<PAGE>
================================================================================


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

               For the quarterly period ended: SEPTEMBER 30, 2003

                                       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 AVENUE
         GUAYNABO, PUERTO RICO                                00968

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)

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


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


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

                                 YES [X] NO [ ]

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


                                 YES [ ] NO [X]


Telecomunicaciones de Puerto Rico, Inc. had 25 million shares of no par common
stock outstanding at November 14, 2003.

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




                                       1
<PAGE>



            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                                     INDEX

<Table>
<S>                                                                                                              <C>
PART I. FINANCIAL INFORMATION

    Item  1.      Financial Statements (Unaudited)                                                              3

                  Condensed Consolidated Balance Sheets--September 30, 2003 and December 31, 2002               3

                  Condensed Consolidated Statements of Operations--Three Months Ended September 30, 2003
                  and 2002; Nine Months Ended September 30, 2003 and 2002                                       4

                  Condensed Consolidated Statements of Changes in Shareholders' Equity--Nine                    5
                  Months Ended September 30, 2003 and Year Ended December 31, 2002

                  Condensed Consolidated Statements of Cash Flows--Nine Months Ended September 30,
                  2003 and 2002                                                                                 6

                  Notes to Condensed Consolidated Financial Statements                                          7

    Item  2.      Management's Discussion and Analysis of Financial Condition and Results of Operations        29

    Item  3.      Quantitative and Qualitative Disclosures About Market Risk                                   43

    Item  4.      Controls and Procedures                                                                      44

PART II. OTHER INFORMATION

    Item  1.      Legal Proceedings                                                                            45

    Item  2.      Changes in Securities and Use of Proceeds                                                    45

    Item  3.      Defaults Upon Senior Securities                                                              45

    Item  4.      Submission of Matters to a Vote of Security Holders                                          45

    Item  5.      Other Information                                                                            45

    Item  6.      Exhibits and Reports on Form 8-K                                                             45

SIGNATURES                                                                                                     46

EXHIBIT INDEX                                                                                                  47
</Table>



                                       2
<PAGE>



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (in thousands)

<Table>
<Caption>

                                                                    SEPTEMBER 30,     DECEMBER 31,
                                                                        2003              2002
                                                                    -------------     -------------
                                                                     (UNAUDITED)
<S>                                                                 <C>               <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                      $      24,303     $      33,667
     Accounts receivable, net of allowance for doubtful accounts
     of $146,701 and $132,894 in 2003 and 2002, respectively              347,942           343,519
     Deferred income tax                                                   27,820            23,502
     Inventory and supplies, net                                           13,905            18,039
     Prepaid expenses                                                      28,819            10,876
                                                                    -------------     -------------
         Total current assets                                             442,789           429,603
PROPERTY, PLANT AND EQUIPMENT, net                                      1,572,911         1,575,334
GOODWILL                                                                  126,927           126,927
INTANGIBLES, net                                                          184,797           180,848
DEFERRED INCOME TAX                                                       271,332           285,349
OTHER ASSETS                                                              119,095           119,336
                                                                    -------------     -------------
TOTAL ASSETS                                                        $   2,717,851     $   2,717,397
                                                                    =============     =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                                               $      68,105     $      97,932
      Other current liabilities                                           287,191           268,034
                                                                    -------------     -------------
         Total current liabilities                                        355,296           365,966
LONG-TERM DEBT, excluding current portion                                 824,918           937,035
PENSION AND OTHER POST-EMPLOYMENT BENEFITS                                590,208           590,157
OTHER NON-CURRENT LIABILITIES                                             230,676           146,634
                                                                    -------------     -------------
          Total liabilities                                             2,001,098         2,039,792
                                                                    -------------     -------------

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                               12,683            12,229
                                                                    -------------     -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Common stock                                                          703,270           703,270
    Deferred ESOP compensation                                            (27,408)          (27,408)
    Subscription receivable                                               (38,774)          (76,093)
    Retained earnings                                                     157,164           155,789
    Accumulated other comprehensive loss, net of taxes                    (90,182)          (90,182)
                                                                    -------------     -------------
          Total shareholders' equity                                      704,070           665,376
                                                                    -------------     -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $   2,717,851     $   2,717,397
                                                                    =============     =============
</Table>

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



                                       3
<PAGE>




            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (in thousands)


<Table>
<Caption>
                                                           FOR THE THREE MONTHS ENDED          FOR THE NINE MONTHS ENDED
                                                                   SEPTEMBER 30,                     SEPTEMBER 30,
                                                        -------------------------------     -------------------------------
                                                            2003               2002             2003               2002
                                                        -------------     -------------     -------------     -------------
                                                                  (UNAUDITED)                         (UNAUDITED)
<S>                                                     <C>               <C>               <C>               <C>
REVENUES:
  Local services                                        $     142,385     $     145,508     $     434,923     $     431,953
  Long distance services                                       35,580            36,922           102,260           111,907
  Access services                                              63,697            80,181           223,426           244,318
  Cellular services                                            46,295            42,719           140,324           127,720
  Paging services                                                 223             1,080             1,026             4,367
  Directory services                                            5,050                52            14,892            12,359
  Other services and sales                                     15,606            11,946            44,094            39,867
                                                        -------------     -------------     -------------     -------------
        Total revenues                                        308,836           318,408           960,945           972,491
                                                        -------------     -------------     -------------     -------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                          100,428            90,954           303,440           279,593
  Other operating expenses                                    175,177           104,364           407,922           314,451
  Voluntary separation and retirement provision                    --                --             4,700                --
  Depreciation and amortization                                63,851            63,827           187,130           196,801
                                                        -------------     -------------     -------------     -------------
        Total operating costs and expenses                    339,456           259,145           903,192           790,845
                                                        -------------     -------------     -------------     -------------

OPERATING INCOME (LOSS)                                       (30,620)           59,263            57,753           181,646
                                                        -------------     -------------     -------------     -------------

OTHER INCOME (EXPENSE):
  Interest expense, net                                       (18,826)          (10,833)          (42,691)          (36,536)
  Equity income from joint venture                                539               577             1,840             1,729
  Minority interest in consolidated subsidiary                   (357)             (447)           (1,187)           (1,107)
                                                        -------------     -------------     -------------     -------------
        Total other income (expense), net                     (18,644)          (10,703)          (42,038)          (35,914)
                                                        -------------     -------------     -------------     -------------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
                                                              (49,264)           48,560            15,715           145,732

INCOME TAX EXPENSE (BENEFIT)                                  (19,557)           16,708             4,744            10,274
                                                        -------------     -------------     -------------     -------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE                                                        (29,707)           31,852            10,971           135,458

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAXES
OF $40,672                                                         --                --            58,529                --
                                                        -------------     -------------     -------------     -------------

NET INCOME (LOSS)                                       $     (29,707)    $      31,852     $      69,500     $     135,458
                                                        =============     =============     =============     =============
</Table>

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



                                       4
<PAGE>



            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                 (in thousands)


<Table>
<Caption>

                                                                                                          ACCUMULATED
                                                               DEFERRED                                      OTHER
                                                   COMMON       ESOP        SUBSCRIPTION     RETAINED    COMPREHENSIVE
                                                    STOCK    COMPENSATION    RECEIVABLE      EARNINGS         LOSS          TOTAL
                                                  ---------  -------------  -------------    ---------   -------------    ---------
<S>                                               <C>        <C>            <C>              <C>         <C>              <C>
BALANCE, DECEMBER 31, 2001                        $ 701,952  $     (28,793) $    (109,959)   $  53,592   $     (78,477)   $ 538,315

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

BALANCE, DECEMBER 31, 2002                        $ 703,270  $     (27,408) $     (76,093)   $ 155,789   $     (90,182)   $ 665,376
 (UNAUDITED)

Dividend Paid                                            --             --             --      (68,125)             --      (68,125)
Accretion of discount on subscription receivable         --             --         (2,681)          --              --       (2,681)
PRTA capital contribution                                --             --         40,000           --              --       40,000
Net income, for the nine months ended
    September 30, 2003                                   --             --             --       69,500              --       69,500
                                                  ---------  -------------  -------------    ---------   -------------    ---------

BALANCE, SEPTEMBER 30, 2003                       $ 703,270  $     (27,408) $     (38,774)   $ 157,164   $     (90,182)   $ 704,070
                                                  =========  =============  =============    =========   =============    =========

</Table>

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




                                       5
<PAGE>




            TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
<Table>
<Caption>

                                                           FOR THE NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              2003              2002
                                                          -------------    -------------
                                                                   (UNAUDITED)
<S>                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                              $      69,500    $     135,458
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization                               187,130          196,801
    Provision for uncollectible accounts                         55,414           51,392
    Cumulative effect of accounting change                      (58,529)              --
    Abandoned software project                                   32,262               --
    Deferred income tax                                         (35,747)         (34,225)
    Accretion of discount on subscription receivable             (2,681)          (4,706)
    Equity income from joint venture                             (1,840)          (1,729)
    Voluntary separation and retirement provision                 4,700               --
    Minority interest in consolidated subsidiary                  1,187            1,107
    Gain on sale of building                                       (824)              --
    Changes in assets and liabilities:
        Accounts receivable                                     (59,837)         (60,680)
        Inventory and supplies                                    4,134            7,718
        Prepaid expenses and other assets                       (15,182)         (20,897)
        Other current and non-current liabilities                89,029           10,424
        Pension and other post-employment benefits               (4,649)         (30,292)
                                                          -------------    -------------
              Net cash provided by operating activities         264,067          250,371
                                                          -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs               (110,059)        (135,686)
   Proceeds from sale of building                                 6,000               --
   Net salvage on retirements and other                             552            1,645
                                                          -------------    -------------
              Net cash used in investing activities            (103,507)        (134,041)
                                                          -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                          40,000           40,000
   Net repayments of debt, including
      capital leases                                           (141,799)        (339,217)
   Borrowings of long-term debt                                      --          225,000
   Dividends paid                                               (68,125)         (52,910)
                                                          -------------    -------------
              Net cash used in financing activities            (169,924)        (127,127)
                                                          -------------    -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                        (9,364)         (10,797)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                      33,667           34,797
                                                          -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                $      24,303    $      24,000
                                                          =============    =============
</Table>

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



                                       6
<PAGE>



TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------

1.   BUSINESS / CORPORATE STRUCTURE

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

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

     PRTC/VERIZON WIRELESS MERGER

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with accounting principles generally accepted
     in the United States for interim financial information and the rules and
     regulations of the Securities and Exchange Commission ("SEC"). Certain
     information and footnote disclosures normally included in financial
     statements prepared in accordance with accounting principles generally
     accepted in the United States for annual financial statements have been
     condensed or omitted pursuant to such rules and regulations. Management
     believes the financial statements include all adjustments and recurring
     accruals necessary to present fairly the results of operations and
     financial condition for the interim periods shown. The Condensed
     Consolidated Balance Sheet at December 31, 2002 was derived from audited
     financial statements and should be read in conjunction with the notes
     thereto included in the Company's Annual Report on Form 10-K for the fiscal
     year ended December 31, 2002.



