**DA 02-2021**

**Released: August 15, 2002**

**DOMESTIC SECTION 214 APPLICATION FILED FOR CONSENT TO TRANSFER CONTROL
OF BIRCH TELECOM, INC.**

**STREAMLINED Pleading Cycle Established**

**WC Docket No. 02-229**

On July 31, 2002, Birch Telecom, Inc., Debtor-in-Possession ("Birch
DIP"), and Birch Telecom, Inc. ("Birch")[^1] (collectively,
"Applicants"), pursuant to section 214 of the Communications Act of
1934, as amended, 47 U.S.C. § 214 (the "Act"), filed an application for
approval to transfer control of Birch DIP, and indirect control of the
section 214 authority held by Birch DIP's operating subsidiaries, to
Birch.[^2]

Applicants assert that this application is subject to streamlined
processing under section 63.03(b)(2)(i) of the Commission's rules
because the Applicants are not dominant with respect to any
telecommunications services offered; the proposed transaction would
result in the transferee having a market share in the interstate,
interexchange market of less than 10 percent; and the transferee would
provide competitive telephone exchange services exclusively in
geographic areas served by a dominant local exchange carrier that is not
a party to the transaction.[^3]

The Applicants have elected to commence a chapter 11 case under the
Bankruptcy Code. Upon the filing of its bankruptcy case, control of
Birch shifted from BTI Ventures, LLC ("BTI") (a wholly owned subsidiary
of the investment firm Kohlberg, Kravis, Roberts & Co. ("KKR")) to Birch
DIP.[^4] In conjunction with its bankruptcy filing, Birch DIP proposed a
plan of reorganization (the "Reorganization Plan"), for which Birch DIP
has solicited and received sufficient votes from its current senior
lenders and senior note holders to enable the Reorganization Plan to be
confirmed by the U.S. Bankruptcy Court for the District of Delaware.
Pursuant to the Reorganization Plan, BTI will forfeit both *de jure* and
*de facto* control of Birch DIP, and the shareholders generally of Birch
will assume control of the company. Birch does not anticipate any
adverse effect on its customers as a result of the reorganizations,
including any changes to its rates and quality of service.

BTI currently owns approximately 90 percent of the shares of outstanding
capital stock in Birch DIP.[^5] BTI also controls a majority of Birch
DIP's board of directors. Upon implementation of the Reorganization
Plan, unless it elects to participate in the Equity Offer, BTI's equity
share will be reduced to approximately zero, and no single shareholder
will own a majority of the voting stock of Birch. Upon completion of the
Reorganization Plan, approximately 100 percent of Birch's capital stock
will be owned by a diffuse group of investment banks.[^6] The remainder
of Birch will be owned in varying amounts by holders of Birch's 14
percent Senior Notes due 2008, existing management and, if they elect to
purchase shares of Birch's common stock pursuant to the terms of the
Equity Offer, holders of Birch's existing preferred stock.. As no single
shareholder will possess *de jure* or *de facto* control of Birch,
control will rest in the shareholders generally of Birch. The corporate
organization chart will remain unchanged pre- and post-restructuring.

The Applicants state that the Reorganization Plan proposes a major
restructuring of Birch DIP's financial obligations and capital
structure, which is critical to its continuation as a viable enterprise.
Applicants state that Birch DIP's financial condition and overall
creditworthiness will improve, thereby enhancing its ability to make the
necessary expenditures to continue to compete effectively in the
telecommunications market.

The Applicants anticipate no adverse impact on service to any of the
customers of Birch DIP as a result of this reorganization. Birch DIP
plans no change to the company's name, service to Birch DIP's customers
will not be interrupted as a result of the bankruptcy filings, and Birch
DIP does not anticipate any changes to rates or quality of service.
Applicants state that this transaction is essential to the preservation
of Birch's core business and will permit the company to continue
bringing quality service to its customer base.

**[GENERAL INFORMATION]{.underline}**

The transfer of control application identified herein has been found,
upon initial review, to be acceptable for filing as a streamlined
application. The Commission reserves the right to return any transfer of
control application if, upon further examination, it is determined to be
defective and not in conformance with the Commission's rules and
policies. Interested parties may file **comments within 14 days** and
**reply comments within 21 days** of this notice.[^7] Unless otherwise
notified by the Commission, an applicant is permitted to transfer
control of the domestic lines or authorization to operate on the 31^st^
day after the date of this notice. Comments may be filed using the
Commission\'s Electronic Comment Filing System (ECFS) or by filing paper
copies. *See Electronic Filing of Documents in Rulemaking Proceedings*,
63 Fed. Reg. 24121 (1998).

Comments filed through the ECFS can be sent as an electronic file via
the Internet to \<http://www.fcc.gov/e-file/ecfs.html\>. Generally, only
one copy of an electronic submission must be filed. If multiple docket
or rulemaking numbers appear in the caption of this proceeding, however,
commenters must transmit one electronic copy of the comments to each
docket or rulemaking number referenced in the caption. In completing the
transmittal screen, commenters should include their full name, U.S.
Postal Service mailing address, and the applicable docket or rulemaking
number. Parties may also submit an electronic comment by Internet
e-mail. To get filing instructions for e-mail comments, commenters
should send an e-mail to ecfs@fcc.gov, and should include the following
words in the body of the message, \"get form \<your e-mail address\>.\"
A sample form and directions will be sent in reply.

