IT&E Overseas Inc. ‘s request to extend its tax breaks looks like a tough call for the government to make because everyone will want in on the action.
Other industry players told the Journal that the renewal application offers nothing new in exchange for the huge tax cuts IT&E would receive for an additional 20 years.
If IT&E gets a qualifying certificate other companies say they should be entitled to one as well.
On Nov. 24 1984 IT&E was granted a qualifying certificate by Gov. Ricardo J. Bordallo which gave a rebate of 75% of corporate income tax and a 75% rebate on all income tax on dividends paid to its stockholders for a period of 20 years.
That certificate and the tax relief is due to expire Nov. 24. IT&E has applied for another qualifying certificate for a further 20 years.
John Day president of Pacific Data Systems said technologies like Push To Talk and Wireless Fidelity (WiFi) that IT&E is touting as new are already being marketed to consumers. “It appears to us that the company is trying to recoup capital costs by requesting another 20 years of reduced taxes.”
Pacific Data Systems and two other companies — GuamCell Communications and iConnect — filed letters with the Guam Economic Development and Commerce Authority protesting the need for an additional 20-year tax abatement for IT&E. The companies have further asked for the same tax status should their competitor be granted the tax saving certificate.
Qualifying certificates are generally given to entice industry to Guam. The intent was to encourage businesses that currently do not exist to prosper and grow. The tax incentives are granted on the basis of investment commitment as well as the potential for creating new employment and expanding the base of the island’s industry.
IT&E’s qualifying certificate was issued on the premise that the company would resell voice and data communications in direct competition at that time with the monopolistic RCA Communications Inc. In 1984 long-distance voice rates were as high as $3 a minute to the U.S. mainland.
As technology increased so did the number of companies providing like services. Prices dropped and emerging technologies like the Internet cellular voice communications and broadband data exchange flourished.
Over the period IT&E brought to Guam lower long-distance calling rates new technologies as they became available and provided dozens of jobs as the local company grew.
Day filed objections to the renewal application. He said “What is good for one company should be good for all.”
In its application for renewal IT&E is requesting the tax rebate for various projects to be undertaken spanning the 20-year period totaling $47.3 million. The description of goods and services to be offered to the public read “IT&E will initiate numerous projects all of which will significantly improve [IT&E’s] telecom infrastructure and its ability to deliver new and more reliable telecom services at prices to the benefit of the consumer.” It further stated that the company would expand in the area of wireless technologies.
It lists projects such as Wireless Broadband Access Wireless Fidelity; Upgrade from 3G to 4G technologies; Digital Push to Talk (PTT) the construction of a microwave facility in the center of the island private lease lines for businesses hardened antenna sites Local Number Portability and Internet upgrades.
In its request IT&E asked for renewal of 75% tax abatement on corporate income tax for 20 years and a five-year 75% abatement on corporate dividend tax.
Day told the Journal that 20 years ago Guam was an under-served market with only one provider of interstate and international telecommunications services. “Consumer choice was not just limited — it was non-existent. And as is the case with nearly every monopoly environment Guam was a severely price-abused market.”
He said of IT&E’s new QC application “It seems little more than an effort on IT&E’s part to extend the QC for another 20 years and broaden the [QC] coverage to include all of its lines of business. IT&E and its share holders have enjoyed significant economic advantages over the last 20 years and these have allowed the company to deploy a wide range of products and services and in no small measure made possible IT&E’s ascendance to its long-held position as the dominant provider of telecommunications services in Guam.”
GuamCell has been doing business in Guam for the last 12 years without the benefit of a QC. Mark W. Chamberlin president of GuamCell said IT&E’s certificate had done what the program was designed to do but the landscape of the telecommunications industry had changed dramatically.
He provided testimony on June 23 on IT&E’s QC application. He pointed out that now there are five wireless carriers and many long-distance and Internet providers who are in direct competition.“Only two of the industry players have government incentives that give them an advantage in the marketplace. With luck one of them will be privatized this year. The other has without exception been very successful using its cost advantage to grow market share.”
While many years ago IT&E and GuamCell had different core businesses today they share very similar service offerings. Chamberlin said that as a competitor GuamCell had the highest respect for what IT&E achieved but said his company also could have accomplished great things given the same tax breaks and should the QC be renewed then GuamCell too should receive one.
Gerald M. “Jake” Woo spokesman for Choice Phone LLC which does business as iConnect said IT&E succeeded in achieving the establishment of a competitive communications industry on Guam. He said with hindsight the original language in the QC was too broad. “The problem that we have — like the other companies have said — is that IT&E commingled their money and that wireless communications should not be covered under the qualifying certificate which was intended for long distance telecom services. Unless all the players in the industry receive the same treatment then this new request should be denied.”
Gerald S.A. Perez administrator for the Guam Economic Development and Commerce Authority confirmed to the Journal that IT&E’s request was under consideration and said he therefore had to limit his remarks. “The problem is it is a pending case with a caseworker assigned to it.”
Perez said that the matter would have to be decided by the board of directors of the authority but that staff input regarding the matter was generally carefully considered by the board. “It would be inappropriate to say what those staff recommendations are one way or the other prior to the board receiving the recommendations first.
“Without sharing the details with you I think the folks that are worried about it ought not to be worried.”
The board was due to consider the renewal application in September but the meeting was cancelled. The board will now meet on Oct. 13 2004.
John M. Borlas president for IT&E Overseas Inc. declined an interview for this story stating that proprietary information would be discussed and the company did not want that made public.
In its application IT&E estimates its annual sales of goods and services for 2004 will be $37.5 million increasing to $43.50 million in 2009. The anticipated number of employees ranges from a total of 191 of which 176 are full-time; to 231 employees with 15 part-time. The company lists in the application an annual gross payroll in 2009 estimated to be $6.7 million up from a 2004 payroll for operations of $3.18 million.
IT&E lists ownership percentages as Jose D. Perez 74.70%; John M. Borlas 23.88%; John A. Santos 0.67%; Joseph J. Perez 0.16%; Amando C. Santiago 0.11%; and the Tuquero Family Trust 0.46%. MBJ