<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, 2001

                                       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  [ ]

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]

The aggregate market value of Telecomunicaciones de Puerto Rico, Inc. voting
stock held by non-affiliates at March 20, 2002 amounted to $36,985,440. This
amount represents the Employee Stock Option Plan ("ESOP") vested shares at a
stated price of $34.80 established at the Acquisition date. 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 20, 2002.

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






                                       1
<PAGE>

                                      INDEX

<Table>
<S>                                                                                          <C>
PART I

    Item 1.   Business                                                                        3

    Item 2.   Properties                                                                     11

    Item 3.   Legal Proceedings                                                              11

    Item 4.   Submission of Matters to a Vote of Security Holders                            11


PART II

    Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters          12

    Item 6.   Selected Financial Data                                                        13

    Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
              Operations                                                                     16

    Item 7A.  Quantitative and Qualitative Disclosures About Market Risk                     33

    Item 8.   Financial Statements and Supplementary Data                                    34

    Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
              Disclosure                                                                     68

PART III

    Item 10.  Directors and Executive Officers of the Registrant                             69

    Item 11.  Executive Compensation                                                         73

    Item 12.  Security Ownership of Certain Beneficial Owners and Management                 77

    Item 13.  Certain Relationships and Related Transactions                                 79


PART IV

    Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K               80
</Table>




                                       2
<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 assumptions that may be required by regulatory
agencies, including the SEC, or that result from changes in the accounting rules
or their application, which could result in an impact on earnings; and (5) the
extent, timing, success and overall effects of competition from others in the
Puerto Rico telecommunications service industry.

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, 2001, we had approximately 1.3
million access lines in service, including 965,000 residential and 308,000
business lines and we held between a 25% to 28% share of the cellular market in
Puerto Rico. The cellular and paging brand was changed from Celulares Telefonica
to Verizon Wireless in November 2001 as part of a strategy to align our service
offering with Verizon Wireless in the U.S.

     We invested over $1.3 billion in the last five years to expand and enhance
our networks. 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 invested $40 million in 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
intervals and improving the responsiveness of our customer care personnel.
Customer value will be delivered through bundled plans, including choices of
long distance, Internet 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 demands for dedicated high-speed bandwidth
access, as well as residential demand for Digital Subscriber Line ("DSL")
service to improve Internet access speed.

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

BUSINESS OVERVIEW AND CORPORATE RESTRUCTURING

     Telecomunicaciones de Puerto Rico, Inc. (the "Company") holds 100% of the
common stock of Puerto Rico Telephone Company, Inc. ("PRTC"), Verizon Wireless
Puerto Rico, Inc. ("Verizon Wireless") (formerly Celulares Telefonica, Inc.
("CT")) and Datacom Caribe, Inc. ("Datacom"). The Company holds a 67% interest
in Coqui.net Corporation ("Coqui.net") (formerly Coqui.com Corporation). The
Company is the largest telecommunications service provider in Puerto Rico. PRTC,
a Puerto Rico corporation, is the incumbent local exchange carrier for the
island of Puerto Rico.



                                       3
<PAGE>

     GTE Corporation ("GTE") acquired a 40% interest in and management control
over the Company on March 2, 1999 in the privatization of the Company from the
Commonwealth of Puerto Rico (the "Acquisition"). GTE and Bell Atlantic
Corporation merged on June 30, 2000 to form Verizon Communications Inc.
("Verizon"). On January 25, 2002, Verizon acquired an additional 12% interest in
the Company. As a result, the Company is a direct affiliate of Verizon.

     Wireline service is provided by PRTC and cellular and paging service is
provided by Verizon Wireless. The Company's dial-up Internet access service is
provided by Coqui.net.

     A 33% interest in Coqui.net was sold to Popular Inc., a shareholder of the
Company, on May 14, 2001 for $16 million. Prior to the sale, Coqui.net was a
wholly owned subsidiary of the Company.

BUSINESS SEGMENTS

     We have two reportable segments, Wireline and Wireless. See Note 17 to the
consolidated financial statements for additional information on our segments.

     The Wireline segment consists of:

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

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

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

o    Directory publishing rights revenues; and

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

     The Wireless segment consists of:

o    Cellular and paging services; and

o    Wireless equipment sales.


<Table>
<Caption>

REVENUES                                              YEARS ENDED DECEMBER 31,
                                                       (DOLLARS IN MILLIONS)
                               -----------------------------------------------------------------------
                                        2001                    2000                      1999
                               ---------------------    ---------------------    ---------------------
<S>                            <C>         <C>          <C>         <C>          <C>         <C>
WIRELINE:
Local                          $     564          41%   $     554          40%   $     484          37%
Network Access                       355          25          389          28          348          26
Long Distance                        186          13          170          12          210          16
Directory and Other                   84           6           86           6           88           7
                               ---------   ---------    ---------   ---------    ---------   ---------

   Total Wireline                  1,189          85%       1,199          86%       1,130          86%
                               ---------   ---------    ---------   ---------    ---------   ---------

WIRELESS:
Postpaid Cellular                    153          11          124           9          117           9
Prepaid Cellular                      25           2           24           2           16           1
Paging                                15           1           34           2           45           3
Wireless Equipment and other          14           1           13           1           15           1
                               ---------   ---------    ---------   ---------    ---------   ---------


  Total Wireless                     207          15%         195          14%         193          14%
                               ---------   ---------    ---------   ---------    ---------   ---------

  Revenues                     $   1,396         100%   $   1,394         100%   $   1,323         100%
                               =========   =========    =========   =========    =========   =========
</Table>


                                       4
<PAGE>

     Reclassifications of prior years' data have been made to conform to the
2001 presentation. For further information refer to the consolidated financial
statements.

WIRELINE

LOCAL SERVICES

    OVERVIEW

    Local services include basic voice, telephone rental, 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,
                                ---------------------------------------
                                   2001           2000          1999
                                ----------     ----------    ----------
                                   (IN THOUSANDS EXCEPT PERCENTAGES)

<S>                             <C>            <C>           <C>
Residential                            965            974           961
Business/Government                    308            309           304
                                ----------     ----------    ----------

Total Access Lines in Service        1,273          1,283         1,265
                                ==========     ==========    ==========

Growth                                (0.8)%          1.4%          2.8%
</Table>

     BASIC VOICE SERVICE

     Basic voice service is the largest component of local service revenues,
generating $370 million or 27% of total revenues in 2001. Basic voice is a
regulated service and rate structures have not changed since 1982. Rates could
not be increased until March 2, 2002 according to the Stock Purchase Agreement
with the government of Puerto Rico. Rates are categorized as either residential
or business/government and are further divided into five categories 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 26 cents per
call 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 $34.60 to $36.65 per month and $46.00 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 pay $18.80 per month while customers on the island of Culebra in zone
5 pay $7.60 per month. Residential basic ARPU approximates $13.60 excluding a
Federal Communications Commission ("FCC") imposed subscriber line charge of
$3.50 per month to primary residential and single-line business customers and
$6.00 per month to multi-line residential and 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. The subscriber line charge primary
residential and single-line business customers was increased from $3.50 to $5.00
per month in January 2002 consistent with FCC regulation. The subscriber line
charge for multi-line business customers was increased from $6.00 to $9.20 per
month in January 2002 as well.

     Residential basic voice revenues are sensitive to shifts from lower
producing measured service plans to higher producing fixed calling plans. This
shift is attributed to increased Internet access usage, where customers seek
unlimited local calling plans. Basic revenues remained constant in 2001, as
compared to 2000, despite negative access line growth of 0.8% in 2001 due to the
shift to flat rate plans.

     TELEPHONE RENTAL

     Approximately 63% of single-line businesses and 43% of residential
customers rent telephones, which generated $22 million in revenues in 2001.
Rental levels are high compared to U.S. mainland operators as we own the inside
wire in a customer's premises and must maintain the inside wire and phone. The
rental option and the associated instrument repair responsibility were
eliminated for new orders commencing in 1999, as the telephone rental revenue
stream was less than the cost of customer premises visits for repairs.


                                       5
<PAGE>

     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 38% of our residential customers purchase at least one
service. Value-added revenues were $48 million in 2001, an increase of $7
million, or 17%, over the prior year.

     SPECIAL SERVICES

     Special services include private high-speed dedicated lines marketed to
businesses for data transport. Revenues of $46 million in 2001 represented an
increase of $6 million, or 15%, 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) at approximately $19 per
month. We generated $23 million of revenue in 2001 from 127,000 dial-up Internet
access customers at December 31, 2001, an increase of 24,000 customers, or 23%,
over the prior year.

     PUBLIC PHONES

     Public telephone revenues in 2001 were $11 million, a decrease of $3
million from the prior year. We hold an approximate 55% of the public phone
market at December 31, 2001, as measured by fourth quarter 2001 revenues.

NETWORK ACCESS

     Network access services are provided to long distance carriers, 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 duration of one to
three years). We also collect network access fees directly from our customers
from FCC-mandated line charges.

     Network access revenues totaled $355 million in 2001 and included the
following amounts (in millions):

<Table>
<S>                                                                  <C>
                    O    Federal long-term support subsidies         $  91

                    O    Federal High Cost subsidies                    33

                    O    Subscriber line charge                         61

                    O    Per minute wireline access charges:

                        o    On-island switched                         69
                        o    Off-island switched & common
                             carrier line                               64
                        o    Off-island special                         18
                        o    Wireless interconnection                   19
</Table>

     Long-term and High Cost federal subsidies are received through pooling
arrangements administered by the National Exchange Carriers Association
("NECA"). Please refer to the Regulatory and Competitive Trends section of
Management's Discussion and Analysis for a discussion of the factors affecting
future access revenues and the expected decline in federal High Cost subsidies.

LONG DISTANCE

    The long distance market in Puerto Rico experienced profound changes over
the last few years. The market prior to February 1, 1999 was divided between
off-island and on-island. We were prohibited from selling off-island long
distance service because of a prior non-compete agreement, and our competitors
were prohibited from selling on-island long distance service on an equal access
basis. AT&T and Telefonica Larga Distancia ("TLD") were the most significant
competitors in the off-island market.



                                       6
<PAGE>

    With the introduction of equal access on February 1, 1999, the off-island
and on-island distinction no longer exists. In 1999, we entered the off-island
market. The price of a long distance call at December 31, 2001 was the same
throughout Puerto Rico and to the U.S. and ranged from 9 cents to 12 cents a
minute for peak hours and 8 cents to 10 cents a minute for off-peak hours. These
prices reflect a decrease of approximately 3 cents a minute since February 1,
1999, as a result of increased competition.

    The following chart shows our minutes of use in the on-island and off-island
long distance market for the years ended December 31, 2000, 1999 and 1998,
respectively:

<Table>
<Caption>

                                YEAR ENDED DECEMBER 31,
                           ---------------------------------
                             2001        2000         1999
                           ---------   ---------   ---------
<S>                        <C>         <C>         <C>
                                     (IN MILLIONS)
Long distance MOU:
On-island LD minutes           1,021         976       1,254
Off-island LD minutes(1)         191         149          62
</Table>


     (1) Off-island long distance service commenced February 1, 1999.

     Total long distance revenues of $186 million in 2001 reflected an increase
of $16 million as compared with 2000, of which $9 million was due to our
recapturing of the on-island market. The increase is also due in part to the
increase in our share of the off-island market and higher prepaid long distance
card revenues. The increase in off-island and prepaid long distance card
revenues for 2001 was approximately $5 million and $2 million, respectively, as
compared to the prior year.

DIRECTORY SERVICES

     We received $20 million in publishing revenue in 2001 under a revenue
sharing arrangement with VNU World Directories, Inc. ("VNU"). VNU is the
publisher of the 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 new 95-year agreement in 1999 with Verizon Information Services,
Inc. (formerly AXESA), 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 $17 million in 2001 from billing and collection
services primarily from AT&T and TLD, the two largest competitive off-island
long distance carriers. Both carriers generate roughly equal billing and
collection volumes and represent approximately 92% of total billing and
collection fees for 2001. The AT&T contract was renewed in July 2001 and expires
in June 2004. The TLD contract expires in October 2003.

WIRELESS

                         CELLULAR AND PAGING CUSTOMERS

<Table>
<Caption>



                                 YEAR ENDED DECEMBER 31,
                           ------------------------------------
                             2001          2000          1999
                           ---------     ---------    ---------

                            (IN THOUSANDS EXCEPT PERCENTAGES)
<S>                        <C>           <C>          <C>
Cellular Customers:
Postpaid                         209           203          184
Prepaid                          118           132          101
                           ---------     ---------    ---------

Total Cellular Customers         327           335          285
                           =========     =========    =========

Growth                            (2%)          18%          40%

Paging Customers                  49           126          184
                           =========     =========    =========
</Table>



                                       7
<PAGE>

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 analog and digital cellular service under the Verizon
Wireless brand in the B block 800-megahertz frequency. Our cellular network
utilizes the TDMA standard. We invested $40 million in 2001 in a new overlay
network using the CDMA standard. We commenced selling CDMA service in December
2001. The cellular and paging brand was changed from Celulares Telefonica to
Verizon Wireless in November 2001 as part of a strategy to align our service
offering with Verizon Wireless in the U.S.

     There were six facility-based cellular operators providing service
throughout the island with varying coverage at the end of December 31, 2001.
Sprint PCS launched services in Puerto Rico during 2001. Competitor strategies
in the market has resulted in the emergence of a variety of plans with large
bundles of free nights and weekends minutes as well as free incoming calls. All
competitors have begun to offer these types of plans. We hold between 25% and
28% share of the cellular market.

     We have 18 stores and kiosks throughout the island, which generate
approximately half of the 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 in 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 3% is below prior year growth due to increased
competition and the entrance of one additional competitor. Prepaid customers
decreased by approximately 11% due to a change in market strategy.

     Average revenue per user ("ARPU") was $43 in 2001, a $5 increase from the
prior year. Postpaid ARPU was $58 in 2001, a $7 increase from the prior year, as
a result of higher customer usage. Prepaid ARPU was $16 in 2001.

     Postpaid customer churn was 4.5% per month in 2001, an increase of
approximately 0.6% from the prior year. We believe churn is high compared to
U.S. mainland standards because of higher disconnections due to non-payment and
the intensity of competition with six facilities-based competitors.

NETWORK INFRASTRUCTURE

     We invested approximately $1.3 billion from 1997 to 2001 including $236
million in 2001 to expand and enhance our networks.

WIRELINE NETWORK

     Our 100% digital switching network includes 29 local host central offices
and two access tandems to ensure redundancy and network reliability. Our network
has the following characteristics:

     o    Approximately 80% 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.

     o    The entire transmission network for the San Juan Metropolitan Area
          uses self-healing SONET rings operating at bandwidths up to OC-192
          with fiber cable connected to over 200 office buildings.

     o    Approximately 39% of outside cable serving the local loop is
          underground.

     o    Our switching network and transmission systems are monitored by a
          Network Monitoring Center, which operates 24 hours per day.

     o    Our Remote Access Server ("RAS") network includes 26 nodes located
          throughout the island connecting Internet customers through 16,000
          modems. During 2002, we expect to install approximately 12,500
          additional modems.

     We have completed the installation of an ATM network, which provides
high-speed data and Internet transmission on a separate network. The ATM network
includes 15 nodes located throughout the island.

     The DSL network provides high speed Internet access to approximately 7,400
ports in forty major service areas throughout the island. During the first
quarter 2002 we are scheduled to install approximately 4,100 additional ports.



                                       8
<PAGE>


WIRELESS NETWORK

     We operate both an analog and a TDMA digital network using the IS-136
standard. Our network contains approximately 13,600 voice channels, representing
90% digital and 10% analog. We invested $40 million in 2001 in a new network
using the CDMA standard. We commenced selling CDMA service in December 2001. We
have 207 cells and 13 micro-cells covering the entire island.

EMPLOYEES

     The workforce totaled approximately 6,250 full-time employees at December
31, 2001 of which 76% are members of two unions, the Union of Independent
Telephone Workers, known as UIET, and the Brotherhood of Independent Telephone
Workers, known as HIETEL. Union membership is mandatory for certain job
categories. The labor contract was signed in the fall of 2000 with both unions.
The UIET contract, involving 3,200 craft workers, expires in January 2003; the
HIETEL contract, involving 1,700 members, expires in October 2003.

     A total of $52 million was recorded for early retirement and voluntary
separation programs during 2001 associated with four separate offerings
summarized 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 people 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.



                                       9
<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 the competition affecting our operations.

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. Dialing parity, which opened up the off-island and on-island long
distance market to competition, was introduced in February 1999.

     Our intra-island access charges were calculated using a rate-of-return
methodology and basic local rates have remained unchanged since 1982. 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 on its regulated
intrastate rate base. The TRB has requested 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 Matters."

     The TRB adopted a local universal service for qualified low-income
customers, called Lifeline, 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 will receive an
additional local $3.50 per month credit along with an additional federal $1.75
per month credit from the Company. These credits together with the existing
federal credits of $6.75 per month result in total credits for a lifeline
customer of $12.00 per month. Contributions made by the Company to the TRB will
be recovered through an end-user charge commencing on March 1, 2002. The Company
will be reimbursed from the TRB for credits given to Lifeline customers.

