Capitol Wireless/ Philippine Telephone & Telegraph Co.

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In May 1994, Capitol Wireless Inc (Capwire) obtained authorization to operate an International Gateway Facility. As a part of its international gateway facility operation license, Capwire committed to install 300,000 local exchange lines in the region 4 (Aurora, Laguna, Quezon, Marinduque, Pizal, and Pomblon) within its first five years of concession. Capwire was one of the four original international record carriers authorized by the Philippine government to provide international communication services. It had been in both domestic and international communications since 1963. Capwire was initially owned 70% by Republic Telecommunications Holdings (Retelcom), 15% by Philippine Strategic Investment Ltd. and 15% by Hambrecht & Quist's Asia Pacific Growth Fund, both investment funds. Retelcom, in turn, was a joint venture between Filippino firms Telectronics Systems Inc (TSI) (60%) and A2 Telecommunications Group (20%) as well as foreign partner Korea Telecom (20%) who purchased its stake in July 1994 at a cost of P400 million (US$15 million). Retelcom also held a 51% interest in Philippine Telephone & Telegraph Co (PT&T). In 1997, it was decided that Capwire's sister company PT&T would handle the rollout obligation of Capitol Wireless, Inc. In 1997, PT&T earmarked US$250 million for the company's expansion program over two to three years. Half of the amount was to be spent for the rollout of the firm's 300,000-line obligation while the other half was to be used to improve PT&T's capital structure which was to involve the payment of long-term and short-term loans. Of the US$250 million, US$65 million came from the International Finance Corporation (IFC) in July 1997, US$60 million as a loan and the remaining US$5 million as equity. By mid 1999, Capwire was nearing an agreement with creditor banks for the restructuring of its more than P700 million debts. Meanwhile, sister company PT&T was also trying to finalize the restructuring of its almost P7 billion debt. PT&T, in its annual report, said its main problem was the uncollectibility of receivables. One of those considered "uncollectible" was the P300-million long distance revenues from the Philippine Long Distance Telephone Co. (PLDT) subscribers. The company said interconnection dispute with Smart Communications, Inc. cost them additional expenses. However, PT&T reported an 88% completion rate to NTC (National Telecommunications Commission) as of March 1999. Under the law, the company had substantially complied and were no longer subject to penalties by the commission. In September 2000, Capwire signed a final debt restructuring agreement with creditor banks yesterday for its P938-million debt. In January 2003, Capwire and its creditor banks had agreed on final terms and agreements to restructure PP&T's debt. With 12 of its creditors, it signed a master restructuring agreement covering 80% of the listed firm's total debts, amounting to P8.8 billion. Half of this was to be converted to equity and the creditors were to gain control of between 68% and 70% of the company. As of end 2004, the company said its debt restructuring efforts involved 34 foreign and local lenders, of which 12 had yet to execute the master restructuring agreement dated Nov. 26, 2002, despite efforts by the company to convince them to join the effort. By that time, the broadband (DSL) business of PT&T was considered to be the company's growth engine and the target of the company's future investment. Email sent to helpdeskofficer@capwire.com on 8/9/2003. FAX sent to 63 2 817 0070. http://www.ptt.com.ph/ptt4a.htm