Business Page May 23, 2004

Guyana Telephone & Telegraph Company Limited -
A slumbering giant (a review of the company's account)

Part One

Introduction

I sincerely regret the delay in the preparation and publication of the promised column owing to the incredible difficulties in getting adequate information on the Guyana Telephone & Telegraph Company, Ltd. (GT&T/company). Hopes were raised when I learnt that the company was interested in the planned publication and in being asked specific questions to issues relevant to the article. Consequently, on May 14, 2004 I wrote the Chief Executive Officer of the company, Ms. Sonita Jagan seeking answers/ information on twelve issues considered by me as relevant to any discussion on this behemoth. The company has not acknowledged my letter or provided any of the requested information.

In italics, the questions asked/information requested are set out and, for the benefit of readers, the reasons for asking and other comments.

1. Copies of the company's Annual Report including the Directors Report for 2001-2003. As a business/financial column, financial information is absolutely critical for any meaningful examination to be done while the report provides some form of narrative report and discussion. We have learnt that the company does not usually provide a Directors' Report which is a statutory requirement.

2. Details of the scope of the agreement under which Atlantic Tele-Network, Inc. (ATN), the parent company of GT&T, provided advisory services to GT&T. The level and nature of these fees are subject to significant controversy and are even the subject of an Order by the Public Utilities Commission (PUC) and a matter before the Courts.

3. Amount of legal fees paid by the company for the years 2001-2003 separated between local payments and overseas payments. Even the most casual review of the notes to the company's financial statements and documents filed by the parent company to the Securities and Exchange Commission suggests that a knowledge of law is a prerequisite for a proper appreciation of the company's financial statements. The number of significant legal matters disclosed in its financial statements, suggest that legal fees were a substantial cost in the company's financial statements. These were however not separately disclosed.

4. Details of advisory services provided by ATN to the company for 2001-2003 and payments made. This detailed information was requested to enable us to comment on the reasonableness of the charge in any particular year.

5. Confirmation that no other local or overseas costs were borne by GT&T in respect of these services. This was requested to determine that there was no duplication of payment for the same service or expense.

6. Particulars of remuneration and expenses paid (to) or on behalf of the directors. The company disclosed remuneration for the directors in its financial statements but did not disclose any related expenses.

7. The year when the company first paid dividends and the dividends record of GT&T. Information was required to assess the overall return provided to the shareholders of the company including the Government of Guyana while the record would clarify any misperceptions that the company had for several years not paid any dividends which would have necessitated payments to Guyana.

8. The proportion of the income of ATN which GT&T accounts for. Information would illustrate the significance of GT&T to the ATN Group, as well as provide some background against which to test the reasonableness of some of the charges.

9. Whether the company is willing to negotiate for Cable & Wireless's purchase of the company. This is a matter of public interest.

10. Would the press/other stakeholders be admitted to the Annual General Meeting of the company? To assess the company's commitment to transparency and procedures.

11. The progress of the company's plans in respect of its Global System for Mobile Communication (GSM) Network and the potential launch date. Perhaps in response to competition in the market for cellular services, the company has been advertising the launching of GSM services without any clear indication of time.

12. Details of the expansion plan announced earlier this year. Both the scope (geographical coverage) and the depth (technology) of enhancement of telecommunications are crucial to the economic and social development of Guyana.

The failure of the company to contribute to any review of its operations and performance speaks volumes of the company's commitment to transparency and openness. After considerable efforts, I was able to secure a copy of the company's 2002 financial statements audited by Deloitte & Touche, and more easily the Form 10-K Annual Report of ATN for the year ended December 31, 2003 and Form 10-Q, the quarterly report for quarter ended March 31, 2004. While the Form 10-K suggests that significant reliance can be placed on it for an analysis of GT&T's financial performance and conditions, it cannot replace the audited financial statements of GT&T for the year 2003. On specific matters of compliance with IAS's and the Companies Act 1991, this article is forced to make reference to the 2002 audited financial statements.