     The wireless business is not subject to price regulation.





                                       10
<PAGE>





ITEM 2. PROPERTIES

                          PROPERTY, PLANT AND EQUIPMENT

     Gross investment in property, plant and equipment approximate $4.0 billion
at December 31, 2001 and $3.9 billion at December 31, 2000, as follows:


<Table>
<Caption>
                                                           2001                                   2000
                                             ---------------------------------     ----------------------------------
                                             Wireline     Wireless      Total      Wireline      Wireless      Total
                                             --------     --------     -------     --------      --------     -------
<S>                                          <C>           <C>         <C>          <C>          <C>          <C>
Outside plant                                    49.0%          --        49.0%        48.9%           --        48.9%
Central office and transmission equipment        24.9          5.5        30.4         24.6           5.3        29.9
Other equipment                                   8.0          0.9         8.9          8.3           1.3         9.6
Land and buildings                                8.3          0.6         8.9          8.5           0.5         9.0
Plant under construction                          2.1          0.7         2.8          2.0           0.6         2.6
                                             --------     --------     -------     --------      --------     -------
                                                 92.3%         7.7%        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, building 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, 2001 include the following:

<Table>
<Caption>
                                                                            OWNED    LEASED
                                                                            -----    ------
<S>                                                                         <C>      <C>
o Administrative Offices                                                     11       15
o Commercial & Customer Service stores & offices                              1       12
o Standalone Wireline Switching Center Buildings                             91        5
o Inside & Outside Remote Switching Units                                   148      221
o Standalone Operational Centers (repair, dispatch, assignment)              14       11
o Warehouses                                                                  1       --

o Wireless Stores and Kiosks                                                 --       18
o Wireless Cell Sites                                                        20      200
</Table>

     All of these properties are generally in good operating condition and are
adequate to satisfy the needs of the business.

ITEM 3. LEGAL PROCEEDINGS

     We are defendants in various legal matters arising in the ordinary course
of business, including a regulatory dispute regarding intra-island access fees
charged to long distance carriers. We, after consultation with legal counsel,
believe 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 Matters" for more information regarding these matters.

     In connection with the Acquisition, 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.

     We are regulated by the FCC for inter-state wireline services and by the
TRB for intra-state wireline services. We are involved in administrative
proceedings relating to access charge disputes with long distance carriers.
Refer to Note 20 to the consolidated financial statements for further details.

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

     Not applicable.



                                       11
<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 investment advisors to the ESOP
Trustees. The appraisal is used to value cash distributions to qualified ESOP
participants and measure the Company's share performance for employees who
participate in the ESOP Investment Plan.

(B) HOLDERS

     There were 25 million outstanding shares of common stock and four
shareholders of record at December 31, 2001. See Item 12 "Security Ownership of
Certain Beneficial Owners and Management" for shareholders information.

(C) DIVIDENDS

     Our shareholders agreement states that dividends equal to at least 50% of
net income will be payable quarterly to the extent funds are legally available.
During 2001, the Company paid dividends of $58 million, or $2.315 per share,
applicable to the first three quarters of the year. Fourth quarter dividends
were declared and paid in March 2002. Senior note indentures and credit facility
agreements do not contain dividend restrictions.



                                       12
<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 years ended December 31, 2001 and 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 year ended December 31, 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:

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

o    The change to a tax paying company;

o    Voluntary early retirement and separation programs introduced since 1999;

o    The accrual of management fees and royalties owed to Verizon;

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

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

o    The discontinuation of regulatory accounting principles.




                                       13
<PAGE>

<Table>
<Caption>
                                                        COMPANY                                    PREDECESSORS
                                        ---------------------------------------     --------------------------------------
                                                                      MARCH 2       JANUARY 1
                                        YEARS ENDED DECEMBER 31,      THROUGH        THROUGH     YEARS ENDED DECEMBER 31,
                                        ------------------------      DECEMBER       MARCH      --------------------------
                                          2001           2000           1999           1999        1998            1997
                                        ---------      ---------      ---------     ---------   ---------       ----------
                                                                        (DOLLARS IN MILLIONS)
<S>                                     <C>            <C>            <C>            <C>         <C>            <C>
INCOME STATEMENT DATA(5):
  Revenues                              $ 1,396.4      $ 1,393.6      $ 1,102.7      $ 220.5     $ 1,253.0      $  1,212.7
  Operating Costs and Expenses            1,149.6        1,163.3        1,156.7        219.0       1,031.8           970.6
                                        ---------      ---------      ---------      -------     ---------      ----------
  Operating Income (Loss)                   246.8          230.3          (54.0)         1.5         221.2           242.1
  Other Income (Expense), Net               (58.8)         (74.5)         (65.1)          .4           3.2             3.7
  Income Tax (Expense) Benefit              (69.5)         (40.4)          46.4           --            --              --
                                        ---------      ---------      ---------      -------     ---------      ----------
  Income (Loss) Before Extraordinary
    Charge and Cumulative Effect of
    Accounting Change                       118.5          115.4          (72.7)         1.9         224.4           245.8
  Extraordinary Charge                         --             --          (60.5)          --            --              --
  Cumulative Effect of Accounting
    Change, net of tax                         --           10.8             --           --            --              --
                                        ---------      ---------      ---------      -------     ---------      ----------
  Net Income (Loss)                     $   118.5      $   126.2      $  (133.2)     $   1.9     $   224.4      $    245.8
                                        =========      =========      =========      =======     =========      ==========

OTHER FINANCIAL DATA:
  Depreciation and Amortization         $   271.0      $   298.5      $   242.0      $  50.4     $   296.5      $    279.2
  Cash Flows from Operations                215.9          485.5          316.1         55.9         613.8           508.2
  Capital Expenditures, including
     removal costs                          246.3          213.1          240.1         33.2         288.0           362.2
  Cash Flows used in Investing              219.6          206.9          246.4         33.1         279.6           351.3
  Cash Flows from Financing                   7.7         (293.3)         (96.8)        14.2        (319.8)         (178.7)
  EBITDA(1)                                 517.8          528.8          188.0         51.9         517.7           521.3
  EBITDA Margin(2)                             37%            38%            17%          24%           41%             43%
  Ratio of Earnings to Fixed
     Charges(3)                               4.1            3.0           (0.8)
  Cash dividends per share(4)                 2.3
</Table>


<Table>
<Caption>

                                                         COMPANY                            PREDECESSORS
                                        -----------------------------------------    --------------------------
                                            AS OF DECEMBER 31,                    AS OF DECEMBER 31,
                                        --------------------------    -----------------------------------------
                                           2001           2000            1999           1998           1997
                                        -----------    -----------    -----------    -----------    -----------
                                                                 (DOLLARS IN MILLIONS)
<S>                                     <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
  Current Assets                        $     431.1    $     415.6    $     411.6    $     435.4    $     379.7
  Property, Plant and Equipment, Net        1,631.8        1,657.2        1,742.5        1,987.9        2,019.1
  Total Assets                              2,748.3        2,766.8        2,827.7        2,456.6        2,434.8
  Current Liabilities                         839.5          609.5          845.7          347.2          243.6
  Total Debt                                1,195.8        1,167.5        1,497.4            0.8            1.2
  Shareholders' Equity                        538.3          497.8          369.6        1,812.7        1,925.0
</Table>

<Table>
<Caption>

                                                                        COMPANY                                PREDECESSORS
                                                       --------------------------------------------    ----------------------------
                                                          AS OF          AS OF                      AS OF DECEMBER 31,
                                                       DECEMBER 31,    DECEMBER 31,    --------------------------------------------
                                                           2001            2000            1999            1998              1997
                                                       ------------    ------------    ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>             <C>             <C>
OPERATING DATA:
  Access Lines in Service (000)                               1,273           1,283           1,265           1,231           1,221
  Wireless subscribers:
    Cellular (000)                                              327             335             285             204             135
    Paging (000)                                                 49             126             184             219             235
  Total Access Lines (per 100 households)                        73              74              74              75              76
  Number of full-time Employees                               6,250           6,417           6,614           7,703           7,863
  Access Lines/Wireline Employee                                232             226             207             169             164
  Cellular Average Monthly Service Revenue Per User    $         43    $         38    $         43    $         49    $         59
</Table>


----------

(1) 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.



                                       14
<PAGE>


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

(3) 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.

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

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



                                       15
<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. Deferred tax assets and liabilities are adjusted, to
the extent necessary, to reflect tax rates expected to be in effect when
temporary differences reverse.

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.

GOODWILL AND INTANGIBLE IMPAIRMENT

In assessing the recoverability of the Company's goodwill and other intangibles
the Company must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
As of December 31, 2001, the Company believes that there are no asset
impairments under SFAS 121, except as disclosed in Notes 2 and 4 to the
consolidated financial statements. Effective January 1, 2002, the Company will
adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," and will be required to analyze its goodwill for impairment
during the first six months of fiscal 2002, and then on an annual basis
thereafter.

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.




                                       16
<PAGE>

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.
The company has assumed that the expected long-term rate of return on plan
assets will be 9.25%. Over the long term, the company's pension plan assets have
earned in excess of 9.25%; therefore, the company believes that its assumption
of future returns of 9.25% 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, 2001, the company determined this rate to be
7.25%, which is 0.5% lower than 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, 2001, we assumed a discount rate of 7.25%. At year-end 2001, we
reduced our discount rate by 0.5%, which 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.

THE ACQUISITION AND CHANGE IN ACCOUNTING BASIS

     Our results of operations and financial position as of December 31, 2001
and 2000 reflect the adoption in March of 1999 of a new accounting basis for our
assets and liabilities and the consequences of becoming a tax paying enterprise
as a result of the Acquisition. The revaluation of assets and liabilities
reflects the value paid by Verizon and Popular, Inc. to acquire their 50% plus
one share interest in the Company in excess of the historical book value of the
assets and liabilities acquired. As a result of the Acquisition, our results of
operations and financial position for periods ending after March 2, 1999 differ
materially from those previously reported by the Predecessors primarily due to
the items discussed above and the following:

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

o    The accrual of management fees and royalties owed to Verizon;

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

o    The discontinuation of regulatory accounting principles.

RESULTS OF OPERATIONS

     The comparison for the years 2001 and 2000 is for the full twelve-month
period. 1999 combines the results of the Predecessors with the results of the
Company. In the discussion, references to the Company also include our
Predecessors. The comparability of revenues before and after the Acquisition was
not affected by a change in accounting basis. Accordingly, in the discussion of
revenue trends, we have not distinguished between the operations of the
Predecessors before March 1, 1999 and of the Company after this date.

     We have two reportable segments, Wireline and Wireless. See Note 17 to the
consolidated financial statements for additional information on our segments.
Reclassifications of prior years' data have been made to conform to the 2001
presentation.



                                       17
<PAGE>





     The Wireline segment consists of:

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

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

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

o    Directory publishing rights revenues; and

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

     The Wireless segment consists of:

o    Cellular and paging services; and

o    Wireless equipment sales.





                                       18
<PAGE>

REVENUES

<Table>
<Caption>


                                                             YEARS ENDED DECEMBER 31,
                                                               (DOLLARS IN MILLIONS)
                               -----------------------------------------------------------------------------------
                                          2001                        2000                          1999
                               -------------------------    -------------------------    -------------------------
<S>                            <C>           <C>            <C>           <C>            <C>           <C>
WIRELINE:

Local                          $       564            41%   $       554            40%   $       484            37%
Network Access                         355            25            389            28            348            26
Long Distance                          186            13            170            12            210            16
Directory and Other                     84             6             86             6             88             7
                               -----------   -----------    -----------   -----------    -----------   -----------

   Total Wireline                    1,189            85%         1,199            86%         1,130            86%
                               -----------   -----------    -----------   -----------    -----------   -----------

WIRELESS:
Postpaid Cellular                      153            11            124             9            117             9
Prepaid Cellular                        25             2             24             2             16             1
Paging                                  15             1             34             2             45             3
Wireless Equipment and other            14             1             13             1             15             1
                               -----------   -----------    -----------   -----------    -----------   -----------

  Total Wireless                       207            15%           195            14%           193            14%
                               -----------   -----------    -----------   -----------    -----------   -----------

  Revenues                     $     1,396           100%   $     1,394           100%   $     1,323           100%
                               ===========   ===========    ===========   ===========    ===========   ===========
</Table>

EXPENSES AND CHARGES

<Table>
<Caption>

                                                             YEARS ENDED DECEMBER 31,
                                                               (DOLLARS IN MILLIONS)
                                                      -----------------------------------------
                                                         2001            2000            1999
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
WIRELINE:

Labor and benefits                                    $       350    $       373    $       407
Other operating expenses                                      311            333            310
                                                      -----------    -----------    -----------
   Total Wireline                                             661            706            717

WIRELESS:

Labor and benefits                                    $        34    $        35    $        25
Other operating expenses                                      131            106            108
                                                      -----------    -----------    -----------
   Total Wireless                                             165            141            133

OTHER:

ESOP compensation expense                                      --             --             26
Early retirement and voluntary separation provision            52             19            207
Depreciation and amortization                                 271            298            292
Interest and others                                            62             77             64
Equity income in joint venture                                 (3)            (2)            --
Income tax expense (benefit)                                   70             40            (46)
Extraordinary item (FAS #71) - net of tax                      --             --             61
Cumulative effect of accounting change - net of tax            --            (11)            --
                                                      -----------    -----------    -----------

Net income (loss)                                     $       118    $       126    $      (131)
                                                      ===========    ===========    ===========
</Table>

OPERATING DATA

<Table>
<Caption>

                                             YEARS ENDED DECEMBER 31,
                                      ---------------------------------------
                                         2001           2000          1999
                                      -----------   -----------   -----------
<S>                                   <C>           <C>           <C>
Access Lines in Service (000's):
    Residential                               965           974           961
    Business                                  308           309           304
                                      -----------   -----------   -----------
Total                                       1,273         1,283         1,265

On-island LD Minutes (millions)             1,021           976         1,254
Off-island LD Minutes (millions)(1)           191           149            62

Cellular Customers (000's):
    Postpaid                                  209           203           184
    Prepaid                                   118           132           101
                                      -----------   -----------   -----------
Total                                         327           335           285

Postpaid Cellular ARPU                $        58   $        51   $        56
Prepaid Cellular ARPU                 $        16   $        17   $        18
Combined Cellular ARPU                $        43   $        38   $        44

Paging Customers (000's)                       49           126           184
</Table>


(1)  Off-island long distance service commenced February 1, 1999.



                                       19
<PAGE>




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

     REVENUES. Revenues for the year ended December 31, 2001 increased $2
million, to $1,396 million from $1,394 million in 2000.

     WIRELINE:

         Wireline revenues include local service, network access, long distance,
directory revenues and other services. Wireline revenues for the year ended
December 31, 2001 decreased $10 million, to $1,189 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 $10 million, or 2%, to $564
million from $554 million in 2000. The increase resulted primarily from higher
revenues from high-speed private lines, Internet access revenues, value-added
service revenues, and deferred activation and installation revenues of $6
million, $4 million, $4 million and $4 million, respectively. This increase was
offset in part by a decrease in telephone and PBX rentals 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 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.

         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 lower off-island
access revenues of $22 million, caused by lower competitive access volumes, and
lower access rates. Also, the decrease was due to lower interstate high cost
fund subsidies of $16 million reflecting a phasing out of this subsidy. The
decrease was offset in part by higher intra-island access revenues of $2 million
from long distance and cellular carriers relating to higher access volumes.

         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 higher intra-island long distance revenues of $9 million, long distance
private line revenues of $6 million, off-island long distance revenues of $5
million and prepaid long distance cards revenue of $2 million. This increase was
offset 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 continue to increase our share of the off-island long distance
market.

         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 services of $5 million and public phone access of $1 million, offset
in part by an increase in equipment sales 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.



                                       20
<PAGE>




    WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the year ended December 31, 2001 increased $12 million, or 6%, to $207
million from $195 million in 2000. Cellular service revenues increased $30
million, or 20%, as a result of higher combined ARPU of $5 and an increase in
postpaid customers of approximately 6,000 versus the prior year. Postpaid
cellular ARPU of $58 increased by $7 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 of $14
million, lower pension and OPEB's of $8 million and the absence of sick day
provision of $5 million. These decreases were partially offset by an increase in
salaries of $2 million and higher 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 lower provision for bad debt of $13
million, lower management fees and royalties of $11 million, lower 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. 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 higher 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 lower
temporary employees and contractor expenses of approximately $3 million and
lower overtime expenses of $1 million. These decreases were offset 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 higher 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, higher roaming
charges of $3 million and the absence of the gain on sale of the assets on prior
years of $8 million. These increases were offset 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.



                                       21
<PAGE>





         EARLY RETIREMENT PROVISION. 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 people 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 accepting.

         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.

         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.



                                       22
<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.








                                       23
<PAGE>




YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

     REVENUES. Revenues for the year ended December 31, 2000 increased $71
million, or 5%, to $1,394 million from $1,323 million in 1999.

