10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: June 30, 2004

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]

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

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INDEX

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

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

2

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

	(Unaudited)
	June 30,			December 31,
	2004			2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	79,007		$	21,732
Accounts receivable, net of allowance for doubtful accounts of $131,632 and $131,106 in 2004 and 2003, respectively		272,757			287,247
Deferred income tax		30,986			26,158
Inventory and supplies, net		17,867			21,202
Prepaid expenses		27,707			35,255
Total current assets		428,324			391,594
PROPERTY, PLANT AND EQUIPMENT, net		1,494,781			1,558,246
GOODWILL		126,927			126,927
INTANGIBLES, net		187,529			189,136
DEFERRED INCOME TAX		208,266			246,794
OTHER ASSETS		109,071			108,541
TOTAL ASSETS	$	2,554,898		$	2,621,238
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	60,129		$	59,729
Other current liabilities		173,069			213,480
Total current liabilities		233,198			273,209
LONG-TERM DEBT, excluding current portion		768,623			802,135
PENSION AND OTHER POST-EMPLOYMENT BENEFITS		548,372			594,113
OTHER NON-CURRENT LIABILITIES		184,054			237,405
Total liabilities	$	1,734,247		$	1,906,862
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY		14,244			13,025
SHAREHOLDERS’ EQUITY:
Common stock	$	703,884		$	703,884
Deferred ESOP compensation		(26,153	)		(26,153	)
Subscription receivable		—			(39,515	)
Retained earnings		230,061			164,520
Accumulated other comprehensive loss, net of taxes		(101,385	)		(101,385	)
Total shareholders’ equity		806,407			701,351
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,554,898		$	2,621,238

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

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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
				As Restated
				(See note 2)
	2004			2003			2004			2003
	(Unaudited)						(Unaudited)
REVENUES:
Local services	$	137,066		$	147,500		$	273,134		$	292,538
Long distance services		33,757			33,818			72,494			66,680
Access services		73,278			77,874			146,581			159,729
Cellular services		47,620			46,575			95,457			94,029
Paging services		—			192			—			803
Directory services and other		20,017			20,708			40,896			38,330
Total revenues		311,738			326,667			628,562			652,109
OPERATING COSTS AND EXPENSES:
Labor and benefits		92,686			100,115			192,181			203,012
Other operating expenses		54,807			134,331			155,665			232,745
Early retirement and voluntary separation provision		—			3,257			1,635			4,700
Depreciation and amortization		65,907			62,776			130,385			123,279
Total operating costs and expenses		213,400			300,479			479,866			563,736
OPERATING INCOME		98,338			26,188			148,696			88,373
OTHER INCOME (EXPENSE):
Interest expense, net		(11,110	)		(13,682	)		(21,458	)		(23,865	)
Equity income from joint venture		678			515			1,335			1,301
Minority interest in consolidated subsidiary		(658	)		(397	)		(1,218	)		(830	)
Total other income (expense), net		(11,090	)		(13,564	)		(21,341	)		(23,394	)
INCOME BEFORE INCOME TAX EXPENSE		87,248			12,624			127,355			64,979
INCOME TAX EXPENSE (BENEFIT)		34,093			4,356			49,428			24,301
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		53,155			8,268			77,927			40,678
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income tax provision of $40,672		—			—			—			58,529
NET INCOME	$	53,155		$	8,268		$	77,927		$	99,207

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

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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

												Accumulated
			Deferred									Other
	Common		ESOP			Subscription			Retained			Comprehensive
	Stock		Compensation			Receivable			Earnings			Loss			Total
BALANCE, DECEMBER 31, 2002	$	703,270	$	(27,408	)	$	(76,093	)	$	155,789		$	(90,182	)	$	665,376
Dividends paid		—		—			—			(68,125	)		—			(68,125	)
Accretion of discount on subscription receivable		—		—			(3,422	)		—			—			(3,422	)
PRTA capital contribution		—		—			40,000			—			—			40,000
Release of ESOP shares		614		1,255			—			—			—			1,869
Comprehensive income:
Net income		—		—			—			76,856			—			76,856
Other comprehensive loss, net of taxes:
Minimum pension liability adjustment		—		—			—			—			(11,203	)		(11,203	)
Comprehensive income		—		—			—			—			—			65,653
BALANCE, DECEMBER 31, 2003	$	703,884	$	(26,153	)	$	(39,515	)	$	164,520		$	(101,385	)	$	701,351
(UNAUDITED)
Dividends declared		—		—			—			(12,386	)		—			(12,386	)
Net income, for the six months ended June 30, 2004		—		—			—			77,927			—			77,927
Accretion of discount on subscription receivable		—		—			(485	)		—			—			(485	)
PRTA capital contribution		—		—			40,000			—			—			40,000
BALANCE, JUNE 30, 2004	$	703,884	$	(26,153	)	$	—		$	230,061		$	(101,385	)	$	806,407

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

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Telecomunicaciones de Puerto Rico, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

	For the Six Months Ended
	June 30,
	2004			2003
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	77,927		$	99,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		130,385			123,279
Provision for uncollectible accounts		29,374			30,599
Cumulative effect of accounting change		—			(58,529	)
Abandoned software project		—			32,262
Deferred income tax		33,700			77
Accretion of discount on subscription receivable		(485	)		(1,940	)
Equity income from joint venture		(1,335	)		(1,301	)
Voluntary separation and retirement provision		1,635			4,700
Minority interest in consolidated subsidiary		1,218			830
Gain on sale of land and building		(248	)		(824	)
Changes in assets and liabilities:
Accounts receivable		(14,884	)		(15,631	)
Inventory and supplies		3,335			4,207
Prepaid expenses and other assets		6,143			(5,680	)
Other current and non-current liabilities		(107,533	)		(29,380	)
Pension and other post-employment benefits		(47,376	)		(28,842	)
Net cash provided by operating activities		111,856			153,034
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		(66,133	)		(69,335	)
Proceeds from sale of land and building		930			6,000
Net salvage on retirements and other		202			183
Net cash used in investing activities		(65,001	)		(63,152	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		40,000			40,000
Net repayments of short-term debt, including capital leases		(29,580	)		(75,783	)
Borrowings of long-term debt		—			—
Dividends paid		—			(68,125	)
Net cash provided by/ (used in) financing activities		10,420			(103,908	)
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		57,275			(14,026	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		21,732			33,667
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	79,007		$	19,641

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

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TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.	Business / Corporate Structure
	Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation (the “Company“or “we”), holds 100% of the common stock of Puerto Rico Telephone Company, Inc. (“PRTC”), PRT Larga Distancia, Inc. (“PRTLD”), and Datacom Caribe, Inc. (“Datacom”). The Company also holds a 67% interest in Coqui.net Corporation (“Coqui.net”), in which Popular, Inc., one of our shareholders, holds the remaining 33% interest. The Company also holds a 24% interest in Verizon Information Services Puerto Rico, Inc. S. en C. (“VISI”), in which GTE Holdings (Puerto Rico) LLC, our majority shareholder also holds a 36% interest. The Company is the largest telecommunications service provider in Puerto Rico. PRTC is the incumbent local exchange carrier for the island of Puerto Rico. Wireline service is provided by PRTC and cellular service is provided by the wireless division of PRTC, under the brand of Verizon Wireless Puerto Rico (“Verizon Wireless”). The Company’s off-island long distance service is provided by PRTLD. The Company’s dial-up Internet access service is provided by Coqui.net and the directory publishing revenues are generated by VISI.
	GTE Corporation (“GTE”), through its subsidiary GTE Holdings (Puerto Rico) LLC, acquired a 40% interest and management control over the Company on March 2, 1999 from Puerto Rico Telephone Authority (“PRTA”), an entity of the Commonwealth of Puerto Rico (the “Acquisition”). In the Acquisition, Popular, Inc. acquired a 10% interest in the Company. GTE and Bell Atlantic Corporation merged on June 30, 2000 to form Verizon Communications Inc. (“Verizon”). On January 25, 2002, GTE Holdings (Puerto Rico) LLC and Popular, Inc. acquired an additional 12% and 3% interest in the Company, respectively, by exercising an option each held since the Acquisition (the “Option Exercise”). Verizon and Popular, Inc. obtained the additional ownership interest from PRTA Holdings Corp., a subsidiary of the PRTA (“PRTA Holdings”). Verizon and Popular, Inc. paid PRTA Holdings $138 million and $34 million, respectively, for a total of $172 million in cash for the additional 3,750,000 shares at a $45.9364 per share price established in the Share Option Agreement, an agreement entered into at the time of the Acquisition. As a result, Verizon now owns 52%, PRTA owns 28%, Popular owns 13% and the Employee Stock Ownership Plan owns 7% of the outstanding capital stock of the Company. The Company is an affiliate of Verizon, which consolidates the Company’s financial results with its own financial results.
2.	Summary of Significant Accounting Policies
	Basis of Presentation
	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States for annual financial statements have been condensed or omitted pursuant to such rules and regulations. Management believes the financial statements include all adjustments and recurring accruals necessary to present fairly the results of operations and financial condition for the interim periods shown. The Condensed Consolidated Balance Sheet at December 31, 2003 was derived from audited financial statements and should be read in conjunction with the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
	Impairment or Disposal of Long-lived Assets
	Assets are assessed for impairment when changes in circumstances indicate that their carrying values are not recoverable. Effective, January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Losses are recognized in circumstances where impairment exists, at the amount by which the carrying value of assets exceeds fair value. Fair value is determined based on quoted market prices, if not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis.

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	For the last three years, the Company has been operating a TDMA network and CDMA network for its wireless clients. During 2003 management decided to migrate in 2004 all TDMA clients to the CDMA network and subsequently dispose of the TDMA network. The expected undiscounted future cash flow from operations on the TDMA network was estimated to be $27 million ($47.4 million estimated cash flows from operations less $20.4 million of related expenses). The discounted fair value of the network was estimated to $26 million and was determined by discounting anticipated discounted future cash flows at a risk free rate of 3.76%.
	Since the estimated fair value of $26 million is lower than the $37.8 million carrying amount of the TDMA network as of December 31, 2003, the Company recorded an impairment loss of $11.8 million.
	Restatement
	The Company’s results of operations for the quarter ended June 30, 2003 have been restated from amounts previously reported. The restated amounts reflect a change in accounting for directory publishing revenues, effective January 1, 2003 (see Note 3).
	Reclassifications
	Reclassifications of prior periods’ data have been made to conform to the current period’s presentation.
3.	Accounting Change for Directory Revenue Recognition
	Effective January 1, 2003, the Company changed its method of accounting for directory-publishing revenues and related expenses from the point-of-publication method to the amortization method.
	Under the point-of-publication method, such revenues and related expenses are recognized on the date that the directory is published and substantially delivered. Under the amortization method, pre-publication revenues and expenses are deferred and capitalized, respectively. Subsequent to publication, revenues are recognized and expenses amortized over the lives of the directories, which is generally one year.
	While both methods fully comply with accounting principles generally accepted in the United States, the Company adopted the amortization method because it is becoming the industry standard.
	The cumulative effect of applying this accounting change to prior years was recognized as of January 1, 2003 as a one-time, non-cash loss of $17 million ($13 million, after tax). The effect of applying the new method for the quarter ended March 31, 2003 was a one-time non-cash revenue increase of $3 million, which was included in operating income.
4.	Summary of Recent Accounting Pronouncements
	Asset Retirement Obligations
	On January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. We have determined that PRT does not have a material legal obligation to remove long-lived assets as described by this statement. However, we have included estimated removal costs in our group depreciation models. These costs have increased depreciation expense and accumulated depreciation for future removal costs for existing assets. These removal costs are recorded as a reduction to accumulated depreciation when the assets are retired and removal costs are incurred.
	For some assets, such as telephone poles, the removal costs exceed salvage value. Under the provisions of SFAS No. 143, we are required to exclude costs of removal from our depreciation rates for assets for which the removal costs exceed salvage. Accordingly, in connection with the initial adoption of this standard on January 1, 2003, we have reversed accrued costs of removal in excess of salvage from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of an estimated gain

8

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

Amendments of Statement 133 on Derivative Instruments and Hedging Activities

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

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

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

Accounting for Revenue Arrangements with Multiple Deliverables

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

9

5.	Property, Plant and Equipment
	Property, plant and equipment consist of:

	Remaining Useful				June 30,		December 31,
	Lives (Yrs)				2004		2003
	Current		Previous		(In thousands)
Outside plant		8.5		8.5	$	2,116,875	$	2,097,902
Central office and transmission equipment		4.1		4.1		1,195,079		1,184,357
Equipment and other		3.2		3.2		303,318		323,459
Buildings		14.3		14.3		318,554		316,052
Land		N/A		N/A		26,266		26,400
Gross plant in service						3,960,092		3,948,170
Less: accumulated depreciation						2,531,644		2,455,127
Net plant in service						1,428,448		1,493,043
Construction in progress						66,333		65,203
Total					$	1,494,781	$	1,558,246

	Under the provisions of SFAS No. 143, we are required to exclude costs of removal from our depreciation rates for assets for which the removal costs exceed salvage. Accordingly, in connection with the initial adoption of this standard on January 1, 2003, we have reversed accrued costs of removal in excess of salvage from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of an estimated gain of $117 million ($71 million after-tax). Effective January 1, 2003, the Company began expensing costs of removal in excess of salvage for these assets as incurred. The impact of this change in accounting will result in a decrease in depreciation expense and an increase in operational and support expenses. The net increase to operating income in 2003, excluding the cumulative effect adjustment, was approximately $12 million ($7 million after-tax).
	During the fourth quarter of 2003, the board of directors approved the replacement of the Company’s General Ledger System and Inventory Management System. The new systems are expected to be operational during the fourth quarter of 2004 at projected capitalized costs for software and labor of approximately $13 million. As of June 30, 2004, the Company had capitalized costs of $8 million associated with the new systems.
	The Company is currently undergoing its periodic review of plant useful lives estimates. The review incorporates the impact of technology, future competition and assumptions employed in the industry relative to depreciation and retirement rates.
6.	Goodwill
	Following is a breakdown of goodwill.

	Carrying Value
	June 30,		December 31,
	2004		2003
	(In thousands)
Wireline (PRTC)	$	102,731	$	102,731
Dial-up Internet (Coqui.net)		24,196		24,196
Total	$	126,927	$	126,927

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7. Intangibles

	Carrying Value
	June 30,		December 31,
	2004		2003
	(In thousands)
Indefinite Life:
Wireline concession	$	85,120	$	85,120
FCC Cellular licenses		23,855		23,855
Total Indefinite Life	$	108,975	$	108,975

	June 30, 2004						December 31, 2003
	(In thousands)
	Cost		Acc. Amort		Book Value		Cost		Acc. Amort		Book Value
Definite Life
Wireline trade name	$	48,400	$	10,785	$	37,615	$	48,400	$	9,502	$	38,898
Software licenses		73,411		32,472		40,939		67,068		25,805		41,263
Customer base		15,544		15,544		—		15,544		15,544		—
Other		500		500		—		500		500		—
Total Definite Life	$	137,855	$	59,301	$	78,554	$	131,512	$	51,351	$	80,161
Plus: Total Indefinite Life					$	108,975					$	108,975
Total	$	137,855	$	59,301	$	187,529	$	131,512	$	51,351	$	189,136

	SFAS No. 142, “Goodwill and Other Intangible Assets”, no longer permits the amortization of goodwill and other indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or, under certain conditions, more frequently) for impairment in accordance with this statement. This impairment test uses fair value approach.
	Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. For 2003, the Company has evaluated its assets using the fair value approach for each reporting unit to determine if there is an impairment exposure (transitional impairment test) and the impact it would have on the Company’s results of operations. The evaluation of the two reporting units revealed no impairment exposure.
	The Company is currently undergoing its annual evaluation of assets to determine if there is an impairment exposure and related impact, if any, to the Company results of operations of 2004.
8.	Other assets
	Other assets consist of:

	June 30 ,		December 31,
	2004		2003
	(In thousands)
Deferred activation and installation costs	$	71,980	$	69,347
Notes receivable-equipment sales		8,890		10,446
Deferred pension asset		19,785		19,785
Deferred financing costs, net		2,715		3,146
Other deferred costs		1,824		1,426
Interest rate swap		620		2,811
Investment in Verizon Information Services		1,335		—
Other assets		1,922		1,580
Total	$	109,071	$	108,541

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9.	Pension Plan
	The Company has noncontributory pension plans for full-time employees, which are tax qualified as they meet Employee Retirement Income Security Act of 1974 (the “ERISA”) requirements. The Company realizes tax deductions when contributions are made to the trusts. The trusts invest in equity and fixed income securities to meet the benefit obligation.
	The pension benefit is composed of two elements. An employee receives an annuity at retirement when they reach the rule of 85 (age plus years of service). The annuity is calculated by applying a percentage times years of service to the last three years of salary. The second element is a lump sum based on years of service, up to a maximum of nine months of salary for hourly employees and twelve months of salary for salaried employees.
	There are separate trusts for the annuity and the lump sum benefit with a further separation of the annuity benefit into a plan for the UIET union, for the HIETEL union and management employees. Health care and life insurance benefits are provided to retirees.
	The components of the net pension and other post-employment benefit expenses for the quarters ended June 30,
	(In thousands)

	Pension and Lump Sum Benefit												Post-Retirement Benefits
	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003			2004			2003			2004			2003
Service cost	$	5,186		$	4,523		$	10,372		$	9,046		$	2,565		$	2,175		$	5,130		$	4,350
Interest cost		17,567			16,825			35,134			33,650			9,652			8,878			19,304			17,756
Expected return on plan assets		(14,910	)		(11,578	)		(29,820	)		(23,156	)		—			—			—			—
Amortization of unrecognized:
Transition obligation		90			107			180			214			551			550			1,102			1,100
Prior service cost (benefit)		1,179			1,186			2,358			2,372			(628	)		(628	)		(1,256	)		(1,256	)
Actuarial gain, net		3,518			3,281			7,036			6,562			4,421			3,926			8,842			7,852
Net periodic benefit cost		12,630			14,344			25,260			28,688			16,561			14,901			33,122			29,802
Effect of early retirement program		—			957			939			957			—			722			696			722
Total	$	12,630		$	15,301		$	26,199		$	29,645		$	16,561		$	15,623		$	33,818		$	30,524

Cash Flows

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

Medicare Drug Act

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

12

10.	Early Retirement and Voluntary Separation Provision
	In January 2003, 29 qualified management employees accepted the voluntary separation program, offered by the Company to qualified management employees during the fourth quarter of 2002, representing an expense of $1.4 million, which was recorded in the first quarter 2003. During the second quarter of 2003, the Company offered to members of one of the unions a voluntary separation program that closed on June 20, 2003, which 44 qualified employees accepted. Also, during the second quarter of 2003, an additional 147 employees in the craft union accepted a retirement program offered by the Company that closed on June 30, 2003. As a result of these two programs, an additional non-cash provision of $3.3 million was recorded in the second quarter 2003.
	In December 2003, the Company offered an early retirement program to qualified management employees. A non-cash provision of $12.6 million was recorded relating to 147 employees who had accepted as of December 31, 2003. In January 2004, an additional 19 qualified management employees accepted the early retirement program offered by the Company in December 2003, which resulted in a provision of $1.6 million.
11.	Deferred ESOP Compensation
	The Employee Stock Ownership Plan (“ESOP”) acquired a 3% interest in the Company in 1999 with a $26 million, twenty-year note borrowed from the Company to establish a contributory investment fund for employees. The ESOP only invests in shares of the Company’s common stock. Shares are held by the ESOP’s trustee and maintained in a suspense account until they are released to employee participants. The yearly release of shares to participants is based on the greater of participant contributions plus a Company match of 30% up to 5% of wages or a minimum based on an amortization schedule. The minimum is based on the ratio of annual debt service to total debt service multiplied by the initial 750,000 shares.
	Compensation expense is recorded based on the release of shares at market value, which is based on an independent appraisal performed annually. The ESOP released approximately 36,072 shares in 2003. This release resulted in compensation expense of $2 million for year ended December 31, 2003, reflecting the market value of the shares. The release of shares, based upon the per share price established at the Acquisition, amounted to $1.3 million for December 31, 2003, which is reflected as a reduction of deferred ESOP compensation in equity.
12.	Other Current Liabilities
	Other current liabilities consist of:

	June 30 ,		December 31,
	2004		2003
	(In thousands)
Accounts payable	$	20,095	$	58,625
Accrued expenses		63,471		75,999
Employee benefit accruals		56,997		44,697
Carrier payables		25,630		26,388
Taxes		540		1,420
Interest		6,336		6,351
Total	$	173,069	$	213,480

13

13.	Debt
	Debt consists of:

	March 31,		December 31,
	2004		2003
	(In thousands)
Senior notes
Due May 15, 2006 at 6.65%	$	399,954	$	399,943
Due May 15, 2009 at 6.80%		299,905		299,896
Term credit facilities:
Due May 16, 2005 at 57 basis points over LIBOR		30,000		30,000
Due June 24, 2005 at 70 basis points over LIBOR		30,000		30,000
Due August 19, 2005 at 70 basis points over LIBOR		63,000		63,000
Commercial paper		—		29,500
Deferred derivative		4,996		6,337
Interest rate swap		620		2,811
Capital leases		277		377
Total		828,752		861,864
Less short-term debt		60,129		59,729
Long-term debt	$	768,623	$	802,135

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

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

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

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

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

14

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

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

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

Year		Amount
		(In thousands)
2005	Term credit facilities		123,000
2006	Senior note		400,000
2009	Senior note		300,000
Total		$	823,000

	Currently, the Company is in compliance with debt covenant agreements and with the financial ratios as specified by term facilities.
14.	Other Non-Current Liabilities
	Other non-current liabilities consist of:

	June 30,		December 31,
	2004		2003
	(In thousands)
Deferred activation and installation revenues	$	71,747	$	69,347
Deferred directory-publishing revenues		3,008		12,877
Customer deposits		26,182		26,954
Other liabilities		83,117		128,227
Total	$	184,054	$	237,405

15

15.	Shareholders’ Equity
	Common Stock
	Common stock consists of fifty million authorized shares, no par value, of which twenty five million shares were outstanding at June 30, 2004 and December 31, 2003.
	Subscription Receivable
	The subscription receivable reflects receipts from the PRTA originally recorded at its present value (at an 8% discount rate). As part of the Acquisition agreement, the PRTA agreed to contribute a total of $200 million in cash or stock as a capital contribution in equal installments of $40 million over five years beginning on March 2, 2000. The Company employed the $200 million capital contribution to partially fund its underfunded pension and other post-employment benefit obligations, as agreed. The stock purchase agreement required the Company to contribute $66 million, which included the $40 million received from PRTA, to the pension plan immediately upon receipt of the proceeds each year. The Company received the fifth and final $40 million installment in March 2004 and made the required pension payment of $66 million. All installments were made in cash.
	Accumulated Other Comprehensive Loss
	The accumulated other comprehensive loss represents unrecognized losses, other than unrecognized prior service costs which are reflected as an other asset, associated with the hourly employee pension fund since the accumulated benefit obligation exceeds the fair value of plan assets.
	The accumulated other comprehensive loss amount as of December 31, 2003 has been adjusted in the amount of $64.8 million in order to reflect the after-tax amount in accordance with the provisions of SFAS No.130 “Reporting Comprehensive Income”.
	Dividends
	The Company’s shareholders’ agreement requires the payment of dividends equal to at least 50% of consolidated net income to be paid in the following quarter to the extent funds are legally available.
	Dividends payments were made in the following periods:

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

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

16

16.	Fair Value of Financial Instruments
	The carrying amounts and fair values of the Company’s financial instruments are as follows:

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

17.	Segment Reporting
	The Company has two reportable segments: Wireline and Wireless.
	The Wireline segment consists of:

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

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

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

• Directory publishing rights services; and

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

The Wireless segment consists of:

• Cellular service; and

• Wireless equipment sales.

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

17

Segment results for the Company are as follow:

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
				(in thousands)
Wireline:
Revenues-
Local services	$	139,525		$	148,794		$	278,120		$	294,922
Long distance services		34,537			34,770			73,392			68,769
Access services		74,000			78,601			147,678			161,161
Directory services and other		16,268			17,576			32,847			32,175
Total revenues	$	264,330		$	279,741		$	532,037		$	557,027
Operating income	$	100,926		$	28,189		$	152,897		$	90,990
Wireless:
Revenues-
Cellular services	$	47,566		$	46,757		$	95,717		$	94,142
Paging services		—			192			—			803
Equipment sales and other		3,932			2,990			8,045			5,875
Total revenues	$	51,498		$	49,939		$	103,762		$	100,820
Operating income	$	(2,588	)	$	(2,001	)	$	(4,201	)	$	(2,617	)
Consolidated:
Revenues for reportable segments	$	315,828		$	329,680		$	635,799		$	657,847
Elimination of intersegment revenues		(4,090	)		(3,013	)		(7,237	)		(5,738	)
Consolidated revenues	$	311,738		$	326,667		$	628,562		$	652,109
Operating income	$	98,338		$	26,188		$	148,696		$	88,373

	As of			As of
	June 30,			December 31,
Assets	2004			2003
Wireline assets	$	2,550,118		$	2,599,277
Wireless assets		333,347			314,172
Segment assets	$	2,883,465		$	2,913,449
Elimination of intersegment assets		(328,567	)		(292,211	)
Consolidated assets	$	2,554,898		$	2,621,238

18

18.	Condensed Consolidating Information
	The following summarizes the unaudited condensed consolidating financial information as of June 30, 2004 and December 31, 2003 and for the quarters then ended presents the financial position, results of operations and cash flows of (i) the Company as if it had accounted for its subsidiaries using the equity method, (ii) the Guarantor Subsidiary (as defined below); and (iii) the Non-Guarantor Subsidiaries (as defined below) on a combined basis. The consolidation entries eliminate investments in subsidiaries and intercompany balances and transactions.
	The Notes are guaranteed by PRTC (the “Guarantor Subsidiary”), a wholly-owned subsidiary of the Company, but not guaranteed by the Company’s other subsidiaries, Coqui.net, PRTLD and Datacom (the “Non-Guarantor Subsidiaries”). The guarantee by the Guarantor Subsidiary is full and unconditional.

19

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

				Guarantor			Non-Guarantor						Total
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9		$	66,341		$	12,657		$	—		$	79,007
Intercompany accounts receivable		1,070,237			84,117			43,522			(1,197,876	)		—
Accounts receivable, net		—			272,811			(54	)		—			272,757
Deferred income tax		718			30,237			31			—			30,986
Inventory and supplies, net		—			17,867			—			—			17,867
Prepaid expenses		—			26,513			1,194			—			27,707
Total current assets		1,070,964			497,886			57,350			(1,197,876	)		428,324
PROPERTY, PLANT AND EQUIPMENT, net		—			1,483,955			10,826			—			1,494,781
GOODWILL AND OTHER INTANGIBLES, net		—			289,814			24,642			—			314,456
DEFERRED INCOME TAX		—			208,868			(602	)		—			208,266
INVESTMENT IN SUBSIDIARIES		634,576			—			—			(634,576	)		—
OTHER ASSETS		9,340			107,442			(1	)		(7,710	)		109,071
TOTAL ASSETS	$	1,714,880		$	2,587,965		$	92,215		$	(1,840,162	)	$	2,554,898
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	60,000		$	60,129		$	—		$	(60,000	)	$	60,129
Intercompany accounts payable		73,537			271,937			32,257			(377,731	)		—
Other current liabilities		6,461			161,119			5,489			—			173,069
Total current liabilities		139,998			493,185			37,746			(437,731	)		233,198
LONG-TERM DEBT, excluding current portion		768,475			763,007			—			(762,859	)		768,623
OTHER NON-CURRENT LIABILITIES		—			737,422			—			(4,996	)		732,426
Total liabilities		908,473			1,993,614			37,746			(1,205,586	)		1,734,247
MINORITY INTEREST		—			—			—			14,244			14,244
SHAREHOLDERS’ EQUITY:
Common stock, Additional paid in capital and Treasury stock		703,884			485,301			41,143			(526,444	)		703,884
Deferred ESOP compensation		(26,153	)		—			—			—			(26,153	)
Retained earnings		230,061			210,435			13,326			(223,761	)		230,061
Accumulated other comprehensive loss		(101,385	)		(101,385	)		—			101,385			(101,385	)
Total shareholders’ equity		806,407			594,351			54,469			(648,820	)		806,407
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,714,880		$	2,587,965		$	92,215		$	(1,840,162	)	$	2,554,898

20

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

				Guarantor			Non-Guarantor						Total
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	12,438		$	9,294		$	—		$	21,732
Intercompany accounts receivable		1,059,752			85,610			40,608			(1,185,970	)		—
Accounts receivable, net		1			287,193			53			—			287,247
Deferred income tax		—			26,158			—			—			26,158
Inventory and supplies, net		—			21,202			—			—			21,202
Prepaid expenses		—			34,489			766			—			35,255
Total current assets		1,059,753			467,090			50,721			(1,185,970	)		391,594
PROPERTY, PLANT AND EQUIPMENT, net		—			1,546,503			11,743			—			1,558,246
GOODWILL AND OTHER INTANGIBLES, net		—			291,362			24,701			—			316,063
DEFERRED INCOME TAX		—			247,276			(482	)		—			246,794
INVESTMENT IN SUBSIDIARIES		570,870			—			—			(570,870	)		—
OTHER ASSETS		12,633			105,390			(2	)		(9,480	)		108,541
TOTAL ASSETS	$	1,643,256		$	2,657,621		$	86,681		$	(1,766,320	)	$	2,621,238
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	59,500		$	59,729		$	—		$	(59,500	)	$	59,729
Intercompany accounts payable		73,844			233,531			29,399			(336,774	)		—
Other current liabilities		6,574			200,512			6,394			—			213,480
Total current liabilities		139,918			493,772			35,793			(396,274	)		273,209
LONG-TERM DEBT, excluding current portion		801,987			792,987			—			(792,839	)		802,135
OTHER NON-CURRENT LIABILITIES		—			837,855			—			(6,337	)		831,518
Total liabilities		941,905			2,124,614			35,793			(1,195,450	)		1,906,862
MINORITY INTEREST		—			—			—			13,025			13,025
SHAREHOLDERS’ EQUITY:
Common stock, Additional paid in capital and Treasury stock		703,884			485,591			41,143			(526,734	)		703,884
Deferred ESOP compensation		(26,153	)		—			—			—			(26,153	)
Subscription receivable		(39,515	)		—			—			—			(39,515	)
Retained earnings		164,520			148,801			9,745			(158,546	)		164,520
Accumulated other comprehensive loss		(101,385	)		(101,385	)		—			101,385			(101,385	)
Total shareholders’ equity		701,351			533,007			50,888			(583,895	)		701,351
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,643,256		$	2,657,621		$	86,681		$	(1,766,320	)	$	2,621,238

21

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

				Guarantor			Non-Guarantor					Total
	Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—		$	131,640		$	8,556	$	(3,130	)	$	137,066
Long distance services		—			25,497			8,283		(23	)		33,757
Access services		—			75,018			—		(1,740	)		73,278
Cellular services		—			47,620			—		—			47,620
Paging services		—			—			—		—			—
Directory and other services and sales		—			22,474			—		(2,457	)		20,017
Total revenues		—			302,249			16,839		(7,350	)		311,738
OPERATING COSTS AND EXPENSES:
Labor and benefits		—			91,852			834		—			92,686
Other operating expenses		178			48,789			13,190		(7,350	)		54,807
Early retirement provision		—			—			—		—			—
Depreciation and amortization		—			65,341			566		—			65,907
Total operating costs and expenses		178			205,982			14,590		(7,350	)		213,400
OPERATING INCOME		(178	)		96,267			2,249		—			98,338
OTHER INCOME (EXPENSE), NET		53,263			(10,543	)		111		(53,921	)		(11,090	)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		53,085			85,724			2,360		(53,921	)		87,248
INCOME TAX EXPENSE (BENEFIT)		(70	)		33,171			992		—			34,093
NET INCOME (LOSS)	$	53,155		$	52,553		$	1,368	$	(53,921	)	$	53,155

22

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

			Guarantor			Non-Guarantor					Total
	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—	$	142,684		$	7,241	$	(2,425	)	$	147,500
Long distance services		—		25,253			8,601		(36	)		33,818
Access services		—		79,040			—		(1,166	)		77,874
Cellular services		—		46,575			—		—			46,575
Paging services		—		192			—		—			192
Directory and other services and sales		—		22,168			—		(1,460	)		20,708
Total revenues		—		315,912			15,842		(5,087	)		326,667
OPERATING COSTS AND EXPENSES:
Labor and benefits		—		99,337			778		—			100,115
Other operating expenses		—		128,810			10,608		(5,087	)		134,331
Voluntary separation and retirement provision		—		3,257			—		—			3,257
Depreciation and amortization		—		62,028			748		—			62,776
Total operating costs and expenses		—		293,432			12,134		(5,087	)		300,479
OPERATING INCOME		—		22,480			3,708		—			26,188
OTHER INCOME (EXPENSE), net		8,268		(13,221	)		54		(8,665	)		(13,564	)
INCOME BEFORE INCOME TAX EXPENSE		8,268		9,259			3,762		(8,665	)		12,624
INCOME TAX EXPENSE		—		2,820			1,536		—			4,356
NET INCOME	$	8,268	$	6,439		$	2,226	$	(8,665	)	$	8,268

23

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

				Guarantor			Non-Guarantor					Total
	Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—		$	262,623		$	16,788	$	(6,277	)	$	273,134
Long distance services		—			52,757			19,779		(42	)		72,494
Access services		—			150,334			—		(3,753	)		146,581
Cellular services		—			95,457			—		—			95,457
Directory and other services and sales		—			45,487			—		(4,591	)		40,896
Total revenues		—			606,658			36,567		(14,663	)		628,562
OPERATING COSTS AND EXPENSES:
Labor and benefits		—			190,511			1,670		—			192,181
Other operating expenses		178			143,445			26,705		(14,663	)		155,665
Early retirement provision		—			1,635			—		—			1,635
Depreciation and amortization		—			129,252			1,133		—			130,385
Total operating costs and expenses		178			464,843			29,508		(14,663	)		479,866
OPERATING INCOME		(178	)		141,815			7,059		—			148,696
OTHER INCOME (EXPENSE), net		77,211			(20,296	)		173		(78,429	)		(21,341	)
INCOME BEFORE INCOME TAX		77,033			121,519			7,232		(78,429	)		127,355
INCOME TAX EXPENSE (BENEFIT)		(894	)		47,504			2,818		—			49,428
	$	77,927		$	74,015		$	4,414	$	(78,429	)	$	77,927

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

			Guarantor			Non-Guarantor					Total
	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
REVENUES:
Local services	$	—	$	282,797		$	14,330	$	(4,589	)	$	292,538
Long distance services		—		49,798			16,945		(63	)		66,680
Access services		—		162,027			—		(2,298	)		159,729
Cellular services		—		94,029			—		—			94,029
Paging services		—		803			—		—			803
Directory and other services and sales		—		41,167			—		(2,837	)		38,330
Total revenues		—		630,621			31,275		(9,787	)		652,109
OPERATING COSTS AND EXPENSES:
Labor and benefits		—		201,420			1,592		—			203,012
Other operating expenses		—		222,490			20,042		(9,787	)		232,745
Voluntary separation and retirement provision		—		4,700			—		—			4,700
Depreciation and amortization		—		121,827			1,452		—			123,279
Total operating costs and expenses		—		550,437			23,086		(9,787	)		563,736
OPERATING INCOME		—		80,184			8,189		—			88,373
OTHER INCOME (EXPENSE), net		99,207		(22,658	)		94		(100,037	)		(23,394	)
INCOME BEFORE INCOME TAX		99,207		57,526			8,283		—			64,979
INCOME TAX EXPENSE		—		21,113			3,188		(100,037	)		24,301
INCOME BEFORE CUMULATIVE EFFECT		99,207		36,413			5,095		(100,037	)		40,678
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income tax of $40,672		—		58,529			—		—			58,529
NET INCOME	$	99,207	$	94,942		$	5,095	$	(100,037	)	$	99,207

25

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

				Guarantor			Non-Guarantor			Total
	Parent			Subsidiary			Subsidiaries			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	(1,934	)	$	110,413		$	3,377		$	111,856
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		—			(66,120	)		(13	)		(66,133	)
Proceeds from sale of building		—			930			—			930
Net salvage on retirements		—			203			(1	)		202
Net cash used in investing activities		—			(64,987	)		(14	)		(65,001	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		40,000			—			—			40,000
Net repayments of short-term debt, including capital leases		(29,480	)		(100	)		—			(29,580	)
Borrowings/(repayment) intercompany loans		(8,577	)		8,577			—			—
Net cash provided by financing activities		1,943			8,477			—			10,420
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9			53,903			3,363			57,275
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			12,438			9,294			21,732
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9		$	66,341		$	12,657		$	79,007

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

				Guarantor			Non-Guarantor			Total
	Parent			Subsidiary			Subsidiaries			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	(201	)	$	152,089		$	1,146		$	153,034
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including removal costs		—			(69,049	)		(286	)		(69,335	)
Net salvage on retirements		—			364			(181	)		183
Proceeds from sale of building		—			6,000			—			6,000
Net cash used in investing activities		—			(62,685	)		(467	)		(63,152	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Parent Company		—			—			—			—
Capital contribution		40,000			—			—			40,000
Net repayments of short-term debt, including capital leases		(75,682	)		(101	)		—			(75,783	)
Borrowings of long-term debt		—			—			—			—
Dividends paid		(68,125	)		—			—			(68,125	)
Borrowings/(repayments) intercompany loans		103,994			(103,994	)		—			—
Cash transferred from an affiliate		—			—			—			—
Net cash provided by (used in) financing activities		187			(104,095	)		—			(103,908	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(14	)		(14,691	)		679			(14,026	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1			27,009			6,657			33,667
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	(13	)	$	12,318		$	7,336		$	19,641

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19. Contingencies and Regulatory and Other Matters

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

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

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

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

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

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

OVERVIEW

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

CRITICAL ACCOUNTING POLICIES

General

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

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

29

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

Allowance for Doubtful Accounts

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

Deferred Taxes

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

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

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

Property, Plant and Equipment and Depreciation

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

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

30

RESULTS OF OPERATIONS

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

     The Wireline segment consists of:

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

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

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

• Directory publishing rights services; and

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

     The Wireless segment consists of:

• Cellular services; and

• Wireless equipment sales.

31

REVENUES

	Three Months Ended June 30,								Six Months Ended June 30,
	2004				2003				2004				2003
	(In millions)								(In millions)
WIRELINE:
Local	$	137	44	%	$	148	45	%	$	273	43	%	$	293	45	%
Network Access		73	23			78	24			147	23			160	25
Long Distance		34	11			34	11			72	12			67	10
Directory and Other		16	6			17	5			33	5			32	5
Total Wireline		260	84	%		277	85	%		525	83	%		552	85	%
WIRELESS:
Postpaid Cellular		42	13			40	12			85	14			80	12
Prepaid Cellular		6	2			7	2			11	2			14	2
Total Cellular		48	15			47	14			96	16			94	14
Wireless Equipment		4	1			3	1			8	1			6	1
Total Wireless		52	16	%		50	15	%		104	17	%		100	15	%
Revenues	$	312	100	%	$	327	100	%	$	629	100	%	$	652	100	%

EXPENSES AND CHARGES

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)						(In millions)
WIRELINE:
Labor and benefits	$	86		$	92		$	177		$	187
Other operating expenses		25			105			98			174
Total Wireline		111			197			275			361
WIRELESS:
Labor and benefits		7			8			15			16
Other operating expenses		29			31			58			59
Total Wireless		36			39			73			75
OPERATING COSTS AND EXPENSES		147			236			348			436
OTHER:
Voluntary separation and retirement provision		—			3			2			5
Depreciation and amortization		66			63			130			123
Interest expense and others		11			14			22			24
Equity income in joint venture		(1	)		(1	)		(1	)		(1	)
Minority interest in consolidated subsidiary		1			—			1			1
Income tax (benefit) expense		34			4			49			24
Cumulative effect of accounting change		—			—			—			(59	)
Net income	$	53		$	8		$	78		$	99

OPERATING DATA

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Access Lines in Service (000’s):
Residential		909		953		909		953
Business		285		297		285		297
Total		1,194		1,250		1,194		1,250
Cellular Customers (000’s):
Postpaid		246		233		246		233
Prepaid		103		120		103		120
Total		349		353		349		353
Postpaid Cellular Average Revenue Per Unit (ARPU)	$	49	$	53	$	50	$	52
Prepaid Cellular ARPU		17		19		16		20
Combined Cellular ARPU		40		41		39		41

32

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

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

     WIRELINE:

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

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

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

     Long distance revenues include direct dial on-island and off-island, operator-assisted calls, prepaid calling cards and on-island private line long distance revenues. Long distance revenues for the quarter ended June 30, 2004 of $34 million remained constant compared to the same period in 2003.

     Directory and other revenues include revenues from directory publishing rights, telecommunication equipment sales and billing and collection services provided to competing long distance operators in Puerto Rico. Directory and other revenues for the quarter ended June 30, 2004 decreased $1 million, or 6%, to $16 million from $17 million for the same period in 2003 due to a decrease in revenues from wireline equipment sales of $1 million.

     WIRELESS:

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

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

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

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

     WIRELINE:

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

33

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

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

     WIRELESS:

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

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

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

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

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

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

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

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

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

34

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

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

     WIRELINE:

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

     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 six months ended June 30, 2004 decreased $20 million, or 7%, to $273 million from $293 million for the same period in 2003. The decrease was driven by a decrease in revenues from basic voice services of $20 million mainly due to 5% fewer access lines.

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

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

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

     WIRELESS:

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

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

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

     WIRELINE:

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

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

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

     WIRELESS:

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

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

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

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

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

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

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

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

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

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

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

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

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LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED FINANCIAL CONDITION

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

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

OVERALL LIQUIDITY ASSESSMENT

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

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

OPERATIONS

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

INVESTING

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

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

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FINANCING

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

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

Contractual Obligations &
Other Commercial Commitments:	Payments Due In Period
	(Dollars in Millions)
	Total		2004		2005		2006		2007		2008		Thereafter
Long Term Debt, including interest rate swap	$	705	$	—	$	—	$	405	$	—	$	—	$	300
Term Credit Facilities		123		—		123		—		—		—		—
Pension Benefit Obligations		423		153		141		89		32		8		—
Operating Leases		47		12		10		7		4		2		12
Total	$	1,298	$	165	$	274	$	501	$	36	$	10	$	312

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REGULATORY AND OTHER MATTERS

REGULATORY AND COMPETITIVE TRENDS

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

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

INTRA-ISLAND LONG DISTANCE ACCESS RATE DISPUTE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EXTENDED AREA SERVICE (EAS) LOCAL CALLING ZONE DISPUTE

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

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

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

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

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

CARRIER ACCESS BILLING

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

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

PUBLIC TELEPHONE SERVICE PROVIDER – ANTI COMPETITIVE ACTIONS

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

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

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

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

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

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

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

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

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

TOUCHTONE CHARGES

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

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

CTI ASSET TRANSFER

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

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

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

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

PRICE CAP REGULATION

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

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

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

INTERSTATE HIGH COST SUBSIDY

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

TRB AGREED UPON PROCEDURES AUDIT

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

WORLDNET ARBITRATION PROCEEDING

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

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

44

RECENT ACCOUNTING PRONOUNCEMENTS

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

45

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

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

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

					Fair Value
					Assuming 100 Basis Point
	Book Value		Fair Value		Increase			Decrease
	(In thousands)
June 30, 2004:
Senior notes	$	699,859	$	746,100	$	725,599		$	767,451
Interest rate swap		620		620		(743	)		1,435
Total	$	700,479	$	746,720	$	724,856		$	768,886
December 31, 2003:
Senior notes	$	699,839	$	770,526	$	746,165		$	795,974
Interest rate swap		2,811		2,811		(467	)		6,133
Total	$	702,650	$	773,337	$	745,698		$	802,107

46

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.

47

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults Upon Senior Securities

     Not applicable.

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

     Not applicable.

Item 5. Other Information

     Not applicable.

Item 6. Exhibits and Reports on Form 8-K

     a) See Exhibit Index on page following signatures.

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

48

SIGNATURES

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

     TELECOMUNICACIONES DE PUERTO RICO, INC.

By:	/s/ Cristina M. Lambert
Name:		Cristina M. Lambert
Title:		President and Chief Executive Officer
Date:		August 16, 2004
By:	/s/ Adail Ortiz
Name:		Adail Ortiz
Title:		Vice President Finance and Chief Financial Officer
Date:		August 16, 2004
By:	/s/ Raúl E. García
Name:		Raúl E. García
Title:		Controller
Date:		August 16, 2004

49

EXHIBIT INDEX

EXHIBIT
NUMBER	DESCRIPTION
3.1	Certificate of Incorporation of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
3.2	Certificate of Amendment to the Certificate of Incorporation of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 (File 333-85503)).
3.3	By-Laws of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
4.1	Trust Indenture dated as of May 20, 1999 between Telecomunicaciones de Puerto Rico, Inc. and The Bank of New York. (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.1	Shareholders Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., Puerto Rico Telephone Authority and the shareholders of Telecomunicaciones de Puerto Rico, Inc., who shall from time to time be parties thereto as provided therein. (Incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.2	Amended and Restated Puerto Rico Management Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.3	Amended and Restated U.S. Management Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.4	Amended and Restated Technology Transfer Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE International Telecommunications Incorporated. (Incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.5	Non-Competition Agreement, dated as of March 2, 1999, by and among Telecomunicaciones de Puerto Rico, Inc, GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., Puerto Rico Telephone Authority, and the Government Development Bank for Puerto Rico. (Incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.6	Trust Agreement of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc., dated as of March 2, 1999, by and between U.S. Trust, National Association and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.12 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.7	ESOP Loan Agreement, dated as of March 2, 1999, by and between the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.13 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.8	Pledge Agreement, dated as of March 2, 1999, by and between the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. and Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).

50

EXHIBIT
NUMBER	DESCRIPTION
10.9	Tag Along Agreement, dated as of March 2, 1999, by and among GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, and the Trust of the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.16 of the Company’s Registration Statement filed on Form S-4, as amended (File 333-85503)).
10.10	Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Merrill Lynch Money Markets Inc., as Dealer for notes with maturities up to 240 days; Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer for notes with maturities over 270 days up to 365 days. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).
10.11	Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Salomon Smith Barney Inc., as Dealer. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.26 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).
10.12	Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Banc of America Securities LLC. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).
10.13	Commercial Paper Dealer Agreement 4(2) Program among Telecomunicaciones de Puerto Rico, Inc., as Issuer; Puerto Rico Telephone Company, Inc. and Celulares Telefónica, Inc., as Guarantors; and Popular Securities, Inc., as Dealer for notes with maturities up to 365 days. Concerning notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of November 9, 2000 between the Issuer and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).
10.14	Issuing and Paying Agency Agreement dated as of November 9, 2000, by and among Telecomunicaciones de Puerto Rico, Inc., as Issuer, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and The Chase Manhattan Bank, as Issuing and Paying Agent. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File 333-85503)).
10.15	Letter Amendment, to the March 2, 1999 Shareholders Agreement, dated as of May 25, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings (Puerto Rico) LLC, GTE International Telecommunications Incorporated, Popular, Inc., and the Puerto Rico Telephone Authority. (Incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001 (File 333-85503)).
10.16	ISDA Master Agreement, dated August 29, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., as the Counterparty, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and Bank of America, N.A., as the Bank. (Incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-Q for the period ended September 31, 2001 (File 333-85503)).
10.17	ISDA Master Agreement, dated August 29, 2001, by and among Telecomunicaciones de Puerto Rico, Inc., as the Counterparty, Puerto Rico Telephone Company and Celulares Telefónica, Inc., as Guarantors, and Citibank, N.A., as the Bank. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended September 31, 2001 (File 333-85503)).

51

EXHIBIT
NUMBER	DESCRIPTION
10.18	Plan of Reorganization and Agreement of Merger, dated as of May 1, 2002, between Puerto Rico Telephone Company, Inc. and Verizon Wireless Puerto Rico, Inc. (Incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).
10.19	$90,000,000 working capital revolving credit agreement dated as of May 16, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Banco Popular de Puerto Rico, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).
10.20	$50,000,000 2-Year term credit agreement dated as of May 16, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Banco Bilbao Vizcaya Argentaria, S.A., as Lender and Banco Bilbao Vizcaya Puerto Rico, as Administrative Agent. (Incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).
10.21	$50,000,000 2-Year term credit agreement dated as of May 31, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and HSBC Bank USA, as Lender. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).
10.22	$50,000,000 3-Year term credit agreement dated as of June 24, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and Australia and New Zealand Banking Group Limited, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.29 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File 333-85503)).
10.23	$75,000,000 3-Year term credit agreement dated as of August 19, 2002, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, and The Bank of Nova Scotia, as Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.28 of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 (File 333-85503)).
10.24	Letter Amendment to the $90 million working capital revolving credit agreement dated as of December 31, 2002. (Incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)).
10.25	Assignment and Acceptance agreement, dated as of December 31, 2002, relating to the $50 million 3-Year Term Credit Agreement, dated as of June 24, 2002. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)).
10.26	Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Union of Telephone Employees of Puerto Rico effective from January 18, 2003 until January 17, 2006. Approved on February 13, 2003. (Incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File 333-85503)). Second Allonge to the $90 million working capital revolving credit agreement dated as of June 30, 2003. (Incorporated by reference to Exhibit 10.31 of the Company’s Quarterly Report on
10.27	Form 10-Q for the period ended June 30, 2003 (File 333-85503)).
10.28	364-Day Credit Agreement dated as of March 2, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor, the Initial Lenders named therein, Citibank, N.A., as Administrative Agent, Banco Bilbao Vizcaya Argentaria Puerto Rico, as Syndication Agent, and Banco Popular de Puerto Rico, Firstbank Puerto Rico and Scotiabank de Puerto Rico, as Co-documentation Agents. (Incorporated by reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (File 333-85503)).

52

EXHIBIT
NUMBER	DESCRIPTION
10.29	Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Brotherhood of Telephone Company Employees effective from January 1, 2004 until December 31, 2008. Approved on April 15, 2004. (Incorporated by reference to Exhibit 10.29 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File 333-85503)).
10.30	$40,000,000 working capital revolving credit agreement dated as of June 30, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor and Banco Popular de Puerto Rico, as Lender and Administrative Agent. (Filed herewith).
10.31	Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Union of Telephone Employees of Puerto Rico effective from January 18, 2003 until January 17, 2006. Approved on February 13, 2003. English Version. (Filed herewith).
10.32	Collective Bargaining Agreement between the Puerto Rico Telephone Company and the Independent Brotherhood of Telephone Company Employees effective from January 1, 2004 until December 31, 2008. Approved on April 15, 2004. English Version. (Filed herewith).
10.33	$30,000,000 1-Year term credit agreement dated as of May 17, 2004, among Telecomunicaciones de Puerto Rico, Inc., as Borrower, Puerto Rico Telephone Company, Inc., as Guarantor and Banco Bilbao Vizcaya Argentaria Puerto Rico, as Administrative Agent. (Filed herewith).
31.1	Certification of Principal Executive Officer (Filed herewith).
31.2	Certification of Principal Financial Officer (Filed herewith).
32.1	Certification Required by 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

53

EX-10.30

EXHIBIT 10.30

                           REVOLVING CREDIT AGREEMENT

                            Dated as of June 30, 2004

            TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico corporation
(the "Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico corporation
("PRTC" or "Guarantor" and, collectively with each Significant Subsidiary (as
hereinafter defined) that shall become a guarantor hereunder in accordance with
Section 5.01(j), the "Guarantors"), the banks, financial institutions and other
institutional lenders listed on the signature pages hereof, (the "Lenders") and
Banco Popular de Puerto Rico ("BPPR"), as administrative agent for the Lenders
(in such capacity, the "Agent"), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

            SECTION 1.01. Certain Defined Terms.

            As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

            "Additional Bank Indebtedness" means collectively the Existing Bank
Indebtedness, and additional unsecured loans or other unsecured extensions of
credit to the Borrower by banks and other financial institutions.

            "Advance" means an advance by a Lender to the Borrower as part of a
      Borrowing and refers to a Base Rate Advance or a LIBOR Rate Advance (each
      of which shall be a "Type" of Advance).

            "Affiliate" means, as to any Person, any other Person that, directly
      or indirectly, controls, is controlled by or is under common control with
      such Person or is a director or officer of such Person. For purposes of
      this definition, the term "control" (including the terms "controlling",
      "controlled by" and "under common control with") of a Person means the
      possession, direct or indirect, of the power to vote 10% or more of the
      Voting Stock of such Person or to direct or cause the direction of the
      management and policies of such Person, whether through the ownership of
      Voting Stock, by contract or otherwise; provided, however, that for
      purposes of this credit agreement, BPPR shall not be deemed to be an
      Affiliate of the Borrower.

            "Agent's Account" means the account of the Agent maintained by the
      Agent at BPPR with its office at 209 Munoz Rivera Avenue, San Juan, Puerto
      Rico 00918, Account No. 1970, Attention: Corporate Banking.

            "Applicable Lending Office" means, with respect to each Lender, such
      Lender's Domestic Lending Office in the case of a Base Rate Advance and
      such Lender's LIBOR Lending Office in the case of a LIBOR Rate Advance.

            "Applicable Margin" means, for any Interest Period, 0.40% per annum
      for LIBOR Rate Advances.

            "Assignment and Acceptance" means an assignment and acceptance
      entered into by a Lender and an Eligible Assignee, and accepted by the
      Agent, in substantially the form of Exhibit C hereto.



            "Base Rate" means a fluctuating interest rate per annum in effect
      from time to time, which rate per annum shall at all times be equal to the
      higher of:

                  (a)   the simple average of rates of interest announced
            publicly in the Wall Street Journal by the commercial banks in New
            York, New York, from time to time, as their prime commercial lending
            rate that is offered to its customers generally (before giving
            effect to any applicable margin); and

                  (b)   1/2 of one percent per annum above the Federal Funds
            Rate.

            "Base Rate Advance" means an Advance that bears interest as provided
      in Section 2.06(a)(i).

            "Borrower" has the meaning specified in the recital of parties.

            "Borrower's Account" means the account of the Borrower maintained by
      the Borrower at BPPR with its office at 209 Munoz Rivera Ave., San Juan,
      Puerto Rico 00918, Account No. 030-303664.

            "Borrowing" means a borrowing consisting of simultaneous Advances of
      the same Type made by each of the Lenders pursuant to Section 2.01.

            "Business Day" means a day of the year on which banks are not
      required or authorized by law to close in New York City or San Juan,
      Puerto Rico, provided that, if the applicable Business Day relates to any
      LIBOR Rate Advances, "Business Day" means a day of the year on which banks
      are not required or authorized by law to close in New York City or San
      Juan, Puerto Rico and on which dealings are carried on in the London
      interbank market.

            "Commitment" has the meaning specified in Section 2.01.

            "Consolidated" refers to the consolidation of accounts in accordance
      with GAAP.

            "Consolidated Assets" means, for any period, the total assets of the
      Borrower and its Subsidiaries as shown on the audited Consolidated balance
      sheet or unaudited Consolidated balance sheet, as the case may be, as of
      the end of the most recent fiscal quarter preceding such period.

            "Controlling Interest" means (a) ownership of at least 35% plus one
      share, of the Voting Stock of the Borrower and (b) the ability to appoint
      a majority of the Board of Directors of the Borrower.

            "Convert", "Conversion" and "Converted" each refers to a conversion
      of Advances of one Type into Advances of the other Type pursuant to
      Section 2.07 or 2.08.

            "Debt" of any Person means, without duplication, (a) all
      indebtedness of such Person for borrowed money, (b) all obligations of
      such Person for the deferred purchase price of property or services (other
      than trade payables incurred in the ordinary course of such Person's
      business for which collection proceedings have not been commenced,
      provided that trade payables for which collection proceedings have
      commenced shall not be included in the term "Debt" so long as the payment
      of such trade payables is being contested in good faith and by proper
      proceedings and for which appropriate reserves are being maintained), (c)
      all obligations of such Person evidenced by notes, bonds, debentures or
      other similar instruments, (d) all obligations of such Person created or
      arising under any conditional sale or other similar title retention
      agreement with respect to property acquired by such Person (even though
      the rights and remedies of the seller or lender under such agreement in
      the event of default are limited to repossession or sale of such
      property), (e) all obligations of such Person as lessee under leases that
      have been, in accordance with GAAP, recorded as capital leases, (f) all
      obligations of such Person in respect of acceptances, letters of credit or
      similar extensions of credit, (g) all net obligations of such Person in
      respect of Hedge Agreements,



      (h) all Debt of others referred to in clauses (a) through (g) above or
      clause (i) below guaranteed directly, or indirectly through a Subsidiary,
      by such Person, or in effect guaranteed directly, or indirectly through a
      Subsidiary, by such Person through a written agreement either (1) to pay
      or purchase such Debt or to advance or supply funds for the payment or
      purchase of such Debt or (2) to purchase, sell or lease (as lessee or
      lessor) property, or to purchase or sell services, primarily for the
      purpose of enabling the debtor to make payment of such Debt or to assure
      the holder of such Debt against loss and (i) all Debt referred to in
      clauses (a) through (h) above secured by (or for which the holder of such
      Debt has an existing right, contingent or otherwise, to be secured by) any
      Lien on property (including, without limitation, accounts and contract
      rights) owned by such Person, even though such Person has not assumed or
      become liable for the payment of such Debt.

            "Debt to EBITDA Ratio" of any Person at any date means the ratio of
      (a) Debt of the types that, in accordance with GAAP, would be classified
      as indebtedness on a Consolidated balance sheet of such Person on such
      date to (b) EBITDA for the period of four fiscal quarters of such Person
      ended on or immediately prior to such date, provided that for purposes of
      clause (a) of this definition, Debt shall not include (1) the obligations
      specified in clause (g) of the definition thereof set forth above or (2)
      with respect to the Borrower, any obligations which may be assumed by the
      Borrower for guaranties of any indebtedness of the Borrower's employee
      stock ownership plan up to an aggregate principal amount of $29,745,000.

            "Default" means any Event of Default or any event that would
      constitute an Event of Default but for the requirement that notice be
      given or time elapse or both.

            "Disclosed Litigation" has the meaning specified in Section 3.01(b).

            "Domestic Lending Office" means, with respect to any Lender, the
      office of such Lender specified as its "Domestic Lending Office" opposite
      its name on Schedule I hereto or in the Assignment and Acceptance pursuant
      to which it became a Lender, or such other office of such Lender as such
      Lender may from time to time specify to the Borrower and the Agent.

            "EBITDA" means the sum, determined on a Consolidated basis, of the
      Borrower's (i) net income (or net loss), (ii) interest expense, (iii)
      income tax expense, (iv) depreciation expense, (v) amortization expense
      and (vi) non-cash severance charges in an aggregate amount not to exceed
      $20,000,000 in calendar year 2004 and $20,000,000 in calendar year 2005.

            "EBITDA to Interest Ratio" of any Person on any date means the ratio
      of (a) EBITDA for the period of four fiscal quarters of such Person ended
      on or immediately prior to such date to (b) interest payable on, and
      amortization of debt discount in respect of, all Debt of such Person for
      the period of four fiscal quarters of such Person ended on or immediately
      prior to such date, provided that for purposes of clause (b) of this
      definition, Debt shall not include the obligations specified in clause (g)
      of the definition thereof set forth above.

            "Effective Date" has the meaning specified in Section 3.01.

            "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
      Lender that is a financial institution and is majority-owned by such
      Lender; (iii) any commercial bank organized under the laws of the
      Commonwealth of Puerto Rico having total assets in excess of
      $1,000,000,000 and with an unsecured long-term debt credit rating equal to
      or greater than BBB+ from Standard & Poor's ("S&P") and Baa1 from Moody's
      Investor Services, Inc. ("Moody's") or any other commercial bank having
      total assets in excess of $1,000,000,000 and with an unsecured long-term
      debt credit rating equal to or greater than BBB+ from S&P and Baa1 from
      Moody's that has an Applicable Lending Office that is not subject to
      deduction or withholding of Taxes; or (iv) any other Person approved by
      the Agent and, so long as no Default has



      occurred and is continuing, the Borrower, such approval not to be
      unreasonably withheld; provided, however, that neither the Borrower nor
      any Affiliate of the Borrower shall qualify as an Eligible Assignee.

            "Environmental Action" means any action, suit, demand, demand
      letter, claim, notice of non-compliance or violation, notice of liability
      or potential liability, investigation, proceeding, consent order or
      consent agreement relating in any way to any Environmental Law,
      Environmental Permit or Hazardous Materials or arising from alleged injury
      or threat of injury to health, safety or the environment, including,
      without limitation, (a) by any governmental or regulatory authority for
      enforcement, cleanup, removal, response, remedial or other actions or
      damages and (b) by any governmental or regulatory authority or any third
      party for damages, contribution, indemnification, cost recovery,
      compensation or injunctive relief.

            "Environmental Law" means any federal, state, local or foreign
      statute, law, ordinance, rule, regulation, code, order, judgment, decree
      or judicial or agency interpretation, policy or guidance relating to
      pollution or protection of the environment, health, safety or natural
      resources, including, without limitation, those relating to the use,
      handling, transportation, treatment, storage, disposal, release or
      discharge of Hazardous Materials.

            "Environmental Permit" means any permit, approval, identification
      number, license or other authorization required under any Environmental
      Law.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
      as amended from time to time, and the regulations promulgated and rulings
      issued thereunder.

            "ERISA Affiliate" means any Person that for purposes of Title IV of
      ERISA is a member of the Loan Parties' controlled group, or under common
      control with the Borrower, within the meaning of Section 414 of the
      Internal Revenue Code.

            "ERISA Event" means (a) the occurrence of a reportable event, within
      the meaning of Section 4043 of ERISA, with respect to any Plan unless the
      30-day notice requirement with respect to such event has been waived by
      the PBGC; (b) the application for a minimum funding waiver with respect to
      a Plan; (c) the provision by the administrator of any Plan of a notice of
      intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA
      (including any such notice with respect to a plan amendment referred to in
      Section 4041(e) of ERISA); (d) the cessation of operations at a facility
      of any of the Loan Parties or any ERISA Affiliate in the circumstances
      described in Section 4062(e) of ERISA; (e) the withdrawal by any of the
      Loan Parties or any ERISA Affiliate from a Multiple Employer Plan during a
      plan year for which it was a substantial employer, as defined in Section
      4001(a)(2) of ERISA; (f) the imposition of a lien under Section 302(f) of
      ERISA with respect to any Plan; (g) the adoption of an amendment to a Plan
      requiring the provision of security to such Plan pursuant to Section 307
      of ERISA; or (h) the institution by the PBGC of proceedings to terminate a
      Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or
      condition described in Section 4042 of ERISA that is reasonably expected
      to result in the termination of, or the appointment of a trustee to
      administer, a Plan.

            "Eurocurrency Liabilities" has the meaning assigned to that term in
      Regulation D of the Board of Governors of the Federal Reserve System, as
      in effect from time to time.

            "Events of Default" has the meaning specified in Section 6.01.

            "Existing Bank Indebtedness" has the meaning specified in Schedule
      5.02(d).

            "Federal Funds Rate" means, for any period, a fluctuating interest
      rate per annum equal for each day during such period to the weighted
      average of the rates on overnight Federal funds transactions with members
      of the Federal Reserve System arranged by Federal funds brokers, as
      published for such day (or, if such day is not a Business Day, for the
      next preceding Business Day) by the Federal Reserve Bank of



      New York, or, if such rate is not so published for any day that is a
      Business Day, the average of the quotations for such day on such
      transactions received by the Agent from three Federal funds brokers of
      recognized standing selected by it.

            "GAAP" means (a) in the case of the preparation of all financial
      reporting requirements, generally accepted accounting principles in the
      United States, as in effect from time to time, and (b) in the case of the
      calculation, certification and compliance with all financial tests and
      covenants, generally accepted accounting principles in the United States,
      as in effect on the date of the financial statements delivered to each
      Lender in accordance with Section 4.01(e), in each case applied on a
      consistent basis both as to classification of items and amounts.

            "Guaranteed Obligations" has the meaning specified in Section 7.01.

            "Guarantors" has the meaning specified in the recital of parties.

            "Guaranty" has the meaning specified in Section 7.01.

            "Hazardous Materials" means (a) petroleum and petroleum products,
      byproducts or breakdown products, radioactive materials,
      asbestos-containing materials, polychlorinated biphenyls and radon gas and
      (b) any other chemicals, materials or substances designated, classified or
      regulated as hazardous or toxic or as a pollutant or contaminant under any
      Environmental Law.

            "Hedge Agreements" means interest rate swap, cap or collar
      agreements, interest rate future or option contracts, currency swap
      agreements, currency future or option contracts and other similar
      agreements.

            "Interest Period" means, for each LIBOR Rate Advance comprising part
      of the same Borrowing, the period commencing on the date of such LIBOR
      Rate Advance or the date of the Conversion of any Base Rate Advance into
      such LIBOR Rate Advance and ending on the last day of the period selected
      by the Borrower pursuant to the provisions below and, thereafter, with
      respect to LIBOR Rate Advances, each subsequent period commencing on the
      last day of the immediately preceding Interest Period and ending on the
      last day of the period selected by the Borrower pursuant to the provisions
      below. The duration of each such Interest Period shall be one, two, three
      or six months, and subject to clause (iii) of this definition, any other
      period, as the Borrower may, upon notice received by the Agent not later
      than 11:00 A.M. (Atlantic Standard time) on the second Business Day prior
      to the first day of such Interest Period, select; provided, however, that:

                  (i)   the Borrower may not select any Interest Period that
            ends after the Termination Date;

                  (ii)  Interest Periods commencing on the same date for LIBOR
            Rate Advances comprising part of the same Borrowing shall be of the
            same duration; and

                  (iii) in the case of any such Borrowing, the Borrower shall
            not be entitled to select an Interest Period having duration of any
            period other than one, two, three or six months unless, by 2:00 P.M.
            (Atlantic Standard Time) on the second Business Day prior to the
            first day of such Interest Period, each Lender notifies the Agent
            that such Lender will be providing funding for such Borrowing with
            such Interest Period (the failure of any Lender to so respond by
            such time being deemed for all purposes of this Agreement as an
            objection by such Lender to the requested duration of such Interest
            Period, provided that each Lender shall use commercially reasonable
            good faith efforts to so respond); provided further that, if any or
            all of the Lenders object to the requested duration of such Interest
            Period for such Borrowing shall be one, two, three or six



            months, as specified by the Borrower in the applicable Notice of
            Borrowing as the desired alternative to the selected Interest
            Period; and

                  (iv)  whenever the last day of any Interest Period would
            otherwise occur on a day other than a Business Day, the last day of
            such Interest Period shall be extended to occur on the next
            succeeding Business Day, provided, however, that, if such extension
            would cause the last day of such Interest Period to occur in the
            next following calendar month, the last day of such Interest Period
            shall occur on the next preceding Business Day; and

                  (v)   whenever the first day of any Interest Period occurs on
            a day of an initial calendar month for which there is no numerically
            corresponding day in the calendar month that succeeds such initial
            calendar month by the number of months equal to the number of months
            in such Interest Period, such Interest Period shall end on the last
            Business Day of such succeeding calendar month.

