##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended: March 31, 2007
 Or
 o
    
    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.
  Commonwealth of Puerto Rico
    
    66-0566178(STATE OR OTHER JURISDICTION OF 
INCORPORATION OR ORGANIZATION)
    
    (IRS EMPLOYER IDENTIFICATION NO.)
 1515 FD Roosevelt AvenueGuaynabo, Puerto Rico
    
    00968(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    (ZIP CODE)
 787-792-6052
   þ o
  o o þ
  o þ




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##### Table of Contents



INDEX
 Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries
  
 Part I. Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Balance SheetsMarch 31, 2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Operations Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    4Consolidated Statements of Changes in Shareholders EquityThree Months Ended March 31, 2007 (Unaudited)
    
    
    5Consolidated Statements of Cash FlowsThree Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    40Part II. Other InformationItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    42Exhibit Index
    
    
    43Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertification Pursuant to Section 906
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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
  March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    233,751
    
    
    $
    179,138Accounts receivable, net of allowance for doubtful accounts
of $86,971 and $85,100 in 2007 and 2006, respectively
    
    
    196,385
    
    
    
    194,562Deferred income tax
    
    
    39,329
    
    
    
    32,593Inventory and supplies, net
    
    
    26,016
    
    
    
    35,113Prepaid expenses and other
    
    
    19,546
    
    
    
    12,092Total current assets
    
    
    515,027
    
    
    
    453,498PROPERTY, PLANT AND EQUIPMENT, net
    
    
    1,228,944
    
    
    
    1,269,280GOODWILL
    
    
    126,927
    
    
    
    126,927INTANGIBLES, net
    
    
    196,106
    
    
    
    196,756DEFERRED INCOME TAX
    
    
    273,689
    
    
    
    287,760OTHER ASSETS
    
    
    46,997
    
    
    
    49,890TOTAL ASSETS
    
    $
    2,387,690
    
    
    $
    2,384,111LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES
    
    $
    194,343
    
    
    $
    214,811LONG-TERM DEBT
    
    
    574,952
    
    
    
    574,947PENSION AND OTHER POST-EMPLOYMENT BENEFITS
    
    
    898,204
    
    
    
    911,490OTHER NON-CURRENT LIABILITIES
    
    
    110,033
    
    
    
    112,540Total liabilities
    
    
    1,777,532
    
    
    
    1,813,788MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
    
    
    18,257
    
    
    
    17,608SHAREHOLDERS EQUITY:Common stock
    
    
    710,934
    
    
    
    706,495Deferred ESOP compensation
    
    
    
    
    
    
    (24,739
    )Retained earnings
    
    
    340,283
    
    
    
    330,275Accumulated other comprehensive loss, net of taxes
    
    
    (459,316
    )
    
    
    (459,316
    )Total shareholders equity
    
    
    591,901
    
    
    
    552,715TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    2,387,690
    
    
    $
    2,384,111
 The accompanying notes are an integral part of these financial statements
 3




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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries
 
 Consolidated Statements of Operations
  For the Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)REVENUES:Local services
    
    $
    139,904
    
    
    $
    157,764Access services
    
    
    47,635
    
    
    
    53,838Long distance services
    
    
    14,385
    
    
    
    17,207Cellular services
    
    
    95,489
    
    
    
    85,015Directory services and other
    
    
    13,982
    
    
    
    183,418Total revenues
    
    
    311,395
    
    
    
    497,242OPERATING COSTS AND EXPENSES:Cost of services and sales
    
    
    78,198
    
    
    
    92,713Selling, general and administrative expenses
    
    
    127,986
    
    
    
    140,757Depreciation and amortization
    
    
    62,727
    
    
    
    62,087Total operating costs and expenses
    
    
    268,911
    
    
    
    295,557OPERATING INCOME
    
    
    42,484
    
    
    
    201,685OTHER INCOME (EXPENSE):Interest expense, net
    
    
    (6,921
    )
    
    
    (12,048
    )Equity income from joint venture
    
    
    
    
    
    
    665Gain on sale of interest in joint venture
    
    
    
    
    
    
    27,619Minority interest in consolidated subsidiary
    
    
    (649
    )
    
    
    (698
    )Total other income (expense), net
    
    
    (7,570
    )
    
    
    15,538INCOME BEFORE INCOME TAX EXPENSE
    
    
    34,914
    
    
    
    217,223INCOME TAX EXPENSE
    
    
    13,766
    
    
    
    47,791NET INCOME
    
    $
    21,148
    
    
    $
    169,432
 The accompanying notes are an integral part of these financial statements.
 4




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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Shareholders Equity
  AccumulatedOtherCommon
    
    
    Deferred ESOP
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Compensation
    
    
    Earnings
    
    
    Loss
    
    
    TotalBALANCE JANUARY 1st, 2007
    
    $
    706,495
    
    
    $
    (24,739
    )
    
    $
    330,275
    
    
    $
    (459,316
    )
    
    $
    552,715Dividends paid
    
    
    
    
    
    
    
    
    
    
    (11,140
    )
    
    
    
    
    
    
    (11,140
    )Net income
    
    
    
    
    
    
    
    
    
    
    21,148
    
    
    
    
    
    
    
    21,148Proceeds from sale of suspense shares by ESOP
    
    
    4,439
    
    
    
    24,739
    
    
    
    
    
    
    
    
    
    
    
    29,178BALANCE MARCH 31, 2007 (Unaudited)
    
    $
    710,934
    
    
    $
    
    
    
    $
    340,283
    
    
    $
    (459,316
    )
    
    $
    591,901
 The accompanying notes are an integral part of these financial statements.
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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
  For the three months ended March 31,2007
    
    
    2006(Unaudited)CASH FLOWS FROM OPERATING ACTVITIES:Net income
    
    $
    21,148
    
    
    $
    169,432Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    62,727
    
    
    
    62,087Provision for uncollectible accounts
    
    
    15,484
    
    
    
    12,172Deferred income tax expense
    
    
    7,335
    
    
    
    6,423Employee retirement benefits expense
    
    
    23,787
    
    
    
    27,875Equity income from joint venture
    
    
    
    
    
    
    (665
    )Gain on sale of interest in joint venture
    
    
    
    
    
    
    (27,619
    )Minority interest in consolidated subsidiary
    
    
    650
    
    
    
    698Changes in assets and liabilities:Accounts receivable
    
    
    (17,306
    )
    
    
    (18,551
    )Inventory and supplies
    
    
    9,097
    
    
    