     WIRELINE:

         Wireline revenues include local service, network access, long distance,
directory revenues and other services. Wireline revenues for the year ended
December 31, 2000 increased $69 million, to $1,199 million from $1,130 million
in 1999.

         Local service revenues include basic voice, telephone and
telecommunications equipment rental, value-added services, high-speed private
line services, Internet access, public phone service, and deferred installation
and activation services. Local service revenues for the year ended December 31,
2000 increased $70 million, or 14%, to $554 million from $484 million in 1999.
The increase resulted primarily from increases in revenues from basic rent, ATM
private lines, Internet access, high speed private lines, public phones,
measured services, and value-added services of $20 million, $17 million, $14
million, $8 million, $6 million, $4 million, and $2 million, respectively.

         The increase in basic rent revenues of $20 million is primarily due to
a shift in access lines towards higher-priced flat rate service caused by
increased Internet usage. Access line growth in the year ended December 31, 2000
was 1.4%; compared to 2.8% for the comparable 1999 period, due to facilities
based local exchange competition. The waiting list of regular orders for new
installations decreased to 14,300 at December 31, 2000 compared to 22,200 at
December 31, 1999. The decrease in the waiting list was a result of our effort
to reduce provisioning time. The increase in local measured service is primarily
due to higher business usage.

         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, 2000 increased $41 million, or 12%, to $389 million
compared to $348 million for 1999. We received $34 million of additional access
revenues from long distance carriers to originate on-island calls, which was the
result of our on-island long distance market share loss.

         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 decreased $40 million, or 19%, to $170 million
for the year ended December 31, 2000 from $210 million in 1999. The decrease was
attributable to 22% lower on-island minutes of use, which was partially offset
by an increase in off-island minutes-of-use, higher operator assisted set-up
fees and long distance private lines. For the year ended December 31, 2000, long
distance revenues as a result of our entrance into the off-island long distance
market were $14 million higher than for the year ended December 31, 1999. We
commenced providing off-island long distance service in February 1999.

         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, 2000 decreased $2 million, or 2%, to $86 million, from $88 million
for the year ended December 31, 1999, due mainly to a decrease in equipment
sales of $8 million, offset by an increase of $7 million for billing and
collection services and other services to carriers of $4 million.

         Also, 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. This change
resulted in a decrease of approximately $6 million in directory publishing
revenues in 2000 as compared to 1999. See Note 3 to the consolidated financial
statements for more details related to this accounting change.

     WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the year ended December 31, 2000 increased $2 million, or 1%, to $195
million from $193 million in 1999. Cellular service revenues increased $15
million, or 11%, as a result of the net addition of approximately 50,000
customers versus last year, representing an increase of 18%. Cellular average
revenue per customer per month of $38 decreased by $6 as a result of competitive
pricing actions and a larger portion of prepaid customers, which have lower
average revenue per customer. Prepaid customers increased 31% at December 31,
2000, as compared to the year ended December 31, 1999.




                                       24
<PAGE>




         Paging revenues declined $11 million, or 24%, to $34 million for the
year 2000 from $45 million for the prior year. The decrease was due to a
reduction of 58,000 customers due to the migration of customers to cellular
prepaid plans and postpaid cellular plans with free incoming minutes.

         Other revenues decreased $2 million to $13 million for the year ended
December 31, 2000 as compared to 1999. This decrease was mainly due to a
reduction of approximately $2 million in paging equipment sales to the
government during 2000 as compared to 1999.

         OPERATING COSTS AND EXPENSES. Operating costs and expenses for the year
ended December 31, 2000 decreased $3 million to $847 million from the $850
million reported for 1999.

     WIRELINE:

         Wireline expenses for the year ended December 31, 2000 decreased $11
million, or 2%, to $706 million from the $717 million incurred in 1999.

         Labor and benefits expenses decreased $34 million, or 8%, to $373
million from $407 million in 1999, mainly due to decreases in salaries of $27
million and the absence of Hurricane Georges repair and related contractor
expenses of $19 million. These decreases were offset in part by an increase in
sick leave provision of $10 million and net pension and OPEB's expenses of $5
million. Labor savings were the result of a workforce reduction of 1,342
employees resulting from the 1999 early retirement programs. The 1999 one-time
charge related to this program had the effect of increasing 2000 pension and
OPEB's expenses.

         Other operating expenses of $333 million for the year ended December
31, 2000, increased $23 million compared to 1999 of $310 million. The increase
is due to higher accrued management fees and royalties of $16 million, access
charges of $14 million, advertising expense of $5 million, commissions of $2
million and consulting expenses of $2 million. This increase was offset in part
by lower cost of equipment sold of $15 million.

    WIRELESS:

         Wireless expenses for the year ended December 31, 2000, increased $8
million, or 6%, to $141 million from the $133 million reported in 1999.

         Labor and benefits increased $10 million, or 40%, to $35 million from
$25 million reported in 1999. The principal components of this increase are
higher salaries of $7 million, higher medical & life insurance claims of $1
million and higher net pension and OPEB's expenses of $1 million. The increase
in salaries is as a result of more fulltime employees.

         Other operating expenses decreased $2 million, or 2%, to $106 million
from the $108 million reported in 1999. The principal components of this
decrease were reduced outsourced billing and operator services of $5 million and
a gain on the sale of assets of $8 million, offset in part by an increase in
advertising expense of $4 million, roaming charges of $4 million and commissions
of $3 million.

         ESOP COMPENSATION EXPENSE. A $26 million non-cash expense was recorded
in the first quarter of 1999 representing the PRTA's grant, with an offsetting
credit to paid-in-capital.

         EARLY RETIREMENT PROVISION. 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
accepting. Early retirement programs were also offered to the entire workforce
in 1999. Non-cash provisions of $207 million were recorded for 1,342 employee
acceptances.

         DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses of $298 million for the year ended December 31, 2000 was $6 million
higher than the prior year, an increase of 2%. This increase is directly related
to the increase in gross property, plant and equipment of approximately 3%.

         INTEREST EXPENSE. Interest expense of $77 million for the year ended
December 31, 2000 primarily resulted from privatization related borrowings. Debt
decreased from approximately $1.5 billion at December 31, 1999 to $1.2 billion
at December 31, 2000.



                                       25
<PAGE>

         EQUITY INCOME FROM JOINT VENTURE. Earnings of $2 million were generated
from our approximate 25% share in Verizon Information Services, Inc. (formerly
AXESA), the largest yellow page publishing company in Puerto Rico. Our share of
the earnings commenced in January 2000.

         INCOME TAXES. A $40 million tax provision for the year ended December
31, 2000 reflects a 26% effective tax rate. The difference between the effective
and the statutory tax rate of 39%, or $20 million, primarily reflects permanent
differences of $8 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 $9 million
(including the effect of additional taxable income and deductible expense
information obtained during 2000 with regards to the Company's 1999 original and
amended income tax filings), and other tax adjustments of $3 million.

         EXTRAORDINARY CHARGE. PRTC discontinued the application of SFAS No. 71
with the consummation of the Acquisition on March 2, 1999, due to changes in
regulation, the competitive environment and the terms of the Acquisition. A
write-down of plant and equipment of $199 million was recorded, of which $99.5
million was accounted for as a purchase price adjustment consistent with partial
step-up accounting to reflect the fair value of the acquired assets. The
remaining $99.5 million was recorded as an extraordinary charge (approximately
$60.5 million after-tax).

         CUMULATIVE EFFECT OF ACCOUNTING CHANGE. 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 as a result of the accounting change. This resulted in reducing net
revenues and expenses net of amortization for the year ended December 31, 2000
by $29 million. Therefore, this accounting change did not have an effect on our
net income for the year ended December 31, 2000. In accordance with SAB 101, the
Company restated its quarterly information for 2000.






                                       26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED FINANCIAL CONDITION

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


<Table>
<Caption>

                                       YEARS ENDED DECEMBER 31,
                              -------------------------------------------
                                  2001           2000          CHANGE
                              -----------     -----------     -----------
                                        (DOLLARS IN MILLIONS)
<S>                           <C>             <C>             <C>
Cash flows from (used in):
    Operations                $       216     $       486     $      (270)
    Investing                        (220)           (207)            (13)
    Financing                           8            (293)            301
</Table>

OVERALL LIQUIDITY ASSESSMENT

         The Company believes that cash from operations is sufficient to meet
working capital needs. While current liabilities exceeded current assets at
December 31, 2001, we believe our sources of funds, primarily from operations
and to the extent necessary, from readily available external financing
arrangements, are sufficient to meet ongoing operating and investing
requirements. We expect that presently foreseeable capital requirements will
continue to be financed through internally generated funds.

         $300 million of the Company's senior notes mature on May 15, 2002. The
Company believes it has more than adequate liquidity and access to capital to
refinance the note.

         The Company has a $500 million undrawn revolving credit facility
maturing in March 2004, as well as a $100 million working capital facility which
matures in June 2002 and is expected to be renewed for another year.

OPERATIONS

         Cash from operations continued to be our primary source of funds. The
decrease in cash from operations of $270 million for the year ended December 31,
2001 compared to the same period in 2000 was due primarily to higher
disbursements in the following main areas:

<Table>
<S>                                                                             <C>
o        Management fees and royalties (1999-2000)                              $ 86 million

o        Management fees and royalties (2001)                                     33 million

o        Pension plan contributions                                               69 million

o        Income taxes                                                             49 million

o        Verizon Expatriate expense (1999-2001)                                   18 million
</Table>

         Management fees and royalties payment for all prior periods were paid
in 2001 pursuant to a deferral agreement as part of the Acquisition.

         Pension plan payments increased reflecting higher ERISA funding
requirements and a voluntary decision to increase contributions to the high-end
of the ERISA minimum requirement based on the projected return on the plan
versus borrowing costs and to reduce pension benefit guarantee insurance
expenses. The Company funds up to the ERISA minimum, as this is the maximum
tax-deductible amount under a ruling granted by the Puerto Rico Treasury
Department. Higher funding requirements reflect the need to fund the early
retirement programs of recent years. Full year 2001 pension and other
post-employment benefits contributions amounted to approximately $176 million.

         The Company became a cash taxpayer for the first time in the first
quarter of 2001, resulting in current income tax payments of $15 million and
prior year tax disbursements of $34 million.

         The cash disbursement to reimburse Verizon for expatriate expenses
since the Acquisition was made in 2001.



                                       27
<PAGE>




INVESTING

         Net cash used in investing activities for the year ended December 31,
2001 was $220 million compared to $207 million for the same period in 2000. The
capital expenditure program for 2001 amounted to $241 million, which was
financed from internally generated funds.

         We have invested approximately $690 million from the date of the
Acquisition through year-end 2001 to expand and enhance our networks. In 2002,
we expect to make up to approximately $234 million in capital expenditures.

         A 33% interest in Coqui.net was sold to Popular Inc., a shareholder of
the Company, on May 14, 2001 for $16 million.

FINANCING

         Debt, excluding capital leases, increased $27 million in 2001.
Borrowings under bank loans, working capital facilities and commercial paper
increased from $167 million at December 31, 2000 to $194 million at December 31,
2001. We expect to refinance the $300 million senior notes maturing in May 2002
with commercial paper, bank loans or by issuing new fixed rate senior notes.

         The shareholders' agreement requires the payment of dividends equal to
at least 50% of net income, payable quarterly to the extent funds are legally
available. During 2001, the Company paid dividends amounting to $58 million
corresponding to the first three quarters of the year. Fourth quarter 2001
dividends will be paid during the first quarter of 2002. The senior note
indentures and credit facility agreements do not contain dividend restrictions.

         In the Acquisition, the Puerto Rico Telephone Authority ("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 to fund its underfunded pension and other post-employment benefit
obligations. 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, 2001, $40 million in cash was received for the second
installment.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

<Table>
<Caption>

CONTRACTUAL OBLIGATIONS &
OTHER COMMERCIAL COMMITMENTS:                                  PAYMENTS DUE BY PERIOD
                                        -----------------------------------------------------------------------
                                                        Less Than                                    After 5
(Amounts in Thousands)                     Total         1 year        1-3 Years      4-5 Years        Years
                                        -----------    -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>            <C>
Long Term Debt                          $   700,913    $        --    $        --    $   401,047    $   299,866
Pension Benefit Obligations(1)              432,600        109,900        264,100         58,600             --
Current Portion of Long Term Debt(2)        299,991        299,991             --             --             --
Working capital facilities                  100,000        100,000             --             --             --
Commercial Paper                             94,100         94,100             --             --             --
Operating Leases                             45,198          8,710         17,764          2,838         15,886
Capital Lease Obligations                       772            235            522             15             --
                                        -----------    -----------    -----------    -----------    -----------

Total                                   $ 1,673,574    $   612,936    $   282,386    $   462,500    $   315,752
                                        ===========    ===========    ===========    ===========    ===========
</Table>


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

(2)      The current portion of the senior notes matures on May 15, 2002. We
         expect to refinance the $300 million senior notes through commercial
         paper, bank loans or fixed rate senior notes.





                                       28
<PAGE>




YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>

                                        YEARS ENDED DECEMBER 31,
                              ----------------------------------------------
                                  2000            1999             CHANGE
                              ------------     ------------     ------------
                                          (DOLLARS IN MILLIONS)
<S>                           <C>              <C>              <C>
Cash flows from (used in):
    Operations                $        486     $        372     $        114
    Investing                         (207)            (279)              72
    Financing                         (293)             (83)            (210)
</Table>


OVERALL LIQUIDITY ASSESSMENT

         Cash from operations is sufficient to meet working capital needs. While
current liabilities exceeded current assets at December 31, 2000, our sources of
funds, primarily from operations and to the extent necessary, from readily
available external financing arrangements, are sufficient to meet ongoing
operating and investing requirements. We expect that presently foreseeable
capital requirements will continue to be financed through internally generated
funds. Current liabilities exceeded current assets at December 31, 2000 by $194
million mainly due to borrowings of $160 million under a short-term working
capital facility, the proceeds of which were used for the prepayment of our bank
debt.

OPERATIONS

         The increase in cash from operations primarily reflects improved
operating income, which was partially offset by changes in certain assets and
liabilities. The change in certain assets and liabilities in 2000, as compared
to 1999, largely reflects the growth in customer accounts receivable, the
increase in pension and other post-employment benefits and the increase in other
current liabilities, including accounts payable. The increase in accounts
receivable is mainly due to subscriber growth and greater usage of our networks
during 2000, as compared to 1999.

INVESTING

         Net cash used for investing activities for the year ended December 31,
2000 was $207 million compared to $279 million for 1999. The $72 million
decrease was primarily due to the timing of equipment deliveries from suppliers
and contractor work actions during the year 2000.

         During 1999, we acquired an Internet Service Provider ("ISP") for $22
million. We paid $20 million in cash and issued a $2 million short-term note to
acquire a 100% interest in the stock of Datacom Caribe, Inc. ("Datacom").
Datacom was the leading ISP on the island prior to the acquisition.

FINANCING

         Debt reduction for 2000 was $330 million. Borrowings under bank loans
and working capital facilities decreased from $495 million at December 31, 1999
to $160 million at December 31, 2000. We executed two new working capital credit
facilities with Banco Bilbao Vizcaya ("BBV") and Popular each for $50 million
during the second quarter of 2000. These facilities replaced a $200 million
facility with Popular, which was established on March 2, 1999 and expired on
March 2, 2000.

         Also, in November 2000, we signed a commercial paper dealer agreement
of $500 million, of which $7 million was outstanding at December 31, 2000. This
agreement calls for the issuance and sale of short-term promissory notes, with
maturities up to 365 days through certain dealers. PRTC and Verizon Wireless
serve as guarantors of the debt.

         Our shareholders agreement states that dividends equal to at least 50%
of net income will be payable quarterly to the extent funds are legally
available. No dividends were declared for the years ended December 31, 2000 and
1999. The Company had accumulated deficits of $7 million at December 31, 2000
and $133 million at December 31, 1999. The senior note indentures and credit
facility agreements do not contain dividend restrictions.




                                       29
<PAGE>




REGULATORY 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 affect costs of Universal Service and other services. We
are also addressing local number portability requirements and dial-around
compensation relating to the pay phone business.

         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.

INTRA-ISLAND LONG DISTANCE ACCESS RATE DISPUTE

         On February 28, 2002, the TRB issued a Resolution and Order with
respect to the Company requested reconsideration 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 reconsidered order requires new rates for intra-island access to be
implemented through phased rate reductions over four years (rather than 3 years
in the October 10 order), and directing PRTC to make a cash refund to end-user
customers.

         The prospective access rate reductions (on a two-way basis) are 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 April 2005 rate is the same as the year 3 rate in the October 10th
order.

         The reconsidered order requires PRTC to pay a $68 million refund to
end-user customers. The original order required a $93 million refund. 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 plans to file an appeal to the Puerto Rico Circuit Court of
Appeals that the TRB made errors of law and procedure in its determination of
access charges and its order to make refunds.

         At this preliminary stage it is too early to assess the probability of
success in the appeals process. Management believes it's appeal will be well
founded and therefore a provision for the retroactive refund is not merited.

