<PAGE>

===============================================================================

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                  For the fiscal year ended: DECEMBER 31, 2002

                                       Or

         [ ] 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 Ave.
          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)

Securities registered pursuant to Section 12(b) of the Act:

     Title of Each Class              Name of Each Exchange on Which Registered
------------------------------       -------------------------------------------
            None                                         None

Securities registered pursuant to Section 12(g) of the Act:

            None
  -------------------------
       Title of Class

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 [ ]

                                       1

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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

                                    YES [ ] NO [X]

The aggregate market value of Telecomunicaciones de Puerto Rico, Inc. voting
stock held by non-affiliates at March 25, 2003 amounted to approximately $41
million. This amount represents the Employee Stock Ownership Plan ("ESOP")
vested shares at a stated price of $45.9364 established in a share option
agreement entered into at the time of the Acquisition. See the Business and
Security Ownership of Certain Beneficial Owners sections for details of the
Acquisition and Corporate Restructuring and Share Ownership.

Telecomunicaciones de Puerto Rico, Inc. had 25 million shares of no par common
stock outstanding at March 25, 2003.

================================================================================

                                       2

<PAGE>

                                      INDEX

<TABLE>
<S>           <C>
PART I

    Item 1.   Business

    Item 2.   Properties

    Item 3.   Legal Proceedings

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

PART II

    Item 5.   Market for Registrant's Common Equity and Related Stockholder
              Matters

    Item 6.   Selected Financial Data

    Item 7.   Management's Discussion and Analysis of Financial Condition and
              Results of Operations

    Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

    Item 8.   Financial Statements and Supplementary Data

    Item 9.   Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure

PART III

    Item 10.  Directors and Executive Officers of the Registrant

    Item 11.  Executive Compensation

    Item 12.  Security Ownership of Certain Beneficial Owners and Management

    Item 13.  Certain Relationships and Related Transactions

    Item 14.  Controls and Procedures

PART IV

    Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
</TABLE>

                                       3

<PAGE>

ITEM 1.  BUSINESS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     In this Form 10-K, the Company has made forward-looking statements. These
statements are based on Company 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; (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 our accounting policies that may be required by regulatory agencies,
including the Securities and Exchange Commission ("SEC") or that result from
changes in the accounting policies 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.

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 December 31, 2002, we had approximately 1.3
million access lines in service, including 957,000 residential and 303,000
business lines. Since November 2001 we have been marketing our cellular brand as
Verizon Wireless as part of a strategy to align our service offering with
Verizon Wireless in the U.S.

     We have invested approximately $900 million from the date of the
Acquisition (as defined below) through year-end 2002 to expand and enhance our
networks. In 2003, we expect to invest up to $190 million in capital
expenditures. Our digital switching wireline network encompasses over 83,000
fiber miles with speeds of up to OC-192 and supplies direct fiber optic
connections to more office buildings than any other service provider on the
island. Our cellular network utilizes the time division multiple access ("TDMA")
standard. We have invested approximately $60 million since 2001 in a new network
overlay using the code division multiple access ("CDMA") standard. We commenced
selling CDMA service in December 2001.

STRATEGY

     We expect to maintain our wireline market leadership position by improving
customer service, providing value, and meeting increasing customer bandwidth
requirements. We are focused on reducing service and repair provisioning, repair
intervals and improving the responsiveness of our customer care personnel.
Customer value will be delivered through bundled plans, including choices of
long distance, Internet, DSL, wireless access, and value-added local services,
such as caller ID, call forwarding and call waiting. Our network deployment
plans are designed to meet business and government expectation for dedicated
high-speed bandwidth access, as well as residential consumer demand for Digital
Subscriber Line ("DSL") service to enhance Internet access speed.

     Our wireless strategy is addressed at retaining our significant base of
postpaid cellular customers as well as targeting our competitors high-value
customers and people who do not yet use cellular service.

BUSINESS OVERVIEW AND CORPORATE RESTRUCTURING

     Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation (the
"Company"), 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 holds a 67% interest in Coqui.net Corporation
("Coqui.net"), in which Popular, Inc., one of our shareholders, holds the
remaining 33% interest, and the Company also holds a 25% interest in Verizon
Information Services Puerto Rico, Inc. S en C. ("VISI"),

                                       4

<PAGE>
in which GTE Holdings (Puerto Rico) LLC, our majority shareholder, 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 wireless services are
provided by Verizon Wireless, a division of PRTC. 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. The Company's directory publishing revenues
are generated by VISI.

     GTE Corporation ("GTE"), through its subsidiary GTE Holdings (Puerto Rico)
LLC, acquired a 40% interest in 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 a share option agreement, an agreement entered into at the
time of the Acquisition. As a result, Verizon owns 52%, Popular owns 13%, PRTA
owns 28% and the Employee Stock Ownership Plan ("ESOP") 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.

PRTC/VERIZON WIRELESS MERGER

     On May 1, 2002, the Company completed a tax-free reorganization whereby it
merged Verizon Wireless Puerto Rico, Inc. ("Verizon Wireless") into PRTC. Prior
to the merger, the Company created a new wholly owned subsidiary, PRTLD, to
carry the off-island long distance business previously provided by Verizon
Wireless. The objectives of the reorganization were to (i) integrate the
wireline and wireless operations without jeopardizing the continuity of the
off-island long distance license, (ii) simplify the overall corporate structure
to reduce administrative costs, and (iii) provide better control and monitoring
of the off-island long distance business and increase its potential for growth
in Puerto Rico.

BUSINESS SEGMENTS

     We have two reportable segments, Wireline and Wireless. See Note 18 to the
consolidated financial statements for additional information on our segments.

     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 our network;

-    Directory publishing rights revenues; 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.

                                       5

<PAGE>

<TABLE>
<CAPTION>
REVENUES                                      YEARS ENDED DECEMBER 31,
                                               (DOLLARS IN MILLIONS)
                              ---------------------------------------------------------
                                       2002                2001               2000
                              ------------------  -----------------  ------------------
<S>                           <C>           <C>   <C>          <C>   <C>           <C>
WIRELINE:
Local                         $     578      45%  $     566     41%  $     554      40%
Long Distance                       146      11         186     13         170      12
Network Access                      325      25         355     25         389      28
Directory and Other                  67       5          84      6          86       6
                              ---------     ---   ---------    ---   ---------     ---

   Total Wireline                 1,116      86%      1,191     85%      1,199      86%
                              ---------     ---   ---------    ---   ---------     ---

WIRELESS:
Postpaid Cellular                   146      11         152     11         124       9
Prepaid Cellular                     27       2          25      2          24       2
Paging                                5      --          15      1          34       2
Wireless Equipment and Other          7       1          14      1          13       1
                              ---------     ---   ---------    ---   ---------     ---

  Total Wireless                    185      14%        206     15%        195      14%
                              ---------     ---   ---------    ---   ---------     ---

  Revenues                    $   1,301     100%  $   1,397    100%  $   1,394     100%
                              =========     ===   =========    ===   =========     ===
</TABLE>

     Reclassifications of prior years' data have been made to conform to the
2002 presentation. For further information refer to Note 2 to the consolidated
financial statements.

WIRELINE

LOCAL SERVICES

     OVERVIEW

     Local services include basic voice services, value-added services, special
services, Internet and data access, and deferred activation and installation
services. The following table shows the breakdown of residential and business
access lines in service, excluding public phones, direct inward dialed business
lines, wide area telecommunications services lines, private branch exchange
trunks, and cellular and paging customers:

                             ACCESS LINES IN SERVICE

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                   --------------------------------------
                                    2002            2001            2000
                                    ----            ----            ----
                                      (IN THOUSANDS EXCEPT PERCENTAGES)
<S>                                <C>             <C>             <C>
Residential                          957             965             974
Business/Government                  303             308             309
                                   -----           -----           -----
Total Access Lines in Service      1,260           1,273           1,283
                                   =====           =====           =====
Growth                              (1.0)%          (0.8)%           1.4%
</TABLE>

     BASIC VOICE SERVICE

     Basic voice service is the largest component of local service revenues,
generating $370 million or 28% of total revenues in 2002. Basic voice is a
regulated service and rate structures have not changed since 1982. Rates are
categorized as either residential or business/government and are further divided
into four zones based on town boundaries. Residential customers have a choice of
selecting an unlimited local calling plan or a measured service plan at a fixed
price of 13 cents per unit within a local calling area. There are currently 68
local calling areas. Business customers must select a measured service plan.

     The rate distribution for business/government customers varies slightly
ranging from $36.65 to $38.25 per month and $69.00 average revenue per user
("ARPU") when measured service is included. The unlimited local service plan for
residential customers varies significantly. San Juan and Ponce residential
customers in zone 1 pay $18.80 per month while customers on the rural area in

                                       6

<PAGE>

zone 4 pay $8.45 per month. Residential basic ARPU approximates $13.60 excluding
a Federal Communications Commission ("FCC") imposed subscriber line charge of
$6.00 per month to primary residential customers. For single-line business
customers the subscriber lines charge is also equal to $6.00 while $9.20 per
month is charged to multi-line business customers, as these revenues are
classified as access revenues. These rates also exclude other miscellaneous fees
for white-page directory listings and touch calling of approximately $1.50 per
month each.

     TELEPHONE RENTAL

     Approximately 55% of single-line businesses and 36% of residential
customers rent telephones, which generated $19 million in revenues in 2002.
Rental levels are high compared to U.S. mainland operators as we own the inside
wire in many customer's premises and must maintain the inside wire and phone.

     VALUE - ADDED SERVICES

     Value-added services include over 15 voice features, such as caller ID,
call waiting, and voice mail. Charges for these features range from $1.50 to
$6.25 per month and some of these features are also sold in discounted bundled
packages. Approximately 42% of our residential customers purchase at least one
service. Value-added revenues were $45 million in 2002, an increase of $1
million, or 2%, as compared to last year.

     SPECIAL SERVICES

     Special services include private high-speed dedicated lines marketed to
businesses for data transport. Revenues of $54 million in 2002 represented an
increase of $8 million, or 17%, over the prior year. The increase was mainly
driven by business demand for greater bandwidth.

     INTERNET ACCESS

     We market unlimited dial-up Internet access through the Coqui.net
Corporation under two brands (PRT.net and Coqui.net) which averaged $15 per
month for 2002. We generated $25 million of revenue in 2002 from 135,000 dial-up
Internet access customers at December 31, 2002, an increase of $2 million or
6,000 customers, or 9% in revenues and 5% in customers, over the prior year.

     PUBLIC PHONES

     Public telephone revenues in 2002 were $8 million, a decrease of $3
million, or 27%, from the prior year. This decrease is due to 2,000 fewer phones
as compared to last year as the Company continues to focus on higher margin
locations and to the customers traffic migration to the cellular network. We
believe we held less than 50% of the public phone market at December 31, 2002,
as measured by fourth quarter 2002 revenues.

NETWORK ACCESS

     Network access services are provided to long distance carriers, resellers,
other local exchange carriers, cellular and paging companies for the origination
and termination of calls to and from large local business customers. These
entities pay access charges based on specific agreements (which have durations
of one to three years). We also collect network access fees directly from our
customers from FCC-mandated line charges.

                                       7

<PAGE>

     Network access revenues for the years ended December 2002, 2001 and 2000
totaled $325 million, $355 million and $389 million, respectively, and included
the following amounts (in millions):

<TABLE>
<CAPTION>
                                                    2002     2001     2000
                                                    ----     ----     ----
<S>                                                <C>      <C>      <C>
-    Federal long-term support subsidies           $  86    $  91    $  90

-    Subscriber line charge                           91       61       59

-    Federal High Cost subsidies                       4       33       49

-    Per minute wireline access charges:

     -   On-island switched                           59       69       72
     -   Off-island switched & common
         carrier line                                 40       64       86
     -   Off-island special                           23       18       18
     -   Wireless interconnection                     22       19       15
                                                   -----    -----    -----

                                                   $ 325    $ 355    $ 389
                                                   =====    =====    =====
</TABLE>

     Long-term and High Cost federal subsidies are received through pooling
arrangements administered by the National Exchange Carriers Association
("NECA"). Subscriber line charge increased in 2002 due to an increase from $3.50
per month to $6.00 per month for primary residential and single line business
customers, while multi-line business customers monthly charge increased from
$6.00 to $9.20. This increase was offset by a decrease in off-island switched
and common carrier line charges. On October 21, 1999, the FCC adopted a new high
cost support mechanism, which has resulted in the phase out of the Company's
High Cost Subsidy revenues. These revenues have decreased since 1999. We
recorded revenues of $4 million in 2002, $33 million in 2001 and $49 million in
2000.

LONG DISTANCE

     Long distance revenues include direct dial on-island and off-island,
operator-assisted calls, prepaid calling cards and on-island private line
revenues. The following chart shows our minutes of use in the on-island and
off-island long distance market for the years ended December 31, 2002, 2001 and
2000, respectively:

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                    -------------------------------------
                                     2002           2001            2000
                                     ----           ----            ----
                                               (IN MILLIONS)
<S>                                  <C>           <C>              <C>
Long distance MOU:
On-island LD minutes                 811           1,021             976
Off-island LD minutes                171             191             149
</TABLE>

     Long distance revenues of $146 million in 2002 reflected a decrease of $40
million as compared with 2001. Due mainly to lower traffic as customers calling
migrate to cellular networks.

DIRECTORY SERVICES

     We received $20 million in publishing revenue in 2002 under a revenue
sharing arrangement with VNU World Directories, Inc. ("VNU"). VNU is the
publisher of white and yellow page directories distributed under the PRT brand
and there is no other significant competitive product in Puerto Rico. We entered
into a 95-year agreement in 1999 with Verizon Information Services, Inc. a joint
venture among VNU, Verizon, and ourselves which provides us a publishing right
of 35% of yellow page advertising revenues, plus billing and collection fees.

BILLING AND COLLECTION SERVICES

     We generated revenues of $13 million in 2002 from billing and collection
services primarily from AT&T and TLD, the two largest competitive off-island
long distance carriers. This is a decrease of $3 million from the prior year due
to lower retail long distance traffic as customer traffic migrates to cellular
technology. Both carriers generate roughly equal billing and collection volumes
and represented approximately 91% of total fees for 2002. The TLD and AT&T
contracts will expire in October 2003 and June 2004, respectively.

                                       8

<PAGE>

WIRELESS

                          CELLULAR AND PAGING CUSTOMERS

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                    ------------------------------------
                                    2002            2001            2000
                                    ----            ----            ----
                                     (IN THOUSANDS EXCEPT PERCENTAGES)
<S>                                 <C>             <C>             <C>
Cellular Customers:
Postpaid                             228             200             203
Prepaid                              123             102             132
                                     ---             ---             ---

Total Cellular Customers             351             302             335
                                     ===             ===             ===

Growth                                16%            (10)%            18%

Paging Customers                      16              49             126
                                     ===             ===             ===
</TABLE>

CELLULAR SERVICE

     Cellular demand has grown rapidly in recent years due to increased
competition, attractive price plans, prepaid calling cards, and wide market
acceptance. We offer digital cellular service under the Verizon Wireless brand
in the B block 800-megahertz frequency using both TDMA and CDMA. We have
invested $60 million since 2001 in a CDMA overlay network and commenced selling
this service in December 2001.

     There were six facility-based cellular operators providing service with
varying coverage at the end of 2002. Competition in the market has resulted in
the emergence of a variety of plans with large bundles of free night and weekend
minutes as well as free incoming calls.

     We have 24 stores and kiosks throughout the island, which generate
approximately half of our postpaid and prepaid gross additions. The balance is
sold through various dealers and agent outlets. Roaming agreements have been
signed with AT&T, Verizon Wireless, and Bell South to increase coverage for our
customers on the U.S. mainland. We are also offering roaming in other countries,
including the Dominican Republic, through Codetel, a Verizon affiliate, and in
the U.S. Virgin Islands.

     Postpaid customer growth of 14% is above prior years growth. We also
experienced an increase in prepaid customers of 21%. In late 2001 we began
marketing our cellular brand as Verizon Wireless as part of a strategy to align
our product and service offerings with those of Verizon Wireless in the U.S.

     ARPU was $41 in 2002, a $3 decrease from the prior year. Postpaid ARPU was
$52 in 2002, a $8 decrease from the prior year and prepaid ARPU was $20 in 2002.

     Postpaid customer churn was 2.9% per month in 2002, an increase of
approximately 1.8% from the prior year. We believe churn is high compared to
U.S. mainland standards because of the intensity of competition with six
facilities-based competitors and higher disconnections as a result of
non-payment.

NETWORK INFRASTRUCTURE

     We have invested approximately $900 million from the Acquisition in 1999
through 2002 including $205 million in 2002 to expand and enhance our networks.

WIRELINE NETWORK

     Our network has evolved into a multi-protocol network, handling SONET, ATM
and IP. Our network has the following characteristics:

                                       9

<PAGE>

     -   100% digital switching network includes 29 local host central offices
         and two access tandems to ensure redundancy and network reliability.

     -   Approximately 90% of our transmission circuits use fiber optic systems;
         consisting of 83,000 miles of fiber optic cable in fiber-ring and
         point-to-point configurations.

     -   The entire fiber optic backbone transport network consists of
         self-healing SONET rings operating at bandwidths up to OC-192, with the
         new equipment that has been installed capable of evolving to DWDM.
         Fiber optic cable facilities have been provided to over 200 office
         buildings for business and residential customers.

     -   Approximately 39% of outside cable serving the local loop is
         underground and buried.

     -   Our network is monitored by a Network Monitoring Center, which operates
         24 hours per day. We have upgraded the capabilities of this center to
         monitor customer's IP based networks.

     -   Our Remote Access Server ("RAS") network includes 26 nodes located
         throughout the island connecting Internet customers of various ISP
         providers through more than 29,000 modems.

     -   DSL service has been extended to 55 sites equipped with 14,000 ports.
         As of December 31, 2002, we had approximately 7,000 DSL customers, an
         increase of 4,500 customers as compared to last year.

     -   Our ATM network provides ATM and Frame Relay services and also serves
         as the transport medium for DSL and RAS networks. This network also
         provides PRT with IP capability.

WIRELESS NETWORK

     We operate a TDMA digital network using the IS-136 standard. Our network
contains 13,600 voice channels, representing 90% digital and 10% analog. We have
invested $60 million since 2001 in a CDMA overlay network. We commenced selling
CDMA service in December 2001. We have 312 wireless cell sites covering the
entire island.

EMPLOYEES

     The workforce totaled 5,750 full-time employees at December 31, 2002 of
which 78 % are represented by two unions, the Union of Independent Telephone
Workers, known as UIET, and the Brotherhood of Independent Telephone Workers,
known as HIETEL.

     A new 3-year contract was signed effective January 17, 2003, with the UIET
union, involving 2,800 members. The UIET contract contains wage increases of
4.4% in 2003, 4.2% in 2004, and 4.0% in 2005. If the union workforce remains
unchanged, these increases, together with benefit improvements, payroll taxes
and offsetting concessions, will result in increases of labor costs of $1.5
million for 2003, $5.9 million for 2004 and $9.9 million for 2005. The HIETEL
contract, involving approximately 1,700 members, expires in October 2003.

     In December 2002, the Company offered a voluntary separation program to
qualified management employees. A non-cash provision of $0.5 million was
recorded relating to 8 employees who had accepted as of December 31, 2002. In
January 2003, an additional 29 qualified management employees accepted the
voluntary separation program representing an additional expense of $1.4 million
recorded in 2003. A total of $52 million was recorded for early retirement and
voluntary separation programs during 2001 associated with four separate
offerings accepted by a total of 567 employees.

                                       10

<PAGE>

CONCESSION AND LICENSES

     We hold concessions, licenses and permits adequate for the conduct of our
business in the markets which we serve. Advances in technology, together with a
number of regulatory, legislative and judicial actions, continue to accelerate
and increase competition in the markets we serve.

ENVIRONMENTAL REGULATIONS

     Our operations are subject to federal and local laws and regulations
governing the use, storage, disposal of, and exposure to, hazardous materials,
the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of facilities where hazardous materials
are used, we could be subject to environmental laws that impose liability for
the entire cost of cleanup at contaminated sites, regardless of fault or the
lawfulness of the activity that resulted in the contamination. We believe,
however, that our operations are in substantial compliance with applicable
environmental laws and regulations.

     Many of our properties contain underground and aboveground storage tanks
used for the storage of fuel. Some of these tanks may have leaked or otherwise
caused contamination. We have remediated known contamination at a number of
properties. We cannot be sure, however, that we have discovered all
contamination or that the regulatory authorities will not request additional
remediation at sites that have previously undergone remediation.

     Our cellular operations are also subject to regulations and guidelines that
impose a variety of operational requirements relating to radio frequency
emissions. The potential connection between radio frequency emissions and
certain negative health effects, including some forms of cancer, has been the
subject of substantial study by the scientific community in recent years. To
date, the results of these studies have been inconclusive. Although we have not
been named in any lawsuits alleging damages from radio frequency emissions, it
is possible we could be sued in the future, particularly if scientific studies
conclusively determine that radio frequency emissions are harmful.

REGULATORY ENVIRONMENT IN PUERTO RICO

     We are regulated by the FCC and the Telecommunications Regulatory Board of
Puerto Rico ("TRB") and are subject to the Federal Telecommunications Act of
1996 ("the Act") and the Puerto Rico Telecommunications Act. The Act opened our
local exchange market to competition. There is one facility-based competitive
local exchange carrier and two resellers of wireline local service on the
island. The blended discount rate to resellers was approximately 24% based on
negotiated agreements. Dialing parity, which opened up the on-island long
distance market to competition, was introduced in February 1999. Our
intra-island access charges are based on rate-of-return methodology.

     Basic local rates have remained unchanged since 1982 at $18.80 per month
for residential unlimited service in the metro area. Additionally customers are
billed a subscriber line charge of $6 per month and off-island long distance
rates are similar to interstate rates in the US mainland at $.07 per minute. Our
tariff structure is unique with 68 local calling area zones outside of San Juan.

     The TRB has adopted a forward looking economic model to set intra-island
access charges and the Company has contested the preliminary results of the
economic model and the impact that adoption will have on its rate of return and
its local rates. In addition to ordering significant reductions in intra-island
access charges, the TRB has ordered a $68 million refund relating to this
dispute for which the Company has made no provision, as it believes such a
refund at this stage in the appeals process is not merited. For more
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Regulatory and Other Matters."

     The TRB adopted a local universal service fund for qualified low-income
customers, on January 1, 2002. This program is funded by all intra-island
telecommunications providers through contributions to the TRB based on
intra-island retail revenues. Qualified lifeline customers receive a local $3.50
per month credit along with an additional federal $1.75 per month credit from
the Company. These credits together with existing federal credits of $7.75 per
month result in total credits for a lifeline customer of $13.00 per month.
Contributions made by the Company to the TRB are recovered through an end-user
charge that commenced on March 1, 2002. The Company is reimbursed from the TRB
for credits given to Lifeline customers.

     The wireless business is not subject to price regulation.

                                       11

<PAGE>

ITEM 2.  PROPERTIES

                          PROPERTY, PLANT AND EQUIPMENT

     Gross investment in property, plant and equipment are $4.0 billion at
December 31, 2002 and 2001, as follows:

<TABLE>
<CAPTION>
                                                               2002                             2001
                                                  ----------------------------     ----------------------------

                                                  WIRELINE   WIRELESS    TOTAL     WIRELINE   WIRELESS    TOTAL
                                                  --------   --------    -----     --------   --------    -----
<S>                                               <C>        <C>         <C>       <C>        <C>         <C>
Outside plant                                       49.2%        --%      49.2%      49.0%        --%      49.0%
Central office and transmission equipment           25.3        6.0       31.3       24.9        5.5       30.4
Other equipment                                      7.5        0.9        8.4        8.0        0.9        8.9
Land and buildings                                   7.6        0.7        8.3        8.3        0.6        8.9
Plant under construction                             2.0        0.8        2.8        2.1        0.7        2.8
                                                    ----        ---       ----       ----        ---       ----
                                                    91.6%       8.4%       100%      92.3%       7.7%       100%
</TABLE>

     "Outside plant" consists primarily of aerial cable, underground cable,
conduit and wiring, cellular plant, and telephone poles. "Central office and
transmission equipment" mainly consists of switching equipment, transmission
equipment and related facilities. "Other equipment" includes public telephones,
motor vehicles, special purpose vehicles, furniture, and capital leases. "Land
and buildings" consists of land, buildings and leasehold improvements.