                                       7
<PAGE>

     RECLASSIFICATIONS

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

3.   ACCOUNTING CHANGE FOR DIRECTORY REVENUE RECOGNITION

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

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

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

     The cumulative effect of applying this accounting change to prior years is
     recognized as of January 1, 2003 as a one-time, non-cash loss of $17
     million ($13 million, after tax).

     The effect of applying the new method for the nine months ended September
     30, 2003 is a one-time non-cash revenue increase of $10 million, which has
     been included in operating income.

     The following table shows the pro forma effect on operating results for the
     three and nine months ended September 30, 2002 had the Company applied the
     amortization method during prior periods:

<Table>
<Caption>
                                     Three months ended              Nine months ended
                                     September 30, 2002             September 30, 2002
                                 ---------------------------   ---------------------------
                                                      (in thousands)

                                 Before         After          Before         After
                                 Directory      Directory      Directory      Directory
                                 Accounting     Accounting     Accounting     Accounting
                                 Change         Change         Change         Change
                                 ------------   ------------   ------------   ------------
<S>                              <C>            <C>            <C>            <C>
Operating revenues               $    318,408   $    323,271   $    972,491   $    974,946
                                 ============   ============   ============   ============

Operating expenses               $    259,145   $    259,485   $    790,845   $    791,017
                                 ============   ============   ============   ============

Income before cumulative
   effect of accounting change   $     31,852   $     34,611   $    135,458   $    136,851
                                 ============   ============   ============   ============

Net income                       $     31,852   $     34,611   $    135,458   $    136,851
                                 ============   ============   ============   ============

</Table>





                                       8
<PAGE>
4.   SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS

     ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLES

     The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets"
     effective January 1, 2002, which provides guidance on the initial
     recognition and measurement of goodwill and other intangible assets
     acquired in a business combination.

     SFAS No. 142 no longer permits the amortization of goodwill and other
     indefinite-lived intangible assets. Instead, these assets must be reviewed
     annually (or, under certain conditions, more frequently) for impairment in
     accordance with this statement. This impairment test uses a fair value
     approach rather than the undiscounted cash flow 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 Company has evaluated its assets using the fair value approach
     for each reporting unit to determine if there is an impairment exposure
     (transitional impairment test) and the impact it would have on the
     Company's results of operations for 2003. The evaluation of the two
     reporting units revealed no impairment exposure.

     ASSET RETIREMENT OBLIGATIONS

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

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

     ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

     In August 2001, the Financial Accounting Standards Board (the "FASB")
     issued SFAS No. 144. This standard supersedes SFAS No. 121 and the
     provisions of Accounting Principles Board ("APB") Opinion No. 30,
     "Reporting the Results of Operations-Reporting the Effects of Disposal of a
     Segment of a Business, and Extraordinary, Unusual and Infrequently
     Occurring Events and Transactions" with regard to reporting the effects of
     a disposal of a segment of a business. SFAS No. 144 establishes a single
     accounting model for assets to be disposed of by sale and addresses several
     SFAS No. 121 implementation issues. The Company adopted SFAS No. 144
     effective January 1, 2002, without any impact on its 2002 financial
     statements.




                                       9
<PAGE>
     EXTINGUISHMENTS OF DEBT AND ACCOUNTING FOR CERTAIN CAPITAL LEASE
     OBLIGATIONS

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
     Corrections." For most companies, SFAS No. 145 requires gain and losses on
     extinguishments of debt to be classified as income or loss from continuing
     operations rather than as extraordinary items as previously required under
     SFAS No. 4. However, extraordinary treatment is required for certain
     extinguishments as provided in APB Opinion No. 30. This statement also
     amends SFAS No. 13 to require that certain modifications to capital leases
     be treated as sale-leaseback transactions and modifies the accounting for
     sub-leases. In addition, the FASB rescinded SFAS No. 44, which addressed
     the accounting for intangible assets of motor carriers and made numerous
     technical corrections that are not substantive in nature to existing
     pronouncements. The Company evaluated the impact of the adoption of SFAS
     No. 145 and concluded that there is no material effect on its results of
     operations and financial condition.

     ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

     In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
     Associated with Exit or Disposal Activities." This statement addresses
     financial accounting and reporting for costs associated with exit or
     disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue
     No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
     and Other costs to Exit an Activity (including Certain Costs Incurred in
     Restructuring)." EITF Issue No. 94-3 previously required that a liability
     related to exit and disposal activities be recognized at the date of a
     company's commitment to an exit plan. By contrast, SFAS No. 146 requires
     that a liability for a cost associated with an exit or disposal activity be
     recognized when the liability is incurred. The provisions of this statement
     are effective for exit or disposal activities that are initiated after
     December 31, 2002. The Company evaluated the impact of the adoption of SFAS
     No. 146 and concluded that there is no a material effect on its results of
     operations and financial condition.

     AMENDMENTS OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
     ACTIVITIES

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

     ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
     LIABILITIES AND EQUITY

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

     ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES

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



                                       10
<PAGE>

5.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of:

<Table>
<Caption>

                                                   REMAINING USEFUL
                                                      LIVES (YEARS)
                                                 ----------------------   SEPTEMBER 30,  DECEMBER 31,
                                                 CURRENT       PREVIOUS       2003           2002
                                                 -------       --------   -------------  ------------
                                                                  (in thousands)

<S>                                              <C>            <C>       <C>            <C>
Outside plant                                        8.5            8.9   $  2,077,498   $  2,039,412
Central office and transmission equipment            4.1            4.7      1,356,459      1,297,454
Equipment and other                                  3.2            3.0        354,007        349,832
Buildings                                           14.3           21.5        313,535        314,345
Land                                                 N/A            N/A         26,427         27,541
                                                                          ------------   ------------
     Gross plant in service                                                  4,127,926      4,028,584
Less: accumulated depreciation                                               2,600,300      2,568,380
                                                                          ------------   ------------
     Net plant in service                                                    1,527,626      1,460,204
Construction in progress                                                        45,285        115,130
                                                                          ------------   ------------
     Total                                                                $  1,572,911   $  1,575,334
                                                                          ============   ============
</Table>

     Effective July 1, 2002, the Company revised its accounting estimates
     relating to depreciation, based on a detailed review of the lives
     underlying the depreciation rates. The depreciation rate revisions reflect
     expected useful lives resulting from the impact of technology and future
     competition as well as more closely approximating the assumptions used by
     other telephone companies. These revisions resulted in a decrease in
     depreciation expense by approximately $6 million for the second half of
     2002 and approximately $9 million for the nine months ended September 30,
     2003.

6.   GOODWILL

     Following is a breakdown of goodwill.

<Table>
<Caption>
                                      CARRYING VALUE
                               -----------------------------
                               SEPTEMBER 30,   DECEMBER 31,
                                   2003            2002
                               -------------   -------------
                                       (in thousands)

<S>                            <C>             <C>
Wireline (PRTC)                $     102,731   $     102,731
Dial-up Internet (Coqui.net)          24,196          24,196
                               -------------   -------------
       Total                   $     126,927   $     126,927
                               =============   =============
</Table>



                                       11
<PAGE>

7.   INTANGIBLES

     Intangibles consist of:

<Table>
<Caption>

                        SEPTEMBER 30,  DECEMBER 31,
                           2003            2002
                        -------------  ------------
                              (in thousands)

<S>                     <C>            <C>
Indefinite Life         $    108,975   $    108,975
Definite Life                 75,822         71,873
                        ------------   ------------
    Total Intangibles   $    184,797   $    180,848
                        ============   ============
</Table>


<Table>
<Caption>
                                    CARRYING VALUE
                             -----------------------------
                              SEPTEMBER 30,  DECEMBER 31,
                                  2003           2002
                             -------------   -------------
                                  (in thousands)
<S>                          <C>             <C>
INDEFINITE LIFE:
Wireline concession          $      85,120   $      85,120
FCC Cellular licenses               23,855          23,855
                             -------------   -------------
     Total Indefinite Life   $     108,975   $     108,975
                             =============   =============
</Table>

<Table>
<Caption>

                                        SEPTEMBER 30, 2003                          DECEMBER 31, 2002
                           ------------------------------------------   ------------------------------------------
                                                              (in thousands)

DEFINITE LIFE:                COST         ACC. AMORT    BOOK VALUE         COST       ACC. AMORT     BOOK  VALUE
                           ------------   ------------   ------------   ------------   ------------   ------------
<S>                        <C>            <C>            <C>            <C>            <C>            <C>
Wireline trade name        $     48,400   $      8,934   $     39,466   $     48,400   $      7,417   $     40,983
Software licenses                58,241         22,109         36,132         45,708         15,525         30,183
Customer base                    15,544         15,320            224         15,544         14,837            707
Other                               500            500             --            500            500             --
                           ------------   ------------   ------------   ------------   ------------   ------------
     Total Definite Life   $    122,685   $     46,863   $     75,822   $    110,152   $     38,279   $     71,873
                           ============   ============   ============   ============   ============   ============

</Table>

8.   OTHER ASSETS

     Other assets consist of:

<Table>
<Caption>

                                             SEPTEMBER 30,  DECEMBER 31,
                                                2003            2002
                                             ------------   ------------
                                                  (in thousands)

<S>                                          <C>            <C>
Deferred activation and installation costs   $     72,760   $     65,351
Notes receivable-equipment sales                   10,490         15,396
Deferred pension asset                             20,646         20,646
Deferred financing costs, net                       3,355          3,970
Other deferred costs                                4,624          5,288
Interest rate swap                                  4,749          2,883
Investment in Verizon Information Services            561          4,823
Other assets                                        1,910            979
                                             ------------   ------------
     Total                                   $    119,095   $    119,336
                                             ============   ============
</Table>



                                       12
<PAGE>

9.   VOLUNTARY SEPARATION AND RETIREMENT PROGRAMS

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

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

10.  DEFERRED ESOP COMPENSATION

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

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

11.  OTHER CURRENT LIABILITIES

     Other current liabilities consist of:

<Table>
<Caption>

                            SEPTEMBER 30,  DECEMBER 31,
                               2003           2002
                            -------------  ------------
                                  (in thousands)

<S>                         <C>            <C>
Accounts payable            $     21,404   $     80,137
Accrued expenses                 112,698         86,078
Employee benefit accruals         68,724         39,954
Carrier payables                  49,796         46,540
Taxes                             16,417          8,622
Interest                          18,152          6,703
                            ------------   ------------
     Total                  $    287,191   $    268,034
                            ============   ============
</Table>



                                       13
<PAGE>

12.  DEBT

     Debt consists of:

<Table>
<Caption>

                                                       SEPTEMBER 30,  DECEMBER 31,
                                                          2003            2002
                                                       -------------  ------------
                                                             (in thousands)
<S>                                                    <C>            <C>
Senior notes
   Due May 15, 2006 at 6.65%                           $    399,937   $    399,921
   Due May 15, 2009 at 6.80%                                299,893        299,881
Term credit facilities:
   Due May 16, 2004 at 70 basis points over LIBOR            30,000         50,000
   Due May 31, 2004 at 60 basis points over LIBOR            38,000         50,000
   Due June 24, 2005 at 100 basis points over LIBOR          50,000         50,000
   Due August 19, 2005 at 70 basis points over LIBOR         63,000         75,000
Commercial paper                                                 --         57,700
Working capital credit facility                                  --         40,000
Deferred derivative                                           7,008          9,018
Interest rate swap                                            4,749          2,883
Capital leases                                                  436            564
                                                       ------------   ------------
     Total                                                  893,023      1,034,967
Less short-term debt                                         68,105         97,932
                                                       ------------   ------------
     Long-term debt                                    $    824,918   $    937,035
                                                       ============   ============
</Table>

     The senior notes, commercial paper, term credit facilities, working capital
     facility, and bank notes are unsecured and non-amortizing. PRTC is the
     guarantor of these debt instruments.

