Business Page May 30, 2004

 Guyana Telephone & Telegraph Company Limited - a slumbering giant

Introduction

An organisation's culture is derived as much from its mission and philosophy as from the key personalities who shaped the organisation in its formative years. Those persons familiar with the psychology of organisations would know that culture changes people - not the other way. The GT&T Agreement stands as a monument to the negotiating skills of its founders, Mr. Cornelius Prior and Mr. Jeff Prosser although it reflects in equal measure the poor skills and other considerations of those who represented Guyana in those negotiations. The website of GT&T tells us that the total assets of Guyana Telecommunications Corporation (GTC) had been independently valued at US$20M.by the Merchant Bankers, S.G. Warburg, who used an entirely inappropriate asset basis for this valuation.

Yet, ATN and GT&T are obviously comfortable with Warburg's approach and final value since it makes the price paid (US$16.5M) for the 80% stake in GTC look reasonable and proportional. Indeed the price paid suggests that ATN paid more than the company was worth. Had S.G. Warburg, which itself benefited substantially from its relationship with the PNC administration, used a more appropriate basis such as earnings or market comparable, the price paid by ATN would reflect a massive discount since any such basis would have arrived at a price considerably in excess of US$20M. Many would argue that the countrywide monopoly alone would have been worth considerably more than US$20M, particularly having regard to its duration (20/40 years). Add to this all the attendant goodies and the situation would have been vastly different.

GT&T has proved over the years that it was not only capable of negotiating a bargain loaded in its favour but that it will go all out to protect its turf, sustain its advantages and maximise its returns. In the process it takes on in the most aggressive manner the host Government; an international body, the IADB, competitors large and small, the latest being Cel*Star; consumers and their representatives; regulators (the PUC); the tax authorities; the courts and critics - while its dislike of former Chairmen of the PUC, Messrs. Menon and Tyndall was hardly a secret. Its unwillingness to provide any information that would contribute to a review that might cast it in an unflattering light is therefore not surprising.

In part one last week, we had noted that even the most casual review of the notes to the company's financial statements and the documents filed by the parent company ATN to the US Securities and Exchange Commission suggests that a knowledge of law is required for a proper appreciation of the company's financial statements.

Legal skills

Six of the twenty-one pages of the company's 2002 audited financial statements deal directly or indirectly with legal matters and challenges, some of which are unresolved years after they began. As we turn our attention to some of those issues we will notice that GT&T and its parent are not organisations that hesitate to use the full process of the legal system, conscious that its incumbency is helped by the slow and weak performance of the regulator and the court system, nor does it hesitate to challenge even the smallest entity it perceives as posing a threat.

The case of I-Net, a small internet service provider established in 1999 provides some troubling lessons. With very limited resources, I-net and the Guyana Consumers Association filed a suit in early 2000 against the Attorney General of Guyana and GT&T but they were clearly outgunned against the might of GT&T and its impressive battery of lawyers. The action sought, among other things, to establish that the Civil Law of Guyana prohibits what is referred to as GT&T's monopoly. It was particularly unfortunate that this case was never resolved as the Judge struck down I-net's motion due to the late arrival of counsel, a decision which many observers felt was particularly harsh if not unjustified, and deprived the country and consumers of an opportunity to resolve the legality of the monopoly. While a small issue, it is worth noting that it took several months and the intervention of the PUC before GT&T made two lines available to I-Net, much less than the ten applied for and the three directed by the PUC.

Ramon Gaskin and the monopoly

It was left to the small but courageous and influential voice of Raymond Gaskin to take up the monopoly issue and in July 2002 he brought an action against the Government asking the court to declare that the monopoly right conferred by the agreement is unconstitutional. GT&T applied for and was granted permission to be joined as a party "and is strenuously defending the matter." Yet, on such a fundamental issue, the High Court is taking its precious time.

But this is not the first time that the monopoly issue has been raised and frustrated. An attempt by the PUC in July 1998 to hold a public hearing into the validity of the grant of monopoly rights to any owner or provider of services in the public utility sector was stymied by GT&T. How can the court system function - or not function - in a manner that is so contrary to the public interest?

GT&T does not flex its legal muscle only at the PUC or competitors. It did not hesitate to bring suit in the U.S. District Court in Washington, D.C. against the Inter-American Development Bank ("IADB"), among others, to halt a proposed loan to the Government as part of the liberalisation of the sector. On March 7, 2003, the case by GT&T was thrown out by the US court on the grounds that the Company lacked standing. Interestingly, GT&T did not appeal the decision, an approach very dissimilar to how it acts in Guyana.