PUBLIC TELEPHONE SERVICE PROVIDER DISPUTE

         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 requested a
dismissal of the case and no provision has been made as management believes the
claim is without merit.

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.



                                       30
<PAGE>


         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. The
FCC has put the request on public notice and for which approval is pending. The
net impact of converting from rate-of-return to price cap (CALLS) cannot be
determined at this time. The FCC has released a further notice of proposed
rulemaking regarding incentive regulation for rate-of-return companies. The
company is participating in this proceeding.

INTERSTATE HIGH COST SUBSIDY

         On October 21, 1999, the FCC adopted a new high cost support mechanism,
which will result in the phase out of the Company's High Cost Subsidy revenues.
These revenues were $48 million in 2000 and $33 million in 2001.




                                       31
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

Business Combinations and Accounting for Goodwill and Other Intangibles

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("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 a
material effect on the Company's financial statements.

         SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."

         Intangible assets that do not have indefinite lives will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The discontinuation of amortizing goodwill and other long-lived assets will
result in reducing annual amortization expense by approximately $14 million for
2002. The Company is required to adopt SFAS No. 142 effective January 1, 2002.
The Company is currently evaluating its assets using the fair value approach,
performed by an independent appraisal, to determine if there is an impairment
exposure and the impact in the Company's results of operations for 2002.

Asset Retirement Obligations

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This standard 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 a part of the book value of the long-lived asset. That
cost is then depreciated over the remaining life of the underlying long-lived
asset. The Company is required to adopt SFAS No. 143 effective January 1, 2003.
The adoption of this new standard is not expected to have an impact on the
Company's future results of operations or financial position.

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 is required to adopt SFAS No. 144
effective January 1, 2002. The Company does not expect the impact of the
adoption of SFAS No. 144 to have a material effect on its results of operations
or financial position.



                                       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, 2001 and 2000 and provides a sensitivity
analysis of the fair values of these instruments assuming a 100 basis point
increase or decrease in the yield curve. The sensitivity analysis did 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, 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    $    965,724     $  1,042,435
                         ============    ============    ============     ============

December 31, 2000:

   Senior Notes          $    999,700    $    971,691    $    934,010     $  1,011,780
   Interest Rate Swap              --              --              --               --
                         ------------    ------------    ------------     ------------

      Total              $    999,700    $    971,691    $    934,010     $  1,011,780
                         ============    ============    ============     ============
</Table>





                                       33
<PAGE>




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

<Table>
<S>                                                                               <C>
        Independent Auditors' Report                                              35

        Consolidated Balance Sheets as of December 31, 2001 and 2000              37

        Consolidated Statements of Operations for the Years Ended December 31,
        2001, 2000 and 1999                                                       38

        Consolidated Statements of Comprehensive Income (Loss) for the Years
        Ended December 31, 2001, 2000 and 1999                                    39

        Consolidated Statements of Changes in Shareholders' Equity for the
        Years Ended December 31, 2001, 2000 and 1999                              40

        Consolidated Statements of Cash Flows for the Years Ended December 31,
        2001, 2000 and 1999                                                       41

        Notes to Consolidated Financial Statements for the Years Ended December
        31, 2001, 2000 and 1999                                                   42

        Schedule II - Valuation and Qualifying Accounts for the Years Ended
        December 31, 2001, 2000 and 1999                                          67
</Table>



                                       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, 2001, and the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 14 for the year ended December 31, 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, 2001, and the results
of their operations and their cash flows for the year 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.


Ernst & Young LLP
San Juan, Puerto Rico

February 22, 2002




                                       35
<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, 2000, and the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14 for
each of the two years in the period 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 financial position of Telecomunicaciones de Puerto Rico,
Inc. and subsidiaries as of December 31, 2000, and the results of their
operations and their cash flows for each of the two years in the period 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 2001 and 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,
                                                                    ---------------------------
                                                                       2001             2000
                                                                    -----------     -----------
<S>                                                                 <C>             <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                      $    34,797     $    30,834
     Accounts receivable, net of allowance for doubtful accounts
       of $107,436 and $85,713  in 2001 and 2000, respectively          359,914         345,495
     Inventory and supplies, net                                         24,755          28,471
     Prepaid expenses                                                    11,610          10,806
                                                                    -----------     -----------
         Total current assets                                           431,076         415,606
PROPERTY, PLANT AND EQUIPMENT, net                                    1,631,770       1,657,182
INTANGIBLES, net                                                        358,464         366,248
DEFERRED INCOME TAX                                                     221,499         235,118
OTHER ASSETS                                                            105,441          92,647
                                                                    -----------     -----------
TOTAL ASSETS                                                        $ 2,748,250     $ 2,766,801
                                                                    ===========     ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                                               $   494,335     $   167,244
      Other current liabilities                                         345,203         442,277
                                                                    -----------     -----------
         Total current liabilities                                      839,538         609,521
LONG-TERM DEBT, excluding current portion                               701,441       1,000,237
PENSION AND OTHER POST-EMPLOYMENT BENEFITS                              531,636         556,157
OTHER NON-CURRENT LIABILITIES                                           126,561         103,119
                                                                    -----------     -----------
          Total liabilities                                           2,199,176       2,269,034
                                                                    -----------     -----------

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                             10,759              --
                                                                    -----------     -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Common stock                                                        701,952         700,220
    Deferred ESOP compensation                                          (28,793)        (28,653)
    Subscription receivable                                            (109,959)       (141,323)
    Retained earnings (accumulated deficit)                              53,592          (7,002)
    Accumulated other comprehensive loss                                (78,477)        (25,475)
                                                                    -----------     -----------
          Total shareholders' equity                                    538,315         497,767
                                                                    -----------     -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $ 2,748,250     $ 2,766,801
                                                                    ===========     ===========
</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>

                                                                            COMPANY                            PREDECESSORS
                                                         -------------------------------------------------     -------------
                                                         FOR THE YEAR      FOR THE YEAR         MARCH 2,         JANUARY 1,
                                                             ENDED            ENDED             THROUGH           THROUGH
                                                          DECEMBER 31,     DECEMBER 31,       DECEMBER 31,        MARCH 1,
                                                              2001             2000               1999             1999
                                                         -------------     -------------     -------------     -------------
<S>                                                      <C>               <C>               <C>               <C>
REVENUES:
  Local services                                         $     564,165     $     554,171     $     404,451     $      79,277
  Long distance services                                       185,720           170,132           161,998            48,613
  Access services                                              354,736           389,115           298,563            49,517
  Cellular services                                            178,156           148,183           112,179            20,428
  Paging services                                               14,906            33,795            36,478             8,202
  Directory services                                            20,292            20,828            22,093             4,910
  Other services and sales                                      78,425            77,355            66,897             9,505
                                                         -------------     -------------     -------------     -------------
        Total revenues                                       1,396,400         1,393,579         1,102,659           220,452
                                                         -------------     -------------     -------------     -------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                           384,231           407,912           349,257            82,723
  Other operating expenses                                     442,442           437,566           362,260            55,566
  Early retirement and voluntary separation provision           51,971            19,342           203,187             4,226
  ESOP government grant                                             --                --                --            26,100
  Depreciation and amortization                                270,974           298,452           241,974            50,393
                                                         -------------     -------------     -------------     -------------
        Total operating costs and expenses                   1,149,618         1,163,272         1,156,678           219,008
                                                         -------------     -------------     -------------     -------------

OPERATING INCOME (LOSS)                                        246,782           230,307           (54,019)            1,444
                                                         -------------     -------------     -------------     -------------

OTHER INCOME (EXPENSE):
  Interest (expense) income, net                               (60,679)          (76,529)          (65,127)              407
  Asset impairment charge                                       (1,300)               --                --                --
  Equity income from joint venture                               2,966             2,000                --                --
  Minority interest in consolidated subsidiary                     195                --                --                --
                                                         -------------     -------------     -------------     -------------
        Total other income (expense), net                      (58,818)          (74,529)          (65,127)              407
                                                         -------------     -------------     -------------     -------------

INCOME (LOSS) BEFORE INCOME TAX
  EXPENSE (BENEFIT)                                            187,964           155,778          (119,146)            1,851

INCOME TAX EXPENSE (BENEFIT)                                    69,508            40,356           (46,453)               --
                                                         -------------     -------------     -------------     -------------

INCOME (LOSS) BEFORE EXTRAORDINARY
  CHARGE AND CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                            118,456           115,422           (72,693)            1,851

EXTRAORDINARY CHARGE-
  DISCONTINUANCE OF REGULATORY
  ACCOUNTING, net of income tax benefit of $38,750                  --                --           (60,500)               --
                                                         -------------     -------------     -------------     -------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE                                         118,456           115,422          (133,193)            1,851

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

NET INCOME (LOSS)                                        $     118,456     $     126,191     $    (133,193)    $       1,851
                                                         =============     =============     =============     =============
</Table>


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



                                       38
<PAGE>

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                                 (In thousands)


<Table>
<Caption>

                                                          COMPANY                      PREDECESSORS
                                        --------------------------------------------   ------------
                                        FOR THE YEAR    FOR THE YEAR      MARCH 2,       JANUARY 1,
                                           ENDED           ENDED         THROUGH          THROUGH
                                        DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 1,
                                           2001            2000            1999            1999
                                        -----------     -----------     ------------   ------------
<S>                                     <C>             <C>             <C>             <C>
NET INCOME (LOSS)                       $   118,456     $   126,191     $  (133,193)    $     1,851
Minimum pension liability adjustment        (53,002)        (25,475)          9,903           2,369
                                        -----------     -----------     -----------     -----------
COMPREHENSIVE INCOME  (LOSS)            $    65,454     $   100,716     $  (123,290)    $     4,220
                                        ===========     ===========     ===========     ===========
</Table>

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





                                       39
<PAGE>



            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                 (In thousands)

<Table>
<Caption>
                                                                                                           ACCUMULATED
                                                                                                             RETAINED
                                                         ADDITIONAL    DEFERRED                               OTHER
                                               COMMON     PAID-IN        ESOP      SUBSCRIPTION  EARNINGS COMPREHENSIVE
                                               STOCK      CAPITAL    COMPENSATION   RECEIVABLE  (DEFICIT)      LOSS        TOTAL
                                              --------  -----------  ------------  ------------ --------- ------------- -----------
<S>                                           <C>       <C>          <C>           <C>          <C>       <C>           <C>
PREDECESSORS:
BALANCE, DECEMBER 31, 1998                    $      6  $ 1,835,800   $       --   $       --   $      --   $ (23,122)  $ 1,812,684

  Net income, January 1, 1999 to March 1,
     1999                                           --           --           --           --       1,851          --         1,851
  Dividends and return of capital                   --      (98,811)          --           --      (1,851)         --      (100,662)
  Capital contributions                             --      110,577           --           --          --          --       110,577
  Special dividend                                  --   (1,570,182)          --           --          --          --    (1,570,182)
  Shares of common stock contributed to
     the ESOP                                       --       26,100      (26,100)          --          --          --            --
  Minimum pension liability adjustment              --           --           --           --          --       2,369         2,369
                                              --------  -----------   ----------   ----------   ---------   ---------   -----------
BALANCE, MARCH 1, 1999                        $      6  $   303,484   $  (26,100)  $       --   $      --   $ (20,753)  $   256,637
                                              ========  ===========   ==========   ==========   =========   =========   ===========
COMPANY:
BALANCE, MARCH 1, 1999                        $     --  $        --   $       --   $       --   $      --   $      --   $        --

  Acquisition by GTE and Popular Inc.
     and partial step-up accounting            530,876           --      (26,100)          --          --      (9,903)      494,873
  ESOP capital contribution                      8,700           --       (8,700)          --          --          --            --
  Contribution receivable from PRTA            159,708           --           --     (159,708)         --          --            --
  Net loss, March 2, 1999 to December 31,
     1999                                           --           --           --           --    (133,193)         --      (133,193)
  Accretion of discount on subscription
      receivable                                    --           --           --      (10,655)         --          --       (10,655)
  Release of ESOP shares                            --           --        8,700           --          --          --         8,700
  Minimum pension liability adjustment              --           --           --           --          --       9,903         9,903
                                              --------  -----------   ----------   ----------   ---------   ---------   -----------
BALANCE, DECEMBER 31, 1999                     699,284           --      (26,100)    (170,363)   (133,193)         --       369,628

  Net income                                        --           --           --           --     126,191          --       126,191
  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
  Minimum pension liability adjustment              --           --           --           --          --     (25,475)      (25,475)
                                              --------  -----------   ----------   ----------   ---------   ---------   -----------
BALANCE, DECEMBER 31, 2000                     700,220           --      (28,653)    (141,323)     (7,002)    (25,475)      497,767

  Net income                                        --           --           --           --     118,456          --       118,456
  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)          --          --                        --
  Other ESOP contribution                           --           --          (25)          --          --          --           (25)
  Minimum pension liability adjustment              --           --           --           --          --     (53,002)      (53,002)
                                              --------  -----------   ----------   ----------   ---------   ---------   -----------
BALANCE, DECEMBER 31, 2001                    $701,952  $        --   $  (28,793)  $ (109,959)  $  53,592   $ (78,477)  $   538,315
                                              ========  ===========   ==========   ==========   =========   =========   ===========
</Table>

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



                                       40
<PAGE>




            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<Table>
<Caption>


                                                                                       COMPANY                      PREDECESSORS
                                                                    --------------------------------------------    -------------
                                                                    FOR THE YEAR    FOR THE YEAR      MARCH 2,       JANUARY 1,
                                                                       ENDED           ENDED          THROUGH         THROUGH
                                                                    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 1,
                                                                        2001           2000             1999            1999
                                                                    ------------    ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                 $    118,456    $    126,191    $   (133,193)   $      1,851
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    Depreciation and amortization                                        270,974         298,452         241,974          50,393
    Provision for uncollectible accounts                                  73,422          82,759          73,386           6,676
    Asset impairment charge                                                1,300              --              --              --
    Deferred income tax                                                   13,619          21,441         (46,453)             --
    Cumulative effect of accounting change                                    --         (10,769)             --              --
    Extraordinary charge                                                      --              --          60,500              --
    Accretion of discount on subscription receivable                      (8,636)        (10,960)        (10,655)             --
    Equity income from joint venture                                      (2,966)         (2,000)             --              --
    Early retirement and voluntary separation provision                   51,971          19,342         203,187              --
    ESOP compensation grant                                                   --              --              --          26,100
    Release of ESOP shares                                                 3,152           1,703           8,700              --
    Gain on sale of subsidiary stock                                      (5,413)             --              --              --
    Minority interest in consolidated subsidiary                            (195)             --              --
    Changes in assets and liabilities:
        Accounts receivable                                              (87,841)        (88,165)        (60,944)        (21,172)
        Inventory and supplies                                             3,716           2,899           9,428          (1,306)
        Prepaid expenses and other assets                                (15,265)        (40,008)         (7,018)          2,374
        Other current and non-current liabilities                       (200,437)         84,633         (22,783)         (9,059)
                                                                    ------------    ------------    ------------    ------------
              Net cash provided by operating activities                  215,857         485,518         316,129          55,857
                                                                    ------------    ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs                        (246,329)       (213,137)       (240,117)        (33,237)
   Net salvage on retirements and other                                   10,342           6,236          14,150              73
   Proceeds from sale of subsidiary stock                                 16,367              --              --              --
   Acquisition of Internet Service Provider                                   --              --         (20,440)             --
                                                                    ------------    ------------    ------------    ------------
              Net cash used in investing activities                     (219,620)       (206,901)       (246,407)        (33,164)
                                                                    ------------    ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                                   40,000          40,000              --         110,577
   Advance to ESOP                                                        (1,560)         (3,320)             --              --
   ESOP contribution                                                          --              --              --         (26,100)
   Net issuance (repayments) of short-term debt, including
      capital leases                                                      27,148        (329,945)        (96,767)      1,583,044
   Dividends Paid                                                        (57,862)             --              --         (83,116)
   Special PRTA Dividend                                                      --              --              --      (1,570,182)
                                                                    ------------    ------------    ------------    ------------
              Net cash provided by (used in) financing activities          7,726        (293,265)        (96,767)         14,223
                                                                    ------------    ------------    ------------    ------------

NET (DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS                                                     3,963         (14,648)        (27,045)         36,916
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                               30,834          45,482          72,527          35,611
                                                                    ------------    ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $     34,797    $     30,834    $     45,482    $     72,527
                                                                    ============    ============    ============    ============
</Table>

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



                                       41
<PAGE>

TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

1.       BUSINESS

         Telecomunicaciones de Puerto Rico, Inc. (the "Company") holds 100% of
         the common stock of Puerto Rico Telephone Company, Inc. ("PRTC"),
         Verizon Wireless Puerto Rico, Inc. ("Verizon Wireless") (formerly
         Celulares Telefonica, Inc. ("CT")) and Datacom Caribe, Inc.
         ("Datacom"). The Company also holds a 67% interest in Coqui.net
         Corporation ("Coqui.net") (formerly Coqui.com Corporation). The Company
         is the largest telecommunications service provider in Puerto Rico.
         PRTC, a Puerto Rico Corporation, is the incumbent local exchange
         carrier for the island of Puerto Rico. Wireline service is provided by
         PRTC and cellular and paging service is provided by Verizon Wireless.
         The Company's dial-up Internet access service is provided by Coqui.net.

