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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 16, 1994
ROCHESTER TELEPHONE CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-4166 16-0613330
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
180 South Clinton Avenue
Rochester, New York 14646
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 777-7940
100 Midtown Plaza, Rochester, New York
(Previous address of principal executive offices)
Item 5 Other Events
The Registrant has reached a Joint Stipulation and Agreement
("Agreement") with the Department of Public Service of the State of
New York respecting its "Open Market Plan." This filing consists
of the press release related to that Agreement, a copy of the
Agreement and selected appendices to that Agreement.
As permitted by General Instruction F to Form 8-K, the
Registrant incorporates by reference the information contained in
the press release which is filed as an Exhibit to this Report on
Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned hereunto duly authorized.
Rochester Telephone Corporation
----------------------------------
(Registrant)
Dated: May 16, 1994 By: /s/ Louis L. Massaro
----------------------------
Louis L. Massaro
Corporate Vice President
and Treasurer
(79ED)
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EXHIBIT INDEX
Exhibit Number Description
- - -------------- -----------
99-1 Press Release dated Filed herewith
5/17/94 regarding Registrant's
Open Market Plan
99-2 Joint Stipulation and Agreement Filed herewith
(with selected Appendices)
Appendix 1 Draft Restated Certificate of *
Incorporation of R-HC
Appendix 2 Holding Company Functions Filed herewith
Appendix 3 Draft Certificate of Filed herewith
Incorporation of R-Net
Appendix 4 R-Net Projected Capitalization Filed herewith
at Inception
Appendix 5 Service Quality Assurance Plan Filed herewith
for R-Net
Appendix 6 Cash Management Agreement Filed herewith
Appendix 7 Draft Certificate of *
Incorporation of R-Com
Appendix 8 Discretionary Services List *
Appendix 9 Schedule of Rate Reductions Filed herewith
and Rates
Appendix 10 Monitoring Information to be *
Filed Annually by R-Net
Appendix 11 Outstanding Documents and Filed herewith
Due Dates
* The indicated documents were submitted to the New York Public
Service Commission and are available to the Securities and
Exchange Commission upon request.
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EXHIBIT 99-1
Media:
Catherine A. Duda
716-777-5897
Investors:
Kristen H. Jenks
716-777-6422
REPORTERS: JOHN PURCELL WILL TAKE CALLS
TODAY AFTER 11 A.M. E.S.T. AT 716-777-7944
------------------------------------------------------------
NEWS RELEASE: For release 8:30 a.m. on May 17, 1994
ROCHESTER TEL, NYS PUBLIC SERVICE COMMISSION STAFF REACH
AGREEMENT ON OPEN MARKET PLAN/CORPORATE RESTRUCTURING
Rochester, New York -- May 17, 1994 -- Rochester Tel (NYSE: RTC)
today announced that the company has reached a Settlement
Agreement with the Staff of the New York State Public Service
Commission on the terms of its Open Market Plan and Corporate
Restructuring.
The Settlement Agreement, which is known as a joint
stipulation, has been signed by Rochester Tel and the Commission
Staff, as well as the Communications Workers of America and Time
Warner Communications, each of which has been a participant in
the settlement discussions.
If approved later this year by the Public Service Commission,
the landmark plan will make Rochester Tel the first
telecommunications company in the country to open up a local
market to more competition and give customers a larger range of
choices for communication services.
Highlights of the agreement include:
* A seven-year rate stabilization plan;
* Rate reductions of $21 million, with basic service prices
frozen at current levels over the life of the plan;
* An incentive regulatory plan, the first of its kind in New
York State;
* Formation of a price-regulated network company ("R-Net")
and a competitive company ("R-Com");
* Full interconnection of competing local networks;
* Accelerated depreciation of $17 million over the life of the
plan; and
* Creation of a holding company; and
* No royalties imposed against the company during the
seven-year life of the plan.
"It's a solid plan for all of our stakeholders," stated John
K. Purcell, corporate vice president of Rochester Tel, who signed
the agreement on behalf of the company. "Consumers will be
assured of lower prices and more choices; the price cap
regulatory plan allows us to retain all cost efficiencies and
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thus gives us the opportunity to deliver premier returns to our
shareowners; and the creation of a holding company means that
both investors and employees will continue to be part of an
expanding and progressive leader in our industry."
Rate Agreement
The agreement provides for a seven-year rate stabilization
plan with a total of $21 million in rate reductions spread over
the period of the plan. In 1995, the first year of the plan,
there will be a customer rate reduction of $11 million. The rate
reduction represents an incremental $1.5 million over the $9.5
million the company will have already set aside in 1994, based on
an earlier agreement with the Commission in anticipation of the
plan.
There will be additional annual rate decreases of $2.5
million on January 1, 1996 and $1.5 million in each of the
remaining five years of the plan.
The rate cuts will eliminate the touchtone charge for
residential customers by 1995 and for business customers by 1997.
The balance of the rate decreases would reduce usage charges,
including local measured service for business customers and long
distance carrier access charges. In 1993, the Rochester
operating company's local service revenues were $148.7 million
and total revenues were $302.0 million.
"Under the agreement, the network company, `R-Net,' will
operate under a unique regulatory plan, one of genuine price cap
regulation," said Purcell. "Customer rates will be capped, and
in exchange R-Net will be free from rate of return regulation for
the duration of the plan." Purcell noted that this type of
regulation has been widely discussed, but seldom applied in its
pure form.
New Entities
The competitive company, "R-Com," will operate as a retail
provider of integrated communication services, buying network
access from R-Net, and packaging these services with its own and
others' product lines such as voice mail, data services, long
distance and wireless.
Initially, the only services that will be assigned to R-Com
will be those currently considered highly competitive, such as
high-capacity private lines and Centrex. These services will not
be offered by R-Net. R-Com or any other company may compete for
the customers of these services as well as for customers of other
services offered by R-Net. All customers will continue to
receive their basic service from R-Net, if they do not want to
change to another service provider.
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The choice of providers will be made individually by each
customer in response to the competitive offerings available,
rather than by a customer ballot as originally proposed in the
plan.
"R-Com will be free to price its services competitively,"
said Purcell. "R-Net will offer its services, completely
unbundled on a wholesale basis as in the initial plan proposed by
Rochester Tel last year, but will also continue to offer retail
services."
The R-Net company will carry the name Rochester Telephone.
R-Com, as well as the holding company, will be newly named, an
announcement Purcell said will be made later this year.
Open Market
The agreement also provides for the full interconnection of
competing local networks, including reciprocal compensation for
terminating traffic; equal access to network databases; access to
local telephone numbers, and number protability.
Holding Company
The Stipulation Agreement allows Rochester Tel to form a
holding company to serve as the parent for all of its
subsidiaries. It will be free to issue securities, make any
acquisition or enter any line of business, anywhere. The holding
company will be incorporated in New York State.
Background
Rochester Tel filed its "Open Market Plan" in February 1993.
Meetings with all intervenors in the case were held in the fall
of 1993 and the Commission engaged a mediator to assist in the
process. The mediator convened a series of individual meetings
with each of the intervenors, held numerous joint sessions, and
oversaw the final negotiations.
The Rochester Tel Board of Directors has approved the
Stipulation, which still requires approval by the Public Service
Commission. The company anticipates Commission action on the
agreement in the third quarter of 1994. Certain aspects of the
corporate restructuring plan are subject to shareowner approval.
Rochester Tel has operations that serve 1.5 million customers
through 49 telecommunications companies in 22 states. The
company's principal lines of business are long distance, network
systems, wireless communications and telephone operations. On
March 30, 1994, the company reported total assets of $1.6
billion.
Attachments: Summary; Rate Stabilization Plan; organization
charts.
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Rochester Tel Open Market Plan
Settlement Agreement with New York State PSC Staff
SUMMARY
Plan Principle: Restructure the local exchange telephone company
in Rochester, NY into two separate and distinct entities, one a
wholesale, or network company and the other a retail, or
competitive company. The two companies will have strict
structural separation, separate assets, employees, capital
structures and Boards.
Plan length: Seven years. After five years, either the company
or the Commission has the option to terminate the plan.
Holding company: Serves as parent for all subsidiaries.
Oversees financing, acquisitions and new business, corporate
support functions. Separate Board of Directors.
Rate stabilization plan: Rate reductions of $21 million over the
seven-year life of the plan, with basic service prices capped at
current levels beginning on 1/1/95. See attached detail.
Network company: "R-Net" will unbundle all network features and
functions and file an interconnection tariff for services to be
offered on a wholesale basis. R-Net will remain subject to NYS
Public Service Commission oversight, although rate of returns
will not be regulated.
Competitive company: "R-Com", as well as other providers, will
purchase tariffed network services from R-Net, add value and
resell these services to customers on a retail basis.
Interconnection: The Open Market Plan provides for full
interconnection of competing networks, including reciprocal
compensation for terminating traffic, equal access to network
databases, access to local telephone numbers and number
portability.
Royalty: Under the Settlement, no royalty would be imposed
during the life of the plan.
5/17/94
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RATE STABILIZATION PLAN
Basic Rates
Today 1/1/95* 1/1/96 1/1/97-
12/31/2001
RESIDENCE
Basic $12.96 $12.96 $12.96 $12.96
Touchtone 1.48 -0- -0- -0-
Total $14.44 $12.96 $12.96 $12.96
BUSINESS
Basic $11.72 $11.72 $11.72 $11.72
Touchtone 3.87 3.72 1.40 -0-
Total $15.59 $15.44 $13.12 $11.72
- - -----------------------------------------------------------------
Business Local Measured Service**
Today 1/1/95* 1/1/98
Peak Initial 3 min. 1 min. 6.3 cents 1 min. 5.4 cents
(8 am- 7.5 cents; 2 min. 7.0 cents 2 min. 6.7 cents
5 pm) Each additional 3 min. 7.5 cents 3 min. 7.3 cents
min. over 3 min. Each additional Each additional
2.2 cents min. 2.2 cents min. 2.2 cents
Off Peak Initial 3 min. 1 min. 5 cents 1 min. 5 cents
(5 pm- 5 cents; each 2 min. 5 cents 2 min. 5 cents
7:59 am) additional min. 3 min. 5 cents 3 min. 5 cents
over 3 min. Each additional Each additional
1.4 cents min. 1.4 cents min. 1.4 cents
** Note: The rates for business local measured service will
continue to decline over the life of the plan. The years 1995 and
1998 are shown here as examples.
* Anticipated effective date.
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The attached chart describes the current
corporate structure of the Registrant, Rochester Telephone
Corporation. Under the current structure, the parent
corporation has functional responsibility for corporate
financing, local telephone service in Rochester, New York,
corporate support and staff services, and acquisitions.
Corporate responsibility for out-of-state and non-Rochester,
New York State regulated telephone activities are
structurally resident in subsidiaries of Rochester Telephone
Corporation. Corporate responsibility for competitive
services are also resident in corporate subsidiaries, such
as Rotelcom Network Systems, Rochester Tel Mobile
Communications, and RCI Long Distance.
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The attached chart describes the proposed
corporate structure of the Registrant, which will have a new
corporate name following the implementation of the Open
Market Plan. Under this new structure, the parent
corporation will have functional responsibility for
corporate financing, acquisitions, and corporate support and
staff services. Corporate responsibility for out-of-state,
non-Rochester, New York State and Rochester, New York
regulated telephone activities are structurally resident in
subsidiaries of the parent corporation. Corporate
responsibility for competitive services are also resident in
corporate subsidiaries, such as R-Com, Rotelcom Network
Systems, Rochester Tel Mobile Communications and RCI Long
Distance. The chart reflects the creation of the R-Com and
R-Net subsidiaries described in more detail in the Press
Release.
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- - -------------------------------------
Petition of Rochester Telephone :
Corporation for Approval of : Case 93-C-0103
Proposed Restructuring Plan :
:
Petition of Rochester Telephone :
Corporation for Approval of a : Case 93-C-0033
New Multi Year Rate Stability :
Agreement :
- - -------------------------------------:
JOINT STIPULATION AND AGREEMENT
The Parties hereto submit this Joint Stipulation and
Agreement ("Agreement") for approval by the New York Public
Service Commission ("Commission"). The Agreement provides the
framework for the restructuring of Rochester Telephone
Corporation ("RTC") into an unregulated parent holding company
("R-HC"), a telephone company regulated by the Commission as a
transportation corporation under New York law ("R-Net"), and a
lightly regulated retail provider of competitive telephone goods
and services ("R-Com"), and at the same time provides for
decreases in consumer rates and the maintenance of high quality
service (see footnote 1). It establishes a new multi-year rate
stability plan. The Agreement further provides for the
unbundling of the network elements of RTC and makes them
available to competitive carriers.
The signatories believe that the proposal described in the
Agreement, if adopted by the Commission, will place New York
State at the vanguard in the development of a seamless
interconnected communications infrastructure, while ensuring that
consumers within the RTC service territory will continue to enjoy
reliable, reasonably priced telephone service. This is
accomplished by significant rate decreases and additional
depreciation reserve credits and strong incentives for R-Net to
maintain high quality service and a commitment to do so. We urge
the Commission's prompt and favorable review.
Definition:
"Affiliate" means an entity that directly, or indirectly
through one or more intermediaries, controls, is controlled by or
is under common control with the entity specified, and includes
subsidiaries of R-Net and R-HC. For purposes of this Agreement,
the term "control" (including the terms "controlling", "have a
controlling interest in", "controlled by" or "under common
control with") of an entity means (i) the owning or holding,
directly or indirectly, of 5% or more of the voting capital stock
of such entity or (ii) possessing, directly or indirectly, the
power to influence, to direct, or cause the direction of, the
actions, management and policies of such entity, whether by
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contract or otherwise, including whether or not such power is
based upon stockholding.
