*Pages 1--5 from Microsoft Word - 54987.doc* PUBLIC NOTICE Federal Communications Commission 445 12 th Street, S. W. Washington, D. C. 20554 News Media Information 202 / 418- 0500 Fax- On- Demand 202 / 418- 2830 TTY 202 / 418- 2555 Internet: http:// www. fcc. gov ftp. fcc. gov DA 06- 336 Released: February 10, 2006 DOMESTIC SECTION 214 APPLICATION FILED FOR ACQUISITION OF ASSETS OF PROGRESS TELECOM, LLC BY LEVEL 3 COMMUNICATIONS, LLC STREAMLINED PLEADING CYCLE ESTABLISHED WC Docket No. 06- 39 Comments Due: February 24, 2006 Reply Comments Due: March 3, 2006 On February 3, 2006 Progress Energy, Inc. (“ Progress Energy”), Odyssey Telecorp, Inc. (“ Odyssey”) (collectively, “Transferors”) and Level 3 Communications, LLC (“ Level 3”) filed an application pursuant to sections 63.03 and 63.04 of the Commission’s rules 1 seeking consent to transfer control of the domestic common- carrier transmission lines of Progress Telecom, LLC (“ Progress Telecom”) to Level 3. Applicants assert that this transaction is entitled to presumptive streamlined treatment under section 63.03( b)( 2)( i) of the Commission’s rules because, post- consummation: (a) Level 3 will continue to have less than a 10% market share in the interstate, interexchange market; (b) Level 3 provides some telephone exchange and exchange access services in the areas served by Progress Telecom, but only in areas that are served by a dominant local exchange carrier that is not a party to the Proposed Transaction; and (c) neither Progress Telecom nor Level 3 is dominant with respect to any service. 2 Progress Telecom, a Delaware limited- liability company, is a regional wholesale network services company which provides wholesale telecommunications broadband (including DWDM, SONET, and SDH), collocation, and dark fiber services to other carriers and Internet service providers, primarily in the southeastern United States. Progress Telecom serves approximately 200 customers, with a significant concentration of international and wireless carrier customers. Progress Telecom also offers last- mile, point- to- multipoint wireless services using unlicensed spectrum in the 900 MHz, 2.4 GHz, and 5 GHz frequency bands. Progress Telecom is a non- 1 47 C. F. R §§ 63.03, 63.04; see 47 U. S. C. § 214. 2 47 C. F. R. § 63.03( b)( 2)( i). 1 2 dominant carrier that holds authority to provide intrastate interexchange telecommunications services and competitive local exchange telecommunications services in 5 states and the District of Columbia. 3 PT Holding Company, LLC (“ PT Holding”), a Delaware limited liability company, is the sole direct owner of Progress Telecom (100% direct interest). PT Holding is owned by Progress Energy, a publicly- traded North Carolina corporation engaged in diversified energy businesses (55%); and Odyssey, a Delaware corporation that operates as a holding company for telecommunications assets and businesses (45%). Post- consummation, ownership of PT Holding will be retained by Progress Energy and Odyssey. Level 3, a Delaware limited- liability company, provides domestic and international communications and information services. It is a wholly- owned subsidiary of Level 3 Financing, Inc. (“ Level 3 Financing”), a Delaware corporation that provides managed information technology infrastructure services across a variety of platforms. Level 3 Financing, in turn, is a wholly- owned subsidiary of Level 3 Communications, Inc., a Delaware corporation which offers a wide range of communications services over its 23,000- mile broadband fiber optic network, including IP- based services, broadband transport, collocation services, and patented Softswitch-based managed modem and voice services. Two parties hold a 10% or greater direct or indirect interest in Level 3 Communications, Inc.: (1) Southeastern Asset Management, Inc. (“ SAM”), a Tennessee corporation, holds sole or shared voting rights for 38.83% of the outstanding shares of Level 3 Communications, Inc.; 4 and (2) Leucadia National Corporation (“ Leucadia”), a publicly-traded New York corporation, owns 14.1% of the outstanding shares of Level 3 Communications, Inc. 5 None of the parties holding a 10% or greater direct or indirect interest in Level 3 Communications, Inc., holds a seat on the board of directors of Level 3 Communications, Inc. On January 25, 2006, Progress Energy subsidiaries, Odyssey, Odyssey subsidiaries, and Level 3 entered into a Purchase Agreement (“ Agreement”) to allow Level 3 to acquire all of the 3 Progress Telecom also owns certain assets and subsidiaries to be excluded from Level 3’s purchase of Progress Telecom, including: two wholly- owned subsidiaries, Progress Telecom International, LLC (“ PT International”) and Progress Telecom Virginia, LLC (“ PT Virginia”); PT Wireless, LLC (“ PT Wireless,” in which Progress Telecom owns a 41% interest); and two Title III radio licenses, call signs WQDF545 and WQDF546, all of which will be retained by Progress Telecom’s current owners. 