         GTE Corporation ("GTE") acquired a 40% interest in and management
         control over the Company on March 2, 1999 in the privatization of the
         Company from the Commonwealth of Puerto Rico (the "Acquisition"). GTE
         and Bell Atlantic Corporation merged on June 30, 2000 to form Verizon
         Communications Inc. ("Verizon"). On January 25, 2002, Verizon acquired
         an additional 12% interest in the Company. As a result, the Company is
         a direct affiliate of Verizon.

         A 33% interest in Coqui.net was sold to Popular Inc., a shareholder of
         the Company, on May 14, 2001 for $16 million at a $5 million after-tax
         gain, which is included in the Company's results of operations for the
         year ended December 31, 2001. Prior to the sale, Coqui.net was a wholly
         owned subsidiary of the Company.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         The financial statements of the Predecessors for the two-month period
         ended March 1, 1999, reflect the historical cost of their assets and
         liabilities and results of their operations prior to completion of the
         Acquisition and are referred to as the Predecessors' financial
         statements. Accordingly, the accompanying financial statements of the
         Predecessors and the Company are not comparable in all material
         respects, since the Company's financial condition, results of
         operations, and cash flows use a new accounting basis. The Company is a
         holding company with no assets or operations other than its investment
         in its subsidiaries. PRTC and Verizon Wireless are wholly owned
         subsidiaries of the Company, and fully and unconditionally guarantee
         payment of the senior notes and the commercial paper.

         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 of America,
         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.



                                       42
<PAGE>

         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, 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.

         The Company's depreciation expense is principally 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. Also, this method
         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 January 1, 2001, the Company changed its accounting estimates
         relating to depreciation. Refer to Note 5 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.

         As a result of the Acquisition in 1999, the Company recorded goodwill
         and other long-term intangible assets of $336 million, which are
         amortized on a straight-line basis over 25 years. A Wireless customer
         base intangible of $13 million was also created with the Acquisition.
         At December 31, 2001, the wireless customer base has been fully
         amortized. Effective January 1, 2002, the Company will adopt SFAS No.
         142 and therefore will discontinue the amortization of goodwill and
         other long-lived assets. Refer to Note 4 to the consolidated financial
         statements for further information.

         During December 1999, the Company recorded goodwill of $21 million and
         a customer base intangible of $3 million relating to the acquisition of
         Datacom Caribe, Inc., an Internet service provider. These intangible
         assets are amortized on a straight-line basis over 10 and 4 years,
         respectively.



                                       43
<PAGE>

         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 $20 million and $23 million in 2001 and 2000,
         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. Under SFAS No.
         121, "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to Be Disposed Of," a determination of impairment, if
         any, is made based on estimated cash flows, salvage value or expected
         net sales proceeds. 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 instances where goodwill has been recorded in connection with an
         impairment, the carrying amount of the goodwill would first be
         eliminated before any reduction to the carrying value of tangible or
         identifiable intangible assets would occur. The Company's policy is to
         record impairment losses, as well as gains or losses on asset sales as
         a component of operating income. Under APB No. 17, "Intangible Assets,"
         the Company also annually evaluates the future period over which the
         benefit of goodwill or other intangibles will be recovered, based on
         cash flows, and changes the amortization life accordingly.

         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.

         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 swap 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 net investment in Coqui.net at year-end.

         RECLASSIFICATIONS

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



                                       44
<PAGE>

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. This resulted in a
         reduction in revenues and expenses during 2000 net of current year
         amortization of $29 million. In accordance with SAB 101, the Company
         restated quarterly information for 2000 (See Note 22).

         DISCONTINUATION OF SFAS NO. 71, "ACCOUNTING FOR THE EFFECTS OF CERTAIN
         TYPES OF REGULATION"

         PRTC discontinued the application of SFAS No. 71 with the consummation
         of the Acquisition on March 2, 1999, due to changes in regulation, the
         competitive environment and the terms of the Acquisition. A write-down
         of plant and equipment of $199 million was recorded of which $99.5
         million was accounted for as a purchase price adjustment consistent
         with partial step-up accounting to reflect the fair value of the
         acquired assets. The remaining $99.5 million was recorded as an
         extraordinary charge (approximately $60.5 million after-tax).

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
         Statements of Financial Accounting Standards ("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 a material effect on the
         Company's financial statements.

         SFAS No. 142 no longer permits the amortization of goodwill and
         indefinite-lived intangible assets. Instead, these assets must be
         reviewed annually (or more frequently under certain conditions) for
         impairment in accordance with this statement. This impairment test uses
         a fair value approach rather than the undiscounted cash flows approach
         previously required by SFAS No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

         Intangible assets that do not have indefinite lives will continue to be
         amortized over their useful lives and reviewed for impairment in
         accordance with SFAS No. 144, "Accounting for the Impairment or
         Disposal of Long-Lived Assets." The discontinuation of amortizing
         goodwill and other long-lived assets will result in reducing annual
         depreciation and amortization expense by approximately $14 million for
         2002. The Company will adopt SFAS No. 142 effective January 1, 2002.
         The Company is currently evaluating its assets using the fair value
         approach, performed by an independent appraisal, to determine if there
         is an impairment exposure and the impact in the Company's results of
         operations for 2002.




                                       45
<PAGE>

         ASSET RETIREMENT OBLIGATIONS

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
         Retirement Obligations." This standard 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 a part of
         the book value of the long-lived asset. That cost is then depreciated
         over the remaining life of the underlying long-lived asset. The Company
         is required to adopt SFAS No. 143 effective January 1, 2003. The
         adoption of this new standard is not expected to have an impact on the
         Company's future results of operations or financial position.

         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 is required to adopt SFAS No. 144 effective January 1,
         2002. The Company does not expect the impact of the adoption of SFAS
         No. 144 to have a material effect on its results of operations or
         financial position.

5.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of:


<Table>
<Caption>

                                                  USEFUL    DECEMBER 31,  DECEMBER 31,
                                               LIVES (YRS)     2001           2000
                                               ----------  ------------   ------------
                                                                (In thousands)

<S>                                            <C>         <C>            <C>
Outside plant                                        7.2   $  1,978,670   $  1,896,549
Central office and transmission equipment            4.6      1,228,540      1,159,474
Equipment and other                                  3.7        357,885        374,771
Buildings                                           19.0        334,307        325,328
Land                                                 N/A         25,309         22,912
                                                           ------------   ------------
     Gross plant in service                                   3,924,711      3,779,034
Less accumulated depreciation                                 2,407,760      2,222,890
                                                           ------------   ------------
     Net plant in service                                     1,516,951      1,556,144
Construction in progress                                        114,819        101,038
                                                           ------------   ------------
     Total                                                 $  1,631,770   $  1,657,182
                                                           ============   ============
</Table>

         Effective on January 1, 2001, the Company changed its accounting
         estimates relating to depreciation. The composite rate for outside
         plant was revised 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, the Company has been
         recording depreciation in excess of capital expenditures from 1999
         through year-end 2001.

         The Company has recently begun to deploy Digital Subscriber Line
         ("DSL") service to residential and business customers. This is a marked
         change in the modernization strategy that underlies our life estimates.
         Previously, the Company 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. The Company now
         anticipates 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.

         These changes resulted in decreasing depreciation expense by
         approximately $27 million for the year ended December 31, 2001.



                                       46
<PAGE>




6.       INTANGIBLES

         Intangibles consist of:

<Table>
<Caption>

                                    DECEMBER 31, 2001                          DECEMBER 31, 2000
                        ------------------------------------------   ------------------------------------------
(In thousands)              Cost         Acc Dep.      Book Value       Cost          Acc Dep.      Book Value
                        ------------   ------------   ------------   ------------   ------------   ------------

<S>                     <C>            <C>            <C>            <C>            <C>            <C>
Goodwill                $    204,082   $     25,988   $    178,094   $    204,563   $     15,977   $    188,586
Wireline concession           96,000         10,880         85,120         96,000          7,040         88,960
FCC Cellular licenses         30,361          6,506         23,855         30,361          4,608         25,753
Trade names                   48,400          5,485         42,915         50,900          3,732         47,168
Customer base                 15,544         14,112          1,432         15,544         11,869          3,675
Software licenses             35,501          8,453         27,048         14,072          2,489         11,583
Other                            500            500             --            900            377            523
                        ------------   ------------   ------------   ------------   ------------   ------------
       Total            $    430,388   $     71,924   $    358,464   $    412,340   $     46,092   $    366,248
                        ============   ============   ============   ============   ============   ============
</Table>


         The cellular brand name intangible was written off in the fourth
         quarter of 2001 (cost of $2.5 million, book value of $2.2 million) as a
         result of the name change from Celulares Telefonica to Verizon
         Wireless.

7.       OTHER ASSETS

         Other assets consist of:


<Table>
<Caption>

                                              DECEMBER 31,    DECEMBER 31,
                                                  2001            2000
                                              ------------    ------------
                                                    (In thousands)
<S>                                           <C>             <C>
Deferred activation and installation costs    $     49,744    $     28,715
Notes receivable-equipment sales                    21,394          23,672
Deferred pension asset                              15,010          17,700
Deferred financing costs, net                        5,044           6,531
Other deferred costs                                 6,205          10,226
Interest rate swap                                   1,147              --
Investment in Verizon Information Services           4,119           2,000
Other assets                                         2,778           3,803
                                              ------------    ------------
     Total                                    $    105,441    $     92,647
                                              ============    ============
</Table>

8.       PENSION PLAN

         The Company has two noncontributory pension plans covering all
         full-time employees. The Company makes contributions, which meet
         minimum Employee Retirement Income Security Act of 1974 (the "ERISA")
         requirements, as these contributions are tax deductible. Plan assets
         are invested in equity and fixed income securities.

         All full-time employees also participate in a Lump Sum Retirement Plan
         (the "Lump Sum Plan"). Participants are entitled to a lump sum amount
         equal to a number of months based on years of service. This Plan is
         subject to ERISA provisions, and is exempt from income tax.

         Health care and life insurance benefits are provided to former
         employees who reach normal retirement age or receive this benefit under
         an early retirement program. The following table sets forth the status
         of the plans, the actuarial assumptions and the amounts in the
         financial statements as of December 31, 2001 and 2000:



                                       47
<PAGE>
(In thousands)

<Table>
<Caption>
                                      PENSION AND LUMP SUM 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,
                                         2001             2000             2001             2000
                                      ------------     ------------     ------------     ------------
<S>                                   <C>              <C>              <C>              <C>
Change in benefit obligation:
  Benefit obligation at beginning
     of period                        $    899,523     $    856,047     $    290,426     $    250,226
  Service cost                              16,482           17,079            5,098            4,158
  Interest cost                             67,820           67,152           22,908           20,899
  Actuarial loss                            25,497            7,381           97,519           29,461
  Amendments-ERWs                           33,220           17,354            1,829              712
  Amendments-Other                              --            7,833               --               --
  Benefits paid                            (73,594)         (73,323)         (20,564)         (15,030)
                                      ------------     ------------     ------------     ------------
  Benefit obligation at end of
     period                           $    968,948     $    899,523     $    397,216     $    290,426
                                      ------------     ------------     ------------     ------------
Change in plan assets:
  Fair value of plan assets at
     beginning of period                   579,675          573,720               --               --
  Actual return on plan assets             (38,331)         (13,091)              --               --
  Employer contributions                   154,651           91,646               --               --
  Benefits paid                            (72,766)         (72,600)              --               --
                                      ------------     ------------     ------------     ------------
  Fair value of plan assets at end
     of period                        $    623,229     $    579,675               --               --
                                      ------------     ------------     ------------     ------------

Funded status                             (345,719)        (319,848)        (397,216)        (290,426)
Unrecognized (gain) loss                    76,471          (44,946)         168,811           74,654
Unrecognized prior service cost             26,353           30,694            5,636            6,532
Unrecognized net transition
  obligation                                 2,782            3,423           24,733           26,935
                                      ------------     ------------     ------------     ------------
Net amount recognized                 $   (240,113)    $   (330,677)    $   (198,036)    $   (182,305)
                                      ============     ============     ============     ============
Balance sheet amounts consist of:
  Accrued benefit liability           $   (333,600)    $   (373,852)    $   (198,036)    $   (182,305)
  Other asset (Note 7)                      15,010           17,700               --               --
  Accumulated other comprehensive
     loss                                   78,477           25,475               --               --
                                      ------------     ------------     ------------     ------------
Net amount recognized                 $   (240,113)    $   (330,677)    $   (198,036)    $   (182,305)
                                      ============     ============     ============     ============
</Table>

<Table>
<Caption>
                                                                     PENSION AND LUMP
                                                                       SUM BENEFITS               POST-RETIREMENT BENEFITS
                                                                ---------------------------     ---------------------------
                                                                   2001            2000            2001            2000
                                                                -----------     -----------     -----------     -----------

<S>                                                             <C>             <C>             <C>             <C>
Weighted-average assumptions as of December 31 of each year:
Discount rate                                                          7.25%           7.75%           7.25%           7.75%
Rate of compensation increase                                          5.00%           5.00%           5.00%           5.00%
Expected return on plan assets                                         9.25%           9.25%            n/a             n/a
</Table>

         The health-care cost trend rate used to measure the December 31, 2000
         liability was 5%. The rate used to measure the December 31, 2001
         liability was 10% in the first year, decreasing by 1% each year to an
         ultimate rate of 5%. The $97.5 million actuarial loss for 2001 is
         principally due to the assumed increase in the healthcare trend rate,
         as well as a reduction in the discount rate of 0.5%.

         A plan amendment is any change to the provisions of the plan. This
         includes early retirement windows and negotiated benefit level
         increases, among others. For 2001, the plan amendments relate to early
         retirement windows.

         The actuarial loss for 2001 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.

         An additional minimum pension liability related to the Pension Fund for
         Hourly Employees of Puerto Rico (the "Hourly Plan") was recorded at
         December 31, 2001 and 2000. This amount represents the excess of
         accumulated benefit obligations over the fair value of plan assets and
         accrued liabilities. A deferred pension asset was recorded for
         unrecognized prior service costs. At December 31, 2001, since the
         deferred pension asset recognized did not exceed the unrecognized prior
         service cost, the excess liability was recorded as a separate reduction
         to shareholders' equity and was classified as "Accumulated Other
         Comprehensive Loss."


                                       48
<PAGE>



         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,
         2001, $40 million in cash was received for the second installment.
         Future receipts have been 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
         2001, 2000 and 1999 includes the following components (in thousands):


<Table>
<Caption>

                                                              COMPANY                         PREDECESSORS
                                           ----------------------------------------------     ------------
                                                                               FOR THE 1999 PERIOD ENDED
                                           FOR THE YEAR     FOR THE YEAR     ----------------------------
                                              ENDED            ENDED           MARCH 2         JANUARY 1,
                                           DECEMBER 31,     DECEMBER 31,       THROUGH          THROUGH
                                               2001             2000         DECEMBER 31,       MARCH 1,
                                           ------------     ------------     ------------     ------------
<S>                                        <C>              <C>              <C>              <C>
PENSION BENEFIT EXPENSES:

Service cost                               $     16,482     $     17,079     $     18,968     $      3,663
Interest cost                                    67,820           67,152           51,694            8,830
Expected return on plan assets                  (58,168)         (54,677)         (38,645)          (7,588)
Net amortization and deferral                     5,561            1,461            4,262            1,446
Effect of early retirement program               33,220           17,354          182,591               --
                                           ------------     ------------     ------------     ------------
Total                                      $     64,915     $     48,369     $    218,870     $      6,351
                                           ============     ============     ============     ============

OTHER POST-EMPLOYMENT BENEFIT EXPENSES:

Service cost                               $      5,098     $      4,158     $      4,793     $        849
Interest cost                                    22,908           20,900           13,706            2,059
Net amortization and deferral                     6,461            5,495            4,162            1,176
Effect of early retirement program                1,829              712           11,289               --
                                           ------------     ------------     ------------     ------------
Total                                      $     36,296     $     31,265     $     33,950     $      4,084
                                           ============     ============     ============     ============
</Table>

         EARLY RETIREMENT AND VOLUNTARY SEPARATION PROVISION

         The Company recorded a total of $52 million 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 people 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.



                                       49
<PAGE>

         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 accepting.
         Early retirement programs were also offered to the entire workforce in
         1999. Non-cash provisions of $207 million were recorded for 1,342
         employee acceptances.

9.       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 40,800 and 22,000 shares in 2001 and 2000,
         respectively. This release resulted in compensation expense of $3
         million and $2 million, 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 and $0.8
         million for December 31, 2001 and 2000, respectively, which is
         reflected as a reduction of deferred ESOP compensation in equity.