    12,007Prepaid expenses and other assets
    
    
    (4,561
    )
    
    
    15,663Other current and non-current liabilities
    
    
    (22,974
    )
    
    
    125Pension and other post-employment benefits
    
    
    (37,072
    )
    
    
    (17,249
    )Net cash provided by operating activities
    
    
    58,315
    
    
    
    242,398CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, including removal costs
    
    
    (21,739
    )
    
    
    (22,194
    )Proceeds from sale of investment
    
    
    
    
    
    
    26,651Net cash (used in) provided by investing activities
    
    
    (21,739
    )
    
    
    4,457CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of suspense shares by ESOP
    
    
    29,178
    
    
    
    Net repayments of short-term debt, including
capital leases
    
    
    
    
    
    
    (52,037
    )Dividends Paid
    
    
    (11,140
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    18,038
    
    
    
    (52,037
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    54,614
    
    
    
    194,818CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
    
    
    179,138
    
    
    
    55,086CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    233,752
    
    
    $
    249,904
 The accompanying notes are an integral part of these financial statements.
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TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. Business / Corporate Structure
    2 Summary of Significant Accounting Policies and Recent Pronouncements
 Basis of Presentation
  Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and Financial Liabilities
  Impairment or Disposal of Long-lived Assets
  7




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Goodwill and Other Intangibles
 Goodwill
  Indefinite Life Intangible Assets
    Definite Life Intangible Assets
   Reclassifications
  8




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3. Gain on Sale of Interest in Joint Venture
  4. Property, Plant and Equipment
  Remaining Useful
    
    
    March 31,
    
    
    December 31,Lives (Yrs)
    
    
    2007
    
    
    2006(In thousands)Outside plant
    
    
    9.0
    
    
    $
    2,247,740
    
    
    $
    2,238,371Central office and transmission equipment
    
    
    3.8
    
    
    
    1,315,272
    
    
    
    1,317,882Equipment and other
    
    
    2.7
    
    
    
    274,858
    
    
    
    271,031Buildings
    
    
    14.6
    
    
    
    333,535
    
    
    
    334,185Land
    
    
    N/A
    
    
    
    25,402
    
    
    
    25,500Gross plant in service
    
    
    
    
    
    
    4,196,807
    
    
    
    4,186,969Less: accumulated depreciation
    
    
    
    
    
    
    2,997,971
    
    
    
    2,958,118Net plant in service
    
    
    
    
    
    
    1,198,836
    
    
    
    1,228,851Construction in progress
    
    
    
    
    
    
    30,108
    
    
    
    40,429Total
    
    
    
    
    
    $
    1,228,944
    
    
    $
    1,269,280
 5. Goodwill
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Wireline (PRTC)
    
    $
    102,731
    
    
    $
    102,731Dial-up Internet (Coqui.net)
    
    
    24,196
    
    
    
    24,196Total
    
    $
    126,927
    
    
    $
    126,927
 9




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6. Intangibles
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Indefinite Life:Wireline concession
    
    $
    85,120
    
    
    $
    85,120FCC Cellular licenses
    
    
    23,855
    
    
    
    23,855Total Indefinite Life
    
    $
    108,975
    
    
    $
    108,975
 March 31, 2007
    
    
    December 31, 2006(In thousands)Cost
    
    
    Acc. Amort
    
    
    Book Value
    
    
    Cost
    
    
    Acc. Amort
    
    
    Book ValueDefinite Life:Wireline trade name
    
    $
    48,400
    
    
    $
    15,638
    
    
    $
    32,762
    
    
    $
    48,400
    
    
    $
    15,154
    
    
    $
    33,246Software licenses
    
    
    143,901
    
    
    
    89,536
    
    
    
    54,365
    
    
    
    138,757
    
    
    
    84,222
    
    
    
    54,535Total Definite Life
    
    $
    192,301
    
    
    $
    105,174
    
    
    $
    87,127
    
    
    $
    187,157
    
    
    $
    99,376
    
    
    $
    87,781Plus: Total Indefinite Life
    
    
    
    
    
    
    
    
    
    
    108,975
    
    
    
    
    
    
    
    
    
    
    
    108,975Total
    
    $
    192,301
    
    
    $
    105,174
    
    
    $
    196,102
    
    
    $
    187,157
    
    
    $
    99,376
    
    
    $
    196,756
  Aggregate amortization expense:For the three months ended March 31, 2007
    
    
    
    $
    5,798Expected amortization expense:For the remainder of 2007
    
    
    
    
    15,515For the years ending December 31,
    
    2008
    
    
    16,8982009
    
    
    11,9472010
    
    
    5,9562011
    
    
    3,1862012 and thereafter
    
    
    33,625
 7. Other assets
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Deferred activation and installation costs
    
    $
    45,051
    
    
    $
    48,128Other assets
    
    
    1,946
    
    
    
    1,762Total
    
    $
    46,997
    
    
    $
    49,890
  10




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8. Pension Plan
       Pension and Lump Sum Benefits
    
    
    Post-Retirement Benefits(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    6,312
    
    
    $
    6,559
    
    
    $
    2,144
    
    
    $
    1,985Interest cost
    
    
    19,645
    
    
    
    19,299
    
    
    
    9,311
    
    
    
    9,214Expected return on plan assets
    
    
    (22,707
    )
    
    
    (19,474
    )
    
    
    
    
    
    
    Amortization of unrecognized:Transition obligation
    
    
    90
    
    
    
    90
    
    
    
    551
    
    
    
    551Prior service cost (benefit)
    
    
    1,300
    
    
    
    912
    
    
    
    (2,306
    )
    
    
    (2,306
    )Actuarial loss, net
    
    
    4,719
    
    
    
    5,922
    
    
    
    4,728
    
    
    
    5,120Total
    
    $
    9,359
    
    
    $
    13,308
    
    
    $
    14,428
    
    
    $
    14,564
 Cash Flows
  11




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9. Deferred ESOP Compensation
   10. Current Liabilities
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Accounts payable
    
    $
    31,705
    
    
    $
    84,388Accrued expenses
    
    
    68,722
    
    
    
    66,478Employee benefit accruals
    
    
    49,541
    
    
    
    35,665Carrier payables
    
    
    11,489
    
    
    
    9,221Taxes
    
    
    25,150
    
    
    
    15,054Interest
    
    
    7,736
    
    
    
    4,005Total
    
    $
    194,343
    
    
    $
    214,811
 11. Debt
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Senior notes:Due May 15, 2009 at 6.80%
    