I. Restructuring of RTC
A. R-HC
1. Holding Company Formed
On the effective date of the Open Market Plan ("OMP"), RTC
shall be reconstituted as R-HC, and in advance thereof shall seek
authorization from the Secretary of State to operate under New
York law governing business corporations as an unregulated parent
holding company and, except to the extent provided for in law and
in this Agreement, to succeed to all ownership interests and
liabilities of RTC. Attached as Appendix 1 is a draft
Certificate of Incorporation of R-HC.
2. Transfer of Assets, Accounts, Personnel
and Liabilities
On the effective date of the OMP, R-HC shall retain so much
of the assets, accounts, personnel and liabilities of RTC, as are
necessary to perform, at R-HC, the functions and responsibilities
enumerated in Appendix 2 to this Agreement. The proceeds of RTC
common stock authorized to be sold, in Cases 93-C-1110 and 93-C-
0970, shall be transferred to R-HC.
3. Wholly-Owned Subsidiaries
On the effective date of the OMP, R-Net and R-Com shall be
established as direct or indirect wholly-owned subsidiaries of R-
HC with the assets, liabilities, rights and obligations set forth
herein. On the effective date of the OMP, R-Net will provide a
description of the actual corporate structure of R-HC and its
Affiliates to the Staff ("Staff") of the Department of Public
Service ("DPS").
4. Corporate Books and Records
(a) The corporate books, records, and Board minutes of
R-HC will be made available within New York State, and the
Commission and Staff shall, upon oral or written request, be
provided prompt access to those books and records.
(b) In addition, the Commission and Staff shall, upon
oral or written request, be provided prompt access to the books
and records of Affiliates of the New York regulated telephone
companies (e.g., R-Net, Highland Telephone, Sylvan Lake
Telephone, Seneca-Gorham Telephone, and AuSable Valley Telephone
["NY Telcos"]) that are controlled by R-HC, where the Affiliate
whose books and records are sought has either a direct or
indirect relationship with a NY Telco. Staff shall have the
right to audit without notice the books and records of R-Net, R-
HC and R-Net's Affiliates with respect to any transfer of funds
subject to the cash management agreement referred to in paragraph
I.A.14.
If R-HC does not have a controlling interest in an entity
that has direct or indirect transactions with R-Net or other NY
Telcos, upon oral or written request, Staff shall be permitted to
review and copy any financial reports or records (including but
not limited to income statements, balance sheets and statements
of cash flows) that R-HC has in its possession or that R-HC has
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access to for such entity. The procedures of 16 N.Y.C.R.R.
Subpart 6-1 will be followed, if applicable.
In addition, upon request, Staff shall be permitted to
review all financial reports, as defined above, of Affiliates of
R-HC that do not have apparent direct or indirect transactions
with R-Net or other NY Telcos. For entities that R-HC does not
have a controlling interest in, Staff will be permitted to review
and copy any financial reports or records that R-HC has in its
possession or that R-HC has access to, subject to the procedures
of 16 N.Y.C.R.R. Subpart 6-1.
For the purposes of this paragraph I.A.4.b., any information
in the possession or control of an entity over which R-HC has,
directly or indirectly, the power to direct, or cause the
direction of the actions, management and policies, shall be
deemed to be in the possession and control of R-HC and shall be
made available as provided in this paragraph I.A.4.b.
Where it is not apparent that an Affiliate has either a
direct or indirect relationship with a NY Telco but Staff has a
reasonable basis for believing that the relationship between that
Affiliate and R-HC or any other Affiliate (including the NY
Telcos) may affect the revenues, expenses or investments of the
NY Telco, Staff shall have the burden of demonstrating its
reasonable basis to the Commission. The NY Telco and R-HC will
be afforded a reasonable opportunity to respond. If the
Commission finds that there is a reasonable basis for believing
that the relationship between that Affiliate and R-HC or any
other Affiliate (including NY Telcos) may affect the revenues,
expenses or investments of the NY Telco, upon oral or written
notice, Staff shall be provided prompt access to the books and
records of the Affiliate(s) in question. Nothing in this
Agreement shall limit or modify R-Net's or any other NY Telco's
obligations to provide information to the Commission or Staff to
establish R-Net's or the other NY Telco's compliance with the
Commission's affiliate transaction rules and with the provisions
of this Agreement.
In discharge of the requirements of this paragraph, neither
R-HC nor any of its non-regulated Affiliates will be required to
develop records or reports that are not prepared in the ordinary
course of business or required by the terms of this Agreement.
Nothing in this Agreement shall be construed to abridge the
Commission's authority under the Public Service Law ("PSL") with
respect to access to corporate books and records.
5. Use of RTC Name
Except in connection with the customer education and
outreach activities described in paragraph IV.A. below, the RTC
name shall not be assigned to or used by any entity other than R-
Net. The RTC name includes any name or identifying logo or
trademark used by RTC prior to restructuring. Incidental use of
the RTC name for the temporary continuation of existing signs,
letterhead and business cards shall be permitted on an interim
basis, but in no event to exceed three months, as more
specifically provided below:
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(a) There shall be no use of the RTC name by or on
behalf of R-Com or any New York State nonregulated Affiliate
except for Rochester Tel Mobile Communications;
(b) Use of the RTC name by R-HC shall cease within
three months of the effective date of the OMP but, at no time and
in no case, shall the RTC name be used by or on behalf of R-HC or
other nonregulated Affiliates for the marketing of
telecommunications services;
(c) Use of the RTC name by DSI shall cease thirty days
after the later of Commission approval of this Agreement or RTC
shareowner approval of the corporate restructuring; and
(d) Use of the RTC name by non-New York State
Affiliates other than local exchange telephone companies shall
cease within three months of the effective date of the OMP.
B. R-Net
1. R-Net Formed
On the effective date of the OMP, the public utility
franchises currently held by RTC shall be transferred to R-Net,
which shall in advance seek authorization from the Secretary of
State to operate as a transportation corporation under New York
law in accordance with its certificate of incorporation attached
hereto as Appendix 3, and RTC shall cease, on that date, to be a
telephone corporation under the provisions of the PSL. R-Net
shall succeed to all of RTC's regulatory rights, duties and
responsibilities as a telephone corporation, except as provided
herein.
2. Issuance of Securities
On the effective date of the OMP, R-Net is authorized to
issue common stock and to transfer shares of such common stock to
R-HC in exchange for the transfer of the assets, accounts,
personnel and telephone operations of RTC as provided for in
paragraphs I.B.3. and I.B.4.
RTC's best current estimate of R-Net's actual capital
structure at inception (after the debt issuance(s) discussed
below) is shown in Appendix 4. In no event shall the initial
ratio of R-Net's long-term debt to total capital exceed the
40.37% ratio contained in Appendix 4. In addition, the amount of
public long-term debt shall be no less than $40 million.
R-Net's initial capitalization shall include sufficient
public debt to obtain an initial debt rating of that public debt
of "A" or above from Standard and Poor's ("S&P") and "A2" or
above from Moody's Investor Services ("Moody's"). The remainder
of R-Net's debt may be composed of debt payable to R-HC, provided
that R-Net's initial non-public debt shall consist of components
such that, in the aggregate, the interest rate and maturity shall
be the same as the terms of the public debt currently outstanding
that RTC issued, prior to the effective date of the OMP, for the
rendition of public service in RTC's pre-restructuring service
territory.
R-Net shall obtain its initial public debt in one of two
ways:
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(a) RTC shall issue, subject to Commission approval,
and prior to the effective date of the OMP, public debt
assignable to R-Net. This debt shall be assigned to R-Net as
soon as practicable; or
(b) R-Net shall issue, subject to Commission approval,
public debt within 90 days of the effective date of the OMP. The
effective cost of this public debt (i.e., including all issuance
and other expenses) to customers shall not exceed 8.00%.
3. Transfer of Assets and Personnel
On the effective date of the OMP, there shall be transferred
to R-Net from RTC, all of the business of the latter, including
its assets, accounts, personnel and liabilities with the
exception of the assets, accounts, personnel and liabilities
retained by R-HC pursuant to paragraph I.A.2. above, or
transferred to either R-Com or Distributed Solutions, Inc.
("DSI"), pursuant to paragraphs I.C.3. and I.E. below. The items
so transferred to R-Net shall be reflected on its books in the
amounts that they had been reflected on the books of RTC
immediately prior to the transfer. Within 30 days of the
effective date of the OMP, R-Net shall provide to Staff, and to
the active parties in this proceeding, an enumeration by
functional group of the assets, accounts, personnel and
liabilities transferred to R-Net. R-Net shall establish the
position of legal counsel and the incumbent of that position
shall be responsible for the provision of legal services to R-Net
only.
4. Transfer of Telephone Operations
On the effective date of the OMP, RTC shall cease providing
regulated telephone service and, that responsibility, together
with the customer base, shall be transferred to R-Net, except as
provided below.
5. Responsibility to Offer Service
(a) With the exception of those services enumerated in
paragraph I.C.3.a., as that listing may be expanded as provided
in paragraph I.B.7., R-Net will succeed to the responsibilities
of RTC with respect to the services now offered by the latter.
Accordingly, except with respect to the services included within
paragraph I.C.3., or as otherwise provided in this document,
R-Net will, subject to the Commission's on-going authority,
provide at retail the service offerings currently provided by
RTC. Additionally, R-Net shall, to the extent provided in its
initial tariff, and, in the future, to such extent as may be
reasonably practical upon a bona fide request, unbundle the
services or network elements available from its network
facilities, and those services will be available in the existing
service territory of RTC, on a tariff basis, for purchase by
R-Com and by other carriers certified by the Commission to offer
telephone service ("certified carriers") or by other bona fide
service providers. Nothing in this Agreement prohibits a
certified carrier or other bona fide service provider from
seeking Commission authorization requiring that R-Net, in its
existing territory, further unbundle network services and/or
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elements. If R-Net declines to make the service or network
elements available, it shall indicate its reasons. Either R-Net
or the requesting party may refer any dispute to the Committee on
Standards and Cooperative Practices, as described in paragraph
III.A. below, prior to bringing the dispute to the Commission.
This does not preclude any party from petitioning the Commission
directly for the establishment of a task force to address the
issue, as provided for in the Order Instituting Procedures for
the Creation of ONA Task Forces, issued and effective March 29,
1989.
R-Net will succeed to the obligations currently imposed upon
or accepted by RTC to allow the physical collocation of
facilities of other telephone carriers at installations operated
by R-Net.
(b) With the exceptions of those services enumerated
in paragraph I.C.3.a., as such enumeration may in the future be
expanded as provided in paragraph I.B.7., a retail customer
within the existing service territory of RTC may at any time
transfer from any other certified carrier to R-Net for the
provision of any service then offered by R-Net at retail. The
first time a customer transfers back to R-Net, provided that the
transfer back is within a period of three years from the
effective date of the OMP, R-Net shall not impose an order
processing charge or other non-recurring charge except that the
customer will, pursuant to tariff, be assessed any applicable
charges only for any required field work, and except that R-Net
may require deposits or payments of balances due for previously
supplied R-Net services, as provided by R-Net's tariffs and
Commission regulations.
(c) Directories: R-Net will continue to offer White
and Yellow page directories for the R-Net service territory,
including electronic Yellow and White pages ("Electronic
Directories") should R-Net begin offering that service for its
service territory. No other R-HC Affiliate may provide White and
Yellow pages, including Electronic Directories, in R-Net's
service territory absent Commission approval of the transfer of
assets and/or service. Notwithstanding the foregoing, if White
or Yellow page assets and services are not transferred, an R-Net
Affiliate may provide White and Yellow pages and Electronic
Directories in R-Net's service territory provided that any R-Net
data and/or data bases used by the Affiliate to provide such
services are available to all other providers on the same terms
and conditions, pursuant to tariff. R-Net may petition the
Commission for permission to transfer its Yellow page or
Electronic Directories operations, or any portion thereof, to
another entity upon such terms and conditions as the Commission
may at that time impose. Only R-Net or its agent may market
White pages, Yellow pages and Electronic Directories as the
official directory of R-Net or RTC. In the event an Affiliate
and R-Net are both providing directories, R-HC, its Affiliates
and R-Net shall not market, provide, sell or advertise each
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others' directories, including but not limited to White pages,
Yellow pages, Electronic Directories or directories in any other
medium, in R-Net's service territory, except as permitted by the
Commission.
6. Notice of Additional Service Offerings and Network
Elements
(a) It is anticipated that, as R-Net modifies and
expands its network, other services or network elements will be
available for resale by R-Com and by other certified carriers and
bona fide service providers. R-Net will, to the extent
practicable, provide at least three months' notice of the
availability of any new service or network elements to all
certified carriers and bona fide service providers at the same
time.
(b) Annually, R-Net shall file with the Commission its
Capital Program Filing pursuant to 16 N.Y.C.R.R. Section 644.3.
To the extent that any certified carrier or bona fide service
provider is desirous of purchasing a network function or service
that is neither then currently offered by R-Net nor contemplated
in its Capital Program Filing to be available, the certified
carrier or bona fide service provider shall submit a request for
the service or network function to R-Net. Within sixty days from
the receipt of such request, R-Net shall advise whether and when
the service or network function will be available on a tariff
basis. If R-Net declines to make the service or network function
available, it shall indicate its reasons and, at the option of
the requesting certified carrier or bona fide service provider,
refer any dispute to the technical committee established pursuant
to paragraph III.A. below. This does not preclude any party from
petitioning the Commission directly for the establishment of a
task force to address the issue, as provided for in the Order
Instituting Procedures for the Creation of ONA Task Forces,
issued and effective March 29, 1989. R-Net shall keep a record
of all requests for service or network functions, to be available
upon request. Whenever capital expenditures are made to
accommodate the request of a single or limited group of
customers, certified carriers or bona fide service providers for
a specific network function or service, R-Net shall, by contract
or tariff, impose upon such customer(s), certified carrier(s) or
bona fide service provider(s), a termination charge sufficient to
reimburse R-Net for its unrecovered investment in the event that
the customer(s), certified carrier(s) or bona fide service
provider(s) terminate service before the capital expenditures are
fully recovered.