10.      OTHER CURRENT LIABILITIES

         Other current liabilities consist of:


<Table>
<Caption>

                             DECEMBER 31,    DECEMBER 31,
                                 2001            2000
                             ------------    ------------
                                    (In thousands)

<S>                          <C>             <C>
Accounts payable             $    155,763    $    149,700
Accrued expenses                   54,184         157,989
Employee benefit accruals          57,770          45,307
Carrier payables                   36,774          38,843
Taxes                              32,432          42,063
Interest                            8,280           8,375
                             ------------    ------------
     Total                   $    345,203    $    442,277
                             ============    ============
</Table>




                                       50
<PAGE>





11.      DEBT

         Debt consists of:

<Table>
<Caption>

                                   DECEMBER 31,    DECEMBER 31,
                                       2001            2000
                                   ------------    ------------
                                           (In thousands)
<S>                                <C>             <C>
Senior notes
   Due May 15, 2002 at 6.15%       $    299,991    $    299,967
   Due May 15, 2006 at 6.65%            399,900         399,881
   Due May 15, 2009 at 6.80%            299,866         299,852
Interest rate swap                        1,147              --
Working capital credit facility         100,000              --
Commercial paper                         94,100           7,000
Bank notes                                   --         160,000
Capital leases                              772             781
                                   ------------    ------------
     Total                            1,195,776       1,167,481
Less short-term debt                    494,335         167,244
                                   ------------    ------------
Long-term debt                     $    701,441    $  1,000,237
                                   ============    ============
</Table>


         The 2002 senior notes are classified as short-term debt. The senior
         notes, commercial paper, working capital facility, and bank notes are
         unsecured and non-amortizing. PRTC and Verizon Wireless are guarantors
         of these debt instruments.

         The Company has a $500 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 a
         rate of 32.5 basis points over six months LIBOR. 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 $100 million working capital facility with two
         banks for $50 million each. Amounts outstanding under this facility
         bear interest at a rate of 30 basis points over LIBOR. This facility
         was renewed in June 2001 with a term of one year and is expected to be
         renewed for another year. At December 31, 2001, the Company had $100
         million outstanding under this working capital facility.

         The Company entered into an interest rate swap contract on August 31,
         2001 at a notional amount of $150 million. The purpose of the swap is
         to hedge against changes in the fair 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
         variable rate equal to six month LIBOR plus approximately 170 basis
         points, with semiannual settlements and interest rate reset dates every
         May 15 and November 15 until maturity of the May 15, 2006 senior note.
         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 value of the
         senior note due to changes in the designated benchmark interest rate.
         PRTC and Verizon Wireless are guarantors of the interest rate swap.



                                       51
<PAGE>




         Aggregate maturities of the senior notes are as follows (in thousands):


<Table>
<Caption>

 YEAR                                                AMOUNT
 ----                                             ------------
<S>                                               <C>
2002                                              $    300,000
2006                                                   400,000
2009                                                   300,000
                                                  ------------
  Total                                           $  1,000,000
                                                  ============
</Table>

12.      OTHER NON-CURRENT LIABILITIES

         Other non-current liabilities consist of:

<Table>
<Caption>

                                                  DECEMBER 31,   DECEMBER 31,
                                                     2001            2000
                                                 ------------    ------------
                                                       (In thousands)

<S>                                              <C>             <C>
Customer deposits                                $     27,911    $     29,572
Deferred activation and installation revenues          49,744          28,715
Other liabilities                                      48,906          44,832
                                                 ------------    ------------
     Total                                       $    126,561    $    103,119
                                                 ============    ============
</Table>

13.      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,
         2001 and 2000.

         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 upon receipt of the proceeds on March 2nd
         of 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.

         DIVIDENDS

         For the year ended December 31, 2001, the Company paid dividends
         amounting to $58 million. A $17 million dividend applicable to third
         quarter 2001 net income was paid in November 2001. Prior to that, the
         Company paid dividends of $23 million in September related to the
         second quarter earnings and in June 2001, the Company paid $18 million
         related to the first quarter 2001 net income. The shareholders
         agreement requires the payment of dividends equal to at least 50% of
         net income, to be paid quarterly to the extent funds are legally
         available. The senior note indentures and credit facility agreements do
         not contain dividend restrictions.



                                       52
<PAGE>




14.      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 are determined by applying the
         maximum statutory tax rate of 39% to pretax income. During the year
         2001 and 2000, the Company recorded an income tax provision of $69.5
         million and $40.4 million, respectively, as set forth below:

<Table>
<Caption>

                                                             YEAR ENDED        YEAR ENDED
                                                             DECEMBER 31,     DECEMBER 31,
                                                                2001              2000
                                                            ------------      ------------
                                                                    (In thousands)
<S>                                                         <C>               <C>
Current                                                     $     55,889      $     25,636

Deferred                                                          13,619            14,720
                                                            ------------      ------------

Total                                                       $     69,508      $     40,356
                                                            ============      ============
</Table>

         A reconciliation of the provision (benefit) to the amount computed by
         applying the statutory rate for the year ended December 31, 2001 and
         2000, is as follows:


<Table>
<Caption>

                                                             YEAR ENDED        YEAR ENDED
                                                            DECEMBER 31,      DECEMBER 31,
                                                                2001              2000
                                                            ------------      ------------
                                                                      (In thousands)
<S>                                                         <C>               <C>
Provision (benefit) computed at statutory rate                      39.0%             39.0%
Effect of income tax provision (benefit) as a result of:
   Book income not subject to tax                                   (2.3%)            (7.9%)
   Additional deduction for tax purposes                            (0.1%)            (8.9%)
   Other                                                             0.5%              3.7%
                                                            ------------      ------------

Income tax provision (benefit)                                      37.1%             25.9%
                                                            ============      ============
</Table>

         The amount of deferred income tax asset as of December 31, 2001 and
         2000, is as follows:

<Table>
<Caption>

                                                                2001               2000
                                                            ------------       ------------
                                                                     (In thousands)
<S>                                                         <C>                <C>
Goodwill and intangibles                                    $     55,483       $     45,344
Employee benefit liabilities                                     173,470            180,064
Net loss carry-forward and other                                  (7,454)             9,710
                                                            ------------       ------------
          Total                                             $    221,499       $    235,118
                                                            ============       ============
</Table>

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

         At December 31, 2001 and 2000, the Company had a valuation allowance of
         approximately $28 million and $15 million, respectively, against
         accumulated net operating losses reflected as a deferred tax asset,
         which relates to the Company's wireless business. This allowance has
         been 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.



                                       53
<PAGE>




15.      RELATED PARTY TRANSACTIONS

         During the years ended December 31, 2001 and 2000, the Company had the
         following significant transactions with affiliated companies:

         o        At December 31, 2001, the Company maintained an outstanding
                  $50 million 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 $8 million for the years ended December 31, 2001
                  and 2000.

         o        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 and
                  $53 million for the years ended December 31, 2001 and 2000,
                  respectively.

         o        In January 2000, the Company entered into a joint venture
                  agreement with Verizon Information Services, Inc. (formerly
                  AXESA), the largest yellow page publishing company in Puerto
                  Rico. During the years ended December 31, 2001 and 2000, the
                  Company generated earnings of $3 million and $2 million,
                  respectively, for its approximate 25% share in Verizon
                  Information Services, Inc.

         o        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.

16.      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,
                                             2001                            2000
                                 ----------------------------    ----------------------------
                                   Carrying         Fair            Carrying         Fair
                                    Amount          Value            Amount         Value
                                 ------------    ------------    ------------    ------------
                                                        (In thousands)
<S>                              <C>             <C>             <C>             <C>
Assets:
    Cash and cash equivalents    $     34,797    $     34,797    $     30,834    $     30,834
    Accounts receivable               359,914         359,914         345,495         345,495
Liabilities:
    Other current liabilities    $    345,203    $    345,203    $    442,277    $    442,277
    Short-term debt                   494,335         498,649         167,244         167,244
    Long-term debt                    700,294         697,854       1,000,237         971,928
    Interest Rate Swap                  1,147           1,147              --              --
</Table>




                                       54
<PAGE>




17.      SEGMENT REPORTING

         The Company has two reportable segments: Wireline and Wireless.

         The Wireline segment consists of:

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

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

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

         o        Directory publishing rights services; and

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

         The Wireless segment consists of:

         o        Cellular and paging services; and

         o        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.



                                       55
<PAGE>




         Segment results for the Company and its Predecessors were as follows
         (in thousands):

<Table>
<Caption>


                                                            COMPANY                          PREDECESSORS
                                          ----------------------------------------------     ------------
                                                                                FOR THE 1999 PERIOD
                                                                            -----------------------------
                                          FOR THE YEAR     FOR THE YEAR
                                             ENDED            ENDED           MARCH 2,        JANUARY 1,
                                          DECEMBER 31,     DECEMBER 31,       THROUGH          THROUGH
                                              2001            2000          DECEMBER 31,       MARCH 1,
                                          ------------     ------------     ------------     ------------
<S>                                       <C>              <C>              <C>              <C>
WIRELINE:
  Revenues
    Local services                        $    568,533     $    557,674     $    409,727     $     79,277
    Long distance services                     187,360          170,422          162,395           48,613
    Access services                            361,762          392,471          304,947           50,827
    Directory services and other                83,972           85,038           76,899           11,135
                                          ------------     ------------     ------------     ------------
  Total revenues                          $  1,201,627     $  1,205,605     $    953,968     $    189,852
                                          ============     ============     ============     ============

  EBITDA                                  $    491,552     $    472,231     $    149,491     $     45,033
                                          ============     ============     ============     ============
  Capital expenditures                    $    197,817     $    163,973     $    172,599     $     31,427
                                          ============     ============     ============     ============
  Depreciation and amortization           $    227,286     $    258,195     $    205,536     $     45,632
                                          ============     ============     ============     ============

WIRELESS:
  Revenues and sales
     Cellular services                    $    180,258     $    148,183     $    112,903     $     20,428
     Paging services                            14,913           33,795           38,653            8,202
     Equipment sales and other                  14,425           13,145           12,091            3,280
                                          ------------     ------------     ------------     ------------
  Total revenues and sales                $    209,596     $    195,123     $    163,647     $     31,910
                                          ============     ============     ============     ============

  EBITDA                                  $     26,204     $     56,528     $     38,464     $      6,804
                                          ============     ============     ============     ============
  Capital expenditures                    $     43,129     $     45,331     $     51,387     $      3,409
                                          ============     ============     ============     ============
  Depreciation and amortization           $     43,688     $     40,257     $     36,438     $      4,761
                                          ============     ============     ============     ============

CONSOLIDATED:
  Revenues for reportable segments        $  1,411,223     $  1,400,728     $  1,117,615     $    221,762
  Elimination of intersegment revenues         (14,823)          (7,149)         (14,956)          (1,310)
                                          ------------     ------------     ------------     ------------
  Consolidated revenues                   $  1,396,400     $  1,393,579     $  1,102,659     $    220,452
                                          ============     ============     ============     ============

EBITDA:
  Operating income (loss)                 $    246,782     $    230,307     $    (54,019)    $      1,444
  Depreciation and amortization                270,974          298,452          241,974           50,393
                                          ------------     ------------     ------------     ------------
  EBITDA                                  $    517,756     $    528,759     $    187,955     $     51,837
                                          ============     ============     ============     ============

  Capital expenditures                    $    240,946     $    209,304     $    223,986     $     34,836
                                          ============     ============     ============     ============
</Table>

<Table>
<Caption>
                                             AS OF            AS OF
                                         DECEMBER 31,     DECEMBER 31,
              ASSETS                         2001             2000
-------------------------------------    ------------     ------------
<S>                                      <C>              <C>
 Wireline assets                         $  2,591,488     $  2,648,056

 Wireless assets                              468,062          252,047
                                         ------------     ------------

 Segment assets                          $  3,059,550     $  2,900,103

 Elimination of intersegment assets          (311,300)        (133,302)
                                         ------------     ------------

 Consolidated assets                     $  2,748,250     $  2,766,801
                                         ============     ============
</Table>




                                       56
<PAGE>

18.      SUPPLEMENTAL CASH FLOW INFORMATION

         Cash paid for interest for the year ended December 31, 2001 and 2000
         amounted to approximately $73 million and $94 million, respectively.
         The Predecessors did not pay a significant amount of interest expense
         during the period from January 1, 1999 to March 1, 1999. During the
         year ended December 31, 2001, the Company paid income taxes amounting
         to $49 million. However, there were no cash payments for income taxes
         by the Company or its Predecessors during the years ended December 31,
         2000 and 1999, respectively.

19.      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,

2002                                       $        297    $      8,710
2003                                                240           7,179
2004                                                215           6,091
2005                                                140           4,494
2006                                                 15           2,838
Thereafter                                           --          15,886
                                           ------------    ------------
Total minimum lease payments                        907          45,198
Less amount representing interest                   135              --
                                           ------------    ------------

Present value of minimum lease payments    $        772    $     45,198
                                           ============    ============
</Table>

         Lease costs for the years ended December 31, 2001 and 2000, and from
         January 1, 1999 to March 1, 1999, and from March 2, 1999 through
         December 31, 1999 amounted to approximately $11 million, $10 million,
         $4 million and $5 million, respectively.

20.      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 Puerto Rico Telecommunications Regulatory
         Board ("TRB") issued a Resolution and Order with respect to the Company
         requested reconsideration 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 reconsidered order requires new rates for intra-island access to be
         implemented through phased rate reductions over four years (rather than
         3 years in the October 10 order), and directing PRTC to make a cash
         refund to end-user customers.

         The prospective access rate reductions (on a two-way basis) are 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 April 2005 rate is the same as the year 3 rate in the October 10th
         order.




                                       57
<PAGE>

         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 plans to file an appeal to the Puerto Rico Circuit Court of
         Appeals that the TRB made errors of law and procedure in its
         determination of access charges and its order to make refunds.

         At this preliminary stage it is too early to assess the probability of
         success in the appeals process. Management believes it's appeal will be
         well founded and therefore a provision for the retroactive refund is
         not merited.

         Public Telephone Service Provider Dispute

         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 requested a dismissal of the case and no provision has
         been made, as management believes the claim is without merit.

         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.

21.      SUBSEQUENT EVENTS

         On January 25, 2002, Verizon, through its subsidiary GTE Holdings
         (Puerto Rico) LLC, and Popular, Inc. acquired an additional 12% and 3%
         respective interest in the Company 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 $45.94 per share price established in the Share
         Option Agreement.

         The reconsidered order requires PRTC to pay a $68 million refund to
         end-user customers. The original order required a $93 million refund.
         The TRB calculated this amount based on the difference between the 9.3
         cents and 7.9 cents rate for TRB









                                       58
<PAGE>

22.      QUARTERLY FINANCIAL DATA

The following table reflects the unaudited quarterly results of the Company for
the years ended December 31, 2001, 2000 and 1999.

<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>
2001
 Revenues                          $    340,614                $    367,680                $    345,412                $    342,694
 Operating costs and expenses           263,694                     283,759                     276,371                     325,794
                                   ------------                ------------                ------------                ------------
 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>



<Table>
<Caption>

                                   JAN. 1         MAR. 2
                               THROUGH MAR. 1  THROUGH MAR. 31      SECOND QUARTER         THIRD QUARTER          FOURTH QUARTER
                               --------------  ---------------      --------------         -------------          --------------
<S>                            <C>             <C>                  <C>                    <C>                    <C>
1999
  Revenues                       $  220,452     $  106,573             $  331,540            $  327,672             $  336,874
  Operating costs and expenses      219,008         99,104                277,499               411,020                369,055
                                 ----------     ----------             ----------            ----------             ----------
  Operating income (loss)        $    1,444     $    7,469             $   54,041            $  (83,348)            $  (32,181)
                                 ==========     ==========             ==========            ==========             ==========

  Income (loss) before
      extraordinary charge       $    1,851     $   (1,025)            $   21,470            $  (63,613)            $  (29,525)
                                 ==========     ==========             ==========            ==========             ==========

  Net income (loss)              $    1,851     $  (61,525)            $   21,470            $  (63,613)            $  (29,525)
                                 ==========     ==========             ==========            ==========             ==========
</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.



                                       59
<PAGE>


23.      CONDENSED CONSOLIDATING INFORMATION

         The Notes are guaranteed by two of the wholly owned subsidiaries, PRTC
         and Verizon Wireless (the "Guarantor Subsidiaries"). As of December 31,
         2001 and 2000, the Notes were not guaranteed by the Company's other two
         subsidiaries, Coqui.net and Datacom (the "Non-Guarantor Subsidiaries").

         The guarantee of the Notes by each of the Guarantor Subsidiaries is
         full and unconditional, joint and several. All of the outstanding
         voting shares of each of the Guarantor Subsidiaries are owned by the
         Company. The following condensed consolidating financial information as
         of December 31, 2001 and 2000 and for the years then ended, provided
         pursuant to rule 3-10 of Regulation S-X, 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 Subsidiaries on a combined basis and (iii) the Non-Guarantor
         Subsidiaries. The principal consolidation entries eliminate investments
         in subsidiaries and intercompany balances and transactions. Condensed
         consolidating financial information has not been presented for periods
         prior to December 31, 2000 since the aggregate net assets, earnings and
         equity of the parent and the Guarantor Subsidiaries were substantially
         equivalent to the aggregate net assets, earnings and equity of the
         Company on a consolidated basis.




