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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 96-1926 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Application of Sentry Management Corporation for ) Determination of Exempt Telecommunications ) File No. ETC-96-17 Company Status under Section 34 of the Public Utility ) Holding Company Act of 1935, as added by ) Section 103 of the Telecommunications Act of 1996 ) ORDER Adopted: November 19, 1996 Released: November 19, 1996 By the General Counsel: I. Introduction 1. On September 27, 1996, Sentry Management Corporation ("Sentry") filed an application with the Commission for a determination of "exempt telecommunications company" ("ETC") status pursuant to section 34(a)(1) of the Public Utility Holding Company Act of 1935 ("PUHCA"), as added by section 103 of the Telecommunications Act of 1996. Sentry's application was placed on public notice for comment on the adequacy and accuracy of the application on September 30, 1996. Sentry Management Corporation, Public Notice, DA No. 96-1638 (OGC rel. September 30, 1996). BellSouth Corporation ("BellSouth") filed comments opposing Sentry's application. As explained below, we reject BellSouth's opposition to Sentry's application and, because we also find that Sentry satisfies the statutory criteria to merit a positive determination of ETC status, we grant Sentry's application. II. Background A. Sentry's Application 2. Sentry represents that it is a privately held Delaware corporation whose current shareholders consist of corporations, partnerships, and individuals. Sentry owns 100% of the issued and outstanding stock of Sentry Alarm Systems, Inc. ("Sentry Alarm"), which in turn owns 100% of the issued and outstanding stock of Sonitrol Southeast, Inc. Sentry's business activities are conducted pursuant to, and through, its ownership of Sentry Alarm and Sonitrol Southeast, Inc. Neither Sentry, nor the current shareholders of Sentry, are themselves registered public utility holding companies under PUHCA. Furthermore, Sentry is not currently an "affiliate" (as that term is defined in PUHCA section 2(a)(11)(B)) of a registered public utility holding company. 3. Sentry states that it, through its affiliates, engages exclusively in the business of providing telecommunications services, information services, other services or products subject to the jurisdiction of the Commission, and/or products or services that are related or incidental to the provision of such products or services within the meaning of PUHCA section 34(a)(1). 4. Specifically, Sentry, through its wholly-owned subsidiaries, Sentry Alarm and Sonitrol Southeast, Inc., sells, installs, services and monitors custom-designed security alarm systems. Sentry serves residential, commercial and industrial customers, located primarily in the state of Florida. Sentry also represents that it provides remote alarm monitoring services utilizing telephone landlines to receive, process and transmit emergency and other information to and from customer premises and public safety entities. Sonitrol Southeast also sells alarm services franchises to, and collects resultant franchise royalties from, franchisees in the states of Florida, North Carolina, South Carolina, Mississippi, Alabama, and Arkansas. Sentry Alarm also provides alarm monitoring and related services to customers located in the states of Georgia and Alabama. B. Opposing Pleadings 3. On October 15, 1996, BellSouth filed comments opposing Sentry's application. BellSouth argues that the Commission cannot grant ETC status to Sentry, because ETC status is exclusively reserved for affiliates of public utility holding companies which are engaged in the relevant activity. According to BellSouth, under the clear meaning of PUHCA, ETC status arises only by virtue of the relevant entity's relationship to the public utility holding company. BellSouth argues that if Sentry were an affiliate of a public utility holding company or if a public utility holding company or its affiliate were applying for authority to purchase Sentry, and the other requirements for ETC status were satisfied, ETC status for Sentry might be appropriate. However, concludes BellSouth, based upon the facts set forth in Sentry's application, neither of the foregoing are true and, therefore, the Commission must reject Sentry's application. C. Sentry's Response 4. On October 22, 1996, Sentry filed a response to BellSouth's opposition. Sentry argues that BellSouth has misread the statute and therefore the Commission should reject its comments. Specifically, Sentry argues that under the plain meaning of Section 34(a)(1), affiliation with a public utility holding company has no bearing on whether an applicant is eligible for a determination of ETC status. Sentry argues that the term "exempt telecommunications company" means "any person" determined by the Commission to be engaged in the permitted activities. In support, Sentry points out that the Commission has already granted a determination of ETC status to an entity that was not an affiliate of a registered public utility holding company. III. Discussion 5. In our view, BellSouth has misread both the plain language of the statute and the underlying legal reasoning behind it. Specifically, Section 34(a)(1) makes clear that "any person" may make a good faith application to the Commission for a determination of ETC status. Once a person has a obtained a determination of ETC status from the Commission, any public utility holding company (in particular registered public utility holding companies but also exempt public utility holding companies) may acquire or maintain an interest in the ETC without obtaining prior SEC approval. Thus, while the only reason to obtain a determination of ETC status is to eventually become affiliated with a public utility holding company, nowhere in Section 34 does it state that the "any person" who may apply must currently be an "affiliate of a public utility holding company" or wait until it is actually in the process of being acquired by a public utility holding company before it can file an application for a determination of ETC status. 6. Moreover, we believe that this interpretation is consistent with the underlying policies of Section 34(a)(1). As the Commission stated in its September 12 Order, the motivating factors behind the enactment of Section 103 were both to eliminate the asymmetrical regulatory treatment between registered public utility holding companies and other gas and electric utilities, and to facilitate additional entry into the telecommunications and information services industries. We believe that if we were to follow BellSouth's restrictive interpretation of Section 34(a)(1), we would create a significant regulatory barrier to entry for registered public utility holding companies, rather than eliminating one as the 1996 Act commands. 7. As a practical matter, there are two ways by which a registered public utility holding company can diversify into telecommunications. First, it could form an ETC subsidiary to try to utilize and market any existing telecommunications facilities that the utility might own or build from scratch. As noted by the numerous ETC applications received and granted to date, many of the registered public utility holding companies have already taken advantage of this type of opportunity. 8. Alternatively, a holding company can also seek to purchase existing telecommunications or information service companies. We believe this process is best served if telecommunications or information services companies who wish to negotiate with public utility holding companies can receive a determination of ETC status from the Commission prior to starting negotiations. In this way, the regulatory approval process does not become one of the numerous commercial uncertainties that can often otherwise prevent parties from consummating a deal. However, BellSouth's proposed interpretation of the statute seeks the opposite objective - - i.e., to have the ETC process serve to delay or impede -- rather than foster and expedite -- negotiations between holding companies and potential new affiliates. This we will not do. Accordingly, we reject BellSouth's proposal, finding that if registered public utility holding companies are deterred or impeded from making such acquisitions, consumers will be deprived of the very pro-competitive benefits Section 103 is intended to facilitate. IV. Conclusion 9. Based upon the representations contained in Sentry's application, we determine that Sentry is an exempt telecommunications company as that term is defined in PUHCA section 34(a)(1), as amended. 10. Accordingly, IT IS ORDERED that the application of Sentry Management IS GRANTED. Moreover, BellSouth's opposition to Sentry's application is hereby DENIED. IT IS FURTHER ORDERED that the Securities and Exchange Commission SHALL BE NOTIFIED of this determination. FEDERAL COMMUNICATIONS COMMISSION William E. Kennard General Counsel