Nationalizing Venezuela's CANTV: Another stupid revolutionary idea
In 1991, the Venezuelan Government, whose President then was Carlos Andres Perez, privatized the telephone company CANTV. AT the time, CANTV was a fixed line company run by the Government in a very inefficient way. It would sometimes take three or four tries to get a dial tone and sometimes years to get a line. Today the company has almost 3 million fixed lines, almost 3 million cell phones and is an ISP and provider of data networks. You can get a phone in less that two weeks in all towns with less than 5,000 people and service is quite good.
CANTV was purchased by a GTE-led consortium in a bidding process in which qualified bidders handed in sealed bids. Everyone expected a consortium led by the Cisneros Group to win the bid as GTE and its partners kept a very low profile, learning from its experience in losing a similar process in the Dominican Republic. In the end GTE handsomely outbid the Cisneros bid, offering US$ 1.88 billion for 40% of the company. Today 40% of the company is worth in the open market about 900 million dollars.
In 1996, during the Caldera Government, the Government sold off roughly 44% of the shares of the company in an IPO with simultaneously listings in Caracas and New York. The price was $ 23.60 per ADR (the type of stock sold in the New York Stock Exchange), lower than the equivalent US$ 29 paid by GTE. Today the stock stands at US$ 20.31.
The deal was not as bad as it seems for the buyers. While the company is worth much less today it has paid some nice dividends, mostly in the last four years. Moreover, the control group, today led by Verizon since it acquired GTE, has probably sold equipment to CANTV at a profit. But it certainly was not a good deal.
For the Government it was a very good deal. It got US$ 1.88 billion in 1991 and another US$ 1.4 billion in 1996. It got rid of a company that was losing money, was inefficient and corrupt. Additionally, it imposed a tax of 5% on all revenues by the company, independent of whether it made money or not. In 2001, the Chavez Government opened the telecom sector completely to competition, approving a law that had been in the works since 1996.
The telecom opening has not been that succesful due to the political instability of the country. There are three large wireless companies, including CANTV’s Movilnet; there are competitors in data and very little competition in fixed line where CANTV is practically the sole player.
All of this comes to mind, because Chavez has been threatening with intervening the company if it participates in a fraud in the upcoming referendum, since it provides the data network over which all of the results would be transmitted. Chavez has even said that he has the decree ready without explaining what exactly an intervention means.
I have always believed that the sale of CANTV had been a good example of why the Government should not run for profit operations. The benefits of selling it are there for everyone to see in both service and financial terms. Thus, I was quite shocked when on Thursday MVR Deputy and former President of the National Assembly William Lara, said that the Government should “recover’ CANTV. Lara said that this is possible within the framework of Venezuelan laws, adding:” This is a company that is at the service of Venezuela and not associated to the interests of multinationals. What we are proposing is that it should be a strategic objective after August 15th”.
Lara explained that CANTV should have never been sold and the Government should, without harming shareholders, take the company back. Now, I would let our readers judge the merits of this proposal. However, to dedicate over US$ 2 billion to execute what sounds like a simple ideological point seems to me to be utterly irresponsible to say the least. Additionally, Lara did not clarify if the Government would buy the whole telecom sector. Given that CANTV was a monopoly in 1991 and there is so much competition today, if Lara’s plan was ever put into effect, my money would be on the competitors eventually taking over most of telecom activities in Venezuela and CANTV being reduced to a minimum in the hands of an inefficient, corrupt and overregulated Government. Another bad and stupid “revolutionary” idea proving these guys have no clue on how to run a country.
Hopefully the “Si” will win and stop this crazy idea.
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