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On the eve of battle, Puerto Rico's telecom players prepare for competition
Global Telephony / July 1996

By Larry Luxner

SAN JUAN, Puerto Rico -- For years, Puerto Ricans have quietly accepted the irony that anyone could call from San Juan to New York for 27¢ a minute, while the same phone call to Mayagüez -- on the other side of Puerto Rico -- cost a whopping 47¢. The reason: absolutely no competition in the island's $235 million intra-island long-distance market, which had been controlled by government-owned Puerto Rico Telephone Co.

That domination has now come to a screeching halt, following the FCC's denial earlier this year of a petition by PRTC to hang onto its monopoly for another five years.

At the same time, half a dozen newcomers are crowding into Puerto Rico's already congested cellular market. PRTC -- and its Telefónica Celulares cellular-phone subsidiary -- denies it's been caught with its pants down.

"We welcome competition," said Roberto González Torres, director of cellular network services and radio trunking, during a recent interview in San Juan. "We plan to offer PCS-type services this year. When the competitors come in, they won't offer anything new that the market hasn't already seen. It's all going to be based on pricing and bundling of services."

Adds Nelson Traverso, PRTC's chief of wireless services: "We are doing our homework, evaluating what'll be our initiatives using a pro-active approach, but also offering the flexibility to react to whatever strategy the competition comes up with."

Thanks to a $19 million deal with Ericsson, PRTC will soon be able to offer PCS in the 800-megahertz range, which gives the telco an important advantage in timing. PRTC already has 170,000 cellular subscribers, compared to its only traditional cellular competi-tor, Cellular One, with 150,000. Between the two companies, Puerto Rico has an 8.1% penetration rate -- the same as the U.S. mainland and by far the highest in Latin America.

Yet both will soon be joined by Lambda Communications Corp. (a subsidiary of Centennial Communications), which paid $55 million for the B-license and has since invested another $50 million in CDMA equipment from Lucent Technology. Lambda expects to be on-line in early July.

"We're really starting two businesses: a digital fiberoptic wireline business, which we actually funded and started before we got the PCS license, and PCS itself," said the company's vice-president of operations, Bob Braden, estimating the company's total investment in Puerto Rico at around $200 million.

In addition, AT&T Wireless will soon join the fray, launching PCS later this year in the 1900-megahertz range. Like PRTC, AT&T will use Ericsson equipment. A fourth company, PSC 2000 -- a consortium of local and U.S. investors -- also plans 1900-mHZ PCS service, though that company hasn't yet chosen a supplier.

"By 1997, we'll have five major operators in Puerto Rico offering PCS. That'll be the most competitive situation anywhere," said one local telecom executive who for busi-ness reasons asked not to be named. "It's going to be very tough for PRTC to survive if they don't change their government culture."

Added Braden: "The people at PRTC will have great difficulty competing unless they embark upon a specific plan to become more efficient, to upgrade their outside plant, and to bring products and services to the market that the people want and have wanted for years."

PRTC, with more than 1 million lines in service, is the 15th largest telco in the United States. In 1974, the Commonwealth government bought the company from ITT Corp. for $165 million, and in 1989 the government created a subsidiary, Telefónica Larga Distancia (TLD), to compete for a share of the $200 million long-distance market between Puerto Rico and the mainland. TLD has since been purchased by Telefónica de España.

At the moment, Puerto Rico has a teledensity of about 37 lines per 100 inhabitants -- far higher than anywhere else in Latin America, but lower than the U.S. average of 54 per 100. PRTC has long justified its high intra-island tariffs by arguing they are necessary in order to subsidize public phone service for the 30% of Puerto Ricans who don't have phones at home.

In fact, Puerto Rico is one of the few places left under U.S. jurisdiction where local pay-phone calls cost only 10¢, and callers can talk as long as they like.

Says Braden: "The pay phones are an attempt to provide a form of universal service on the island. Teledensity is still substantially lower than the mainland, so in lieu of having a more realistic universal service program, they provide universal service through pay phones at 10¢. The back side of that is that a large percentage of them are out of service."

But all that will soon change, as companies like AT&T, MCI and Sprint are allowed to set up pay phones in shopping malls and other areas that actually work. Already, PRTC's long-distance rates within Puerto Rico are dropping, in anticipation of a rate war.

Despite the coming competition, PRTC officials say they don't expect revenues to take a beating.

"We think our revenues won't drop dramatically, because we'll offer new services that'll make up for it," says Juan Velázquez, PRTC's vice-president for customer services. For example, he said, ISDN -- which took effect in Puerto Rico on May 7 -- "will permit, through high-speed digital lines, the simultaneous transmission of voice, data and video services. A customer will be able to talk on the phone, send a fax and dial a modem, all at the same time."

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