                                       60
<PAGE>




                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                December 31, 2001
                                 (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        335,274          1,649             --        345,203
                                                        -----------    -----------    -----------    -----------    -----------
         Total current liabilities                          568,095      1,200,616          4,337       (933,510)       839,538
LONG-TERM DEBT, excluding current portion                   700,903        701,441             --       (700,903)       701,441
OTHER NON-CURRENT LIABILITIES                                 2,000        656,197             --             --        658,197
                                                        -----------    -----------    -----------    -----------    -----------
          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>





                                       61
<PAGE>




                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                December 31, 2000
                                 (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                 $          --    $      29,950    $         884    $          --    $      30,834
     Intercompany accounts receivable              1,226,144          133,081              221       (1,359,446)              --
     Accounts receivable, net                             --          345,410               85               --          345,495
     Inventory and supplies, net                          --           28,471               --               --           28,471
     Prepaid expenses                                     --           10,484              322               --           10,806
                                               -------------    -------------    -------------    -------------    -------------
         Total current assets                      1,226,144          547,396            1,512       (1,359,446)         415,606
PROPERTY, PLANT AND EQUIPMENT, net                        --        1,651,950            5,232               --        1,657,182
INTANGIBLES, net                                          --          336,067           30,181               --          366,248
DEFERRED INCOME TAX                                       --          235,085               33               --          235,118
INVESTMENT IN SUBSIDIARIES                           496,696               --               --         (496,696)              --
OTHER ASSETS                                           6,531           92,647               --           (6,531)          92,647
                                               -------------    -------------    -------------    -------------    -------------
TOTAL ASSETS                                   $   1,729,371    $   2,863,145    $      36,958    $  (1,862,673)   $   2,766,801
                                               =============    =============    =============    =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                          $     167,000    $     167,244    $          --    $    (167,000)   $     167,244
      Intercompany accounts payable                   54,529          144,454              294         (199,277)              --
      Other current liabilities                        8,375          432,937              965               --          442,277
                                               -------------    -------------    -------------    -------------    -------------
         Total current liabilities                   229,904          744,635            1,259         (366,277)         609,521
LONG-TERM DEBT, excluding current portion            999,700        1,000,237               --         (999,700)       1,000,237
OTHER NON-CURRENT LIABILITIES                          2,000          657,276               --               --          659,276
                                               -------------    -------------    -------------    -------------    -------------
          Total liabilities                        1,231,604        2,402,148            1,259       (1,365,977)       2,269,034
                                               -------------    -------------    -------------    -------------    -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
    Common stock, Additional paid in capital
       and Treasury stock                            700,220          490,927           38,106         (529,033)         700,220
    Deferred ESOP compensation                       (28,653)              --               --               --          (28,653)
    Subscription receivable                         (141,323)              --               --               --         (141,323)
    Retained earnings (deficit)                       (7,002)          (4,455)          (2,407)           6,862           (7,002)
    Accumulated other comprehensive loss             (25,475)         (25,475)              --           25,475          (25,475)
                                               -------------    -------------    -------------    -------------    -------------
          Total shareholders' equity                 497,767          460,997           35,699         (496,696)         497,767
                                               -------------    -------------    -------------    -------------    -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $   1,729,371    $   2,863,145    $      36,958    $  (1,862,673)   $   2,766,801
                                               =============    =============    =============    =============    =============
</Table>



                                       62
<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                             $         --    $    548,876    $     22,442    $     (7,153)   $    564,165
  Long distance services                               --         187,659              --          (1,939)        185,720
  Access services                                      --         367,761              --         (13,025)        354,736
  Cellular services                                    --         180,258              --          (2,102)        178,156
  Paging services                                      --          14,913              --              (7)         14,906
  Directory services                                   --          20,292              --              --          20,292
  Other services and sales                             --          93,223              --         (14,798)         78,425
                                             ------------    ------------    ------------    ------------    ------------
        Total revenues                                 --       1,412,982          22,442         (39,024)      1,396,400
                                             ------------    ------------    ------------    ------------    ------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                   --         382,019           2,212              --         384,231
  Other operating expenses                         (5,034)        473,129          13,371         (39,024)        442,442
  Early retirement provision                           --          51,971              --              --          51,971
  Depreciation and amortization                        --         264,957           6,017              --         270,974
                                             ------------    ------------    ------------    ------------    ------------
        Total operating costs and expenses         (5,034)      1,172,076          21,600         (39,024)      1,149,618
                                             ------------    ------------    ------------    ------------    ------------

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>




                                       63
<PAGE>


                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                      For the year ended December 31, 2000
                                 (In thousands)

<Table>
<Caption>

                                                                  GUARANTOR      NON-GUARANTOR                       TOTAL
                                                     PARENT      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    CONSOLIDATED
                                                  ------------   ------------    -------------   ------------    ------------
<S>                                               <C>            <C>             <C>             <C>             <C>
REVENUES:
  Local services                                  $         --   $    546,861    $     10,813    $     (3,503)   $    554,171
  Long distance services                                    --        170,771              --            (639)        170,132
  Access services                                           --        398,830              --          (9,715)        389,115
  Cellular services                                         --        149,127              --            (944)        148,183
  Paging services                                           --         33,879              --             (84)         33,795
  Directory services                                        --         20,828              --              --          20,828
  Other services and sales                                  --        102,723              --         (25,368)         77,355
                                                  ------------   ------------    ------------    ------------    ------------
        Total revenues                                      --      1,423,019          10,813         (40,253)      1,393,579
                                                  ------------   ------------    ------------    ------------    ------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                        --        406,678           1,234              --         407,912
  Other operating expenses                                  --        469,837           7,982         (40,253)        437,566
  Early retirement provision                                --         19,342              --              --          19,342
  Depreciation and amortization                             --        294,410           4,042              --         298,452
                                                  ------------   ------------    ------------    ------------    ------------
        Total operating costs and expenses                  --      1,190,267          13,258         (40,253)      1,163,272
                                                  ------------   ------------    ------------    ------------    ------------

OPERATING INCOME (LOSS)                                     --        232,752          (2,445)             --         230,307
                                                  ------------   ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE), NET                            126,191        (74,609)             38        (126,149)        (74,529)
                                                  ------------   ------------    ------------    ------------    ------------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE                126,191        158,143          (2,407)       (126,149)        155,778

INCOME TAX EXPENSE                                          --         40,213             143              --          40,356
                                                  ------------   ------------    ------------    ------------    ------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                    126,191        117,930          (2,550)       (126,149)        115,422

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


NET INCOME (LOSS)                                 $    126,191   $    128,699    $     (2,550)   $   (126,149)   $    126,191
                                                  ============   ============    ============    ============    ============
</Table>



                                       64
<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 ACTIVITIES:                $      5,509    $    204,266    $      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               (29,610)         29,610              --              --
                                                      ------------    ------------    ------------    ------------
              Net cash used in financing activities        (21,876)         29,602              --           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>



                                       65
<PAGE>


                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      For the year ended December 31, 2000
                                 (In thousands)


<Table>
<Caption>

                                                                        GUARANTOR     NON-GUARANTOR       TOTAL
                                                         PARENT       SUBSIDIARIES    SUBSIDIARIES    CONSOLIDATED
                                                      ------------    ------------    -------------   ------------

<S>                                                   <C>             <C>             <C>             <C>
CASH PROVIDED BY OPERATING ACTIVITIES:                $         71    $    484,851    $        596    $    485,518
                                                      ------------    ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs                --        (212,190)           (947)       (213,137)
   Net salvage on retirements                                   --           6,236              --           6,236
                                                      ------------    ------------    ------------    ------------
              Net cash used in investing activities             --        (205,954)           (947)       (206,901)
                                                      ------------    ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                     40,000              --              --          40,000
   Advance to ESOP                                          (3,320)             --              --          (3,320)
   Net repayments of short-term debt, including
      capital leases                                      (329,945)             --              --        (329,945)
   Borrowings/(repayment) intercompany loans               293,194        (293,194)             --              --
                                                      ------------    ------------    ------------    ------------
              Net cash used in financing activities            (71)       (293,194)             --        (293,265)
                                                      ------------    ------------    ------------    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                       --         (14,297)           (351)        (14,648)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                     --          44,247           1,235          45,482
                                                      ------------    ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $         --    $     29,950    $        884    $     30,834
                                                      ============    ============    ============    ============
</Table>



                                       66
<PAGE>

TELECOMUNICACIONES  DE PUERTO RICO, INC.

SCHEDULE II - Valuation and Qualifying Accounts For The Years Ended December 31,
2001, 2000 and 1999

<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, 2001

   Allowance for uncollectible
     accounts                      $        86     $        73     $        26      $       (78)     $       107
                                   ===========     ===========     ===========      ===========      ===========

December 31, 2000

   Allowance for uncollectible
     accounts                      $        67     $        83     $         5      $       (69)     $        86
                                   ===========     ===========     ===========      ===========      ===========

December 31, 1999

   Allowance for uncollectible
     accounts                      $        56     $        80     $        (3)     $       (66)     $        67
                                   ===========     ===========     ===========      ===========      ===========
</Table>

<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, 2001

   Allowance for Inventory
     Obsolescence              $          9     $          4     $          0     $         (7)     $          6
                               ============     ============     ============     ============      ============

December 31, 2000

   Allowance for Inventory
     Obsolescence              $         13     $          1     $          2     $         (7)     $          9
                               ============     ============     ============     ============      ============

December 31, 1999

   Allowance for Inventory
     Obsolescence              $         16     $          1     $          0     $         (4)     $         13
                               ============     ============     ============     ============      ============
</Table>

NOTES:

(a) Charges for which reserve was created.

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





                                       67
<PAGE>




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

         The information required by this item regarding a change in accountants
is included in Form 8-K dated August 28, 2001.





                                       68
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS

    As of March 20, 2002, the directors of the Company, all of whom serve until
their successors are appointed as follows:

<Table>
<Caption>

                 NAME             AGE           PRINCIPAL OCCUPATION                          NOMINATED BY           DIRECTOR SINCE
                 ----             ---           --------------------                          ------------           --------------
<S>                               <C>    <C>                                            <C>                          <C>
        Fares F. Salloum          52     President-International-Americas, Verizon      GTE Holdings (Puerto Rico)       1999

        Alfred C. Giammarino      46     Senior Vice President and Chief                GTE Holdings (Puerto Rico)       1999
                                         Financial Officer-Information
                                         Services and International, Verizon

        Michael T. Masin          57     Vice Chairman of Verizon                       GTE Holdings (Puerto Rico)       1999
                                         President-International Operations

        Jon E. Slater             56     President and Chief Executive Officer,         GTE  Holdings (Puerto Rico)      1999
                                         Telecomunicaciones  de Puerto Rico,
                                         Inc.

        Howard M. Svigals         48     Group Vice President-Finance-International     GTE  Holdings (Puerto Rico)      2000
                                         Americas, Verizon

        Richard L. Carrion        49     Chairman, President and Chief                  Popular, Inc.                    1999
                                         Executive Officer, Popular, Inc.

        Juan Agosto Alicea        68     President, Government Development              PRTA Holdings Corporation        2001
                                         Bank for Puerto Rico

        Hector Nevares            51     Private Investor                               PRTA Holdings Corporation        2001

        Samuel H. Jove            53     Private Investor                               PRTA Holdings Corporation        2001
</Table>



         Fares F. Salloum is Chairman of the Company. He was appointed
President-International-Americas for Verizon in June 2000. Previously, he was
Senior Vice President of International Operations for GTE since June of 1997.
Prior to June 1997, Mr. Salloum was Executive Vice President of BC Telecom Inc.,
a full service telecommunications provider in Canada. He serves on the boards of
Compania Anonima Nacional Telefonos de Venezuela ("CANTV"), a Venezuelan
telephone company, Telus Corporation, a Canadian telephone company, CTI
Holdings, S.A. ("CTI"), an Argentine telecommunications company, Grupo
Iusacell, S.A. de C.V., a Mexican wireless company ("Iusacell"), and Codetel, C.
por A., the Dominican Republic's full service provider ("Codetel").

         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, an Argentine telecommunications
company. Mr. Giammarino is a Certified Public Accountant.

         Michael T. Masin was appointed President Verizon International and Vice
Chairman of Verizon in June 2000. Previously, he was Vice Chairman of GTE since
October 1993 and President International since 1995. He serves on the boards of
Citigroup, Inc., Telus Corporation, a Canadian telephone company, and Iusacell,
a Mexican cellular company. He also serves on the board of the Keck Foundation
and the Board of Trustees and the Executive Committee of Carnegie Hall in New
York. In addition, he is a member of the Council on Foreign Relations. Mr. Masin
is also a member of the Dean's Advisory Committee of Dartmouth College and the
UCLA School of Law Board Advisors.



                                       69
<PAGE>




         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.

         Howard M. Svigals was appointed Group Vice President
Finance-International-Americas for Verizon, in 2000 and is responsible for
providing Canadian, South and Central American business units' financial
oversight. In 1998, Mr. Svigals was the Vice President of International Finance
and Planning for GTE. Mr. Svigals had been the Vice President Planning and
Development for GTE Wireless from 1995 through 1998. He has held several
management positions during his 25 years at Verizon/GTE including Vice President
and General Manager of GTE Spacenet. He serves on the boards of CANTV, a
Venezuelan telephone company, Iusacell, a Mexican cellular company, and CTI, an
Argentine cellular company.

         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.

         Juan Agosto Alicea was appointed President of the Government
Development Bank ("GDB") and Chairman of its Board of Directors in January 2001.
Mr. Agosto Alicea has held various government positions in Puerto Rico,
including Treasury Secretary. Mr. Agosto Alicea is a Certified Public Accountant
and was a partner with KPMG. He is a former President of the Puerto Rico CPA
Society.

         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 President of BMJ Foods PR,
Inc. since the company was founded in 1984. Mr. Jove serves as President
Metromedia International Franchisees Advisory Board. Also, Mr. Jove 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 Howard M. Svigals. 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, and reviews the need for internal
auditing procedures and the adequacy of internal controls.

EXECUTIVE OFFICERS

         The executive officers of the Company as of March 20, 2002, are as
follows:


<Table>
<Caption>

                  NAME                         AGE   TITLE
                  ----                         ---   -----
<S>                                            <C>   <C>

                  Jon E. Slater                56    President and Chief Executive Officer

                  W. Jack Reagan               40    Vice President Finance and Chief Financial Officer

                  Jose E. Arroyo               38    Vice President Legal and Regulatory Affairs

                  Cristina M. Lambert          53    Vice President and General Manager of Wireline

                  Bobbi de Winter              39    Vice President and General Manager of Wireless

                  Elizabeth A. Lenz            54    Vice President Sales and Customer Contact

                  Ben Fernandez                55    Vice President Human Resources

                  Ileana Molina de Bachman     46    Vice President Corporate Communications

                  Roberto A. Correa            44    Vice President Network Services, Engineering and Technical Planning

                  Kathy A. Thompson            48    Vice President Information Technology Solutions

                  Robert P. Huberty            49    Controller

                  Ramiro L. Colon, III         36    Treasurer
</Table>




                                       70
<PAGE>




         W. Jack Reagan was appointed as Vice President Finance and Chief
Financial Officer of the Company in September 2001. Mr. Reagan has over 15 years
of experience with Verizon/GTE. Prior to joining the Company, Mr. Reagan was
Vice President and Treasurer at Genuity Inc. He also served as Vice President of
Equity Research at Legg Mason Wood Walker. Mr. Reagan holds a bachelors degree
in Mathematics from the University of Michigan and a masters degree in Finance
and Economics from Columbia University.

         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 bachelors degree in Business Management from
Indiana University and a masters degree in Business Administration from Indiana
Wesleyan University.

         Bobbi de Winter was appointed Vice President and General Manager of
Wireless on January 2, 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.

         Elizabeth A. Lenz was appointed Vice President Sales and Customer
Contact on November 5, 1999. She is responsible for customer service, management
of PRTC's sales and services stores, payment processing, order entry,
centralized traffic services, telephone directory business affairs and
coordination of repair and tele-marketing functions. Ms. Lenz joined GTE in 1969
and served in several operator services, customer services and operations
assignments. In 1991, she became Assistant Vice President Merger Integration for
the GTE/Contel merger, and two years later was named Assistant Vice President
Reengineering Implementation for GTE Telops. Later, after serving in a national
planning assignment, Lenz joined GTE International as Assistant Vice President
Products and Services Integration, and in 1998 was named to a position in the
Verizon merger integration planning office. She holds a bachelors degree in
Business Management from the Eastern Illinois University.

         Ben 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 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.



                                       71
<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.

         Ramiro L. Colon, III was appointed Treasurer on October 23, 2000. Mr.
Colon has over 11 years of banking and investment experience at Popular, Inc.,
First Chicago Capital Markets and Citicorp. He holds a bachelors degree in
Finance from Penn State University and a masters degree in Finance and
International Business from the University of Michigan.




