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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) ) ) In the Matter of ) ) Enforcement of Section 275(a)(2) of the ) Communications Act of 1934, as amended by) the Telecommunications Act of 1996,) Against Ameritech Corporation ) ) Emergency Motion for Orders to Show) CCBPol 97-7 Cause and to Cease and Desist ) ) Emergency Motion for Orders to Show) CCBPol 97-8 Cause and to Cease and Desist ) MEMORANDUM OPINION AND ORDER AND ORDER TO SHOW CAUSE Adopted: July 6, 1998 Released: July 8, 1998 By the Commission: TABLE OF CONTENTS Paragraph I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . 1 A. Overview. . . . . . . . . . . . . . . . . . . . . . . 1 B. Background. . . . . . . . . . . . . . . . . . . . . . 2 1. Section 275's Restrictions . . . . . . . . . . . 2 2. Ameritech's Acquisition of CCA, Norman, and Masada's Assets 6 a. CCA/Ameritech Transaction . . . . . . . . 10 b. Norman/Ameritech Transaction. . . . . . . 13 c. Masada/Ameritech Transaction. . . . . . . 16 II. POSITIONS OF THE PARTIES . . . . . . . . . . . . . . . 19 III. DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . 24 IV. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . 33 I. INTRODUCTION A. Overview 1. The Alarm Industry Communications Committee (AICC) filed on May 1, 1997 an Emergency Motion for Orders to Show Cause and to Cease and Desist against Ameritech Corporation (Ameritech), challenging Ameritech's acquisition of the assets of two alarm monitoring service companies, Central Control Alarm Corp. (CCA) and Norman Systems Securities, Inc. (Norman). While this motion was pending, Ameritech acquired the assets of a third alarm monitoring service company, Masada Security, Inc. (Masada). AICC filed on July 2, 1997 an additional Emergency Motion for Orders to Show Cause and to Cease and Desist against Ameritech, challenging this third asset acquisition. In both motions, AICC claims that Ameritech, in purchasing substantially all the assets of these three companies, "obtain[ed] financial control" of "alarm monitoring service entit[ies]" in violation of section 275(a)(2) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996. We address these motions jointly because they raise common issues for the Commission's consideration. For the reasons discussed below, we conclude that Ameritech's acquisition of the assets of CCA, Norman, and Masada violates section 275(a)(2). We therefore grant in part both of AICC's motions and order Ameritech, pursuant to section 312(c) of the Act, to show cause why a cease and desist order should not be issued pursuant to section 312(b). B. Background 1. Section 275's Restrictions 2. Section 275(a)(1) of the Communications Act generally prohibits any Bell Operating Company (BOC) or BOC affiliate from "engag[ing] in the provision of alarm monitoring services" before February 8, 2001. Congress appears to have established this five-year statutory moratorium to "ensure a level playing field" between the BOCs and the alarm monitoring industries, which depend upon the BOCs' local transmission services to provide alarm monitoring services. Section 275(a)(2), however, permits a BOC or BOC affiliate engaged in providing alarm monitoring services as of November 30, 1995 to continue to do so, provided that it may not acquire any equity interest in, or obtain financial control of, any unaffiliated alarm monitoring service entity after November 30, 1995 and until 5 years after the date of enactment of the Telecommunications Act of 1996, except that this sentence shall not prohibit an exchange of customers for the customers of an unaffiliated alarm monitoring service entity. 3. The Commission has interpreted section 275 in two earlier orders. In the Second Report and Order in CC Docket No. 96-152, the Commission determined, among other things, that Ameritech (through its affiliate SecurityLink) was the only BOC providing alarm monitoring services as of November 30, 1995, and, thus, was the only BOC that qualified for grandfathered treatment under section 275(a)(2). The Commission declined in that order to promulgate regulations further interpreting the terms of section 275(a)(2), and stated that the interpretation of terms in section 275(a)(2) was best addressed on a case-by-case basis where the Commission is able to consider all the facts that may apply to a particular transaction. 4. On the same day that the Commission released the Second Report and Order, it also ruled on a motion filed by AICC challenging Ameritech's purchase of the alarm monitoring assets of Circuit City's Home Security Division. AICC asserted in that motion that the asset purchase violated section 275(a)(2) because Ameritech obtained "financial control" of an alarm monitoring service entity by purchasing all of Circuit City's alarm monitoring assets. The Commission denied AICC's motion on the ground that Ameritech's acquisition of the assets of a division of a corporation did not constitute an "equity interest in" or "financial control of" an "alarm monitoring service entity" because the plain meaning of the term "entity" requires an "independent legal existence." Having decided that Circuit City's Home Security Division was not an "entity" within the meaning of section 275(a)(2), the Commission did not address other issues raised by the parties, such as what constitutes "financial control" for purposes of section 275(a)(2) and whether Ameritech obtained "financial control" of Circuit City's alarm monitoring division by purchasing its assets. 