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June 26, 1990

TELEFONICA, BELL ATLANTIC LOOK SET TO SHARE SPOILS IN ARGENTINE PHONE SALE

By CBR Staff Writer

Telefonica de Espana appears to have won the bidding for control of one half of the Argentine telecommunications service, Empresa Nacional de Telecommunicaciones, or Entel. According to The Wall Street Journal, Telefonica, along with its consortium, which includes Citicorp and Techint of Argentina, offered $5,000m in Argentine foreign debt paper and overdue interest, above the agreed base price of $214m in cash, with a further $380m payable over six years. It put in the highest bid for both the Northern and the Southern regions into which Entel is to be split, but has always expressed more of an interest in the Southern business. No single company can own the service in both regions. This means that Bell Atlantic, the second-placed bidder, in a consortium with several small Argentine companies and Manufacturers Hanover Corp, would only have to raise its bid from $2,330m to $2,410m to take the Northern region. The outside runner is a consortium led by Societa Finanziera Telefonica SpA, STET, of Italy, which includes Perez Companc of Argentina, Cable & Radio SA of France and J P Morgan, and which offered $2,440m for the Southern zone and $2,200m for the Northern zone. The government will anoounce the winners next month. The winning companies will then have just six years to run the service profitably before further competition is introduced (CI No 1,367).

Make a killing

This has always been a bone of contention, since Telefonica believes it should have a monopoly for at least 15 years in order to get the service into shape. After all, Entel hasn’t published a balance sheet since 1987 and estimates of its operating loss for 1989 range from $100m to $250m. It has annual turnover of $1,000m and 46,000 employees and requires around $5,000m in investment over the next 10 years. Nevertheless, the companies winning the bids stand to make a killing simply by introducing efficient accounting and procurement practices, and if they can combat fraud (no small undertaking in South America) they are laughing all the way to the bank. The prospect of such gains has led to a jealous eye being kept on Entel and a further controversy has broken out around the signing of a $135m contract between the Italian and Argentine governments, under which Italian companies would computerise the Buenos Aires telephone exchanges. Telefonica de Espana together with the other companies bidding for Entel, have asked the Argentinian government not to compromise Entel’s technological future by going ahead with the deal which will make any new owner’s job harder. Telefonica doesn’t know enough about the deal to condemn it totally, but has pointed out that such an agreement, though providing Entel with the punctual investments it requires in order to maintain the network, would in fact be problematic if it were to rigidly determine the technological development of the service, putting new managers in a difficult position. The contract has also led to controversy within the Argentine government. Maria Julia Alsogaray, administrator for the state company, has publically rejected the contract, already signed by the Ministers of External Affairs in the two countries. Alsogaray has also expressed her concern that it will jeopardise the privatisation plans, given that installing of new exchanges was to be part of the Entel sale.

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