                                   PROPERTIES

     We have facilities in all the major population centers of San Juan,
Mayaguez, Ponce, Fajardo, Humacao, Arecibo, Aguadilla, and Guayama and in some
smaller towns. Facilities as of December 31, 2002 include the following:

<TABLE>
<CAPTION>
                                                                     OWNED    LEASED
                                                                     -----    ------
<S>                                                                  <C>      <C>
- Administrative Offices                                               11       13
- Commercial & Customer Service stores & offices                        2       10
- Standalone Wireline Switching Center Buildings                       89        5
- Inside & Outside Remote Switching Units                             148      222
- Standalone Operational Centers (repair, dispatch, assignment)        14       11
- Warehouses                                                            1       --
- Wireless Stores and Kiosks                                           --       24
- Wireless Cell Sites                                                  19      293
</TABLE>

     There were five fewer administrative offices and commercial and customer
service stores at December 31, 2002 versus the prior year as the Company has
implemented a cost reduction program reducing the number of facilities. All of
these properties are generally in good operating condition and are adequate to
satisfy the needs of the business.

ITEM 3.  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
at this time that the resolution of these matters will not have a material
adverse effect on the Company's financial position 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, the 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 FCC for inter-state wireline services and by the
Puerto Rico Telecommunications Board ("TRB") for intra-state wireline services.

                                       12

<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       13

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(A)  MARKET FOR COMMON STOCK

     While there is no established trading market for the Company's common
stock, the shares are valued annually by the ESOP trustee's financial advisors.
The appraisal is used to value cash distributions to ESOP participants and
measure the Company's share performance for employees who participate in the
ESOP Plan.

(B)  HOLDERS

     There were 25 million outstanding shares of common stock and four
shareholders of record at December 31, 2002. See Item 12 "Security Ownership of
Certain Beneficial Owners and Management" for shareholder information.

(C)  DIVIDENDS

     Our 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. During 2002, the Company paid dividends of
$69 million, or $2.753 per share, applicable to the first three quarters of the
year and the fourth quarter of 2001. Fourth quarter dividends were declared and
paid in March 2003. During 2001, the Company paid dividends of $58 million, or
$2.315 per share, applicable to the first three quarters of the year.

                                       14

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA

     The following table was derived from our audited consolidated financial
statements and the audited financial statements of PRTC and Verizon Wireless
("Predecessors") for the designated periods. You should read the following data
together with (a) our Predecessor's historical financial statements and the
notes thereto for the period from January 1, 1999 to March 1, 1999; and (b) our
historical consolidated financial statements and the notes thereto as of and for
the year ended December 31, 2000 and for the period from March 2, 1999 to
December 31, 1999, all of which have been audited by Deloitte & Touche LLP,
except for the consolidated financial statements and notes thereto as of and for
the years ended December 31, 2002 and 2001, which have been audited by Ernst &
Young LLP, independent auditors, and appear elsewhere in this report. Our
current results of operations and financial condition differ materially from
those prior to the Acquisition due primarily to:

-    The incurrence of $1.6 billion of debt and related interest expense in
     connection with and at the time of Acquisition;

-    The Company becoming a tax paying entity;

-    Voluntary early retirement and separation programs introduced since 1999;

-    The management fees and royalties paid to Verizon;

-    The introduction of dialing parity in the on-island long distance market
     and our entrance into the off-island long distance market;

-    Revaluation of assets and liabilities to reflect purchase accounting
     relating to the Acquisition; and

-    The discontinuation of regulatory accounting principles, as described in
     FAS 71.

                                       15

<PAGE>

<TABLE>
<CAPTION>
                                                                  COMPANY                       PREDECESSORS
                                                -----------------------------------------  -----------------------
                                                                                 MARCH 2    JANUARY 1
                                                   YEARS ENDED DECEMBER 31,      THROUGH     THROUGH    YEAR ENDED
                                                ------------------------------   DECEMBER    MARCH 1,    DECEMBER
                                                  2002       2001       2000       1999        1999        1998
                                                --------   --------   --------   --------   ---------   ---------
                                                                         (DOLLARS IN MILLIONS)
<S>                                             <C>        <C>        <C>        <C>        <C>         <C>
INCOME STATEMENT DATA (1):
   Revenues                                     $  1,301   $  1,397   $  1,393   $  1,103    $    221    $  1,253
   Operating Costs and Expenses                    1,054      1,150      1,163      1,157         219       1,032
                                                --------   --------   --------   --------    --------    --------
   Operating Income (Loss)                           247        247        230        (54)          2         221
   Other Income (Expense), Net                       (47)       (59)       (75)       (65)         --           3
   Income Tax (Expense) Benefit                      (29)       (70)       (40)        46          --          --
                                                --------   --------   --------   --------    --------    --------
   Income (Loss) Before Extraordinary
      Charge and Cumulative Effect of
      Accounting Change                              171        118        115        (73)          2         224
   Extraordinary Charge                               --         --         --        (60)         --          --
   Cumulative Effect of Accounting
      Change, net of tax                              --         --         11         --          --          --
                                                --------   --------   --------   --------    --------    --------
   Net Income (Loss)                            $    171   $    118   $    126   $   (133)   $      2    $    224
                                                ========   ========   ========   ========    ========    ========

OTHER FINANCIAL DATA:

   Depreciation and Amortization                $    262   $    271   $    298   $    242    $     50    $    297
   Cash Flows from Operations                        405        216        486        316          56         614
   Capital Expenditures, including removal
   costs                                             209        246        213        240          33         288
   Cash Flows (used in) from Investing              (206)      (220)      (207)       246          33         280
   Cash Flows (used in) from Financing              (200)         8       (293)       (97)         14        (320)
   EBITDA (2)                                        508        518        529        188          52         518
   EBITDA Margin (3)                                  39%        37%        38%        17%         24%         41%
   Ratio of Earnings to Fixed Charges (4)            5.2        4.1        3.0       (0.8)
   Cash dividends per share (5)                     2.75       2.32
</TABLE>

<TABLE>
<CAPTION>
                                                                        COMPANY                           PREDECESSORS
                                                           ---------------------------------------------  ------------
                                                                               AS OF DECEMBER 31,
                                                           -----------------------------------------------------------
                                                             2002        2001       2000         1999         1998
                                                             ----        ----       ----         ----         ----
                                                                             (DOLLARS IN MILLIONS)
<S>                                                        <C>        <C>         <C>         <C>           <C>
BALANCE SHEET DATA:
   Current Assets                                          $    406   $     431   $     416   $     412     $     435
   Property, Plant and Equipment, Net                         1,575       1,632       1,657       1,743         1,988

   Total Assets                                               2,717       2,748       2,767       2,828         2,457
   Current Liabilities                                          366         841         610         846           347
   Total Debt                                                 1,035       1,196       1,168       1,497             1
   Shareholders' Equity                                         665         538         498         370         1,813
</TABLE>

<TABLE>
<CAPTION>
                                                                        COMPANY                           PREDECESSORS
                                                           ---------------------------------------------  ------------
                                                                               AS OF DECEMBER 31,
                                                           -----------------------------------------------------------
                                                              2002       2001       2000        1999          1998
                                                              ----       ----       ----        ----          ----
<S>                                                        <C>        <C>         <C>         <C>           <C>
OPERATING DATA:

   Access Lines in Service (000)                              1,260       1,273       1,283       1,265         1,231
   Wireless subscribers:
      Cellular (000)                                            351         302         335         285           204
      Paging (000)                                               16          49         126         184           219
   Total Access Lines (per 100 households)                       71          73          74          74            75
   Number of full-time Employees                              5,750       6,250       6,417       6,614         7,703
   Access Lines/Wireline Employee                               250         232         226         207           169
   Cellular Average Monthly Service Revenue Per User       $     41   $      44   $      38   $      43     $      49
</TABLE>

----------

(1) Reclassifications of prior years' data have been made to conform to current
year presentation.

(2) EBITDA represents operating income plus depreciation and amortization
expense. EBITDA is used by some investors and analysts to analyze and compare
companies on the basis of liquidity. EBITDA is not recognized under generally
accepted accounting principles and should therefore not be construed as an
alternative for net income, which is an indicator of a company's performance, or
cash flow from operations, which is a liquidity measure. It is included because
we believe it provides additional information with respect to our anticipated
ability to meet future debt service, capital expenditures, and working capital
requirements. The calculation of EBITDA may be different from the calculation
used by other companies and therefore comparability may be affected.

                                       16

<PAGE>

(3) Determined by dividing EBITDA by revenues and sales.

(4) The ratio of earnings to fixed charges of the Predecessors has not been
presented, as the fixed charges were nominal prior to the Acquisition since
there was no significant indebtedness.

(5) The Company paid dividends during 2002 and 2001 of $69 million, or $2.753
per share, and of $58 million or $2.315 per share, respectively. Dividends were
paid for the first time during 2001. There were 25 million outstanding shares of
common stock and four shareholders of record both at December 31, 2002 and 2001.

                                       17

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

GENERAL

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States.

The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, intangible assets, income taxes, financing
operations, pensions and other post-retirement benefits, and contingencies and
litigation. The Company's management 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 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,
management's estimate of losses and the related allowance may change. The
Company is not dependent on any single customer.

DEFERRED TAXES

The Company uses an asset and liability approach in accounting for income taxes
following the provisions of SFAS No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are established for temporary differences
between the way certain income and expense items are reported for financial
reporting and 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 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 discussed in Note 1 to the consolidated financial statements, the Company
executed a reorganization plan, which became effective May 1, 2002, whereby
Verizon Wireless merged into PRTC. As a result of this merger, the Company
released a deferred tax valuation allowance, related to the Acquisition, of $93
million, of which $51 million was recorded against goodwill and $42 million was
recorded as a deferred tax benefit in the Company's consolidated statement of
income during the second quarter of 2002 in accordance with SFAS No. 109.
Management believes that sufficient book and taxable income will be generated by
the merged company to realize the benefits of these tax assets.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

Property, plant and equipment is stated at original cost, including interest on
funds borrowed to finance the acquisition of capital additions. Repairs and
maintenance are expensed as incurred. Depreciable property disposed of in the
ordinary course of business, together with the cost of removal, less salvage
value, is charged to accumulated depreciation with no gain or loss recognized.
Gains or losses from the sale of land are recorded in results of operations.

                                       18

<PAGE>

The Company's depreciation expense is based on the composite group remaining
life method and straight-line composite rates. This method provides for the
recognition of the cost of the remaining net investment in telephone plant, less
anticipated net salvage value, 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,
and other competitive forces. Effective July 1, 2002, the Company changed its
accounting estimates relating to depreciation resulting from a detailed review
of the lives underlying the depreciation rates. The rate changes reflect
expected useful lives resulting from the impact of technology and future
competition as well as more closely approximating the assumptions used by other
telephone companies. These charges resulted in decreasing depreciation expense
by approximately $6 million for the second half of 2002. Refer to Note 4 to the
consolidated financial statements for further details.

PENSIONS

The Company accounts for its defined benefit pension plans in accordance with
SFAS No. 87, "Employers' Accounting for Pensions" which requires that amounts
recognized in financial statements be determined on an actuarial basis. SFAS No.
87 and the policies used by the Company, notably the use of a calculated value
of plan assets (which is further described below), generally reduced the
volatility of pension income (expense) from changes in pension liability
discount rates and the performance of the pension plan's assets.

The most significant element in determining the Company's pension income
(expense) in accordance with SFAS No. 87 is the expected return on plan assets.
At December 31, 2002, the Company assumed that the expected long-term rate of
return on plan assets would be 8.5%, which is 0.75% lower than the prior year.
Historically, the Company's pension plan assets have earned in excess of 8.5%;
therefore, the Company believes that its assumption of future returns of 8.5% is
reasonable.

At the end of each year, the Company determines the rate used to discount plan
liabilities. The discount rate reflects the current rate at which the pension
liabilities could be effectively settled at the end of the year. In estimating
this rate, the Company looks to rates of return on high quality, fixed-income
investments that receive one of the two highest ratings given by a recognized
ratings agency. At December 31, 2002, the company determined this rate to be
6.75%, which is 0.5% lower than the prior year. The increase in the pension
liability resulting from the change has been deferred in accordance with the
amortization provisions of SFAS No. 87.

OTHER POST EMPLOYMENT BENEFITS

We provide retiree health benefits for employees that retire under our Pension
Plan. We use various actuarial assumptions including the discount rate and the
expected trend in health care costs to estimate the costs and benefit
obligations for our retiree health plan.

At December 31, 2002, we assumed a discount rate of 6.75%, which is 0.5% lower
than the prior year and increased our retiree health benefit liability. A large
portion of this loss has been deferred in accordance with the amortization
provisions of SFAS No. 106.

                                       19

<PAGE>

RESULTS OF OPERATIONS

     We have two reportable segments, Wireline and Wireless. See Note 18 to the
consolidated financial statements for additional information on our segments.
Reclassifications of prior years' data have been made to conform to the 2002
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;

-    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 revenues; 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.

                                       20

<PAGE>

REVENUES

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                    (DOLLARS IN MILLIONS)
                            ----------------------------------------------------------------------
                                      2002                    2001                    2000
                            ----------------------  ----------------------  ----------------------
<S>                         <C>               <C>   <C>               <C>   <C>               <C>
WIRELINE:
Local                       $     578          45%  $     566          41%  $     554          40%
Long Distance                     146          11         186          13         170          12
Network Access                    325          25         355          25         389          28
Directory and Other                67           5          84           6          86           6
                            ---------         ---   ---------         ---   ---------         ---

   Total Wireline               1,116          86%      1,191          85%      1,199          86%
                            ---------         ---   ---------         ---   ---------         ---

WIRELESS:
Postpaid Cellular                 146          11         152          11         124           9
Prepaid Cellular                   27           2          25           2          24           2
                            ---------         ---   ---------         ---   ---------         ---
  Total Cellular                  173          13         177          13         148          11
Paging                              5          --          15           1          34           2
Wireless Equipment                  7           1          14           1          13           1
                            ---------         ---   ---------         ---   ---------         ---

  Total Wireless                  185          14%        206          15%        195          14%
                            ---------         ---   ---------         ---   ---------         ---

  Revenues                  $   1,301         100%  $   1,397         100%  $   1,394         100%
                            =========         ===   =========         ===   =========         ===
</TABLE>

EXPENSES AND CHARGES

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                               (DOLLARS IN MILLIONS)
                                                          -------------------------------
                                                            2002       2001       2000
                                                            ----       ----       ----
<S>                                                       <C>        <C>        <C>
WIRELINE:

Labor and benefits                                        $    334   $    350   $    373
Other operating expenses                                       329        311        333
                                                          --------   --------   --------
   Total Wireline                                              663        661        706

WIRELESS:

Labor and benefits                                        $     31   $     34   $     35
Other operating expenses                                       100        131        106
                                                          --------   --------   --------
   Total Wireless                                              131        165        141

OTHER:

Early retirement and voluntary separation provisions            --         52         19
Depreciation and amortization                                  262        271        298
Interest expense, net                                           47         62         77
Equity income in joint venture                                  (3)        (3)        (2)
Minority interest in consolidated subsidiary                     1         --         --
Asset impairment charge                                         --          1         --
Income tax expense                                              29         70         40
Cumulative effect of accounting change - net of tax             --         --        (11)
                                                          --------   --------   --------

Net income                                                $    171   $    118   $    126
                                                          ========   ========   ========
</TABLE>

OPERATING DATA

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                          -------------------------------
                                                            2002       2001       2000
                                                            ----       ----       ----
<S>                                                       <C>        <C>        <C>
Access Lines in Service (000's):
    Residential                                                957        965        974
    Business                                                   303        308        309
                                                          --------   --------   --------
Total                                                        1,260      1,273      1,283

On-island LD Minutes (millions)                                811      1,021        976
Off-island LD Minutes (millions)                               171        191        149

Cellular Customers (000's):
    Postpaid                                                   228        200        203
    Prepaid                                                    123        102        132
                                                          --------   --------   --------
Total                                                          351        302        335

Postpaid Cellular ARPU                                    $     52   $     60   $     51
Prepaid Cellular ARPU                                     $     20   $     17   $     17
Combined Cellular ARPU                                    $     41   $     44   $     38

Paging Customers (000's)                                        16         49        126
</TABLE>

                                       21

<PAGE>

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

     REVENUES. Revenues for the year ended December 31, 2002 decreased $96
million, or 7%, to $1,301 million from $1,397 million in 2001.

     WIRELINE:

         Wireline revenues include local service, long distance, network access,
directory revenues and other services. Wireline revenues for the year ended
December 31, 2002 decreased $75 million, or 6%, to $1,116 million from $1,191
million in 2001.

         Local service revenues include 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 year ended December 31, 2002 increased $12 million, or 2%, to $578
million from $566 million 2001. The increase is due to higher local data
services while local voice services remained constant. The increase in local
data services was mainly driven by an increase in Internet access revenues of $3
million, an increase in DSL revenues of $2 million, and an increase in frame
relay revenues of $4 million.

         Long distance revenues include direct dial on-island and off-island,
operator-assisted calls, prepaid calling cards and on-island private line
revenues. Long distance revenues decreased $40 million, or 22%, to $146 million
for the year ended December 31, 2002 from $186 million for the 2001. The
decrease was mainly due to a decrease in intra-island long distance revenues of
$28 million, a decrease in operator service revenues of $6 million and a
decrease in off-island long distance revenues of $6 million. Long distance
revenues have decreased mainly due to customer traffic migration to the cellular
network.

         Network access revenues include services provided to long distance
carriers, competitive local exchange carriers, and cellular and paging operators
to originate and terminate calls on other network. These revenues for the year
ended December 31, 2002 decreased $30 million, or 8%, to $325 million compared
to $355 million for 2001. The decrease was primarily caused by a decrease in
interstate high cost fund subsidies of $33 million, reflecting a phasing out of
this subsidy (see "Regulatory Matters-Interstate High Cost Subsidy"). The
decrease was partially offset by an increase in local USF charges of $4 million.

         Directory and other revenues include directory publishing rights,
telecommunication equipment sales and billing and collection services to
competitor long distance operators. Directory and other revenues for the year
ended December 31, 2002 decreased $17 million, or 20%, to $67 million from $84
million for the year ended December 31, 2001, mainly due to a decrease in
equipment sales of $13 million and a decrease in billing and collection service
revenues of $4 million, reflecting lower long distance traffic from competitors.

     WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the year ended December 31, 2002 decreased $21 million, or 10%, to $185
million from $206 million for 2001. Cellular service revenues decreased $4
million, or 2%, to $173 million from $177 million in 2001. This was primarily
the result of combined cellular ARPU declining from $44 to $41 as new price
plans with larger bundles of minutes were introduced into the market, which was
partially offset by customer growth.

         Paging revenues declined $10 million, or 67%, to $5 million for the
year ended December 31, 2002 from $15 million for 2001. The decrease was related
to a reduction of 33,000 customers.

         Wireless equipment sales decreased $7 million, or 50%, to $7 million
for year ended December 31, 2002 from $14 million for 2001. This decrease is
mainly due to lower prepaid gross additions associated with lower promotional
activities during the year ended December 31, 2002.

     OPERATING COSTS AND EXPENSES. Operating costs and expenses for the year
ended December 31, 2002 decreased $33 million, or 4%, to $793 million from $826
million reported for the year 2001.

     WIRELINE:

         Wireline expenses for the year ended December 31, 2002 increased $2
million to $663 from the $661 million reported in 2001.

                                       22

<PAGE>

         Labor and benefit expenses decreased $16 million, or 5%, to $334
million from $350 million reported for the year ended December 31, 2001. This
decrease in labor and benefit expense primarily reflects headcount reductions
including the effect of early retirements and voluntary separation programs, as
well as a reduction in overtime, contractors and expatriate expenses.

         Other operating expenses of $329 million for the year ended December
31, 2002, increased $18 million, or 6%, compared to 2001. The increase is
primarily due to higher property and municipal tax provisions of $16 million and
higher bad debt provisions of $10 million, offset in part by lower consulting
and advertising expenses of $6 million and $5 million, respectively.

     WIRELESS:

         Wireless expenses for the year ended December 31, 2002, decreased $34
million, or 21%, to $131 million from the $165 million reported for the year
ended December 31, 2001.

         Labor and benefit expenses decreased $3 million, or 9%, to $31 million
from the $34 million reported for the year ended 2001. The decrease in labor and
benefits expenses is mainly due to lower overtime, expatriate and temporary
employee expenses.

         Other operating expenses decreased $31 million, or 24%, to $100 million
from the $131 million reported for the comparable 2001 period. The decrease was
due to lower costs from equipment sold of $21 million and lower bad debt
provisions of $10 million and a $3 million gain on the sale of land. These
decreases were offset by an increase in facilities expenses of $3 million
associated with the new CDMA network.

         EARLY RETIREMENT AND VOLUNTARY SEPARATION PROVISIONS. In December 2002,
the Company offered a voluntary separation program to qualified management
employees. A non-cash provision of $0.5 million was recorded relating to 8
employee acceptances.

         A total of $52 million was recorded for early retirement and voluntary
separation programs during 2001 associated with four separate offerings to a
total of 567 employees.

         DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense of $262 million for the year ended December 31, 2002 was $9 million
lower than for 2001, a decrease of 3%. The decrease in depreciation and
amortization expense is mainly due to a change in wireline depreciation rates,
which became effective July 1, 2002, reducing depreciation expense by $6 million
and the discontinued amortization of goodwill and other indefinite life
intangibles, as a result of the adoption of SFAS No. 142, which reduced
amortization expense by $16 million for the year ended December 31, 2002. This
decrease of $22 million was offset in part by higher gross plant balances, which
produced approximately $13 million in depreciation expense.

         INTEREST EXPENSE. Interest expense of $47 million for the year ended
December 31, 2002 was $15 million lower than 2001 due to lower interest rates
and lower debt balances.

         EQUITY INCOME FROM JOINT VENTURE. Earnings of $3 million were generated
for the year ended December 31, 2002 from our approximate 25% interest in VISI.

         MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY. A $1 million minority
interest included in the Company's results of operations for the year ended
December 31, 2002 represents the minority share of the income or loss of
Popular, Inc.'s 33% investment in Coqui.net.

         INCOME TAXES. A $29 million tax provision for the year ended December
31, 2002 reflects the tax effect of the merger of Verizon Wireless into PRTC
(See Note 1 to the consolidated financial statements). As a result of this
merger, the Company released a deferred tax valuation allowance of $93 million,
of which $51 million was recorded against goodwill and $42 million of which was
recorded as a deferred tax benefit during the second quarter of 2002. The
difference between the statutory tax and the effective rate of 15%, or $48
million, primarily reflects permanent differences related to the $42 million
release of the valuation allowance and other permanent differences such as the
internal accretion on the government subscription receivable and joint venture
equity income.

                                       23

<PAGE>

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

     REVENUES. Revenues for the year ended December 31, 2001 increased $3
million, to $1,397 million from $1,394 million in 2000.

     WIRELINE:

         Wireline revenues include local service, long distance, network access,
directory revenues and other services. Wireline revenues for the year ended
December 31, 2001 decreased $8 million, to $1,191 million from $1,199 million in
2000.

         Local service revenues include 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 year ended December 31, 2001 increased $12 million, or 2%, to $566
million from $554 million in 2000. The increase resulted primarily from an
increase in revenues from high-speed private lines of $6 million and an increase
of $4 million in revenues from each of: Internet access, value-added service,
and deferred activation and installation. This increase was offset in part by a
decrease in telephone and PBX rentals revenues of $5 million and lower public
phone service revenues of $3 million.

         The waiting list for basic service decreased to 4,800 at December 31,
2001, compared to 14,300 at December 31, 2000. The decrease in the waiting list
with no significant change in residential access lines from December 2000 to
December 2001 reflects a softening economy. Increases in high-speed private
lines to business and Internet access to consumers reflect an increase in demand
for this service for the year ended December 31, 2001. Increases in value-added
service revenues reflect successful bundling programs, which involve long
distance and Internet access. The increase in Internet access is directly
related to an increase in customers of approximately 24,000, or 23%, to 127,000,
as compared to the prior year. The decrease in public phone service is caused by
a 7% reduction in the number of public phones, compared to prior year, as the
installed base is rationalized for cost efficiencies. Also, industry wide public
phone revenues will continue to decrease due to the proliferation of wireless
telephony.

         Long distance revenues include direct dial on-island and off-island,
operator-assisted calls, prepaid calling card and on-island private line
revenues. Long distance revenues increased $16 million, or 9%, to $186 million
for the year ended December 31, 2001 from $170 million in 2000. The increase was
due to an increase in intra-island long distance revenues of $9 million, an
increase in long distance private line revenues of $6 million, an increase in
off-island long distance revenues of $5 million and an increase in prepaid long
distance cards revenue of $2 million. These increases were offset in part by a
reduction in operator service revenues of $6 million. During the year 2001, we
continued to recapture a portion of the intra-island long distance market and
continued to increase our share of the off-island long distance market.

         Network access revenues include services provided to long distance
carriers, competitive local exchange carriers, and cellular and paging operators
to originate and terminate calls on our network. Network access revenues for the
year ended December 31, 2001 decreased $34 million, or 9%, to $355 million
compared to $389 million in 2000. The decrease was due to a decrease in
off-island access revenues of $22 million, caused by lower competitive access
volumes and lower access rates. The decrease was also due to a decrease in
interstate high cost fund subsidies of $16 million reflecting a phasing out of
this subsidy. The decrease was offset in part by an increase in intra-island
access revenues of $2 million from long distance and cellular carriers relating
to higher access volumes.

