UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2004


[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 333-85503

Telecomunicaciones de Puerto Rico, Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


Commonwealth of Puerto Rico		66-0566178
(STATE OR OTHER JURISDICTION OF		(IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

1515 FD Roosevelt Avenue
Guaynabo, Puerto Rico		00968

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

Registrant’s telephone number, including area code: 787-792-6052

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer.

YES [ ] NO [X]

At August 16, 2004, 25 million shares of no par common stock of the registrant were outstanding.

INDEX

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries


Part I. Financial Information
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets—June 30, 2004 and December 31, 2003			3
Condensed Consolidated Statements of Operations —Three Months Ended June 30, 2004 and 2003; Six Months Ended June 30, 2004 and 2003			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity—Six Months Ended June 30, 2004 and Year Ended December 31, 2003			5
Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2004 and 2003			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			47
Part II. Other Information
Item 1. Legal Proceedings			48
Item 2. Changes in Securities and Use of Proceeds			48
Item 3. Defaults Upon Senior Securities			48
Item 4. Submission of Matters to a Vote of Security Holders			48
Item 5. Other Information			48
Item 6. Exhibits and Reports on Form 8-K			48
Signatures			49
Exhibit Index			50
$40,000,000 Working Capital Revolving Credit Agreement
Collective Bargaining Agreement, Approved February 13, 2003
Collective Bargaining Agreement, Approved April 15, 2004
$30,000,000 1-Year Term Credit Agreement
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification Required by 18 U.S.C. Section 1350

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)


	(Unaudited)
	June 30,			December 31,
	2004			2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	79,007		$	21,732
Accounts receivable, net of allowance for doubtful accounts of $131,632 and $131,106 in 2004 and 2003, respectively		272,757			287,247
Deferred income tax		30,986			26,158
Inventory and supplies, net		17,867			21,202
Prepaid expenses		27,707			35,255

Total current assets		428,324			391,594
PROPERTY, PLANT AND EQUIPMENT, net		1,494,781			1,558,246
GOODWILL		126,927			126,927
INTANGIBLES, net		187,529			189,136
DEFERRED INCOME TAX		208,266			246,794
OTHER ASSETS		109,071			108,541

TOTAL ASSETS	$	2,554,898		$	2,621,238

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	60,129		$	59,729
Other current liabilities		173,069			213,480

Total current liabilities		233,198			273,209
LONG-TERM DEBT, excluding current portion		768,623			802,135
PENSION AND OTHER POST-EMPLOYMENT BENEFITS		548,372			594,113
OTHER NON-CURRENT LIABILITIES		184,054			237,405

Total liabilities	$	1,734,247		$	1,906,862

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY		14,244			13,025

SHAREHOLDERS’ EQUITY:
Common stock	$	703,884		$	703,884
Deferred ESOP compensation		(26,153	)		(26,153	)
Subscription receivable		—			(39,515	)
Retained earnings		230,061			164,520
Accumulated other comprehensive loss, net of taxes		(101,385	)		(101,385	)

Total shareholders’ equity		806,407			701,351

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,554,898		$	2,621,238

The accompanying notes are an integral part of these financial statements.

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
				As Restated
				(See note 2)
	2004			2003			2004			2003
	(Unaudited)						(Unaudited)
REVENUES:
Local services	$	137,066		$	147,500		$	273,134		$	292,538
Long distance services		33,757			33,818			72,494			66,680
Access services		73,278			77,874			146,581			159,729
Cellular services		47,620			46,575			95,457			94,029
Paging services		—			192			—			803
Directory services and other		20,017			20,708			40,896			38,330

Total revenues		311,738			326,667			628,562			652,109

OPERATING COSTS AND EXPENSES:
Labor and benefits		92,686			100,115			192,181			203,012
Other operating expenses		54,807			134,331			155,665			232,745
Early retirement and voluntary separation provision		—			3,257			1,635			4,700
Depreciation and amortization		65,907			62,776			130,385			123,279

Total operating costs and expenses		213,400			300,479			479,866			563,736

OPERATING INCOME		98,338			26,188			148,696			88,373

OTHER INCOME (EXPENSE):
Interest expense, net		(11,110	)		(13,682	)		(21,458	)		(23,865	)
Equity income from joint venture		678			515			1,335			1,301
Minority interest in consolidated subsidiary		(658	)		(397	)		(1,218	)		(830	)

Total other income (expense), net		(11,090	)		(13,564	)		(21,341	)		(23,394	)

INCOME BEFORE INCOME TAX EXPENSE		87,248			12,624			127,355			64,979
INCOME TAX EXPENSE (BENEFIT)		34,093			4,356			49,428			24,301

INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		53,155			8,268			77,927			40,678
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income tax provision of $40,672		—			—			—			58,529

NET INCOME	$	53,155		$	8,268		$	77,927		$	99,207

The accompanying notes are an integral part of these financial statements.

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)


												Accumulated
			Deferred									Other
	Common		ESOP			Subscription			Retained			Comprehensive
	Stock		Compensation			Receivable			Earnings			Loss			Total
BALANCE, DECEMBER 31, 2002	$	703,270	$	(27,408	)	$	(76,093	)	$	155,789		$	(90,182	)	$	665,376
Dividends paid		—		—			—			(68,125	)		—			(68,125	)
Accretion of discount on subscription receivable		—		—			(3,422	)		—			—			(3,422	)
PRTA capital contribution		—		—			40,000			—			—			40,000
Release of ESOP shares		614		1,255			—			—			—			1,869
Comprehensive income:
Net income		—		—			—			76,856			—			76,856
Other comprehensive loss, net of taxes:
Minimum pension liability adjustment		—		—			—			—			(11,203	)		(11,203	)

Comprehensive income		—		—			—			—			—			65,653

BALANCE, DECEMBER 31, 2003	$	703,884	$	(26,153	)	$	(39,515	)	$	164,520		$	(101,385	)	$	701,351
(UNAUDITED)
Dividends declared		—		—			—			(12,386	)		—			(12,386	)
Net income, for the six months ended June 30, 2004		—		—			—			77,927			—			77,927
Accretion of discount on subscription receivable		—		—			(485	)		—			—			(485	)
PRTA capital contribution		—		—			40,000			—			—			40,000

BALANCE, JUNE 30, 2004	$	703,884	$	(26,153	)	$	—		$	230,061		$	(101,385	)	$	806,407

The accompanying notes are an integral part of these financial statements.

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)


	For the Six Months Ended
	June 30,
	2004			2003
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	77,927		$	99,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		130,385			123,279
Provision for uncollectible accounts		29,374			30,599
Cumulative effect of accounting change		—			(58,529	)
Abandoned software project		—			32,262
Deferred income tax		33,700			77
Accretion of discount on subscription receivable		(485	)		(1,940	)
Equity income from joint venture		(1,335	)		(1,301	)
Voluntary separation and retirement provision		1,635			4,700
Minority interest in consolidated subsidiary		1,218			830
Gain on sale of land and building		(248	)		(824	)
Changes in assets and liabilities:
Accounts receivable		(14,884	)		(15,631	)
Inventory and supplies		3,335			4,207
Prepaid expenses and other assets		6,143			(5,680	)
Other current and non-current liabilities		(107,533	)		(29,380	)
Pension and other post-employment benefits		(47,376	)		(28,842	)

Net cash provided by operating activities		111,856			153,034

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		(66,133	)		(69,335	)
Proceeds from sale of land and building		930			6,000
Net salvage on retirements and other		202			183

Net cash used in investing activities		(65,001	)		(63,152	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		40,000			40,000
Net repayments of short-term debt, including capital leases		(29,580	)		(75,783	)
Borrowings of long-term debt		—			—
Dividends paid		—			(68,125	)

Net cash provided by/ (used in) financing activities		10,420			(103,908	)

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		57,275			(14,026	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		21,732			33,667

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	79,007		$	19,641

The accompanying notes are an integral part of these financial statements.

TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.		Business / Corporate Structure

		Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation (the “Company“or “we”), holds 100% of the common stock of Puerto Rico Telephone Company, Inc. (“PRTC”), PRT Larga Distancia, Inc. (“PRTLD”), and Datacom Caribe, Inc. (“Datacom”). The Company also holds a 67% interest in Coqui.net Corporation (“Coqui.net”), in which Popular, Inc., one of our shareholders, holds the remaining 33% interest. The Company also holds a 24% interest in Verizon Information Services Puerto Rico, Inc. S. en C. (“VISI”), in which GTE Holdings (Puerto Rico) LLC, our majority shareholder also holds a 36% interest. The Company is the largest telecommunications service provider in Puerto Rico. PRTC is the incumbent local exchange carrier for the island of Puerto Rico. Wireline service is provided by PRTC and cellular service is provided by the wireless division of PRTC, under the brand of Verizon Wireless Puerto Rico (“Verizon Wireless”). The Company’s off-island long distance service is provided by PRTLD. The Company’s dial-up Internet access service is provided by Coqui.net and the directory publishing revenues are generated by VISI.

		GTE Corporation (“GTE”), through its subsidiary GTE Holdings (Puerto Rico) LLC, acquired a 40% interest and management control over the Company on March 2, 1999 from Puerto Rico Telephone Authority (“PRTA”), an entity of the Commonwealth of Puerto Rico (the “Acquisition”). In the Acquisition, Popular, Inc. acquired a 10% interest in the Company. GTE and Bell Atlantic Corporation merged on June 30, 2000 to form Verizon Communications Inc. (“Verizon”). On January 25, 2002, GTE Holdings (Puerto Rico) LLC and Popular, Inc. acquired an additional 12% and 3% interest in the Company, respectively, by exercising an option each held since the Acquisition (the “Option Exercise”). Verizon and Popular, Inc. obtained the additional ownership interest from PRTA Holdings Corp., a subsidiary of the PRTA (“PRTA Holdings”). Verizon and Popular, Inc. paid PRTA Holdings $138 million and $34 million, respectively, for a total of $172 million in cash for the additional 3,750,000 shares at a $45.9364 per share price established in the Share Option Agreement, an agreement entered into at the time of the Acquisition. As a result, Verizon now owns 52%, PRTA owns 28%, Popular owns 13% and the Employee Stock Ownership Plan owns 7% of the outstanding capital stock of the Company. The Company is an affiliate of Verizon, which consolidates the Company’s financial results with its own financial results.

2.		Summary of Significant Accounting Policies

		Basis of Presentation

		The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States for annual financial statements have been condensed or omitted pursuant to such rules and regulations. Management believes the financial statements include all adjustments and recurring accruals necessary to present fairly the results of operations and financial condition for the interim periods shown. The Condensed Consolidated Balance Sheet at December 31, 2003 was derived from audited financial statements and should be read in conjunction with the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

		Impairment or Disposal of Long-lived Assets

		Assets are assessed for impairment when changes in circumstances indicate that their carrying values are not recoverable. Effective, January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Losses are recognized in circumstances where impairment exists, at the amount by which the carrying value of assets exceeds fair value. Fair value is determined based on quoted market prices, if not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis.

		For the last three years, the Company has been operating a TDMA network and CDMA network for its wireless clients. During 2003 management decided to migrate in 2004 all TDMA clients to the CDMA network and subsequently dispose of the TDMA network. The expected undiscounted future cash flow from operations on the TDMA network was estimated to be $27 million ($47.4 million estimated cash flows from operations less $20.4 million of related expenses). The discounted fair value of the network was estimated to $26 million and was determined by discounting anticipated discounted future cash flows at a risk free rate of 3.76%.

		Since the estimated fair value of $26 million is lower than the $37.8 million carrying amount of the TDMA network as of December 31, 2003, the Company recorded an impairment loss of $11.8 million.

		Restatement

		The Company’s results of operations for the quarter ended June 30, 2003 have been restated from amounts previously reported. The restated amounts reflect a change in accounting for directory publishing revenues, effective January 1, 2003 (see Note 3).

		Reclassifications

		Reclassifications of prior periods’ data have been made to conform to the current period’s presentation.

3.		Accounting Change for Directory Revenue Recognition

		Effective January 1, 2003, the Company changed its method of accounting for directory-publishing revenues and related expenses from the point-of-publication method to the amortization method.

		Under the point-of-publication method, such revenues and related expenses are recognized on the date that the directory is published and substantially delivered. Under the amortization method, pre-publication revenues and expenses are deferred and capitalized, respectively. Subsequent to publication, revenues are recognized and expenses amortized over the lives of the directories, which is generally one year.

		While both methods fully comply with accounting principles generally accepted in the United States, the Company adopted the amortization method because it is becoming the industry standard.