            "Internal Revenue Code" means the Internal Revenue Code of 1986, as
      amended from time to time, and the regulations promulgated and rulings
      issued thereunder.

            "Lenders" means BPPR and each Person that shall become a party
      hereto pursuant to Section 9.07.

            "LIBOR Lending Office" means, with respect to any Lender, the office
      of such Lender specified as its "LIBOR Lending Office" opposite its name
      on Schedule I hereto or in the Assignment and Acceptance pursuant to which
      it became a Lender (or, if no such office is specified, its Domestic
      Lending Office), or such other office of such Lender as such Lender may
      from time to time specify to the Borrower and the Agent.

            "LIBOR Rate" means, for any Interest Period for each LIBOR Rate
      Advance comprising part of the same Borrowing, an interest rate per annum
      equal to the rate per annum obtained by dividing (a) the rate per annum
      (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) as
      quoted by Bloomberg Professional (currently on page BBVAM1, or any
      succeeding page dealing with such quotes) as the London interbank offered
      rate for deposits in U.S. dollars at approximately 11:00 A.M. (Atlantic
      Standard time) two Business Days prior to the first day of such Interest
      Period for a term comparable to such Interest Period or, if for any reason
      such rate is not available, the average (rounded upward to the nearest
      whole multiple of 1/16 of 1% per annum, if such average is not such a
      multiple) of the rate per annum at which deposits in U.S. dollars are
      offered by at least three (3) major international commercial banks in
      immediately available funds in the London interbank market at
      approximately 11:00 A.M., Atlantic Standard Time, two Business Days before
      the first day of such Interest Period in an amount approximately equal to
      the contemplated LIBOR Rate Advance comprising part of such Borrowing to
      be outstanding during such Interest Period and for a period equal to such
      Interest Period by (b) a percentage equal to 100% minus the LIBOR Rate
      Reserve Percentage for such Interest Period. The LIBOR Rate for any
      Interest Period for each LIBOR Rate Advance comprising part of the same
      Borrowing shall be determined by the Agent on the basis of applicable
      rates furnished to and received by the Agent from the Initial Lenders two
      Business Days before the first day of such Interest Period, subject,
      however, to the provisions of Section 2.07. If for any reason such
      quotations are no longer published by Bloomberg Professional, then the
      quote shall be obtained from Moneyline Telerate Markets page 3750, or any
      succeeding page dealing with such quotes.

            "LIBOR Rate Advance" means an Advance that bears interest as
      provided in Section 2.06(a)(ii).

            "LIBOR Rate Reserve Percentage" for any Interest Period for all
      LIBOR Rate Advances comprising part of the same Borrowing means the
      reserve percentage applicable two Business Days before the first day of
      such Interest Period under regulations issued from time to time by the
      Board of Governors of the Federal Reserve System (or any successor) for
      determining the maximum reserve requirement



      (including, without limitation, any emergency, supplemental or other
      marginal reserve requirement) for a member bank of the Federal Reserve
      System in New York City with respect to liabilities or assets consisting
      of or including Eurocurrency Liabilities (or with respect to any other
      category of liabilities that includes deposits by reference to which the
      interest rate on LIBOR Rate Advances is determined) having a term equal to
      such Interest Period.

            "Lien" means any lien, security interest or other charge or
      encumbrance of any kind.

            "Loan Party" means each of the Borrower and the Guarantors.

            "Material Adverse Change" means any material adverse change in the
      business, condition (financial or otherwise), operations, performance,
      properties or prospects of any Loan Party or any Loan Party and its
      Subsidiaries taken as a whole.

            "Material Adverse Effect" means a material adverse effect on (a) the
      ability of any Loan Party to conduct its business on substantially the
      same basis as conducted on the Effective Date or (b) the ability of any
      Loan Party to service its Debt obligations on a timely basis.

            "Moody's" means Moody's Investors Service, Inc.

            "Multiemployer Plan" means a multiemployer plan, as defined in
      Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
      Affiliate is making or accruing an obligation to make contributions, or
      has within any of the preceding five plan years made or accrued an
      obligation to make contributions.

            "Multiple Employer Plan" means a single employer plan, as defined in
      Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
      Loan Party or any ERISA Affiliate and at least one Person other than such
      Loan Party and the ERISA Affiliates or (b) was so maintained and in
      respect of which any Loan Party or any ERISA Affiliate could have
      liability under Section 4064 or 4069 of ERISA in the event such plan has
      been or were to be terminated.

            "Note" means a promissory note of the Borrower payable to the order
      of any Lender, in substantially the form of Exhibit A hereto, evidencing
      the aggregate indebtedness of the Borrower to such Lender resulting from
      the Advances made by such Lender.

            "Notice of Borrowing" has the meaning specified in Section 2.02(a).

            "Other Taxes" has the meaning specified in Section 2.13(b).

            "PBGC" means the Pension Benefit Guaranty Corporation (or any
      successor).

            "Permitted Liens" means, with respect to any Person, (a) Liens for
      taxes, assessments and governmental charges and levies to the extent not
      required to be paid under Section 5.01(b) hereof; (b) pledges or deposits
      to secure obligations under workers' compensation laws or similar
      legislation; (c) pledges or deposits to secure performance in connection
      with bids, tenders, contracts (other than contracts for the payment of
      money) or leases to which such Person is a party; (d) deposits to secure
      public or statutory obligations of such Person; (e) materialmen's,
      mechanics', carriers', workers', repairmen's or other like Liens in the
      ordinary course of business, or deposits to obtain the release of such
      Liens to the extent such Liens, in the aggregate, would not have a
      Material Adverse Effect; (f) deposits to secure surety and appeal bonds to
      which such Person is a party; (g) other pledges or deposits for similar
      purposes in the ordinary course of business; (h) Liens created by or
      resulting from any litigation or legal proceeding which at the time is
      currently being contested in good faith by appropriate proceedings; (i)
      leases made, or existing on property acquired, in the ordinary course of
      business; (j) landlord's Liens under leases to which such Person is a
      party; (k) zoning restrictions, easements, licenses, and restrictions on
      the use of real



      property or minor irregularities in title thereto, which do not materially
      impair the use of such property in the operation of the business of such
      Person or the value of such property for the purpose of such business; and
      (l) bankers' liens, rights of set-off or analogous rights granted or
      arising by operation of law to any deposits held by or other indebtedness
      owing by any lender or any affiliate thereof to or for the credit or
      account of such Person.

            "Permitted Receivables Financing" means any financing pursuant to
      which the Borrower or any Subsidiary of the Borrower may sell, convey, or
      otherwise transfer to a Receivables Subsidiary or any other Person (in the
      case of transfer by a Receivables Subsidiary), or grant a security
      interest in, any accounts receivable (and related assets) of the Borrower
      or such Subsidiary, provided that such financing shall be on customary
      market terms and shall be non-recourse to the Borrower and its
      Subsidiaries (other than the Receivables Subsidiary) except to a limited
      extent customary for such transactions. The grant of a security interest
      in any accounts receivable of the Borrower or any Subsidiary of the
      Borrower (other than a Receivables Subsidiary) to secure Debt under any
      credit facility shall not be deemed a Permitted Receivables Financing.

            "Person" means an individual, partnership, corporation (including a
      business trust), joint stock company, trust, unincorporated association,
      joint venture, limited liability company or other entity, or a government
      or any political subdivision or agency thereof.

            "Plan" means a Single Employer Plan or a Multiple Employer Plan.

            "Public Debt Rating" means, as of any date, the rating that has been
      most recently announced by any of S&P or Moody's, as the case may be, for
      any class of non-credit enhanced long-term senior unsecured debt issued by
      the Borrower. For purposes of the foregoing, (a) if any rating established
      by S&P or Moody's shall be changed, such change shall be effective as of
      the date on which such change is first announced publicly by the rating
      agency making such change; and (b) if S&P or Moody's shall change the
      basis on which ratings are established, each reference to the Public Debt
      Rating announced by S&P or Moody's, as the case may be, shall refer to the
      then equivalent rating by S&P or Moody's, as the case may be.

                  "Receivables Subsidiary" means a bankruptcy-remote,
         special-purpose wholly owned Subsidiary formed in connection with a
         Permitted Receivables Financing.

                  "Register" has the meaning specified in Section 9.07(d).

                  "Required Lenders" means at any time Lenders owed at least a
         majority in interest of the then aggregate unpaid principal amount of
         the Advances owing to Lenders, or, if no such principal amount is then
         outstanding, Lenders having at least a majority in interest of the
         Commitments.

            "S&P" means Standard & Poor's, a division of The McGraw-Hill
      Companies, Inc.

            "Services Agreement" means the Services Agreement, dated as of March
      2, 2004, by and among the Borrower, PRTC and Verizon Corporate Services
      Group Incorporated, as amended, modified, renewed or replaced from time to
      time.

            "Significant Subsidiary" means at any time, with respect to the
      Borrower, any Subsidiary, other than a Receivables Subsidiary, the assets
      of which, in the aggregate, exceed 5% of the Consolidated Assets,
      determined in accordance with GAAP.

            "Single Employer Plan" means a single employer plan, as defined in
      Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
      Borrower or any ERISA Affiliate and no Person other than the Loan Parties
      and the ERISA Affiliates or (b) was so maintained and in respect of which
      any Loan



      Party or any ERISA Affiliate could have liability under Section 4069 of
      ERISA in the event such plan has been or were to be terminated.

            "Solvent" and "Solvency" mean, with respect to any Person on a
      particular date, that on such date (a) the fair value of the property of
      such Person is greater than the total amount of liabilities, including,
      without limitation, contingent liabilities, of such Person, (b) the
      present fair salable value of the assets of such Person is not less than
      the amount that will be required to pay the probable liability of such
      Person on its debts as they become absolute and matured, (c) such Person
      does not intend to, and does not believe that it will, incur debts or
      liabilities beyond such Person's ability to pay such debts and liabilities
      as they mature and (d) such Person is not engaged in business or a
      transaction, and is not about to engage in business or a transaction, for
      which such Person's property would constitute an unreasonably small
      capital. The amount of contingent liabilities at any time shall be
      computed as the amount that, in the light of all the facts and
      circumstances existing at such time, represents the amount that can
      reasonably be expected to become an actual or matured liability after
      taking into account any indemnification pursuant to the terms of any
      agreements entered into in connection therewith.

            "Subsidiary" of any Person means any corporation, partnership, joint
      venture, limited liability company, trust or estate of which (or in which)
      more than 50% of (a) the issued and outstanding capital stock having
      ordinary voting power to elect a majority of the Board of Directors of
      such corporation (irrespective of whether at the time capital stock of any
      other class or classes of such corporation shall or might have voting
      power upon the occurrence of any contingency), (b) the interest in the
      capital or profits of such limited liability company, partnership or joint
      venture or (c) the beneficial interest in such trust or estate, is at the
      time directly or indirectly owned or controlled by such Person, by such
      Person and one or more of its other Subsidiaries or by one or more of such
      Person's other Subsidiaries.

            "Taxes" has the meaning specified in Section 2.13(a).

            "Termination Date" means the earlier of June 30, 2005 and the date
      of termination in whole of the Commitments pursuant to Section 2.04 or
      6.01.

            "Verizon" means Verizon Communications Inc., a Delaware corporation.

            "Voting Stock" means capital stock issued by a corporation, or
      equivalent interests in any other Person, the holders of which are
      ordinarily, in the absence of contingencies, entitled to vote for the
      election of directors (or persons performing similar functions) of such
      Person, even if the right so to vote has been suspended by the happening
      of such a contingency.

            "Withholding Tax Change" means the approval by either the Chamber of
Representatives or the Senate of the Commonwealth of Puerto Rico of any proposal
to change any applicable law, treaty or government rule, regulation or order
which would require the Borrower to deduct or withhold any Taxes from or in
respect of any sum payable hereunder or under any Note to any Lender or the
Agent.

            SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".

            SECTION 1.03. Accounting Terms. All terms of an accounting or
financial nature not specifically defined herein shall be construed in
accordance with GAAP.



                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

            SECTION 2.01. The Advances. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Advances to the Borrower
from time to time on any Business Day during the period from the Effective Date
until the Termination Date in an aggregate amount not to exceed at any time
outstanding the amount set forth opposite such Lender's name on the signature
pages hereof or, if such Lender has entered into any Assignment and Acceptance,
set forth for such Lender in the Register maintained by the Agent pursuant to
Section 9.07(d), as such amount may be reduced pursuant to Section 2.04 (such
Lender's "Commitment"). Each Borrowing shall be in an aggregate amount of
$1,000,000 or an integral multiple of $1,000,000 in excess thereof and shall
consist of Advances of the same Type made on the same day by the Lenders ratably
according to their respective Commitments. Within the limits of this Section
2.01, the Borrower may borrow under this Section 2.01, prepay pursuant to
Section 2.09 and reborrow under this Section 2.01.

            SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made
on notice, given not later than 11:00 A.M. (Atlantic Standard time) on the
second Business Day prior to the date of the proposed Borrowing in the case of a
Borrowing consisting of LIBOR Rate Advances, or the Business Day of the proposed
Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the
Borrower to the Agent, which shall give to each Lender prompt notice thereof by
telecopier, facsimile or telex. Each such notice of a Borrowing (a "Notice of
Borrowing") shall be by telephone, confirmed immediately in writing, or
telecopier, facsimile or telex in substantially the form of Exhibit B hereto,
specifying therein the requested (i) date of such Borrowing, (ii) Type of
Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing,
and (iv) in the case of a Borrowing consisting of LIBOR Rate Advances, initial
Interest Period for each such Advance. Each Lender shall, before 12:00 noon
(Atlantic Standard time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Agent at the Agent's Account, in
same day funds, such Lender's ratable portion of such Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will make such funds available to the
Borrower at the Borrower's Account.

            (b)   Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select LIBOR Rate Advances for any
Borrowing if the aggregate obligation of the Lenders to make LIBOR Rate Advances
shall then be suspended pursuant to Section 2.07 or 2.11 and (ii) the LIBOR Rate
Advances may not be outstanding as part of more than twelve separate Borrowings.

            (c)   Each Notice of Borrowing shall be irrevocable and binding on
the Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of LIBOR Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
Notice of Borrowing for such Borrowing the applicable conditions set forth in
Article III, including, without limitation, any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the
Advance to be made by such Lender as part of such Borrowing when such Advance,
as a result of such failure, is not made on such date.

            (d)   Unless the Agent shall have received notice from a Lender
prior to the time of any Borrowing that such Lender will not make available to
the Agent such Lender's ratable portion of such Borrowing, the Agent may assume
that such Lender has made such portion available to the Agent on the date of
such Borrowing in accordance with subsection (a) of this Section 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to Advances comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Rate. If such Lender shall repay to the
Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Advance as part of such Borrowing for purposes of this Agreement and
the Borrower shall be relieved of its obligations to repay such amount under
this Section 2.02(d).

            (e)   The failure of any Lender to make the Advance to be made by it
as part of any Borrowing shall not relieve any other Lender of its obligation
hereunder to make its Advance on the date of such Borrowing,



but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.

            SECTION 2.03. Fees. (a) Facility Fee. The Borrower agrees to pay to
the Agent for the account of each Lender a facility fee on the aggregate amount
of such Lender's Commitment from the Effective Date in the case of BPPR and from
the later of the Effective Date and the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender until the Termination Date at a rate per annum equal to 0.125%
or at a rate per quarter equal to 0.03125%, payable in arrears quarterly on the
last day of each March, June, September and December, commencing September 30,
2004, and on the Termination Date.

            (b)   Agent's Fees. The Borrower shall pay to the Agent for its own
account such fees as may from time to time be agreed between the Borrower and
the Agent.

            SECTION 2.04. Reduction of the Commitments. The Borrower shall have
the right, upon at least three Business Days' notice to the Agent, to terminate
in whole or reduce ratably in part the unused portions of the respective
Commitments of the Lenders, provided that each partial reduction shall be in the
aggregate amount of $2,500,000 or an integral multiple of $1,000,000 in excess
thereof.

            SECTION 2.05. Repayment of Advances. The Borrower shall repay to the
Agent for the ratable account of the Lenders on the Termination Date the
aggregate principal amount of the Advances then outstanding.

            SECTION 2.06. Interest. (a) Scheduled Interest. The Borrower shall
pay interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:

            (i)   Base Rate Advances. During such periods as such Advance is a
      Base Rate Advance, a rate per annum equal at all times to the Base Rate in
      effect from time to time, payable in arrears quarterly on the last day of
      each March, June, September and December during such periods and on the
      date such Base Rate Advance shall be Converted or paid in full.

            (ii)  LIBOR Rate Advances. During such periods as such Advance is a
      LIBOR Rate Advance, a rate per annum equal at all times during each
      Interest Period for such Advance to the sum of (x) the LIBOR Rate for such
      Interest Period for such Advance, plus (y) the Applicable Margin in effect
      from time to time, payable in arrears on the last day of such Interest
      Period and, if such Interest Period has a duration of more than three
      months, on each day that occurs during such Interest Period every three
      months from the first day of such Interest Period and on the date such
      LIBOR Rate Advance shall be Converted or paid in full.

            (b)   Default Interest. Upon the occurrence and during the
continuance of an Event of Default under Section 6.01(a), the Borrower shall pay
interest on (i) the unpaid principal amount of each Advance owing to each
Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii)
above, at a rate per annum equal at all times to 2% per annum above the rate per
annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii)
above and (ii) to the fullest extent permitted by law, the amount of any
interest, fee or other amount payable hereunder that is not paid when due, from
the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Base Rate Advances pursuant to clause (a)(i) above.

            SECTION 2.07. Interest Rate Determination. (a) The Agent shall give
prompt notice to the Borrower and the Lenders of the applicable interest rate
determined by the Agent for purposes of Section 2.06(a)(i) or (ii)



            (b)   If, with respect to any LIBOR Rate Advances, the Required
Lenders notify the Agent that the LIBOR Rate for any Interest Period for such
Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective LIBOR Rate Advances for such
Interest Period, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon (i) each LIBOR Rate Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances
into, LIBOR Rate Advances shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.

            (c)   If the Borrower shall fail to select the duration of any
Interest Period for any LIBOR Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.

            (d)   On the date on which the aggregate unpaid principal amount of
LIBOR Rate Advances comprising any Borrowing shall be reduced, by payment or
prepayment or otherwise, to less than $10,000,000, such Advances shall
automatically Convert into Base Rate Advances.

            (e)   Upon the occurrence and during the continuance of any Event of
Default under Section 6.01(a), (i) each LIBOR Rate Advance will automatically,
on the last day of the then existing Interest Period therefor, Convert into a
Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert
Advances into, LIBOR Rate Advances shall be suspended.

            (f)   If on any date the Agent is unable to determine the LIBOR Rate
for any LIBOR Rate Advances to be made on such date,

            (i)   the Agent shall forthwith notify the Borrower and the Lenders
      that the interest rate cannot be determined for such LIBOR Rate Advances,

            (ii)  each such Advance will automatically, on the last day of the
      then existing Interest Period therefor, Convert into a Base Rate Advance
      (or if such Advance is then a Base Rate Advance, will continue as a Base
      Rate Advance), and

            (iii) the obligation of the Lenders to make LIBOR Rate Advances or
      to Convert Advances into LIBOR Rate Advances shall be suspended until the
      Agent shall notify the Borrower and the Lenders that the circumstances
      causing such suspension no longer exist.

            SECTION 2.08. Optional Conversion of Advances. The Borrower may on
any Business Day, upon notice given to the Agent not later than 11:00 A.M.
(Atlantic Standard time) on the third Business Day prior to the date of the
proposed Conversion and subject to the provisions of Sections 2.07 and 2.11,
Convert all Advances of one Type comprising the same Borrowing into Advances of
the other Type; provided, however, that any Conversion of LIBOR Rate Advances
into Base Rate Advances shall be made only on the last day of an Interest Period
for such LIBOR Rate Advances and any Conversion of Base Rate Advances into LIBOR
Rate Advances shall be in an amount not less than $10,000,000. Each such notice
of a Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion, (ii) the Advances to be Converted and (iii) if such
Conversion is into LIBOR Rate Advances, the duration of the initial Interest
Period for each such Advance. Each notice of Conversion shall be irrevocable and
binding on the Borrower.

            SECTION 2.09. Optional Prepayments of Advances. The Borrower may,
upon notice not later than 11:00 A.M. (Atlantic Standard time) for Base Rate
Advances and upon at least two Business Days' notice to the Agent for LIBOR Rate
Advances stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given the Borrower shall, prepay the
outstanding principal amount of the Advances comprising part of the same
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that
(x) each partial prepayment shall be in an aggregate principal



amount of $1,000,000 or an integral multiple of $1,000,000 in excess thereof and
(y) in the event of any such prepayment of a LIBOR Rate Advance, the Borrower
shall be obligated to reimburse the Lenders in respect thereof pursuant to
Section 9.04(c).

            SECTION 2.10. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any written guideline or request from any
central bank or other governmental authority (whether or not having the force of
law), there shall be any increase in the cost to any Lender of agreeing to make
or making, funding or maintaining LIBOR Rate Advances (excluding for purposes of
this Section 2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.13 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrower shall from time to time, upon demand by such Lender
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Lender additional amounts sufficient to compensate such Lender for such
increased cost (whether or not such increased costs arise prior to the receipt
of written notification from such central bank or other governmental authority);
provided that the Borrower shall not be required to pay any such increased costs
to the extent such increased costs accrued prior to the date that is six months
prior to such notice, provided further that, if the change in law or
circumstance giving rise to such increased costs or reductions is retroactive,
then the six-month period referred to above shall be extended to include the
period of retroactive effect thereof. A certificate as to the amount of such
increased cost, submitted to the Borrower and the Agent by such Lender, shall be
conclusive and binding for all purposes, absent error in the calculation of such
amount.

            (b)   If any Lender determines that compliance with any law or
regulation or any written guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender (excluding any reserves
included in the computation of the LIBOR Rate) and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type, then, upon demand by such
Lender (with a copy of such demand to the Agent), the Borrower shall pay to the
Agent for the account of such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender or such
corporation (whether or not such amounts arise prior to the receipt of written
notification from such central bank or other governmental authority) in the
light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable (in the proportion that such
Lender's Commitment hereunder bears to all of such Lender's commitments of this
type) to the existence of such Lender's commitment to lend hereunder; provided
that the Borrower shall not be required to compensate such Lender to the extent
such amounts arose prior to the date that is six months prior to such notice,
provided further that, if the change in law or circumstance giving rise to such
increased costs or reductions is retroactive, then the six-month period referred
to above shall be extended to include the period of retroactive effect thereof.
A certificate as to such amounts submitted to the Borrower and the Agent by such
Lender shall be conclusive and binding for all purposes, absent error in the
calculation of such amounts.

            (c)   Any Lender claiming any additional amounts payable pursuant to
this Section 2.10 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to minimize such additional
amounts and to change the jurisdiction of its Applicable Lending Office if the
making of such a change would avoid the need for, or reduce the amount of, any
additional amounts that may thereafter accrue and would not, in the reasonable
judgment of such Lender, be otherwise notably disadvantageous to such Lender.
The Borrower shall reimburse such Lender for such Lender's reasonable expenses
incurred in connection with such change or in considering such a change in an
amount not to exceed the Borrower's pro rata share of such expenses based on
such Lender's Commitment and Advances and the total lending commitments and
loans of such Lender to its similarly situated customers.

            SECTION 2.11. Illegality. Notwithstanding any other provision of
this Agreement, if any Lender shall notify the Agent that the introduction of or
any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority having relevant
jurisdiction asserts that it is unlawful, for any Lender or its LIBOR Lending
Office to perform its obligations hereunder to make LIBOR Rate Advances or to
fund or maintain LIBOR Rate Advances hereunder, (i) each LIBOR Rate Advance made
by such



Lender will automatically, upon such demand, Convert into a Base Rate Advance
and (ii) the obligation of such Lender to make LIBOR Rate Advances or to Convert
Advances into LIBOR Rate Advances shall be suspended until the Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.

            SECTION 2.12. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes without counterclaim or set-off not
later than 11:00 A.M. (Atlantic Standard time) on the day when due in U.S.
dollars to the Agent at the Agent's Account in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or fees ratably (other than amounts payable pursuant to
Section 2.03, 2.10, 2.13 or 9.04(c)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 9.07(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.

            (b)   All computations of interest based on the Base Rate shall be
made by the Agent on the basis of a year of 365 or 366 days, as the case may be,
and all computations of interest based on the LIBOR Rate or the Federal Funds
Rate and of fees shall be made by the Agent on the basis of a year of 360 days,
in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or fees
are payable. Each determination by the Agent of an interest rate hereunder shall
be conclusive and binding for all purposes, absent error in the calculation of
such interest rate.

            (c)   Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or fee, as the case
may be; provided, however, that, if such extension would cause payment of
interest on or principal of LIBOR Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.

            (d)   Unless the Agent shall have received notice from the Borrower
prior to the time on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.

            SECTION 2.13. Taxes. (a) Subject to subsections (e) and (f) below,
any and all payments by the Borrower hereunder or under the Notes shall be made,
in accordance with Section 2.12, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto imposed by Puerto Rico,
the United States or any political subdivision of either (or in the case of any
payments by or on behalf of the Borrower through an account or branch outside
the United States or Puerto Rico or by or on behalf of the Borrower by a payor
that is not a United States person or not organized or resident in Puerto Rico
such payments shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto imposed by a foreign
jurisdiction or any political subdivision thereof), excluding, in the case of
each Lender and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it in lieu of net income taxes (x) in the case of a
Lender pursuant to the laws of the jurisdiction (or any political subdivision or
taxing authority therein) in which it is organized or in which the principal
office of such Lender, or Applicable Lending Office of such Lender is located,
or (y) in the case of any payment to the Agent in its capacity as Agent, the
jurisdiction (or any political subdivision or taxing authority therein) in which
it is organized or in which the principal office of the Agent is located or in
which the office designated by the Agent to act as Agent is located (all such
non-excluded taxes, levies,



imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Notes being hereinafter referred to as "Taxes").
Subject to subsections (e) and (f) below, if the Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note to any Lender or the Agent, (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.13) such
Lender or the Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law. Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent, at its address referred to in Section 9.02,
the original or a certified copy of a receipt evidencing payment thereof. For
purposes of this subsection (a) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.

            (b)   In addition, the Borrower agrees to pay any stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or from the
execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or the Notes as a result of the introduction of or
any change in or in the interpretation of any law or regulation after the
Effective Date (hereinafter referred to as "Other Taxes").

            (c)   Subject to subsections (d), (e) and (f) below, the Borrower
shall indemnify each Lender and the Agent for the full amount of Taxes or Other
Taxes (to the extent not previously paid under subsection (a) or (b) above)
imposed on or paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest and expenses but excluding any taxes
imposed by any jurisdiction on amounts payable under this Section 2.13) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender or the Agent (as the case may be) makes written
demand therefor.

            (d)   Each Lender organized under the laws of a jurisdiction outside
of Puerto Rico from time to time, as requested in writing by the Borrower (but
only so long as such Lender remains lawfully able to do so), shall provide each
of the Agent and the Borrower with two properly and accurately completed and
duly executed original copies of any form, document or other certificate that is
necessary for such Lender to be exempt from, or entitled to a reduced rate of
Taxes or payments hereunder or under the Notes or for the Borrower to determine
the applicable rate of deduction or withholding of any Taxes. If any Lender
which is organized under the laws of a jurisdiction outside of Puerto Rico is
unable to provide the above-described forms, documents or other certificates for
a relevant interest period (or if the Lender's appropriate personnel responsible
for providing the forms, documents or other certificates actually become aware
that the forms, documents or other certificates provided by it are inaccurate),
such Lender shall notify the Borrower in writing prior to or immediately upon
the commencement of such relevant interest period.

            (e)   For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form, document or other certificate
requested by the Borrower in accordance with Section 2.13(d) (other than if such
failure is due to a change in any applicable law, treaty or government rule,
regulation or order, or any change in the interpretation, administration or
application thereof occurring subsequent to the date hereof such that such
Lender is not lawfully able to provide the Borrower with the appropriate form,
document or other certificate, or if such form, document or other certificate is
no longer required to establish an exemption from the applicable tax), such
Lender shall not be entitled to indemnification under Section 2.13(a) or (c)
with respect to Taxes by reason of such failure and the Borrower shall be
entitled to withhold Taxes from payments to such Lender; provided, however, that
should a Lender become subject to Taxes because of its failure to deliver a
form, document or other certificate required hereunder, the Borrower shall take
such steps at such Lender's expense as such Lender shall reasonably request to
assist such Lender to recover such Taxes.

            (f)   Notwithstanding anything else contained in this Section 2.13,
the Borrower shall only be required to pay additional sums with respect to Taxes
(subject to subsection (h) below) to a Lender (or the Agent, as the case may be)
pursuant to subsection (a) or (c) above if the obligation to pay such Taxes
results from such Lender's inability to obtain a complete exemption from Taxes
as a result of (i) any amendment to the laws (or any regulations thereunder), or
any amendment to, or change in, an interpretation or application of any such
laws or



regulations by any legislative body, court, governmental agency or regulatory
authority adopted or enacted after the date hereof (or in the case of an entity
that becomes a Lender after the date hereof, the date such entity becomes a
Lender), (ii) an amendment, modification or revocation of any existing
applicable tax treaty ratified, enacted or amended after the date hereof (or in
the case of an entity that becomes a Lender after the date hereof, the date such
entity becomes a Lender), or (iii) the ratification of a new tax treaty ratified
after the date hereof (or in the case of an entity that becomes a Lender after
the date hereof, the date such entity becomes a Lender).

            (g)   In the event that the Borrower makes an additional payment
under Section 2.13(a) or 2.13(c) for the account of any Lender and such Lender,
in its sole opinion, determines that it has finally and irrevocably received or
been granted a credit against, or relief or remission from, or repayment of, any
tax paid or payable by it in respect of or calculated with reference to the
deduction or withholding giving rise to such additional payment, such Lender
shall, to the extent that it determines that it can do so without prejudice to
the retention of the amount of such credit, relief, remission or repayment, pay
to the Borrower such amount as such Lender shall, in its sole opinion, have
determined is attributable to such deduction or withholding and will leave such
Lender (after such payment) in no worse position than it would have been had the
Borrower not been required to make such deduction or withholding. Nothing
contained herein shall (i) interfere with the right of a Lender to arrange its
tax affairs in whatever manner it thinks fit or (ii) oblige any Lender to claim
any tax credit or to disclose any information relating to its tax affairs or any
computations in respect thereof or (iii) require any Lender to take or refrain
from taking any action that would prejudice its ability to benefit from any
other credits, reliefs, remissions or repayments to which it may be entitled.
Each Lender and the Agent shall reasonably cooperate with the Borrower at the
Borrower's written request and sole expense, in contesting any Taxes or Other
Taxes the Borrower would bear pursuant to this Section 2.13, provided, however,
that (i) no tax return of such Lender or the Agent is or would be held open as a
result of such contest, (ii) neither such Lender nor the Agent is required to
reopen a tax year that has already closed and (iii) such Lender and the Agent
shall, in the sole opinion of such Lender and the Agent, respectively, have
determined that such contest will leave such Lender and the Agent, respectively,
in no worse position than it would have been in had it not contested such Taxes
or Other Taxes. Nothing contained herein shall interfere with the right of a
Lender or the Agent to arrange its tax affairs in whatever manner it thinks fit,
if in the sole judgment of such Lender or the Agent, such contest would be
disadvantageous to such Lender or the Agent. In pursuing a contest in the
Lender's or the Agent's name, such Lender or the Agent will be represented by
counsel of such Lender's or the Agent's choice, and will defend against, settle
or otherwise control the contest and will not relinquish control or decision
making over the contest.

            (h)   (i) Any Lender claiming any additional amounts payable
pursuant to this Section 2.13 or (ii) upon a Withholding Tax Change, each
Lender, agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to avoid or minimize such additional
amounts and to change the jurisdiction of its Applicable Lending Office if the
making of such a change would avoid the need for, or reduce the amount of, any
additional amounts that may thereafter accrue and would not, in the reasonable
judgment of such Lender, be otherwise notably disadvantageous to such Lender.
The Borrower shall reimburse such Lender for such Lender's reasonable expenses
incurred in connection with such change or in considering such a change in an
amount not to exceed the Borrower's pro rata share of such expenses based on
such Lender's Commitment and Advances to the Borrower and the total lending
commitments and loans of such Lender to its similarly situated customers.

            SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Advances owing to it (other than
pursuant to Section 2.10, 2.13, 9.01(b), 9.04(c) or 9.07) in excess of its
ratable share of payments on account of the Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Advances owing to them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery together with an amount equal to
such Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender by
delivering payment pursuant to this Section 2.14 may, to the



fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrower in the amount of such
participation.

            SECTION 2.15. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely for
the funding of working capital requirements and other general corporate purposes
of the Borrower and its Subsidiaries, provided that such proceeds shall not be
used for the purpose of purchasing or carrying margin stock (within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve System).

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

            SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01.
Section 2.01 of this Agreement shall become effective on and as of the first
date (the "Effective Date") on which the following conditions precedent have
been satisfied:

            (a)   There shall have occurred no Material Adverse Change since
      December 31, 2003 other than as disclosed in Schedule 3.01(a) hereto.

            (b)   There shall exist no action, suit, investigation, litigation
      or proceeding affecting any of the Loan Parties or any of their respective
      Subsidiaries pending or threatened before any court, governmental agency
      or arbitrator that (i) could be reasonably likely to have a Material
      Adverse Effect other than the matters described on Schedule 3.01(b) hereto
      (the "Disclosed Litigation") or (ii) is initiated by any Person other than
      a Lender in its capacity as a Lender that purports to affect the legality,
      validity or enforceability of this Agreement or any Note or the
      consummation of the transactions contemplated hereby, and there shall have
      been no material adverse change in the status, or financial effect on any
      Loan Party, of the Disclosed Litigation from that described on Schedule
      3.01(b) hereto.

            (c)   All governmental and third party consents and approvals
      necessary in connection with the execution, delivery and performance of
      this Agreement and the Notes shall have been obtained (without the
      imposition of any conditions that could reasonably be expected to
      materially adversely affect the ability of any Loan Party to perform its
      obligations hereunder) and shall remain in effect, and no law or
      regulation shall be applicable that restrains, prevents or imposes adverse
      conditions upon the transactions contemplated hereby that could reasonably
      be expected to materially adversely affect the ability of any Loan Party
      to perform its obligations hereunder.

            (d)   The Borrower shall have notified each Lender and the Agent in
      writing as to the proposed Effective Date.

            (e)   The Borrower shall have paid all invoiced fees and expenses of
      the Agent and the Lenders (including the invoiced fees and expenses of
      Cancio Covas & Santiago LLP, counsel to the Agent).

            (f)   On the Effective Date, the following statements shall be true
      and the Agent shall have received for the account of each Lender a
      certificate signed by a duly authorized officer of the Borrower, dated the
      Effective Date, stating that:

                  (i)   The representations and warranties contained in Section
            4.01 are correct on and as of the Effective Date, and

                  (ii)  No event has occurred and is continuing that constitutes
            a Default.



            (g)   The Agent shall have received on or before the Effective Date
      the following, each dated such day, in form and substance satisfactory to
      the Agent and (except for the Notes) in sufficient copies for each Lender:

                  (i)   The Notes to the order of the Lenders, respectively.

                  (ii)  Certified copies of the resolutions of the Board of
            Directors of each Loan Party approving the transactions contemplated
            by this Agreement and the Notes and of all documents evidencing
            other necessary corporate action and governmental approvals, if any,
            with respect to this Agreement and such Notes.

                  (iii) A certificate of the Secretary or an Assistant Secretary
            of each Loan Party certifying the names and true signatures of the
            officers of each Loan Party authorized to sign this Agreement and
            the Notes and the other documents to be delivered hereunder.

                  (iv)  A certificate, in substantially the form of Exhibit D
            hereto, attesting to the Solvency of each Loan Party after giving
            effect to the Borrowings contemplated hereunder, from the chief
            financial officer of each such Loan Party.

                  (v)   A favorable opinion of Sandra Torres, Esq., Director of
            the Legal and Regulatory Affairs Department of the Borrower,
            substantially in the form of Exhibit E hereto.

            (h)   The termination in whole of the commitments of the lenders
      party to the Revolving Credit Agreement dated as of May 16, 2002, amended
      by a First Amendment dated as of June 30, 2003 (the "Existing Credit
      Agreement") among the Borrower, Puerto Rico Telephone Company, Inc. , as
      guarantor, BPPR, as administrative agent, and the payment in full of all
      obligations outstanding under the Existing Credit Agreement. BPPR hereby
      waives the requirement of three Business Days notice to terminate the
      commitments under the Existing Credit Agreement.

            SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation
of each Lender to make an Advance on the occasion of each Borrowing shall be
subject to the conditions precedent that the Effective Date shall have occurred
and on the date of such Borrowing the following statements shall be true (and
each of the giving of the applicable Notice of Borrowing and, the acceptance by
the Borrower of the proceeds of such Borrowing shall constitute a representation
and warranty by the Borrower that on the date of such Borrowing such statements
are true):

            (a)   the representations and warranties contained in Section 4.01
      are correct in all material respects on and as of the date of such
      Borrowing, before and after giving effect to such Borrowing and to the
      application of the proceeds therefrom, as though made on and as of such
      date, and

            (b)   no event has occurred and is continuing, or would result from
      such Borrowing or from the application of the proceeds therefrom, that
      constitutes a Default.

            SECTION 3.03. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date.



                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

            SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:

            (a)   Each Loan Party is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation.

            (b)   The execution, delivery and performance by each Loan Party of
      this Agreement and the Notes executed by it and the consummation of the
      transactions contemplated hereby, are within such Loan Party's corporate
      powers, have been duly authorized by all necessary corporate action, and
      do not contravene (i) such Loan Party's charter or by-laws (or other
      equivalent organizational documents) or (ii) any law or any material
      contractual restriction binding on or affecting such Loan Party or, to the
      knowledge of the chief financial officer of the Borrower, any other
      contract the breach of which would limit the ability of any Loan Party to
      perform its obligations under this Agreement or the Notes.

            (c)   No authorization or approval or other action by, and no notice
      to or filing with, any governmental authority or regulatory body or any
      other third party is required for the due execution, delivery and
      performance by any Loan Party of this Agreement or the Notes.

            (d)   This Agreement has been, and each of the Notes when delivered
      hereunder will have been, duly executed and delivered by the Borrower.
      This Agreement has been duly executed and delivered by each Guarantor.
      Assuming that this Agreement has been duly executed by the Agent and BPPR,
      as Lender, this Agreement is, and each of the Notes when delivered
      hereunder will be, the legal, valid and binding obligation of the Borrower
      enforceable against the Borrower in accordance with their respective
      terms. Assuming that this Agreement has been duly executed by the Agent
      and BPPR, as Lender, this Agreement is the legal, valid and binding
      obligation of each Guarantor enforceable against each Guarantor in
      accordance with its terms.

            (e)   The Consolidated balance sheet of the Borrower and its
      Subsidiaries as at December 31, 2003, and the related Consolidated
      statements of income and cash flows of the Borrower and its Subsidiaries
      for the fiscal year then ended, accompanied by an opinion of Ernst & Young
      LLP, independent public accountants, copies of which have been furnished
      to each Lender, fairly present, the Consolidated financial condition of
      the Borrower and its Subsidiaries as at such date and the Consolidated
      results of the operations of the Borrower and its Subsidiaries for the
      periods ended on such date, all in accordance with generally accepted
      accounting principles consistently applied.

            (f)   There is no pending or (to the knowledge of any Loan Party)
      threatened action or proceeding, including, without limitation, any
      Environmental Action, affecting any Loan Party or any of its Subsidiaries
      before any court, governmental agency or arbitrator that is initiated by
      any Person other than a Lender in its capacity as a Lender that purports
      to affect the legality, validity or enforceability of this Agreement or
      any Note.

            (g)   Neither the Borrower nor any of its Subsidiaries is an
      Investment Company, as such term is defined in the Investment Company Act
      of 1940, as amended.

            (h)   No Loan Party is engaged in the business of extending credit
      for the purpose of purchasing or carrying margin stock (within the meaning
      of Regulation U issued by the Board of Governors of the Federal Reserve
      System), and no proceeds of any Advance will be used to purchase or carry
      any margin stock or to extend credit to others for the purpose of
      purchasing or carrying any margin stock.



            (i)   The obligations of the Borrower under this Agreement, and the
      obligations of each Guarantor under Article VII of this Agreement rank
      pari passu in right of payment with all other senior unsecured Debt of
      such Person, including, without limitation, the Additional Bank
      Indebtedness, and, except for any rights of set-off in favor of the agents
      or the lenders under the credit agreements governing such Additional Bank
      Indebtedness, no Lien over any Property of the Loan Parties has been
      granted in favor of the lenders party to such agreement, as security for
      the obligations of the Borrower and its Subsidiaries under the Additional
      Bank Indebtedness.

            (j)   The Borrower understands and agrees that neither the Agent nor
      any Lender is the agent or representative of the Borrower, and this
      Agreement shall not be construed to make the Agent or any such Lender
      liable to any third parties for any obligations of the Borrower or any of
      its Subsidiaries in connection with the operation and administration of
      their respective businesses.

                                    ARTICLE V

                          COVENANTS OF THE LOAN PARTIES

            SECTION 5.01. Affirmative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party
will:

            (a)   Compliance with Laws, Etc. Comply, and cause each of its
      Subsidiaries to comply, in all material respects, with all applicable
      laws, rules, regulations and orders, such compliance to include, without
      limitation, compliance with ERISA and Environmental Laws, except where the
      failure to so comply would not have a Material Adverse Effect.

            (b)   Payment of Taxes, Etc. Pay and discharge, and cause each of
      its Subsidiaries to pay and discharge, before the same shall become
      delinquent, (i) all taxes, assessments and governmental charges or levies
      imposed upon it or upon its property and (ii) all lawful claims that, if
      unpaid, might by law become a Lien upon its property; provided, however,
      that neither any Loan Party nor any of its Subsidiaries shall be required
      to pay or discharge any such tax, assessment, charge or claim that is
      being contested in good faith and by proper proceedings and as to which
      appropriate reserves are being maintained, unless and until any Lien
      resulting therefrom attaches to its property and becomes enforceable
      against its other creditors and the aggregate of such Liens would have a
      Material Adverse Effect.

            (c)   Maintenance of Insurance. Maintain, and cause each of its
      Subsidiaries to maintain, insurance with responsible and reputable
      insurance companies or associations in such amounts and covering such
      risks as is usually carried by companies engaged in similar businesses and
      owning similar properties in the same general areas in which such Loan
      Party or such Subsidiary operates; provided, however, that such Loan Party
      and its Subsidiaries may self-insure to the extent consistent with prudent
      business practice.

            (d)   Preservation of Corporate Existence, Etc. Preserve and
      maintain, and cause each of its Subsidiaries to preserve and maintain, its
      corporate existence, rights (charter and statutory) and franchises;
      provided, however, that each Loan Party and its Subsidiaries may
      consummate any transaction permitted under Section 5.02(b) and provided
      further that neither any Loan Party nor any of its Subsidiaries shall be
      required to preserve any right or franchise if the senior management of
      such Loan Party or of such Subsidiary shall determine that the
      preservation thereof is no longer desirable in the conduct of the business
      of such Loan Party or such Subsidiary, as the case may be, and that the
      loss thereof is not disadvantageous in any material respect to such Loan
      Party or such Subsidiary.

            (e)   Visitation Rights. During normal business hours and upon
      reasonable notice from time to time, permit the Agent or any of the
      Lenders or any agents or representatives thereof, to examine and make
      copies of and abstracts from the records and books of account of
      (excluding any confidential information),



      and visit the properties of, such Loan Party and any of its Subsidiaries,
      and to discuss the affairs, finances and accounts of such Loan Party and
      any of its Subsidiaries with the appropriate representatives of such Loan
      Party and together with the appropriate representatives of such Loan
      Party's independent certified public accountants.

            (f)   Keeping of Books. Keep, and cause each of its Subsidiaries to
      keep, proper books of record and account, in which full and correct
      entries shall be made of all financial transactions and the assets and
      business of such Loan Party and each such Subsidiary in accordance with
      generally accepted accounting principles in effect from time to time.

            (g)   Maintenance of Properties, Etc. Maintain and preserve, and
      cause each of its Subsidiaries to maintain and preserve, its material
      properties that are used or useful in the conduct of its business in good
      working order and condition, ordinary wear and tear excepted.

            (h)   Transactions with Affiliates. Conduct, and cause each of its
      Subsidiaries to conduct, all transactions otherwise permitted under this
      Agreement with any of their Affiliates, other than another Loan Party, (i)
      on terms that are fair and reasonable and no less favorable to such Loan
      Party or such Subsidiary than it would obtain in a comparable arm's-length
      transaction with a Person not an Affiliate except where the failure to do
      so, in the aggregate, would not have a Material Adverse Effect, (ii) as
      required by the Federal Communications Commission's rules and regulations
      for transactions among affiliates or (iii) as contemplated by Services
      Agreement.

            (i)   Reporting Requirements. Furnish to the Lenders:

                  (i)   as soon as available and in any event within 60 days
            after the end of each of the first three quarters of each fiscal
            year of the Borrower, the Consolidated balance sheet of the Borrower
            and its Subsidiaries as of the end of such quarter and the
            Consolidated statements of income and cash flows of the Borrower and
            its Subsidiaries for the period commencing at the end of the
            previous fiscal year and ending with the end of such quarter, duly
            certified (subject to year-end audit adjustments) by the chief
            financial officer, treasurer or controller of the Borrower as having
            been prepared in accordance with generally accepted accounting
            principles and certificates of the chief financial officer,
            treasurer or controller of the Borrower as to compliance with the
            terms of this Agreement and setting forth in reasonable detail the
            calculations necessary to demonstrate compliance with Section 5.03,
            provided that in the event of any change in GAAP used in the
            preparation of such financial statements, the Borrower shall also
            provide, if necessary for the determination of compliance with
            Section 5.03, a statement of reconciliation showing the calculations
            used for purposes of Section 5.03;

                  (ii)  as soon as available and in any event within 120 days
            after the end of each fiscal year of the Borrower, a copy of the
            annual audited report for such year for the Borrower and its
            Subsidiaries, containing the Consolidated balance sheet of the
            Borrower and its Subsidiaries as of the end of such fiscal year and
            the Consolidated statements of income and cash flows of the Borrower
            and its Subsidiaries for such fiscal year, in each case accompanied
            by an opinion acceptable to the Required Lenders by Ernst & Young
            LLP or other independent public accountants of nationally recognized
            standing, provided that in the event of any change in GAAP used in
            the preparation of such financial statements, the Borrower shall
            also provide, if necessary for the determination of compliance with
            Section 5.03, a statement of reconciliation showing the calculations
            used for purposes of Section 5.03;

                  (iii) as soon as possible and in any event within five
            Business Days after the occurrence of each Default continuing on the
            date of such statement, a statement of the chief financial officer,
            treasurer or controller of the Borrower setting forth details of
            such Default and the action that the Borrower has taken and proposes
            to take with respect thereto;



                  (iv)  promptly after the sending or filing thereof, copies of
            any quarterly and annual reports and proxy solicitations that any
            Loan Party sends to any of its securityholders, and copies of any
            reports on Form 8-K that such Loan Party files with the Securities
            and Exchange Commission (other than reports on Form 8-K filed solely
            for the purpose of incorporating exhibits into a registration
            statement previously filed with the Securities and Exchange
            Commission);

                  (v)   prompt notice of all actions and proceedings before any
            court, governmental agency or arbitrator affecting any Loan Party or
            any of its Subsidiaries of the type described in Section 3.01(b);
            and

                  (vi)  such other information respecting any Loan Party or any
            of its Subsidiaries as any Lender through the Agent may from time to
            time reasonably request.

            (j)   Certain Obligations Respecting Subsidiaries. The Borrower will
      take such action, and will cause each of its Significant Subsidiaries and
      any Significant Subsidiary formed with the intent of merging with or into
      a Person that will be a Significant Subsidiary subject to this provision
      to take such action, from time to time as shall be necessary to ensure
      that all Significant Subsidiaries of the Borrower are party to, as Loan
      Parties, the Guaranty provided in Article VII hereof. Without limiting the
      generality of the foregoing, in the event that the Borrower or any of its
      Significant Subsidiaries shall form or acquire any new Significant
      Subsidiary, the Borrower or the respective Significant Subsidiary will
      cause such new Significant Subsidiary to (i) become a party hereto and to
      the Guaranty pursuant to a written instrument in form and substance
      satisfactory to the Agent, and (ii) deliver such proof of corporate
      action, incumbency of officers, opinions of counsel and other documents
      relating to the foregoing as is consistent with those delivered by each
      Loan Party pursuant to Section 3.01 hereof, or as any Lender or the Agent
      shall have reasonably requested.

            (k)   Performance of Agreements. The Borrower will take all action
      and do all things which it is authorized by law or contract to take and to
      do in order to perform and observe and to cause the Loan Parties to
      perform and observe, all covenants and agreements on its or their part to
      be performed and observed under this Agreement and the Notes.

            (l)   Pari Passu Status. So long as any Commitments are available,
      or any amounts under the Notes are outstanding hereunder, the obligations
      of the Loan Parties hereunder and under the Notes shall remain of equal
      priority (pari passu) with the obligations of the Loan Parties under the
      Additional Bank Indebtedness.

            (m)   Further Assurances. The Borrower will execute, acknowledge
      where appropriate, and deliver, and cause to be executed, acknowledged
      where appropriate, and delivered, from time to time, promptly at the
      request of the Agent or any of the Lenders, all such instruments and
      documents as in the reasonable opinion of the Agent or such Lender are
      necessary to carry out the intent and purpose of this Agreement and the
      Notes.

            SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not:

            (a)   Liens, Etc. Create or suffer to exist, or permit any of its
      Subsidiaries to create or suffer to exist, any Lien on or with respect to
      any of its properties, whether now owned or hereafter acquired, or assign
      for security purposes (but not in connection with a bona fide sale
      thereof), or permit any of its Subsidiaries to assign for security
      purposes (but not in connection with a bona fide sale thereof), any right
      to receive income; provided that nothing in this Section 5.02 shall be
      construed to prevent or restrict the following:



                  (i)   Permitted Liens,

                  (ii)  purchase money Liens upon or in any real property or
            equipment acquired or held by the Borrower or any of its
            Subsidiaries in the ordinary course of business to secure the
            purchase price of such property or equipment or to secure Debt
            incurred solely for the purpose of financing the acquisition of such
            property or equipment, or Liens existing on such property or
            equipment at the time of its acquisition or conditional sales or
            other similar title retention agreements with respect to property
            hereafter acquired or extensions, renewals or replacements of any of
            the foregoing for the same or a lesser amount, provided, however,
            that no such Lien shall extend to or cover any properties of any
            character other than the real property or equipment being acquired,
            and no such extension, renewal or replacement shall extend to or
            cover any properties not theretofore subject to the Lien being
            extended, renewed or replaced,

                  (iii) the Liens existing on the Effective Date and described
            on Schedule 5.02(a) hereto and other undisclosed Liens existing on
            the Effective Date securing obligations in aggregate amount not to
            exceed $10,000,000,

                  (iv)  Liens on property of a Person existing at the time such
            Person is merged into or consolidated with the Borrower or any of
            its Subsidiaries; provided that any such Liens that were created
            during the period immediately prior to such merger, consolidation or
            acquisition were created in the ordinary course of business of such
            Person and the Debt secured by such Liens does not exceed the fair
            market value of the assets (including intangible assets) of such
            Person so merged into or consolidated with the Borrower or any of
            its Subsidiaries,

                  (v)   the replacement, extension or renewal of any Lien
            permitted by clauses (iii) and (iv) above upon or in the same
            property theretofore subject thereto or the replacement, extension
            or renewal (without increase in the amount or extension of the final
            maturity date) of the Debt secured thereby,

                  (vi)  Liens not otherwise permitted pursuant to clauses (i)
            through (v) above securing obligations not to exceed at any one time
            the amount of $10,000,000, and

                  (vii) Liens on property of a Receivables Subsidiary created in
            connection with a Permitted Receivables Financing.

            (b)   Mergers, Etc. Merge or consolidate with or into, or convey,
      transfer, lease or otherwise dispose of (whether in one transaction or in
      a series of transactions) all or substantially all of its assets (whether
      now owned or hereafter acquired) to, any Person, or permit any of its
      Subsidiaries to do so, except that (i) any Subsidiary of the Borrower may
      merge or consolidate with or into, or dispose of assets to, any other
      Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower may merge
      into or dispose of assets to the Borrower, and (iii) the Borrower may
      merge with any Subsidiary of Verizon so long as the surviving corporation
      assumes all obligations of the Borrower hereunder and under the Notes and
      each Guarantor confirms in writing its guarantee obligations hereunder
      upon the occurrence of and following such merger, and provided, in each
      case, that no Default shall have occurred and be continuing at the time of
      such proposed transaction or would result therefrom.

            (c)   Accounting Changes. Make or permit, or permit any of its
      Subsidiaries to make or permit, any change in accounting policies or
      reporting practices, except (i) as required or permitted by generally
      accepted accounting principles or (ii) where the effect of such change,
      together with all other changes in accounting policies or reporting
      practices made pursuant to this clause (ii) since the Effective Date, is
      immaterial to the Borrower and its Subsidiaries taken as a whole.



            (d)   Subsidiary Debt. Permit any of its Subsidiaries to create or
      suffer to exist, any Debt other than:

                  (i)   Debt owed to the Borrower or to a wholly owned
            Subsidiary of the Borrower,

                  (ii)  Debt which may be borrowed and outstanding from time to
            time under the credit agreements existing on and as of the Effective
            Date and described on Schedule 5.02(d) hereto (the "Existing Debt"),
            and any Debt extending the maturity of, or refunding or refinancing,
            in whole or in part, the Existing Debt, provided that the principal
            amount of such Existing Debt shall not be increased above the
            principal amount thereof outstanding immediately prior to such
            extension, refunding or refinancing, and the direct and contingent
            obligors therefor shall not be changed, as a result of or in
            connection with such extension, refunding or refinancing,

                  (iii) unsecured Debt incurred in the ordinary course of
            business aggregating not more than $150,000,000 for PRTC and for all
            of the other Guarantors not more than $75,000,000 in the aggregate
            at any one time outstanding,

                  (iv)  Debt in respect of operating leases,

                  (v)   endorsement of negotiable instruments for deposit or
            collection or similar transactions in the ordinary course of
            business, and

                  (vi)  Debt incurred by a Receivables Subsidiary created in
            connection with a Permitted Receivables Financing.

            SECTION 5.03. Financial Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:

            (a)   Debt to EBITDA Ratio. Maintain a Debt to EBITDA Ratio, as at
                  the end of each fiscal quarter of the Borrower, of not more
      than 3.0:1.0.

            (b)   EBITDA to Interest Ratio. Maintain an EBITDA to Interest
      Ratio, as at the end of each fiscal quarter of the Borrower, of not less
      than 3.5:1.0.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

            SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:

            (a)   The Borrower shall fail to pay any principal of any Advance
      when the same becomes due and payable; or the Borrower shall fail to pay
      any interest on any Advance within five Business Days after the same
      becomes due and payable; or any fees or other amounts payable under this
      Agreement or any Note are not paid within five Business Days after the
      same becomes due and payable; or

            (b)   Any representation or warranty made or deemed made by the
      Borrower herein or by the Borrower (or any of its officers) in connection
      with this Agreement shall prove to have been incorrect in any material
      respect when made or deemed made; or

            (c)   (i) Any Loan Party shall fail to perform or observe any term,
      covenant or agreement contained in Section 5.01(d), (e), (h), (i)(iii),
      (i)(v) or (j), 5.02 or 5.03, (ii) any Loan Party shall fail to



      perform or observe any term, covenant or agreement contained in Section
      5.01(i) (other than clauses (iii) and (v) thereof) if such failure shall
      remain unremedied for five Business Days after written notice thereof
      shall have been given to such Loan Party by the Agent or any Lender or
      (iii) any Loan Party shall fail to perform or observe any other term,
      covenant or agreement contained in this Agreement on its part to be
      performed or observed if such failure shall remain unremedied for 30 days
      after written notice thereof shall have been given to such Loan Party by
      the Agent or any Lender; or

            (d)   Article VII is breached by any Guarantor or shall cease to be
      in full force and effect or any Guarantor shall so state in writing; or

            (e)   The Borrower or any of its Subsidiaries shall fail to pay any
      principal of or premium or interest on any Debt that is outstanding in a
      principal, or in the case of Hedge Agreements net, amount of at least
      $20,000,000 in the aggregate (but excluding Debt outstanding hereunder) of
      the Borrower or such Subsidiary (as the case may be) (the "Requisite
      Amount"), when the same becomes due and payable (whether by scheduled
      maturity, required prepayment, acceleration, demand or otherwise), and
      such failure shall continue after the later of five Business Days and the
      applicable grace period, if any, specified in the agreement or instrument
      relating to such Debt; or any such Debt aggregating the Requisite Amount
      shall be declared due and payable in accordance with its terms or any
      other event shall occur or condition shall exist under any agreement or
      instrument relating to any such Debt aggregating the Requisite Amount and
      shall continue after the applicable grace period, if any, specified in
      such agreement or instrument, if the effect of such event or condition is
      to accelerate the maturity of such Debt; or any such Debt aggregating the
      Requisite Amount shall be required to be prepaid or redeemed (other than
      by a regularly scheduled required prepayment or redemption), purchased or
      defeased in accordance with its terms, or any offer to prepay, redeem,
      purchase or defease such Debt shall be required to be made in accordance
      with its terms, in each case prior to the stated maturity thereof where
      the cause of such prepayment, redemption, purchase or defeasance or offer
      therefor is the occurrence of an event or condition that is premised on a
      material adverse deterioration of the financial condition, results of
      operation or properties of the Borrower or any of its Subsidiaries,
      provided that with respect to Debt aggregating the Requisite Amount of the
      types described in clauses (h) or (i) of the definition of "Debt" and to
      the extent such Debt relates to the obligations of any Person other than
      the Borrower or any of its Subsidiaries, no Event of Default shall occur
      so long as the payment of such Debt is being contested in good faith and
      by proper proceedings and as to which appropriate reserves are being
      maintained; or any event shall occur or condition shall exist under any
      agreement or instrument relating to any Debt that is outstanding in a
      principal, or in the case of Hedge Agreements net, amount of at least
      $40,000,000 and shall continue after the applicable grace period, if any,
      specified in such agreement or instrument, if the effect of such event or
      condition is to accelerate, or permit the acceleration of, the maturity of
      such Debt; or

            (f)   The Borrower or any of its Subsidiaries shall generally not
      pay their respective debts as such debts become due, or shall admit in
      writing its inability to pay its debts generally, or shall make a general
      assignment for the benefit of creditors; or any proceeding shall be
      instituted by or against the Borrower or its Subsidiaries seeking to
      adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
      reorganization, arrangement, adjustment, protection, relief, or
      composition of it or its debts under any law relating to bankruptcy,
      insolvency or reorganization or relief of debtors, or seeking the entry of
      an order for relief or the appointment of a receiver, trustee, custodian
      or other similar official for it or for any substantial part of its
      property and, in the case of any such proceeding instituted against it
      (but not instituted by it), either such proceeding shall remain
      undismissed or unstayed for a period of 60 days, or any of the actions
      sought in such proceeding (including, without limitation, the entry of an
      order for relief against, or the appointment of a receiver, trustee,
      custodian or other similar official for, it or for any substantial part of
      its property) shall occur; or the Borrower or its Subsidiaries shall take
      any corporate action to authorize any of the actions set forth in this
      subsection (f) under any law relating to bankruptcy, insolvency or
      reorganization or relief of debtors; or



            (g)   Judgments or orders for the payment of money in excess of
      $30,000,000 in the aggregate shall be rendered against the Borrower or its
      Subsidiaries and enforcement proceedings shall have been commenced by any
      creditor upon such judgment or order for which a stay of enforcement of
      such judgment or order, by reason of a pending appeal or otherwise, shall
      not be in effect; provided, however, that any such judgment or order shall
      not be an Event of Default under this Section 6.01(g) if and for so long
      as (i) (A) the amount of such judgment or order is covered by a valid and
      binding policy of insurance between the defendant and the insurer or
      insurers covering payment thereof, (B) such insurer shall be rated, or, if
      more than one insurer, at least 90% of such insurers as measured by the
      amount of risk insured, shall be rated, at least "A-" by A.M. Best Company
      or its successor or its successors and (C) such insurer(s) has been
      notified of, and has not disputed the claim made for payment of, the
      amount of such judgment or order or (ii) (A) the amount of such judgment
      or order is covered by a valid and binding indemnification agreement
      between the defendant and an indemnitor, (B) such indemnitor shall have a
      rating for any class of its non-credit enhanced long-term senior unsecured
      debt of not lower than BBB+ by S&P or Baa3 by Moody's and (C) such
      indemnitor has been notified of, and has not disputed the claim made for
      payment of, the amount of such judgment or order; or

            (h)   (i) Verizon shall cease for any reason to maintain, directly
      or indirectly, the Controlling Interest; or (ii) the Borrower shall for
      any reason cease to own 100% of the Voting Stock of any Guarantor; or

            (i)   Any Loan Party or its ERISA Affiliates shall incur, or shall
      be reasonably likely to incur, liability that would have a Material
      Adverse Effect as a result of one or more of the following: (i) the
      occurrence of any ERISA Event; (ii) the partial or complete withdrawal of
      such Loan Party or its ERISA Affiliates from a Multiemployer Plan; or
      (iii) the reorganization or termination of a Multiemployer Plan;

then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower under the
Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.

                                   ARTICLE VII

                                    GUARANTY

            SECTION 7.01. Guaranty; Limitation of Liability. (a) Each Guarantor
hereby jointly and severally ("solidariamente") unconditionally and irrevocably
guarantees the punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of each other Loan Party now or
hereafter existing under this Agreement or any Note, whether for principal,
interest, fees, expenses or otherwise (such obligations, to the extent not paid
by such Loan Party or specifically waived in accordance with Section 9.01, being
the "Guaranteed Obligations"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Agent or the Lenders in
enforcing any rights under this Article VII (this "Guaranty"). Without limiting
the generality of the foregoing, each Guarantor's liability shall extend to all
amounts that constitute part of the Guaranteed Obligations and would be owed by
any Loan Party to the Agent or any Lender under this Agreement or any Note but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving such Loan Party.



            (b)   (i)    Each Guarantor and, by its acceptance of this Guaranty,
the Agent and each other Lender, hereby confirms that it is the intention of all
such parties that this Guaranty not constitute a fraudulent transfer or
fraudulent conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal,
state or Commonwealth of Puerto Rico law to the extent applicable to this
Guaranty. To effectuate the foregoing intention, the Agent, each other Lender
and each Guarantor hereby irrevocably agrees that the obligations of each
Guarantor under this Guaranty shall not exceed the greater of (A) the benefit
realized by such Guarantor from the proceeds of the Advances made from time to
time by the Borrower to such Guarantor and (B) the maximum amount that will,
after giving effect to such maximum amount and all other probable contingent and
fixed liabilities of such Guarantor that are relevant under applicable law, and
after giving effect to any collections from, rights to receive contribution
from, or payments made by or on behalf of each other Guarantor in respect of the
obligations of such other Guarantor under this Guaranty, result in the
obligations of such Guarantor under this Guaranty not constituting a fraudulent
transfer or fraudulent conveyance. For purposes hereof, "Bankruptcy Law" means
Title 11, United States Code, or any similar Federal, state or Commonwealth of
Puerto Rico law for the relief of debtors.

            (ii)  Each Guarantor agrees that in the event any payment shall be
      required to be made to the Lenders under this Guaranty, such Guarantor
      will contribute, to the maximum extent such that the contribution will not
      result in a fraudulent transfer or fraudulent conveyance, such amounts to
      each other Guarantor so as to maximize the aggregate amount paid to the
      Lenders under this Agreement and the Notes.

            SECTION 7.02. Guaranty Absolute. Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or the Lenders with respect thereto. The obligations of each
Guarantor under this Guaranty are independent of the Guaranteed Obligations, and
a separate action or actions may be brought and prosecuted against such
Guarantor to enforce this Guaranty, irrespective of whether any action is
brought against the Borrower or any other Guarantor or whether the Borrower or
any other Guarantor is joined in any such action or actions. The liability of
each Guarantor under this Guaranty shall be irrevocable, absolute and
unconditional irrespective of, and, to the maximum extent permitted by law, each
Guarantor hereby irrevocably waives, any defenses it may now or hereafter have
in any way relating to, any or all of the following:

            (a)   any lack of validity or enforceability of this Agreement or
      any agreement or instrument relating hereto;

            (b)   any change in the time, manner or place of payment of, or in
      any other term of, all or any of the Guaranteed Obligations, or any other
      amendment or waiver of or any consent to departure from this Agreement or
      any Note, including, without limitation, any increase in the Guaranteed
      Obligations resulting from the extension of additional credit to the
      Borrower or otherwise;

            (c)   any taking, exchange, release or non-perfection of any
      collateral, or any taking, release or amendment or waiver of or consent to
      departure from any other guaranty, for all or any of the Guaranteed
      Obligations;

            (d)   any change, restructuring or termination of the corporate
      structure or existence of the Borrower; or

            (e)   any other circumstance (including, without limitation, any
      statute of limitations) or any existence of or reliance on any
      representation by the Agent or any Lender that might otherwise constitute
      a defense available to, or a discharge of, any Guarantor, the Borrower or
      any other guarantor or surety other than payment when due.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Agent or any Lender upon the



insolvency, bankruptcy or reorganization of the Borrower or any Guarantor or
otherwise, all as though such payment had not been made.

            SECTION 7.03. Waiver. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty, the right to require application
against the property of the Borrower ("excusion de bienes") or any other
Guarantor, and any requirement that the Agent or any Lender exhaust any right or
take any action against the Borrower or any other Person or any collateral. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated herein and that the waiver set forth in
this Section 7.03 is knowingly made in contemplation of such benefits. Each
Guarantor hereby waives any right to revoke this Guaranty, and acknowledges that
this Guaranty is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.

            SECTION 7.04. Continuing Guaranty; Assignments. This Guaranty is a
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the Termination Date, (b) be binding
upon each Guarantor, its successors and assigns and (c) inure to the benefit of
and be enforceable by the Lenders, the Agent and their successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Lender may assign or otherwise transfer all or any portion of its rights and
obligations hereunder (including, without limitation, all or any portion of its
Commitment, the Advances owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender herein or otherwise, in each
case as provided in Section 9.07.

