Telefonica de Argentina

active

Telefonica de Argentina (TdA) is one of the four telephone providers in Argentina. Since 1999, it has competed nationally in local, long distance and mobile phone services with Telecom Argentina, Movicom Bell South, and Compania de Telefonos del Interior. Telefonica Argentina was created in 1990 from the state-owned company ENTel Argentina to provide the basic phone services in Southern part of Argentina. ENTel's assets were also divided in: Telecom Argentina (basic phone services in the Northern region), Telintar (international telephone services), and Startel (competitive services such as value added services, telex, trucking, and paging throughout the country). The four companies were separated in two packages for their privatization. One consisted of TdA, 50% of Telintar, 50% of Startel, and 50% of the right to operate the second band of cellular phone services in the country. The other package consisted of Telecom Argentina and the remaining stakes in Telintrar, Startel and the cellular license. A 60% stake in TdA was sold through a competitive bidding to a consortium led by Telefonica International and CEI Citicorp in November 1990. The private consortium paid US$114 million in cash and US$2,705 million in debt papers valued at their face value. Considering the market value of Argentine debt papers at the time of the privatization (US$0.19 per US$1 nominal debt), the winning consortium paid US$631 million for the 60% controlling stake. In a second transaction, a 10% stake in TdA was sold to ENTel's employees for US$19 million. In a third transaction, the remaining 30% stake in TdA was sold through international public offerings for US$838 million in December 1991. Telefonica de Argentina's privatization included a seven year exclusive period (from Nov 1990 to Nov 1997) to provide local and long distance services within its concession area and to provide international services through Telintar. The exclusive period might be extended for three years based on fulfillment of minimum performance requirements. TdA was required to add 625,000 customers (or 5.3% annual growth rate) in exchange of the exclusive period, but it would be to increase its customers by 811,000 to secure the extension of its exclusive period. The company was also required to double the number of public phones. Because of capacity expansion from 1990 to 1997, the government extended the monopoly rights of TdA until November 1999. Telintar was dissolved in December 1998 and the assets were equally distributed between TdA and Telecom Argentina. The company invested around US$98 million in Telintar between 1991 and 1997. TdA's mobile assets were restructured in 1999 and 2000 whereby Telefonica Comunicaciones Personales (TCP) assumed control over all of Telefonica's mobile assets in Argentina. Following this reorganization, TdA focused on fixed local and long distance telephone services. In 2003, Telefonica SA filed a claim against the Argentinean government with an international arbitration tribunal (International Centre for Settlement of Investment Disputes - ICSID). Telefonica claim compensation for losses in its investments in Argentina due to frozen rates and devaluation of currency. The arbitration was suspended with the Argentine government in 2006 and formally with the ICSID in 2007. In 2004, Telefonica and the Argentinean government signed an agreement and arbitration proceedings were temporarily suspended. After that, the parties started negotiations to establish new provisions for the existing concession. Telefonica SA renewed its appeal against the Argentine Government at the ICSID WB tribunal in January of 2005. In November of 2005, Telefonica was willing to withdraw the US$2.83 bn filing against the Government if agreements in the renegotiation of contracts and the redefinition of new tariffs are reached. In February of 2006, Telefonica signed an agreement with the Government and suspended the suit, but it has not been withdrawn yet. For updates on the international arbitration proceedings, check http://www.worldbank.org/icsid (case # ARB/03/20).