		The cumulative effect of applying this accounting change to prior years was recognized as of January 1, 2003 as a one-time, non-cash loss of $17 million ($13 million, after tax). The effect of applying the new method for the quarter ended March 31, 2003 was a one-time non-cash revenue increase of $3 million, which was included in operating income.

4.		Summary of Recent Accounting Pronouncements

		Asset Retirement Obligations

		On January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. We have determined that PRT does not have a material legal obligation to remove long-lived assets as described by this statement. However, we have included estimated removal costs in our group depreciation models. These costs have increased depreciation expense and accumulated depreciation for future removal costs for existing assets. These removal costs are recorded as a reduction to accumulated depreciation when the assets are retired and removal costs are incurred.

		For some assets, such as telephone poles, the removal costs exceed salvage value. Under the provisions of SFAS No. 143, we are required to exclude costs of removal from our depreciation rates for assets for which the removal costs exceed salvage. Accordingly, in connection with the initial adoption of this standard on January 1, 2003, we have reversed accrued costs of removal in excess of salvage from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of an estimated gain

		of $117 million ($71 million after-tax). Effective January 1, 2003, we began expensing costs of removal in excess of salvage for these assets as incurred. The impact of this change in accounting resulted in a decrease in depreciation expense and an increase in operational and support expenses. The net increase to operating income in 2003, excluding the cumulative effect adjustment, was approximately $12 million ($7 million after-tax).

		Amendments of Statement 133 on Derivative Instruments and Hedging Activities

		In April 2003, the FASB issued SFAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. In addition, all provisions of SFAS No. 149 should be applied prospectively. However, the provisions of this statement that relate to SFAS 133 Implementation Issues that have been effective for fiscal quarters beginning prior to June 15, 2003 continue to be applied in accordance with their respective effective dates. The Company evaluated the impact of the adoption of SFAS No. 149 and concluded that there is no material effect on its results of operations and financial condition.

		Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

		In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This standard clarifies the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS No. 150 requires that those instruments be classified as liabilities in statements of financial position. The requirements of this statement apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company evaluated the impact of the adoption of SFAS No. 150 and concluded that there is no material effect on its results of operations and financial condition.

		Accounting for Revenue Arrangements with Multiple Deliverables

		In November 2002, the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF No. 00-21 addresses how to account for arrangements that may involve multiple revenue-generating activities. Specifically, the issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. The consensus guidance will be applicable to agreements entered into in quarters beginning after June 15, 2003. The Company evaluated the impact of the adoption of EITF No. 00-21 and concluded that there is no material effect on its results of operations and financial condition.

5.		Property, Plant and Equipment

		Property, plant and equipment consist of:


	Remaining Useful				June 30,		December 31,
	Lives (Yrs)				2004		2003
	Current		Previous		(In thousands)

Outside plant		8.5		8.5	$	2,116,875	$	2,097,902
Central office and transmission equipment		4.1		4.1		1,195,079		1,184,357
Equipment and other		3.2		3.2		303,318		323,459
Buildings		14.3		14.3		318,554		316,052
Land		N/A		N/A		26,266		26,400

Gross plant in service						3,960,092		3,948,170
Less: accumulated depreciation						2,531,644		2,455,127

Net plant in service						1,428,448		1,493,043
Construction in progress						66,333		65,203

Total					$	1,494,781	$	1,558,246

		Under the provisions of SFAS No. 143, we are required to exclude costs of removal from our depreciation rates for assets for which the removal costs exceed salvage. Accordingly, in connection with the initial adoption of this standard on January 1, 2003, we have reversed accrued costs of removal in excess of salvage from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of an estimated gain of $117 million ($71 million after-tax). Effective January 1, 2003, the Company began expensing costs of removal in excess of salvage for these assets as incurred. The impact of this change in accounting will result in a decrease in depreciation expense and an increase in operational and support expenses. The net increase to operating income in 2003, excluding the cumulative effect adjustment, was approximately $12 million ($7 million after-tax).

		During the fourth quarter of 2003, the board of directors approved the replacement of the Company’s General Ledger System and Inventory Management System. The new systems are expected to be operational during the fourth quarter of 2004 at projected capitalized costs for software and labor of approximately $13 million. As of June 30, 2004, the Company had capitalized costs of $8 million associated with the new systems.

		The Company is currently undergoing its periodic review of plant useful lives estimates. The review incorporates the impact of technology, future competition and assumptions employed in the industry relative to depreciation and retirement rates.

6.		Goodwill

		Following is a breakdown of goodwill.


	Carrying Value
	June 30,		December 31,
	2004		2003
	(In thousands)
Wireline (PRTC)	$	102,731	$	102,731
Dial-up Internet (Coqui.net)		24,196		24,196

Total	$	126,927	$	126,927

Intangibles


	Carrying Value
	June 30,		December 31,
	2004		2003
	(In thousands)
*Indefinite Life:*
Wireline concession	$	85,120	$	85,120
FCC Cellular licenses		23,855		23,855

Total Indefinite Life	$	108,975	$	108,975


	June 30, 2004						December 31, 2003
	(In thousands)
	Cost		Acc. Amort		Book Value		Cost		Acc. Amort		Book Value
*Definite Life*
Wireline trade name	$	48,400	$	10,785	$	37,615	$	48,400	$	9,502	$	38,898
Software licenses		73,411		32,472		40,939		67,068		25,805		41,263
Customer base		15,544		15,544		—		15,544		15,544		—
Other		500		500		—		500		500		—

Total Definite Life	$	137,855	$	59,301	$	78,554	$	131,512	$	51,351	$	80,161

Plus: Total Indefinite Life					$	108,975					$	108,975

Total	$	137,855	$	59,301	$	187,529	$	131,512	$	51,351	$	189,136

		SFAS No. 142, “Goodwill and Other Intangible Assets”, no longer permits the amortization of goodwill and other indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or, under certain conditions, more frequently) for impairment in accordance with this statement. This impairment test uses fair value approach.

		Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. For 2003, the Company has evaluated its assets using the fair value approach for each reporting unit to determine if there is an impairment exposure (transitional impairment test) and the impact it would have on the Company’s results of operations. The evaluation of the two reporting units revealed no impairment exposure.

		The Company is currently undergoing its annual evaluation of assets to determine if there is an impairment exposure and related impact, if any, to the Company results of operations of 2004.

8.		Other assets

		Other assets consist of:


	June 30 ,		December 31,
	2004		2003
	(In thousands)
Deferred activation and installation costs	$	71,980	$	69,347
Notes receivable-equipment sales		8,890		10,446
Deferred pension asset		19,785		19,785
Deferred financing costs, net		2,715		3,146
Other deferred costs		1,824		1,426
Interest rate swap		620		2,811
Investment in Verizon Information Services		1,335		—
Other assets		1,922		1,580

Total	$	109,071	$	108,541

9.		Pension Plan

		The Company has noncontributory pension plans for full-time employees, which are tax qualified as they meet Employee Retirement Income Security Act of 1974 (the “ERISA”) requirements. The Company realizes tax deductions when contributions are made to the trusts. The trusts invest in equity and fixed income securities to meet the benefit obligation.

		The pension benefit is composed of two elements. An employee receives an annuity at retirement when they reach the rule of 85 (age plus years of service). The annuity is calculated by applying a percentage times years of service to the last three years of salary. The second element is a lump sum based on years of service, up to a maximum of nine months of salary for hourly employees and twelve months of salary for salaried employees.

		There are separate trusts for the annuity and the lump sum benefit with a further separation of the annuity benefit into a plan for the UIET union, for the HIETEL union and management employees. Health care and life insurance benefits are provided to retirees.

		The components of the net pension and other post-employment benefit expenses for the quarters ended June 30,

		(In thousands)


	Pension and Lump Sum Benefit												Post-Retirement Benefits
	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003			2004			2003			2004			2003
Service cost	$	5,186		$	4,523		$	10,372		$	9,046		$	2,565		$	2,175		$	5,130		$	4,350
Interest cost		17,567			16,825			35,134			33,650			9,652			8,878			19,304			17,756
Expected return on plan assets		(14,910	)		(11,578	)		(29,820	)		(23,156	)		—			—			—			—
Amortization of unrecognized:
Transition obligation		90			107			180			214			551			550			1,102			1,100
Prior service cost (benefit)		1,179			1,186			2,358			2,372			(628	)		(628	)		(1,256	)		(1,256	)
Actuarial gain, net		3,518			3,281			7,036			6,562			4,421			3,926			8,842			7,852

Net periodic benefit cost		12,630			14,344			25,260			28,688			16,561			14,901			33,122			29,802
Effect of early retirement program		—			957			939			957			—			722			696			722

Total	$	12,630		$	15,301		$	26,199		$	29,645		$	16,561		$	15,623		$	33,818		$	30,524

		Cash Flows

		The Company expects to contribute $153 million to the pension and lump sum plans and $30 million to the post-retirement plan in 2004. We have adequate liquidity resources to fund these amounts. As of June 30, 2004, $93 million of pension plan contributions have been made.

		Medicare Drug Act

		On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (Medicare Drug Act) was signed into law. The Medicare Drug Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Any measure of the accumulated postretirement benefit obligation or net periodic post retirement cost in the financial statements or accompanying notes do not reflect any amount associated with the subsidy because federal regulations for determining actuarial equivalence have not yet been issued in either proposed or final form, which impacts our ability to estimate the full adoption effects. Without a firm definition of actuarial equivalence, we are unable to determine if the prescription drug benefits provided to the Company’s plan participants are actuarially equivalent to Medicare Part D benefits and are therefore unable to quantify any potential impact at this time.

10.		Early Retirement and Voluntary Separation Provision

		In January 2003, 29 qualified management employees accepted the voluntary separation program, offered by the Company to qualified management employees during the fourth quarter of 2002, representing an expense of $1.4 million, which was recorded in the first quarter 2003. During the second quarter of 2003, the Company offered to members of one of the unions a voluntary separation program that closed on June 20, 2003, which 44 qualified employees accepted. Also, during the second quarter of 2003, an additional 147 employees in the craft union accepted a retirement program offered by the Company that closed on June 30, 2003. As a result of these two programs, an additional non-cash provision of $3.3 million was recorded in the second quarter 2003.

		In December 2003, the Company offered an early retirement program to qualified management employees. A non-cash provision of $12.6 million was recorded relating to 147 employees who had accepted as of December 31, 2003. In January 2004, an additional 19 qualified management employees accepted the early retirement program offered by the Company in December 2003, which resulted in a provision of $1.6 million.

11.		Deferred ESOP Compensation

		The Employee Stock Ownership Plan (“ESOP”) acquired a 3% interest in the Company in 1999 with a $26 million, twenty-year note borrowed from the Company to establish a contributory investment fund for employees. The ESOP only invests in shares of the Company’s common stock. Shares are held by the ESOP’s trustee and maintained in a suspense account until they are released to employee participants. The yearly release of shares to participants is based on the greater of participant contributions plus a Company match of 30% up to 5% of wages or a minimum based on an amortization schedule. The minimum is based on the ratio of annual debt service to total debt service multiplied by the initial 750,000 shares.

		Compensation expense is recorded based on the release of shares at market value, which is based on an independent appraisal performed annually. The ESOP released approximately 36,072 shares in 2003. This release resulted in compensation expense of $2 million for year ended December 31, 2003, reflecting the market value of the shares. The release of shares, based upon the per share price established at the Acquisition, amounted to $1.3 million for December 31, 2003, which is reflected as a reduction of deferred ESOP compensation in equity.

12.		Other Current Liabilities

		Other current liabilities consist of:


	June 30 ,		December 31,
	2004		2003
	(In thousands)
Accounts payable	$	20,095	$	58,625
Accrued expenses		63,471		75,999
Employee benefit accruals		56,997		44,697
Carrier payables		25,630		26,388
Taxes		540		1,420
Interest		6,336		6,351

Total	$	173,069	$	213,480

13.		Debt

		Debt consists of:


	March 31,		December 31,
	2004		2003
	(In thousands)
Senior notes
Due May 15, 2006 at 6.65%	$	399,954	$	399,943
Due May 15, 2009 at 6.80%		299,905		299,896
Term credit facilities:
Due May 16, 2005 at 57 basis points over LIBOR		30,000		30,000
Due June 24, 2005 at 70 basis points over LIBOR		30,000		30,000
Due August 19, 2005 at 70 basis points over LIBOR		63,000		63,000
Commercial paper		—		29,500
Deferred derivative		4,996		6,337
Interest rate swap		620		2,811
Capital leases		277		377

Total		828,752		861,864
Less short-term debt		60,129		59,729

Long-term debt	$	768,623	$	802,135

		The senior notes, commercial paper, term credit facilities, working capital facility, and bank notes are unsecured and non-amortizing. PRTC is the guarantor of these debt instruments. The senior notes indentures and credit facility agreements do not contain dividend restrictions.