            SECTION 7.05. Subrogation. No Guarantor will exercise any rights
that it may now or hereafter acquire against the Borrower or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
such Guarantor's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the Agent
or any Lender against the Borrower, any other Guarantor or any other insider
guarantor or any collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from the Borrower, any other Guarantor
or any other insider guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the Guaranteed
Obligations and all other amounts payable under this Guaranty shall have been
paid in full in cash and the Termination Date shall have occurred. If any amount
shall be paid to any Guarantor in violation of the preceding sentence at any
time prior to the later of the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Agent and the Lenders and shall forthwith be paid to the Agent to be credited
and applied to the Guaranteed Obligations and all other amounts payable under
this Guaranty, whether matured or unmatured, in accordance with the terms of
this Guaranty, or to be held as collateral for any Guaranteed Obligations or
other amounts payable under this Guaranty thereafter arising. If (i) any
Guarantor shall make payment to the Agent or any Lender of all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be paid in full in cash and (iii) the
Termination Date shall have occurred, the Agent and the Lenders will, at such
Guarantor's request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.

                                  ARTICLE VIII

                                    THE AGENT

            SECTION 8.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be



required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders
and such instructions shall be binding upon all Lenders and all holders of
Notes; provided, however, that the Agent shall not be required to take any
action that exposes the Agent to personal liability or that is contrary to this
Agreement or applicable law. The Agent agrees to give to each Lender prompt
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement.

            SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 9.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement; (iv) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of any Loan
Party or to inspect the property (including the books and records) of any Loan
Party except as specifically set forth in this Agreement; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; and (vi) shall incur no
liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
facsimile, telegram or telex) believed by it to be genuine and signed or sent by
the proper party or parties.

            SECTION 8.03. BPPR and Affiliates. With respect to its Commitment,
the Advances made by it and the Note or Notes issued to it, BPPR shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent; and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include BPPR in its individual
capacity. BPPR and its Affiliates may accept deposits from, lend money to, act
as trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person who may do business with or own securities of any
Loan Party or any of its Subsidiaries, all as if BPPR were not the Agent and
without any duty to account therefor to the Lenders.

            SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender
and based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

            SECTION 8.05. Indemnification. The Lenders agree to indemnify the
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Advances owed each of them (or if no
Advances are at the time outstanding, ratably according to their Commitments),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement or any
action taken or omitted by the Agent under this Agreement, in each case whether
or not such investigation, litigation or proceeding is brought by any Lender,
its directors, shareholders or creditors or the Agent is otherwise a party
thereto, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal



proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower.

            SECTION 8.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent which, so long as no Default shall have occurred and be
continuing, shall be subject to the Borrower's approval, which approval shall
not be unreasonably withheld. If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a commercial bank
organized or licensed under the laws of the United States of America or of any
State thereof or the Commonwealth of Puerto Rico and having a combined capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, discretion, privileges
and duties of the retiring Agent, and the retiring Agent, upon appointment of
such successor Agent, shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VIII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.

                                   ARTICLE IX

                                  MISCELLANEOUS

            SECTION 9.01. Amendments, Etc. (a) No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by any
Loan Party therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that (i) no amendment, waiver or consent
shall, unless in writing and signed by all the Lenders, do any of the following:
(A) waive any of the conditions specified in Section 3.01, (B) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Lenders, that shall be required for the Lenders or any
of them to take any action hereunder, (C) release any Guarantor from any of the
obligations imposed upon it by this Agreement or (D) amend this Section 9.01;
and (ii) no amendment, waiver or consent shall, unless in writing and signed by
the Required Lenders and each Lender that has or is owed obligations under this
Agreement or the Notes that are modified by such amendment, waiver or consent,
(A) increase the Commitment of such Lender or subject such Lender to any
additional obligations, (B) reduce the principal of, or interest on, the Note
held by such Lender or any fees or other amounts payable hereunder to such
Lender, (C) postpone any date fixed for any payment of principal of, or interest
on, the Note held by such Lender or any fees or other amounts payable hereunder
to such Lender or (D) waive the application of Section 2.14; and provided
further that no amendment, waiver or consent shall, unless in writing and signed
by the Agent in addition to the Lenders required above to take such action,
affect the rights or duties of the Agent under this Agreement or any Note.

            (b)   Each Lender grants (x) to the Agent the right to purchase all
(but not less than all) of such Lender's Commitments and Advances owing to it
and the Notes held by it and all of its rights and obligations hereunder and
under the Notes at a price equal to the aggregate amount of outstanding Advances
owed to such Lender (together with all accrued and unpaid interest, fees and
other amounts owed to such Lender), and (y) to the Borrower the right to cause
an assignment of all (but not less than all) of such Lender's Commitments and
Advances owing to it and the Notes held by it and all of its rights and
obligations hereunder and under the Notes to Eligible Assignees at a price equal
to the aggregate amount of outstanding Advances (together with all accrued and
unpaid interest, fees and other amounts owed to such Lender) owed to such
Lender, which right may be exercised by the Agent or the Borrower, as the case
may be, if such Lender refuses to execute any amendment, waiver or consent which
requires the written consent of all the Lenders and to which Lenders owed at
least 90% of the aggregate unpaid principal amount of Advances or, if no such
principal amount is then outstanding, Lenders having at least 90% of the
Commitments, the Agent and the Borrower have agreed. Each Lender agrees that if
the Agent or the Borrower, as the case may be, exercises its option hereunder,
it shall promptly execute and deliver all agreements and documentation necessary
to effectuate such assignment as set forth in Section 9.07.



            SECTION 9.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier and facsimile
communication) and mailed, telecopied, faxed or delivered by hand or by courier,
if to the Borrower or PRTC, at 1513 Roosevelt Avenue, 10th Floor, Guaynabo,
Puerto Rico 00968 or P.O. Box 360998 San Juan, Puerto Rico 00936-0998,
Attention: Adail Ortiz (fax no.(787) 282-0958), with a copy to Maria Elena de la
Cruz (fax no. (787) 783-2919); if to BPPR, as Lender, at its Domestic Lending
Office specified opposite its name on Schedule I hereto; if to any other Lender,
at its Domestic Lending Office specified in the Assignment and Acceptance
pursuant to which it became a Lender; and if to the Agent, at its address at 209
Munoz Rivera Ave., Popular Center, Sixth Floor, San Juan, Puerto Rico 00918,
(fax no. (787) 756-3909, Attention: Corporate Banking - Manager; or, as to any
Loan Party or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrower and the Agent. All such notices and communications shall, when
mailed, telecopied or faxed, be effective when deposited in the first class
mails or, in the case of international delivery, when deposited with mails or
couriers that deliver within two Business Days or telecopied or faxed, provided
that notices and communications to the Agent pursuant to Article II, III or VIII
shall not be effective until received by the Agent, and provided, further, that
notices and communications to any Person required to be provided hereunder
within five Business Days shall only be made by hand or via telecopy, facsimile
or courier. Delivery by telecopier or facsimile of an executed counterpart of
any amendment or waiver of any provision of this Agreement or the Notes or of
any Exhibit hereto to be executed and delivered hereunder shall be effective as
delivery of a manually executed counterpart thereof.

            SECTION 9.03. No Waiver; Remedies. No failure on the part of any
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

            SECTION 9.04. Costs and Expenses. (a) The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Agent and the
Arranger in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, (A)
all due diligence, syndication (including printing and distribution),
transportation, computer, duplication, appraisal, audit and insurance expenses
and (B) the reasonable fees and expenses of counsel for the Agent with respect
thereto and with respect to advising the Agent as to its rights and
responsibilities under this Agreement. Such expenses shall be paid by the
Borrower upon presentation of an itemized invoice (after reasonable time for the
Borrower to review such invoice), regardless of whether the transactions
contemplated by this Agreement are consummated. The Borrower further agrees to
pay on demand all costs and expenses of the Agent and the Lenders, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable fees and expenses
of counsel for the Agent and each Lender in connection with the enforcement of
rights under this Section 9.04(a).

            (b)   The Borrower agrees to indemnify and hold harmless the Agent
and each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of Hazardous
Materials on any property of the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries, in each case whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any other Person or any Indemnified Party
is otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated, except to the extent such claim, damage, loss, liability
or expense (A) is found by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct, (B) arises
from disputes among two or more Lenders (but not including any such dispute that
involves a Lender to the extent such Lender is acting in any different



capacity (i.e., Agent or Arranger) under the Credit Agreement or the Notes or to
the extent that it involves the Agent's syndication activities) or (C) arises
from or relates to a breach by such Indemnified Party of its obligations under
this Agreement. The Borrower also agrees not to assert any claim against the
Agent, any Lender, any of their Affiliates, or any of their respective
directors, officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Notes, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances.

            (c)   If any payment of principal of, or Conversion of, any LIBOR
Rate Advance is made by the Borrower (or pursuant to Section 9.01(b)) to or for
the account of a Lender other than on the last day of the Interest Period for
such Advance, as a result of a payment, prepayment or Conversion pursuant to
this Agreement or acceleration of the maturity of the Notes pursuant to Section
6.01, the Borrower shall, upon demand by such Lender (with a copy of such demand
to the Agent), pay to the Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.

            (d)   Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in Sections 2.10, 2.13 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.

            SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 6.01 by the Required Lenders to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01 and notice to the Borrower as required under Section
6.01, each Lender and each of its Affiliates is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
or such Affiliate to or for the credit or the account of any Loan Party against
any and all of the obligations of such Loan Party now or hereafter existing
under this Agreement and the Note held by such Lender, whether or not such
Lender shall have made any demand under this Agreement or such Note and although
such obligations may be unmatured. Each Lender agrees promptly to notify the
applicable Loan Party after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender and its Affiliates under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender and its Affiliates may have.

            SECTION 9.06. Binding Effect. This Agreement shall become effective
(other than Section 2.01, which shall only become effective upon satisfaction of
the conditions precedent set forth in Section 3.01) when it shall have been
executed by the Borrower and the Agent and when the Agent shall have been
notified by BPPR that it has executed it and thereafter shall be binding upon
and inure to the benefit of the Borrower, the Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of all of the Lenders.

            SECTION 9.07. Assignments and Participations. (a) Each Lender may,
with the consent of the Agent (except as provided in clause (g) below) and, so
long as no Default has occurred and is continuing, the Borrower (such consent,
in the case of the Agent or the Borrower, not to be unreasonably withheld) and,
so long as no Default has occurred and is continuing, if demanded by the
Borrower (1) pursuant to Section 9.01(b), (2) following a request for a payment
to or on behalf of such Lender under Section 2.10 or Section 2.13, (3) following
a Withholding Tax Change affecting payments to such Lender or (4) following a
notice given by such Lender pursuant to Section 2.11, upon at least ten Business
Days' notice to such Lender and the Agent, will, assign to one or more Persons
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and the Note or Notes held by it); provided, that the Borrower may make demand
with respect to a Lender that has given notice pursuant to Section 2.11 only if
the Borrower makes such demand of all Lenders similarly situated that have given
such notice; provided, further, that (i) each such assignment shall be of a
constant, and not a varying, percentage of all rights and obligations under this



Agreement and the Notes, (ii) except in the case of an assignment to a Person
that, immediately prior to such assignment, was a Lender or an assignment of all
of a Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (iii) each such assignment
shall be to an Eligible Assignee, (iv) each such assignment made as a result of
a demand by the Borrower shall be arranged by the Borrower after consultation
with the Agent and shall be either an assignment of all of the rights and
obligations of the assigning Lender under this Agreement or an assignment of a
portion of such rights and obligations made concurrently with another such
assignment or other such assignments that together cover all of the rights and
obligations of the assigning Lender under this Agreement, (v) no Lender shall be
obligated to make any such assignment as a result of a demand by the Borrower
unless and until such Lender shall have received one or more payments from
either the Borrower or one or more Eligible Assignees in an aggregate amount at
least equal to the aggregate outstanding principal amount of the Advances owing
to such Lender, together with accrued interest thereon to the date of payment of
such principal and all other amounts payable to such Lender under this Agreement
and (vi) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Notes subject to such assignment and a processing
and recordation fee of $3,500 (which shall be paid by Persons other than the
Borrower unless such assignment is made as a result of a demand by the
Borrower). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights other than rights of indemnification under Section 9.04 or
otherwise relating to a time prior to the effective date of such Assignment and
Acceptance and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto).

            (b)   By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.

            (c)   Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender, an assignee representing that it is an Eligible Assignee
and the Borrower, together with the Note or Notes subject to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note a new Note
to the order of such Eligible Assignee in an amount equal to the Commitment
assumed by it



pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Commitment hereunder a new Note to the order of the
assigning Lender in an amount equal to the Commitment retained by it hereunder.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A hereto.

            (d)   The Agent shall maintain at its address referred to in Section
9.02 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

            (e)   Each Lender may sell participations to one or more banks or
other entities (other than the Borrower or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and the Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except that a Lender may agree with a
participant as to the manner in which the Lender shall exercise the Lender's
rights to approve any amendment, waiver or consent to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, in each case to the extent
subject to such participation, or postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation.

            (f)   Any Lender may at any time, without the consent of the Agent
or the Borrower, create a security interest in all or any portion of its rights
under this Agreement (including, without limitation, the Advances owing to it
and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System, provided, however, that no such assignment shall have the effect of
increasing the costs payable by the Borrower.

            (g)   Any Lender may at any time, without the consent of, but with
notice to the Agent, assign all or part of its rights or obligations under this
Agreement to any Affiliate of such Lender, provided, however, that no such
assignment shall have the effect of increasing the costs payable by the
Borrower.

            SECTION 9.08. Nondisclosure. None of the Agent, any Lender or any
Affiliate thereof shall disclose without the prior consent of the Borrower
(other than to the Agent, another Lender or any such Affiliate, their respective
directors, employees, auditors, affiliates or counsel who shall agree to be
bound by the terms of this provision) any information with respect to the Loan
Parties or any Subsidiary thereof contained in financial statements, projections
or reports provided to the Agent, any Lender or any Affiliate thereof by, or on
behalf of, the Loan Parties or any Subsidiary, provided that the Agent, any
Lender or any Affiliate thereof may disclose any such information (a) as has
become generally available to the public in a manner, or through actions, which
do not violate the terms of this Section 9.08, (b) to, or as may be required or
appropriate in any report, statement or testimony submitted to, any municipal,
state or federal regulatory body having or claiming to have jurisdiction over
the Agent, any Lender or any Affiliate thereof or to the Federal Reserve Board
or the Federal Deposit Insurance Corporation or similar organizations (whether
in the United States or elsewhere) or their successors, (c) as may be required
or appropriate in response to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to the Agent, any Lender or any Affiliate thereof and (e) to a
prospective co-lender or participant in the amounts outstanding hereunder or
under the Advances, provided, however, that such prospective co-lender or
participant executes an agreement containing provisions substantially



identical to those contained in this Section 9.08 and which shall by its terms
inure to the benefit of the Borrower and provided, further, that to the extent
practicable, the Agent, each Lender and their respective Affiliates shall use
reasonable best efforts to provide prior written notice of such disclosure to
the Borrower.

            SECTION 9.09. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Puerto Rico.

            SECTION 9.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier or facsimile shall be effective as delivery of a
manually executed counterpart of this Agreement.

            SECTION 9.11. Jurisdiction, Etc. (a) Each of the Loan Parties hereby
agrees that any suit, action or proceeding with respect to this Agreement or the
Notes or any other document executed hereunder to which it is a party or any
judgment entered by any court in respect thereof may be brought in the United
States District Court for the District of Puerto Rico or in the Court of First
Instance of Puerto Rico sitting in San Juan, as the party commencing such suit,
action or proceeding may elect in its sole discretion; and each party hereto
hereby irrevocably submits to the non-exclusive jurisdiction of such court for
the purpose of any such suit, action, proceeding or judgment. Each party hereto
further submits, for the purpose of any such suit, action, proceeding or
judgment brought or rendered against it, to the appropriate courts of the
jurisdiction of its domicile.

            (b)   Each of the Loan Parties hereby irrevocably consents to the
service of process in any suit, action or proceeding in such courts by the
mailing thereof by the Administrative Agent or any Lender by registered or
certified mail, postage prepaid, at its address set forth beneath its signature
hereto. Nothing herein shall in any way be deemed to limit the ability of the
Administrative Agent or any Lender to serve any such writs, process or summonses
in any other manner permitted by applicable law or to obtain jurisdiction over
the Loan Parties in such other jurisdictions, and in such manner, as may be
permitted by applicable law.

            (c)   Each of the Loan Parties hereby irrevocably waives any
objection that it may now or hereafter have to the laying of the venue of any
suit, action or proceeding arising out of or relating to this Agreement, the
Notes or any document executed hereunder brought in any such court and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.

            SECTION 9.12. Waiver of Jury Trial. Each of the Borrower, the
Guarantors, the Agent and the Lenders hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
Notes or the actions of the Agent or any Lender in the negotiation,
administration, performance or enforcement thereof.

            SECTION 9.13. Exhibits and Schedules Incorporated. The Exhibits and
Schedules annexed hereto are hereby incorporated by reference herein as part of
this Agreement with the same effect as if set forth in the body hereof.

            SECTION 9.14 2002 Revolving Credit Agreement. This Agreement
replaces and supersedes the Revolving Credit Agreement dated as of May 16, 2002
among the parties hereto, as amended by the First Amendment to the $90,000,000
Revolving Credit Agreement dated as of June 30, 2003 (the "2002 Revolving Credit
Agreement"). The 2002 Revolving Credit Agreement and the note issued thereunder
are hereby tereminated for all purposes.

                  [Remainder of Page Intentionally Left Blank]



            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                            TELECOMUNICACIONES DE PUERTO RICO,
                                            INC., as Borrower

                                            By ____________________________
                                            Name: Maria Elena de la Cruz
                                            Title: Treasurer

                                            PUERTO RICO TELEPHONE COMPANY, INC.,
                                            as Guarantor

                                            By ____________________________
                                            Name: Maria Elena de la Cruz
                                            Title: Treasurer

                                            BANCO POPULAR DE PUERTO RICO,
                                            as Administrative Agent

                                            By ____________________________
                                            Name: Hector Becemberg
                                            Title: Assistant Vice President

                                            BANCO POPULAR DE PUERTO RICO,
                                            as Lender

                                            By:____________________________
                                            Name: Hector Becemberg
                                            Title: Assistant Vice President



                                            The Lenders

Commitment: $40,000,000                     BANCO POPULAR DE PUERTO RICO

                                            By:____________________________
                                            Name:    Hector Becemberg
                                            Title:   Assistant Vice President

Applicable Lending Office(s):               209 Munoz Rivera Avenue
                                            Hato Rey, Puerto Rico
                                            Attention:  Manager - Corporate
                                                        Banking Division
                                            Telecopier:  (787) 756-3909

EX-10.31

EXHIBIT 10.31

                         COLLECTIVE BARGAINING AGREEMENT

                                   BETWEEN THE

                          PUERTO RICO TELEPHONE COMPANY

                                     AND THE

                              INDEPENDENT UNION OF

                       TELEPHONE EMPLOYEES OF PUERTO RICO

                                 EFFECTIVENESS:

                              FROM JANUARY 18, 2003

                             UNTIL JANUARY 17, 2006



                                    ARTICLE 1
                            RECOGNITION OF THE UNION

SECTION 1

      The Company recognizes the Union as the exclusive representative for all
the employees included in the bargaining unit, such as it is defined in Article
2 (Bargaining Unit) for purposes of the Collective Bargaining Agreement with
regard to the rates of compensation, salaries, work hours, employment tenure,
grievances and other employment conditions.

SECTION 2

      For purposes of this Collective Bargaining Agreement, the terms "worker"
and "employee" shall be interchangeable, reason why they will be utilized
alternatively in singular as well as in plural.

                                    ARTICLE 2
                       APPROPRIATE UNIT (BARGAINING UNIT)

SECTION 1

      The employees covered by this Collective Bargaining Agreement henceforth
referred to as the "Employees", shall be all the non-supervisor employees,
including all the regular employees, the temporary ones, Messengers or Mail
Office Clerks (certified by the National Board in case number 24-RC-4380 of
August 9, 1971) and all those positions which have been included in the
Appropriate Unit by the Labor Relations Board from that date onwards; and all
the employees included in the Certification of the Labor Relations Board (case
number P-96-1D-96-1257) dated July 10, 1996: Administrative Office Clerks,
Administrative Assistants, Executive Receptionists, Document Filing Clerk,
Document Assistant, Phone Card Office Clerk, Coordinator of Materials, Verifier
of Invoices, Librarian for the Data Center and Transportation Analysts.
Excluding all the Executives, Officers, Administrators, Supervisors, Department
Directors, Managers, Heads of Divisions, Sections, Zones, Districts and
Geographical Sub-Divisions, Security Guards, Employees from other Appropriate
Units, all personnel with capacity to hire, fire, promote, discipline or in
another manner vary the status of employees or make recommendations to that
effect, office employees intimately linked to the management, employees of
trust, including Secretaries for the Officers, Executives, Administrators,
Department Directors, Managers, all the employees from the Department from Labor
and Employee Affairs, Salesmen on a Commission basis, Payroll Office Clerk,
Employees from the Department of Client Affairs, Executive Receptionists from
the Office of the President, Administrative Office Clerks from the Office of the
Vice-President of Operations, Administrative Assistants from the Office of the
Vice-President for Network Planning and Engineering, from the Office of the
Vice-President for Business Services, from the Office of Treasury Operations,
from the Department for Corporate Security and any other positions which
functions imply responsibilities equal to those of positions which are excluded
in the Bargaining Unit and the Supervisors according to how they are defined by
the Law.

SECTION 2

      The titles mentioned above shall not limit the exclusion in the future of
positions which functions imply responsibilities equal to those excluded above,
including the ones that have the functions of a confidential nature (positions
of trust), in accordance to how these have been defined under the labor
jurisprudence.

SECTION 3

      The Company shall send the Union, on or before the following sixty (60)
days of each year that this Collective Bargaining Agreement is in effect, a
listing of all the positions by levels, included in this Bargaining Unit, with
the names of the ones holding the positions, entry dates, postal address and
their present salary.



                                    ARTICLE 3
                            RIGHTS OF THE MANAGEMENT

SECTION 1

      The Union recognizes that the administration of the Company and direction
of the working force are the exclusive prerogative of the Company. Therefore,
except as expressly limited by the terms of this Collective Bargaining
Agreement, the Company retains and shall retain the exclusive control of all the
matters concerning the operation, handling and administration of its business,
including, but without having this being interpreted as a limitation, the
administration and handling of its departments and operations, the work
organization and methods, the processes, methods and procedures for the
rendering of service, the determination of the equipment, parts and services to
be purchased, the assignment of working hours, the direction of the personnel,
the right to employ, classify, re-classify, transfer and discipline employees,
and all the functions inherent to the administration and/or handling of the
business.

SECTION 2

      If it is the understanding of any employee that he has been treated in a
discriminatory, arbitrary or unfair fashion in accordance to the terms of this
contract or any provision of this contract has been violated by any action taken
by the Company by virtue of the preceding section, such allegation shall be
submitted by the Union or by the employee to the Grievance Procedure established
in this Agreement.

                                    ARTICLE 4
                                   UNION SHOP

SECTION 1

      All employees who are covered by this Agreement who as of the date of the
signing of the same are a member of the Union, shall be obligated as a condition
of employment to continue as members of the Union and, in the case of new
personnel, these shall be obligated as a condition of employment to join the
Union within the thirty (30) days following their working for the Company and in
both cases, to pay dues to the Union during the effective period of this
Agreement.

SECTION 2

      The Company, at the written requirement on the part of the Union, shall
dismiss or suspend from their job any employee who is not affiliated or who does
not continue being affiliated as a bona-fide member of the Union. Said written
requirement must be notified to the Company by certified mail and with a copy to
the affected employee by certified mail.

SECTION 3

      The Company shall post a copy of this clause in visible places in its
different departments in the Island of Puerto Rico, for knowledge of the
personnel.

SECTION 4

      In the event that a competent entity determines that the separation to
which Section 2 of this article refers was unjustified or illegal, the Union
shall be the only one responsible for all the damages caused by said dismissal,
and the Union will safeguard the Company and reimburse it for any expense or
outlay in which the Company may incur as a result of said dismissal.



SECTION 5

      The Company and the Union agree that the Union shall have the opportunity
to meet during thirty (30) minutes with the recently hired employees, as part of
the general orientation process, for the purpose of supplying them with
information about the Union and the Collective Bargaining Agreement. The time
invested during the regular work shift of each employee given orientation shall
be paid as time worked. This orientation shall be carried out during the fifteen
(15) days following the entry of the union member employee, or from the time
that the Company notifies the entry, whichever is greater.

                                    ARTICLE 5
                                 DUES CHECK-OFF

SECTION 1

      During the effectiveness of this Collective Bargaining Agreement, the
Company commits itself to automatically deduct from the salary received by all
the employees covered by the definition of the Bargaining Unit, the sum of the
initiation dues, the regular dues and any uniform special dues which the Union
establishes for its members after receiving the written authorization on the
part of the employee. The authorization for the regular dues shall be for a
minimum term of one (1) year and shall be extended year after year, while the
employee occupies a position within the Bargaining Unit. This authorization
shall be irrevocable for a period of one (1) year from the date of the
authorization. The Union shall notify the Company in writing with regard to the
dues to be checked off from the employees covered by this Agreement. The Union
shall comply with all the applicable procedures and laws prior to the
establishment of said dues and the sum of said deductions shall be deposited
within a term which shall not exceed five (5) calendar days, after carrying out
the bi-weekly deduction by means of a direct deposit to the UIET's bank account,
it being provided that the Company will do everything possible to make the
deposit on the next working day.

SECTION 2

      a)    The Company will send the Treasurer of the Union or the Officer
            designated by him, after rendering the bond required by law, the
            document evidencing the deposit of the amount of the corresponding
            dues during the ten (10) calendar days after the payment of every
            two (2) weeks has been made except when there are extraordinary
            circumstances intervening in which case the term shall not exceed
            ten (10) additional days. The Company shall send the Union a summary
            every two (2) weeks with the names of the employees who have had
            said deductions made, in addition, containing the individual sum and
            the total of the same. The Company will check off the initiation
            dues in the amount and installments certified by the Union for all
            employees joining the Union, after receiving the written
            authorization from the employee.

      b)    The Company shall not forward dues until the Union has shown it that
            the Treasurer or the designated Officer have rendered the bond
            required by law.

      c)    In all cases of suspension or dismissal in which an Arbitrator,
            court or administrative entity has determined that the suspension of
            the employee or the dismissal of the employee was not justified and
            has ordered the reinstatement of the employee with all the total or
            partial salaries that it did not receive in cases of dismissal or
            has ordered the total or partial payment of the salaries not
            received during the suspension, the Company must deduct from said
            payment the total of the Union dues not paid by the employee during
            the time that the employee was dismissed or suspended, as the case
            may be, and forward its sum to the Union in conformity to this
            article.

      d)    In addition, the parties agree that in those cases of suspension or
            dismissals that were settled and as part of the agreement the total
            or partial payment of salaries not received by the employee have
            been agreed upon, the Company must also deduct from said pay the
            total of the Union dues not paid by the employee during the time
            that the employee was dismissed or suspended and to forward its sum
            to the Union in the terms stated above.

      e)    With regard to the deduction of dues to which reference is made in
            paragraphs c) and d) of this section, it shall be the obligation of
            the Union to notify the Company on a timely basis about the total
            sum of dues that the employee is to have checked off.



SECTION 3

      In the event that any competent entity determines that any dues have been
illegally set or deducted, the Union shall release the Company from all
liability and shall indemnify and pay directly any reimbursement ordered by said
entity.

SECTION 4

      During the effective period of this Collective Bargaining Agreement, the
Company shall send the Union, on a monthly basis, a report regarding the
employees who are enjoying any of the leaves established in this Collective
Bargaining Agreement, which duration shall be of thirty (30) calendar days or
more, with said report having to state the name of the employee and his number,
the position occupied by him, the department, the work center, the leave which
he is enjoying and up to where it is possible, the duration of the leave stating
the possible return date.

SECTION 5

      During the effective period of this Agreement, the Company must check off
the Union dues in all those cases in which an employee from the bargaining unit
is enjoying the benefits of any of the leaves with pay acknowledged in the
Agreement, except under the Prolonged Illness Leave, (Act 139), and forward its
sum on the basis of the terms stated above, it being provided that in those
cases under Act 139 (SINOT), the Company, once the employee has returned to his
job, must withhold the Union dues that were not paid by the employee during said
leave and forward their sum to the Union in the terms stated in this article.
The total of said check offs must be made during the first three pay periods.

                                    ARTICLE 6
                      COOPERATION ON THE PART OF THE UNION

      The Union, as well as its members, agree to promote, at all times and as
fully as possible, good service and efficient operation. The Union and its
members also agree with the Company to produce maximum production during each
daily work shift.

                                    ARTICLE 7
                                  PRODUCTIVITY

      The Union and the Company acknowledge that productivity must be increased
to confront the competition in the telecommunications services.

      To that effect, the Union agrees that the employees who are Union members
shall commit themselves to render the maximum of their productivity, attendance,
timeliness, efficiency and effectiveness with order and discipline. All of it in
accordance to Article 6, Cooperation on the part of the Union.

      The Company will carry out all possible efforts to provide the means and
resources necessary so that the employees can attain the productivity objectives
established.

                                    ARTICLE 8
                             DELEGATES OF THE UNION

SECTION 1

      The delegates and their sub-delegates in their substitution, shall
represent the Union in the process of administrating the Collective Bargaining
Agreement before the Company.

      The delegates shall provide orientation to the employees covered by this
Collective Bargaining Agreement with regard to their responsibilities and
rights; in like manner they shall watch out and be empowered to help their
co-workers when these have a complaint or grievance or when their presence is
required by any boss or supervisor.



SECTION 2

      The Union delegates shall be limited to handling the grievances and
matters related to the application of the Collective Bargaining Agreement in
their work area.

SECTION 3

      No delegate may intervene in another department or area that is not one
for which he has been designated, with the exception of those work areas or
departments where no delegate has been appointed, in which case the delegate
from another nearby department may act as the appointed delegate in that other
operational unit or department, as long as he has been previously authorized in
writing by the President of the Union or his authorized representative.

      The Union shall be entitled to appoint sub-delegates or substitute
delegates who shall act only in the absence of the appointed delegate.

SECTION 4

      The delegate shall utilize the time adequately for the quickest solution
of the grievances. When it is necessary for a Union delegate to deal with a
grievance or related matter, the delegate must:

      a.    Notify his immediate supervisor with reasonable time to stop taking
            care of his regular work and taking care of the grievance or related
            matter.

      b.    The delegates shall receive up to a maximum two (2) hours for each
            grievance. When a delegate is required by the Management to handle
            some specific matter related to the Collective Bargaining Agreement,
            the time devoted by him to the attention of said matter, shall not
            be deducted from his salary. It being provided, that the meeting
            time may be limited by the Management.

      The Union binds itself to comply and promote faithful compliance with this
article in such manner that the time requested by the delegate be utilized
exclusively for the aforementioned purposes.

      The Company, on its part, may take the actions and measures that it deems
necessary and relevant in such manner that faithful compliance be given to the
provisions of this article, including having the time requested by a delegate to
be utilized exclusively for the purpose stated above.

      c.    Return to his job upon finishing dealing with the manner if his work
            schedule has not ended.

      d.    The meetings between the delegate and the employee requiring his
            services in accordance with this Agreement, work shall be carried
            out in the areas near the employee's work area.

      e.    When it is necessary to have a delegate hold a private conversation
            with an employee during time with or without pay on the part of the
            Company to process a grievance or to deal with a matter relating to
            the application of the Collective Bargaining Agreement in accordance
            to the Grievance Procedure, the express authorization from the
            supervisor must be obtained.

      f.    The Company agrees to provide the Union with adequate facilities at
            each work site where the same exists and which are available for the
            purpose of having its functionaries, delegates or agent being able
            to hold meetings relating to grievances from the concerned area or
            department.

SECTION 5

      When the Company expands its services creating additional units and
increasing in a substantial manner the personnel in the additional services, the
parties, after previous agreement, shall reach an agreement regarding the
appointment of the corresponding delegates.

SECTION 6

      The delegate shall represent the employees covered by this Collective
Bargaining Agreement when the employee so requires it in the different stages of
the Procedure for Grievances, with the President of the Union or any member of
the Board of Directors being able to participate in said representation.

SECTION 7

      The Company shall not acknowledge any delegate until the President or
Vice-President of the Union has informed the Director of Labor and Employee
Affairs about it in writing and the delegate has received his appointment.

      The delegates will have to be regular employees of the Company.



SECTION 8

      The parties shall reach an agreement with regard to the schedule, number
and place where the delegates shall act. It being provided that there shall not
be more than one delegate and one sub-delegate in functions per each operational
unit of the Company, with the exception of the Traffic Department in which
centers the delegates and sub-delegates necessary to insure that the employees
are duly represented may be appointed.

SECTION 9

      The President or the Vice-President of the Union may appoint General
delegates, in conformity with the preceding section 7 and these shall receive
the same treatment, respect and courtesy that should be rendered to the Officers
of the Union.

      The General Delegates shall be appointed to represent and substitute the
officers of the Union and when they visit the shop or specific area to which
they have been appointed, they shall have all the prerogatives that the Officers
of the Union have. The General delegate must comply with what is provided for in
Section 4 of this article.

                                    ARTICLE 9
                           VISITS FROM UNION OFFICERS

SECTION 1

      The President of the Union, the members of the Board of Directors and the
members of the Elections Committee shall have access to the Company's premises
during working hours, for the purpose of resolving grievances, investigating
work conditions and verifying the compliance with this Collective Bargaining
Agreement. The members of the Elections Committee, during periods of reunions
for internal elections of the shall have access to the Company's premises for
the sole purpose of administrating and coordinating said elections. In addition,
it is agreed that the members of the Union's Discipline Committee shall have
access to the Company's premises during working hours, for the sole purpose of
carrying out the functions relevant to said Committee, it being provided that
prior notice shall be given, with less in writing, of no lesser than 24 hours,
to the Director of Labor and Employee Affairs.

SECTION 2

      Upon arriving at the area to be visited, the President, members of the
Board of Directors, members of the Elections Committee or members of the
Discipline Committee, shall identify themselves and inform the purpose of their
visit and shall go in person before the officer of the Company that they are
going to be visiting or to the representative appointed by them.

SECTION 3

      The President of the Union may appoint agents or representatives to carry
out any of the functions of said Board. The Company shall not recognize as such
an appointed agent or representative until the President of the Union has
notified the Director of Labor and Employee Affairs in writing about his
designation as such, including a description of the matters which said agent or
representative shall be authorized to handle in the Union's name.

      The representatives appointed by the President of the Union shall be
acknowledged by the Company and these shall receive the same treatment, respect
and courtesy that should be rendered to the officers of the Union, it being
provided that these agents or representatives shall have access to the Company's
premises for the purpose of handling the matters authorized to be handled in the
Union's name. Upon the arrival of the agent(s) or representative(s), he shall
identify himself and inform the purpose of his visit and shall appear in person
before the Officer of the Company that he is going to be visiting or the
representative designated by him.



                                   ARTICLE 10
                              PERSONNEL ACTIVITIES

SECTION 1

      The Company and the Union agree that the employees or representatives of
the Union shall not be allowed to carry out propaganda or Union activities of
any nature whatsoever during their working hours within or outside the Company
premises, except those expressly contained in this Collective Bargaining
Agreement.

SECTION 2

      No union propaganda or activity of any nature whatsoever shall be allowed
within the Company premises on the part of the employees, the Union delegates
and officers during their free time, if by doing so it causes about one or more
of the following conditions:

      a.    Interrupts or distracts the work of the personnel which is working.

      b.    Constitutes a disturbance or harm to the Company.

      c.    Causes a situation of disorder or violence.

SECTION 3

      The Company and Union the agree that the working hours are for each
employee to devote to his work for the Company and therefore, it is not
allowable to dedicate working time to matters which are foreign to work such as,
for example: discussions about sports, politics, religion, etc. Neither are such
activities allowable during the employee's free time but within the Company's
premises if that causes one or more of the conditions in clauses a, b and c of
the preceding section.

SECTION 4

      No employee shall have access to the Company buildings or premises without
prior express authorization from the Supervisor of the site or the Director of
Labor affairs, except to his regular work site and during his regular work
schedule. In the event of receiving such authorization, the employee must be
accompanied at all times by said Supervisor or by the person designated by him
unless the Supervisor or the person designated by him determines, at his
discretion, that it is not necessary to accompany him and so informs it verbally
to the visiting employee. Under no circumstance will the employee be authorized
to enter onto Company property if there is no Supervisor, or the person
designated by him available to accompany the him.

                                   ARTICLE 11
                     PUBLICATION, ADJUDICATION OF POSITIONS
                   AND APPOINTMENTS, PROMOTIONS AND TRANSFERS

SECTION 1

The Company shall publish visible and accessible in bulletin boards that allow
the ample divulgation at all work centers, the positions of new creation, the
vacant ones or the ones which could be left vacant in the near future,
corresponding to the bargaining unit that they are going to cover, specifying
the requirements for the same. The publication of the positions shall be made
for a term no lesser than five (5) working days. The Company shall send to the
Union a copy of said publication. A position so published shall not be canceled
without notifying the Union about the reasons for its cancellation.

SECTION 2

Any regular employee, who meets the requirements for a published position, may
apply for the same by submitting the corresponding application, in the form
supplied by the Company, within the term established in the publication, to the
Recruiting Department, with return receipt requested. It being provided that
those employees who work outside of the


buildings of Plaza Telefonica (1500, 1513 and 1515 Roosevelt) shall count with a
term of two (2) additional working days after the closing of the publication.

SECTION 3

The Company shall only consider those employees who meet the requirements, who
have filed the petitions within the period established in the publication, and
who may fulfill the functions of the position immediately upon having it
adjudicated to them; or if they are enjoying their vacation leave, upon the
conclusion of the same; or if they are receiving benefits under the State
Insurance Fund or using sick leave, within thirty (30) days after it has been
adjudicated to them.

SECTION 4

Any vacant position or a position of new creation shall be adjudicated to the
employee who qualifies pursuant to what is provided in Section 6 of this article
within the following order of priority, except in the case of promotion or
transfer from one classification to another, where seniority shall not be the
determinant criterion for the adjudication of the position:

      a.    Employees who are going to be affected by personnel reductions.

      b.    Employees who have suffered an occupational illness or accident that
prevents them from carrying out the functions that they used to carry out in
their positions prior to said illness or accident. This priority shall not have
the scope of extending the term of time provided by law within which an employee
reserves his job tenure from the time of the occupational accident or illness.

      c.    Employees who have suffered a non-occupational illness or accident
that prevents them from carrying out the functions that they used to carry out
in their positions prior to said illness or accident. This priority shall not
have the scope of extending the term of time provided by law within which an
employee reserves his job tenure from the time of the known occupational
accident or illness onwards.

      d.    Employees who request a transfer within their same occupational
classification.

      e.    Employees requesting a promotion.

      f.    Employees requesting lateral transfer or lateral movement (change
from one classification to another with the same salary level).

      g.    Employees requesting a demotion

      h.    Ex-employees which the Company may have laid off within the twelve
(12) previous months due to scarcity or reduction of work.

SECTION 5

For the purpose of this Agreement, no regular employee or one of new appointment
may apply for a movement in transfer, lateral transfer and demotion, until
eighteen (18) months have passed from the date when the adjudication of the
position presently occupied have passed or until the maximum of the existing
progression for his present occupational classification has been reached,
whichever occurs first.



SECTION 6

In those cases in which the adjudication of a vacant position or one of new
creation represents a promotion or lateral transfer for the applicant employee,
the position shall be adjudicated among the candidates who fulfill the
requirements in accordance to the following factors: seniority; evaluation
criteria, in conformity to the work evaluation form for the previous two (2)
years; disciplinary record for the previous two (2) years; attendance history
for the previous two years; related experience and trainings. Seniority shall
prevail over all the other factors if these were to turn out to be equal among
the employees to be considered for covering the new or vacant positions.

SECTION 7 - Transfer - Lateral Transfers

      a.    For the purpose of this Collective Bargaining Agreement, an
appointment in transfer shall be understood to mean any permanent change from
one department to another, from one work center to another, or from one
municipality to another, as long as the employee continues in his same
occupational classification.

      b.    For the purpose of this Collective Bargaining Agreement, an
appointment in transfer or lateral movement shall be understood to mean any
change from one classification to another with the same salary level. No
employee may request a lateral movement until after eighteen (18) months have
passed in one position and he must remain in said position a minimum of eighteen
(18) months after said movement. In a lateral movement, the employee, in his new
classification, shall fulfill the same requirements provided for the cases of
promotion in Section 6 of this Article.

        For the purpose of this Article exclusively, each one of the following
areas of the municipality of San Juan shall be considered as a municipality:

            -     San Juan - Santurce - Isla Verde

            -     Hato Rey - Rio Piedras

            -     Pueblo Viejo

Also, for purposes of this Article exclusively, the Levittown area shall be
included in the municipality of Catano.

      c.    There will be two (2) types of transfers:

            1.    Transfers by a formal petition on the part of the employee,
which is the one that is produced when one fills out a written request, through
the Recruitment Department.

            2.    Transfers when the Company determines it due to the need in
service. The employee may, after having carried out this type of transfer,
question it through the Grievance Procedure.

Except in cases where events occur beyond the control of the Company and the
service may be adversely affected, the employee shall be located in the position
of transfer within a period which shall not exceed thirty (30) days from the
date when the Recruitment Department adjudicated the same to him.

When the Company is interested in transferring an employee due to service needs,
it shall notify the employee and the Union with thirty (30) days of advance
notice, except when there are extraordinary circumstances in which case it shall
be notified with ten (10) days of advance notice. In the events of fights or
conflicts between employees which may affect the peace or the normal functioning
at the Work Center, if it were considered necessary, a transfer of the employee
can be made until an investigation of the matter can be carried out, without
complying with the terms established herein.

In the case where there arises the need to cover the position that was left
vacant by the transferred employee due to service need between the following one
hundred and eighty (180) days after the transfer was effected, he, the
transferred



employee, shall have priority to return to said position. After one hundred and
eighty (180) days, the position shall be filled following the process
established in this Article.

The Company will acknowledge the right of exchange among the employees, as long
as the Company determines, in its sole discretion, that there exists equality of
circumstances, category, capacity, efficiency and ability. In the case of an
exchange, the expenses caused by the transfer shall be to the account of the
employees.

The Company shall not utilize its discretion in a capricious, arbitrary or
discriminatory fashion to authorize the exchange being requested.

The transfer shall not be utilized capriciously, arbitrarily or as a
disciplinary or discriminatory measure.

SECTION 8 - PROMOTIONS

      a.    For the purpose of this Collective Bargaining Agreement, a promotion
shall be understood to be the movement of an employee from one position to
another, which has a higher salary level and those changes from one position for
which the maximum series level is inferior to the maximum level of the new
position.

      b.    In the promotions, priority shall be given to the Company employees
who have requested promotion and who qualify for the same, in conformity to what
is provided in this Article, Section 6. Seniority shall prevail over the other
factors, if these were to turn out to be equal among the employees to be
considered for covering of the positions in promotion. When an employee changes
work center due to a promotion for which he has applied, he may not request a
change of position outside of his new work center until twenty-four (24) months
have elapsed from the promotion.

      c.    Any promoted employee shall be subject to a probationary period of
two (2) months during which he will have to show having ability, knowledge,
skills and the efficiency which, in the judgment of the Company, is required for
the new position. In the cases of promotions which requires special training,
said training period shall not form part of this probationary period.

      d.    In the case when an employee is promoted, the Company shall pay him
the salary corresponding to the new position as soon as he begins to occupy the
same.

      e.    If his probationary period were not satisfactorily approved, the
femployee shall return to his previous position with the salary that would have
corresponded to him if he had continued in the previous position. The Company
shall reinstate to their previous position and salary the employees who would
have been promoted as a result of the vacancies that would have brought about
the promotion of said employee. If, as a result of said promotion, a new
employee had been hired, the Company would be free to separate said new employee
and the Union shall not file any complaint whatsoever under the Complaint and
Grievance Procedure.

      f.    Except in cases where events occur beyond the control of the Company
and/or the service may be adversely affected, the employee shall be placed in
the position in promotion within a period that shall not exceed thirty (30) days
from the date when the Recruitment Department adjudicates the same to him. g.
The promotion to a superior level within the same classification shall not be
considered a promotion. These promotions shall be made in conformity to the
requirements established by the Company in the duty sheet.

      g.    The promotion to a superior level within the same classification
shall not be considered a promotion. These promotions shall be made in
conformity to the requirements established by the Company in the duty sheet.



SECTION 9 - DEMOTION

For the purpose of this Collective Bargaining Agreement, a demotion shall be
understood to be understood to be any change of an employee from one position to
another position with a lower salary level, or those changes from one position
where the maximum series level is superior to the maximum series level of the
new position, or toward another position in which the employee has to begin at a
level lower than the present one, even when the maximum level of the new
position is equal to the one which he was occupying at the moment of the change.
No employee may request a demotion until after he has been eighteen (18) months
in one position and he must remain in said position a minimum of eighteen (18)
months after said demotion.

In those cases in which an employee has had a position of an inferior level
adjudicated to him as the result of a request, in other words, one which
represents a demotion, his salary shall be adjusted to that of the position of
the inferior level.

SECTION 10 - GENERAL PROVISIONS

Nothing of what has been previously provided in this article shall have the
scope of limiting the faculty of the Company to transfer employees due to needs
in service or the right of the Company to recruit external personnel for those
positions which have not been covered by means of internal recruitment in
accordance to this Collective Bargaining Agreement.

SECTION 11

Within ten (10) working days following the adjudication of a vacant position or
one of new creation, the Company must notify the Union, by certified mail with
return receipt requested, with a copy of the determination and indicating the
position which was adjudicated, the requisition number for the position and the
name and the employee number of the person with whom the same was covered and
the criteria why it was adjudicated to the person. It must also notify them a
list with the names of all the employees who were competing for the position
with the corresponding salary levels.

SECTION 12

The Company shall send to the employees who appear in the registry of eligible,
by ordinary mail, at their last known postal address, a copy of all publications
of vacant positions or those of new creation, for the purpose of having these
regular laid-off employees be able to apply for the same within the term
established in this article. A copy of said letter shall also be sent to the
Union.

SECTION 13

The Company shall send the Union a copy of all petitions for change, outside of
the Appropriate Unit, requested by any employee from this bargaining unit.

                                   ARTICLE 12
                               PROBATIONARY PERIOD

SECTION 1

      All persons hopeful of entering as employees, must have first approved
those examinations, written or evaluation ones, required by the Company.

SECTION 2

      The employees included in the Bargaining Unit are classified as regular
employees, probationary employees and part-timers. The part-timers may continue
working in the traffic functions or any other call center throughout the
geographical areas in which the Company is organized. The parties agree that
when an employee with a regular work



day of eight (8) hours is transferred outside of the Traffic area, the vacancy
that he leaves shall be covered with a part-timer, if it were necessary.

      The putting into effect of the previous measure shall be in a prospective
manner and the operation of Traffic shall never have more than fifty (50%)
percent of the labor force at half shifts. This process shall be put into effect
gradually.

      For the purpose of this article, there shall be two (2) types of part-time
      employees (part-timers).

      I.    Those employees with a half work shift who work in the Traffic Call
            Centers (Long Distance and Information Services), whose work day is
            no lesser than twenty (20) hours per week and no more than
            thirty-nine (39) hours per week.

      II.   Those part-time employees who work in the Repair Call Centers, calls
            to Service Representatives and other Call Centers, with the
            exception of Traffic, who are those who will work after 5:00 PM and
            weekends with a work schedule of no lesser than twenty (20) hours
            per week and no greater than thirty (30) hours per week.

      It being provided that when a part-time employee works 2,030 hours within
a period of one (1) year, the Company may consider changing the part-time work
shift to a regular work shift.

SECTION 3

      A condition for regular appointment shall be that the employee has worked
to the satisfaction of the Company during a Probationary Period of ninety (90)
days. The training period for the probationary employees at the training centers
recognized by the Company shall not form part of the Probationary Period if it
does not exceed thirty (30) consecutive days. However, the probationary period
for each employee shall begin to be counted as soon as the Company assigns him
to perform regular work outside of the training centers. The Company may assign
the probationary employee to a work shop for a waiting time at the beginning of
the training, as long as said time does not exceed fifteen (15) days. However,
this initial waiting time, of up to a maximum of fifteen (15) days, shall form
part of the calculations of the ninety (90) days established for his
probationary period. Once the Company reassigns this worker to perform work in a
work shop, any other training time shall be counted for the completion of his
probationary period.

SECTION 4

      All employees, during their probationary period, must be periodically
evaluated with regard to, among other factors, their capacity to assimilate
training, their productivity, their efficiency, their timeliness, their
attendance at work, their habits, attitudes and general behavior. The Company
shall hand over to the employee a copy of each periodic evaluation, except when
the employee has abandoned the service and is not available.

SECTION 5

      Any employee who satisfactorily approves the Probationary Period shall be
appointed as a regular employee by means of an official notice to the employee.

SECTION 6

      All probationary employees will have to submit themselves to those medical
examinations required by the Company and the result of said medical examinations
will have to be satisfactory to the Company, as a condition of employment. The
cost, if any, of these examinations shall be paid for by the Company.

SECTION 7

      All employees who join the Company by virtue of a transfer, sale, merger,
expropriation or lease shall have the provisions of this article applicable to
them.

SECTION 8

      The Company has the right to order or decree the dismissal of any
probationary employee within the terms of Section 3, without having such
dismissal giving rise to any grievance whatsoever before the entities
established by this Collective Bargaining Agreement for the resolution of
controversies and grievances.



                                   ARTICLE 13
                              MEDICAL EXAMINATIONS

SECTION 1

The Company may require any regular employees to submit himself to medical
examinations and examinations of any other kind which are of a medical nature.
The cost, if any, of the same, shall be paid for by the Company. This
prerogative may not be utilized in a discriminatory fashion against the members
of the Brotherhood.

SECTION 2

The Company shall compensate the employee for the time that the examination
takes as long as this is carried out within his regular work schedule.

SECTION 3

The Company shall take the measures and actions that its considers necessary and
pertinent, to ensure the correct use of the benefits disposed in articles 27 and
28 of this agreement. Thus the Company reserves the right to select a physician,
properly qualified, who determines if the employee in effect is a disable
person. The notification to the employee will be with copy to the Union. In
order to continue receiving economic benefits disposed in those articles, the
employee must attend at the required time for those medical tests and exams
which the physician orders.

If the physician determines that the employee is able to work, the benefits of
this article discontinue and the employee will receive the benefits provided by
SINOT or FSE, which ever is applicable. Nevertheless, the retention period for
this employee will be that provided in Articles 27 and 28, which ever is
applicable.

If the employee is not in agreement with the doctor's determination, the Union
shall, within 5 working days, following the employees receipt of the
determination, request the Company, in written , that wishes to select by mutual
agreement another physician properly qualified to evaluate if the employee is
able to work. The Union and the Company will ask to the "Colegio de Medicos de
Puerto Rico", to submit a list of 5 physicians properly qualified in the alleged
condition of which the parties will select one by eliminating 2 by each party.
If the "Colegio de Medicos de Puerto Rico" is not in position to provide the
list, the Company and the Union will submit 3 names each of physicians properly
qualified in the area of the alleged condition. Three (3) of the names will be
eliminated at random and at the 3 remaining ones each party will eliminate one,
then the remaining one will be the chosen one. This physician shall render his
determination not later than 10 days from having finalized the corresponding
examination and tests if any, which will be carried out as soon as possible and
the employee will fully cooperate. The determination of the physician shall be
final and unappealable. The cost of this medical evaluation should be paid in
equal part by the Company and the Union for the first 10 employees during the
year that request this evaluation. For additional cases the total cost shall be
assumed by the Company.

The Company may submit during the year, in order to determine if they are able,
a number of employees not more than 10% of the employees enjoying the leave of
absences under the articles 27 and 28 of the natural year immediately preceeded.
The Union shall be informed of the total number of employees making use of the
benefit during such year.

                                   ARTICLE 14
                                    SENIORITY

SECTION 1

      Seniority shall be understood to be the total time of service credited to
an employee by the Company. Credited time shall be all the time of regular work
schedule that an employee has worked in a continuous form for the Company



as well as all the leaves with salary. The leaves without salary granted to the
members of the Board of Directors of the Union during the terms for which they
have been elected shall be credited to their seniority with the Company.

SECTION 2

      Seniority rights will expire as a result of any of the following reasons:

      a)    Resignation

      b)    Dismissal

      c)    Lay-off during twelve (12) consecutive months or upon the receipt of
            the compensation provided for in Article 17, Section 3 - Reduction
            of Personnel and re-employment.

      d)    Absence due to occupational illness or accident in excess of his
            leave for occupational illness or accident.

      e)    Absence due to non-occupational illness or accident in excess of the
            term established in this Collective Bargaining Agreement or until he
            exhausts his leave for prolonged illness, whichever is greater.

      f)    Not accepting an available position and one for which he qualifies,
            while he is on the preferential employment list.

      g)    Accepting a position outside of the bargaining unit, unless the
            employee decides to return and/or the Company decides to return him
            to his old position, within the six (6) months following his
            departure from the bargaining unit.

SECTION 3

      The probationary employees shall not accrue seniority until they have
approved their respective probationary periods, in which case the seniority will
be retroactive to the date when they began their respective probationary
periods.

                                   ARTICLE 15
                    REDUCTION OF PERSONNEL AND RE-EMPLOYMENT

SECTION 1

      When the Company determines the need to carry out lay-offs or personnel
transfers due to lack of sufficient work or due to reasons of economy in
determinate classifications of employment, it shall prepare a lay-off or
transfer plan, as the case may be, and in accordance to the provisions of this
Agreement, and it shall notify in writing by certified mail or in person, about
the lay-off or transfer, to the affected employees and to the Union including in
the notice copy of the plan, with no less than one (1) month of advance notice
prior to the date when the lay-off or transfer shall be made effective, and such
reduction shall be made observing the following order:

      a.    Probationary employee in the affected classification.

      b.    Regular employee in inverse order of seniority in the affected
            classification.

      In the case of lay-offs or transfers, the members of the Board of
Directors and the delegates shall have super seniority in their classification.

      The determination of the number of employees who are needed to perform a
task is an exclusively managerial function which may not be questioned through
the grievance procedure.

SECTION 2

      a.    In the event that a regular employee with less than one (1) year of
            seniority is subject to lay-off, he may choose to bump another
            employee in a lateral classification or an inferior one with lesser
            seniority in which the displacing employee is qualified to perform
            the work immediately or any other classification in which the
            displacing employee has worked previously and continues being
            capable of performing the work immediately.

      b.    Any regular employee, with at least one (1) year of seniority, who
            is bumped as a result of the procedure established in the preceding
            paragraph a) shall have, in like manner, the right to bump by means
            of seniority following exactly the procedure established in the
            preceding paragraph.



SECTION 3

      Any regular employee who is laid-off and who at the moment of the lay-off
has one (1) year or more, shall not lose the right to a compensation equivalent
to three (3) weeks plus one (1) week for each year of seniority up to a maximum
of twenty (20) weeks.

SECTION 4

      Any laid-off employee and who at the moment of the lay-off has at least
one (1) year or more of seniority shall be included in a list of preferential
employment for a maximum of twelve (12) months.

SECTION 5

      The compensation provided in the preceding Section 3 shall be paid at the
end of the twelve (12) month period established in the preceding Section 4. In
the alternative, a laid-off employee may choose to receive the compensation for
lay-off previously indicated at any moment after the lay-off has been notified,
plus said employee shall be excluded from the preferential employment list as
soon as he receives said compensation.

SECTION 6

      The regular employees who are laid-off shall be included in a registry of
eligibles, utilizing the criterion of seniority and they shall have the
preference provided in Section 4 of the article regarding "Publication,
Adjudication of Positions and Appointments" to occupy regular or new vacant
positions within the bargaining unit, as long as the employee is qualified and
capable of fulfilling such position.

SECTION 7

      The Company will supply the Union a copy of this list of eligibles with
the name of the employee, position that he used to occupy and the years of
service; in like manner, it will inform the changes in the list, if any.

SECTION 8

      When there arises the possibility of re-employment, the Company shall get
in touch with the laid-off ex-employee by certified mail at his last address,
with copy to the Union, granting him ten (10) working days in which to accept
the position. If he does not to accept or answer within the term, he shall lose
the right granted in this article and shall be eliminated from the corresponding
list. If he answers within said term indicating that he cannot accept the job
due to extraordinary reasons which in effect make it impossible for him to
accept the position being offered to him and it is so proven to the Company
within said term, the laid-off employee shall not lose the right to
re-employment with regard to other vacancies that arise later on in his
classification within the term of twelve (12) months after his lay-off, as is
provided further on.

SECTION 9

      The right to re-employment, as provided in this article, shall be
extinguished within twelve (12) months after having being laid-off as an
employee for the Company, except when he does not accept or does not answer a
communication offering him a vacancy, as provided in the previous section. If
positions are frozen during this period, the right will be extended for a period
of time equal to that of the freezing.

                                   ARTICLE 16
                                RECLASSIFICATION

SECTION 1

      When the Union considers that a position has had assigned to it functions
and duties belonging to a superior position or that the duties and functions of
it have evolved in a substantial and permanent matter toward a position of a
superior level or that functions and duties of greater complexity have been
assigned, the President of the Union or in his absence, the vice-president,
shall submit in writing a petition for reclassification to the Director of Labor
and Employee Affairs indicating the criteria and reasons justifying the
petition.



      The Director of Labor and Employee Affairs, once the petition for
reclassification has been received, will refer it to the Director of
Compensation and Records, who shall coordinate a meeting with the President of
the Union or his representative so that he will present in the name of the Union
the reason justifying the petition or reclassification that is being requested.

SECTION 2

      No petitions for reclassification for positions which are not at the
maximum salary level of his class shall be accepted, if this class is made by
progression levels.

SECTION 3

      The assignment of additional duties or functions of equal, similar or
lesser complexity, and/or the increase in the volume of work, shall not imply a
reclassification.

SECTION 4

      The Director of Labor and Employee Affairs shall notify the President of
the Union about the Company's position with regard to the petition for
reclassification within a period of ninety (90) calendar days from the date of
the meeting provided for in Section 1 of this Article. If it were determined
that a position must be reclassified, its reclassification shall be effective to
the date of receipt of the petition on the part of the office of the Director of
Labor and Employee Affairs.

SECTION 5

      If the Union is not in agreement with the determination of the Director of
Labor and Employee Affairs regarding its petition for the reclassification of a
position, it may question the same in conformity to the Grievance Procedure
established in this Agreement.

SECTION 6

      No reclassification petitions for petitions of the Bargaining Unit will be
accepted, if within the last eighteen (18) months, a petition regarding the same
position has been filed.

SECTION 7

      All employees who at the moment of the signature of this Collective
Bargaining Agreement have an occupational level 11 may request a classification
as long as functions and duties of a greater complexity have been assigned to
them. In the event that it were determined that a reclassification is in order
in accordance to this article, the employees shall maintain their occupational
level 11, but they will receive a salary increase of fifty-five ($.55) cents per
hour.

                                   ARTICLE 17
                                 PERSONNEL FILES

SECTION 1

      The official file for each employee is the file in the power of the
Company under the custody of the Division of Records. The warnings, reprimands,
or disciplinary actions imposed which do not appear in the official file, may
not be utilized for any purpose.

SECTION 2

      Any employee may, after requesting and coordinating with his immediate
supervisor, review his personnel file once a year.

SECTION 3

      In addition, the Company agrees to present the official personnel file
when the employee has a grievance pending a hearing in the third stage of the
Grievance Procedure and the employee has requested its presentation



previously in writing, and when the employee understands that in the official
file there appear charges which are not in agreement with the facts. The
President or the member of the Board of Directors may examine the file of the
employee at the third stage of the Grievance Procedure if the employee so allows
it and if he is present. If there do not exist new documents in the personnel
file since the last presentation, the Company will not be obligated to show the
file once again.

SECTION 4

      In like manner, the Company agrees, to present the personnel file to all
union members whose petition for promotion, transfer or change to a position
with an lower salary grade has been denied and the employee requests in writing
to examine his file and has a complaint pending in the third stage regarding his
promotion, transfer or change to a position with a lower salary grade.

SECTION 5

      When, in the employee's file, after its presentation, there appear charges
or documents which do not adjust themselves to the real facts, the Company,
after investigating the facts, agrees to withdraw the documents presented and/or
correct them if it were necessary. The disciplinary actions of the employee file
shall not be considered for any purpose whatsoever after a period of five (5)
years has elapsed since they were issued.

      At any moment in which the personnel file of the employee has to be taken
out of the office where the custody of the same is found, to be utilized in any
official procedure, the documents regarding disciplinary actions which were
issued more than five (5) years ago shall be eliminated from said file.

SECTION 6

      The Company will send the Union and deliver to the corresponding delegate
a copy of all disciplinary actions that are notified in writing to an employee
included in the Bargaining Unit. The Company shall send the Union a copy of all
personnel movement duly approved related to employees from the bargaining unit.

SECTION 7

      The Company shall not supply any person or entity foreign from it,
information which arises from the personnel file of the employee, without his
written authorization, unless there is the intervention a judicial mandate, in
which case it shall be notified previously. When there is an intervening
judicial or legal mandate, the employee shall be notified at the same time as
the documents are handed over, unless the judicial order or the law expressly
forbids it.

SECTION 8

      The employee shall be entitled to be supplied a copy of any document that
is placed in his personnel file containing information relating his person.

                                   ARTICLE 18
                           WORK OF THE BARGAINING UNIT

SECTION 1

      The Company agrees that the personnel employed in the capacity of
supervisor or non-supervisor which are not included within the Bargaining Unit,
shall not carry out work assigned to employees within the Bargaining Unit,
except in cases of emergency and/or circumstances where employees from the
Bargaining Unit, as it is defined in this Agreement, are not available. Nothing
of what has been previously stated shall limit the normal function of the
management to instruct, train and direct the work of employees within the
Bargaining Unit.

SECTION 2

      For purposes of this article "emergency cases" shall signify cases of Acts
      of God such as:

      a.    National Emergency

      b.    Hurricanes



      c.    Fires

      d.    Flooding

      e.    Earthquakes

      f.    Cases of major breakdowns where the number of employees available is
            not sufficient and/or when they have not been able to correct it.

SECTION 3

      For the purpose of this article the concept "when employees from the
Bargaining Unit are not available", shall mean circumstances such as the ones in
which:

      a.    They are required to work overtime and the personnel from the
            Bargaining Unit, of the required classification, is not available to
            work overtime.

      b.    When work accrues in an abnormal fashion and the personnel belonging
            to the Union which is available is not sufficient to cover the needs
            of the service. This circumstance cannot justify carrying out work
            of the appropriate unit with personnel that is not from the unit at
            a specific site or in a specific classification for more than ninety
            (90) days.

      c.    When due to the absence of personnel belonging to the union, the
            service is affected, requiring that other personnel perform the
            work.

      When the situations being considered in paragraphs b. and c. arise, the
Company shall exhaust the resource of bringing personnel belonging to the Union
which are available and in the same classification from other work centers of
the Company belonging to the same department and located in the same
geographical area where the need exists, as long as the operation of these other
work centers is not affected.

      During the course of time of the process of exhausting the recourse of
bringing personnel belonging to the union, the Company may take the necessary
measures so that service is not interrupted as long as the implementation of
those measures do not annul the purpose stated in the previous paragraph.

      It being understood, however, that the previous provision shall apply
solely and exclusively when the situations considered in paragraphs b. and c.
are due to or are the direct consequence of the normal outcome of the services
rendered by the Company. It shall apply it under no circumstances when the
situations considered in paragraphs b. and c. are the direct or indirect result
of actions from personnel from the Bargaining Unit geared toward producing an
abnormal accrual of work: such as slowdowns, abnormal or agreed upon absences
from the Company's personnel belonging to the Union, or any action of the ones
stated in the article regarding "No-Strike and No-Lockout" of the Collective
Bargaining Agreement and/or disciplinary actions taken as a result of the
conduct indicated above.

      The personnel belonging to the Union will carry out the work corresponding
to them when the exceptions indicated in this article arise.

      The intention of the parties in this agreement is to prevent the
managerial personnel from displacing personnel belonging to the union in their
regular work and when working overtime, and at no time prohibiting that they
carry out its operations as a public service enterprise in a normal fashion.

      This agreement does not have the intention of allowing the supervisors to
perform work of the Bargaining Unit at all times.

SECTION 4

      The Company agrees that it shall not assign supervision, executive,
managerial or confidential work to employees who belong to and are included in
the Bargaining Unit.

                                   ARTICLE 19
                                HEALTH AND SAFETY

SECTION 1

      The Union and the Company agree that the health and safety conditions at
work are a responsibility share between the employees and the Company.

      The Company agrees to provide safe working conditions and methods and to
eliminate unsafe situations of work, in regard to which the Union agrees to
cooperate with the Company.



SECTION 2

      The employees must comply with and follow the safety norms established by
the Company, by the laws and/or by the regulations.

      The Company's requirement that requires employees to carry on their person
in a visible place the identification card, crediting them as employees, shall
be complied with by all the personnel. The cost of the identification card shall
be paid for by the Company.

SECTION 3

      Any employee who suffers a work accident or who becomes ill during working
hours and their injury or illness results in an emergency case where immediate
medical or hospitalization services are required, shall be entitled, after the
authorization of a supervisor, to have utilized for their transportation, any
Company vehicle which is available and such vehicle may be driven by any person
authorized to drive motor vehicles if the driver in charge of the vehicle is not
available or accessible at the moment of the accident. In all investigations
carried out by the Company regarding any possible violation to the present
section, all the circumstances related to the emergency situation may be taken
into consideration to determine any justificating or mitigating factor with
regard to the possible violation.

SECTION 4

      The Company shall provide and maintain adequate sanitary facilities, as
well as drinking water, and the Union shall promote the adequate use of said
facilities.

SECTION 5

      The Company shall provide the Union with a copy of all the periodic
reports that it submits to any government agency relating to occupational
accidents.

SECTION 6

      The Company shall comply with all the applicable provisions of the laws
and regulations and Puerto Rico and the federal ones administrated by the
Department of Health or the Department of Labor and Human Resources with regard
to work facilities and safety conditions.

SECTION 7

      In those cases in which the Company determines establishing new work
centers, the Union shall be notified with thirty (30) days of prior notice, for
the purpose its having the opportunity to examine the same before beginning
operations in said centers and may express its observations and recommendations.
In special cases, the Company and the Union will reach an agreement to establish
the inspection within a lesser period of time.

SECTION 8

      The Company, through its Occupational Health and Safety Division, agrees
to provide the Union with the work accident reports and studies performed by any
laboratory on or prior to thirty (30) calendar days following the accident. In
like manner, if the Company were to perform any inspection or study related to
the health and safety of the members from the Bargaining Unit, a copy of the
same shall be provided to them, if it were required, as long as said request
specifies the study.

                                   ARTICLE 20
                              DRUG TESTING PROGRAM

SECTION 1

      The Union and the Company recognize that the use and abuse of controlled
substances is an alarming problem in the country and affects the working force
negatively. The Union, worried about the health and safety of its members,
recognizes the risk to which its employees may be exposed due to the use and
abuse of controlled substances.