7. Transfer of Goods and Service Offerings and
Stand-Alone Assets
At any time that R-Net or any interested person or entity
believes that the market for a particular regulated good or
service is competitive, it may apply to the Commission for
authorization for R-Net to cease offering that good or service at
retail and for R-Com to begin providing that good or service. If
subsequently authorized by the Commission, and R-Com agrees to
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the transfer price set in that proceeding, R-Com will begin
providing that good or service consistent with the requirements
and conditions of the Commission's Order in that proceeding. The
Commission may approve the proposed transfer if it finds that the
transfer will be consistent with the public interest. If R-Com
finds the transfer price set in that proceeding to be
unacceptable, R-Net shall retain the good or service and continue
to provide it at retail as well as at wholesale. Any assets
transferred to R-Com shall be removed from the system of accounts
of R-Net and, thereafter, R-Net shall no longer offer that good
or service at retail. If the good or service that is transferred
is provided through facilities that are integral both to network
operations and to the provision of that good or service at
retail, those facilities shall remain owned by R-Net and such
transferred good or service shall be offered by R-Net to R-Com,
any other certified carriers or any other bona fide service
providers on an unbundled tariff basis.
8. Board of Directors
A majority of the membership of the Board of Directors of R-
Net shall be outside directors, i.e., they may not be officers or
employees of R-Net, nor may they be directors, officers or
employees of R-HC or of any Affiliate of R-HC. Only one of
R-Net's Directors may simultaneously serve as a Director, Officer
or employee of R-HC or any of R-HC's Affiliates other than R-Net.
Following the selection of the initial Board of Directors, the
nomination of outside R-Net directors will be the responsibility
of an R-Net Committee on Directors, all of the members of which
shall be outside directors.
9. Compensation and Responsibilities of Officers and
Employees
Annual compensation (including cash, bonuses and stock
options) of officers and employees of R-Net shall be based on the
service and profitability of R-Net only. Any stock option
program adopted for R-Net officers and employees shall be in R-HC
stock provided, however, at no time may the officers and senior
management employees (see footnote 2) of R-Net, their spouses and
unemancipated children, own shares of, or options in, the stock
of R-HC that collectively exceed ten percent of the outstanding
shares of R-HC. The annual allocation of individual options,
purchases of shares on the open market and purchases through R-
Net's 401(K) plan shall be included within the cap. R-Net shall
annually require its officers and senior management employees to
certify the number of shares owned by them, their spouses and
unemancipated children, and R-Net will provide the Commission
annually with the total stock ownership interest of that group in
the stock of R-HC.
Annually, R-Net's management employees at or above the
Manager level shall certify in writing their general familiarity
with the Commission's requirements regarding affiliate
transactions, including the requirements of this Agreement, and
shall affirm that their subordinates who have reason to make
judgments about the jurisdictional nature of their work are
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familiar with the Commission's affiliate transaction
requirements.
10. Dividend Certification
(a) At least annually, but also following any
circumstance that could reasonably be expected to affect
adversely R-Net's debt ratings, including but not limited to, a
downgrading of the debt ratings of R-HC, R-Net will review with
the Director of the Department of Public Service Office of
Accounting and Finance its activities and plans relating to the
attraction of capital and, in addition, review R-Net's dividend
and financial experience over the past fiscal year and its plans
and projections for the coming fiscal year.
(b) As a condition of any decision by R-Net to pay
dividends on R-Net's common stock, the directors of R-Net shall
certify quarterly that the payment of such dividends will neither
impair R-Net's service quality nor its ability to finance its
short and long term capital needs at reasonable terms while
maintaining a debt rating target of "A" (for S&P, or the
equivalent for other rating agencies).
(c) If R-Net's service quality deteriorates to the
point where the penalty in Appendix 5, page 2, condition 2(a)
applies, the directors of R-Net shall not authorize any
additional payment of dividends on common stock until it shall
first have rectified the service deficiency or deficiencies
triggering the penalty as defined in Appendix 5 to the
satisfaction of the Director of the Communications Division of
the Department of Public Service.
(d) In addition to the foregoing, at any time during
the term of this Agreement:
(i) if R-HC or R-Net experiences a downgrading of
its senior debt, or is placed on a credit watch for a
possible downgrading of its senior debt, the affected
company's management will immediately notify and meet
with the Director of the Office of Accounting and
Finance of DPS to explain its evaluation of the present
and future status of R-Net's credit worthiness,
including a review of R-Net's dividend and financial
experience for the prior year and its financial plans,
including its forecasted capital requirement for the
coming fiscal year and R-Net's plan for meeting its
capital requirements; or
(ii) if R-Net experiences any downgrading of its
senior debt to a rating of "A-" (for S&P, or the
equivalent for other rating agencies) or below, or is
placed on a credit watch for a possible downgrading to
"A-" (for S&P, or the equivalent for other rating
agencies) or below, R-Net management shall immediately
notify the Director of the Office of Accounting and
Finance of DPS and, within thirty days, provide the
Director with a written explanation as to the
implications of such a downgrading or credit watch for
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the present and future credit worthiness of R-Net and
provide the Director with R-Net's plans for the
improvement of its debt rating and for satisfying its
forecasted capital requirements; or
(iii) if R-Net experiences a downgrading of its
senior debt to "BBB" (for S&P, or the equivalent for
other rating agencies) or below, or is placed on a
credit watch for a possible downgrading to "BBB" (for
S&P, or the equivalent for other rating agencies) or
below, R-Net will immediately discontinue payment of
dividends to R-HC until either the Commission approves
such payment, or its senior debt rating rises above
"BBB" (for S&P, or the equivalent for other rating
agencies) or the credit watch for a possible
downgrading to "BBB" (for S&P, or the equivalent for
other rating agencies) or below, is withdrawn.
11. Pledge of Assets
The assets of R-Net shall only be pledged for the debt
obligations of R-Net. Pursuant to PSL Sections 101, 106 and 107,
or any other provision of the PSL, R-Net will seek Commission
approval as required by these sections for issuing securities,
making loans and using revenues. Any secured debt transferred
from RTC to R-Net must have as collateral only R-Net assets. R-
Net shall not make any loans to R-HC or any R-HC Affiliate for
which the assets of an R-HC Affiliate, different than the loan
recipient, are pledged.
12. Debt Rating
R-Net shall obtain, as soon as possible, a separate rating
for its public debt securities from three major rating agencies
including, at a minimum, from S&P's and Moody's, and shall
maintain sufficient public debt at R-Net to support continuation
of separate debt ratings on that public debt. If R-Net is unable
to secure a separate public debt rating from three rating
agencies, it shall provide evidence of its efforts to do so and
justify its inability to secure three separate ratings.
13. Service Quality
R-Net shall, in the case of service offerings it provides
and for the duration of the rate plan period specified in
paragraph II.A.4., maintain service quality at the levels
described in Appendix 5 to this Agreement. If R-Net fails to
achieve the required service levels, a Service Quality Penalty of
up to one half of one percent of total local service and
intraLATA toll revenues, calculated in accordance with Appendix
5, will be credited, with carrying charges, for the benefit of
all local service customers, subject to disposition by the
Commission. On January 20, 1996, and each January 20 thereafter,
R-Net shall submit to the Directors of the Communications and
Consumer Services Divisions of DPS a statement of service quality
which clearly describes R-Net's performance based on the
standards described in Appendix 5 and a calculation of any
necessary penalty. If the first year following the effective
date of the OMP is less than a full calendar year, the
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calculation and any penalty required by this paragraph shall be
apportioned accordingly. Nothing herein changes the obligations
of R-Net to provide monthly service quality data as required in
16 N.Y.C.R.R. Part 603.
14. Funds Transfers and Cash Management Agreement
Upon the formation of R-HC, R-Net and the other NY Telcos
may participate in a cash management program that, in all
material respects, is the same as the model agreement outlined in
Appendix 6 to this Agreement, until such time as the Commission
determines that the terms and/or transactions of such program are
not in the public interest. However, such participation shall
only be permitted to the extent that:
(a) All fund transfers, including but not limited to,
advances, short-term loans, deposits, or any other instruments
representing short-term fund transfers, between any NY Telco and
any Affiliate, including between R-Net and any other NY Telco or
R-HC, and excluding those that are required for transactions
governed under the affiliate transactions rules (discussed in
paragraph I.B.15. of this Agreement) and those that constitute
dividends from R-Net, or any other NY Telco, to R-HC, shall be
made in accordance with the terms of this cash management
agreement.
(b) The sum of the balances of R-Net's long-term debt,
cumulative net fund transfers between R-Net and its Affiliates
(including R-HC), short-term debt, customer deposit balances,
preferred stock balances, or any other evidence of R-Net's
indebtedness, shall not at any point in time during the term of
this Agreement, in the aggregate, exceed 45% of R-Net's "Total
Capital" (defined for the purposes of this Agreement as the sum
of all the previously named components, plus common equity).
(c) The sum of net fund transfers between R-Net and
its Affiliates (including R-HC), R-Net's short-term debt, and any
other evidence of R-Net's indebtedness for a period of twelve
months or less shall not at any point in time during the term of
this Agreement exceed 5% of R-Net's Total Capital. Similarly,
the sum of net transfers between any other NY Telco and its
Affiliates (including R-HC), the NY Telco's short-term debt, and
any other evidence of the NY Telco's indebtedness for a period of
twelve months or less shall not at any point in time during the
term of this Agreement exceed 5% of the NY Telco's Total Capital.
(d) Staff shall have the right to audit without notice
the books and records of R-Net, R-HC, its Affiliates and the NY
Telcos with respect to these transfers of funds. Upon audit, if
Staff determines that the amount of transfers exceeds the caps
specified in this Agreement, the entity receiving the funds must,
within twenty-four hours, transfer any funds in excess of the
caps, plus interest, to R-Net or the NY Telco. Such interest
shall be calculated from the date on which such transfer, which
exceeded the caps, occurred.
15. Affiliate Transactions
(a) R-Net shall conduct its operations consistent with
New York law and Commission regulations and policy to avoid any
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subsidization of either R-HC or an Affiliate. Any transactions
between R-Net and R-HC, or between R-Net and any of its
Affiliates, shall be conducted at arm's length. Any common
expenses shall be allocated on a fair and reasonable basis in
accordance with applicable Commission accounting standards and
requirements. The parties intend that transactions with
Affiliates not provided by tariff or written contract shall be
held to a minimum, and subject to the caps provided below.
(b) If R-HC or any Affiliate seeks to acquire a New
York telephone corporation authorized to provide local exchange
service subject to the PSL (an "Acquisition"), in its petition
for approval from the Commission, the petitioner shall either
consent to the treatment of the Acquisition as a NY Telco subject
to this Agreement, or shall provide justification why the
Acquisition should not be so treated. The Commission's
determination therein shall be binding. Applicable limits on
affiliate transactions of Acquisitions treated as NY Telcos shall
be established considering the level of affiliate transactions
during their first full year of operations after acquisition,
subject to Commission approval.
(c) Except as provided in this paragraph, transactions
between R-Net and its Affiliates and between R-Net and R-HC and
its Affiliates shall be limited to purchases and sales made
pursuant to tariff. Notwithstanding the above, R-Net may
continue to engage in non-tariffed purchases from R-HC and R-HC's
Affiliates provided that the transactions involve goods or
services that were, prior to the effective date of the OMP,
provided to RTC on a non-tariff basis and provided further that
the total volume of such transactions on an annual basis does not
exceed $4 million dollars (plus RTC's actual 1993 allocated costs
for mutually beneficial services and for services currently
provided within RTC that become R-HC services) for all of R-Net's
non-tariffed affiliate transactions except with DSI, and no more
than actual 1993 RTC Information Services expenses for all of R-
Net's non-tariffed transactions with DSI.
(d) Except as provided in this paragraph, transactions
between the NY Telcos, other than R-Net, and R-HC and R-HC's
Affiliates shall be limited to purchases and sales made pursuant
to tariff. Notwithstanding the above, the NY Telcos, excluding
R-Net, may continue to engage in non-tariffed purchases from R-HC
and R-HC's Affiliates provided that the total volume of such
transactions on an annual basis (including allocations and
contracts) does not exceed the 1993 dollar level of each NY
Telco's transactions with the NY Telco's Affiliates and provided
further that the dollar level of each NY Telco's transactions
with DSI shall not exceed the dollar level of comparable services
provided to it by the NY Telco's Affiliates and internally in
1993.
(e) R-Net's, Highland's, Sylvan Lake's, Seneca-
Gorham's, AuSable Valley's and any other NY Telco's non-tariffed
transactions with each other and any other Affiliate shall be
made pursuant to signed written contracts negotiated at arm's
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length. For example, if R-HC or an Affiliate provides office or
other space to R-Net, Highland, Sylvan Lake, Seneca-Gorham or
AuSable Valley, it shall be subject to a written lease or
sublease.
To the extent that costs associated with affiliate
transactions are to be allocated, R-Net, Highland, Sylvan Lake,
Seneca-Gorham and AuSable Valley shall, on the effective date of
the OMP, file such allocation procedures with the Commission,
which may modify or disapprove the allocation procedures to the
extent required by the public interest. If at any time during
the period of this Agreement, Staff is concerned about any
allocation of an affiliate cost to a NY Telco, it shall advise
that NY Telco and, if Staff and the affected NY Telco cannot
agree, the NY Telco shall have a reasonable opportunity to
support continuation of the allocation before the Commission. If
the Commission concludes that the allocation no longer is
appropriate, the allocation of that particular expense shall be
based on actual time expended (or such other basis as specified
by the Commission) until the Commission thereafter determines
that time (or other basis) no longer is necessary.