5. AICC appealed the Commission's Circuit City Order to the United States Court of Appeals for the District of Columbia Circuit, which vacated and remanded the Commission's order on December 30, 1997. The court rejected the Commission's conclusion that the term "entity" has a plain meaning. The court found it illogical that section 275(a)(2) would permit Ameritech to buy all the assets of a division even though it could not buy one share of stock in the corporation. The court was also concerned that construing section 275(a)(2) to permit the purchase of all the assets of a division tends to make "superfluous" the final clause in section 275(a)(2), which permits the exchange of customer accounts. This final clause, the court suggested, would make sense only if section 275(a)(2) placed restraints on asset acquisitions. At the same time, the court also rejected as "farfetched" Ameritech's argument that section 275(a)(2) was intended to permit the purchase of all or part of the assets in an alarm monitoring service entity, but not the stock of the company, because Congress wanted to prevent "hostile takeovers only." The court found no support for drawing a distinction between asset and equity transactions, concluding that drawing a distinction "to protect the management of alarm monitoring companies is unsupported by any evidence we have seen." The court further noted that it could not "imagine anything having to do with telecommunications policy that would turn on the method of acquisition." Finding neither the Commission's nor Ameritech's plain meaning interpretations viable, the court determined that the phrase "alarm monitoring service entity" was ambiguous. The court remanded the case to the Commission to resolve that ambiguity, and that matter is now pending before us. 2. Ameritech's Acquisition of CCA, Norman, and Masada's Assets 6. The two motions under consideration here were filed after the Commission's issuance of the Circuit City Order, but prior to the D.C. Circuit's decision vacating and remanding that order to the Commission. On May 1, 1997, AICC filed the Emergency Motion for Orders to Show Cause and to Cease and Desist challenging the CCA and Norman acquisitions (AICC's CCA and Norman Motion). As discussed more fully below, AICC asserts that Ameritech's acquisition of substantially all the assets of CCA and Norman, in exchange for Ameritech stock, constitutes "financial control" of an "unaffiliated alarm monitoring service entity" in violation of section 275(a)(2). The Common Carrier Bureau (Bureau) issued a Public Notice on May 7, 1997, establishing a pleading cycle for interested parties to file comments addressing AICC's CCA and Norman Motion. Ameritech filed comments in opposition to that motion on May 21, 1997 (Ameritech's CCA and Norman Comments), and AICC filed a reply on May 30, 1997 (AICC's CCA and Norman Reply). No other party filed formal comments in this proceeding. 7. While this proceeding was pending, Ameritech acquired substantially all the assets of Masada. On July 2, 1997, AICC filed another Emergency Motion for Orders to Show Cause and to Cease and Desist challenging Ameritech's acquisition of Masada's assets (AICC's Masada Motion). As in AICC's CCA and Norman Motion, AICC asserts that Ameritech's acquisition of substantially all the assets of Masada, in exchange for Ameritech stock, constitutes "financial control" of an "unaffiliated alarm monitoring service entity" in violation of section 275(a)(2). The Bureau issued a Public Notice on July 3, 1997, establishing a pleading cycle for interested parties to file comments addressing AICC's Masada Motion. Ameritech filed comments in opposition to that motion on August 4, 1997 (Ameritech's Masada Comments), and AICC filed a reply on August 18, 1997 (AICC's Masada Reply). Again, no other party filed formal comments in this proceeding. 8. After the record closed in each proceeding, the Bureau sent Ameritech a written request for additional information and documentation related to the three transactions. These requests sought information regarding, among other things, the types of assets Ameritech purchased from each company, the number of CCA, Norman, and Masada employees it hired, and the buildings or other facilities it acquired from CCA, Norman, and Masada. The Bureau also sent Ameritech a follow-up request for information with respect to the CCA and Norman acquisitions. Ameritech responded to each of the Bureau's requests for information and provided the Plans of Reorganization governing each transaction, as well as lists of those assets of CCA, Norman, and Masada that were not purchased by Ameritech. 