SECTION 2

      The Company, aware of its responsibility to protect the health and safety
of its employees and clients, as well as of its responsibility to watch out for
the productivity and efficient rendering of the services that its employees
rendered to the people, wishes to state its concern for the problem that the use
and abuse of drugs by the employees represents.

SECTION 3

      For these purposes and to maintain a work environment free from the
problems associated with the use and abuse of controlled substances; and to
protect the health and safety of the employees covered in this Appropriate Unit,
the parties, after a detailed and conscious analysis of all the elements
involved in this problem, voluntarily and in free exercise of their contractual
faculties in conformity to the law, agree that the Company may adopt a
Controlled Substance Use Detection Program for the employees, in accordance to
Act Number 59 of August 8, 1997.

      The guiding criteria of the Program shall be:

      -     The protection of the confidentiality, civil and constitutional
            rights of the employees.

      -     Non-discrimination against the employee.

      -     The identification of drug users for the purpose of providing the
            employees the opportunity for treatment and rehabilitation in
            conformity to the law, the Controlled Substance Use Detection
            Program for the Company Employees and the Company's programs for
            internal or external aid to the employee.

                                   ARTICLE 21
                            RESPECT AND CONSIDERATION

SECTION 1

      The Company and its functionaries obligate themselves to give to the
employees and the Union the best treatment, respect and consideration possible
for the purpose of maintaining the best relations between the employees, the
Union and the Company.

SECTION 2

      The Union and the employees from the Bargaining Unit obligate themselves
to observe toward the Company and its functionaries the best treatment, respect
and consideration possible for the purpose of maintaining the best relations
between the employees, the Union and the Company.

SECTION 3

      In any case in which the Union or an employee covered by this Agreement
accused any personnel from the Company excluded from the Appropriate Unit of a
violation to this Article and the award were to turn out to be favorable for the
grievant, the same shall form part of the official personnel file of the
managerial employee who violated this Article.

                                   ARTICLE 22
                                 BULLETIN BOARD

SECTION 1

      The Company shall allow the Union the use of bulletin boards in places to
be determined by a mutual agreement between the parties.

      In these bulletin boards, there will be posed notices regarding:

      a.    Summonses to meetings which will be limited to specifying the place,
            time and date of said activities.

      b.    Appointments of officers, committees and delegates.

      c.    Results of negotiations, elections, grievances or matters which
            constitute common projects between the Company and the Union.

      d.    Social, union, recreational, educational or cultural activities.



SECTION 2

      The installation and cost of these bulletin boards shall be paid for by
the Company.

SECTION 3

      It is agreed that the notices which are posted shall not contain material
of proselytism, political or religious, or material which tends to slander, put
down or affect the image of the Company or its functionaries.

      The Company shall not allow the posting of notices which are contrary to
and in violation of this clause.

                                   ARTICLE 23
                              WORK DAY AND OVERTIME

SECTION 1

For the purpose of this Agreement, for the purpose of calculating overtime, the
work week shall consist of forty (40) hours and the daily work day shall consist
of eight (8) hours. The work week shall consist of five (5) days.

SECTION 2

No employee shall work overtime without first having received authorization from
his immediate supervisor or from the immediate supervisors of his immediate
supervisor. When the company determines that the service needs require working
overtime, it may request from any employee that he work overtime and the
employee shall work it, unless he can show that he has just cause for not
working said overtime.

SECTION 3

The Company shall assign the overtime work without privileges in a fair and
equitable manner and as long as it is operationally possible, the employees who
request it voluntarily and the demands of the service shall be taken into
consideration. The Company, to the degree that it is possible, for it to
anticipate work beyond its regular work day, shall establish work shift
calendars to inform its employees about the work shifts that they will be
working.

SECTION 4

The overtime that the Company requires to be worked in excess of the forty (40)
hours per week shall be paid at the rate of double time the rate paid for
regular hours of work. The hours required by the Company to be worked in excess
of eight (8) hours per day, shall be paid for at the rate of double the rate per
hour paid for regular hours.

SECTION 5

When an employee is required to work outside of the place where he lives, the
time during which the employee is not really working, such as, but without
having this understood to be a limitation, the time for meal consumption,
sleeping, etc., shall not be considered as time worked.

The Company will comply with the requirements of the Fair Labor Standard Act
(FSLA) in relation to travel time on temporary assignment.



SECTION 6

The employees who belong to the Union may enjoy a fifteen 15) minute rest during
the course of each four (4) hour period of work as long as the service is not
affected and the emergencies are dealt with. The Company shall schedule the
manner in which the employees shall enjoy this rest period.

SECTION 7

The employee is entitled to enjoy one (1) hour for the consumption of meals,
which must begin to be enjoyed no earlier than the end of the third hour nor
later than the end of the fifth hour of his regular daily work shift. The time
worked during the period destined for the consumption of meals shall be
compensated at the rate at twice (2) the rate of the regular work hour.

SECTION 8

In the case of the meal consumption periods taking place outside of the
employee's regular work schedule, said period shall be obviated (shall not be
enjoyed), subject to his not working more than two (2) hours after the regular
work day.

SECTION 9

The aforementioned does not have the effect of eliminating the right of an
employee to enjoy his meal hour when at any given moment he works more than two
(2) hours beyond his regular work day. If these situations were to arise and the
employee does not enjoy his meal consumption period, the Company shall be
obligated to pay the penalty provided by the law for that particular hour.

SECTION 10

The provisions contained in this article shall apply solely to those employees
of the Company covered by this Agreement who are not exempt or could be not
exempt in the future due to any law, regulation, decree or any other provision
whatsoever regarding the payment of additional compensation for overtime work
hours.



                                   ARTICLE 24
                                 VACATION LEAVE

SECTION 1

      The personnel from the bargaining unit shall enjoy vacation leave in the
following manner:

      a.    Those employees who count with less than three (3) years of
employment shall enjoy vacation leave during the effective period of this
Collective Bargaining Agreement at the rate of one point seventy-five (1.75)
working days for each month of work, equivalent to twenty-one (21) days per
year.

      b.    Those employees who count with three (3) years or more of employment
but less than seven (7), shall enjoy vacation leave during the effective period
of this Collective Bargaining Agreement at the rate of one point ninety-two
(1.92) working days for each month of work, equivalent to twenty-three (23) days
per year.

      c.    Those employees who count with seven (7) years or more of employment
but less than ten (10), shall enjoy vacation leave during the effective period
of this Collective Bargaining Agreement at the rate of two point seventeen
(2.17) working days for each month of work, equivalent to twenty-six (26) days
per year.

      d.    Employees who count with ten (10) years of more of employment shall
enjoy vacation leave during the effective period of this Collective Bargaining
Agreement, at the rate of two point five (2.5) working days for each month of
work, equivalent to thirty (30) days per year.

To be entitled to enjoy the days of vacation leave pursuant to how it is
previously provided for, during the month of work, the employee must have worked
at least one hundred (100) hours of work during said month. The employee who
works less than one hundred (100) hours in any month will enjoy vacation leave
in proportion to the number of hours which he in fact worked during that month
with regard to one hundred (100) hours; for example: if an employee who is
entitled to enjoy vacation leave under clause b. of this section works
seventy-five (75) hours in a particular month, he shall be entitled to enjoy in
that month seventy-five percent (75%) of two (2) days on the basis of one
working day of eight (8) hours, twelve (12) hours of vacation leave in that
month. The employee will receive at the beginning of the enjoyment of his
vacation leave the equivalent to the hours accrued on the basis of the
aforementioned applicable formula multiplying by the regular basic rate of pay
per hour for the employee.

SECTION 2

The vacation leave shall be taken during the twelve (12) month period following
the date of the anniversary of the employee's entry. It being provided that if
at the end of said twelve (12) month period it has not been possible to grant
the employee the vacation leave that he should have enjoyed during the same,
these shall be paid at double the regular rate per hour, and that vacation leave
which was accrued during said twelve (12) month period shall begin to be enjoyed
at the time when the aforementioned vacation leave is paid.

The Company shall determine the dates when the annual vacation leave period that
is to be granted to each employee shall begin and end, paying attention in the
first instance to the Company's operational needs. However, they will take into
consideration, if this is possible, any observation made by the employee with
regard to the date of his preference for taking his vacation leave. It being
provided that if there are two or more interests of employees in conflict with
regard to the date for taking vacation leave, the employee with the greater
seniority shall have preference.

The Company may shut down, chargeable to vacation leave parts of its operations
for the period of 24 to 31 of December. If the employee does not have sufficient
accrued vacations the time will be advanced. Similarly the time will be advanced
if the Christmas shut down causes the employee not to have sufficient accrued
vacations to cover the ones that were on schedule.



SECTION 3

All employees shall be entitled to receive the equivalent of the vacation leave
that they have accrued as of the date of their resignation or separation from
the job in cash.

SECTION 4

The employee who is enjoying vacation leave shall not be called to work until he
has finished said vacation leave, except in the case of emergency in which it
has to be interrupted due to service needs. Upon finishing the work for which he
was called, the employee shall enjoy the days of vacation leave that he has
remaining, including the days in which he was called in to work.

SECTION 5

The period of time in which the employee covered by this Collective Bargaining
Agreement is enjoying sick leave or vacation leave shall count for effect of
this article solely as hours worked, once the employee has returned back to
work.

SECTION 6

When an employee is enjoying annual vacation leave and becomes ill for a period
of three (3) or more consecutive working days, it must be charged to sick leave,
if the employee requests it and as long as the employee presents medical
evidence, in conformity with Article 29, Section 5, (Sick Leave), that he is
ill, in which case the employee upon ending his illness will continue the
vacation leave for a period equivalent to the remaining of his authorized and
unauthorized vacation leave.

SECTION 7

At the petition of the employee, the Company may schedule the annual vacation
leave in two (2) or more separate periods within the same year in which the
employee is entitled to enjoy the same.

SECTION 8

The employee may request the cash payment of his accrued vacation leave in
excess of the maximum number of days of vacation leave established in Mandatory
Decree Number 73, applicable to the communications industry. The granting of
this request shall require an agreement between the Company, the employee and
the union representative.

In order to create a bridge between a holiday ( as defined in the contract) and
a weekend, the Company may shut down part of its operations and grant said days
chargeable to regular accrued vacations. In the case that the employee does not
have enough accrued vacations the time will be advanced. Similarly the time will
be advanced if the shut down causes the employee not to have sufficient accrued
vacations to cover the ones that were on schedule.

                                   ARTICLE 25
                              SPECIAL SPORTS LEAVE

SECTION 1

      It is agreed to grant a Special Sports Leave, in conformity to Act 49 of
July 23, 1992, as amended, to the employees who qualify.



SECTION 2

      All employees who request this leave must count with the written
certification from the Olympic Committee of Puerto Rico to represent Puerto Rico
in Olympic Games, Panamerican Games, Central American Games or in regional or
world championships.

SECTION 3

      All employees who are duly certified by the Puerto Rico Olympic Committee
to represent Puerto Rico in the competitions listed in Section 2 of this
article, shall present to the Company, with at least ten (10) days in advance to
their going off to compete, a certified copy of the document crediting them to
represent Puerto Rico in said competition, which shall contain information about
the time that said athlete will be participating in the aforementioned
competition.

SECTION 4

      The employee must submit to his immediate supervisor, within the first ten
(10) days of each month, a certification in which the time utilized in the
Federation or in the Olympic Committee during the preceding month is stated.

SECTION 5

      The Company shall grant a bonus of $500.00 to each participating athlete
who makes use of this leave for a period of at least five (5) days.

                                   ARTICLE 26
                                   SICK LEAVE

SECTION 1

The employees covered by this Collective Bargaining Agreement shall accrue sick
leave at the rate of one and a half (1 1/2) working days for each month in which
they have worked at least one hundred (100) hours of work. Those employees who
work less than one hundred (100) hours in the month shall accrue sick leave in
the proportion that the number of hours that they worked in the month has to one
hundred (100) hours; in other words, if they work seventy-five (75) hours during
the month, they shall accrue seventy-five percent (75%) of one and a half (1
1/2) of the working day on the basis of an eight (8) hour working day, in other
words, nine hours of work.

The period of time in which the employee covered by this Collective Bargaining
Agreement is enjoying sick leave or vacation leave shall count for the purpose
of this article solely as hours worked once the employee has returned to work.

SECTION 2

The sick leave unused by the employee during the course of the year shall remain
accrued for the following years up to a maximum of seventy-five (75) days for
the purposes of liquidation provided in Section 3 and ninety (90) days for the
purpose of this Section. As of the date of retirement to enjoy the benefit of
the Company's pension plan or disability plan determined by Social Security, the
employee shall be paid the accrued days of sick leave up to a maximum of ninety
(90) days. This benefit shall be calculated by multiplying by eight (8) the
regular basic rate of pay per hour that the employee was receiving at the time
of his retirement or disability.

SECTION 3

The Company shall pay on an annual basis the accrued sick leave in excess of
seventy-five (75) days to which the employee is entitled, within an eight (8)
week period from the anniversary of vacation leave, calculating by eight (8) the
regular basic rate of pay per hour that the employee is receiving, at the rate
of fifty percent (50%) during the first two (2) years of the effective period of
this Collective Bargaining Agreement and at the rate of seventy-five percent
(75%) the third year of effectiveness of the same.



SECTION 4

In the event of having to be absent from work due to any reason, the employee
must let his immediate Supervisor know during the employee work shift.

SECTION 5

The employee who is absent due to illness in excess of two (2) days must present
a medical certificate to his supervisor upon returning to work which specifies
the date of the consultation with the physician and the estimate made by the
physician as to the days that the employee must spend recovering. In the event
that the employee continues ill for a period greater than three (3) days or
more, the employee must get said certificate to his supervisor within the first
three (3) days of absence from his job, except in the cases of Acts of God when
he must make said certificate get there in the briefest time possible. The
employee shall receive pay for the benefits provided in this article only when
he complies with what is provided for in this section.

SECTION 6

The Company shall inform the employees on an annual basis about the balance of
days of sick leave accrued.

                                   ARTICLE 27
                               EXTENDED SICK LEAVE

SECTION 1

      In the event that a regular employee is absent for a consecutive period
greater than five (5) working days due to reasons of illness proven by means of
a medical certificate that complies with the requirements provided in the
article regarding Sick Leave, he shall receive benefits at the rate of one (1)
week at full salary and three (3) weeks at half (1/2) salary for each year of
service up to a maximum of thirteen (13) weeks at full salary and thirty-nine
(39) weeks at half (1/2) salary. In the event that the benefit under the
Non-Occupational Disability Insurance Act (Act 139), were to turn out to be
greater than the ones established herein, only the ones that are greater shall
be granted.

SECTION 2

      The Company reserves for itself the right to have examined by physicians
chosen by it, those cases that it deems necessary. The expenses for these
examinations shall be paid for by the Company.

SECTION 3

      Any accident and/or illness of an occupational nature shall be excluded
from the benefits provided in Section 1 of this article.

SECTION 4

      The first five (5) consecutive working days of absence prior to the
enjoyment of prolonged sick leave shall be charged to the regular sick leave
that the employee may have accrued.

SECTION 5

      To be entitled to the full accrual of the benefit considered in Section 1
of this article, during successive periods of illness, the employee must perform
his functions, without any interruption whatsoever, during a thirteen (13) week
period between one illness and another.

      For the purpose of this section, the following shall not be considered to
be interrupting events: periods for Maternity Leave; Funeral Leave; Sports
Leave; Jury Duty and Military Leave.



                                   ARTICLE 28
                             OCCUPATIONAL SICK LEAVE

SECTION 1

      Any regular employee who has to be absent due to an occupational accident
or illness so certified by the State Insurance Fund, shall be entitled to
receive his regular salary during the first twenty-six (26) weeks from the
moment of the accident.

SECTION 2

      In the event that the employee is absent from his work in excess of the
first twenty-six (26) weeks, the employee will be entitled to receive, in
addition, half of his regular salary during the following thirty-five (35)
weeks.

      If the employee were not discharged by the State Insurance Fund, after the
sixty-one (61) weeks have elapsed since the date of the accident, at the written
petition of the employee he shall have approved up to a maximum of seventeen
(17) additional weeks without salary, for purposes of holding on to the job, as
long as he complies with the terms and conditions established by the law with
regard to having had to been discharged and being physically and mentally
capable to be able to exercise his job, among other requirements of law.

SECTION 3

      In exceptional cases, the Company, in its sole discretion and after a
request on the part of the employee, with no less than thirty (30) days prior to
the termination of the seventeen (17) week period without salary from the
previous section, may carry out a medical evaluation of the employee to
determine his health condition. If it were to consider it necessary, the Company
could on the basis of deserving reasons and in its sole discretion, extend the
period without pay for an additional term which shall not, in any case
whatsoever, exceed four (4) weeks.

SECTION 4

      The Company shall deduct from this leave the per diems that the employee
receives from the State Insurance Fund during this period.

SECTION 5

      In the event that any employee is absent from his job due to an alleged
occupational accident or illness, and until the State Insurance Fund (SIF)
issues a certification of causal relationship, the Company shall pay to him the
benefits to which he is entitled under Act 139 (SINOT), in conformity to the
following table:

                        W E E K S  O F  B E N E F I T S



 YEARS OF              FULL SALARY               HALF SALARY              SINOT
 SERVICE          ADJUSTMENT/SINOT COORD.   ADJUSTMENT/SINOT COORD.    COORDINATION
                                                              
Less than 1                  -                          -                   26

    1                        1                          3                   22

    2                        2                          6                   18

    3                        3                          9                   14

    4                        4                         12                   10

    5                        5                         15                    6

    6                        6                         18                    2

7 or more                    7                         19                    -




      Once the SIF issues a certification of causal relationship, the Company
will charge to the Occupational Sick Leave provided in this article and credit
the benefits paid during said period to the Extended Illness Leave, accrued by
the employee.

      In the case of employees who do not have the non-occupational disability
benefits in their entirety, the benefits remaining under Act 139 in conformity
to this table shall be paid. It being explained that the SINOT and the SIF
benefits are mutually excluding between one and the other; in other words, that
the employee cannot receive both benefits at the same time.

                                   ARTICLE 29
                                 MATERNITY LEAVE

SECTION 1

      All employees who are pregnant shall be entitled to a rest period of four
(4) weeks before and four (4) weeks after the birth, with full pay at the rate
of their regular salary.

SECTION 2

      The employee may choose to take up to one week of prenatal rest and extend
it up to seven (7) weeks the post natal rest to which she is entitled as long as
she presents to her supervisor with a medical certification crediting that she
is in condition of working up to one week before the birth.

SECTION 3

      If the employee were to suffer a complication after the birth which
prevented her from working for a term that exceeds four (4) weeks, to be counted
from the day of the birth, the Company will grant an additional rest period for
a term which shall not exceed fifteen (15) additional weeks without pay, as long
as prior to the expiration of the rest period the employee presents a medical
certification crediting such complication. It being provided that the employee
may charge the fifteen (15) weeks either in their entirety or partly to her sick
leave or accrued vacation leave, until completing said fifteen (15) weeks.

SECTION 4

      The employee who adopts an infant (less than 7 years old) in accordance to
the effective legislation and procedures, shall be entitled from the
presentation of the documents crediting this fact onwards, to the same benefits
for Maternity Leave which an employee who delivers a baby enjoys.

SECTION 5

      With one (1) month prior to the beginning of the leave, the employee shall
present to the Company a medical certification crediting her pregnancy and
indicating the probable date of delivery. Upon complying with this requirement,
the employee shall receive the pay corresponding to her as provided in Section
1, in advance, at the moment that she begins to enjoy this leave.

SECTION 6

      The employee who suffers a miscarriage shall be entitled to and can claim
the same benefits enjoyed by the employee who has a normal delivery. However, to
be credited such benefits, the miscarriage must be one of such nature that it
produces the same physiological effects that regularly arise as a result of the
delivery, in accordance to the decree and certification of the physician
attending her during the miscarriage. Said benefit shall be from the miscarriage
onwards.



SECTION 7

      All female regular employees, when they return to their job, after
enjoying this leave, shall be entitled to a period of thirty (30) free minutes
with pay at the beginning of their regular work shift during a period of five
(5) working days.

                                   ARTICLE 30
                                LEAVE WITHOUT PAY
                                FOR UNION AFFAIRS

SECTION 1

      The Company and the Union will reach an agreement about the time without
pay to be granted to personnel designated by the Union to attend a workers
convention or another worker activity.

SECTION 2

      The Union shall notify in writing, the immediate supervisor, with copy to
the Department of Labor and Employee Affairs, with at least five (5) working
days of prior notice, the personnel appointed and the probable duration of the
absence.

SECTION 3

      The Union agrees that, when making its petition for free time for Union
activities, it shall give the proper consideration to the number of employees
affected so that there will not be no interruption of the Company's operations
due to the lack of available personnel.

SECTION 4

      The time that any employee is on Union Affairs Leave shall be considered
as service time for purposes of seniority.

      The employee, upon his reinstatement to the Company, shall be entitled to
the occupational level and salary corresponding to him as if he had been
working.

SECTION 5

      The Company and the Union agree that the time that an employee belonging
to the union is on union leave due to his occupying a position in the Board of
Directors of the Union shall be acknowledged as service for purposes of
retirement, and it shall not exceed seven (7) at the same time.

SECTION 6

      This benefit shall be made extensive to all those employees belonging to
the union who have served as members of the Board of Directors of the
Independent Union of Telephone Employees from its foundation in 1971 onwards and
which as of the date of the signature of this Agreement continue as regular
employees and members of the Union.

                                   ARTICLE 31
                    LEAVE FOR ADMINISTRATIVE FUNCTIONS OF THE
                         COLLECTIVE BARGAINING AGREEMENT

SECTION 1

      The Company shall grant five (5) Union Leaves with pay to the Union to
handle worker-employer matters between the Company, the Union and the union
members. It being understood that with regard to this leave, PRTC shall only pay
the sum of the salaries, minus the corresponding deductions of law with the
Union having to pay the fringe benefits and any other deduction or contribution.



SECTION 2

      Union Leave with pay shall be understood to mean that P.R.T.C. will pay
his net monthly salary to the employee enjoying said Leave, Christmas bonus and
the Company's contribution to the health plan. It being understood that with
regard to the Union Leave with Pay as well as the Union Leave without Pay the
benefits for Sick Leave, Vacation Leave and any other benefits, deductions or
contributions shall be agreed upon internally between said employee and the
Union, and in no case whatsoever shall they be paid as an additional and
separate compensation from the salary by the Company.

SECTION 3

      These leaves do not imply an obligation of payment for the concept of per
diems, lodging, mileage, transfers, overtime, differentials, assistance for
studies, scholarships and other benefits provided by the Collective Bargaining
Agreement, but the time of service on Union Leave shall be acknowledged for
purposes of retirement and seniority, as if it were time worked.

SECTION 4

      In the event that any Section of this article were to be declared invalid
or illegal by a Court with jurisdiction, the parties bind themselves to enter
into immediate negotiations for the purpose of agreeing a substitute provision,
mutually satisfactory for such article or section.

                                   ARTICLE 32
                                 MILITARY LEAVE

SECTION 1

      Any regular employee who joins the military service shall enjoy all the
rights provided by Public Act Number 756 of the United States Congress, as it
has been or may be subsequently amended.

SECTION 2

      When a regular employee renders temporary services in the Puerto Rico
National Guard in conformity to the relevant provisions of Act Number 62,
Military Code of June 23, 1969 (Puerto Rico Military Code) or in the Reserves of
the Armed Forces of the United States, pursuant to the United States Military
Code, he shall be entitled to a leave with salary of up to a maximum of thirty
(30) days in a natural year to attend the annual exercises.

                                   ARTICLE 33
                                LEAVE WITHOUT PAY

SECTION 1

      All employees who wish leave without pay to be absent from their job shall
request a written permission from the Company by sending a copy of his petition
to the President of the Union. It will be at the discretion of the Company to
grant said leave without pay.

SECTION 2

      All employees who are authorized leave without pay, once they have
returned to work, shall be obligated to pay to the Union the dues not paid
during the period of said leave, in monthly installments equivalent to the
period of the leave without pay granted, until the debt is liquidated. This
deduction shall be in addition to their regular dues, and the Union will request
it from the Company in writing.

SECTION 3

      The leave without pay may be extended up to a maximum of six (6) months on
the basis of the merits of the case and after a study is carried out by the
Company.



SECTION 4

      The purpose of this Leave shall not be that of allowing an employee to try
another job to change employment or to make a profit.

SECTION 5

      One employee for each department in each work center may receive the
benefits of leave without pay. One same employee cannot request leave without
pay in two (2) consecutive years. If there are extraordinary circumstances
involved and the applicant can show the merits of his petition, the Company may
leave without effect the limitations indicated in this section as long as the
service is not affected.

SECTION 6

      During the time that the leave lasts, the Company shall guarantee the
      employees the following benefits:

      a)    Health Plan

      b)    Being retained in his same position or an equivalent position, with
            the same salary, employment benefits and conditions that he used to
            have. The use of this leave shall not result in the loss of
            seniority or accrued benefits as of the date of effectiveness of the
            same.

                                   ARTICLE 34
                           FAMILY-MEDICAL LEAVE (FMLA)

SECTION 1

      The employees covered by this Collective Bargaining Agreement may be
eligible for a family-medical leave without salary, as long as they fulfil the
requirements provided in the Family and Medical Leave Act of 1993 (FMLA) and the
regulations promulgated under the same. Said legislation shall rule the benefits
to be granted under the same.

SECTION 2

      The Company will consider requests for leave without pay under the terms
and conditions of the Family Medical Leave Act, for the birth or care of a
child, for the adoption or the custody of a child, or for the care of a spouse,
children or parents, due to a serious health ailment which requires prolonged
treatment through medical diagnosis or for the serious illness of the employee
himself, which prevents him from fulfilling his functions or for other
additional reasons, as long as the Company considers that the same justify the
granting of a leave without pay.

SECTION 3

      This leave shall not be greater than twelve (12) working weeks within a
period of twelve (12) months. Only those employees who have worked for the
Company no lesser than twelve (12) months and who have rendered no lesser than
1,250 hours of service during the twelve (12) months prior to the request for
said leave may apply for this leave. They must submit their request with thirty
(30) days of advance notice before the foreseeable date of the effectiveness of
the leave, except in cases of emergency. The Company may require medical
certification in the cases in which the leave is due to reasons of a serious
health ailment. In addition, it may require second and third medical opinions
(paid for by the Company) and qualification evaluations for the performance of
their functions before the employee returns to work.

      In cases where both spouses work in the Company and both are eligible for
the family-medical leave, they will be allowed to take a combined leave for a
total of 12 weeks of family-medical leave during the 12 week period, applicable
for each qualifying event. In the cases where the husband or wife make use of a
portion of the total of 12 weeks of the family-medical leave for a qualifying
event, the husband and the wife shall be entitled to the difference between the
number that he or she took individually and 12 weeks of family-medical leave for
another purpose.

      The total period of this leave shall be twelve (12) weeks of work within a
period of twelve (12) months, calculated in a twelve (12) month rolling form.
Any other leave granted under this Collective Bargaining Agreement with or
without pay, which is eligible under the Family and Medical Leave Act, will run
concurrently with this Family-Medical Leave.



SECTION 4

      During the time that the employee is enjoying this Family-Medical Leave,
the Company will guarantee the medical plan and the insurance to which the
employee is subscribed. In turn, it will guarantee the retention of his same
position or an equivalent position, with the same salary, employment benefits
and conditions that he used to have. The use of this leave will not result in
the loss of seniority or accrued benefits as of the date of effectiveness of the
same.

SECTION 5

      The employees, while they are on leave, shall be considered as having been
dismissed from the job, if they accept work with another employer who is
dedicated to business for the purpose of profit and/or who request unemployment
compensation.

SECTION 6

      When granting this twelve (12) week leave, at the request of the employee,
the Company may, in its sole discretion, grant the leave provided by Article 36,
Leave Without Salary.

SECTION 7

      The provisions of this article are not subject to the grievance or
arbitration procedure of the Collective Bargaining Agreement except for cases of
reinstatement to the job by employees making use of the leave.

                                   ARTICLE 35
                                  FUNERAL LEAVE

SECTION 1

      All regular employees shall be entitled to enjoy a permit with salary for
funerals lasting three (3) working days from the date of the death of any of
their natural parents or foster parents (one excludes the other), of his spouse,
of children or of siblings and one day in the event of the death of grandparents
and in-laws.

SECTION 2

      In the event of the death of the natural or foster parents (one excludes
the other), of his spouse, of children and siblings and the funeral took place
outside of Puerto Rico, the employee may enjoy a leave with salary of up to five
(5) working days from the date of the death to travel to the place of the
burial.

SECTION 3

      In the event that an employee needs additional time, the Company shall
grant the same with charge to the vacation leave that the employee has accrued.

SECTION 4

      The Company may require evidence of the death, as well as of the burial
and the trip outside the country.

                                   ARTICLE 36
                           LEAVE FOR JUDICIAL PURPOSES

SECTION 1

All regular employees shall be entitled to enjoy a permit with salary for the
time that is required by a court of justice to serve as jury.

Jury duty shall be with salary a case per year.



SECTION 2

The Company shall pay the regular salary of an employee who is officially
subpoenaed by the district attorney's office or by a court of justice or an
administrative agency for a quasi-judicial proceeding to appear as a witness in
a criminal case for all the regular working hours which said subpoena prevents
the employee from showing up at his work. The employee must inform his immediate
supervisor about said subpoena with at least two (2) days of prior notice unless
he is subpoenaed within a lesser period. The employee must return to his work
immediately as soon as he ends his interview with the district attorney, or be
excused by the court. The employee must present written evidence of the
subpoena, as well as of his appearance before the district attorney and/or the
court.

SECTION 3

When an employee who has been officially subpoenaed to appear before any court
of justice, district attorney, administrative entity or government agency which
is not covered by the two (2) previous sections, he shall be entitled to enjoy
leave without pay for the time during which said official subpoenas prevent him
from showing up at his regular work day. The employee may, at his option, charge
this time to vacation leave.

SECTION 4

When an employee is subpoenaed, arraigned or accused due to the alleged
commission of a criminal act allegedly committed during his working hours, the
days utilized to appear in court or at the citations, at the request of the
employee, shall be charged to his accrued and unenjoyed regular vacation leave
or in its defect he shall be granted leave without pay, as long as he presents
evidence of the appearances. It being provided that if he were exonerated or the
crime of which he is accused is filed, such days shall be paid to him and the
time shall be taken into consideration for all purposes of the law and the
Collective Bargaining Agreement as time which has been worked.



                                   ARTICLE 37
                                    PER DIEMS

SECTION 1

Per diems are understood to be the expenses for meals and lodging in which the
employees incur when they are required to work outside of the municipality where
their work center is normally located or vice-versa and of hours outside their
regular work day where their work center is normally located.

SECTION 2

When an employee is required to work in a place outside of the municipality
where his work center is normally located for a period not greater than one day,
the Company shall pay expenses for meal and lodgings up to the amount and under
the conditions specified further on:

      a.    If he leaves on or before 6:00 a.m. and returns on or after 8:00
a.m. of the same day, for breakfast the first year of the Collective Bargaining
Agreement five dollars ($5.00) shall be paid, and five dollars and fifty cents
($5.50) the second and third years.

      b.    If he leaves on or after 8:00 a.m. and returns on or after 1:00 p.m.
of the same day, eight dollars and fifty cents ($8.50) shall be paid for lunch,
during first year of the Collective Bargaining Agreement, and nine dollars
($9.00) during the second and third years.

      c.    If he leaves on or after 1:00 p.m. and returns on or after 7:00 p.m.
of the same day, eight dollars and fifty cents ($8.50) shall be paid for dinner
during first year of the Collective Bargaining Agreement, and nine dollars
($9.00) during the second and third years.

      d.    If the employee were required to spend the night, he shall be
entitled to lodging and seventy dollars ($70.00) shall be paid during the three
(3) years of the Collective Bargaining Agreement.

SECTION 3

The employees who travel to the Islands of Vieques and/or Culebra shall receive
for the concept of per diems, the following amounts, during the three years of
the Collective Bargaining Agreement:



Breakfast              Lunch               Dinner
- ---------              -----               ------
                                     
 $ 5.50                $9.00               $ 9.00


SECTION 4

In the event that an employee has to work in a place outside of the municipality
where the employee's work center is normally located for a period greater than
one day, during which term of time the employee has to have his meals and sleep
in said place, the Company shall pay the amount of ninety-two dollars ($92.00)
daily during the first year of the Collective Bargaining Agreement, ninety-three
dollars and fifty cents ($93.50) daily during the second and third years, an
amount which will cover all the expenses in which the employee incurs and for
which amount the employee will not have to present a receipt or vouchers. In
addition, if he were required to work up to beyond seven (7) hours from the end
of his working day, he shall be paid a per diem for the amount of $8.50 during
the first year of the Collective Bargaining Agreement, $9.00 during the second
and third years.



SECTION 5

For purposes of this article, the municipalities comprised in the Metropolitan
Telephone Area are considered as one single work center, which are the
following: San Juan, Santurce, Hato Rey, Rio Piedras, Pueblo Viejo, Puerto
Nuevo, Caparra, Guaynabo, Levittown, Catano, Bayamon, Carolina, Trujillo Alto,
Isla Verde and any other area within those boundaries.

SECTION 6

Expenses for the concept of per diems will be reimbursed to employees who are
working in the municipality where their work center is normally located, under
the following circumstances:

      a.    To the employees who work exclusively in the dawn work shifts which
are the work shifts that regularly end after 12:00 midnight, they shall be paid
five dollars ($5.00) for a snack during the first year of the Collective
Bargaining Agreement and five dollars and fifty cents ($5.50) during the second
and third years.

      b.    In the case of employees who work any (daily) schedule of eight (8)
hours and are required to continue working for more than an hour and a half (1
1/2), they shall be paid a per diem for the amount of eight dollars and fifty
cents ($8.50) during the first year of the Collective Bargaining Agreement and
nine dollars ($9.00) during the second and third years.

      c.    In those cases in which the employees are required to work in some
place outside the municipality where their Work Center is normally located and
once they return to their work center, or vice-versa, and they are required to
continue working consecutively for more than one hour and a half (1 1/2) they
shall be paid the per diem of eight dollars and fifty cents ($8.50) during the
first year of the Collective Bargaining Agreement and nine dollars ($9.00)
during the second and third years provided herein. In the event that the
employee is required to work outside the municipality where his work center is
normally located and after the employee working there his regular day he is
required to continue working consecutively in said place for more than one hour
and a half (1 1/2), he shall be paid a per diem of eight dollars and fifty cents
($8.50) during the first year of the Collective Bargaining Agreement and nine
dollars ($9.00) during the second and third years.

If the employee continues working up to beyond the seven hours (7) from the end
of his daily eight (8) hour work shift, he shall be paid a second per diem.

The time in which the employee incurs in the consumption of meals shall not be
considered as time worked and the employee shall not receive pay for said time.

SECTION 7

In those cases where an employee is required to work outside of the municipality
where his work center is normally located and during this period of time there
are holidays between two (2) working days, the Company shall pay per diems and
lodging for said holidays.

In those situations in which an employee is required to report at work on a
Monday at 8:00 a.m. outside of the municipality where his work center is
normally located, the Company will pay the lodging for the previous day
according to the terms of this article, as long as the employee is authorized to
spend the night in lodging during the previous Sunday.

In those cases where an employee is required to work outside of the municipality
where his work center is normally located and he becomes ill during this time,
the Company will be obligated to pay the per diems provided in this article,



as long as the employee spends the night in the lodging in the municipality
where he is required to work and complies with the provisions of the article
regarding Sick Leave and never for a period in excess of two (2) days.

SECTION 8

The following employees shall be entitled to the per diem which is provided
further ahead:

      a.    All employees regularly assigned to Bayamon, Levittown or Catano who
are required to work temporarily in Carolina, Isla Verde or Trujillo Alto, and
in like manner, all employees assigned regularly to Carolina, Isla Verde or
Trujillo Alto who are required to work temporarily in Bayamon, Levittown or
Catano.

      b.    All employees regularly assigned to Bayamon, Levittown or Catano
when they are required to attend training at the Technical Training Center
(TTC), while the same is located at Las Virtudes; it being provided that if said
Training Center were to be relocated, the parties will renegotiate this Clause.

In these cases, a per diem of eight dollars and fifty cents ($8.50) shall be
paid during the first year of the Collective Bargaining Agreement and nine
dollars $9.00 during the second and third years for each day that they work
temporarily up to a maximum period of thirty (30) calendar days. Upon finishing
the temporary assignment, the aforementioned per diem for each day worked shall
be suspended and the employees shall be reassigned to their work center of
origin or shall be regularly reassigned to the work center where they are
rendering their services temporarily. The Company may extend the temporary
period for an additional period in which case the employees shall continue
receiving the per diem of eight dollars and fifty cents ($8.50) during the first
year of the Collective Bargaining Agreement and nine dollars ($9.00) during the
second and third years until the Company determines that the work that had been
assigned to them had concluded.

SECTION 9

All employees whom the Company requires to attend to testify in its favor at
hearings at the Department of Consumer Affairs (DACO), Public Service Commission
and/or any other government agency, whether state or federal and/or state or
federal court, shall receive the per diems in conformity to Section 2 of this
article.

SECTION 10

Nothing in this article shall be construed in a manner that may imply the
payment of per diem for more than one concept (pyramidal payment).

SECTION 11

In the event that an employee is required to travel outside of Puerto Rico, the
Company will pay the expenses for meals, as provided in Section 2 of this
article and the lodging shall be for the cost of the same, pursuant to a receipt
with previous authorization on the part of the Company.

SECTION 12

The Company shall be retaining in the origin all deductions that correspond in
law or regulation.



                                   ARTICLE 38
                                 TRANSPORTATION

SECTION 1

When an employee is required to work at a place outside of where his work center
is normally located, the Company, as the case may be, shall supply the
transportation, pay the transportation expenses in which he incurs in advance or
reimburse them, in accordance to what is being provided further on.

SECTION 2

The transportation expenses must be approved and paid by the Company prior to
incurring in them, it being provided that transportation expenses which an
employee normally incurs in going and/or coming (from his residence) to his work
center shall not be considered to be reimbursable expenses; in addition,
expenses for transportation shall not be paid when the transportation is
supplied by the Company.

SECTION 3

The employees authorized to utilize their private vehicles shall be paid at the
rate of thirty-nine ($0.39) cents per mile for vehicles without public liability
insurance and forty-three ($0.43) cents per mile for vehicles with public
liability insurance. To determine the miles for the purposes of claiming the
payment, the distance tables between the towns prepared by the Highway Authority
and that of the Metropolitan Area prepared by the Company shall be used. When
the distance tables cannot be applied, the reimbursement system will be utilized
and the employee must inform the distance traveled.

SECTION 4

When the Company orders an employee to carry out an official trip due to service
needs or when it assigns him to some temporary duties outside of his regular
work center, it shall provide said employee with the means of transportation
from his work center, or instead, it shall pay him the transportation expenses
in advance for the miles he has to travel on said official trip or for the ones
that he may have to travel due to the temporary assignment from his regular work
center.

This section applies only when the employee shows up at his regular work center
and is sent to work to another place on the same day.

SECTION 5

When the Company requires an employee to travel directly from his house to
another work center to which he has been temporarily assigned, the Company will
pay said employee for the miles of distance that exist between his regular work
center and the center to which he has been temporarily assigned. The assignments
requested by the employee are excluded from the benefits of this section.

SECTION 6

When an employee is required to utilize public transportation, he shall be
reimbursed in accordance to the effective rate in the transportation means
utilized. He will not be reimbursed on the basis of the rate for one means when
the means utilized is another one. The use of taxis shall be conditioned to the
employee's presenting together, with the petition for reimbursement, the
following information: taxi license, name of the taxi line and the number of the
taxi.



SECTION 7

To be entitled to the payment or to the reimbursement of any expense provided in
this article, the employee must complete the forms established by the Company
for this purpose.

SECTION 8

When the Company determines, on the basis of he need, to permanently transfer an
employee from one municipality to another and as a result of said transfer, the
employee changes his residence to the municipality to which he has been
transferred, the Company shall compensate for the following expenses:

      a.    Moving expenses really incurred in which must be approved previously
and justified by a receipt signed by the moving company.

      b.    Transportation expenses, and per diems and lodging expenses in
conformity to the terms of this Agreement during the time that the employee has
to travel to the new work area until he transfers his residence permanently, for
a period of up to thirty (30) working days from the effective date of the
transfer. If the employee has not moved within the sixty (60) days following the
transfer, he will only be entitled to the benefits provided in Section 9 of this
article and therefore must return what he has been paid in excess.

Permanent transfers carried out within the limits of the boundaries of San Juan,
Santurce, Hato Rey, Rio Piedras, Pueblo Viejo, Puerto Nuevo and Caparra and any
other area within those boundaries, are excluded from the benefits of this
section, as well as the transfers carried out at the employee's request.

SECTION 9

When due to service need, the Company determines to permanently transfer an
employee from one municipality to another and the employee does not move his
residence, he shall be entitled to receive transportation expenses and per diems
for a period of thirty (30) working days for the excess miles of distance, if
any, that he has to travel between his old regular work center and his residence
and his new regular work center and his residence. This shall be measured by
highway through the closest route.

SECTION 10

For exclusive purposes of this article, transfer shall be understood to mean:

      a.    Any permanent change from one municipality to another as long as the
            employee continues in his same occupational classification.

      b.    Each one of the following areas shall be considered as a
            municipality:

                  1)    San Juan-Santurce-Isla Verde

                  2)    Hato Rey-Rio Piedras

                  3)    Pueblo Viejo (includes Caparra and Puerto Nuevo)

      c.    In addition, the Levittown area shall be included in the
            municipality of Catano.

SECTION 11

For the exclusive purposes of transfers motivated by relocation of work center,
the telephone metropolitan area shall be considered as one single municipality
including all of the following: San Juan, Santurce, Hato Rey, Rio Piedras,
Guaynabo, Pueblo Viejo, Levittown, Catano, Bayamon, Carolina, Trujillo Alto,
Isla Verde and any other area within



those boundaries. However, any employee regularly assigned to Bayamon, Levittown
or Catano who is permanently transferred to Carolina, Isla Verde or Trujillo
Alto or vice versa, shall be entitled to mileage during the term provided in
this article.

SECTION 12

The transfers that occur at the petition of the employee are excluded from the
benefits of this article.

SECTION 13

In the event that the Company adopts a mileage payment policy that is superior
to the one established in this Agreement to be applicable to non-covered
employees, said policy shall be applicable to the Bargaining Unit.

SECTION 14

      a.    The employees who are assigned to work in a municipality or place on
the Island in which it is proven that there exists no adequate lodging and who
are authorized by the Company to lodge in another nearby municipality where
there is adequate lodging, shall be entitled to receive the benefits mentioned
in this article relating to the transportation from the authorized lodging to
the assigned work center.

      b.    When the employees are assigned to work temporarily outside of their
regular work area in a municipality or place on the Island where they are
required to spend the night in said place, the Company must provide adequate
transportation.

SECTION 15

The employees from the Traffic Department who work night work shifts and who end
their work shifts between 10:00 P.M. and 12:00 midnight, shall receive pay for
transportation for the amount of $4.25.

SECTION 16

The provisions of this article, except Section 5, shall apply to the
Installers/Testers of equipment for the Central Office who report to their work
center and who during the course of that day are required to work at another
work center.

SECTION 17

The Company shall be retaining in the origin all deductions that correspond in
law or regulation.



                                   ARTICLE 39
                               USE OF AUTOMOBILES

SECTION 1

In all the cases where an employee is required to use his automobile in official
endeavors of his job, due to the fact that there is no fleet vehicle available
or that his duty so demands it, the Company shall answer for the damages to
property belonging to third parties and bodily damages to third persons which
may have arisen as a result of an accident due to the utilization of said
automobile.

SECTION 2

The employee shall have to notify the police immediately and his immediate
Supervisor as soon as possible (within 24 hours) and shall remain at the site of
the events, until the police arrive and render the corresponding report, except
when it is not feasible. The employee shall proceed in accordance with the
Company Practice FI-455 of October 1, 2001 Vehicle Accident Reporting Procedure
with Property Damage and/or Bodily Injuries (including Form F-603 revise), shall
submit an automobile accident report (Form F-603, revised) with the signature of
his immediate supervisor, indicating the case number and any other report
required by the Company.

                                   ARTICLE 40
                   HOLIDAYS AND HOLIDAYS GRANTED OFF WITH PAY

SECTION 1

      The regular employees covered by this Collective Bargaining Agreement
shall receive pay for all the regular work hours and shall enjoy free time with
pay with the exceptions provided in this article on the following holidays:

                                   
1.  January 1st.                      New Year's Day
2.  January 6th                       Three Kings Day
3.  Second Monday in January*         Eugenio Maria de Hostos Day
4.  Third Monday in January           Martin Luther King Day
5.  Third Monday in February          George Washington Day
6.  March 22*                         Abolition of Slavery Day
7.  Movable                           Good Friday
8.  Third Monday in April*            Jose de Diego Day
9.  Last Monday in May                Memorial Day
10. July 4                            U.S. Independence Day
11. Third Monday in July*             Luis Munoz Rivera Day
12. July 25                           Commonwealth of Puerto Rico
                                      Constitution Day
13. July 27*                          Jose Celso Barbosa Day
14. First Monday in                   Labor Day
    September
15. October 12                        Discovery of America Day
16. First Tuesday in November         General Election Day (every 4 years)
17. November 11                       Veterans Day
18. November 19*                      Discovery of P.R. Day
19. 4th Thursday in                   Thanksgiving Day
    November
20. December 25                       Christmas Day
21. Individual                        The Employee's birthday





      If any of the aforementioned days were to be changed by means of
legislation, this article shall be understood to have been amended to that
effect.

      If during the effective period of this Collective Bargaining Agreement,
the Legislature of Puerto Rico or the United States decrees a holiday by law,
which is applicable to PRT, the Company and the UIET shall meet to discuss the
importance of the event and convenience of considering the new holiday.

      Whenever the aforementioned days fall on a Sunday, the next day shall be
considered a holiday.

      When one of the holidays acknowledged in this article coincides with
another holiday, the following working day shall be considered as a holiday for
all purposes.

SECTION 2

      The regular personnel required by the Company to work on holidays, shall
receive, in addition to their basic pay, pay at time and a half for each hour
worked, with the exception of what is provided for in Section 5 of this article.

      It being provided that when the birthday coincides with another day
outside of his regular work schedule or with another holiday, his next working
day shall be considered, for all the purposes of this Agreement as his birthday.

SECTION 3

      To be able to be entitled to pay for the holiday, the employees will have
to have worked the last work day previously assigned, as well as the assigned
work day after a holiday. The employee who is absent during the previous
assigned work day and/or after a holiday and does not receive any pay whatsoever
from the Company during said absence shall not receive any pay for the holiday.
A duly justified absence on such days, which entitles him to receive pay during
said absence, shall also receive pay for the holiday.

SECTION 4

      The holidays with rights to pay as specified in the preceding paragraph
are those which coincide with the regular assigned work day. When a holiday of
the ones listed in this article is celebrated during the days from Monday
through Friday of any week and said holiday coincides with the employee's day
off during irregular work shifts, the employee shall be compensated for said
holiday in harmony with this article.

SECTION 5

      Those employees who voluntarily are willing to work the holidays marked
with asterisks (*), may request waiving the receipt of the payment at one and a
half times the hourly rate provided in Section 1 and substitute it for the
enjoyment of free time equal to that worked up to a maximum of eight (8) hours,
under the following criterion:

      1.    The employee shall request in writing, before the year begins, the
            dates when he will enjoy the holidays off with pay marked with an
            asterisk in Section 1.

      2.    Upon granting the employee holidays with pay, the Company will take
            into consideration, principally, the service needs.

      3.    The holidays with pay shall be enjoyed and compensated in accordance
            to the regular work schedule of each employee (8 hours).

      4.    The Company will schedule, in the same manner and criteria which it
            establishes the regular vacation leave program, the enjoyment
            calendar of the holidays granted off with pay which the employee
            voluntarily requests.

      5.    The employee who works the holiday granted off with pay, previously
            scheduled, shall have the option that the same be paid in accordance
            to what is provided in Section 1 or shall have the option of the
            enjoyment of said day off with pay to be rescheduled within a period
            no larger than ninety (90) days from the day when he worked it.

      6.    The holidays granted off with pay shall be enjoyed in accordance to
            the annual program. These days may not be postponed for enjoyment
            during the following year. A holiday granted off with pay may be
            fractioned for its enjoyment into two (2) periods of four (4)
            consecutive hours, at the request of the employee.

      7.    At the request of the employee during the course of the year, these
            days may be rescheduled on days which have not been previously
            selected by other employees, as long as the service



            needs so allow it. The employee must present a request for change
            with at least forty-eight (48) hours of advance notice, prior to the
            day originally scheduled.

                                   ARTICLE 41
                                   HEALTH PLAN

SECTION 1

During the effective period of this Collective Bargaining Agreement, the Company
commits itself to provide a health plan with the same benefits provided by the
health plan that was in effect at the time of the signing of this Collective
Bargaining Agreement, including benefits such as kerectomy, chiropractors,
psychologists and vaccines (Hepatitis A and B and boosters for children),
hearing test, podiatric and tele-consultation program with the coverage's,
deductibles and limitations provided in the plan. Shall be reimburse at the cost
of the treatment in Puerto Rico. In case of an emergency during a trip abroad ,
the reimbursement not be limited at the treatment in Puerto Rico. The Company
will not pay for the medical plan for any optional dependant. The employee shall
select one of the following alternatives offered by the medical service provider
and will contribute on a bi-weekly basis the amounts indicated below in
accordance to his selection:



                                            Contribution during the effective period of this
                                                    Collective Bargaining Agreement
                                                    -------------------------------
                                         
a. Basic (H-MQ-A) + Major
   Medical (M-3) + Pharmacy                                    $2.70

b. Basic (H-MQ-A) + Major
   Medical (M-3) + Dental (D-49)                               $2.72

c. Basic (H-MQ-A) + Major
   Medical (M-3) + Dental (D-49)                               $6.54
   + Pharmacy


Brand medicines will have a deductible of $8.00 each during the first two years
of this agreement and $9.00 each during the third year of this agreement.

The over the counter medications or medications without federal brochure shall
have a deductible at the rate of $3.00 for each one of them prescribed.

SECTION 2

The employee, when signing the application form provided by the company
providing medical services, shall accept the terms and conditions imposed by
this Company. The Union and the employee accept that the terms and conditions of
the Medical Plan selected are not negotiable. The employee must remain in the
alternative selected until there is a Plan anniversary, on which date the
employee may change from one of the three alternatives to another one.

SECTION 3

Every month the Company shall send the provider of medical services the
corresponding total contributions while the employee remains on active
employment with the Company, in other words, that the Company will cease its
contribution when the employee due to any reason is fired, laid off or while he
is suspended for more than thirty (30) days.



SECTION 4

The Union authorizes the individual deduction of each employee member of the
Union of the corresponding contribution according to the alternative selected by
the employee, according to how it is provided for in Section 1 of this article.

SECTION 5

To obtain the hospitalization services for mental health conditions which are
related to the rehabilitation for the abuse of substances (drugs) and alcohol
through the medical plan, the employees must request the services of the
Employee Assistance Program (EAP) from the Company and obtain a
pre-authorization from them. If the services are not requested and if the EAP
pre-authorization is not obtained, the benefits will not be covered and the
payment shall be the responsibility of the employee. This requirement applies to
the employee covered by the medical plan.

If the employee were hospitalized and it is determined that it is for use or
abuse of substances or alcohol, the subsequent hospitalizations and ambulatory
treatments must also be pre-authorized by the EAP.

SECTION 6

The Union and the employees belonging to the union also agree and commit
themselves to the adequate use of the medical plan.

SECTION 7

The Company may modify the effective Medical Health Plan at the termination of
the Collective Bargaining Agreement, in which case, if it were to consider it
necessary, it shall notify the Union about said intentions so that the Union
presents any suggestion that it deems relevant.

SECTION 8

The Health Plan shall be administrated only in accordance to its provisions and
no matter relating to the Health Plan, nor any difference which arises related
to it, shall be subject to the Grievance Procedure or to the arbitration process
of this Collective Bargaining Agreement. The selection of the Administrator of
the Health Plan, the administration of the Medical Plan and all the terms and
conditions relating to the aforementioned and the solution of any discrepancy
related to the terms, conditions, construction, administration or adequate
benefits shall be determined by and be subject solely to the discretion of the
Company.

                                   ARTICLE 42
                            SALARIES OF NEW EMPLOYEES

SECTION 1

      All new personnel who joins the Company after the effective date of this
Collective Bargaining Agreement shall start with the type of salary per hour
that applies to the occupational group of the position to which they belong
according to the following scale:





                              RATE PER HOUR AS OF THE
OCCUPATIONAL                     SIGNATURE  OF  THE
   GROUP                             AGREEMENT
- ------------                  -----------------------
                           
    1-3                               $ 5.25
      4                               $ 5.25
      5                               $ 5.50
      6                               $ 5.75
      7                               $ 6.00
      8                               $ 6.50
      9                               $ 6.75
     10                               $ 7.00
     11                               $ 7.50


      In addition, it is stipulated that the salaries for new employees
established herein, shall be maintained at a level of ten cents ($0.10) per hour
over the minimum salary applicable to each level.

      The employees who join after the signature of this Collective Bargaining
Agreement shall be entitled to the raises granted during the first, second and
third anniversary, as long as they are regular employees on the date when these
raises are granted.

                                   ARTICLE 43
                                     SALARY

SECTION 1

All employees covered by this Collective Bargaining Agreement who are regular
employees in the dates mentioned ahead shall receive the hourly salary increase
as follows:



JANUARY 18, 2003          JANUARY 18, 2004          JANUARY 18, 2005
                                              
 $.60 PER HOUR             $.60 PER HOUR              $.60 PER HOUR


SECTION 2

The personnel which is promoted during the effective period of this Collective
Bargaining Agreement shall receive a raise of twenty cents ($0.20) per hour for
each grade to which they are raised, if their previous classification is from
grades 1 through 6 and a raise of twenty-five cents ($0.25) per hour for each
grade that they are raised if their previous classification is from grades 7 to
8 and a raise of thirty cents ($0.30) per hour for each grade that they are
raised if their previous classification is from the grades 9 and 10.

SECTION 3

The Union understands and accepts that the salary raise provided in this
Collective Bargaining Agreement has been agreed upon on the basis of the
commitment on the part of each one of the employees of the bargaining unit to
significantly increase their production in a manner that will place the Company
in the condition of attaining the objectives of improvement and expansion of the
telephone service.

SECTION 4

Notwithstanding what has been established as minimum salary per hour in the
article regarding Salary for New Employees and in this article, the Company may
establish one or more incentive program(s) for each work classification(s)
covered in this Collective Bargaining Agreement as well as modifying, changing,
eliminating or reestablishing said program(s), as long as the same do not affect
and/or reduce the minimum salaries per hour established in the article regarding
the Salaries of New Employees and in the article regarding the Salary of New
Employees and in this article.



                                   ARTICLE 44
                            INCENTIVES FOR ATTENDANCE

A three day bonus for perfect attendance, counting all absences, except for
vacations, excused by Company for lack of work and leave without pay for union
matters.

                                   ARTICLE 45
                                  DIFFERENTIALS

SECTION 1 - DIFFERENTIALS FOR NIGHTTIME WORK SHIFTS

      The Company shall pay a differential of $.80 per hour worked as part of
the regular work schedule in night work shifts, which are all of those work
shifts that regularly end between 9:00 P.M. and 12:00 (midnight).

      The night work shift may coincidentally be a split work shift with a right
to pay for differential in accordance to what is stipulated in the section
regarding the differential for split work shifts. In these cases, the employee
shall only receive the pay for one differential (the highest of the two).

SECTION 2 - DIFFERENTIAL FOR SPLIT WORK SHIFTS

      The Company shall pay a differential of $.90 per hour worked as part of
the regular work day in work shifts with two (2) or more hours of separation
between the two parts of the same. To be entitled to this pay for differential
two (2) or more hours of separation between the two parts of the work shift must
have elapsed. The separation between the two parts of the work shift shall not
exceed four (4) hours.

      The split work shift may be coincidentally a night work shift with
entitlement to payment for differential in accordance to how it is stipulated in
the section regarding Night Work Shift Differential. In these cases, the
employee shall only receive the payment of a differential (the highest of the
two).

SECTION 3 - DIFFERENTIAL DAWN WORK SHIFTS

      The Company shall pay a differential of $1.00 per hour worked as part of
the regular work day in dawn work shifts, which are all those work shifts which
regularly end between 12:00 midnight and 7:00 A.M.

SECTION 4

      The Company shall grant all the employees from the bargaining unit a
salary differential of $.80 per hour that they work in regular work shifts that
comprise Saturdays and/or Sundays (the differential shall only be paid for the
hours worked on Saturday and Sunday). This differential does not apply in cases
where work is performed on Saturdays and/or Sundays in overtime.

SECTION 5

      These differentials shall be part and not in addition to any differential
that is provided by the law or regulations which apply to the Company for work
during schedules comprised in the work shifts included in Sections 1, 2 and 3 of
this article.

                                   ARTICLE 46
                                 CHRISTMAS BONUS

      All regular employees covered by this Collective Bargaining Agreement who
meet the requirements provided by the Bonus Act (Act #148 of June 30, 1969, as
amended) shall be entitled to receive a Christmas Bonus of 8% for each year of
the Collective Bargaining Agreement with regard to the total of the salaries
received during the bonus year. The term salary shall not include payments made
to the employee for the concept of Occupational Sick Leave, Prolonged Sick Leave
and the Christmas Bonus of the previous year. The same shall be payable between
December 1st. and 15 of each year of the Collective Bargaining Agreement.

                                   ARTICLE 47
                                    PENSIONS

SECTION 1

The Company agrees to maintain in effect the Pension Plan known as the "Puerto
Rico Telephone Company Pension Plan for Hourly Employees" put into effect on
January 1st, 1972, and agrees to amend the formula that



is utilized to determine the monthly pension to employee who retired during this
agreement in accordance with the following formula:

      -     The years of service up to 20 years worked shall be paid at the rate
            of $52.00 per year of service.

      -     The years of service over 20 shall be paid at the rate of $60.00 for
            each year of service over 20.

SECTION 2

To be entitled to a full and normal pension, the regular employee must have
turned 62 years of age and have at least twenty (20) years of credited service.
An employee shall be entitled to a pension without any reduction when he has 30
years of service.

SECTION 3

To be entitled to early retirement, the regular employee must have turned 52
years of age with at least twenty (20) years of credited service.

SECTION 4

To determine the early retirement pension, the same formula for the
determination of the normal pension shall be utilized and from the result three
percent (3%) shall be deducted for each year anticipating his pension at the age
of 62.

SECTION 5

The Vesting Right section is amended only after having five (5) years of
credited service with the Company. In these cases, the pension will be
calculated on the basis of the formula which is in effect as of the date when
the employee has resigned or has been separated from the Company. The Vesting
Rights are calculated on the basis of the actuarial value at the moment when the
employee is receiving or requests his regular pension upon turning 62 years of
age.

SECTION 6

An additional benefit is established for the spouses of the employees in the
event of death. This benefit provides in the case of the death of an employee,
before retiring, and that he is eligible as of the date of his death, to an
early retirement pension, a benefit payable to his spouse. The amount of this
benefit to be paid shall be the accrued benefit up to the date of his death
reduced by the corresponding early retirement factor (5% for each year in
advance of his turning 62 years of age if he still does not have 20 years of
credited service, or 3% for each year prior to his turning 62 years of age if he
has 20 or more years of credited service as of the date of his death). In the
cases of the employees who die after having turned 52 years of age and that
these have elected one of the reduced options provided by the plan in the event
of death after retirement, the amount of the benefit shall be reduced on an
actuarial basis basing itself strictly on the option that the employee has
selected.

The Company and the Union agree that the aforementioned amendments and/or
changes shall be applicable to any employee from the bargaining unit who retires
after the signature of the present Collective Bargaining Agreement.

SECTION 7

The benefits of the Pension Plan shall be payable in their entirety by the
Company.



SECTION 8

The employees who choose this benefit, during the effective period of the
Collective Bargaining Agreement, shall receive the following lump sum:

                                
5 to 20 years of service           6 months of salary
21 to 29 years of service          9 months of salary
30 or more years of service        12 months of salary



SECTION 9

All the employees from the bargaining unit who choose to receive the retirement
benefits after the signature of this Collective Bargaining Agreement, shall be
eligible to participate in a family medical plan which shall be similar to that
one provided to the employees covered by this Collective Bargaining Agreement,
without the benefit of dental coverage.

The retired employee will have to make the contributions provided in Article 41
(Medical Plan) during the effective period of this Collective Bargaining
Agreement.

The bargaining unit employees who retire after June 30, 2003, will pay starting
the last year of this agreement, half of the increases of every year, if any, of
the medical plan cost to the Company. The employees who retire during the
duration of this agreement prior to July 1, 2003 the clause to pay half of the
cost of the medical plan starting the third year of the agreement will not be
applicable. To be covered by the Medical Plan for retirees it is necessary that
the employee who retires be covered by the entire coverage offered by Medicare,
including Part B and medicine coverage, if it is offered by Medicare in the
future. This proposal does not apply to persons retired before the signing of
the agreement that is being negotiating.

The increase in the contribution to the medical plan by the retirees for 2005
will be calculated in the following way: The 50% of the increase, if any, of the
Company per capita increase per month for the year 2004, compared to the year
2003. In 2006 and subsequent years the same comparison shall be made for the 2
previous years, in order to determine the additional contribution that will be
made by the employee who retires during these contract, on top of what already
is being contributed by him.

Instead of being covered by the Company's Medical Plan and making the affored
mentioned contribution, said retiree may opt that the Company pay not more than
X to another medical plan of his selection, including the one mentioned in the
following paragraph.

The Company and the Union will do their best efforts to find of a health
insurance company an insurance company an alternate medical plan for said
retired persons to be effective 2005, which monthly premiums shall not exceed X
amount. If the efforts are not succesful, it will not anule what is provided in
this section.

X for year 2005 means PRT monthly cost per capita of the Medical Plan for the
year 2004, plus 50% of increase, if any, over the monthly PRT per capita
increase for Medical Plan for the year 2003 and there after for successive years
with respect to the previous year.

Furthermore , the Company shall furnish to the Union that information necessary
to verify the cost of the annual Medical Plan of the Company

SECTION 10

Any employee from the bargaining unit, who requests this benefit during the
effective period of the Collective Bargaining Agreement, may request receiving
the Social Security Level Option benefit, under the terms and conditions
established by the Company.



                                   ARTICLE 48
                           PUBLICATION OF WORK SHIFTS

SECTION 1

      The Company shall prepare and publish the work shifts of any group of
employees or of each employee with fifteen (15) days of advance notice. The
rotating work shifts that comprise the hourly work schedule from 8:00 A.M. to
12:00 N. and 1:00 P.M. to 5:00 P.M., from Monday through Friday, shall not be
published, except in the Work Centers which have work shifts working after 5:00
P.M., such as the Operator Call Centers, Repairs, Service Representatives and
other Call Centers.

      Only in cases of emergency and/or due to service needs, may the work
shifts be changed and informed to the employee with 48 hours of advance notice.
Emergencies and service needs shall be understood to mean cases such as: greater
breakages and/or which affect a substantial number of clients which interrupt
the services of the communications, severe atmospheric conditions, congestion of
calls in the services due to the fact that other call centers are affected,
unexpected absenteeism and special training needs in an unforeseen manner.

SECTION 2

      The Company shall assign the work shifts in each work center, following
the following principle, the work shifts shall be assigned for the benefit of
the employee in accordance to seniority in the Company. The employee with the
greater seniority may cede his work shift to another employee with less
seniority. To be able to cede a work shift, the employee must notify his
Immediate Supervisor with at least fifteen (15) days of advance notice.

SECTION 3 - WORK SHIFTS OF PREGNANT EMPLOYEES

      A pregnant employee who works a nighttime work shift or a dawn work shift
shall be entitled to replace the employee of lesser seniority who works in her
same work center and in her same classification during the daytime work shift,
as long as she is qualified to perform the work, during her seventh and eighth
month of pregnancy. Upon her return, after her maternity leave, the employee
shall be reinstated to the work shift system corresponding to her.

SECTION 4

      The rotating work shifts have the purpose of increasing the productivity
and improving service to the clients, in all of the Company's work areas.

SECTION 5

      In the event that the employees in skilled and semi-skilled positions
where there is work done during nighttime work shifts, holidays, and weekends,
the personnel with greater seniority may be assigned to work shifts if the
personnel with lesser seniority does not have the skills, the trainings
completed or the knowledge required to perform the job. The assignment shall be
made for a term no greater than 30 days within a period of six (6) months within
one (1) calendar year.

      If the employee with greater seniority gives his consent and the service
needs so require it, the Company may extend the assignment for up to a maximum
of 30 additional days.

                                   ARTICLE 49
                                  PROGRESSIONS

      When an employee is prevented in progressing in his classification due to
the fact that the Company has not offered the course or courses required for his
progression or when even though the same has been offered, the Company has not
allowed him to attend the training although he requested it on time and was
available to take it or them, the Company shall approve his progression with the
condition that the employee approves the training later on.

      In all cases where the employee has been performing the work or the
functions of a position in a satisfactory manner, for a period greater than
eighteen (18) months, it will be considered that he has approved the training.
He may be able to modify this period by means of a written agreement between the
parties, as long as the employee has performed the functions in a satisfactory
manner during a period greater than twelve (12) months. Notwithstanding, the
employee will be obligated to take the corresponding training.



                                   ARTICLE 50
                     FINANCIAL AID FOR EDUCATIONAL EXPENSES

SECTION 1

      All regular employees with one year or more of service with the Company,
who have completed their last two job evaluations with qualifications of at
least satisfactory and who satisfactorily completes studies relating to the area
of telecommunications at learning institutions credited by the Council of Higher
Education or the Department of Education, may request that the Company reimburse
them for the first one hundred and sixty dollars ($160.00) of the total cost of
the tuition, plus eighty percent (80%) of the remaining one per semester. The
cost of the books, up to a maximum of a hundred and sixty dollars ($160.00) per
semester may be included in the balance. The maximum amount to be reimbursed per
semester, including books, shall not exceed one thousand ($1,000.00) dollars.

SECTION 2

      The right to request reimbursement for completed courses shall expire
three (3) months after having finalized the same and the employee may not claim
those expenses that have been paid by means of any other study aid program. To
that purpose, the employee shall provide the necessary authorizations to verify
the existence or not of the other sources of aid.

SECTION 3

      The applicant must accompany his petition for reimbursement with documents
that evidence that the employee paid the tuition, as well as the grade obtained.
The employee must submit the originals or certified photocopies of these
documents. Before beginning the course, the employee must present his duly
filled out petition to the Company.

SECTION 4

      When the Company decides to put into effect a study scholarship program,
it shall give consideration to the employees who belong to the Union. The
applicant must fulfill the requirements which the Company establishes for the
granting of said scholarships.

