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Report from Venezuela: Woe still nags phone company
The Miami Herald / January 3, 1996

By Larry Luxner

CARACAS -- Four years after the Venezuelan government privatized its troubled telephone company, Compania Autonoma Nacional de Telefonos de Venezuela (CANTV) finds itself struggling against political uncertainties and illegal callback services that threaten to sap CANTV's financial base as it prepares for the demise of its traditional telephone monopoly by the year 2000.

In December 1991, the government sold a 49% controlling interest in CANTV for $1.89 billion to the Venworld consortium, made up of GTE Corp. (51%), Telefonica de Espana (16%), Electricidad de Caracas (16%), Banco Mercantil (5%) and AT&T (5%), letting employees retain 11% of the company's shares. By mid-1996, the government expects to sell its remaining 40% stake in CANTV, according to Alberto Poletto, chief of the Venezuelan Investment Fund.

Since its partial privatization, the number of lines has jumped from 1.9 million to 2.9 million; in teledensity terms, phone penetration has increased from 8 per 100 to 11 per 100. CANTV's goal: 18 per 100 within the next five years.

"The level of service has improved markedly," said Jerry Carney, executive vice-president of CANTV. "Three years ago, it was difficult to call across town, let alone make international calls. Today, the completion rate is around 55-58%. Before, it was in the 10s and 20s. Now, people get a dial tone in less than three seconds."

Robert Bottome, publisher of the Caracas business newsletter VenEconomy Weekly, agrees that things are better now. "Privatization raised very high expectations that obviously couldn't be met," he said. "Customers were very quick to criticize CANTV, but the service is clearly better, and people are beginning to acknowledge it."

On the other hand, Dallas-based GTE is engaged in a long-running battle with the government over fulfilling the terms of its concession -- spurring unfounded rumors that GTE is thinking of pulling out. Things didn't help when, several years ago, CANTV President Bruce Haddad was arrested and briefly detained after subcontracted workers laying a fiberoptic cable for AT&T hit a gas main, setting off an explosion that killed 60 commuters caught in rush-hour traffic.

For CANTV -- which recorded $1.3 billion in 1994 revenues -- one consequence of Venezuela's current economic crisis is that it is very difficult for the company to obtain the dollars it needs to improve services, unlike state-owned oil monopoly Petroleos de Venezuela (PDVSA), which last year took in revenues of $25 billion.

"PDVSA is different because they collect their revenues in dollars and pay taxes in bolivares. We collect revenues in bolivares and make our payments in dollars," says Carney. "We need to have more of a partnership and less of an adversarial relationship with the government, but it's become a political football. Last year, we lost over $250 million because of foreign exchange rates."

Carney's chief frustration is that Conatel -- Venezuela's equivalent of the FCC -- has made it nearly impossible for CANTV to raise rates on local service, now running at around $2 a month. That's because hiking tariffs would be politically unpopular for President Rafael Caldera; riots recently broke out after the price of gasoline went from 6 to 12 a gallon.

As a result, Carney says, CANTV is forced to keep the cost of international service outrageously high (calls from Venezuela to the United States cost $2 a minute, versus 60 cents a minute the other way around). That disparity has encouraged big multinational firms to utilize callback services, which advertise in the pages of the English-language Daily Journal and other newspapers even though the services themselves violate the terms of the concession and deprive CANTV of badly needed income.

"This concession was granted on the basis of cross-subsidies, where long-distance rates were kept artificially high in order to subsidize the installation of basic services. During this process, the telephone company is protected from international competition in order to rebalance the rates to get the cost of service in line with revenues," Carney said, arguing that "we are by concession the only authorized carrier to place calls on the public network."

In October, Conatel announced it would cut off phone service to subscribers using callback services, though it's hard to see how that would be enforced.

"It is doubtful that much use of callback is being made by private users. Larger corporations, however, have long complained of the extremely high costs for long-distance calls and may well be tempted to sign up with a callback company in the United States," according to a report prepared by the U.S. Embassy in Caracas. "Conatel's threat is probably difficult to enforce unless it resorts to illegal phone-tapping or to surveillance of large corporate customers, in cooperation with CANTV, in an attempt to detect sudden drops in long-distance bills."

Meanwhile, in order to raise capital, CANTV recently refinanced $525 million in debt with a group of 36 creditor banks -- 18 Venezuelan, the other 18 U.S. and foreign. The Aug. 18 agreement calls for repayment of the new debt over a four-year period, replacing debts that had previously been outstanding, generally with maturities of less than a year. This money will allow for ongoing investments CANTV needs to live up to the terms of its concession -- such as a $60 million fiberoptic cable linking Venezuelan cities along the Caribbean coast, and the expansion of telephone exchanges throughout metropolitan Caracas.

Even with the refinancing, CANTV's may not be any less chaotic than before.

"We're going to face competition for international service in 2000, and if we don't have a balanced rate structure by then," Carney warns, "there won't be any investment in local service."

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