9. Ameritech's responses to the Bureau's requests for information, the documents attached thereto, and public documents relating to the three transactions, establish the following relevant, undisputed facts regarding Ameritech's acquisition of the assets of CCA, Norman, and Masada. a. CCA/Ameritech Transaction 1. CCA, a corporation incorporated under the laws of Wisconsin, was engaged in the business of providing alarm monitoring services in Wisconsin. Ameritech acknowledged that, on April 16, 1997, it purchased "substantially all" of CCA's assets. The purchase was completed pursuant to an asset purchase agreement and Plan of Reorganization, adopted by Ameritech and CCA on the same date. Pursuant to the Plan, CCA agreed to sell Ameritech its assets in exchange for shares of Ameritech stock and Ameritech's assumption of certain liabilities. Among the assets Ameritech purchased were the rights to CCA's customer contracts and CCA's alarm monitoring service facilities. The Plan further provided that CCA intended to dissolve and distribute the shares of Ameritech stock to CCA's shareholders "reasonably promptly after the date it receives the Shares." Until such time as CCA dissolved, CCA's Board of Directors retained the right to abandon the Plan and continue in existence subject to providing Ameritech five days notice of that decision. Finally, the Plan contemplated that the transaction would be treated as a tax-free reorganization under section 368(a)(1)(C) of the Internal Revenue Code. 10. CCA filed for voluntary dissolution with the State of Wisconsin, which was approved by the State on May 2, 1997. 11. Ameritech, following its acquisition of CCA's assets, sent a letter to CCA's former customers announcing that "Central Control Alarm is now SecurityLink from Ameritech" and that CCA was "joining" SecurityLink from Ameritech. Monitoring of alarm signals of former CCA customers is now performed by Ameritech under SecurityLink's name. Service to former CCA customers is now performed in a location previously used by CCA and is provided by former CCA employees. Ameritech offered employment to all of CCA's 122 employees and managers, 121 of whom accepted the offer. Of CCA's four former officers and directors, only one accepted employment with Ameritech. b. Norman/Ameritech Transaction 12. Norman, a corporation incorporated under the laws of Illinois, was engaged in the business of providing alarm monitoring services in Illinois. Ameritech acknowledged that, on April 18, 1997, it purchased "substantially all" of Norman's assets. As with the CCA/Ameritech transaction, the purchase was completed pursuant to an asset purchase agreement and Plan of Reorganization, adopted by Ameritech and Norman. Pursuant to the Plan, Norman agreed to sell Ameritech its assets in exchange for shares of Ameritech stock and Ameritech's assumption of certain liabilities. Among the assets Ameritech purchased were the rights to Norman's customer contracts and Norman's alarm monitoring service facilities. The Plan further provided that Norman "will be liquidated and its assets (including the [Ameritech] Shares) will be distributed to the Shareholder or any remaining unpaid creditors reasonably promptly after the date the Company receives the Shares [of Ameritech stock]." The other terms of the Plan are virtually identical to those in the Plan between Ameritech and CCA, including a provision treating the transaction as a tax-free reorganization under section 368(a)(1)(C) of the Internal Revenue Code. 13. Norman filed Articles of Dissolution with the State of Illinois on April 18, 1997 (the effective date of the Plan of Reorganization), which the State approved on April 25, 1997. 14. Ameritech, following the acquisition of Norman's assets, sent a letter to Norman's former customers announcing that "Norman Security Systems is now SecurityLink from Ameritech" and that the "combination" of the two companies would create an "industry leader." Monitoring of alarm signals of former Norman customers is now performed by Ameritech under SecurityLink's name. Service to former Norman customers is now performed in a location previously used by Norman and is provided by former Norman employees. Ameritech offered employment to all of Norman's 85 employees and managers, 75 of whom accepted the offer. Norman's sole director and board member became an independent contractor for Ameritech. The only other Norman officer accepted employment with Ameritech. c. Masada/Ameritech Transaction 15. Masada, a corporation incorporated under the laws of Delaware, was engaged in the business of providing alarm monitoring services in Alabama and other states. Ameritech acknowledged that, on June 19, 1997, it purchased "substantially all" of Masada's assets. As with Ameritech's transactions with CCA