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

     The Company also has a $40 million working capital credit facility with
     Banco Popular de Puerto Rico, an affiliate of Popular, Inc., which was
     renewed on June 30, 2003 with a term of one year. Amounts outstanding under
     this facility bear interest at a rate of 30 basis points over LIBOR. At
     September 30, 2003, the Company did not have a balance outstanding under
     this facility.

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





                                       14
<PAGE>


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

<Table>
<Caption>
                                          AMOUNT
                                      -------------
                                      (in thousands)

<S>                                   <C>
2004                                  $      68,000
2005                                        113,000
2006                                        400,000
2009                                        300,000
                                      -------------
  Total                               $     881,000
                                      =============
</Table>


13.  OTHER NON-CURRENT LIABILITIES

     Other non-current liabilities consist of:

<Table>
<Caption>
                                                SEPTEMBER 30,  DECEMBER 31,
                                                    2003           2002
                                                -------------  ------------
                                                      (in thousands)

<S>                                             <C>            <C>
Deferred activation and installation revenues   $     72,760   $     65,351
Deferred directory-publishing revenues                10,654             --
Customer deposits                                     27,317         27,490
Other liabilities                                    119,945         53,793
                                                ------------   ------------
     Total                                      $    230,676   $    146,634
                                                ============   ============
</Table>


14.  SHAREHOLDERS' EQUITY

     COMMON STOCK

     Common stock consists of fifty million authorized shares, no par value,
     twenty five million shares of which were outstanding at September 30, 2003
     and December 31, 2002.

     SUBSCRIPTION RECEIVABLE

     The subscription receivable reflects future receipts from PRTA at its
     present value, using an 8% discount rate. As part of the Acquisition
     agreement, PRTA agreed to contribute a total of $200 million in cash or
     stock as a capital contribution in equal installments of $40 million over
     five years beginning on March 2, 2000. The Company will use the $200
     million capital contribution to partially fund its underfunded pension and
     other post-employment benefit obligations. The stock purchase agreement
     requires that the Company contribute $66 million, which includes the $40
     million received from PRTA, to the pension plan immediately upon receipt of
     the proceeds each year. The Company received the fourth $40 million
     installment in March 2003 and made the required pension payment of $66
     million.

     ACCUMULATED OTHER COMPREHENSIVE LOSS

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

     The accumulated other comprehensive loss amount as of December 31, 2002 has
     been adjusted in the amount of $57.6 million in order to reflect the
     after-tax amount in accordance with the provisions of SFAS No. 130,
     "Reporting Comprehensive Income."



                                       15
<PAGE>

     DIVIDENDS

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

     Dividend payments were made in the following periods:

<Table>
<Caption>
                      2003                            2002
                      ----                            ----
                 (in thousands)                  (in thousands)
<S>                         <C>           <C>               <C>
           4th Quarter      $      --     4th Quarter       $   15,926
           3rd Quarter             --     3rd Quarter           40,301
           2nd Quarter         68,125     2nd Quarter           11,502
           1st Quarter             --     1st Quarter            1,107
                            ---------                       ----------
             Total          $  68,125       Total           $   68,836
                            =========                       ==========
</Table>

     In March 2003, the Company declared a $17.8 million dividend for the fourth
     quarter of 2002, which was paid in the second quarter of 2003. In addition,
     in the second quarter of 2003, the Company paid a $50.3 million dividend
     for the first quarter of 2003. The senior note indentures and credit
     facility agreements do not contain any dividend restrictions.

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<Table>
<Caption>

                                                           SEPTEMBER 30,                DECEMBER 31,
                                                               2003                        2002
                                                   ----------------------------- ----------------------------
                                                    Carrying      Estimated Fair   Carrying    Estimated Fair
                                                     Amount          Value          Amount          Value
                                                   ------------   -------------- ------------  --------------
                                                                         (in thousands)
<S>                                                <C>            <C>            <C>            <C>
Assets:
    Cash and cash equivalents                      $     24,303   $     24,303   $     33,667   $     33,667
    Accounts receivable                                 347,942        347,942        343,519        343,519
Liabilities:
    Other current liabilities                      $    287,191   $    287,191   $    268,034   $    268,034
    Short-term debt                                      68,105         68,105         97,932         97,932
    Long-term debt, including interest rate swap        824,918        902,241        937,035        984,233

</Table>



                                       16
<PAGE>

16.  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 the Company's 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 service; and

     o    Wireless equipment sales.

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



                                       17
<PAGE>

Segment results for the Company are as follow:

<Table>
<Caption>

                                          FOR THE THREE MONTHS ENDED      FOR THE NINE MONTHS ENDED
                                                 SEPTEMBER 30,                   SEPTEMBER 30,
                                             2003            2002           2003              2002
                                         ------------    ------------    ------------    ------------
                                                                (in thousands)
<S>                                      <C>             <C>             <C>             <C>
WIRELINE:
  Revenues-
    Local services                       $    144,602    $    147,099    $    439,524    $    436,819
    Long distance services                     35,721          37,059         104,490         112,308
    Access services                            63,997          81,547         225,158         248,862
    Directory services and other               16,954          10,530          49,129          46,834
                                         ------------    ------------    ------------    ------------
  Total revenues                         $    261,274    $    276,235    $    818,301    $    844,823
                                         ============    ============    ============    ============

  Operating income                       $    (28,082)   $     59,788    $     62,908    $    182,968
                                         ============    ============    ============    ============

WIRELESS:
  Revenues-
     Cellular services                   $     46,519    $     43,112    $    140,661    $    128,928
     Paging services                              223           1,081           1,026           4,367
     Equipment sales and other                  3,525           1,373           9,400           5,100
                                         ------------    ------------    ------------    ------------
  Total revenues                         $     50,267    $     45,566    $    151,087    $    138,395
                                         ============    ============    ============    ============

  Operating income                       $     (2,538)   $       (525)   $     (5,155)   $     (1,322)
                                         ============    ============    ============    ============

CONSOLIDATED:
  Revenues for reportable segments       $    311,541    $    321,801    $    969,388    $    983,218
  Elimination of intersegment revenues         (2,705)         (3,393)         (8,443)        (10,727)
                                         ------------    ------------    ------------    ------------
  Consolidated revenues                  $    308,836    $    318,408    $    960,945    $    972,491
                                         ============    ============    ============    ============

  Operating income                       $    (30,620)   $     59,263    $     57,753    $    181,646
                                         ============    ============    ============    ============
</Table>

<Table>
<Caption>

                                         AS OF           AS OF
                                     SEPTEMBER 30,    DECEMBER 31,
          ASSETS                         2003             2002
----------------------------------   -------------    -------------
                                             (in thousands)

<S>                                  <C>              <C>
Wireline assets                      $   2,706,665    $   2,645,088

Wireless assets                            296,531          290,891
                                     -------------    -------------

Segment assets                       $   3,003,196    $   2,935,979

Elimination of intersegment assets        (285,345)        (218,582)
                                     -------------    -------------

Consolidated assets                  $   2,717,851    $   2,717,397
                                     =============    =============
</Table>





                                       18
<PAGE>

17.  CONDENSED CONSOLIDATING INFORMATION

     The following summarizes the unaudited condensed consolidating financial
     information as of September 30, 2003 and December 31, 2002 and for the
     quarters then ended presents the financial position, results of operations
     and cash flows of (i) the Company as if it had accounted for its
     subsidiaries using the equity method, (ii) the Guarantor Subsidiary (as
     defined below); and (iii) the Non-Guarantor Subsidiaries (as defined below)
     on a combined basis. The consolidation entries eliminate investments in
     subsidiaries and intercompany balances and transactions.

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




                                       19
<PAGE>

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                               September 30, 2003
                                 (in thousands)
<Table>
<Caption>

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

CURRENT ASSETS:
     Cash and cash equivalents               $        25    $      18,212    $       6,066    $          --    $      24,303
     Intercompany accounts receivable          1,098,186           79,848           34,785       (1,212,819)              --
     Accounts receivable, net                         --          347,881               59                2          347,942
     Deferred income tax                              --           27,820               --               --           27,820
     Inventory and supplies, net                      --           13,905               --               --           13,905
     Prepaid expenses                                 --           27,681            1,138               --           28,819
                                             -----------    -------------    -------------    -------------    -------------
         Total current assets                  1,098,211          515,347           42,048       (1,212,817)         442,789
PROPERTY, PLANT AND EQUIPMENT, net                    --        1,560,509           12,402               --        1,572,911
GOODWILL AND OTHER INTANGIBLES, net                   --          286,770           24,954               --          311,724
DEFERRED INCOME TAX                                   --          271,420              (88)              --          271,332
INVESTMENT IN SUBSIDIARIES                       574,207               --               --         (574,207)              --
OTHER ASSETS                                      16,651          112,807               (1)         (10,362)         119,095
                                             -----------    -------------    -------------    -------------    -------------
TOTAL ASSETS                                 $ 1,689,069    $   2,746,853    $      79,315    $  (1,797,386)   $   2,717,851
                                             ===========    =============    =============    =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Short-term debt                        $    68,000    $      68,105    $          --    $     (68,000)   $      68,105
      Intercompany accounts payable               74,015          237,326           24,002         (335,343)              --
      Other current liabilities                   18,398          261,986            6,808               (1)         287,191
                                             -----------    -------------    -------------    -------------    -------------
         Total current liabilities               160,413          567,417           30,810         (403,344)         355,296
LONG-TERM DEBT, excluding current portion        824,586          813,161               --         (812,829)         824,918
OTHER -NON CURRENT LIABILITIES                        --          827,891               --           (7,007)         820,884
                                             -----------    -------------    -------------    -------------    -------------
TOTAL LIABILITIES                                984,999        2,208,469           30,810       (1,223,180)       2,001,098
                                             -----------    -------------    -------------    -------------    -------------