(f) Should R-Net, Highland, Sylvan Lake, Seneca-
Gorham, AuSable Valley or any other NY Telco wish to engage in
any affiliate transaction beyond the caps provided for above, it
shall file with the Commission, at least thirty days prior to the
transaction (unless exceptional circumstances require that the
transaction occur sooner), a description of the goods or services
involved, their dollar value, and a statement explaining why an
affiliate transaction is appropriate. With respect to any such
transaction, if Staff does not agree that the transaction is to
the NY Telco's customers' benefit, the affected NY Telco may
continue with the transaction, but in such event the affected NY
Telco shall petition the Commission for approval. After
appropriate notice and hearing, the Commission may make such
ratemaking adjustments and/or require such immediate changes in
the contract or transaction, including, but not limited to,
cessation of the contract or transaction and/or return of any of
the NY Telco's assets and/or data provided pursuant to the
transaction, as it finds appropriate; however, for any NY Telco
then under a rate stability plan no further adjustment to rates
will be made for the period of the plan.
(g) At the end of the rate period provided for in this
Agreement, or in conjunction with a rate case or show cause
proceeding, whichever is earlier, R-Net, Highland, Sylvan Lake,
Seneca-Gorham, AuSable Valley and any other NY Telco shall bear
the burden of demonstrating that continuation of its affiliate
transactions then in place is in the public interest. As part of
such presentations, each shall demonstrate that the charges it
pays to Affiliates are in the best interest of its customers.
(h) With respect to their affiliate transactions with
DSI, one year prior to the termination of this Agreement, or in
conjunction with a rate case or show cause proceeding, whichever
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is earlier, R-Net, Highland, Sylvan Lake, Seneca-Gorham, AuSable
Valley and any other NY Telco shall file with the Commission a
proposal to continue to use DSI as a vendor if they intend to
maintain the relationship in the future. That proposal shall be
supported by studies, testimony, or other evidence demonstrating
that continued use of DSI as a vendor is in the best interest of
the NY Telcos' customers.
(i) If at any time prior to the end of this Agreement,
Staff believes that continuation of the relationship between R-
Net, or any other NY Telco, and DSI is no longer in the best
interest of that NY Telco's customers, the NY Telco in question
shall bear the burden of demonstrating that continuation of that
relationship is in the public interest and the following
procedure shall apply:
(1) Staff will communicate its concerns to R-Net,
Highland, Sylvan Lake, Seneca-Gorham or AuSable Valley
or any other NY Telco and offer management a reasonable
time to review and address Staff's concerns.
(2) If the NY Telco fails to respond
satisfactorily to Staff's concerns within three months
of Staff's request, Staff may recommend to the
Commission that it initiate a show cause proceeding.
(3) If the Commission, following a show cause
proceeding, determines that continuation of the NY
Telco's relationship with DSI is not in the best
interest of that NY Telco's customers, the affected NY
Telco shall terminate its relationship with DSI and
shall be obliged to obtain the services previously
obtained from DSI from the most reasonable alternative,
subject to Commission approval.
(j) In the event that DSI no longer provides computer,
billing, or other services to R-Net, any contract or arrangement
with any Affiliate to provide similar services shall continue the
provisions of this Agreement governing R-Net's relationship with
DSI.
(k) Nothing in this Agreement shall be construed to
abridge the Commission's authority pursuant to the PSL with
respect to affiliates.
16. Network Functionalities, Services and Data Bases
R-Net's network functionalities, services, data and data
bases shall not be transferred to, managed by, or controlled by,
any Affiliate without Commission approval.
C. R-Com
1. R-Com Formed
By the effective date of the OMP, R-Com shall seek
authorization from the Secretary of State to be formed in
accordance with the draft certificate of incorporation attached
hereto as Appendix 7. RTC will separately apply to the
Commission on R-Com's behalf for a certificate of public
convenience and necessity authorizing R-Com to provide any form
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of regulated telephone services, including facilities-based and
resale services, in the State of New York. The application may
request waivers of the Commission's regulations on the same basis
as then applicable to comparable reseller or facilities-based
carriers. With respect to its local service resale operations,
R-Com shall be regulated in the same manner as similarly situated
providers, and as determined by the Commission in the Competition
II proceeding (Case 94-C-0095) or in subsequent proceedings.
2. Issuance of Shares
On the effective date of the OMP, R-Com is authorized to
issue common stock and to transfer shares of such common stock to
R-HC in exchange for the transfer of assets, accounts, personnel
and telephone operations of RTC, as provided for in paragraph
I.C.3. below.
3. Transfer of Assets, Personnel and Telephone
Operations
(a) On the effective date of the OMP, there shall be
transferred to R-Com from RTC, all of the stand-alone assets,
necessary personnel, and customers then acquiring these services
from RTC, in order to permit R-Com to offer at retail, the
following goods or services:
(i) Centrex;
(ii) Private Line Service, where the customer is
taking high capacity service (1.544 megabits per second and
above) or a combination of high capacity and lower capacity
service.
Any physical assets associated with Centrex or Private Line
services that are transferred to R-Com shall be transferred at
the greater of net book or market value; and
(iii) Voice Mail (subject to an acceptable
transfer price as set forth below).
If voice mail service is to be transferred to R-Com,
then for the purpose of determining the transfer price and value
of any associated assets of voice mail service only, and not for
any precedential purpose, as soon as this Agreement is approved
by the Commission, RTC and Staff shall each prepare a valuation,
both of which are to be based on the higher of book or market
value at the end of the fifth year following the effective date
of the OMP, and shall endeavor to agree on a valuation price. If
RTC and Staff are unable to agree, they shall mutually select an
independent person or entity, whose valuation shall be binding,
to prepare a valuation on the same basis. If R-Com agrees with
the independent valuation, it shall make payment of the agreed-
upon valuation to R-Net at the end of the fifth year. R-Net
shall book any such payment as a reduction to rate base.
If R-Com is unwilling to accept the transfer of voice mail
service at the selected valuation price, R-Net's voice mail
service shall be put up for public bid at no less than the
present value of the established valuation price. If there is no
bid at a level at or greater than the valuation, the service and
underlying assets shall remain at R-Net. Any further
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consideration of the transfer of voice mail service from R-Net to
R-Com or any other prospective purchaser shall result in a new
valuation of the transfer price.
Subject to the terms of this Agreement, the transfer of
voice mail to R-Com or another entity shall take place as soon
after the effective date of the OMP as is practicable. Any
payment received by R-Net from R-Com for the transfer and
associated carrying costs shall not be reflected in R-Net's rates
earlier than upon the termination of the rate period provided for
in this Agreement. If the assets are purchased by an entity
other than R-Com, the amount by which the sale price exceeds the
net investment in such assets shall be deferred by R-Net,
together with carrying costs, to be disposed of following the
rate period in the best interest of R-Net's customers, as
directed by the Commission.
(b) With respect to any service or customer base that
remains at R-Net, R-Com is free to compete for those customers by
reselling services purchased from R-Net or from another vendor or
by selling services provided through R-Com's own facilities.
(c) R-Com is free to offer for sale, on a bundled
basis, tariffed services and/or tariffed network elements that it
purchases from R-Net along with competitive services, provided,
however, the bundled price shall be at least equal to the sum of
R-Net's tariff price to R-Com for the tariffed services and/or
tariffed network elements plus R-Com's incremental cost of the
competitive services. Any carrier that competes with R-Com
within the service territory of R-Net may challenge R-Com's
compliance with the price requirements of this paragraph before
the Commission, provided that it makes a prima facie showing that
the price charged by R-Com is in violation of the requirements of
this paragraph including, as part of that submission, cost or
other relevant information. R-Com shall be provided an
opportunity to refute that submission.
D. Non-regulated and Regulated Services
R-Net will file a Cost Allocation Manual ("CAM") no later
than the effective date of the OMP, which will reflect the
changes to RTC's current CAM that are discussed below.
1. Non-regulated Services
The following services listed in Section V of RTC's CAM will
be considered non-regulated for the purposes of this Agreement,
and may be transferred to R-COM upon the effective date of the
OMP:
(a) Terminal equipment sales, services, and leases;
(b) Packet Switching - network concentrator which
performs protocol conversion functions;
(c) Fiber Optic Facilities - construction, removal and
maintenance on customer premises of customer-owned
fiber optic equipment;
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(d) Audiotext Equipment Only - local network
functionalities will be regulated and tariffed by
R-Net;
(e) RCI Operator Services - personnel performing
operator services for RCI under contract will be
transferred to either R-Com or RCI;
(f) Home Video Text - equipment used to interact with
host computer of Prodigy Service Company to allow
the provision of home video text service;
(g) Data Terminal Equipment - sales, services and
leases of digital data equipment at customer
premises;
(h) Facsimile Services - store and forward platform
which permits hotel guests to receive facsimile
messages in hotel rooms;
(i) Enhanced Fax Services - enhanced services such as
fax on demand, guaranteed fax and broadcast fax;
and
(j) ITN/RSTP - equipment necessary to provide
Signalling System 7 Services to Independent
Telecommunications Network, Inc., which then
provides these to other local exchange companies.
To the extent services which were funded by customers are
transferred to R-Com, they shall be transferred at the greater of
net book or market value.
2. Regulated Services
The following services will be considered regulated
services, and may be retained and tariffed by R-Net or the assets
associated with these services transferred to R-Com at the
greater of market or net book value upon the effective date of
the OMP:
(a) Telephone Answering Service - answering and
screening of calls, teleconferencing service;
(b) Voice Mail Service, subject to the terms set forth
in paragraph I.C.3.a.iii; and
(c) Advanced Communications Services - application
processor used to provide additional services to
Centrex customers.
R-Net shall notify Staff no later than the effective date of
the OMP which of the above services will be transferred to R-Com,
and which have been retained by R-Net.
E. DSI
1. Transfer of Assets and Value
The assets transferred to DSI shall be valued at the higher
of net book or market value at the time of transfer.
2. Use of R-Net Data and/or Databases
DSI shall have access to data and/or databases of R-Net to
the extent necessary to permit it to provide computer, billing
and other services that it contracts with R-Net to provide to R-
Net. The data and/or databases so provided to DSI shall remain
the property of R-Net, which shall ensure that the data and/or
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databases are used consistently with the Commission's Privacy
Requirements (i.e., the Commission's regulations and orders with
respect to Customer Proprietary Network Information, non-listed
or non-published service, Call I.D. and other Custom Local Area
Signalling Services ("CLASS"), Automatic Number Identification,
the Privacy Principles and similar rules, orders and principles
that the Commission may adopt). All agreements between R-Net or
any other NY Telco and DSI shall be by written contract. Any
contract between DSI and either R-Net or R-Com or any other NY
Telco shall be filed for information purposes with the
Commission. Nothing in this paragraph shall modify the
requirements specified in paragraph I.B.15 (Affiliate
Transactions). R-Net and any other NY Telco shall include in any
contract with DSI the terms and restrictions provided in this
paragraph.
3. Development of New Products or Services by DSI;
General Availability
Neither R-Net nor any other NY Telco shall itself fund the
costs of DSI developing new products and services not requested
by R-Net or that NY Telco. However, nothing prevents DSI from
including reasonable development costs in its prices for any
product or service not requested to be developed by, but sold to,
R-Net or the NY Telco, consistent with the Commission's affiliate
transaction rules, affiliate contract rules and this Agreement.
Any product or service so developed by DSI, or currently provided
by DSI to RTC, which product or service will be provided by DSI
to R-Net, shall be made available to Affiliates and non-
Affiliates on the same terms and conditions provided, however,
that the sales price to Affiliates shall be consistent with the
Commission's and this Agreement's rules on affiliate contracts
and transactions and the terms of this Agreement. Any agreement
between the NY Telcos and DSI shall include the terms of this
Agreement.
4. Products or Services Developed at the Cost of R-
Net or Any Other NY Telco
R-Net or any other NY Telco may request that DSI develop a
particular product or service and, if so, R-Net or the other NY
Telco may be required to finance the cost of that development,
but any product or service so developed shall remain the property
of R-Net or the other requesting NY Telco. If DSI wishes to
market the product or service, or portions thereof, to others, it
must negotiate a suitable arrangement to ensure that R-Net or the
other NY Telco retains ownership and is paid an appropriate
license or royalty fee. Any contract between R-Net or the NY
Telcos and DSI shall explicitly provide that any service or
product developed at the request of R-Net or the NY Telco by DSI
shall remain the property of R-Net or the NY Telco to the extent
of R-Net's or the NY Telco's interest and shall be negotiated at
arm's length. Any such arrangement shall be filed with the
<PAGE>
<PAGE> 19
Commission for information. This paragraph is not intended to
modify any requirements provided for in paragraph I.B.15.
(Affiliate Transactions).
II. Rates, Revenue Requirements and Rate Design
A. R-Net's rates shall be reduced by $11.0 million
effective on January 1, 1995, and by $2.5 million on January 1,
1996, and by $1.5 million each succeeding January 1 through and
including January 1, 2001.
B. Subject to the reductions specified in paragraph II.A.
and the exception for discretionary services in this paragraph
II.B., and subject to the possibility of earlier termination of
this Agreement as provided for in paragraph VI below, R-Net's
rates in effect on the effective date of the OMP may not be
increased through December 31, 2001, but, in R-Net's discretion,
may be reduced further to not less than incremental cost.
