CTC issues final OK on Verizon sale

The Commonwealth Telecommunications Commission’s three-man board issued last night a final order on Pacific Telecom Inc.’s proposed purchase of Verizon from Micronesian Telecommunications Corp., ruling that the telecom firm would remain financially viable if the purchase proceeds.

The CTC issued the ruling after reviewing the audit report conducted by Deloitte and Touche and background projections prepared by Economist.com. It also received a list of proposed capital improvements in the next 24 months.

“The audit revealed that MTC is a strong company consistently earning profits beyond industry average. [It] concludes that, based on all of the projected scenarios prepared for this study, MTC would still generate profits if purchased by PTI,” the commission said.

The CTC, however, would have to review PTI’s financing. It deemed PTI’s Feb. 14, 2005 submission on financing for the telecom purchase as final.

Although virtually none of the disputed issues remains unresolved, Gov. Juan N. Babauta’s attorney, James Livingstone, said they would wait for the CTC’s written order to see if there would be sufficient safeguards on PTI’s financing before consenting to the consummation of the telecom deal.

If they are dissatisfied with the safeguards in place, Livingstone said the governor has the option to appeal the matter before the CTC or elevate it to the Superior Court. A separate “contested case” proceeding will be conducted by the CTC regarding the issue of cable “monopoly.”

“We are making a decision to move forward on this license, and that decision is now our reasonability. It is my promise that we will work hard and we will work together with the management of this company to move this Commonwealth forward and provide state-of-the-art telecommunications services,” said CTC chair Norman Tenorio.

Tenorio also thanked Babauta and the Legislature for funding the CTC, adding that the governor respected the commission’s independence.

CTC vice chair J. Michael Fitzgerald reiterated that the financial statements reviewed by the commission showed that PTI could weather various economic scenarios and situations of debt.

“Most of the complaints we have heard have been about Verizon: how they price various services, the level of service or generally how they do things. The commission has looked into these matters and many of them trouble us. However, there is a solution to this. We can allow the sale to go through,” Fitzgerald said.

“PTI is not Verizon. PTI has said that they will address all of these complaints that we have received about current service in the CNMI. When PTI agreed to the items in the settlement agreement, they demonstrated that they will listen to the commission, the governor and the people,” he added.

CTC commissioner Jose-phine Mesta said that, while the audit reports showed that the telecom firm would remain financially viable should the sale proceed, she is concerned about PTI’s acquisition of a huge amount of debt to finance the purchase.

Mesta also expressed concern about PTI’s commitment to the CNMI, telling the company’s principal owners, Ricardo Sr. and Jose Ricardo P.R. Delgado, that the community would demand their commitment. “The people will watch your actions closely especially at first. Please don’t let them down.”

“While the debt can be financially accounted for and paid off potentially, we are concerned that it was acquired to finance the company. One of the great strengths of this company [Verizon] was its strong profit and low debt,” she said. “This will not happen here. The company has not required financing in 15 years, why now?”

Mesta, however, voted favorably for the sale to proceed, noting that the funding of the CTC would make the commission capable of monitoring the telecom firm.

Before the CTC convened last night, the governor sent out a letter to the public through media offices, saying that the financial strength of PTI and the potential effect of the huge debt it plans to undertake for the telecom purchase need further inquiry.

Babauta vowed to continue his opposition to the sale until a favorable finding on PTI’s financial capability comes out. Babauta claimed that the Delgados are almost using none of their own funds to make the purchase.

“Can PTI and the Delgados afford to maintain and upgrade MTC’s infrastructure if they undertake this debt? If the inter-island cable is damaged, will they be able to repair it?” asked the governor.

PTI has said that it has the technical and financial capability to take over the operations of Verizon.

Both PTI and MTC have been upbeat about consummating the telecom deal soon, following the CTC’s decision last week to issue the prospective buyer a license to operate the telecom firm.

The CTC approved the licensing of PTI subject to the settlement agreement reached between the companies, MTC and PTI, and the intervenors in the proceeding, the governor and CNMI consumer counsel Brian Caldwell.

MTC is selling Verizon to PTI for about $60 million. PTI, a direct, wholly owned subsidiary of Prospector Investment Holdings Inc., is a registered corporation in the Cayman Islands owned by father-and-son Ricardo and Jose Ricardo P.R. Delgado.

Once PTI takes over Verizon’s operations, there will be an end to interisland long distance charges for calls within the CNMI, pursuant to the settlement agreement. PTI had also assured that there would be no local rate hike for two years from the transaction’s closing and that it would invest a minimum of $20 million in capital expenditures during the next five years.

The license, however, will include conditions that “the usage, pricing and nature of the service provided by the fiber optic cable would be studied further in a contested case proceeding.”