         Directory and other revenues include directory publishing rights,
telecommunication equipment and billing and collection services to competitor
long distance operators. Directory and other revenues for the year ended
December 31, 2001 decreased $2 million, or 2%, to $84 million, from $86 million
for the year ended December 31, 2000, mainly due to a reduction in billing and
collection service revenues of $5 million and public phone access revenues of $1
million, offset in part by an increase in equipment sales revenues of $5
million.

         During 2000 we changed the method of accounting for directory
publishing revenues and related expenses from the amortization method to the
publication method, which became effective on January 1, 2000. See Note 3 to the
consolidated financial statements for more details related to this accounting
change.

                                       24

<PAGE>

     WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the year ended December 31, 2001 increased $11 million, or 6%, to $206
million from $195 million in 2000. Cellular service revenues increased $29
million, or 20%, as a result of higher combined ARPU of $6. Postpaid cellular
ARPU of $60 increased by $9 as a result of higher customer usage.

         Paging revenues declined $19 million, or 56%, to $15 million for the
year ended December 31, 2001 from $34 million in 2000. The decrease was related
to a reduction of approximately 77,000 customers due to the migration of
customers to cellular services.

         Wireless equipment sales increased $1 million, or 8%, to $14 million
for the year ended December 31, 2001 from $13 million in 2000 due to an increase
in gross customer additions.

     OPERATING COSTS AND EXPENSES. Operating costs and expenses for the year
ended December 31, 2001 decreased $21 million, or 2%, to $826 million from $847
million reported for 2000.

     WIRELINE:

         Wireline expenses for the year ended December 31, 2001 decreased $45
million, or 6%, to $661 million from the $706 million incurred in 2000.

         Labor and benefit expenses decreased $23 million, or 6%, to $350
million from $373 million in 2000, mainly due to decreases in overtime expenses
of $14 million, a decrease in pension and other post-employment benefits
expenses of $8 million and a decrease in sick day provision of $5 million. These
decreases were partially offset by an increase in salaries of $2 million and an
increase in medical and life insurance expenses of $2 million. The net expense
reduction reflects the results of cost containment measures.

         Other operating expenses of $311 million for the year ended December
31, 2001, decreased $22 million, or 7%, as compared to the year ended December
31, 2000. The decrease is primarily due to a decrease in the provision for bad
debt of $13 million, a decrease in management fees and royalties of $11 million,
a decrease in operating tax provisions of $8 million and a $5 million gain on
the sale of a 33% interest in Coqui.net to Popular, Inc., a shareholder of the
Company. The lower bad debt provision is due to stricter collection and
disconnection policies for non-payment related to residential and small business
customers. The decrease in management fees and royalties is mainly due to a 1%
rate decrease, which became effective in March 2001. The decrease in other
operating expenses was partially offset by an increase in off-island access
charges of $4 million, an increase in costs from equipment sales of $4 million,
and increases in deferred activation charges of $4 million and regulatory fees
of $4 million.

     WIRELESS:

         Wireless expenses for the year ended December 31, 2001, increased $24
million, or 17%, to $165 million from the $141 million reported in 2000.

         Labor and benefit expenses decreased $1 million, or 3%, to $34 million
from $35 million reported in the same 2000 period. The decrease is due to a
decrease in temporary employees and contractor expenses of approximately $3
million and a decrease in overtime expenses of $1 million. These decreases were
offset in part by higher salaries of $3 million due to an increase in full-time
employees.

         Other operating expenses increased $25 million, or 24%, to $131 million
from the $106 million reported in 2000. The increase was due to an increase in
costs from equipment sales of $17 million, an increase in bad debt provisions of
$4 million, an increase in network management fees of $3 million, an increase in
roaming charges of $3 million and the absence of the gain on sale of assets of
prior years of $8 million. These increases were offset in part by reductions in
commission expense of $8 million and management fees and royalties of $3
million. Higher equipment costs and lower commission expense reflect a change in
the structure of compensating agents for prepaid service together with shifting
more postpaid selling from agents to the internal sales force.

                                       25
<PAGE>

         EARLY RETIREMENT AND VOLUNTARY SEPARATION PROVISIONS. A total of
$52 million was recorded for early retirement and voluntary separation programs
during 2001 involving 567 employees associated with four separate offerings as
summarized in the table below:

<TABLE>
<CAPTION>
                                                               PERIOD         EMPLOYEE        PRE-TAX         PER CAPITA
                  PROGRAM                      OFFER DATE     RECORDED       ACCEPTANCE       CHARGE            AMOUNT
-------------------------------------------------------------------------------------------------------------------------
                                                                                                (In thousands)
<S>                                            <C>           <C>             <C>            <C>              <C>
Company wide- non-union employees
   Early retirement program                    4th Q 2000    1st Q 2001          13         $      3,846     $        296

Customer Contact Organization-
  non- union employees
   Early retirement program                    1st Q 2001    2nd Q 2001          19         $      5,520     $        291
   Voluntary separation program                1st Q 2001    2nd Q 2001          52         $      1,634     $         31

Company wide- disabled employees
   Early retirement program (1)                4th Q 1999    3rd Q 2001          29         $      5,400     $        186

Company wide-
   Early retirement program                    4th Q 2001    4th Q 2001          82         $     22,800     $        278
   Voluntary separation program                4th Q 2001    4th Q 2001         372         $     12,771     $         34
                                                                                ---         ------------

Total 2001 Charge                                                               567         $     51,971
                                                                                ===         ============
</TABLE>

     (1) These 29 employees were initially determined not to be eligible for the
         program. In the third quarter of 2001, a qualified physician revaluated
         their disability status and determined that they were qualified for the
         program.

         The Company offered a voluntary early retirement program to qualified
management employees during the fourth quarter of 2000 and recorded a $19
million non-cash provision relating to 95 employees who accepted.

         DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense of $271 million for the year ended December 31, 2001 was $27 million
lower than in 2000, a decrease of 9%. The decrease in depreciation and
amortization expenses is due to a change in useful lives.

         The composite rate for outside plant was revised, effective January 1,
2001, resulting in an increase in the useful life of the remaining balance of
assets from 5.7 to 7.2 years. This reflects our change in network modernization
plans, the current economic environment and its impact on competition and a high
level analysis of lives used by other telephone companies. Additionally, we have
been recording depreciation in excess of capital expenditures from 1999 through
year-end 2001 resulting in a decrease in net plant assets throughout these
years.

         We had recently begun to deploy DSL service to residential and business
customers. This is a marked change in the modernization strategy that underlies
our life estimates. Previously, we expected to deploy high-speed broadband
services via optical cable with limited or no DSL deployment. Since then, the
continuing high cost and technology hurdles of a fiber solution have made DSL an
attractive solution. We now anticipate DSL will meet initial demands for
broadband services and extend the relatively short remaining life of metallic
cable.

         The composite rate for transmission equipment was reduced to reflect
the faster technological obsolescence of this equipment. The composite rate for
other equipment was increased primarily due to recently capitalized software for
a new wireless billing system involving approximately $30 million, which has a
five-year useful life.

         INTEREST EXPENSE. Interest expense of $62 million for the year ended
December 31, 2001 was $15 million lower than in 2000 mainly due to lower
interest rates on the Company's bank notes, lines of credit and commercial
paper. Debt balances remained constant at $1.2 billion for December 31, 2001 and
2000. Average interest rates on the Company's short-term debt decreased from
approximately 7% for the year ended December 31, 2000 to 4% for the year ended
2001. Also, in August 2001 we entered into an interest rate swap contract at a
notional amount of $150 million. The swap receives interest at a fixed rate of
6.65% and pays interest at a variable rate equal to six month LIBOR plus
approximately 170 basis points. For 2001, we experienced a reduction in interest
expense of approximately $1 million, as a result of the interest rate swap.

                                       26

<PAGE>

         EQUITY INCOME FROM JOINT VENTURE. Earnings of $3 million were generated
from our approximate 25% interest in Verizon Information Services, Inc.
(formerly AXESA), the largest yellow page publishing company in Puerto Rico.

         INCOME TAXES. A $70 million tax provision for the year ended December
31, 2001 reflects a 37% effective tax rate. The difference between the effective
and the statutory tax rate of 39%, or $4 million, primarily reflects permanent
differences of $3 million related to interest accretion on the Government
subscription receivable, which is a capital contribution, additional tax
deductions not expensed for financial statement purposes amounting to $5 million
(including the effect of additional deductible expenses determined during 2001
with regards to the Company's 2000 amended income tax filings), offset by other
tax adjustments of $4 million.

                                       27

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED FINANCIAL CONDITION

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                               ------------------------
                                          2002           2001          CHANGE
                                          ----           ----          ------
                                                     (in millions)
<S>                                      <C>            <C>            <C>
Cash flows from (used in):
    Operations                           $ 405          $  216         $  189
    Investing                             (206)           (220)            14
    Financing                             (200)              8           (192)
</TABLE>

OVERALL LIQUIDITY ASSESSMENT

         We believe that cash from operations is sufficient to meet working
capital needs. For 2002 current assets exceeded current liabilities by $39
million. We believe our sources of funds, from operations and from readily
available external financing arrangements, are sufficient to meet ongoing
operating, investing and financing requirements. We expect that presently
foreseeable capital requirements of approximately $190 million for 2003, will
continue to be financed through internally generated funds.

         We have an undrawn $400 million revolving credit facility maturing in
March 2004, as well as a $50 million working capital facility which matures in
June 2003, of which $40 million had been drawn as of year end. An aggregate
principal amount of $300 million of the Company's senior notes matured on May
15, 2002. We refinanced these notes and the related interest payment through the
issuance of new term loans totaling $225 million.

OPERATIONS

         The increase in cash from operations of $189 million for the year ended
December 31, 2002, as compared to the prior year was primarily due to a decrease
in disbursements of management fees and royalties of $79 million, a decrease in
pension contributions of $77 million, a decrease in income tax payments of $15
million and a decrease in expatriate reimbursements of $9 million.

         Management fees and royalty payments for 1999 and 2000 were paid for
the first time in 2001 pursuant to a deferral agreement as part of the
Acquisition. This is also the primary reason for the lower expatriate expense in
2002 when compared to 2001.

         Pension plan payments decreased by $77 million during 2002 due to the
change in policy whereby we funded our pension obligation at the lower-end of
the ERISA minimum-funding obligation. Full year 2002 and 2001 pension and other
post-employment benefits contributions amounted to $99 million and $176 million,
respectively.

         Income tax payments for 2002 amounted to $40 million. Income tax
payments decreased by $15 million because 2001 amounts also included a $34
million payment for the years 1999 and 2000 as the Company became a cash tax
payer for the first time during 2001.

INVESTING

         Net cash used in investing activities for the year ended December 31,
2002 was $206 million compared to $220 million for the same period in 2001. The
decrease in cash used in investing activities of $14 million is mainly due to a
decrease in capital expenditures and removal costs of $37 million, offset in
part by a reduction of $7 million in retirements and the absence of the $16
million proceeds from the sale of a 33% interest in Coqui.net to Popular, Inc.
in 2001.

                                       28

<PAGE>

         The capital expenditure program for 2002 amounted to $205 million,
which was financed from internally generated funds. The decrease in capital
expenditures during 2002 despite an additional investment of $40 million in
wireless CDMA is partially due to decreased spending on specific software
projects, as well as general decreased spending as the Company has aligned its
capital spending with softening demand for new wireline service.

         We have invested approximately $900 million from the date of the
Acquisition through year-end 2002 to expand and enhance our networks. In 2003,
we expect to make up to approximately $190 million in capital expenditures.

FINANCING

         Debt decreased $161 million for the year ended December 31, 2002, as
compared to the year ended December 31, 2001. During 2002, the Company
refinanced $300 million of senior notes, which matured on May 15, 2002, with new
term credit agreements with four banks. The aggregate amount of the term loans
is $225 million, with maturities ranging from two to three years, bearing
interest at 70 to 100 basis points over LIBOR.

         The shareholders' agreement, entered into at the time of the
Acquisition, requires the payment of dividends equal to at least 50% of
consolidated net income, payable quarterly to the extent funds are legally
available therefore. The Company paid dividends of approximately $69 million for
the year ended December 31, 2002. The senior note indentures and credit facility
agreements do not contain restrictions on the payment of dividends.

         In the Acquisition, the 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 fund its underfunded
pension and other post-employment benefit obligations. In March 2002, $40
million was received in cash from the PRTA for the third installment. See Note
14 to the consolidated financial statements.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

<TABLE>
<CAPTION>
CONTRACTUAL OBLIGATIONS &
OTHER COMMERCIAL COMMITMENTS:                                         PAYMENTS DUE BY PERIOD
--------------------------------------------       ----------------------------------------------------------------
                                                                          (in millions)
                                                                                                         2008-
                                                     Total      2003       2004-2005   2006-2007       Thereafter
                                                     -----      ----       ---------   ---------    ---------------
<S>                                                <C>        <C>          <C>         <C>          <C>
Long Term Debt, including interest rate swap       $    712   $     --     $      --   $    412        $    300
Term Credit Facilities                                  225         --           100        125              --
Pension Benefit Obligations          (1)                466         73           198        195
Commercial Paper                                         58         58            --         --              --
Working Capital Credit Facility                          40         40            --         --              --
Operating Leases                                         49          3            18         13              15
Capital Lease Obligations                                 1          1            --         --              --
                                                   --------   --------     ---------   ---------       --------
Total                                              $  1,551   $    175     $     316   $    745        $    315
                                                   ========   ========     =========   =========       ========
</TABLE>

(1) Pension obligations represent contributions based on ERISA minimum rules.

                                       29

<PAGE>

REGULATORY AND OTHER MATTERS

REGULATORY AND COMPETITIVE TRENDS

         Regulatory activity at the federal and local levels was primarily
directed at meeting challenges in maintaining existing access rates and
retaining subsidies to support the costs of Universal Service and other
services. We are also addressing local number portability requirements.

         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 a Resolution and Order (the
"February 2002 Order") with respect to the reconsideration requested by the
Company of the TRB 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 through 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 and directs PRTC
to make a cash refund to end-user customers. The prospective access rate
reductions (on a two-way basis) were ordered to take place 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 April 1, 2000 through March 31, 2002. The refund can be made in 12
quarterly, equal installments starting April 1, 2002.

         The Company filed with the Puerto Rico Circuit Court of Appeals
("Court") an appeal of the February 2002 Order in which the Company alleges the
TRB made errors of law and procedure in its determination of access charges and
its order to make the cash refund. The Court stayed the refund and the rate
reduction on March 27, 2002 and is currently hearing the appeal.

         On April 2, 2002, AT&T, Sprint and LTD ("Carriers") filed a petition
with the Court for review of the February 2002 Order, requesting the Court to
order the rate reduction without a phase-in period, remand the case back to the
TRB and direct the TRB to calculate the refund from and after April 1997 instead
of April 2000, with the Carriers receiving the refund instead of the end-user
customers.

         The hearing involving oral presentations by the parties was held on
February 19, 2003. The parties will have a fifteen (15) day period to submit
their post hearing final brief once the transcript of the oral argument is
received. PRT has not received this transcript yet. At this stage it is too
early to assess the probability of success in the appeals process. The Company
believes the Carriers' petition for review is without merit.

PUBLIC TELEPHONE SERVICE PROVIDER - ANTI COMPETITIVE ACTIONS

         Telefonos Publicos de Puerto Rico, Inc. ("TPPR") the largest
competitive provider of public pay phones in Puerto Rico filed a suit in the
United States District Court of Puerto Rico on November 8, 2001, claiming
predatory, exclusionary and anticompetitive acts and seeking damages of $75
million. We have filed a motion to dismiss the case and are awaiting a decision
of the court.

         Pan American Telephone, Inc., Intouch Telecommunications, Inc., and
Choicetel Communications, Inc., three additional competitive providers also
filed a similar suit 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 claim is similar to TPPR claim, we have filed
a motion to dismiss the case. At present, we are awaiting a decision of the
court.

                                       30

<PAGE>

         In August 16, 2002, PSA, the parent company for Phoenix of Puerto Rico
("Phoenix") filed a suit in the Delaware bankruptcy court claiming anti
competitive acts. The claims have since been transferred to Federal District
Court and the disputes between the two parties include PRT's amended
administrative claim against PSA, and PSA's complaint for over $9 million
against PRT. PRT has filed a motion to dismiss and change of venue which is
pending before the Federal District Court.

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

TOUCHTONE CHARGES

         On July 2, 2002, three residential telephone service subscribers and
one business service subscriber filed a class action suit with the Superior
Court of Puerto Rico (the "Superior Court") under the Puerto Rico
Telecommunications Act of 1996 ("Act"). The plaintiffs claim that the Company's
charges for touchtone service are not based on cost, and are therefore in
violation of the Act. They have requested that the Court (i) issue an Order
certifying the case as a class action, (ii) designate the plaintiffs as
representatives of the class, (iii) find that the charges are illegal, (iv)
establish a maximum charge based on cost, and (v) order the Company to reimburse
every subscriber for excess payments made since September 1996.

         On October 25, 2002, plaintiffs filed a motion requesting class
certification. The plaintiffs filed on November 22, 2002, a voluntary request
for dismissal as to some plaintiffs. On December 19, 2002, PRT filed its answer
to the amended complaint. On February 18, 2003, PRT filed its respective
opposition to plaintiff's motion for class certification. At present, we are
awaiting for a decision with respect to the voluntary dismissals and our
opposition to class certification.

MEASURED SERVICE UNIT CHARGES

         On July 16, 2002, one residential telephone service subscriber and
three business service subscribers filed a class action with the Court under the
Act. The plaintiffs claim that the Company's unit charges for local measured
service are not based on cost, and are therefore in violation of the Act. They
have requested that the Court (i) issue an Order certifying the case as a class
action, (ii) designate the plaintiffs as representatives of the class, (iii)
find that the unit charges are illegal, (iv) establish a maximum unit charge
based on cost, and (v) order the Company to reimburse every subscriber for
excess payments made since September 1996.

         On November 22, 2002 plaintiffs filed a request for voluntary dismissal
without prejudice. On February 26, 2003, the Court issued an Order with respect
to the motion requesting voluntary dismissal. Specifically, the Court ordered
the plaintiffs to present within a period of twenty (20) days, that is until
March 18, 2003, their position towards the class action suit if the dismissal is
granted. However, on March 5, 2003 the Court issued an Order dismissing the case
without prejudice.

CTI ASSET TRANSFER

         Prior to the Acquisition, PRTC transferred its net wireless assets on
September 1, 1998 to CTI (which became Verizon Wireless, a part 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 ratepayers did not bear the cost of our Predecessor's
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.

         The TRB stated in its February 2002 Order that for any prospective rate
increase that the Company may pursue to compensate for revenue deficiencies it
must first be applied against the gain in the wireless asset transfer, equating
to $56 million applicable to intrastate. We will 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.

         Neither the FCC nor the TRB has commenced any further proceedings to
address this issue. While we believe that the resolution of this matter and any
related proceedings will not have a material effect on our financial condition
and results of operations, we cannot provide assurance that any further
regulatory actions will be favorable to the Company.

                                       31

<PAGE>

PRICE CAP REGULATION

         The FCC requires that companies which set interstate access rates
based on a price cap formula must use the price cap formula for all their
affiliates. The price cap formula is based on a plan called Coalition of
Affordable Local and Long Distance Service ("CALLS") that used rate-of-return as
a basis for setting rates. We were, therefore, required to implement price caps
no later than March 2, 2000.

         However, the FCC delayed conversion to price cap regulation until
June 30, 2002 and the Company has requested a further extension to June 30,
2003. As per Memorandum and Order released by the FCC on April 18, 2002, (DA
02-888), the Company is no longer required to file a waiver request until the
FCC completes its review of the "all-or-nothing" rule.

INTERSTATE HIGH COST SUBSIDY

         On October 21, 1999, the FCC adopted a new high cost support mechanism,
which has resulted in the phase out of the Company's High Cost Subsidy revenues.
These revenues were $49 million in 2000, $33 million in 2001 and $4 million for
2002. On February 28, 2003 PRT sent a letter to FCC, asking the Commission to
take action to restore the high-cost universal service support that the Company
lost due to FCC policies adopted for non-rural companies based on the cost
characteristics of mainland companies. PRT request the FCC to address the loss
of its universal service support by adopting rules for insular areas that are
similar to those applied to rural carriers.

MESSAGE PROCESSING AND BILLING SYSTEM

         The Company has an agreement for the implementation of a traffic
polling and billing software system for its wireline operations. The billing
portion of the project is currently behind schedule and management is evaluating
the feasibility of continuing that portion. As of December 31, 2002 the Company
has invested approximately $30 million in hardware, software and labor on the
billing system portion of the project.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 4 to the consolidated financial statements in Item 8 (Part 1) of
this Form 10-K for disclosure on recent accounting pronouncements.

                                       32

<PAGE>

ITEM 7A. 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 December 31, 2002 and 2001 and provides a sensitivity
analysis of the fair values of these instruments assuming a 100 basis point
change 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.

<TABLE>
<CAPTION>
                                                                      FAIR VALUE
                                                                 AT 100 BASIS POINTS
                                                                 -------------------
                                BOOK VALUE     FAIR VALUE      INCREASE        DECREASE
                                ----------     ----------      --------        --------
                                                     (In thousands)
<S>                            <C>            <C>            <C>             <C>
December 31, 2002:

   Senior Notes                $    699,802   $    747,000   $    724,420    $    783,860
   Interest Rate Swap                 2,883          2,883            359           5,405
                               ------------   ------------   ------------    ------------
      Total                    $    702,685   $    749,883   $    724,779    $    789,265
                               =============  ============   ============    ============

December 31, 2001:

   Senior Notes                $    999,757   $  1,001,874   $    969,805    $  1,035,800
   Interest Rate Swap                 1,147          1,147          4,081           6,635
                               ------------   ------------   ------------    ------------
      Total                    $  1,000,904   $  1,003,021   $    973,886    $  1,042,435
                               ============   ============   ============    ============
</TABLE>

                                       33

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                           TELECOMUNICACIONES DE PUERTO RICO, INC. AND
                           SUBSIDIARIES

                           Independent Auditors' Report

                           Consolidated Balance Sheets as of December 31, 2002
                           and 2001

                           Consolidated Statements of Operations for the Years
                           Ended December 31, 2002, 2001 and 2000

                           Consolidated Statements of Changes in Shareholders'
                           Equity for the Years Ended December 31, 2002, 2001
                           and 2000

                           Consolidated Statements of Cash Flows for the Years
                           Ended December 31, 2002, 2001 and 2000

                           Notes to Consolidated Financial Statements for the
                           Years Ended December 31, 2002, 2001 and 2000

                           Schedule II - Valuation and Qualifying Accounts for
                           the Years Ended December 31, 2002, 2001 and 2000

                                       34

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of Telecomunicaciones de Puerto Rico,
Inc.:

We have audited the accompanying consolidated balance sheet of
Telecomunicaciones de Puerto Rico, Inc. and subsidiaries (the "Company") as of
December 31, 2002 and 2001, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the years then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 14 for the years ended December 31, 2002 and 2001. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telecomunicaciones
de Puerto Rico, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for goodwill and other intangible assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and other
intangible assets", effective January 1, 2002.

Ernst & Young LLP
San Juan, Puerto Rico

February 28, 2003

                                       35

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of Telecomunicaciones de Puerto Rico,
Inc.:

We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity, and cash flows of Telecomunicaciones de Puerto Rico,
Inc. and subsidiaries (the "Company") for the year ended December 31, 2000. Our
audit also included the financial statement schedule listed in the Index at Item
15 for the year ended December 31, 2000. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of
Telecomunicaciones de Puerto Rico, Inc. and subsidiaries for the year ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the 2000 basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for directory-publishing revenues and related
expenses effective January 1, 2000, and adopted Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," effective December 31, 2000.

