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Black Market CLEC Licenses

Can a company or investor acquire a valid CLEC license from another organization without dropping back to square one of a state's authorization process?

[August 3, 2000]

On ISP-DSL in July, R made an innocent suggestion:

"We have three CLEC licenses we are trying to sell. We've set up a separate subsidiary to hold the licenses; it has no customers, no equipment, no operations, just licenses. It's up to the buyer to figure out how to legally integrate the subsidiary."

A couple of respondents weren't very comfortable with this idea:

[KF explained] "You can't 'buy' an authorized CLEC license — the license says only one company is authorized to provide service, so the new prospective CLEC will still have to get authorized by the commission. It's like trying to buy someone else's driver's license: You can't get a driver's license in the first place without passing a test, and you can't drive a car with someone else's license."

[KET added] "A CLEC license is a state regulatory authorization, and a number of hoops need to be jumped through before the transfer of authority may take place. And state PUCs must approve the transfer."

[WD saw it differently] "If a CLEC certification is for a particular company, and I as an 'investor' buy all outstanding shares of that company, do I not own the company and have all certifications? I don't think PUCs would frown on one investor selling his stock to another investor."

But KF contended the offering itself was worthless:

"R's subsidiary has no people, equipment or operations. Therefore, there is nothing to buy from him except the CLEC licenses. Since a 'buyer' of those licenses still has to go through whatever regulatory proceedings the PUC requires, spending money to buy those licenses gets you nothing."

And KET gave a clearer idea of the law:

"WD is right: The best way to accomplish a transfer like this is via a stock acquisition — but both parties must still file with the PUC for approval of the transfer. For example, here's some of the information required in Georgia:

• The type of transaction, including terms, expected interest rate, etc.
• A detailed report on the finances of the company before and after the transaction
• Any other operational changes anticipated (i.e. service, rates, etc.)
• Status of the approval, if applicable, of other regulatory bodies
• A statement describing use of the proceeds.

This is the bare minimum; many states require more. Some PUCs will just approve the petition; others will start a full blown hearing process for the transfer."

—End