MINORITY INTEREST                                     --               --               --           12,683           12,683
                                             -----------    -------------    -------------    -------------    -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
    Common stock, Additional paid in
       capital and Treasury stock                703,270          485,590           41,143         (526,733)         703,270
    Deferred ESOP compensation                   (27,408)              --               --               --          (27,408)
    Subscription receivable                      (38,774)              --               --               --          (38,774)
    Retained earnings (deficit)                  157,164          142,976            7,362         (150,338)         157,164
    Accumulated other comprehensive loss         (90,182)         (90,182)              --           90,182          (90,182)
                                             -----------    -------------    -------------    -------------    -------------
          Total shareholders' equity             704,070          538,384           48,505         (586,889)         704,070
                                             -----------    -------------    -------------    -------------    -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 1,689,069    $   2,746,853    $      79,315    $  (1,797,386)   $   2,717,851
                                             ===========    =============    =============    =============    =============
</Table>



                                       20
<PAGE>

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

<Table>
<Caption>

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

CURRENT ASSETS:
     Cash and cash equivalents                 $         1    $       27,009    $        6,657    $           --    $       33,667
     Intercompany accounts receivable            1,187,799           196,889            21,694        (1,406,382)               --
     Accounts receivable, net                           --           343,307               212                --           343,519
     Deferred income tax                                --            23,474                28                --            23,502
     Inventory and supplies, net                        --            18,039                --                --            18,039
     Prepaid expenses                                   --            10,467               409                --            10,876
                                               -----------    --------------    --------------    --------------    --------------
         Total current assets                    1,187,800           619,185            29,000        (1,406,382)          429,603
PROPERTY, PLANT AND EQUIPMENT, net                      --         1,561,866            13,468                --         1,575,334
GOODWILL AND OTHER INTANGIBLES, net                     --           282,393            25,382                --           307,775
DEFERRED INCOME TAX                                     --           285,291                58                --           285,349
INVESTMENT IN SUBSIDIARIES                         574,833                --                --          (574,833)               --
OTHER ASSETS                                        16,187           116,138                (1)          (12,988)          119,336
                                               -----------    --------------    --------------    --------------    --------------
TOTAL ASSETS                                   $ 1,778,820    $    2,864,873    $       67,907    $   (1,994,203)   $    2,717,397
                                               ===========    ==============    ==============    ==============    ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

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



                                       21
<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                  For the three months ended September 30, 2003
                                 (in thousands)

<Table>
<Caption>

                                                           GUARANTOR       NON-GUARANTOR                       TOTAL
                                              PARENT       SUBSIDIARY      SUBSIDIARIES    ELIMINATIONS     CONSOLIDATED
                                             ---------    -------------    -------------   -------------    -------------
<S>                                          <C>          <C>              <C>             <C>              <C>
REVENUES:
  Local services                             $      --    $     137,682    $       7,787   $      (3,084)   $     142,385
  Long distance services                            --           25,979            9,627             (26)          35,580
  Access services                                   --           65,385               --          (1,688)          63,697
  Cellular services                                 --           46,295               --              --           46,295
  Paging services                                   --              223               --              --              223
  Directory and other services and sales            --           22,745               --          (2,089)          20,656
                                             ---------    -------------    -------------   -------------    -------------
        Total revenues                              --          298,309           17,414          (6,887)         308,836
                                             ---------    -------------    -------------   -------------    -------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                --           99,634              794              --          100,428
  Other operating expenses                          --          168,886           13,178          (6,887)         175,177
  Depreciation and amortization                     --           63,106              745              --           63,851
                                             ---------    -------------    -------------   -------------    -------------
        Total operating costs and expenses          --          331,626           14,717          (6,887)         339,456
                                             ---------    -------------    -------------   -------------    -------------

OPERATING (LOSS) INCOME                             --          (33,317)           2,697              --          (30,620)
                                             ---------    -------------    -------------   -------------    -------------

OTHER INCOME (EXPENSE), net                    (29,707)         (18,379)              92          29,350          (18,644)
                                             ---------    -------------    -------------   -------------    -------------

INCOME BEFORE INCOME TAX EXPENSE               (29,707)         (51,696)           2,789          29,350          (49,264)

INCOME TAX EXPENSE                                  --          (20,898)           1,341              --          (19,557)
                                             ---------    -------------    -------------   -------------    -------------

NET INCOME (LOSS)                            $ (29,707)   $     (30,798)   $       1,448   $      29,350    $     (29,707)
                                             =========    =============    =============   =============    =============
</Table>


                                       22
<PAGE>




                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                  For the three months ended September 30, 2002
                                 (in thousands)

<Table>
<Caption>
                                                               GUARANTOR     NON-GUARANTOR                      TOTAL
                                               PARENT         SUBSIDIARY     SUBSIDIARIES    ELIMINATIONS    CONSOLIDATED
                                             ------------    ------------    -------------   ------------    ------------
<S>                                          <C>             <C>             <C>             <C>             <C>
REVENUES:
  Local services                             $         --    $    141,359    $      6,467    $     (2,318)   $    145,508
  Long distance services                               --          27,600           9,469            (147)         36,922
  Access services                                      --          82,980              --          (2,799)         80,181
  Cellular services                                    --          43,112              --            (393)         42,719
  Paging services                                      --           1,081              --              (1)          1,080
  Directory and other services and sales               --          15,080              --          (3,082)         11,998
                                             ------------    ------------    ------------    ------------    ------------
        Total revenues                                 --         311,212          15,936          (8,740)        318,408
                                             ------------    ------------    ------------    ------------    ------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                   --          90,419             535              --          90,954
  Other operating expenses                         (1,860)        104,576          10,388          (8,740)        104,364
  Depreciation and amortization                        --          63,139             688              --          63,827
                                             ------------    ------------    ------------    ------------    ------------
        Total operating costs and expenses         (1,860)        258,134          11,611          (8,740)        259,145
                                             ------------    ------------    ------------    ------------    ------------

OPERATING INCOME                                    1,860          53,078           4,325              --          59,263

OTHER INCOME (EXPENSE), NET                        29,992         (10,248)             (8)        (30,439)        (10,703)
                                             ------------    ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAX EXPENSE                   31,852          42,830           4,317         (30,439)         48,560

INCOME TAX EXPENSE                                     --          14,949           1,759              --          16,708
                                             ------------    ------------    ------------    ------------    ------------

NET INCOME                                   $     31,852    $     27,881    $      2,558    $    (30,439)   $     31,852
                                             ============    ============    ============    ============    ============
</Table>




                                       23
<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                  For the nine months ended September 30, 2003
                                 (in thousands)

<Table>
<Caption>

                                                               GUARANTOR       NON-GUARANTOR                        TOTAL
                                                   PARENT      SUBSIDIARY      SUBSIDIARIES    ELIMINATIONS     CONSOLIDATED
                                                  ---------   -------------    -------------   -------------    -------------
<S>                                               <C>         <C>              <C>             <C>              <C>
REVENUES:
  Local services                                  $      --   $     420,479    $      22,117   $      (7,673)   $     434,923
  Long distance services                                 --          75,777           26,572             (89)         102,260
  Access services                                        --         227,412               --          (3,986)         223,426
  Cellular services                                      --         140,324               --              --          140,324
  Paging services                                        --           1,026               --              --            1,026
  Directory and other services and sales                 --          63,912               --          (4,926)          58,986
                                                  ---------   -------------    -------------   -------------    -------------
        Total revenues                                   --         928,930           48,689         (16,674)         960,945
                                                  ---------   -------------    -------------   -------------    -------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                     --         301,054            2,386              --          303,440
  Other operating expenses                               --         391,376           33,220         (16,674)         407,922
  Voluntary separation and retirement provision          --           4,700               --              --            4,700
  Depreciation and amortization                          --         184,933            2,197              --          187,130
                                                  ---------   -------------    -------------   -------------    -------------
        Total operating costs and expenses               --         882,063           37,803         (16,674)         903,192
                                                  ---------   -------------    -------------   -------------    -------------

OPERATING INCOME                                         --          46,867           10,886              --           57,753

OTHER INCOME (EXPENSE), net                          69,500         (41,037)             186         (70,687)         (42,038)
                                                  ---------   -------------    -------------   -------------    -------------

INCOME BEFORE INCOME TAX EXPENSE                     69,500           5,830           11,072         (70,687)          15,715

INCOME TAX EXPENSE                                       --             215            4,529              --            4,744
                                                  ---------   -------------    -------------   -------------    -------------

INCOME BEFORE CUMULATIVE EFFECT                      69,500           5,615            6,543         (70,687)          10,971

CUMULATIVE EFFECT OF ACCOUNTING CHANGES                  --          58,529               --              --           58,529
                                                  ---------   -------------    -------------   -------------    -------------

NET INCOME                                        $  69,500   $      64,144    $       6,543   $     (70,687)   $      69,500
                                                  =========   =============    =============   =============    =============
</Table>



                                       24
<PAGE>



                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                  For the nine months ended September 30, 2002
                                 (in thousands)

<Table>
<Caption>

                                                          GUARANTOR        NON-GUARANTOR                         TOTAL
                                              PARENT      SUBSIDIARY       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                             ---------    -------------    -------------    -------------    -------------
<S>                                          <C>          <C>              <C>              <C>              <C>
REVENUES:
  Local services                             $      --    $     420,222    $      18,879    $      (7,148)   $     431,953
  Long distance services                            --           98,350           13,972             (415)         111,907
  Access services                                   --          252,533               --           (8,215)         244,318
  Cellular services                                 --          128,928               --           (1,208)         127,720
  Paging services                                   --            4,367               --               --            4,367
  Directory and other services and sales            --           61,746               --           (9,520)          52,226
                                             ---------    -------------    -------------    -------------    -------------
        Total revenues                              --          966,146           32,851          (26,506)         972,491
                                             ---------    -------------    -------------    -------------    -------------

OPERATING COSTS AND EXPENSES:
  Labor and benefits                                --          277,950            1,643               --          279,593
  Other operating expenses                      (1,860)         321,754           21,063          (26,506)         314,451
  Depreciation and amortization                     --          194,579            2,222               --          196,801
                                             ---------    -------------    -------------    -------------    -------------
        Total operating costs and expenses      (1,860)         794,283           24,928          (26,506)         790,845
                                             ---------    -------------    -------------    -------------    -------------

OPERATING INCOME                                 1,860          171,863            7,923               --          181,646
                                             ---------    -------------    -------------    -------------    -------------

OTHER INCOME (EXPENSE), NET                    133,598          (34,798)              (9)        (134,705)         (35,914)
                                             ---------    -------------    -------------    -------------    -------------

INCOME BEFORE INCOME TAX EXPENSE               135,458          137,065            7,914         (134,705)         145,732

INCOME TAX EXPENSE                                  --            6,976            3,298               --           10,274
                                             ---------    -------------    -------------    -------------    -------------