Deloitte & Touche LLP
San Juan, Puerto Rico

March 9, 2001

                                       36

<PAGE>

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                           ------------------------------
                                                                               2002              2001
                                                                           ------------      ------------
<S>                                                                        <C>               <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                             $     33,667      $     34,797
     Accounts receivable, net of allowance for doubtful accounts
       of $132,894 and $107,346  in 2002 and 2001, respectively                 343,519           359,914
     Inventory and supplies, net                                                 18,039            24,755
     Prepaid expenses                                                            10,876            11,610
                                                                           ------------      ------------
         Total current assets                                                   406,101           431,076
PROPERTY, PLANT AND EQUIPMENT, net                                            1,575,334         1,631,770
GOODWILL, net                                                                   126,927           178,094
INTANGIBLES, net                                                                180,848           180,370
DEFERRED INCOME TAX                                                             308,851           221,499
OTHER ASSETS                                                                    119,336           105,441
                                                                           ------------      ------------
TOTAL ASSETS                                                               $  2,717,397      $  2,748,250
                                                                           ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                                                      $     97,932      $    494,335
      Other current liabilities                                                 268,034           346,859
                                                                           ------------      ------------
         Total current liabilities                                              365,966           841,194
LONG-TERM DEBT, excluding current portion                                       937,035           701,441
PENSION AND OTHER POST-EMPLOYMENT BENEFITS                                      590,157           531,636
OTHER NON-CURRENT LIABILITIES                                                   146,634           124,905
                                                                           ------------      ------------
         Total liabilities                                                    2,039,792         2,199,176
                                                                           ------------      ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                                     12,229            10,759
                                                                           ------------      ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Common stock                                                                703,270           701,952
    Deferred ESOP compensation                                                  (27,408)          (28,793)
    Subscription receivable                                                     (76,093)         (109,959)
    Retained earnings                                                           155,789            53,592
    Accumulated other comprehensive loss, net of tax                            (90,182)          (78,477)
                                                                           ------------      ------------
          Total shareholders' equity                                            665,376           538,315
                                                                           ------------      ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $  2,717,397      $  2,748,250
                                                                           ============      ============
</TABLE>

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

                                       37

<PAGE>

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                               --------------------------------------------

                                                                  2002             2001             2000
                                                               ----------       ----------       ----------
<S>                                                            <C>              <C>              <C>
REVENUES:
  Local services                                               $  578,332       $  566,591       $  554,171
  Long distance services                                          145,646          185,720          170,132
  Access services                                                 325,453          354,736          389,115
  Cellular services                                               172,940          177,071          148,183
  Paging services                                                   5,241           14,906           33,795
  Directory services                                               19,928           20,292           20,828
  Other services and sales                                         53,735           77,279           77,355
                                                               ----------       ----------       ----------
      Total revenues                                            1,301,275        1,396,595        1,393,579
                                                               ----------       ----------       ----------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                              365,311          384,231          407,912
  Other operating expenses                                        427,419          442,637          437,566
  Early retirement and voluntary separation provision                 467           51,971           19,342
  Depreciation and amortization                                   261,543          270,974          298,452
                                                               ----------       ----------       ----------
      Total operating costs and expenses                        1,054,740        1,149,813        1,163,272
                                                               ----------       ----------       ----------

OPERATING INCOME                                                  246,535          246,782          230,307
                                                               ----------       ----------       ----------

OTHER INCOME (EXPENSE):
  Interest (expense) income, net                                  (47,540)         (60,679)         (76,529)
  Equity income from joint venture                                  2,878            2,966            2,000
  Minority interest in consolidated subsidiary                     (1,469)             195                -
  Asset impairment charge                                               -           (1,300)               -
                                                               ----------       ----------       ----------
      Total other income (expense), net                           (46,131)         (58,818)         (74,529)
                                                               ----------       ----------       ----------

INCOME BEFORE INCOME TAX
  EXPENSE                                                         200,404          187,964          155,778

INCOME TAX EXPENSE                                                 29,371           69,508           40,356
                                                               ----------       ----------       ----------

INCOME BEFORE CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE
                                                                  171,033          118,456          115,422

CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE, net of income tax provision of  $6,885                       --               --           10,769
                                                               ----------       ----------       ----------

NET INCOME                                                     $  171,033       $  118,456       $  126,191
                                                               ==========       ==========       ==========
</TABLE>

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

                                       38

<PAGE>

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                          ACCUMULATED
                                                                 DEFERRED                    RETAINED       OTHER
                                                     COMMON        ESOP       SUBSCRIPTION   EARNINGS    COMPREHENSIVE
                                                     STOCK     COMPENSATION    RECEIVABLE    (DEFICIT)       LOSS          TOTAL
                                                     -----     ------------    ----------    ---------       ----          -----
<S>                                                 <C>         <C>           <C>            <C>         <C>             <C>
BALANCE, DECEMBER 31, 1999                          $ 699,284   $  (26,100)   $ (170,363)    $(133,193)   $       --     $  369,628

  Accretion of discount on subscription receivable         --           --       (10,960)           --            --        (10,960)
  PRTA capital contribution                                --           --        40,000            --            --         40,000
  Advance to ESOP                                          --       (3,320)           --            --            --         (3,320)
  Release of ESOP shares                                  936          767            --            --            --          1,703
  Comprehensive income:
     Net income                                            --           --            --       126,191            --        126,191
     Other comprehensive loss:
       Minimum pension liability adjustment                --           --            --            --       (25,475)       (25,475)
                                                                                                                         ----------
  Comprehensive income                                     --           --            --            --            --        100,716
                                                    ---------   ----------    ----------     ---------    ----------     ----------

BALANCE, DECEMBER 31, 2000                          $ 700,220   $  (28,653)   $ (141,323)    $  (7,002)   $  (25,475)    $  497,767

  Dividends paid                                           --           --            --       (57,862)           --        (57,862)
  Accretion of discount on subscription receivable         --           --        (8,636)           --            --         (8,636)
  PRTA capital contribution                                --           --        40,000            --            --         40,000
  Release of ESOP shares                                1,732        1,420            --            --            --          3,152
  Advance to ESOP                                          --       (1,535)           --            --            --         (1,535)
  Other ESOP contribution                                  --          (25)           --            --            --            (25)
  Comprehensive income:
     Net income                                            --           --            --       118,456            --        118,456
     Other comprehensive loss:
       Minimum pension liability adjustment                --           --            --            --       (53,002)       (53,002)
                                                                                                                         ----------
  Comprehensive income                                     --           --            --            --            --         65,454
                                                    ---------   ----------    ----------     ---------    ----------     ----------

BALANCE, DECEMBER 31, 2001                          $ 701,952   $  (28,793)   $ (109,959)    $  53,592    $  (78,477)    $  538,315

  Dividends paid                                           --           --            --       (68,836)           --        (68,836)
  Accretion of discount on subscription receivable         --           --        (6,134)           --            --         (6,134)
  PRTA capital contribution                                --           --        40,000            --            --         40,000
  Release of ESOP shares                                1,318        1,385            --            --            --          2,703
  Comprehensive income:
     Net income                                            --           --            --       171,033            --        171,033
     Other comprehensive loss, net of taxes:
       Minimum pension liability adjustment                --           --            --            --       (11,705)       (11,705)
                                                                                                                         ----------
  Comprehensive income                                     --           --            --            --            --        159,328
                                                    ---------   ----------    ----------     ---------    ----------     ----------

BALANCE, DECEMBER 31, 2002                          $ 703,270   $  (27,408)   $  (76,093)    $ 155,789    $  (90,182)    $  665,376
                                                    =========   ==========    ==========     =========    ==========     ==========
</TABLE>

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

                                       39

<PAGE>

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                                         --------------------------------
                                                                    2002               2001               2000
                                                                    ----               ----               ----
<S>                                                               <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTVITIES:
 Net income                                                       $ 171,033          $ 118,456          $ 126,191
  Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization                                     261,543            270,974            298,452
  Provision for uncollectible accounts                               73,195             73,422             82,759
  Wireless Asset impairment charge                                       --              1,300                 --
  Deferred income tax                                               (28,527)            13,619             21,441
  Cumulative effect of accounting change                                 --                 --            (10,769)
  Accretion of discount on subscription receivable                   (6,134)            (8,636)           (10,960)
  Equity income from joint venture                                   (2,878)            (2,966)            (2,000)
  Early retirement and voluntary separation provision                   467             51,971             19,342
  Release of ESOP shares                                              2,703              3,152              1,703
  Gain on sale of subsidiary stock                                       --             (5,413)                --
  Minority interest in consolidated subsidiary                        1,469               (195)                --
  Interest rate swap amortization                                      (875)                --                 --
  Changes in assets and liabilities:
    Accounts receivable                                             (56,800)           (87,841)           (88,165)
    Inventory and supplies                                            6,716              3,716              2,899
    Prepaid expenses and other assets                                (4,187)           (15,265)           (40,008)
    Other current and non-current liabilities                         1,894            (73,632)            93,583
    Pension and other post-employment benefits                      (14,764)          (126,805)            (8,950)
                                                                  ---------          ---------          ---------
      Net cash provided by operating activities                     404,855            215,857            485,518
                                                                  ---------          ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures, including removal costs                    (208,855)          (246,329)          (213,137)
  Net salvage on retirements and other                                3,270             10,342              6,236
  Proceeds from sale of subsidiary stock                                 --             16,367                 --
                                                                  ---------          ---------          ---------
      Net cash used in investing activities                        (205,585)          (219,620)          (206,901)
                                                                  ---------          ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Capital contribution                                               40,000             40,000             40,000
  Advance to ESOP                                                        --             (1,560)            (3,320)
  Net issuance (repayments) of short-term debt, including
    capital leases                                                 (396,564)            27,148           (329,945)
  Borrowings of long-term debt                                      225,000                 --                 --
  Dividends Paid                                                    (68,836)           (57,862)                --
                                                                  ---------          ---------          ---------
      Net cash (used in) provided by  financing activities         (200,400)             7,726           (293,265)
                                                                  ---------          ---------          ---------

NET (DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS                                               (1,130)             3,963            (14,648)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                          34,797             30,834             45,482
                                                                  ---------          ---------          ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                        $  33,667          $  34,797          $  30,834
                                                                  =========          =========          =========
</TABLE>

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

                                       40

<PAGE>

TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

1.  BUSINESS / CORPORATE STRUCTURE

    Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation (the
    "Company"), 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, and a 25% interest in
    Verizon Information Services Puerto Rico, Inc. S. en C. ("VISI"), in which
    GTE Holdings (Puerto Rico) LLC, our majority shareholder, 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 and paging
    services are provided by the wireless division of PRTC. 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. The Company's
    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 now consolidates the Company's financial results with its
    own financial results.

    PRTC/VERIZON WIRELESS MERGER

    On May 1, 2002, the Company completed a tax-free reorganization whereby it
    merged Verizon Wireless Puerto Rico, Inc. ("Verizon Wireless"), a wholly
    owned subsidiary of the Company, into PRTC. Prior to the merger, the
    Company created a new wholly owned subsidiary, PRTLD, to carry the
    off-island long distance business previously provided by Verizon Wireless.
    The objectives of the reorganization were to (i) integrate the wireline and
    wireless operations without jeopardizing the continuity of the off-island
    long distance license, (ii) simplify the overall corporate structure to
    reduce administrative costs, and (iii) provide better control and
    monitoring of the off-island long distance business and increase its
    potential for growth in Puerto Rico. As a result of this merger, the
    Company released a deferred tax valuation allowance, related to the
    Acquisition, of $93 million, of which $51 million was recorded against
    goodwill and $42 million was recorded as a deferred tax benefit in the
    Company's consolidated statement of income for the second quarter of 2002
    in accordance with Statements of Financial Accounting Standards ("SFAS")
    No. 109.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    BASIS OF PRESENTATION

    The accompanying audited consolidated financial statements have been
    prepared in accordance with accounting principles accepted in the United
    States which require management to make estimates and assumptions that
    affect reported amounts and disclosures and with the rules and regulations
    of the Securities and Exchange Commission ("SEC"). In the opinion of
    management the financial statements include all adjustments consisting of
    normal recurring accruals, necessary to fairly present the results of
    operations and financial condition. The Company is a holding company with no
    significant assets or operations other than its investment in its
    subsidiaries. PRTC is a wholly owned subsidiary of the Company, and fully
    and unconditionally guarantee payment of the senior notes, term loans and
    the commercial paper.

                                       41

<PAGE>

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
    and its controlled subsidiary companies, which are wholly owned or majority
    owned. All significant intercompany accounts and transactions have been
    eliminated.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
    accepted accounting principles in the United States, requires management to
    make estimates and assumptions that affect the reported amounts of assets
    and liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenues and
    expenses during the reporting period. Actual results could differ from those
    estimates.

    REVENUE RECOGNITION

    Revenues are recognized when services are rendered or products are delivered
    to customers.

    Common carrier line access revenues are generated based on the participation
    by the PRTC in revenue pools with other telephone companies managed by the
    National Exchange Carriers Association ("NECA"), which are funded by access
    charges authorized by the Federal Communications Commission ("FCC") and
    long-term support amounts received from the Universal Service Fund. Pooled
    amounts are divided among telephone companies based on allocations of costs
    and investments in providing interstate services. Revenues are based on
    preliminary allocations and cost studies and are subject to final settlement
    in subsequent periods.

    Revenues from prepaid cellular cards are recognized based upon usage with
    any residual balances recognized at the expiration date.

    Directory revenues are recognized on the date that directories are published
    and substantially delivered (see Note 3).

    Activation and installation revenues and certain related costs are deferred
    and amortized over the estimated life of the customer relationship, which is
    5 years for wireline and 3 years for wireless (see Note 3).

    CASH AND CASH EQUIVALENTS

    Short-term investments with original maturities of three months or less are
    classified as cash equivalents.

    ALLOWANCE FOR DOUBTFUL ACCOUNTS

    The allowance for doubtful accounts is an amount that management believes
    will be adequate to absorb possible losses on existing receivables that may
    become uncollectible based on evaluations of the collectibility of the
    receivables and prior loss experience. Because of uncertainties inherent in
    the estimation process, management's estimate of losses and the related
    allowance may change. The Company is not dependent on any single customer.

    INVENTORY AND SUPPLIES

    Inventory and supplies are stated at average cost, net of obsolescence
    reserves.

    PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

    Property, plant and equipment is stated at original cost, including interest
    on funds borrowed to finance the acquisition of capital additions. Repairs
    and maintenance are expensed as incurred. Depreciable property disposed of
    in the ordinary course of business, together with the cost of removal, less
    salvage value, is charged to accumulated depreciation with no gain or loss
    recognized. Gains or losses from the sale of land are recorded in results of
    operations.

                                       42

<PAGE>

    The Company's depreciation expense is based on the composite group remaining
    life method and straight-line composite rates. This method provides for the
    recognition of the cost of the remaining net investment in telephone plant,
    less anticipated net salvage value, 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, and other competitive forces. Effective on July 1,
    2002, the Company changed its accounting estimates relating to depreciation.
    Refer to Note 4 to the consolidated financial statements for further
    details.

    INTANGIBLE ASSETS

    Intangible assets consist principally of goodwill, trade names, wireline
    concessions, cellular licenses, customer base and software licenses.

    Effective January 1, 2002, the Company adopted SFAS No. 142 and therefore
    discontinued the amortization of goodwill and other long-lived assets such
    as cellular licenses and wireline concessions. The Company amortizes trade
    names and software licenses on a straight-line basis over 25 and 5 years,
    respectively. Refer to Note 4 to the consolidated financial statements for
    further information.

    SOFTWARE COSTS

    The Company defers and amortizes software development project costs over a
    five-year period beginning with the project completion.

    ADVERTISING COSTS

    The Company expenses advertising costs as incurred, and recorded advertising
    costs of $15 million and $20 million in 2002 and 2001, respectively.

    EMPLOYEE BENEFIT PLANS

    Pension and post-employment health care and life insurance benefits earned
    as well as interest on projected benefit obligations are accrued currently.
    Prior service costs and credits resulting from changes in plan benefits are
    amortized over the average remaining service period of the employees
    expected to receive the benefits.

    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 an
    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.

    In December 2001, the Company recorded an impairment charge of $1.3 million
    related to its paging business. In addition, in November 2001, the company
    recorded a write-off charge of $2.2 million related to its wireless brand
    name intangible. This resulted from the change of name of the Company's
    wireless business from Celulares Telefonica to Verizon Wireless.

    INCOME TAXES

    The Company uses an asset and liability approach in accounting for income
    taxes following the provisions of SFAS No. 109, "Accounting for Income
    Taxes." Deferred tax assets and liabilities are established for temporary
    differences between the way certain income and expense items are reported
    for financial reporting and tax purposes. Deferred tax assets and
    liabilities are adjusted, to the extent necessary, to reflect tax rates
    expected to be in effect when the temporary differences reverse. A valuation
    allowance is established for deferred tax assets for which realization is
    not likely.

                                       43

<PAGE>

    INTEREST RATE RISK

    The Company uses interest rate swap agreements to manage exposures to
    changes in the fair value of its senior notes to achieve a targeted mix of
    fixed and variable rate debt. The Company does not hold interest rate swaps
    for trading purpose. Interest rate swaps are marked-to-market in the
    consolidated balance sheet as a component of other assets.

    MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY

    The minority interest in the consolidated balance sheet reflects Popular
    Inc.'s 33% net investment in Coqui.net at year-end.

    RECLASSIFICATIONS

    Reclassifications of prior years' data have been made to conform to the
    current year's presentation.

3.  ACCOUNTING CHANGE AND ADOPTION OF SEC STAFF ACCOUNTING BULLETIN

    The Company changed its method of accounting for directory publishing
    revenues from the amortization to the publication method, effective January
    1, 2000. Under the amortization method, revenues were recognized and
    amortized over the life of the directory, which is generally one year. Under
    the publication method, revenues are recognized when a directory is
    published and substantially delivered. The change was made to more
    accurately reflect the directory publishing cycle. The new method also
    conforms to revenue recognition practices in the telecommunications and
    publishing industries. Results for the year ended December 31, 2000 include
    the initial impact of applying this accounting change recorded as a
    cumulative effect of an accounting change of $11 million after-tax in the
    first quarter of 2000.

    The SEC issued SAB 101 effective for fiscal years beginning after December
    15, 1999. The Company previously recognized service activation and
    installation fees and related costs at the time of service initiation. Based
    on SAB 101, the Company began deferring revenues and related costs
    associated with activation and installation services over the life of the
    customer relationship. Costs are deferred only to the extent that revenue is
    deferred.

    The effect of adopting SAB 101 resulted in deferring $34 million in
    activation and installation revenues and costs prior to January 1, 2000 and
    amortizing them over 5 years for wireline and 3 years for wireless. Because
    an equal amount of revenue and expense was deferred, there was no impact on
    net income for the accounting change. In accordance with SAB 101, the
    Company restated quarterly information for 2000.

 4. SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS

    BUSINESS COMBINATIONS AND ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLES

    In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
    No. 141, "Business Combinations," and No. 142, "Goodwill and Other
    Intangible Assets." SFAS No. 141, which applies to business combinations
    occurring after June 30, 2001, requires that the purchase method of
    accounting be used and includes guidance on the initial recognition and
    measurement of goodwill and other intangible assets acquired in the
    combination. The adoption of SFAS No. 141 did not have an effect on the
    Company's financial statements.

    Effective January 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142 no
    longer permits the amortization of goodwill and other indefinite-lived
    intangible assets, which has resulted in reducing amortization expense by
    $16 million for the year ended December 31, 2002. Under SFAS No. 142 assets
    of each reporting unit must be reviewed annually (or, under certain
    conditions, more frequently) for impairment. The Company has three reporting
    units; wireline, wireless and dial-up Internet access.

    The Company, together with an independent appraiser, performed the
    impairment test for the three reporting units. The evaluation revealed that
    the assets of the three reporting units were fully realizable. The Company
    intends to perform future tests for impairment at least annually and more
    often if the Company believes that events or circumstances warrant such
    action.

    The following financial information represents the adjusted consolidated
    results of operations as if adoption of SFAS No. 142 had been applied to the
    prior period presented. Adjusted results presented below exclude the effects
    (net of tax) of the amortization of goodwill and other indefinite life
    intangibles.

                                       44

<PAGE>

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                        (ADJUSTED)       (AS REPORTED)        (ADJUSTED)       (AS REPORTED)
                                        2002               2001               2001               2000               2000
                                        ----               ----               ----               ----               ----
                                                                        (In thousands)
<S>                                  <C>                <C>                <C>                <C>                <C>
Revenues                             $1,301,275         $1,396,595         $1,396,595         $1,393,579         $1,393,579

Operating costs and expenses          1,054,740          1,134,165          1,149,813          1,147,604          1,163,272
                                     ----------         ----------         ----------         ----------         ----------

Operating income                        246,535            262,430            246,782            245,975            230,307

Other expense, net                       46,131             58,818             58,818             74,529             74,529
                                     ----------         ----------         ----------         ----------         ----------

Income before income tax                200,404            203,612            187,964            171,446            155,778

Income tax expense                       29,371             73,868             69,508             44,716             40,356
                                     ----------         ----------         ----------         ----------         ----------

Net Income before cumulative
   effect                               171,033            129,744            118,456            126,730            115,422
Cumulative effect of
   accounting Change                          -                  -                  -             10,769             10,769
                                     ----------         ----------         ----------         ----------         ----------
Net Income                           $  171,033         $  129,744         $  118,456         $  137,499         $  126,191
                                     ==========         ==========         ==========         ==========         ==========
</TABLE>

The following table reconciles net income reported for the year December 31,
2002 to the adjusted net income for the same period, as required by the
provisions of SFAS No. 142.

<TABLE>
<CAPTION>
                                                     2001              2000
                                                     ----              ----
RECONCILIATION:                                         (In thousands)
---------------
<S>                                              <C>                 <C>
    Net income, as reported                      $    118,456        $ 126,191
    Discontinued amortization of goodwill               9,446            9,466
    Discontinued amortization of other
       indefinite life intangibles                      6,202            6,202
    Tax effect                                         (4,360)          (4,360)
                                                 ------------        ---------
       Adjusted net income                       $    129,744        $ 137,499
                                                 ============        =========
</TABLE>

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
    $116.5 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 will result in a decrease
    in depreciation expense and an increase in operational and support expenses.
    We estimate the net increase to operating income in 2003, excluding the
    cumulative effect adjustment, will be approximately $12 million ($7 million
    after-tax).

                                       45

<PAGE>


    ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

    In August 2001, the FASB issued SFAS No. 144. This standard supersedes SFAS
    No. 121 and the provisions of Accounting Principles Board ("APB") Opinion
    No. 30, "Reporting the Results of Operations-Reporting the Effects of
    Disposal of a Segment of a Business, and Extraordinary, Unusual and
    Infrequently Occurring Events and Transactions" with regard to reporting the
    effects of a disposal of a segment of a business. SFAS No. 144 establishes a
    single accounting model for assets to be disposed of by sale and addresses
    several SFAS No. 121 implementation issues. The Company adopted SFAS No. 144
    effective January 1, 2002 and the adoption did not have any material impact
    on its financial statements.

    EXTINGUISHMENTS OF DEBT AND ACCOUNTING FOR CERTAIN CAPITAL LEASE OBLIGATIONS

    In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
    No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
    Corrections." For most companies, SFAS No. 145 will require gain and losses
    on extinguishments of debt to be classified as income or loss from
    continuing operations rather than as extraordinary items as previously
    required under SFAS No. 4. However, extraordinary treatment will be required
    for certain extinguishments as provided in APB Opinion No. 30. This
    statement also amends SFAS No. 13 to require that certain modifications to
    capital leases be treated as sale-leaseback transactions and modifies the
    accounting for sub-leases. In addition, the FASB rescinded SFAS No. 44,
    which addressed the accounting for intangible assets of motor carriers and
    made numerous technical corrections. At this time, the Company is evaluating
    the impact, if any, of the adoption of SFAS No. 145 on its results of
    operations and financial condition.

    ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

    In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
    with Exit or Disposal Activities." This statement addresses financial
    accounting and reporting for costs associated with exit or disposal
    activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
    "Liability Recognition for Certain Employee Termination Benefits and Other
    costs to Exit an Activity (including Certain Costs Incurred in
    Restructuring)." EITF Issue No. 94-3 required accrual of liabilities related
    to exit and disposal activities at a plan (commitment) date. SFAS No. 146
    requires that a liability for a cost associated with an exit or disposal
    activity be recognized when the liability is incurred. The provisions of
    this statement are effective for exit or disposal activities that are
    initiated after December 31, 2002. The Company believes that the adoption of
    SFAS No. 146 will not have a material effect on its results of operations
    and financial condition.

5.  PROPERTY, PLANT AND EQUIPMENT
    Property, plant and equipment consist of:

<TABLE>
<CAPTION>
                                                   REMAINING USEFUL         DECEMBER 31,      DECEMBER 31,
                                                    LIVES (YRS) (1)             2002              2001
                                                    ---------------         ------------      ------------
                                                 CURRENT     PREVIOUS               (In thousands)
                                                 -------     --------
<S>                                              <C>         <C>          <C>                 <C>
Outside plant                                      8.9         8.6        $    2,039,412      $  1,978,670
Central office and transmission equipment          4.7         4.0             1,297,454         1,228,540
Equipment and other                                3.0         3.5               349,832           357,885
Buildings                                         21.5        23.3               314,345           334,307
Land                                               N/A         N/A                27,541            25,309
                                                                          --------------      ------------
     Gross plant in service                                                    4,028,584         3,924,711
Less: accumulated depreciation                                                 2,568,380         2,407,760
                                                                          --------------      ------------
     Net plant in service                                                      1,460,204         1,516,951
Construction in progress                                                         115,130           114,819
                                                                          --------------      ------------
     Total                                                                $    1,575,334      $  1,631,770
                                                                          ==============      ============
</TABLE>

(1) These lives consider estimated removal costs and estimated proceeds from
    disposal.