Discretionary and competitive services may be priced within
flexible pricing ranges established prior to the effective date
of the OMP in RTC's tariff P.S.C. No. 40, Section 19. However,
aggregate revenues generated from price increases to existing
discretionary service rates, which are delineated in Appendix 8,
shall not exceed $2 million per year for each year of the term of
this Agreement. Any new regulated service developed by R-Net
will be subject to tariff review by the Commission. The price or
range of prices from the effective date of the tariff shall not
be increased during the term of the rate plan of this Agreement.
For the duration of the rate period provided in this Agreement,
subject to the possibility of earlier termination as provided for
in paragraph VI below, R-Net shall not defer additional costs or
benefits (see footnote 3) incurred during the period of this
Agreement nor may it file for any rate relief to be effective
during this period.
C. The reductions provided for in paragraph II.A. shall be
apportioned in the following fashion:
Each year
1995 '96 '97 '98-'01
______ ______ _____ _______
Elimination of charges
for Residential Touchtone $5MM
Elimination of charges
for Business Touchtone $0.16MM $2.5MM $1.5MM
Lifeline (see footnote 4) $0.45MM
Usage (including LMS, $5.4MM $1.5MM
cellular reciprocal
compensation and access)
<PAGE>
<PAGE> 20
A schedule of these rate reductions and corresponding rates is
attached as Appendix 9. There will be a rate differential to
recognize the margin between wholesale and retail rates. This
margin will partially reflect the costs avoided by R-Net due to
the provision by resellers of their own customer service,
marketing and other services.
D. Over the term of this Agreement a total of $17 million
shall be credited to R-Net's depreciation reserve. The timing of
those credits shall be at the discretion of R-Net except that, by
the end of the first year, the amount credited shall be at least
$5 million and, by the end of the fifth year, the cumulative
amount credited shall be at least $15 million, unless this
Agreement is terminated as provided for in paragraph VI, in which
event any remaining portion of the $17 million amount will be
credited as provided for in paragraph VI. These depreciation
reserve adjustments shall not effect a reduction in rates beyond
that specified in paragraph II.A. for the duration of the rate
plan period provided for in this Agreement.
E. $9.5 million in revenue reductions for 1994 and any
sharing amounts owed RTC customers for 1994 shall be credited to
R-Net's depreciation reserve. The $17 million credit to
depreciation reserve provided for in paragraph II.D., above,
includes the obligation to refund to customers any amount related
to depreciation for 1993.
F. All outstanding revenue requirement issues including
depreciation, accumulated deferred sharing amounts, the impact of
the Generic Financing proceeding (Case 91-M-0509) on RTC's 1994
revenue requirement reduction, and the royalty issue that is the
subject of an Article 78 proceeding (Rochester Telephone Corp. v.
Public Service Comm'n, A.D. No. 69820 (3d Dep't)), are resolved
without further adjustment, except, with respect to the royalty
issue, as provided below. Except as already reflected in this
Agreement, neither RTC (which will be R-HC) nor R-Net shall have
imputed a royalty, as described in Case 87-C-8959, Order and
Opinion Concerning Royalty, Issued and Effective July 6, 1993, by
the Commission for the period covered by this Agreement, or for
any prior period, except as set forth in paragraphs I.E.4. Upon
the termination of the rate plan period, nothing prevents the
Commission, subject to the outcome of the Article 78 proceeding
referred to above, from imputing a royalty for the period
beginning on the termination date. Nothing in this Agreement is
intended to prohibit R-Net or any Affiliate from bringing an
Article 78 proceeding at or after the end of this Agreement. In
imputing that prospective royalty, the Commission may consider
the investments in existence on the termination date,
notwithstanding when those investments were first made. For the
<PAGE>
<PAGE> 21
rate plan period, R-Net shall book its depreciation accruals at
or above RTC's current depreciation rates including depreciation
amortizations.
G. All intraLATA access obtained by carriers from R-Net
shall be purchased by carriers at the rates set forth in R-Net's
access tariff. R-Net's retail rates for intraLATA toll shall be
in conformity with the Commission's decisions in Case 28425.
III. Inter-Carrier Issues
A. Committee on Standards and Cooperative Practices
RTC, on behalf of R-Net, shall form, upon the filing of this
Agreement with the Commission, a Committee on Standards and
Cooperative Practices comprised of carriers who are, or indicate
that they intend to become, certified to provide telephone
service in the current service territory of RTC. The membG1
ership of the Committee shall be revised periodically to afford
participation to those certified carriers who are in fact
providing service to customers in the service territory of R-Net.
In addition, a representative of Staff and at least one
representative of residential customers shall be members of the
Committee. The objective of the Committee will be to develop
technical standards and cooperative practices to facilitate the
seamless interconnection of all facilities-based providers
serving in the R-Net service territory and to further the
development of a competitive market for facilities-based and
reseller services in the R-Net service territory. The Committee
will take into consideration the special technical requirements
of the disabled community and other customers with special needs.
It is intended that the Committee shall provide a forum for
complaints, lodged against R-Net by other carriers, to be
resolved in a cooperative and expeditious manner. Nothing in
this Agreement shall preclude carriers from bringing complaints
directly to the Commission. Annually, R-Net shall prepare and
file with the Commission a report summarizing the activities of
the Committee and the results of its efforts including, in an
appendix to that report, separate comments prepared by any other
member of the Committee.
B. Notice of New Services, Impartial Dissemination of
Information and Privacy
R-Net shall not provide a competitive information advantage
to any Affiliate, including R-Com. Accordingly, as provided in
paragraph I.B.6.a., R-Net must provide equal and contemporaneous
notice of new service offerings to all carriers.
Neither R-Net, R-Com nor DSI will release to Affiliates or
to any other person or entity competitively sensitive
information, defined below, regarding any customer without
permission of that customer, nor will they release any
information in violation of the Commission's Privacy Requirements
<PAGE>
<PAGE> 22
as described in paragraph I.E.2., regardless of whether it
contains competitively sensitive information. Notwithstanding
the above, R-Net, R-Com and DSI may release such information to a
regulatory authority of competent jurisdiction pursuant to its
rules. R-Net, R-Com and DSI may release such information to a
court if ordered to do so. R-Net, R-Com and DSI will notify the
attorney(s) for each customer, or the customer, whose sensitive
information is sought by a court, as soon as is reasonably
practicable. As used in the first sentence of this paragraph,
"competitively sensitive information" shall include, but not be
limited to, customer information, traffic information, network
configuration or other comparable data, but shall not include any
customer's listing information. Any contract between R-Net or
its Affiliates and DSI shall include these provisions and
restrictions.
R-Net and DSI may sell or transfer to an Affiliate any
information of competitive significance only if it is available
for sale or transfer to unaffiliated firms on equal or better
terms and conditions, and if the sale or transfer is consistent
with the Commission's Privacy Requirements as described above in
paragraph I.E.2. Nothing in this paragraph shall prevent R-Net
or DSI from engaging, under contract and subject to the rules
regarding affiliate transactions, an Affiliate to perform an R-
Net or DSI function, and transferring information of competitive
significance in the fulfillment of that contract. As used in the
preceding sentence, "information of competitive significance"
shall include, but not be limited to, any information that any
competitor of an Affiliate of R-Net or DSI could reasonably
consider useful in increasing either its sales or profits, but
shall not include information relating to customer listings in
either White or Yellow page directories and Electronic
Directories. Nothing in this paragraph shall prevent DSI from
developing proprietary software under contract for a customer,
including R-Net, so long as the only competitively sensitive
information used is that of that customer. Any contract between
R-Net or its Affiliates and DSI shall include these provisions
and restrictions.
R-Net shall include in its residential and business White
pages, at no charge and on a non-discriminatory basis, the
listing of all customers (excluding customers taking nonpublished
service from R-Net or another carrier) served within the pre-
restructuring RTC service territory, regardless of the carrier
then providing the service at wholesale or retail post-
restructuring. All carriers shall provide listing information
for White pages and directory assistance, without charge, to R-
Net and shall be responsible for the accuracy of this
information. In addition, R-Net shall include in its Yellow
pages, at no charge and on a non-discriminatory basis, the
listing of all business customers served within the pre-
restructuring service territory of RTC, regardless of the carrier
providing the service at wholesale or retail post-restructuring.
<PAGE>
<PAGE> 23
R-Net shall not discriminate against competitive carriers
and their customers in the provision of Yellow and White page
directories.
C. IntraLATA Service
Certified carriers will not be required to offer local
exchange service as a condition to offering intraLATA service.
D. Right of Interconnection
R-Net shall interconnect its local network with networks of
certified carriers. This network integration shall allow for
completely transparent calling among customers of different
providers. To the extent it is within R-Net's control, end users
subscribing to R-Net's exchange service shall be able to reach
any customer served by another provider.
Within the technical and physical constraints of existing
network facilities, and in a manner consistent with accepted
industry practice, certified carriers that establish networks for
the exchange of local traffic within the service territory of R-
Net shall have the right to interconnect with the network
facilities of R-Net at particular central offices or tandems of
their choice provided that R-Net is accorded reciprocal
interconnection rights to the network of the requesting party.
The owner or operator of the network to which such
interconnections are made shall be responsible for the cost of
modifications necessary to accommodate such interconnections
unless extraordinary expenditures are required, in which case the
requesting party will be responsible for the portion of the added
cost attributable to its special requirements. Whether or not
the requesting party is required to pay for network modifications
as provided above, it shall pay the costs of any collocation as
provided for in Commission policy.
All certified providers of local exchange services and bona
fide service providers in R-Net's service territory shall have
non-discriminatory access to R-Net's bottleneck network
functionalities, services, and data bases (including, but not
limited to, intercept, directory assistance, 911, E-911 and SS7-
related data bases and services).
Nothing in this paragraph III.D. shall abridge any rights
and responsibilities provided for in 16 N.Y.C.R.R. 605 (Common
Carrier Rules) and in the Commission's Opinion and Order
Resolving ONA Issues and Adopting a Statement of ONA Principles
(issued and effective Sept. 11, 1989).
E. Reciprocal Compensation
R-Net shall pay and receive reciprocal compensation for the
exchange of local message traffic between it and other carriers
offering simultaneous local two-way service within the pre-
restructure RTC service territory (e.g., including cellular but
excluding paging), and both the charge that R-Net shall pay and
the payment that it shall receive, shall be equal to R-Net's
<PAGE>
<PAGE> 24
then-applicable access charges. The intrastate Carrier Common
Line Charge shall not be applicable to the exchange of local
traffic.
Where a certified carrier and R-Net are interconnected for
the exchange of local traffic, and where such interconnection
takes place pursuant to paragraph III.D. above, and R-Net is
accorded reciprocal interconnection rights, to the extent that
the exchange of local traffic is in balance as defined below,
then the terminating carrier shall itself be compensated for the
termination of that traffic on its network at R-Net's tariff rate
for local switching, but the terminating carrier shall be
responsible for any local transport that is required for
completion of the call. For purposes of this paragraph III.E.,
local traffic is traffic that originates and terminates within
the pre-restructure RTC service territory.
R-Net and any other certified carrier exchanging local
traffic shall be required to measure, on a monthly basis, both
the originating and terminating minutes of local usage on their
respective networks. Network traffic will be considered out of
balance unless and until the minutes of local traffic exchanged
between the two carriers are approximately equal, as defined
below. To the extent that the percentage difference in R-Net's
originating minutes of local use that terminate on another
certified carrier's network and R-Net's terminating minutes of
local use that originate on that carrier's network is equal to or
less than 10% of the smaller of the two values (minutes of use),
the traffic will be considered in balance.
Recognizing the technical constraints of cellular carriers
and other potential market entrants, where it is not technically
possible for R-Net to interconnect directly to each of another
carrier's end offices, R-Net will pay transport charges for
traffic that it terminates on such carrier's network until such
time as that carrier interconnects, through its own facilities or
a third carrier's facilities, directly to an R-Net end-office.
F. Number Portability
All certified facilities-based switched local exchange
carriers shall be equally entitled to the assignment of NXX
central office codes and inclusion in the Local Exchange Routing
Guide as independent carriers. R-Net will offer the following
two forms of limited number portability:
(1) A customer changing resellers without a change of
underlying R-Net facilities will retain the R-Net telephone
number; and
(2) A customer changing networks but remaining within
the same central office boundaries will retain the R-Net number
at the election of the new network carrier. R-Net will forward
calls to the other network carrier by using either call
forwarding or Direct Inward Dialing or other suitable
arrangements at R-Net's option.
The other network carrier will be obligated to arrange
<PAGE>
<PAGE> 25
for adequate connections between the R-Net central office
formerly serving the customer and the other network. Where the
call originates on the R-Net network, but is terminated on the
other carrier's network, R-Net will compensate the other network
carrier based upon applicable access charges except the
intrastate carrier common line charge.
To compensate R-Net for its additional switching costs,
R-Net will establish a monthly surcharge on all working numbers
provided by R-Net, payable by the carrier providing end user
service on that number. R-Net shall absorb, without additional
end user charges, the surcharge applicable to the numbers on
which it provides service directly to end users, and the
surcharge applicable to numbers serving other carriers' end users
will be billed to those carriers. The surcharge shall be
computed annually and the amount to be recovered shall be the
per-minute incremental cost of switching ("Switching Costs")
multiplied by the number of minutes of traffic forwarded to
another carrier pursuant to this number portability arrangement.
R-Net will absorb the first cumulative $1 million of
Switching Costs as computed immediately above regardless of how
such switching costs would have been allocated by the surcharge.
Once R-Net has absorbed such cumulative $1 million of Switching
Costs, R-Net will thereafter recover on a prospective basis, all
Switching Costs incurred in the provision of number portability
via the surcharge, computed as provided above. The technical
specifications of such interconnections will be referred to the
Committee on Standards and Cooperative Practices.