SECTION 5

      The Company will not reimburse tuition expenses for courses taken in
learning institutions which are similar to the ones offered by the Company as
part of the Regular Training Program, except in those cases where the courses
are indispensable as requirements leading toward an academic degree.

SECTION 6

      The studies must be carried out during the employee's non-working hours.

                                   ARTICLE 51
                                 LIFE INSURANCE

SECTION 1

      The Company agrees to provide life insurance for all the regular employees
from the bargaining unit, for the sum of fifty-five thousand dollars
($55,000.00) and another fifty-five thousand dollars ($55,000.00) for the
concept of accidental death and dismemberment.

SECTION 2

      The cost of this life insurance shall be paid in its entirety by the
Company.

SECTION 3

      The employee shall have the option to purchase optional life insurance
(option I and II), which shall be paid in its entirety by the employee.



                                   ARTICLE 52
                            UNIFORMS AND SAFETY SHOES

SECTION 1

      In the event that the Company requires the use of uniform as a condition
of employment, the Company shall provide five (5) uniforms upon the employee's
entry and five additional uniforms as of the date of his anniversaries for
service or one year after the previous ones have been handed in without any cost
whatsoever to the employee; it being provided that in those cases in which the
Company understands the use of overalls to be necessary, in addition to
uniforms, it shall provide the employees two (2) overalls upon entry and two (2)
on the anniversary or one year after the previous ones have been handed over.
The employee shall utilize these uniforms only when they are performing
essential functions of their job, with the employee having to make good use of
the same.

SECTION 2

      In those situations in which because of provisions of law applicable to
the Company or when the Company itself requires the use of safety shoes, the
same shall be provided to the employee without cost. These shoes shall be
utilized only when the employee is performing his functions, with the employee
having to make good use of them.

SECTION 3

      If the Company does not hand over the uniforms on the scheduled dates,
this does not have the effect that it is not obligated to hand over the same;
then, at the next handing over, it must supply the totality of the uniforms owed
up to that moment.

                                   ARTICLE 53

                              NO-STRIKE AND LOCKOUT

SECTION 1

      The Union agrees that neither if, nor the employees of the Company who are
part of the Bargaining Unit covered by this Agreement, may, collectively, in a
concerted fashion or individually devote themselves to participate directly or
indirectly in strikes of any nature, reduction in the production or slow-down,
interruption and/or paralysis of work, picketing, boycotts or any other type of
interference and/or interruption of the Company's operations and activities.

SECTION 2

      During the effective period of this Agreement, the Union commits itself to
going to the Grievance Procedure provided by this same Agreement instead of
going to strike. To honor the terms of this Article and guaranteeing a permanent
and constructive industrial peace, the Union shall utilize all the available
resources and the ones that are in agreement with this Article.

SECTION 3

      In like manner, the Company commits itself, during the effective period of
this Agreement, to not make use of the lockout in any way whatsoever.

      To honor the terms of this Article and guarantee a permanent and
constructive industrial peace, the Company shall utilize all the available
resources and the ones which are themselves in consonance with this Article.



SECTION 4

      The Company reserves to itself the right to separate any employee from the
Bargaining Unit who carries out any of the actions stipulated above.

                                   ARTICLE 54
                               GRIEVANCE PROCEDURE

SECTION 1

The term "grievance" comprises any controversy that involves the interest of one
or more employee and/or complaint, grievance or claim relating to the
construction, application, administration or alleged violation of this
Agreement.

SECTION 2

The complaints of grievances may be presented by the Union or by the Company.

SECTION 3

All complaints or grievances shall be exclusively dealt with in conformity to
the mechanisms created in this article. The parties agree in this Agreement that
if controversies were to arise during the effective period of the same, these
shall not be resolved exclusively through the procedure which is provided as
follows.

SECTION 4 - First Stage

      a.    Any grievance which arises shall be presented in writing in the
first instance within the term of fifteen (15) working days from the time that
the grievance arises or the employee has knowledge of it and the same shall be
presented by the Union delegate and/or the employee to the employee's immediate
supervisor.

      b.    The supervisor, the delegate and the employee shall meet to discuss
and analyze the grievance and try to resolve the same. The supervisor will have
up to ten (10) working days, from the time that the grievance has been received,
to answer the same.

SECTION 5 - Second Stage

If the Union or the employee are not in conformity with the decision in this
case, or once the term in which to answer has elapsed, the same shall be
appealed in writing within the seven (7) working days following the receipt of
the decision or the termination of the period for the first step, to the
immediate boss of the corresponding supervisor who shall have up to five (5)
working days in which to answer the grievance. The Union or the employee must
present in writing to the immediate boss of the supervisor a summary of what
happened during the first stage.

SECTION 6 - Third Stage

      a.    If the Union is not in conformity with the decision issued in the
second stage of the case or once the term in which to answer has elapsed, any
Union officer may appeal filing the same within the ten (10)



working days following the receipt of the decision or the termination of the
period to answer in the previous stage if it has not been answered.

The appeal shall be presented in writing before the office of the Director of
the Labor and Employee Affairs in writing accompanied by a summary of the facts,
as well as the results of the previous stage.

      b.    The Director of Labor and Employee Affairs or his representative
shall summon the President of the Union or his representative once the grievance
has been received within ten (10) working days following the receipt of the
grievance indicating the time, place and date, which shall be no later than ten
(10) days following the date of the summons.

      c.    The Director of the Department of Labor and Employee Affairs or his
Representative, the President of the Union or his representative, the person who
took the action which gave basis for the grievance when the allegations of the
grievance so require it, as well as the grievant shall meet to the effect of
trying to resolve or conciliate the grievance. It being provided that in this
stage in those cases of suspension or dismissal the Company shall supply the
employee or the Union, with a copy of the documentary evidence on which the
disciplinary action is based.

      d.    Once the grievance has been discussed, the Director of Labor and
Employee Affairs, or his representative, shall answer the same in writing, by
means of certified mail, within the next ten (10) working days. The decision
issued in the case may:

                  1.    Confirm the determination.

                  2.    Modify the determination including the reduction of the
                        disciplinary measures.

                  3.    File and leave the determination without effect.

                  4.    Expand the investigation of the case if the need for it
                        is determined.

                  5.    Grant any other remedy which is consider appropriate.

      e.    If the Union is not in agreement with the answer from the Director
of Labor and Employee Affairs, he may resort to arbitration as indicated further
on.

      f.    The complaints regarding salary claims shall be filed in writing in
the first instance in the third stage within the term of fifteen (15) working
days from the time that the grievance arises or that the employee obtains
knowledge about it. The Director of Labor and Employee Affairs or his
representative shall summon the President of the Union or his representative
once the grievance has been received within the ten (10) following working days
upon the receipt of the grievance, indicating the time, place and date, which
shall be no later than the ten (10) days following the date of the summons. The
Director of Labor and Employee Affairs, or his Representative, shall have a term
of fifteen (15) working days in which to answer the grievance after the meeting
for the consideration of the same has been held.

SECTION 7 - Arbitration

      a.    When the grievance has not been resolved in the previous stage, the
            same may be submitted to arbitration within the following twenty
            (20) working days following the receipt of the decision of the
            Director of Labor and Employee Affairs once the term to answer has
            elapsed, whichever happens first. The Union will submit to the
            Company a copy of the request and the date in which it was submitted
            to Arbitration. The arbitrators to be utilized shall be those from
            the Bureau of Conciliation and Arbitration of the Department of
            Labor and Human Resources, except when another thing has been agreed
            upon between the parties, and the same shall be selected in
            conformity to the procedure for the selection of three candidates
            presented for selection and to the norms of said Bureau. The
            decision of the Arbitrator shall be final and unappealable, which
            shall be followed and complied with by the parties, as long as it is
            in conformity to the Law. The parties shall submit to the Arbitrator
            the written submission of the grievance to be resolved. For all
            purpose of this article, shall prevails the



            norms that were in effect as of December 26, 2002, and no amendment
            or new regulation will be applicable under this agreement.

      b.    The salary claims are excluded from this Arbitration procedure.
            Notwithstanding, the salary claims up to $1,500.00 shall be dealt
            with in accordance to the arbitration procedure established herein.
            The Union reserves for itself the right to carry the cases of claims
            for salaries in excess of $1,500.00 to the courts as long as it
            complies with the procedural terms provided herein. It is made clear
            that all the other types of cases, such as but without limitation,
            petitions for reclassification, per diems, promotions and/or claims
            that they are performing work belonging to another classification,
            shall continue to be dealt with through arbitration.

SECTION 8 - Cases of Suspension and Dismissal

      a.    The Union acknowledges that it is a managerial prerogative inherent
to the administration of the business of the Company to establish norms of
conduct for its employees during the operation of the business and to apply
disciplinary norms due to just cause when said norms are violated.

      b.    The Company, in its turn, acknowledges that in the administration
process and in the application of the norms of conduct and discipline applicable
to the employees, said processes must be fair and reasonable, for the purpose of
maintaining healthy employee-employer relations. The processes shall comply with
the following:

            1.    The application of the disciplinary norm shall be carried out
within a reasonable term, after the violation or fault of which the employee is
being accused is known.

            2.    The Company will carry out an investigation of the facts on
which a disciplinary action is based.

            3.    The employee shall be notified in writing, with copy to the
Union about the violations of which he is accused and the disciplinary measure
to be imposed and the approximate date of the meeting which is described in the
number 4 of this Section, 8b.

            4.    The Company, whenever it is possible, shall hold a meeting
with the employee when imposing a disciplinary measure on him.

            5.    In the cases of suspension or dismissal of employees, the
following procedure shall be followed when the Union or the employee considers
the suspension or the dismissal action to be unfair:

                  a)    If the employee considers his suspension or dismissal to
                        be unfair, he must present his grievance before the
                        Union.

                  b)    In the event that the Union also considers the
                        suspension or dismissal of the employee unfair, the
                        Union shall present a grievance in writing within the
                        fifteen (15) working days following the suspension or
                        notice of separation of the employee before the Director
                        of Labor and Employee Affairs or the person from the
                        Company upon whom he delegates. If the grievance is not
                        resolved, the Union may request a meeting with the
                        Director of Labor and Employee Affairs, personally. The
                        procedure before this Department shall be an expedited
                        one, it being understood that the cases of suspension
                        and dismissal shall be dealt with and investigated with
                        priority over any other case submitted prior to it and
                        in like manner, in these cases, the expedited
                        arbitration, if it were necessary, shall be requested.

                  c)    The Director of Labor and Employee Affairs, upon
evaluating the action taken, shall have the same faculties provided for in
Section 6(d) of this Article.



                  d)    From here on, it shall be proceeded with, as provided in
Section 6, clause e, which is the aforementioned one.

SECTION 9 - Cases of Publication and Adjudication of Positions, Transfers and
Promotions

      a.    The grievances which arise in which an employee claims to be
entitled to a vacant position or that the article regarding "Publication
Adjudication of Positions and Appointments" has been violated shall be filed in
writing before the Director of Labor and Employee Affairs, indicating the
position that is being claimed, the requisition number for the position, and the
person with whom it was covered. The grievance must be presented within the
seven (7) working days following the adjudication of the position or from the
time that the employee has knowledge of the adjudication of the position.

      b.    And it shall be proceeded with from here on as provided from Section
6, clause b of this article onwards.

      c.    In all proceedings regarding the present section, the person to whom
the position has been adjudicated shall be notified and shall have the right to
participate and intervene in said proceeding.

SECTION 10 - Cases of Reclassification of Positions

The grievances which arise as a result of a petition for reclassification for a
position shall be presented before the Company's Director of Labor and Employee
Affairs.

In the event that the Union is not in agreement with the determination of the
Department in charge of the certification of positions with regard to the
petition for reclassification of a position and that it determines to file a
grievance, the same shall be filed before the Director of Labor and Employee
Affairs within seven (7) working days following the receipt of the notice of the
determination or seven (7) working days after the time to inform the Union about
the determination regarding the petition has elapsed. And from here on it shall
be proceeded with as provided in Section 6, clause b. of this article onwards.

During the discussion of the grievance in this stage, the Union must establish
that the position has had some functions or duties assigned to it which belonged
to a superior position or that the duties and functions of the same have evolved
in a substantial and permanent manner toward a position of a superior level or
that functions or duties of greater complexity have been assigned.

SECTION 11 - Grievances between the Parties

The grievances of the Company shall be initiated by means of the sending of a
letter on the part of the Director of Labor and Employee Affairs to the
President of the Union. The grievances which the Union has regarding alleged
violations of the Union's rights or violations to the rights of groups or
classes consigned in this Agreement, shall be initiated by means of the sending
of a letter on the part of the President of the Union to the Director of Labor
and Employee Affairs.

In both cases, these grievances shall be initiated in the third stage. When the
grievance is a Company grievance, the President of the Union or his
representative shall meet with the Director of Labor and Employee Affairs within
ten (10) working days after the receipt of the grievance on the part of the
Union. When the grievance is a Union grievance, the Director of Labor and
Employee Affairs shall meet with the President of the Union within ten (10)
working days after the receipt of the grievance on the part of the Company. If
the meeting is not held in the terms indicated herein, the injured party may
recur directly to arbitration in the terms indicated in Section 7 (Arbitration)
once the term has expired.

The grievances of the Union and the Company shall have to be presented within a
period of ten (10) working days after the facts which motivated the grievances
have occurred or from the time that the grievant party obtains knowledge of the
events which motivated the grievance.



If an agreement is not able to be reached between the parties, they shall be
preceded in conformity to what is established in Section 7 (Arbitration) of this
article.

Complains that arise as a result of the application of Article 20 - Drugs
Testing Program shall be filed in third stage, as provided in Section 6.

SECTION 12 - General Provisions

      a.    It is agreed that at no time whatsoever will the grievant employee
or the delegates or representatives of the Union be accompanied by more than one
employee although the grievance covers more than one, except in the cases of
separation when the grievants are not working. The parties, may by mutual
agreement in cases which so require it, excuse more than one employee as long as
the services are not affected.

      b.    The Department of Labor and Employee Affairs shall hold meetings and
shall have at its discretion authority to investigate the cases referred to this
Department, obtain evidence and call witnesses one at a time.

      c.    The terms to begin the different stages of this procedure are of a
jurisdictional nature.

      d.    In those cases in which the Director of Labor and Employee Affairs
summons a worker for the purpose of this article, he must do so within his
working hours with pay.

SECTION 13 - Substantive Matters

      a.    A stenographic transcript of the arbitration hearings shall be
            prepared by the stenographer supplied by the Bureau of Conciliation
            and Arbitration if there is one available. In the event that the
            Bureau were not able to supply said Stenographer, the Arbitrator
            will notify the parties prior to the Arbitration Hearing so that any
            of them, if they wish to obtain a stenographic transcript, shall
            supply the Stenographer and pay the cost for the same.

            If both parties wish a copy of the stenographic transcript, they
            shall pay for it in equal parts. In the event that any of the
            parties decides to submit a brief, the Arbitrator shall grant a term
            no greater then thirty (30) working days in which to submit the
            same.

      b.    The Arbitrator shall not have power or faculty to in any way
            whatsoever alter, amend, change, modify, add or subtract in any way
            whatsoever from any of the provisions of this Agreement, even from
            any of the provisions of the article regarding "Management Rights".
            An award in violation of what has been indicated above shall be null
            and without effect.

      c.    The Arbitrator shall not have authority to grant damages.

      d.    In discipline cases, the arbitrator shall be authorized to modify,
            confirm or reduce the suspension or dismissal. Also, shall be
            authorized to provide remedy of reinstatement with or without back
            pay and benefits not received. To any back pay award the
            corresponding deductions shall be made to account for interim
            earnings during the suspension period and the obligation to mitigate
            damages.

                                   ARTICLE 55
                           STABILITY OF THE AGREEMENT

SECTION 1

      In the event that the merger of the Company or of any of its dependencies
with a private or public entity or that the Company divides into separate or
subsidiary structures, sells, transfers or leases property where employees
covered by this Agreement work, the Union must be notified with no less than
twenty (20)



days of advance notice before the merger, division into separate or subsidiary
structures, sale, closing, transfer, lease, or expropriation. In addition, the
Company is obligated to inform the aforementioned new entity about the existence
of this Agreement.

SECTION 2

      In the event that as a result to said merger, division into separate or
subsidiary structures, sale, transfer, lease, closing or expropriation,
employees from the Bargaining Unit are displaced, the regular employees who are
affected shall be considered for relocation to other activities of the
Enterprise in conformity to the provisions of this Agreement.

SECTION 3

      If during the effective period of this Agreement the Company were to
acquire any facility or service which at the present time were being
administrated by another Company and it were integrated into the Company's
program, the new positions that are created, as well as any vacant position in
said new facility or service, which corresponds to the Bargaining Unit shall be
covered in accordance to the provisions of this Agreement. The time of seniority
for the purpose of this Agreement for all the personnel passing through the
Company by means of this procedure shall begin to count from the effective date
of their appointment as employees of the Company.

SECTION 4

      In the event that any transfer, sale, merger, division into separate or
subsidiary structures, lease of facilities or expropriation were to take place,
the Company, notwithstanding what is provided in the article regarding the
Effectiveness with regard to the duration of this Agreement, shall be released
from there on from all obligation under the same, except with regard to
obligations which had already been incurred in under the article regarding
Procedure for Grievances.

      This Collective Bargaining Agreement shall bind during its effective
period all successor employers of the Company even when the transfer, sale,
merger, lease or expropriation were a partial one.

                                   ARTICLE 56
                                  SEPARABILITY

SECTION 1

      In the event that part of any of the provisions of this Agreement were to
turn out to be illegal by virtue of the effective laws or the ones approved in
the future or by means of a judicial decree or a final judgment, issued by a
court of competent jurisdiction, or by any other government entity, such law,
decree, decision, order or judgment shall affect only the part or provision that
is declared illegal, but the same shall not invalidate the rest of the
Agreement, it being the express intention of the contracting parties that all
the portions not declared illegal shall remain in their full force and effect
during the effective period of this agreement. And in addition, it is stated
that nothing of what is agreed upon herein in shall in any way whatsoever
prevent any of the contracting parties to exercise their right to appeal the
judgment or judicial decision, order or judgment of the concerned government
entity.

SECTION 2

      In the event that any article or section were to be declared null or the
compliance or observation of such article or section were declared in suspense,
the parties affected by such action will enter into immediate collective
negotiations, for the purpose of agreeing a mutually satisfactory substitute
provision for such article or section.

SECTION 3

      In the event that in any matter or controversy more than one provision of
this Agreement may be applied or where more than one interpretation of the same
is possible, that provision or interpretation which turns out to be more
consistent with the Collective Bargaining Agreement interpreted in its entirety
shall be the one that will be applied.



                                   ARTICLE 57
                                SPECIAL TRAINING

SECTION 1

a.    When the introduction of new specialized equipment, which requires special
      training to operate the same, affects the work of the personnel from the
      bargaining unit, the Company shall select the employees to be trained from
      among the affected employees who meet the training requirements for the
      position and approve the written examinations and/or practical tests which
      the Company designs for said training.

b.    The requirements, examinations and tests shall be established by the
      Company prior to the selection of candidates for the training. The Company
      shall determine in its criterion, the number of persons to receive the
      special training, but when choosing among the candidates who qualify the
      Company shall apply the following criteria: seniority; evaluations already
      written and prepared in the normal course of employment during the past
      two (2) years; attendance and timeliness records for the past two (2)
      years; disciplinary records for the past two (2) years; related experience
      and training. Seniority shall prevail over all the other factors if these
      were to turn out to be equal among the employees to be trained.

c.    If there do not arise sufficient candidates who qualify from among the
      affected employees, the Company shall publish the position or positions in
      conformity with Section 1 of Article 11 regarding "Publication,
      Adjudication of Positions and Appointments". If sufficient internal
      candidates who qualify do not arise, the Company will retain the right to
      include qualified personnel from outside hiring in the training.

SECTION 2

      The Company shall extend to the selected candidates appointments
conditioned to the approval of the training. During the training period the
daily hourly schedule and the weekly work program may vary in accordance to the
needs and conditions of the training to be offered and the service rendered.

SECTION 3

      The employees who approve the trainings in which they participate shall be
maintained in said positions. However, those employees who do not approve their
training satisfactorily or who were not selected for the same shall be
reassigned to another position, as long as there exists another vacant position
and that they qualify for the same. If there does not exist a vacant position or
if the employee does not qualify for the vacant positions that may exist, it
shall be proceeded with in accordance to the article regarding "Reduction of
Personnel and Re-employment".

                                   ARTICLE 58
                                 TEMPORARY WORK

SECTION 1

      When the Company requires an employee to perform on a temporary basis the
tasks of another position, superior to his, on a temporary basis for a period
greater than one (1) working day, of any bi-weekly pay period, the Company shall
pay a differential, equivalent to the increase in salary that were to
correspond, if the employee were promoted to the superior position. This
differential shall be paid from the beginning of the temporary assignment, and
for the total of hours worked in this superior position. This differential shall
be established utilizing Section 2 of Article 43.

SECTION 2

TECHNICAL OR OPERATIONAL TRAINING

A.    For the purpose of being able to utilize and acknowledge the knowledge,
      skills and experience of the members of the Bargaining Unit, the Company
      and the Union agree, with the consent of the employee that, when it is
      necessary and required by the Department of Training and Development of
      the Employee or the Department of Centralized Traffic Services, these
      personnel shall be temporarily transferred for the purpose of offering and
      developing courses during the regular work shift related to




      his specialty, in conformity to the requests received from the different
      areas with need in the Company.

B.    A supplementary compensation, in other words, a differential, is
      established as an economic incentive for all employees who devote time to
      teach courses and/or specialized training in the area of
      telecommunications. A differential of $1.30 from the basic salary per hour
      shall be granted, for the amount of hours devoted, required by the
      Department of Training and Development of the Employee or the operational
      area. The trainings mentioned herein are formal trainings with an
      established curriculum for groups of employees, which shall not include on
      the job training geared toward improving the skills of the individual
      employees.

C.    The $1.30 differential from the basic salary per hour shall apply to the
      necessary hours before, during and after the time during which the
      training is offered for the purpose of making it more effective:
      preparation of documents, utilization of audiovisual equipment and other
      necessary resources for the effectiveness of the training.

D.    In those cases where it applies, the employee shall receive the
      corresponding per diem and mileage.

E.    The participation of the members of the UIET in these training functions
      shall not be utilized by PRT to request that they be excluded from the
      Bargaining Unit. Neither will they perform tasks from personnel included
      in other Bargaining Units and they shall not supervise any personnel
      whatsoever.

                                   ARTICLE 59
                                  WELFARE FUND

SECTION 1

The Company agrees to contribute the amount of nine cents ($0.09) for each hour
worked for each employee covered by this Collective Bargaining Agreement during
the first two years of effectiveness of the same, for the Welfare Fund
established in accordance to the trust created by the parties. During the third
year of effectiveness of the Collective Bargaining Agreement, the Company agrees
to contribute the amount of ten cents ($0.10) for each hour worked for each
employee covered by this Collective Bargaining Agreement.

SECTION 2

When any audit reveals a pattern of violations to the regulation or that the
administration of the fund has strayed away from the principles and purposes for
which this fund was created, the Company may discontinue the contributions to
the Fund until the violations have been corrected.

SECTION 3

If this article, or the Trust created under the same were to be declared illegal
by a Court with competent jurisdiction, the Company shall discontinue the
contributions to said Fund and all existing funds as of that moment shall be
returned to the Company.

                                   ARTICLE 60
                            SUPPLYING OF INFORMATION

      The Company shall supply the Union, simultaneously, a copy of all
communications, documents, notices, memorandums, bulletins or brochures sent or
circulated to the employees comprising the bargaining unit.

      In addition, the Company shall supply a copy of all administrative
practices, procedures or policies, which are of application to the employees
covered by this Collective Bargaining Agreement, or which affect in any way
whatsoever, the terms and conditions of employment of these employees.



                                   ARTICLE 61
                                LEGAL ASSISTANCE

      The Company shall provide free of cost, services of attorneys selected by
the Company, to those employees who in the fulfillment of their duties were to
suffer an accident while driving motor vehicles on official matters and were
summoned and/or arraigned due to such events, or when being on official
endeavors, they are accused of a public crime, for events allegedly occurred
while they were rendering service to a client, except sexual crimes, murder or
controlled substances in any of its modes.

                                   ARTICLE 62
                                 CHILD DAY CARE

SECTION 1

During the effective period of this Collective Bargaining Agreement, the Company
shall pay on a monthly basis to institutions devoted to daily child care which
have the corresponding permits required by the laws applicable to it, under the
conditions provided further on. Said payment shall be for the concept of the day
care for the children of unionized, which maximum age is up to five (5) years.

SECTION 2

The number of children who may benefit from the provisions of this Article, as
well as from the maximum monthly contribution that the Company shall forward,
shall be in conformity to the following table:

A maximum number of ninety (90) children with a maximum monthly benefit of one
hundred dollars ($100.00) per child during the effective period of this
Collective Bargaining Agreement.

SECTION 3

These amounts shall be payable directly to the Day Care Center by means of the
prior presentation of an invoice by the corresponding center or through the
employee and in such situation the Company shall issue, on a monthly basis, a
check to the order of said Center, within the fifteen (15) calendar days
following the receipt of the invoice.

It shall be the responsibility of the employee to pay the Day Care Center for
any difference between the rate and the maximum benefit paid for by the Company,
pursuant to what is provided in this article.

The payment corresponding to the first year shall have effectiveness from the
beginning of the corresponding school year to the year 2000.

SECTION 4

The children of unionized employees, whose parents shall benefit from this help,
shall be chosen by means of a raffle to be held no later than the month of June
of each year, during the effective period of this Collective Bargaining
Agreement. Each employee must request this benefit for a son or daughter, in a
manner that the greater number of employees may enjoy the benefits. There shall
participate in the raffle the employees who certify to the Company, prior to the
raffle that they have young children, of up to five (5) years of age. Said
raffle shall be coordinated between the Company and the Union.



SECTION 5

The employee selected shall certify that he has his son or daughter registered
in the duly authorized Child Day Care Center, which is operating with all the
necessary permits. The Company reserves for itself the faculty to require any
other relevant information and evidence of the required permits.

SECTION 6

The Company shall be retaining in the origin all deductions that correspond in
law or regulation.

                                   ARTICLE 63
                                   CONTRACTING

SECTION 1

      The sub-contracting of work, tasks, services and functions shall not be
utilized to lay off or bump off employees covered by the bargaining unit.

SECTION 2

      If it were determined that it has a negative effect on the work performed
by the members of the bargaining unit the parties shall meet to discuss what
measures, if any, may be adopted geared toward preventing or minimizing said
negative effect.

SECTION 3

      In the event of an alleged controversy which arises from the construction
or application of this article, the Union shall be entitled to proceed in
accordance to what is provided in Article 55 of this Collective Bargaining
Agreement.

                                   ARTICLE 64
                              CHAUFFEUR'S INSURANCE

      The Company will pay the corresponding contributions under the Chauffeur
Social Security Act in its entirety (Act 428 of May 15, 1950, as amended).

                                   ARTICLE 65
                       TIME SUBJECT TO BE CALLED "ON CALL"

SECTION 1

In those cases in which the Company determines the need to have qualified
personnel subject to be called outside of the regular work schedule in certain
specialized classifications and areas of work where an on call personnel
schedule is required to be established, this article shall apply.

The employees in work shifts subject to be called must provide the telephone
number where they may be reached. If it were necessary, they shall be provided
with a beeper to make their location easier.

The work shifts shall be assigned in an equitable manner whenever possible.

SECTION 2

The employee who is assigned to be on call shall be paid a bonus of $18.00 per
day, for assignment to this work shift, during the time that he is assigned to
be subject to be called. The minimum hours to be worked when



called and reporting to work shall be for a period no lesser than two (2) hours,
including the traveling time up to a maximum of thirty (30) minutes to reach the
designated place for work and thirty (30) minutes for the return to his
residence.

If the employee were called to work, he shall be compensated in the
corresponding manner and as it is indicated in the Work Day and Overtime
Article, pursuant to how it is provided in this Collective Bargaining Agreement.
The bonus mentioned in this section shall also apply.

SECTION 3

If the employee is called to work and does not answer the request to report
himself to the work site, he shall not be entitled to collect what is provided
in section 2 for that day's assigned schedule. If the employee to whom a work
shift corresponds for that day has not been able to be located on a timely basis
after several attempts to locate him, the supervisor shall state it in writing
with copy to the delegate of the Union.

If the employee expresses not being available for the work requested, the same
shall be offered to another employee who follows him in turn.

                                   ARTICLE 66
                     DUTIES CONSOLIDATION - UNIVERSAL WORKER

SECTION 1

The Company shall create regular new positions through duties consolidation
corresponding of two (2) or more positions included in the appropriate unit. The
positions created in this manner shall be called Universal Worker, and also
shall be known by their descriptive name followed by the service area
identification corresponding to the position.

SECTION 2

The duties consolidated always have to belong to positions under a same
administrative vice presidency. In cases where the Company move positions
between vice-presidencies, the duties shall be combined in its new vice
presidency with positions that also share a correlation of duties.

SECTION 3

When functions of positions are consolidated with different occupational
degrees, the position of new creation shall never be placed in a wage level
lower than the maximum level of the positions which functions are consolidated.

SECTION 4

The Company shall determine on the basis of service needs, the quantity of the
positions to be created by vice-presidency, the requirements, as well as the
geographical areas in which such newly created positions shall be assigned and
perform their task.

SECTION 5

The created positions of Universal Worker shall be adjudicated between
candidates in accordance to the following factors:

                        1.    Evaluation Criteria for the previous two (2) years

                        2.    Disciplinary Record for the previous two (2) years

                        3.    Related Experience and Trainings

                        4.    Approve written test and/or practical test that
                              the Company design for this purposes

                        5.    Attendance History for the previous two (2) years



The seniority shall prevail when other factors are equal between candidates.

The publication shall be at all work centers according with Section 6 as
follows. The positions shall first be covered with those that qualify belonging
to the workshop where the Universal Worker position exist. If any vacancies
occur, it shall be covered with employees of other workshop.

No employees shall be transferred to other workshop as a result of having
brought employees from other workshop to occupy a Universal Worker position.

SECTION 6

The Company shall publish at all the work centers, the positions of new creation
that are going to be covered, specifying the requirements for the same. The
publication of the positions shall be made for a term no lesser than five (5)
working days. It being provided that those employees who work outside of the
buildings of Plaza Telefonica (1500, 1513 and 1515 Roosevelt) shall have a term
of two (2) additional working days after the closing of the publication. The
Company shall send to the Union a copy of said publication. A position so
published shall not be canceled without notifying the Union about the reasons
for its cancellation.

SECTION 7

Any regular employee, who meets the requirements for a published position, may
apply for the same by submitting the corresponding application, in the form
supplied by the Company, within the term established in the publication, to the
Recruitment Department, with return receipt requested.

SECTION 8

The Company shall only consider those employees who meet the requirements, who
have filed the petitions within the period established in the publication, and
who may fulfill the functions of the position immediately upon having it
adjudicated to them; or if they are enjoying their vacation leave, upon the
conclusion of the same; or if they are receiving benefits under the State
Insurance Fund or using sick leave, within thirty (30) days after it has been
adjudicated to them.

SECTION 9

In those cases in which that published positions of Universal Worker exceed
qualified employees amounts and that lack of employees obeys to the failure in
written test or practical test reference in Section 5 of this article, the
Company shall choose among those employees that failed, those whose scores and
tests were the highest, that have a score of not less than 50% to be trained and
examined again.

SECTION 10

The employees who failed the test and/or practical test shall remain in their
positions.

SECTION 11

The employee who moves to occupy the Universal Worker position shall receive an
increase of $0.45 per hour. The Section 2 of Article 43 (Salary) shall apply to
those employees who move on to occupy a position of Universal Worker in a
promotion.



SECTION 12

Any employee selected to occupy one of these positions shall be subject to a
probationary period of two (2) months during which he will have to demonstrate
having ability, knowledge, skills and the efficiency which, in the judgment of
the Company, is required for the new position.

SECTION 13

If the probationary period is not satisfactorily approved, the employee shall
return to his previous position with the salary that would have corresponded to
him if he had continued in the previous position.

SECTION 14

Except in cases where events occur beyond the control of the Company and/or the
service may be adversely affected, the employee selected to occupy a position of
Universal Worker shall be placed in said position during the following thirty
(30) days from the date when the Recruitment Department adjudicates the same.

SECTION 15

Within ten (10) working days following the adjudication of a vacant position or
one of new creation, the Company must notify the Union, by certified mail with
return receipt requested, with a copy of the determination and indicating the
position which was adjudicated, the requisition number for the position and the
name and the employee number of the person with whom the same was covered and
the criteria where by it was adjudicated to the person. It must also notify it a
list with the names of all the employees who were competing for the position
with the corresponding salary levels.

SECTION 16

The intention of the parties with the creation of these new positions is to make
the Company as well as the employees more efficient, so that they have greater
capacity to respond to the increase necessity of the service that the
competitive telecommunications industry in Puerto Rico requires. It is not the
intention of this article to eliminate or reduce jobs, salaries or working
conditions, nor to limit the right that under this agreement the Company has
with relation to Articles 3, 15 and 63.

SECTION 17

Except for that provided in Section 4 of this article if any employee or the
Union understands that the Company has violated any disposition of this article,
such allegation shall be brought by the Union or the employee according to the
Grievance Procedure provided in this collective bargaining agreement.

                                   ARTICLE 67
                                  EFFECTIVENESS

This Collective Bargaining Agreement shall be in effect during thirty-six (36)
months and shall begin to rule from January 18, 2003 until midnight of January
17, 2006.

EX-10.32

EXHIBIT 10.32

                         COLLECTIVE BARGAINING AGREEMENT

                                   BETWEEN THE

                              PUERTO RICO TELEPHONE

                                     AND THE

                           INDEPENDENT BROTHERHOOD OF

                           TELEPHONE COMPANY EMPLOYEES


                                 EFFECTIVENESS:

                             FROM JANUARY 1ST., 2004

                             UNTIL DECEMBER 31, 2008



                                 EFFECTIVENESS:

                             FROM JANUARY 1ST., 2004

                             UNTIL DECEMBER 31, 2008

                                    ARTICLE 1

                         RECOGNITION OF THE BROTHERHOOD

SECTION 1

         The Company recognizes the Brotherhood as the exclusive representative
for all the employees included in the Bargaining Unit, as defined in Article 2
of this Collective Bargaining Agreement for the purposes of negotiation and
collective bargaining in everything relating to salaries, work conditions, job
tenure, complaints, grievances and all those conditions and provisions that
affect the employees covered by this Agreement.

                                    ARTICLE 2

                                 BARGAINING UNIT

SECTION 1

      The Bargaining Unit covered by this Agreement is the one certified by the
Puerto Rico Labor Relations Board, in case P-91-5 D-93-1224 E dated February 10,
1995 and any other position which has been included by the Local Board since
this said date.

SECTION 2

      The Company in a flexible or digital computer disk in Excel format will
send the Brotherhood on or around thirty days after the effective date of this
Agreement, a list of all the positions (by levels) that are included in this
appropriate unit. This list will include the names of the Brotherhood members by
employee number, sex, positions, social security number, hiring date,
birthdates, postal address and actual salaries. The Company on a monthly basis
will provide the information mentioned above for those employees that have
undergone changes.



                                    ARTICLE 3

                            RIGHTS OF THE MANAGEMENT

SECTION 1

      The Brotherhood recognizes that the administration of the Collective
Bargaining Agreement and the direction of the labor force are the exclusive
prerogative of the Company. Therefore, the Company retains and shall maintain
the exclusive control of all the matters relating to the operation, handling and
administration of its business, including, but without having it being construed
as a limitation, the administration and handling of its departments and
operations, the work organization and methods, the processes, methods and
procedures for the rendering of the service, the determination of the equipment,
parts and service to be purchased, the assignment of work hours, the direction
of the personnel, the right to employ, classify, re-classify, transfer and
discipline employees and all the functions inherent to the administration and/or
handling of the business except those expressly limited by the terms in this
Agreement.

SECTION 2

      If any employee understands that he/she has been treated in a
discriminatory, arbitrary or unfair fashion in accordance to the terms of this
contract or any provision of this contract has been violated due to any action
taken by the Company by virtue of the previous Section, such allegation shall be
submitted by the Brotherhood or by the employee to the Grievance Procedure
established in this Agreement.



                                    ARTICLE 4
                                   UNION SHOP

SECTION 1

         All employees who are covered by this Agreement who at the date of the
signing of the same are a member of the Brotherhood, are obligated as a
condition of employment to continue on as members of the Brotherhood and in the
event of new personnel, the latter will be obligated as a condition of
employment to join the Brotherhood within the thirty (30) days following
beginning to work for the Company and in both cases to pay dues to the
Brotherhood during the effectiveness of this Agreement.

SECTION 2

         The Company, at the written requirement of the Brotherhood, will fire
or suspend from his/her job any employee who is not affiliated or stops being
affiliated as a bona-fide member of the Brotherhood. Said written requirement
must be notified to the Company by certified mail and with a copy to the
affected employee by certified mail.

SECTION 3

         The Company will put a copy of this clause in visible places in
existing departments in the Island of Puerto Rico, for knowledge of the
personnel.

SECTION 4

         In the event that a competent entity determines that the separation to
which Section 2 of this Article refers was unjustified or illegal, the
Brotherhood shall be the only one responsible for all the damages caused by said
dismissal, and the Brotherhood will safeguard the Company and reimburse it for
any expense or outlay in which the Company may incur as a result of said
dismissal.

SECTION 5

         The Company and the Brotherhood agree that the Brotherhood shall have
the opportunity to meet during thirty (30) minutes with the recently hired
employees, as part of the general orientation process, for the purpose of
providing them information about the Brotherhood and the Collective Bargaining
Agreement. The time invested during the work shift of each employee given
orientation shall be paid as time worked. This orientation shall be carried out
during the fifteen (15) days following the start of the union member employee or
from the time that the Company notifies the start, whichever occurs first. Said
notification should be sent to the HIETEL with two (2) days of advance notice
prior to the orientation date.

                                    ARTICLE 5
                                 DUES CHECK-OFF

SECTION 1

      During the effectiveness of this Collective Bargaining Agreement, the
Company commits itself to automatically deduct from the salary received by all
the employees covered by the definition of the Bargaining Unit, the sum of the
initiation dues, the regular dues and any uniform special dues which the Union
establishes for its members after receiving the written authorization on the
part of the employee. The authorization for the regular dues shall be for a
minimum term of one (1) year and shall be extended year after year, while the
employee occupies a position within the Bargaining Unit. This authorization
shall be irrevocable for a period of one (1) year from the date of the
authorization. The Brotherhood shall notify the



Company in writing with regard to the dues to be checked off from the employees
covered by this Agreement. The Brotherhood shall comply with all the applicable
procedures and laws prior to the establishment of said dues and the sum of said
deductions shall be deposited by the Company, by means of a direct deposit to
the HIETEL's bank account.

SECTION 2

      a) The Company shall hand over to the Treasurer of the Brotherhood or the
Officer designated by him, after rendering the bond required by law, the
document evidencing the deposit of the amount of the corresponding dues during
the ten (10) calendar days after the payment of every two (2) weeks has been
made except when there are extraordinary circumstances intervening in which case
the term shall not exceed ten (10) additional days. The Company shall send the
Brotherhood in a digital computer disk in Excel format a summary every two (2)
weeks with the names of the employees who have had said deductions made, in
addition, containing the individual sum and the total of the same. The Company
will check off the initiation dues in the amount and installments certified by
the Brotherhood for all employees joining the Brotherhood, after receiving the
written authorization from the employee.

      b) The Company shall not forward dues until the Brotherhood has shown it
that the Treasurer or the designated Officer have rendered the bond required by
law.

      c) In all cases of suspension or dismissal in which an Arbitrator, court
or administrative entity has determined that the suspension of the employee or
the dismissal of the employee was not justified and has ordered the
reinstatement of the employee with all the total or partial salaries that it did
not receive in cases of dismissal or has ordered the total or partial payment of
the salaries not received during the suspension, the Company must deduct from
said payment the total of the Union dues not paid by the employee during the
time that the employee was dismissed or suspended, as the case may be, and
forward its sum to the Brotherhood in conformity to this article.

      d) The parties agree that in those cases of suspension or dismissals that
were settled and as part of the agreement the total or partial payment of
salaries not received by the employee have been agreed upon, the Company must
also deduct from said pay the total of the Brotherhood dues not paid by the
employee during the time that the employee was dismissed or suspended and to
forward its sum to the Brotherhood in the terms stated above.

      e) With regard to the deduction of dues to which reference is made in
paragraphs c) and d) of this section, it shall be the obligation of the
Brotherhood to notify the Company on a timely basis about the total sum of dues
that the employee is to have checked off.

SECTION 3

      In the event that any competent entity determines that any dues have been
illegally set or deducted, the Brotherhood shall release the Company from all
liability and shall indemnify and pay directly any reimbursement ordered by said
entity.

SECTION 4

      During the effective period of this Collective Bargaining Agreement, the
Company shall send the Brotherhood, on a monthly basis, a report regarding the
employees who are enjoying any of the leaves established in this Collective
Bargaining Agreement, which duration shall be of thirty (30) calendar days or
more, with said report having to state the name of the employee and his number,
the position occupied by him, the department, the work center, the leave which
he is enjoying and up to where it is possible, the duration of the leave stating
the possible return date.



SECTION 5

      During the effective period of this Agreement, the Company must check off
the Union dues in all those cases in which an employee from the bargaining unit
is enjoying the benefits of any of the leaves with pay acknowledged in the
Agreement, except under the Prolonged Illness Leave, (Act 139), and forward its
sum on the basis of the terms stated above, it being provided that in those
cases under Act 139 (SINOT), the Company, once the employee has returned to his
job, must withhold the Union dues that were not paid by the employee during said
leave and forward their sum to the Union in the terms stated in this article.
The total of said check offs must be made during the first three pay periods.

                                    ARTICLE 6
                   COOPERATION ON THE PART OF THE BROTHERHOOD

SECTION 1

         The Brotherhood, as well as its members, agree to promote, at all times
and as fully as possible good service and efficient operation. The Brotherhood
and its members also agree with the Company to produce maximum production during
each daily workday.

                                    ARTICLE 7

                            RESPECT AND CONSIDERATION

SECTION 1

         The Company and its functionaries obligate themselves to give to the
employees and the Brotherhood the best treatment, respect and consideration
possible for the purpose of maintaining the best relations between the
employees, the Brotherhood and the Company.

SECTION 2

         The Brotherhood and the employees from the Bargaining Unit obligate
themselves to observe toward the Company and its functionaries the best
treatment, respect and consideration possible for the purpose of maintaining the
best relations between the employees, the Brotherhood and the Company.

                                    ARTICLE 8

                                  PRODUCTIVITY

SECTION 1

         The Brotherhood and the Company acknowledge that the productivity must
be increased to confront competition in the telecommunications service.

         To that effect, the Brotherhood agrees that the employees belonging to
the Brotherhood shall commit themselves to render the maximum of their
productivity, attendance, timeliness, efficiency and effectiveness, with order
and discipline. All of it in accordance to Article 6, Cooperation on the part of
the Brotherhood.



                                    ARTICLE 9

                          DELEGATES OF THE BROTHERHOOD

SECTION 1

      The delegates shall represent the Brotherhood in the process of
administrating the Collective Bargaining Agreement before the Company.

      The Delegates shall provide orientation to the employees covered by this
Collective Bargaining Agreement with regard to their responsibilities and
rights; in like manner they will watch out and have the faculty of helping their
co-workers when these have a complaint or grievance or when their presence is
required by any boss or supervisor.

SECTION 2

      The delegates from the Brotherhood shall be limited to dealing with the
grievances and matters relating to the application of the Collective Bargaining
Agreement in their work area.

SECTION 3

      No Delegate may intervene in another department or area which is not the
one to which he/she has been designated, with the exception of those work areas
or departments where there has been no Delegate appointed, in which case the
Delegate from another department nearby may act as the appointed Delegate in
that other operational unit or department, as long as he/she has been previously
authorized in writing by the President of the Brotherhood or his/her authorized
representative.

      The Brotherhood shall be entitled to appoint sub-delegates or substitute
delegates which shall act only in the absence of the official Delegate.

SECTION 4

      The Delegate shall utilize the time in an adequate fashion for the
quickest solution of the grievances. When it is necessary for a Delegate from
the Brotherhood to deal with a grievance or related matter, he/she must:

      a.    Notify his/her immediate supervisor with reasonable time to forego
            his/her regular work and deal with the grievance or related matter.

      b.    The delegates shall receive pay up to a maximum of one and a half (1
            1/2) hour for each grievance.

      c.    Returning to his/her work upon finishing dealing with the matter if
            his/her work schedule has not ended.

      d.    The meetings between the Delegate and the employee which require
            his/her services in accordance with this Agreement work shall be
            carried out in the area immediately next to the employee's work
            area.

      e.    When it is necessary for a Delegate to hold a private conversation
            with an employee during time with or without pay for the Company to
            process a grievance or to deal with a matter relating to the
            application of the Collective Bargaining Agreement in accordance to
            the Grievance Procedure, he must obtain express authorization from
            the Supervisor.

SECTION 5

      The Company, on its part, may take the actions and measures that it deems
necessary and relevant in such manner that faithful compliance be given to the
provisions of this Article, including the time requested by a delegate be
utilized exclusively for the purpose stated above.



      The Brotherhood commits itself to comply with and promote the faithful
compliance of this Article in such manner that the time requested by the
Delegate is utilized exclusively for the aforementioned purpose.

SECTION 6

      When the Company expands its services creating additional units and
increases the personnel substantially in the additional services, the parties,
after a previous agreement, will convene the appointment of the corresponding
delegates.

SECTION 7

      The Delegate shall represent the employees covered by this Collective
Bargaining Agreement when the employee so requires it in the different stages of
the Grievance Procedure, with the President of the Brotherhood or the person on
whom he/she delegates in writing being able to participate in said
representation.

SECTION 8

      The Company will not acknowledge any Delegate until the President of the
Brotherhood has informed the Director of the Department of Labor and Employee
Affairs in writing and the Delegate has received his appointment.

      The delegates shall have to be regular employees of the Company.

SECTION 9

      The parties shall reach an agreement as to the time, number and place
where the delegates will act. It being provided that there will not be more than
one Delegate and one Sub-delegate carrying out functions for each of the
Company's operational units.

SECTION 10

      The Area Delegate appointed by the President of the Brotherhood shall be
recognized by the Company and these will receive the same treatment, respect and
courtesy that must be given to the Officers of the Brotherhood. The Company will
not recognize any Area Delegate until the President of the Brotherhood has
informed the Director of Labor and Employee Affairs in writing and he/she has
received his/her designation.

      The Area Delegate shall be appointed to represent and replace the Officers
of the Brotherhood and when they visit the shop or specific areas for which they
have been appointed, they shall have all the prerogatives that the Officers of
the Brotherhood have. The Area Delegate must comply with what is provided in
Section 4 of this Article.

                                   ARTICLE 10

                     VISITS FROM OFFICERS OF THE BROTHERHOOD

SECTION 1

      The President of the Brotherhood or the members of the Executive Committee
shall have access to the Company premises during working hours for the purpose
of resolving grievances, investigating work conditions and verifying compliance
with this Collective Bargaining Agreement. The members of the Elections
Committee during periods of internal elections of the Brotherhood shall have
access to the



Company premises for the sole purpose of administrating and coordinating said
elections. Prior notice shall be given in writing, of no less than 24 hours, to
the Director of the Department of Labor and Employee Affairs in both situations.

SECTION 2

      Upon the arrival of the President or a member of the Executive Committee
or a member of the Elections Committee, he/she shall identify himself/herself
and inform the purpose of his/her visit and shall go in person before the
officer of the Company that he/she is going to visit or the representative
designated by him/her.

SECTION 3

      The President of the Brotherhood may appoint representatives to carry out
any of the functions of said Committee. The Company will not recognize the
representatives appointed as such until the President of the Brotherhood has
notified the Director or the Department of Labor and Employee Affairs in writing
about their designation as such, including a description of the matters that
said representatives shall be authorized to handle in the name of the
Brotherhood. Not more than one Representative shall be appointed to deal with
one single matter.

      The representatives appointed by the President of the Brotherhood shall be
recognized by the Company and shall receive the same treatment, respect and
courtesy that must be rendered to the officers of the Brotherhood, it being
provided that these representatives shall have access to the Company premises
for the purpose of dealing with the matters authorized to be dealt with in the
name of the Brotherhood. Upon the arrival of these representatives, they shall
identify themselves and inform the purpose of their visit and they shall appear
in person before the Officer of the Company that they are going to visit or the
representative designated by him/her.

SECTION 4

      The visits of the President, Officer or Representative of the Brotherhood
shall not interrupt the operations of the Company and the work of the employees.

                                   ARTICLE 11

                              PERSONNEL ACTIVITIES

SECTION 1

      The Company and the Brotherhood agree that no union propaganda or activity
of any nature whatsoever shall be allowed by employees or representatives of the
Brotherhood will not allow any during their working hours within or outside the
Company's premises, except those expressly contained in the Collective
Bargaining Agreement.

SECTION 2

      No union propaganda or activity of any nature whatsoever shall be allowed
within the Company's premises on the part of the employees, delegates and
officers of the Brotherhood during their free time, if by doing so they are
occasioning any one or more of the following conditions:

      a.    Interrupts or distracts the work of the personnel that is working.

      b.    Constitutes a disturbance or harm to the Company.

      c.    Occasions a state of disorder or violence.



SECTION 3

         The Company and the Brotherhood agree that the working hours are for
each employee to devote them to his/her work for the Company and therefore, it
is not permissible to allow working time to matters which are foreign to work
such as, for example: discussions about sports, politics, religion, sales, and
personal activities, etc. Neither are such activities permissible during the
free time of the employee but within the Company's premises if it occasions any
one or more of the conditions in clauses a, b and c of the preceding Section.

SECTION 4

         No employee shall have access to the buildings or premises of the
Company without prior express authorization from the Supervisor of the site or
the Company's Security Department, except for the regular work place and during
his/her regular work schedule. In the event of receiving such authorization, the
employee will be accompanied at all times by said Supervisor or by the person
appointed by him/her unless the Supervisor or the person appointed by him/her
determines, in his/her discretion, that it is not necessary to accompany him/her
and he/she so informs it in writing to the visiting employee. Under no
circumstance will the employee be allowed to enter onto Company property if
there is no Supervisor, or the person appointed by him/her available to
accompany the employee.

                                   ARTICLE 12
                     PUBLICATION, ADJUDICATION OF POSITIONS
                                AND APPOINTMENTS

SECTION 1

      The Company will publish at all the work centers the newly created
positions, the vacant ones or ones which could be left vacant in the near future
corresponding to the Bargaining Unit that is going to be covered, specifically
the requirements for the same. The Company will send the Brotherhood a copy of
said publication. Upon the cancellation of a published position, the Brotherhood
shall be notified about said cancellation and the reasons for its cancellation.

SECTION 2

      All regular employees who meet the requirements for a published position
may apply for the same by submitting the corresponding petition in the form
supplied by the Company within the term established in the publication to the
Recruiting Department, with return receipt requested.

SECTION 3

      The Company will only consider those employees who after corroboration
meet the requirements, who have filed the petitions within the period
established in the publication and who can fulfill the functions of the position
immediately upon having it adjudicated to them or if they are enjoying their
vacation leave, upon the conclusion of the same or if they are receiving
benefits from the State Insurance Fund or using sick leave, within the thirty
(30) days of having it adjudicated to them.

SECTION 4

      All vacant positions or those of new creation shall be adjudicated to the
more senior employee who qualify within the following order of priority except
in the case of promotion or transfer from one classification to another where
seniority shall not be the determinant criteria for the adjudication of the
position pursuant to what is provided in Section 6 of this Article.



      a. Employees who will be affected by personnel reductions.

      b. Employees who may have suffered an occupational illness or accident
that prevents them from performing the functions that they used to perform in
their positions prior to said illness or accident. This priority shall not have
the scope of postponing the time term provided by law within which an employee
reserves his/her job tenure from the term of the occupational accident or
illness onwards.

      c. Employees who may have suffered non-occupational illness or accident
that prevents them from performing the functions that they used to carry out in
their positions prior to said illness or accident. This priority shall not have
the scope of postponing the time term provided by law within which an employee
reserves his/her job tenure from the term of the unknown occupational accident
or illness onwards.

      d. Employees who request transfer to the same occupational classification.

      e. Employees who have requested promotions. For the purposes of this
Agreement, promotion shall be understood to mean the movement of one employee
from one position to another position which has a superior salary level and
those changes from a position for which the maximum level of the series is
inferior to the maximum level of the new position.

      f. Employees who have requested transfer from one classification to
another. No employee may request a transfer from one classification to another
until after fifteen (15) months have elapsed in one position and he/she must
remain in said position a minimum of fifteen (15) months after said movement. In
addition, upon being granted this transfer, the employee in his/her new
position, must approve a three (3) month probationary period.

      g. Employees who have requested demotions. No employee may request a
demotion until after having been for fifteen (15) months in one position and
he/she must remain in said position a minimum of fifteen (15) months after said
demotion.

      h. Ex-employees which the Company may have laid-off within the twelve (12)
months before due to the scarcity or reduction of work.

SECTION 5

      The vacancies which arise due to the adjudication of the positions as a
result of the priorities mentioned in the previous Section, shall be covered in
the first instance by petition for transfer to the same occupational
classification, promotion, then transfer to another occupational classification
and finally demotion and if they were not filled that way, by means of external
recruiting. The transfer to which this Section makes reference is only that type
of transfer which makes the employees work center be closer to his/her
residence, as long as the employee has been more than fifteen (15) months in
his/her position.

SECTION 6

      In those cases in which the adjudication of a vacant position or one of
new creation represents a transfer from one classifications to another or
promotion for the applicant employee, the position will be adjudicated among the
candidates that fulfill the requirements in accordance to the following factors:
seniority; evaluations already written and carried out in the normal course of
employment during the past two (2) years; attendance and punctuality record for
the past two (2) years; disciplinary record for the past two (2) years; related
experience and training.

      The seniority shall prevail over all other factors if this were to turn
out to be equal between the employees being considered to cover the new or
vacant positions.



SECTION 7

      No employee who has had a position adjudicated to him/her us a result of a
transfer, transfer from one classification to another or a promotion will have
the right to request another position until fifteen (15) months have elapsed
from the date when the adjudication was made effective or until the employee has
reached the maximum of the existing progression for his/her present occupational
classification, whatever happens first.

SECTION 8

      In those cases in which an employee, due to a petition on his/her part,
has a position of a lower level adjudicated to him/her, in other words, which
represents a demotion, his/her salary shall be adjusted to the lower level
position.

SECTION 9

      Nothing that has been previously stated in this Article shall have the
scope of limiting the faculty of the Company to transfer employees due to
service needs nor the Company's rights to recruit external personnel for those
positions, which have not been covered by means of internal recruiting in
accordance to this Collective Bargaining Agreement.

SECTION 10

      Within the five (5) working days following the adjudication of a vacant or
newly created position, the Company must send to the Brotherhood, by certified
mail with return receipt requested, a copy of the adjudication of the same.

SECTION 11

      The Company shall send the Brotherhood a copy of all publications
regarding vacant positions or those of new creation.

                                   ARTICLE 13
                       TIME SUBJECT TO BE CALLED "ON CALL"

SECTION 1

         In those cases in which the Company determines the need to have
qualified personnel subject to be called outside of the regular work schedule in
certain specialized classifications and areas of work where an "on call"
personnel schedule is required to be established, this article shall apply.

         The employees in work shifts subject to be called, must provide the
telephone number where they may be reached. If it were necessary, they shall be
provided with a cellular phone or any other portable equipment to make their
location easier.

         The Company will prepare a schedule which will establish the personnel
needs to realize the job or "on call" shifts and the same will be covered with
those that occupy the specialized classifications in an equitable manner
whenever possible.



SECTION 2

      The employee who is assigned to be "on call" shall be paid a bonus of
$18.00 per day (24 hours shift), for assignment to this work shift. If the
employee is called to work, he shall be compensated with a minimum of two hours
per pay.

      For the non exempt employee that is "on call" and is called to work, the
time worked shall be paid at the rate of double time the rate paid for regular
hours of work. For the exempt employee that is "on call" and is called to work,
the time worked shall be paid at the rate of one and a half time the rate paid
for regular hours of work.

                                   ARTICLE 14

                      PROBATIONARY PERIOD FOR NEW EMPLOYEES

SECTION 1

      Every candidate for entry as employee, must have previously approved those
written or evaluation examinations required by the Company.

SECTION 2

      A condition for regular appointment shall be that the employee has worked
to the satisfaction of the Company for a Probationary Period of one hundred and
twenty (120) days. The training period for the probationary employee at the
training centers recognized by the Company will be part of the Probationary
Period.

SECTION 3

      All employees, during their Probationary Period, must be evaluated monthly
periodically with regard to, among other factors, their capacity to assimilate
training, their productivity, their efficiency, their timeliness, their
attendance to work, their habits, attitudes and general behavior. The Company
will hand the employee a copy of each monthly evaluation, except when the
employee has abandoned the service and is not available.

SECTION 4

      Each new hired employee who satisfactorily approves the Probationary
Period shall be appointed as a regular employee by means of an official notice
to the employee and to the Brotherhood.

SECTION 5

      All probationary new employees will have to submit themselves to those
medical examinations required by the Company and the result of said medical
examinations shall have to be satisfactory, as far as the Company is concerned,
as an employment condition. The cost, if any, of these examinations shall be
paid for by the Company.

SECTION 6

      All employees who join the Company by virtue of a transfer, sale, merger,
expropriation or lease shall have the provisions of this article applicable to
them.



SECTION 7

         The Company is entitled to order or decree the lay-off of any
probationary employee within the terms of Section 2, without such lay-off giving
rise to any grievance whatsoever before the entities established by this
Collective Bargaining Agreement for the resolution of controversies and
grievances.

                                   ARTICLE 15
                              MEDICAL EXAMINATIONS

SECTION 1

      The Company may require any regular employees to submit themselves to
medical examinations and of any other type of a medical nature. The cost, if
any, of the same, shall be paid for by the Company. This prerogative may not be
utilized in a discriminatory fashion against the members of the Brotherhood.

SECTION 2

      The Company will compensate the employee for the time that the examination
takes. Such examination should be carried out within his/her regular work day.

SECTION 3

         The Company may take the necessary and pertinent measures to guarantee
the correct use of the benefits disposed on Article 31, Extended Sick Leave and
Article 32, Occupational Sick Leave of this Agreement. Therefore, the Company
reserves its right that a qualified doctor selected by the Company determines if
the employee is in effect unable to work. The employee notification will be with
copy to the Union. In order to continue receiving the economic benefits
established in those Articles, the employee must attend on the required dates to
all the medical tests and exams ordered by the physician.

         If the physician determines that the employee is able to work, the
additional benefits of Articles 31 and 32 will discontinue and the employee will
receive the law benefits of SINOT or FSE which ever is applicable. Nevertheless,
the retention period for this employee will be the provided on Articles 31 and
32, which ever is applicable.

         If the employee is not in agreement with the doctor's determination,
the Union shall, within five working days, following the employees receipt of
the determination, request the Company, in written, that wishes to select by
mutual agreement another physician properly qualified to evaluate if the
employee is able to work. The Union and the Company will ask to the "Colegio de
Medicos de Puerto Rico", to submit a list of 5 physicians properly qualified in
the alleged condition, of which the parties will select one by eliminating 2 by
each party. If the "Colegio de Medicos de Puerto Rico" is not in position to
provide the list, the Company and the Union will submit 3 names each of
physicians properly qualified in the area of the alleged condition. Three (3) of
the names will be eliminated at random and the remaining ones each party will
eliminate one, then the remaining one will be the chose one. This physician
shall render his determination not later than 10 days from having finalized the
corresponding examination and tests, if any, which will be carried out as soon
as possible and the employee will fully cooperate. The determination of the
physician shall be final and unappealable. The cost of this medical evaluation
should be paid in equal part by the Company and the Union for the first five (5)
employees during the year that request this evaluation. For additional cases,
the total cost shall be assumed by the Company.

         The Company may submit during the year, in order to determine if they
are able, a number of employees not more than 10% of the employees enjoying the
leave of absences under the articles 31 and 32 of the natural year immediately
preceded. The Union shall be informed of the total number of employees making
use of the benefit during such year.



                                   ARTICLE 16
                                    SENIORITY

SECTION 1

      Seniority shall be understood to mean the total time of service credited
to an employee by the Company. Credited time shall be all the time of regular
work days that an employee has worked in a continuous fashion for the Company as
well as all the leaves with pay. Leaves without pay that are granted to the
employees members of the Executive Committee of the Brotherhood during the terms
for which they have been elected shall be credited to their seniority in the
Company.

SECTION 2

      The seniority right shall expire due to any of the following reasons:

      a.    Resignation

      b.    Dismissal

      c.    Lay-off for twelve (12) consecutive months or upon the receipt of
            the compensation provided in Section 4 of Article 19 - Reduction of
            Personnel and Reinstatement.

      d.    Absence due to occupational illness or accident in excess of his/her
            occupational illness or accident leave.

      e.    Absence due to non-occupational illness or accident in excess of the
            term established in this Agreement or until his/her prolonged
            illness leave is exhausted, whichever is greater.

      f.    By not accepting an available position and for which he/she
            qualifies, while being on preferential employment list.

      g.    Accepting a position outside of the Bargaining Unit, unless the
            employee decides to return and/or the Company decides to return
            him/her to his/her old position, within the six (6) months following
            his/her departure from the Bargaining Unit.

SECTION 3

      Probationary employees will not accrue seniority until they have approved
their respective probationary periods, in which case the seniority will be
retroactive to the date when they began their respective probationary periods.

                                   ARTICLE 17

                                   PROMOTIONS

SECTION 1

      A promotion shall be understood to mean the movement of an employee from
one position to another position which has a greater salary level and those
changes when a position for which the maximum level of the period is inferior to
the maximum level of the new position.

SECTION 2

      In the promotions, the employees from the Company who have requested a
promotion and who qualify for the same as required by Article 12 Section 6
relating to Publication, Adjudication of Positions and Appointments, shall be
given priority. Seniority shall prevail over the other factors, if these were to



turn out to be equal among the employees to be considered for the covering of
the positions in promotion. When an employee changes occupational classification
due to a promotion for which he/she applied, he/she may not request a change
until fifteen (15) months from said promotion have elapsed.

SECTION 3

      All promoted employee shall be subject to a probationary period of ninety
(90) days during which they will have to demonstrate having ability, knowledge,
skills and the efficiency which in the judgement of the Company is required in
the new position. In the cases of promotions, which require special training,
said training period shall be part of this probationary period. The employee may
return to his previous position before the expiration of his probationary
period, if said position is vacant.

SECTION 4

      The progression to a superior level within the same classification, shall
not be considered a promotion. These progressions shall be carried out in
conformity to the requirements established by the Company in the Duty Sheet.

SECTION 5

      In the event that an employee is promoted, he/she shall be entitled to
receive 4% of salary increase for the next salary level to which he/she is
promoted. Example: 10-11.

      If the promotion includes more than one salary level, he/she may receive
4% for the first salary level to which he is promoted and 2% increase for each
additional level of increase. Example: 10-12 = 6% Total Salary increase.

      If after the corresponding percentage increase is granted and the employee
remains under the minimum of the level to which he is promoted, his salary will
be increased for the minimum of the scale.

SECTION 6

      If the employee were not to satisfactorily approve his/her probationary
period, the employee would return to his/her previous position with the salary
that would have corresponded to him/her if he/she had continued in the previous
position. The Company will reinstate to their previous position and salary the
employees who would have been promoted as a result of the vacancy that the
promotion of said employee would have brought about. If as a result of said
promotion a new employee would have been hired, the Company would be free to
separate said new employee.

SECTION 7

      Except in cases where events occur beyond the control of the Company
and/or the service may be adversely affected, the employee shall be placed in
the position of promotion within a period that shall not exceed thirty (30) days
from the date when the Recruiting Department adjudicates the same.



                                   ARTICLE 18

                                    TRANSFERS

SECTION 1

      For the purpose of this Agreement, transfers shall be understood to mean:

      Any permanent change from one section, division or department to another,
from one work center to another, or from one municipality to another, whether it
is from one position to another in the same classification or to a position in
another classification with the same level.

SECTION 2

      There shall be two (2) types of transfers:

      a.    Transfers due to a formal petition on the part of the employee,
            which is that which is produced upon filing out a written petition,
            through the Recruiting Department. It shall be a requirement to have
            been a minimum of fifteen (15) months in the position occupied by
            the employee to be able to file a petition for transfer. In the
            event that the transfer is to a position which is different from
            that one occupied by the employee, he/she must meet the minimum
            requirements in effect, required for the position to which he/she is
            going to be transferred and he/she shall be subject to a
            probationary period of three (3) months.

      b.    Transfers when the Company determines it due to service need.
            Whenever the Company determines to transfer an employee due to
            service need, the transfer will be made taking into consideration
            employee's seniority so that, the less senior qualified employee
            will be transferred unless that there is a voluntary qualified
            employee more senior.

      a.    The employee may, after this type of transfer has been carried out,
            question it through the Grievance Procedure.

      b.    In the event that there arises a need to cover the position which
            the transferred employees left vacant due to service needs within
            the following one hundred and eighty (180) days after the transfer
            has taken place, he/she, the transferred employee, shall have
            priority to return to said position. Once the hundred and eighty
            (180) days have elapsed, the position shall be filled following the
            process established in Article 12, Publication, Adjudication of
            Positions and Appointments.

SECTION 3

      Except in cases where events occur beyond the control of the Company
and/or the service may be adversely affected, the employee shall be placed in
the transfer position within a period that shall not exceed thirty (30) days
from the date when the Recruiting Department adjudicates the same.

SECTION 4

      When the Company is interested in permanently transferring an employee due
to service needs, it will notify the employee and the Brotherhood with thirty
(30) days of prior notice, except when there are extraordinary circumstances in
which case it will notify with ten (10) days of prior notice. In case of
transfers due to the need of service where the employee remains where his work
center normally resides or when such transfer is between the building around
Plaza Telefonica (Roosevelt 1500, 1513 and 1515), the advance notification will
be with no less than fifteen (15) days.

SECTION 5

         The Company will recognize the right to barter between the employees as
long as the Company determines, in its sole discretion, that there exists
equality of circumstances, category, capacity, efficiency



and ability. In the event of a barter, the expenses occasioned by the transfer
shall be paid for by the employees.

SECTION 6

      The transfer may not be used in an arbitrary, discriminatory and unfair
fashion or as a disciplinary measure or action.