		The Company has a $360 million commercial paper program with maturities not to exceed 364 days, which is backed by two working capital facilities. The commercial paper dealer agreement was signed in November 2000. In March 2004, the Company’s existing $400 million bank note credit facility matured. On March 2, 2004 the Company entered into a new unsecured, $360 million 364-day revolving credit facility with a syndicate of banks and other lenders for whom Citibank, N.A. acts as administrative agent, Banco Bilbao Vizcaya Argentaria Puerto Rico acts as syndication agent and Banco Popular de Puerto Rico, FirstBank Puerto Rico and Scotiabank de Puerto Rico act as co-documentation agents.

		Amounts borrowed under this facility are guaranteed by PRTC, and bear interest at the applicable Eurodollar rate plus a margin or at the base rate; which is the higher of the base rate publicly announced by the administrative agent from time to time or the Federal Funds rate plus 0.5%, plus a margin. The Company is also required to pay a quarterly facility fee on commitments under the facility and a quarterly utilization fee on borrowed amounts that exceed 50% of the commitments under the facility. Accrued interest on Eurodollar rate borrowings is payable based on elected intervals of one, two, three or six months or other interest period as the Company may select, subject to certain conditions. Accrued interest on base rate borrowings is payable quarterly.

		This facility matures on March 1, 2005, on which date the Company has the right to convert outstanding amounts into a term loan that matures on March 1, 2006. This facility contains negative covenants, including covenants which limit the Company’s ability to grant or permit liens on its or subsidiaries’ properties, merge or sell all or substantially all of its assets and permit its subsidiaries to incur debt. This facility also requires that the Company maintain certain financial ratios. Upon the occurrence of a default or an event of default, the lenders have various remedies or rights, which may include termination of the lenders’ obligations to make advances and declare all borrowed amounts and interest thereon immediately due and payable. The intended purpose of this facility is for working facility purposes and serves as backstop facility for commercial paper program.

		The Company had a $40 million working capital credit facility with Banco Popular de Puerto Rico, an affiliate of Popular, Inc. that matured on June 2004. On June 2004, the Company renewed the undrawn $40 million working capital credit facility maturing on June 30, 2005. Amounts outstanding under this facility bear interest at a rate of 30 basis points over LIBOR. This facility serves as additional backstop for the commercial paper program. At June 30, 2004, the Company had no outstanding balance under this facility.

		At December 31, 2002, the Company had $225 million in term credit facilities with maturities ranging from two to three years, and bearing interest from 60 to 100 basis points over LIBOR. By October 29, 2003 the Company repaid one of the $50 million term loans, and prepaid principal in an aggregate amount of $62 million of the outstanding term credit loans, while reducing interest rate to 70 basis points over LIBOR. One of the $30 million term loans matured on May 16, 2004. The Company renewed the $30 million term loan at an interest rate of 57 basis points over LIBOR maturity due on May 16, 2005.

		On August 31, 2001, the Company entered into an interest rate swap contract with a notional amount of $150 million. In September 2002, the Company drew the value out of the hedge position without changing the fixed/floating funding mix of the original swap transaction. This transaction resulted in cash proceeds of $11 million, reflected in cash from operations as required by SFAS No. 104, and created a deferred derivative, which will be amortized until 2006. As of June 30, 2004, the unamortized balance of the deferred derivative is $5 million. The purpose of the swap is to hedge against changes in the fair market value of the Company’s senior notes to achieve a targeted mix of fixed and variable rate debt. The swap receives interest at a fixed rate of 6.65% and pays interest at a net variable rate equal to six month LIBOR plus 170 basis points, with semiannual settlements and reset dates every May 15 and November 15 until maturity of the May 15, 2006 senior notes. The swap was entered into “at market” and as a result, there was no exchange of premium at the initial date of the swap. The Company designates the swap as a hedge of the changes in fair market value of the senior notes due to changes in the designated benchmark interest rate. PRTC is the guarantor of the interest rate swap.

		Aggregate maturities of the senior notes and term credit facilities are as follow:


Year		Amount
		(In thousands)
2005	Term credit facilities		123,000
2006	Senior note		400,000
2009	Senior note		300,000

Total		$	823,000

		Currently, the Company is in compliance with debt covenant agreements and with the financial ratios as specified by term facilities.

14.		Other Non-Current Liabilities

		Other non-current liabilities consist of:


	June 30,		December 31,
	2004		2003
	(In thousands)
Deferred activation and installation revenues	$	71,747	$	69,347
Deferred directory-publishing revenues		3,008		12,877
Customer deposits		26,182		26,954
Other liabilities		83,117		128,227

Total	$	184,054	$	237,405

15.		Shareholders’ Equity

		Common Stock

		Common stock consists of fifty million authorized shares, no par value, of which twenty five million shares were outstanding at June 30, 2004 and December 31, 2003.

		Subscription Receivable

		The subscription receivable reflects receipts from the PRTA originally recorded at its present value (at an 8% discount rate). As part of the Acquisition agreement, the PRTA agreed to contribute a total of $200 million in cash or stock as a capital contribution in equal installments of $40 million over five years beginning on March 2, 2000. The Company employed the $200 million capital contribution to partially fund its underfunded pension and other post-employment benefit obligations, as agreed. The stock purchase agreement required the Company to contribute $66 million, which included the $40 million received from PRTA, to the pension plan immediately upon receipt of the proceeds each year. The Company received the fifth and final $40 million installment in March 2004 and made the required pension payment of $66 million. All installments were made in cash.

		Accumulated Other Comprehensive Loss

		The accumulated other comprehensive loss represents unrecognized losses, other than unrecognized prior service costs which are reflected as an other asset, associated with the hourly employee pension fund since the accumulated benefit obligation exceeds the fair value of plan assets.

		The accumulated other comprehensive loss amount as of December 31, 2003 has been adjusted in the amount of $64.8 million in order to reflect the after-tax amount in accordance with the provisions of SFAS No.130 “Reporting Comprehensive Income”.

		Dividends

		The Company’s shareholders’ agreement requires the payment of dividends equal to at least 50% of consolidated net income to be paid in the following quarter to the extent funds are legally available.

		Dividends payments were made in the following periods:


2004			2003
(In thousands)			(In thousands)
4^th Quarter	$	—	4^th Quarter	$	—
3^rd Quarter		12,386	3^rd Quarter		—
2^nd Quarter		—	2^nd Quarter		68,125
1^st Quarter		—	1^st Quarter		—

Total	$	12,386	Total	$	68,125

The senior notes indentures and credit facility agreements do not contain dividend restrictions.

16.		Fair Value of Financial Instruments

		The carrying amounts and fair values of the Company’s financial instruments are as follows:


	June 30,				December 31,
	2004				2003
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
			(In thousands)
Assets:
Cash and cash equivalents	$	79,007	$	79,007	$	21,732	$	21,732
Accounts receivable		272,757		272,757		287,247		287,247
Liabilities:
Other current liabilities	$	173,069	$	173,069	$	213,480	$	213,480
Short-term debt		60,129		60,129		59,729		59,729
Long-term debt, including interest rate swap		768,623		814,864		802,135		872,822

17.		Segment Reporting

		The Company has two reportable segments: Wireline and Wireless.

		The Wireline segment consists of:

	•		Local services, including basic voice, telephone and telecommunications equipment rentals, value-added services, high-speed private line services, Internet access and public phone service;

	•		Access services to long distance carriers, competitive local exchange carriers, and cellular and paging operators to originate and terminate calls on our network;

	•		Long distance services including direct dial on-island and off-island, operator assisted calls, prepaid calling card and high-speed private line services;

	•		Directory publishing rights services; and

	•		Telecommunication equipment sales and billing and collection services to competing long distance operators in Puerto Rico.

The Wireless segment consists of:

	•		Cellular service; and

	•		Wireless equipment sales.

The accounting policies of the segments are the same as those followed by the Company (see Note 2). The Company accounts for intersegment revenues at market prices.

Segment results for the Company are as follow:


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
				(in thousands)
Wireline:
Revenues-
Local services	$	139,525		$	148,794		$	278,120		$	294,922
Long distance services		34,537			34,770			73,392			68,769
Access services		74,000			78,601			147,678			161,161
Directory services and other		16,268			17,576			32,847			32,175

Total revenues	$	264,330		$	279,741		$	532,037		$	557,027

Operating income	$	100,926		$	28,189		$	152,897		$	90,990

Wireless:
Revenues-
Cellular services	$	47,566		$	46,757		$	95,717		$	94,142
Paging services		—			192			—			803
Equipment sales and other		3,932			2,990			8,045			5,875

Total revenues	$	51,498		$	49,939		$	103,762		$	100,820

Operating income	$	(2,588	)	$	(2,001	)	$	(4,201	)	$	(2,617	)

Consolidated:
Revenues for reportable segments	$	315,828		$	329,680		$	635,799		$	657,847
Elimination of intersegment revenues		(4,090	)		(3,013	)		(7,237	)		(5,738	)

Consolidated revenues	$	311,738		$	326,667		$	628,562		$	652,109

Operating income	$	98,338		$	26,188		$	148,696		$	88,373


	As of			As of
	June 30,			December 31,
Assets	2004			2003
Wireline assets	$	2,550,118		$	2,599,277
Wireless assets		333,347			314,172

Segment assets	$	2,883,465		$	2,913,449
Elimination of intersegment assets		(328,567	)		(292,211	)

Consolidated assets	$	2,554,898		$	2,621,238

18.		Condensed Consolidating Information

		The following summarizes the unaudited condensed consolidating financial information as of June 30, 2004 and December 31, 2003 and for the quarters then ended presents the financial position, results of operations and cash flows of (i) the Company as if it had accounted for its subsidiaries using the equity method, (ii) the Guarantor Subsidiary (as defined below); and (iii) the Non-Guarantor Subsidiaries (as defined below) on a combined basis. The consolidation entries eliminate investments in subsidiaries and intercompany balances and transactions.

		The Notes are guaranteed by PRTC (the “Guarantor Subsidiary”), a wholly-owned subsidiary of the Company, but not guaranteed by the Company’s other subsidiaries, Coqui.net, PRTLD and Datacom (the “Non-Guarantor Subsidiaries”). The guarantee by the Guarantor Subsidiary is full and unconditional.

Condensed Consolidating Balance Sheets
June 30, 2004
(In thousands)


				Guarantor			Non-Guarantor						Total
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9		$	66,341		$	12,657		$	—		$	79,007
Intercompany accounts receivable		1,070,237			84,117			43,522			(1,197,876	)		—
Accounts receivable, net		—			272,811			(54	)		—			272,757
Deferred income tax		718			30,237			31			—			30,986
Inventory and supplies, net		—			17,867			—			—			17,867
Prepaid expenses		—			26,513			1,194			—			27,707

Total current assets		1,070,964			497,886			57,350			(1,197,876	)		428,324
PROPERTY, PLANT AND EQUIPMENT, net		—			1,483,955			10,826			—			1,494,781
GOODWILL AND OTHER INTANGIBLES, net		—			289,814			24,642			—			314,456
DEFERRED INCOME TAX		—			208,868			(602	)		—			208,266
INVESTMENT IN SUBSIDIARIES		634,576			—			—			(634,576	)		—
OTHER ASSETS		9,340			107,442			(1	)		(7,710	)		109,071

TOTAL ASSETS	$	1,714,880		$	2,587,965		$	92,215		$	(1,840,162	)	$	2,554,898

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	60,000		$	60,129		$	—		$	(60,000	)	$	60,129
Intercompany accounts payable		73,537			271,937			32,257			(377,731	)		—
Other current liabilities		6,461			161,119			5,489			—			173,069

Total current liabilities		139,998			493,185			37,746			(437,731	)		233,198
LONG-TERM DEBT, excluding current portion		768,475			763,007			—			(762,859	)		768,623
OTHER NON-CURRENT LIABILITIES		—			737,422			—			(4,996	)		732,426

Total liabilities		908,473			1,993,614			37,746			(1,205,586	)		1,734,247

MINORITY INTEREST		—			—			—			14,244			14,244

SHAREHOLDERS’ EQUITY:
Common stock, Additional paid in capital and Treasury stock		703,884			485,301			41,143			(526,444	)		703,884
Deferred ESOP compensation		(26,153	)		—			—			—			(26,153	)
Retained earnings		230,061			210,435			13,326			(223,761	)		230,061
Accumulated other comprehensive loss		(101,385	)		(101,385	)		—			101,385			(101,385	)