    $
    299,952
    
    
    $
    299,947Term credit facilities:Due Feb 28, 2011 at 55 basis points over
LIBOR
    
    
    275,000
    
    
    
    275,000Long-term debt
    
    $
    574,952
    
    
    $
    574,947
  12




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Year
    
    
    
    Amount(In thousands)2009
    
    Senior note
    
    $
    300,0002011
    
    Term note
    
    
    275,000Total
    
    
    
    $
    575,000
  12. Other Non-Current Liabilities
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Deferred activation and installation revenues
    
    $
    45,051
    
    
    $
    48,128Customer deposits
    
    
    25,725
    
    
    
    25,988Other liabilities
    
    
    39,257
    
    
    
    38,424Total
    
    $
    110,033
    
    
    $
    112,540
 13. Shareholders Equity
 Common Stock
  13




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Accumulated Other Comprehensive Loss
  Dividends
   2007
    
    
    2006(In thousands)
    
    
    (In thousands)4th Quarter
    
    $
    
    
    
    4th Quarter
    
    $
    10,8683rd Quarter
    
    
    
    
    
    3rd Quarter
    
    
    15,5592nd Quarter
    
    
    
    
    
    2nd Quarter
    
    
    84,7171st Quarter
    
    
    11,140
    
    
    1st Quarter
    
    
    10,812Total
    
    $
    11,140
    
    
    Total
    
    $
    121,956
  14. Fair Value of Financial Instruments
  March 31,
    
    December 31,2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In thousands)Assets:Cash and cash equivalents
    
    $
    233,751
    
    
    $
    233,751
    
    
    $
    179,138
    
    
    $
    179,138Accounts receivable
    
    
    196,385
    
    
    
    196,385
    
    
    
    194,562
    
    
    
    194,562Liabilities:Other current liabilities
    
    $
    194,343
    
    
    $
    194,343
    
    
    $
    214,811
    
    
    $
    214,811Long-term debt
    
    
    574,952
    
    
    
    590,648
    
    
    
    574,947
    
    
    
    585,113
 14




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15. Segment Reporting
   
    
    Local services, including basic voice, telephone and telecommunications equipment
rentals, value-added services, high-speed private line services, and Internet access;
    
    Access services to long distance carriers, competitive local exchange carriers, and
wireless operators for originating and terminating calls on the Companys network;
    
    Long distance services including direct dial on-island and off-island, operator assisted
calls, and prepaid calling card; and
    
    Telecommunication equipment sales and billing and collection services to competing long
distance operators in Puerto Rico.
  
    
    Postpaid and Prepaid services; and
    
    Wireless equipment sales.
 15




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For the Three MonthsEnded March 31,2007
    
    
    2006(In thousands)Wireline:Revenues-Local services
    
    $
    145,075
    
    
    $
    162,591Access services
    
    
    48,412
    
    
    
    54,921Long distance services
    
    
    14,895
    
    
    
    17,660Directory services and other
    
    
    13,995
    
    
    
    183,529Total revenues
    
    $
    222,377
    
    
    $
    418,701Operating income
    
    $
    19,635
    
    
    $
    188,286Wireless:Revenues-Cellular services
    
    $
    96,374
    
    
    $
    85,818Total revenues
    
    $
    96,374
    
    
    $
    85,818Operating income
    
    $
    22,849
    
    
    $
    13,399Consolidated:Revenues for reportable segments
    
    $
    318,751
    
    
    $
    504,519Elimination of intersegment revenues
    
    
    (7,356
    )
    
    
    (7,277
    )Consolidated revenues
    
    $
    311,395
    
    
    $
    497,242Operating income
    
    $
    42,484
    
    
    $
    201,685
 As of
    
    
    As ofMarch 31,
    
    
    December 31,2007
    
    
    2006AssetsWireline assets
    
    $
    2,423,365
    
    
    $
    2,396,484Wireless assets
    
    
    464,044
    
    
    
    461,345Segment assets
    
    $
    2,887,409
    
    
    $
    2,857,829Elimination of intersegment assets
    
    
    (499,719
    )
    
    
    (473,718
    )Consolidated assets
    
    $
    2,387,690
    
    
    $
    2,384,111
 16




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16. Condensed Consolidating Information
   17




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Condensed Consolidating Balance Sheets
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    203,821
    
    
    $
    29,930
    
    
    $
    
    
    
    $
    233,751Intercompany accounts receivable
    
    
    57,123
    
    
    
    53,953
    
    
    
    74,960
    
    
    
    (186,036
    )
    
    
    Accounts receivable, net
    
    
    
    
    
    
    195,600
    
    
    
    785
    
    
    
    
    
    
    
    196,385Deferred income tax
    
    
    
    
    
    
    39,270
    
    
    
    59
    
    
    
    
    
    
    
    39,329Inventory and supplies, net
    
    
    
    
    
    
    26,015
    
    
    
    1
    
    
    
    
    
    
    
    26,016Prepaid expenses
    
    
    
    
    
    
    19,262
    
    
    
    284
    
    
    
    
    
    
    
    19,546Total current assets
    
    
    57,123
    
    
    
    537,921
    
    
    
    106,019
    
    
    
    (186,036
    )
    
    
    515,027PROPERTY, PLANT AND EQUIPMENT, net
    
    
    
    
    
    
    1,222,224
    
    
    
    6,720
    
    
    
    
    
    
    
    1,228,944GOODWILL AND OTHER INTANGIBLES, net
    
    
    
    
    
    
    298,713
    
    
    
    24,320
    
    
    
    
    
    
    
    323,033DEFERRED INCOME TAX
    
    
    
    
    
    
    264,435
    
    
    
    9,818
    
    
    
    (564
    )
    
    
    273,689INVESTMENT IN SUBSIDIARIES
    
    
    570,750
    
    
    
    
    
    
    
    
    
    
    
    (570,750
    )
    
    
    OTHER ASSETS
    
    
    575,729
    
    
    
    46,994
    
    
    
    
    
    
    
    (575,726
    )
    
    
    46,997TOTAL ASSETS
    
    $
    1,203,602
    
    
    $
    2,370,287
    
    
    $
    146,877
    
    
    $
    (1,333,076
    )
    
    $
    2,387,690LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Intercompany accounts payable
    
    $
    28,898
    
    
    $
    77,400
    
    
    $
    84,644
    
    
    $
    (190,942
    )
    
    $
    Other current liabilities
    
    
    7,851
    
    
    
    178,245
    
    
    
