Given this background, the management is doing a reasonable job. CANTV dominates the country's telecommunications system. It was privatised in 1991 and its operating shareholder, GTE (which has now merged with Bell Atlantic to form Verizon), from the US, retains a 28.9% stake in the company. CANTV is continuing to do business, although, like other companies in the country, it has been whacked by the economic policies of President Hugo Chávez .
CANTV is facing a range of problems. From the point of view of its US shareholders, its biggest problem this year has been the imposition of exchange controls. This has hampered its ability to pay dividends on its American Depositary Receipts. Only at the end of September did the company get the dollars it needed to pay its annual dividend, due to be paid in April. The dividend is worth US$15.4m. The delay in the payment of the ADR dividend prompted one of the credit rating agencies to downgrade the company.
It is, however, Venezuela's deep economic crisis which is causing the greatest problems for the company in its business. In its latest quarter, the second, the company announced that it had lost 22.6bn bolívares (US$14m). The economy is in its worst recession since records began. In 2002 the economy contracted by 9%, and this year the decline will be in double digits, at least. The worry is that the collapse is occurring at a time when oil prices are unnaturally high.
For CANTV, revenues were down by 8% in the second quarter. This is an impressive performance given that some economist reckon that the economy contracted by 16% in the quarter. The company has been hunkering down, with managers trying to minimise risks. CANTV is relatively debt free: its dollar debt comes to just US$200m; half of this, however, is repayable in January. The company's cash flow was down by a third (compared with the second quarter of 2002), at Bs216.7bn.
ADR ploy
The company's performance as an investment has not, necessarily, reflected the problems it faces. Its shares have been supported because investors in Venezuela can buy them for bolívares in Caracas, then convert them into ADRs (each ADR is worth seven ordinary shares), and then sell the ADRs in the US.
Besides Verizon, the other big international investor in CANTV is Telefónica, from Spain, which has a 6.9% stake. The government owns 6.6% and employees 12%. This leaves a float of 46%.
Caracas newspapers are full of complaints about the poor services provided by the company. On 26 October, the company announced that it was shutting down its troubled satellite communications operation, Altair.
The decision came after Altair's losses soared to Bs2.6bn (US$162m). The losses soared because the company was not allowed, it says, to charge a realistic price for the service. The company was paying dollars for the satellite link but was only allowed to charge its customers in bolívares. Furthermore, the company could not charge a premium for the service: it had to charge the same price as a local call or a call from a public telephone. Altair serves remote parts of the country where there are no wireless points or physical network.
The horrible reality
The collapse of the economy has forced companies to drop snazzier services, such as satellite communications. Instead, telephone companies are focusing on offering telephone booths, where people can go to make cheap calls. CANTV expects to have set up 1,000 such centres. Its closest rival, Telcel, has already set up 350 centres and expect to end the year with 400. Most of these centres are in urban areas where demand for telephone services is high but the ability to pay for them is low.
From the telecoms companies' point of view, the advantage of the communications centres is that they get around the price controls to which residential and business lines are subject.
The collapse of the economy has created other operating problems. At the end of October, CANTV had to deal with the problems caused by a robbery which cut the trunk line serving Caracas. The robbers had thought that the line would be made of copper: in fact it was fibre optic, so it had no value to them. The robbing of copper for sale as scrap has become endemic. The attempted theft caused major problems for CANTV's services: long distance and international services were all seriously interrupted.
Pricing problems
Exchange controls and copper theft pale beside the company's core problem, which is that it is operating in a market where purchasing power is collapsing. This is prompting telecoms companies to focus on less mass-market services, where they are freer to set prices. It is noticeable, for example, that mobile carriers have increased their prices three times this year. The price of a mobile subscription has already risen by 30%, well ahead of inflation.
This near constant increases in the price of mobile services makes a contrast with the price freeze on fixed link services. They are subject to price controls, which were imposed along with exchange controls after the failure of the general strike in December and January. The strike was aimed at bringing down President Hugo Chávez .
CANTV, with its dominant position in the domestic telephone market, is bearing the brunt of the effects of the price freeze; it is the leading provider of telecommunications services in the country. At December 31, 2002 it had approximately 2.7m lines in service, 2.5 million cellular subscribers and about 1m users of its internet access services.
The company's 2.5m cellular subscribers gave it a 42% market share at the end of 2002. On the internet, CANTV.net took 79% of the market, supplying access to the World Wide Web and offering its more than 1m users the speed and reliability of the country's most comprehensive and state-of-the-art telecommunications infrastructure. The boom in the broadband access service provided through ADSL technology is especially significant and has increased its customer base to 46,870 subscribers, or by 162.1% in year 2002.
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