Total shareholders’ equity		806,407			594,351			54,469			(648,820	)		806,407

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,714,880		$	2,587,965		$	92,215		$	(1,840,162	)	$	2,554,898

Condensed Consolidating Balance Sheets
December 31, 2003
(In thousands)


				Guarantor			Non-Guarantor						Total
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	12,438		$	9,294		$	—		$	21,732
Intercompany accounts receivable		1,059,752			85,610			40,608			(1,185,970	)		—
Accounts receivable, net		1			287,193			53			—			287,247
Deferred income tax		—			26,158			—			—			26,158
Inventory and supplies, net		—			21,202			—			—			21,202
Prepaid expenses		—			34,489			766			—			35,255

Total current assets		1,059,753			467,090			50,721			(1,185,970	)		391,594
PROPERTY, PLANT AND EQUIPMENT, net		—			1,546,503			11,743			—			1,558,246
GOODWILL AND OTHER INTANGIBLES, net		—			291,362			24,701			—			316,063
DEFERRED INCOME TAX		—			247,276			(482	)		—			246,794
INVESTMENT IN SUBSIDIARIES		570,870			—			—			(570,870	)		—
OTHER ASSETS		12,633			105,390			(2	)		(9,480	)		108,541

TOTAL ASSETS	$	1,643,256		$	2,657,621		$	86,681		$	(1,766,320	)	$	2,621,238

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	59,500		$	59,729		$	—		$	(59,500	)	$	59,729
Intercompany accounts payable		73,844			233,531			29,399			(336,774	)		—
Other current liabilities		6,574			200,512			6,394			—			213,480

Total current liabilities		139,918			493,772			35,793			(396,274	)		273,209
LONG-TERM DEBT, excluding current portion		801,987			792,987			—			(792,839	)		802,135
OTHER NON-CURRENT LIABILITIES		—			837,855			—			(6,337	)		831,518

Total liabilities		941,905			2,124,614			35,793			(1,195,450	)		1,906,862

MINORITY INTEREST		—			—			—			13,025			13,025

SHAREHOLDERS’ EQUITY:
Common stock, Additional paid in capital and Treasury stock		703,884			485,591			41,143			(526,734	)		703,884
Deferred ESOP compensation		(26,153	)		—			—			—			(26,153	)
Subscription receivable		(39,515	)		—			—			—			(39,515	)
Retained earnings		164,520			148,801			9,745			(158,546	)		164,520
Accumulated other comprehensive loss		(101,385	)		(101,385	)		—			101,385			(101,385	)

Total shareholders’ equity		701,351			533,007			50,888			(583,895	)		701,351

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,643,256		$	2,657,621		$	86,681		$	(1,766,320	)	$	2,621,238

Condensed Consolidating Statements of Operations
For the three months ended June 30, 2004
(In thousands)


				Guarantor			Non-Guarantor					Total
	Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—		$	131,640		$	8,556	$	(3,130	)	$	137,066
Long distance services		—			25,497			8,283		(23	)		33,757
Access services		—			75,018			—		(1,740	)		73,278
Cellular services		—			47,620			—		—			47,620
Paging services		—			—			—		—			—
Directory and other services and sales		—			22,474			—		(2,457	)		20,017

Total revenues		—			302,249			16,839		(7,350	)		311,738

OPERATING COSTS AND EXPENSES:
Labor and benefits		—			91,852			834		—			92,686
Other operating expenses		178			48,789			13,190		(7,350	)		54,807
Early retirement provision		—			—			—		—			—
Depreciation and amortization		—			65,341			566		—			65,907

Total operating costs and expenses		178			205,982			14,590		(7,350	)		213,400

OPERATING INCOME		(178	)		96,267			2,249		—			98,338

OTHER INCOME (EXPENSE), NET		53,263			(10,543	)		111		(53,921	)		(11,090	)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		53,085			85,724			2,360		(53,921	)		87,248
INCOME TAX EXPENSE (BENEFIT)		(70	)		33,171			992		—			34,093

NET INCOME (LOSS)	$	53,155		$	52,553		$	1,368	$	(53,921	)	$	53,155

Condensed Consolidating Statements of Operations
For the three months ended June 30, 2003
(In thousands)


			Guarantor			Non-Guarantor					Total
	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—	$	142,684		$	7,241	$	(2,425	)	$	147,500
Long distance services		—		25,253			8,601		(36	)		33,818
Access services		—		79,040			—		(1,166	)		77,874
Cellular services		—		46,575			—		—			46,575
Paging services		—		192			—		—			192
Directory and other services and sales		—		22,168			—		(1,460	)		20,708

Total revenues		—		315,912			15,842		(5,087	)		326,667

OPERATING COSTS AND EXPENSES:
Labor and benefits		—		99,337			778		—			100,115
Other operating expenses		—		128,810			10,608		(5,087	)		134,331
Voluntary separation and retirement provision		—		3,257			—		—			3,257
Depreciation and amortization		—		62,028			748		—			62,776

Total operating costs and expenses		—		293,432			12,134		(5,087	)		300,479

OPERATING INCOME		—		22,480			3,708		—			26,188

OTHER INCOME (EXPENSE), net		8,268		(13,221	)		54		(8,665	)		(13,564	)

INCOME BEFORE INCOME TAX EXPENSE		8,268		9,259			3,762		(8,665	)		12,624
INCOME TAX EXPENSE		—		2,820			1,536		—			4,356

NET INCOME	$	8,268	$	6,439		$	2,226	$	(8,665	)	$	8,268

Condensed Consolidating Statements of Operations
For the six months ended June 30, 2004
(In thousands)


				Guarantor			Non-Guarantor					Total
	Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—		$	262,623		$	16,788	$	(6,277	)	$	273,134
Long distance services		—			52,757			19,779		(42	)		72,494
Access services		—			150,334			—		(3,753	)		146,581
Cellular services		—			95,457			—		—			95,457
Directory and other services and sales		—			45,487			—		(4,591	)		40,896

Total revenues		—			606,658			36,567		(14,663	)		628,562

OPERATING COSTS AND EXPENSES:
Labor and benefits		—			190,511			1,670		—			192,181
Other operating expenses		178			143,445			26,705		(14,663	)		155,665
Early retirement provision		—			1,635			—		—			1,635
Depreciation and amortization		—			129,252			1,133		—			130,385

Total operating costs and expenses		178			464,843			29,508		(14,663	)		479,866

OPERATING INCOME		(178	)		141,815			7,059		—			148,696
OTHER INCOME (EXPENSE), net		77,211			(20,296	)		173		(78,429	)		(21,341	)

INCOME BEFORE INCOME TAX		77,033			121,519			7,232		(78,429	)		127,355
INCOME TAX EXPENSE (BENEFIT)		(894	)		47,504			2,818		—			49,428

	$	77,927		$	74,015		$	4,414	$	(78,429	)	$	77,927

Condensed Consolidating Statements of Operations
For the six months ended June 30, 2003
(in thousands)


			Guarantor			Non-Guarantor					Total
	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—	$	282,797		$	14,330	$	(4,589	)	$	292,538
Long distance services		—		49,798			16,945		(63	)		66,680
Access services		—		162,027			—		(2,298	)		159,729
Cellular services		—		94,029			—		—			94,029
Paging services		—		803			—		—			803
Directory and other services and sales		—		41,167			—		(2,837	)		38,330

Total revenues		—		630,621			31,275		(9,787	)		652,109

OPERATING COSTS AND EXPENSES:
Labor and benefits		—		201,420			1,592		—			203,012
Other operating expenses		—		222,490			20,042		(9,787	)		232,745
Voluntary separation and retirement provision		—		4,700			—		—			4,700
Depreciation and amortization		—		121,827			1,452		—			123,279

Total operating costs and expenses		—		550,437			23,086		(9,787	)		563,736

OPERATING INCOME		—		80,184			8,189		—			88,373
OTHER INCOME (EXPENSE), net		99,207		(22,658	)		94		(100,037	)		(23,394	)

INCOME BEFORE INCOME TAX		99,207		57,526			8,283		—			64,979
INCOME TAX EXPENSE		—		21,113			3,188		(100,037	)		24,301

INCOME BEFORE CUMULATIVE EFFECT		99,207		36,413			5,095		(100,037	)		40,678
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income tax of $40,672		—		58,529			—		—			58,529

NET INCOME	$	99,207	$	94,942		$	5,095	$	(100,037	)	$	99,207

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2004
(In thousands)


				Guarantor			Non-Guarantor			Total
	Parent			Subsidiary			Subsidiaries			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	(1,934	)	$	110,413		$	3,377		$	111,856

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		—			(66,120	)		(13	)		(66,133	)
Proceeds from sale of building		—			930			—			930
Net salvage on retirements		—			203			(1	)		202

Net cash used in investing activities		—			(64,987	)		(14	)		(65,001	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		40,000			—			—			40,000
Net repayments of short-term debt, including capital leases		(29,480	)		(100	)		—			(29,580	)
Borrowings/(repayment) intercompany loans		(8,577	)		8,577			—			—

Net cash provided by financing activities		1,943			8,477			—			10,420

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9			53,903			3,363			57,275
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			12,438			9,294			21,732

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9		$	66,341		$	12,657		$	79,007

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2003
(in thousands)


				Guarantor			Non-Guarantor			Total
	Parent			Subsidiary			Subsidiaries			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	(201	)	$	152,089		$	1,146		$	153,034

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		—			(69,049	)		(286	)		(69,335	)
Net salvage on retirements		—			364			(181	)		183
Proceeds from sale of building		—			6,000			—			6,000

Net cash used in investing activities		—			(62,685	)		(467	)		(63,152	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Parent Company		—			—			—			—
Capital contribution		40,000			—			—			40,000
Net repayments of short-term debt, including capital leases		(75,682	)		(101	)		—			(75,783	)
Borrowings of long-term debt		—			—			—			—
Dividends paid		(68,125	)		—			—			(68,125	)
Borrowings/(repayments) intercompany loans		103,994			(103,994	)		—			—
Cash transferred from an affiliate		—			—			—			—

Net cash provided by (used in) financing activities		187			(104,095	)		—			(103,908	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(14	)		(14,691	)		679			(14,026	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1			27,009			6,657			33,667

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	(13	)	$	12,318		$	7,336		$	19,641

19.

Contingencies and Regulatory and Other Matters

The Company is a defendant in various legal matters arising in the ordinary course of business. Management, after consultation with legal counsel, believes at this time that the resolution of these matters will not have a material adverse effect on the Company’s financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Other Matters” for more information regarding legal and regulatory matters, including a regulatory dispute regarding intra-island access fees charged to long distance carriers.

In connection with the privatization of the Company, PRTA agreed to indemnify, defend and hold the Company harmless from specified litigation in excess of $50 million in the aggregate, including one environmental matter.

The Company is regulated by the United States Federal Communications Commission (the “FCC”) for inter-state wireline services and by the Puerto Rico Telecommunications Board (“TRB”) for intra-island wireline services.

The Company has an agreement with a provider for the implementation of a traffic polling and billing software system for its wireline operations. While the traffic polling portion has been implemented, management made the decision to abandon the billing portion of the software system. The amount of capitalized costs for software and labor related to the billing portion of $32.3 million was written off and included in operating expenses during the second quarter of 2003.

In September 2003, the Company established a pre-tax reserve of $73 million, including interest, for the end-user and AT&T refund referred to in the TRB Resolution and Order of February 28, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Other Matters – Intra-Island Long Distance Access Rate Dispute” for more information regarding the TRB Resolution and Order of February 28, 2002. In November 2003, the Company proposed, and two members of the TRB indicated their support for, a plan to revise the Board’s end-user refund order and end the dispute over this issue. As a result, the 2003 cash flow impact was a reduction of $16 million to the pre-tax reserve. After a hearing in June 2004, the TRB terminated a stay it had issued and allowed the Company to continue to implement an integrated plan subject to certain customer information and data collection requirements relating to the impact of the plan on measured service customers. As a result, the Company reduced the pre-established reserve to $14 million, which is associated with the anticipated single line credit planned for 2005.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are the largest telecommunications service provider in Puerto Rico and the seventh largest local exchange carrier in the United States as measured by access lines in service. Wireline service, which has been provided since 1914, is marketed under the PRT brand. At June 30, 2004, we had approximately 1.2 million access lines in service, including 909,000 residential and 285,000 business lines. Since November 2001, we have been marketing our cellular service under the Verizon Wireless brand as part of a strategy to align our product and service offerings with those of Verizon Wireless in the United States.

