Privatization and Deregulation

Privatization and Deregulation

The Venezuelan telephone company, Compania Anonima Nacional Telefonos de Venezuela (CANTV), was partially privatized in 1991. The Venezuelan government needed to raise capital so they sold 40% of CANTV. A consortium called VenWorld paid $1.885 billion for their portion on CANTV. The VenWorld consortium was led by American company GTE, and included ATT, Spain's Telefonica and the electricity provider in Venezuela, Electricidad de Caracas. The VenWorld consortium held A class stock of CANTV.

A portion of the sales was purchased back from the Venezuelan government. They hold B class shares which represents about 20% of the company. The employees of CANTV hold 11% in C class shares.

In the 1991 agreement it was stated that VenWorld was to control the board of directors due to the A class status of their shares. Of the nine member board, VenWorld named five members. Both the government and the employees named two members each. Therefore, the control and decision making power lied in the hands of VenWorld.

In the mid 1990's Venezuela once again experienced financial problems. In January of 1994 Banco Latino, the second largest bank in Venezuela failed. Many medium and small banks followed quickly with more failures. By the end of 1994 the total cost of bank failures to the Venezuelan government was estimated at 13% of total GDP.

The high costs of bank failures and the concern over the policies of the government led to pressure on the exchange rate, and an epidemic of capital flight. The financial conditions worsened over the next two years, and the government recognized a need for outside assistance. In 1996 the International Monetary Fund stepped in with a reform plan, and a monetary loan. Part of the IMF plan was to continue with privatization efforts. In November of 1996 the Venezuelan government put up another 29.1% of CANTV for sale.

The 1996 offering was a global class D common stock offering. The total value of the stock was $1 billion. United States and Canadian Investors took up 46%, 23% was sold in Venezuela and 31% was sold in Europe and elsewhere (Burch, Global Finance, April 26).

In October of the year 2000 CANTV will lose its monopoly status on fixed switch services (the cellular and mobile services have always been open). It is at this time that the Board of Directors will be reconstituted, and VenWorld will lose some of its power. The people who purchased the D class stock in 1996 will gain voting rights when deregulation becomes effective in the year 2000.

CONATEL, the Venezuelan Telecommunications Regulatory Agency main role is to keep track of the regulatory activities in the country, but they have also become very active in stimulating new services.

 In 1995 the average price for a three minute call in Venezuela was $6.62. This was on the high side when compared to the rest of the Latin American countries:

Sources: World Development Indicators, 1997, World Bank,

ITU World Telecommunications Indicators Database

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