NET INCOME                                   $ 135,458    $     130,089    $       4,616    $    (134,705)   $     135,458
                                             =========    =============    =============    =============    =============
</Table>



                                       25
<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                  For the nine months ended September 30, 2003
                                 (in thousands)


<Table>
<Caption>

                                                                                  GUARANTOR       NON-GUARANTOR       TOTAL
                                                                     PARENT      SUBSIDIARY        SUBSIDIARIES    CONSOLIDATED
                                                                    ---------    -------------    -------------    -------------
<S>                                                                 <C>          <C>              <C>              <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                     $    (201)   $          46    $     264,222    $     264,067
                                                                    ---------    -------------    -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs                           --             (402)        (109,657)        (110,059)
   Net salvage on retirements                                              --             (235)             787              552
   Proceeds from sales of building                                         --               --            6,000            6,000
                                                                    ---------    -------------    -------------    -------------
              Net cash used in investing activities                        --             (637)        (102,870)        (103,507)
                                                                    ---------    -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                                40,000               --               --           40,000
   Net (repayments) of short-term debt, including
    capital leases                                                   (141,672)              --             (127)        (141,799)
   Dividends paid                                                     (68,125)              --               --          (68,125)
   Borrowings/(repayments) intercompany loans                         170,022               --         (170,022)              --
                                                                    ---------    -------------    -------------    -------------
              Net cash provided by (used in) financing activities         225               --         (170,149)        (169,924)
                                                                    ---------    -------------    -------------    -------------

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS                                                                24             (591)          (8,797)          (9,364)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                                 1            6,657           27,009           33,667
                                                                    ---------    -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $      25    $       6,066    $      18,212    $      24,303
                                                                    =========    =============    =============    =============
</Table>



                                       26
<PAGE>

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                  For the nine months ended September 30, 2002
                                 (in thousands)

<Table>
<Caption>

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

<S>                                                                 <C>          <C>              <C>              <C>
CASH PROVIDED BY OPERATING ACTIVITIES:                              $  11,294    $     235,449    $       3,628    $     250,371
                                                                    ---------    -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, including removal costs                           --         (132,128)          (3,558)        (135,686)
   Net salvage on retirements                                              --            1,910             (265)           1,645
                                                                    ---------    -------------    -------------    -------------
              Net cash used in investing activities                        --         (130,218)          (3,823)        (134,041)
                                                                    ---------    -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Capital contribution                                                40,000               --               --           40,000
   Net repayments of short-term debt, including
      capital leases                                                 (339,071)            (146)              --         (339,217)
   Borrowings of long-term debt                                       225,000               --               --          225,000
   Dividends paid                                                     (52,910)              --               --          (52,910)
   Borrowings/(repayments) intercompany loans                         117,783         (117,783)              --               --
                                                                    ---------    -------------    -------------    -------------
              Net cash provided by (used in) financing activities      (9,198)        (117,929)              --         (127,127)
                                                                    ---------    -------------    -------------    -------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                                        2,096          (12,698)            (195)         (10,797)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                                --           32,591            2,206           34,797
                                                                    ---------    -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $   2,096    $      19,893    $       2,011    $      24,000
                                                                    =========    =============    =============    =============
</Table>


                                       27
<PAGE>


18. CONTINGENCIES AND REGULATORY AND OTHER MATTERS

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

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

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

    The Company has an agreement with a provider for the implementation of a
    traffic polling and billing software system for its wireline operations.
    While the traffic polling portion has been implemented, management has
    determined that it is in the Company's best interests to abandon the billing
    portion of the software system. The amount of capitalized costs for software
    and labor related to the billing portion of $32.3 million was written off
    and included in operating expenses during the second quarter of 2003.
    Management is currently in discussions with the provider of the system and
    seeking a satisfactory resolution of this matter.

    In September 2003, the Company established a pre-tax reserve of $73 million,
    including interest, for the end-user and AT&T refund referred to in the TRB
    Resolution and Order of February 28, 2002. See "Management's Discussion and
    Analysis of Financial Condition and Results of Operations - Regulatory and
    Other Matters - Intra-Island Long Distance Access Rate Dispute" for more
    information regarding the TRB Resolution and Order of February 28, 2002.



                                       28
<PAGE>

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

CRITICAL ACCOUNTING POLICIES

GENERAL

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

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

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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



                                       29
<PAGE>

DEFERRED TAXES

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

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

         As discussed in Note 1 to the condensed consolidated financial
statements, on May 1, 2002, the Company completed a tax-free reorganization
whereby it merged Verizon Wireless into PRTC. As a result of this merger, the
Company released a deferred tax valuation allowance related to the Acquisition
of approximately $93 million, approximately $51 million of which was recorded
against goodwill and approximately $42 million of which was recorded as a
deferred tax benefit in the Company's consolidated statement of income during
the second quarter of 2002 in accordance with SFAS No. 109. Management believes
that sufficient book and tax income will be generated by the merged company to
realize the benefits of these tax assets.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

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

         The Company's depreciation expense is based on the composite group
remaining life method and straight-line composite rates. This method provides
for the recognition of the cost of the remaining net investment in telephone
plant over the remaining asset lives. This method also requires a periodic
evaluation of the average remaining useful lives related to the expected
recoverability of the carrying value of assets based on changes in technology,
environmental factors, the federal and local regulatory environment, and other
competitive forces. Effective July 1, 2002, the Company revised its accounting
estimates relating to depreciation based on a detailed review of the lives
underlying the depreciation rates. The depreciation rate revisions reflect
expected useful lives resulting from the impact of technology and future
competition as well as more closely approximating the assumptions used by other
telephone companies. These revisions resulted in a decrease in depreciation
expense by approximately $9 million for the nine months ended September 30, 2002
and approximately $9 million for the nine months ended September 30, 2003. See
Note 5 to the condensed consolidated financial statements for further details.






                                       30
<PAGE>

RESULTS OF OPERATIONS

         The Company has two reportable segments, Wireline and Wireless. See
Note 16 to the condensed consolidated financial statements for additional
information on the Company's segments. Reclassifications of prior years' data
have been made to conform to the 2003 presentation.

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

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

         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 services; and

         o        Wireless equipment sales.





                                       31
<PAGE>

REVENUES

<Table>
<Caption>

                              THREE MONTHS ENDED SEPTEMBER 30,                NINE MONTHS ENDED SEPTEMBER 30,
                      ----------------------------------------------    ----------------------------------------------
                                2003                   2002                     2003                      2002
                      ---------------------    ---------------------    ---------------------    ---------------------
                                   (DOLLARS IN MILLIONS)                        (DOLLARS IN MILLIONS)
<S>                   <C>         <C>          <C>         <C>          <C>         <C>          <C>         <C>
WIRELINE:
Local                 $     142          46%   $     145          46%   $     435          45%   $     432          44%
Long Distance                36          12           37          12          102          11          112          12
Network Access               64          21           80          25          223          23          244          25
Directory and Other          17           6           11           3           50           5           47           5
                      ---------   ---------    ---------   ---------    ---------   ---------    ---------   ---------

   Total Wireline           259          84%         273          86%         810          84%         835          86%
                      ---------   ---------    ---------   ---------    ---------   ---------    ---------   ---------

WIRELESS:
Postpaid Cellular            40          13           37          12          121          13          109          11
Prepaid Cellular              6           2            6           2           20           2           19           2
                      ---------   ---------    ---------   ---------    ---------   ---------    ---------   ---------
   Total Cellular            46          15           43          14          141          15          128          13
Paging                       --          --            1          --            1          --            4          --
Wireless Equipment            4           1            1          --            9           1            5           1
                      ---------   ---------    ---------   ---------    ---------   ---------    ---------   ---------

  Total Wireless             50          16%          45          14%         151          16%         137          14%
                      ---------   ---------    ---------   ---------    ---------   ---------    ---------   ---------

  Revenues            $     309         100%   $     318         100%   $     961         100%   $     972         100%
                      =========   =========    =========   =========    =========   =========    =========   =========
</Table>

EXPENSES AND CHARGES

<Table>
<Caption>
                                                     THREE MONTHS ENDED             NINE MONTHS ENDED
                                                        SEPTEMBER 30,                 SEPTEMBER 30,
                                                ----------------------------    ----------------------------
                                                   2003             2002            2003           2002
                                                ------------    ------------    ------------    ------------
                                                    (DOLLARS IN MILLIONS)        (DOLLARS IN MILLIONS)
<S>                                             <C>             <C>             <C>             <C>
WIRELINE:

Labor and benefits                              $         93    $         83    $        280    $        256
Other operating expenses                                 146              80             320             240
                                                ------------    ------------    ------------    ------------
   Total Wireline                                        239             163             600             496

WIRELESS:

Labor and benefits                                         8               8              24    $         24
Other operating expenses                                  29              24              87              74
                                                ------------    ------------    ------------    ------------
   Total Wireless                                         37              32             111              98
                                                ------------    ------------    ------------    ------------

OPERATING COSTS AND EXPENSES                             276             195             711             594
                                                ------------    ------------    ------------    ------------

OTHER:

Voluntary separation and retirement provision             --              --               5    $         --
Depreciation and amortization                             64              64             187             197
Interest expense and others                               19              11              43              36
Equity income in joint venture                            (1)             (1)             (2)             (2)
Minority interest in consolidated subsidiary              --              --               1               1
Income tax (benefit) expense                             (19)             17               5              10
Cumulative effect of accounting change                    --              --             (59)             --
                                                ------------    ------------    ------------    ------------
Net income (Loss)                               $        (30)   $         32    $         70    $        136
                                                ============    ============    ============    ============
</Table>

OPERATING DATA

<Table>
<Caption>
                                                   THREE MONTHS ENDED           NINE MONTHS ENDED
                                                      SEPTEMBER 30,               SEPTEMBER 30,
                                             ---------------------------   ---------------------------
                                                  2003           2002          2003           2002
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
Access Lines in Service (000's):
    Residential                                       949            959            949            959
    Business                                          293            308            293            308
                                             ------------   ------------   ------------   ------------
Total                                               1,242          1,267          1,242          1,267

Cellular Customers (000's):
    Postpaid                                          237            219            237            219
    Prepaid                                           117            120            117            120
                                             ------------   ------------   ------------   ------------
Total                                                 354            339            354            339

Postpaid Cellular Average Revenue per Unit   $         51   $         52   $         52   $         53
(ARPU)
Prepaid Cellular ARPU                                  17             18             19             19
Combined Cellular ARPU                                 40             40             40             41
</Table>



                                       32
<PAGE>


QUARTER ENDED SEPTEMBER 30, 2003 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 2002

    REVENUES. Revenues for the quarter ended September 30, 2003 decreased $9
million, or 3%, to $309 million from $318 million for the same 2002 period.