    8,242
    
    
    
    5
    
    
    
    194,343Total current liabilities
    
    
    36,749
    
    
    
    255,645
    
    
    
    92,886
    
    
    
    (190,937
    )
    
    
    194,343LONG-TERM DEBT, excluding current portion
    
    
    574,952
    
    
    
    574,950
    
    
    
    
    
    
    
    (574,950
    )
    
    
    574,952OTHER NON-CURRENT LIABILITIES
    
    
    
    
    
    
    1,003,915
    
    
    
    756
    
    
    
    3,566
    
    
    
    1,008,237Total liabilities
    
    
    611,701
    
    
    
    1,834,510
    
    
    
    93,642
    
    
    
    (762,321
    )
    
    
    1,777,532MINORITY INTEREST
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,257
    
    
    
    18,257SHAREHOLDERS EQUITY:Common stock
    
    
    710,934
    
    
    
    675,960
    
    
    
    41,143
    
    
    
    (717,103
    )
    
    
    710,934Retained earnings
    
    
    340,283
    
    
    
    319,131
    
    
    
    12,092
    
    
    
    (331,223
    )
    
    
    340,283Accumulated other comprehensive loss
    
    
    (459,316
    )
    
    
    (459,314
    )
    
    
    
    
    
    
    459,314
    
    
    
    (459,316
    )Total shareholders equity
    
    
    591,901
    
    
    
    535,777
    
    
    
    53,235
    
    
    
    (589,012
    )
    
    
    591,901TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,203,602
    
    
    $
    2,370,287
    
    
    $
    146,877
    
    
    $
    (1,333,076
    )
    
    $
    2,387,690
 18




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##### Table of Contents



Condensed Consolidating Balance Sheets
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    152,644
    
    
    $
    26,494
    
    
    $
    
    
    
    $
    179,138Intercompany accounts receivable
    
    
    53,391
    
    
    
    51,822
    
    
    
    68,278
    
    
    
    (173,491
    )
    
    
    Accounts receivable, net
    
    
    
    
    
    
    193,829
    
    
    
    733
    
    
    
    
    
    
    
    194,562Deferred income tax
    
    
    
    
    
    
    32,534
    
    
    
    59
    
    
    
    
    
    
    
    32,593Inventory and supplies, net
    
    
    
    
    
    
    35,112
    
    
    
    1
    
    
    
    
    
    
    
    35,113Prepaid expenses
    
    
    
    
    
    
    11,523
    
    
    
    569
    
    
    
    
    
    
    
    12,092Total current assets
    
    
    53,391
    
    
    
    477,464
    
    
    
    96,134
    
    
    
    (173,491
    )
    
    
    453,498PROPERTY, PLANT AND EQUIPMENT, net
    
    
    
    
    
    
    1,262,259
    
    
    
    7,021
    
    
    
    
    
    
    
    1,269,280GOODWILL AND OTHER INTANGIBLES, net
    
    
    
    
    
    
    299,335
    
    
    
    24,348
    
    
    
    
    
    
    
    323,683DEFERRED INCOME TAX
    
    
    
    
    
    
    280,684
    
    
    
    7,076
    
    
    
    
    
    
    
    287,760INVESTMENT IN SUBSIDIARIES
    
    
    531,565
    
    
    
    
    
    
    
    
    
    
    
    (531,565
    )
    
    
    OTHER ASSETS
    
    
    575,813
    
    
    
    49,887
    
    
    
    
    
    
    
    (575,810
    )
    
    
    49,890TOTAL ASSETS
    
    $
    1,160,769
    
    
    $
    2,369,629
    
    
    $
    134,579
    
    
    $
    (1,280,866
    )
    
    $
    2,384,111LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Intercompany accounts payable
    
    $
    28,987
    
    
    $
    73,974
    
    
    $
    75,074
    
    
    $
    (178,035
    )
    
    $
    Other current liabilities
    
    
    4,120
    
    
    
    206,673
    
    
    
    4,013
    
    
    
    5
    
    
    
    214,811Total current liabilities
    
    
    33,107
    
    
    
    280,647
    
    
    
    79,087
    
    
    
    (178,030
    )
    
    
    214,811LONG-TERM DEBT, excluding current portion
    
    
    574,947
    
    
    
    574,945
    
    
    
    
    
    
    
    (574,945
    )
    
    
    574,947OTHER NON-CURRENT LIABILITIES
    
    
    
    
    
    
    1,019,710
    
    
    
    642
    
    
    
    3,678
    
    
    
    1,024,030Total liabilities
    
    
    608,054
    
    
    
    1,875,302
    
    
    
    79,729
    
    
    
    (749,297
    )
    
    
    1,813,788MINORITY INTEREST
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,608
    
    
    
    17,608SHAREHOLDERS EQUITY:Common stock
    
    
    706,495
    
    
    
    646,782
    
    
    
    41,143
    
    
    
    (687,925
    )
    
    
    706,495Deferred ESOP compensation
    
    
    (24,739
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,739
    )Retained earnings
    
    
    330,275
    
    
    
    306,859
    
    
    
    13,707
    
    
    
    (320,566
    )
    
    
    330,275Accumulated other comprehensive loss
    
    
    (459,316
    )
    
    
    (459,314
    )
    
    
    
    
    
    
    459,314
    
    
    
    (459,316
    )Total shareholders equity
    
    
    552,715
    
    
    
    494,327
    
    
    
    54,850
    
    
    
    (549,177
    )
    
    
    552,715TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,160,769
    
    
    $
    2,369,629
    
    
    $
    134,579
    
    
    $
    (1,280,866
    )
    
    $
    2,384,111
 19




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##### Table of Contents



Condensed Consolidating Statements of Operations
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUES:Local services
    
    $
    
    
    
    $
    133,656
    
    
    $
    7,874
    
    
    $
    (1,626
    )
    
    $
    139,904Access services
    
    
    
    
    
    
    48,509
    
    
    
    
    
    
    
    (873
    )
    
    
    47,636Long distance services
    
    
    
    
    
    
    7,296
    
    
    
    7,625
    
    
    
    (536
    )
    
    
    14,385Cellular services
    
    
    
    
    
    
    95,581
    
    
    
    
    
    
    
    (92
    )
    
    
    95,489Directory and other services and sales
    
    
    
    
    
    
    21,509
    
    
    
    330
    
    
    
    (7,858
    )
    
    
    13,982Total revenues
    
    
    
    
    
    
    306,551
    
    
    
    15,829
    
    
    