                                       72
<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      ($)       ($)         ($)              ($)                           ($)       ($)
---------------------------        ------     ---       ---         ---              ---                           ---       ---
                                                        (3)         (4)            (5)(6)                                    (7)
<S>                                <C>       <C>       <C>      <C>              <C>             <C>             <C>       <C>
Jon E. Slater
  President & Chief Executive
  Officer                          2001     310,000   201,000     143,200                          34,340        155,000   14,300
                                   2000     300,000   207,200     147,500         198,300          45,742                  11,000
                                   1999     265,000   168,300     156,900          44,200          25,010        375,400   14,900

Frank P. Gatto
   VP & Chief Financial
   Officer (1)                     2001     223,300   124,400      89,800                          17,850         23,300    9,400
                                   2000     203,000   113,800     119,100          74,400          19,090                   7,400
                                   1999     185,000    75,700      96,700                          11,833                   7,200

Christina M. Lambert
   VP & General Manager
   of Wireline                     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
                                   1999     160,000    91,800      85,800           5,700          12,321         52,900    6,200

Elizabeth A. Lenz
      VP Customer Contact & Sales  2001     198,700    54,200      92,000                          11,000                   8,900
                                   2000     197,000    79,800     121,700                          13,831                   8,200
                                   1999     188,700    81,900      59,800                          11,316                   8,200

Ileana Molina de Bachman
      VP Corporate
      Communications (2)           2001     182,500    55,200                                      11,000
                                   2000     177,500    76,700                                      12,589                   7,000
                                   1999     170,000    26,800                                         366                     300
</Table>


(1)      Mr. Gatto left the Registrant in September 2001.
(2)      Mrs. Bachman joined the Company on August 30, 1999. Her 1999 bonus
         reflects a prorated amount based on start date.
(3)      For 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. For 1999, the bonus column reflects the
         amounts each executive officer received under the GTE Executive
         Incentive Plan.
(4)      For 2001, the column "Other Annual Compensation" includes housing
         allowances for Messrs. Slater and Gatto and Ms. Lambert and Lenz in the
         amounts of: $85,500; $42,000; $61,800; and $61,200, respectively.
(5)      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 four
         years subject to meeting certain performance and time measures.
         Additional restricted units are received on each dividend payment date.
         Messrs. Slater and Gatto and Ms. Lambert hold a total of: 4,558: 1,761:
         and 1,544 restricted stock units, respectively, which had a dollar
         value of: $216,341; $83,586: and $73,750, respectively, based upon the
         closing price of Verizon common stock at December 31, 2001.
(6)      The data reflects the dollar value of the matching restricted stock
         units under the GTE's Equity Participation Plan for amounts held in
         each former GTE executive's bonus deferral account. The number of
         restricted stock units was calculated by dividing the deferral amount
         by the average closing price of Verizon common stock on the New York
         Stock Exchange Composite Transactions Tape for the 20 consecutive
         trading days following Verizon's public release of its financial
         results for the fiscal year in which the bonus was earned. On each
         dividend payment date, additional restricted units are credited to a
         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. Executives received one additional restricted stock unit for
         every four restricted stock units deferred into GTE's Equity
         Participation Plan. Messrs. Slater and Gatto and Ms. Lambert each hold
         a total of: 8,600, 117 and 954 restricted stock units, respectively,
         which had a dollar value of: $408,155; $5,565; and $45,265,
         respectively, based solely upon the closing price of Verizon common
         stock on December 31, 2001.
(7)      "All Other Compensation" column includes Verizon contributions to
         qualified 401(k) plans for Messrs. Slater and Gatto and Ms. Lambert and
         Lenz of: $7,650; $7,650; $7,878; and $7,650, respectively,
         contributions by Verizon to the non-qualified GTE Executive Salary
         Deferral accounts for Messrs. Slater and Gatto and Ms. Lambert and Lenz
         of: $6,607; $1,731; $900; and $1,291, respectively.


                                       1
<PAGE>




         The following table shows grants of options to the named executive
officers during 2001. Pursuant to SEC rules, the table also shows the value of
the options granted at the end of the option terms (ten years) 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 will be zero.


<Table>
<Caption>

                                                OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                                -------------------------------------
                                                                                                 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                    34,340(1)            0.1%        56.2200      1/10/2011           --        1,214.1     3,076.9

Frank P. Gatto                   17,850(1)            0.1%        56.2200      1/10/2011           --          631.1     1,599.4

Cristina M. Lambert              14,300(1)            0.0%        56.2200      1/10/2011           --          505.6     1,281.3

Elizabeth A. Lenz                11,000(1)            0.0%        56.2200      1/10/2011           --          388.9       985.6

Ileana Molina de Bachman         11,000(1)            0.0%        56.2200      1/10/2011           --          388.9       985.6
</Table>

         (1) One-third of the options are exercisable on January 11, 2002; two
thirds are exercisable on January 11, 2003; and the balance are exercisable on
January 11, 2004.


         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 2001. The table sets forth the value of options and
stock appreciation rights held by such officers at 2001 year-end.


<Table>
<Caption>

                                              AGGREGATED OPTION/SAR EXERCISES
                                      IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
---------------------------------------------------------------------------------------------------------------------
              (a)                 (b)            (c)                 (d)                            (e)
                                                                                            Value of Unexercised
                                                              Number of Securities        In-the-Money Options/SARs
                                                            Underlying 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                      --             --         91,499         79,839          418.3           91.4

  Frank P. Gatto                     --             --         28,465         37,021          121.7           34.3

  Cristina M. Lambert                --             --         29,523         33,122          132.5           29.7

  Elizabeth A. Lenz                  --             --         17,821         24,426           20.4            5.9

  Ileana Molina de Bachman           --             --          4,007         19,948             --            5.9
</Table>



                                       74
<PAGE>
VERIZON RETIREMENT PROGRAMS

VERIZON PENSION PLANS

         The following table illustrates the estimated annual benefits payable
under Verizon's benefit pension plans. This information is included as the
highest compensated executives shown above are Verizon employees. Verizon bills
the Company for the executives out-of-pocket benefit expenses. Consequently,
these pension expenses are not billed to the Company. The table assumes normal
retirement at age 65 and is calculated on a single life annuity basis:


<Table>
<Caption>
                                       YEARS OF SERVICE
FINAL AVERAGE      -----------------------------------------------------------------------
   EARNINGS            15            20            25              30               35
-------------      ----------    ----------   ------------    ------------    ------------
<S>                <C>           <C>          <C>             <C>             <C>
 $  200,000        $   41,921    $   55,894   $     69,868    $     83,841    $     97,815
    300,000            63,671        84,894        106,118         127,341         148,565
    400,000            85,421       113,894        142,368         170,841         199,315
    500,000           107,171       142,894        178,618         214,341         250,065
    600,000           128,921       171,894        214,868         257,841         300,815
    700,000           150,671       200,894        251,118         301,341         351,565
    800,000           172,421       229,894        287,368         344,841         402,315
    900,000           194,171       258,894        323,618         388,341         453,065
  1,000,000           215,921       287,894        359,868         431,841         503,815
  1,200,000           259,421       345,894        432,368         518,841         605,315
  1,500,000           324,671       432,894        541,118         649,341         757,565
  2,000,000           433,421       577,894        722,368         866,841       1,011,315
  2,500,000           542,171       722,894        903,618       1,084,341       1,265,065
  3,000,000           650,921       867,894      1,084,868       1,301,841       1,518,815
</Table>


         The plan is noncontributory for all employees and participating
affiliates, not covered by collective bargaining agreements. Pension benefits
are related to basic salary incentive payments and certain other incentive
compensation. Pensions are computed on a two-rate basis of 1.15% and 1.45% for
each year of service, with the 1.15% being applied to that portion of the
average annual salary for the five highest consecutive years that does not
exceed $35,100, and the 1.45% being applied to that portion of the average
annual salary for the five highest consecutive years that exceeds this level up
to the statutory compensation limit.

         Under U.S. federal law, an employee's benefits under a qualified
pension plan are limited to certain maximum amounts. Verizon maintains the
Excess Pension Plan and the Supplement Executive Retirement Plan to compensate
for these limits.

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.

COMPANY'S PENSION PLAN

         The following table illustrates the estimated annual benefits payable
under the Company's defined benefit pension plan. The table assumes normal
retirement age 65 and is calculated on a single life annuity basis, based upon
final average earnings (integrated with social security as described below) and
years of service:


                               PENSION PLAN TABLE

<Table>
<Caption>

                                       YEARS OF SERVICE
FINAL AVERAGE          --------------------------------------------------
   SALARY                15              20           25            30
-------------          -------        --------      -------       -------
<S>                    <C>            <C>           <C>           <C>
  $100,000             $26,851         $38,611      $48,264       $55,417

   125,000              34,351          48,611       60,764        69,792

   150,000              41,851          58,611       73,264        84,167

   175,000              44,851          62,611       78,264        89,917

   200,000              44,851          62,611       78,264        89,917
</Table>



                                       75
<PAGE>

         The retirement plan for salaried employees is a noncontributory pension
plan for the benefit of all our employees who are not covered by the collective
bargaining agreements, unless the agreement provides for coverage under the
retirement plan for salaried employees. It provides a benefit based on a
participant's years of service and earnings. Our pension benefits and
contributions to the retirement plan for salaried employees are related to basic
salary differentials, exclusive of overtime differentials, incentive
compensation and other similar types of payments. Under the retirement plan for
salaried employees, pensions are computed on an offset formula basis of 2% of
average annual salary for the three highest consecutive years for each year of
service between 25 and 40 years, offset by a percentage (based on age and
service) of average annual salary up to the social security wage base for the
last three years of service, but not in excess of social security covered
compensation.

         Under federal law, an employee's benefits under a qualified pension
plan, such as the retirement plan for salaried employees, are limited to certain
maximum amounts. We maintain a supplemental executive retirement plan, which
supplements the benefits of any participant in the retirement plan for salaried
employees in an amount by which any participant's benefits under the retirement
plan for salaried employees are limited by law.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company has a Compensation Committee comprised of, Richard L.
Carrion, Fares F. Salloum and Michael T. Masin. 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.

         Fares F. Salloum, Chairman of the Company, also serves as
President-International-Americas for Verizon.

         Michael T. Masin, a Director of the Company, also serves as President
Verizon International and Vice Chairman of Verizon.







                                       76
<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, 2001. The owners of the common stock
as of March 20, 2002 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%
respective interest in the Company 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.




                                       77
<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:

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

         o        Issuance of equities, convertible equity securities, or debt;

         o        Changes in dividend policy; and

         o        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:

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

         o        Amendments to the Certificate of Incorporation adversely
                  affecting the Government; and

         o        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:

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

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















                                       78
<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 patent 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:

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

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

         o        6% for year 5 of the agreement.

         Total royalties and fees accrued in 2001 and 2000 was $39 million and
$53 million, respectively, including interest through September 2000 when the
principal amount was due under a separate deferral agreement.

REIMBURSEMENT AGREEMENT

         The Company has a reimbursement agreement with Verizon, whereby actual
out-of-pocket executive salaries and related benefit expenses are billed back to
the Company. 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. 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.

DIRECTORY AGREEMENTS

         We entered into a new 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 which generated $20 million of directory
advertising revenues for the year 2001.

TRANSACTIONS WITH POPULAR, INC.

         Popular, Inc. provides wireline bill collection, lock-box, cash
management, and wireless bill processing services for $8 million for 2001 and
2000. These services are negotiated at arms-length market value rates.

         At December 31, 2001, the Company maintained a $50 million working
capital credit facility with Popular, Inc. There was $50 million outstanding at
December 31, 2001 under this working capital credit facility.






                                       79
<PAGE>







                                     PART IV

ITEM 14. 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 2001.





                                       80
<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 20, 2002


                                          By:      /s/ W. Jack Reagan
                                             ----------------------------------
                                              Name:  W. Jack Reagan
                                              Title: Chief Financial Officer
                                              Date:  March 20, 2002


                                          By:      /s/ Robert P. Huberty
                                             ----------------------------------
                                              Name:  Robert P. Huberty
                                              Title: Chief Accounting Officer
                                              Date:  March 20, 2002





                                       81
<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 20, 2002    /s/ JON E. SLATER                   Chief Executive Officer
                            -----------------------------
                            Jon E. Slater


          March 20, 2002    /s/ W. JACK REAGAN                  Chief Financial Officer
                            -----------------------------
                            W. Jack Reagan


          March 20, 2002    /s/ ROBERT P. HUBERTY               Controller
                            -----------------------------
                            Robert P. Huberty


          March 20, 2002    /s/ FARES F. SALLOUM                Director
                            -----------------------------
                            Fares F. Salloum


          March 20, 2002    /s/ ALFRED C. GIAMMARINO            Director
                            -----------------------------
                            Alfred C. Giammarino


          March 20, 2002                                        Director
                            -----------------------------
                            Michael  T. Masin


          March 20, 2002    /s/ JON E. SLATER                   Director
                            -----------------------------
                            Jon E. Slater


          March 20, 2002    /s/ HOWARD M. SVIGALS               Director
                            -----------------------------
                            Howard M. Svigals


          March 20, 2002    /s/ RICHARD L. CARRION              Director
                            -----------------------------
                            Richard L. Carrion


          March 20, 2002                                        Director
                            -----------------------------
                            Juan Agosto Alicea


          March 20, 2002    /s/ HECTOR NEVARES                  Director
                            -----------------------------
                            Hector Nevares


          March 20, 2002    /s/ SAMUEL H. JOVE                  Director
                            -----------------------------
                            Samuel H. Jove
</Table>



                                       82
<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 Exhibit 3.4 of the
                         Company's Registration Statement filed on Form S-4
                         (File 333-85503)).

          3.4            Certificate of Incorporation of Celulares Telefonica,
                         Inc. (Incorporated by reference to Exhibit 3.3 of the
                         Company's Registration Statement filed on Form S-4
                         (File 333-85503)).

          3.5            Certificate of Amendment to the Certificate of
                         Incorporation of Celulares Telefonica, Inc., as
                         amended.

          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)).
</Table>

                                       83
<PAGE>
<Table>
<S>                      <C>
          10.6           Share Option Agreement, dated as of March 2, 1999, by
                         and among Puerto Rico Telephone Authority,
                         Telecomunicaciones de Puerto Rico, Inc, GTE Holdings
                         (Puerto Rico) LLC, and GTE International
                         Telecommunications Incorporated. (Incorporated by
                         reference to Exhibit 10.10 of the Company's
                         Registration Statement filed on Form S-4 (File
                         333-85503)).

          10.7           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)).

          10.8           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)).

          10.9           Stock Purchase Agreement, dated as of March 2, 1999, by
                         and between Puerto Rico Telephone Authority and the
                         Trust of the Employee Stock Ownership Plan of
                         Telecomunicaciones de Puerto Rico, Inc. (Incorporated
                         by reference to Exhibit 10.14 of the Company's
                         Registration Statement filed on Form S-4 (File
                         333-85503)).

          10.10          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)).

          10.11          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)).

          10.12          $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)).

          10.13          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)).

          10.16          Collective Bargaining Agreement between the Puerto Rico
                         Telephone Company and the Independent Union of
                         Telephone Employees of Puerto Rico effective from
                         January 18, 2000 until January 17, 2003. Approved on
                         October 6, 2000. (Incorporated by reference to Exhibit
                         10.23 of the Company's Annual Report on Form 10-K for
                         the year ended December 31, 2000 (File 333-85503)).

          10.17          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)).
</Table>



                                       84
<PAGE>
<Table>
<S>                      <C>
          10.18          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)).

          10.19          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)).

          10.20          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)).

          10.21          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)).

          10.22          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)).

          10.23          $50,000,000 working capital revolving credit agreement
                         dated as of June 28, 2001, among Telecomunicaciones de
                         Puerto Rico, Inc., as Borrower, Puerto Rico Telephone
                         Company, Inc., and Celulares Telefonica, Inc., as
                         Guarantors, and Banco Bilbao Vizcaya Argentaria S.A.
                         and Banco Bilbao Vizcaya Puerto Rico, as Lenders.
                         (Incorporated by reference to Exhibit 10.23 of the
                         Company's Quarterly Report on Form 10-Q for the period
                         ended June 30, 2001 (File 333-85503)).

          10.24          $50,000,000 working capital revolving credit agreement
                         dated as of June 28, 2001, among Telecomunicaciones de
                         Puerto Rico, Inc., as Borrower, Puerto Rico Telephone
                         Company, Inc. and Celulares Telefonica, Inc., as
                         Guarantors, and Banco Popular de Puerto Rico, as Lender
                         and Administrative Agent. (Incorporated by reference to
                         Exhibit 10.24 of the Company's Quarterly Report on Form
                         10-Q for the period ended June 30, 2001 (File
                         333-85503)).
</Table>



                                       85
<PAGE>
<Table>
<S>                      <C>
          10.25          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)).

          10.26          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)).

          10.27          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)).

          10.28          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)).

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

          21             Subsidiaries of the Registrant.

          23             Independent Auditors' Consent
</Table>


                                       86