4 SAM holds voting rights for outstanding shares that are otherwise owned by other entities for whom SAM acts as an investment advisor. None of the other owners of outstanding shares of Level 3 Communications, Inc. whose shares are voted by SAM owns a 10% or greater direct or indirect interest in Level 3 Communications, Inc. 5 In November 2005, Level 3 filed for approval of a section 214 transfer of control with WilTel Communications, LLC (“ WilTel”) and Vyvx, LLC (“ Vyvx”), which was granted under our streamlined rules on December 11, 2005. See Notice of Streamlined Domestic 214 Application Granted, WC Docket No. 05- 313, Public Notice, DA 05- 3173 (rel.: Dec. 12, 2005). At the time that application was filed, three entities held 10% or greater interests in Level 3 Communications, Inc., but consummation of the WilTel/ Vyvx transaction added Leucadia as a major shareholder and diluted the interests of Level 3’s other shareholders below the 10% or greater threshold. 2 3 membership interest in Progress Telecom currently controlled by Progress Energy and Odyssey. The Agreement excludes from purchase certain of Progress Telecom’s existing subsidiaries and assets, including (1) PT International; (2) a 41% interest in PT Wireless; (3) PT Virginia; and (4) two Title III radio licenses. 6 To complete the proposed transaction and the exclusion of these subsidiaries and assets, the Agreement provides that the Transferors will engage in a corporate reorganization resulting in a pro forma transfer of control of PT International and PT Virginia to PT Holding Company LLC, a pro forma assignment of Progress Telecom’s two Title III radio licenses to PT Holding Company LLC. These pro forma transfers and assignments will occur in advance of the consummation of the substantive transfer of control contemplated in the Agreement. Following consummation of the proposed transaction, Progress Telecom will be a direct, wholly- owned subsidiary of Level 3. Applicants state that the proposed transaction will serve the public interest, convenience and necessity because it will provide Progress Telecom with access to Level 3’s technical, managerial, financial, and product strengths, which will enhance the companies’ ability to expand their offerings and provide more advanced telecommunications services to a broader customer base. Applicants also expect the Proposed Transaction will enable Level 3 to strengthen its competitive position to the benefit of U. S. consumers. Applicants further assert that the proposed transaction will not significantly affect any participant’s share of the local exchange, exchange access, or interstate interexchange markets. 7 GENERAL INFORMATION The transfer of control identified herein has been found, upon initial review, to be acceptable for filing as a streamlined application. The Commission reserves the right to return any transfer of control application if, upon further examination, it is determined to be defective and not in conformance with the Commission’s rules and policies. Pursuant to sections 1.415 and 1.419 of the Commission’s rules, 47 CFR §§ 1.415, 1.419, interested parties may file comments on or before February 24, 2006 and reply comments on or before March 3, 2006. 8 Unless otherwise notified by the Commission, Applicants are permitted to transfer the 6 See footnote 4, supra. 7 Applicants assert that, even if Level 3 derived all of the communications revenue (excluding interexchange revenue and reciprocal compensation revenue) reported in the 2004 10- K for Level 3, Inc., from local exchange and exchange access (when in fact, it derived only a fraction of its revenues from such services), Level 3’s revenues would likely account for less than one percent of all nationwide local exchange and exchange access revenues. See 2004 Form 10K, Item 7, of Level 3 Communications, Inc.; FCC, STATISTICS OF COMMUNICATIONS COMMON CARRIERS, at 202, Tbl. 5.20 (2003/ 2004 ed.) (providing 2002 data); FCC, TRENDS IN TELEPHONY SERVICE, Tbl. 8.7 (2005) (providing 2003 data). Applicants further note that a direct year- to- year comparison is not possible, as the FCC’s reports do not include 2004 data. Applicants also state that, even assuming that all Progress Telecom and Level 3 toll revenues were interstate interexchange revenues (and they are not), the combined interexchange revenues of Progress Telecom and Level 3 would amount to no more than 2% of total industry- wide toll revenues, and even less than that percentage if all non- LEC, non- wireless toll services are included. Id., Tbl. 9.1. 8 See 47 C. F. R. § 63.03( a). 3