    (10,985
    )
    
    
    311,395OPERATING COSTS AND EXPENSES:Total operating costs and expenses
    
    
    
    
    
    
    260,855
    
    
    
    19,041
    
    
    
    (10,985
    )
    
    
    268,911OPERATING INCOME (LOSS)
    
    
    
    
    
    
    45,696
    
    
    
    (3,212
    )
    
    
    
    
    
    
    42,484OTHER INCOME (EXPENSE), NET
    
    
    21,148
    
    
    
    (7,364
    )
    
    
    444
    
    
    
    (21,798
    )
    
    
    (7,570
    )INCOME (LOSS) BEFORE INCOME TAX EXPENSE
(BENEFIT)
    
    
    21,148
    
    
    
    38,332
    
    
    
    (2,768
    )
    
    
    (21,798
    )
    
    
    34,914INCOME TAX EXPENSE (BENEFIT)
    
    
    
    
    
    
    14,919
    
    
    
    (1,153
    )
    
    
    
    
    
    
    13,766NET INCOME (LOSS)
    
    $
    21,148
    
    
    $
    23,413
    
    
    $
    (1,615
    )
    
    $
    (21,798
    )
    
    $
    21,148
 20




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##### Table of Contents



Condensed Consolidating Statements of Operations
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUES:Local services
    
    $
    
    
    
    $
    152,189
    
    
    $
    7,976
    
    
    $
    (2,401
    )
    
    $
    157,764Access services
    
    
    
    
    
    
    54,722
    
    
    
    
    
    
    
    (884
    )
    
    
    53,838Long distance services
    
    
    
    
    
    
    7,798
    
    
    
    9,894
    
    
    
    (485
    )
    
    
    17,207Cellular services
    
    
    
    
    
    
    85,335
    
    
    
    
    
    
    
    (320
    )
    
    
    85,015Directory and other services and sales
    
    
    
    
    
    
    192,074
    
    
    
    384
    
    
    
    (9,040
    )
    
    
    183,418Total revenues
    
    
    
    
    
    
    492,118
    
    
    
    18,254
    
    
    
    (13,130
    )
    
    
    497,242OPERATING COSTS AND EXPENSES:Total operating costs and expenses
    
    
    (5
    )
    
    
    289,274
    
    
    
    19,418
    
    
    
    (13,130
    )
    
    
    295,557OPERATING INCOME (LOSS)
    
    
    5
    
    
    
    202,844
    
    
    
    (1,164
    )
    
    
    
    
    
    
    201,685OTHER INCOME, NET
    
    
    168,661
    
    
    
    15,895
    
    
    
    346
    
    
    
    (169,364
    )
    
    
    15,538INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
    
    
    168,666
    
    
    
    218,739
    
    
    
    (818
    )
    
    
    (169,364
    )
    
    
    217,223INCOME TAX EXPENSE (BENEFIT)
    
    
    (766
    )
    
    
    48,949
    
    
    
    (392
    )
    
    
    
    
    
    
    47,791NET INCOME (LOSS)
    
    $
    169,432
    
    
    $
    169,790
    
    
    $
    (426
    )
    
    $
    (169,364
    )
    
    $
    169,432
 21




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##### Table of Contents



Condensed Consolidating Statements of Cash Flows
 Guarantor
    
    
    Non-Guarantor
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    ConsolidatedCASH PROVIDED OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    54,747
    
    
    $
    3,568
    
    
    $
    58,315CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, including removal costs
    
    
    
    
    
    
    (21,607
    )
    
    
    (132
    )
    
    
    (21,739
    )Net cash used in investing activities
    
    
    
    
    
    
    (21,607
    )
    
    
    (132
    )
    
    
    (21,739
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of suspense shares by ESOP
    
    
    29,178
    
    
    
    
    
    
    
    
    
    
    
    29,178Dividends paid
    
    
    (11,140
    )
    
    
    
    
    
    
    
    
    
    
    (11,140
    )Borrowings/(repayment) intercompany loans
    
    
    (18,038
    )
    
    
    18,038
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    
    
    
    
    18,038
    
    
    
    
    
    
    
    18,038NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    51,178
    
    
    
    3,436
    
    
    
    54,614CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    
    
    
    
    152,644
    
    
    
    26,494
    
    
    
    179,138CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    203,822
    
    
    $
    29,930
    
    
    $
    233,752
 22




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##### Table of Contents



Condensed Consolidating Statements of Cash Flows
 Guarantor
    
    
    Non-Guarantor
    
    
    TotalParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    ConsolidatedCASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    271,382
    
    
    $
    (28,984
    )
    
    $
    242,398CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, including removal costs
    
    
    
    
    
    
    (22,151
    )
    
    
    (43
    )
    
    
    (22,194
    )Net proceed from sale of interest in joint venture
    
    
    
    
    
    
    
    
    
    
    26,651
    
    
    
    26,651Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (22,151
    )
    
    
    26,608
    
    
    
    4,457CASH FLOWS FROM FINANCING ACTIVITIES:Net repayments of short-term debt, including
capital leases
    
    
    (52,000
    )
    
    
    (37
    )
    
    
    
    
    
    
    (52,037
    )Borrowings/(repayment) intercompany loans
    
    
    52,000
    
    
    
    (52,000
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    
    
    
    
    (52,037
    )
    
    
    
    
    
    
    (52,037
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    197,194
    
    
    
    (2,376
    )
    
    
    194,818CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    135
    
    
    
    31,130
    
    
    
    23,821
    
    
    
    55,086CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    135
    
    
    $
    228,324
    
    
    $
    21,445
    
    
    $
    249,904
 23




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##### Table of Contents



17. Contingencies and Regulatory and Other Matters
    18. Subsequent Event
  24




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
    
    
    Revenue Growth  Our emphasis is on revenue transformation, devoting more resources from
traditional markets, where we have been experiencing access line erosion, to higher growth
markets, such as wireless and broadband, including digital subscriber lines (DSL), as well
as expanded data services to enterprise markets. For the quarter ended March 31, 2007, our
wireless and broadband services represented 42% of the total revenues, up from 12% for the
same period in 2006.For the quarter ended March 31, 2007 revenues from the growth of
wireless areas, in particular post-paid cellular services increased
by 8% compared to the same period in 2006. This increase was driven
by the net increase of approximately 60,000 post-paid wireless
customers as of March 31, 2007 compared to those customers as of
March 31, 2006. The data and broadband services revenues for the
quarter ended March 31, 2007 increased by 12% compared to the same
period in 2006. This increase was driven by strong DSL revenue
growth. As of March 31, 2007, the DSL customers were higher by
approximately 36,000 compared to those customers as of March 31,
2006.
    
