Simpatico? Will Verizon's Puerto Rican Telecom Sale Pass FCC Muster?

Telecom Policy Report, June 26, 2006

The Federal Communications Commission (FCC) is examining a Verizon Communications proposal to sell its Telecomunicaciones de Puerto Rico Inc. (Telpri) holdings to Mexico's America Movil SA (TelecomWeb news break, April 3).

The agency's process of evaluating asset/license-transfer applications surrounds Telpri and its wholly owned subsidiaries of that are indirectly controlled by Verizon and sought for acquisition by America Movil. The regulatory scrutiny is based on Verizon/America Movil agreements on several Caribbean and Latin American interests in for three separate deals valued at a total of approximately $3.7 billion in cash.

The U.S. regulatory is calling for public comments next month; this includes petitions to deny the applications due by July 14, oppositions due July 24 and replies due July 31. At stake are cellular, personal communications, industrial/business pool, common carrier fixed point-to-point microwave and digital electronic message services licenses as well as domestic and international authorizations.

In addition, the FCC says America Movil filed a petition for a favorable declaratory ruling since its proposed foreign ownership of Telpri would be excess of the 25-percent benchmark set under the Communications Act of 1934.

Multiple Players Involved

The key Telpri units involved in the proposed transaction are the Puerto Rico Telephone Company Inc. (PRT) domestic telecom services unit the Commonwealth of Puerto Rico and the PRT Larga Distancia Inc. (PRT LD) global facilities-based and global-resale services unit handling links with the United States and many international points.

Technically, the majority of Telpri (52 percent) is owned by GTE Holdings (Puerto Rico) LLC, a wholly owned subsidiary of Verizon dating back to the Bell Atlantic merger with GTE several years ago. The formal transaction would be between GTE Holdings and Sercotel S.A. de C.V. (Sercotel), a subsidiary of America Movil.

America Movil is part of the Latin American wireline and wireless telecom empire controlled by Mexican financier Carlos Slim Helu and his family. Telefonos de Mexico (Telmex) is among their high-profile telecom carriers. TracFone Wireless, an affiliate of America Movil, handles approximately 3,300 wireless subscribers in Puerto Rico.

The Helu clan owns about 81 percent of America Telecom S.A. de C.V., which in turn holds approximately 40.48 percent of the total capital stock and 64.72 percent of the voting shares of America Movil. SBC International Inc. - now a post-merger wholly owned subsidiary of AT&T Inc., holds approximately 7.91 percent of America Movil's total capital stock, while the remaining interests are held by other public investors.

Transaction Details Aired

America Movil will indirectly own and control through Sercotel at least 65 percent, and possibly as much as 100 percent, of Telpri after the consummation of this transaction. Based on the foreign-ownership rules, the FCC ostensibly must rule that the transfer is in the public interest as America Movil requests.

Sercotel would purchase all of the issued and outstanding shares of common stock of Telpri owned by GTE Holdings, while other Telpri stockholders have a right to have their shares purchased as part of the transaction.

If the deal is approved, America Movil will continue to operate PRT LD as a dominant international carrier on routes between the United States, Mexico, Brazil, Guatemala, Nicaragua and El Salvador. The Mexican company also will handle traffic on U.S.-Venezuela and U.S.-Dominican Republic routes under the separate acquisition agreements for Verizon's 28.5-percent interest in Compania Anonima Nacional Telefonos de Venezuela (CANTV Venezuela) and 100-percent ownership Verizon Dominicana.

So far, the most vocal questioning of the deal has come from trade unions in the United States and Mexico that want their input heard by management of the Puerto Rico operations (TelecomWeb news break, April 12). The Communications Workers of America (CWA), representing CWA Local 3010 installers at PRT, and the Independent Union of Telephone Workers of the Mexican Republic (STRM), representing employees at America Movil's joint owner Telmex, say they want to assess the impact of the proposed deal and to talk to the new management. CWA and STRM often work together to coordinate mutual interests with employers on issues affecting telecom workers.

Recent FCC Merger Blessings

In other asset-transfer developments (TelecomWeb news break, June 21), the FCC last week approved both Sprint Nextel's acquisition of Nextel Partners, a deal that took a year to hammer out, and Intelsat Ltd's acquisition of PanAmSat Holding Corp.

Sprint Nextel now is expected to close on the deal within five days, while Intelsat expects to close July 3. Under terms of the Nextel Partners acquisition, the carrier is paying $6.5 billion for the two-thirds of Nextel Partners it didn't already own. That price was finally determined by appraisers (TelecomWeb news break, Dec. 21, 2005) following a long battle over the value of Nextel Partners, which resells Nextel service.