    Effective July 1, 2002, the Company changed its accounting estimates
    relating to depreciation, resulting from a detailed review of the lives
    underlying the depreciation rates. The rate changes reflect expected useful
    lives resulting from the impact of technology and future competition as well
    as more closely approximating the assumptions used by other telephone
    companies. These changes resulted in decreasing depreciation expense by
    approximately $6 million for the second half of 2002.

                                       46

<PAGE>

6.  GOODWILL

    Following is a breakdown of goodwill by reporting unit.

<TABLE>
<CAPTION>
                                               CARRYINGVALUE
                                               -------------
                                    DECEMBER 31,          DECEMBER 31,
                                        2002                  2001
                                    ------------          ------------
                                              (In thousands)
<S>                                 <C>                   <C>
Wireline (PRTC)                     $   102,731            $  153,898
Dial-up Internet (Coqui.net)             24,196                24,196
                                    -----------            ----------
     Total                          $   126,927            $  178,094
                                    ===========            ==========
</TABLE>

7.  INTANGIBLES

<TABLE>
<CAPTION>
                                               CARRYINGVALUE
                                               -------------
                                    DECEMBER 31,          DECEMBER 31,
                                       2002                  2001
                                    ------------          ------------
                                              (In thousands)
<S>                                 <C>                   <C>
INDEFINITE LIFE:
Wireline concession                 $    85,120            $   85,120
FCC Cellular licenses                    23,855                23,855
                                    -----------            ----------
    Total Indefinite Life           $   108,975            $  108,975
                                    ===========            ==========
</TABLE>

<TABLE>
<CAPTION>
                                                DECEMBER 31, 2002                                 DECEMBER 31, 2001
                                                -----------------                                 -----------------
                                                                         (In thousands)

DEFINITE LIFE:                        COST          ACC. AMORT       BOOK VALUE          COST          ACC. AMORT       BOOK VALUE
                                      ----          ----------       ----------          ----          ----------       ----------
<S>                                 <C>             <C>              <C>               <C>             <C>              <C>
Wireline trade name                 $ 48,400         $  7,417         $ 40,983         $ 48,400         $  5,485         $ 42,915
Software licenses                     45,708           15,525           30,183           35,501            8,453           27,048
Customer base                         15,544           14,837              707           15,544           14,112            1,432
Other                                    500              500               --              500              500               --
                                    --------         --------         --------         --------         --------         --------
   Total Definite Life              $110,152         $ 38,279         $ 71,873         $ 99,945         $ 28,550         $ 71,395
                                    --------         --------         --------         --------         --------         --------

Plus: Total Indefinite Life                                           $108,975                                           $108,975
                                                                      --------                                           --------
Total                               $110,152         $ 38,279         $180,848         $ 99,945         $ 28,550         $180,370
                                    ========         ========         ========         ========         ========         ========
</TABLE>

    The following table presents current and expected amortization expense of
    existing intangible assets as of December 31, 2002 and for each of the
    following years:

<TABLE>
<CAPTION>
                                                                        AMOUNT
                                                                    (In thousands)
<S>                                                                 <C>
Aggregate amortization expense:
  For the year ended December 31, 2002                                $   9,729
Expected amortization expense for the years ending
  December 31:
  2003                                                                    8,016
  2004                                                                    7,516
  2005                                                                    7,291
  2006                                                                    7,291
  2007                                                                    7,291
</TABLE>

                                       48

<PAGE>

8.  OTHER ASSETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,      DECEMBER 31,
                                                                       2002              2001
                                                                   ------------      ------------
                                                                           (In thousands)
<S>                                                                <C>               <C>
Deferred activation and installation costs                         $     65,351       $    49,744
Notes receivable-equipment sales                                         15,396            21,394
Deferred pension asset                                                   20,646            15,010
Investment in VISI                                                        4,823             4,119
Deferred financing costs, net                                             3,970             5,044
Other deferred costs                                                      5,288             6,205
Interest rate swap                                                        2,883             1,147
Other assets                                                                979             2,778
                                                                   ------------       -----------
   Total                                                           $    119,336       $   105,441
                                                                   ============       ===========
</TABLE>

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 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, approximating nine to twelve months of salary.

    There are separate trust for the annuity and the lump sum benefit with a
    further separation of the annuity benefit into a plan for the UIET union and
    for the HIETEL union and management employees.

    Health care and life insurance benefits are provided to retirees. The
    following table sets forth the status of the plans, the actuarial
    assumptions and the amounts in the financial statements as of December 31,
    2002 and 2001:

                                       49

<PAGE>

(In thousands)

<TABLE>
<CAPTION>
                                                  PENSION BENEFITS                    POST-RETIREMENT BENEFITS
                                          --------------------------------        --------------------------------
                                          FOR THE YEAR        FOR THE YEAR        FOR THE YEAR        FOR THE YEAR
                                             ENDED               ENDED               ENDED               ENDED
                                          DECEMBER 31,        DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
                                             2002                2001                2002                2001
                                          ------------        ------------        ------------        ------------
<S>                                       <C>                 <C>                 <C>                 <C>
Change in benefit obligation:
 Benefit obligation at beginning
  of period                               $   968,948         $   899,523         $   397,216         $   290,426
 Service cost                                  15,856              16,482               6,751               5,098
 Interest cost                                 67,180              67,820              28,963              22,908
 Actuarial loss                                52,923              25,497             163,600              97,519
 Plan amendments-ERW                               --              33,220                  --               1,829
 Plan amendments-Other                             --                  --                  --                  --
 Benefits paid                                (83,172)            (73,594)            (20,289)            (20,564)
                                          -----------         -----------         -----------         -----------
 Benefit obligation at end of
  Period                                  $ 1,021,735         $   968,948         $   576,241         $   397,216
                                          -----------         -----------         -----------         -----------
Change in plan assets:
 Fair value of plan assets at
  beginning of period                         623,229             579,675                  --                  --
 Actual loss on plan assets                   (61,172)            (38,331)                 --                  --
 Employer contributions                        78,420             154,651                  --                  --
 Benefits paid                                (82,316)            (72,766)                 --                  --
                                          -----------         -----------         -----------         -----------
 Fair value of plan assets at end
  of period                               $   558,161         $   623,229         $        --                  --
                                          -----------         -----------         -----------         -----------

Funded status                                (463,574)           (345,719)           (576,241)           (397,216)
Unrecognized loss                             241,810              76,471             324,225             168,811
Unrecognized prior service cost                22,569              26,353               4,740               5,636
Unrecognized net transition
 Obligation                                     2,269               2,782              22,531              24,733
                                          -----------         -----------         -----------         -----------
Net amount recognized                     $  (196,926)        $  (240,113)        $  (224,745)        $  (198,036)
                                          ===========         ===========         ===========         ===========
Balance sheet amounts consist of:
 Accrued benefit liability                $  (365,412)        $  (333,600)        $  (224,745)        $  (198,036)
 Other asset (Note 7)                          20,646              15,010                  --                  --
 Adjustment required to recognize
  minimum liability                           147,840              78,477                  --                  --
                                          -----------         -----------         -----------         -----------
Net amount recognized                     $  (196,926)        $  (240,113)        $  (224,745)        $  (198,036)
                                          ===========         ===========         ===========         ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                  PENSION AND LUMP
                                                                    SUM BENEFITS    POST-RETIREMENT BENEFITS
                                                                  ----------------  ------------------------
                                                                  2002      2001         2002      2001
                                                                  ----      ----         ----      ----
<S>                                                               <C>       <C>          <C>       <C>
Weighted-average assumptions as of December 31 of each year:
Discount rate                                                     6.75%     7.25%        6.75%     7.25%
Rate of compensation increase                                     4.00%     5.00%        4.00%     5.00%
Expected return on plan assets                                    8.50%     9.25%         n/a       n/a
</TABLE>

    The health-care cost trend rate used to measure the December 31, 2002
    liability was 11% in the first year, decreasing by 1% each year to an
    ultimate rate of 5% in 2009. The rate assumed to measure the December 31,
    2001 liability was 10% in the first year, decreasing 1% each year to an
    ultimate rate of 5%.

    The actuarial loss of $164 million for 2002 relating to the post-retirement
    benefits is principally due to higher medical claims for the prior year,
    higher assumed healthcare rates for future years and a reduction in the
    discount rate from 7.25% to 6.75%.

    The actuarial loss of $53 million for 2002 relating to the pension benefits
    is principally due to the investment loss during 2002 and a reduction in the
    discount rate of .5%. The loss was offset somewhat by the decrease in the
    assumed rate of future wage progression from 5% to 4%.

    For 2001, the actuarial loss resulted from a change in the assumed trend
    rate, participants retiring earlier than expected mainly due to early
    retirement windows, the decrease in the discount rate and higher than
    expected medical claims, resulting from higher medical costs and higher
    utilization.

                                       50
<PAGE>

     The 2002 expense results reflect an expected return on assets of 9.25%. For
     2003, the expected return asset assumption was lowered to 8.50% to reflect
     current market conditions and the allocation of plan investments.

     An additional minimum pension liability adjustment of $12 million and $53
     million was recorded at December 31, 2002 and 2001. The adjustment is
     necessary to reflect as a net liability at a minimum the fair value of
     benefit obligation less plan assets with the fair value of benefit
     obligation calculated on an accumulated benefit obligation basis. An
     offsetting deferred pension asset of $21 million and $15 million was
     recorded at December 31, 2002 and 2001 as part of this calculation to
     recognize all unrecognized prior service costs. The difference between the
     additional liability adjustment and the additional asset was recorded as a
     component of other comprehensive income and all accumulated amounts
     recorded in other comprehensive income is reflected as a separate account
     within shareholders equity.

     In the Acquisition agreement, the PRTA agreed to contribute cash or stock
     worth a total of $200 million as a capital contribution in even $40 million
     installments over five years beginning on March 2, 2000. The Company will
     use the $200 million to fund its underfunded pension and other
     post-employment benefit obligations. The contribution must be in cash for
     the first two installments and cash or stock of the Company for the last
     three installments. During the year ended December 31, 2002, $40 million in
     cash was received corresponding to the third installment. Future receipts
     were originally recorded at their discounted present value of $159.7
     million (at a 8% discount rate) as a specific component of shareholders'
     equity in 1999.

     Net pension and other post-employment benefit expenses for the years 2002,
     2001 and 2000 includes the following components (in thousands):

<TABLE>
<CAPTION>
                                                 FOR THE YEAR      FOR THE YEAR      FOR THE YEAR
                                                     ENDED             ENDED             ENDED
                                                  DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                      2002             2001              2000
                                                 -------------     -------------     -------------
<S>                                              <C>               <C>               <C>
PENSION BENEFIT EXPENSES:

Service cost                                     $      15,856     $      16,482     $      17,079
Interest cost                                           67,180            67,820            67,152
Expected return on plan assets                         (56,890)          (58,168)          (54,677)
Net amortization and deferral                            9,943             5,561             1,461
Effect of early retirement program                          --            33,220            17,354
                                                 -------------     -------------     -------------
Total                                            $      36,089     $      64,915     $      48,369
                                                 =============     =============     =============

OTHER POST-EMPLOYMENT BENEFIT EXPENSES:

Service cost                                     $       6,751     $       5,098     $       4,158
Interest cost                                           28,963            22,908            20,900
Net amortization and deferral                           11,284             6,461             5,495
Effect of early retirement program                          --             1,829               712
                                                 -------------     -------------     -------------
Total                                            $      46,998     $      36,296     $      31,265
                                                 =============     =============     =============
</TABLE>

     EARLY RETIREMENT AND VOLUNTARY SEPARATION PROVISION

     The Company offered a voluntary separation program to qualified management
     employees during the fourth quarter of 2002 and recorded a $0.5 million
     non-cash provision relating to 8 employees accepting.

     During 2001, the Company recorded a total of $52 million for early
     retirement and voluntary separation programs 2001 with four separate
     offerings to a total of 567 employees.

                                       51

<PAGE>

10.  OTHER CURRENT LIABILITIES

     Other current liabilities consist of:

<TABLE>
<CAPTION>
                                   DECEMBER 31,      DECEMBER 31,
                                      2002              2001
                                   -----------       ------------
                                           (In thousands)
<S>                                <C>               <C>
Accounts payable                     $ 80,137          $126,375
Accrued expenses                       86,078            85,182
Employee benefit accruals              39,954            57,816
Carrier payables                       46,540            36,774
Taxes                                   8,622            32,739
Interest                                6,703             7,973
                                     --------          --------
     Total                           $268,034          $346,859
                                     ========          ========
</TABLE>

11.  DEBT

<TABLE>
<CAPTION>
                                                          DECEMBER 31,   DECEMBER 31,
                                                              2002           2001
                                                          ------------   ------------
                                                                (In thousands)
<S>                                                       <C>            <C>
Senior notes:
   Due May 15, 2006 at 6.65%                               $  399,921     $  399,900
   Due May 15, 2009 at 6.80%                                  299,881        299,866
   Due May 15, 2002 at 6.15%                                       --        299,991
Term credit facilities:
   Due May 16, 2004 at 70 basis points over LIBOR              50,000             --
   Due May 31, 2004 at 75 basis points over LIBOR              50,000             --
   Due June 24, 2005 at 100 basis points over LIBOR            50,000             --
   Due August 19, 2005 at 100 basis points over LIBOR          75,000             --
Commercial paper                                               57,700         94,100
Working capital credit facility                                40,000        100,000
Deferred derivative                                             9,018             --
Interest rate swap                                              2,883          1,147
Capital leases                                                    564            772
                                                           ----------     ----------
     Total                                                  1,034,967      1,195,776
Less short-term debt                                           97,932        494,335
                                                           ----------     ----------
     Long-term debt                                        $  937,035     $  701,441
                                                           ==========     ==========
</TABLE>

     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 instruments.

     The Company has a $400 million commercial paper program, which is backed by
     a bank note facility, with maturities not to exceed 365 days. The
     commercial paper dealer agreement was signed in November 2000. The bank
     note is a syndicated five-year revolving facility expiring in March 2004.
     Amounts outstanding under this facility bear interest at 32.5 basis points
     over LIBOR. Effective November 2002, the bank note facility was decreased
     from $500 million to $400 million. The bank note credit agreement includes
     financial covenants, the most significant being that the outstanding
     principal balance will not exceed four times adjusted Earnings Before
     Interest, Taxes, Depreciation, and Amortization ("EBITDA"), as defined in
     the facility agreement.

     The Company also has a $50 million working capital credit facility with
     Banco Popular de Puerto Rico, an affiliate of Popular, Inc. Amounts
     outstanding under this facility bear interest at a rate of 30 basis points
     over LIBOR. This facility was renewed in June 2002 with a term of one year.
     At December 31, 2002, the Company had drawn $40 million under this
     facility.

     On August 31, 2001, the Company entered into an interest rate swap contract
     at 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 consistent
     with SFAS No. 104, and created a deferred derivative, which will be
     amortized until 2006. The purpose of the swap is to hedge against changes

                                       52

<PAGE>
     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:

<TABLE>
<CAPTION>
                                AMOUNT
                             -------------
                             (In thousands)
<S>                          <C>
2004                          $    100,000
2005                               125,000
2006                               400,000
2009                               300,000
                              ------------
     Total                    $    925,000
                              ============
</TABLE>

12.  OTHER NON-CURRENT LIABILITIES

     Other non-current liabilities consist of:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,  DECEMBER 31,
                                                              2002          2001
                                                           ------------  ----------
                                                                  (In thousands)
<S>                                                        <C>           <C>
Deferred activation and installation revenues              $     65,352  $    49,744
Customer deposits                                                27,490       27,911
Other liabilities                                                53,792       47,250
                                                           ------------  -----------
     Total                                                 $    146,634  $   124,905
                                                           ============  ===========
</TABLE>

13.  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 Company shares. Shares are maintained in a suspense account
     until released to 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.

     The ESOP obtained a $2 million and $3 million advance from the Company in
     2001 and 2000, respectively, that was used to purchase Company shares from
     retired employees. The capital contribution was reflected as additional
     deferred ESOP compensation in equity.

     Compensation expense is recorded based on the release of shares at market
     value, based on an independent appraisal performed annually. The ESOP
     released approximately 39,800 and 40,800 shares in 2002 and 2001,
     respectively. This release resulted in compensation expense of $3 million
     for each of the two years, respectively, reflecting the market value of the
     shares. The release of shares, based upon the per share price established
     at the Acquisition, amounted to $1.4 million for both December 31, 2002 and
     2001, which is reflected as a reduction of deferred ESOP compensation in
     equity.

                                       53

<PAGE>

14.  SHAREHOLDERS' EQUITY

     COMMON STOCK

     Common stock consisted of fifty million authorized no par value shares, of
     which twenty five million shares were outstanding at December 31, 2002 and
     2001.

     SUBSCRIPTION RECEIVABLE

     The subscription receivable reflects future receipts from the Puerto Rico
     Telephone Authority ("PRTA") at its present value (at an 8% discount rate).
     As part of the Acquisition agreement, the PRTA agreed to contribute cash or
     stock worth a total of $200 million as a capital contribution in even $40
     million installments over five years beginning on March 2, 2000. The
     Company will use the $200 million to fund its underfunded pension and other
     post-employment benefit obligations. The stock purchase agreement requires
     that the Company contribute $66 million to the pension plan immediately
     upon receipt of the proceeds each year.

     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, 2002 has
     been adjusted in the amount of $57.6 million in order to reflect it net of
     tax in accordance with the provisions of SFAS No.130.

     DIVIDENDS

     The 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:

<TABLE>
<CAPTION>
                 2002
                 ----
            (In thousands)
<S>                     <C>
4th Quarter             $     15,926
3rd Quarter                   40,301
2nd Quarter                   11,502
1st Quarter                    1,107
                        ------------
  Total                 $     68,836
                        ------------
</TABLE>

<TABLE>
<CAPTION>
              2001
              ----
         (In thousands)
<S>                 <C>
4th Quarter         $    16,727
3rd Quarter              23,163
2nd Quarter              17,972
                             --
                    -----------
  Total             $    57,862
                    -----------
</TABLE>

15.  INCOME TAXES

     The Company and its subsidiaries file individual income tax returns, as
     consolidated returns are not allowed under the provisions of the 1994
     Puerto Rico Internal Revenue Code, as amended (the "Code").

     Provision (benefit) for income tax is determined by applying the maximum
     statutory tax rate of 39% to pretax income. During the year 2002 and 2001,
     the Company recorded an income tax provision of $30 million and $70
     million, respectively, as set forth below:

<TABLE>
<CAPTION>
                                        YEAR ENDED      YEAR ENDED
                                        DECEMBER 31,    DECEMBER 31,
                                            2002            2001
                                        ------------    ------------
                                               (In thousands)
<S>                                     <C>             <C>
Current                                 $     24,444    $     55,889
Deferred                                       4,927          13,619
                                        ------------    ------------
       Total                            $     29,371    $     69,508
                                        ============    ============
</TABLE>

                                       54

<PAGE>

     A reconciliation of the provision (benefit) to the amount computed by
     applying the statutory rate for the year ended December 31, 2002 and 2001,
     is as follows:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED        YEAR ENDED
                                                                    DECEMBER 31,      DECEMBER 31,
                                                                        2002              2001
                                                                    ------------      ------------
                                                                            (In thousands)
<S>                                                                 <C>               <C>
Provision computed at statutory rate                                    39.0%             39.0%
Effect of income tax provision (benefit) as a result of:
   Book income not subject to tax                                       (0.9)             (2.3)
   Additional deduction for tax purposes                                (1.5)             (0.1)
   Change in valuation allowance                                        21.5)               --
   Other                                                                  --               0.5
                                                                        ----              ----

Income tax provision (benefit)                                          15.1%             37.1%
                                                                        ====              ====
</TABLE>

     The amount of deferred income tax asset as of December 31, 2002 and 2001,
     is as follows:

<TABLE>
<CAPTION>
                                                                       2002               2001
                                                                  --------------      -------------
                                                                            (In thousands)
<S>                                                               <C>                 <C>
Goodwill and intangibles                                          $       91,460      $      55,483
Employee benefit liabilities                                             227,495            173,470
Net loss carry-forward and other                                         (10,104)            (7,454)
                                                                  --------------      -------------
          Total                                                   $      308,851      $     221,499
                                                                  ==============      =============
</TABLE>

     Management believes that realization of the deferred income tax asset is
     more likely than not, based on its evaluation of the Company's anticipated
     taxable income over the period of years that the temporary differences are
     expected to become tax deductions.

     At December 2001, the Company had a valuation allowance of approximately
     $28 million, against accumulated net operating losses reflected as a
     deferred tax asset, which relates to the Company's wireless business. This
     allowance was established since, based on currently available evidence,
     management did not believe that it was more likely than not that Verizon
     Wireless would generate a sufficient level and proper mix of taxable income
     within the appropriate period to utilize these tax benefits.

     During the year 2002, as a result of the merger of Verizon Wireles into
     PRTC (see Note 1 of the consolidated financial statements for disclosure on
     business / corporate structure), management has determined that it is more
     likely them not that the net operating losses will be utilized and,
     accordingly, reduced such valuation allowance to zero.

16.  RELATED PARTY TRANSACTIONS

     During the years ended December 31, 2002 and 2001, the Company had the
     following significant transactions with affiliated companies:

     -   At December 31, 2002 and 2001, the Company maintained an outstanding
         $90 million and $50 million respectively, working capital credit
         facility with an affiliate. This affiliate provides the Company with
         general banking services, such as lock-box and payroll. In addition,
         the Company has a contract with this affiliate by which they print and
         send the monthly billings to the Company's wireless customers. The
         charges for all of these services amounted to approximately $7 million
         for the years ended December 31, 2002 and 2001.

     -   As a result of the Acquisition, the Company entered into a five-year
         Management and Technology License Agreement with Verizon. Under this
         agreement, affiliates of Verizon will provide advice and direction
         related to the administration and operations of the Company, as well as
         intellectual property or software. Fees for these services amounted to
         $39 million for both years ended December 31, 2002 and 2001.

                                       55

<PAGE>

     -   In January 2000, the Company entered into a joint venture agreement
         with VISI the largest yellow page publishing company in Puerto Rico.
         During the years ended December 31, 2002 and 2001, the Company
         generated earnings of $2 million and $3 million, respectively, for its
         approximate 25% share in VISI.

     -   The Company also enters into transactions with affiliates for the
         purchase of materials and supplies used in the construction and
         expansion of its telecommunications network. Such transactions are
         subject to conditions similar to transactions with independent third
         parties. The Company also participates with affiliates of shareholders
         in sharing the cost of development of computer software programs by
         third party vendors. The shareholders receive no compensation for
         arranging the development of such systems. In addition, the Company
         reimburses shareholders and affiliates for the direct cost of a limited
         number of employees that work at the Company in management positions.

17.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts and fair values of the Company's financial instruments
     at December 31 are as follows:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,                      DECEMBER 31,
                                                        2002                              2001
                                               -------------------------         -------------------------
                                               Carrying          Fair            Carrying          Fair
                                                Amount           Value            Amount           Value
                                               --------         --------         --------         --------
                                                                     (In thousands)
<S>                                            <C>              <C>              <C>              <C>
     Assets:
         Cash and cash equivalents             $ 33,667         $ 33,667         $ 34,797         $ 34,797
         Accounts receivable                    342,359          342,359          359,914          359,914
     Liabilities:
         Other current liabilities             $268,034         $268,034         $346,859         $346,859
         Short-term debt                         97,932           97,932          494,335          498,649
         Long-term debt, including interest
         rate swap                              937,035          984,233          701,441          699,001
</TABLE>

18.  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 Company measures and evaluates the performance of its segments based on
     EBITDA, which is a common industry profitability and liquidity measurement.
     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.