    Operational Efficiency  While focusing resources on growth markets, we are continually
challenging our management team to reduce expenses, particularly through
technology-assisted productivity improvements. The Company has significantly reduced
workforce levels compared to the same period in 2006, which we expect will provide future
benefits. At March 31, 2007, the Company had approximately 4,571 full-time employees
compared to 4,883 at March 31, 2006.
    
    Capital Allocation  Capital spending has been, and will continue to be, directed toward
growth markets, such as High-speed wireless data or Evolution Data Optimized (EV-DO)
technologies. Replacement of the TDMA network and expanded services offered to enterprise
markets are some examples of areas of capital spending which support these growth markets.
    
    Cash Flow Generation  The financial statements reflect the emphasis of management on
using cash provided by our operating and investing activities to significantly reduce debt
and to fund our pension plans.
  25




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##### Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS
  CONSOLIDATED REVENUES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    % Change(In millions)Local
    
    $
    140
    
    
    $
    158
    
    
    
    (11
    )%Network Access
    
    
    48
    
    
    
    54
    
    
    
    (11
    )%Long Distance
    
    
    14
    
    
    
    17
    
    
    
    (18
    )%Cellular
    
    
    95
    
    
    
    85
    
    
    
    12
    %Directory and Other
    
    
    14
    
    
    
    183
    
    
    
    (92
    )%Consolidated revenues
    
    $
    311
    
    
    $
    497
    
    
    
    (37
    )%
    CONSOLIDATED OPERATING EXPENSES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Cost of services and sales
    
    $
    78
    
    
    $
    93
    
    
    
    (16)
    %Selling, general and administrative expenses
    
    
    128
    
    
    
    141
    
    
    
    (9)
    %Total consolidated operating expenses
    
    $
    206
    
    
    $
    234
    
    
    
    (12)
    %
    26




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##### Table of Contents



OTHER CONSOLIDATED RESULTS
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Depreciation and amortization
    
    $
    63
    
    
    $
    62
    
    
    
    2
    %Interest expense and others
    
    
    7
    
    
    
    12
    
    
    
    (42)
    %Equity income in joint venture
    
    
    
    
    
    
    (28
    )
    
    
    (100)
    %Minority interest in consolidated subsidiary
    
    
    1
    
    
    
    1
    
    
    
    
    %Income tax expense
    
    
    14
    
    
    
    48
    
    
    
    (71)
    %Total Other Consolidated Results
    
    $
    85
    
    
    $
    95
    
    
    
    (11)
    %
 Depreciation and amortization expense
  Interest expense, net
  Equity income from joint venture
  Minority interest in consolidated subsidiary
  Income taxes
  27




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##### Table of Contents



SEGMENT RESULTS OF OPERATIONS
   
    
    Local services, including basic voice, telephone and telecommunications equipment
rentals, value-added services, high-speed data services, and Internet access;
    
    Long distance services including direct dial on-island and off-island, operator assisted
calls, and prepaid calling card;
    
    Access services to long distance carriers, competitive local exchange carriers, and
wireless operators for originating and terminating calls on the Companys network; and
    
    Telecommunication equipment sales and billing and collection services to competing long
distance operators in Puerto Rico.
  
    
    Postpaid and prepaid services; and
    
    Wireless equipment sales.
 28




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##### Table of Contents



WIRELINE REVENUES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Local
    
    $
    145
    
    
    $
    163
    
    
    
    (11)
    %Network Access
    
    
    48
    
    
    
    55
    
    
    
    (13)
    %Long Distance
    
    
    15
    
    
    
    18
    
    
    
    (17)
    %Directory and Other
    
    
    14
    
    
    
    183
    
    
    
    (92)
    %Total Wireline
    
    $
    222
    
    
    $
    419
    
    
    
    (47)
    %
 OPERATING DATA
 2007
    
    
    2006
    
    
    %ChangeAccess Lines in Service (000s):Residential
    
    
    750
    
    
    
    826
    
    
    
    (9)
    %Business
    
    
    246
    
    
    
    265
    
    
    
    (7)
    %Total
    
    
    996
    
    
    
    1,091
    
    
    
    (9)
    %
  Local Services
  Network Access
  Long Distance
  Directory and Other
  29




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WIRELINE EXPENSES AND CHARGES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Cost of services and sales
    
    $
    49
    
    
    $
    64
    
    
    
    (23)
    %Selling, general and administrative expenses
    
    
    101
    
    
    
    114
    
    
    
    (11)
    %Total Wireline
    
    $
    150
    
    
    $
    178
    
    
    
    (16)
    %
  Cost of services and sales
  Selling, general and administrative expenses
  30




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WIRELESS REVENUES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Postpaid Cellular
    
    $
    68
    
    
    $
    63
    
    
    
    8
    %Prepaid Cellular
    
    
    5
    
    
    
    4
    
    
    
    25
    %Total Cellular
    
    
    73
    
    
    
    67
    
    
    
    9
    %Wireless Equipment and Other
    
    
    23
    
    
    
    19
    
    
    
    21
    %Total Wireless
    
    $
    96
    
    
    $
    86
    
    
    
    12
    %
 OPERATING DATA
 2007
    
    
    2006
    
    
    %ChangeCellular Customers (000s):Postpaid
    
    
    458
    
    
    
    398
    
    
    
    15
    %Prepaid
    
    
    106
    
    
    
    105
    
    
    
    1
    %Total
    
    
    564
    
    
    
    503
    
    
    
    12
    %Postpaid Cellular Average Revenue Per Unit (ARPU)
    
    $
    52
    
    
    $
    52
    
    
    
    
    %Prepaid Cellular ARPU
    
    
    17
    
    
    
    13
    
    
    
    31
    %Combined Cellular ARPU
    
    
    45
    
    
    
    44
    
    
    
    2
    %
  Cellular Revenues
  Wireless Equipment and other
  WIRELESS EXPENSES AND CHARGES
 For the Three Months Ended March 31,2007
    
    
    2006
    
    
    %Change(In millions)Cost of services and sales
    
    $
    30
    
    
    $
    30
    
    
    
    Selling, general and administrative expenses
    
    
    33
    
    
    
    32
    
    
    
    3
    %Total Wireless
    
    $
    63
    
    
    $
    62
    
    
    
