852.75 National Telephone Co./2–2245: Telegram

The Chargé in Spain (Butterworth) to the Secretary of State

388. Carceller71 informed Caldwell72 that in the Cabinet meeting held last Friday73 it was decided the Spanish Government should [Page 721] exercise the right provided for in the telephone concession contract to purchase all of the American owned shares in the CTNE.74 This decision is motivated primarily by the fear that if shares are sold to bankers there is danger of speculation and manipulation which would open the way for serious criticism of the Government and secondarily to avoid lengthy delays in the negotiations which may occur from demands of bankers for adjustment by the Government of tariffs and other CTNE problems as prior condition to agreement to purchase. Carceller stated the autonomous position of the CTNE will not be changed, that the Government is merely substituted in the erstwhile position of the ITT and that it is the present intention of the Government to resell to the public when convenient all or the major part of its holdings. He also stated that authority to purchase will be conveyed by a simple decree law which will then pass directly to the plenary session of the Cortes for approval.

Carceller also reaffirmed the intention of the Government to pay the purchase price figured at 2000 pesetas per share with dollar bonds and to liquidate the $25 million outstanding indebtedness to ITT by payment of $15 million immediately upon the issue of the enabling decree law and the balance by short term non-interest bearing notes in dollars or sterling.

CTNE would enter into a service contract with ITT for a minimum period of 10 years and would pay therefor three-fourths of one percent of gross annual income but payment for these services may not exceed 3 million pesetas in any one year. CTNE would also enter into an arrangement with Standard Eléctrica for purchase of materials under terms and conditions to be determined at a later meeting. The Government would approve an increase in capitalization in Standard Eléctrica provided at least 25 percent of its voting shares would be sold to CTNE.

Last night Caldwell informed Carceller that ITT is not disposed to accept the above proposal. ITT however would sell to the Government at 2000 pesetas the 280,941 shares previously agreed upon and the balance of its holdings or 38,000 shares at 3000 pesetas; payment to be made in dollar bonds based on present exchange rates, and the 286 million pesetas outstanding arrears liquidated by transfer of $15 million upon reaching agreement and balance accepted in notes payable half June 1, half September 1, 1945. Inasmuch as ITT would thereafter have no capital investment in the company, its representation on the CTNE board, if any, would not have adequate powers to insure that the company would follow its recommendations and under these circumstances, and the reduced compensation, ITT would not [Page 722] be willing to enter into a service contract. Nevertheless it would be disposed to offer its services at such time as the control of the company reverts to private ownership and under conditions which would insure that its recommendations would be followed by CTNE.

In view of CTNE’s urgent need for a large amount of automatic equipment ITT would accept confirmation of orders authorized by the board of CTNE last May. As a major part of this equipment would be manufactured by Standard Eléctrica SA, its capital would have to be increased by 7 million pesetas and ITT would require that it be granted full preemptive rights to subscription of this capital.

Carcellar stated he wished to discuss these proposals with Franco and would give an answer within a few days.

  1. Demetrio Carceller Segura, Spanish Minister of Industry and Commerce.
  2. F. T. Caldwell, Vice President of International Telephone and Telegraph Corporation.
  3. February 16.
  4. Compañia Telefónica Nacional de España.