A question for Richard Carrion*

MENTES, 19 april, 2008

    "It is a bit ironic that a conference should be held now purporting to be looking for innovative answers for Puerto Rico's economic development, given our recent history.  In 1997-1998, the Puerto Rico Telephone Company (PRTC) was privatized, sold to the North American company GTE, under the auspices of the Banco Popular de Puerto Rico (BPPR), of which the distinguished speaker, Mr. Carrion, is its leading director.  

    While we are proud of BPPRs growth and development--a testament to the innovative and entrepreneurial character that exists in Puerto Rico, we are a bit puzzled by their participation in the sale.  Certainly, there were many issues involved at the time, such as which foreign company would have provided the best services given the circumstances.  Evidence does suggest that TISA, a Spanish telecommunications company, did not 'play fair' by the rules of the corporate world. (Curiously, TISA  had previously been owned by the same company which owned and ran the PRTC for some 60 years: the International Telephone and Telegraph (ITT) of Sothenes and Hernan Behn.  TISA was created from the company that originally manufactured telephones for the ITT, and possibly have conducted some research.  The ITT, in turn, had actually originated from the PRTC, the first telecommunication company created by the Behn brothers.  TISA's attempted purchase of PRTC <ITT's 'father'> oddly seems to have had psycho-symbolic connotations if we define the PRTC as 'grandfather', but we digress.)   

    We must not, however, overlook the broader fact that telecommunications firms, by and large, generate great quantities of profit--much more so than banks traditionally do.  It is this large 'endogenous' profit which has traditionally been diverted by these companies towards research, which ultimately provided the basic building blocks of the so called "new economy".  

    We might note the particular case of the American Telephone and Telegraph (ATT), which was once the largest corporation in the world. It total capital worth in the 1970s of some $52 billion far surpassed those of other giants, such as IBM's $8B or even ITT's own $6 B--putting the ITT into perspective by noting it was nearly a tenth of the size of ATT, at least a few years before both companies 'collapsed'.   These large quantities of capital are what allowed for the creation of the Bell Labs--an independent groups of researchers which were simply given the free reign to do research without predetermined ends. Aside from Nobel Prizes, these researcher created key innovations that are radically transforming the way we live and interact: the transistor, the fiber optic cable, the Unix operating system, 'soft-switching', and lastly, the cellular phone which perhaps 'bundles' all previous innovations into one product.  ATT had the courage to allow researchers to do what researchers do, creating an innovative virtuous cycle of research, product development, and economic growth-- a corporate structure envied by Mexican firms and consequently recreated in a country without the particular ideological and institutional constraints of the United States.

    In light of this tendency--that telecommunications firms tend to be profitable innovators--why did you decide to support the PRTC sale?  The PRTC had been the only public corporation to have consistently generated money, far above and beyond that of the AMA (transportation) or AAA (water).  In fact, the company actually generated greater profits than the very BPPR, which has traditionally been seen as the epitome of local corporate culture.   Even if it were to have lost some money and market, it certainly would not have 'gone bankrupt'.   While we, as an island, readily accept the presence of foreign companies that generate huge profits (pharmaceuticals), why are we so quick to reject native ones which could have served as the true 'seed' of local economic development?  Now in the year 2008, with the hindsight of some ten years after the act, would you have still made the same decision?

    In order to be as fair as possible, I will provide a brief range of answers I believe are not deemed to be 'acceptable'.

    The idea that 'regulatory changes were transforming the telecommunications industry' is quite frankly--and please do excuse my french--bullshit.  It will not be admitted as a legitimate answer given that the FCC is too unduly influenced by that industry.  Both here and abroad, it was clear that the cellular market was a vast potential market where huge amounts of potential gain could be had.  The records of public corporations like the PRTC, 'independents' if you will, and all companies in the industry at the time were clearly showing signs of exponential growth.  Also, and here we speculate, we might note that the internet had arrived at the scene in 1995, with the vast amount of funds raised when Netscape 'went public' (began selling actions on the stock market).  The idea of a quick and easy buck set the industry into a shark-feeding frenzy ('hysteria' if you will), and perhaps its epitome is that of the now defunct WorldCom and Bernard Ebbers.   The telecommunications industry twisted the FCCs arm, and the FCC readily yielded, as all beaurocrats tend to do.

    We might also note that, in spite of the hysterical claim that all local companies were  going to go south in bankruptcy, only the CLECs have fallen by the wayside while the traditional RBOCs have thrived.   While there has been a reduction of market share in traditional 'land-lines', this reduction did not originate from regulatory changes but simply from inter-modal changes, in particular the surprising rise of the cellular phone given its drastic decline in price per unit.  It was to be expected.  Technological dynamics (innovation) proved to be more ultimately consequential over the long run  than social dynamics (i.e. regulatory changes).

    We might note that the original purchase of the PRTC obviously set the tone for the consequent sale.  The 1974 acquisition, certainly noble and intended to remedy the many problems the local consumers were having, seems to have been 'framed' too narrowly--merely within the context of 'services'.  The firm was generally perceived as a 'house' that generated money; its owner (ITT) was characterized as a lusty landlord who charges fees but does not repair, mend, or improve. From this two decades old background, it certainly made rational sense to 'buy' and 'sell' according to market conditions in 1997-8.  But the PRTC, as we have hoped to have shown above, is not like an ordinary common 'house'; it is far richer and deeper than that when we peer into its technological dynamics.  PRTC represented that 'utopic future' that is so readily criticized in some sectors of academia, who ironically benefit and take advantage of the very entities they criticize--a dynamic perhaps universal of all humanities scholars given that they operate and exist within the very same world they seek to change and improve, myself included.

    Ultimately, the sale of the PRTC is an ironic tragedy, that of a older corporate giant 'killing' a younger up-and coming rival.  Both brothers could have shared the same field; both could have collaborated to have produced an innovative economy that was greater than the sum of its individual parts.  Understanding and 'making sense' of this very complicated event in our national history will certainly take some time and detailed 'archeological' investigation.  

    Yet, perhaps the most important question is, if we accept the interpretation that the nature of the decision was intrinsically flawed, the question now becomes is: how will it be mended?  Will we be willing to violate a breach of contract--and the grave repercussions to yourself and your company such a decision would imply--for the 'national well-being'?  It is certainly a determination that should not be taken lightly.

    Sincerely yours, 

    -Rodrigo Fernós

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