    WIRELINE:

         Wireline revenues include revenues from local service, long distance,
network access, directory and other services. Wireline revenues for the quarter
ended September 30, 2003 decreased $14 million, or 6%, to $259 million from $273
million for the same 2002 period.

         Local service revenues include revenues from basic voice, telephone and
telecommunications equipment rental, value-added services, high-speed private
line services, Internet access, and public phone service. Local service revenues
for the quarter ended September 30, 2003 decreased $3 million, or 2%, to $142
million from $145 million for the same 2002 period. The decrease is due to
decreased revenues from local voice services. The decrease in revenues from
local voice services was driven by a decrease in revenues from measured services
of $3 million.

         Long distance revenues include direct dial on-island and off-island,
operator-assisted calls, prepaid calling cards and on-island private line
revenues. Long distance revenues decreased $1 million, or 3%, to $36 million for
the quarter from $37 million for the same 2002 period. The decrease was due to a
decrease in intra-island long distance revenues of $1 million. Intra-island long
distance revenues have decreased mainly due to customer traffic migration to the
cellular network and general economic conditions.

         Network access revenues include revenues from services provided to long
distance carriers, competitive local exchange carriers, and cellular and paging
operators to originate and terminate calls on the Company's network. These
revenues for the quarter decreased $16 million, or 20%, to $64 million compared
to $80 million for the same 2002 period. The decrease was driven by lower
intra-island access revenues of $4 million, a decrease in off-island switching
revenues of $7 million and lower carrier common line access revenues of $6
million that were partially offset by higher subscriber line charges of $1
million resulting from a rate increase in July 2002.

         Directory and other revenues include revenues from directory publishing
rights, telecommunications equipment rental and billing and collection services
to competitor long distance operators. Directory and other revenues for the
quarter ended September 30, 2003 increased $6 million, or 55%, to $17 million,
from $11 million for the quarter ended September 30, 2002. The increase was due
to an increase in revenues from directory publishing rights of $5 million
resulting from the change in the Company's method of accounting for revenues
from directory publishing rights from the point-of-publication method to the
amortization method and an increase of $1 million in wireline equipment sales.

    WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the quarter ended September 30, 2003 increased $5 million, or 12%, to $50
million from $45 million for the comparable 2002 period. Cellular service
revenues for the quarter ended September 30, 2003 increased $3 million, or 7%,
to $46 million from $43 million for the same 2002 period. The increase was
primarily the result of an increase of 15,000 cellular customers compared to the
quarter ended September 30, 2002 due to attractive price plans and the
implementation of a marketing strategy to align the Company's product and
service offerings with those of Verizon Wireless in the U.S.

         Paging revenues declined $1 million for the quarter ended September 30,
2003. The decrease was related to a complete reduction of paging customers. The
Company entered into an agreement to sell its paging division and received
approval from the FCC of the negotiated agreement in July 2003. The Company
closed the paging operations on August 2003.

         Wireless equipment sales increased $3 million to $4 million for the
quarter ended September 30, 2003 from $1 million for the comparable 2002 period.
This increase is a result of the increase in customers who subscribed for
wireless services in 2003.




                                       33
<PAGE>

         OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
quarter ended September 30, 2003 increased $81 million, or 42%, to $276 million
from $195 million reported for the same period in 2002.


    WIRELINE:

         Wireline expenses for the quarter ended September 30, 2003 increased
$76 million, or 47%, to $239 million from the $163 million reported for the same
period in 2002.

         Labor and benefit expenses for the quarter ended September 30, 2003
increased $10 million, or 12%, to $93 million from $83 million reported for the
same period in 2002, due to increases in pension and other post-employment
benefits ("OPEBs") expense recognition of $7 million, which resulted from a
decrease in the rate of return on plan assets in addition to a decrease in the
discount rate, which reflects a softening economy. There was also an increase in
contractors expense of $3 million.

         Other operating expenses of $146 million for the quarter ended
September 30, 2003, increased $66 million, or 83%, compared to the same 2002
period. The increase is due to the pre-tax reserve of $66 million (including
interest) established in September 2003 for the end-user and AT&T refund
referred to in the TRB Resolution and Order of February 2002. See "Regulatory
and Other Matters - Intra-Island Long Distance Access Rate Dispute" for more
information regarding the TRB Resolution and Order of February 28, 2002.

    WIRELESS:

         Wireless expenses for the quarter ended September 30, 2003 increased $5
million, or 16%, to $37 million from the $32 million reported for the same
period in 2002.

         Labor and benefit expenses remained constant at $8 million for the
quarters ended September 30, 2003 and 2002.

         Other operating expenses for the quarter ended September 30, 2003
increased $5 million, or 21%, to $29 million from the $24 million reported for
the comparable 2002 period. The increase was due to a higher subsidy on
equipment sales of $4 million and higher network management fees of $1 million.

         DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization of
$64 million remained constant for the quarters ended September 30, 2003 and
2002.

         INTEREST EXPENSE. Interest expense of $19 million for the quarter ended
September 30, 2003 was $8 million higher than for the comparable 2002 period,
mainly due to the additional $7 million in interest from the pre-tax reserve of
$66 million established in September 2003 as a result of the TRB Resolution and
Order of February 2002.

         EQUITY INCOME FROM JOINT VENTURE. Equity income from joint venture
remained constant for the quarters ended September 30, 2003 and 2002. The equity
income was generated from the Company's approximate 24% interest in VISI, the
largest yellow page publishing company in Puerto Rico.

         INCOME TAXES. A $19 million tax benefit for the quarter ended September
30, 2003 was recognized. The decrease of $36 million when compared to the $17
million provision reported for the quarter ended September 30, 2002 was
primarily due to the pre-tax reserve of $73 million (including interest)
established for the end-user and AT&T refund referred to in the TRB Resolution
and Order of February 2002.





                                       34
<PAGE>



NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2002

    REVENUES. Revenues for the nine months ended September 30, 2003 decreased
$11 million, or 2%, to $961 million from $972 million for the same 2002 period.

    WIRELINE:

         Wireline revenues include revenues from local service, long distance,
network access, directory and other services. Wireline revenues for the nine
months ended September 30, 2003 decreased $25 million, or 3%, to $810 million
from $835 million for the same 2002 period.

         Local service revenues include revenues from basic voice, telephone and
telecommunications equipment rental, value-added services, high-speed private
line services, Internet access, and public phone service. Local service revenues
for the nine months ended September 30, 2003 increased $3 million to $435
million from $432 million for the same 2002 period. The increase is due to
increased local data services offset by decreased local voice services. The
increase in local data services was mainly driven by an increase in Internet
access revenues of $4 million and an increase in revenues from high- speed
private line services of $1 million. The decrease in revenues from local voice
services was mainly driven by a decrease in revenues from measured services of
$4 million and telephone rent of $2 million, offset by an increase in deferred
activation and installation revenues of $4 million.

         Long distance revenues include direct dial on-island and off-island,
operator-assisted calls, prepaid calling cards and on-island private line
revenues. Long distance revenues decreased $10 million, or 9%, to $102 million
for the nine months ended September 30, 2003 from $112 million for the same 2002
period. The decrease was due to a decrease in intra-island long distance
revenues of $8 million and a decrease in on-island private line revenues of $4
million, partially offset by an increase of $2 million in off-island long
distance revenues. Intra-island long distance revenues have decreased mainly due
to customer traffic migration to the cellular network and general economic
conditions.

         Network access revenues include revenues from services provided to long
distance carriers, competitive local exchange carriers, and cellular and paging
operators to originate and terminate calls on the Company's network. These
revenues for the nine months ended September 30, 2003 decreased $21 million, or
9%, to $223 million compared to $244 million for the same 2002 period. The
decrease was driven by lower intra-island access revenues of $11 million coupled
with lower carrier common line access revenues of $7 million and lower
off-island switching revenues of $6 million that were partially offset by higher
subscriber line charges of $5 million (which resulted from a rate increase in
July 2002).

         Directory and other revenues include revenues from directory publishing
rights, telecommunications equipment rental and billing and collection services
to competitor long distance operators. Directory and other revenues for the nine
months ended September 30, 2003 increased $3 million, or 7%, to $50 million,
from $47 million for the nine moths ended September 30, 2002. The increase was
due to an increase in revenues from directory publishing rights of $3 million
resulting from the change in the Company's method of accounting for revenues
from directory publishing rights from the point-of-publication method to the
amortization method.

    WIRELESS:

         Revenues from cellular and paging services and related equipment sales
for the nine months ended September 30, 2003 increased $14 million, or 11%, to
$151 million from $137 million for the comparable 2002 period. Cellular service
revenues for the nine months ended September 30, 2003 increased $13 million, or
11%, to $141 million from $128 million for the same 2002 period. The increase
was primarily the result of an increase of 15,000 cellular customers compared to
the nine months ended September 30, 2002 due to attractive price plans and the
implementation of a marketing strategy to align the Company's product and
service offerings with those of Verizon Wireless in the U.S.

         Paging revenues declined $3 million for the nine months ended September
30, 2003. The decrease was related to a complete reduction of paging customers.
The Company entered into an agreement to sell its paging division and received
approval from the FCC of the negotiated agreement in July 2003. The Company
closed the paging operations on August 2003.

         Wireless equipment sales increased $4 million, or 80%, to $9 million
for the nine months ended September 30, 2003 from $5 million for the comparable
2002 period. This increase is a result of the increase in customers who
subscribed for wireless services in 2003.


                                       35
<PAGE>

    OPERATING COSTS AND EXPENSES. Operating costs and expenses for the nine
moths ended September 30, 2003 increased $117 million, or 20%, to $711 million
from $594 million reported for the same period in 2002.

    WIRELINE:

         Wireline expenses for the nine months ended September 30, 2003
increased $104 million, or 21%, to $600 million from the $496 million reported
for the same period in 2002.

         Labor and benefit expenses for the nine months ended September 30, 2003
increased $24 million, or 10%, to $280 million from $256 million reported for
the same period in 2002, due to increases in OPEBs expense recognition of $27
million, which resulted from a decrease in the rate of return on plan assets in
addition to a decrease in the discount rate, which reflects a softening economy.
These increases were partially offset by a decrease in contractor and
temporaries expense of $2 million and overtime expenses of $1 million as part of
cost-constraint measures taken.

         Other operating expenses of $320 million for the nine months ended
September 30, 2003, increased $80 million, or 34%, compared to the same 2002
period. The increase is due to cancelled capital projects of $29 million, which
is mainly due to the write-off for the billing software system abandoned by the
Company (an additional $3 million write-off is included as interest) and the
pre-tax reserve of $66 million (an additional $7 million is included as
interest) established in September 2003 for the end-user and AT&T refund
referred to in the TRB Resolution and Order of February 2002. This increase was
partially offset by a decrease in interconnection charges of $14 million that
resulted from an interconnection settlement agreement and a decrease in rates.

    WIRELESS:

         Wireless expenses for the nine months ended September 30, 2003
increased $13 million, or 14%, to $111 million from the $98 million reported for
the same period in 2002.