                                   ARTICLE 19

                    REDUCTION OF PERSONNEL AND REINSTATEMENT

SECTION 1

      When the Company determines the need to carry out personnel lay-off or
transfers due to lack of sufficient work or due to reasons of economy in
particular classifications of employment, it shall prepare a lay-off or transfer
plan, as the case may be, in accordance to the provisions of this Agreement. The
Company will notify by certified mail or in person in writing with regard to the
lay-off or transfer to the employees who are affected and to the Brotherhood
including in the notice a copy of the Plan, with no less than fifteen (15)
working days prior to the date when the lay-off or transfer is to be effective
and such reduction shall be carried out observing the following order:

      a.    Probationary employee in the affected classification

      b.    Regular employee in the inverse order of seniority in the affected
            classification

      In cases of lay-off or transfers, the employees who are members of the
Boards of Directors and the delegates shall have super-seniority in their
classification.

      The determination of the number of employees that are needed to perform a
task is an exclusively managerial task which may not be questioned through the
Grievance Procedure.

SECTION 2

      a.    In the event that an employee with at least one (1) year of
            seniority is subject to lay-off, he/she may choose to bump another
            employee in a lateral or inferior classification with less seniority
            in which the bumper is qualified to perform the work immediately or
            any other classification in which the bumper may have worked
            previously on more than one occasion and continues being capable of
            carrying out the work immediately.

      b.    Any regular employee with at least one (1) year of seniority who is
            bumped as a result of the procedure established in the preceding
            paragraph (a), shall be equally entitled to bump by means of
            seniority by following exactly the procedure established in the
            preceding paragraph.

SECTION 3

      Any employee who is laid off and who at the moment of the suspension has
one year or more of seniority, shall be entitled to a compensation equivalent to
two (2) weeks of salary plus one (1) week for each year of seniority up to a
maximum of twenty (20) weeks.



SECTION 4

      Any laid-off employee and who at the moment of the suspension has at least
one year or more of seniority shall be included in a list of preferential
employment for a maximum of twelve (12) months.

SECTION 5

      The compensation provided in the preceding Section 3 shall be paid at the
end of the twelve (12) month period indicated in the preceding Section 4. In the
alternative, a laid-off employee may choose to receive the compensation for
lay-off indicated previously at any moment after being the notified the lay-off,
but said employee shall be excluded from the preferential employment list as
soon as he/she receives said compensation.

SECTION 6

      The regular employees who have been laid-off shall be included in a
registry of eligible, utilizing the criterion of seniority and they shall have
the preference provided in Section 4 of the Article regarding Publication,
Adjudication of Positions and Appointments to occupy regular new or vacant
positions within the bargaining unit, as long as the employee is qualified and
capable of fulfilling such position.

SECTION 7

      The Company will supply the Brotherhood a copy of this list of eligible
with the name of the employee, position that he/she used to occupy and the years
of service, in like manner, it will inform the changes on the list, if any.

SECTION 8

      When the possibility of re-employment arises, the Company will get in
touch with the laid-off ex-employee by certified mail and his/her last address,
with copy to the Brotherhood, granting the employee ten (10) working days in
which to accept the position. If he/she were not to accept or answer within the
term, he/she shall lose the right granted in this Article and shall be
eliminated from the corresponding list. If he/she answers within said term
indicating that he/she cannot accept the job due to extraordinary reasons which
in effect make the acceptance of the position being offered impossible and it is
so proven to the Company within said term, the laid-off employee shall not lose
the right to re-employment with regard to any other vacancy that arise later on
in his/her classification within the term of nine (9) months after his/her
lay-off, pursuant to how it is provided further on.

SECTION 9

      The right to re-employment, as provided in this Article, will be
extinguished within nine (9) months after having ceased as a Company employee,
except that he/she does not accept or does not answer a letter offering a
vacancy, pursuant to what is provided in the previous section. If positions are
to be frozen during this period, the right will be extended for a period of time
equal to that of the freeze.



                                   ARTICLE 20

                                RECLASSIFICATION

SECTION 1

      When the Brotherhood considers that a position has had functions or duties
of a superior position assigned to it or that its duties and functions have
evolved in a substantial and permanent manner toward a position of a superior
level or that functions and duties of greater complexity have been assigned to
it, the President or in his/her absence, the authorized Representative, shall
submit a petition for reclassification in writing to the Director of the
Department of Labor and Employee Affairs indicating the criteria and reasons
justifying the petition.

SECTION 2

      No reclassification petitions shall be accepted for positions which are
not at the maximum salary level of their class shall be accepted, if this class
is made up of progression levels.

SECTION 3

      The assignment of additional duties or functions of equal, similar or
lesser complexity and/or the increase in the volume of work shall not imply a
reclassification.

SECTION 4

      The Director of the Department of Labor and Employee Affairs will notify
the President of the Brotherhood about the Company's position about the petition
for reclassification within a period of ninety (90) days from the receipt of the
same. If it were determined that a position must be reclassified, its
reclassification shall be effective as of the date of the written notice sent by
the Company to the Brotherhood.

SECTION 5

      No petitions for reclassification of positions from the Bargaining Unit
shall be accepted if within the last three (3) years, a petition regarding the
same position has been filed.

SECTION 6

      In the event that an employee is reclassified, he/she shall be entitled to
receive 4% of salary increase for the next salary level to which he/she is
reclassified. Example: 10-11.

      If the reclassification includes more than one salary level, he/she may
receive 4% for the first salary level to which he is reclassified and 2%
increase for each additional level of increase. Example: 10-12 = 6% Total Salary
increase.

      If after the corresponding percentage increase is granted and the employee
remains under the minimum of the level to which he is reclassified, his salary
will be increased to the minimum of the scale.

                                   ARTICLE 21

                                 PERSONNEL FILES

SECTION 1

      The official file for each employee is the file in possession of the
Company under the custody of the Records Division. The imposed notices,
reprimands, warnings or disciplinary actions which do not appear in the official
file, may not be utilized for any purpose.



SECTION 2

                  Any employee may review his personnel file, previous petition
and coordination with his immediate supervisor.

SECTION 3

         The Company agrees in presenting the official personnel file when the
employee has pending hearing a grievance in the third stage of the Grievance
Procedure and the employee has previously requested in writing its presentation
and that the employee understands that in the official file there appear charges
which are not in agreement with the facts. The President or the member of the
Executive Committee may examine the employee file in the third stage of the
Grievance Procedure if the employee so allows it and is present.

SECTION 4

         In addition, the Company agrees in presenting the personnel file to all
union members whose petition for promotion, transfer or change to a position of
an inferior salary level has been denied and he/she requests in writing to
examine his/her file and has a grievance in the third stage regarding his/her
promotion, transfer or change to a position with an inferior salary level
pending.

SECTION 5

         When in the employee's file, after its presentation, there appear
charges or documents which do not adjust themselves to the real fact, the
Company, after investigating the facts, agrees to withdraw the documents
presented and/or correct them if it were necessary.

SECTION 6

         The Company shall send the Brotherhood and deliver to the corresponding
Delegate a copy of all disciplinary actions that are notified in writing to an
employee included in the Bargaining Unit. The Company shall send the Brotherhood
a copy of all personnel movement duly approved and relating to employees from
the Bargaining Unit.

SECTION 7

         The Company will not supply any person or entity different from it,
information which arises from the personnel file of the employee, without
his/her written authorization, unless there is a judicial order, in which case
they will be notified previously. When there is a judicial or legal mandate, the
employee will be notified simultaneously with regard to the handing over of the
document, unless the judicial order or the law expressly forbids it.

SECTION 8

         The employee will be entitled to be supplied a copy of all documents
that are placed in his/her personnel file containing information regarding
his/her person.

                                   ARTICLE 22
                           WORK OF THE BARGAINING UNIT

SECTION 1

      The Company agrees that the personnel employed in the capacity of
supervisor or non-supervisor which are not included within the Bargaining Unit,
will not perform work assigned to employees within the Bargaining Unit, except
in cases of emergency and/or circumstances when employees from the Bargaining
Unit, as it is defined in this Agreement, are not available. None of what has
been previously stated shall



limit the normal function of the management to instruct, train and direct the
work of employees within the Bargaining Unit.

SECTION 2

      For effects of this article "emergency cases" shall mean cases of Acts of
God such as:

      a.    National Emergency

      b.    Hurricanes

      c.    Fires

      d.    Floods

      e.    Earthquakes

      f. Cases of major breakdowns where the number of employees available is
not sufficient and/or when they have not been able to correct it.

SECTION 3

      For the purpose of this Article the concept "when employees from the
Bargaining Unit are not available", shall signify circumstances such as the ones
in which:

      a. There is a requirement to work overtime and the personnel from the
Bargaining Unit, of the required classification, is not available to work
overtime.

      b. When work has accumulated in an abnormal fashion and the available
personnel from the Bargaining Unit is not sufficient to cover the needs of the
service. This circumstance may not justify performing work of the appropriate
unit with personnel that is not from the Unit in a specific place or
classification for more than one hundred and eighty (180) days.

      c. When due to the absence of personnel from the Bargaining Unit, the
service is affected, requiring other personnel to perform the work.

      When the situations being considered in paragraphs b and c arise, the
Company will exhaust the resource of bringing available personnel from the
Bargaining Unit of the same classification from other work centers of the
Company belonging to the same department and located in the same geographical
area where the need exists, as long as the operation of these other work centers
is not affected.

      During the course of time of the process of exhausting the resource of
bringing personnel from the Bargaining Unit, the Company may take the necessary
measures so that service will not be interrupted as long as the instrument of
these measures do not annul the purpose stated in the preceding paragraph.

      It being understood, however, that the previous provision shall apply
solely and exclusively when the situation being considered in paragraphs b. and
c. are due to or are the direct consequence of the normal outcome of the
services rendered by the Company. Under no circumstances shall it apply when the
situations being considered in paragraphs b. and c. are the direct or indirect
result of actions from personnel from the Bargaining Unit geared toward
producing an abnormal accumulation of work: such as slowdowns, abnormal or
agreed upon absences of personnel from the Bargaining Unit of the Company or any
action of



the ones stated in the Non-Strike and Non-Lockout Article of the Collective
Bargaining Agreement and/or disciplinary actions taken as a result of the
aforementioned conduct.

      The personnel from the contracting unit shall perform the duties
corresponding to it when the exceptions indicated in this Article arise.

      The intention of the parties in this Agreement is to prevent managerial
personnel from displacing personnel from the Bargaining Unit in their regular
work and in working overtime and at no time whatsoever forbidding that the
operations be carried out in a normal fashion as a public service enterprise.

      This agreement does not have the intention of allowing the supervisors to
perform work of the Bargaining Unit at all time.

SECTION 4

      The Company agrees that it shall not assign supervision, executive,
managerial or confidential work to employees who belong to and are included in
the Bargaining Unit.

         Both parties recognize that it is indispensable that the Company may be
able to provide a fast and efficient service that adequately responds to the
requirements and needs of the customers in order to compete and be successful to
maintain job security. Accordingly to the aforementioned, the accelerate
technology evolution and the nature of the market, the Company may assign
dispatch functions, tests functions and Special Facilities Installer and
Maintenance Transmission Equipment Technician functions from this Bargaining
Unit to other Bargaining Unit. The assignment of shared work from this
Bargaining Unit to members of the other Bargaining Unit of the Company will not
be used to lay off or transfer HIETEL employees in classifications with the
above mentioned functions, nor those HIETEL classifications and positions will
be converted to classifications and positions of the other Bargaining Unit, nor
those classifications and positions be eliminated.

      The Company may assign work from other bargaining units to the employees
covered by this Collective Bargaining Agreement in all those situations and
circumstances which are not expressly forbidden and/or which are allowed in the
Collective Bargaining Agreements applicable to said other bargaining units. In
situations of scheduled official activities from said other bargaining units,
the employees included in this unit will not be bound to perform the work of
said other bargaining units, but they will not be able to refuse to perform the
work of their own Unit.

                                   ARTICLE 23
                                HEALTH AND SAFETY

SECTION 1

      The Brotherhood and the Company agree that the safety conditions at work
are the responsibility of the employees and the Company.

      The Company agrees to provide safe work conditions and methods and to
eliminate unsafe work situations, in regard to which the Brotherhood agrees to
cooperate with the Company.

SECTION 2

      The employees must comply with and follow the safety norms established by
the Company, by the laws and/or by the regulations.



      The Company's requirement which requires that the employee carry
identification card with them in a visible place, accrediting them as employees,
shall be complied with by all the personnel, the cost of the identification card
shall be paid for by the Company.

SECTION 3

      Any employee who suffers a work accident or who becomes ill during working
hours and that his/her injury or illness results in an emergency case where
immediate medical or hospitalization services are required, shall be entitled,
after receiving the authorization of a supervisor, to have any Company vehicle
that is available be utilized for his/her transportation and such vehicle may be
driven by any person authorized to drive motor vehicles if the driver in charge
of the vehicle is not available or accessible at the time of the accident.

SECTION 4

      The Company shall provide and maintain adequate sanitary facilities, as
well as drinking water and the Brotherhood shall promote the adequate use of
said facilities.

SECTION 5

      The Company shall provide the Brotherhood with a copy of all the periodic
reports that it submits to any government agency with regard to occupational
accidents.

SECTION 6

      The Company shall comply with all the applicable provisions of federal and
local laws and regulations of Puerto Rico administrated by the Department of
Health or the Department of Labor and Human Resources with regard to work and
safety facilities and conditions.

SECTION 7

      In those cases in which the Company determines to establish new work
centers, the Brotherhood shall be notified within thirty (30) days of prior
notice when fifty (50) or more employees are required to work in the work center
and fifteen (15) days prior notice when there are less than fifty (50)
employees, for the purpose of it having the opportunity to examine the same
before beginning operations in said centers and may express its observations and
recommendations. In special cases, the Company and the Brotherhood will reach an
agreement to establish the inspection within a lesser period of time.

SECTION 8

      The Company, through its Accident Prevention Division, agrees to provide
the Brotherhood with the work accident reports and studies performed by any
laboratory on or before thirty (30) calendar days following the accident.

                                   ARTICLE 24
                              DRUG TESTING PROGRAM

SECTION 1

      The Brotherhood and the Company recognize that the use and abuse of
controlled substances is an alarming problem in the country and affects the
working force negatively. The Brotherhood, worried about the health and safety
of its members, recognizes the risk to which its employees may be exposed due to
the use and abuse of controlled substances.



SECTION 2

      The Company, aware of its responsibility to protect the health and safety
of its employees and clients, as well as of its responsibility to watch out for
the productivity and efficient performance of the services that its employees
render the People, wishes to state its concern with regard to the problem that
the use and abuse of drugs by the employees represents.

SECTION 3

      For such reason, in order to maintain a work environment free of the
problems associated with the use and abuse of controlled substances and to
protect the health and safety of the employees covered in this Bargaining Unit,
the parties, after a careful and conscious analysis of all the elements involved
in this problem, voluntarily and in free exercise of their contractual
faculties, pursuant to law, agree that the Company may adopt a Drug Testing
Program for the employees in accordance to Act #59 of August 8, 1997. The
guiding criteria of the Program shall be:

      -     The protection of the confidentiality, civil and constitutional
            rights of the employees.

      -     Non-discrimination against the employee.

      -     The identification of drug users for the purpose of providing the
            employees the opportunity for treatment and rehabilitation in
            conformity to the law, the Controlled Substance Use Detection
            Program for the Company Employees and the Company's program for
            internal or external aid to the employee.

                                   ARTICLE 25
                                 BULLETIN BOARD

SECTION 1

         The Company will allow the Brotherhood the use of bulletin boards in
places to be determined by a mutual agreement between the parties.

         In these bulletin boards, notices regarding the following matters shall
be posted:

         a.       Summons to meetings, which shall limit themselves to
                  specifying the place, time and date of said activities.

         b.       Appointment of officers, committees and delegates.

         c.       Results of negotiations, elections and matters, which
                  constitute common projects between the Company and the
                  Brotherhood.

         d.       Social, union, recreational, educational or cultural
                  activities.

SECTION 2

         The installation and cost of these bulletin boards shall be paid for by
the Company.

SECTION 3

         It is agreed that the notices which are posted will not contain
political, or religious material or material which tends to slander, defame or
affect the image of the Company or its officers.

         The Company will not allow to post notices which are contrary to and in
violation of this clause.



                                   ARTICLE 26

                              WORK DAY AND OVERTIME

SECTION 1

      To the effect of this Agreement, for the purpose of calculating overtime,
the work week shall consist of forty (40) and the daily work day shall consist
of eight (8) hours. The work week shall consist of five (5) consecutive days.

SECTION 2

      No employee shall work overtime without first having received
authorization from his/her immediate Supervisor or from his/her immediate
superiors. When the company determines that the needs of the service require
working overtime, it may request from any employee that he/she work overtime and
the employee will work it, unless he/she can show that he/she has just cause for
not working said overtime.

SECTION 3

      The Company shall assign the overtime work without privileges. As long as
it is operationally possible and the demands of the service so allow it, the
employees who request it voluntarily shall be taken into consideration.

SECTION 4

      The overtime that the Company requires to be worked in excess of the forty
(40) hours per week shall be paid for at the rate of time double the rate paid
for regular hours of work. The hours that the Company requires be worked in
excess of eight (8) hours per day, shall be paid at the rate of double the rate
per hour paid for regular hours.

SECTION 5

      When an employee is required to work outside of the place where he/she
resides, the time during which the employee is not really working, such as, but
without this being understood as a limitation, the time for meals, sleeping,
etc. shall not be considered as time worked.

SECTION 6

      The employees covered by this Agreement may enjoy a fifteen (15) minute
rest during the course of each four (4) hour period of work as long as the
service is not affected and the emergencies are handled. The Company will
program the manner in which the employees will enjoy this rest period.

SECTION 7

      All employees are entitled to enjoy one (1) hour for meals, which they
must begin to enjoy not before the end of the third hour nor after the end of
the fifth hour of their regular work shift of daily work. The time worked during
the period destined for the consumption of meals shall be compensated at the
rate at twice (2) the rate per hour of regular work.

SECTION 8

      For the convenience of the employees covered by this Agreement, in the
case of the meal consumption periods that take place outside of the employee's
regular work day, said period shall be obviated (shall not be enjoyed) subject
to not having work performed more than two (2) hours after the regular work day.
This Agreement does not have the effect of eliminating an employee's right to
enjoy his/her meal hour when at any given time he/she has worked more than two
(2) hours after his/her regular



work day. If this situation were to arise and the employee does not enjoy his
/her meal consumption period, the Company is bound to pay the penalty which the
law provides for that particular hour.

SECTION 9

      The provisions contained in this Article shall apply only to those
employees of the Company covered by this Agreement who are not exempt or who may
not be exempt in the future by any law, regulation, decree or any other
provision referring to the payment of additional compensation for extra hours of
work. Notwithstanding, the exempt employees covered by this Agreement may
receive payment under this Article on the basis of time and a half subject to
the procedure of supplementary compensation for exempt employees which is in
effect. (P-FI-011 June 30, 1995) The Company will not make any changes to this
departmental procedure during the duration of this agreement.

                                   ARTICLE 27
                                   PART TIMER

SECTION 1

      The Company may recruit part time employees (whom will not work less than
20 hours a week not more than 26 hours a week).

      The schedule of monthly hours will be distributed equitably using
seniority as criteria and will be notified with ten (10) days in advance. The
regular part timers employees will be recruited as Sales Consultant and Customer
Service Coordinators (ACD) and Customer Service Coordinators in Financial
Services Division in the Sections of In Bound and Hot Line, Operational Support
Technician I (1283027), Information Systems Support Technician I (1083025),
Customer Service Consultant I (1084004), Whole Sales Coordinator I (1085025),
Whole Sales Accounts Specialist I (1282046), Customer Services Technical Adviser
I (1383013), and Wireline Service Coordinator I (1282023). The benefits and
dispositions included in this contract will apply in proportion to the hours
worked: Vacations, Sick Leave, Extended Sick Leave, Occupational Sick Leave and
Economic Aid for Studies.

      Section 1 and 2 of the Article 51 - Publication of Work Shifts and the
last sentence of Section 1 of Article 26 - Workday and Overtime, will not apply
to regular part time employees.

      The disposition in Article 12 - Probationary Period will apply to these
employees.

SECTION 2

      The implementation of the above mentioned disposition will be prospective
in such a way that sales operations and customer service will not have more than
forty five percent (45%) of its Sales Consultant Positions, and Costumer
Services positions from ACD, Operational Support Technician I (1283027),
Information Systems Support Technician I (1083025), Customer Service Consultant
I (1084004), Wholesales Coordinator I (1085025), Wholesales Accounts Specialist
I (1282046), Customer Services Technical Adviser I (1383013), and Wireline
Service Coordinator I (128203), as part timers except the Financial Services
Division, Sections In Bound and Hot Line which not have more than forty five
percent (45%) of the total positions in said sections.

      This procedure will be implemented gradually. The use of part timers will
not have the effect of replacing regular employee's full timers, nor affect in
any way the benefits of regular full time employees.



                                   ARTICLE 28
                                 VACATION LEAVE

SECTION 1

      The personnel from the Bargaining Unit shall enjoy the vacation leave in
the following manner:

      a. Those employees who have less than three (3) years of employment shall
enjoy vacation leave during the effective period of this Agreement at the rate
of one and two thirds (1 2/3) working days for each month of work.

      b. Those employees who have three (3) years or more of employment but less
than seven (7), shall enjoy vacation leave during the effective period of this
Agreement at the rate of one and five sixths (1 5/6) working days for each month
of work.

      c. Those employees who have seven (7) years or more but less than ten (10)
years, shall enjoy vacation leave during the effective period of this Agreement
at the rate of two and one sixth working days (2 1/6) for each month of work.

      d. Employees who have ten (10) years or more shall enjoy vacation leave
during the effective period of this Agreement, at the rate of two and a half (2
1/2) working days for each month of work.

      To be entitled to enjoy the days of vacation leave during the working
month, the employee must have worked at least one hundred (100) hours of labor
in said month. The employee who works less than one hundred (100) hours in any
month shall enjoy vacation leave in the proportion that the number of hours
which the employee in fact worked in that month is to one hundred (100) hours;
for example: if an employee who is entitled to enjoy vacation leave under clause
b of this Section works seventy-five (75) hours in a particular month, the
employee shall be entitled to enjoy in that month seventy-five percent (75%) of
(1 5/6) days on the basis of one working day of eight (8) hours, ten percent
point nine (10.99) rounded to eleven (11) hours of vacation leave in that month.
At the beginning of the enjoyment of his/her vacation leave, the employee will
receive the equivalent to the hours accrued on the basis of the applicable
aforementioned formula by multiplying the regular basic rate of pay by employee
hour.

SECTION 2

      The vacation leave will be taken during the period of twelve (12) months
following the date of the anniversary of entry of the employee. It being
provided that if at the end of said period of twelve (12) month it has not been
possible to grant the employee the vacation leave that he/she should have
enjoyed during the same, these shall be paid to him/her at double the regular
rate per hour, and that vacation leave which was accrued during said twelve (12)
month period shall begin to be enjoyed at the time when the afore mentioned
vacation leave is paid. If the enjoyment or continuation of enjoyment of a
license will provoke that the employee can not take the programmed vacations
within said period of twelve (12) months, the employee will take the programmed
vacations that will be overdue and then enjoy or continue to enjoy the other
license. When an employee once programmed its regular vacations they are
suspended due to service needs and are not reprogrammed with the employee and he
(the employee) benefits from any other license and due to this the vacations
become overdue, this will not be attributable to the employee and they will be
paid double the rate per hour. The provisions contained in this Section shall
apply solely to those employees of the Company covered by this agreement who are
not exempt or who may not be exempt in the future by any other law, regulation,
decree, or any other provision whatsoever referring to the payment of additional
compensation for extra hour of work.



SECTION 3

      The Company shall determine the dates when the annual vacation leave
period that it will grant each employee is to begin and end, taking care in the
first instance of the Company's operational needs. However, any observation made
by the employee with regard to the date of his/her preference for taking his/her
vacation leave shall be taken into consideration if this is possible. If being
provided that if there are two or more interests of employees in conflict with
regard to the date for taking vacation leave, the employee with the greater
seniority shall have preference. The Company may close part of its operations
during the period of December 24 to 31 and charge this time to vacations. If the
employee does not have sufficient accrued vacations the time will be advanced.
Also, the time will be advanced if the Christmas closing provokes he does not
have sufficient accrued vacations to cover the ones already programmed.

SECTION 4

      All employees will be entitled to receive the equivalent of the vacation
leave that they have accrued as of the date of their resignation or separation
from employment in cash.

SECTION 5

      The employee who is enjoying vacation leave will not be called to work
until he/she has finished said vacation leave, except in an emergency case when
they may have to be interrupted due to service needs. Upon finishing the work
for which he/she was called, the employee shall enjoy the vacation leave which
he/she still has remaining, including the days when he/she was called back to
work.

SECTION 6

      The period of time in which the employee covered by this Collective
Bargaining Agreement is enjoying Sick Leave or Vacation Leave shall count, for
purposes of this Article only as hours worked, once he/she has returned to work.

SECTION 7

      When an employee is enjoying annual vacation leave and becomes ill for a
period of two (2) or more consecutive working days, it must be charged to sick
leave, if the employee requests it as long and as he/she presents medical
evidence, in conformity with Article 29, Section 5, (Sick Leave), that he/she is
ill, in which case the employee upon ending his/her illness shall continue the
vacation leave for a period equivalent to the balance of his/her authorized and
unused vacation leave.

SECTION 8

      At the petition of the employee the Company may schedule the annual
vacation leave in two (2) separate periods within the same year in which the
employee is entitle to enjoy the same.

SECTION 9

      The employee may request through written petition the payment in cash of
his/her accrued vacation leave in excess of the maximum number of days of
vacation leave established by law. The granting of this request shall require an
agreement between the Company, the employee and the sindical representative. To
create a bridge between a holyday (as defined in this Agreement) and a weekend,
the Company may close part of its operations and charge those days to vacation
leave. In case the employee does not have sufficient accrued vacations, the time
will be advanced. Also the time will be advanced if the closing provokes he does
not have sufficient vacations to cover the ones already programmed.



                                   ARTICLE 29

                                   SICK LEAVE

SECTION 1

      The employees covered by this Agreement shall accrue Sick Leave at the
rate of one and a half (1 1/2) working days for each month in which they have
worked at least one hundred (100) hours of labor. Those employees who work less
than one hundred (100) hours in the month will accrue Sick Leave in the
proportion that the number of hours that they worked in the month is to one
hundred (100) hours; in other words, if they work seventy-five (75) hours in the
month, they shall accrue seventy-five percent (75%) of one and a half (1 1/2)
working days on the basis of one day of work of eight (8) hours, in other words,
nine (9) hours of work.

      The period of time in which the employee covered by this Collective
Bargaining Agreement is enjoying Sick Leave or Vacation Leave shall count for
purposes of this Article only as hours worked once the employee returns to work.

SECTION 2

      The Sick Leave unused by the employee during the course of the year shall
be accrued for the successive years up to a maximum of seventy-five (75) days.
On the date of retirement under the benefits of the Company's Pension Plan or
disability determined by the Social Security, the employee shall be paid for the
days of Sick Leave which have accrued up to a maximum of seventy-five (75) days.
This benefit shall be calculated multiplying by eight (8) the regular basic rate
of pay per hour that the employee was receiving at the time of his/her
retirement or disability.

SECTION 3

      The Sick Leave accrued in excess of seventy-five (75) days shall be
liquidated after six (6) months have elapsed since the signing of the Agreement.
The Company will begin to pay the excess of Sick Leave to which the employee is
entitled, within a period of eight (8) weeks from the date of the annual
anniversary of Vacation Leaves, calculating by eight (8) the regular basic rate
of pay per hour which the employee is receiving, at the rate of fifty percent
(50%) during the first two year of the agreement and fifty five (55%) the third
year.

SECTION 4

      In the event of having to be absent from work for whatever reason, the
employee must let his/her immediate Supervisor know about it during the first
twenty four (24) hours of absence.

SECTION 5

      The employee who is absent due to illness in excess of two (2) days must
present to his/her Supervisor upon returning to his/her work a Medical
Certificate in which the date of the consultation to the physician, the
diagnosis and the estimate made by the physician of the days he/she must be out
of work must be specified. In the event that the employee continues ill for a
period greater than three (3) days or more, the employee must make said
certificate reach his/her Supervisor within the first three (3) days of absence
from his/her job, except in the cases of Acts of God when said certificate must
be sent to the Supervisor as soon as possible. The employee shall receive pay
for the benefits provided in this Article only when he/she complies with what is
provided in this Section.



SECTION  6

         The Company shall inform the employees the balance of days accrued for
Sick Leave on an annual basis.

                                   ARTICLE 30
                                   SICK LEAVE

SECTION 1

      The employees covered by this Agreement shall accrue Sick Leave at the
rate of one and a half (1 1/2) working days for each month in which they have
worked at least one hundred (100) hours of labor. Those employees who work less
than one hundred (100) hours in the month will accrue Sick Leave in the
proportion that the number of hours that they worked in the month is to one
hundred (100) hours; in other words, if they work seventy-five (75) hours in the
month, they shall accrue seventy-five percent (75%) of one and a half (1 1/2)
working days on the basis of one day of work of eight (8) hours, in other words,
nine (9) hours of work.

      The period of time in which the employee covered by this Collective
Bargaining Agreement is enjoying Sick Leave or Vacation Leave shall count for
purposes of this Article only as hours worked once the employee returns to work.

SECTION 2

      The Sick Leave unused by the employee during the course of the year shall
be accrued for the successive years up to a maximum of seventy-five (75) days.
On the date of retirement under the benefits of the Company's Pension Plan or
disability determined by the Social Security, the employee shall be paid for the
days of Sick Leave which have accrued up to a maximum of seventy-five (75) days.
This benefit shall be calculated multiplying by eight (8) the regular basic rate
of pay per hour that the employee was receiving at the time of his/her
retirement or disability.

SECTION 3

      The Company will begin to pay the excess of Sick Leave to which the
employee is entitled, within a period of eight (8) weeks from the date of the
annual anniversary of Vacation Leaves, calculating by eight (8) the regular
basic rate of pay per hour which the employee is receiving, at the rate of fifty
five percent(55%) during the first two year of the agreement, sixty percent
(60%) during the third year, sixty five percent (65%) during the fourth year and
seventy five percent (75%) during the fifth year.

SECTION 4

      In the event of having to be absent from work for whatever reason, the
employee must let his/her immediate Supervisor know about it during his work
shift.

SECTION 5

      The employee who is absent due to illness in excess of two (2) days must
present to his/her Supervisor upon returning to his/her work a Medical
Certificate in which the date of the consultation to the physician, the
diagnosis and the estimate made by the physician of the days he/she must be out
of work must be specified. In the event that the employee continues ill for a
period greater than three (3) days or more, the employee must make said
certificate reach his/her Supervisor within the first three (3) days of absence
from his/her job, except in the cases of Acts of God when said certificate must
be sent to the Supervisor as soon as possible. If the Medical Certificate is not
original, the employee will submit the Medical Certificate in original upon
returning to work. The employee shall receive pay for the benefits provided in
this Article only when he/she complies with what is provided in this Section.



SECTION 6

      The Company shall inform the employees the balance of days accrued for
Sick Leave on an annual basis.

                                   ARTICLE 31
                               EXTENDED SICK LEAVE

SECTION 1

      In the event that a regular employee is absent for a consecutive period
greater than five (5) working days due to reasons of illness verified by means
of a Medical Certificate which complies with the requirements provided in the
Article regarding Sick Leave, the employee will receive benefits at the rate of
one (1) week at full salary and three (3) weeks at half (1/2) salary for each
year of service up to a maximum of eleven (11) weeks at full salary and
thirty-nine (39) weeks at half (1/2) salary. In the event that the benefit under
the Non-Occupational Disability Insurance Act (Act 139) were to turn out to be
greater than the ones established herein, only the ones which are greater shall
be granted.

      If the employee were not discharged after the aforementioned weeks have
elapsed and at his/her written petition, a Leave Without Pay shall be approved
for the purposes of holding his/her job until completing a maximum of fifty-two
(52) weeks, the employee may be reinstated to his/her job, as long as he/she
complies with the terms and conditions which the law establishes, among other
requirements, that he/she has to have been discharged and be physically and
mentally qualified to exercise the functions of his/her job.

SECTION 2

      The Company reserves itself the right to examine by physicians chosen by
it, those cases which it deems necessary; the expense for these examinations
shall be paid for by the Company.

SECTION 3

      All accidents and/or illnesses of an occupational nature are excluded from
the benefit provided in Section 1 of this Article.

SECTION 4

      The first five (5) consecutive working days of absence prior to the
enjoyment of prolonged sick leave shall be charged to regular sick leave that
the employee has have accrued. The Brotherhood members who request this benefit
may use the sick leave and vacations before enjoyment of the prolonged sick
leave.

SECTION 5

      To be entitled to the accrual of the benefit considered in Section 1 of
this Article during successive periods of illness, the employee must perform
his/her functions without any interruption whatsoever during a thirteen (13)
week period, between one illness and another.

         For the purpose of this section, the following shall not be considered
to be interrupting events: periods for Maternity Leave; Funeral Leave; Sports
Leave; Jury Duty Leave and Military Leave.



                                   ARTICLE 32
                                 MATERNITY LEAVE

SECTION 1

      Any employee in a state of pregnancy shall be entitled to a rest period of
four (4) weeks before and four (4) weeks after the birth, with full pay at the
rate of her regular salary.

SECTION 2

      The employee may choose to take up to one week of pre natal rest and
extend up to seven (7) weeks the post natal rest to which she is entitled as
long as she presents her Supervisor with a medical certificate crediting that
she is in condition to work up to one week before the delivery.

SECTION 3

      If an employee were to suffer a complication after the birth that
prevented her from working for a term exceeding four (4) weeks, to be counted
from the day of the delivery, the Company will grant an additional rest period
for a term which shall not exceed fifteen (15) additional weeks without pay, as
long as before the expiration of the rest period she presents a medical
certificate crediting such complication. It been provided that the employee may
charge the fifteen (15) weeks to her vacations, sick leave or extended sick
leave.

SECTION 4

         The employee that adopts a child younger than seven (7 ) years shall
have the same benefits (maternity leave) as any other employee has for natural
births after presenting legal documentation proving that the adoption process
was completed.

SECTION 5

      With one (1) month of anticipation before the beginning of the leave, the
employee shall present the Company with a medical certification crediting her
condition and indicating the probable date of delivery, or in the case of
adoption the presenting of documents of the date of adoption. Upon complying
with this requirement, the employee shall receive the corresponding pay in
accordance to the provided in Section 1, in advance at the moment that she
begins to enjoy this leave.

SECTION 6

      The employee who suffers a miscarriage shall be entitled and may claim the
same benefits enjoyed by the employee who has a normal delivery. However, to
receive such benefits, the miscarriage must be one of such nature that it
produces the same physiological effect that regularly arise as a result of the
delivery, in accordance to the decree and certification of the physician taking
care of her during the miscarriage. Said benefit shall be from the miscarriage
onward.

SECTION 7

      The employee and her supervisor will coordinate the use of the facilities
and or refrigerators if said refrigerators are necessary and that are available
in the employees work center so that she could extract and preserve the milk.
The employee must be responsible of the adequate use of the stored milk and the
Company's equipment to be used by her for such use. The employee must present
medical evidence that shows that she is lactating. The employee will have five
(5) additional minutes per break for a term of fifteen (15) labor days for the
extraction of the milk.



SECTION 8

         The absences motivated by this leave will not be considered to the
effect of absenteeism in the performance evaluation.

SECTION 9

         The use and enjoyment of this leave will not cause loss of seniority.

                                   ARTICLE 33
                                 MATERNITY LEAVE

SECTION 1

      Any employee in a state of pregnancy shall be entitled to a rest period of
four (4) weeks before and four (4) weeks after the birth, with full pay at the
rate of her regular salary.

SECTION 2

      The employee may choose to take up to one week of pre natal rest and
extend up to seven (7) weeks the post natal rest to which she is entitled as
long as she presents her Supervisor with a medical certificate crediting that
she is in condition to work up to one week before the delivery.

SECTION 3

      If an employee were to suffer a complication after the birth that
prevented her from working for a term exceeding four (4) weeks, to be counted
from the day of the delivery, the Company will grant an additional rest period
for a term which shall not exceed fifteen (15) additional weeks without pay, as
long as before the expiration of the rest period she presents a medical
certificate crediting such complication. It been provided that the employee may
charge the fifteen (15) weeks to her vacations, sick leave or extended sick
leave.

SECTION 4

      The employee that adopts a child younger than seven (7) years shall have
the same benefits (maternity leave) as any other employee has for natural births
after presenting legal documentation proving that the adoption process was
completed.

SECTION 5

      With one (1) month of anticipation before the beginning of the leave, the
employee shall present the Company with a medical certification crediting her
condition and indicating the probable date of delivery, or in the case of
adoption the presenting of documents of the date of adoption. Upon complying
with this requirement, the employee shall receive the corresponding pay in
accordance to the provided in Section 1, in advance at the moment that she
begins to enjoy this leave.

SECTION 6

      The employee who suffers a miscarriage shall be entitled and may claim the
same benefits enjoyed by the employee who has a normal delivery. However, to
receive such benefits, the miscarriage must be one of



such nature that it produces the same physiological effect that regularly arise
as a result of the delivery, in accordance to the decree and certification of
the physician taking care of her during the miscarriage. Said benefit shall be
from the miscarriage onward.

SECTION 7

      The employee and her supervisor will coordinate the use of the facilities
and or refrigerators if said refrigerators are necessary and that are available
in the employees work center so that she could extract and preserve the milk.
The employee must be responsible of the adequate use of the stored milk and the
Company's equipment to be used by her for such use. The employee must present
medical evidence that shows that she is lactating.

SECTION 8

      The absences motivated by this leave will not be considered to the effect
of absenteeism in the performance evaluation.

SECTION 9

      The use and enjoyment of this leave will not cause loss of seniority.

                                   ARTICLE 34
                                LEAVE WITHOUT PAY
                             FOR BROTHERHOOD AFFAIRS

SECTION 1

         The Company and the Brotherhood shall reach an agreement about the
number of persons and time without pay to be granted to personnel designated by
the Brotherhood for attendance to a convention or other worker activity.

SECTION 2

         The Brotherhood shall notify the immediate supervisor in writing with
copy to the Department of Employee and Labor Affairs with at least five (5)
working days of prior notice to the designated personnel and the probable
duration of the absence.

SECTION 3

         The Brotherhood agrees that, upon making its petition for free time for
Brotherhood activities, it will give the proper consideration to the number of
employees affected for the purpose of there being no interruption to the
Company's operations due to the lack of available personnel.

SECTION 4

         The time that any employee is on leave for Brotherhood affairs shall be
considered as service time purposes of seniority.

         The employee, upon returning to the Company, shall be entitled to the
occupational level and salary corresponding to him/her as if he/she had been
working.



                                   ARTICLE 35
                    LEAVE FOR ADMINISTRATIVE FUNCTIONS OF THE
                         COLLECTIVE BARGAINING AGREEMENT

SECTION 1

         PRT shall grant two (2) Union Leaves with pay and two Union Leaves
without pay to the Brotherhood for those PRT employees that HIETEL assign to
administer the agreement. It being understood that with regard to this leave,
PRT shall only pay the sum of the salaries, minus the corresponding deductions
of law with the HIETEL having to pay the fringe benefits and any other deduction
or contribution. The total Union leaves for both, PRT and CTI will not exceed of
(3) three leaves with pay and (3) three without pay.

SECTION 2

         Union Leave with pay shall be understood to mean that PRT will pay his
net monthly salary to the employee enjoying said Leave, Christmas bonus and the
Company's contribution to the health plan. It being understood that with regard
to the Union Leave with Pay as well as the Union Leave without Pay the benefits
for Sick Leave, Vacation Leave and any other benefits, deductions or
contributions shall be agreed upon internally between said employee and the
Brotherhood, and in no case whatsoever shall they be paid as an additional and
separate compensation from the salary by the Company.

SECTION 3

            These leaves do not imply an obligation of payment for the concept
of per diems, lodging, mileage, transfers, overtime, differentials, assistance
for studies, scholarships and other benefits provided by the Collective
Bargaining Agreement, but the time of service on Union Leave shall be
acknowledged for purposes of retirement and seniority, as if it were time
worked.

SECTION 4

         In the event that any Section of this article were to be declared
invalid or illegal by a Court with jurisdiction, the parties bind themselves to
enter into immediate negotiations for the purpose of agreeing a substitute
provision, mutually satisfactory for such article or section.

                                   ARTICLE 36
                    LEAVE FOR ADMINISTRATIVE FUNCTIONS OF THE
                         COLLECTIVE BARGAINING AGREEMENT

SECTION 1

      PRT shall grant THREE (3) Union Leaves with pay and THREE (3) Union Leaves
without pay to the Brotherhood for those PRT employees that HIETEL assign to
administer the agreement. It being understood that with regard to this leave,
PRT shall only pay the sum of the salaries, minus the



corresponding deductions of law with the HIETEL having to pay the fringe
benefits and any other deduction or contribution. The total Union leaves will
not exceed of (3) three leaves with pay and (3) three without pay.

SECTION 2

      Union Leave with pay shall be understood to mean that PRT will pay his net
monthly salary to the employee enjoying said Leave, Christmas bonus and the
Company's contribution to the health plan. It being understood that with regard
to the Union Leave with Pay as well as the Union Leave without Pay the benefits
for Sick Leave, Vacation Leave and any other benefits, deductions or
contributions shall be agreed upon internally between said employee and the
Brotherhood, and in no case whatsoever shall they be paid as an additional and
separate compensation from the salary by the Company.

SECTION 3

      These leaves do not imply an obligation of payment for the concept of per
diems, lodging, mileage, transfers, overtime, differentials, assistance for
studies, scholarships and other benefits provided by the Collective Bargaining
Agreement, but the time of service on Union Leave shall be acknowledged for
purposes of retirement and seniority, as if it were time worked.

SECTION 4

      In the event that any Section of this article were to be declared invalid
or illegal by a Court with jurisdiction, the parties bind themselves to enter
into immediate negotiations for the purpose of agreeing a substitute provision,
mutually satisfactory for such article or section.

                                   ARTICLE 37
                                 MILITARY LEAVE

SECTION 1

         Any regular employee who joins the military service shall enjoy all the
rights provided by Public Act Number 756 of the United States Congress, as this
has been or may be subsequently amended.

SECTION 2

         When a regular employee renders temporary services in the Puerto Rico
National Guard in conformity with the relevant provisions of Act Number 62,
Military Code of June 23, 1969 (Military Code of Puerto Rico) or in the United
States Armed Forces Reserve, pursuant to the Military Code of the United States,
the employee will be entitled to a leave with pay up to a maximum of thirty (30)
days in one natural year to attend the annual exercises.



                                   ARTICLE 38
                                  FUNERAL LEAVE

SECTION 1

      All regular employees shall be entitled to enjoy a Funeral Leave with pay
consisting of three (3) working days from the date of the death of any of
his/her natural parents or foster parents (one excludes the other), of his/her
spouse, of children or of siblings and one day in the event of the death of
grandparents and in-laws.

SECTION 2

      In the event of the death of the natural or foster parents (one excludes
the other), of the spouse, of children and siblings and the burial took place
outside of Puerto Rico, the employee may enjoy a Leave with Salary of up to five
(5) working days from the date of the death to travel to the place of the
burial.

SECTION 3

      In the event that an employee needs additional time, the Company may grant
the same charging it to the Vacation Leave that the employee may have accrued.

SECTION 4

      The Company may require evidence of the death, as well as of the burial
and trip abroad.

                                   ARTICLE 39
                           LEAVE FOR JUDICIAL PURPOSES

SECTION 1

      All regular employees will be entitled to enjoy a paid leave for the time
that may be required by a Court of Justice to serve as a member of a jury.

SECTION 2

      The Company shall pay the regular salary of an employee who is officially
subpoenaed by the district attorney's office or by a Court of Justice to appear
as a witness in a criminal case for all the regular working hours to which said
subpoena prevents the employee from being at his/her job. The employee must
inform his/her immediate Supervisor about said subpoena with at least two (2)
days of prior notice unless he/she has been subpoenaed within a shorter period.
The employee must return to his/her duties as soon as his/her interview with the
District Attorney ends or as soon as the employee is dismissed by the Court. The
employee must present written evidence of the subpoena, as well as of his/her
appearance before the District Attorney and/or the Court.

SECTION 3

      Any employee officially subpoenaed to appear before any Court of Justice,
District Attorney, administrative entity or government agency which is not
covered by the two (2) preceding sections, shall be entitled to enjoy Leave
without Pay for the time which said official subpoenas prevent the employee from
showing up at his/her regular work schedule. The employee may, at his/her
option, charge this time to vacation leave.

SECTION 4

      When an employee is subpoenaed, indicted or accused for the alleged
commission of a crime allegedly committed during his/her work, the days utilized
to appear at Court or at the subpoenas, at the petition of the employee, will be
charged to his/her accrued regular vacation leave and not enjoyed or in their
defect Leave without Pay shall be granted, as long as evidence of the
appearances is presented. It being provided that if the employee is exonerated
or the crime for which the employee is being accused is



filed, such days shall be paid and the time shall be taken into consideration
for all the purposes of law and the Collective Bargaining Agreement as time that
has been worked.

                                   ARTICLE 40
                                    PER DIEMS

SECTION 1

      Per diems shall be understood to mean the expenses for meals and lodging
in which the employees incur when they are required to work outside of the
municipality where their work center is normally located and/or during hours
outside of their regular work day where their work center is normally located.

SECTION 2

      When an employee is required to work in a place outside of the
municipality where his/her work center is normally located for a period not
greater than one day, the Company shall pay the expenses for meal and lodging up
to the amount and under the conditions specified below:

a.    If he/she leaves on or before 6:00 a.m. and returns on or after 8:00 a.m.
      of the same day, $5.00 for breakfast for the first year and $5.50 for the
      rest years of agreement.

b.    If he/she leaves on or after 8:00 a.m. and returns on or after 1:00 p.m.
      of the same day, $8.75 for lunch for the first year and $9.50 for the rest
      years of agreement.

c.    If he/she leaves on or after 1:00 p.m. and returns on or after 6:30 p.m.
      of the same day $10.25 for dinner and $10.50 for the rest years of
      agreement.

d.    If the employee were required to spend the night, the employee shall be
      entitled to $70.00 for lodging without receipt for the life of the
      agreement.

e.    The employees who travel to the Island of Vieques and/or Culebra shall
      receive for the concept of per diem the following amounts:



Breakfast                  Lunch                        Dinner
                                                  
 $5.50                     $9.50                        $10.50


SECTION 3

      In the event that an employee has to work in a place outside of the
municipality where his/her work center is normally located for a period greater
than one day, during which term of time the employee has to have his/her meals
and sleep in said place, the Company will pay the amount of $94.00 daily for the
first year and $95.00 for the rest years of the agreement, an amount which shall
cover all the expenses in which the employee incurs and for which amount the
employee will not have to present a receipt or vouchers. In addition, if he/she
were required to continue working up to after seven (7) hours after the end of
his/her daily work day, they will be paid a per diem for the amount of $9.00 for
the first year and $9.25 for the rest years of the agreement.

SECTION 4

      Expenses shall be reimbursed for the concept of per diems to employees who
are working in the municipality where their work center is normally located
under the following circumstances:



a.    To the employees who work exclusively in the dawn work shifts which are
      the work shifts that regularly end after 12:00 midnight, they shall be
      paid a snack for the amount of $5.00 for the first year and $5.50 for the
      rest years of the agreement.

b.    In the case of employees who work any work day (daily) of eight (8) hours
      and they are required to continue working for 1 1/2 hours, they will be
      paid a per diem for the amount of $8.50 for non-exempt employees and $9.00
      for exempt employees and they will be paid a second per diem if they
      continue working until after seven (7) consecutive hours after the end of
      their daily work shift, for the amount of $ 15.50 for non-exempt employees
      and $17.50 for exempt employees.

c.    In the case of employees required to work the sixth, seventh or holiday in
      the municipality where his/her work center is normally located, they will
      be paid a per diem for the amount of $9.00 if he works 4 hours or more but
      less than 8 hours. If they continue working 8 hours or more they will be
      paid a per diem of $9.25. In addition they will be reimburse for the
      transportation expenses incurred from their work center and back.

      The time in which the employee incurs in the consumption of meals shall
not be considered as time worked and the employee shall not receive pay for said
time.

SECTION 5

      In the event that the employee is required to work outside the
municipality where his/her work center is normally located and during this
period of time holidays occur between two (2) working days, the Company shall
pay per diems and lodgings for said holidays.

      In those situations in which an employee is required to report to work on
Monday at 8:00 a.m. outside of the municipality where his/her work center is
normally located, the Company will pay the lodging of the previous Sunday in
accordance to the terms of this Article, as long as the employee is authorized
to spend the night in a lodging during the previous Sunday.

      In those cases where an employee is required to work outside of the
municipality where his/her work center is normally located and the he/she
becomes ill during this time, the Company will be obligated to pay the per diems
provided in this Article, as long as the employee spends the night in the
lodging in the municipality where he/she is required to work and complies with
the provisions of the Article regarding Sick Leave and never for a period
exceeding two (2) days.

SECTION 6

            Any employee assigned regularly to Bayamon, Levittown and Catano who
is required to work temporarily in Carolina, Isla Verde or Trujillo Alto, and in
like manner, any employee assigned regularly to Carolina, Isla Verde or Trujillo
Alto who is required to work temporarily in Bayamon, Levittown or Catano will be
entitle to the per diem as follows.

      In these cases a per diem of $8.00 for the first year and $8.50 for the
rest years of the agreement, each day that the employee works temporarily shall
be paid up to a maximum period of thirty (30) calendar days. Upon finishing the
temporary assignment, the aforementioned per diem for each day worked shall be
suspended and the employee shall be reassigned to his/her work center of origin
or shall be reassigned regularly to the work center where he/she is found
rendering his/her services temporarily. The Company may extend the temporary
period for an additional period in which case the employee will continue
receiving the per diems of $8.00 for the first year and $8.50 for the rest years
of the agreement until the Company determines that the work that the employee
had been assigned has ended.



SECTION 7

         Any employee who is required by the Company to attend to testify in its
favor at hearings of the Department of Consumer Affairs (DACO),
Telecomunications Regulatory Board and/or any other government, state or federal
agency and/or state or federal court, shall receive the per diems in conformity
to Section 2 of this Article.

SECTION 8

         The payment of per diems, lodging and mileage shall be determined by
the personnel approving it utilizing the following criteria:

         a.       The time that the employee reasonably needs to show up from
                  his residence to the new place of work and return to his/her
                  residence.

         b.       The distance between the employee's municipality or residence
                  to the new work place and return. The approving personnel
                  shall pass judgement when the distances are taken from the
                  employee's residence.

         c.       Need for the employee to show up in optimum conditions of
                  physical and mental rest by the nature of his/her functions.

         d.       The payment of traveling time incidental to the employee's
                  trip.

SECTION 9

         For purposes of this Article, the municipalities comprised in the
Telephone Metropolitan Area will be considered as only one work center, which
are the following: San Juan, Santurce, Hato Rey, Rio Piedras, Pueblo Viejo,
Puerto Nuevo, Caparra, Levittown, Catano, Bayamon, Carolina, Trujillo Alto, Isla
Verde and any other area within those limits.

SECTION 10

         The personnel from the areas of Marketing, Sales, or any personnel
under their supervision, assigned to work during conventions held at hotels for
a duration of more than four hours, may claim the actual expense of lunch and/or
dinner (including the tip) up to a maximum of $30.00 although it takes place in
their municipality of work. A requirement for the reimbursement shall be the
presentation of the receipts of the hotel where the activity is held. In the
cases in which lunch or dinner is provided free of charge the per diem cannot be
charged.

SECTION 11

      In the event that an employee is required to travel outside of Puerto
Rico, the Company pay the following:

      a.    Stipend of $45.00 daily, amount that will cover all expenses of per
            diem incurred by the employee without receipt.

      b.    Reimbursement of lodging expense will be according to invoice
            presented and previously approved.

      c.    Reimbursement of hotel tips and airport tips as follows:

                  -     Bell boy $1.00 per service



                  -     Maid service $2.00 per day

      d.    Reimbursement of the lease of a coat if the trip is during winter
            time. Expenses for scarfs, gloves, socks cap, and undergarments that
            are reasonably needed may be reimburse.

      e.    Reimbursement of the cost of a telephone all up to a maximum of five
            minutes daily.

      f.    Reimbursement of transportation cost incurred from the house to the
            airport and viceversa.

      g.    If public transportation is needed at the training or work site, the
            cost of automobile rent will be reimbursement, if the same is
            cheaper than public transportation.

                                   ARTICLE 41
                                    PER DIEMS

SECTION 1

      Per diems shall be understood to mean the expenses for meals and lodging
in which the employees incur when they are required to work outside of the
municipality where their work center is normally located and/or during hours
outside of their regular work day where their work center is normally located.

SECTION 2

      When an employee is required to work in a place outside of the
municipality where his/her work center is normally located for a period not
greater than one day, the Company shall pay the expenses for meal and lodging up
to the amount and under the conditions specified below:

a.    If he/she leaves on or before 6:00 a.m. and returns on or after 8:00 a.m.
of the same day, $5.00 for breakfast for the first year and $5.50 for the rest
years of agreement.

b.    If he/she leaves on or after 8:00 a.m. and returns on or after 1:00 p.m.
of the same day, $8.75 for lunch for the first year and $9.50 for the rest years
of agreement.

c.    If he/she leaves on or after 1:00 p.m. and returns on or after 6:30 p.m.
of the same day $10.25 for dinner and $10.50 for the rest years of agreement.

d.    If the employee were required to spend the night, the employee shall be
entitled to $70.00 for lodging without receipt for the life of the agreement.

e.    The employees who travel to the Island of Vieques and/or Culebra shall
receive for the concept of per diem the following amounts:



Breakfast              Lunch                  Dinner
                                        
  $5.50                $9.50                  $10.50


SECTION 3

      In the event that an employee has to work in a place outside of the
municipality where his/her work center is normally located for a period greater
than one day, during which term of time the employee has to have his/her meals
and sleep in said place, the Company will pay the amount of $94.00 daily for the
first year and $95.00 for the rest years of the agreement, an amount which shall
cover all the expenses in which the employee incurs and for which amount the
employee will not have to present a receipt or vouchers. In



addition, if he/she were required to continue working up to after seven (7)
hours after the end of his/her daily work day, they will be paid a per diem for
the amount of $9.00 for the first year and $9.25 for the rest years of the
agreement.

SECTION 4

      Expenses shall be reimbursed for the concept of per diems to employees who
are working in the municipality where their work center is normally located
under the following circumstances:

a.    To the employees who work exclusively in the dawn work shifts which are
the work shifts that regularly end after 12:00 midnight, they shall be paid a
snack for the amount of $5.00 for the first year and $5.50 for the rest years of
the agreement.

b.    In the case of employees who work any work day (daily) of eight (8) hours
and they are required to continue working for 1 1/2 hours, they will be paid a
per diem for the amount of $8.50 for non-exempt employees and $9.00 for exempt
employees and they will be paid a second per diem if they continue working until
after seven (7) consecutive hours after the end of their daily work shift, for
the amount of $15.50 for non-exempt employees and $17.50 for exempt employees.

c.    In the case of employees required to work the sixth, seventh or holiday in
the municipality where his/her work center is normally located, they will be
paid a per diem for the amount of $9.00 if he works 4 hours or more but less
than 8 hours. If they continue working 8 hours or more they will be paid a per
diem of $9.25. There will be no pyramidal pay.

      The time in which the employee incurs in the consumption of meals shall
not be considered as time worked and the employee shall not receive pay for said
time.

SECTION 5

      In the event that the employee is required to work outside the
municipality where his/her work center is normally located and during this
period of time holidays occur between two (2) working days, the Company shall
pay per diems and lodgings for said holidays.

      In those situations in which an employee is required to report to work on
Monday at 8:00 a.m. outside of the municipality where his/her work center is
normally located, the Company will pay the lodging of the previous Sunday in
accordance to the terms of this Article, as long as the employee is authorized
to spend the night in a lodging during the previous Sunday.

      In those cases where an employee is required to work outside of the
municipality where his/her work center is normally located and the he/she
becomes ill during this time, the Company will be obligated to pay the per diems
provided in this Article, as long as the employee spends the night in the
lodging in the municipality where he/she is required to work and complies with
the provisions of the Article regarding Sick Leave and never for a period
exceeding two (2) days.

SECTION 6

      Any employee assigned regularly to Bayamon, Levittown and Catano who is
required to work temporarily in Carolina, Isla Verde or Trujillo Alto, and in
like manner, any employee assigned regularly to Carolina, Isla Verde or Trujillo
Alto who is required to work temporarily in Bayamon, Levittown or Catano will be
entitle to the per diem as follows.



      In these cases a per diem of $8.00 for the first year and $8.50 for the
rest years of the agreement, each day that the employee works temporarily shall
be paid up to a maximum period of thirty (30) calendar days. Upon finishing the
temporary assignment, the aforementioned per diem for each day worked shall be
suspended and the employee shall be reassigned to his/her work center of origin
or shall be reassigned regularly to the work center where he/she is found
rendering his/her services temporarily. The Company may extend the temporary
period for an additional period in which case the employee will continue
receiving the per diems of $8.00 for the first year and $8.50 for the rest years
of the agreement until the Company determines that the work that the employee
had been assigned has ended.

SECTION 7

      Any employee who is required by the Company to attend to testify in its
favor at hearings of the Department of Consumer Affairs (DACO),
Telecommunications Regulatory Board and/or any other government, state or
federal agency and/or state or federal court, shall receive the per diems in
conformity to Section 2 of this Article.

SECTION 8

      The payment of per diems, lodging and mileage shall be determined by the
personnel approving it utilizing the following criteria:

      a. The time that the employee reasonably needs to show up from his
residence to the new place of work and return to his/her residence.

      b. The distance between the employee's municipality or residence to the
new work place and return. The approving personnel shall pass judgment when the
distances are taken from the employee's residence.

      c. Need for the employee to show up in optimum conditions of physical and
mental rest by the nature of his/her functions.

      d. The payment of traveling time incidental to the employee's trip.

SECTION 9

      For purposes of this Article, the municipalities comprised in the
Telephone Metropolitan Area will be considered as only one work center, which
are the following: San Juan, Santurce, Hato Rey, Rio Piedras, Pueblo Viejo,
Puerto Nuevo, Caparra, Levittown, Catano, Bayamon, Carolina, Trujillo Alto, Isla
Verde and any other area within those limits.

SECTION 10

      The personnel from the areas of Marketing, Sales, or any personnel under
their supervision, assigned to work during conventions held at hotels for a
duration of more than four hours, may claim the actual expense of lunch and/or
dinner (including the tip) up to a maximum of $30.00 although it takes place in
their municipality of work. A requirement for the reimbursement shall be the
presentation of the receipts of the hotel where the activity is held. In the
cases in which lunch or dinner is provided free of charge the per diem cannot be
charged.

SECTION 11

      In the event that an employee is required to travel outside of Puerto
Rico, the Company pay the following:

      a. Stipend of $45.00 daily, amount that will cover all expenses of per
diem incurred by the employee without receipt.


      b. Reimbursement of lodging expense will be according to invoice presented
and previously approved.

      c. Reimbursement of hotel tips and airport tips as follows:

            -     Bell boy $1.00 per service

            -     Maid service $2.00 per day

      d. Reimbursement of the lease of a coat if the trip is during winter time.
Expenses for scarf's, gloves, socks cap, and undergarments that are reasonably
needed may be reimburse.

      e. Reimbursement of the cost of a telephone all up to a maximum of five
minutes daily.

      f. Reimbursement of transportation cost incurred from the house to the
airport and vice versa.

      g. If public transportation is needed at the training or work site, the
cost of automobile rent will be reimbursement, if the same is cheaper than
public transportation.

SECTION 12

      The Company will retain in its origin all law or by law deductions.

                                   ARTICLE 42
                                 TRANSPORTATION

SECTION 1

      When an employee is required to work at a place outside of where his/her
work center is normally located, the Company, according to what the case may be,
will provide the transportation, will pay in advance or reimburse the
transportation expenses that he/she incurs in, as is provided further ahead.

SECTION 2

      The transportation expenses must be approved and paid by the Company prior
to their being incurred in or shall be reimbursed later on if they cannot be
paid in advance; it being provided that the transportation expenses which an
employee normally spends in going and/or coming (from his/her residence) to
his/her work center will not be considered reimbursable expenses. In addition,
transportation expenses shall not be paid when the transportation is provided by
the Company.

SECTION 3

      The employees authorized to utilize their private vehicles shall be paid
at the rate ($0.41) cents per mile for vehicles with public liability insurance
as included by the Compulsory Insurance and ($0.45) per mile for vehicles with
public liability insurance which includes the following minimum:

            -        Bodily Injury              $25,000 per person

            -        Bodily Injury              $50,000 per occurrence

            -        Private Property Damage    $25,000 per occurrence



      To determine the miles for purposes of claiming the payment, the distance
charts between the towns prepared by the Roads Authority and the one for the
Metropolitan Area prepared by the Company will be used. When the distance charts
cannot be used, the reimbursement system will be utilized and the employee must
report the distance traveled.

SECTION 4

      In all the cases in which an employee is required to use his/her
automobile in official endeavors of his/her job, due to the fact that there is
no fleet vehicle available or belonging to others and physical damages to third
parties that may have arisen as a result of an accident due to the utilization
of said automobile, if the vehicle is no insured. If the vehicle is insured, the
Company will only be liable for the excess of the damages to the property of
others and bodily damages to third parties not covered by the vehicle's
insurance.

SECTION 5

      The employee will have to notify the police immediately and his/her
immediate Supervisor as soon as possible (within 24 hours) and shall remain at
the site of the events until the Police arrives and renders the corresponding
report, except when it is not feasible. The employee will render all the reports
required by the Company including the revised Form 603, as per instructions
imparted.

SECTION 6

      When the Company orders an employee to carry out an official trip due to
the needs of the service or when he/she is assigned to some temporary jobs
outside of his regular work center, it will provide said employee with the means
of transportation from his/her work center, or in its place, will pay in advance
for the transportation expenses for the miles that the employee has to travel on
said official trip or for the ones that the employee has to travel due to the
temporary assignment from his/her regular work center.

      This Section applies only when the employee shows up at his/her regular
work center and is sent to work to another place during the same day.

SECTION 7

      When the Company requires an employee to travel directly from his/her
house to another work center to which the employee has been temporarily
assigned, the Company will pay said employee for the miles of distance existing
between his/her regular work center and the center to which the employee has
been temporarily assigned. The assignments which have been requested by the
employee are excluded from the benefits of this Section.

SECTION 8

      When an employee is required to utilize public transportation, he/she
shall be reimbursed in accordance to the effective rate in the transportation
method utilized. The employee will not be reimbursed on the basis of the rate
for one means when the means utilized is another one. The use of a taxi shall be
authorized by the director of the department or the superior level by means of
written justification and shall be conditioned to the employee's presenting
together with the petition for reimbursement the following information: taxi
license, name of the line and taxi number.



SECTION 9

      To be entitled for payment or reimbursement of any expense provided in
this Article, the employee must complete the form established in the Company for
this purpose.

SECTION 10

      When the Company determines due to the need of service to permanently
transfer an employee from one municipality to another and as a result of said
transfer the employee changes his/her residence to the municipality to which
he/she has been transferred, the Company shall compensate for the following
expenses:

      a. Moving expenses really incurred in which must be previously approved
and justified by a receipt signed by the moving company.

      b. Transportation, per diem and lodging expenses, in conformity with the
terms of this Agreement during the time that the employee has to travel to the
new work area until the employee transfers his/her residence permanently for a
period of up to thirty (30) working days from the effective date of the transfer
onwards. If the employee has not moved within the sixty (60) days following the
transfer, the employee will only be entitled to the benefits provided in Section
11 of this Article and therefore must return what has been collected in excess.

      The exclusions to the benefits of this Section are the permanent transfers
carried out within the limits of the boundaries of San Juan, Santurce, Hato Rey,
Rio Piedras, Pueblo Viejo, Puerto Nuevo and Caparra and any other area within
those boundaries, as well as the transfers carried out at the petition of the
employee.

SECTION 11

      When due to the service need the Company determines to permanently
transfer an employee from one municipality to another and the employee does not
move his/her residence, the employee shall be entitled to receive transportation
expenses and per diems for a period of thirty (30) working days for the miles of
distance in excess, if any, that the employee has to travel between his/her old
regular work center and his/her residence and his/her new regular work center
and his/her residence. This will be measured by road using the closest route.

SECTION 12

      For exclusive purposes of this Article, transfer shall be understood to
mean:

            a. Any permanent change from one municipality to another as long as
the employee continues in his/her same occupational classification.

            b. Each one of the following areas shall be considered as a
municipality:

                  1)    San Juan- Santurce - Isla Verde

                  2)    Hato Rey - Rio Piedras

                  3)    Pueblo Viejo (includes Caparra and Puerto Nuevo)

            c. In addition, the Levittown area will be included in the
municipality of Catano.



SECTION 13

      For exclusive purposes of transfers motivated by relocation of work center
the metropolitan area telephone company shall be considered as one single
municipality including all of the following: San Juan, Santurce, Hato Rey, Rio
Piedras, Guaynabo, Pueblo Viejo, Levittown, Catano, Bayamon, Carolina, Trujillo
Alto, Isla Verde and any other area within these boundaries. However, all
employees regularly assigned to Bayamon, Levittown or Catano who are permanently
transferred to Carolina, Isla Verde or Trujillo Alto or vice versa, shall be
entitled to the mileage for the term provided in this Article.

SECTION 14

      The transfers which occur at the petition of the employee are excluded
from the benefits of this Article.

SECTION 15

      In the event that the Company adopts a mileage payment policy which is
superior to what is established in this Agreement to be applicable to
non-covered employees, said policy shall be applicable to the Bargaining Unit.

SECTION 16

            a. The employees who are assigned to work in a municipality or place
on the Island in which it is proven that there is no adequate lodging and they
are authorized by the Company to lodge in another municipality nearby where
there is adequate lodging, shall be entitled to receive the benefits considered
in this Article relating to the transportation from the authorized lodging to
the assigned work center.

            b. When the employees are assigned to temporarily work outside of
their regular work area in a municipality or place of the Island where they are
required to spend the night in said place, the Company must provide adequate
transportation.

SECTION 17

            The Company will retain in its origin all law or by law deductions.



                                   ARTICLE 43
                                   HEALTH PLAN

SECTION 1

                  During the effective period of this Collective Bargaining
Agreement, the Company binds itself to provide a Health Plan with the same
benefits provided by the Health Plan that was in effect as of the signature of
this Agreement for the employees represented by the Brotherhood. The employee
will select one of the following alternatives offered by the provider of medical
services and will contribute the amounts indicated below on a bi-weekly basis
according to his/her selection.

