ATNI

Business Context and Reporting Period

Company: Atlantic Tele-Network, Inc. (ATN)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 2003
Business Overview: ATN is a holding company primarily engaged in telecommunications through its 80%-owned subsidiary, Guyana Telephone & Telegraph Company, Ltd. (GT&T), which provides local and international telephone services in Guyana. Other operations include internet and wireless cable services in the U.S. Virgin Islands (Choice Communications), a call center in Guyana, and a 44% interest in Bermuda Digital Communications, Ltd. (BDC).

Key Financial Metrics

Note: Total Operating Revenues calculated as Telephone Operating Revenues ($18,115) plus Other Operations Revenues ($1,262).

Material Changes vs. Prior Period

• Revenue Growth: Total telephone operating revenues increased 18% to $18.1 million, driven by a 31% increase in local exchange service revenues. This was fueled by an 81% surge in cellular subscribers (from 51,244 to 92,756) and a 7% increase in wireline subscribers.
• Profitability: Net income rose 40% to $2.8 million. Income from telephone operations increased 39% to $7.1 million.
• Expense Management: Despite higher operating expenses ($11.0 million vs. $10.2 million), the expense-to-revenue ratio improved. International long-distance expenses decreased due to FCC-mandated settlement rate reductions, offsetting higher depreciation and power costs.
• Equity Earnings: Equity in earnings from BDC increased 55% to $542,000 due to subscriber growth in Bermuda.
• Cash Flow: Net cash provided by operating activities decreased to $7.8 million from $12.6 million, though cash balances increased by $3.1 million due to lower capital expenditures ($1.7 million vs. $5.4 million).

Outlook, Risks, and Contingencies

Management Commentary and Outlook

Management believes existing liquidity is adequate for current needs. The company is exploring acquisition opportunities in the Caribbean. A new competitor, Celstar (Guyana), signed an interconnection agreement and plans to commence commercial service in late Q3 2003, signaling the end of GT&T's monopoly.

Regulatory and Legal Risks

• Government Negotiations: A U.S. District Court suit against the Government of Guyana regarding an IADB loan was dismissed in March 2003. Negotiations regarding telecommunications policy and rate adjustments have resumed.
• Rate Disputes: GT&T is awaiting permanent rate increases from the Guyana Public Utilities Commission (PUC) to offset reduced international settlement rates. Interim rates were awarded in 2002, but permanent rates remain unapproved.
• Tax Assessments: GT&T is contesting significant tax assessments totaling approximately $26.7 million (covering years 1991–2000) related to the deductibility of advisory fees and other issues. The company believes the government is obligated to reimburse amounts that reduce the return on investment below 15%.
• Currency Risk: Approximately $8.4 million of cash balances are in Guyana dollars. While there are no legal restrictions on conversion, liquidity in foreign currency markets in Guyana is limited.

Investor Verification Checklist

• Regulatory Resolution: Monitor the status of negotiations with the Government of Guyana regarding rate increases and the introduction of competition.
• Tax Litigation: Track the outcome of the High Court proceedings regarding the $26.7 million in contested tax assessments.
• Competitive Landscape: Assess the impact of Celstar (Guyana)'s market entry on GT&T's subscriber growth and pricing power.
• Currency Conversion: Verify the company's ability to convert Guyana dollar earnings into hard currency to meet debt service and dividend obligations.
• Capital Expenditures: Review future capital requirements for network expansion in light of the new competitive environment.