We have two reportable segments: Wireline and Wireless. Wireline service is provided by PRTC and wireless services are provided by Verizon Wireless. The Company’s off-island long distance service is provided by PRTLD and its dial-up Internet access service is provided by Coqui.net. Directory publishing revenues are generated by VISI.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In this report, the Company makes forward-looking statements. These statements are based on the Company’s estimates and assumptions and are subject to certain risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations, as well as those statements preceded or followed by the words “anticipates,” “believes,” “estimates,” “expects,” “hopes,” “targets” or similar expressions.

Future results could be affected by subsequent events and could differ materially from those expressed in the forward-looking statements. If future events and actual performance differ from the Company’s assumptions, the actual results could vary significantly from the performance projected in the forward-looking statements.

The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: (1) materially adverse changes in economic conditions in Puerto Rico, including new legislation; (2) material changes in available technology; (3) the final resolution of regulatory initiatives and proceedings, including arbitration proceedings pertaining to, among other matters, the terms of interconnection, access charges, universal service, unbundled network elements and resale rates; (4) changes in the Company’s accounting assumptions that may be required by regulatory agencies, including the SEC, or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and (5) the extent, timing, success and overall effects of competition from others in the Puerto Rico telecommunications service industry.

CRITICAL ACCOUNTING POLICIES

General

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States for annual financial statements have been condensed or omitted pursuant to such rules and regulations.

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported interim amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, income taxes, financing operations, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its condensed consolidated financial statements.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Because of uncertainties inherent in the estimation process, the Company’s estimate of losses and the related allowance may change. The Company does not depend on any single customer for its business.

Deferred Taxes

The Company uses an asset and liability approach in accounting for income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for temporary differences between the way certain income and expense items are reported for financial reporting purposes and for tax purposes.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period in which such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

As provided by law, the Puerto Rico Treasury Department is currently conducting an ordinary audit of our corporate income tax returns. We do not expect the results of this audit to have a material impact on the Company’s financial condition and result of operations.

Property, Plant and Equipment and Depreciation

Property, plant and equipment is stated at original cost, plus interest on funds borrowed to finance capital additions. Repair and maintenance costs are expensed as incurred. Depreciable property disposed of in the ordinary course of business, less any salvage value, is charged to accumulated depreciation with no gain or loss recognized. Gains or losses from the sale of land are recorded in the Company’s consolidated statement of operations.

The Company’s depreciation expense is based on the composite group remaining life method using straight-line composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant over the remaining asset lives. This method also requires a periodic evaluation of the average remaining useful lives related to the expected recoverability of the carrying value of assets based on changes in technology, environmental factors, the federal and local regulatory environment, industry and other competitive forces. Effective July 1, 2002, the Company revised its accounting estimates relating to depreciation based on a detailed review of the lives underlying the depreciation rates. The depreciation rate revisions reflect expected useful lives resulting from the impact of technology and future competition and more closely approximate the assumptions used by other telephone companies. These revisions resulted in a decrease in depreciation expense of approximately $12 million for the year ended December 31, 2003. The Company is currently undergoing its periodic review of plant useful lives estimates. See Note 5 to the unaudited condensed consolidated financial statements for further details.

RESULTS OF OPERATIONS

The Company has two reportable segments, Wireline and Wireless. See Note 17 to the unaudited condensed consolidated financial statements for additional information on the Company’s segments. Reclassifications of prior period’s data have been made to conform to the current period’s presentation.

The Wireline segment consists of:

	•		Local services, including basic voice, telephone and telecommunications equipment rentals, value-added services, high-speed private line services, Internet access and public phone service;

	•		Long distance services including direct dial on-island and off-island, operator assisted calls, prepaid calling card and high-speed private line services;

	•		Access services to long distance carriers, competitive local exchange carriers, and cellular and paging operators to originate and terminate calls on the Company’s network;

	•		Directory publishing rights services; and

	•		Telecommunication equipment sales and billing and collection services to competing long distance operators in Puerto Rico.

The Wireless segment consists of:

	•		Cellular services; and

	•		Wireless equipment sales.

REVENUES


	Three Months Ended June 30,								Six Months Ended June 30,
	2004				2003				2004				2003
	(In millions)								(In millions)
WIRELINE:
Local	$	137	44	%	$	148	45	%	$	273	43	%	$	293	45	%
Network Access		73	23			78	24			147	23			160	25
Long Distance		34	11			34	11			72	12			67	10
Directory and Other		16	6			17	5			33	5			32	5

Total Wireline		260	84	%		277	85	%		525	83	%		552	85	%

WIRELESS:
Postpaid Cellular		42	13			40	12			85	14			80	12
Prepaid Cellular		6	2			7	2			11	2			14	2

Total Cellular		48	15			47	14			96	16			94	14
Wireless Equipment		4	1			3	1			8	1			6	1

Total Wireless		52	16	%		50	15	%		104	17	%		100	15	%

Revenues	$	312	100	%	$	327	100	%	$	629	100	%	$	652	100	%

EXPENSES AND CHARGES


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)						(In millions)
WIRELINE:
Labor and benefits	$	86		$	92		$	177		$	187
Other operating expenses		25			105			98			174

Total Wireline		111			197			275			361

WIRELESS:
Labor and benefits		7			8			15			16
Other operating expenses		29			31			58			59

Total Wireless		36			39			73			75

OPERATING COSTS AND EXPENSES		147			236			348			436

OTHER:
Voluntary separation and retirement provision		—			3			2			5
Depreciation and amortization		66			63			130			123
Interest expense and others		11			14			22			24
Equity income in joint venture		(1	)		(1	)		(1	)		(1	)
Minority interest in consolidated subsidiary		1			—			1			1
Income tax (benefit) expense		34			4			49			24
Cumulative effect of accounting change		—			—			—			(59	)

Net income	$	53		$	8		$	78		$	99

OPERATING DATA


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Access Lines in Service (000’s):
Residential		909		953		909		953
Business		285		297		285		297

Total		1,194		1,250		1,194		1,250
Cellular Customers (000’s):
Postpaid		246		233		246		233
Prepaid		103		120		103		120

Total		349		353		349		353

Postpaid Cellular Average Revenue Per Unit (ARPU)	$	49	$	53	$	50	$	52
Prepaid Cellular ARPU		17		19		16		20
Combined Cellular ARPU		40		41		39		41

QUARTER ENDED JUNE 30, 2004 COMPARED WITH QUARTER ENDED JUNE 30, 2003

REVENUES. Revenues for the quarter ended June 30, 2004 decreased $15 million, or 5%, to $312 million from $327 million for the same period in 2003.

WIRELINE:

Wireline revenues include local service, network access, long distance, directory and other revenues. Wireline revenues for the quarter ended June 30, 2004 decreased $17 million, or 7%, to $260 million from $277 million for the same period in 2003.

Local service revenues include revenues from basic voice, telephone and telecommunications equipment rental, value-added services, high-speed private line services, Internet access, and public phone service. Local service revenues for the quarter ended June 30, 2004 decreased $11 million, or 8%, to $137 million from $148 million for the comparable 2003 period. The decrease is due to decreased revenues from local voice services of $10 million and decreased revenues from local data services of $1 million. The decrease in revenues from local voice services was driven by a decrease in revenues from basic voice services of $10 million mainly due to lower access lines. The decrease in local data services was driven by a decrease in high speed special services of $2 million due to a rate reduction, which was partially offset by an increase in Internet access revenues of $1 million due to an increase in internet customers.

Network access revenues include revenues from services provided to long distance carriers, competitive local exchange carriers, and cellular and paging operators to originate and terminate calls on our network. These revenues for the quarter ended June 30, 2004 decreased $5 million, or 7%, to $73 million compared to $78 million for the same 2003 period. The decrease was driven by a decrease in intra-island access revenues of $7 million due to the implementation of the first, second and third phase rate reduction required by the TRB in its Resolution and Order issued on February 28, 2002 (the “February 2002 Order”), which was offset in part by an increase in off-island switching revenues of $2 million. See “Regulatory and Other Matters – Intra-Island Long Distance Access Rate Dispute”

WIRELESS:

Revenues from cellular services and related equipment sales for the three months ended June 30, 2004 increased $2 million, or 4%, to $52 million from $50 million for the comparable 2003 period.

Cellular service revenues for the quarter ended June 30, 2004 increased $1 million, or 2%, to $48 million from $47 million for the same period in 2003. The increase was primarily the result of an increase of 13,000 post paid cellular customers for the second quarter of 2004 compared to the same period in 2003 due to attractive price plans and the implementation of marketing strategies to align the Company’s product and service offerings with those of Verizon Wireless in the United States.

Revenues from wireless equipment sales increased $1 million, or 33%, to $4 million for the quarter ended June 30, 2004 from $3 million for the comparable 2003 period. This increase is a result of postpaid contract renewals.

OPERATING COSTS AND EXPENSES. Operating costs and expenses for the quarter ended June 30, 2004 decreased $89 million, or 38%, to $147 million from $236 million reported for the same period in 2003.

WIRELINE:

Wireline expenses for the quarter ended June 30, 2004 decreased $86 million, or 44%, to $111 million from $197 million for the same period in 2003.

Labor and benefit expenses for the quarter ended June 30, 2004 decreased $6 million, or 7%, to $86 million from $92 million for the same period in 2003, which was due to a decrease in salary expense of $4 million and a decrease in expatriate expenses of $1 million resulting from a headcount reduction for the quarter ended June 30, 2004 compared to the same period in 2003 and a decrease in contractor expenses of $1 million as part of cost-containment initiatives.

Other operating expenses for the quarter ended June 30, 2004, decreased $80 million, or 77%, to $25 million from $105 million for the same period in 2003. The decrease was primarily due to $29 million associated with the write-off of the billing software system abandoned by the Company and recognized for the quarter ended June 30, 2003, the partial reversal of $43 million of the pre-tax reserve for the end-user and AT&T refund referred to in the February 2002 Order, a decrease in management fees of $4 million as the Verizon Management and Technology License Agreement expired on March 2, 2004 and a decrease in bad debt expense of $2 million. See “-Regulatory and Other Matters – Intra-Island Long Distance Access Rate Dispute.”

WIRELESS:

Wireless expenses for the quarter ended June 30, 2004 decreased $3 million, or 8%, to $36 million from $39 million for the same period in 2003.

Labor and benefit expenses for the quarter ended June 30, 2004 decreased $1 million, or 13%, to $7 million from $8 million for the same period in 2003, which was due to a decrease in salary expenses and expatriate expenses of $1 million resulting from a headcount reduction for the quarter ended June 30, 2004 compared to the same period in 2003.

Other operating expenses for the quarter ended June 30, 2004 decreased $2 million, or 7%, to $29 million from $31 million for the comparable 2003 period. The decrease was due to a decrease in management fees of $1 million due to the expiration of the Verizon Management and Technology License Agreement on March 2, 2004 and a decrease in cellular roaming expense of $1 million.

EARLY RETIREMENT AND VOLUNTARY SEPARATION PROVISIONS. In January 2004, 19 qualified management employees accepted the early retirement program offered by the Company in December 2003, which resulted in a provision of $1.6 million.

During the second quarter of 2003, 191 union employees accepted a combined voluntary separation program and retirement program offered by the Company that closed on June 20, 2003 and June 30, 2003, respectively, which resulted in a provision of $3.3 million.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense of $66 million for the quarter ended June 30, 2004 was $3 million higher than for the comparable 2003 period. The increase in depreciation and amortization expense is mainly due to an increase in depreciation expense related to the TDMA and CDMA networks resulting from the 2003 management decision to migrate in 2004 all TDMA clients to the CDMA and an increase in software amortization expense.

INTEREST EXPENSE. Interest expense of $11 million for the quarter ended June 30, 2004 was $3 million lower than for the comparable 2003 period due to a decrease in capitalized interest of $3 million associated with the write-off of the billing software system which was abandoned by the Company and recognized for the quarter ended June 30, 2003.

EQUITY INCOME FROM JOINT VENTURE. Equity income from joint venture for the quarter ended June 30, 2004 remianed constant at $1 million in comparison with the same period in 2003. This equity income was generated from our 24% interest in VISI, the largest yellow page publishing company in Puerto Rico.

INCOME TAXES. A $34 million tax provision for the quarter ended June 30, 2004 reflects a 39% effective and statutory tax rate.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003.

REVENUES. Revenues for the six months ended June 30, 2004 decreased $23 million, or 4%, to $629 million from $652 million for the same period in 2003.

WIRELINE:

Wireline revenues include local service, network access, long distance, directory and other revenues. Wireline revenues for the six months ended June 30, 2004 decreased $27 million, or 5%, to $525 million from $552 million for the same period in 2003.