         Labor and benefit expenses remained constant at $24 million for the
nine months ended September 30, 2003 and 2002.

         Other operating expenses for the nine months ended September 30, 2003
increased $13 million, or 18%, to $87 million from the $74 million reported for
the comparable 2002 period. The increase was due to a higher subsidy on
equipment sales of $7 million, the absence of a gain on the sale of land of $3
million recognized during the nine months ended September 30, 2002, higher
commission and rent expenses of $2 million and $1 million, respectively.

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

         DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense of $187 million for the nine months ended September 30, 2003 was $10
million lower than for the comparable 2002 period. The decrease in depreciation
and amortization expense is mainly due to a revision in wireline depreciation
rates, which became effective July 1, 2002, reducing depreciation expense by $9
million for the nine months ended September 30, 2003, and the adoption of SFAS
No. 143, effective January 1, 2003, which required the exclusion of the costs of
removal from the Company's depreciation rates for assets for which the removal
costs exceed salvage value. The decrease was partially offset by higher gross
plant balances.

         INTEREST EXPENSE. Interest expense of $43 million for the nine months
ended September 30, 2003 was $7 million higher than for the same 2002 period,
due to the additional $7 million in interest of the pre-tax reserve of $66
million established in September 2003 as a result of the TRB Resolution and
Order of February 2002.

         EQUITY INCOME FROM JOINT VENTURE. Equity income from joint venture
remained constant at $2 million for the nine months ended September 30, 2003 and
2002. This equity income was generated from the Company's approximate 24%
interest in VISI, the largest yellow page publishing company in Puerto Rico.



                                       36
<PAGE>

         MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY. A $1 million minority
interest included in the Company's results of operations for the nine months
ended September 30, 2003 represents Popular, Inc.'s 33% minority interest in
Coqui.net.

         INCOME TAXES. A $5 million tax provision for the nine months ended
September 30, 2003 reflects a 30% effective tax rate. The difference between the
effective and the statutory tax rate of 39% equates to $5 million, primarily
reflecting permanent differences related to interest accretion on the PRTA
subscription receivable and equity income in subsidiary. The decrease of $5
million when compared to the $10 million provision reported for the nine months
ended September 30, 2002 was due to lower earnings in 2003 and the recognition
of a $42 million deferred tax benefit that resulted from the merger of Verizon
Wireless into PRTC on May 1, 2002. (see Note 1)

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

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



                                       37
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED FINANCIAL CONDITION

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2002

<Table>
<Caption>

                                      NINE MONTHS ENDED SEPTEMBER 30,
                              -----------------------------------------------
                                  2003              2002            CHANGE
                              -------------    -------------    -------------
                                        (DOLLARS IN MILLIONS)
<S>                           <C>              <C>              <C>
Cash provided by (used in):
    Operations                $         264    $         250    $          14
    Investing                          (104)            (134)              30
    Financing                          (170)            (127)             (43)
</Table>

OVERALL LIQUIDITY ASSESSMENT

         The Company believes that cash from operations is sufficient to meet
working capital needs. Current assets exceeded current liabilities at September
30, 2003 by $133 million. We believe our sources of funds, from operations and
from readily available external financing arrangements, are sufficient to meet
ongoing operating, financing and investing requirements. We expect that
presently foreseeable capital requirements will continue to be financed through
internally generated funds.

         We have an undrawn $400 million bank note facility maturing in March
2004, as well as a $40 million working capital credit facility maturing in June
2004. The bank note facility is a syndicated five-year revolving credit
facility. At September 30, 2003, the Company had no outstanding balance under
the working capital credit facility. An aggregate principal amount of $300
million of the Company's senior notes matured on May 15, 2002. During the year
ended December 31, 2002, we refinanced these notes and the related interest
payment through the issuance of new term loans in an aggregate principal amount
of $225 million.

OPERATIONS

         Cash from operations continued to be our primary source of funds. The
$14 million increase in cash from operations for the nine months ended September
30, 2003 as compared to the same period in 2002 was primarily due to lower
voluntary separation payments of $10 million, lower management fee and royalties
disbursements of $7 million, partially offset by higher operating income tax and
property tax payments of $5 million.

         A total provision of $16.4 million has been recorded related to early
retirement and voluntary separation programs for the nine months ended September
30, 2001 involving 113 employees. During the fourth quarter of 2002, the Company
offered a voluntary separation program to qualified management employees. Eight
qualified management employees accepted the program, and the Company recorded a
$0.5 million non-cash provision.

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

INVESTING

         Net cash used in investing activities for the nine months ended
September 30, 2003 was $104 million compared to $134 million for the same period
in 2002. The $30 million decrease in cash used in investing activities is mainly
due to a decrease in capital expenditures and costs of removal. Effective
January 1, 2003, under SFAS No. 143, costs of removal are expensed when
incurred.

         The capital expenditure program for 2002 amounted to $205 million,
which was financed from internally generated funds. The decrease in capital
expenditures during 2003 is partially due to decreased spending on specific
software projects, as well as a general decrease in spending as the Company
aligned its capital spending with softening demand for new wireline service.




                                       38
<PAGE>

         We have invested approximately $1.01 billion from the date of the
Acquisition through September 30, 2003 to expand and enhance our networks. In
2003, we expect to make up to approximately $185 million in capital
expenditures.

FINANCING

         Debt outstanding, excluding capital leases, decreased $142 million for
the nine months ended September 30, 2003 and increased $186 million for the nine
months ended September 30, 2002. Borrowings under bank loans, working capital
facilities and the commercial paper program decreased from $323 million at
December 31, 2002 to $181 million at September 30, 2003 and increased from $194
million at December 31, 2001 to $380 million at September 30, 2002.

         During 2002, the Company refinanced $300 million of senior notes, which
matured on May 15, 2002, with new term credit agreements with four banks. The
aggregate principal amount of the term loans is $225 million, with maturities
ranging from two to three years, bearing interest at 60 to 100 basis points over
LIBOR. During the third quarter of 2003, we issued advances to principal of term
loans by $44 million reducing the term loans balance to $181 million at
September 30, 2003.

         In the Acquisition, PRTA agreed to contribute cash or stock worth a
total of $200 million as a capital contribution in five equal $40 million
installments over five years beginning on March 2, 2000 to partially fund its
underfunded pension and other post-employment benefit obligations. In March
2003, $40 million was received in cash from PRTA for the fourth installment. See
Note 14 to the condensed consolidated financial statements.

         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. For the nine months ended September 30, 2002, the Company paid
dividends of $53 million corresponding to the first and second quarter of 2002
and the fourth quarter of 2001. For the nine months ended September 30, 2003,
the Company paid dividends amounting to $68 million corresponding to the first
quarter of 2003 and the fourth quarter of 2002. The senior note indentures and
credit facility agreements do not contain restrictions on the payment of
dividends.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

<Table>
<Caption>

    CONTRACTUAL OBLIGATIONS &
    OTHER COMMERCIAL COMMITMENTS:                                             PAYMENTS DUE IN PERIOD
--------------------------------------------   ---------------------------------------------------------------------------------
                                                                                  (in millions)
                                                 Total       2003        2004        2005        2006        2007     Thereafter
                                               ---------   ---------   ---------   ---------   ---------   ---------  ----------

<S>                                            <C>         <C>         <C>         <C>         <C>         <C>         <C>
Long Term Debt, including interest rate swap   $     712   $      --   $      --   $      --   $     412   $      --   $     300
Term Credit Facilities                               181          --          68         113          --          --          --
Pension Benefit Obligations(1)                       476          73          95         111         108          89          --
Operating Leases                                      45          11           8           6           4           3          13
Capital Lease Obligations                              1           1          --          --          --          --          --
                                               ---------   ---------   ---------   ---------   ---------   ---------   ---------
Total                                          $   1,415   $      85   $     171   $     230   $     524   $      92   $     313
                                               =========   =========   =========   =========   =========   =========   =========

</Table>

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




                                       39
<PAGE>

REGULATORY AND OTHER MATTERS

REGULATORY AND COMPETITIVE TRENDS

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

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

INTRA-ISLAND LONG DISTANCE ACCESS RATE DISPUTE

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

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

         April 2002: From 9.3 cents per minute to 7.9 cents per minute
         April 2003: From 7.9 cents per minute to 6.5 cents per minute
         April 2004: From 6.5 cents per minute to 5.0 cents per minute
         April 2005: From 5.0 cents per minute to 2.1 cents per minute

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

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

         The hearing involving oral presentations by the parties was held on
February 19, 2003. On April 22, 2003, the parties filed their corresponding
post-hearing final briefs therefore finally submitting the case for
adjudication. On August 19, 2003, the Court issued its final decision on the
proceeding confirming the TRB Order on Reconsideration of February 28, 2002 in
all respects and rejecting the claims of PRTC and the Carriers. On September 4,
2003, PRT requested reconsideration of the Court's determination on the grounds
that although the Court correctly described the applicable legal standards the
Court erred in applying those standards to the facts of the case. On October 2,
2003, the Court denied PRTC's reconsideration. As a result of the Court's
decision, the Company established a pre-tax reserve of $73 million, including
interest, in September 2003 for the end-user and AT&T refund referred to in the
February 2002 Order. This reserve is in addition to the reserve established in
connection with the stay of the TRB Order on Reconsideration issued by the
Court.

         On October 30, 2003, the Company filed a petition for a writ for
certiorari before PR Supreme Court challenging the $68 million refund portion of
the Order. The phased down portion of the Order was settled with the major
carriers. The Company believes that the Carriers' petition for review is without
merit.

         In November 2003, the Company proposed, and two members of the TRB
indicated their support for, a plan to revise the Board's end-user refund order
and end the dispute over this issue. Under the terms of this plan, instead of
making the refunds as ordered by the TRB, PRTC will eliminate the touchtone
charge, implement expanded local calling areas and provide certain credits to
the residential basic rent. The estimated 2003 cash flow impact is a reduction
of $15 million.



                                       40
<PAGE>

CARRIER ACCESS BILLING

         During the first and second quarter of 2003, some carriers established
a series of billing claims with the company regarding tariff interpretation,
traffic routing at the network level and misclassification of access traffic for
determination of applicable access elements.

         The company entered into negotiations with the major carriers and
settled the billing claims and phased-rate reductions required by the February
2002 Order. Management deems there are no other material impacts to the
company's financial results.

PUBLIC TELEPHONE SERVICE PROVIDER - ANTI COMPETITIVE ACTIONS

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

         Pan American Telephone, Inc., Intouch Telecommunications, Inc., and
Choicetel Communications, Inc., three additional competitive providers also
filed a similar suit in the United States District Court of Puerto Rico on
September 4, 2002 on the same grounds. On November 8, 2002, after having
evaluated and determined that this suit is similar to TPPR's suit, we filed a
motion to dismiss the case. We are currently awaiting a decision from the court.