    2
    %
  31




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Cost of services and sales
  Selling, general and administrative expenses
  32




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LIQUIDITY AND CAPITAL RESOURCES
 CONSOLIDATED FINANCIAL CONDITION
 For the Three Months Ended March 31,2007
    
    2006
    
    Change(in millions)Cash flows from (used in):Operations
    
    $
    58
    
    
    $
    242
    
    
    
    ($184
    )Investing
    
    
    (22
    )
    
    
    4
    
    
    
    ($26
    )Financing
    
    
    18
    
    
    
    (52
    )
    
    $
    70
            33




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34




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##### Table of Contents



REGULATORY AND OTHER MATTERS
 REGULATORY AND COMPETITIVE TRENDS
   TOUCHTONE CHARGES
    MUNICIPAL RIGHT OF WAY FEES
  PRTC v. Guayanilla
 PRT v Municipality of Caguas PRTC v Municipality of Ponce PRTC v.
Municipality of Utuado PRT v. Municipality of Cidra PRT v. Municipality of Vega
Baja PRT v. Municipality of Cataño
 35




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INTERCONNECTION DISPUTE
  SUBSCRIBER LINE CHARGE (SLC)
   36




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
     CRITICAL ACCOUNTING POLICIES
 General
    37




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Allowance for Doubtful Accounts
  Deferred Taxes
   Property, Plant and Equipment and Depreciation
   38




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Fair ValueAssuming 100 Basis PointCarrying Amount
    
    
    Fair Value
    
    
    Increase
    
    
    Decrease(In thousands)March 31, 2007:Senior notes
    
    $
    299,952
    
    
    $
    315,648
    
    
    $
    309,356
    
    
    $
    322,099December 31, 2006:Senior notes
    
    $
    299,947
    
    
    $
    310,113
    
    
    $
    303,451
    
    
    $
    316,959
 39




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ITEM 4. CONTROLS AND PROCEDURES
   40




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  41




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SIGNATURES
  TELECOMUNICACIONES DE PUERTO RICO, INC.By:
    
    /s/ Cristina M. LambertName:
    
    Cristina M. LambertTitle:
    
    President and Chief Executive OfficerDate:
    
    May 15, 2007By:
    
    /s/ Héctor HoussayName:
    
    Héctor HoussayTitle:
    
    Vice President Finance and Chief Financial OfficerDate:
    
    May 15, 2007By:
    
    /s/ Angel O. VegaName:
    
    Angel O. VegaTitle:
    
    ControllerDate:
    
    May 15, 2007
 42




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##### Table of Contents



EXHIBIT INDEX
 EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Certificate of Incorporation of Telecomunicaciones de Puerto
Rico, Inc. (Incorporated by reference to Exhibit 3.1 of the
Companys Registration Statement filed on Form S-4, as
amended (File 333-85503)).3.2
    
    
    Certificate of Amendment to the Certificate of Incorporation
of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by
reference to Exhibit 3.2 of the Companys Annual Report on
Form 10-K for the year ended December 31, 1999 (File
333-85503)).3.3
    
    
    By-Laws of Telecomunicaciones de Puerto Rico, Inc.
(Incorporated by reference to Exhibit 3.4 of the Companys
Registration Statement filed on Form S-4, as amended (File
333-85503)).4.1
    
    
    Trust Indenture dated as of May 20, 1999 between
Telecomunicaciones de Puerto Rico, Inc. and The Bank of New
York. (Incorporated by reference to Exhibit 4.1 of the
Companys Registration Statement filed on Form S-4, as
amended (File 333-85503)).10.1
    
    
    Shareholders Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc., Puerto Rico Telephone Authority
and the shareholders of Telecomunicaciones de Puerto Rico,
Inc., who shall from time to time be parties thereto as
provided therein. (Incorporated by reference to Exhibit 10.5
of the Companys Registration Statement filed on Form S-4, as
amended (File 333-85503)).10.2
    
    
    Non-Competition Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc, GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc., Puerto Rico Telephone Authority,
and the Government Development Bank for Puerto Rico.
(Incorporated by reference to Exhibit 10.9 of the Companys
Registration Statement filed on Form S-4, as amended (File
333-85503)).10.3
    
    
    Trust Agreement of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc., dated as of March 2,
1999, by and between U.S. Trust, National Association and
Telecomunicaciones de Puerto Rico, Inc. (Incorporated by
reference to Exhibit 10.12 of the Companys Registration
Statement filed on Form S-4, as amended (File 333-85503)).10.4
    
    
    ESOP Loan Agreement, dated as of March 2, 1999, by and
between the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc. (Incorporated by
reference to Exhibit 10.13 of the Companys Registration
Statement filed on Form S-4, as amended (File 333-85503)).10.5
    
    
    Pledge Agreement, dated as of March 2, 1999, by and between
the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc. (Incorporated by
reference to Exhibit 10.15 of the Companys Registration
Statement filed on Form S-4, as amended (File 333-85503)).10.6
    
    
    Tag Along Agreement, dated as of March 2, 1999, by and among
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, and the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de Puerto
Rico, Inc. (Incorporated by reference to Exhibit 10.16 of
the Companys Registration Statement filed on Form S-4, as
amended (File 333-85503)).10.7
    
    
    Commercial Paper Dealer Agreement 4(2) Program among
Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto
Rico Telephone Company, Inc. and Celulares Telefónica, Inc.,
as Guarantors; and Merrill Lynch Money Markets Inc., as
Dealer for notes with maturities up to 240 days; Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Dealer for
notes with maturities over 270 days up to 365 days.
Concerning notes to be issued pursuant to an Issuing and
Paying Agency Agreement dated as of November 9, 2000 between
the Issuer and The Chase Manhattan Bank, as Issuing and
Paying Agent. (Incorporated by reference to Exhibit 10.25 of
the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (File 333-85503)).
 43




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EXHIBITNUMBER
    
    DESCRIPTION10.8
    
    
    Commercial Paper Dealer Agreement 4(2) Program among
Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto
Rico Telephone Company, Inc. and Celulares Telefónica, Inc.,
as Guarantors; and Salomon Smith Barney Inc., as Dealer.
Concerning notes to be issued pursuant to an Issuing and
Paying Agency Agreement dated as of November 9, 2000 between
the Issuer and The Chase Manhattan Bank, as Issuing and
Paying Agent. (Incorporated by reference to Exhibit 10.26
of the Companys Annual Report on Form 10-K for the year
ended December 31, 2000 (File 333-85503)).10.9
    