                                       56

<PAGE>

     Segment results for the Company are as follows (in thousands):

<TABLE>
<CAPTION>
                                         FOR THE YEAR      FOR THE YEAR      FOR THE YEAR
                                            ENDED             ENDED             ENDED
                                         DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                             2002              2001              2000
                                         ------------      ------------      ------------
<S>                                      <C>               <C>               <C>
WIRELINE:
  Revenues
    Local services                       $   584,680       $   570,959       $   557,674
    Long distance services                   146,190           187,360           170,422
    Access services                          330,739           361,762           392,471
    Directory services and other              66,330            82,826            85,038
                                         -----------       -----------       -----------
  Total revenues                         $ 1,127,939       $ 1,202,907       $ 1,205,605
                                         ===========       ===========       ===========
  EBITDA                                 $   467,275       $   491,552       $   472,231
                                         ===========       ===========       ===========
  Capital expenditures                   $   164,457       $   197,817       $   163,973
                                         ===========       ===========       ===========
  Depreciation and amortization          $   220,013       $   227,286       $   258,195
                                         ===========       ===========       ===========

WIRELESS:
  Revenues and sales
     Cellular services                   $   174,542       $   179,173       $   148,183
     Paging services                           5,241            14,913            33,795
     Equipment sales and other                 6,925            14,425            13,145
                                         -----------       -----------       -----------
  Total revenues and sales               $   186,708       $   208,511       $   195,123
                                         ===========       ===========       ===========

  EBITDA                                 $    40,803       $    26,204       $    56,528
                                         ===========       ===========       ===========
  Capital expenditures                   $    40,199       $    43,129       $    45,331
                                         ===========       ===========       ===========
  Depreciation and amortization          $    41,530       $    43,688       $    40,257
                                         ===========       ===========       ===========

CONSOLIDATED:
  Revenues for reportable segments       $ 1,314,647       $ 1,411,418       $ 1,400,728
  Elimination of intersegment revenues       (13,372)          (14,823)           (7,149)
                                         -----------       -----------       -----------
  Consolidated revenues                  $ 1,301,275       $ 1,396,595       $ 1,393,579
                                         ===========       ===========       ===========

EBITDA:
  Operating income                       $   246,535       $   246,782       $   230,307
  Depreciation and amortization              261,543           270,974           298,452
                                         -----------       -----------       -----------
  EBITDA                                 $   508,078       $   517,756       $   528,759
                                         ===========       ===========       ===========

  Capital expenditures                   $   204,656       $   240,946       $   209,304
                                         ===========       ===========       ===========
</TABLE>

<TABLE>
<CAPTION>
                                            AS OF             AS OF
                                         DECEMBER 31,      DECEMBER 31,
             ASSETS                         2002              2001
----------------------------------       -----------       -----------
<S>                                      <C>               <C>
Wireline assets                          $ 2,645,088       $ 2,622,094

Wireless assets                              290,891           468,062
                                         -----------       -----------
Segment assets                           $ 2,935,979       $ 3,090,156

Elimination of intersegment assets          (218,582)         (311,300)
                                         -----------       -----------
Consolidated assets                      $ 2,717,397       $ 2,778,856
                                         ===========       ===========
</TABLE>

                                       57

<PAGE>

19.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest for the year ended December 31, 2002 and 2001
     amounted to approximately $60 million and $73 million, respectively. During
     the years ended December 31, 2002 and 2001, the Company paid income taxes
     amounting to $34 million and $49 million respectively. However, there were
     no cash payments for income taxes by the Company during the year ended
     December 31, 2000.

20.  LEASES

     The Company has capital and operating leases for certain facilities and
     equipment. Future minimum lease payments under non-cancelable capital and
     operating leases are as follows:

<TABLE>
<CAPTION>
                                                   CAPITAL           OPERATING
                                                 ------------       -----------
                                                         (In thousands)
<S>                                              <C>                <C>
YEAR ENDING DECEMBER 31,

2003                                                $   279           $10,642
2004                                                    215             8,476
2005                                                    140             6,290
2006                                                     15             4,453
2007                                                     --             2,762
Thereafter                                               --            12,692
                                                    -------           -------
Total minimum lease payments                            649            45,315
Less amount representing interest                        78                --
                                                    -------           -------
Present value of minimum lease payments             $   571           $45,315
                                                    =======           =======
</TABLE>

     Lease costs for the years ended December 31, 2002, 2001 and 2000 amounted
     to approximately $12 million, $11 million and $10 million, respectively.

21.  CONTINGENCIES AND REGULATORY MATTERS

     The Company is a defendant in various legal matters arising in the ordinary
     course of business. The most significant legal and regulatory issues are as
     follows:

     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 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
     through 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 and directs PRTC
     to make a cash refund to end-user customers. The prospective access rate
     reductions (on a two-way basis) were ordered to take place 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 April 1, 2000 through March 31, 2002. The refund can be made in 12
     quarterly, equal installments starting April 1, 2002.

                                       58

<PAGE>

     The Company filed with the Puerto Rico Circuit Court of Appeals ("Court")
     an appeal of the February 2002 Order in which the Company alleges the TRB
     made errors of law and procedure in its determination of access charges and
     its order to make the cash refund. The Court stayed the refund and the rate
     reduction on March 27, 2002 and is currently hearing the appeal.

     On April 2, 2002, AT&T, Sprint and LTD ("Carriers") filed a petition with
     the Court for review of the February 2002 Order, requesting the Court to
     order the rate reduction without a phase-in period, remand the case back to
     the TRB and direct the TRB to calculate the refund from and after April
     1997 instead of April 2000, with the Carriers receiving the refund instead
     of the end-user customers.

     The hearing involving oral presentations by the parties was held on
     February 19, 2003. The parties will have a fifteen (15) day period to
     submit their post hearing final brief once the transcript of the oral
     argument is received. PRT has not received this transcript yet. At this
     preliminary stage it is too early to assess the probability of success in
     the appeals process. The Company believes the Carriers' petition for review
     is without merit.

     Public Telephone Service Provider - Anti Competitive Disputes

     Telefonos Publicos de Puerto Rico, Inc. ("TPPR") the largest competitive
     provider of public pay phones in Puerto Rico filed a suit in the U.S.
     District Court on November 8th, 2001, claiming predatory, exclusionary and
     anticompetitive acts and seeking damages of $75 million. We have filed a
     motion to dismiss the case and are awaiting a decision of the court.

     Pan American Telephone, Inc., Intouch Telecommunications, Inc., and
     Choicetel Communications, Inc., three additional competitive providers also
     filed a similar suit 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 claim is similar to TPPR claim, we have
     filed a motion to dismiss the case. At present, we are awaiting a decision
     of the court.

     In August 16, 2002, PSA, the parent company for Phoenix filed a suit in the
     Delaware bankruptcy court claiming anti competitive acts. The claims have
     since been transferred to Federal District Court and the disputes between
     the two parties include PRT's amended administrative claim against PSA, and
     PSA's complaint for over $9 million against PRT. PRT has filed a motion to
     dismiss and change of venue which is pending before the Federal District
     Court.

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

     Touchtone Charges

     On July 2, 2002, three residential telephone service subscribers and one
     business service subscriber filed a class action suit with the Superior
     Court of Puerto Rico (the "Superior Court") under the Puerto Rico
     Telecommunications Act of 1996 ("Act"). The plaintiffs claim that the
     Company's charges for touchtone service are not based on cost, and are
     therefore in violation of the Act. They have requested that the Court (i)
     issue an Order certifying the case as a class action, (ii) designate the
     plaintiffs as representatives of the class, (iii) find that the charges are
     illegal, (iv) establish a maximum charge based on cost, and (v) order the
     Company to reimburse every subscriber for excess payments made since
     September 1996.

     On October 25, 2002, plaintiffs filed a motion requesting class
     certification. The plaintiffs filed on November 22, 2002, a voluntary
     request for dismissal as to some plaintiffs. On December 19, 2002, PRT
     filed its answer to the amended complaint. On February 18, 2003, PRT filed
     its respective opposition to plaintiff's motion for class certification. At
     present, we are awaiting for a decision with respect to the voluntary
     dismissals and our opposition to class certification.

     Measured Service Unit Charges

     On July 16, 2002, one residential telephone service subscriber and three
     business service subscribers filed a class action with the Court under the
     Act. The plaintiffs claim that the Company's unit charges for local
     measured service are not based on cost, and are therefore in violation of
     the Act. They have requested that the Court (i) issue an Order certifying
     the case as a class action, (ii) designate the plaintiffs as
     representatives of the class, (iii) find that the unit charges are illegal,
     (iv) establish a maximum unit charge based on cost, and (v) order the
     Company to reimburse every subscriber for excess payments made since
     September 1996.

                                       59

<PAGE>
     On November 22, 2002 plaintiffs filed the request for voluntary dismissal
     without prejudice. On February 26, 2003, the Court issued an Order with
     respect to the motion requesting voluntary dismissal. Specifically, the
     Court ordered the plaintiffs to present within a period of twenty (20)
     days, that is until March 18, 2003, their position towards the class action
     suit if the dismissal is granted. However, on March 5, 2003 the Court
     issued an Order dismissing the case without prejudice.

     Message processing and billing systems

     The Company has an agreement for the implementation of a traffic polling
     and billing software system for its wireline operations. The billing
     portion of the project is currently behind schedule and management is
     evaluating the feasibility of continuing that portion. As of December 31,
     2002 the Company has invested approximately $30 million in hardware,
     software and labor on the billing system portion of the project.

     Other

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

                                       60

<PAGE>

22.  QUARTERLY FINANCIAL DATA

The following table reflects the unaudited quarterly results of the Company for
the years ended December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
(In thousands)                  AS REPORTED    RESTATED    AS REPORTED    RESTATED      AS REPORTED  RESTATED
                                   FIRST        FIRST         SECOND       SECOND          THIRD       THIRD         FOURTH
                                  QUARTER      QUARTER       QUARTER       QUARTER        QUARTER     QUARTER       QUARTER
                                -----------   ----------   ------------  -----------    -----------  ----------   ------------
<S>                             <C>           <C>          <C>           <C>            <C>          <C>          <C>
2002
  Revenues                      $   320,697                $    333,386                 $   318,408               $    328,784
  Operating costs and expenses      270,198                     261,502                     259,145                    263,895
                                -----------                ------------                 -----------               ------------
  Operating income              $    50,499                $     71,884                 $    59,263               $     64,889
                                ===========                ============                 ===========               ============
  Income before cumulative
     effect of accounting
     change                     $    23,004                $     80,602                 $    31,852               $     35,575
                                ===========                ============                 ===========               ============
  Cumulative effect of
     accounting change,
     net of tax                 $        --                $         --                 $        --               $         --
                                ===========                ============                 ===========               ============
  Net income                    $    23,004                $     80,602                 $    31,852               $     35,575
                                ===========                ============                 ===========               ============
2001
  Revenues                      $   340,506                $    367,796                 $   345,410               $    342,883
  Operating costs and expenses      263,586                     283,875                     276,369                    325,983
                                -----------                ------------                 -----------               ------------
  Operating income              $    76,920                $     83,921                 $    69,041               $     16,900
                                ===========                ============                 ===========               ============
  Income before cumulative
     effect of accounting
     change                     $    36,463                $     46,325                 $    33,455               $      2,213
                                ===========                ============                 ===========               ============
  Cumulative effect of
     accounting change,
     net of tax                 $        --                $         --                 $        --               $         --
                                ===========                ============                 ===========               ============
  Net income                    $    36,463                $     46,325                 $    33,455               $      2,213
                                ===========                ============                 ===========               ============
2000
  Revenues (1) (2)              $   343,419    $ 329,772   $    358,143   $   357,639   $   355,675   $  347,043  $    359,125
  Operating costs and
     expenses (1)                   281,385      274,528        279,388       273,509       293,046      289,755       325,480
                                -----------    ---------   ------------   -----------   -----------   ----------  ------------
  Operating income              $    62,034    $  55,244   $     78,755   $    84,130   $    62,629   $   57,288  $     33,645
                                ===========    =========   ============   ===========   ===========   ==========  ============
  Income before cumulative
     effect of accounting
     change                     $    24,991    $  20,849   $     35,921   $    39,200   $    27,393   $   24,135  $     31,238
                                ===========    =========   ============   ===========   ===========   ==========  ============
  Cumulative effect of
     accounting change,
     net of tax (1) (2)         $        --    $  10,769   $         --   $        --   $        --   $       --  $         --
                                ===========    =========   ============   ===========   ===========   ==========  ============
  Net income                    $    24,991    $  31,618   $     35,921   $    39,200   $    27,393   $   24,135  $     31,238
                                ===========    =========   ============   ===========   ===========   ==========  ============
</TABLE>


(1)  During the fourth quarter of 2000, the Company changed its revenue
     recognition accounting method, in accordance with SEC Staff Accounting
     Bulletin No. 101 "Revenue Recognition in Financial Statements," effective
     January 1, 2000 (see Note 3). The quarterly information for the first three
     quarters of 2000, which had been previously reported has been restated. No
     restatement of 1999 information was necessary.

(2)  During the fourth quarter of 2000, the Company changed its method of
     accounting for directory-publishing revenues and related expenses from the
     amortization method to the point of publication method, effective January
     1, 2000 (see Note 3). The quarterly information for the first three
     quarters of 2000, which had been previously reported has been restated. No
     restatement of 1999 information was necessary.

                                       61

<PAGE>

23.  CONDENSED CONSOLIDATING INFORMATION

     The Notes are guaranteed by PRTC, a wholly owned subsidiary of the Company
     (the "Guarantor Subsidiaries"), 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.

     The following condensed consolidating financial information as of December
     31, 2002 and 2001 and for the years then ended, presents the financial
     position, results of operations and cash flows of (i) the Company as if it
     accounted for its subsidiaries on the equity method, (ii) the Guarantor
     Subsidiary; and (iii) the Non-Guarantor Subsidiaries on a combined basis.
     The consolidation entries eliminate investments in subsidiaries and
     intercompany balances and transactions.

                                       62

<PAGE>

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                       GUARANTOR     NON-GUARANTOR                    TOTAL
                                                         PARENT       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                       -----------    ------------   -------------  ------------   ------------
<S>                                                    <C>            <C>            <C>            <C>            <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                         $         1    $    27,009    $     6,657    $        --    $    33,667
     Intercompany accounts receivable                    1,187,799        196,889         21,694     (1,406,382)            --
     Accounts receivable, net                                   --        343,307            212             --        343,519
     Inventory and supplies, net                                --         18,039             --             --         18,039
     Prepaid expenses                                           --         10,467            409             --         10,876
                                                       -----------    -----------    -----------    -----------    -----------
         Total current assets                            1,187,800        595,711         28,972     (1,406,382)       406,101
PROPERTY, PLANT AND EQUIPMENT, net                              --      1,561,866         13,468             --      1,575,334
INTANGIBLES, net                                                --        282,393         25,382             --        307,775
DEFERRED INCOME TAX                                             --        308,765             86             --        308,851
INVESTMENT IN SUBSIDIARIES                                (574,833)            --             --       (574,833)            --
OTHER ASSETS                                                16,187        116,138             (1)       (12,988)       119,336
                                                       -----------    -----------    -----------    -----------    -----------
TOTAL ASSETS                                           $ 1,778,820    $ 2,864,873    $    67,907    $(1,994,203)   $ 2,717,397
                                                       ===========    ===========    ===========    ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                                  $    97,700    $    97,932             --    $   (97,700)   $    97,932
      Intercompany accounts payable                         71,062        299,064         17,724       (387,850)            --
      Other current liabilities                              7,979        254,570          5,485             --        268,034
                                                       -----------    -----------    -----------    -----------    -----------
         Total current liabilities                         176,741        651,566         23,209       (485,550)       365,966
LONG-TERM DEBT, excluding current portion                  936,703        925,133             --       (924,801)       937,035
OTHER NON-CURRENT LIABILITIES                                   --        745,810             --         (9,019)       736,791
                                                       -----------    -----------    -----------    -----------    -----------
          Total liabilities                              1,113,444      2,322,509         23,209     (1,419,370)     2,039,792
                                                       -----------    -----------    -----------    -----------    -----------
MINORITY INTEREST                                               --             --             --         12,229         12,229
                                                       -----------    -----------    -----------    -----------    -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
    Common stock, Additional paid in capital
          and Treasury stock                               703,270        485,590         41,143       (526,733)       703,270
    Deferred ESOP compensation                             (27,408)            --             --             --        (27,408)
    Subscription receivable                                (76,093)            --             --             --        (76,093)
    Retained earnings (deficit)                            155,789        146,956          3,555       (150,511)       155,789
    Accumulated other comprehensive loss                   (90,182)       (90,182)            --         90,182        (90,182)
                                                       -----------    -----------    -----------    -----------    -----------
          Total shareholders' equity                       665,376        542,364         44,698       (587,062)       665,376
                                                       -----------    -----------    -----------    -----------    -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $ 1,778,820    $ 2,864,873    $    67,907    $(1,994,203)   $ 2,717,397
                                                       ===========    ===========    ===========    ===========    ===========
</TABLE>

                                       63

<PAGE>

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    GUARANTOR     NON-GUARANTOR                    TOTAL
                                                      PARENT       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                    -----------    ------------   ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>            <C>            <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                      $        --    $    32,591    $     2,206    $        --    $    34,797
     Intercompany accounts receivable                 1,316,922        311,067            233     (1,628,222)            --
     Accounts receivable, net                                --        359,521            393             --        359,914
     Inventory and supplies, net                             --         24,755             --             --         24,755
     Prepaid expenses                                        --         11,200            410             --         11,610
                                                    -----------    -----------    -----------    -----------    -----------
         Total current assets                         1,316,922        739,134          3,242     (1,628,222)       431,076
PROPERTY, PLANT AND EQUIPMENT, net                           --      1,623,717          8,053             --      1,631,770
INTANGIBLES, net                                             --        332,836         25,628             --        358,464
DEFERRED INCOME TAX                                          --        221,324            175             --        221,499
INVESTMENT IN SUBSIDIARIES                              486,201             --             --       (486,201)            --
OTHER ASSETS                                              6,190        105,441             --         (6,190)       105,441
                                                    -----------    -----------    -----------    -----------    -----------
TOTAL ASSETS                                        $ 1,809,313    $ 3,022,452    $    37,098    $(2,120,613)   $ 2,748,250
                                                    ===========    ===========    ===========    ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                               $   494,100    $   494,335    $        --    $  (494,100)   $   494,335
      Intercompany accounts payable                      65,715        371,007          2,688       (439,410)            --
      Other current liabilities                           8,280        336,930          1,649             --        346,859
                                                    -----------    -----------    -----------    -----------    -----------
         Total current liabilities                      568,095      1,202,272          4,337       (933,510)       841,194
LONG-TERM DEBT, excluding current portion               700,903        701,441             --       (700,903)       701,441
OTHER NON-CURRENT LIABILITIES                             2,000        654,541             --             --        656,541
                                                    -----------    -----------    -----------    -----------    -----------
          Total liabilities                           1,270,998      2,558,254          4,337     (1,634,413)     2,199,176
                                                    -----------    -----------    -----------    -----------    -----------
MINORITY INTEREST                                            --             --             --         10,759         10,759
                                                    -----------    -----------    -----------    -----------    -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
    Common stock, Additional paid in capital
         and Treasury stock                             701,952        490,927         35,806       (526,733)       701,952
    Deferred ESOP compensation                          (28,793)            --             --             --        (28,793)
    Subscription receivable                            (109,959)            --             --             --       (109,959)
    Retained earnings (deficit)                          53,592         51,748         (3,045)       (48,703)        53,592
    Accumulated other comprehensive loss                (78,477)       (78,477)            --         78,477        (78,477)
                                                    -----------    -----------    -----------    -----------    -----------
          Total shareholders' equity                    538,315        464,198         32,761       (496,959)       538,315
                                                    -----------    -----------    -----------    -----------    -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          $ 1,809,313    $ 3,022,452    $    37,098    $(2,120,613)   $ 2,748,250
                                                    ===========    ===========    ===========    ===========    ===========
</TABLE>

                                       64

<PAGE>

                     CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                         For the year ended December 31,2002
                                   (In thousands)

<TABLE>
<CAPTION>
                                                            GUARANTOR     NON-GUARANTOR                        TOTAL
                                             PARENT       SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS     CONSOLIDATED
                                          ------------    ------------    -------------   ------------     ------------
<S>                                       <C>             <C>             <C>             <C>              <C>
REVENUES:
  Local services                            $       --     $   563,417     $    25,615     $   (10,700)     $   578,332
  Long distance services                            --         124,956          22,182          (1,427)         145,711
  Access services                                   --         335,508              --         (10,055)         325,453
  Cellular services                                 --         174,542              --          (1,602)         172,940
  Paging services                                   --           5,241              --              --            5,241
  Directory services                                --          19,928              --              --           19,928
  Other services and sales                          --          66,237              --         (12,502)          53,735
                                          ------------     -----------     -----------     -----------      -----------
    Total revenues                                  --       1,289,829          47,797         (36,286)       1,301,340
                                          ------------     -----------     -----------     -----------      -----------
OPERATING COSTS AND EXPENSES:
  Labor and benefits                                --         362,708           2,603              --          365,311
  Other operating expenses                      (1,860)        433,916          31,714         (36,286)         427,484
  Early retirement provision                        --             467              --              --              467
  Depreciation and amortization                     --         258,534           3,009              --          261,543
                                          ------------     -----------     -----------     -----------      -----------
    Total operating costs and expenses          (1,860)      1,055,625          37,326         (36,286)       1,054,805
                                          ------------     -----------     -----------     -----------      -----------
OPERATING INCOME (LOSS)                          1,860         234,204          10,471              --          246,535
                                          ------------     -----------     -----------     -----------      -----------
OTHER INCOME (EXPENSE), NET                    169,173         (44,664)              2        (170,642)         (46,131)
                                          ------------     -----------     -----------     ------------     -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE        171,033         189,540          10,473        (170,642)         200,404

INCOME TAX EXPENSE                                  --          25,499           3,872              --           29,371
                                          ------------     -----------     -----------     -----------      -----------
NET INCOME (LOSS)                         $    171,033     $   164,041     $     6,601     $  (170,642)     $   171,033
                                          ============     ===========     ===========     ===========      ===========
</TABLE>

                                     65

<PAGE>

                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                      For the year ended December 31, 2001
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                      GUARANTOR       NON-GUARANTOR                        TOTAL
                                                  PARENT             SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                                ----------           ------------     -------------    ------------    ------------
<S>                                             <C>                  <C>              <C>              <C>             <C>
REVENUES:
  Local services                                $       --           $  551,302       $   22,442       $   (7,153)     $  566,591
  Long distance services                                --              187,659               --           (1,939)        185,720
  Access services                                       --              367,761               --          (13,025)        354,736
  Cellular services                                     --              179,173               --           (2,102)        177,071
  Paging services                                       --               14,913               --               (7)         14,906
  Directory services                                    --               20,292               --               --          20,292
  Other services and sales                              --               92,077               --          (14,798)         77,279
                                                ----------           ----------       ----------       ----------      ----------
        Total revenues                                  --            1,413,177           22,442          (39,024)      1,396,595
                                                ----------           ----------       ----------       ----------      ----------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                    --              382,019            2,212               --         384,231
  Other operating expenses                          (5,034)             473,324           13,371          (39,024)        442,637
  Early retirement provision                            --               51,971               --               --          51,971
  Depreciation and amortization                         --              264,957            6,017               --         270,974
                                                ----------           ----------       ----------       ----------      ----------
        Total operating costs and expenses          (5,034)           1,172,271           21,600          (39,024)      1,149,813
                                                ----------           ----------       ----------       ----------      ----------

OPERATING INCOME  (LOSS)                             5,034              240,906              842               --         246,782
                                                ----------           ----------       ----------       ----------      ----------

OTHER INCOME (EXPENSE), NET                        113,700              (59,137)              46         (113,427)        (58,818)
                                                ----------           ----------       ----------       ----------      ----------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE            118,734              181,769              888         (113,427)        187,964

INCOME TAX EXPENSE                                     278               67,703            1,527               --          69,508
                                                ----------           ----------       ----------       ----------      ----------

NET INCOME (LOSS)                               $  118,456           $  114,066       $     (639)      $ (113,427)     $  118,456
                                                ==========           ==========       ==========       ==========      ==========
</TABLE>

                                       66

<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      For the year ended December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                  GUARANTOR     NON-GUARANTOR      TOTAL
                                                       PARENT    SUBSIDIARIES   SUBSIDIARIES     CONSOLIDATED
                                                      ---------  ------------   -------------    ------------
<S>                                                   <C>          <C>            <C>              <C>
CASH PROVIDED BY OPERATING ACTVITIES:                 $  11,294    $ 384,969       $   8,592       $ 404,855
                                                      ---------    ---------       ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs             --     (204,714)         (4,141)       (208,855)
   Net salvage on retirements                                --        3,270              --           3,270
                                                      ---------    ---------       ---------       ---------
              Net cash used in investing activities          --     (201,444)         (4,141)       (205,585)
                                                      ---------    ---------       ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                  40,000           --              --          40,000
   Net repayments of short-term debt, including
      capital leases                                   (396,361)        (203)             --        (396,564)
   Borrowings of long-term debt                         225,000           --                         225,000
   Dividends paid                                       (68,836)          --              --         (68,836)
   Borrowings/(repayment) intercompany loans            188,904     (188,904)             --              --
                                                      ---------    ---------       ---------       ---------
              Net cash used in financing activities     (11,293)    (189,107)             --        (200,400)
                                                      ---------    ---------       ---------       ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS                     1       (5,582)          4,451          (1,130)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                   -       32,591           2,206          34,797
                                                      ---------    ---------       ---------       ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $       1    $  27,009       $   6,657       $  33,667
                                                      =========    =========       =========       =========
</TABLE>

                                       67

<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      For the year ended December 31, 2001
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                              GUARANTOR       NON-GUARANTOR       TOTAL
                                                                  PARENT     SUBSIDIARIES      SUBSIDIARIES    CONSOLIDATED
                                                                ----------   ------------     -------------    ------------
<S>                                                             <C>          <C>              <C>              <C>
CASH PROVIDED BY OPERATING ACTVITIES:                           $    2,936     $ 206,839         $  6,082        $ 215,857
                                                                ----------     ---------         --------        ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs                        --      (241,493)          (4,836)        (246,329)
   Net salvage on retirements                                           --        10,342               --           10,342
   Proceeds from sale                                               16,367           (76)              76           16,367
                                                                ----------     ---------         --------        ---------
              Net cash used in investing activities                 16,367      (231,227)          (4,760)        (219,620)
                                                                ----------     ---------         --------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                             40,000            --               --           40,000
   Advance to ESOP                                                  (1,560)           --               --           (1,560)
   Net repayments of short-term debt, including
      capital leases                                                27,156            (8)              --           27,148
   Dividends paid                                                  (57,862)           --               --          (57,862)
   Borrowings/(repayment) intercompany loans                       (27,037)       27,037               --               --
                                                                -----------    ---------         --------        ---------
              Net cash used in financing activities                (19,303)       27,029               --            7,726
                                                                -----------    ---------         --------        ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS                               --         2,641            1,322            3,963
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                             --        29,950              884           30,834
                                                                ----------     ---------         --------        ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                      $       --     $  32,591         $  2,206        $  34,797
                                                                ==========     =========         ========        =========
</TABLE>

                                       68

<PAGE>

TELECOMUNICACIONES DE PUERTO RICO, INC.