The Giant

GT&T is a goliath. It has income equivalent to over 30% of the tax revenues of the country, and an asset base of more than one-third that of Guysuco, the country's largest entity. GT&T is a company operating under the Companies Act, 1991. It must therefore file annual returns with the Registrar of Companies. It is a regulated utility and would therefore provide information to the PUC, all of which become public documents. Although legally a private company, it is partly owned - 20% - by the people of Guyana through the instrument of the State. The Government has the right to appoint two directors to the company's Board. The Privatisation Unit is responsible for overseeing the state's interest in the company.

But GT&T is also an extremely lucky company. Incredibly for the country and unfortunately for Business Page, the Office of the Registrar is temporarily closed to the public and it is not possible to access any annual returns including financial statements required to be filed by the company. In any case, the Stabroek News earlier this year reported that there had been no filings by the company. When I sought to access information on the company at the PUC, I learnt that both the Chairman and the Secretary were out of the country on official business and was told that the files and records held by the PUC were 'locked away'. The Government has unbelievably not named any directors to the Board for some time. And the Privatization Unit could offer no explanations, information or assistance.

Cash-wrapped, honey-coated deal.

Atlantic Tele-Network Inc., the parent company of GT&T has had a charmed existence in Guyana and its shareholders have seen massive returns for their investment. Their luck began almost before they opened for business in Guyana. Having come in when the country was badly in need of investments, it extracted from the Hoyte Administration a cash-wrapped, honey-coated deal. Had the negotiators for the Government looked at the balance sheet, they would have realizsed that they were actually selling hundreds of millions of dollars which the new owners immediately took to the bank and converted into US Dollars, with immediate and considerable impact on the exchange rate.

Ironically, one of the consequences of the purchase of such a significant sum of foreign exchange was a significant devaluation of the Guyana dollar since used by the company as legal justification for its delay in completing the Expansion Plan required by the Agreement with the Government. The current position is that if the PUC were to find that GT&T was not excused from fulfilling the terms of the Plan by February 1995, it could impose on GT&T monetary penalties, cancellation of its license, or other action that could have a material adverse effect on the Company's business. However, the PUC last held hearings in this matter in 1998 and while consumers no doubt would like to see progress in this matter, the company must be hoping that the inaction of the PUC indicates that it would not pursue the matter.

Exclusive franchise

Readers might recall that under the License issued on December 19, 1990, GT&T was granted an exclusive franchise to provide in Guyana for a period of twenty years (renewable for an additional 20 years at the option of GT&T!), public telephone, radio telephone (except private radio telephone systems which do not interconnect with GT&T's network) and pay station telephone services and national and international voice and data transmission, sale of advertising in any directories of telephone subscribers and switched or non-switched private line service. In addition, GT&T was granted a non-exclusive license to provide, for a period of 20 years (renewable for an additional 20 years at the option of GT&T), cellular radio telephone service.

In July 2002 an individual sued the Attorney General of Guyana in the Guyana courts asking, among other things, for a declaration that the section of the Company's 1990 contract with the Government of Guyana granting to GT&T an exclusive right to operate a telecommunications system in Guyana was null and void as contrary to law and to the Constitution of Guyana. GT&T has joined the suit to contest these claims and this proceeding remains pending.

GT&T is entitled to a minimum return of 15% per annum on its capital dedicated to public use ("rate base"). In the absence of mutual agreement, which has so far not taken place, rates are calculated on the basis of GT&T's entire property, plant and equipment pursuant to a rate of return methodology consistent with the practices and procedures of the United States Federal Communications Commission.

The Advisory Services Agreement signed in 1991 provided that GT&T is to pay ATN an annual fee for management services of six percent of its gross revenues. Total fees paid in the last three years were $2.52Bln., representing 16% of total operating profits over the same period. When this amount is added to the dividends paid, the total comes up to $10Bn.

Under the Agreement, the repatriation of dividends and the payment of interest on GT&T debt denominated in foreign currency are not subject to withholding tax, while fees payable for management services are payable in foreign currency and their repatriation to the US is not subject to currency restrictions or withholding or other taxes. Withholding taxes foregone on the advisory fees and dividends alone over the past three years, amount to close to $2Bn.

(The remaining parts of this review will appear in subsequent issues of Business Page.)

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