Network access revenues include revenues from services provided to long distance carriers, competitive local exchange carriers, and cellular and paging operators to originate and terminate calls on our network. These revenues for the six months ended June 30, 2004 decreased $13 million, or 9%, to $147 million compared to $160 million for the same period in 2003. The decrease was driven by a decrease in intra-island access revenues of $12 million due to the implementation of the first, second and third phase of the rate reductions required by the TRB in the February 2002 Order.

Long distance revenues include direct dial on-island and off-island, operator-assisted calls, prepaid calling cards and on-island private line long distance revenues. Long distance revenues for the six months ended June 30, 2004 increased $5 million, or 8%, to $72 from $67 million for the same 2003 period. The increase was due to an increase in on-island private line revenues of $6 million resulting from an increase in the client base, which was partially offset by a decrease in intra-island long distance revenues of $1 million due to a decrease in operator services revenue.

Directory and other revenues include revenues from directory publishing rights, telecommunication equipment sales and billing and collection services provided to competing long distance operators in Puerto Rico. Directory and other revenues for the six months ended June 30, 2004 increased $1 million, or 4%, to $33 million from $32 million for same period in 2003. The increase was mainly due to an increase in revenues from other services of $3 million due to an increase in unbundled network services, which was offset in part by a decrease in revenues from billing and collection services of $1 million and a decrease in revenues from wireline equipment sales of $1 million.

WIRELESS:

Revenues from cellular services and related equipment sales for the six months ended June 30, 2004 increased $4 million, or 4%, to $104 million from $100 million for the comparable 2003 period. Cellular service revenues for the six months ended June 30, 2004 increased $2 million, or 3%, to $96 million from $94 million for the same period in 2003. This increase was primarily the result of an increase of 13,000 post paid cellular customers for the six months ended June 30, 2004 compared to the same period in 2003 due to attractive price plans and the implementation of marketing strategies to align the Company’s product and service offerings with those of Verizon Wireless in the United States.

Revenues from wireless equipment sales increased $2 million, or 34%, to $8 million for the six months ended June 30, 2004 from $6 million for the comparable 2003 period. This increase is a result of postpaid contract renewals.

OPERATING COSTS AND EXPENSES. Operating costs and expenses for the six months ended June 30, 2004 decreased $88 million, or 21%, to $348 million from $436 million for the same period in 2003.

WIRELINE:

Wireline expenses for the six months ended June 30, 2004 decreased $86 million, or 24%, to $275 million from $361 million for the same period in 2003.

Labor and benefit expenses for the six months ended June 30, 2004 decreased $10 million, or 6%, to $177 million from $187 million for the same period in 2003, which was due to a decrease in salary expenses of $6 million and a decrease in expatriate expenses of $2 million as a result of a headcount reduction for the six months ended June 30, 2004 compared with the same period in 2003 and a decrease in contractor expenses of $2 million as part of cost-containment initiatives.

Other operating expenses for the six months ended June 30, 2004 decreased $76 million, or 44%, to $98 million from $174 for the same 2003 period. The decrease was due to the $29 million associated with the write-off of the billing software system which was abandoned by the Company and recognized for the six months ended June 30, 2003, the partial reversal of $43 million of the pre-tax reserve for the end-user and AT&T refund referred to in the February 2002 Order and a decrease in management fees of $7 million as the Verizon Management and Technology License Agreement expired on March 2, 2004. See "-Regulatory and Other Matters – Intra-Island Long Distance Access Rate Dispute.” These decreases were partially offset by higher interconnection charges of $5 million due to higher traffic.

WIRELESS:

Wireless expenses for the six months ended June 30, 2004, decreased $2 million, or 3%, to $73 million from $75 million for the same period in 2003.

Labor and benefit expenses for the six months ended June 30, 2004 decreased $1 million, or 7%, to $15 million from $16 million for the same period in 2003, which was due to a decrease in salary expenses, expatriate expenses and sick day payouts and disability expenses of $1 million as a result of a headcount reduction for the six months ended June 30, 2004 compared with the same period in 2003.

Other operating expenses for the six months ended June 30, 2004 decreased $1 million, or 2%, to $58 million from $59 million for the comparable 2003 period. The decrease was due to lower commission expenses of $1 million.

In January 2003, 29 qualified management employees accepted the voluntary separation program offered by the Company in December 2002, which resulted in a provision of $1.4 million. During the second quarter of 2003, 191 union employees accepted a combined voluntary separation program and retirement program offered by the Company that closed on June 20, 2003 and June 30, 2003, respectively, which resulted in an additional provision of $3.3 million.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense of $130 million for the six months ended June 30, 2004 was $7 million higher than for the comparable 2003 period. The increase in depreciation and amortization expense is mainly due to an increase in depreciation expense related to the TDMA and CDMA networks that resulted from the 2003 management decision to migrate in 2004 all TDMA clients to the CDMA and an increase in software amortization.

INTEREST EXPENSE. Interest expense of $22 million for the six months ended June 30, 2004 was $2 million lower than for the same 2003 period due to a decrease in capitalized interest of $3 million associated with the write-off of the billing software system which was abandoned by the Company and recognized for the six months ended June 30, 2003.

EQUITY INCOME FROM JOINT VENTURE. Equity income from joint venture for the six months ended June 30, 2004, remained constant at $1 million in comparison with the the same period in 2003. This equity income was generated from our 24% interest in VISI, the largest yellow page publishing company in Puerto Rico.

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY. The $1 million minority interest included in the Company’s results of operations for the six months ended June 30, 2004 reflects the 33% interest in Coqui.net, which is held by Popular, Inc., one of our shareholders.

INCOME TAXES. A $49 million tax provision for the six months ended June 30, 2004 reflects a 38.6% effective tax rate. The difference between the effective and the statutory tax rate of 39% equates to $2 million, primarily reflecting permanent differences related to recognition of equity income from the joint venture and amortization of tax deductible goodwill.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Under the provisions of SFAS No. 143, we are required to exclude costs of removal from our depreciation rates for assets for which the removal costs exceed salvage value. Accordingly, in connection with the initial adoption of this standard on January 1, 2003, we have reversed accrued costs of removal in excess of salvage value from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of an estimated gain of $117 million ($71 million after-tax). Effective January 1, 2003, we began expensing costs of removal in excess of salvage value for these assets in the period in which they are incurred.

Effective January 1, 2003, the Company changed its method of accounting for revenues from directory publishing rights and related expenses from the point-of-publication method to the amortization method. Although both methods fully comply with accounting principles generally accepted in the United States, the Company adopted the amortization method because it is becoming the industry standard. The cumulative effect of applying this accounting change to prior years was recognized as of January 1, 2003 as a one-time, non-cash loss of $17 million ($13 million, after tax).

LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED FINANCIAL CONDITION

SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003


	Six Months Ended June 30,
	2004			2003			Change
	(in Millions)
Net cash provided by (used in):
Operations	$	112		$	153		$	(41	)
Investing		(65	)		(63	)		(2	)
Financing		10			(104	)		114

OVERALL LIQUIDITY ASSESSMENT

The Company believes that cash provided by operations is sufficient to meet its working capital needs. At June 30, 2004, current assets exceeded current liabilities by $195 million. We believe our sources of funds, from operations and from readily available external financing arrangements, are sufficient to meet ongoing requirements related to operating, financing and investing activities. We expect that presently foreseeable capital requirements will continue to be financed through internally generated funds.

In March 2004, the Company’s $400 million bank note credit facility matured. On March 2, 2004, the Company entered into a new unsecured, undrawn $360 million 364-day revolving credit facility which matures in March 2005, as well as an undrawn $40 million working capital credit facility which matured in June 2004. In June 2004, the Company renewed the $40 million working capital credit facility with a maturity date of June 30, 2005. See Note 13 to the unaudited condensed consolidated financial statements for more detailed information.

OPERATIONS

Net cash provided by operating activities continued to be our primary source of funds. For the six months ended June 30, 2004, net cash provided by operating activities was $112 million compared to $153 million for the same period in 2003. The $41 million decrease was primarily due to a $8 million in collections under interconnection agreements, a $20 million increase in pension plan contributions due to the implementation of management’s strategy to fully fund the pension plans, a $3 million increase in early retirement and voluntary separation program payments and a $26 million decrease in collections directly associated with the decrease in revenues due to fewer access lines, which was offset in part by a $17 million decrease in income tax payments related to the increase in pension funding.

INVESTING

Net cash used in investing activities for the six months ended June 30, 2004 was $65 million compared to $63 million for the same period in 2003. The $2 million increase in cash used in investing activities was due to a $5 million decrease in proceeds from the sale of buildings and a $3 million decrease in capital expenditures and costs of removal as a result of decreased spending on specific software projects, as well as a general decrease in spending as the Company aligned its capital spending with softening demand for new wireline service.

We have invested approximately $1.2 billion from the date of the Acquisition through June 30, 2004 to expand and enhance our networks. Our planned capital expenditures for 2004 are approximately $160 million, which we expect to finance with internally generated funds.

FINANCING

Net cash provided by financing activities for the six months ended June 30, 2004 was $10 million, while net cash used in financing activities for the same period in 2003 was $104 million. We reduced outstanding debt, including capital leases by $30 million for the six months ended June 30, 2004 and $76 million for the same period in 2003. Borrowings under term credit facilities, working capital facilities and commercial paper decreased from $153 million at December 31, 2003 to $123 million at June 30, 2004 and from $323 million at December 31, 2002 to $247 million at June 30, 2003.

In the Acquisition, PRTA agreed to contribute cash or stock worth a total of $200 million as a capital contribution in five equal $40 million installments over five years beginning on March 2, 2000 to partially fund its underfunded pension and other post-employment benefit obligations. In March 2004, the Company received the fifth and final $40 million installment in cash from PRTA. See Note 15 to the unaudited condensed consolidated financial statements for more information.

The shareholders’ agreement requires the payment of dividends equal to at least 50% of our consolidated net income, payable quarterly to the extent that funds are legally available therefore. For the six months ended June 30, 2004, the Company did not pay any dividends. In the first quarter of 2004, however, the Company declared dividends in the amount of $12 million, which were not paid until July 2004. For the six months ended June 30, 2003, the Company paid dividends in the amount of $68 million, which were declared in the first quarter of 2003 and the fourth quarter of 2002. The senior notes indentures and credit facility agreements do not contain restrictions on the payment of dividends.

OFF-BALANCE SHEET ARRANGEMENTS

The Company currently does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table provides a summary of our contractual obligations and commercial commitments at June 30, 2004. Additional detail about these items is included in the notes to the unaudited consolidated financial statements.


Contractual Obligations &
Other Commercial Commitments:	Payments Due In Period
	(Dollars in Millions)
	Total		2004		2005		2006		2007		2008		Thereafter
Long Term Debt, including interest rate swap	$	705	$	—	$	—	$	405	$	—	$	—	$	300
Term Credit Facilities		123		—		123		—		—		—		—
Pension Benefit Obligations		423		153		141		89		32		8		—
Operating Leases		47		12		10		7		4		2		12

Total	$	1,298	$	165	$	274	$	501	$	36	$	10	$	312

REGULATORY AND OTHER MATTERS

REGULATORY AND COMPETITIVE TRENDS

Regulatory activity at the federal and local levels has been primarily directed at meeting challenges in maintaining support for local exchange rates and Universal Service while affecting the rate rebalancing and regulatory restructuring required by an increasingly competitive environment. Among the issues generating regulatory activity are: local number portability requirements, interconnection agreements, the FCC’s triennial review and the elimination of reverse toll billing.

We continued to meet the wholesale requirements of new competitors and have signed agreements with wireless and wireline carriers. These agreements permit them to purchase unbundled network elements, to resell retail services, and to interconnect their networks with ours.

INTRA-ISLAND LONG DISTANCE ACCESS RATE DISPUTE

On February 28, 2002, the TRB issued the February 2002 Order with respect to the reconsideration requested by the Company of the TRB’s October 10, 2001 order to reduce the access rates the Company charges to long distance carriers to originate and terminate intra-island long distance calls on the Company’s network.

The February 2002 Order requires new rates for intra-island access to be implemented through phased-rate reductions over four years. The prospective access rate reductions (on a two-way basis) were ordered to go into effect on April 1st of each year as follows:

April 2002: From 9.3 cents per minute to 7.9 cents per minute

April 2003: From 7.9 cents per minute to 6.5 cents per minute

April 2004: From 6.5 cents per minute to 5.0 cents per minute

April 2005: From 5.0 cents per minute to 2.1 cents per minute

The February 2002 Order also requires PRTC to pay a $68 million refund to end-user customers. The TRB calculated this amount based on the difference between the 9.3 cents and 7.9 cents rate for TRB-estimated traffic from the period beginning on April 1, 2000 through March 31, 2002. PRTC was allowed to pay the refund in 12 equal quarterly installments beginning on April 1, 2002. The Company filed with the Puerto Rico Circuit Court of Appeals (the “Court”) an appeal of the February 2002 Order in which the Company alleged that the TRB made errors of law and procedure in its determination of access charges and its order requiring the Company to pay the cash refund. On March 27, 2002, the Court stayed the refund and the rate reduction until the hearing of the appeal.