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

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

P.R. DEPARTMENT OF EDUCATION (THE "PRDOE") DEBT

         On June 30, 2003, PRTC filed a complaint against the PRDOE with the
Superior Court, seeking collection of monies for $31 million due for services
rendered under the Reeducate Program, which is based on the Federal E-Rate
Program, from 1999 to June 30, 2003. The Reeducate Program funds Internet
connections for schools throughout Puerto Rico and PRTC has provided services
under contract to the PRDOE. The outstanding amount that PRDOE currently owes to
PRTC is $34 million. PRTC intends to amend the complaint to reflect the proper
amount owed. From the amount claimed, 89% would be paid by the Federal
Communications Commission's School & Libraries Division ("SLD"), who
administered the Federal E-Rate Program, if the funding for the fourth and fifth
years under the program is released.

         PRTC is currently evaluating the outstanding amounts owed by PRDOE for
the third year under the program, which is approximately $1.2 million, after SLD
paid its corresponding percentage (87%) under the program.

CTI ASSET TRANSFER

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

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



                                       41
<PAGE>

         The TRB stated in its February 2002 Order that for any prospective rate
increase that the Company may pursue to compensate for revenue deficiencies it
must first be applied against the gain in the wireless asset transfer, equating
to $56 million applicable to intrastate. We will contest this position based on
the fact that the wireless entity was set up after the last regulated intrastate
rate increase in 1982 and therefore these costs were not included in setting
such rates.

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

PRICE CAP REGULATION

         The FCC requires that companies that set interstate access rates based
on a price cap formula must use the price cap formula for all of their
affiliates. The price cap formula is based on a plan called Coalition of
Affordable Local and Long Distance Service that used rate-of-return as a basis
for setting rates. The Company was originally required to implement price caps
by March 2, 2000.

         However, the FCC delayed conversion to price cap regulation until June
30, 2002, and the Company has requested a further extension until June 30, 2003.
Under an order released by the FCC on April 18, 2002, the Company is no longer
required to file a waiver request until the FCC completes its review of the
"all-or-nothing" rule.

INTERSTATE HIGH COST SUBSIDY

         On October 21, 1999, the FCC adopted a new high cost support mechanism,
which has resulted in the phase out of the Company's high cost subsidy revenues.
These revenues were $49 million in 2000, $33 million in 2001 and $4 million for
2002. On February 28, 2003, PRTC sent a letter to the FCC, requesting the FCC to
take action to restore the high-cost universal service support that the Company
lost due to FCC policies adopted for non-rural companies based on the cost
characteristics of mainland companies. PRTC requested that the FCC address the
loss of its universal service support by adopting rules for insular areas that
are similar to those applied to rural carriers. In an order dated October 16,
2003 and released October 27, 2003, the FCC rejected PRTC's request for
reconsideration of its non-rural high cost support mechanism, but did not deal
with its February 28, 2003 request.

MESSAGE PROCESSING AND BILLING SYSTEM

         The Company has an agreement with a provider for the implementation of
a traffic polling and billing software system for its wireline operations. While
the traffic polling portion has been implemented, management has determined that
it is in the Company's best interests to abandon the billing portion of the
software system. The amount of capitalized costs for software and labor related
to the billing portion of $32.3 million was written off and included in
operating expenses during the second quarter of 2003. Management is currently in
discussions with the provider of the system and seeking a satisfactory
resolution of this matter.

BROTHERHOOD OF INDEPENDENT TELEPHONE WORKERS ("HIETEL") UNION CONTRACT

         In October 2003, one of our union contracts, a collective bargaining
agreement with the HIETEL expired. The Company is currently in negotiations for
a new agreement with the HIETEL.


RECENT ACCOUNTING PRONOUNCEMENTS

See Note 4 to the condensed consolidated financial statements contained in Part
1, Item 1 of this report for disclosure on recent accounting pronouncements.



                                       42
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

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

         The following table summarizes the fair value of our senior notes and
interest rate swaps at September 30, 2003 and December 31, 2002 and provides a
sensitivity analysis of the fair values of these instruments assuming a 100
basis point increase or decrease in the yield curve. The sensitivity analysis
does not include the fair values of our floating-rate debt since it is not
significantly affected by changes in market interest rates.

<Table>
<Caption>
                                                              FAIR VALUE
                                                      ASSUMING A 100 BASIS POINT
                                                      ---------------------------
                         BOOK VALUE     FAIR VALUE     INCREASE       DECREASE
                        ------------   ------------   ------------   ------------
                                              (in thousands)
<S>                     <C>            <C>            <C>            <C>
September 30, 2003:

   Senior notes         $    699,830   $    777,153   $    751,186   $    804,329
   Interest rate swap          4,749          4,749            728          8,825
                        ------------   ------------   ------------   ------------
      Total             $    704,579   $    781,902   $    751,914   $    813,154
                        ============   ============   ============   ============

December 31, 2002:

   Senior notes         $    699,802   $    747,000   $    724,420   $    783,860
   Interest rate swap          2,883          2,883            359          5,405
                        ------------   ------------   ------------   ------------
      Total             $    702,685   $    749,883   $    724,779   $    789,265
                        ============   ============   ============   ============
</Table>




                                       43
<PAGE>
ITEM 4. CONTROLS AND PROCEDURES

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

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






                                       44
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

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

         Not applicable.

ITEM 5. OTHER INFORMATION

         Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         a)       See Exhibits Index on page following signatures.

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



                                       45
<PAGE>

                                   SIGNATURES

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

         TELECOMUNICACIONES DE PUERTO RICO, INC.


                                   By:   /s/ JON E. SLATER
                                       -------------------------------------
                                       Name:  Jon E. Slater
                                       Title: Chief Executive Officer
                                       Date:  November 14, 2003


                                   By:  /s/ WALTER C. FORWOOD
                                      --------------------------------------
                                       Name:  Walter C. Forwood
                                       Title: Chief Financial Officer
                                       Date:  November 14, 2003


                                   By:   /s/ ADAIL ORTIZ
                                      -----------------------------------------
                                       Name:  Adail Ortiz
                                       Title: Chief Accounting Officer
                                       Date:  November 14, 2003





                                       46
<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. (Incorporated by
                  reference to Exhibit 3.5 of the Company's Annual Report on
                  Form 10-K for the year ended December 31, 2002 (File
                  333-85503)).

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

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

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

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

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

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

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

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



                                       47
<PAGE>
<Table>
<Caption>
       EXHIBIT
       NUMBER                                DESCRIPTION
       ------                                -----------

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

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

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

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

         10.12    Collective Bargaining Agreement between the Puerto Rico
                  Telephone Company and the Independent Brotherhood of Telephone
                  Company Employees effective from October 23, 1999 until
                  October 22, 2003. Approved on October 20, 2000. (Incorporated
                  by reference to Exhibit 10.24 of the Company's Annual Report
                  on Form 10-K for the year ended December 31, 2000 (File
                  333-85503)).

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

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

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

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

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



                                       48
<PAGE>
<Table>
<Caption>
       EXHIBIT
       NUMBER                                DESCRIPTION
       ------                                -----------

<S>               <C>
         10.18    Letter Amendment, to the March 2, 1999 Shareholders Agreement,
                  dated as of May 25, 2001, by and among Telecomunicaciones de
                  Puerto Rico, Inc., GTE Holdings (Puerto Rico) LLC, GTE
                  International Telecommunications Incorporated, Popular, Inc.,
                  and the Puerto Rico Telephone Authority. (Incorporated by
                  reference to Exhibit 10.25 of the Company's Quarterly Report
                  on Form 10-Q for the period ended June 30, 2002 (File
                  333-85503)).

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

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

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

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

         10.23    $90,000,000 working capital revolving credit agreement dated
                  as of May 16, 2002, among Telecomunicaciones de Puerto Rico,
                  Inc., as Borrower, Puerto Rico Telephone Company, Inc., as
                  Guarantor, and Banco Popular de Puerto Rico, as Lender and
                  Administrative Agent. (Incorporated by reference to Exhibit
                  10.26 of the Company's Quarterly Report on Form 10-Q for the
                  period ended June 30, 2002 (File 333-85503)).

         10.24    $50,000,000 2-Year term credit agreement dated as of May 16,
                  2002, among Telecomunicaciones de Puerto Rico, Inc., as
                  Borrower, Puerto Rico Telephone Company, Inc., as Guarantor,
                  and Banco Bilbao Vizcaya Argentaria, S.A., as Lender and Banco
                  Bilbao Vizcaya Puerto Rico, as Administrative Agent.
                  (Incorporated by reference to Exhibit 10.27 of the Company's
                  Quarterly Report on Form 10-Q for the period ended June 30,
                  2002 (File 333-85503)).

         10.25    $50,000,000 2-Year term credit agreement dated as of May 31,
                  2002, among Telecomunicaciones de Puerto Rico, Inc., as
                  Borrower, Puerto Rico Telephone Company, Inc., as Guarantor,
                  and HSBC Bank USA, as Lender. (Incorporated by reference to
                  Exhibit 10.28 of the Company's Quarterly Report on Form 10-Q
                  for the period ended June 30, 2002 (File 333-85503)).

         10.26    $50,000,000 3-Year term credit agreement dated as of June 24,
                  2002, among Telecomunicaciones de Puerto Rico, Inc., as
                  Borrower, Puerto Rico Telephone Company, Inc., as Guarantor,
                  and Australia and New Zealand Banking Group Limited, as Lender
                  and Administrative Agent. (Incorporated by reference to
                  Exhibit 10.29 of the Company's Quarterly Report on Form 10-Q
                  for the period ended June 30, 2002 (File 333-85503)).

         10.27    $75,000,000 3-Year term credit agreement dated as of August
                  19, 2002, among Telecomunicaciones de Puerto Rico, Inc., as
                  Borrower, Puerto Rico Telephone Company, Inc., as Guarantor,
                  and The Bank of Nova Scotia, as Lender and Administrative
                  Agent. (Incorporated by reference to Exhibit 10.28 of the
                  Company's Quarterly Report on Form 10-Q for the period ended
                  September 30, 2002 (File 333-85503)).

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



                                       49
<PAGE>
<Table>
<Caption>
       EXHIBIT
       NUMBER                                DESCRIPTION
       ------                                -----------

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

         10.30    Collective Bargaining Agreement between the Puerto Rico
                  Telephone Company and the Independent Union of Telephone
                  Employees of Puerto Rico effective from January 18, 2003 until
                  January 17, 2006. Approved on February 13, 2003. (Incorporated
                  by reference to Exhibit 10.30 of the Company's Annual Report
                  on Form 10-K for the year ended December 31, 2002 (File
                  333-85503)).

         10.31    Second Allonge to the $90 million working capital revolving
                  credit agreement dated as of June 30, 2003. (Incorporated by
                  reference to Exhibit 10.31 of the Company's Quarterly Report
                  on Form 10-Q for the period ended June 30, 2003 (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.
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