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Pride of the Caribbean: Puerto Rico prepares to sell phone company-again

Within the next 30 days, Puerto Rico's Government Development Bank expects to wrap up the sale of state-owned Puerto Rico Telephone Co. in what would rank as the largest telephone privatization in U.S. history.

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The two leading contenders for PRTC are GTE and Spain's Telefonica, although most of the details are shrouded in secrecy and only one government official, GDB President Marcos Rodriguez-Ema, is authorized to talk to the media.

In an interview last week, Rodriguez-Ema, who oversees all privatizations for Puerto Rico Gov. Pedro Rossello, refused to specify with which companies he's negotiating, how much PRTC is worth or even what percentage of the telco will be sold.

"The parties we've been talking to are well-known, respectable operators," he said. "That was our aim, to get well-known operators involved in this whole process and be able to bring quality and vision to telecommunications in Puerto Rico."

Rodriguez-Ema hinted, though, that the government could retain a substantial part of the company.

"We have to acknowledge reality in the telecom market. This is not the right time for any company to buy 100% of anything," said Rodriguez-Ema. "If you look at the telephone business, you can achieve substantial control without having to buy 100% of the stocks. Even if the government keeps a portion of the company, it will be with the clear intention of selling it in an [initial public offering] at a future date, either directly or through the government retirement system. It's all part of the negotiations."

PRTC, with 1.6 million lines in service, is the 12th largest telco in the United States. In 1996, the company had a net income of $107 million on operating revenues of $1.1 billion..

In 1990, then-Gov. Rafael Hernandez Colon attempted to sell PRTC to BellSouth International, but the deal was stymied by labor unions, as well as a law that required PRTC to be sold for at least $3 billion and prohibited the buyer from firing any employees for 18 months. Two years later, the government spun off a majority stake in long-distance subsidiary Telefonica Long Distance to Spain's Telefonica for $142 million, but it gave up all talk about selling the phone company itself.

Unlike Gov. Hernandez Colon, Gov. Rossello is a staunch supporter of the privatization of all government-run companies. In addition, the 1996 Telecommunications Act has forced PRTC to open its local market to competition-something it's never had to deal with. Centennial Landline already has built a fiber optic ring around metropolitan San Juan-enabling it to offer local service in competition with PRTC-and other companies may follow.

"Once you have the private sector engaged, there is no doubt the consumer will benefit," said Rodriguez-Ema. "In Puerto Rico, we are seeing the benefits of competition in cellular, long-distance, beepers and e-mail-everything but normal phone service."

While none of PRTC's 7900 employees would be fired outright in the event of a sale, "over time, we will see voluntary layoffs, shifting of employees from subsidiaries to other companies, and early retirement," Rodriguez-Ema said.

A GTE spokesman said acquiring PRTC would be a natural fit for that company, which already controls two Latin American phone monopolies: 100% of Codetel in the Dominican Republic with 750,000 lines, and 40% of Venezuela's CANTV with more than 3 million lines. "It's a nice mix of areas, and we have certain advantages we could bring to the table," he said.

In a recently published report, The Yankee Group speculated that because Rossello favors statehood, his administration may favor selling PRTC to a U.S. operator, which could strengthen the chances that GTE will win the bid.

LECs WANT THEIR X-FILES Partners in the americast programming venture, which include Ameritech, BellSouth, GTE and SNET, have filed a complaint with the FCC, charging that they have been unlawfully denied the ability to offer the FX cable channel. Among cable operators, FX is available exclusively to TCI. However, direct broadcast satellite operator EchoStar also offers the channel.

THUMBS UP, THUMBS DOWN The United States Telephone Association has filed comments with the FCC in support of petitions filed by Bell Atlantic, U S West and Ameritech seeking relief from regulatory restrictions on in-region long-distance data services. Meanwhile, the Association for Local Telecommunications Services has asked the FCC to deny the Bell regional holding companies' requests.

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© 2014 Penton Media Inc.

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