The courts

There are two issues which the Court of Appeal is still to address and which have significant implications for the consumers. Both are appeals by GT&T against orders by the PUC. The first is against a December 21, 2001 PUC order on rate increases while the other is against an order that GT&T increase lines and add a number of features to its telephone services. That order required GT&T to have 102,126 lines by the end of 2000. Three years later, the total number of lines is only 92,683 lines - a deficit of 9,443 lines.

And then there is the action by the company asking the court to set aside certain provisions of the Act dealing with 'compulsory contributions by Public Utilities to the annual expenses to (sic) the Commission' on the grounds that the provisions are discriminatory and therefore unconstitutional. It is now two years since arguments ended but still no decision by the Court. Meanwhile, the PUC without the contribution of this utility is severely weakened, practically silenced and hopelessly ineffective.

The ineffective PUC... 

Since 1995, the PUC has had pending a proceeding with regard to the failure by GT&T to complete the expansion and service improvement plan by February 1995. Incredibly, the PUC, according to the GT&T financial statements, last held hearings on this matter almost six years ago! Given the seriousness of this matter, the PUC's failure to address it cannot be excused, explained or defended.

The PUC in 1997 ordered the company to cease paying advisory fees and to recover from ATN $3.6Bln of such fees. Following a challenge by GT&T, the High Court ordered new hearings but GT&T appealed that decision, seeking to strike down the instructions for new hearings on the grounds that the PUC has no jurisdiction. The Court of Appeal decided to remit the issue of jurisdiction to the PUC which has not scheduled any hearing for at least two years - a matter that is beyond comprehension. Meanwhile, GT&T continues to pay annually advisory fees amounting to hundreds of millions of dollars to ATN.

And taxation too

But it is not only in telephone matters that GT&T is resolute in defending its interest and maximising its returns. Its financial statements indicate that it is contesting income tax assessments of approximately $3Bn. for the years 1991 - 2000 based on the disallowance as a deduction for income tax purposes of five-sixths of the advisory fees. The tax laws limit head office expenses to '1% of sales or gross income' - hence the disallowance of 5/6. According to the company's accounts, 'The deductibility of these advisory fees was upheld for one of these years by a decision of the High Court in August 1995'. The Commissioner of Inland Revenue has filed a High Court Writ seeking an order setting aside that decision on the grounds that he did not have a proper hearing. Not surprisingly, GT&T is contesting that Writ and once again, the whole matter is tied up in the court system.

The tax laws provide that no appeal can be made to the courts unless the whole amount of the tax in dispute has been paid to the Commissioner. There is nothing in the financial statements to indicate that the company made such a deposit.

GT&T also successfully applied to the Guyana High Court to stay an audit undertaken by the Commissioner of Inland Revenue and from enforcing assessments for the 'years 1991 through 1996'stemming from that audit. According to GT&T's 2002 financial statements, 'Negotiations have begun with the Revenue Authorities (sic) on the possible settlement of the issues involved but no substantial progress was made over 2002' Why the Revenue Authority would want to have negotiations with GT&T on this matter defies understanding and is without any known precedent, but there is even more confusion when one reads the parent company's financial statements which disclose that 'The issues involved in these matters are part of the ongoing negotiations …. between GT&T and the Government of Guyana and its tax representatives'.

This column has the greatest respect for the courts of the land but finds it impossible to understand that our Court would create a precedent of putting a stay on an audit by the tax authorities. Whether other taxpayers in this country can afford to follow suit is another matter but there is a serious danger that the country's tax base would be dangerously eroded if powerful entities could have their way with the tax system. Is it any wonder that employed persons now pay more taxes than companies? The ordinary citizen has every reason for wondering how the law operates.

Conclusion

This company by its action says that it not only wants to make the rules as it did with a most lopsided agreement but would bring its full resources - ironically funded by its consumers - to ensure that where the rules are not in its favour, it will do everything to frustrate them. It is not abashed in being seen as litigious, taking on even those who are prepared to concede that its role since 1991 has not been without value. It has made the PUC practically redundant and fully exploits the weaknesses in the legal system. Regrettably its action, the weak regulatory functions and a court system that is creaking have served to discourage those like Eileen Cox, Joe Tyndall, Nigel Hughes and Mrs. Sheila Holder who have championed the cause of consumers over the years. GT&T has proved that Colin Powell's doctrine of overwhelming, sustained force works.

To be continued.

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