In conjunction with the Committee on Standards and
Cooperative Practices, R-Net will also investigate the cost and
desirability of full number portability through an Advanced
Intelligent Network database hookup. R-Net agrees to implement
full number portability when it is technically feasible,
commercially available, and economically practical. R-Net
agrees that R-Net does not have to manage the databases
associated with full number portability provided all carriers
receive full and equal access. R-Net does not, by this
Agreement, commit to fund those databases.
Nothing precludes an end user customer or a carrier from
raising any issue with respect to number portability with the
Committee on Standards and Cooperative Practices or the
Commission.
G. Network Data
In order to avoid charges for R-Net's business office
services, a carrier taking service from R-Net must arrange for
direct access into R-Net's customer records, order entry and
repair record databases. R-Net will partition these databases to
ensure that each carrier has access only to its own customers'
information. R-Net will offer, pursuant to tariff, terminals to
access R-Net's above databases, including training in their use,
to any certified carrier and will include the Commission's
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<PAGE> 26
Privacy Requirements, as described in paragraph I.E.2., in these
tariffs. There will also be a tariffed charge for database
access and maintenance.
H. Residential Services
Any certified carrier desirous of purchasing bundled
residential flat rate ("FR") or measured rate ("MR") service from
R-Net will be required, as a condition of receiving such service,
to provide to R-Net, and to the Commission, a certification that
it will only resell such service, or its constituent elements, to
customers who qualify for the purchase of such service at retail
from R-Net. If, notwithstanding such certification, the carrier
shall have resold FR and MR service, or its constituent elements,
in violation of this provision, at the election of R-Net, and
subject to the approval of the Director of the Communications
Division of the DPS that a penalty is appropriate, that carrier
thereafter shall forfeit its entitlement to purchase such
services from R-Net and all of its residential services shall be
repriced at the applicable business rates retroactive for three
months, based on average volumes of calling.
On a quarterly basis, a representative sample of residential
service purchased by resellers will be reviewed by R-Net to
establish the authenticity of these residential end users, and
the result of this sampling shall be provided to the Director of
the Communications Division of the DPS.
Residential end user customers will have the following rate
choices from R-Net:
1. Bundled flat rate service or
2. Bundled link/port for metered service, with usage
charged on a per message basis.
Residential end user customers currently receiving MR 50 or
MR 80 service from RTC may continue to receive that service from
R-Net. However, no new customers for these services will be
added after the effective date of the OMP.
Resellers will be permitted to purchase the following
residential services: (a) a bundled link/port for measured
service, with usage charged on a per-minute basis; (b) a bundled
flat rate service, only where usage in excess of 750 minutes per
month will be charged on a per-minute basis; or (c) an unbundled
link (at cost), port (at cost), with usage charged on a per-
minute basis.
To the extent that R-Net, in its next rate filing, seeks
recovery for new network investment, it shall include in any
filing, facts sufficient for the parties and the Commission to
conclude that its filing does not include any costs associated
with the improper resale of flat rate residential service.
I. Payphone Demarcation Point
R-Net shall establish a procedure for identifying the
demarcation point of each installed payphone and such demarcation
point shall be at the same location, in the case of new
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<PAGE> 27
installations, notwithstanding whether the provider of service is
R-Net or a competitor. Whenever R-Net provides for the
installation of a new payphone, or does maintenance work on an
existing payphone installation, it shall install an interface at
the location determined pursuant to this paragraph that shall
serve as the demarcation point.
J. Diffusion of Technology
The parties recognize the importance of the widespread
availability of the telecommunications infrastructure to economic
development and enhancing the quality of life for all New
Yorkers. R-Net and R-Com expect to be successful competitors and
therefore will need to develop aggressively new services and
markets and encourage the widespread diffusion of
telecommunications technologies. Some physically challenged
consumers, consumers in the economically disadvantaged regions of
the service territories of R-Net and R-Com and in rural areas,
may be underserved. They, too, should receive the benefits of
this technology. Toward that end, R-Net and R-Com shall consider
the needs of these communities as they make decisions to bring
new services into their service territories.
IV. Customer Outreach and Marketing Activities
A. RTC recognizes its responsibility to inform the
affected public of the changes occurring as a result of this
Agreement. In this regard, RTC shall develop, in consultation
with Staff, a customer education and outreach program to advise
customers within RTC's pre-restructuring service territory of the
implications of the reorganization of RTC as proposed in this
Agreement and of the customer choices that will be made available
as a result of that reorganization and the introduction of the
OMP. RTC shall submit its customer outreach plan to the Director
of the Consumer Services Division of the DPS within two months of
the signing of this Agreement.
B. R-Net shall, following public input, develop a set of
principles for its marketing activities consistent with the
Commission's Privacy Requirements, as described in paragraph
I.E.2., and shall communicate those principles to its employees.
R-Net shall provide those principles to the Director of the
Consumer Services Division of the DPS by no later than January 1,
1996.
V. Relationship to Competition II Proceeding
The parties understand that this Agreement may be modified
by the resolution of the pending Competition II proceeding (Case
94-C-0095), or in a subsequent proceeding initiated by the
Commission, if the Commission makes a finding therein that the
<PAGE>
<PAGE> 28
public interest requires modification of a provision of this
Agreement.
VI. Term of Agreement
The parties intend that the rates provided for in this
Agreement shall remain in effect from January 1, 1995, through
and including December 31, 2001, except as provided below. R-
Net's rates may be changed, effective January 1, 2000, as a
result of a rate proceeding filed by R-Net or a proceeding
initiated by the Commission, seeking permanent or temporary rates
to be effective on January 1, 2000. If the Commission's
proceeding is pending on January 1, 2000, R-Net's rates shall be
made temporary effective January 1, 2000, for an amount of $4.5
million, pending resolution of the Commission's proceeding. In
the event that R-Net terminates this Agreement with such a rate
filing, it shall create a deferred account in the amount of $4.5
million, plus associated carrying charges, for disposition by the
Commission for the benefit of R-Net's customers. In the event of
termination by R-Net or by the Commission, R-Net shall ensure
that the entire $17 million credit to the depreciation reserve,
set forth in paragraph II.D. above, is completed by December 31,
1999. If R-Net's rates are not modified to be effective as of
January 1, 2000, R-Net's rates shall remain in effect until
January 1, 2002, except as provided for in paragraph XI.
All other terms of this Agreement continue to remain in
effect unless specifically modified by the Commission, except,
however, nothing in this Agreement will be construed to confer
upon the Commission any authority to reverse its authorization
for the reorganization of RTC as an unregulated holding company.
VII. R-Net and NY Telco Monitoring
Staff will submit a report to the Commission on an annual
basis analyzing R-Net's performance under this Agreement. This
report will include a summary of R-Net's financial data, service
quality measurements, pricing changes, new services introduced
during the period, service penetration levels, including Lifeline
connections, Staff's evaluation of the degree of competition in
the service territory, and information necessary to assure R-
Net's compliance with the terms of this Agreement.
R-Net and the other NY Telcos will submit to the Director of
the Communications Division of the DPS, on or before April 1 of
each year of the plan, a report containing the specific
information listed on Appendix 10 for the preceding calendar
year, as well as any other information R-Net and Staff consider
relevant to the Department's reviews. The reports will be signed
by managers of R-Net and the other NY Telcos attesting to the
accuracy of the data submitted. The procedures of 16 N.Y.C.R.R.
Subpart 6-1 shall be followed, if applicable.
VIII. Further Information
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<PAGE> 29
The parties agree that the information contained in Appendix
11 will be provided to Staff in the time frame agreed to. In the
event the information is not provided on a timely basis, the
parties will jointly seek an extension of the hearing and/or
briefing schedule. In addition, RTC will file tariffs for
"business office interexchange carrier services" and "audio
teleconferencing service", as described in RTC's CAM, Section V
by June 7, 1994.
IX. ENFORCEMENT
Upon approval by the Commission, the terms and conditions of
this Agreement shall be deemed a Commission order. Any violation
of the requirements of this Agreement will be subject to the
enforcement process and remedies for violations of Commission
orders.
X. ENTIRE AGREEMENT
The terms and provisions of this Agreement are submitted in
their entirety to the Commission for its approval; this Agreement
represents a single fully-integrated statement of the negotiated
positions of the parties and is not offered to the Commission for
approval on a piecemeal basis. To the extent that this Agreement
conflicts with any previous RTC agreement, this Agreement
controls, except as provided herein. The parties agree to be
bound by the terms of this Agreement only in the event that it is
approved in full by the Commission. The parties further agree
that none of the provisions of this Agreement and none of the
positions taken herein may be referred to or relied upon in any
fashion as precedent or otherwise in any other proceeding before
this Commission or any other regulatory agency or court, except
as necessary to carry out the terms of this Agreement or with the
consent of the parties hereto. The corporate restructuring is
subject to the approval of the Board of Directors and the
shareowners of RTC. The approval of the Board of Directors shall
be communicated to the Commission prior to the Commission's
action on this Agreement.
XI. RESERVATION OF COMMISSION AUTHORITY
The parties understand that the Commission reserves the
authority to modify this Agreement if unforeseen circumstances in
the opinion of the Commission have such a substantial impact upon
R-Net's financial performance as to render this Agreement
unreasonable, unnecessary or insufficient for the provision of
safe and adequate service.
XII. COUNTERPARTS
This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original Agreement.
<PAGE>
<PAGE> 30
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, as of the date first here and above written.
STAFF OF THE NEW YORK STATE ROCHESTER TELEPHONE CORPORA-
DEPARTMENT OF PUBLIC SERVICE TION, on behalf of itself,
R-HC, R-Net, R-Com, Distrib-
uted Solutions, Inc., AuSable
BY: /s/ Penny Rubin, Esq. Valley Telephone Company,
------------------------- Inc., Highland Telephone
NAME: Penny Rubin, Esq. Company, Seneca-Gorham Tele-
----------------------- phone Corporation and Sylvan
Lake Telephone Company, Inc.
TITLE: Staff Counsel
----------------------
DATE: May 13, 1994 BY: /s/ John K. Purcell
----------------------- -----------------------
NAME: John K. Purcell
TITLE: Corporate Vice
President
DATE: May 13, 1994
---------------------
COMMUNICATIONS WORKERS OF TIME WARNER COMMUNICATIONS
AMERICA, AFL-CIO
BY: /s/ Paul B. Jones
BY: /s/ Jan D. Pierce -----------------------
------------------------- NAME: Paul B. Jones
NAME: Jan D. Pierce
TITLE: Senior Vice President-
Regulatory and Public
TITLE: Vice President Affairs
----------------------
DATE: May 13, 1994 DATE: May 16, 1994
5/13/94
<PAGE>
<PAGE> 31
- - ----------------
Footnotes:
1 The new company names in this Agreement are for
identification purposes only.
2 "Senior management employees" of R-Net means R-Net's
President, all R-Net employees reporting diretly to the President
("Directly Reporting Employees") and all other R-Net employees
reporting directly to Directly Reporting Employees.
3 Nothing in this Agreement prevents R-Net from seeking
waivers of the Commission's accounting requirements during the
term of this Agreement.
4 R-Net agrees to implement the lifeline objectives agreed to
in the Settlement Agreement approved by the Commission in this
proceeding in Opinion No. 94-5 (issued and effective February 19,
1994) by conducting a public involvement program and implementing
a tape-to-tape match by no later than the date of implementation
of the OMP. If a tape-to-tape match is not possible by the date
of implementation of the OMP, R-Net shall seek an extension from
the Director of the DPS Consumer Services Division, but in no
event shall the program be completed later than January 1, 1996.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Introduction ............................................. 1
I. Restructuring of RTC ................................ 2
A. R-HC ........................................... 2
1. Holding Company Formed .................... 2
2. Transfer of Assets, Accounts, Personnel
and Liabilities ........................... 2
3. Wholly-Owned Subsidiaries ................. 2
4. Corporate Books and Records ............... 2
5. Use of RTC Name ........................... 3
B. R-Net .......................................... 4
1. R-Net Formed .............................. 4
2. Issuance of Securities .................... 4
3. Transfer of Assets and Personnel .......... 5
4. Transfer of Telephone Operations .......... 5
5. Responsibility to Offer Service ........... 5
6. Notice of Additional Service Offerings
and Network Elements ...................... 7
7. Transfer of Goods and Service Offerings
and Stand-Alone Assets .................... 7
8. Board of Directors ........................ 8
9. Compensation and Responsibilities of
Officers and Employees .................... 8
10. Dividend Certification .................... 9
11. Pledge of Assets ..........................10
12. Debt Rating ...............................10
13. Service Quality ...........................10
14. Funds Transfers and Cash Management
Agreement .................................11
15. Affiliate Transactions ....................11
16. Network Functionalities, Services
and Data Bases ............................14
C. R-Com ..........................................14
1. R-Com Formed ..............................14
2. Issuance of Shares ........................15
3. Transfer of Assets, Personnel and
Telephone Operations ......................15
D. Non-regulated and Regulated Services ...........16
1. Non-regulated services ....................16
2. Regulated Services ........................17
E. DSI ............................................17
1. Transfer of Assets and Value ..............17
2. Use of R-Net Data and/or Databases ........17
3. Development of New Products or Services
by DSI; General Availability ..............18
4. Products or Services Developed at the
Cost of R-Net or Any Other NY Telco .......18
II. Rates, Revenue Requirements and Rate Design .........19
<PAGE>
<PAGE>
III. Inter-Carrier Issues ................................21
A. Committee on Standards and Cooperative
Practices .................................21
B. Notice of New Services, Impartial Dissemination
of Information and Privacy .....................21
C. IntraLATA Service ..............................23
D. Right of Interconnection .......................23
E. Reciprocal Compensation ........................23
F. Number Portability .............................24
G. Network Data ...................................25
H. Residential Services............................26
I. Payphone Demarcation Point .....................26
J. Diffusion of Technology ........................27
IV. Customer Outreach and Marketing Activities ..........27
V. Relationship to Competition II Proceeding ...........27
VI. Term of Agreement ...................................28
VII. R-Net and NY Tel Monitoring .........................28
VIII.Further Information .................................28
IX. Enforcement .........................................29
X. Entire Agreement ....................................29
XI. Reservation of Commission Authority .................29
XII. Counterparts ........................................29
Appendices
1. Restated Certificate of Incorporation of [New Name](R-HC)
2. Holding Company Functions
3. Certificate of Incorporation of R-Net
4. R-Net Projected Capitalization at Inception
5. Service Quality Assurance Plan For R-Net
6. Cash Management Agreement
7. Certificate of Incorporation of R-Com
8. Discretionary Services List
9. Schedule of Rate Reductions and Rates
10. Monitoring Information To Be Filed Annually By R-Net
11. Outstanding Documents and Due Dates
<PAGE>
<PAGE>
APPENDIX 2
HOLDING COMPANY FUNCTIONS
-------------------------
1. Corporate Management
2. Legal
3. Tax
4. Corporate Finance
5. Corporate Planning
6. Business Development
7. Treasury
8. Investor Relations
9. Internal Audit
10. Corporate Services (such as procurement, Human resources,
security, real estate)
(80ED)
<PAGE>
<PAGE>
APPENDIX 3
DRAFT
CERTIFICATE OF INCORPORATION
OF
(R-NET)
Pursuant to Section 3 of the
Transportation Corporations Law
The undersigned, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to Section
Three of the New York Transportation Corporations Law, hereby
certifies that:
FIRST: The name of the Corporation is (R-Net).
