Telephony / June 1, 1998
By Larry Luxner
After months of top-secret negotiations, the Puerto Rican government has finally clinched a deal to sell state-owned Puerto Rico Telephone Company (PRTC).
Under the May 27 agreement -- which marks the largest phone-company privatization in U.S. history -- GTE Corp. agreed to pay $375 million for 50% plus one share of PRTC. Total proceeds to the island's government will be $1.875 billion, including $1.5 billion in a special dividend paid by PRTC to the state-controlled Puerto Rico Telephone Authority.
Immediately after the sale, GTE will own 45%, Banco Popular 5% and the Government Development Bank 47%. PRTC's 7,000 employees -- many of whom initially opposed the privatization -- will retain a 3% interest through an Employee Stock Ownership Plan. The government has also agreed to invest $200 million over the next five years to fund retirement and health-care benefits of PRTC workers and retirees.
With 1.3 million lines, over 155,000 cellular subscribers and over 237,000 paging customers, PRTC is the 12th largest phone company in the United States. In 1997, net income was $242.2 million on operating revenues of $1.2 billion.
"GTE will provide PRTC with the opportunity to effectively participate in the competitive global telecom industry," says GDB President Marcos Rodriguez-Ema in a prepared statement, noting that the privatization is part of pro-statehood Gov. Pedro Rossello's overall economic reform package unveiled in 1994. The statement made no mention of Spain's Telefonica -- the only other serious bidder for GTE -- which reportedly pulled out a few weeks ago because it wasn't happy with the government's terms of sale.
Puerto Rico's Commonwealth government has granted GTE a three-year option to acquire an additional 15% of PRTC. A recent FCC order requires PRTC to place its cellular and paging operations in a special subsidiary from the rest of its operations. In order to comply with this directive, PRTC will reorganize its operations into two separate wholly owned operating units.
"Puerto Rico is a nice middle ground between our operations in the Dominican Republic and Venezuela, and our domestic U.S. operations, in that it has characteristics of both," said GTE spokesman James Savage. GTE already owns 100% of Codetel, the phone monopoly of the Dominican Republic, and leads the VenWorld consortium which owns a 40% controlling interest in Venezuelan phone monopoly CANTV.