On April 2, 2002, AT&T, Sprint and TLD (the “Carriers”) filed a petition with the Court for review of the February 2002 Order, requesting that the Court order the rate reduction without a phase-in period, remand the case back to the TRB, direct the TRB to calculate the refund from the period beginning on April 1997 instead of April 2000, and require that the refund be paid to the Carriers instead of end-user customers.

The hearing involving oral presentations by the parties was held on February 19, 2003. On April 22, 2003, the parties filed their corresponding post-hearing final briefs submitting the case for adjudication. On August 19, 2003, the Court issued its final decision on the proceeding confirming the February 2002 Order in all respects and rejecting the claims of PRTC and the Carriers. On September 4, 2003, PRTC requested reconsideration of the Court’s determination on the grounds that although the Court correctly described the applicable legal standards, it erred in applying those standards to the facts of the case. On October 2, 2003, the Court denied PRTC’s reconsideration. As a result of the Court’s decision, the Company established a pre-tax reserve of $73 million, including interest, in September 2003 for the end-user and AT&T refund referred to in the February 2002 Order. This reserve is in addition to the reserve established in connection with the stay of the February 2002 Order on Reconsideration issued by the Court.

On October 30, 2003, the Company filed a petition for a writ for certiorari before the Puerto Rico Supreme Court challenging the $68 million refund portion of the February 2002 Order. The prospective phase down portion of the February 2002 Order was settled with certain major carriers and implementing tariffs were filed with the TRB as discussed below.

In November 2003, the Company proposed, and two members of the TRB indicated their support for an integrated plan to revise the refund portion of the February 2002 Order and end the dispute over this issue. First, PRTC filed tariffs

implementing the reduction in intra-island access charges ordered by the TRB in its February 2002 Order. The composite per minute access rate was reduced from 9.3 cents to 6.5 cents on January 1, 2004 and to 5.0 cents on April 1, 2004, and will decrease to 2.1 cents on April 1, 2005. Second, PRTC agreed to implement a phased reduction in the number of local exchange calling areas from 68 to 10, the first phase of which became effective in February 2004, coupled with the deferred implementation of a flat charge designed to offset the resulting revenue losses. Five of the 10 new calling zones have been implemented, and the remaining five zones will be implemented by the end of October, 2004. Third, the plan included a number of other elements benefiting consumers: elimination of touchtone charges; one-time credits for single line residential customers equal to their basic monthly service rate in December 2003 and June 2005; and a commitment not to raise residential rates through December 2006 without providing certain information to the TRB in advance. While the TRB has indicated their support to these commitments, it has not issued a final resolution and order to terminate the refund provisions in the Order. The plan’s impact on cash flow for 2003 was a reduction of $16 million in the pre-tax reserve associated with the December 2003 single line of credit refund.

On February 4, 2004, Centennial filed with the Puerto Rico Supreme Court an opposition to PRTC’s petition requesting that the Court hold the case in abeyance until the TRB issued a Resolution and Order confirming the commitments which were negotiated in November 2003. On April 6, 2004, Centennial filed a motion to dismiss the petition, arguing that the settlement between the TRB and PRTC rendered the case moot. In the alternative, Centennial also argued that the TRB lacks jurisdiction to modify the refund portion of the February 2002 Order, pending the petition for certiorari before the Puerto Rico Supreme Court. As such, Centennial claimed that the commitment negotiated in November 2003 with respect to the $68 million refund was null and void. On April 15, 2004, PRTC responded to and opposed Centennial’s filing.

On April 23, 2004, PRTC and Centennial entered into a settlement agreement relating to PRTC’s petition. On April 29, 2004, PRTC and Centennial jointly filed a motion with the Puerto Rico Supreme Court, providing notice of the settlement. Centennial withdrew its opposition to PRTC’s petition and on April 30, 2004, the Puerto Rico Supreme Court issued a Resolution denying PRTC’s petition for certiorari on the grounds of mootness.

EXTENDED AREA SERVICE (EAS) LOCAL CALLING ZONE DISPUTE

In December 2003, AT&T and Sprint, (and later TLD) challenged PRTC’s actions in implementing the reduction of calling areas before the TRB, and sought an injunction to further reductions in the number of calling areas. PRTC has opposed the request for the injunction and intends to fulfill its commitments to the TRB. The TRB considered the matter in a hearing which was held on April 28, April 30 and May 3, 2004 and determined that the carriers’ request for injunctive relief should not proceed. The TRB allowed PRTC to implement its EAS Phase IV, which covers Puerto Rico’s east area, as scheduled on May 4, 2004, but ordered a stay to suspend the next pahase of the EAS implementation until an investigation is completed.

On May 6, 2004, PRTC submitted to the TRB and to the carriers a proposed expedited schedule in an effort to resolve the investigation prior to the next phase of the EAS implementation, which was scheduled for June 7, 2004 and covers Puerto Rico’s metro area. A hearing on the investigation was held on June 2, 2004.

After the hearing, the TRB terminated the stay it had issued and allowed PRTC to continue to the next phase of the EAS implementation, subject to the satisfaction of certain customer information and data collection requirements relating to the impact of the EAS implementation on measured service customers.

As a result of the TRB’s determination subsequent to the hearing of June 2, 2004, the Company reduced the reserve originally established on September 2003, mentioned above, to $14 million.

As of July 2004, the Company has implemented six phases among the major metropolitan areas with the remaining four phases scheduled for completion in 2004.

CARRIER ACCESS BILLING

During the first and second quarters of 2003, certain carriers made a series of billing claims against the Company regarding tariff interpretation, traffic routing at the network level and misclassification of access traffic for determination of applicable access elements.

The Company entered into negotiations with the major carriers and settled the billing claims and phased-rate reductions required by the February 2002 Order. The Company does not believe that the impact of these settlements will have a material effect on the Company’s results of operations.

PUBLIC TELEPHONE SERVICE PROVIDER – ANTI COMPETITIVE ACTIONS

On November 8, 2001, Teléfonos Públicos de Puerto Rico, Inc. (“TPPR”), the largest competitive provider of public pay phones in Puerto Rico filed a lawsuit against us in the United States District Court of Puerto Rico, claiming predatory, exclusionary and anticompetitive acts and seeking $75 million in damages. We filed a motion to dismiss the lawsuit and are awaiting a decision from the court. The lawsuit is currently in the discovery stage.

Pan American Telephone, Inc., Intouch Telecommunications, Inc., and Choicetel Communications, Inc., three other competitive providers of public pay phones in Puerto Rico, also filed a similar lawsuit against us in the United States District Court of Puerto Rico on September 4, 2002 on the same grounds. On November 8, 2002, after having evaluated and determined that this lawsuit is similar to TPPR’s lawsuit, we filed a motion to dismiss the lawsuit and/or in the alternative to consolidate the lawsuit with TPPR’s lawsuit. The Court dismissed PRTC’s motion to dismiss without prejudice. However, the motion for consolidation has not yet been resolved.

On August 16, 2002, PSA, the parent company for Phoenix of Puerto Rico, filed a lawsuit against PRTC in the United States bankruptcy court in the District of Delaware, claiming anti competitive acts. The claims have since been transferred to the United States District Court of Delaware and the disputes between the two parties include PRTC’s amended administrative claim against PSA, and PSA’s complaint for over $9 million against PRTC. PRTC’s motion to change venue to Puerto Rico was granted by the United States District Court of Delaware and the motion to dismiss is currently pending before the United States District Court of Puerto Rico.

The Company’s management believes that all of these claims are without merit.

PUERTO RICO DEPARTMENT OF EDUCATION (THE “PRDOE”) DEBT

On June 30, 2003, PRTC filed a complaint against the PRDOE with the Puerto Rico Superior Court, seeking collection of fees due for services rendered under the PRDOE’s Reeducate Program, which is based on the Federal E-Rate Program, from 1999 to June 30, 2003. The Reeducate Program funds Internet connections for schools throughout Puerto Rico and PRTC has provided contracted services to the PRDOE. Based on PRTC’s review of its service rendered under the Reeducate Program, the outstanding amount that PRDOE currently owes to PRTC is $34 million. Under the E-Rate program, 89% of this amount is to be paid by the FCC’s School & Libraries Division (“SLD”), which administers the Federal E-Rate Program, if the funding for the fourth and fifth years under the program is released. PRTC is currently evaluating the outstanding amounts owed by PRDOE for the third year under the program, which is approximately $1.2 million, after SLD paid its corresponding percentage (87%) under the program.

On March 4, 2004, PRTC filed a motion to dismiss the complaint based on an agreement with the PRDOE to attempt to settle the amounts owed out of court. On March 24, 2004, the court dismissed the case without prejudice.

In November 2003, the FCC directed SLD to audit the PRDOE’s compliance with the E-Rate program rules as well as billings for the Reeducate Program for years one through three of the program before the funds will be released. The audit of the PRDOE began on May 15, 2004. The auditor has contacted PRTC and PRTC is cooperating with the audit. There is no scheduled timetable for the completion of the audit process. Upon completion of that audit, SLD will determine if any need exists to recover any, or all, of the funds that were distributed during those years to the PRDOE and its vendors, including PRTC.

On June 17, 2004, the United States House Energy and Commerce Committee Subcommittee on Oversight and Investigations held a hearing entitled “Problems with the E-Rate Program: Waste, Fraud, and Abuse Concerns in the Wiring of Our Nation’s School’s to the Internet”. Representatives from PRTC, as well as representatives from the PRDOE testified at the hearing.

TOUCHTONE CHARGES

On November 17, 2003, six residential subscribers and eight business service subscribers filed a class action suit with the Superior Court of Puerto Rico (the “Superior Court”) under the Puerto Rico Telecommunications Act of 1996 (“Act”) and the Puerto Rico Class Action Act of 1971. The plaintiffs have claimed that the Company’s charges for touchtone service are not based on cost, and are therefore in violation of the Act. The plaintiffs have requested that the Superior Court (i) issue an order certifying the case as a class action, (ii) designate the plaintiffs as representative of the class, (iii) find that the charges are illegal, and (iv) order the Company to reimburse every subscriber for excess payments made since September 1996. On December 30, 2003, PRTC filed its answer to the complaint and requested dismissal on the grounds that the claim is not a legitimate class action suit. On February 17, 2004, the plaintiffs filed their first set of interrogatories and request for admissions to initiate discovery. PRTC will ask the Superior Court to first decide the threshold issue of class certification. On February 23, 2004, the Superior Court issued an order scheduling a status conference for April 30, 2004.

At the hearing, the Superior Court ruled that at this stage of the proceedings the discovery process would be addressed, but not limited to the determination of the class. Therefore, PRTC was ordered to submit responses to the plaintiffs’ request for admissions and to their first and second sets of interrogatories. PRTC submitted its responses to the plaintiffs’request for admissions and to their first and second sets of interrodatories on July 6 and July 16, 2004, respectively. Disagreeing with the Superior Court’s decision ordering PRTC to submit responses to the discovery on the merits without having certified the class, PRTC filed a writ of certiorari with the Puerto Rico Court of Appeals seeking reversal of the Superior Court’s order allowing unlimited discovery including class certification on July 16, 2004.

CTI ASSET TRANSFER

Prior to the Acquisition, PRTC transferred its net wireless assets on September 1, 1998 to CTI (which became Verizon Wireless, a division of PRTC, on May 1, 2002). Our predecessors later filed a waiver request in 1998 with the FCC to record this transfer at book value instead of fair value. Since our predecessors had not included the costs of wireless operations in the regulated rate setting process, we believe that ratepayers did not bear the cost of our predecessors’ wireless investment.

The FCC denied the Company’s petition in April 2001, but recognized that while there were questions concerning certain costs and expenses, the cellular and paging assets had been removed from the interstate rate base.

In the February 2002 Order, the TRB provided that any prospective rate increase must first be applied against the gain from the wireless asset transfer, equating to $56 million applicable to intrastate. We plan to contest this position based on the fact that the wireless entity was set up after the last regulated intrastate rate increase in 1982 and therefore these costs were not included in setting such rates.