Parties who choose to file by paper must file an original and four
copies of each filing. If more than one docket or rulemaking number
appear in the caption of this proceeding, commenters must submit two
additional copies for each additional docket or rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail (although we continue to experience delays in receiving U.S. Postal
Service mail). The Commission\'s contractor, Vistronix, Inc., will
receive hand-delivered or messenger-delivered paper filings for the
Commission\'s Secretary at 236 Massachusetts Avenue, N.E., Suite 110,
Washington, D.C. 20002. The filing hours at this location are 8:00 a.m.
to 7:00 p.m. All hand deliveries must be held together with rubber bands
or fasteners. Any envelopes must be disposed of before entering the
building. Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
Capitol Heights, MD 20743. U.S. Postal Service first-class mail, Express
Mail, and Priority Mail should be addressed to 445 12th Street, SW,
Washington, D.C. 20554. All filings must be addressed to the
Commission\'s Secretary, Office of the Secretary, Federal Communications
Commission.

**In addition, one copy of each pleading must be sent to each of the
following:**

(1) the Commission's duplicating contractor, Qualex International, 445
    12^th^ Street, S.W., Room CY-B402, Washington, D.C. 20554; e-mail:
    <qualexint@aol.com;> facsimile: (202) 863-2898; phone: (202)
    863-2893.

(2) Tracey Wilson, Competition Policy Division, Wireline Competition
    Bureau, 445 12^th^ Street, S.W., Room 5-C437, Washington, D.C.
    20554; e-mail: [twilson@fcc.gov](mailto:jmyles@fcc.gov), and

(3) Bill Dever, Competition Policy Division, Wireline Competition
    Bureau, 445 12^th^ Street, S.W., Room 5-C266, Washington, D.C.
    20554; e-mail: <wdever@fcc.gov>; and

(4) Nandan Joshi, Office of General Counsel, 445 12^th^ Street, S.W.,
    Room 8-A820, Washington, D.C. 20554; e-mail: <njoshi@fcc.gov>.

Filings and comments are also available for public inspection and
copying during regular business hours at the FCC Reference Information
Center, Portals II, 445 12th Street, SW, Room CY-A257, Washington, DC,
20554. They may also be purchased from the Commission\'s duplicating
contractor, Qualex International, Portals II, 445 12th Street, SW, Room
CY-B402, Washington, DC, 20554, telephone 202-863-2893, facsimile
202-863-2898, or via e-mail <qualexint@aol.com>.

For further information, please contact Tracey Wilson, at (202) 418-1394
or Bill Dever, Competition Policy, Wireline Competition Bureau at (202)
418-1578.

\- **FCC** -

[^1]: For convenience purposes, the name "Birch" refers to Birch
    Telecom, Inc. prior to the *pro forma* transfer of control to Birch
    DIP as well as after transfer of control from Birch DIP out of
    bankruptcy.

[^2]: On July 29, 2002, Birch and all of its subsidiaries filed for
    bankruptcy protection simultaneously in the U.S. Bankruptcy Court
    for the District of Delaware. The following subsidiaries of Birch
    DIP are certificated to provide telecommunications services:
    American Local Telecommunications, L.L.C. (Texas); Birch Telecom of
    the Great Lakes, Inc. (Illinois, Indiana, Michigan, Ohio,
    Wisconsin); Birch Telecom of Kansas, Inc. (Kansas); Birch Telecom of
    Missouri, Inc. (Missouri); Birch Telecom of Oklahoma, Inc.
    (Oklahoma); Birch Telecom of the South, Inc. (Alabama, Florida,
    Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
    Carolina, Tennessee); and Birch Telecom of Texas Ltd., L.L.P.
    (Texas). Each of these subsidiaries are wholly owned by Birch, with
    the exception of Birch Telecom of Texas, Ltd., L.L.P., of which
    Birch is a Limited Partner with a 99 percent interest, and Birch
    Texas Holdings, Inc. is the General Partner with a 1 percent
    interest.

[^3]: 47 C.F.R. section 63.03(b)(2)(i).

[^4]: On July 30, 2002, Birch, as Debtor-in-Possession, submitted
    notification to the Commission of the *pro forma* transfer of
    control as required under new section 63.03(d) of the Commission's
    Rules.

[^5]: BTI, the controlling party prior to the *pro forma* transfer of
    control to Birch DIP, does not provide telecommunications services,
    but its affiliates, NewSouth Communications ("NewSouth") and Birch
    DIP do. NSHI Ventures, LLC, a wholly owned subsidiary of KKR, has an
    approximately 55 percent equity ownership interest in NewSouth.
    Because KKR wholly owned both BTI and NSHI Ventures, LLC, NewSouth
    is an affiliate of Birch DIP. New South offers domestic competitive
    local long distance telecommunications services throughout the areas
    served by BellSouth: North Carolina, South Carolina, Georgia,
    Florida, Alabama, Tennessee, Louisiana, Kentucky, and Mississippi.
    It is anticipated that, post-restructuring, Birch will no longer be
    affiliated with NewSouth. Birch DIP's operating subsidiaries
    currently provide domestic local and long distance
    telecommunications services for residential as well as small and
    mid-sized business customers in Alabama, Georgia, Kansas, Missouri,
    North Carolina, Oklahoma, South Carolina, Tennessee, and Texas.

[^6]: The investment banks to own five percent or greater equity in
    Birch, and their approximate post-restructuring equity share
    (rounded to the nearest 1 percent) are as follows: LB 1 Group, Inc.
    (25 percent), Bear Sterns Corporate Lending, Inc. (10 percent), Bank
    of America, N.A. (8 percent), Banker's Trust Company (8 percent), LT
    Holdco I, L.L.C. (8 percent), Fleet National Bank (6 percent), IBM
    Credit Corporation (6 percent), Morgan Stanley Dean Witter
    Investment (5 percent), and Lehman Brothers (5 percent).

[^7]: *See* 47 C.F.R. section 63.03(a).