                                               Contribution during the effective
                                               period of this Collective
                                               Bargaining Agreement

A.    INDIVIDUAL

            1.   Basic (H-MQ-A) + Major                   $ 0.00
                 Medical (M-3) + Dental (D-34)
                 + Pharmacy

B.    Family

            1.   Basic (H-MQ-A) + Major                   $16.39
                 Medical (M-3) + Pharmacy

            2.   Basic (H-MQ-A) + Major                   $24.77
                 Medical (M-3) +  Dental (D-34)
                 + Pharmacy

      In all the aforementioned Pharmacy coverage, if bioequivalent generic
medications are utilized, a deductible of $1.00 shall be applied. If brand name
medications are utilized, these shall have a $3.00 deductible for each one. The
over the counter medications or medications without federal literature
prescribed shall have a deductible at the rate of $3.00 for each one of them.

SECTION 2

      The employee, upon subscribing the petition for application provided by
the company providing the medical services, shall accept the terms and
conditions that this Company has imposed. The Brotherhood and the employee
accept that the terms and conditions of the Health Plan selected are not
negotiable. The employee must remain in the alternative selected until the
anniversary of the Plan occurs, on which date he/she may change from one of the
two alternatives offered under the family coverage, in conformity to the
requirements of eligibility and coverage for dependents, except when any of the
exceptions considered in the Plan occurs.

SECTION 3

      The Company shall maintain in effect the coverage selected while the
employee remains actively employed with the Company. The Company shall cancel
the coverage when the employee, due to any reason, is fired, laid off, resign,
dies or is suspended for thirty (30) days or more. If an arbitrator, reinstall
the employee suspended with back pay and presents evidence of all the medical
expenses incurred, the Company will reimburse the cost of said expenses
according with the term of the Health Plan.



SECTION 4

      The Brotherhood authorizes the deduction for the corresponding
contribution according to the alternative selected by the employee and in
conformity to how it is provided in Section 1 of this Article for each employee
belonging to the Union. Said contribution shall not be altered during the
effective period of this Agreement.

SECTION 5

      To obtain the hospitalization services for conditions of mental health
which are related to the rehabilitation for the use of substances (drugs) and
alcohol through the Health Plan, the employees must request the services of the
Employee Aid Program (EAP) of the Company and obtain a pre-authorization from
them. If they do not request the services and do not obtain the EAP
pre-authorization, is not obtained, the benefits are not be covered and their
payment shall be the responsibility of the employee. This requirement applies to
the employee covered by the Health Plan.

      If the employee were hospitalized and it were determined that it is due to
the use or abuse of substances or alcohol, the subsequent hospitalizations and
ambulatory treatments must also be pre-authorized by the EAP.

SECTION 6

      The Company will concede the benefit of eyeglasses or contact lenses for
the employees and their direct dependents only, up to the maximum amount of one
hundred ($100.00) dollars every year. These services will be reimbursed without
the application of any amount whatsoever toward the cash deductible.

SECTION 7

      The Brotherhood and the employees who are union members agree and commit
themselves to the adequate use of the Health.

SECTION 8

      The Company may modify the effective Medical Health Plan at the
termination of the Collective Bargaining Agreement, in which case, if it were to
consider it necessary, it shall notify the Brotherhood about said intentions so
that the Brotherhood presents any suggestion that it deems relevant.

      During the contract renovation process to select the Health Plan Provider,
the Company will share with the Brotherhood the analysis that each provider had
submitted.

SECTION 9

      The selection of the Administrator of the Health Plan, the administration
of the Medical Plan and all the terms and conditions relating to the
aforementioned between the Company and the provider will not be subject to the
Grievance Procedure or to the arbitration process established in this Collective
Agreement.

      In exceptional cases, the employee may request revision to any denied
claim by the Health Plan Provider. The same will be evaluated according to the
procedure established by the Health Provider.



                                   ARTICLE 44
                                   HEALTH PLAN

SECTION 1

                  For the duration of this Agreement, the Company commits to
providing a Health Plan with the same benefits as those covered by the Health
Plan which has been effective until the signing of this Agreement for the
employees affiliated to HIETEL. For medical treatment received outside of Puerto
Rico, reimbursement will be limited to the cost of said treatment in Puerto
Rico. In case of emergency, medical treatment received during travel outside of
Puerto Rico, reimbursement will not be limited to the cost of said treatment in
Puerto Rico. The Company will not pay the cost of Health Plan benefits for any
optional dependent. Employees with optional dependents will select one of the
following alternatives offered by the health care service provider and will
contribute biweekly the quantities indicated below:

            Contribution during the effective period of this Collective
Bargaining Agreement

A.    Individual

             1.  Basic (H-MQ-A) + Major                         $ 0.00
                 Medical (M-3) + Dental (D-34)
                 + Pharmacy

B.    Family

             1.  Basic (H-MQ-A) + Major                         $16.39
                 Medical (M-3) + Pharmacy

             2.  Basic (H-MQ-A) + Major                         $24.77
                 Medical (M-3) +  Dental (D-34)
                 + Pharmacy

      In all cases of Pharmacy coverage mentioned above, if bioequivalent
generic medications are used, a $1.00 co-payment will be applied. Brand
medication will require a co-payment of $8.00 for the first year, $9.00 for the
second and third year and $10.00 for the fourth and fifth years of this
Agreement. Over the counter medications or those prescribed, but without the FDA
label, will require a co-payment of $3.00 each one during the first 3 years of
this Agreement and $5.00 each one for the fourth and fifth years.

SECTION 2

      The employee, upon signing the application supplied by the health care
service provider, accepts the terms and conditions imposed by said Company. The
Union and the employees recognize and accept the terms and conditions
established by the selected health care service provider selected are not
subject to negotiation. The employee must remain in the selected coverage
category until the period specified for renovation, when changes will be
accepted to any of the two categories/alternatives offered for family coverage,
according to eligibility requirements and dependents' coverage, except when any
of the exceptions specified by the service provider apply.

      The employee will supply evidence required by the health care service
provider to establish dependents' eligibility.



SECTION 3

      The Company will maintain effectiveness of the health plan coverage
selected by the employee while the employee remains actively employed by the
Company. The Company will cancel coverage when the employee, for whatever
reason, is: dismissed, laid off, quits, dies or is suspended for more than
thirty (30) days. If an arbiter restitutes an employee to its regular standing
and the employee presents evidence of medical expenses incurred upon, the
Company will reimburse said expenses according to the terms of the current
Health Plan coverage.

SECTION 4

      HIETEL authorizes the corresponding deduction, according to the coverage
alternative selected by each employee and to Section 1 of this Article for its
members. Said contribution will not be altered during this Agreement's
effectiveness.

SECTION 5

      To obtain hospitalization services for mental health conditions associated
to rehabilitation from drugs or alcohol abuse through the Health Plan benefits,
employees must request the services from the Employee Assistance Program (known
as PAE) and obtain a pre-authorization from said program. If services and the
pre-authorization are not requested from the Employee Assistance Program (PAE),
hospitalization benefits will not be covered by the Health Plan and all related
expenses will thus be will be the employee's responsibility. This requisite
applies to employees covered by the Health Plan.

      If the employee is hospitalized and it is determined that is was due to
use or abuse of drugs or alcohol, subsequent hospitalizations and ambulatory
treatments will also require pre-authorization from the Employee Assistance
Program (PAE).

SECTION 6

      The Company will concede the benefit of eye glasses or contact lenses for
employees or direct dependents up to the amount of ($100.00) for each of the
first three (3) years of the duration of this Agreement and $150.00 for the
fourth and fifth years of this Agreement. These services will be reimbursed
without applying a co-payment amount.

SECTION 7

      The Union and its affiliated employees agree and commit to adequate use of
the Health Plan.

SECTION 8

      The Company may modify the effective Medical Health Plan upon this
Agreements' conclusion, in which case, if deemed necessary, it will notify the
Union its intention so the HIETEL may present any suggestions deemed pertinent.

      During the contract renewal process, upon selection of a health care
service provider, the Company will share with the Union the analysis presented
by each service provider.

SECTION 9

      The selection Health Plan's administrator, its administration and the
terms and conditions in the contract between the Company and the health care
service provider are not subject to the complaints procedure or arbitrage, as
established in this Agreement.



      In exceptional cases, an employee may request revision for a claim denied
by the health care service provider and it will be evaluated according to the
procedure established by the service provider.



                                   ARTICLE 45
                                  SALARY SCALE

      The minimum, midpoints and maximum points of the actual Salary Scale shall
prevail except as follows:

            -     1st. year - The maximum points of the salary scales increases
                  60(cent)

            -     2nd. year - The maximum points of the salary scale, increases
                  60(cent)

            -     3rd. year - The maximum points of the salary scale increases
                  65(cent)

            -     4th. year - The maximum points of the salary scales increases
                  70(cent)

            -     5th. Year - The maximum points of the scales salary increases
                  75(cent)



                  1st. year   2nd. Year   3rd. year   4th. Year   5th. Year
Level  Minimum     maximum     maximum     maximum     maximum     maximum
                                                
 6     $11,440     $23,161     $24,409     $25,761     $27,217     $28,777
 7      11,900      25,649      26,897      28,249      29,705      31,265
 8      13,500      28,552      29,800      31,152      32,608      34,168
 9      15,400      32,354      33,602      34,954      36,410      37,970
10      17,600      36,617      37,865      39,217      40,673      42,233
11      20,000      41,686      42,934      44,286      45,742      47,302
12      23,000      47,677      48,925      50,277      51,733      53,293
13      26,000      53,668      54,916      56,268      57,724      59,284
14      29,400      60,580      61,828      63,180      64,636      66,196
15      33,200      68,299      69,547      70,899      72,355      73,915




                                   ARTICLE 46
                                    SALARIES

SECTION 1

      During the effective period of this Agreement, the following raises shall
be applied, effective upon the granting of the same and its successive
anniversaries.



January 1, 2004   January 1, 2005   January 1, 2006  January 1, 2007   January 1, 2008
                                                           
   60(cent)*          60(cent)         65(cent)          70(cent)        75(cent)


* Already implemented in January 1st. 2004.

      Those regular employees who find themselves at the top of the Salary Scale
at the moment of effectiveness of the aforementioned raises, will not be
entitled to said raise. Notwithstanding, the employee will be granted a bonus
equivalent to the amount not received in substitution of the raise. Said bonus
shall not form part of the salary base or be utilized for the retirement
calculations.

SECTION 3

      Those regular employees who, surpass the ceiling of the Salary Scale with
the raise shall be entitled to the proportional part of the same until reaching
the salary ceiling and with regard to the excess, if any, they shall be granted
the difference in a bonus, which shall not form part of their salary base nor
will it be utilized toward retirement calculations.

SECTION 4

      The employees who are on Probationary Period at the moment of the granting
of this Agreement, shall receive the agreed upon raise for the first year of
effectiveness, effective on the date when they become regular employees. The
employees who join after the signature of this Agreement shall be entitled to
the raises that shall be granted on the first, second and third anniversary, as
long as they are regular employees as of the date when these raises are granted.

                                   ARTICLE 47
                                  DIFFERENTIALS

SECTION 1

TEMPORARY WORK

      a.    When the Company requires an employee to carry out the duties of
            another position with a higher salary level within the same Unit on
            a temporary basis, for a period greater than five (5) consecutive
            working days, the Company shall pay a differential of $1.00 per
            hour. If applicable, this differential shall be paid from the
            beginning of the temporary assignment and for the total hours
            worked.



      b.    The employee who is absent during the temporary work assignment for
            more than five (5) consecutive labor days, when return to work, a
            new period of five (5) consecutive labor days have to elapse to be
            entitle to receive said differential per hour.

SECTION 2

SHIFT DIFFERENTIALS

      a.    The Company shall pay a differential to the employees who work night
            shifts and dawn hour shifts, which are those work shifts which
            regularly end between 9:00 p.m. and 7:00 a.m.

            The Compensation of differential for the eligible employees shall be
            equivalent to ten percent (10%) of the basic hourly rate.

      b.    The payment of the differential for work shifts shall cease when the
            employee is reassigned a work shift that ends between 9:00 p.m. and
            7:00 a.m. to a regular day work shift.

SECTION 3

TECHNICAL TRAINING

      a.    For the purpose of being able to utilize the knowledge, skills and
            experience of the professionals and technicians affiliated to the
            HIETEL, the Company and the Brotherhood agree with the consent of
            the employee, that when it is necessary and required by the Training
            and Development Department, this personnel will temporarily develop
            courses related to their specialty and or offer training according
            to the request received from the different areas of the Company.

      b.    It is established a supplementary compensation, in other words, a
            differential as economic incentive to any employee who devotes time
            to teach courses and/or specialized training in Telecommunication. A
            differential payment shall be granted consisting of fifteen percent
            (15%) of the basic salary per hour for the amount of hours devoted,
            required by the Training and Development Department.

            The differential of fifteen (15%) of the basic salary per hour shall
            also apply to the necessary hours before, during and after the time
            that the training is offered for the purpose of making it more
            effective: preparation of documents, utilization of audio-visual
            equipment and other resources necessary for the effectiveness of the
            training.

      c.    In those cases where it applies, the employee will receive the per
            diem, mileage, lodging and all the benefits to which he is entitled,
            in conformity to what I established in this agreement.

      d.    The participation of the members of the HIETEL in these training
            functions shall not be utilized by PRT to ask that they be excluded
            from the bargaining unit. Neither will they be performing tasks of
            personnel not belonging to the union nor of personnel included in
            other bargaining units and they will no supervise any personnel
            whatsoever.



                                   ARTICLE 48
                                 CHRISTMAS BONUS

      All regular employees covered by this Agreement who meet the requirements
provided by the Bonus Act shall be entitled to receive a Christmas Bonus as
provided by the Law, except that the same shall be 8.0% over the total of
salaries received during the bonus year. The bonus shall be payable between the
1st. and the 15th. of December of each year of that this Agreement is in effect.
The term salary shall include exclusively the following:

            1.    Basic Salary

            2.    Overtime

            1.    Differential per Work Shift

            2.    Vacation Leave

            5.    Liquidation of Sick Leave to Retired Employees

            6.    Excess of Sick Leave

            7.    Internships

            8.    Payment of Incentives

                                   ARTICLE 49
                                 RETIREMENT PLAN

SECTION 1

      The Company agrees to maintain in effect the Retirement Plan known as
"Puerto Rico Telephone Company Retirement Plan for Salaried Employees", known
before as "ITT Telephone Retirement Plan for Salaried Employees", put into
effect on September 1, 1968 and agrees that the benefit shall be payable by the
Company in its entirety.

SECTION 2

      The employees who choose this benefit, during the effective period of the
Collective Bargaining Agreement, shall receive the following lump sum:

      5 to 15 years of service          3 months of salary
      16 to 20 years of service         4 months of salary
      21 to 25 years of service         5 months of salary
      26 to 29 years of service         6 months of salary
      30 or more years of service       8 months of salary

SECTION 3

      The Company shall continue providing the employees represented by the
Brotherhood, the Long Term Disability Insurance free of cost.

SECTION 4

      All the employees from the bargaining unit who choose to receive the
retirement benefits after the signature of this Collective Bargaining Agreement,
shall be eligible to participate in a family medical plan which shall be similar
to the one provided to the employees covered by this Collective Bargaining
without dental coverage. Nevertheless, the retire may select to continue in the
Dental Plan offered by the Company, but must be totally paid by the retiree.

      Employees affiliated to HIETEL retiring after March 31, 2004, will pay -
beginning the second year of this agreement - half of the annual cost increase
if any, each year, in the Company's Health Plan.



This clause will no apply to employees affiliated to HIETEL retiring before
April 1, 2004. To retain the Company's Health Plan benefits, eligible retiring
employees must subscribe to Medicare benefits, including Part B, prescription
medicine discount card and prescription card and prescription medicine benefits.

      The increase in contribution to the Health Plan by retirees for the year
2005 will be calculated as follows: 50% of the increase, if any, in PRT's Health
Plan per capita monthly cost for the year 2004 compared to the year 2003. In
2006 and subsequent years, the same comparison will be made of the two (2)
previous years to determine any additional contribution, if any, to be made by
employees retiring for the duration of this Agreement, beyond contributions
already being made.

      Instead of the Company's Health Plan and the contribution described above,
retiring employees will have the option of applying the Company's contribution,
which will not be higher than X to another health plan of choice, including the
one mentioned in the next paragraph.

      The Company and the Union will make the best possible effort to identify
an alternate health plan for retirees, which would be effective in 2005, with a
monthly cost no higher than X. If the effort I not fruitful, the content of this
section will no be annulled.

      X, for the year 2005 equals PRT's Health Plan per capita monthly cost for
the year 2003, plus the 50% increase if any, for the year 2004, and so on for
the following years in relation to previous ones.

      In addition, the Company will supply the Union the necessary information
to verify the Company's Health Plan annual cost.

SECTION 5

      To be entitle to the Health Plan, the retired employee will have to make
the contributions as indicated in Article 44 (Health Plan) during the effective
period of this Collective Bargaining Agreement.

                                   ARTICLE 50
                           PUBLICATION OF WORK SHIFTS

SECTION 1

      The Company shall prepare and publish the work shifts for any group of
employees or for each employee with fifteen (15) days of advance notice. The
fixed work shifts that comprise the schedule from 8:00 A.M. to 12:00 noon and
from 1:00 P.M. to 5:00 P.M., from Monday to Friday, shall not be published.

SECTION 2

      The Company shall assign the work shifts abiding by the following
principle: the work shifts shall be assigned in accordance to seniority in the
Company it being provided that in those technical areas where weekends, holidays
or night shifts are worked, personnel with less seniority but with at lease 6
months of seniority in the area will be assigned. Employees working weekends,
holidays or night will not realize any supervisory job. The employee with
greater seniority may grant his/her work shift to another employee with lesser
seniority. To be able to grant a work shift, the employee must notify his/her
immediate Supervisor with at least fifteen (15) days of advance notice and must
obtain his/her written authorization.

SECTION 3

      A pregnant employee working a night or one in the dawn hours shall be
entitled to replace the employee of lesser seniority working in her work center
and in her same classification during the daytime work shift, as long as she is
qualified to perform the work, during her seventh and eighth month of pregnancy.
Upon her return, after her Maternity Leave, the employee shall return to her
corresponding work shift system.



                                   ARTICLE 51
                                  PROGRESSIONS

      In all positions included in the Bargaining Unit with levels of
progression, the employee may be promoted to the following level, if he/she has
obtained satisfactory evaluations, complied with the required time in the
previous level and if his/her supervisor recommends him/her.

      All employees who rise to the next level shall receive 4% salary increase
for each level of progression.

                                   ARTICLE 52
                         ECONOMIC AID FOR STUDY EXPENSES

SECTION 1

      All regular employees with a year or more of service with the Company, who
is interested in aid for studies relating to his/her job and is not currently
under a performance improvement plan and/or as absenteeism as a result of the
annual performance evaluation, or who is on a long term disability, occupational
sick leave or leave without pay at the time of requesting the economic aid will
submit at the Management Development Division of the Human Resources Department
a petition before been admitted to an educational institution. If at the time of
filing the economic aid for studies, the employee is under a performance
improvement program for absenteeism that is not as a result of the annual
performance evaluation, he would not be entitle to receive the benefit conceded
in this article until he completes said program.

SECTION 2

      Once said application has been approved and the studies have been
satisfactorily completed in the teaching institutions credited by the Council of
Higher Education or the Department of Education, the employee may request that
the Company reimburse him/her (90%) of the total cost of the tuition for an
associate degree, degree, certificate, courses for licensee examinations and
first bachelors degree. The Company may reimburse the 80% of the total cost of
the tuition for a second bachelor degree if it is the first paid by the company
and is directly related to the employee's working area. The employee may request
the reimbursement of 35% of studies expenses for a second bachelor, whenever it
is the first paid by the Company and is directly related to his working area but
the studies must be related to works within the appropriate unit a 40% may be
reimburse for masters degree. Incidental expenses such as construction fees,
membership association dues, etc. are excluded from the tuition's fees. The
costs of books required up to a maximum of $200.00 per academic year including
summer session will be reimbursed.

SECTION 3

      Upon completing each period of studies, the employee shall be entitled to
request reimbursement for the courses satisfactorily approved (C or higher).
This right shall expire within six (6) months after having finished the same.
The employee may not claim those expenses that have been paid by means of
another study aid program. For this purpose, the employee shall provide the
necessary authorizations to verify the existence or not of other sources of aid.



SECTION 4

      The employee will have to accompany with his/her petition for
reimbursement with the documents, in original or official copies, that evidence
the payment of the tuition and books, as well as the grade obtained.

      The studies must be carried out during the employee's non-working hours
and they must be geared toward obtaining an academic degree, for the purpose of
expanding his/her opportunities and development on the job.

SECTION 6

      When the Company decides to put a Study Scholarship Program into effect,
it shall give consideration to the employees in the Bargaining Unit. The
applicant must comply with the requirements established by the Company for the
granting of said scholarships.

                                   ARTICLE 53
                          PROFFESIONAL MEMBERSHIP FEES

SECTION 1

      The Company will reimburse the membership fees to those employees on the
classifications where as a condition of work are required to be collegiate, and
those classifications which can be created during the life of the agreement,
which are required as a condition of work.

                                   ARTICLE 54
                                 LIFE INSURANCE

SECTION 1

      The Company agrees to provide the same existing life insurance to all the
regular employees of the Bargaining Unit, except that the coverage shall
increase $50,000 and other $50,000 for accidental death and dismemberment.

SECTION 2

      The cost of this life insurance shall be paid in its entirety by the
Company.

SECTION 3

      The Company shall maintain the coverage and contribution of the employee
in the optional life insurance's (option I and II) in effect, which are paid by
the employees in their entirety.

      The Brotherhood may select an alternate provider (National Life
Insurance), for the optional life insurance's (option I and II).



                                   ARTICLE 55
                            UNIFORMS AND SAFETY SHOES

SECTION 1

      In the event that the Company requires the use of uniforms as a condition
of employment, the Company shall provide five (5) uniforms upon the employee's
entry and five (5) additional uniforms as of the date of his/her service
anniversary or within the year of having handed over the previous ones without
any cost whatsoever to the employee. In those cases where the Company
understands that is necessary the use of overalls in addition to the uniforms,
the Company will provide the employees two (2) overalls as the moment of the
hiring and two (2) at his/her anniversary or within the year of having handed
over the previous ones.

The employees shall use these uniforms only while they are performing the
official functions of their job, with the employee having to make good use of
the same.

SECTION 2

      Beginning on the third year, the employee must hand over five (5) used
uniforms so that the Firm will hand over to him/her five (5) new uniforms. Loss
of uniforms must be notified at once to the immediate supervisor and the
employee must present documents explaining the loss.

SECTION 3

      If the Company does not hand out the uniforms on the scheduled date, this
will not have the effect that it is not obligated to hand over the same; then,
on the next delivery, they must supply the entirety of the uniforms owed up to
that moment.

SECTION 4

      In those situations where due to the provisions of the law applicable to
the Company or when the Company itself requires the use of safety shoes, the
same shall be provided without cost to the employee. These shoes shall be
utilized only while the employee is performing his/her functions, with the
employee having to make good use of the same.

                                   ARTICLE 56
                            NO-STRIKE AND NO LOCKOUT

SECTION 1

      The Brotherhood agrees that neither it, nor the employees of the Company
who are part of the Bargaining Unit covered by this Agreement, may,
collectively, in a concerted fashion or individually devote themselves to
participate directly or indirectly in strikes of any nature, reduction in the
production or slow-down, interruption and/or paralysis of work, picketing,
boycotts or any other type of interference and/or interruption of the Company's
operations and activities.

SECTION 2

      During the effective period of this Agreement, the Brotherhood commits
itself to going to the Grievance Procedure provided by this same Agreement
instead of going to strike.

      To honor the terms of this Article and guaranteeing a permanent and
constructive industrial peace, the Brotherhood shall utilize all the available
resources and the ones that are in agreement with this Article.



SECTION 3

      In like manner, the Company commits itself, during the effective period of
this Agreement, to not make use of the lockout in any way whatsoever.

      To honor the terms of this Article and guarantee a permanent and
constructive industrial peace, the Company shall utilize all the available
resources and the ones which are themselves in consonance with this Article.

SECTION 4

      The Company reserves to itself the right to separate any employee from the
Bargaining Unit who carries out any of the actions stipulated above.

                                   ARTICLE 57
                               GRIEVANCE PROCEDURE

SECTION 1

      The term grievance comprises all controversies which involve the interest
of one or more employee and/or offense, complaint or claim relating to the
interpretation, application, administration or alleged violation of this
Agreement.

SECTION 2

      The complaints of grievances may be presented by the Brotherhood or by the
Company.

SECTION 3

      Any complaint or grievance shall be dealt with exclusively in accordance
to the mechanisms established in this Article. The parties agree that if
controversies arise during the effective period of this agreement, these wild be
resolved exclusively through the procedure which is provided as follows:

FIRST STAGE

      a. Any grievance which arises shall be presented in writing in the first
instance within the term of five (5) working days from the time that this
grievance arises or the employee has knowledge of it and the same shall be
presented by the delegate of the Brotherhood and/or the employee to the
employee's immediate supervisor.

      b. The Supervisor, the Delegate and the employee shall meet to discuss and
analyze the grievance and try to resolve the same. The Supervisor will have up
to five (5) working days, from the time that the grievance is received, to
answer the same.

SECOND STAGE

      If the Brotherhood or the employee are not in conformity with the decision
in the case, or after the term for answering has elapsed, the same shall be
appealed in writing within the seven (7) working days following the receipt of
the decision or determination of the period of the first step, to the immediate
boss of the corresponding Supervisor who shall have up to five (5) working days
in which to answer the grievance. The Brotherhood or the employee must present
in writing to the Supervisor's immediate boss a summary of what has happened
during the first stage.



THIRD STAGE

      a. If the Brotherhood is not in conformity with the decision issued in the
case in the second stage or after the term for answering has elapsed, any
Officer from the Brotherhood may appeal filing the same within the ten (10)
working days following the receipt of the decision or the termination of the
period to answer in the previous stage if it has not been answered. The appeal
shall be filed in writing before the office of the Director of the Department of
Labor and Employee Affairs accompanied by a summary of the facts, as well as the
result of the previous stage.

      b. The Director of the Department of Labor and Employee Affairs or his/her
Representative shall summon the President of the Brotherhood or his/her
Representative once the grievance has been received within ten (10) working days
following the receipt of the grievance indicating the time, place and date,
which shall be no later than ten (10) working days following the date of the
summons.

      c. The Director of the Department of Labor and Employee Affairs or his/her
Representative, the President of the Brotherhood or his/her representative, the
person who took the action which gave basis for the grievance when the
allegations of the grievance so require it, as well as the grievance, shall meet
to the effect of trying to resolve or conciliate the grievance. It being
provided that in this stage in those cases of disciplinary actions the Company
shall supply the employee or the Brotherhood, a copy of the documentary evidence
on which the disciplinary action is based.

      d. Once the grievance has been discussed, the Director of the Department
of Labor and Employee Affairs, or his/her Representative, will answer the same
in writing, by means of certified mail, within the next ten (10) working days.
If the Brotherhood is not in agreement with the answer from the Director of the
Department of Labor and Employee Affairs, it may recur to Arbitration as is
indicated further on.

      e. The grievances regarding the claims of salary shall be filed in writing
in the first instance in the third stage within the term of ten (10) working
days from the time that the grievance arises or that the employee has knowledge
of it. The Director of the Department of Labor and Employee Affairs or his/her
Representative shall summon the President of the Brotherhood or his/her
Representative once the grievance has been within the ten (10) working days
following the receipt of the grievance, indicating the time, place and date,
which shall not be later than ten (10) working days following the date of the
summons. The Director of the Department of Labor and Employee Affairs or his
Representative, shall have a term of fifteen (15) working days in which to
answer the grievance after the meeting has been held for the consideration of
the same.

ARBITRATION

      a. When the grievance has not been resolved in the previous stage, the
same may be submitted to Arbitration within ten (10) working days following the
receipt of the decision of the Director of the Department of Labor and Employee
Affairs or after the term in which the answer has elapsed, whatever occurs
first. The Arbitrators to be utilized shall be those from the Conciliation and
Arbitration of the Department of Labor and Human Resources, except when another
thing is agreed upon between the parties and the same shall be selected in
conformity to three arbitrator choice selection procedure and to the norms of
said Bureau. For this Article the prevailing norms will be the ones in effect at
the Bureau as of December 26, 2002 and no amendment or new norms will be
applicable under this agreement. The decision of the Arbitrator shall be final
and unappeasable, which shall be followed and complied with by the parties, as
long as it is in conformity to law. The parties will submit to the Arbitrator
the written submission of the grievance to be resolved.

      b. The salary claims will be excluded from the arbitration procedure.

SECTION 4 - CASES OF SUSPENSION AND DISMISSAL

      a. If an employee considers his/her suspension or separation to be unfair,
he/she should present his/her grievance to the Brotherhood.



      b. In the event that the Brotherhood also considers the employee's
suspension or separation to be unfair, the Brotherhood shall present a grievance
in writing within ten (10) working days following the suspension or notice of
separation of the employee before the Director of the Department of Labor and
Employee Affairs for the Company.

      c. In those cases in which the suspension or dismissal of the employee is
based on a report from the Company's Safety Department, at the petition of the
employee or of the Brotherhood, a copy of the report shall be supplied within
the following 48 hours.

      d. And from here on the procedure it shall be proceeded with as is as
provided from clause b of the Third Stage of this Article onwards.

SECTION 5 - CASES RELATED TO THE DRUG TESTING PROGRAM

      Grievances related to the application of Article 24, Drug Testing Program,
will be filed in third step as stated in Section 3 of this Article.

SECTION 6 - CASES OF PUBLICATION AND ADJUDICATION OF POSITIONS, TRANSFERS AND
PROMOTIONS

      a. The grievances which arise where an employee claims a right to a vacant
position or that the article from the "Publication Adjudication of Positions and
Appointments" has been violated shall be filed in writing before the Director of
the Department of Labor and Employee Affairs, indicating the position that is
being claimed, the requisition number for the position and the person with whom
it was covered. The grievance must be presented within the seven (7) working
days following the adjudication of the position or from the time that the
employee has knowledge of the adjudication of the position.

      b. And from here on it shall be proceeded with as provided from clause b
of the Third Stage of this Article onwards.

SECTION 7 - CASES OF RECLASSIFICATION OF POSITIONS

      The grievances which arise as a result as a result of a petition for
reclassification for a position shall be presented before the Director of the
Department of Labor and Employee Affairs for the Company.

      In the event that the Brotherhood is not in agreement with the
determination of the department in charge of the classification of positions
regarding the petition for reclassification of a position and that it determines
filing a grievance, the same shall be filed before the Director of the
Department of Labor and Employee Affairs within the seven (7) working days
following the receipt of the notice of the determination or seven (7) working
days after the time for informing the Brotherhood about the determination of the
petition has elapsed.

      And from here on it shall be dealt with as provided from clause b of the
Third Stage of this Article onwards.

      During the discussion of the grievance in this stage the Brotherhood must
establish that functions or duties of a superior position have been assigned to
the position or that duties and functions of the same have evolved in a
substantial and permanent manner toward a position of a superior level or that
functions or duties of greater complexity have been assigned to it.



SECTION 8 - GRIEVANCES BETWEEN THE PARTIES

      The grievances of the Company shall be initiated by means of the sending
of a letter by the Director of the Department of Labor and Employee Affairs to
the President of the Brotherhood. The grievances which the Brotherhood has
regarding to alleged violations to the rights of the Brotherhood consigned in
this Agreement, shall be initiated by means of the sending of a letter on the
part of the President of the Brotherhood to the Director of the Department of
Labor and Employee Affairs.

      In both cases, these grievances shall be commenced in the third stage.
When the grievance is a Company grievance, the President of the Brotherhood or
his/her representative shall meet with the Director of the Department of Labor
and Employee Affairs within ten (10) working days from the receipt of the
grievance on the part of the Brotherhood. When the grievance is on the part of
the Brotherhood, the Director of the Department of Labor Affairs shall meet with
the President of the Brotherhood within the ten (10) working days following the
receipt of the grievance on the part of the Company. If the meeting is not held
on the terms indicated herein, the injured party may go directly to arbitration
in the terms indicated in Section 3(Arbitration) once the term has expired.

      The grievances of the Brotherhood and of the Company will have to be
presented within a period of ten (10) working days after the event which
motivated the grievances have occurred or from the time that the grievance had
knowledge of the facts that motivated the grievance.

      If no agreement is reached between the parties, it shall be proceeded with
in conformity to what is established in Section 3 (Arbitration) of this Article.

SECTION 9 - GENERAL PROVISIONS

      a. It is agreed that at no time whatsoever will the grievance employee or
the delegates or representatives of the Brotherhood be accompanied by more than
one employee although the grievance covers more than one, except in the cases of
separation when the grievance are not working. The parties may, by mutual
agreement in cases that so require it, excuse more than one employee as long as
the services are not affected.

      b. The Department of Labor and Employee Affairs shall hold meetings and
shall have at its discretion authority to investigate the cases referred to this
Department, obtain evidence and call witnesses one at a time.

      c. The terms for beginning the different stages of this procedure are of a
jurisdictional nature.

      d. In those cases in which the Company summons an employee for the purpose
of this Article, it must do so within his/her working hours.

SECTION 10 - SUBSTANTIVE MATTERS

      a. A typewritten transcript of the Arbitration Hearings shall be prepared
by the Reporter supplied by the Bureau of Conciliation and Arbitration, if there
is one available. In the event that the Bureau cannot supply said Reporter, the
Arbitrator will notify the parties prior to the Arbitration Hearing so that any
of them, if they wish to obtain a typewritten transcript, will supply the
Reporter and pay the cost of the same. If both parties wish a copy of the
typewritten transcript, they will pay for it in equal parts. In the event that
one of the parties decides to submit a brief, the Arbitrator shall grant a term
no greater then thirty (30) working days in which to submit the same.



      b. The Arbitrator will have no power or faculty to in any way alter,
amend, change, modify, add or subtract from any of the provisions of this
Agreement, including from any of the provisions of the Article regarding
"Management Rights". An award in violation of what has been indicated above
shall be void and without effect.

      c. The Arbitrator shall not have authority to grant damages, penalties
interests, honorary or lawyer expenses.

All disciplinary actions should be based on just cause. If the Arbitrator
determines that there is no just cause he can modify, reduce or lapse the
disciplinary measure questioned in the grievance and can provide a reinstatement
remedy with or without back pay and benefits omitted. The corresponding salary
deductions of income earned by the employee while dismissed or suspended will be
done to employees back pay due to his obligation to mitigate damages.

                                   ARTICLE 58
                           STABILITY OF THE AGREEMENT

SECTION 1

      In the event of the merger of the Company or of any of its facilities with
a private or public entity or that the Company sells, transfers or leases
property where there are employees covered by this Agreement working, the
Brotherhood must be notified with no less than twenty (20) days of notice prior
to the merger, sale, closing, transfer, lease, or expropriation. In addition,
the Company is obligated to inform the aforementioned new entity about the
existence of this Agreement.

SECTION 2

      In the event that due to said merger, sale, transfer, lease, closing or
expropriation, employees from the Bargaining Unit are displaced, the affected
regular employees shall be considered for relocation in other activities of the
Firm pursuant to the provisions of this Agreement.

SECTION 3

      If during the effective period of this Agreement the Company were to
acquire any facility or service which at the present time is being administrated
by another Company and it were integrated to the Company's program, the new
positions that are created, as well as any vacant position at said new facility
or service, which corresponds to the Bargaining Unit shall be covered in
accordance to the provisions of this Agreement. The time of seniority for the
effects of this Agreement for all the personnel passing through the Company by
means of this procedure shall begin to count from the date of effectiveness of
their appointment as Company employees.

SECTION 4

      In the event that any transfer, sale, merger, lease of facilities or
expropriation were to take place, the Company, notwithstanding what is provided
in the Article relating to the effectiveness regarding the duration of this
Agreement, shall be released from there on from any obligation under the same,
except with regard to obligations which may have already been incurred in under
the Article of the grievance procedure.

      This Collective Bargaining Agreement shall obligate all employers
successors of the Company during its effective period even when the transfer,
sale, merger, lease or expropriation were a partial one.



                                   ARTICLE 59
                              SEPARABILITY CLAUSES

SECTION 1

      In the event that part of any of the provisions of this Agreement were to
turn out to be illegal by virtue of the effective laws or those approved in the
future or by means of a judicial decree or a final and firm judgement, issued by
a competent court of jurisdiction or by any other government entity, such law,
decree, decision, order or judgement shall affect only the part or provision
that is declared illegal, but the same will not invalidate the rest of the
Agreement, it being the express intention of the contracting parties that all
the portions not declared illegal shall remain in their full force and effect
during the effective period of this agreement and it is stated, in addition,
that nothing of what is agreed upon herein in any way whatsoever shall prevent
any of the contracting parties from exercising their rights to appeal the
judgement or judicial decision, order or judgement from the concerned government
entity.

SECTION 2

      In the event that any Article or Section were to be declared invalid or
the compliance or observation of such Article or Section would have been
declared in suspense, the parties affected by such action will enter into
immediate collective negotiations, for the purpose of reaching an agreement
about a mutually satisfactory substitute provision for such Article or Section.

SECTION 3

      In the event that in any matter or controversy more than one provision of
this Agreement can be applied or that more than one interpretation of the same
is possible, that provision or interpretation which turns out to be more
consistent with the Collective Bargaining Agreement construed in its entirety
shall be applied.

                                   ARTICLE 60
                                SPECIAL TRAINING

SECTION 1

      a.    When the introduction of new specialized equipment, which requires
            special training to operate the same affects the work of personnel
            from the Bargaining Unit, the Company shall select the employees to
            be trained from among the affected employees who meet the
            requirements of training for the position and approve the written
            examinations and/or practical tests which the Company designs for
            said training.

      b.    The requirements, examinations and tests shall be established by the
            Company prior the selection of candidates for the training. The
            Company will determine in its criterion the number of persons to
            receive the special training, but when choosing among the candidates
            that qualify the Company shall apply the following criteria:
            seniority, evaluations that are already written and prepared in the
            normal course of employment for the last two (2) years, attendance
            and timeliness records during the last two (2) years, disciplinary
            records for the last two (2) years, related experience and training.
            Seniority shall prevail over the other factors if these were to turn
            out to be equal among the employees to be trained.

      c.    If sufficient candidates which qualify from among the affected
            employees do not arise, the Company shall publish the position in
            conformity to Section 1 of Article 12 regarding Publication,
            Adjudication of Positions and Appointments. If there do not turn out
            to be sufficient internal candidates which qualify, the Company will
            retain the right to include in the training qualified personnel from
            external recruiting.



SECTION 2

      The Company shall extend to the candidates selected appointments
conditioned to the approval of the training. During the training period the
daily hour schedule and the weekly work program may vary in accordance to the
needs and conditions of the training to be offered and of the service being
rendered.

SECTION 3

      The employees who approve the training's in which they participate shall
be maintained in said positions. However, those employees who do not approve
their training's satisfactorily or who were not selected for the same shall be
reassigned to another position, as long as there exists another vacant position
and that they qualify for the same. If there is no vacant position or if the
employee does not qualify for the vacant positions which may exist, then it
shall be proceeded with in accordance to the Personnel Reduction and
Re-employment article.

                                   ARTICLE 61
                                  WELFARE FUND

SECTION 1

      The Company agrees to contribute .04(cent) for each hour worked by each
employee covered by this Agreement during the first, second, and third year of
this agreement and .5(cent) during the fourth and fifth year of the Agreement
for the Welfare Fund established in this Article.

SECTION 2

      The Fund shall be ruled by a Trust which shall be created within the 30
days following the signature of this Agreement to administrate the funds in
which the Company and the Brotherhood shall have equal participation. The
parties, by mutual agreement, shall prepare a regulation which will establish
the controls and the use given to the funds, which shall be to provide benefits
and aid to the employee's represented by the Brotherhood. The ratification of
this regulation must not exceed 60 days from the signature of this Agreement,
unless the parties, extend this term, by mutual agreement.

SECTION 3

      Until the Trust is created and the regulation is ratified by the parties,
the Company's contributions shall be deposited in a separate savings account.
Once the Trust has been created and the regulation has been ratified, the funds
in the savings account shall be transferred to the Trust account which must be
separate from any other account of the Brotherhood. Later, the Company will
forward to the Fund's administrators, after the rendering of the required bonds,
the sum of the contribution indicated in Section 1 of this Article. The same
shall be made during the ten (10) calendar days following the payment that is
made every two weeks, except when there are extraordinary circumstances in which
case the term shall not exceed ten (10) additional calendar days.

SECTION 4

      When any audit reveals a pattern of violation to the regulation or that
the administration of the Fund has strayed away from the principles and purpose
for which this Fund was created, the Company may discontinue the contributions
to the Fund until the violations are corrected.

SECTION 5

      In the event that any Court, Agency or any other entity with jurisdiction
declares by means of an order, resolution and/or final judgment that this
Article or the Trust created under the same is illegal, the Company



may discontinue the contributions to the Fund until the illegality is corrected
and if it is not able to be corrected or if it were not to be corrected, the
existing Funds shall be returned to the Company.

                                   ARTICLE 62

                              SUPPLYING INFORMATION

SECTION 1

      The Company shall supply the Brotherhood, simultaneously, copy of all
communications, documents, notices, circulars, bulletins or brochures directed
for general distribution among the employees making up the Bargaining Unit. The
Vice-president of Human Resources will supply a copy to the Brotherhood of any
administrative Practice, Regulation and Procedure of Human Resources that
applies and/or covers the members of the Bargaining Unit.

                                   ARTICLE 63
                                LEGAL ASSISTANCE

SECTION 1

      The Company shall provide free of cost, services of attorneys selected by
the Company, to those employees who in the performance of their duties were to
suffer an accident while driving motor vehicles on official matters and were
subpoenaed and/or indicted for such events, or when while carrying official
endeavors, they are accused of a public crime for facts allegedly occurred while
they were rendering service to a client, except sexual crimes, murder and
controlled substances.

                                   ARTICLE 64
                              CHILD DAY CARE CENTER

SECTION 1

      During the effective period of this Collective Bargaining Agreement, the
Company will pay on a monthly basis to institutions dedicated to child day care
center which count with the corresponding permits required by the laws
applicable to it, under the conditions provided further on. Said payment shall
be for the concept of the day care of the children of employees covered by this
Agreement, which maximum age is up to five years or until the moment when they
begin in the school system, what occurs first.

SECTION 2

      The number of children that may benefit from the provisions of this
Article, as well as the maximum monthly contribution forwarded by the Company,
shall be in conformity to the following table:



                     MAXIMUM NUMBER    MAXIMUM MONTHLY
      YEAR            OF CHILDREN          BENEFIT
- ---------------      --------------   ----------------
                                
Duration of the            40             $100.00
  Agreement




SECTION 3

      These amounts shall be paid directly to the Day Care Center by means of
the previous presentation of invoice by the corresponding Center or through the
employee and in such situation the Company will issue a check to the order of
said Center, on a monthly basis, within the fifteen (15) calendar days following
the receipt of the invoice.

      It shall be the responsibility of the employee to pay the Day Care Center
for any difference between the rate and the maximum benefit paid by the Company,
as provided in this Article.

      The payment corresponding to the first year shall have effect from the
beginning of the school year corresponding to the year 2003.

SECTION 4

      The children of employees of the Bargaining Unit, whose parents will
benefit from this help shall be chosen by means of a lottery to be held no later
than the month of June of each year, during the effective period of this
Agreement. Each employee may request this benefit for a son or daughter, so that
a greater number of employees can be benefited. In the lottery there will
participate the employees who have certified to the Company, prior to the
lottery, having young children, of up to five (5) years of age. Said lottery
shall be coordinated between the Company and the Brotherhood. In the event that
the total number of children is not covered, a second lottery will be held, in
which another child of the employees who have turned out to be benefited in the
first lottery may participate.

SECTION 5

      The selected employee shall certify that he/she has his/her child in a
duly authorized Day Care Center, operating with all the necessary permits. The
Company reserves for itself the faculty to require any other relevant
information and evidence of the required permits.

                                   ARTICLE 65
                                   CONTRACTING

      The sub-contracting of work, tasks, services and functions shall not be
utilized to lay off employees covered by the Bargaining Unit.

                                   ARTICLE 66
                            CHAUFFEUR SOCIAL SECURITY

      The Company will pay in its entirety the contributions established by to
the Chauffeur Social Security Act (Act 428 of May 15, 1950, as amended).

                                   ARTICLE 67
                         NOTICE REGARDING ACCRUED LEAVE

      The Company shall inform each employee in writing every twelve (12) months
about the balance of the accrued regular vacation and sick leaves that each
employee has.



                                   ARTICLE 68
                              ACCIDENTAL DEATH AND
                             DISMEMBERMENT INSURANCE

SECTION 1

      The Company will continue providing the benefit for Accidental Death and
Dismemberment Insurance benefits which it is providing at the present time free
of cost to the employees of the Unit. The Company reserves for itself the
exclusive right of changing the insurance provider, as long as the benefits in
existence at the present time are not affected. It includes Accidental Insurance
during official trips.

SECTION 2

      With regard to the Voluntary Accidental Insurance, the employees that so
desire it may select to continue or be covered by this insurance at their own
cost. The Company does not guarantee that either the coverage or the cost of the
insurance will continue to be equal to or identical to the ones in effect as of
the signature of this Agreement.

                                   ARTICLE 69
                              INCENTIVES FOR SALES

      The Company in its sole discretion, may improve, modify, change, condition
and/or eliminate the incentives for existing sales, or create new incentives in
conformity to the economic condition of each profit center by means of a written
notice to the Brotherhood (HIETEL) with 30 days advance notice.

                                   ARTICLE 70
                                 TOTAL AGREEMENT

      The contracting parties recognize that, during the negotiations that
culminated in this Agreement, each one of them had the right and the unlimited
opportunity to formulate demands and propositions with regard to all the matters
not excluded by law in the area of collective contracting and that all the
agreements and covenants reached by them by means of the exercise of such rights
and opportunities, appear stated in this Agreement.

      In like manner, the parties recognize that this Agreement contains all the
work conditions agreed upon by both of them and that from this date onwards they
shall be the only work conditions ruling between the parties.

      This Agreement may not be modified, amended, changed or considered to be
ended except by means of a written stipulation duly signed by the authorized
representatives of the parties and it is the intention of the contracting
parties to reserve for any future agreement which begins to rule after the
expiration of this Collective Bargaining Agreement any and all matters which are
not expressly covered by this Collective Bargaining Agreement.

                                   ARTICLE 71
                                    DURATION

      This Collective Bargaining Agreement shall be in effect during sixty (60)
months and shall begin to rule from January 1st, 2004 until midnight of December
31, 2008 except for the following articles which will be effective from the date
of the Agreements signature:

      -     Leave for Administrative Functions of the Collection Bargaining
            Agreement

      -     No strike and Lockout



      -     Dues Check-off

      -     Union Shop

      Section 3 and 9 (Arbitration) of the Grievance Procedure Article and
Article 49, Retirement Plan, will be retroactive to October 23, 2003.

EX-10.33

EXHIBIT 10.33

                              TERM CREDIT AGREEMENT

                            Dated as of May 17, 2004

      TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico corporation (the
"Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico corporation
("PRTC" or the "Guarantor"), the LENDERS parties hereto (collectively, the
"Lenders"), and BANCO BILBAO VIZCAYA ARGENTARIA PUERTO RICO ("BBVAPR"), as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

      SECTION 1.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

      "Administrative Agent's Account" means the account of the Administrative
Agent maintained by the Administrative Agent at The Chase Manhattan Bank with
its office at New York, New York ABA No. 021000021, Account No. 001-0974301,
Banco Bilbao Vizcaya Argentaria Puerto Rico, Attention: Corporate Banking.

      "Advance" means the Term Credit Advance.

      "Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling", "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.

      "Applicable Lending Office" means, with respect to each Lender, such
Lender's LIBOR Lending Office.

      "Applicable Margin" means 0.57%, for any Interest Period.

      "Assignment and Acceptance" has the meaning assigned to that term in
Section 9.07.

      "Base Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the higher of:

   (a) the rate of interest announced publicly by Citibank, N.A. in New York,
   New York, from time to time, as Citibank, N.A.'s base rate that is offered to
   its customers generally (before giving effect to any applicable margin); and



            (b) -1/2 of one percent per annum above the Federal Funds Rate.

      For purposes hereof, the Base Rate is not intended to be the lowest or
best rate of interest charged by any Lender to a customer, with each change in
such rate to be effective for purposes hereof on the day in which any such
change is announced as herein provided, whether or not such change is notified
to the Borrower by the Administrative Agent. The Base Rate will be computed on
the basis of a 360 day year for the actual number of days elapsed occurring in
the period for which such interest is payable.

      "Base Rate Advance" means a Term Credit Advance that bears interest based
upon the Base Rate as provided in Section 2.06(a)(i).

      "Borrower" has the meaning specified in the recital of parties.

      "Borrower's Account" means the account of the Borrower maintained by the
Borrower at Banco Popular de Puerto Rico with its office at Popular Center, Hato
Rey, Puerto Rico, Account No. 030-303664.

      "Bonds" means the following series of senior notes issued by the Borrower:
(i) $400,000,000 of 6.65% Senior Notes due 2006; and (ii) $300,000,000 of 6.80%
Senior Notes due 2009.

      "Borrowing" means the Term Credit Borrowing.

      "Business Day" means a day of the year on which banks are not required or
authorized by law or executive order to close in New York City or San Juan,
Puerto Rico, provided that, if the applicable Business Day relates to any LIBOR
Rate Advances, "Business Day" means a day of the year on which banks are not
required or authorized by law or executive order to close in New York City or
San Juan, Puerto Rico and on which dealings are carried on in the London
interbank market.

      "Commitment" has the meaning specified in Section 2.01.

      "Consolidated" refers to the consolidation of accounts in accordance with
GAAP.

      "Consolidated Assets" means the total assets of the Borrower and its
Subsidiaries as shown on the audited consolidated balance sheet or unaudited
consolidated balance sheet, as the case may be, as of the end of the most recent
fiscal quarter.

      "Controlling Interest" means (a) ownership of at least 35% plus one share
of the Voting Stock of the Borrower and (b) the ability to appoint a majority of
the Board of Directors of the Borrower.

      "Convert", "Conversion" and "Converted" each refers to a conversion of
Term Credit Advances of one Type into Term Credit Advances of the other Type
pursuant to Section 2.07 or 2.08.

      "Debt" of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of such Person's business for which collection
proceedings have not been commenced, provided that trade payables for which
collection proceedings have commenced shall not be included in the term "Debt"
so long as the payment of such trade payables is being contested in good faith
and by proper proceedings and for which appropriate reserves are being



maintained), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all obligations of such Person
created or arising under any conditional sale or other similar title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been, in accordance
with GAAP, recorded as capital leases, (f) all obligations, contingent or
otherwise, of such Person in respect of acceptances, letters of credit or
similar extensions of credit, (g) all net obligations of such Person in respect
of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through
(g) above or clause (i) or (j) below guaranteed directly, or indirectly through
a Subsidiary, by such Person, or in effect guaranteed directly, or indirectly
through a Subsidiary, by such Person through a written agreement either (1) to
pay or purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, or (2) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, and (i) all Debt referred to in clauses (a) through (h) above
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt.

      "Debt to EBITDA Ratio" of any Person at any date means the ratio of (a)
Debt of the types that, in accordance with GAAP, would be classified as
indebtedness on a Consolidated balance sheet of such Person on such date to (b)
EBITDA for the period of four fiscal quarters of such Person ended on or
immediately prior to such date, provided that for purposes of clause (a) of this
definition, Debt shall not include (1) the obligations specified in clause (g)
of the definition thereof set forth above or (2) with respect to the Borrower,
any obligations which may be assumed by the Borrower for guaranties of any
indebtedness of the Borrower's employee stock ownership plan up to an aggregate
principal amount of $29,745,000.

      "Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.

      "Disclosed Litigation" has the meaning specified in Section 3.01(b).

      "EBITDA" means the sum, determined on a Consolidated basis, of the
Borrower's (i) net income (or net loss), (ii) interest expense, (iii) income tax
expense, (iv) depreciation expense, (v) amortization expense, and (vi) non-cash
severance charges in an aggregate amount not to exceed $20,000,000 in calendar
year 2004 and $20,000,000 in calendar year 2005.

      "EBITDA to Interest Ratio" of any Person on any date means the ratio of
(a) EBITDA for the period of four fiscal quarters of such Person ended on or
immediately prior to such date to (b) interest payable on, and amortization of
debt discount in respect of, all Debt of such Person for the period of four
fiscal quarters of such Person ended on or immediately prior to such date,
provided that for purposes of clause (b) of this definition, Debt shall not
include the obligations specified in clause (g) of the definition thereof set
forth above.

      "Effective Date" has the meaning specified in Section 3.01.

      "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender that
is a financial institution and is majority-owned by such Lender; (iii) any
commercial bank organized under the laws of the Commonwealth of Puerto Rico
having total assets in excess of $1,000,000,000 and with an unsecured long-term
debt credit rating equal to or greater than BBB+ from S&P and Baa1 from Moody's;
(iv) any other commercial bank having total assets in excess of $1,000,000,000
and with an unsecured long-term debt credit rating equal to or greater than BBB+
from S&P and Baa1 from Moody's that has an Applicable



Lending Office that is not subject to deduction or withholding of Taxes; and (v)
any other Person approved by the Administrative Agent and the Borrower (so long
as no Default has occurred and is continuing), such approvals not to be
unreasonably withheld.

      "Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory authority or
any third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.

      "Environmental Law" means any federal, state, local (including the
Commonwealth of Puerto Rico) or foreign statute, law, ordinance, rule,
regulation, code, order, judgment, decree or judicial or agency interpretation,
policy or guidance relating to pollution or protection of the environment,
health, safety or natural resources, including, without limitation, those
relating to the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials and including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act,
the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide and Rodenticide Act and the Occupational Safety and Health Act, each
as amended from time to time.

      "Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

      "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA
is a member of the Loan Parties' controlled group, or under common control with
the Borrower, within the meaning of Section 414 of the Internal Revenue Code.

      "ERISA Event" means (a) the occurrence of a reportable event, within the
meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day
notice requirement with respect to such event has been waived by the PBGC; (b)
the application for a minimum funding waiver with respect to a Plan; (c) the
provision by the administrator of any Plan of a notice of intent to terminate
such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
the cessation of operations at a facility of any of the Loan Parties or any
ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by any of the Loan Parties or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (f) the imposition of a lien under
Section 302(f) of ERISA with respect to any Plan; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to
terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any
event or condition described in Section 4042 of ERISA that is reasonably
expected to result in the termination of, or the appointment of a trustee to
administer, a Plan.

      "Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.



      "Eurodollar Rate Reserve Percentage" of any Lender for any Advance means
the reserve percentage applicable during the relevant Interest Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Lender with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term equal
to such Interest Period.

      "Events of Default" has the meaning specified in Section 6.01.

      "Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.

      "GAAP" means (a) in the case of the preparation of all financial reporting
requirements, generally accepted accounting principles in the United States, as
in effect from time to time, and (b) in the case of the calculation,
certification and compliance with all financial tests and covenants, generally
accepted accounting principles in the United States, as in effect on the date of
the financial statements delivered to each Lender in accordance with Section
4.01(e), in each case applied on a consistent basis both as to classification of
items and amounts.

      "Guaranteed Obligations" has the meaning specified in Section 7.01.

      "Guarantor" has the meaning specified in the recital of parties to this
Agreement.

      "Guaranty" has the meaning specified in Section 7.01.

      "Hazardous Materials" means (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.

      "Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.

      "Interest Period" means, for each LIBOR Rate Advance comprising part of
the Term Credit Borrowing, the period commencing on the date of such LIBOR Rate
Advance or the date of the Conversion of any Base Rate Advance into such LIBOR
Rate Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below and, thereafter, with respect to such LIBOR
Rate Advances, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The duration of each
such Interest Period shall be for monthly periods of one, two, three or six
months, or any such other periods (as may be agreed to by the Administrative
Agent), as the Borrower may, upon notice received by the Administrative Agent
not later than 11:00 A.M. (Puerto Rico Time) on the third Business Day prior to
the first day of such Interest Period, select; provided, however, that:

            (i)   the Borrower may not select any Interest Period that ends
                  after the Termination Date;



            (ii)  Interest Periods commencing on the same date for LIBOR Rate
                  Advances comprising part of the Term Credit Borrowing shall be
                  of the same duration;

            (iii) whenever the last day of any Interest Period would otherwise
                  occur on a day other than a Business Day, the last day of such
                  Interest Period shall be extended to occur on the next
                  succeeding Business Day, provided, however, that, if such
                  extension would cause the last day of such Interest Period to
                  occur in the next following calendar month, the last day of
                  such Interest Period shall occur on the next preceding
                  Business Day; and

            (iv)  whenever the first day of any Interest Period occurs on a day
                  of an initial calendar month for which there is no numerically
                  corresponding day in the calendar month that succeeds such
                  initial calendar month by the number of months equal to the
                  number of months in such Interest Period, such Interest Period
                  shall end on the last Business Day of such succeeding calendar
                  month.

      "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

      "LIBOR Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "LIBOR Lending Office" opposite its name on
Schedule I hereto or opposite its name in the Assignment and Acceptance pursuant
to which it became a Lender or such other office of such Lender as such Lender
may from time to time specify to the Borrower and the Administrative Agent.

      "LIBOR Rate" means, for any Interest Period for each Advance comprising
part of the Term Credit Borrowing, an interest rate per annum equal to the rate
per annum obtained by dividing (a) the average (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in U.S. dollars are offered to prime
banks in the London interbank market at 11:00 A.M. (London time) two Business
Days before the first day of such Interest Period as quoted by Bloomberg
Professional (currently on page BBVAM1, or any succeeding page dealing with such
quotes), in an amount approximately equal to the Advance comprising part of such
Borrowing to be outstanding during such Interest Period and for a period equal
to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage for such Interest Period, if any. The Eurodollar Rate
for any Interest Period for each Advance comprising part of the same Borrowing
shall be determined by the Administrative Agent on the basis of applicable rates
as quoted by Bloomberg Professional (currently on page BBVAM1, or any succeeding
page dealing with such quotes), two Business Days before the first day of such
Interest Period. If for any reason such quotations are no longer published by
Bloomberg Professional, then the quote shall be obtained from Moneyline Telerate
Markets page 3750, or any succeeding page dealing with such quotes.

      "LIBOR Rate Advance" means a Term Credit Advance that bears interest as
provided in Section 2.06(a)(ii).

      "Lenders" means the Lenders and each Person that shall become a party
hereto pursuant to Section 9.07."

      "Lien" means any lien, security interest or other charge or encumbrance of
any kind.



      "Loan Documents" means this Agreement, the Term Credit Notes, and, on and
after the date of delivery thereof, each guarantee, mortgage, pledge, assignment
or other security instrument required to be delivered under the terms of this
Agreement or any other Loan Document, in each case as amended or otherwise
modified from time to time.

      "Loan Party" means each of the Borrower, the Guarantor and each other
Person (other than the Administrative Agent or any Lender) which is or becomes
or, under the terms of any Loan Document, is required to become a party to a
Loan Document.

      "Majority Lenders" means at any time Lenders holding at least 51% of the
then aggregate unpaid principal amount of the Notes held by Lenders, or, if no
such principal amount is then outstanding, Lenders having at least 51% of the
Commitments.

      "Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any Loan Party and its Subsidiaries
taken as a whole.

      "Material Adverse Effect" means a material adverse effect on (a) the
ability of any Loan Party to conduct its business on substantially the same
basis as conducted on the Effective Date, or (b) the ability of any Loan Party
to service its Debt obligations on a timely basis.

      "Moody's" means Moody's Investors Service, Inc.

      "Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.

      "Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and at least one Person other than such Loan Party
and the ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section 4064 or
4069 of ERISA in the event such plan has been or were to be terminated.

      "Note" means a Term Credit Note.

      "Notice of Term Credit Borrowing" has the meaning specified in Section
2.02(a).

      "Other Taxes" has the meaning specified in Section 2.13(b).

      "PBGC" means the Pension Benefit Guaranty Corporation (or any successor).

      "Permitted Liens" means, with respect to any Person, (a) Liens for taxes,
assessments and governmental charges and levies to the extent not required to be
paid under Section 5.01(i) hereof; (b) pledges or deposits to secure obligations
under workers' compensation laws or similar legislation; (c) pledges or deposits
to secure performance in connection with bids, tenders, contracts (other than
contracts for the payment of money) or leases to which such Person is a party;
(d) deposits to secure public or statutory obligations of such Person; (e)
materialmen's, mechanics', carriers', workers', repairmen's or other like Liens
in the ordinary course of business, or deposits to obtain the release of such
Liens to the extent such Liens, in the aggregate, would not have a Material
Adverse Effect; (f) deposits to secure surety and appeal bonds to which such
Person is a party; (g) other pledges or deposits for similar purposes in the
ordinary course of business; (h) Liens created by or resulting from any
litigation or legal proceeding which



at the time is currently being contested in good faith by appropriate
proceedings; (i) leases existing on property acquired, in the ordinary course of
business; (j) landlord's Liens under leases to which such Person is a party; (k)
zoning restrictions, easements, licenses, and restrictions on the use of real
property or minor irregularities in title thereto, which do not materially
impair the use of such property in the operation of the business of such Person
or the value of such property for the purpose of such business; and (l) bankers'
liens, rights of set-off or analogous rights granted or arising by operation of
law to any deposits held by or other indebtedness owing by any lender or any
affiliate thereof to or for the credit or account of such person.

      "Permitted Receivables Financing" means any financing pursuant to which
the Borrower or any Subsidiary of the Borrower may sell, convey, or otherwise
transfer to a Receivables Subsidiary or any other Person (in the case of
transfer by a Receivables Subsidiary), or grant a security interest in, any
accounts receivable (and related assets) of the Borrower or such Subsidiary,
provided that such financing shall be on customary market terms and shall be
non-recourse to the Borrower and its Subsidiaries (other than the Receivables
Subsidiary) except to a limited extent customary for such transactions. The
grant of a security interest in any accounts receivable of the Borrower or any
Subsidiary of the Borrower (other than a Receivables Subsidiary) to secure Debt
under any credit facility shall not be deemed a Permitted Receivables Financing.

      "Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.

      "Plan" means a Single Employer Plan or a Multiple Employer Plan.

      "Receivables Subsidiary" means a bankruptcy-remote, special-purpose wholly
owned Subsidiary formed in connection with a Permitted Receivables Financing.

      "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc.

      "Services Agreement" means the Services Agreement, dated as of March 2,
2004, by and among the Borrower, PRTC and Verizon Corporate Services Group
Incorporated, as amended, modified, renewed or replaced from time to time.

      "Significant Subsidiary" means at any time any Subsidiary, other than a
Receivables Subsidiary, the assets of which, in the aggregate, exceed five
percent (5%) of the Consolidated Assets , determined in accordance with GAAP.

      "Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or
any ERISA Affiliate and no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which any Loan Party or
any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.

      "Solvent" and "Solvency" mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay such debts
and liabilities as they mature and (d) such Person is not engaged in business or
a transaction, and is not about to engage in business or a



transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability after taking into account any
indemnification pursuant to the terms of any agreements entered into in
connection therewith.

      "Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate, is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.

      "Subsidiary Existing Debt" has the meaning specified in Section 5.02(d).

      "Taxes" has the meaning specified in Section 2.13(a).

      "Term Credit Advance" means an advance by a Lender to the Borrower as part
of the Term Credit Borrowing and refers to a Base Rate Advance or a LIBOR Rate
Advance.

      "Term Credit Borrowing" means the borrowing consisting of simultaneous
Term Credit Advances made by each of the Lenders pursuant to Section 2.01.

      "Term Credit Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A hereto, evidencing
the aggregate indebtedness of the Borrower to such Lender resulting from the
Term Credit Advance made by such Lender.

      "Termination Date" means the earlier of (a) May 17, 2005 and (b) the date
of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.

      "Type" means, as to any Term Credit Advance, whether such Advance is a
Base Rate Advance or a LIBOR Rate Advance, each of which shall constitute a type
of Advance under this Agreement.

      "Verizon" means Verizon Communications, Inc., a Delaware corporation.

      "Voting Stock" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.

      "Withholding Tax Change" means the approval by either the House of
Representatives or the Senate of the Commonwealth of Puerto Rico of any proposal
to change any applicable law, treaty or government rule, regulation or order
which would require the Borrower to deduct or withhold any Taxes from or in
respect of any sum payable hereunder or under any Note to any Lender or the
Administrative Agent.



      SECTION 1.02 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".

      SECTION 1.03 Accounting Terms. All terms of an accounting or financial
nature not specifically defined herein shall be construed in accordance with
GAAP.

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

      SECTION 2.01 The Term Credit Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make the Term Credit Advances
to the Borrower on the Effective Date in the aggregate amount set forth opposite
such Lender's name on the signature pages hereof, as such amount may be reduced
pursuant to Section 2.04 (such Lender's "Commitment"). The Term Credit Borrowing
shall be in an aggregate amount of $1,000,000 or an integral multiple of
$1,000,000 in excess thereof. Within the limits of this Section 2.01, the
Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09 and
may Convert Borrowings of one Type into Borrowings of another Type as provided
for in Section 2.08, provided, however, that any amounts repaid or prepaid may
not be reborrowed.

      SECTION 2.02 Making the Term Credit Advances.

            (a) The Term Credit Borrowing shall be made on notice, given not
later than 11:00 A.M. (Puerto Rico Time) on the Business Day of the Effective
Date by the Borrower to the Administrative Agent, which shall give to each
Lender prompt notice thereof by telecopier or telex. The notice of the Term
Credit Borrowing (the "Notice of Term Credit Borrowing") shall be by telephone,
confirmed immediately in writing, or telecopier or telex in substantially the
form of Exhibit B hereto, specifying therein the requested (i) date of the Term
Credit Borrowing, (ii) Type of Advances comprising the Term Credit Borrowing,
(iii) aggregate amount of the Term Credit Borrowing, and (iv) in the case that
the Term Credit Borrowing consists of LIBOR Rate Advances, initial Interest
Period for each such Term Credit Advance. Each Lender shall, before 12:00 noon
(Puerto Rico Time) on the Effective Date, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's Account, in same day funds, such Lender's ratable portion of such Term
Credit Borrowing. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower at the
Borrower's Account.

                  (b) Anything in subsection (a) above to the contrary
notwithstanding, the Borrower may not select a LIBOR Rate Advance for the Term
Credit Borrowing if the aggregate obligation of the Lenders to make LIBOR Rate
Advances shall then be suspended pursuant to Section 2.07 or 2.11.

                  (c) The Notice of Term Credit Borrowing shall be irrevocable
and binding on the Borrower. In the case that the Term Credit Borrowing consists
of LIBOR Rate Advances, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in the Notice of Term Credit Borrowing
for the Term Credit Borrowing the applicable conditions set forth in Article
III, including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or



reemployment of deposits or other funds acquired by such Lender to fund the Term
Credit Advance to be made by such Lender as part of the Term Credit Borrowing
when such Term Credit Advance, as a result of such failure, is not made on such
date.

