ETP pursuant to P.U.C. SUBST. R. 26.417. DOCKET NO. 21834 ORDER Page 28 of 30

88. As described above, Valor qualifies for designation an ETC, pursuant to P.U.C. SUBST.

R. 26.418. Valor will provide the following services listed in P.U.C. SUBST. R. 26.403(d)(1), to customers in order to receive Texas High Cost Universal Service Plan support:

(a) flat rate, single party residential and business local exchange telephone service,

(b) including primary directory listings;

(c) tone dialing service;

(d) access to operator services;

(e) access to directory assistance services;

(f) access to 911 service where provided by a local authority;

(g) dual party relay service;

(h) the ability to report service problems seven (7) days a week;

(i) availability of an annual local directory;

(j) access to toll services; and

(k) lifeline and tel-assistance services.

89. Valor’s certificated service area defines its ETP service area, in a manner consistent with P.U.C. SUBST. R. 26.417(b). Valor assumes the obligation to offer the designated services to any customer in the ETP service area.

90. Valor will offer the designated services using its own facilities or a combination of its own facilities and the resale of another carrier’s services.

91. Valor will render continuous and adequate service within the ETP service area in compliance with the Commission’s quality of service standards, as defined in subsections (c), (d) and (e) of P.U.C. SUBST. R. 23.61.

92. Valor will offer Lifeline and Link-Up services in compliance with P.U.C. SUBST. R. 26.412, and Tel-Assistance service in compliance with P.U.C. SUBST. R. 26.413.

93. Valor will advertise the availability of, and charges for, supported services using media of general distribution. DOCKET NO. 21834 ORDER Page 29 of 30

94. Valor is eligible to receive the per-line support amount for which the acquired exchanges were eligible pursuant to the final order in Docket No. 18515 prior to the transfer of these exchanges from GTE to Valor.13 These amounts are shown on Attachment H.

II. Conclusions of Law

1. The Commission has jurisdiction and authority over this application pursuant to PURA §§ 11.001, 14.101, 51.010, 52.002, 54.005, 54.053, 54.054, and 54.258.

2. Notice of this proceeding was provided in compliance with P.U.C. PROC. R. §§ 22.52(b) and 22.54.

3. Valor is entitled to approval of its application for the acquisition of the affected exchanges from GTE, having demonstrated that such acquisition is reasonable and consistent with the public interest, as required under PURA § 14.101.

4. Valor is entitled to approval of its application for issuance of its CCN, having demonstrated that the issuance of the CCN is necessary for the service, accommodation, convenience, or safety of the public within the meaning of § 54.054 of PURA, taking into consideration the factors set out in § 54.054 of PURA, as discussed in the findings of fact.

5. Valor meets the requirements of P.U.C. SUBST. R. 26.418 for ETC designation. Therefore, Valor’s application for ETC designation should be approved.

6. Valor meets the requirements of P.U.C. SUBST. R. 26.417 for ETP designation. Therefore, Valor’s application for ETP designation should be approved. Valor should receive the per-line support amount for which the acquired exchanges were eligible pursuant to the final order in Docket No. 18515 prior to the transfer of these exchanges from GTE to Valor. These amounts are shown on Attachment H.

7. Upon closing of the transaction, Valor will comply with P.U.C. SUBST. R. 26.24.

8. This application does not constitute a major rate proceeding as defined by P.U.C. PROC. R. 22.2.

13 Compliance Proceeding for Implementation of the Texas High Cost Universal Service Plan, Docket No. 18515 (Jan. 14, 2000). DOCKET NO. 21834 ORDER Page 30 of 30

9. Pursuant to P.U.C. PROC. R. 22.5(b), there is good cause to waive the time requirements of P.U.C.

PROC. R. 22.35(b).

III. Ordering Paragraphs

In accordance with these findings of fact and conclusions of law, the Commission issues the following Order:

1. Valor’s application for the acquisition of certain exchanges from GTE and issuance of a CCN is approved, effective on the date the transaction with GTE is closed.

2. Valor is issued Certificate of Convenience and Necessity No. 40105 to provide service to the exchanges described in Attachment A to this Order. The service area of each exchange is shown in the exchange maps contained in Binder 2 of Valor’s application for a CCN filed in this docket. Valor’s CCN shall become effective on the date the transaction with GTE is closed.

3. The tariffs filed by Valor, including the tariff revisions filed on April 21, 2000, are approved. The tariffs shall become effective upon the date of closing of the transaction with GTE.

4. Valor’s tariffs shall be amended to reflect any tariff changes required by P.U.C. SUBST. R. 26.433. Such amendments shall be filed in a separate tariff control number.

5. Within 90 days of the close of the transaction with GTE, Valor shall file any tariff amendments necessary to conform the Valor tariffs to any changes approved by the Commission in the GTE intrastate tariffs between the date of this order to the date of closing. These tariffs shall be filed in a separate tariff control number.

6. Valor shall file reports in accordance with Finding of Fact No. 40(e). The reports shall be filed in a separate project number.

7. Valor shall closely monitor customer service following the acquisition to ensure that the service quality improves to meet the objectives in P.U.C. SUBST. R. 23.61(e), in compliance with commitments outlined in the Service Quality Assurance Plan contained in Attachment G to this Order.

8. Valor’s application for designation as an ETC pursuant to P.U.C. SUBST. R. 26.418 is approved effective upon the date of closing of the transaction with GTE. DOCKET NO. 21834 ORDER Page 31 of 30

9. Valor’s application for designation as an ETP pursuant to P.U.C. SUBST. R. 26.417 is approved. Pursuant to P.U.C. SUBST. R. 26.420(j)(1), from and after the date of closing with GTE, Valor shall receive the per-line support amount for each acquired exchange for which GTE was eligible as set forth in the final order in Docket No. 18515, as shown in Attachment H.

10. The entry of an order consistent with the parties agreement does not indicate the Commission’s endorsement or approval of any principle or methodology that may underlie the agreement. Neither should the entry of an order consistent with the agreement be regarded as binding precedent as to the appropriateness of any principle underlying the agreement.

11. All motions, applications, and requests for entry of specific findings of fact and conclusions of law and other requests for relief general or specific not expressly granted herein are denied for want of merit.

SIGNED AT AUSTIN, TEXAS on the ______day of June 2000.

PUBLIC UTILITY COMMISSION OF TEXAS

______PAT WOOD, III, CHAIRMAN

______JUDY WALSH, COMMISSIONER

______BRETT PERLMAN, COMMISSIONER D:\Docs\2017-12-14\0df49f109335e99f44a5ca847a780975.doc