and Norman, the asset purchase was completed pursuant to an asset purchase agreement and Plan of Reorganization, adopted by Ameritech and Masada. Pursuant to the Plan, Masada agreed to sell Ameritech its assets in exchange for shares of Ameritech stock and Ameritech's assumption of certain liabilities. Among the assets Ameritech purchased were the rights to Masada's customer contracts and Masada's alarm monitoring service facilities. The Plan further provided that Masada intended to dissolve and distribute the shares of Ameritech stock to Masada's shareholders "reasonably promptly thereafter." Until such time as Masada dissolves, Masada's Board of Directors retains the right to abandon the Plan and continue in existence upon providing Ameritech five days notice of that decision. Finally, Masada's Plan of Reorganization, like those of CCA and Norman, contemplated that the transaction would be treated as a tax-free reorganization under section 368(a)(1)(C) of the Internal Revenue Code. 16. Masada filed for dissolution with the State of Delaware on December 29, 1997, which the State approved on December 31, 1997. Based on the record before us, it does not appear that Masada conducted any business between the time Ameritech acquired its assets and the time it filed for dissolution. 17. Ameritech, following the acquisition of Masada's assets, sent a letter to Masada's former customers announcing that "[y]ou are now protected by SecurityLink from Ameritech." Monitoring of alarm signals of former Masada customers is now performed by Ameritech under SecurityLink's name. Service to former Masada customers is now performed in a location previously used by Masada and is provided by former Masada employees. Of Masada's 962 employees and managers, "virtually all" were offered and accepted employment with Ameritech. Five of Masada's thirteen officers and directors were also employed by Ameritech following the asset acquisition. II. POSITIONS OF THE PARTIES 18. At issue is whether Ameritech, in acquiring substantially all the assets of CCA, Norman, and Masada, "obtain[ed] financial control" of those entities in violation of section 275(a)(2). Our resolution of these disputes is not affected by the Commission's ultimate determination of the Circuit City case on remand. As stated above, the sole issue in Circuit City was whether Circuit City's Home Security Division was an "alarm monitoring service entity." Because the Commission determined that the division was not an "entity," the Commission found that the Ameritech/Circuit City transaction did not implicate section 275 at all and thus did not reach the issue of what constitutes "financial control" for purposes of section 275(a)(2). In contrast with Circuit City, Ameritech acknowledges that CCA, Norman, and Masada were "alarm monitoring service entities" for purposes of section 275(a)(2) at the time it acquired those companies' assets. The CCA, Norman, and Masada transactions therefore require that the Commission address a question that it did not address in its initial Circuit City Order -- what constitutes "financial control" under the statute. 19. AICC maintains that "financial control" should be defined as "any financial transaction which leads to control over the manner and means of operating a particular business." Applying this definition, AICC asserts that Ameritech has obtained financial control of CCA, Norman, and Masada in two ways. First, AICC claims that the acquisition of virtually all the assets of CCA, Norman, and Masada gave Ameritech "financial control" over those companies because "[t]here can be no greater manifestation of control than ownership." Second, AICC contends that, because Ameritech acquired virtually all the assets of CCA, Norman, and Masada and left those entities as corporate shells that were "ripe for dissolution," the Commission should view the asset acquisitions as equivalent to mergers under the de facto merger doctrine. AICC maintains that Ameritech's representation that SecurityLink from Ameritech "joined" with CCA and Norman makes it particularly appropriate for the Commission to treat the CCA and Norman asset acquisitions as de facto mergers and find that Ameritech obtained "financial control" over those entities. 20. AICC urges the Commission to order rescission of the transactions if the Commission determines that Ameritech's acquisition of CCA, Norman, and Masada's assets violates section 275(a)(2). Specifically, AICC asks the Commission to issue an Order to Show Cause pursuant to section 312(c), instructing Ameritech to explain why it should not be required to rescind and unwind its purchases of the alarm monitoring assets of CCA, Norman, and Masada. AICC also requests that the Commission then issue a Cease and Desist Order pursuant to section 312(b), directing Ameritech to rescind and unwind its asset purchases of CCA, Norman, and Masada. 