Currently, the TRB is performing an agreed upon procedures audit, which includes an audit of the CTI asset transfer. The audit is the field work stage. While we believe that the resolution of this matter and any related proceedings will not have a material effect on the Company’s financial condition and results of operations, we cannot predict the effect of any further regulatory actions.

PRICE CAP REGULATION

Under the FCC’s “all or nothing” rule, telecommunications carriers that set interstate access rates based on a price cap formula are required to use the price cap formula for all of their affiliates. The price cap formula is based on a plan adopted by the FCC called Coalition of Affordable Local and Long Distance Service (“CALLS”), which uses rate-of-return as a basis for setting rates. The Company would have been required to implement price caps by March 2, 2000 under the FCC’s rules. Prior to March 2, 2000, the Company had set its interstate access rates based on rate-of-return principles.

However, the FCC delayed conversion to price cap regulation until June 30, 2002, and the Company requested an extension until June 30, 2003. Under an order issued by the FCC on April 18, 2002, the Company is no longer required to file a waiver request until the FCC completes its review of the “all-or-nothing” rule. In addition, upon the issuance of an Order and Second Further Notice of Proposed Rulemaking (the “Order”) by the FCC on February 28, 2004, the FCC deferred further action on the all-or-nothing rule until it reviews the record compiled in response to the further notice included in the Order. Additionally, in the Order the FCC stated that all outstanding interim waivers of the all-or-nothing rule that depend on the FCC’s decision shall continue to be effective until the issues a final order on this matter. As a result, the Company currently continues to set its interstate access rates based on rate-of-return principles.

On May 10, 2004, PRTC filed comments in response to the Order, requesting that the FCC eliminate the “all or nothing rule” or, in the alternative, if the rule is not eliminated, that the FCC grant PRTC’s 1999 waiver request to permit PRTC to remain a carrier that sets its interstate access rates based on rate-of-return priciples. The basis of PRTC’s request is that if PRTC were no longer eligible to receive Interstate Common Line Support (“ICLS”), PRTC would require $139 million in additional universal service support to offset lost ICLS revenues and that the CALLS plan cannot accommodate PRTC since there is a $650 million cap on the equivalent support in the CALLS plan, which was based on the anticipated universal service needs of price cap carriers that were participating in the plan at the time of its adoption. There has been no announcement on the expected timing for the completion of this proceeding.

INTERSTATE HIGH COST SUBSIDY

On October 21, 1999, the FCC adopted a new high cost loop support mechanism for non-rural companies, which has resulted in the phase out of the Company’s high cost loop subsidy revenues. The Company is classified as a non-rural telephone company under the United States Telecommunications Act of 1996. The Company’s high cost loop revenues were $49 million in 2000, $33 million in 2001 and $4 million in 2002. On February 28, 2003, PRTC sent a letter to the FCC, requesting that the FCC take action to restore the high-cost loop universal service support that the Company lost due to FCC policies adopted for non-rural telephone companies and arguing that the non-rural telephone company mechanism is based on cost characteristics of mainland telephone companies. PRTC requested that the FCC address the loss of its high cost loop universal service support by adopting rules for insular areas that are similar to those applied to rural carriers. If rural carrier rules were applied to PRTC it would continue to receive high cost loop support as it had prior to the adoption of the FCC’s 1999 rules for non-rural telephone companies. On October 27, 2003, the FCC issued an order rejecting PRTC’s request for reconsideration that it be considered a rural carrier. However, the order did not address, however, PRTC’s request to restore the high-cost universal service support based on the establishment of a new high cost loop support mechanism for insular carriers. On January 14, 2004, PRTC filed a petition for clarification and/or reconsideration of several portions of the FCC Order of October 27, 2003 on the grounds that the FCC has not acted upon the specific mandate of Section 254 to provide support for insular areas. No announcement has been made regarding the expected timing for addressing this issue.

TRB AGREED UPON PROCEDURES AUDIT

As required by law, the TRB is currently conducting an ordinary audit of our affiliate transactions and regulatory accounting. We do not expect the results of this audit to have a material impact on the Company’s financial condition and result of operations.

WORLDNET ARBITRATION PROCEEDING

Recently, an arbitrator resolved a dispute related to an interconnection contract between PRTC and WorldNet and rendered a decision which, among other things, requires PRTC to agree to contract terms establishing numerous service quality metrics, liquidated damages provisions, reduced prices for certain network elements, continuation of a high wholesale discount, certain Operational Support System parity standards, and certain requirements with respect to bundled services. PRTC is examining the impact of this decision. In accordance with the applicable rules, the parties have executed and filed the arbitrated contract with the TRB.

On June 7, 2004, PRTC filed a request for reconsideration of the TRB’s Resolution and Order which adopted the arbitrator’s decision. In addition, a request for stay of the new interconnection agreement until the reconsideration was finally resolved. At the same time, WorldNet also filed a request for reconsideration. On June 17, 2004, the TRB issued a Resolution and Order accepting both, PRTC and WorldNet’s, motions for reconsideration and notified the parties that a final decision on both motions would be issued within ninety days from the date of the filing, (i.e., by June 7, 2004). On June 25, 2004, PRTC’s motion for a stay was granted.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, see Note 4 to our unaudited condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

We are exposed to market risk in the normal course of business, resulting primarily from interest rate changes on our senior notes and interest rate swap agreements.

The following table summarizes the fair value of our senior notes and interest rate swap at June 30, 2004 and December 31, 2003 and provides a sensitivity analysis of the fair values of these instruments assuming a 100 basis point increase or decrease in the yield curve. The sensitivity analysis does not include the fair values of our floating-rate debt since it is not significantly affected by changes in market interest rates.


					Fair Value
					Assuming 100 Basis Point
	Book Value		Fair Value		Increase			Decrease
	(In thousands)
June 30, 2004:
Senior notes	$	699,859	$	746,100	$	725,599		$	767,451
Interest rate swap		620		620		(743	)		1,435

Total	$	700,479	$	746,720	$	724,856		$	768,886

December 31, 2003:
Senior notes	$	699,839	$	770,526	$	746,165		$	795,974
Interest rate swap		2,811		2,811		(467	)		6,133

Total	$	702,650	$	773,337	$	745,698		$	802,107

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the Company’s reports is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s chief executive officer and chief financial officer recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report (the “Evaluation Date”). They have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a defendant in various legal matters arising in the ordinary course of business. Management, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position and results of operations. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Other Matters”, which is incorporated herein by reference, for more information regarding legal and regulatory matters, including a regulatory dispute regarding intra-island access fees charged to long distance carriers.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

a) See Exhibit Index on page following signatures.

b) No reports on Form 8-K were filed during the quarter for which this report is filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TELECOMUNICACIONES DE PUERTO RICO, INC.


By:	/s/ Cristina M. Lambert

Name:		Cristina M. Lambert
Title:		President and Chief Executive Officer
Date:		August 16, 2004

By:	/s/ Adail Ortiz

Name:		Adail Ortiz
Title:		Vice President Finance and Chief Financial Officer
Date:		August 16, 2004

By:	/s/ Raúl E. García

Name:		Raúl E. García
Title:		Controller
Date:		August 16, 2004

EXHIBIT INDEX


EXHIBIT
NUMBER		DESCRIPTION
3.1		Certificate of Incorporation of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

3.2		Certificate of Amendment to the Certificate of Incorporation of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 (File 333-85503)).

3.3		By-Laws of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

4.1		Trust Indenture dated as of May 20, 1999 between Telecomunicaciones de Puerto Rico, Inc. and The Bank of New York. (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.1		Shareholders Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., Puerto Rico Telephone Authority and the shareholders of Telecomunicaciones de Puerto Rico, Inc., who shall from time to time be parties thereto as provided therein. (Incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.2		Amended and Restated Puerto Rico Management Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.3		Amended and Restated U.S. Management Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.4		Amended and Restated Technology Transfer Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.5		Non-Competition Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc, GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., Puerto Rico Telephone Authority, and the Government Development Bank for Puerto Rico. (Incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.6		Trust Agreement of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc., dated as of March 2, 1999, by and between U.S. Trust, National Association and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.12 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.7		ESOP Loan Agreement, dated as of March 2, 1999, by and between the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.13 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.8		Pledge Agreement, dated as of March 2, 1999, by and between the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).


EXHIBIT
NUMBER		DESCRIPTION
10.9		Tag Along Agreement, dated as of March 2, 1999, by and among GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, and the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.16 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

10.10		Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Merrill Lynch Money Markets Inc., as Dealer for notes with maturities up to 240 days; Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer for notes with maturities over 270 days up to 365 days. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).

10.11		Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Salomon Smith Barney Inc., as Dealer. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.26 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).

10.12		Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Banc of America Securities LLC. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).

10.13		Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Popular Securities, Inc., as Dealer for notes with maturities up to 365 days. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).

10.14		Issuing and Paying Agency Agreement dated as of November 9, 2000, by and among Telecomunicaciones de Puerto Rico, Inc., as Issuer, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).

10.15		Letter Amendment, to the March 2, 1999 Shareholders Agreement, dated as of May 25, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., and the Puerto Rico Telephone Authority. (Incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001 (File 333-85503)).

10.16		ISDA Master Agreement, dated August 29, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., as the Counterparty, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and Bank of America, N.A., as the Bank. (Incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-Q for the period ended September 31, 2001 (File 333-85503)).

10.17		ISDA Master Agreement, dated August 29, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., as the Counterparty, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and Citibank, N.A., as the Bank. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended September 31, 2001 (File 333-85503)).


EXHIBIT
NUMBER		DESCRIPTION
10.18		Plan of Reorganization and Agreement of Merger, dated as of May 1, 2002, between Puerto Rico Telephone Company, Inc. and Verizon Wireless Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).

10.19		$90,000,000 working capital revolving credit agreement dated as of May 16, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Banco Popular de Puerto Rico, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).

10.20		$50,000,000 2-Year term credit agreement dated as of May 16, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Banco Bilbao Vizcaya Argentaria, S.A., as Lender and Banco Bilbao Vizcaya Puerto Rico, as Administrative Agent. (Incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).

10.21		$50,000,000 2-Year term credit agreement dated as of May 31, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and HSBC Bank USA, as Lender. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).

10.22		$50,000,000 3-Year term credit agreement dated as of June 24, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Australia and New Zealand Banking Group Limited, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.29 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).

10.23		$75,000,000 3-Year term credit agreement dated as of August 19, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and The Bank of Nova Scotia, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 (File 333-85503)).

10.24		Letter Amendment to the $90 million working capital revolving credit agreement dated as of December 31, 2002. (Incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)).

10.25		Assignment and Acceptance agreement, dated as of December 31, 2002, relating to the $50 million 3-Year Term Credit Agreement, dated as of June 24, 2002. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)).

10.26		Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Union of Telephone Employees of Puerto Rico effective from January 18, 2003 until January 17, 2006. Approved on February 13, 2003. (Incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)). Second Allonge to the $90 million working capital revolving credit agreement dated as of June 30, 2003. (Incorporated by reference to Exhibit 10.31 of the Company’s Quarterly Report on

10.27		Form 10-Q for the period ended June 30, 2003 (File 333-85503)).

10.28		364-Day Credit Agreement dated as of March 2, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, the Initial Lenders named therein, Citibank, N.A., as Administrative Agent, Banco Bilbao Vizcaya Argentaria Puerto Rico, as Syndication Agent, and Banco Popular de Puerto Rico, Firstbank Puerto Rico and Scotiabank de Puerto Rico, as Co-documentation Agents. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (File 333-85503)).


EXHIBIT
NUMBER		DESCRIPTION
10.29		Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Brotherhood of Telephone Company Employees effective from January 1, 2004 until December 31, 2008. Approved on April 15, 2004. (Incorporated by reference to Exhibit 10.29 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File 333-85503)).

10.30		$40,000,000 working capital revolving credit agreement dated as of June 30, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor and Banco Popular de Puerto Rico, as Lender and Administrative Agent. (Filed herewith).

10.31		Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Union of Telephone Employees of Puerto Rico effective from January 18, 2003 until January 17, 2006. Approved on February 13, 2003. English Version. (Filed herewith).

10.32		Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Brotherhood of Telephone Company Employees effective from January 1, 2004 until December 31, 2008. Approved on April 15, 2004. English Version. (Filed herewith).

10.33		$30,000,000 1-Year term credit agreement dated as of May 17, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor and Banco Bilbao Vizcaya Argentaria Puerto Rico, as Administrative Agent. (Filed herewith).

31.1		Certification of Principal Executive Officer (Filed herewith).

31.2		Certification of Principal Financial Officer (Filed herewith).

32.1		Certification Required by 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

TELECOMUNICACIONES DE PUERTO RICO INC 10-Q