SECOND: The purposes for which the Corporation is formed
are:
To engage in any lawful act or activity for which
corporations may be organized under the Transportation
Corporations Law of the State of New York, except that
the Corporation is not organized to engage in any act
or activity requiring the consent or approval of any
official, department, board, agency or other body of
the State of New York without first obtaining such
consent or approval.
THIRD: (A) The Corporation shall be a telephone
corporation as defined in Section 25 of the New York
Transportation Corporations Law.
(B) The territory in which the operations of the
Corporation are to be carried on and the points to be connected
shall be in, upon, along, over, under, through and across the
public roads, streets, avenues, highways and other places and
waters of the City of Rochester, Monroe County, New York, from
or to any point or points in said City of Rochester; thence in,
upon, along, over, under, through and across the public roads,
streets, avenues, highways and other places, rivers, lakes and
waters of that portion of the State of New York included within
the Counties of Monroe and Livingston; the Towns of Ontario,
Walworth and Macedon in Wayne County; the Towns of Manchester,
Hopewell, Gorham, Farmington, Canandaigua, Victor, East
Bloomfield, West Bloomfield, Richmond, Bristol, South Bristol,
Canadice and Naples in Ontario County; the Towns of Middlesex,
Potter and Italy in Yates County; the Towns of Prattsburg,
Cohocton, Wayland, Dansville, Fremont and Avoca in Steuben
County; the Towns of Burns, Grove, Granger, Hume and
Centerville in Allegany County; the Towns of Eagle,
Wethersfield, Orangeville, Attica, Pike, Gainesville, Warsaw,
Middlebury, Covington, Perry, Castile and Genesee Falls in
Wyoming County; the Towns of Alexander, Bethany, Pavilion,
<PAGE>
<PAGE> 2
Stafford, LeRoy, Byron and Bergen in Genesee County, and the
Towns of Kendall, Murray and Clarendon in Orleans County, in
the State of New York, from or to any point or points within
the aforesaid territory, and in, upon, along, over, under,
through and across the public roads, streets, avenues, highways
and other places, rivers, lakes and waters of each of the
Cities, Towns and Villages within the aforesaid territory, from
or to any point or points therein, for the purpose of
connecting the exchanges and sub-exchanges of the corporation,
and the residences, offices, factories, buildings, premises,
works, places of business and places of amusement and other
places and points in said territory, and the terminals of other
lines of telegraph and telephone leading to points and places
within and outside of the territory hereinbefore described.
FOURTH: The office of the Corporation in the State of
New York is located in the County of Monroe, State of New York.
FIFTH: The total number of shares which the Corporation
shall have authority to issue is one hundred (100) shares of
Common Stock of the par value of one dollar ($1.00) per share.
SIXTH: The Secretary of State of the State of New York
is hereby designated as an agent of the Corporation upon whom
all process in any action or proceeding against the Corporation
may be served within the State of New York. The address to
which the Secretary of State shall mail a copy of any process
against the Corporation which may be served upon him or her is
180 South Clinton Avenue, Rochester, New York 14646-0700,
Attention: Secretary.
SEVENTH: The term of existence of the Corporation shall
be perpetual.
EIGHTH: The number of directors of the Corporation shall
be not less than six (6) nor more than fourteen (14), of whom a
majority shall be "Independent Directors". For purposes of
this Article EIGHTH, a director of the Corporation shall be an
Independent Director if such director is neither an officer or
employee of the Corporation nor a director, officer or employee
of any corporation controlling or under common control with the
Corporation. Not more than one (1) director of the Corporation
shall be a director, officer or employee of any corporation
controlling or under common control with the Corporation.
There shall be an Audit Committee of the Board of
Directors of the Corporation of not less than three (3)
directors, all of whom shall be Independent Directors, which
committee shall have the responsibilities, functions and powers
provided for in the Bylaws.
There shall be a Committee on Directors of the Board of
Directors of the Corproation consisting of three (3) directors,
all of whom shall be Independent Directors, which committee
shall have the responsibilities, functions and powers provided
for in the Bylaws.
<PAGE>
<PAGE> 3
Any or all directors may be removed, with or without
cause, by vote of the shareholders.
NINTH: Pursuant to Section 715(b) of the New York
Business Corporation Law, the officers of the Corporation shall
be elected by the shareholders of the Corporation.
TENTH: The approval of the shareholders shall be
required for the Corporation to take or directly or indirectly
engage in any of the following actions:
(a) the adoption of any operating or capital budgets
or financing plans, or, to the extent not provided for
in a budget or plan approved by the shareholders, the
making or incurrence of any investments, capital
expenditures, indebtedness or off-balance sheet
liabilities, in each case in excess of $10 million in
the aggregate during any fiscal year of the Company; or
(b) the entering into of any agreement or contract,
or any amendment, supplement or waiver to any
agreement or contract, which would be required to be
filed pursuant to Item 601(b)(10) of Regulation S-K
promulgated by the Securities and Exchange Commission
(as in effect on , 1994) if the
Corporation were a public company which was subject to
the filing requirements of such Item.
ELEVENTH: No director of the Corporation shall be
personally liable to the Corporation or its shareholders for
damages for any breach of duty as a director unless the
elimination of limitation of liability is expressly prohibited
by the New York Business Corporation Law as currently in effect
or as it may be amended. No amendment, modification or repeal
of this Article shall adversely affect any right or protection
of any director that exists at the time of such change.
IN WITNESS WHEREOF, the undersigned has signed, and
acknowledged this Certificate of Incorporation this day
of , 1994.
----------------------------
Name of Incorporator
Sole Incorporator
STATE OF NEW YORK, COUNTY OF ) ss:
On , 1994, before me personally came
, to me known to be the individual
described in, and who executed the foregoing Certificate of
Incorporation, and acknowledged that [s]he executed the same.
-----------------------
Notary Public
<PAGE>
<PAGE>
APPENDIX 4
R-NET PROJECT CAPITALIZATION AT INCEPTION (1)
(In Thousands)
Amount Percent
------ -------
Long Term Debt (2) $160,128 40.37%
Customer Deposits 1,681 0.42%
Common Equity 234,861 59.21%
-------- ------
Total $396,670 100.00%
(1) The exact capitalization and what proportion of R-Net's
debt will be public (or will be represented by an advance
or loan from the Holding Company) are not known at this
time. It is anticipated that the ratios of the
capitalization components will be within 3% of the ratios
shown above.
(2) Long Term Debt Maturity Rate Amount
-------- ---- ------
Debenture 01/01/20 9.00% $87,950
MTN 04/16/01 8.77% 32,000
MTN 08/07/01 8.95% 9,000
Discount on Debenture (1,207)
-------
Sub Total (3) 127,743
Other Debt 32,385
-------
Total Long Term Debt $160,128
========
(3) Long term debt issued prior to restructuring for the
rendition of public service in the pre-restructure RTC
service territory.
(80ED)
<PAGE>
<PAGE>
APPENDIX 5
SERVICE QUALITY ASSURANCE PLAN FOR R-NET
Four major service quality measurement categories and
performance levels, representing the most labor intensive service
measures, are listed below. The quantity of minimum opportunity
points for attaining Objective levels of service is shown on the
"MINIMUM OBJECTIVE SERVICE POINT REQUIREMENT" line. In addition,
however, the Company commits to allowing no more than one
occurrence of Surveillance Level failure during the calendar
year. Should either the "MINIMUM POINT" or the Surveillance
Level requirement not be met, the Service Rebate provisions
specified in the "CONDITIONS" section will apply.
OBJECTIVE SERVICE OPPORTUNITIES
-------------------------------
Number of Max. 1992 Min.
Measured Qty Pct. Qty
SERVICE MEASUREMENT 1/ Entities Points Actual 2/ Points
- - ------------------- -------- ------ ------- ------
(1) Customer trouble report rate 45 540 95% --
(2) % Out-of-service over 24 Hr 3 36 100% --
(3) % Missed repair appointments 3 36 92% --
(4) Other labor intensive measures
Simple average of the following: 8 96 57% --
a) Bus Ofc Ans -% Ans w/i 20 sec 1
b) Repair Svc Ans -% Ans w/i 20 sec 1
c) Speed of Ans-Toll & Asst Opr 1
d) Speed of Ans-Dir Asst/Intcpt 1
e) % Missed Installation Appts. 2
f) % Install. comp. within 5 days 2
MAXIMUM POINT OPPORTUNITIES 59 708 90% --
YEARLY MINIMUM OBJECTIVE SERVICE POINT
REQUIREMENT .......................... -- 85% 602
SURVEILLANCE LEVEL FAILURES .......... 59 0 1
(i.e., three consecutive months at allowed
Weakspot Level service) 3/
- - ---------------------------------
1/ This plan assumes that the service measurements outlined
herein are governed by the Company's existing procedures and
definitions and the Commission's existing rules and
regulations regarding Telephone Service Standards, specified
in Part 603 of 16 NYCRR in effect at the time of the
agreement.
2/ % of monthly reporting opportunities at Objective levels.
3/ Defined in Part 603 of 16 NYCRR.
<PAGE>
<PAGE> 2
R-Net will make the following additional service quality
measurements:
(1) Monthly PSC complaints related to end user services per
100,000 access lines;
(2) A customer satisfaction measurement covering general
customer satisfaction with R-Net; and
(3) A customer satisfaction measurement covering customer
satisfaction with recent transactions with R-Net.
RTC will develop items (2) and (3) with Staff and other
interested parties, and will make initial measurements prior to
Open Market Plan implementation to establish a baseline for R-
Net. The parties will also define a level based on the baseline
measurement that would be a target level. The frequency of these
measurements will be agreed upon by the parties. R-Net will use
its subsequent measurements to base corrective action if
appropriate.
CONDITIONS:
1. The following table, "Penalty Impact", is based on
percentages of the maximum penalty specified in the
Agreement, i.e., one-half of one percent of R-Net's total
local service and intraLATA toll revenues for the year in
question.
2. R-Net is subject to a Service Quality penalty of up to a
100% Penalty Impact based on the following table. The table
also notes Service Quality factors that may reduce the
penalty, if a penalty applies due to other factors:
Penalty Impact
a) Traditional measurements (less than +85%
85% Objective Service Point Opportun-
ities on the table above, or 2 or
more Surveillance Level failures in
the year).
b) PSC complaints per 100,000 access lines
related to end user service (average of
12 or 24 months):
- 2.4 or less (avg of the preceding
12 mos) ........................ -15%
- above 2.4 to 4.7 (avg of the
preceding 12 mos) .............. 0%
- above 4.7 and less than 7.4 (avg
of the preceding 12 mos) ....... +15%*
- 7.4 or more (avg of the preceding
24 mos) ........................ +15%**
( * applies only if 85% is triggered)
(** applies whether or not 85% is triggered)
<PAGE>
<PAGE> 3
Penalty Impact
c) Customer Satisfaction Measurements: --------------
Target Level Service ................ -20%
Otherwise ........................... 0%
3. If consolidations of reporting entities occur before the end
of a calendar year the "Minimum Point" requirement quantity
will be reduced by 85% of the reduction in "Maximum Point
Opportunities."
4. If one or more of the abnormal conditions set forth in 16
NYCRR Section 603.1(b) occurs, or similar circumstances,
such as a concerted campaign, occur that are reasonably
beyond the Company's control, the Company may, with the
concurrence of the Directors of the Communications and
Consumer Services Divisions,(subject to appeal to the
Commission), remove the effects of such an occurrence from
the PSC complaint count and the "Maximum Point
Opportunities" and adjust the "Minimum Objective Service"
point opportunity requirement in the same manner as
described above in Condition 3. The parties agree that
service levels shall be measured for the purpose of this
Plan as specified in 16 NYCRR Sections 603.12 and 603.13.
5. If a period to be measured by this plan is less than a full
calendar year, the criteria contained in the conditions
above shall be prorated to reflect the applicable period,
and the maximum penalty shall likewise be prorated.