21. Ameritech disputes that it obtained "financial control" of CCA, Norman, and Masada for purposes of section 275(a)(2) by acquiring substantially all of their assets. Ameritech asserts that "Delaware law has long held that the purchase of all the assets of an entity does not give the purchaser of such assets control over the seller." Moreover, Ameritech takes issue with AICC's definition of "financial control" and its argument that Ameritech obtained "financial control" of CCA, Norman, and Masada through a de facto merger. Ameritech contends that "financial control" cannot occur through a transaction, which is a one time event. Instead, it argues that "financial control," for purposes of section 275(a)(2), must necessarily mean "to control the entity financially -- i.e., to have the power to make the entity's financial decisions on an on-going basis." Ameritech maintains that it has no ongoing, financial relationship with CCA, Norman, or Masada because those entities (1) continued to exist as independent entities, and (2) are subject to the sole financial control of their stockholders and directors. Specifically, Ameritech states: Each Seller's board continued to manage the business and affairs of the Seller, just as it did prior to the sale. All major decisions, such as whether to purchase new assets, invest in new businesses, or dissolve the company and distribute its assets to its stockholders, will continue to be made by the board of directors. None of these decisions will be controlled by or undertaken at the direction of Ameritech. Thus, Ameritech argues that it has no "financial control" over CCA, Norman, and Masada because it has no ongoing decision-making authority or control over the finances of those entities, which continued to exist for some period of time after the Plans of Reorganization became effective. Ameritech also asserts that the legal doctrines that treat asset purchases as mergers are inapplicable here because (1) Delaware, the state in which Ameritech is incorporated and which is widely regarded as the authority in corporate law matters, recognizes the de facto merger doctrine only in limited circumstances not relevant here; and (2) "Illinois and Wisconsin, the states where Central and Norman, respectively, are incorporated, have no case law on point." 22. Finally, Ameritech argues that the statutory language and the legislative history of section 275 support its position. Ameritech asserts that the plain language of section 275 does not prohibit asset acquisitions, and that it would expand the terms of the statute to include such a prohibition. Ameritech cites Congress' experience with section 7 of the Clayton Act as an illustration of the principle that it is the role of Congress, not the courts, to add to the terms of a statute. Ameritech contends that courts were unwilling to modify section 7 to include language prohibiting the acquisition of assets and that Congress therefore decided to amend the statute to add that prohibition. Ameritech further asserts that section 275 is the product of a compromise, whereby Ameritech was not completely prohibited from expanding its business, but only prohibited from expanding it by specified means. Ameritech cites language from an earlier version of section 275 and statements made by House conferees on the 1996 Act to argue that Congress deliberately chose to exclude asset purchases from the scope of section 275. III. DISCUSSION 23. We find that the transactions through which Ameritech purchased substantially all the assets of CCA, Norman, and Masada gave it "financial control" over each of those entities, in violation of section 275(a)(2). As discussed more fully herein, the record demonstrates that Ameritech, as a result of its asset purchases, obtained "financial control" of CCA, Norman, and Masada, because it took over the entire business operations of those entities and integrated them into Ameritech's ongoing alarm monitoring business. The fact that Ameritech did so through tax- free reorganization plans further supports our determination that Ameritech obtained "financial control" of CCA, Norman, and Masada through its acquisition of those companies' assets. Because we find that Ameritech violated section 275(a)(2) through these asset acquisitions, we grant AICC's Motions insofar as we order Ameritech, pursuant to section 312(c) of the Act, to show cause why we should not issue a cease and desist order pursuant to section 312(b). 24. In determining whether Ameritech obtained "financial control" for purposes of section 275(a)(2), we adhere to the approach established in the Second Report and Order. There, the Commission stated that "the scope of section 275(a)(2) is better addressed on a case-by-case basis where the Commission is able to consider all the facts that apply to a particular transaction." Thus, "financial control" must be determined by looking at the totality of the circumstances involved in a particular case. Because a broad range of factors may demonstrate direct or indirect control, we decline to identify a single factor or criterion as dispositive of the issue. For example, depending on the circumstances, "financial control" might exist when Ameritech makes financial decisions for an ongoing alarm monitoring service entity or when Ameritech obtains control and ownership of the business operations of such an entity. 