SCHEDULE II - Valuation and Qualifying Accounts For The Years Ended December 31,
2002, 2001and 2000

<TABLE>
<CAPTION>
                                                           ADDITIONS
                                                 -------------------------------
                                   BALANCE AT                      CHARGED          DEDUCTIONS
                                   BEGINNING     CHARGED TO     (CREDITED) TO          FROM          BALANCE AT
         DESCRIPTION                OF YEAR        INCOME     OTHER ACCOUNTS (b)   RESERVES (a)    CLOSE OF YEAR
------------------------------     ----------    ----------   ------------------   ------------    -------------
                                                             (Dollars in Million)
<S>                                <C>           <C>          <C>                  <C>             <C>
December 31, 2002
   Allowance for uncollectible
     accounts                         $107          $ 73             $ 13             $ (60)            $133
                                      ====          ====             ====             =====             ====
December 31, 2001
   Allowance for uncollectible
     accounts                         $ 86          $ 73             $ 26             $ (78)            $107
                                      ====          ====             ====             =====             ====
December 31, 2000
   Allowance for uncollectible
     accounts                         $ 67          $ 83             $  5             $ (69)            $ 86
                                      ====          ====             ====             =====             ====
</TABLE>

<TABLE>
<CAPTION>
                                                           ADDITIONS
                                                 ----------------------------
                                   BALANCE AT                     CHARGED          DEDUCTIONS
                                   BEGINNING     CHARGED TO    (CREDITED) TO          FROM          BALANCE AT
        DESCRIPTION                 OF YEAR       INCOME       OTHER ACCOUNTS      RESERVES (a)    CLOSE OF YEAR
------------------------------     ----------    ----------    --------------      ------------    -------------
                                                            (Dollars in Million)
<S>                                <C>           <C>           <C>                 <C>             <C>
December 31, 2002
   Allowance for Inventory
     Obsolescence                     $  6          $  1            $  0              $  (3)            $  4
                                      ====          ====            ====              =====             ====
December 31, 2001
   Allowance for Inventory
     Obsolescence                     $  9          $  3            $  0              $  (6)            $  6
                                      ====          ====            ====              =====             ====
December 31, 2000
   Allowance for Inventory
     Obsolescence                     $ 13          $  1            $  2              $  (7)            $  9
                                      ====          ====            ====              =====             ====
</TABLE>

NOTES:

(a)  Reserved write-offs.

(b)  Other adjustments and recoveries of amounts written off in prior years.

                                       69

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

                                       70

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS

         As of March 25, 2003, the directors of the Company, all of whom serve
until their successors are appointed are as follows:

<TABLE>
<CAPTION>
       NAME               AGE         PRINCIPAL OCCUPATION                NOMINATED BY          DIRECTOR SINCE
       ----               ---         --------------------                ------------          --------------
<S>                       <C>    <C>                                  <C>                       <C>
Daniel C. Petri           54     Group President-International,       GTE Holdings (Puerto            2002
                                 Verizon                              Rico)

Alfred C. Giammarino      47     Senior Vice President and Chief      GTE Holdings (Puerto            1999
                                 Financial Officer-Information        Rico)
                                 Services and International,
                                 Verizon

Gary S. Butler            45     Group Vice President-International,  GTE Holdings (Puerto            2002
                                 Verizon                              Rico)

Jon E. Slater             57     President and Chief Executive        GTE Holdings (Puerto            1999
                                 Officer, Telecomunicaciones de       Rico)
                                 Puerto Rico, Inc.

Steven R. Smith           38     Group Vice                           GTE Holdings (Puerto            2002
                                 President-Finance-International,     Rico)
                                 Verizon

Richard L. Carrion        50     Chairman, President and Chief        Popular, Inc.                   1999
                                 Executive Officer, Popular, Inc.

Hector Mendez             50     President, Government Development    PRTA Holdings                   2002
                                 Bank for Puerto Rico                 Corporation

Hector Nevares            52     Private Investor                     PRTA Holdings                   2001
                                                                      Corporation

Samuel H. Jove            54     Private Investor                     PRTA Holdings                   2001
                                                                      Corporation
</TABLE>

         Daniel C. Petri is the Group President-International responsible for
Verizon's wireless and wireline operations in Mexico, Venezuela, the Dominican
Republic, Puerto Rico and Canada. Prior to this appointment he served as
President-International Europe & Asia. During his communications carrier of more
than 30 years, Mr. Petri has held a number of key positions in domestic as well
as international operations. He holds a bachelor's degree in mechanical
engineering from Rutgers University and a master's degree in management science
from Long Island University. He has also completed management programs in
General Management, Finance and Marketing at the Columbia University Graduate
School.

         Alfred C. Giammarino was appointed Senior Vice President and Chief
Financial Officer-Information Services and International, Verizon, in June 2000.
Previously, he was the Senior Vice President of International Finance, Planning
and Business Development for GTE since 1998. Mr. Giammarino has held a wide
range of senior management financial positions in his 17-year Verizon/GTE
career. He serves on the boards of CANTV, a Venezuelan telephone company,
Iusacell, a Mexican cellular company, and CTI Movil, an Argentine
telecommunications company. Mr. Giammarino is a Certified Public Accountant.

         Gary S. Butler is Group Vice President International responsible for
strategic and operational initiatives for Verizon Wireless and wireline
operations in Mexico, Venezuela, the Dominican Republic, Puerto Rico and Canada.
Previously he was Vice President-Europe and Asia. Prior to Bell Atlantic / GTE
merger, Mr. Butler was Executive Vice President-Operations, TelecomAsia
Corporation a position he held since 1998. Butler earned a BS from the U.S.
Military Academy at West Point and an MBA from Golden Gate University.

         Jon E. Slater was appointed our President and Chief Executive Officer
in March 1999. Prior to that, he was Vice President Operations Support for GTE
Wireless since 1997, having previously served in various positions with
Verizon/GTE since 1971. Other positions that Mr. Slater has held with
Verizon/GTE include Area President Texas for GTE Mobilnet's Texas region, Vice
President and General Manager for GTE Telecom and GTE
Government/Telecommunications Services, and Vice President Operations for GTE
Airfone.

                                       71

<PAGE>

         Steven R. Smith is the Vice President International Finance from
Verizon Communications. Prior to this appointment, Mr. Smith was the group vice
president international finance, Europe and Asia. Before the merger of Bell
Atlantic and GTE to form Verizon, Mr. Smith was Director-Strategic Planning for
Bell Atlantic International Telecommunications. Mr. Smith received a Bachelor's
degree in Mechanical Engineering Technology from the State University of New
York at Binghamton and an MBA from the University of Rochester. Mr. Smith is a
Chartered Financial Analyst (CFA).

         Richard L. Carrion has been Chairman, President and Chief Executive
Officer of Popular, Inc., since 1990 and has been a director since 1982. Mr.
Carrion is a director of Verizon and Wyeth.

         Hector Mendez was appointed President of the Development Government
Bank ("GDB") in July 2002. Previously he was the GDB Vice-President and
Treasurer, a position he held since February 2001. Mr. Mendez has held various
positions in the Puerto Rico banking industry, including Senior Vice President
and Treasurer of the Hispanic Central Bank. His academic background includes a
Bachelor's degree in Business Administration with a major in Accounting and
Management from the University of Puerto Rico and a Master's Degree in Finance
and International Trade from the Inter American University of Puerto Rico.

         Hector Nevares is a private investor and serves on the boards of Suiza
Foods Corp., First Bank of Puerto Rico, Caribbean Consolidated Schools, Indulac,
and the Company for the Development of the Cantera Peninsula. Mr. Nevares was
the Vice Chairman of Suiza Foods Corp. from 1996 to 1999 and President from 1982
to 1996.

         Samuel H. Jove is a private investor and has been President of BMJ
Foods PR, Inc. since the company was founded in 1984. Mr. Jove serves as
President of the Metromedia International Franchisees Advisory Board. Mr. Jove
also serves on the boards of the GDB and Puerto Rico Housing Finance
Corporation.

         Since March 17, 1999 the Board of Directors has had a standing Audit
Committee. Currently, the Audit Committee is comprised of Alfred C. Giammarino,
Hector Nevares and Steven R. Smith. The Audit Committee oversees the financial
reporting process for which management is responsible, reviews the services
provided by our independent auditors, consults with the independent auditors in
regard to our audits and proposed audits, reviews the need for internal auditing
procedures and the adequacy of internal controls and performs other fiduciary
oversight responsibilities including but not limiting to significant business
transactions.

EXECUTIVE OFFICERS

   The executive officers of the Company as of March 25, 2003, are as follows:

<TABLE>
<CAPTION>
NAME                        AGE    TITLE
----                        ---    -----
<S>                         <C>    <C>
Jon E. Slater                57    President and Chief Executive Officer
Michael D. Mills             51    Vice President Finance and Chief Financial Officer
Jose E. Arroyo               39    Vice President Legal and Regulatory Affairs
Cristina M. Lambert          54    Vice President and General Manager of Wireline
Beth De Winter               40    Vice President and General Manager of Wireless
Francisco M. Arroyo          42    Vice President Sales and Customer Contact
Benito Fernandez             56    Vice President Human Resources
Ileana Molina de Bachman     47    Vice President Corporate Communications
Roberto A. Correa            45    Vice President Network Services, Engineering and Technical Planning
Kathy A. Thompson            49    Vice President Information Technology Solutions
Robert P. Huberty            50    Controller
Maria E. De La Cruz          34    Treasurer
</TABLE>

                                       72

<PAGE>

         Michael D. Mills was appointed Vice President Finance and Chief
Financial Officer of the Company on December 17, 2002. Most recently he was
Executive Director International Finance Mergers & Acquisitions for Verizon, a
position from which he participated in GTE/Verizon's acquisition of a
controlling interest in PRT. During his over 27 years with GTE/Verizon he held
various controllership and financial planning positions within their telephone
operating Company's, Telephone Headquarters and parent company World
Headquarters organizations. Mr. Mills holds a Bachelor of Arts Degree in
Environmental Design (Architecture) and an MBA in finance and accounting from
the University of Washington.

         Jose E. Arroyo was appointed Vice President Legal and Regulatory
Affairs on March 17, 1999. He joined the Company in 1995 as Legal Counsel to the
President and was later appointed as Vice President Human Resources, Legal and
Regulatory Affairs. Prior to joining the Company, he was Associate Counsel for
two law firms in Puerto Rico and also served as Special Assistant to the
Attorney General of Puerto Rico. Mr. Arroyo holds a bachelors degree in Science
and a juris doctorate from the University of Puerto Rico.

         Cristina M. Lambert was appointed Vice President and General Manager of
Wireline on June 3, 1999. She has over 26 years of experience in the
telecommunications industry. After holding positions of ascending
responsibilities in Verizon/GTE, in 1995 she was named General Manager, customer
operations in Illinois, where she supervised wireline telephone services for
nearly one million customers. In 1997, Mrs. Lambert became Assistant Vice
President Integrated Process Planning for GTE. The following year she began
directing and implementing business strategies for GTE national customer care
organization. Mrs. Lambert holds a bachelor's degree in Business Management from
Indiana University and a master's degree in Business Administration from Indiana
Wesleyan University.

         Beth De Winter was appointed Vice President and General Manager of
Wireless on January 1, 2002. Prior to joining the Company, Mrs. Winter was
General Manager of fixed wireless services for AT&T Wireless in Texas. Prior to
that, Mrs. Winter had worked for BellSouth where she held several positions
including Vice President-Broadband Product Development, for BellSouth.net, Inc.,
Vice President Sales and Marketing, for BellSouth-Ecuador, International
Marketing Director, for BellSouth-Nicaragua and Senior International Marketing
Manager, for BellSouth-Latin America. Mrs. Winter holds a masters degree in
International Business Administration from the University of Arizona.

         Francisco M. Arroyo was appointed Vice President Sales and Customer
Contact on November 12, 2002. Mr. Arroyo has extensive experience in the
telecommunication industry. Prior to joining the Company, Mr. Arroyo served as
Senior Director of Calling Centers for WorldCom-Brazil. Previously, Mr. Arroyo
worked for WorldCom International where he held several positions since 1993.
Mr. Arroyo holds a bachelors degree in Biology from the University of Puerto
Rico and a masters degree in Latin American Studies from the University of New
Mexico.

         Benito Fernandez was appointed Vice President Human Resources on June
11, 2001. Prior to joining the Company, Mr. Fernandez held the position of Vice
President Human Resources for Montefiore Medical Center. Prior to that, he was
Vice President Columbia Presbyterian Medical Center and Labor Counsel for
Westvaco Corporation and also served as an associate in the law firm Arthur, Dry
& Kalish. Mr. Fernandez holds a bachelors degree from the College of the City of
New York and an L.L.M. from New York University School of Law and a J.D. from
Brooklyn Law School.

         Ileana Molina de Bachman was appointed Vice President Corporate
Communications on August 30, 1999. Ms. Bachman has over 23 years of consumer
goods marketing experience in Puerto Rico, Mexico, the Dominican Republic and
with Hispanic markets in the United States. Prior to joining the Company, Ms.
Bachman was Senior Vice President at Suiza Fruit Caribbean and from 1995 to 1998
with Frito Lay. She has also worked for Procter & Gamble, Young and Rubicam and
RJ Reynolds. She holds a bachelors degree from the Boston College School of
Management.

         Roberto A. Correa was appointed Vice President Engineering and
Technical Planning on February 2, 2000. Mr. Correa was previously the Director
of Network Planning and Network Engineering and has held various management
positions in his 21 years with the Company. He represents the Company on
technical committees before the United States Telecommunications Association. He
holds a bachelors degree in Electrical Engineering from the University of Puerto
Rico and a masters degree in Electrical Engineering from Georgia Tech.

                                       73

<PAGE>

         Kathy A. Thompson was appointed Vice President Information Technology
on November 27, 2001. Mrs. Thompson has over 22 years of experience in
Information Technology. Prior to joining the Company, she was Vice President
Information Technology and Process Management for Verizon Communications. Mrs.
Thompson began her career at Verizon/GTE in 1992. She holds a bachelors degree
in Mathematics and Computer Science from Sam Houston State University and a
masters degree in Business Administration from Texas A&M University.

         Robert P. Huberty was appointed Controller and Chief Accounting Officer
on June 1, 1999. He has over 23 years of Finance, Marketing and Information
Technology experience with Verizon/GTE in their corporate, international and
former equipment manufacturing groups. Prior to joining the Company, he was the
Director of GTE International Mergers and Acquisitions involved in the
privatization of the Company. He holds a bachelors degree in Accounting and a
masters degree in Finance from Pace University and is a Certified Public
Accountant.

         Maria E. De La Cruz was appointed Treasurer of the Company on December
3, 2002. Ms. De La Cruz has been with the Company in the Treasury Department
since May 2002 serving as Assistant Treasurer. Ms. De La Cruz has over 12 years
of banking and financial management experience in private industry and public
accounting. She holds a bachelors degree in Finance from the University of
Puerto Rico and is a Certified Public Accountant.

                                       74

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table sets forth compensation of the five highest
compensated company executives.

<TABLE>
<CAPTION>
                                                       ANNUAL COMPENSATION                         LONG-TERM COMPENSATION
                                              ---------------------------------------   ------------------------------------------
                                                                                               AWARDS               PAYOUTS
                                                                                        -----------------------     -------
                                                                                                     SECURITIES
                                                                            OTHER       RESTRICTED   UNDERLYING              ALL
                                                                            ANNUAL        STOCK       OPTIONS/     LTIP     OTHER
                                                     SALARY     BONUS    COMPENSATION    AWARD(S)     SARS(#)    PAYOUTS     COMP
                                                     ------     -----    ------------   ----------   ----------  -------   -------
NAME AND PRINCIPAL POSITION                   YEAR     ($)       ($)         ($)           ($)                     ($)       ($)
---------------------------                   ----     ---       ---         ---           ---                     ---       ---
                                                                 (4)         (5)           (6)                     (7)       (8)
<S>                                           <C>    <C>       <C>       <C>            <C>          <C>         <C>       <C>
Jon E. Slater
     President & Chief Executive Officer      2002   310,096   207,700     158,201             --      34,100    183,900   230,816
                                              2001   309,900   201,000     143,200             --      34,340    155,000    14,300
                                              2000   300,000   207,200     147,500        198,300      45,742         --    11,000
Cristina M. Lambert
     VP & General Manager of Wireline         2002   209,231   117,600     108,810             --      21,200     57,800    79,210
                                              2001   203,500   114,700     100,900             --      14,300     47,000     8,800
                                              2000   190,000   126,900      66,500         69,600      18,822         --     7,000
Benito Fernandez
     VP Human Resources                       2002   186,250   105,000      83,289             --      13,500         --    51,553
                                        (1)   2001   170,128    50,800          --             --       7,900         --        --
                                              2000        --        --          --             --          --         --        --
Beth De Winter
     VP and General Manager of Wireless (2)   2002   194,615    70,000      96,501             --      12,600         --     8,462
                                              2001        --        --          --             --          --         --        --
                                              2000        --        --          --             --          --         --        --
Ileana Molina de Bachman
     VP Corporate Communications              2001   191,123    66,000          --             --      12,600         --     8,128
                                              2001   182,500    55,200          --             --      11,000         --        --
                                              2000   177,500    76,700          --             --      12,589         --     7,000
Willard J. Reagan
     VP & Chief Financial Officer       (3)   2002   248,173   129,300     129,730             --      25,000     71,720    71,598
                                              2001   127,396    31,400          --             --       4,520     38,000        --
                                              2000        --        --          --             --          --         --        --
</TABLE>

(1) Mr. Fernandez joined the Company on June 11, 2001. His 2001 bonus
    reflects a prorated amount based on start date.

(2) Mrs. De Winter joined the Company on January 1, 2002.

(3) Mr. Reagan joined the Registrant in September 2001 and left the Company
    in December 2002.

(4) For year 2000, the bonus column reflects the amounts each executive
    officer received under both the Verizon Short-Term Incentive Plan and
    the GTE Executive Incentive Plan.

(5) For 2002, the column "Other Annual Compensation" includes housing
    allowances Messrs. Slater, Fernandez, and Reagan and Ms. Lambert and De
    Winter in the amount of: $120,000; $60,000; $72,000; $85,800 and
    $66,000, respectively.

(6) The data reflects the dollar value of the one-time grant of restricted
    stock units based on the closing price of Verizon common stock on the
    grant date, September 7, 2000. These units vest over the next three
    years subject to meeting certain performance and time measures. On each
    dividend payment date, additional restricted units are credited to the
    participant's account. The number of restricted stock units is
    determined by dividing the dividend that would have been paid on the
    shares represented by the restricted stock units in the participant's
    account by the closing price of Verizon's common stock on the New York
    Stock Exchange Composite Transactions Tape on the dividend payment
    date. Mr. Slater and Ms. Lambert hold a total of: 4,743 and 1,617
    restricted stock units, respectively, which had a dollar value of:
    $183,788 and $62,655, respectively, based upon the closing price of
    Verizon common stock on December 31, 2002.

(7) Messrs. Slater and Reagan and Ms. Lambert, as former GTE executives,
    received payments for the 2000 to 2002 award cycle, under the GTE
    Long-Term Incentive Plan of: $183,900; $71,720; and $57,800,
    respectively.

(8) "All Other Compensation" column includes Verizon contributions to
    qualified 401(k) plans for Messrs. Slater, Fernandez, and Reagan and
    Ms. Lambert, De Winter, and Bachman of: $16,142; $10,979; $10,665;
    $15,915; $8,462; and $8,128, respectively; contributions by the Company
    and its related companies to the non-qualified income deferral plan
    accounts of Messrs. Slater, Fernandez, and Reagan and Ms. Lambert in
    the amounts of: $122,835; $18,796; $31,325; and $47,991, respectively;
    the value of premiums paid by the Company for executive life insurance
    policies for Messrs. Slater, Fernandez, and Reagan and Ms. Lambert in
    the amounts of: $91,838; $21,778; $29,609; and $15,304, respectively.

                                       75

<PAGE>

         The following table shows grants of options in Verizon shares
to the named executive officers during 2002. Pursuant to SEC rules, the
table also shows the value of the options granted at the end of the
option terms if the stock price were to appreciate annually by 5% and
10%, respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table below. The table also
indicates that, if the stock price does not appreciate, the potential
realized value of the options granted would be zero.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                          Potential Realizable Value at
                                                                                       Assumed Annual Rates of Stock Price
                                                                                           Appreciation for Option Term
                                             Individual Grants                                       ($ 000s)
--------------------------------------------------------------------------------------------------------------------------
        (a)                    (b)               (c)           (d)          (e)         (f)         (g)        (h)
                               # of           % of Total
                            Securities       Options/SARs
                            Underlying        Granted to    Exercise or
                           Options/SARs      Employees in   Base Price    Expiration
        Name                 Granted         Fiscal Year      ($/Sh)         Date        0%         5%          10%
        ----               -----------------------------------------------------------------------------------------------
<S>                        <C>               <C>            <C>           <C>           <C>       <C>         <C>
Jon E. Slater                 34,100 (1)         0.1%         48.6700      1/23/2012      -       1,043.7     2,645.0

Cristina M. Lambert           21,200 (1)         0.1%         48.6700      1/23/2012      -         648.9     1,644.4

Benito Fernandez              13,500 (1)         0.0%         48.6700      1/23/2012      -         413.2     1,047.2

Beth De Winter                12,600 (1)         0.0%         48.6700      1/23/2012      -         385.7       977.3

Ileana Molina de Bachman      12,600 (1)         0.0%         48.6700      1/23/2012      -         385.7       977.3

Willard J. Reagan             25,000 (2)         0.1%         48.6700     12/21/2007      -         406.6       920.3
</TABLE>

(1) One-third of the options are exercisable on January 24, 2003; two
    thirds are exercisable on January 24, 2004; and the balances are
    exercisable on January 24, 2005.

(2) Options became fully exercisable on December 21, 2002, with a 5-year
    term remaining per plan provisions.

     The following table provides information as to options and stock
appreciation rights (referred to as SARs) exercised by each of the named
executive officers during 2002. The table sets forth the value of options and
stock appreciation rights held by such officers at 2002 year-end.

                         AGGREGATED OPTION/SAR EXERCISES
                IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                 (a)                        (b)          (c)                 (d)                            (e)
                                                                     Number of Securities          Value of Unexercised
                                                                    Underlying Options/SARs      In-the-Money Options/SARs
                                                                                                       at F-Y-End
                                           Shares       Value            at F-Y-End (#)                 ($ 000s)
                                        Acquired on    Realized   ---------------------------   ---------------------------
                Name                    Exercise (#)   ($000s)    Exercisable   Unexercisable   Exercisable   Unexercisable
               ------                  -------------   --------   ---------------------------   ---------------------------
<S>                                    <C>             <C>        <C>           <C>             <C>           <C>
Jon E. Slater                               --            --        119,863         85,575          39.0           --

Cristina M. Lambert                         --            --         42,503         41,342          31.5           --

Benito Fernandez                            --            --          2,633         18,767             -           --

Beth De Winter                              --            --             --         12,600             -           --

Ileana Molina de Bachman                    --            --         11,558         24,997             -           --

Willard J. Reagan                           --            --         81,736             --             -           --
</TABLE>

                                       76

<PAGE>

VERIZON RETIREMENT PROGRAMS

VERIZON PENSION PLANS

     Effective January 1, 2002, Verizon merged the management pension plans of
the predecessor companies to form the Verizon Management Pension Plan. The plan
is a noncontributory, tax-qualified pension plan for salaried employees that
provides for distribution of benefits in a lump sum or an annuity, at the
participant's election. Pension benefits under this plan are calculated for all
participants using a cash balance formula that provides for pay credits equal to
4 to 7 percent (depending on age and service) of annual eligible pay up to the
statutory limit on compensation ($200,000 in 2002), for each year of service
following the conversion to cash balance. Messrs. Slater, Fernandez, and Reagan,
and Ms. Lambert, DeWinter, and Bachman began participating in the Verizon
Management Pension Plan as of January 1, 2002.