(app5svc.1)
5/13/94 pm
<PAGE>
<PAGE>
APPENDIX 6
CASH MANAGEMENT AGREEMENT
THIS CASH MANAGEMENT AGREEMENT ("Agreement") is made
effective as of the first day of , 1995 by and
between , a New
York corporation with an office and principal place of business
at New York ("Company") and
, a New York corporation with
an office and principal place of business at Rochester Tel
Center, 180 South Clinton Avenue, Rochester, New York 14646 ("R-
HC").
WHEREAS, the Company is a wholly-owned subsidiary of R-HC;
and
WHEREAS, one of the services provided by R-HC to its
subsidiaries is Centralized Cash Management; and
WHEREAS, Centralized Cash Management affords the Company,
from time to time, with both a repository for investment of its
cash reserves and an immediate, low cost source of funds for
borrowing; and
WHEREAS, the Company and R-HC desire to enter into a long
term relationship for management of the Company's cash reserves
and cash requirements by R-HC;
NOW, THEREFORE, in consideration of the foregoing, and upon
the following terms and conditions, the Company and R-HC hereby
agree that:
1. Cash Deposits. Whenever the Company shall identify and
quantify an amount of cash reserves which are not necessary for
the ongoing, day-to-day functions of the Company's business, it
shall deposit with R-HC the full amount of such cash reserves.
Such deposit shall be a wire transfer of immediately available
funds from the Company to R-HC, which shall be recorded as a cash
deposit immediately due to the Company on the books and records
of R-HC on the business day next succeeding such wire transfer.
2. Investment of Cash Deposits. On the business day next
succeeding the wire transfer from the Company to R-HC of cash
deposits, R-HC shall invest such cash deposits in accordance with
the policies and practices of its Centralized Cash Management
program. Investments of such cash deposits may include high
grade commercial paper, or deposits in reputable banking
institutions. In addition, such deposits may be used by R-HC
and/or its affiliates to fund their own operations.
<PAGE>
<PAGE> 2
3. Rate of Return on Cash Deposits. All cash deposits of
the Company with R-HC shall earn a return calculated on a day of
recorded deposit to day of return basis at a rate equal to R-HC's
Internal Corporate Rate in effect, from time to time, throughout
the period of deposit. R-HC's Internal Corporate Rate is
calculated on a monthly basis and is equal to the composite rate
of return on its investments in commercial paper or other
instruments of similar risk and liquidity if R-HC is investing
funds. If R-HC is borrowing, it is equal to the rate which R-HC
is paying on its commercial paper.
4. Return of Cash Deposits. All amounts of the Company
transferred to R-HC shall be returned on the demand of the
Company and shall be made available by wire transfer of
immediately available funds on the business day next succeeding
such demand.
5. Cash Borrowing. Whenever the Company shall identify
and quantify an amount of borrowing necessary to fund its
ongoing, day-to-day operations, it shall borrow from R-HC the
full amount of such necessary funds except as provided for in
paragraph 9. Such borrowing shall be received by a wire transfer
of immediately available funds from R-HC to the Company, which
shall be recorded as an amount due from the Company to R-HC (on a
lump sum basis at a predetermined time or on an installment basis
over a predetermined period of time as mutually agreed by the
Company and R-HC) on the business day next succeeding such
borrowing. A promissory note, stating the amount borrowed, the
rate of interest to be paid by the Company and the term of such
loan, shall be required to evidence any such borrowing by the
Company from R-HC, or its affiliates or any other NY Telco.
6. Use of Cash Borrowing. The cash borrowing shall be
used by the Company, and/or its subsidiaries, for and/or usable
in the normal day-to-day operations of the company and for any
such lawful purpose.
7. Rate of Interest on Cash Borrowing. All cash borrowing
of the Company from R-HC shall bear interest on a day of recorded
borrowing to day of payment basis at a rate equal to R-HC's
Internal Corporate Rate, as set forth in paragraph 3 of this
Agreement, as the same may be in effect, from time to time
throughout the period of the borrowing.
8. Prepayment of Cash Borrowing. Any and all cash
borrowing by the Company from R-HC may be prepaid in whole or in
part in any amount at any time during the predetermined borrowing
period without any penalty whatsoever.
<PAGE>
<PAGE> 3
9. Non-Exclusive Borrowing Source. Notwithstanding the
provisions of paragraph 5, hereof, if the Company shall identify
a lower cost source of financing for its borrowing needs, such
as, but not limited to, the Rural Electrification Administration
("REA") or Rural Telephone Bank ("RTB"), and if such REA and/or
RTB or other funds (and the security required to qualify for such
funds) are determined to be in the best long-term interests of
the Company, the Company shall have no obligation under this
Agreement to borrow such funds from R-HC.
10. Limitation on Deposits and Borrowing. All fund
transfers, including but not limited to, advances, short-term
loans, deposits, or any other instruments representing short-term
fund transfers, between the Company and any Affiliate, including
between R-Net and any other NY Telco or R-HC, and excluding those
that are required for transactions governed under the affiliate
transactions rules (discussed in paragraph I.B.15 of the Joint
Stipulation and Agreement), and those that constitute dividends
from the Company or any other NY Telco to R-HC, shall be made in
accordance with the terms of this Agreement, and only to the
extent that:
(a) The sum of the balances of the Company's long-term
debt, cumulative net fund transfers between the Company and its
Affiliates (including R-HC), short-term debt, customer deposit
balances, preferred stock balances, or any other evidence of the
Company's indebtedness, shall not at any point in time during the
term of this Agreement, in the aggregate, exceed 45% of the
Company's "Total Capital" (defined for the purposes of this
Agreement as the sum of all the previously named components, plus
common equity).
(b) The sum of net fund transfers between the Company
and its Affiliates (including R-HC), the Company's short-term
debt, and any other evidence of the Company's indebtedness for a
period of twelve months or less shall not at any point in time
during the term of this Agreement exceed 5% of the Company's
Total Capital.
11. Monitoring. R-HC will provide the Company a monthly
statement of all amounts invested or borrowed and all interest
charges payable to or by the Company. These reports will be made
available by the Company upon request of the Staff of the
Department of Public Service.
12. Extension. This Agreement shall apply to transfers of
cash between the Company and its Affiliates.
13. Conflicts. This Agreement incorporates by reference
the Joint Stipulation and Agreement executed on May 13, 1994, in
Case 93-C-0103. In the event of a conflict between that document
and this Agreement, that document controls.
<PAGE>
<PAGE> 4
14. Periodic Return. Amounts deposited by the Company with
R-HC shall be returned in six months or less from the date of
deposit.
15. Audit. Staff shall have the right to audit without
notice the books and records of the Company, R-HC, Affiliates and
NY Telcos with respect to these transfers or deposits of funds.
Upon audit, if Staff determines that the amount of transfers
exceeds the caps specified in this Agreement or the Joint
Stipulation and Agreement, dated May 13, 1994, in Case 93-C-0103,
the entity receiving the funds must, within twenty-four hours,
transfer any funds in excess of the caps, plus interest, to the
Company. Such interest shall be calculated from the date on
which such transfer or deposit, which exceeded the caps,
occurred.
16. Term. The provisions of this Agreement shall commence
on the date set forth above, and shall remain in full force and
effect unless specifically modified by the Commission.
17. Governing Law. The provisions of this Agreement shall
be construed pursuant to the provisions of New York State law.
IN WITNESS WHEREOF, the Company and R-HC have executed this
Cash Management Agreement on the date first set forth above.
(COMPANY)
--------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
(R-HC)
-----------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
(app6cash.1)
5/13/94
<PAGE>
<PAGE>
APPENDIX 9
SCHEDULE OF RATE REDUCTIONS AND RATES
Schedule of Rate Reductions
- - ---------------------------
1/1/95 1/1/96 1/1/97 1/1/98
Res. Touchtone $ 4,962,500 $0 $0 $0
Bus. Touchtone $ 156,460 $2,500,000 $1,500,040 $0
Lifeline $ 450,000 $0 $0 $0
LMS $ 1,819,762 $0 $0 $1,466,882
Access $ 2,829,625 $0 $0 $ 31,358
Cellular $ 781,653 $0 $0 $ 2,048
Total $11,000,000 $2,500,000 $1,500,040 $1,500,288
Schedule of Rate Reductions (cont'd.)
- - ---------------------------
1/1/99 1/1/00 1/1/01 Reductions
Res. Touchtone $0 $0 $0 $ 4,962,500
Bus. Touchtone $0 $0 $0 $ 4,156,500
Lifeline $0 $0 $0 $ 450,000
LMS $1,500,316 $1,441,391 $1,088,327 $ 7,316,678
Access $0 $ 52,263 $ 386,747 $ 3,299,993
Cellular $0 $ 3,414 $ 25,258 $ 812,373
Total $1,500,316 $1,497,068 $1,500,332 $20,998,044
(81ED)
<PAGE>
<PAGE> 2
APPENDIX 9
SCHEDULE OF RATE REDUCTIONS AND RATES
(cont'd.)
Schedule of Rates
- - -----------------
Current 1/1/95 1/1/96 1/1/97
Res. Touchtone $1.4800 $0.0000 $0.0000 $0.0000
Bus. Touchtone $3.8700 $3.7200 $1.4000 $0.0000
LMS Peak 1 min. $0.0750 $0.0630 $0.0630 $0.0630
LMS Peak 2 min. $0.0750 $0.0700 $0.0700 $0.0700
LMS Peak 3 min. $0.0750 $0.0750 $0.0750 $0.0750
LMS Peak add. min. $0.0220 $0.0220 $0.0220 $0.0220
LMS Off-Peak 1 min. $0.0500 $0.0500 $0.0500 $0.0500
LMS Off-Peak 2 min. $0.0500 $0.0500 $0.0500 $0.0500
LMS Off-Peak 3 min. $0.0500 $0.0500 $0.0500 $0.0500
LMS Off-Peak add. min. $0.0140 $0.0140 $0.0140 $0.0140
Access LS $0.01629 $0.01105 $0.01105 $0.01105
Access LT $0.0129 $0.01105 $0.01105 $0.01105
Schedule of Rates - cont'd.
- - -----------------
1/1/98 1/1/99 1/1/00 1/1/01
Res. Touchtone $0.0000 $0.0000 $0.0000 $0.0000
Bus. Touchtone $0.0000 $0.0000 $0.0000 $0.0000
LMS Peak 1 min. $0.0540 $0.0470 $0.0420 $0.0380
LMS Peak 2 min. $0.0670 $0.0620 $0.0500 $0.0484
LMS Peak 3 min. $0.0730 $0.0700 $0.0700 $0.0660
LMS Peak add. min. $0.0220 $0.0220 $0.0220 $0.0220
LMS Off-Peak 1 min. $0.0500 $0.0470 $0.0420 $0.0380
LMS Off-Peak 2 min. $0.0500 $0.0500 $0.0500 $0.0484
LMS Off-Peak 3 min. $0.0500 $0.0500 $0.0500 $0.0500
LMS Off-Peak add. min. $0.0140 $0.0140 $0.0140 $0.0140
Access LS $0.01102 $0.01102 $0.01097 $0.01060
Access LT $0.01102 $0.01102 $0.01097 $0.01060
(81ED)
<PAGE>
<PAGE>
APPENDIX 11
ROCHESTER TELEPHONE CORPORATION
OUTSTANDING DOCUMENTS AND DUE DATES
FINANCIAL ISSUES
OPEN MARKET PLAN
- - --------------------------- -------------------------
INFORMATION DUE DATE
- - --------------------------- -------------------------
R-Net Performance Based Conceptual Model-1 Month
Compensation Package Before Testimony
Final - 30 Day Post-
Restructuring
- - --------------------------- --------------------------
Allocation Procedures - RDSI 2 Weeks Before Testimony
- - ---------------------------- --------------------------
R-Net Tariffs 2 Weeks Before Testimony
- - ---------------------------- --------------------------
Final Estimated Capitaliza- 60 Days from April 25, 1994
tion Plan
- - ---------------------------- --------------------------
Allocation Procedures - 5 Days After ALJ-RD
R-HC/R-Net/R-Com
- - ---------------------------- --------------------------
Affiliate Transactions - 5 Days After ALJ-RD
Caps (NY Telcos)
- - ---------------------------- --------------------------
R-Net Board Nominations - Upon Confirmation -
Final - 30 Days Post-
Restructuring
- - ---------------------------- --------------------------
Asset/Liability Transfers/ 30 Days Post-Restructuring
Debt Assignments (Journal
Entries)
- - ---------------------------- --------------------------
"Intellectual Property" 30 Days Post-Restructuring
/Technology Transfers
- - ---------------------------- --------------------------
Off-the-Book/No Value 30 Days Post-Restructuring
Assets Transfers
- - ---------------------------- --------------------------
Listing of Shared (Non-ONA) 30 Days Post-Restructuring
Assets/Allocation Methods
- - ---------------------------- --------------------------
Personnel Transfers (no 30 Days Post-Restructuring
names)
- - ---------------------------- --------------------------
<PAGE>
<PAGE> 2
- - ---------------------------- ---------------------------
INFORMATION DUE DATE
- - ---------------------------- ---------------------------
Final Organization Structure 30 Days Post-Restructuring
(with new company names)
- - ---------------------------- ---------------------------
Final Certificate of Incorp- 30 Days Post-Restructuring
oration - R-HC/R-Net/R-Com/
R-DSI
- - ---------------------------- ---------------------------
Customer Accounts Transfers 30 Days Post-Restructuring
- - ---------------------------- ---------------------------
Contracts Affected/Created 30 Days Post-Restructuring
by Restructure
- - ---------------------------- ---------------------------
(App11due.asc)
