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June 6, 1990


By CBR Staff Writer

Telefonica de Espana SA’s recent acquisition of a 43.7% stake in Compania Telefonica de Chile is only the start of the company’s expansion and foreign investment ambitions. Having formalised its entry into the Chilean market at the end of April, it has now joined the bidding for a stake in Argentin’s Entel and is also hoping to be involved in the consortium that wins control of Telecom of New Zealand where it has already signed an agreement of confidentiality with the phone company. In Argentina, the government has decided to set up two phone companies, one to manage communications south from Buenos Aires (Patagonia) and another to look after the North. It will accept up to 60% foreign ownership of each company and Telefonica wants 6% participation in Entel Sur, but also to be part of an international consortium with CitiCorp – already the main Argentine creditor bank – and a Spanish bank – possibly Banco Santander, which already jointly owns with Telefonica 10% of the Chilean Entel, bidding for 40% of the Argentine phone company. So far 11 other international groups have shown interest including Ascom Hasler (Switzerland), Midland Bank and Cable & Wireless from the UK, Solcideta Finanziera Telefonica of Italy, Nynex Corp, GTE Corp and BellSouth Corp from the US, Pecom and NEC representing Argentina and Japan, and a French consortium led by France Cables & Radio. The Argentine government is to decide between them on June 22 so that the purchase and sale contracts can be exchanged on August 6. Actual control will not be transferred until October 8. With regard to New Zealand, Telefonica International’s managing director Enrique Used says that although the company’s preferred area of expansion is Latin America, it is also interested in the developed countries where it can learn to operate in a really competitive environment. The company also sees the necessity of facing up to the competition of a single market and getting a more solid base from which to serve multinational clients. Meanwhile, Telefonica has justified the recent investment in Compania Telefonica de Chile by the need to raise profits to countrer the 14% Spanish tax increase. The purchase of 370m shares in the Chilean company from Bond Corp International Ltd (owner of 45% of Telefonica de Chile for the last two years) finally cost Telefonica $395m but gives it management control Chile’s main national telecommunications company. Telefonica de Chile owns 94% of Chilean phone lines and controls 96% of national calls. In 1989 the company had a turnover of $286m and is quoted on the Santiago stock exchange and is preparing for a quotation on the New York Stock Exchange. Telefonica claims that the return on its Chilean investment will be at least as good if not better than the return on its Spanish investments. Telefonica also has direct ownership of 20% of the Chilean Entel (having upped its share recently by 10%) plus the joint 10% with Banco Santander. The latest deal cost Telefonica $23m and was financed by Banco Hispano. Entel in Chile controls 90% of all foreign communications. The only hiccup will be if Telefonica has to sell its 20% stake in Entel as the Chilean monopoly commission is demanding.

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