                  (d) Unless the Administrative Agent shall have received notice
from a Lender prior to the time of the Term Credit Borrowing that such Lender
will not make available to the Administrative Agent such Lender's ratable
portion of the Term Credit Borrowing, the Administrative Agent may assume that
such Lender has made such portion available to the Administrative Agent on the
Effective Date in accordance with subsection (a) of this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Term Credit Advances comprising the Term Credit Borrowing and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Term Credit Advance as part of the Term Credit
Borrowing for purposes of this Agreement and the Borrower shall be relieved of
its obligations to repay such amount under this Section 2.02(d).

            (e) The failure of any Lender to make the Term Credit Advance to be
made by it as part of the Term Credit Borrowing shall not relieve any other
Lender of its obligation hereunder to make its Term Credit Advance on the
Effective Date, but no Lender shall be responsible for the failure of any other
Lender to make the Term Credit Advance to be made by such other Lender on the
Effective Date.

      SECTION 2.03 Facility Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee on the
aggregate amount of such Lender's outstanding Advances from the Effective Date
until the Termination Date at a rate per annum equal to 0.125%, payable in
arrears quarterly on the last day of each March, June, September and December,
commencing on June 30, 2004, and on the Termination Date.

      SECTION 2.04 Termination or Reduction of the Commitments. The Borrower
shall have the right, upon at least three Business Days' notice to the
Administrative Agent, to permanently terminate in whole or permanently reduce in
part the unused portions of the respective Commitment of the Lenders, provided
that each partial reduction shall be in the aggregate amount of $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and shall permanently
reduce the Commitments of the Lenders on a pro-rata basis.

      SECTION 2.05 Repayment of Term Credit Advances. The Borrower shall repay
to the Administrative Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of the Term Credit Advances then
outstanding.

      SECTION 2.06 Interest.



            (a) Scheduled Interest. The Borrower shall pay interest on the
unpaid principal amount of the Term Credit Advance owing to each Lender from the
date of such Advance until such principal amount shall be paid in full, at the
following rates per annum:

                  (i) Base Rate Advances. During such periods as such Term
            Credit Advance is a Base Rate Advance, a rate per annum equal at all
            times to the Base Rate in effect from time to time, payable in
            arrears on the last day of such Interest Period and, if such
            Interest Period has a duration of more than three months, on each
            day that occurs during such Interest Period every three months from
            the first day of such Interest Period, and on the date such Base
            Rate Advance shall be Converted or paid in full.

                  (ii) LIBOR Rate Advances. During such periods as such Term
            Credit Advance is a LIBOR Rate Advance, a rate per annum equal at
            all times during each Interest Period for such Term Credit Advance
            to the sum of (x) the LIBOR Rate for such Interest Period for such
            Term Credit Advance, plus (y) the Applicable Margin, payable in
            arrears on the last day of such Interest Period and, if such
            Interest Period has a duration of more than three months, on each
            day that occurs during such Interest Period every three months from
            the first day of such Interest Period and on the date such LIBOR
            Rate Advance shall be Converted or paid in full.

            (b) Default Interest. Upon the occurrence and during the continuance
of an Event of Default under Section 6.01(a), the Borrower shall pay interest on
(i) the unpaid principal amount of the Term Credit Advance owing to each Lender,
payable in arrears on the date such amount shall be paid in full and on demand
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Term Credit Advance pursuant to clause (a)(i) or
(a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any
interest, fee or other amount payable hereunder that is not paid when due, from
the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Term Credit Advances pursuant to clause (a)(i) above.

      SECTION 2.07 Interest Rate Determination.

            (a) The Administrative Agent shall give prompt notice to the
      Borrower and the Lenders of the applicable interest rate determined by the
      Administrative Agent for purposes of Section 2.06(a)(i) or (ii). If, with
      respect to any LIBOR Rate Advances, any Lender notifies the Administrative
      Agent that the LIBOR Rate for any Interest Period for such Advances will
      not adequately reflect the cost to such Lender of making, funding or
      maintaining their respective LIBOR Rate Advances for such Interest Period,
      the Administrative Agent shall forthwith so notify the Borrower and the
      Lenders, whereupon (i) each LIBOR Rate Advance will automatically, on the
      last day of the then existing Interest Period therefor, Convert into a
      Base Rate Advance, and (ii) the obligation of the Lenders to make, or to
      Convert Term Credit Advances into, LIBOR Rate Advances shall be suspended
      until the



      Administrative Agent shall notify the Borrower and the Lenders that the
      circumstances causing such suspension no longer exist.

                        (b) If the Borrower shall fail to select the duration of
any Interest Period for any LIBOR Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.

                        (c) On the date on which the aggregate unpaid principal
amount of LIBOR Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $1,000,000, such Advances shall
automatically Convert into Base Rate Advances.

            (d) Upon the occurrence and during the continuance of any Event of
Default under Section 6.01, (i) each LIBOR Rate Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a Base
Rate Advance and (ii) the obligation of the Lenders to make, continue or to
Convert Advances into, LIBOR Rate Advances shall be suspended.

                        (e) If on any date the Administrative Agent is unable to
determine the LIBOR Rate for any LIBOR Rate Advances to be made on such date,

                  (i) the Administrative Agent shall forthwith notify the
            Borrower and the Lenders that the interest rate cannot be determined
            for such LIBOR Rate Advances,

                  (ii) with respect to LIBOR Rate Advances, each such Advance
      will automatically, on the last day of the then existing Interest Period
      therefor, Convert into a Base Rate Advance (or if such Advance is then a
      Base Rate Advance, will Continue as a Base Rate Advance), and

                  (iii) the obligation of the Lenders to make LIBOR Rate
      Advances or to Convert Term Credit Advances into LIBOR Rate Advances shall
      be suspended until the Administrative Agent shall notify the Borrower and
      the Lenders that the circumstances causing such suspension no longer
      exist.

         SECTION 2.08 Optional Conversion of Term Credit Advances. The Borrower
may on any Business Day, upon notice given to the Administrative Agent not later
than 11:00 A.M. (Puerto Rico Time) on the third Business Day prior to the date
of the proposed Conversion and subject to the provisions of Sections 2.08 and
2.12, Convert all Term Credit Advances of one Type comprising the same Borrowing
into Term Credit Advances of the other Type; provided, however, that any
Conversion of LIBOR Rate Advances into Base Rate Advances shall be made only on
the last day of an Interest Period for such LIBOR Rate Advances and any
Conversion of Base Rate Advances into LIBOR Rate Advances shall be in an amount
not less than $1,000,000. Each such notice of a Conversion shall, within the
restrictions specified above, specify (i) the date of such Conversion, (ii) the
Term Credit Advances to be Converted and (iii) if



such Conversion is into LIBOR Rate Advances, the duration of the initial
Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.

      SECTION 2.09 Prepayments of Advances. The Borrower may, upon at least two
Business Days' notice to the Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amount of the Term Credit
Advances comprising part of the same Borrowing in whole or in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that (x) each partial prepayment shall be in an
aggregate principal amount of $1,000,000 or an integral multiple of $1,000,000
in excess thereof, (y) the Borrower shall be obligated to reimburse the Lenders
in respect thereof pursuant to Section 9.04(b) and (z) each partial prepayment
shall permanently reduce in the amount of the prepayment the Commitments of the
Lenders on a pro-rata basis.

      SECTION 2.10 Increased Costs.

            (a) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
written guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any increase
in the cost to any Lender of agreeing to make or making, funding or maintaining
LIBOR Rate Advances (excluding for purposes of this Section 2.10 any such
increased costs resulting from (i) Taxes or Other Taxes (as to which Section
2.13 shall govern) and (ii) changes in the basis of taxation of overall net
income or overall gross income by the United States or by the foreign
jurisdiction or state under the laws of which such Lender is organized or has
its Applicable Lending Office or any political subdivision thereof, then the
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost (whether or not such increased costs arise prior
to the receipt of written notification from such central bank or other
governmental authority); provided that the Borrower shall not be required to pay
any such increased costs to the extent such increased costs accrued prior to the
date that is six months prior to the date of such notice. A certificate as to
the amount of such increased cost, submitted to the Borrower and the
Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error in the calculation of such amount.

            (b) If any Lender determines that compliance with any law or
regulation or any written guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender (excluding any reserves
included in the computation of the LIBOR Rate) and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type (taking into consideration
such Lender's policies and the policies of any corporation controlling such
Lender with respect to capital adequacy) then, upon demand by such Lender (with
a copy of such demand to the Administrative Agent), the Borrower shall pay to
the Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation (whether or not such amounts arise prior to the
receipt of written notification from such central bank or other governmental
authority) in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable (in the
proportion that such Lender's Commitment hereunder bears to all of such Lender's
commitments of this type) to the existence of such Lender's commitment to lend
hereunder; provided that the Borrower shall not be required to compensate such
Lender to the extent such amounts arose prior to the date that is six months
prior to such notice. A certificate as to such amounts submitted to the Borrower
and the Administrative Agent by such Lender shall be conclusive and binding for
all purposes, absent manifest error in the calculation of such amounts.



                        (c) Any Lender claiming any additional amounts payable
pursuant to this Section 2.10 agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to minimize such
additional amounts and to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any additional amounts that may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise notably disadvantageous to
such Lender. The Borrower shall reimburse such Lender for such Lender's
reasonable expenses incurred in connection with such change or in considering
such a change in an amount not to exceed the Borrower's pro rata share of such
expenses based on such Lender's Commitment and Advances and the total lending
commitments and loans of such Lender to its similarly situated customers.

      SECTION 2.11 Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority having relevant jurisdiction asserts that it is unlawful, for any
Lender or its Applicable Office to perform its obligations hereunder to make
LIBOR Rate Advances or to fund or maintain LIBOR Rate Advances hereunder, (i)
each LIBOR Rate Advance made by such Lender will automatically, upon such
demand, Convert into a Base Rate Advance, as the case may be, and (ii) the
obligation of such Lender to make LIBOR Rate Advances or to Convert Term Credit
Advances into LIBOR Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.

      SECTION 2.12 Payments and Computations.

            (a) The Borrower shall make each payment hereunder and under the
    Notes not later than 11:00 A.M. (Puerto Rico Time) on the day when due in
    U.S. dollars to the Administrative Agent at the Administrative Agent's
    Account in same day funds. The Administrative Agent will promptly thereafter
    cause to be distributed like funds relating to the payment of principal or
    interest or facility fees ratably (other than amounts payable pursuant to
    Sections 2.09, 2.10 or 9.04(c)) to the Lenders for the account of their
    respective Applicable Lending Offices, and like funds relating to the
    payment of any other amount payable to any Lender to such Lender for the
    account of its Applicable Lending Office, in each case to be applied in
    accordance with the terms of this Agreement.

            (b) All computations of interest and of facility fees shall be made
by the Administrative Agent on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or facility fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error in the
calculation of such interest rate.

            (c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or facility fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or



principal of LIBOR Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.

                        (d) Unless the Administrative Agent shall have received
notice from the Borrower prior to the time on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.

      SECTION 2.13 Taxes.

            (a) Subject to subsections (e) and (f) below, any and all payments
by the Borrower hereunder or under the Notes shall be made, in accordance with
Section 2.12, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto imposed by the Commonwealth of Puerto Rico, the
United States or any political subdivision of either (or in the case of any
payments by or on behalf of the Borrower through an account or branch outside
the United States or the Commonwealth of Puerto Rico or by or on behalf of the
Borrower by a payor that is not a United States person or not organized or
resident in the Commonwealth of Puerto Rico such payments shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto imposed by a foreign jurisdiction or any political subdivision thereof),
excluding, in the case of each Lender and the Administrative Agent, taxes
imposed on its overall net income, and franchise taxes imposed on it in lieu of
net income taxes (x) in the case of a Lender pursuant to the laws of the
jurisdiction (or any political subdivision or taxing authority therein) in which
it is organized or in which the principal office of such Lender or Applicable
Lending Office of such Lender is located, or (y) in the case of any payment to
the Administrative Agent in its capacity as Administrative Agent, the
jurisdiction (or any political subdivision or taxing authority therein) in which
it is organized or in which the principal office of the Administrative Agent is
located or in which the office designated by the Administrative Agent to act as
Administrative Agent is located (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). Subject
to subsections (e) and (f) below, if the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender or the Administrative Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.13) such Lender or the Administrative Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. Within 30 days after the date of any payment
of Taxes, the Borrower shall furnish to the Administrative Agent, at its address
referred to in Section 9.02, the original or a certified copy of a receipt
evidencing payment thereof. For purposes of this subsection (a) and subsection
(e), the terms "United States" and "United States person" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.

            (b) In addition, the Borrower agrees to pay any stamp or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with



respect to, this Agreement or the Notes as a result of the introduction of any
change in or in the interpretation of any law or regulation after the Effective
Date (hereinafter referred to as "Other Taxes").

                        (c) Subject to subsections (d), (e) and (f) below, the
Borrower shall indemnify each Lender and the Administrative Agent for the full
amount of Taxes or Other Taxes (to the extent not previously paid under
subsection (a) or (b) above) imposed on or paid by such Lender or the
Administrative Agent (as the case may be) on or with respect to any payment by
or on account of any obligation of any Loan Party hereunder or under any other
Loan Document and any liability (including penalties, interest and expenses but
excluding any taxes imposed by any jurisdiction on amounts which may be paid or
payable by the Borrower to a Lender or the Administrative Agent under this
Section 2.13) arising therefrom or with respect thereto. This indemnification
shall be made within 30 Business Days from the date such Lender or the
Administrative Agent (as the case may be) makes written demand therefor.

            (d) Each Lender organized under the laws of a jurisdiction outside
of the Commonwealth of Puerto Rico from time to time as requested in writing by
the Borrower (but only so long as such Lender remains lawfully able to do so),
shall provide each of the Administrative Agent and the Borrower with two
properly and accurately completed and duly executed original copies of any form,
document or other certificate that is necessary for such Lender to be exempt
from, or entitled to a reduced rate of Taxes or payments hereunder or under the
Notes or for the Borrower to determine the applicable rate of deduction or
withholding of any Taxes. If any Lender which is organized under the laws of a
jurisdiction outside of the Commonwealth of Puerto Rico is unable to provide the
above-described forms, documents or other certificates for a relevant interest
period (or if the Lender's appropriate personnel responsible for providing the
forms, documents or other certificates actually become aware that the forms,
documents or other certificates provided by it are inaccurate), such Lender
shall notify the Borrower in writing prior to or immediately upon the
commencement of such relevant interest period.

            (e) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form, document or other certificate
requested by the Borrower in accordance with Section 2.13(d) (other than if such
failure is due to a change in any applicable law, treaty or government rule,
regulation or order, or any change in the interpretation, administration or
application of law occurring subsequent to the date hereof such that such Lender
is not lawfully able to provide the Borrower with the appropriate form, document
or other certificate, or if such form, document or other certificate is no
longer required to establish an exemption from the applicable tax), such Lender
shall not be entitled to indemnification under Section 2.13(a) or (c) with
respect to Taxes by reason of such failure and the Borrower shall be entitled to
withhold Taxes from payments to such Lender; provided, however, that should a
Lender become subject to Taxes because of its failure to deliver a form,
document or other certificate required hereunder, the Borrower shall take such
steps at such Lender's expense as such Lender shall reasonably request to assist
such Lender to recover such Taxes.

                        (f) Notwithstanding anything else contained in this
Section 2.13, the Borrower shall only be required to pay additional sums with
respect to Taxes (subject to subsection (h) below) to a Lender (or the
Administrative Agent, as the case may be) pursuant to subsection (a) or (c)
above if the obligation to pay such Taxes results from such Lender's inability
to obtain a complete exemption from Taxes as a result of (i) any amendment to
the laws (or any regulations thereunder), or any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority adopted or enacted
after the date hereof (or in the case of an entity that becomes a Lender after
the date hereof, the date such entity becomes a Lender), (ii) an amendment,
modification or revocation of any existing applicable tax treaty ratified,
enacted or amended after the date hereof (or in the case of an entity that
becomes a Lender after the date hereof, the date such entity becomes a Lender),
or (iii) the ratification of a new tax treaty ratified after the date hereof (or
in the case of an entity that becomes a Lender after the date hereof, the date
such entity



becomes a Lender).

            (g) In the event that the Borrower makes an additional payment under
Section 2.13(a) or 2.13(c) for the account of any Lender and such Lender, in its
sole opinion, determines that it has finally and irrevocably received or been
granted a credit against, or relief or remission from, or repayment of, any tax
paid or payable by it in respect of or calculated with reference to the
deduction or withholding giving rise to such additional payment, such Lender
shall, to the extent that it determines that it can do so without prejudice to
the retention of the amount of such credit, relief, remission or repayment, pay
to the Borrower such amount as such Lender shall, in its sole opinion, have
determined is attributable to such deduction or withholding and will leave such
Lender (after such payment) in no worse position than it would have been had the
Borrower not been required to make such deduction or withholding. Nothing
contained herein shall (i) interfere with the right of a Lender to arrange its
tax affairs in whatever manner it thinks fit or (ii) oblige any Lender to claim
any tax credit or to disclose any information relating to its tax affairs or any
computations in respect thereof or (iii) require any Lender to take or refrain
from taking any action that would prejudice its ability to benefit from any
other credits, reliefs, remissions or repayments to which it may be entitled.
Each Lender and the Administrative Agent shall reasonably cooperate with the
Borrower at the Borrower's written request and sole expense, in contesting any
Taxes or Other Taxes the Borrower would bear pursuant to this Section 2.13,
provided, however, that (i) no tax return of such Lender or the Administrative
Agent is or would be held open as a result of such contest, (ii) neither such
Lender nor the Administrative Agent is required to reopen a tax year that has
already closed and (iii) such Lender and the Administrative Agent shall, in the
sole opinion of such Lender and the Administrative Agent, respectively, have
determined that such contest will leave such Lender and the Administrative
Agent, respectively, in no worse position than it would have been in had it not
contested such Taxes or Other Taxes. Nothing contained herein shall interfere
with the right of a Lender or the Administrative Agent to arrange its tax
affairs in whatever manner it thinks fit, if in the sole judgment of such Lender
or the Administrative Agent, such contest would be disadvantageous to such
Lender or the Administrative Agent. In pursuing a contest in the Lender's or the
Administrative Agent's name, such Lender or the Administrative Agent will be
represented by counsel of such Lender's or the Administrative Agent's choice,
and will defend against, settle or otherwise control the contest and will not
relinquish control or decision making over the contest.

                        (h) (i) Any Lender claiming any additional amounts
payable pursuant to this Section 2.13 or (ii) upon a Withholding Tax Change,
each Lender, agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to avoid or minimize such
additional amounts and to change the jurisdiction of its LIBOR Lending Office if
the making of such a change would avoid the need for, or reduce the amount of,
any additional amounts that may thereafter accrue and would not, in the
reasonable judgment of such Lender, be otherwise notably disadvantageous to such
Lender. The Borrower shall reimburse such Lender for such Lender's reasonable
expenses incurred in connection with such change or in considering such a change
in an amount not to exceed the Borrower's pro rata share of such expenses based
on such Lender's Commitment and Advances to the Borrower and the total lending
commitments and loans of such Lender to its similarly situated customers.

      SECTION 2.14 Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely to
repay outstanding loans under that certain Term Credit Agreement dated as of May
16, 2002 by and among the Borrower, the Guarantor, the Lenders parties thereto
and the Administrative Agent.

      SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances made by it (other than
pursuant to Section 2.10, 2.13, 9.04(c) or 9.07) in excess of its ratable share
of payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith



purchase from the other Lenders such participations in the Advances made by them
as shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of the amount of such Lender's required repayment to the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.15 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.

                                   ARTICLE III

CONDITIONS TO EFFECTIVENESS AND LENDING

      SECTION 3.01 Conditions Precedent to Effectiveness of Section 2.01.
Section 2.01 of this Agreement shall become effective on and as of the first
date, but in no event later than May 17, 2004, (the "Effective Date") on which
the following conditions precedent have been satisfied:

                        (a) There shall have occurred no Material Adverse Change
since December 31, 2003.

            (b) There shall exist no labor dispute, action, suit, investigation,
litigation or proceeding affecting any of the Loan Parties or any of their
respective Subsidiaries pending or threatened before any court, governmental
agency or arbitrator that (i) could be reasonably likely to have a Material
Adverse Effect other than the matters described on Schedule 3.01(b) hereto (the
"Disclosed Litigation") or (ii) is initiated by any Person other than a Lender
in its capacity as a Lender that purports to affect the legality, validity or
enforceability of this Agreement, any Note, any other Loan Document or the
consummation of the transactions contemplated hereby, and there shall have been
no material adverse change in the status, or financial effect on any Loan Party,
of the Disclosed Litigation from that described on Schedule 3.01(b) hereto.

                        (c) All governmental and third party consents and
approvals necessary in connection with the execution, delivery and performance
of this Agreement, the Notes and any other Loan Document shall have been
obtained (without the imposition of any conditions that could reasonably be
expected to materially adversely affect the ability of any Loan Party to perform
its obligations hereunder) and shall remain in effect, and no law or regulation
shall be applicable that restrains, prevents or imposes adverse conditions upon
the transactions contemplated hereby that could reasonably be expected to
materially adversely affect the ability of any Loan Party to perform its
obligations hereunder.

                        (d) The Borrower shall have paid all costs and expenses
of the Administrative Agent and the Lenders in connection with the preparation,
negotiation, execution and, if applicable, filing and recording of this
Agreement and the other Loan Documents (including the accrued fees and expenses
of counsel to the Administrative Agent and the Lenders) to the extent invoiced
and subject to the terms and conditions of Section 9.04(a) herein.




                        (e) The Borrower shall have notified each Lender and the
Administrative Agent in writing of the proposed Effective Date.

                        (f) On the Effective Date, the following statements
shall be true and the Administrative Agent shall have received for the account
of each Lender a certificate signed by a duly authorized officer of the
Borrower, dated the Effective Date, stating that:

                  (i) The representations and warranties contained in Section
      4.01 are correct on and as of the Effective Date, and

                  (ii) No event has occurred and is continuing that constitutes
      a Default.

            (g) The Administrative Agent shall have received on or before the
Effective Date the following, each dated such day, in form and substance
satisfactory to the Administrative Agent:

                  (i) The Term Credit Notes to the order of the Lenders,
      respectively.

                  (ii) Certified copies of the resolutions of the Board of
      Directors of each Loan Party approving the transactions contemplated by
      this Agreement and the Notes and of all documents evidencing other
      necessary corporate action and governmental approvals, if any, with
      respect to this Agreement and such Notes.

                  (iii) A certificate of the Secretary or an Assistant Secretary
      of each Loan Party certifying the names and true signatures of the
      officers of each Loan Party authorized to sign this Agreement and the
      Notes and the other Loan Documents to be delivered hereunder.

                  (iv) A certificate, in substantially the form of Exhibit C
      hereto, attesting to the Solvency of each Loan Party after giving effect
      to the Borrowings contemplated hereunder, from the chief financial officer
      of each such Loan Party.

                  (v) A favorable opinion of Sandra Torres, Esq., Director of
      the Legal and Regulatory Affairs Department for the Loan Parties,
      substantially in the form of Exhibit D hereto.

                  (vi) Certificates of good standing dated not more than ninety
      (90) days prior to the execution of this Agreement showing that each Loan
      Party is in good standing in the Commonwealth of Puerto Rico, and a copy
      certified by the Secretary of each Loan Party, dated not more than thirty
      (30) days prior to the date of execution of this Agreement, of the
      Articles of Incorporation and By-Laws of such Loan Party.

                  (vii) A certificate of a duly authorized officer of the
      Borrower certifying that the Borrower and the Guarantor have in effect the
      insurance coverage required pursuant to Section 5.01(b).



ARTICLE IV

REPRESENTATIONS AND WARRANTIES

      SECTION 4.01 Representations and Warranties of the Borrower. In order to
induce the Lenders to make the Term Credit Advances hereunder, the Borrower
makes the following representations and warranties to the Lenders:

                        (a) Each Loan Party is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.

            (b) The execution, delivery and performance by each Loan Party of
this Agreement and the Notes executed by it and the consummation of the
transactions contemplated hereby, are within such Loan Party's corporate powers,
have been duly authorized by all necessary corporate action, and do not
contravene (i) such Loan Party's charter or by-laws (or other equivalent
organizational documents) or (ii) any law or any material contractual
restriction binding on or affecting such Loan Party or, to the knowledge of the
chief financial officer of the Borrower, any other contract the breach of which
would limit the ability of any Loan Party to perform its obligations under this
Agreement or the Notes. No Loan Party is in violation of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to it, or in breach of any indenture, agreement, lease or instrument,
the violation or breach of which is reasonably likely to have a Material Adverse
Effect.

            (c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by any
Loan Party of this Agreement or the Notes.

            (d) This Agreement has been, and each of the Notes when delivered
hereunder will have been, duly executed and delivered by the Borrower. This
Agreement has been duly executed and delivered by the Guarantor. Assuming that
this Agreement has been duly executed by the Administrative Agent and each of
the Lenders, this Agreement is, and each of the Notes when delivered hereunder
will be, the legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with their respective terms. Assuming that
this Agreement has been duly executed by the Administrative Agent and each of
the Lenders, this Agreement is the legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms.

                        (e) The Consolidated balance sheet of the Borrower and
its Subsidiaries as at December 31, 2003, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries for the
fiscal year then ended, accompanied by an opinion of Ernst & Young LLP, its
independent public accountants, copies of which have been furnished to each
Lender, fairly and accurately represent the Consolidated financial condition of
the Borrower and its Subsidiaries as at such date and the Consolidated results
of the operations of the Borrower and its Subsidiaries for the period ended on
such date, all in accordance with generally accepted accounting principles
consistently applied.

                        (f) There is no pending or (to the knowledge of any Loan
Party)



threatened action or proceeding, including, without limitation, any
Environmental Action, affecting any Loan Party or any of its Subsidiaries before
any court, governmental agency or arbitrator that is initiated by any Person
other than a Lender in its capacity as a Lender that purports to affect the
legality, validity or enforceability of this Agreement or any Note.

                  (g) Neither the Borrower nor any of its Subsidiaries is an
Investment Company, as such term is defined in the Investment Company Act of
1940, as amended.

                  (h) No Loan Party is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.

                  (i) As of the date hereof, the Borrower has no direct or
      indirect Significant Subsidiaries, except as set forth in Schedule
      4.01(i).

                  (j) The Borrower and the Guarantor are Solvent.

                  (k) Each Loan Party and each of its respective Subsidiaries
have filed all federal, state, commonwealth and local tax returns required to be
filed and have paid all taxes shown thereon to be due, including interest and
penalties, or have provided adequate reserves therefor; no unpaid or uncontested
assessments have been made against any Loan Party or any Subsidiary of any Loan
Party by any taxing authority, nor has any unpaid or uncontested penalty or
deficiency been assessed by any such authority, and all contested assessments
have been disclosed to the Administrative Agent and adequate reserves have been
made therefor. Such tax returns properly reflect the income and taxes of each
respective Loan Party and its Subsidiaries for the periods covered thereby,
subject only to reasonable adjustments required by the corresponding taxing
authorities upon audit or other adjustments not reasonably likely to have a
Material Adverse Effect.

                  (l) Schedules 3.01(b), 4.01(i), 5.02(a) and 5.02(d) to this
Term Credit Agreement furnished by the Loan Parties do not contain any material
misstatement of fact or omit to state a material fact necessary to make the
statements contained therein not misleading.

                  (m) The operations and properties of each Loan Party comply in
all material respects with all applicable Environmental Laws; all necessary
Environmental Permits have been obtained and are in effect for the operations
and properties of each Loan Party, and each Loan Party is in compliance in all
material respects with all such Environmental Permits; none of the operations or
properties of any Loan Party is subject to any Environmental Action alleging the
violation of any Environmental Law; none of the operations of any Loan Party are
the subject of a federal, state, commonwealth or local investigation evaluating
whether any remedial action is needed to respond to a release of any hazardous
or toxic waste, substance or constituent, or any other substance into the
environment, which Environmental Action or remedial action is reasonably likely
to have a Material Adverse Effect.



                  (n) The obligations of the Borrower under this Agreement, and
the obligations of the Guarantor under the Guaranty rank pari passu in right of
payment with all other senior unsecured Debt of such Person.

                                   ARTICLE V

                          COVENANTS OF THE LOAN PARTIES

      SECTION 5.01 Affirmative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, each Loan Party will:

            (a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws, except where the failure to so
comply would not have a Material Adverse Effect.

            (b) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
as such Loan Party and such Subsidiaries in the same general areas in which such
Loan Party or such Subsidiary operates; provided, however, that such Loan Party
and its Subsidiaries may self insure to the extent consistent with prudent
business practice.

            (c) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that each Loan Party and its Subsidiaries may consummate any transaction
permitted under Section 5.02(b) and provided further that neither any Loan Party
nor any of its Subsidiaries shall be required to preserve any right or franchise
if the senior management of such Loan Party or of such Subsidiary shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of such Loan Party or such Subsidiary, as the case may be, and that
the loss thereof is not disadvantageous in any material respect to such Loan
Party or such Subsidiary.

            (d) Visitation Rights. During normal business hours and upon
reasonable notice from time to time, permit the Administrative Agent or any of
the Lenders or any agents or representatives thereof, to examine and make copies
of and abstracts from the records and books of account of (excluding any
confidential information), and visit the properties of, such Loan Party and any
of its Subsidiaries, and to discuss the affairs, finances and accounts of such
Loan Party and any of its Subsidiaries with the appropriate representatives of
such Loan Party and together with the appropriate representatives of such Loan
Party's independent certified public accountants.

            (e) Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of such
Loan Party and each such Subsidiary in accordance with generally accepted
accounting principles in effect from time to time and consistently applied.

            (f) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, its material properties that
are used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.



            (g) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under this
Agreement with any of their Affiliates, other than another Loan Party, (i) on
terms that are fair and reasonable and no less favorable to such Loan Party or
such Subsidiary than it would obtain in a comparable arm's-length transaction
with a Person not an Affiliate except where the failure to do so, in the
aggregate, would not have a Material Adverse Effect, (ii) as required by the
Federal Communications Commission's rules and regulations for transactions among
affiliates or (iii) as contemplated by the Services Agreement.

            (h) Reporting Requirements. Furnish to the Administrative Agent with
sufficient copies for distribution to the Lenders:

                  (i) as soon as available and in any event within 60 days after
            the end of each of the first three quarters of each fiscal year of
            the Borrower, the Consolidated balance sheet of the Borrower and its
            Subsidiaries as of the end of such quarter and the Consolidated
            statements of income and cash flows of the Borrower and its
            Subsidiaries for the period commencing at the end of the previous
            fiscal year and ending with the end of such quarter, duly certified
            (subject to year-end audit adjustments) by the chief financial
            officer, treasurer or controller of the Borrower as having been
            prepared in accordance with generally accepted accounting principles
            and certificates of the chief financial officer, treasurer or
            controller of the Borrower as to compliance with the terms of this
            Agreement and setting forth in reasonable detail the calculations
            necessary to demonstrate compliance with Section 5.03, provided that
            in the event of any change in GAAP used in the preparation of such
            financial statements, the Borrower shall also provide, if necessary
            for the determination of compliance with Section 5.03, a statement
            of reconciliation showing the calculations used for purposes of
            Section 5.03;

                  (ii) as soon as available and in any event within 120 days
      after the end of each fiscal year of the Borrower, a copy of the annual
      audited report for such year for the Borrower and its Subsidiaries,
      containing the Consolidated balance sheet of the Borrower and its
      Subsidiaries as of the end of such fiscal year and the Consolidated
      statements of income and cash flows of the Borrower and its Subsidiaries
      for such fiscal year, in each case accompanied by an opinion acceptable to
      the Majority Lenders by Ernst & Young LLP or other independent public
      accountants of nationally recognized standing, provided that in the event
      of any change in GAAP used in the preparation of such financial
      statements, the Borrower shall also provide, if necessary for the
      determination of compliance with Section 5.03, a statement of
      reconciliation showing the calculations used for purposes of Section 5.03;

                  (iii) as soon as possible and in any event within five
      Business Days after the occurrence of each Default continuing on the date
      of such statement, a statement of the chief financial officer, treasurer
      or controller of the Borrower setting forth details of such Default and
      the action that the Borrower has taken and proposes to take with respect
      thereto;

                  (iv) promptly after the sending or filing thereof, copies of
      any quarterly and annual reports and proxy solicitations that any Loan
      Party sends to any of its security holders, and copies of any reports on
      Form 8-K that such Loan Party files with the Securities and Exchange
      Commission (other than reports on Form 8-K filed solely for the purpose of
      incorporating exhibits into a registration statement previously filed with
      the Securities and Exchange Commission);

                  (v) prompt notice of all actions and proceedings before any
      court, governmental agency or arbitrator affecting any Loan Party or any
      of its Subsidiaries of the type described in Section 3.01(b); and



                  (vi) such other information respecting any Loan Party or any
      of its Subsidiaries as any Lender through the Administrative Agent may
      from time to time reasonably request.

            (i) Payment of Taxes, Etc. File, and cause its Subsidiaries to file,
all federal, state, commonwealth and local tax returns and other reports
required by law to be filed; maintain, and cause its Subsidiaries to maintain,
adequate reserves for the payment of all taxes, assessments, governmental
charges and levies imposed upon such Loan Party and its Subsidiaries, their
income or their profits; pay and discharge, and cause its Subsidiaries to pay
and discharge, all such taxes, assessments, governmental charges and levies
imposed upon such Loan Party and any of its Subsidiaries or against their
respective properties prior to the date on which penalties accrue, except to the
extent that the same may be contested by such Loan Party or such Subsidiary, as
the case may be, in good faith by appropriate proceedings and adequate reserves
have been made therefor, unless and until a Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.

            (j) Certain Obligations Respecting Subsidiaries. The Borrower will
take such action, and will cause each of its Significant Subsidiaries and any
Significant Subsidiary formed with the intent of merging with or into a Person
that will be a Significant Subsidiary subject to this provision to take such
action, from time to time as shall be necessary to ensure that all Significant
Subsidiaries of the Borrower are party to, as Loan Parties, the Guaranty
provided in Article VII hereof. Without limiting the generality of the
foregoing, in the event that the Borrower or any of its Significant Subsidiaries
shall form or acquire any new Significant Subsidiary, the Borrower or the
respective Significant Subsidiary will cause such new Significant Subsidiary to
(A) become a party hereto and to the Guaranty pursuant to a written instrument
in form and substance satisfactory to the Administrative Agent, and (B) deliver
such proof of corporate action, incumbency of officers, opinions of counsel and
other documents relating to the foregoing as is consistent with those delivered
by each Loan Party pursuant to Article III hereof, or as any Lender or the
Administrative Agent shall have reasonably requested.

      SECTION 5.02 Negative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:

            (a) Liens, Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien on or with respect to any of
its properties, whether now owned or hereafter acquired, or assign for security
purposes (but not in connection with a bona fide sale thereof), or permit any of
its Subsidiaries to assign for security purposes (but not in connection with a
bona fide sale thereof), any right to receive income; provided that nothing in
this Section 5.02 shall be construed to prevent or restrict the following:

                  (i) Permitted Liens,

                  (ii) purchase money Liens upon or in any real property or
            equipment acquired or held by the Borrower or any of its
            Subsidiaries in the ordinary course of business to secure the
            purchase price of such property or equipment or to secure Debt
            incurred solely for the purpose of financing the acquisition of such
            property or equipment, or Liens existing on such property or
            equipment at the time of its acquisition or conditional sales or
            other similar title retention agreements with respect to property
            hereafter acquired or extensions, renewals or replacements of any of
            the foregoing for the same or a lesser amount, provided, however,
            that no such Lien shall extend to or cover any properties of any
            character other than the real property or equipment being acquired,



            and no such extension, renewal or replacement shall extend to or
            cover any properties not theretofore subject to the Lien being
            extended, renewed or replaced,

                  (iii) the Liens existing on the Effective Date and described
            on Schedule 5.02(a) hereto, and other undisclosed Liens existing on
            the Effective Date securing obligations in the aggregate amount not
            to exceed $10,000,000.

                  (iv) Liens on property of a Person existing at the time such
            Person is merged into or consolidated with the Borrower or any of
            its Subsidiaries; provided that any such Liens that were created
            during the period immediately prior to such merger, consolidation or
            acquisition were created in the ordinary course of business of such
            Person and the Debt secured by such Liens does not exceed the fair
            market value of the assets (including intangible assets) of such
            Person so merged into or consolidated with the Borrower or any of
            its Subsidiaries,

                  (v) the replacement, extension or renewal of any Lien
            permitted by clauses (iii) and (iv) above upon or in the same
            property theretofore subject thereto or the replacement, extension
            or renewal (without increase in the amount or extension of the final
            maturity date) of the Debt secured thereby,

                  (vi) Liens not otherwise permitted pursuant to clauses (i)
            through (v) above securing obligations not to exceed at any one time
            the amount of $10,000,000; and

                  (vii) Liens on property of a Receivables Subsidiary created in
            connection with a Permitted Receivables Financing.

            (b) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or permit any of its Subsidiaries
to do so, except that (i) any Subsidiary of the Borrower may merge or
consolidate with or into, or dispose of assets to, any other Subsidiary of the
Borrower, (ii) any Subsidiary of the Borrower may merge into or dispose of
assets to the Borrower, and (iii) the Borrower may merge with any Subsidiary of
Verizon so long as the surviving corporation assumes all obligations of the
Borrower hereunder and under the Notes, and provided, in each case, that no
Default shall have occurred and be continuing at the time of such proposed
transaction or would result therefrom.

            (c) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices, except (i) as required or permitted by generally accepted accounting
principles or (ii) where the effect of such change, together with all other
changes in accounting policies or reporting practices made pursuant to this
clause (ii) since the Effective Date, is immaterial to the Borrower and its
Subsidiaries taken as a whole.

            (d) Subsidiary Debt. Permit any of its Subsidiaries to create or
suffer to exist, any Debt other than:

                  (i) Debt owed to the Borrower or to a wholly owned Subsidiary
            of the Borrower,

                  (ii) Debt which may be incurred in connection with the
            Subsidiaries' guarantee of the Bonds or any refunding or
            refinancing, in whole or in part, of the Bonds,



                  (iii) Debt which may be borrowed and outstanding from time to
            time under the credit agreements existing or contemplated on and as
            of the Effective Date and described on Schedule 5.02(d) hereto (the
            "Subsidiary Existing Debt"), and any Debt extending the maturity of,
            or refunding or refinancing, in whole or in part, the Subsidiary
            Existing Debt, provided that the principal amount of such Subsidiary
            Existing Debt shall not be increased above the principal amount
            thereof outstanding immediately prior to such extension, refunding
            or refinancing, and the direct and contingent obligors therefor
            shall not be changed, as a result of or in connection with such
            extension, refunding or refinancing,

                  (iv) unsecured Debt incurred in the ordinary course of
            business aggregating not more than $150,000,000 for PRTC and not
            more than $75,000,000 in the aggregate at any one time outstanding
            for all other Significant Subsidiaries that shall become Guarantors
            hereunder in accordance with Section 5.01(j),

                  (v) Debt in respect of operating leases,

                  (vi) endorsement of negotiable instruments for deposit or
            collection or similar transactions in the ordinary course of
            business, and

                  (vii) Debt incurred by a Receivables Subsidiary created in
            connection with a Permitted Receivables Financing.

      SECTION 5.03 Financial Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will:

            (a) Debt to EBITDA Ratio. Maintain a Debt to EBITDA Ratio, as at the
end of each fiscal quarter of the Borrower, of not more than 3.0:1.0.

            (b) EBITDA to Interest Ratio. Maintain an EBITDA to Interest Ratio,
as at the end of each fiscal quarter of the Borrower, of not less than 3.5:1.0.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

      SECTION 6.01 Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:

            (a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable; or the Borrower shall fail to pay any interest
on any Advance within five Business Days after the same becomes due and payable;
or any fees or other amounts payable under this Agreement or any Note are not
paid within five Business Days after the same becomes due and payable; or



            (b) Any representation or warranty made or deemed made by any Loan
Party herein or by any Loan Party (or any of its officers) in connection with
this Agreement shall prove to have been incorrect in any material respect when
made or deemed made; or

            (c) (i) Any Loan Party shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(c), (d), (g),(h)(iii) or (h)(v),
or (j), (k), (l), 5.02 or 5.03; (ii) any Loan Party shall fail to perform or
observe any term, covenant or agreement contained in Section 5.01(h) (other than
clauses (iii) and (v) thereof) if such failure shall remain unremedied for five
Business Days after written notice thereof shall have been given to such Loan
Party by the Administrative Agent or any Lender; or (iii) any Loan Party shall
fail to perform or observe any other term, covenant or agreement contained in
this Agreement on its part to be performed or observed if such failure shall
remain unremedied for 30 days after written notice thereof shall have been given
to such Loan Party by the Administrative Agent or any Lender; or

            (d) Article VII is breached by the Guarantor or shall cease to be in
full force and effect or the Guarantor shall so state in writing; or

            (e) The Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal or, in the case of Hedge Agreements net amount of at least $20,000,000
in the aggregate (but excluding Debt outstanding hereunder) of the Borrower or
such Subsidiary (as the case may be) (the "Requisite Amount"), when the same
becomes due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the
later of five Business Days and the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any such Debt
aggregating the Requisite Amount shall be declared due and payable in accordance
with its terms or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt aggregating the Requisite
Amount and shall continue after the applicable grace period, if any, specified
in such agreement or instrument, if the effect of such event or condition is to
accelerate the maturity of such Debt; or any such Debt aggregating the Requisite
Amount shall be required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased in
accordance with its terms, or any offer to prepay, redeem, purchase or defease
such Debt shall be required to be made in accordance with its terms, in each
case prior to the stated maturity thereof where the cause of such prepayment,
redemption, purchase or defeasance or offer therefor is the occurrence of an
event or condition that is premised on a material adverse deterioration of the
financial condition, results of operation or properties of the Borrower or any
of its Subsidiaries, provided that with respect to Debt aggregating the
Requisite Amount of the types described in clauses (h) or (i) of the definition
of "Debt" and to the extent such Debt relates to the obligations of any Person
other than the Borrower or any of its Subsidiaries, no Event of Default shall
occur so long as the payment of such Debt is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being maintained;
or any event shall occur or condition shall exist under any agreement or
instrument relating to any Debt that is outstanding in a principal or in the
case of Hedge Agreements net amount of at least $40,000,000 and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or permit
the acceleration of, the maturity of such Debt; or

            (f) Any Loan Party or any of its Subsidiaries shall generally not
pay their respective debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
any Loan Party or its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for



any substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of 60 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property)
shall occur; or any Loan Party or its Subsidiaries shall take any corporate
action to authorize any of the actions set forth in this subsection (f) under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors; or

            (g) Any judgment or order for the payment of money in excess of
$30,000,000 shall be rendered against any Loan Party or its Subsidiaries and
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order for which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; provided,
however, that any such judgment or order shall not be an Event of Default under
this Section 6.01(g) if and for so long as (i) (A) the amount of such judgment
or order is covered by a valid and binding policy of insurance between the
defendant and the insurer or insurers covering payment thereof, (B) such insurer
shall be rated, or, if more than one insurer, at least 90% of such insurers as
measured by the amount of risk insured, shall be rated, at least "A-" by A.M.
Best Company or its successor or its successors and (C) such insurer(s) has been
notified of, and has not disputed the claim made for payment of, the amount of
such judgment or order or (ii) (A) the amount of such judgment or order is
covered by a valid and binding indemnification agreement between the defendant
and an indemnitor, (B) such indemnitor shall have a rating for any class of its
non-credit enhanced long-term senior unsecured debt of not lower than BBB+ by
S&P or Baa3 by Moody's and (C) such indemnitor has been notified of, and has not
disputed the claim made for payment of, the amount of such judgment or order; or

            (h) (i) Verizon shall cease for any reason to maintain, directly or
indirectly, the Controlling Interest, or (ii) the Borrower shall for any reason
cease to own 100% of the Voting Stock of the Guarantor; or

            (i) Any Loan Party or its ERISA Affiliates shall incur, or shall be
reasonably likely to incur, liability that would have a Material Adverse Effect
as a result of one or more of the following: (i) the occurrence of any ERISA
Event; (ii) the partial or complete withdrawal of such Loan Party or its ERISA
Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination
of a Multiemployer Plan.

then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Majority Lenders, by notice to the Borrower,
declare the Notes, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
event of an actual or deemed entry of an order for relief with respect to any
Loan Party under the Federal Bankruptcy Code, (A) the obligation of each Lender
to make Advances shall automatically be terminated and (B) the Notes, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Borrower.



                                   ARTICLE VII

                                    GUARANTY

      SECTION 7.01 Guaranty; Limitation of Liability.

            (a) In order to induce the Lenders to extend credit to the Borrower
hereunder, the Guarantor hereby unconditionally and irrevocably guarantees, as a
primary obligor and not merely as a surety, the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all obligations of
each other Loan Party now or hereafter existing under this Agreement or any
Note, whether for principal, interest, fees, expenses or otherwise (such
obligations, to the extent not paid by such Loan Party or specifically waived in
accordance with Section 9.01, being the "Guaranteed Obligations"), and agrees to
pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the Administrative Agent or the Lenders in enforcing any rights
under this Article VII ("this Guaranty"). Without limiting the generality of the
foregoing, the Guarantor's liability shall extend to all amounts that constitute
part of the Guaranteed Obligations and would be owed by any Loan Party to the
Administrative Agent or any Lender under this Agreement or any Note but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving such Loan Party.

            (b) The Guarantor and, by its acceptance of this Guaranty, the
Administrative Agent and each other Lender, hereby confirms that it is the
intention of all such parties that this Guaranty not constitute a fraudulent
transfer or fraudulent conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
Federal, state or Commonwealth of Puerto Rico law to the extent applicable to
this Guaranty. To effectuate the foregoing intention, the Administrative Agent,
each other Lender and the Guarantor hereby irrevocably agrees that the
obligations of the Guarantor under this Guaranty shall not exceed the greater of
(A) the benefit realized by the Guarantor from the proceeds of the Advances made
from time to time by the Borrower to the Guarantor and (B) the maximum amount
that will, after giving effect to such maximum amount and all other probable
contingent and fixed liabilities of the Guarantor that are relevant under
applicable law, and after giving effect to any collections from, rights to
receive contribution from, or payments made by or on behalf of the Guarantor in
respect of the obligations of the Guarantor under this Guaranty, result in the
obligations of the Guarantor under this Guaranty not constituting a fraudulent
transfer or fraudulent conveyance. For purposes hereof, "Bankruptcy Law" means
Title 11, United States Code, or any similar Federal, state or Commonwealth of
Puerto Rico law for the relief of debtors.

            (c) The Guarantor agrees that in the event any payment shall be
required to be made to the Lenders under this Guaranty, the Guarantor will
contribute, to the maximum extent such that the contribution will not result in
a fraudulent transfer or fraudulent conveyance, such amounts to the Guarantor so
as to maximize the aggregate amount paid to the Lenders under this Agreement and
the Notes.

      SECTION 7.02 Guaranty Absolute. The Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Administrative Agent or the Lenders with respect thereto. The
obligations of the Guarantor under this Guaranty are independent of the
Guaranteed Obligations, and a separate action or actions may be brought and
prosecuted against the Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against the Borrower or the Guarantor or whether
the Borrower or the Guarantor is joined in any such action or actions. The
liability of the Guarantor under this Guaranty shall be irrevocable, absolute
and unconditional irrespective of, and, to the maximum extent permitted by law,
the Guarantor hereby



irrevocably waives, any defenses it may now or hereafter have in any way
relating to, any or all of the following:

            (a) any lack of validity or enforceability of this Agreement or any
agreement or instrument relating hereto;

            (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations, or any other amendment
or waiver of or any consent to departure from this Agreement, any Note or any
other Loan Document, including, without limitation, any increase in the
Guaranteed Obligations resulting from the extension of additional credit to the
Borrower or otherwise;

            (c) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed Obligations;

            (d) any change, restructuring or termination of the corporate
structure or existence of the Borrower; or

            (e) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any Lender that might otherwise constitute a defense
available to, or a discharge of, the Guarantor, the Borrower or any other
guarantor or surety other than payment when due.

      This Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Administrative Agent or any
Lender upon the insolvency, bankruptcy or reorganization of the Borrower or the
Guarantor or otherwise, all as though such payment had not been made.

      SECTION 7.03 Waiver. The Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any Lender exhaust any right or take any action against the Borrower or any
other Person or any collateral. The Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated herein
and that the waiver set forth in this Section 7.03 is knowingly made in
contemplation of such benefits. The Guarantor hereby waives any right to revoke
this Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.

      SECTION 7.04 Continuing Guaranty; Assignments. This Guaranty is a
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the Termination Date, (b) be binding
upon the Guarantor, its successors and assigns and (c) inure to the benefit of
and be enforceable by the



Lenders, the Administrative Agent and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer all or any portion of its rights and obligations
hereunder (including, without limitation, all or any portion of its Commitment,
the Advances owing to it and the Note or Notes held by it) to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, in each case as
provided in Section 9.07.

      SECTION 7.05 Subrogation. The Guarantor will not exercise any rights that
it may now or hereafter acquire against the Borrower or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
the Guarantor's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Administrative Agent or any Lender against the Borrower, the Guarantor or any
other insider guarantor or any collateral, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Borrower, the
Guarantor or any other insider guarantor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security solely
on account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations and all other amounts payable under this Guaranty shall
have been paid in full in cash and the Termination Date shall have occurred. If
any amount shall be paid to the Guarantor in violation of the preceding sentence
at any time prior to the later of the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Administrative Agent and the Lenders and shall forthwith be paid to the
Administrative Agent to be credited and applied to the Guaranteed Obligations
and all other amounts payable under this Guaranty, whether matured or unmatured,
in accordance with the terms of this Guaranty, or to be held as collateral for
any Guaranteed Obligations or other amounts payable under this Guaranty
thereafter arising. If (i) the Guarantor shall make payment to the
Administrative Agent or any Lender of all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall be paid in full in cash and (iii) the
Termination Date shall have occurred, the Administrative Agent and the Lenders
will, at the Guarantor's request and expense, execute and deliver to the
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the Guarantor of
an interest in the Guaranteed Obligations resulting from such payment by the
Guarantor.

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

      SECTION 8.01 Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as Administrative Agent
on its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Administrative Agent by the terms hereof, together with
such powers and discretion as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Lenders
and such instructions shall be binding upon all Lenders and all holders of
Notes; provided, however, that the Administrative Agent shall not be required to
take any action that exposes the Administrative Agent to personal liability or
that is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement.

      SECTION 8.02 Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken



by it or them under or in connection with this Agreement, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may consult with
legal counsel (including counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iii) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower except as
specifically set forth in this Agreement; (iv) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; and (v) shall incur no liability under or in respect
of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram or telex) believed
by it to be genuine and signed or sent by the proper party or parties.

      SECTION 8.03 BBVAPR and Affiliates. With respect to its Commitment, the
Advances made by it and the Note or Notes issued to it, BBVAPR shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Administrative Agent; and the term "Lender"
or "Lenders" shall, unless otherwise expressly indicated, include BBVAPR in its
individual capacity. BBVAPR and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, any Loan
Party, any of its Subsidiaries and any Person who may do business with or own
securities of any Loan Party or any of its Subsidiaries, all as if BBVAPR were
not the Administrative Agent and without any duty to account therefor to the
Lenders.

      SECTION 8.04 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on the financial statements referred to in Section 4.01(e) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.

      SECTION 8.05 Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Term Credit Advances owed
each of them (or if no Term Credit Advances are at the time outstanding, ratably
according to their Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Administrative Agent under this Agreement, provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Administrative Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including reasonable counsel fees) incurred by the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Administrative
Agent is not reimbursed for such expenses by the Borrower.

      SECTION 8.06 Successor Administrative Agent. The Administrative Agent may
resign at any time by giving written notice thereof to the Lenders and the
Borrower and may be removed at any time



with or without cause by the Majority Lenders. Upon any such resignation or
removal, the Majority Lenders shall have the right to appoint a successor
Administrative Agent which, so long as no Default shall have occurred and be
continuing, shall be subject to the Borrower's approval, which approval shall
not be unreasonably withheld. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof or the Commonwealth of Puerto Rico and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent, upon
appointment of such successor Administrative Agent, shall be discharged from its
duties and obligations under this Agreement. After any retiring Administrative
Agent's resignation or removal hereunder as Administrative Agent, the provisions
of this Article VIII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement.

                                   ARTICLE IX

                                  MISCELLANEOUS

      SECTION 9.01 Amendments, Etc. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Documents, nor consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Majority Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders, do any of the
following at any time: (i) waive any of the conditions specified in Article III,
(ii) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes or the Advances or the number of Lenders that
shall be required for the Lenders or any of them to take any action hereunder,
(iii) amend this Section 9.01, (iv) increase the Commitments of the Lenders or
subject the Lenders to any additional obligations, (v) reduce the principal of,
or interest on, the Notes, or any fees or other amounts payable hereunder, (vi)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (vii) limit the liability
of any party under any Loan Document or (viii) modify the definition of the term
"Majority Lenders"; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by the Administrative Agent in addition to
the Lenders required above to take such action, affect the rights or duties of
the Administrative Agent under this Agreement or any other Loan Document.

      SECTION 9.02 Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier communication) and
mailed, telecopied or delivered by hand or by courier,

                  if to the Borrower, at

                  Telecomunicaciones de Puerto Rico, Inc.
                  1515 Roosevelt Avenue
                  12th Floor,
                  Guaynabo, Puerto Rico 00968

                  or



                  P.O. Box 360998
                  San Juan, Puerto Rico 00936-0998,
                  Attention:  Adail Ortiz, Chief Financial Officer

                  Facsimile No: (787) 282-0958

                  with a copy to

                  Maria Elena de la Cruz
                  Treasurer
                  Telecomunicaciones de Puerto Rico, Inc.
                  1513 Roosevelt Avenue , 10th Floor
                  Guaynabo, Puerto Rico 00968
                  Facsimile No: (787) 783-2919

                  if to PRTC, at

                  Puerto Rico Telephone Company, Inc.
                  1515 Roosevelt Avenue, 12th Floor
                  Guaynabo, Puerto Rico 00968
                  or

                  P.O. Box 360998
                  San Juan, Puerto Rico 00936-0998,
                  Attention: Adail Ortiz, Chief Financial Officer
                  Facsimile No: (787) 282-0958

                  with a copy to

                  Maria Elena de la Cruz
                  Treasurer
                  Telecomunicaciones de Puerto Rico, Inc.
                  1513 Roosevelt Avenue, 10th Floor
                  Guaynabo, Puerto Rico 00968
                  Facsimile No: (787) 783-2919

if to any Lender, at its Applicable Lending Office specified opposite its name
on Schedule I hereto; and if to the Administrative Agent, at its address at PO
Box 364745, San Juan, Puerto Rico 00936-4745, Attention: Executive Vice
President, Corporate Banking Division, (Fax No. (787) 777-2217) or, as to any
Loan Party or the Administrative Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Administrative Agent. All such notices
and communications shall, when mailed or telecopied, be effective when deposited
in the first class mails or, in the case of international delivery, when
deposited with mails or couriers that deliver within two Business Days or
telecopied, provided that notices and communications to the Administrative Agent
pursuant to Article II, III or VIII shall not be effective until received by the
Administrative Agent, and provided, further, that notices and communications to
any Person required to be provided hereunder within five Business Days shall
only be made by hand or via telecopy or courier. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.



      SECTION 9.03 No Waiver; Remedies. No failure on the part of any Lender or
the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

      SECTION 9.04 Costs and Expenses. (a) The Borrower agrees to pay on demand
all reasonable out-of-pocket costs and expenses of the Administrative Agent and
the Lenders in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and expenses of counsel for the Administrative Agent; provided
that such costs and expenses shall not in the aggregate be in excess of $15,000.
The Borrower further agrees to pay on demand all costs and expenses of the
Administrative Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Administrative Agent and each Lender in connection with the enforcement of
rights under this Section 9.04(a).

      The Borrower agrees to indemnify and hold harmless the Administrative
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an "Indemnified Party") from
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of, or in connection with
the preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of Hazardous
Materials on any property of the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries, in each case whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any other Person or any Indemnified Party
is otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated, except to the extent such claim, damage, loss, liability
or expense (A) is found by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct, (B) arises
from disputes among two or more Lenders (but not including any such dispute that
involves a Lender to the extent such Lender is acting in any different capacity
(i.e., Administrative Agent or Arranger) under the Credit Agreement or the Notes
or to the extent that it involves the Administrative Agent's syndication
activities) or (C) arises from or relates to a breach by such Indemnified Party
of its obligations under this Agreement. The Borrower also agrees not to assert
any claim against the Administrative Agent, any Lender, any of their Affiliates,
or any of their respective directors, officers, employees, attorneys and agents,
on any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to the Notes, this Agreement, any
of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances.

            (b) If any payment of principal of, or Conversion of, any LIBOR Rate
Advance is made by the Borrower to or for the account of a Lender other than on
the last day of the Interest Period for such Advance, as a result of a payment,
prepayment or Conversion pursuant to this Agreement or acceleration of the
maturity of the Notes pursuant to Section 6.01, the Borrower shall, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.



            (c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.12 and 9.04 shall survive the payment in full of principal, interest
and all other amounts payable hereunder and under the Notes.

      SECTION 9.05 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Lender or such Affiliate to or for the credit or the
account of any Loan Party against any and all of the obligations of such Loan
Party now or hereafter existing under this Agreement and the Note held by such
Lender, whether or not such Lender shall have made any demand under this
Agreement or such Note and although such obligations may be unmatured. Each
Lender agrees promptly to notify the applicable Loan Party after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
and its Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such
Lender and its Affiliates may have.

      SECTION 9.06 Binding Effect. This Agreement shall become effective (other
than Section 2.01, which shall only become effective upon satisfaction of the
conditions precedent set forth in Section 3.01) when it shall have been executed
by each Loan Party, the Administrative Agent and by each initial Lender and
thereafter shall be binding upon and inure to the benefit of each Loan Party,
the Administrative Agent and each Lender and their respective successors and
assigns, except that no Loan Party shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Majority Lenders.

      SECTION 9.07 Assignments and Participations. (a) Each Lender may, with the
consent of the Administrative Agent (except as provided in (f) below) and, so
long as no Default has occurred and is continuing, the Borrower (such consent,
in the case of the Administrative Agent or the Borrower, not to be unreasonably
withheld) or if demanded by the Borrower (i) following a request for a payment
to or on behalf of such Lender under Section 2.10 or Section 2.13 or a notice
given by such Lender pursuant to Section 2.11 or (ii) following a Withholding
Tax Change affecting payments to such Lender, upon at least ten Business Day's
notice to such Lender and the Administrative Agent, will, assign to one or more
Persons all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Advances, the Note or Notes held by it and the remaining Loan Documents);
provided, however, that (i) the amount of the Commitment of the assigning Lender
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance (as hereinafter defined) with respect to such
assignment) shall in no event be less than $1,000,000 (unless such lesser amount
is the entire amount of such assigning Lender's Commitment or outstanding
Advances) and shall be an integral multiple of $100,000, (ii) each such
assignment shall be to an Eligible Assignee or to an Affiliate of the assignor,
and (iii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, an Assignment and Acceptance, together with any Note or
Notes subject to such assignment and a processing fee of $2,500.00. Upon such
execution, delivery and acceptance, from and after the effective date specified
in each Assignment and Acceptance, the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and the Lender assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).



            (b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of their
respective obligations under this Agreement or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.01(e) and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Administrative Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement and the other Loan Documents as are delegated to the
Administrative Agent by the terms hereof and thereof, together with such powers
as are reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.

            (c) Upon its receipt of an Assignment and Acceptance in
substantially the form of Exhibit E hereto (the "Assignment and Acceptance")
executed by an assigning Lender and an assignee representing that it is an
Eligible Assignee, together with any Note or Notes subject to such assignment,
the Administrative Agent shall, if such Assignment and Acceptance has been duly
completed, (i) accept such Assignment and Acceptance and (ii) give prompt notice
thereof to the Borrower. Within five (5) Business Days after its receipt of such
notice, the Borrower, at their own expense, shall execute and deliver to the
Administrative Agent, in exchange for the surrendered Note or Notes, a new Note
or new Notes to the order of such Eligible Assignee in an amount equal to the
Commitments assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment hereunder, a new Note or new Notes to
the order of the assigning Lender in an amount equal to the Commitment(s)
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the effective date of such Assignment and shall
otherwise be in substantially the form of Exhibit A.

            (d) Each Lender may sell participations to one or more banks or
other entities (other than the Borrower or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and the Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement and (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, (v)
no participant under any such participation shall have any right to approve any
amendment or waiver of any provision of this Agreement or any Note, or any
consent to any departure by the Borrower therefrom, except that a Lender may
agree with a participant as to the manner in which the Lender shall exercise the
Lender's rights to approve any amendment, waiver or consent to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any



payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation.

            (e) Any Lender may at any time, without the consent of the
Administrative Agent or the Borrower, create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System, provided, however, that no such assignment shall have
the effect of increasing the costs payable by the Borrower.

            (f) Any Lender may at any time, without the consent of, but with
notice to the Administrative Agent, assign all or part of its rights on
obligations under this Agreement to any Affiliate of such Lender, provided,
however, that no such assignment shall have the effect of increasing the costs
payable by the Borrower.

      SECTION 9.08 Nondisclosure. None of the Administrative Agent, any Lender
or any Affiliate thereof shall disclose without the prior consent of the
Borrower (other than to the Administrative Agent, the other Lender or any such
Affiliate, their respective directors, employees, auditors, affiliates or
counsel who shall agree to be bound by the terms of this provision) any
information with respect to the Loan Parties or any Subsidiary thereof contained
in financial statements, projections or reports provided to the Administrative
Agent, any Lender or any Affiliate thereof by, or on behalf of, the Loan Parties
or any Subsidiary, provided that the Administrative Agent, any Lender or any
Affiliate thereof may disclose any such information (a) as has become generally
available to the public in a manner, or through actions, which do not violate
the terms of this Section 9.08, (b) to, or as may be required or appropriate in
any report, statement or testimony submitted to, any municipal, state or federal
regulatory body having or claiming to have jurisdiction over the Administrative
Agent, any Lender or any Affiliate thereof or to the Federal Reserve Board or
the Federal Deposit Insurance Corporation or similar organizations (whether in
the United States or elsewhere) or their successors, (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to the Administrative Agent, any Lender or any Affiliate thereof and
(e) to a prospective assignee and/or participant in the amounts outstanding
hereunder or under the Advances, provided, however, that such prospective
assignee and/or participant executes an agreement containing provisions
substantially identical to those contained in this Section 9.08 and which shall
by its terms inure to the benefit of the Borrower and provided, further, that to
the extent practicable, the Administrative Agent, each Lender and their
respective Affiliates shall use reasonable best efforts to provide prior written
notice of such disclosure to the Borrower.

      SECTION 9.09 Governing Law. This Agreement and the Notes shall be governed
by, and construed in accordance with, the laws of the Commonwealth of Puerto
Rico.

      SECTION 9.10 Jurisdiction, Etc. Each of the Loan Parties hereby agrees
that any suit, action or proceeding with respect to this Agreement or the Notes,
the other Loan Documents or any other document executed hereunder to which it is
a party or any judgment entered by any court in respect thereof may be brought
in the United States District Court for the District of Puerto Rico or in the
Court of First Instance of Puerto Rico sitting in San Juan, as the party
commencing such suit, action or proceeding may elect in its sole discretion; and
each party hereto hereby irrevocably submits to the non-exclusive jurisdiction
of such court for the purpose of any such suit, action, proceeding or judgment.
Each party hereto further submits, for the purpose of any such suit, action,
proceeding or judgment brought or rendered against it, to the appropriate courts
of the jurisdiction of its domicile.

            (a) Each of the Loan Parties hereby irrevocably consents to the
service of process in any suit, action or proceeding in such courts by the
mailing thereof by the Administrative Agent or any



Lender by registered or certified mail, postage prepaid, at its address set
forth beneath its signature hereto. Nothing herein shall in any way be deemed to
limit the ability of the Administrative Agent or any Lender to serve any such
writs, process or summonses in any other manner permitted by applicable law or
to obtain jurisdiction over the Loan Parties in such other jurisdictions, and in
such manner, as may be permitted by applicable law.

            (b) Each of the Loan Parties hereby irrevocably waives any objection
that it may now or hereafter have to the laying of the venue of any suit, action
or proceeding arising out of or relating to this Agreement, the Notes or any
document executed hereunder brought in any such court and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.

      SECTION 9.11 Waiver of Jury Trial. Each of the Borrower, the Guarantor,
the Administrative Agent and the Lenders hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement, the
Notes or the other Loan Documents or the actions of the Administrative Agent or
any Lender in the negotiation, administration, performance or enforcement
thereof.

      SECTION 9.12 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.

      IN WITNESS WHEREOF, the parties hereto have caused this Term Credit
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.



PUERTO RICO TELEPHONE             TELECOMUNICACIONES DE PUERTO

COMPANY, INC., as Guarantor       RICO, INC., as Borrower

By: _______________________       By: ____________________________
Name:  Cristina Lambert           Name:  Cristina Lambert
Title: President and Chief        Title: President and Chief
       Executive Officer                   Executive Officer

                                         BANCO BILBAO VIZCAYA
                                         ARGENTARIA PUERTO RICO, as Lender

                                         By: ____________________________
                                         Name:  Alberto Nido Colon
                                         Title: Senior Executive Vice President

                                         By: ____________________________
                                         Name:  Helen Pardo
                                         Title: Senior Vice  President

                                         BANCO BILBAO VIZCAYA

                                         ARGENTARIA  PUERTO RICO,
                                         as Administrative Agent

                                         By: ____________________________
                                         Name:  Alberto Nido Colon
                                         Title: Senior Executive Vice President

                                         By: ____________________________
                                         Name:  Helen Pardo
                                         Title: Senior Vice President





      COMMITMENT                                 LENDER
- -----------------------                  ----------------------
                                      
        $30,000,000.00                   Banco Bilbao Vizcaya

TOTAL:  $30,000,000.00                   Argentaria Puerto Rico

EX-31.1

EXHIBIT 31.1

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Cristina M. Lambert, certify that:

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

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

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

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

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and



      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

         Date: August 16, 2004

         /s/ Cristina M. Lambert
         ----------------------------------
         Cristina M. Lambert
         Chief Executive Officer
         (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Adail Ortiz, certify that:

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

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

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

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

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):


            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

      Date: August 16, 2004

      /s/ Adail Ortiz
      -----------------------
      Adail Ortiz
      Chief Financial Officer
      (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

 CERTIFICATION REQUIRED BY 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
                     906 OF THE SARBANES-OXLEY ACT OF 2002

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

      TELECOMUNICACIONES DE PUERTO RICO, INC.

                                          By: /s/ Cristina M. Lambert
                                             ----------------------------------
                                            Name:  Cristina M. Lambert
                                            Title: Chief Executive Officer
                                            Date:  August 16, 2004

                                          By: /s/ Adail Ortiz
                                             ----------------------------------
                                            Name:  Adail Ortiz
                                            Title: Chief Financial Officer
                                            Date:  August 16, 2004