25. In the instant proceeding, Ameritech characterizes the CCA, Norman, and Masada transactions as asset purchases and argues that it gained no "financial control" over the three companies because (1) the sale or transfer of assets alone does not confer control over selling entities, and (2) the statutory language of section 275 does not prohibit asset purchases. Ameritech argues that the statutory language of section 275(a)(2) permits all types of asset acquisitions and precludes only equity acquisitions. The D.C. Circuit rejected this same argument by Ameritech in Circuit City. We conclude that section 275(a)(2) prohibits asset acquisitions where such acquisitions confer "financial control" of another entity. The determination of whether an asset acquisition results in "financial control" of the selling entity will depend upon the facts pertaining to the individual transaction. Although there may be asset purchases that do not confer upon the buying company "financial control" over the selling entity, such is not the case here. 26. The information produced in these proceedings persuades us that the Ameritech/CCA, Ameritech/Norman, and Ameritech/Masada transactions involved more than asset sales between Ameritech and each of these companies. Ameritech, through these transactions, obtained full control and ownership of the business operations of CCA, Norman, and Masada. The record demonstrates that Ameritech, pursuant to the Plans of Reorganization with CCA, Norman, and Masada, purchased substantially all the assets of each company (including their customer contracts and alarm monitoring facilities), and assumed certain of their liabilities, in exchange for Ameritech stock. Ameritech also made offers of employment to all of CCA, Norman, and Masada's employees and managers, virtually all of whom accepted. Ameritech then began to provide service to the former customers of CCA, Norman, and Masada. As Ameritech has stated with regard to the CCA and Norman transactions, "[t]he employees and assets involved in the business operations previously conducted by [those entities] have been integrated into SecurityLink's operations, and no business is being conducted under [those entities'] name[s]." 27. The structuring of these transactions as tax-free "reorganizations" under section 368(a)(1)(C) of the Internal Revenue Code further supports our conclusion that these transactions were more than mere asset sales, as Ameritech now contends. A reorganization under section 368(a)(1)(C) is defined as an acquisition by one corporation of "substantially all" the properties of another corporation in exchange solely for the voting stock of the acquiring corporation. In order to qualify for this tax-free treatment, the company selling the assets must sell all its operating assets to the acquiring company. Assets may be retained only to pay unassumed liabilities and may not be used for other purposes, such as continuing to operate a previous business or engaging in a new business. Further, the company selling the assets must then liquidate, by distributing "the stock, securities, and other properties it receives, as well as its other properties, in pursuance of the plan of reorganization." A reorganization under section 368(a)(1)(C) is tax-free "to accommodate transactions that had the effect of mergers" but could not qualify as statutory mergers. The Internal Revenue Service has distinguished section 368 reorganizations from asset sales, which are taxable transactions. In asset sales, the company selling the assets may continue in existence indefinitely and embark on new business ventures with the proceeds. 28. Ameritech's assertion that the Boards of Directors of CCA, Norman, and Masada retained financial control over those companies following the asset/stock swaps is also irreconcilable with the tax-free treatment sought by the companies under section 368(a)(1)(C). As stated above, to qualify for tax-free treatment under section 368(a)(1)(C), the selling company must cease existing business operations and is precluded from engaging in new business activity. CCA, Norman, and Masada sold their operating assets to Ameritech, and, in order to achieve tax- free treatment pursuant to section 368(a)(1)(C), necessarily surrendered the right to continue to operate their alarm monitoring business or to engage in any other business. Consistent with the Plans of Reorganization governing the CCA, Norman, and Masada transactions, the Boards of Directors of those companies decided to dissolve, and did, in fact, dissolve after the asset/stock swaps. As stated above, CCA formally dissolved two weeks after its asset/stock swap, Norman formally dissolved one week after its asset/stock