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Telecom reform ripples reach Puerto Rico
Telephony / June 19, 1995

By Larry Luxner

WASHINGTON -- A one-minute, daytime phone call from San Juan to New York City costs 27 cents. The same phone call to Mayagüez -- on the other side of Puerto Rico -- costs a whopping 47 cents.

The reason: no competition in the $220 million intra-island long-distance market, which is totally dominated by government-owned Puerto Rico Telephone Co.

Puerto Ricans have accepted this irony quietly and without complaint for years -- but no more. A federal telecommunications reform bill that would preserve PRTC's monopoly until the year 2000 has infuriated AT&T, MCI and Sprint, all of whom say that they, too, deserve a share of the lucrative market for long-distance calls within Puerto Rico.

"As soon as there's competiton, rates will go down," argues AT&T spokesman Antonio de Haro in San Juan. "Right now, if you complete a call from San Juan to Ponce using Celulares Telefonicas [PRTC's cellular subsidiary], it will cost you less than if used the regular wire network. Why? Because Celulares Telefonicas has competition; the wire network doesn't."

At issue is Section 251 of H.R. 1555, the so-called Communications Act of 1995, which exempts from competition "any local exchange carrier in any U.S. territory if (1) the local exchange carrier is owned by the government, and (2) if, on the date it goes into effect, the number of households subscribing to telephone service is less than 85% of all households."

PRTC fulfills both the requirements for exemption, since it is a government-owned telco in Puerto Rico -- a U.S. Commonwealth -- and supplies basic phone service to around 70% of the island's 3.7 million inhabitants.

Lawyers from both AT&T and MCI are looking into the issue; the telcos have also enlisted help from several powerful lobby groups including the 1,800-member Puerto Rico Manufacturers Association and the Puerto Rico Chamber of Commerce, both of whom are demanding that long-distance tariffs be reduced.

Kevin Sheldon, MCI's director of overseas marketing, said his company strongly opposes the House exemption for PRTC, and has "referred the matter to our federal regulatory people to see what action, if anything, we can take." Adds Carlos Cumpiano, general manager of MCI's Puerto Rico operations: "This is of great concern to us, and we feel it is against the consumers' best interests."

PRTC President Agustín García disputes that, saying it's in consumers' best interests for PRTC to hold onto the monopoly it has enjoyed for years. In a statement to local newspapers, he argued that companies such as AT&T, MCI and Sprint "want to come [to Puerto Rico] to compete for the money, but they have no interest in installing telephones in the rural zones."

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, Telefonica Larga Distancia (TLD), to compete for a share of the $200 million long-distance market between Puerto Rico and the U.S. mainland.

In 1990, the government attempted to sell PRTC to Atlanta-based BellSouth International, but the deal was stymied by labor unions opposed to privatization, and by a law that required PRTC to be sold for at least $3 billion and prohibited the buyer from firing any employees for 18 months. The phone company stayed in government hands, but equal access did come to Puerto Rico the following year, with TLD immediately gaining a 60% market share and AT&T, MCI, Sprint and a few long-distance resellers sharing the remaining 40% of the market.

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. mainland average of 54 per 100. PRTC frequently justifies 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 cents, and callers can talk as long as they like. PRTC officials also say they're saddled with maintenance of government-owned WIPR-TV, a burden most stateside phone companies don't have.

But AT&T says even those factors don't justify PRTC's high intra-island tariffs.

"They're amassing all kinds of money -- $100 million in earnings last year," argued De Haro. "They could cut the rates by 25% and still be able to invest half a billion dollars in infrastructure every four years, which is the rate they say they've been investing."

Kenneth McClintock, a member of the Puerto Rican Senate who favors statehood for the island, says the exemption contained in H.R. 1555 protects PRTC from competition while doing nothing for the Puerto Rican consumer.

"If intra-local area telephone service were open to competition, PRTC would be collecting the highest double-access charges in the nation," he told the local San Juan Star. McClintock explained that most U.S. mainland telcos charge long-distance companies around 2 cents a minute to interconnect into the local phone network, while PRTC charges 6 cents a minute.

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