     In general, eligible pay includes base salary, commissions and short-term
incentives, exclusive of overtime, certain senior manager or other incentive
compensation, and other similar types of payments. Additionally, monthly
interest credits are made to the participant's account balance based upon the
prevailing market yields on certain U.S. Treasury obligations. In order to
record these pay and interest credits, the plan administrator maintains a
hypothetical account balance for each participant. However, as part of the
transition to a cash balance formula, participants with at least 10 years of
service with the Company as of January 1, 2002, receive benefits under an
alternative formula, referred to as the "highest average pay formula," if that
formula provides a higher benefit than the cash balance formula. Under this
formula, pensions are computed until 2008 on 1.35% of eligible pay for average
annual salary for the five highest consecutive years up to the statutory limit
on compensation ($200,000 in 2002), for each year of service. In 2008, the
Verizon Management Pension Plan shifts from this highest average pay formula to
a career average pay formula under which an employee's pension is computed on
1.35% of eligible pay for average annual salary over the remainder of the
employee's career with the Company up to the statutory limit on compensation,
for each year of service. As of December 31, 2002, or the executive's date of
separation in 2002, the actual years of service credited under the Verizon
Management Pension Plan for Messrs. Slater, Fernandez, and Reagan, and Ms.
Lambert, DeWinter, and Bachman are 32, 2, 16, 29, 1, and 4, respectively.

     The following table illustrates the estimated annual benefits payable
pursuant to the highest average pay formula under the Verizon Management Pension
Plan based on a maximum compensation limit of $200,000. The table assumes normal
retirement at age 65 and is calculated on a single life annuity basis, based
upon final average earnings and years of service:

<TABLE>
<CAPTION>
                                   PENSION PLAN TABLE
--------------------------------------------------------------------------------------
FINAL AVERAGE                              YEARS OF SERVICE
                 ---------------------------------------------------------------------
  EARNINGS           15          20          25          30          35         40
-------------    ---------------------------------------------------------------------
<S>              <C>         <C>         <C>         <C>         <C>         <C>
 $  200,000      $  40,500   $  54,000   $  67,500   $  81,000   $  94,500   $  108,000
</TABLE>

     All former GTE employees with at least 10 years of service with the Company
as of January 1, 2002, are eligible to receive benefits under a variant to the
highest average pay formula described above if that formula provides a higher
benefit. This formula provides a benefit that was integrated with social
security and is available through May 31, 2004. For compensation under $37,200,
which is the limit under the Federal Social Security Act, the formula was based
on 1.15% of eligible pay, while the formula for pay above that amount was based
on 1.45% of eligible pay.

     The following table illustrates the estimated annual benefits payable
pursuant to this alternative highest average pay formula, integrated with social
security, under the Verizon Management Pension Plan based on a maximum
compensation limit of $200,000. The table assumes normal retirement at age 65
and is calculated on a single life annuity basis, based upon final average
earnings and years of service:

<TABLE>
<CAPTION>
                                   PENSION PLAN TABLE
--------------------------------------------------------------------------------------
FINAL AVERAGE                                  YEARS OF SERVICE
                  --------------------------------------------------------------------
  EARNINGS            15          20         25         30         35           40
----------------  --------------------------------------------------------------------
<S>               <C>         <C>         <C>        <C>        <C>         <C>
 $  200,000       $  41,826   $  55,768   $  69,710  $  83,652  $  97,594   $  111,536
</TABLE>

                                       77

<PAGE>

     Employees who do not have at least 10 years of service generally do not
qualify for the highest average pay formula under the plan. Accordingly, Mr.
Fernandez's and Ms. DeWinter's and Bachman's cash balance accounts were $22,703;
$10,114; and $51,707, respectively, as of December 31, 2002. Mr. Reagan's
pension under the Verizon Management Pension Plan, based on the cash balance
formula, was $179,792.

     Section 415 of the Internal Revenue Code places certain limitations on
pension benefits that may be paid from the trusts of tax-qualified plans, such
as the Verizon Management Pension Plan. Pension amounts for certain executive
officers that exceed such Section 415 limitations will be paid from the
Company's assets under the Verizon Income Deferral Plan. Messrs. Slater,
Fernandez, and Reagan, and Ms. Lambert, DeWinter, and Bachman began
participating in the Verizon Income Deferral Plan as of January 1, 2002. This
plan is a nonqualified, unfunded, supplemental retirement and deferred
compensation plan under which an individual account is maintained for each
participant. The plan allows the participants to defer voluntarily the receipt
of up to 100% of their eligible compensation, and also provides retirement and
other benefits to certain executives through Company credits to the
participant's account under the plan. Eligible compensation consists of:

I.       a participant's base salary in excess of the Internal Revenue Code
         limit on compensation for qualified retirement plans ($200,000 in
         2002);

II.      all of the participant's short-term incentive award; and

III.     other bonuses that the plan administrator determines are eligible for
         deferral.

     If a participant elects to defer eligible income, the Company provides a
matching contribution equal to the rate of match under the qualified savings
plan for management employees. That rate is 100% of the first 4% of eligible
compensation deferred and 50% of the next 2% of eligible compensation deferred.
In addition, for the first 20 years of participation in the plan for certain
executives of the Company, the Company makes retirement contributions to a
participant's account equal to 32% of the base salary, in excess of $200,000,
and short-term incentive award components of the participant's eligible
compensation. Thereafter, the Company makes retirement contributions equal to 7%
of such eligible compensation.

     The following table shows the aggregate portion of each participating named
executive officer's account attributable to the Company's contributions as of
December 31, 2002. In 2002, Messrs. Slater, Fernandez, and Reagan, and Ms.
Lambert, and all other former GTE executives, had their Verizon Supplemental
Executive Retirement Plan benefit converted to a present value and transferred
to the Verizon Income Deferral Plan. As a result, Messrs. Slater, Fernandez, and
Reagan, and Ms. Lambert are no longer entitled to receive a benefit under the
Verizon Supplemental Executive Retirement Plan and instead began participating
in the Verizon Income Deferral Plan along with all other Verizon executives
effective January 1, 2002. Generally, the Verizon Income Deferral Plan provides
a benefit at retirement comparable to the benefit provided under the Verizon
Supplemental Executive Retirement Plan.

<TABLE>
<CAPTION>
  EXECUTIVE                    AGGREGATE ACCOUNT BALANCE
  ---------                    -------------------------
<S>                            <C>
Mr. Slater                          $   2,415,332*
Ms. Lambert                         $     566,979*
Mr. Fernandez                       $      25,326*
Mr. Reagan                          $     114,319*
</TABLE>

*Includes $2,037,275; $10,979; $72,792; and $476,717 for Messrs. Slater,
Fernandez, and Reagan, and Ms. Lambert, respectively, representing a present
value conversion and transfer of their earned benefits from the Verizon
Supplemental Executive Retirement Plan.

The actual annual Company contribution for 2002 has been reflected in the "All
Other Compensation" column of the Summary Compensation Table.

Pension benefits for Ms. DeWinter and Backman were calculated only under the
Verizon Mangement Pension Plan using a cash balance formula that provides for
pay credits equal to 4 to 7 percent (depending on age and service) of annual
eligible pay both up to and greater than the statutory limit on compensation
($200,000 in 2002), for each year of service following the conversion. As of
December 31, 2002, Ms. DeWinter's and Bachman's cash balance accounts were
$10,114 and $51,707, respectively.

As of December 31, 2002, the actual years of service credited under the Verizon
Management Pension Plan for Ms. DeWinter and Bachman are 1 and 4, respectively.


                                       78

<PAGE>

EXECUTIVE RETIRED LIFE INSURANCE PLAN

         Verizon's Executive Retired Life Insurance Plan provides executives a
postretirement life insurance benefit of up to three times final base salary.
Benefits may be paid as life insurance or, alternatively, an equivalent amount
equal to the present value of the life insurance amount as a lump sum payment,
as an annuity or in installment payments.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company has a Compensation Committee comprised of, Richard L.
Carrion, Daniel C. Petri and Samuel H. Jove. This Committee is responsible for
establishing and administering the policies and plans related to compensation of
the Company's management, including the executives listed in the "Executive
Officers" table included in Item 10 of this Form 10-K.

         Richard L. Carrion, a Director of the Company, serves as Chairman of
the Compensation Committee. Mr. Carrion is Chairman, President and Chief
Executive Officer of Popular, Inc. He also serves as Director of Verizon.

                                       79

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SHAREHOLDERS AND SHAREHOLDER RELATIONSHIPS

SHARE OWNERSHIP

         There were 50 million authorized and 25 million outstanding shares of
no par value common stock at December 31, 2002. The owners of the common stock
as of March 25, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                                                    SHARES
                                                                                           ------------------------
          NAME OF BENEFICIAL OWNER                            ADDRESS                        NUMBER      PERCENTAGE
-----------------------------------------      ---------------------------------------     ---------     ----------
<S>                                            <C>                                         <C>           <C>
GTE Holdings (Puerto Rico) LLC - (Verizon)     GTE Holdings (Puerto Rico) LLC              13,003,276       52.01
                                               5221 North O'Connor Boulevard
                                               Irving, Texas 75039

Popular, Inc.                                  209 Munoz Rivera Avenue                      3,246,749       12.99
                                               Hato Rey, Puerto Rico 00918

PRTA Holdings Corporation                      Government Development Bank                  6,999,975       28.00
                                               For Puerto Rico
                                               Minillas Government Center
                                               San Juan, Puerto Rico 00940

Employee Stock Ownership Plan                  U.S. Trust Company National Association      1,750,000        7.00
                                               c/o Dennis M. Kunisaki
                                               515 South Flower Street
                                               Los Angeles, California 90171
                                                                                           ----------      ------

Total                                                                                      25,000,000      100.00
                                                                                           ----------      ------
All Directors and Executive (17 persons)
    Officers as a Group                                                                             0           0
</TABLE>

CHANGE OF SHAREHOLDER OWNERSHIP PERCENTAGE

         On January 25, 2002, Verizon, through its subsidiary 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 on March 2, 1999. Verizon and Popular obtained the additional
ownership interest from PRTA Holdings.

         Verizon and Popular 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 $45.936 per share price established in the Share Option Agreement.

OWNERSHIP REQUIREMENTS

         Verizon must maintain at least a 35% ownership interest through March
2, 2004. If Verizon proposes to transfer shares as permitted by the shareholders
agreement, other than to any of its affiliates or other than in a public
offering or widely distributed private placement, which is for more than 7.5% of
the total number of our shares or which would result in the transferee owning
over 20% of our shares, then the Government of Puerto Rico shall have the right
to participate in this sale, by selling the applicable pro-rata portion of the
aggregate number of shares then owned by all of the Puerto Rico Entities. If the
Puerto Rico Entities would own 5% or less of our shares after exercising this
right, Verizon shall have the option of requiring that the Puerto Rico Entities
sell all of their remaining shares to the buyer, or requiring that the Puerto
Rico Entities sell to the buyer the shares that the buyer is willing to purchase
and sell any remaining shares owned by the Puerto Rico Entities to Verizon.

         Under the Popular Shareholders Agreement, Popular, Inc. has the right
to require Verizon to permit Popular, Inc. to participate on a pro-rata basis in
any transfer of shares to non-affiliates by Verizon, other than an underwritten
public offering or widely distributed private placement.

         The Company has agreed to use all commercially reasonable efforts to
support an initial public offering ("IPO") of the Government's remaining 28%
interest.

                                       80

<PAGE>

SHAREHOLDERS' AGREEMENT

         The board of directors has 9 members, who are appointed as follows: 5
directors are appointed by Verizon; 1 director is appointed by Popular, Inc.,
pursuant to an agreement with Verizon; and 3 directors are appointed by PRTA
Holdings (Government). The ESOP does not have the right to appoint any
directors. The number of directors the Government of Puerto Rico can appoint is
related to its share ownership in the Company. The PRTA is entitled to appoint
3, 2, or 1 director as long as it (or its successor) holds at least a 25%, 15%,
or 4% ownership interest, respectively. Unanimous approval is required for the
following actions:

         -    An acquisition, strategic alliance, or joint venture exceeding 15%
              of the Company's assets;

         -    Issuance of equity, convertible equity securities, or debt;

         -    Changes in the dividend policy; and

         -    Transactions with Verizon and Popular, Inc. exceeding $1 million,
              annually.

         Unanimous approval is required for the additional following matters as
long as the Government holds at least a 10% ownership interest:

         -    Asset sales of 25% or more of the Company's assets;

         -    Amendments to the Certificate of Incorporation, which adversely
              affect the Government; and

         -    The liquidation, merger or consolidation of the Company.

         Verizon and the Government agreed that neither party, nor a Verizon
affiliate, will compete in the telecommunications business (subject to certain
exceptions) until the earlier of:

         -    The date when the Government ceases to own at least 5% of the
              shares,

         -    The later of 7 years after the sale or 1 year after an IPO.

                                       81

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH VERIZON

MANAGEMENT AND TECHNOLOGY LICENSE AGREEMENTS

         Verizon provides advice and direction regarding the administration and
operations of our business, as well as providing us with its existing
intellectual property and software that is not restricted by patents or
copyrights under a 5-year agreement, expiring March 2, 2004. Verizon is
reimbursed for transportation, lodging, and meals and receives royalties and
fees based on the following percentages of EBITDA, excluding provisions for
voluntary severance programs:

         -    8% for years 1 and 2 of the agreement;

         -    7% for years 3 and 4 of the agreement;

         -    6% for year 5 of the agreement.

         Total royalties and fees accrued in 2002 and 2001 were $39 million for
each of the two years.

REIMBURSEMENT AGREEMENT

         The Company has a reimbursement agreement with Verizon, whereby actual
out-of-pocket expatriate salaries and related benefit expenses are billed back
to the Company. Total expatriate expenses for the year ended December 31, 2002
and 2001 amounted to $8 million and $13 million, respectively. Refer to the
"Executive Compensation" section (Item 11) for further details.

OTHER AFFILIATED TRANSACTIONS

         The Company also enters into transactions with affiliates for the
purchase of materials and supplies used in construction and expansion of its
telecommunications network. Such transactions are subject to conditions similar
to transactions with independent third parties. The Company also participates
with affiliates of shareholders in sharing the cost of development of computer
software programs by third party vendors. The shareholders receive no
compensation for arranging the development of such systems.

DIRECTORY AGREEMENTS

         We entered into a new 95-year agreement in 1999 with VISI, a joint
venture among VNU, Verizon, and ourselves which provides us a publishing right
of 35% of yellow page advertising revenues, plus billing and collection fees
which generated $20 million of directory advertising revenues for the year 2002.

TRANSACTIONS WITH POPULAR, INC.

         Popular, Inc. provides wireline bill collection, lock-box, cash
management, and wireless bill processing services for $7 million for each of
2002 and 2001. These services are negotiated at arms-length market value rates.

         At December 31, 2002, the Company maintained a $50 million working
capital credit facility with Banco Popular de Puerto Rico, a subsidiary of
Popular, Inc. At December 31, 2002, the Company had drawn $40 million under this
working capital credit facility.

                                       82

<PAGE>

ITEM 14. ONTROL AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

         Our chief executive officer and chief financial officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of
1934), as of a date within 90 days of the filing date of this annual report
(Evaluation Date), that ensure that material information relating to the Company
which is required to be disclosed in this report is recorded, processed,
summarized and reported, within required time periods. They have concluded that
as of the Evaluation Date, the Company disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them by others
within those entities, particularly during the period in which this annual
report was being prepared.

(b)  Changes in Internal Controls

         There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the Evaluation Date, nor were there any significant deficiencies or material
weaknesses in these controls requiring corrective actions. As a result, no
corrective actions were taken.

                                       83

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) and (2) List of Financial Statements and Financial Statements Schedules:

     See Index to Consolidated Financial Statements on Item 8 "Financial
Statements and Supplementary Data."

     (All other schedules for which provision is made in the applicable
     accounting regulations of the Securities and Exchange Commission are not
     required under the related instructions or are inapplicable and, therefore,
     have been omitted.)

     (3) Exhibits

     See Exhibit Index.

(b)  Reports on Form 8-K

     None filed during the fourth quarter 2002.

                                       84

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.

     TELECOMUNICACIONES DE PUERTO RICO, INC.

                                    By:   /s/ JON E. SLATER
                                       -----------------------------------------
                                       Name:  Jon E. Slater
                                       Title: Chief Executive Officer
                                       Date:  March 25, 2003

                                    By:   /s/ MICHAEL D. MILLS
                                       -----------------------------------------
                                       Name:  Michael D. Mills
                                       Title: Chief Financial Officer
                                       Date:  March 25, 2003

                                    By:   /s/ ROBERT P. HUBERTY
                                       -----------------------------------------
                                       Name:  Robert P. Huberty
                                       Title: Chief Accounting Officer
                                       Date:  March 25, 2003

                                       85

<PAGE>

                                CEO CERTIFICATION

I, Jon E. Slater, certify that:

     1.  I have reviewed this annual report on Form 10-K of Telecomunicaciones
         de Puerto Rico, Inc.;

     2.  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Company as of, and for, the periods presented in this
         annual report;

     4.  The Company's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
         have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the Company, including
                  its consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

              b)  evaluated the effectiveness of the Company's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              c)  presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

     5.  The Company's other certifying officers and I have disclosed, based on
         our most recent evaluation, to the Company's auditors and the audit
         committee of the Company's board of directors (or persons performing
         the equivalent function):

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the Company's
                  ability to record, process, summarize and report financial
                  data and have identified for the Company's auditors any
                  material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Company's internal controls; and

     6.  The Company's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date         March 25, 2003
      ----------------------------
        /s/  JON E. SLATER
      ----------------------------
             Jon E. Slater
        Chief Executive Officer
     (Principal Executive Officer)

                                       86

<PAGE>

                                CFO CERTIFICATION

I, Michael D. Mills, certify that:

     1.  I have reviewed this annual report on Form 10-K of Telecomunicaciones
         de Puerto Rico, Inc.;

     2.  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Company as of, and for, the periods presented in this
         annual report;

     4.  The Company's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
         have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the Company, including
                  its consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

              b)  evaluated the effectiveness of the Company's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              c)  presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

     5.  The Company's other certifying officers and I have disclosed, based on
         our most recent evaluation, to the Company's auditors and the audit
         committee of Company's board of directors (or persons performing the
         equivalent function):

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the Company's
                  ability to record, process, summarize and report financial
                  data and have identified for the Company's auditors any
                  material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Company's internal controls; and

     6.  The Company's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date         March 25, 2003
     -----------------------------
       /s/  MICHAEL D. MILLS
     -----------------------------
            Michael D. Mills
       Chief Financial Officer
     (Principal Financial Officer)

                                       87

<PAGE>

                CERTIFICATION REQUIRED BY 18 U.S.C. SECTION 1350

         Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002), the undersigned hereby certify that this
Annual Report on Form 10-K fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in this annual report fairly presents, in all material respects, the
financial condition and results of operations of the registrant.

         TELECOMUNICACIONES DE PUERTO RICO, INC.

                                    By: /s/ JON E. SLATER
                                        ----------------------------------------
                                        Name:  Jon E. Slater
                                        Title: Chief Executive Officer
                                        Date:  March 25, 2003

                                    By: /s/ MICHAEL D. MILLS
                                        ----------------------------------------
                                        Name:  Michael D. Mills
                                        Title: Chief Financial Officer
                                        Date:  March 25, 2003

                                       88

<PAGE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
     DATE                           SIGNATURE                       CAPACITY
--------------              ------------------------         ------------------------
<S>                         <C>                              <C>
March 25, 2003              /s/ JON E. SLATER                Chief Executive Officer
                            ------------------------
                            Jon E. Slater

March 25, 2003              /s/ MICHAEL D. MILLS             Chief Financial Officer
                            ------------------------
                            Michael D. Mills

March 25, 2003              /s/ ROBERT P. HUBERTY            Chief Accounting Officer
                            ------------------------
                            Robert P. Huberty

March 25, 2003              /s/ DANIEL C. PETRI              Director
                            ------------------------
                            Daniel C. Petri

March 25, 2003              /s/ ALFRED C. GIAMMARINO         Director
                            ------------------------
                            Alfred C. Giammarino

March 25, 2003              /s/ GARY S. BUTLER               Director
                            ------------------------
                            Gary S. Butler

March 25, 2003              /s/ JON E. SLATER                Director
                            ------------------------
                            Jon E. Slater

March 25, 2003              /s/ STEVE R. SMITH               Director
                            ------------------------
                            Steve R. Smith

March 25, 2003              /s/ RICHARD L. CARRION           Director
                            ------------------------
                            Richard L. Carrion

March 25, 2003              /s/ HECTOR MENDEZ                Director
                            ------------------------
                            Hector Mendez

March 25, 2003              /s/ HECTOR NEVARES               Director
                            ------------------------
                            Hector Nevares

March 25, 2003              /s/ SAMUEL H. JOVE               Director
                            ------------------------
                            Samuel H. Jove
</TABLE>

                                       89

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
--------      ------------------------------------------------------------------
<S>           <C>
   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 (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 3.3 Exhibit 3.4 of the Company's Registration
              Statement filed on Form S-4 (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 (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 (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 (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 (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 (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 (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 (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 (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 (File 333-85503)).
</TABLE>

<PAGE>

<TABLE>
<S>           <C>
  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 (File 333-85503)).

 10.10        $500,000,000 Five-Year Credit Agreement, dated as of March 2,
              1999, among Telecomunicaciones de Puerto Rico, Inc., as Borrower,
              Puerto Rico Telephone Company and Celulares Telefonica, as
              Guarantors, the Initial Lenders named therein, Citibank, N.A., as
              Administrative Agent, Bank of America National Trust and Savings
              Association, as Syndication Agent, and The Chase Manhattan Bank
              and Morgan Guaranty Trust Company of New York, as Documentation
              Agents. (Incorporated by reference to Exhibit 10.17 of the
              Company's Registration Statement filed on Form S-4 (File
              333-85503)).

 10.11        Letter Amendment to the Five-Year Credit Agreement, dated May 7,
              1999. (Incorporated by reference to Exhibit 10.18 of the Company's
              Registration Statement filed on Form S-4 (File 333-85503)).

 10.12        Collective Bargaining Agreement between the Puerto Rico Telephone
              Company and the Independent Brotherhood of Telephone Company
              Employees effective from October 23, 1999 until October 22, 2003.
              Approved on October 20, 2000. (Incorporated by reference to
              Exhibit 10.24 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 Telefonica, 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)).

 10.14        Commercial Paper Dealer Agreement 4(2) Program among
              Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico
              Telephone Company, Inc. and Celulares Telefonica, 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)).

 10.15        Commercial Paper Dealer Agreement 4(2) Program among
              Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico
              Telephone Company, Inc. and Celulares Telefonica, 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)).

 10.16        Commercial Paper Dealer Agreement 4(2) Program among
              Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico
              Telephone Company, Inc. and Celulares Telefonica, 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)).

 10.17        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 Telefonica, 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)).
</TABLE>

<PAGE>

<TABLE>
<S>           <C>
 10.18        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)).

 10.19        Third Letter Amendment, dated August 3, 2001, to the Five-Year
              Credit Agreement with Citibank, N.A., dated as of March 2, 1999,
              as amended by the Letter Amendment to Five-Year Credit Agreement
              dated as of May 7, 1999 and as further amended by the second
              Letter Amendment to Five-Year Credit Agreement dated as of
              February 15, 2001. (Incorporated by reference to Exhibit 10.26 of
              the Company's Quarterly Report on Form 10-Q for the period ended
              September 31, 2001 (File 333-85503)).

 10.20        ISDA Master Agreement, dated August 29, 2001, by and among
              Telecomunicaciones de Puerto Rico, Inc., as the Counterparty,
              Puerto Rico Telephone Company and Celulares Telefonica, 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)).

 10.21        ISDA Master Agreement, dated August 29, 2001, by and among
              Telecomunicaciones de Puerto Rico, Inc., as the Counterparty,
              Puerto Rico Telephone Company and Celulares Telefonica, 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)).

 10.22        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)).

 10.23        $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)).

 10.24        $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)).

 10.25        $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)).

 10.26        $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)).

 10.27        $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)).
</TABLE>

<PAGE>

<TABLE>
<S>           <C>
 10.28        Letter Amendment to the $90 million working capital revolving
              credit agreement dated as of December 31, 2002.

 10.29        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.

 10.30        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.

 12           Statement Regarding Computation of Ratio of Earnings to Fixed
              Charges.

 21           Subsidiaries of the Registrant.

 23           Independent Auditors' Consent
</TABLE>