    
    Commercial Paper Dealer Agreement 4(2) Program among
Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto
Rico Telephone Company, Inc. and Celulares Telefónica, Inc.,
as Guarantors; and Banc of America Securities LLC.
Concerning notes to be issued pursuant to an Issuing and
Paying Agency Agreement dated as of November 9, 2000 between
the Issuer and The Chase Manhattan Bank, as Issuing and
Paying Agent. (Incorporated by reference to Exhibit 10.27 of
the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (File 333-85503)).10.10
    
    
    Commercial Paper Dealer Agreement 4(2) Program among
Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto
Rico Telephone Company, Inc. and Celulares Telefónica, Inc.,
as Guarantors; and 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)).10.11
    
    
    Issuing and Paying Agency Agreement dated as of November 9,
2000, by and among Telecomunicaciones de Puerto Rico, Inc.,
as Issuer, Puerto Rico Telephone Company and Celulares
Telefónica, Inc., as Guarantors, and The Chase Manhattan
Bank, as Issuing and Paying Agent. (Incorporated by
reference to Exhibit 10.29 of the Companys Annual Report on
Form 10-K for the year ended December 31, 2000 (File
333-85503)).10.12
    
    
    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)).10.13
    
    
    ISDA Master Agreement, dated August 29, 2001, by and among
Telecomunicaciones de Puerto Rico, Inc., as the Counterparty,
Puerto Rico Telephone Company and Celulares Telefónica, Inc.,
as Guarantors, and Bank of America, N.A., as the Bank.
(Incorporated by reference to Exhibit 10.27 of the Companys
Quarterly Report on Form 10-Q for the period ended September
30, 2001 (File 333-85503)).10.14
    
    
    ISDA Master Agreement, dated August 29, 2001, by and among
Telecomunicaciones de Puerto Rico, Inc., as the Counterparty,
Puerto Rico Telephone Company and Celulares Telefónica, Inc.,
as Guarantors, and Citibank, N.A., as the Bank.
(Incorporated by reference to Exhibit 10.28 of the Companys
Quarterly Report on Form 10-Q for the period ended September
30, 2001 (File 333-85503)).10.15
    
    
    $40,000,000 working capital revolving credit agreement dated
as of June 30, 2004, among Telecomunicaciones de Puerto Rico,
Inc., as Borrower, Puerto Rico Telephone Company, Inc., as
Guarantor and Banco Popular de Puerto Rico, as Lender and
Administrative Agent. (Incorporated by reference to Exhibit
10.30 of the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 (File 333-85503)).10.16
    
    
    Collective Bargaining Agreement between the Puerto Rico
Telephone Company and the Independent Brotherhood of
Telephone Company Employees effective from January 1, 2004
until December 31, 2008. Approved on April 15, 2004.
English Version. (Incorporated by reference to Exhibit 10.32
of the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 (File 333-85503)).10.17
    
    
    $30,000,000 1-Year term credit agreement dated as of May 17,
2004, among Telecomunicaciones de Puerto Rico, Inc., as
Borrower, Puerto Rico Telephone Company, Inc., as Guarantor
and Banco Bilbao Vizcaya Argentaria Puerto Rico, as
Administrative Agent. (Incorporated by reference to Exhibit
10.33 of the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 (File 333-85503)).
 44




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.18
    
    
    364-Day Credit Agreement dated as of March 1, 2005, among
Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto
Rico Telephone Company, Inc., as Guarantor, the Initial
Lenders named therein, Citibank, N.A., as Administrative
Agent, Banco Bilbao Vizcaya Argentaria Puerto Rico and Bank
of Nova Scotia, as Syndication Agents, and Banco Popular de
Puerto Rico and Firstbank Puerto Rico, as Co-documentation
Agents. (Incorporated by reference to Exhibit 10.34 of the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004 (File 333-85503)).10.19
    
    
    First amendment dated June 30, 2005 to the $40,000,000
revolving credit agreement dated as of June 30, 2004, among
Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto
Rico Telephone Company, Inc., as Guarantor and Banco Popular
de Puerto Rico, as Lender and Administrative Agent.
(Incorporated by reference to Exhibit 10.23 of the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2005 (File 333-85503)).10.20
    
    
    Collective Bargaining Agreement between the Puerto Rico
Telephone Company and the Independent Union of Telephone
Employees of Puerto Rico effective from January 18, 2006
until January 17, 2011. Approved on October 20, 2005.
(Incorporated by reference to Exhibit 10.24 of the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005 (File 333-85503)).10.21
    
    
    $600,000,000 Credit Agreement dated as of February 28, 2006,
among Telecomunicaciones de Puerto Rico, Inc., as Borrower,
Puerto Rico Telephone Company, Inc., as Guarantor, the
Initial Lenders named therein, Citibank, N.A., as
Administrative Agent, Banco Bilbao Vizcaya Argentaria Puerto
Rico and Scotiabank of Puerto Rico, as Co-Syndication Agents,
and Banco Popular de Puerto Rico and The Bank of
Tokyo-Mitsubishi UFG, LTD., New York Branch, as
Co-documentation Agents. (Incorporated by reference to
Exhibit 10.23 of the Companys Annual Report on Form 10-K for
the year ended December 31, 2005 (File 333-85503)).10.22
    
    
    ESOP Loan Agreement dated as of November 4, 2005, 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 10.24 of the Companys Annual Report on
Form 10-K for the year ended December 31, 2005 (File
333-85503)).10.23
    
    
    Letter Waiver and Amendment of Credit Agreement dated
February 28, 2007 among Telecomunicaciones de Puerto Rico,
Inc., as Borrower, Puerto Rico Telephone Company, Inc., as
Guarantor, the Initial Lenders named therein, Citibank, N.A.,
as Administrative Agent, Banco Bilbao Vizcaya Argentaria
Puerto Rico and Scotiabank of Puerto Rico, as Co-Syndication
Agents, and Banco Popular de Puerto Rico and The Bank of
Tokyo-Mitsubishi UFG, LTD., New York Branch, as
Co-documentation Agents, temporarily waiving requirements of
Section 6.01 (h) and amending Section 1.01 (Incorporated by
reference to Exhibit 10.25 of the Companys Annual Report on
Form 10-K for the year ended December 31, 2006 (File
333-85503)).31.1
    
    
    Certification of Principal Executive Officer (Filed herewith).31.2
    
    
    Certification of Principal Financial Officer (Filed herewith).32.1
    
    
    Certification Required by 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Filed herewith).
 45