swap, and Masada dissolved on December 31, 1997. Although the dissolution of those companies is not a prerequisite for our finding that Ameritech obtained "financial control" of them, in violation of section 275(a)(2), the companies' stated intent to dissolve, set forth in their Plans of Reorganization, is inconsistent with Ameritech's assertion that those entities continued to exist as independent entities after the transactions, subject to the control of their independent Boards of Directors and stockholders. If we were to accept Ameritech's argument, we would also be faced with the anomalous conclusion that CCA, Norman, and Masada had "financial control" over businesses that they no longer owned or operated, while Ameritech lacks "financial control" over the on-going business that it has acquired and controls. 29. Our determination that Ameritech obtained "financial control," within the meaning of section 275(a)(2), is also consistent with the underlying purpose of that statutory provision. We conclude that Congress, in using the phrase "financial control" of an entity in section 275(a)(2), intended to address non-equity transactions, such as asset purchases, that confer control over the financial operations of an alarm monitoring service entity. This interpretation comports with the D.C. Circuit's analysis of section 275(a)(2) in AICC v. FCC. The D.C. Circuit rejected Ameritech's argument that section 275(a)(2) precludes only equity transactions, finding that there was little evidence to support Ameritech's distinction between asset and equity acquisitions. The court reasoned that it made little sense for Congress to "prohibit Ameritech from purchasing even one share of an alarm monitoring company's stock, but allow it to purchase all of the company's assets devoted to that line of business[.]" The court also could not reconcile the argument that section 275(a)(2) places no restraints on asset acquisitions with the explicit language in the last clause of that section allowing the acquisition of one type of asset, i.e., customer accounts. We conclude that a far more reasonable interpretation of section 275(a)(2) is that it prohibits asset acquisitions where such acquisitions confer "financial control" of another entity, e.g., where the acquisition has the effect of a merger or results in control of the business operations of another company through some other financial or administrative arrangement. 30. Based on the foregoing, we need not rely on the de facto merger doctrine to conclude that Ameritech obtained "financial control" of CCA, Norman, and Masada, as AICC urges. The Commission has discretion to apply the de facto merger doctrine and may find it appropriate to apply the doctrine in determining whether Ameritech's purchases of the alarm monitoring assets of other companies violate section 275. In this case, however, we need not rely upon the de facto merger doctrine and reach the legal conclusion that a de facto merger resulted in order to conclude, as we have here, that Ameritech obtained "financial control" of CCA, Norman, and Masada for purposes of section 275(a)(2). 31. Having found that Ameritech obtained "financial control" of CCA, Norman, and Masada through these asset acquisitions, we conclude that Ameritech has violated section 275(a)(2). We grant both of AICC's Motions insofar as AICC seeks an order directing Ameritech to show cause why it should not be required to cease and desist its violations of section 275(a)(2). Pursuant to sections 312(c) and 4(i) of the Act, Ameritech is required to show cause in writing within thirty (30) days of the release of this Memorandum Opinion and Order and Order to Show Cause why we should not issue a cease and desist order pursuant to section 312(b) directing Ameritech to divest itself of the assets formerly owned by CCA, Norman, and Masada. Because a show cause proceeding must precede any cease and desist order we issue pursuant to section 312(b), we deny AICC's Motions to the extent that AICC seeks an order to cease and desist at this time. We shall consider whether such an order is warranted upon reviewing Ameritech's response to our Order to Show Cause. IV. ORDERING CLAUSES 32. Accordingly, IT IS ORDERED that AICC's Motions for Orders to Show Cause and to Cease and Desist in CCBPol 97-7 and CCBPol 97-8 are granted in part, insofar as we find a violation of section 275(a)(2) and grant the Motion for an Order to Show Cause, and denied in part, insofar as we deny, at this time, AICC's Motion for an Order to Cease and Desist. 33. IT IS FURTHER ORDERED that Ameritech, pursuant to sections 312(c) and 4(i) of the Act, shall show cause in writing within thirty (30) days of the release of this Memorandum Opinion and Order and Order to Show Cause why a cease and desist order should not be issued, pursuant to section 312(b), directing Ameritech to divest itself of the assets formerly owned by CCA, Norman, and Masada. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary