Edgar Filing: NATIONAL TELEPHONE CO OF VENEZUELA

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SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14538

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV)
(Exact name of Registrant as specified in its charter)

NATIONAL TELEPHONE COMPANY OF VENEZUELA (CANTV)
(Translation of Registrant's name into English)

BOLIVARIAN REPUBLIC OF VENEZUELA
(Jurisdiction of incorporation or organization)

AVENIDA LIBERTADOR, CENTRO NACIONAL DE TELECOMUNICACIONES,
NUEVO EDIFICIO ADMINISTRATIVO, PISO 1, APARTADO POSTAL 1226
CARACAS, VENEZUELA 1010
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Class D Shares of common stock, par New York Stock Exchange*
value Bs.36.90182224915 per share

American Depository Shares (ADSs) each New York Stock Exchange
of which represents 7 Class D Shares
of common stock

* Not for trading but only in connection with the registration of ADSs
pursuant to the requirements of the Securities and Exchange Commission.

-----------------

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

None

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

Class A Shares . . . . .259,672,346 Class C Shares . . . . . 94,849,350
Class B Shares . . . . . 51,900,000 Class D Shares . . . . .380,719,153

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 which financial statement item the registrant has elected
to follow.
Item 17 [_] Item 18 [X]
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TABLE OF CONTENTS

Page
----

INTRODUCTION ...................................................... 1

PART I ............................................................ 3
Item 1 Identity of Directors, Senior Management and Advisers .. 3
Item 2 Offer Statistics and Expected Timetable ................ 3
Item 3 Key Information ........................................ 3
Item 4 Information on the Company ............................. 22
Item 5 Operating and Financial Review and Prospects ........... 70
Item 6 Directors, Senior Management and Employees ............. 108
Item 7 Major Shareholders and Related Party
Transactions ........................................... 117
Item 8 Financial Information .................................. 122
Item 9 The Offer and Listing .................................. 124
Item 10 Additional Information ................................. 127
Item 11 Quantitative and Qualitative Disclosures About
Market Risk ............................................ 138
Item 12 Description of Securities Other than Equity
Securities ............................................. 139

PART II ........................................................... 140
Item 13 Defaults, Dividend Arrearages and Delinquencies ........ 140
Item 14 Material Modifications to the Rights of
Security Holders and Use of Proceeds ................... 140
Item 15 (Reserved) ............................................. 140
Item 16 (Reserved) ............................................. 140

PART III .......................................................... 141
Item 17 Financial Statements ................................... 141
Item 18 Financial Statements ................................... 141
Item 19 Financial Statements and Exhibits ...................... 141

INTRODUCTION

As used in this Form 20-F, unless the content otherwise requires, the
"Company" means Compania Anonima Nacional Telefonos de Venezuela (CANTV) and its
consolidated subsidiaries, and "CANTV" means Compania Anonima Nacional Telefonos
de Venezuela (CANTV). Unless otherwise specified, all references in this Form
20-F to "U.S. dollars," "dollars," "U.S.$" or "$" are to United States dollars
and references to "bolivars" or "Bs." are to Venezuelan bolivares, the legal
tender currency of the Bolivarian Republic of Venezuela ("Venezuela").
References to access "lines in service" are to lines billed. References to
"minutes of use" are to billed minutes of use excluding free minutes offered
under certain calling plans.

The Company prepares its financial statements in constant bolivars and
in conformity with generally accepted accounting principles in Venezuela
("Venezuelan GAAP"). Venezuelan GAAP differs in certain important respects from
generally accepted accounting principles in the United States ("U.S. GAAP"). See
Note 28 to the Audited Consolidated Financial Statements of the Company as of
December 31, 2000 and 2001 and for the years ended December 31, 1999, 2000 and
2001 (the "Audited Financial Statements") also included in this Form 20-F for a
description of the principal differences between Venezuelan GAAP and U.S. GAAP
as they relate to the Company and a reconciliation to U.S. GAAP of net income
reported under Venezuelan GAAP for the years ended December 31, 1999, 2000 and
2001 and total stockholders' equity as of December 31, 2000 and 2001. EBITDA,
which stands for earnings before interest, taxes, depreciation and amortization,
is a measure of financial performance used in this Form 20-F that is not
prepared in accordance with generally accepted accounting principles. However,
EBITDA does not purport to represent cash provided or used by operating
activities and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.

Pursuant to Venezuelan GAAP, financial data regarding the Company have
been adjusted to reflect the effects of inflation using the Indice General de
Precios al Consumidor del Area Metropolitana de Caracas (Index of Consumer
Prices of the Caracas Metropolitan Area) (the "Consumer Price Index" or "CPI")
published by the Banco Central de Venezuela (the "Central Bank of Venezuela").
See Note 4(b) to the Audited Financial Statements. Unless otherwise specified,
financial data regarding the Company is presented in this Form 20-F in constant
bolivars as of December 31, 2001. Although the restatement of nominal bolivar
amounts into constant bolivar amounts lessens the distorting effect that an
inflationary environment has on comparisons of financial statements over time,
such restatement does not wholly eliminate those distortions, and evaluation of
period-to-period trends may be difficult. References in this Form 20-F to
amounts in "nominal" bolivars or "historical" bolivars are to bolivars that have
not been adjusted for inflation. As indicated in this Form 20-F, the rates the
Company charges for certain telephone services are subject to regulation
including adjustments to reflect the effects of inflation using the Indice de
Precios al Mayor (the "Wholesale Price Index" or "WPI") published by the Central
Bank of Venezuela.

For the convenience of the reader, this Form 20-F contains translations
of certain constant bolivar amounts into U.S. dollars at the average daily
exchange rate announced by the Central Bank of Venezuela (the "Daily Exchange
Rate") on December 31, 2001 (unless otherwise specified), which was Bs. 758.00 =
$1.00. No representation is made that the bolivar or U.S. dollar amounts shown
in this Form 20-F could have been or could be converted into U.S. dollars or
bolivars, as the case may be, at such rates or at any other rates. The
translation of amounts expressed in nominal or constant bolivars as of a
specified date by the then prevailing exchange rate may result in presentation
of dollar amounts that differ from the dollar amounts that would have been
obtained by translating nominal or constant bolivars as of another specified
date.

Operational data regarding the Company contained in this Form 20-F is
presented as of December 31, 2001, unless otherwise stated.

Neither the Government of Venezuela (the "Government") nor private
independent sources publish definitive data regarding telecommunications markets
in Venezuela. However, certain Government entities have published statistics on
wireless service competitors, which the Company has used in computing the market
share data relating to such competitors. Additional data, including population
data, were obtained from third-party sources. To the extent estimates are
contained in this Form 20-F, the management of the Company believes that such
estimates, which are based on internal data, are reliable but they have not been
confirmed by independent sources.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Selected Financial Data

The following table presents selected financial information for each of
the years in the five-year period ended December 31, 2001 and should be read in
conjunction with and is qualified in its entirety by reference to the Audited
Financial Statements of the Company, including the Notes thereto, also included
in this Form 20-F. The Company's Audited Financial Statements have been prepared
in accordance with Venezuelan GAAP, which differ in certain important respects
from U.S. GAAP, and have been presented in constant bolivars as of December 31,
2001. See "Item 5. Operating and Financial Review and Prospects -- Introduction"
and Note 4 (b) to the Audited Financial Statements for a discussion of the
methodology used to prepare the constant bolivar financial statements. Note 28
to the Audited Financial Statements provides a description of the principal
differences between Venezuelan GAAP and U.S. GAAP and a reconciliation to U.S.
GAAP of net income for the years ended December 31, 1999, 2000 and 2001 and
total stockholders' equity at December 31, 2000 and 2001.

Year Ended December 31,
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1997(1) 1998(1) 1999(1) 2000(1)(2) 2001(1)(4) 2001(3)(4)
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(in millions, except per share and per ADS data)

Income Statement Data:
Venezuelan GAAP:
----------------

Wireline services .
Bs. 1,933,163 Bs. 1,745,034 Bs. 2,077,325 Bs. 2,000,984 Bs. 1,818,017 $ 2,398

Wireless services 275,389 389,838 368,466 335,707 409,413 540
Other telecommunications-related 24,787 41,357 49,242 51,859 55,596 74
services
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Total operating revenues 2,233,339 2,176,229 2,495,033 2,388,550 2,283,026 3,012
Operating expenses (1,640,141) (1,923,203) (2,316,922) (2,365,052) (2,136,131) (2,818)
------------- ------------- ------------- ------------ ------------ ------------
Operating income 593,198 253,026 178,111 23,498 146,895 194
Other income (expense), net 88,567 (32,636) (47,102) (39,496) (24,744) (33)
------------- ------------- ------------- ------------ ------------ ------------
Income (loss) before income taxes
and cumulative effect of
accounting change, net of tax 681,765 220,390 131,009 (15,998) 122,151 161
Income tax provision 153,787 1,490 17,391 39,779 43,024 57
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Income (loss) before cumulative
effect of accounting change,
net of tax 527,978 218,900 113,618 (55,777) 79,127 104
Cumulative effect of accounting
change, net of tax - - - (45,494) - -
------------- ------------- ------------- ------------ ------------ ------------
Net income (loss) Bs. 527,978 Bs. 218,900 Bs. 113,618 Bs. (101,271) Bs. 79,127 $ 104

Operating income per share Bs. 593.20 Bs. 253.03 Bs. 178.13 Bs. 24.68 Bs. 160.64 $ 0.21
Operating income per ADS 4,152.39 1,771.18 1,246.90 172.79 1,124.45 1.48
Income (loss) per share before
cumulative effect of accounting
change, net of tax 527.98 218.90 113.63 (58.59) 86.53 0.11
Income (loss) per ADS before
cumulative effect of accounting
change, net of tax 3,695.85 1,532.30 795.41 (410.14) 605.70 0.79
Net income (loss) per share 527.98 218.90 113.63 (106.38) 86.53 0.11
Net income (loss) per ADS 3,695.85 1,532.30 795.41 (744.67) 605.70 0.79
Basic net income (loss) per share (5) 527.98 218.90 113.63 (106.38) 86.53 0.11
Basic net income (loss) per ADS (5) 3,695.85 1,532.30 795.41 (744.67) 605.70 0.79
Cash dividends declared per share (6) 33.95 222.62 79.48 74.17 69.23 0.09
Cash dividends declared per ADS (6) 237.68 1,558.31 556.41 519.20 484.58 0.64
Extraordinary cash dividends declared
per share (6) - - 127.36 - 528.46 0.70
Extraordinary cash dividends
declared per ADS (6) - - 891.53 - 3,699.20 4.88
Average shares outstanding (7) 1,000.00 1,000.00 999.90 951.96 914.46

1997(1) 1998(1) 1999(1) 2000(1)(2) 2001(1)(4) 2001(3)(4)
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(in millions, except per share and per ADS data)

U.S. GAAP:
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Total operating revenues Bs. 2,233,339 Bs.2,176,229 Bs.2,495,033 Bs.2,388,550 Bs.2,283,026 $ 3,012

Operating income 328,862 238,080 178,111 23,498 146,895 194
Net income (loss) 237,971 243,943 213,264 (29,408) 47,085 62
Net income (loss) per share 240.13 246.00 214.93 (31.14) 52.02 0.07
Net income (loss) per ADS 1,680.89 1,722.01 1,504.54 (217.97) 364.13 0.48
Cash dividends declared per share 33.95 222.62 79.48 74.17 69.23 0.09
(6)

Cash dividends declared per ADS (6) 237.68 1,558.31 556.41 519.20 484.58 0.64
Extraordinary cash dividends

declared - - 127.36 - 528.46 0.70
per share (6)
Extraordinary cash dividends

declared - - 891.53 - 3,699.20 4.88
per ADS (6)
Average shares outstanding (7) 991.02 991.63 992.23 944.38 905.15

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(1) Bolivar amounts are in constant bolivars as of December 31, 2001.
(2) Year 2000 data includes a special one-time charge of Bs. 123.9 billion or
approximately $163 million related to a workforce reduction program. See
"Item 5. Operating and Financial Review and Prospects."
(3) Bolivar amounts have been translated into U.S. dollars, solely for the
convenience of the reader, at the rate of Bs. 758.00 = $1.00, the Daily
Exchange Rate on December 31, 2001. Such translations should not be
construed as representations that the bolivar amounts actually represent
such U.S. dollar amounts or could be converted at the rate indicated, or at
all. See "-- Exchange Rates."
(4) In 2001, the Company recorded a one-time charge of Bs. 36.1 billion or
approximately $48 million, for special termination benefits, related to the
pension and post-retirement plans offered under the employee reduction
program implemented in January 2001. See "Item 5. Operating and Financial
Review and Prospects."
(5) During the periods presented, there were no common stock equivalents having
a dilutive effect.
(6) In 1997, ordinary cash dividends declared per share and per ADS at the
dividend declaration date (expressed in nominal bolivars) were Bs. 13.24
and Bs. 92.68, respectively, or $0.03 and $0.19, respectively. In 1998,
ordinary cash dividends declared per share and per ADS at the dividend
declaration date were Bs. 124.10 and Bs. 868.70, respectively. The Company
paid the dividends declared in 1998 in two equal payments. The first
payment represented $0.12 per share and $0.81 per ADS and the second
payment represented $0.11 per share and $0.75 per ADS. In 1999, the Company
declared and paid an ordinary dividend and an extraordinary dividend.
Ordinary cash dividends declared per share and per ADS at the dividend
declaration date were Bs. 55.33 and Bs. 387.31, respectively, or $0.09 and
$0.63, respectively. Extraordinary cash dividends declared per share and
per ADS at the dividend declaration date were Bs. 100.00 and Bs. 700.00,
respectively, or $0.15 and $1.05, respectively. In 2000, ordinary cash
dividends declared per share and per ADS at the dividend declaration date
were Bs. 60.00 and Bs. 420.00, respectively, or $0.09 and $0.63,
respectively. On March 27, 2001, the Company declared an ordinary cash
dividend of Bs. 63 per share and Bs. 441 per ADS, or $0.09 per share and
$0.62 per ADS. This dividend was paid on April 6, 2001. On October 24,
2001, the Company declared an extraordinary cash dividend of Bs. 520 per
share and Bs. 3,640 per ADS payable in two installments. The first payment
of Bs. 284 per share and Bs. 1,988 per ADS equivalent to $0.38 per share
and $2.66 per ADS, respectively, was made on December 10, 2001. The second
payment of Bs. 236 per share and Bs. 1,652 per ADS equivalent to $0.26 per
share and $1.82 per ADS, respectively, was made on March 18, 2002. Dividend
information in U.S. dollars is expressed at the exchange rate as of the
dividend payment date.
(7) The average shares outstanding under Venezuelan GAAP includes shares held
by the Company for distribution to employees in the form of awards. Under
U.S. GAAP, these shares are treated as treasury stock, and the average
shares outstanding does not include treasury stock.

At December 31,
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1997(1) 1998(1) 1999(1) 2000(1) 2001(1) 2001(2)
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(in millions, except per share and per ADS data)

Balance Sheet Data:
Venezuelan GAAP:
----------------

Working capital Bs. 285,180 Bs. 344,698 Bs. 461,679 Bs. 332,524 Bs. (134,380) $ (177)
Property, plant and
equipment, net 4,247,936 4,235,003 3,969,468 3,628,621 3,122,840 4,120
Total assets 5,700,113 5,661,683 5,520,721 5,212,212 4,292,020 5,662
Total indebtedness 576,282 564,194 503,230 445,601 361,208 477
Capital stock 1,636,733 1,636,733 1,634,754 1,516,016 1,290,104 1,702
Total stockholders' 4,266,539 4,266,062 3,976,057 3,564,685 2,722,086 3,591
equity (3)

U.S. GAAP:
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Property, plant and
equipment, net Bs. 4,306,476 Bs. 4,301,136 Bs. 4,046,978 Bs. 3,717,668 Bs. 3,218,179 $ 4,246
Capital stock 1,592,877 1,596,495 1,594,516 1,475,778 1,249,866 1,649
Total assets 5,714,797 5,687,578 5,566,521 5,329,874 4,377,640 5,775
Total stockholders' 4,124,898 4,156,740 4,021,857 3,682,347 2,807,706 3,704
equity (3)

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(1) Bolivar amounts are in constant bolivars as of December 31, 2001.
(2) Bolivar amounts have been translated into U.S. dollars, solely for the
convenience of the reader, at the rate of Bs. 758.00 = $1.00, the Daily
Exchange Rate on December 31, 2001. Such translations should not be
construed as representations that the bolivar amounts actually represent
such U.S. dollar amounts or could be converted into U.S. dollars at the
rate indicated, or at all. See "-- Exchange Rates."
(3) Stockholders' equity and net asset are interchangeable, but generally
stockholders' equity applies to business enterprises and net assets to
not-for-profit organizations. Reduction in 2001 primarily due to
repurchased shares of Bs. 450,078 million.

Year Ended December 31,
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1997 1998 1999 2000 2001
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Inflation and Devaluation Data:
Increase in Consumer Price Index 37.6% 29.9% 20.0% 13.4% 12.3%
Increase in Wholesale Price Index 17.3% 23.3% 13.6% 15.8% 10.2%
Rate of bolivar devaluation 5.9% 11.9% 14.9% 7.8% 8.3%

Average Shares Outstanding

Income per share is calculated based on the average number of shares
outstanding in each relevant year. The average common shares outstanding at
December 31, 1997, 1998, 1999, 2000 and 2001 under Venezuelan GAAP were
1,000,000,000; 1,000,000,000; 999,897,508; 951,961,030 and 914,462,757 shares,
respectively. Under U.S. GAAP, shares held by the Company for distribution to
employees in the form of awards are treated as treasury stock, and are not
included in the calculation of average shares outstanding. Under Venezuelan GAAP
these shares are treated as an investment and are included in calculating the
average shares outstanding.

Exchange Rates

The following table sets forth the average, high, low and period-end
noon buying rates for the bolivar reported by the Federal Reserve Bank of New
York (the "Noon Buying Rate") expressed as bolivars per U.S. dollar concerning
bolivar/U.S. dollar exchange rates for the years 1997, 1998, 1999, 2000 and
2001, each of the last 3 months of 2001 and each of the first 5 months of 2002:

End of
Year Ended December 31, High (1) Low (1) Average (2) Year (3)
--------------------------------- --------------- ------------ --------------- ---------------

1997 504.80 474.90 490.57 504.80
1998 582.50 511.15 550.72 565.00
1999 649.25 573.75 609.41 649.25
2000 700.50 655.75 682.41 700.50
2001 758.00 701.25 726.55 758.00

End of

Monthly High (4) Low (4) Average (5) Month (6)
--------------- ------------ --------------- ---------------
Year 2001

October 744.25 742.01 743.22 744.25
November 747.65 743.25 745.10 747.25
December 768.00 747.75 753.64 758.00

Year 2002

January 766.20 759.25 762.40 766.20
February 1,073.25 767.75 898.51 1,016.25
March 1,001.26 871.25 922.66 921.00
April 921.00 836.00 871.38 846.00
May 1,161.00 856.00 985.80 1,125.00

--------------------------------------------

(1) The highest and lowest of the Noon Buying Rates for the bolivar per U.S.
dollar reported by the Federal Reserve Bank of New York on the last
business day of each month during the relevant year.

(2) The average of the Noon Buying Rates on the last date of each month during
the relevant year.

(3) The Noon Buying Rates on the last day of each relevant year.

(4) The highest and lowest of the Noon Buying Rates of each day in the relevant
month.

(5) The average of the Noon Buying Rates of each day in the relevant month.

(6) The Noon Buying Rates on the last day of each relevant month.

On May 31, 2002, the Noon Buying Rate was Bs. 1,125.00 = $1.00
(equivalent to Bs. 1.00 = $0.00089).

The Company's financial statements are based on the exchange rates
announced by the Central Bank of Venezuela, which do not differ significantly
from the Noon Buying Rates reported by the Federal Reserve Bank of New York.

There are currently no restrictions under Venezuelan law on the export
or import of capital including, without limitation, foreign exchange controls,
restrictions on payments or remittance of dividends. See "Item 10. Additional
Information -- Exchange Controls." There can be no assurance that the Government
will not institute restrictive exchange control, payments or dividend remittance
policies in the future. See "-- Risk Factors."

For a discussion of the effect, and potential effect, of fluctuations
in bolivar/U.S. dollar exchange rates on the Company, its results of operations
and financial condition and on the market price, liquidity of, and return on
investment on the American Depositary Shares (the "ADSs") and the Class D
Shares, see "Item 5. Operating and Financial Review and Prospects."

Capitalization and Indebtedness

Not applicable.

Reasons for the Offer and Use of Proceeds

Not applicable.

Risk Factors

Factors Relating to Venezuela

Venezuelan Political Risk

Substantially all of the Company's businesses are conducted in
Venezuela. The Company's results of operations and financial condition have
been, and are expected to continue to be, affected generally by inflation,
exchange rates, interest rates, changes in Government leadership and policy,
taxation and other political, economic or other developments in or affecting
Venezuela. Venezuela has had continuous democratically elected governments since
1958. However, overthrows of the Government were attempted in 1992 and again in
April 2002, but were quickly suppressed by military and civil forces. In May
1993, the Venezuelan Senate voted to authorize impeachment proceedings against
then-President Carlos Andres Perez. The current President, Hugo Chavez Frias,
who led one of the 1992 coup attempts, was elected in December 1998 and took
office in February 1999. In April 2002, after growing protests, President Chavez
was himself subject to a governmental coup that lasted 3 days, and ended with
his restatement as president on April 14, 2002.

Since taking office, the government of Hugo Chavez has implemented
significant political changes. The Chavez administration convened the National
Constituent Assembly for the purpose of writing a new Venezuelan Constitution,
which became effective on December 30, 1999 and provided for a new "Citizen
Power" branch of the Government in addition to the President, National Assembly
and Supreme Justice Court. On July 30, 2000 President Chavez was re-elected and
his political party, Movimiento Quinta Republica (MVR) (the Fifth Republic
Movement), also won 77 of 165 seats in the Congress. President Chavez's
government has relied heavily on his connection with the Venezuelan military and
there has been increasing controversy over the use of armed forces personnel in
traditionally non-military roles. For example, the appointment of active or
retired military officers to high government posts including the presidencies of
the major state-owned corporations, Petroleos de Venezuela, S.A. ("PDVSA"),
CITGO Petroleum Corporation and Corporacion Venezolana de Guayana ("CVG"). In
August 2000, President Chavez announced plans for broad economic reform,
designed to promote private investment and economic growth. In November 2000,
the Venezuelan National Assembly passed the Ley Habilitante (the "Enabling
Law"), which allowed President Chavez for a one year period to enact laws by
decree relating to infrastructure and the financial sector, which may negatively
affect foreign investment.

On November 13, 2001, President Chavez enacted forty-nine (49) laws
under the Enabling Law, including the Hydrocarbons Law, Land and Agricultural
Development Law, Fishing and Aquaculture Law, Coastal Zones Law, General Law of
Marine and Related Activities, General Banking and other Financial Institutions
Law, Cooperative Association Special Law, Partial Reform of Auction Law, Road
Transit Law and the Statute of Public Function Law. The approval of these laws
has created controversy and has been called into question by the business sector
and other analysts because of their State-interventionist and undemocratic
orientation. Together, these laws may affect present and future private and
foreign investment and could jeopardize property rights.

The laws enacted in November 2001 under the Enabling Law has also been
questioned by La Federacion Venezolana de Camaras y Asociaciones de Comercio y
Produccion (The Venezuelan Federation of Commerce and Production Chambers and
Associations) ("Fedecamaras"), the leading federation of trade and industry
organizations. Fedecamaras asserted that these laws were approved without proper
debate and without satisfying the consultative requirements for approving laws
pursuant to the Organic Law of Public Administration and the National
Constitution of 1999.

The discontent produced by the laws enacted in November 2001 under the
Enabling Law developed into massive public protests that have raised the level
of political instability. Among the most important protest actions was the
national strike on December 10, 2001. Organized by Fedecamaras, the strike
received the support of all the important businesses sectors of the country
(banking, commerce and industry) and paralyzed essentially all commercial
activity that day. Additionally, some sectors have petitioned the Tribunal
Supremo de Justicia ("Supreme Justice Court") for partial or total nullification
of these laws. Specifically, La Federacion Nacional de Ganaderos ("Fedenaga")
(The National Federation of Cattle Producers) filed a request for a
nullification order against the Land and Agricultural Development Law, while
Fedecamaras filed a nullification order against all of the laws approved under
the Enabling Law. The National Assembly established a forum to discuss all the
proposed reforms to these laws; in particular, Accion Democratica, an opposition
political party, has asked for a vacatio legis (an extension of the time period
between the enactment of a law and the date on which it becomes effective) for
all the laws.

Discontent and dissidence against the current Government has been
expressed in Venezuela and reflects not only dissatisfaction with the Enabling
Law, but also with the management of economic policy and international relations
and the increasing confrontational attitude of the President against diverse
social sectors considered as key institutions, such as the Catholic Church, the
media and the Confederacion de Trabajadores de Venezuela ("CTV") (Confederation
of Venezuelan Workers), the biggest labor union organization. President Chavez's
popularity has declined to approximately 20% to 30%, as indicated by several
opinion polls ratings (Consultores 21, Datanalisis and Alfredo Keller y
Asociados). In 1999 these polls showed the President's popularity at 80% to 90%.

In early 2002, several active members of the armed forces and the
National Assembly considered loyal to President Chavez, publicly expressed their
dissidence with the Government. In the economic sector there is uncertainty
regarding very important laws, particularly relating to taxation and social
security matters. The political uncertainty in Venezuela has increased
substantially in recent months. Specifically, tensions within the media, labor
unions, management of PDVSA and industrial associations has intensified, leading
to regular demonstrations both in favor of and against the Venezuelan
Government. Managers of PDVSA, who did not support the appointment of President
Chavez loyalists to the company's board of directors and increased government
control of the company, participated in a work slowdown in late February 2002
and began a strike on April 4, 2002. On April 9, 2002, leaders of the CTV and
Fedecamaras joined PDVSA's strike, calling for a general strike that lasted
three days and culminated on April 11, 2002 with a massive opposition march in
Caracas. Violence between protesters and supporters of President Chavez during
that march resulted in the death of 17 Venezuelans. This event prompted
dissident officers of the armed forces to intervene and ask President Chavez to
resign. During the early hours of April 12, 2002 President Hugo Chavez, was
forced out of office. A transitional government led by Pedro Carmona Estanga,
head of Fedecamaras, replaced President Chavez. Mr. Carmona's decision upon
taking office to dissolve Venezuela's elected National Assembly, as well as to
fire members of the Supreme Justice Court and revoke the package of
controversial laws enacted in November 2001 pursuant to the Enabling Law in
2001, were met with severe domestic and international criticism. Under pressure
from military forces loyal to President Chavez and public demonstrations in
support of President Chavez (who has denied that he ever resigned on April 12),
and as a result of the lack of support for Mr. Carmona from moderate factions
within the military and the general public, Mr. Carmona resigned and President
Chavez was reinstated as President on April 14, 2002. In a conciliatory move,
President Chavez dissolved the recently installed board of directors of PDVSA.

There can be no assurance that the economic and political uncertainty, which has
negatively affected the growth of the Venezuelan economy in the past, will not
persist.

The Government has historically exercised significant influence over
the Venezuelan economy (including in 1994 by imposing exchange controls,
assuming control of a number of large banks and imposing bonus payments to
workers, and in 1996 by suspending constitutional rights), and although over the
last few years the Government has intermittently begun reform programs to lessen
the public sector's role in the economy, the Government continues to exercise a
significant influence over the economy. Government actions concerning the
economy are likely to continue to have an important effect on:

o the financial condition and results of the operations of
companies operating in Venezuela.

o the ability of Venezuelan companies to make capital
expenditures; and

o the market prices, liquidity and return on securities carrying
Venezuelan risk, such as the ADSs and the Class D Shares.

Economic Considerations

Demand for telephone services in Venezuela and the Company's results of
operations and financial condition have been, and are expected to continue to
be, affected by the state of Venezuela's economy. Venezuela's gross domestic
product ("GDP") decreased by 0.7% in 1998 and by 7.2% in 1999, and increased by
3.2% in 2000 and by 2.7% in 2001. Not accounting for petroleum related
activities, Venezuela's GDP decreased by 0.8% in 1998, 4.9% in 1999, and
increased by 2.7% in 2000 and 3.8% in 2001. See "-- Importance of Oil Sector."
In 2002, it is expected that the bolivar will depreciate significantly and
output will contract as inflation erodes purchasing power and, therefore,
consumption. Despite increased oil prices, the continuation in 2002 of oil
production constraints requested by the Organization of Petroleum Exporting
Countries ("OPEC") will create Government revenue shortfalls, which will mean
that efforts to spur growth through public spending and investment will be
curtailed. There can be no assurance that economic conditions in Venezuela will
improve or that they will not continue to have an adverse effect on demand for
the Company's services or on the Company's results of operations and financial
condition. See "Item 5. Operating and Financial Review and Prospects."

Inflation and Tariff Regulation

Venezuela has experienced high levels of inflation during the past
decade. The general rate of inflation as measured by the Consumer Price Index,
or CPI, was 20.0%, 13.4% and 12.3% for 1999, 2000 and 2001, respectively, and as
measured by the Wholesale Price Index, or WPI, was 13.6%, 15.8% and 10.2% for
1999, 2000 and 2001, respectively. Consumer and wholesale prices are expected to
increase in 2002, fueled by currency devaluation. Consumer price inflation was
approximately 4.2% in March, 2002, the highest monthly increase since May 1996,
raising accumulated consumer price inflation for the first five months of 2002
to 10.5%. The Company estimates consumer and wholesale price inflation of 26%
and 35%, respectively, for year end 2002 (in highly devaluationary periods,
increases in wholesale prices tends to exceed increases in consumer prices,
since the price increases in wholesale foreign components are higher than for
domestic ones). The remaining devaluation adjustment expected by year end 2002
and the increase in the minimum wage, effective beginning in May 2002, will add
to upward pressure on prices, to be offset, in part, by weak domestic demand.

Prior to entering into an agreement in February 2000 with Comision
Nacional de Telecomunicaciones (the National Commission of Telecommunications)
("CONATEL") relating to, among other things, the rates CANTV charged for
telephone services during 2000 (the "Agreement"), CANTV's rates were regulated
under the Concession (as described herein). See "Item 4. Information on

the Company -- Regulatory Framework." The Concession had provided for a
"price-cap" mechanism to set and adjust rates on a quarterly basis throughout
each calendar year. The price-cap mechanism was designed to vary quarterly based
on the WPI. Although in principle tariffs were to be adjusted to reflect
inflation in the preceding quarter, tariffs were, in practice, generally
calculated based upon rates of inflation during the second quarter preceding the
adjustment. The delay was due to the time period required to calculate the
inflation rate during a specific quarter. Accordingly, in many instances tariffs
were implemented based on inflation levels relating to periods ending as much as
six months preceding their implementation date.

Under the Agreement, the first tariff increase became effective on
March 23, 2000 and the second tariff increase become effective on June 16, 2000.
See "Item 4. Information on the Company -- Regulatory Framework -- Regulation
and the Concession -- the Agreement." The tariffs under the Agreement were
effective only until March 10, 2001 if CANTV and CONATEL were unable to reach an
agreement on the tariffs to apply to CANTV after November 27, 2000. During 2000,
CANTV and CONATEL failed to reach an agreement on tariffs to apply after
November 27, 2000.

CANTV is now subject to tariff regulation under the new regulatory
framework as the established operator in the telecommunications services market
in Venezuela. On February 19, 2001 pursuant to the Ley Organica de
Telecomunicaciones (Gaceta Oficial No. 36,970, enacted on June 12, 2000) (the
"New Telecommunications Law"), CONATEL established the maximum tariffs for 2001
that were applicable to the Company effective on March 11, 2001 and a new
tariff-setting system that replaced the tariff adjustment mechanism provided
under the Agreement. The first tariff increase became effective on March 11,
2001 and the second tariff increase became effective on July 1, 2001. The
revised tariffs for year 2002 pursuant to the tariff-setting system were
established by CONATEL on May 21, 2002, published on May 30, 2002 in Official
Gazette No. 37,454, and became effective from June 15, 2002. This tariff plan
includes a tariff simpliciation with the introduction of three new tariff plans
to replace the five existing plans and retains flat rate and prepaid services.
The purpose of the new tariff plan is to simplify the existing tariff structure
and better match the needs of each customer according to their usage patterns
while also accommodating those customers who are considered heavy Internet
users. See "Item 4. Information on the Company -- Regulatory Framework --
Regulation of Tariffs." Under the new rate plans, local usage, monthly rent and
domestic long distance tariffs expressed in nominal bolivars were increased by
approximately 20%, international long distance rates were increased by 12.8% and
local public telephone service rates were increased by approximately 22%.

Under the new tariff-setting system, the maximum tariffs may be
adjusted upwards or downwards based on a formula tied to the Wholesale Price
Index and the rate of devaluation in the bolivar. The new tariff-setting system
provides for an upward or downward adjustment to the established tariffs based
on deviations of 2.5% above or 2.5% below projected monthly estimates of a
comprehensive index based on the Wholesale Price Index and the rate of
devaluation in the bolivar.

CANTV may apply for an upward adjustment to the established tariffs up to the
excess percent that the accumulated index is greater than 2.5% from the
projected index. CONATEL may request a downward adjustment to the established
tariffs by the excess percent that the accumulated index is less than 2.5% from
the projected index. Where the accumulated index deviates in excess of 7.5% from
the projected index, CONATEL is required to revise the tariff-setting formula.
See "Item 4. Information on the Company -- Regulatory Framework -- Regulation of
Tariffs."

As in the past, delays and variances in the tariff-setting system may
cause the inflation rate used as a basis for adjustment of CANTV's tariffs to
differ from the rate of inflation prevailing during the period in which the
adjustment is made and in periods of increasing inflation CANTV's rates may not
always fully offset the effects of inflation. CONATEL may not allow or may delay
upward adjustments to CANTV's rates pursuant to the new price-cap system.
Increasing inflation may also cause a reduction in the value of CANTV's accounts
receivable balance. Also to the extent that CANTV's rates are adjusted on the
basis of agreed-upon projected exchange rates, devaluation of the bolivar at
rates greater than the ones contemplated by the tariff-setting system or the
inability of the Company to raise its tariffs pursuant to the new tariff-setting
system to compensate for exchange losses and inflation, could result in an
adverse effect on the Company's financial condition and results of operations.

Exchange Controls and Currency Devaluation

The Central Bank of Venezuela, in order to avoid significant
fluctuations in the exchange rate, intervened to maintain the exchange rate
between 7.5% above and 7.5% below a reference rate set by it. Such reference
rate was originally set at Bs. 470.00 per U.S. dollar and is adjusted from time
to time to account for projected inflation. On January 14, 1998, the reference
rate was reset to Bs. 508.50 per U.S. dollar. The Central Bank of Venezuela
indicated that such reference rate was to be adjusted by 1.16% to 1.28% monthly.
Under this policy, the reference rate for the Central Bank of Venezuela was Bs.
686.54, Bs. 700.00 and Bs. 758.00 per U.S. dollar at December 31, 1999, 2000 and
2001, respectively. However, the deterioration of Government revenue streams, as
well as increasing political and legal instability, sustained capital flight and
the erosion of the foreign reserves beginning in late 2001, forced the
government to announce, on February 12, 2002, that the bolivar would float
freely. Under this new exchange rate policy, the rate for the Central Bank of
Venezuela was Bs. 1,132.25 per U.S. dollar on May 31, 2002. The currency has
been devalued approximately 49.4% from December 31, 2001 to May 31, 2002, and
the Company estimates total devaluation for 2002 will be 58.3%.

There can be no assurance that the Government will not impose foreign
exchange restrictions or otherwise take future action to limit the ability of
depositaries to repatriate capital or remit dividends on shares of Venezuelan
companies represented by ADSs, Global Depositary Shares or Global Depositary
Receipts or to restrict the Company's ability to deliver underlying Class D
Shares in exchange for ADSs. The bolivar is expected to continue to decline in
value with respect to the U.S. dollar. Such decline could adversely affect the
financial condition and results of operations of the Company and the market
value of the Class D Shares and the ADSs. See "Item 10. Additional Information
-- Exchange Controls."

Substantially all of the Company's revenues are denominated in bolivars
while a substantial majority of its capital expenditures and liabilities have
been and are expected to continue to be denominated in U.S. dollars. Although
the Company continually reviews opportunities to minimize its exposure to
devaluation, under current market conditions, the Company does not engage in
hedging activities. Reductions in the value of the bolivar against the U.S.
dollar and other foreign currencies have significantly affected the business and
operations of the Company in the past and may do so again in the future. If the
value of the bolivar relative to the U.S. dollar continues to decline
substantially, the Company's consolidated net income and stockholders' equity,
in certain circumstances, would be greatly diminished when expressed in U.S.
dollars, and the market price and liquidity of, or the return on an investment
in the ADSs and the Class D Shares could also be adversely affected.

Cash dividends and other cash distributions, if any, with respect to
the Class D Shares underlying the ADSs will be paid by the Company in bolivars,
whereas distributions made by the Depositary in respect of such dividends and
other distributions generally will be paid in U.S. dollars to holders of ADSs
outside Venezuela. Consequently, the U.S. dollar amount of any cash
distributions made by Bank of New York (the "Depositary") pursuant to the
Deposit Agreement, to holders of ADSs would be adversely affected by reductions
in the value of the bolivar relative to the U.S. dollar between the dividend
declaration date and the dividend payment date.

Investment Restrictions

The Government has in the past imposed restrictions on foreign
ownership of Venezuelan equity securities, and continues to limit foreign
investment in certain sectors of the economy, including television and radio
stations, spanish language newspapers and professional services regulated by
specific national laws such as accounting and medical services. Currently there
are no restrictions on foreign ownership of the Company's equity securities.
Although foreign investment restrictions were liberalized in January 1990, there
can be no assurance that any such restrictions will not be reimposed. The
reimposition of any such restrictions could have an adverse effect on the
results of operations and financial condition of the Company and the market
price and liquidity of the ADSs and the Class D Shares.

Importance of Oil Sector

The petroleum industry is central to and dominates the Venezuelan
economy. Oil GDP increased by 9.4% in 1997, increased by 2.0% in 1998,
contracted by 7.4% in 1999, increased by 3.2% in 2000 and contracted by 0.9% in
2001. In 2001, the oil industry accounted for an estimated:

o 26.4% of Venezuela's total GDP;
o approximately 48.0% of the Government's total current
revenues; and
o 80.0% of the total value of Venezuela's exports.

Therefore, the rate of economic growth, the level of tax revenue,
Government spending and Government borrowing and the supply of foreign exchange
in Venezuela are materially affected by oil prices and general conditions in the
international petroleum markets. A future downturn in the economic results of
Venezuela's petroleum industry may have a material adverse effect on the
Venezuelan economy, which could adversely affect the financial condition and
results of operations of the Company.

Beginning in the fourth quarter of 1997 and continuing through the
first quarter of 1999, Venezuelan economy was adversely affected by the
significant decline in international oil prices. During that period, Venezuela
and other oil producing nations realized lower per barrel oil prices than at any

other time in the past ten years. As a result of the decline in oil revenues,
cuts in Government spending and a decline in foreign and domestic private
investment, Venezuelan economy contracted in 1998. Beginning in April 1999,
international oil prices increased partially as a result of production cuts
mandated by OPEC. The Government has announced a desire to strengthen OPEC and
continue with OPEC's directed production cuts.

The average price of Venezuelan oil was $26.4 per barrel in 2000 and
$20.3 per barrel in 2001. Despite, the commitment by OPEC members to cut output,
as a price stabilization mechanism, world oil prices have been falling since
2001. The continuation of OPEC-generated oil production constraints in the
earlier part of 2002 have limited Government revenues. In February 2002, the
Government, for budgetary purposes, restated its estimate for the average oil
price for 2002 downward from $18.5 per barrel to $16 per barrel. To compensate
for the expected shortfall in oil revenues, the Government announced spending
cuts, a reform to the value added tax ("IVA") and the implementation of a
financial transactions tax ("IDB").

Under the power granted to President Chavez by the Enabling Law, the
Hydrocarbons Law was enacted in November 2001. This law ratifies the exclusive
ownership rights of the state over PDVSA, the state oil company. Primary
activities of exploration, extraction and storage will be reserved for state
enterprises or companies in which the state has a majority stake. The law also
proposes to reduce the maximum income tax rate for oil companies from 67% to
34%, but contemplates an increase in production tax or royalty from 16.7% to 30%
of the volume of extracted hydrocarbons, one of the highest in any oil-producing
country. The revenue impact of the royalty increase far outweighs that of the
income tax reduction and would make several current PDVSA projects unprofitable.
This New Hydrocarbons Law may limit the potential for foreign investments in the
country's oil sector mainly for three reasons. First, reserving exploration,
extraction and storage for state-owned enterprises or those companies in which
the state is a majority shareholder, will imply that all joint ventures and
strategic alliances will require legislative approval (such as required by the
Public Patrimony Safeguard Act and the Public Credit Act). Additionally, the
National Assembly will have the right to modify the terms of any proposed joint
venture or strategic alliance. These factors will limit investors' willingness
to participate in financing of Government-controlled projects. Under the law,
privately owned companies will be allowed to operate in the refining sector but
the Government will have the right to set prices of refined products sold in the
domestic market. Third, it is not clear whether the Hydrocarbons Law will apply
to existing joint ventures.

Different Corporate Disclosure and Governance

The securities laws of Venezuela, which govern publicly traded
companies such as the Company, differ from those in the United States in certain
important respects. Publicly available information about issuers of securities
listed on the Venezuelan stock exchanges provides less detail in certain
respects than information regularly published by or about listed companies in
the United States or certain other countries. Although the Company is subject to
the periodic reporting requirements of the U.S. Exchange Act of 1934 (the
"Exchange Act"), the periodic disclosure required for foreign issuers under the
Exchange Act is more limited than the periodic disclosure required for U.S.
issuers. In addition, the Venezuelan securities markets are not as highly
regulated and supervised as the United States securities markets. Minority
stockholders of the Company may also have fewer and less well defined rights
under Venezuelan law and CANTV's Estatutos (the "By-laws") than they might have
as minority stockholders of a corporation incorporated in a United States
jurisdiction. See "Item 10. Additional Information -- Memorandum and Articles of
Association" and Note 16 to the Audited Financial Statements.

The liability of stockholders of a Venezuelan company, such as CANTV,
including holders of Class D Shares, for company's losses is generally limited
to their shareholdings in the company. The Venezuelan Commercial Code provides,
however, that in the event that a company's accumulated losses

(calculated in accordance with Venezuelan GAAP on a constant bolivar basis),
reduce stockholders' equity to an amount equal to or less than two-thirds of the
company's capital stock (i.e., the aggregate of the par value of the company's
outstanding capital stock on a nominal bolivar basis) a stockholders' meeting
must be convened. At such meeting the stockholders must consider whether to: (i)
liquidate the company, (ii) reduce the company's capital stock to an amount
equal to the company's remaining stockholders' equity, (iii) require capital
contributions from stockholders to the extent required so that stockholders'
equity is equal to more than two-thirds of the company's capital stock or (iv)
take none of the foregoing actions. If accumulated losses reduce stockholders'
equity to an amount equal to or less than one-third of the company's capital
stock, the company must be liquidated unless a stockholders' meeting is convened
at which the stockholders determine to: (i) reduce the company's capital stock
to the company's remaining stockholders' equity or (ii) require capital
contributions from stockholders to the extent required so that stockholders'
equity is equal to more than two-thirds of the company's capital stock. If the
stockholders decide to require capital contributions or to increase the capital
stock as described above, each stockholder is required under penalty of
forfeiture of such stockholders shares, to contribute additional capital to the
company based upon the number of shares that it holds, provided that any
stockholder that did not attend the meeting in person or by proxy or that voted
against the increase of capital is entitled to withdraw from the company and to
receive an amount equal to the book value per share of the shares that it holds,
calculated based upon the company's most recent unconsolidated balance sheet
that has been approved at a meeting of the company's stockholders.

The primary differences between U.S. GAAP and Venezuelan GAAP that
apply to the Company are as follows:

o Under Venezuelan GAAP, due to the economy of Venezuela having
experienced periods of significant inflation in the recent
past, the use of financial statements restated for general
price level changes is allowed. In most circumstances U.S.
GAAP does not allow for the restatement of financial
statements for general price level changes;

o Venezuelan GAAP requires that deferred taxes be provided at
the tax rates prevailing at the time of the provision. In
addition, the provision for deferred taxes is not adjusted to
take into account subsequent changes to the statutory rates of
taxation. U.S. GAAP requires that deferred tax assets and
liabilities be established for the tax consequences of
"temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), the effect on
deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
Valuation allowances are provided for deferred tax assets when
realization is not assured;

o In accordance with Venezuelan GAAP, in its inflation adjusted
financial statements, the Company does not capitalize interest
costs incurred in connection with the construction of major
capital projects. Under U.S. GAAP, the amount of interest
incurred in connection with the construction of these projects
is reflected in inflation adjusted financial statements; and

o Under U.S. GAAP, shares held by the Company for distribution
to employees in the form of awards are treated as treasury
stock, and are not included in the calculation of average
shares outstanding. Under Venezuelan GAAP these shares are
treated as an investment and are included in calculating the
average shares outstanding.

Venezuelan Taxation of ADSs and Class D Shares.

Under a new regime covering taxation of dividends introduced in the
1999 Venezuelan Income Tax Law, dividend income received from CANTV with respect
to Class D Shares is not subject to Venezuelan income tax or withholding tax
with respect to distributions arising out of earnings and profits for periods
commencing on or prior to December 31, 2000. All dividends arising out of either
accumulated or current earnings and profits for periods commencing on or after
January 1, 2001 and which are paid in cash with respect to Class D Shares, are
considered Venezuelan local-source income. As such, the dividend payment will be
subject to a withholding tax at the rate of 34% at the time of payment, as well
as filing obligations for the shareholder, regardless of its residence or
domicile. In the case of non-Venezuelan persons (including corporations), the
34% withholding rate may be further reduced or even eliminated by applicable
treaty. Unless an applicable treaty provides otherwise, stock dividends paid
with respect to Class D Shares will be subject to an income tax withholding at
the rate of 34% at the time that such stock is disposed by the shareholder.

For purposes of determining the taxable base in the distribution of
dividends, and except as otherwise provided by an applicable treaty, the term
"taxable dividend" for holders of Class D Shares represents any distribution of
property made by a corporate entity to its shareholders or partners attributable
to the amount by which total accumulated earnings and profits (from January 1,
2003 accumulated earnings and profits should be determined according to
Venezuelan GAAP) exceeds the net taxable income of such corporate entity for
economic periods commencing on or after January 1, 2001. Under various income
tax treaties entered into by Venezuela and other contracting states, the term
"dividend" usually means a distribution of property made by a corporation to its
shareholders out of either accumulated or current earnings and profits.

The unrealized gain derived from either accumulated or current earnings
and profits for periods closing after January 1, 2001 with respect to the ADSs
(whether in cash or in stock) will be treated as a dividend arising from a
Venezuelan asset (Class D Shares), taxable to any recipient of the dividend.
Where a tax treaty applies, the ordinary 34% tax rate that is applicable may be
reduced to a series of rates ranging from 0% to 15%.

Prospective investors of the ADSs should carefully read, and should
also consult their tax advisors with respect to, the summary of Venezuelan and
United States taxes set forth under "Item 10. Additional Information --
Venezuelan Tax Considerations -- Taxation of Dividends."

Enforceability of Civil Liabilities

CANTV is a "compania anonima" organized under the laws of Venezuela. A
majority of CANTV's directors and officers and certain experts named herein
reside outside the United States (principally in Venezuela). All or a
substantial portion of the assets of such persons or CANTV are located outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or CANTV or to
enforce against them in federal or state courts in the United States judgments
predicated upon the civil liability provisions of the federal securities laws of
the United States. CANTV has been advised by its Venezuelan counsel, that there
is uncertainty as to the enforceability, in original actions in Venezuelan
courts, of liabilities predicated solely under the United States federal
securities laws and as to the enforceability in Venezuelan courts of judgments
of United States courts obtained in actions predicated upon the civil liability
provisions of the United States federal securities laws.

Factors Relating to the Company

Concession and the New Telecommunications Law

The Company experienced certain difficulties in implementing certain
aspects of the Concession, including actions contemplated to be taken by the
Government and actions contemplated to be taken by the Company under the
Concession. There can be no assurance that any disputes that may arise between
the Company and the Government in the future will be resolved expeditiously or
in a manner favorable to the Company. See "Item 4. Information on the Company --
Regulatory Framework" and Note 2 to the Audited Financial Statements.

The Concession contemplated the implementation of a rate rebalancing
program to allow CANTV to eliminate the subsidy provided by its long distance
services to basic rent charges for residential customers and thereby permitting
CANTV to offer competitive pricing for its international and domestic long
distance services by the year 2000. The Concession also contemplated the
implementation of certain specific rate rebalancing steps each quarter
commencing in the first quarter of 1994. Due to the economic conditions in
Venezuela existing since 1994 and other factors, such rebalancing did not take
place as contemplated in the Concession. On September 9, 1996, CANTV entered
into an agreement with the Ministry of Infrastructure (previously known as the
Ministry of Transportation and Communications) (the "Ministry") designed to
achieve the level of rate rebalancing originally contemplated by the Concession.
In 1997, CONATEL delayed the quarterly rate increases and rate rebalancing
authorized under the Concession and this agreement for fourteen days. In
February 2000, following the delays in tariff approvals in 1999 and the
commencement of a preliminary proceeding in contemplation of a legal action by
CANTV against the Government for breach of the Concession, CANTV and CONATEL
entered into the Agreement with respect to the rate structures and previously
regulated services under the Concession including rate rebalancing and service
level mandates. During there was no economic or other factor requiring the
application of tariff rate rebalancing.

The New Telecommunications Law enacted on June 12, 2000 provides the
general legal framework for the provision and regulation of telecommunications
services in Venezuela with the stated objectives of establishing the conditions
for fair competition between operators and service providers, setting the rules
on tariffs and interconnection, developing and modernizing the
telecommunications systems, and establishing universal service contributions.
See "Item 4. Information on the Company -- Regulatory Framework." CANTV is
subject to tariff regulation under the new regulatory framework until there is
meaningful competition in the telecommunications services market in Venezuela.
New market entrants are not subject to tariff regulation by CONATEL and are free
to set rates. The revised tariffs for year 2002 pursuant to the tariff-setting
system were established by CONATEL on May 21, 2002, published on May 30, 2002 in
Official Gazette No. 37,454, and became effective from June 15, 2002. This
tariff plan includes a tariff simplification with the introduction of three new
tariff plans to replace the five existing plans and retains flat rate and
prepaid services. The purpose of the new tariff plan is to simplify the existing
tariff structure and better match the needs of each customer according to their
usage patterns while also accommodating those customers who are considered heavy
Internet users. See "Item 4. Information on the Company -- Regulatory Framework
-- Regulation of Tariffs." Under the new rate plans, local usage, monthly rent
and domestic long distance tariffs expressed in nominal bolivars, were increased
by approximately 20%, international long distance rates were increased by 12.8%
and local public telephone service rates were increased by approximately 22%.

There can be no assurance that rate rebalancing will ever be completed
as contemplated under the Agreement or the Concession. In addition, while none
of the Concession, the Agreement or the New Telecommunications Law requires
CANTV to agree to any change in its rate mechanism, there can be no assurance
that CONATEL will not delay changes in rates or attempt to revise the
tariff-setting system and

rate rebalancing mechanisms in ways which would have a material adverse effect
on the Company's financial condition and results of operations. Also, as the
established operator, CANTV is also subject to more demanding interconnection
requirements, and may be subject to greater universal service obligations and
quality and service standards to be established under the new regulatory
framework. There is no assurance that the disparity of treatment will be reduced
or that it will not worsen and have a negative effect on the ability of CANTV to
compete with new market entrants. Inasmuch CANTV continues to have the rates it
charges subject to regulation while new market entrants are free to set rates,
it may also experience decreases to its profit margin as a result of the opening
of the telecommunications services market to competition. The extent of any
decrease in profit margins will depend, in part, on the number of new market
entrants that compete with CANTV for the more lucrative long distance services
while CANTV retains the larger share of the less profitable local services
market subject to price regulation. In the event that CANTV is unable to raise
the rates it charges for local services without offsetting increases in call
volume to compensate for losses in long distance service revenues, CANTV may
experience an adverse effect to its financial condition and results of
operation.

Delays in Receiving Payments from Government Entities

The Company's largest customer is the Venezuelan public sector,
including the Government, its agencies and enterprises, and Venezuelan states
and municipalities (collectively, "Government entities"). In 2001, Government
entities generated approximately 6% of the Company's wireline revenues.

The amounts that Government entities pay for telecommunications
services is established pursuant to annual budgets rather than based upon actual
usage during such year. As a result of these budgeting processes and other
reasons, a number of Government entities have not paid the Company in full for
telecommunications services rendered. The Company has not been able to make
adjustments for inflation or charge interest on such overdue amounts. As a
result, the loss in value related to amounts owed CANTV by Government entities
is significantly greater than the amounts reflected as currently outstanding. On
November 3, 1999, the Venezuelan Congress (currently the "National Assembly")
passed a law authorizing the issuance of bonds for the purpose of paying certain
outstanding obligations including those related to telephone services. The
amount of bonds authorized for payments of debt owed to CANTV as of December 31,
1998, under such legislation was estimated to be Bs. 63,218 million ($90.3
million). In December 2000, CANTV received a payment from the Government of Bs.
34,089 million ($48.7 million) from a bond issuance by the Government related to
amounts outstanding in respect of years 1998 and prior. As of December 31, 2000,
the amounts outstanding in respect of years 1998 and prior was Bs. 18,836
million. In 2000, the Government budgeted for issuance of bonds to cover the
partial payment of amounts outstanding as of December 31, 1999, which totaled
Bs. 137.5 billion after adjusting for inflation as of December 31, 2000. At
December 31, 2001, Government entities owed the Company approximately Bs. 97,898
million ($129.2 million) of which approximately Bs. 60,899 million ($80.3
million) were outstanding from prior years. See Note 9 to the Audited Financial
Statements. The amounts set aside for payments of debt owed to CANTV in the
five-year period 1996-2000 amounted to Bs. 43,300 ($57.1 million). In 2001, the
Government approved a decree authorizing the issuance of bonds for the payment
of basic services. During 2001, the Company collected Bs. 6,633 million from
these bonds. As a result of negotiations with the Government, CANTV received, in
February and in March 2002, payments of approximately Bs. 23,521 million ($22.6
million) from the Government related to accounts receivable from prior years
representing 38.6% of the outstanding balance at December 31, 2001. As a result
of the effects of inflation and devaluation, the value to the Company of these
amounts has been reduced substantially.

Although the Company has in the case of certain Government entities
reduced the number of lines available, there can be no assurance that Government
entities will not continue to use telecommunications services in excess of the
amounts that have been budgeted for and can be paid, that

the Company will not continue to experience significant delays in collecting
receivables from Government entities or that inflation and devaluation will not
continue to decrease the real value of these receivables to the Company. Failure
by Government entities to pay the amounts owed to the Company or amounts to be
billed in the future has had and will continue to have an adverse effect on the
profitability of the Company.

Collections

At December 31, 2001, the average number of days that receivables
remained outstanding was approximately 41 days for all CANTV customers except
Government entities, for which the average was approximately 353 days. The
Company temporarily disconnected approximately 2.0 million wireline customers
during 2001 due to non-payment. Although approximately 90% of such customers
paid the overdue amounts and were subsequently reconnected. The Company applies
a reconnection fee, which varies depending on the type of customer. The Company
also charges interest at a rate of 12% per annum on overdue amounts from
non-Government customers. There can be no assurance that the Company will not
continue to experience significant delays in collecting receivables, that
significant number of customers will not be disconnected for failure to pay for
services and that such factors will not continue to have an adverse impact on
the Company.

Competition

Pursuant to the Concession, the Company was the sole provider of
switched, fixed local, domestic and international long distance telephone
services throughout Venezuela until November 27, 2000. Beginning on November 27,
2000, however, the Concession allowed for direct competition for these services.
In addition, the Concession permitted the Ministry to grant concessions for
basic telephone services to third parties prior to October 2000 in certain rural
areas not served by CANTV.

On January 15, 1991 CONATEL granted the first cellular concession to
Telcel BellSouth, C.A. ("Telcel"). On May 19, 1992, the Company purchased a
cellular concession from the Government and established Telecomunicaciones
Movilnet, C.A. ("Movilnet").

In December 1996, Infonet Redes de Informacion, C.A. ("Infonet") was
granted a rural concession to provide multiple services, except national and
international long distance services, to population centers with 5,000 or fewer
inhabitants in eight western states of Venezuela. Infonet has also installed
digital fixed and mobile wireless services in rural areas in western Venezuela
using global service mobile ("GSM") technology and has also expanded its
services into large population areas. In January 1998, two additional companies
were granted multiple service concessions. Corporacion Digitel C.A. ("Digitel")
(since late 2000 majority owned by Telecom Italia) was granted a concession to
provide service in seven central states and Digicel (formerly Consorcio Elca,
C.A.) ("Digicel") was granted a concession to provide service in six eastern
states. Infonet and Digitel are providing digital fixed wireless and cellular
services and both have expanded their services into larger population areas
where they compete directly with services provided by Movilnet and indirectly
with services provided by CANTV.

With the opening of the telecommunications market to competition in
Venezuela, CANTV is subject to competition in all areas of its business. Several
companies have completed the process of applying for administrative licenses and
concessions on various services. Beginning in November 2000, the Government
started the auction of frequencies for Wireless Local Loop ("WLL") services.
Five regions were defined, three permits in each region were auctioned and six
concessions were granted. CANTV was not allowed to participate in this auction.
See "Item 4. Information on the Company -- Regulatory Framework -- Competitive
Framework." Competition in services provided by the Company may arise from a
variety of existing competitors and new entrants, including telecommunications
services providers

from other countries. Such competitors are able to provide telecommunications
services either through newly installed facilities and networks or through
facilities and networks of existing providers.

As of May 31, 2002, after the opening of the telecommunications market
to competition, the Venezuelan Telecommunications market is composed of two
integrated service providers CANTV and Telcel; wireless service providers, such
as Movilnet, Telcel, Digitel and Infonet; fixed wireless service providers, such
as Telcel, Genesis Telecom, C.A. ("Genesis Telecom"), Entel Chile, S.A. ("Entel
Chile"), Millicom International Cellular, S.A. ("Millicom"), Digitel and
Digicel; data transmission service providers, such as Telecomunicaciones ImpSat,
S.A. ("ImpSat"), Compsat, Bantel, NetUno, Viptel, BellCanada International and
Texcom Telecomunicaciones, C.A. ("Texcom"); Internet service providers ("ISPs"),
such as CANTV.Net, C.A. ("CANTV.Net") (formerly CANTV Servicios, C.A.), T-Net,
Etheron, AOL, UOL and Eldish; paging operators, such as Skytel, Telemensajes
Metropolitanos, Radio Contacto and TeleKontacto; truncking service providers,
such as Americatel, Radio Movil Digital and Comunicaciones Moviles EDC, C.A.
("Conmovil"); and Cable TV operators, such as SuperCable ALK Internacional, C.A.
("SuperCable"), Cable Corp. TV, C.A. ("Cabletel") and Corporacion Telemic, C.A.
("Intercable"), including DirectTV satellite transmission. These
telecommunications services providers and other market entrants may establish
customer relationships, as well as other capabilities and resources to expand
their current service offerings. The Company believes that its competitors will
target large clients, top tier commercial customers and high-income residential
customers. As of May 31, 2002, only NetUno is operating as a local service
provider.

CONATEL intended to auction concessions for frequencies to provide
Local Multipoint Distribution Services ("LMDS") in each of five regions of
Venezuela. LMDS is a fixed wireless service that offers a broad-band access and
fast data transmission. On April 2, 2001, CONATEL temporarily suspended the
auction process for LMDS. CONATEL has not yet announced the new date for the
LMDS auction.

The scope of increased competition and any corresponding adverse effect
on the Company's results will depend on a variety of factors. Among such factors
are the business strategies and financial and technical capabilities of
potential competitors, prevailing market conditions, as well as the
effectiveness of the Company's efforts to compete successfully. Increased
competition will further change the environment in which the Company operates.
Competition will require the increased development of a competitive culture,
including greater customer care, differentiated services, continuous
introduction of innovative technologies, competitive cost positioning and
operational efficiencies. There is no assurance that the Company will be able to
operate effectively in a highly competitive environment.

Labor Relations

The Company's employees are members of 28 separate labor unions which
deal with CANTV either directly or through the Federacion de Trabajadores de
Telecomunicaciones de Venezuela (Federation of Telecommunications Workers of
Venezuela) ("FETRATEL"). Approximately 32.8% of the Company's 10,227 employees
and approximately 46.0% of CANTV's 7,302 employees at December 31, 2001 were
members of a labor union. In the past, contract negotiations have generally not
been concluded by the expiration date of the collective bargaining agreement,
but employees have continued to work under the terms of the expired contracts
during negotiations. However, the Company has experienced work stoppages from
time to time. The most recent work stoppage, which lasted 23 days, occurred in
March 1997 during contract negotiations following the expiration of a collective
bargaining agreement on December 31, 1996. On April 2, 1997 the Government
suspended the strike and convened an arbitration panel to draft a new collective
bargaining agreement. This agreement expired on June 18, 1999. On September 3,
1999, the Company signed a collective bargaining agreement with FETRATEL, which
terminated on June 17, 2001. This agreement established a 20% base salary
increase retroactive to

June 18, 1999, Bs. 30,000 weekly salary increase to all union workers on June
18, 2000 and merit increases in June 2000 and 2001. CANTV is currently in
negotiations with FETRATEL and expects to finalize a new labor agreement in July
2002. In recent weeks, FETRATEL has threatened to call for a strike. Future
conflicts or disagreements with FETRATEL or with the Company's unionized
employees or other employees could have a material adverse effect on the
Company. See "Item 6. Directors, Senior Management and Employees -- Employees."

Liquidity of Market for Class D Shares

The Venezuelan securities markets are substantially smaller, less
liquid and more volatile than the securities markets in the United States and
certain other countries. At May 31, 2002, the aggregate market capitalization of
the seventeen largest Venezuelan companies listed on the Caracas Stock Exchange
was Bs. 2,863,297 million ($2,529 million), of which the Company comprised
approximately Bs. 930,389 million.

A disproportionately large percentage of the market capitalization and
trading value of the Venezuelan securities markets is represented by a small
number of issuers, and a high proportion of the shares of many Venezuelan
companies are held by a relatively limited number of persons. The Company is the
largest company in Venezuela in terms of market capitalization and, at May 31,
2002 represented 32.5% of total market capitalization of the companies listed on
the Caracas Stock Exchange.

The Caracas Stock Exchange has in the past experienced substantial
fluctuations in the market prices of listed securities. These and other market
characteristics have in the past affected, and may in the future affect, the
market price and liquidity of shares of Venezuelan companies, including the
Class D Shares, and may also affect the market prices and trading of the ADSs.

Forward-Looking Information is Subject to Risk and Uncertainty

Certain statements contained in this Form 20-F contain
"forward-looking" information (as defined in the U.S. Private Securities
Litigation Reform Act of 1995) that involves risks and uncertainties, including
(i) the implications to the Company of the economic or political situation in
Venezuela, (ii) the effects of the changes brought about by the new regulatory
framework designed to open the telecommunications sector to competition, (iii)
the Company's plans for expansion and modernization of its networks and the
benefits to the Company that may result from the Company's implementation of
such plans, (iv) the Company's plans to expand its service offerings, (v)
information as to potential competitors and as to the results the Company may
obtain from its implementation of its business strategy, and (vi) the Company's
plans and ability to implement further tariff increases and rate rebalancing.
Actual future results and trends may differ materially depending on a variety of
factors discussed in this "Risk Factors" section and elsewhere in this Form
20-F, including, among others, the Company's success in implementing its
business plans, the nature and extent of future competition, changes in the
Venezuelan and global economy, regulatory conditions and Venezuelan political
and legal developments.

Item 4. Information on the Company

Introduction

CANTV is the primary provider of fixed telecommunications services in
Venezuela. The Company provides substantially all of its services within
Venezuela and substantially all of its operating income is derived from
Venezuelan domiciled customers and from settlements with foreign carriers for
calls completed in Venezuela. CANTV is the owner of the largest basic
telecommunications network with nationwide coverage in Venezuela. Through this
network, CANTV provides local, national and international telecommunications
services. In addition, the Company provides private network, data, public
telephone, rural telephone and telex services. Through its subsidiaries, the
Company provides other telecommunications-related services including wireless
communications, Internet access and telephone directories.

CANTV is a "compania anonima" organized under the laws of Venezuela.
CANTV was incorporated in Venezuela as Compania Anonima Nacional Telefonos de
Venezuela (CANTV) on June 20, 1930. The Company's registered office is located
at Avenida Libertador, Centro Nacional de Telecomunicaciones, Nuevo Edificio
Administrativo, Piso 1, Apartado Postal 1226, Caracas, Venezuela 1010
(58-212-500-6800). CANTV's Internet website address is http://www.cantv.com.ve.
The information on CANTV's website is not incorporated into this document.

The Company had operating revenues and net income of Bs. 2,283,026
million and Bs. 79,127 million, respectively, for the year ended December 31,
2001. At December 31, 2001, the Company had approximately 2.7 million access
lines in service and approximately 2.5 million wireless subscribers.

History

In December 1991, VenWorld Telecom, C.A. ("VenWorld"), a company
organized under the laws of Venezuela by a private consortium of companies and
majority owned by an indirect wholly-owned subsidiary of Verizon Communications
Inc. ("Verizon") (formerly GTE Corporation), acquired operating control and
initially 40% of the equity share capital of CANTV from the Government through
Banco de Desarrollo Economico y Social de Venezuela (Bank of Economic and Social
Development of Venezuela) (formerly Fondo de Inversiones de Venezuela - the
"Venezuelan Investment Fund") for a purchase price of approximately $1,885
million. After VenWorld obtained operating control, the Company substantially
increased the number of access lines in service, modernized its network,
increased employee productivity, consolidated operations, strengthened
management controls and improved network planning, design and construction. In
late 1996, the Government sold 348,100,000 Class D Shares representing 34.8% of
the equity share capital of CANTV in an international equity offering (the
"Initial Public Offering").

The consortium of companies that originally formed VenWorld, directly
or through subsidiaries, in addition to Verizon included: T.I. Telefonica
Internacional de Espana, S.A. ("Telefonica Internacional"); C.A. La Electricidad
de Caracas, S.A.C.A. ("Electricidad de Caracas"), Venezuela's largest private
sector power generating and distribution company, now a subsidiary of AES
Corporation ("AES"); Consorcio Inversionista Mercantil ("CIMA"), C.A., S.A.C.A.,
individually and as trustee for 239 trusts established as a result of the
liquidation of Inversiones Cimatel, C.A.; and AT&T International, Inc. ("AT&T")
(together with their successors, collectively referred to as the "Participants
in the Consortium"). The Participants in the Consortium contributed broad
operating experience and expertise to the operation of the Company and provided
the Company with access to technology, research and product development and
procurement. In addition, certain Participants in the Consortium entered into

service agreements with the Company to provide technical, consulting and other
assistance. See "Item 7. Major Shareholders and Related Party Transactions."
VenWorld, as the holder of the Company's Class A Shares, had the right until
January 1, 2001 to elect the president of the Company and the four principal
directors, which collectively comprise a majority of CANTV's nine member Board
of Directors. After January 1, 2001, the President of the Company and four
directors that had been elected by VenWorld as holder of the Company's Class A
Shares, together with one of the two directors that had been elected by the
Government as holder of the Company's Class B Shares, are now elected by all
holders of CANTV's outstanding shares voting as a single class. See "Item 6.

Directors, Senior Management and Employees."

Beginning on December 4, 2000, VenWorld shareholders had the right to
have their shares redeemed. The redemption of VenWorld shares enabled a
shareholder to receive its pro rata portion of CANTV Class A Shares held by
VenWorld, provided that the remaining VenWorld shareholders would not exercise a
right of first refusal set forth in VenWorld's by-laws. If the right of first
refusal were exercised, the redeeming shareholder would receive cash for its
CANTV Class A Shares. All Class A Shares transferred to an entity other than
Verizon, Telefonica Internacional, Banco Mercantil, C.A. or their respective
affiliates will be, pursuant to CANTV's By-laws, automatically converted into
Class D Shares. During 2001, AT&T, Electricidad de Caracas and more than 150 of
the CIMA trust beneficiaries requested the redemption of their VenWorld shares.
As of December 31, 2001, only Verizon, Telefonica Internacional and Banco
Mercantil, C.A., as successor to CIMA, individually and as trustee, remained as
VenWorld shareholders. As a result of these redemptions, VenWorld's ownership in
CANTV decreased from 43.19% at December 31, 2000 to 32.95% at December 31, 2001.

On February 1, 2002, the shareholders of VenWorld, holder of 32.95% of
CANTV's shares, agreed to liquidate VenWorld. On February 25, 2002, the
shareholders of VenWorld approved a plan of liquidation pursuant to which Class
A Shares were distributed to each of the VenWorld shareholders on March 4, 2002.
As of May 31, 2002, Verizon held directly or through affiliates, 28.51% of the
Company and Telefonica Internacional held approximately 6.91% of the Company.

CANTV operates the nation-wide fixed-line network in Venezuela. CANTV's
principal subsidiaries are Movilnet, CANTV.Net and Caveguias, C.A.
("Caveguias"). Movilnet was incorporated in Venezuela on March 24, 1992 and its
business is to provide, manage and develop wireless telecommunications services.
CANTV.Net was incorporated in Venezuela on January 26, 1994 and its business is
to provide value-added services such as Internet access and data transmission.
Caveguias was incorporated in Venezuela on November 12, 1975 and its business is
to provide telephone directory information services.

The Company is subject to comprehensive regulation and supervision by
the Ministry and CONATEL. See "-- Regulatory Framework -- Regulation and the
Concession."

Prior to privatization, the quality of services provided by the Company
and its operating results were negatively affected by severe congestion in the
domestic telephone network, which was largely attributable to outdated
equipment, poor network design, poor equipment maintenance and inadequate
management systems and controls. Pursuant to an expansion and modernization
program, the Company has increased the percentage of digital access lines
installed in the Company's network from 62.3% at December 31, 1997 to 80.5% at
December 31, 2001. All of the Company's international and domestic long distance
switches are digital. During 2001, the Company has also continued connecting
several cities to newly built segments of a high capacity broad-band fiber optic
network, which offers the latest technology in fixed telecommunications networks
with additional capacity for expansion in the future. Wireless subscribers have
increased from 374,875 at December 31, 1997, to approximately 2.5 million at
December 31, 2001. Access lines in service have not significantly increased from
1997 because the

Company has focused its efforts on improving service quality and technology.
Additionally, CANTV has implemented a stricter policy for the assignment of
lines to customers.

Since privatization, the Company has implemented a number of programs
designed to lead to greater productivity and improved customer service. As a
result of productivity improvements, the Company has been able to reduce the
number of its employees and at the same time grow its business. Access lines in
service per CANTV employee have increased from 203 at December 31, 1997 to 369
at December 31, 2001. As part of its customer service enhancements, the Company
has automated its customer service system, introduced detailed billing and a
computerized payment system, increased the number of bilingual international and
domestic operators, consolidated operator centers, modernized and increased the
number of customer service centers, improved the quality of its trouble
reporting system, increased the number of maintenance facilities and implemented
an automated disconnect and reconnect system. In addition, the Company has
redesigned its employee training programs, emphasizing quality and efficient
service in order to promote a customer-oriented service culture. The Company
continuously seeks to enhance customer service through the introduction of
innovative, value-added services.

On August 29, 2001, AES Comunicaciones de Venezuela, C.A. (an affiliate
of Electricidad de Caracas and AES) commenced a unsolicited cash tender offer in
the United States to purchase an aggregate of 28,566,944 ADSs for Bs. 17,829 per
ADS ($24 per ADS), and in Venezuela to purchase 199,968,608 shares of CANTV's
outstanding common stock for approximately Bs. 2,547 per share ($3.43 per share)
in order to obtain 50.1% of outstanding shares of the Company and to acquire a
controlling interest in CANTV. On October 1, 2001, the CANTV Board of Directors
deemed this offer unsatisfactory and not in the best interest of its
shareholders, its ADS holders, employees, customers or the people of Venezuela.
On October 7, 2001, the CANTV Board of Directors called for an Extraordinary
Shareholders Assembly to consider authorization of payment of an extraordinary
dividend and authorization to initiate a third share repurchase program for 15%
of the Company's outstanding shares (The "Third Repurchase Program"). On October
9, 2001, the Comision Nacional de Valores (the Venezuelan National Securities
Commission) ("CNV") issued Resolution 217 ordering VenWorld, holder of 33.4% of
the outstanding shares of the Company, to participate on a pro rata basis in the
Third Repurchase Program to ensure that its proportional participation interest
would not increase pursuant to the Company's proposed Third Repurchase Program.
On November 5, 2001, GTE Venholdings B.V., an indirect subsidiary of Verizon,
informed the Company of its intention to tender a number of shares to ensure
that its direct percentage ownership interest immediately prior to and after the
consummation of the Third Repurchase Program remained the same. On October 19,
2001, the CNV authorized the Company's Third Repurchase Program, subject to
shareholders consent, and required AES to extend the date of its tender offer to
expire simultaneously with the CANTV offer in The Third Repurchase Program.

On October 24, 2001, CANTV held an Extraordinary Shareholders'
Assembly to approve, in part, the proposed Third Repurchase Program submitted by
CANTV's Board of Directors. Following the affirmative vote of CANTV shareholders
approving the Third Repurchase Program, CANTV began a cash tender offer at $30
per ADS in the United States and $4.29 per Class D Share of the Company in
Venezuela. The period of the Company's Third Repurchase Program began on October
25, 2001 and expired on November 23, 2001. In connection with the Third
Repurchase Program, each of VenWorld and GTE Venholdings B.V., an indirect
subsidiary of Verizon, tendered a number of shares of the Company such that its
ownership in the Company would be equal to its percentage ownership in the
Company immediately prior to the completion of the Third Repurchase Program.

The October 24, 2001, Extraordinary Shareholders' Assembly also
approved an extraordinary cash dividend of Bs. 520 per share ($0.70 per share)
and Bs. 3,640 per ADS ($4.90 per ADS) which was paid in two installments, one of
Bs. 284 per share ($0.38 per share) on December 10, 2001 to shareholders of
record as of December 3, 2001 and the other of Bs. 236 per share ($0.32 per
share) on March 18, 2002

to shareholders of record as of March 6, 2002. At the same Extraordinary
Shareholders' Assembly, CANTV's shareholders also approved an increase of such
number of share comprising up to 2% of the capital stock of the Company as of
December 2, 1991 for grants of stock for eligible employees pursuant to the
existing "Excellence Award" program and the creation of a new benefit plan
called the "Value Fund," which would include up to 5.5% of the capital stock of
the Company. The increase to the Excellence Award program and the creation of
the Value Fund would be effected through the purchase of Class C Shares
outstanding enabling Class C shareholders to sell to the Company Class C Shares
in the aggregate number of shares equal to the proportional amount accepted
under, and at the same price as the price offered pursuant to, the Third
Repurchase Program. As of December 31, 2001, the Company had not increased the
Excellence Award program or created the new benefit plan Value Fund. On March
2002, the Company provided Bs. 4,200 million in funds to increase the number of
Class C Shares of the Company held by the trust administering the Excellence
Award program. As of May 31, 2002 the Value Fund has not yet been created.

Company Strategy

The Company's mission is to maximize shareholders value through
communications solutions that exceed customer expectations and meet evolving
global technological standards in telecommunications. To achieve this end, the
Company focuses its strategy towards obtaining profitable growth in its
telecommunications business through increase market focus and by continuing to
selectively expand its network, broaden service offerings, increase network
utilization, increase market penetration, reduce costs and improve overall
productivity. Key elements of the Company's strategy include:

Improve Profitability Through Effective Customer Focus and an
Integrated Service Offering. The Company has made substantial progress on its
expansion and modernization program and continues to focus on key customer
groups. The Company uses improvements in customer service and technological
infrastructure to market its services more effectively following the opening of
the Venezuelan market to competition in November 2000. The Company is
implementing an integrated marketing approach by capitalizing on the operational
synergies between CANTV and its subsidiaries to identify and meet customer
needs. The Company has been integrating its information technology systems to
provide the information and tools necessary to better target customers and
improve overall customer service and satisfaction. The Company has also created
business units to focus on specifically targeted customer groups. These units
and customer groups are described below:

CANTV Corporations. This unit is responsible for the relationships with
the largest corporations operating in Venezuela. CANTV Corporations offers
integrated telecommunications solutions and seeks new business opportunities to
support the growth of data transmission services. This business unit is focused
on providing high quality telecommunications services ranging from voice and
data transmission to customer network management. CANTV Corporations plans to
consolidate its Televoting/Telecontest product offering launched in 2000, which
has become an integral part of the franchised TV contest programs aired.
Televoting is a telecommunications product through which opinion polls and
surveys can be conducted by telephone in a fast and economical way. Telecontest
is a similar interactive product created to enable the measurement of response
levels and ratings in connection with televised broadcasts and contests. This
unit is developing new products such as Digital Video Network, a new digital and
automatic platform for the distribution of TV signals with quality contribution;
Telecommuting, a service that allows a large corporation to employ information
systems resources from home or on the road; the 800 Inbound Service, an
international reserve charge voice service; an emergency button service located
in public areas and connected to security authorities; a 171 emergency number, a
unique national emergency number; and the Credit Limit Plan based on the
customer's historical record for the telephone

usage services. This unit is also exploring alliances with State Governments for
modernization of technological platforms in several states.

CANTV Companies. This unit serves medium and small commercial clients
in the financial, manufacturing, petroleum, media and service sectors. This unit
develops and markets new services to these customers, focusing on enhanced
services, including data transmission services, in order to increase access
lines and usage per access line. During 2001, the Company has achieved 80.5%
digitalization of its installed lines, and it continues to make investments
designed to improve the quality of its network, including: (i) the planned
completion during 2002 of a high capacity broadband fiber optic network linking
some interurban and urban areas, (ii) the development of wireless technology to
expand basic service where cost effective, and (iii) the offering of integrated
services through CANTV's wholly-owned subsidiaries. During 2001, the Company
introduced projects for TV video transmission, videoconferencing on demand and
tele-security using remote video. The Company is also working on an additional
new model for customer service through the Internet. With this new marketing
channel, CANTV's customers will be able to access a web site to place new
service orders, and review the status of their orders and claims, among other
things.

CANTV Public Institutions. This unit serves the Government, as well as
state and municipal governments, and tailors its service offerings to the
Government's diverse telecommunications needs. These include voice, data
transmission, video and value-added services. By offering innovative services
such as integrated services through CANTV's wholly-owned subsidiaries (Movilnet
and CANTV.Net), a broad-band high-speed Internet access service called "Acceso
Banda Ancha" ("ABA"), fixed wireline prepaid service through a prepaid card
(called "Unica," currently used for wireline, wireless and Internet services)
and a new digital invoice, the Company encourages the modernization of the
telecommunications infrastructure used by the Government. The Company is also
actively involved in several social projects such as the virtual library, which
consists of computer rooms with Internet access offering a selection of reading
titles and educational resources. The virtual library project is managed by
regional governments. During 2001, the Company finalized plans to complete
various technology assistance programs for four local governments including a
community emergency "911" telephone service program, an on-line health
information database, an educational program and greater community access to
educational resources. Projects undertaken in cooperation with the Government
include citizen watch, telemedicine and the modernization and expansion of the
national postal office ("IPOSTEL"). Currently, the Company has completed 180
"Infocentros" and plans to install 40 centers during 2002. The Company completed
the modernization of 27 offices of the "Servicio Nacional Integrado de
Administracion Tributaria" (SENIAT) (National Integrated Service of Tax
Administration) during year 2001 and plans the implementation of project
"Conexion Aduanal" ("Custom Connection") which will allow customers to comply
with value-added tax reporting and filing requirements on line. Additionally,
the Company plans to upgrade the resources of the Ministry of Finance through
the electronic trading of public debt bonds, and modernization of 26 offices of
the Ministry of Infrastructure.

CANTV Residential. This unit serves residential customers by seeking to
increase services while decreasing the costs of providing these services. Its
objective is to offer products and services under new technical platforms that
promote usage and customer loyalty through improvements in customer care. As
part of this objective, during 2000, CANTV introduced a fixed wireline prepaid
service to make CANTV's services more accessible to lower income consumers. As a
result, during 2001, prepaid lines increased 132,049 lines from 100,170 lines at
December 31, 2000 to 232,219 lines at December 31, 2001. Additionally, in
October 2000 CANTV Residential introduced "ABA," which provides broad-band
high-speed Internet access for residential customers. During 2001, CANTV
improved its preferred country and nights and weekends plans, introduced a flat
rate, a local collect service and virtual home service. As of December 31, 2001
there were approximately 56,000 customers subscribed to preferred country plan.
This plan allows the customer to select up to five countries and receive a
discount of up to 20% for calls

made to the selected countries. On December 31, 2001 approximately 205,000
customers used nights and weekends special flat rate national long distance
plan, first introduced in November 2000. During 2001, this plan became regulated
by CONATEL. In May 2001, the Company launched a new residential flat free plan
with unlimited local minutes. As of December 31, 2001 there were approximately
100,000 customers affiliated to this flat rate plan.

CANTV Public Telecommunications. This unit's objective is to provide to
customers high quality public telecommunications services that meet a broad
array of telecommunications needs. In order to achieve this objective, the
Company offers high quality and prompt service throughout the country by using
an innovative technology and a highly motivated employee workforce. CANTV Public
Telecommunications offers several services including Communications Centers,
prepaid debit card public telephones, rented public telephones, prepaid debit
cards selling machines and other services. CANTV's Communications Centers,
primarily located in areas of high commercial activity, provide a significant
segment of the population with a convenient and safe alternative to public
telephones and the added benefit of Internet access. They also reduce the
Company's cost of providing telecommunications services through lower
maintenance costs. Communications Centers have shown one of the higher rates of
growth from among the various telecommunications services franchised by the
Company during 2000 and 2001 with approximately 226 Communications Centers
completed in 2001 reaching a total of 310 Communications Centers in operation as
of December 31, 2001. During 2001, the Company installed 2,732 public telephones
reaching a total of 87,748 public telephones in service as of December 31, 2001.

CANTV Interconnection. This unit serves telecommunication operators,
Internet service providers and value-added service providers. Also, this unit
negotiates and settles the agreements with international operators for incoming
and outgoing voice traffic. Its strategy is to (i) become the preferred
"carrier's carrier" using the Company's current and future infrastructure; (ii)
offer timely solutions to customer requirements at competitive prices and
network quality; (iii) develop long-term strategic alliances; and (iv) maximize
the efficiency of the Company's interconnection facilities while minimizing
costs. In May 2001, the Company entered into five revised interconnection
agreements with telecommunication's operators and the first two interconnection
agreements for basic telecommunication services. These agreements stipulate the
terms for interconnections between CANTV's basic network systems and the
networks for these companies. Additionally the Company is continuously
developing specific packages that encourage other telecommunications services
providers to use the Company's network. In addition, the Company continues to
introduce new services to increase domestic and international traffic to
strengthen its position in both the national and international data transmission
markets.

Continue Expanding Wireless Services. The Company, through its
wholly-owned subsidiary Movilnet, plans to continue expanding its wireless
communications business. The Company is also seeking to increase the revenues
and margins of its wireless business by (i) minimizing customer acquisition
cost; (ii) continuing the introduction of attractive products in the Venezuelan
market; (iii) continuing the development of the wireless data market; (iv)
expanding its geographic coverage and concentrating in key markets; (v)
continuing improvement of Movilnet's market position through increased product
segmentation; (vi) providing packages of services that maximize the utilization
of Movilnet's technological, marketing and personnel infrastructure; and (vii)
centralizing marketing efforts and client service functions to better focus on
customer care, build loyalty and improve customer satisfaction. During 2001, the
Company coordinated its marketing efforts with Movilnet to better serve its
large corporate customers and make efficient use of marketing resources.
Additionally, during 2001 Movilnet started a process to change the network
technology from Time Division Multiple Access ("TDMA") to a third generation
code division multiple access ("CDMA2000"), which is expected to be completed in
the third quarter of 2002. The new network will increase its capacity by
approximately 30% as compared to TDMA. Movilnet will operate the CDMA2000
network alongside its existing TDMA network for up to 10 years. CANTV believes
that the migration process for existing TDMA users will

not be a problem under this time frame. Movilnet will take advantage of CDMA's
more efficient use of available wireless spectrum to grow in areas of the
country where it has less spectrum available, thus effectively increasing the
total capacity of the system. CDMA2000 provides a clear roadmap to high speed
data services, allowing the Company to broaden its services and products
portfolio.

Grow Data Transmission and Value-Added Services. The Company provides
various telecommunications services, including data transmission and an array of
value-added services such as voice mail, call waiting, call forwarding, call
blocking, speed dialing, toll free and 800 number services, Venezuela Direct
service (which allows customers to reach a Venezuelan operator from outside
Venezuela), direct long distance calling services to other countries, video
conferencing, "web page" hosting, enhanced fax service, audio text, country-wide
900 service, Televoting, Telecontest and other intelligent network and data
capabilities that increase network utilization. The Company plans to offer
additional value-added services in the future and seeks to capture the largest
share of this market by leveraging its existing infrastructure, its
relationships with major shareholders such as Verizon and Telefonica
Internacional and first-mover advantage, to be the first to offer new
telecommunications services in Venezuela. Currently, the Company is testing the
mobile prepaid service which will allow customers to make local, domestic and
international long distance calls from any telephone, using a Dual Tone
Multi-Frequency signal system. The payment system used for this mobile prepaid
service will be "Unica", currently used for prepaid services by Movilnet, CANTV
and CANTV.Net.

Consolidate Our Position as the Preferred Internet Service Provider in
Venezuela. The Company seeks to remain the recognized market leader in the
provision of Internet services. The Company's strategy to retain the largest
share of this high-growth market includes the development of an advanced
services platform and integrated services network. The Company actively targets
the development of Internet services in the corporate market by emphasizing
long-term partnerships and delivering reliable and secure services aimed at
ensuring the promises of the e-economy. The Company also continues to deliver
and market its Internet services to medium and small-sized companies and to the
broader consumer market.

Achieve "World Class" Efficiency Standards. The Company has made
substantial progress in reducing costs and increasing productivity, reducing
CANTV's labor force by approximately 45.2% and increasing the number of access
lines in service per CANTV employee by 82%, from 203 to 369, in each case,
between December 31, 1997 and December 31, 2001. The Company has implemented
special retirement programs to encourage workforce reductions. Other
efficiencies achieved include improvement of internal controls, consolidation of
operator centers and centralization of the Company's ordering and procurement
processes. The Company is seeking to enhance the quality of its workforce
through training programs, improved hiring practices and analysis of employee
capabilities in connection with workforce reductions. The Company believes that
these measures, in combination with the ongoing improvement of its network
infrastructure, should continue to make possible substantial additional
improvements in efficiency and productivity, which should result in improvements
to its operating margins.

Lead the Implementation of a Fair and Balanced Regulatory Framework.
The Company seeks to promote a regulatory framework that will maintain and
ensure the competitive position of the Company's telecommunications businesses
and thereby help support the continued and future development of Venezuela's
telecommunications infrastructure. Additionally, the Company seeks to ensure
that it is compensated for providing access to its network. The Company has
reached interconnection agreements with a number of competitive service
providers and seeks to become Venezuela's preferred carrier by leveraging on its
extensive country-wide fiber optic "backbone."

Globalization. The Company continues to take advantage of its
relationship with Verizon in order to benefit from its strengths in processes,
systems and resources to strengthen the Company's own competitive position. In
addition, in April 2001 Movilnet and CANTV.Net changed their logos to resemble
CANTV's logo, as part of a brand name unification strategy. Using the same
graphics and font, Movilnet adopted a new slogan "contigo siempre" ("Always with
you") and CANTV.Net changed its name from CANTV Servicios to CANTV.Net and
adopted the new slogan "te acerca el futuro" ("Taking you closer to the
future").

Business Overview

Capital Expenditures

The Company made capital expenditures of approximately $593 million,
$706 million, $546 million, $442 million and $364 in 1997, 1998, 1999, 2000 and
2001, respectively. The Company presently plans capital expenditures of
approximately $440 million in 2002 revalued from amounts estimated in December
2001. Expenditures are directed towards sales (52.7%), operations support
(6.9%), overhead (7.7%), network (16.8%), systems (15.2%) and other (0.7%).
Sales expenditures cover new products and technologies. Operations support
consists of the development, upgrading and installation of new systems. The
Company's capital expenditures are expected to be funded through internally
generated cash. Even though capital expenditures are expected to drop to lower
levels in the 2003 to 2006 planning period, expenditures will continue to be
directed towards network expansion, digitalization and modernization. The
Company plans to continue to focus its capital investments on the wireless, data
transmission and e-business areas.

Breakdown of revenues by category of activity

The breakdown of revenues by category of activity for each of the last
three years is included in "Item 5. Operating and Financial Review and Prospects
-- Results of Operations for the Years Ended December 31, 1999, 2000 and 2001."

Domestic Telephone Services

Domestic telephone services include local and domestic long distance
and public telephone services. These services accounted for 23.6% of the
Company's total operating revenues during 2001.

Local and Domestic Long Distance Services

Pursuant to the Concession, CANTV until November 27, 2000, was the
exclusive provider of switched, fixed, local and domestic long distance
telephone services throughout Venezuela, except in limited circumstances. As of
December 31, 2001, CANTV's domestic telephone network included approximately 3.1
million installed lines and 2.7 million access lines in service extending
throughout the whole of Venezuela.

The following table provides information relating to the development
and improvement of the Company's domestic telephone system over the most recent
five years:

At December 31,
-----------------------------------------------------------------------------------
1997 1998 1999 2000 2001
-------------- -------------- -------------- -------------- --------------

Lines installed 3,403,521 3,550,706 3,546,538 3,074,506 3,093,110
Percentage of lines installed
in digital exchanges 62.3% 66.1% 68.5% 80.0% 80.5%
Access lines in service: (1)
Non-residential 736,759 681,761 634,969 627,785 621,369
Residential 1,895,838 1,859,073 1,870,859 1,892,801 1,970,161
Public telephones 70,012 75,097 80,033 85,016 87,748
ADSL (3) - - - 4,473 17,884
-------------- -------------- -------------- -------------- --------------
Total 2,702,609 2,615,931 2,585,861 2,610,075 2,697,162
============== ============== ============== ============== ==============

Access lines in service per
100 inhabitants 11.8 11.2 10.8 10.7 10.9
Customer satisfaction (2)
Public telephones 70.1% 69.6% 72.3% N/A N/A
Residential 89.8% 91.5% 88.2% N/A N/A
Non-residential 88.2% 88.5% 83.2% N/A N/A

--------------------------------

(1) References to "access lines in service" are to lines in billing.
(2) Percentage of customers satisfied with CANTV's service as measured by
customer opinion surveys conducted by third parties. The lower customer
satisfaction results obtained from the 1999 customer survey compared to the
1998 survey are primarily attributable to differences in survey design and
methodology. Customer satisfaction data for 2000 and 2001 is not available
because the survey design and methodology was not reviewed and approved by
CONATEL as part of the Government's review of service quality mandates.
CONATEL plans to issue a new regulation covering service quality mandates
for all the operators. See "-- Regulatory Framework."
(3) ADSL means Asymmetrical Digital Subscriber Lines.

The number of lines installed during 2001 increased slightly by 18,604
(0.6%) from 3,074,506 lines at December 31, 2000 to 3,093,110 lines at December
31, 2001. This increase reflects the success of the prepaid platform combined
with fewer permanent disconnections.

During the year 2000, lines installed decreased by 472,032 (13.3%) from
3,546,538 lines at December 31, 1999 to 3,074,506 lines at December 31, 2000.
The decrease was due primarily to the elimination of analog lines. During 2000,
the Company transferred and eliminated approximately 502,808 analog lines and
installed approximately 43,504 new digital lines, which included 12,688
relocated digital lines.

During 1997, the access lines in service increased 8.3% and penetration
increased from 11.1 to 11.8 lines per 100 inhabitants. In 1998 and 1999, the
number of access lines in service decreased 3.2% and 1.1%, respectively,
reflecting the permanent disconnection of approximately 478,686 and 453,900
lines, in 1998 and 1999, respectively. The number of access lines in service
increased slightly during 2000 by 0.9%, reflecting the success of the prepaid
platform combined with fewer permanent disconnections. During 2001 the number of
access lines in service increased by 3.3% driven by an increase of approximately
132,000 prepaid lines and were partially offset by a decrease of approximately
61,600 postpaid lines. At December 31, 2001, the Company had approximately
254,000 prepaid lines, of which approximately 167,000 were new customers and
87,000 were migrations from post-paid plans. Additionally, penetration decreased
during 1998, 1999 and 2000, from 11.8 lines per 100 inhabitants in 1997 to 10.9
lines per 100 inhabitants in 2001 as a result of the general growth of the
population. Permanent disconnections have resulted principally from management's
continued

aggressive focus on collections. The Company is reassigning these disconnected
lines to new customers following upfront credit history checks. See "--Billing."

Following privatization, the Company began a modernization program to
replace analog switches in high traffic areas with new digital switches and
replaced obsolete switches in low traffic areas with more modern analog switches
displaced by the digitalization program. This switch modernization program has
increased the percentage of digital access lines installed in the network from
62.3% at December 31, 1997 to 80.5% at December 31, 2001. Digital systems
improve the quality and efficiency of the network, accommodate higher traffic
levels, require less maintenance and enable the Company to offer a broad range
of voice and data applications simultaneously on the same network. See "--
Regulatory Framework -- Regulation and the Concession."

In order to expand its ability to provide advanced services generally
and to meet the existing and future needs of certain of its large corporate
customers, the Company is further upgrading the network's technological
infrastructure. The Company implemented ATM Frame Relay platforms in the second
half of 1997. Additionally, in 1997 the Company began to install an advanced
Signaling System 7 ("SS7") intelligent network platform. These technologies
enhance the Company's ability to provide high speed data transmission services
to its customers, as well as enhanced services including caller ID, automatic
calling card validation, automatic redial and call forwarding. At December 31,
2001, the Company had installed the SS7 system through its local tandem,
domestic and international long distance switches, and plans to continue
expanding SS7 capabilities during 2002. During 1999, the Company began
installing Digital Loop Carriers ("DLCs") and continued the implementation of
DLCs in 2001. DLCs provide voice, data and video services and allow for the
introduction of other potential future services, improving the present
transmission resources (copper, fiber optics, radio, etc.), the switching
exchange plant and available structure. DLCs allow line concentration and voice
transmission services to remote locations as well as data transmission services
in high concentration areas such as commercial areas. DLC technology will
provide the current network with significant intelligence functionality. The
Company upgraded approximately 12,480 and 14,520 lines to DLCs during 2000 and
2001, respectively, and expects to upgrade approximately 15,000 additional lines
in 2002.

The Company plans to install a new system called "Netcom," which is
expected to be ready in June 2002, to optimize the centralized administration
and inventory of the assigned and available network resources. Additionally, the
Company has instituted an automated system called "Workforce Management" to
track the delivery and completion of every job order, thus improving basic
telephone services as well as data services.

In the fourth quarter of 1998, CANTV launched Extended Local Area
Service ("EAS") in certain parts of Venezuela. EAS migrates certain domestic
long distance traffic to local area service, permitting CANTV to effectively
achieve additional rate rebalancing while providing the opportunity to shift
revenues to the local service category, which is less vulnerable to competition
and price elasticity. EAS gives customers a better tariff package for specific
calling patterns. EAS became effective as of January 1, 2002. As a result of
this change, the Company expects approximately 10% to 12% of minutes currently
classified as domestic long distance to be classified as local traffic. See "--
Rates" and "-- Regulatory Framework -- Regulation and the Concession -- Rate
Regime." By the end of 2000, the Company began the "National Numbering Plan"
which upgrades the Company national numbering system for both basic telephony
and wireless to world class standards. The National Numbering Plan changed the
area codes from 3 numbers to 4 numbers and this change was applied gradually in
each region. This project will migrate certain domestic long distance service
areas to local area service and vice-versa in 2002. During 2001, the National
Numbering Plan did not include any such migration.

In order to provide high-speed services, the Company has adopted fiber
optics as the medium of transportation for the transmission of voice, data, and
video. During 1999, the Company completed the installation of an inter-urban
high capacity broadband fiber optic network to interconnect the northern part of
Venezuela. This area encompasses the vast majority of Venezuela's population. In
2001, the Company had installed 33 kilometers of fiber optic transmission lines.
The network, currently consisting of four rings, is being extended to cover
other geographical areas. A fifth ring, which is already 83% complete, will
cover the telecommunications needs of the southeastern part of Venezuela.
Currently, the Company is in negotiations with PDVSA to use an out of service
gas duct across the Orinoco river to close the fifth ring. Ring VI was 85%
completed at December 31, 2001. The Company plans to install approximately 270
kilometers of fiber optic transmission lines during 2002. The Company plans to
install 5 rings in Caracas and 1 ring in Maracaibo (6 urban rings), two of the
major cities of Venezuela. Additionally, the Company plans to install interurban
Dense Wave Division Multiplex ("DWDM") transmission equipment and a fiber optic
network in the Guatire - Higuerote branch, to close the National
Telecommunications Center (Centro Nacional de Telecomunicaciones "CNT") - Camuri
ring. When completed, the fiber optic network will consist of strategically
deployed rings connecting all major cities and most large corporate customers.
This fiber optic network, when completed, will increase capacity and provide
higher reliability to our Domestic and International Telecommunications Systems.
This system will also upgrade our current technology to international quality
standards. The Company believes that the expansion of the fiber optic network
will be in service by the end of 2002 and will connect approximately 95% of
total users. The Company plans to use the fiber optic network as its "backbone"
while maintaining its digital microwave network for redundancy.

The Company continuously seeks to enhance customer service and product
offerings. As of December 31, 2001, the Company has successfully completed a
project to install Asymmetrical Digital Subscriber Lines ("ADSLs"). A total of
26,736 ports, are currently in service and available for commercialization in 49
areas, including Caracas and other areas. CANTV.Net will offer high-speed
Internet access using the Company's ADSLs. Additionally, the Company
incorporated 100% of its digital lines and a 66% of its analog lines into its
"4Tel System" during 2001. The objective of the 4Tel System is to improve
customer service by identifying the particular faulty network element, thereby
reducing dispatch and repair times.

The Company's revenues from local and domestic long distance telephone
services consist of installation and activation charges for new lines, monthly
line rental charges, usage charges, public telephone usage and equipment sales.
At December 31, 2001, non-residential customers represented 23.0% of access
lines in service and accounted for 55.2% of local and domestic long distance
revenues in 2001. Revenues from usage constitute 60.8% of the Company's local
and domestic long distance revenues in 2001.

The Company's local and domestic long distance traffic for the years
1997 to 2001 is presented in the table below:

Domestic Service Usage
--------------------------------------------------------------------------------
Total Local and Domestic Long
Distance Minutes of Use Minutes of Use per
Year (millions) Average Access Line
---- ---------- -------------------
1997 13,565 5,220
1998 15,674 5,894
1999 16,575 6,373
2000 16,711 6,432
2001 17,168 6,470

Total minutes of use of the Company's domestic services increased
during the period 1997 through 2001 mainly due to a net increase of lines in
use. Minutes of use per average line in service increased during the period 1997
through 2001 due primarily to lower domestic long distance rates in real terms
and the "Free Nights and Weekends" flat rate plan for domestic long distance.

In November 2000, CANTV implemented the "Free Nights and Weekend" plan
for domestic long distance service. This plan consists of a flat fee, in
addition to the basic rent fee, for calls made between 9:00 p.m. and 5:59 a.m.
during the week and all day on Saturdays and Sundays.

During 2001, CANTV improved its preferred country and nights and
weekends plans, introduced a flat rate, a local collect service and virtual home
service. As of December 31, 2001 there were approximately 56,000 customers
affiliated with the preferred country plan. This plan allows the customer to
select up to five countries and enjoy a discount of up to 20% for calls made to
the selected countries. On December 31, 2001 approximately 205,000 customers
used nights and weekends special flat rate national long distance plan, first
introduced in November 2000. During 2001, this plan became regulated by CONATEL.
In May 2001, the Company launched a new residential flat free plan with
unlimited local minutes. As of December 31, 2001 there were approximately
100,000 customers affiliated to this flat rate plan.

Public Telephones

The Company owned and operated 87,748 public telephones located
throughout Venezuela at December 31, 2001. Approximately 86.9% of these public
telephones operate with prepaid debit cards. As part of its strategy to improve
customer service and operating results, the Company relocated approximately
1,480 less productive public telephones to high traffic areas during 2001, and
plans to relocate approximately 2,000 public telephones during 2002. The Company
is planning to install approximately 4,000 additional public telephones during
2002. The Company has no plans to develop a modernization program for public
telephones during year 2002.

The implementation of a national distribution system of prepaid cards
allowed 65.9 million CANTV prepaid cards to be marketed during year 2001,
representing a 2.91% growth from the year 2000.

Communications Centers

Communications centers offer various communication services and use the
best technology and service culture to support the commercial and social
activity of the zone where each is located thereby facilitating the public
access to such services.

Communications centers are operated by third parties, with support from
the Company and are required by the Company to meet certain quality standards.
These centers provide local, domestic long distance and international long
distance telecommunications services, Internet access, sale of prepaid cards,
electronic money transfers, bank draft payments, electronic sales points,
mailing services and copying and faxing services. The Company has sold
franchises for 310 communications centers in more than 70 cities and towns
throughout the national territory. The Company plans to franchise 185 new
communications centers during 2002.

Rural Service

On December 15, 1997, the Company signed a joint venture with
Direct-to-Phone International Incorporated, a subsidiary of STM Wireless
Incorporated, to develop rural telephone services via satellite.

The Company began these operations in early 1998. In September 1999,
Direct-to-Phone International Incorporated was acquired by SkyOnline
Incorporated. At December 31, 2001, the Company had 1,006 satellite-based lines
serving rural areas with satellite technology.

At December 31, 2001, CANTV was a 51% owner of Altair, C.A. ("Altair"),
a provider of rural telecommunications services via satellite. Altair became a
wholly-owned subsidiary of CANTV on May 6, 2002, when CANTV acquired the
remaining 49% of Altair's capital stock.

The Company also provides radio-based telecommunications services to
remote rural areas, which are linked to the main public switched network via
base station transreceivers and radio terminals. At December 31, 2001, the
Company had 937 radio-based lines.

Interconnection Agreements

Venezuelan Telecommunications Law and regulation require CANTV to
provide interconnection to other telecommunications operators for originated and
completed calls. Under the recently adopted Interconnection Regulations (as
defined herein), companies must work together to develop interconnection
agreements. The Government may only intervene in cases where a formal agreement
is not reached. See "-- Regulatory Framework -- Regulation and the Concession --
Amendments to the Regulatory Framework." The main objective of these regulations
is to establish general conventions and technical, administrative and economic
norms to regulate the interconnection of telecommunications networks. CANTV
provides interconnection services through which wireless, wireline and rural
operators establish points of interconnection between their networks and CANTV's
networks. As part of its overall strategy, in May 2001 the Company entered into
five revised interconnection agreements with competing telecommunication's
operators and the first two interconnection agreements on basic
telecommunication services with companies, authorized by CONATEL during 2001, to
develop specific packages that encourage other providers to use the Company's
network and to enhance its domestic and international connectivity. The rates
that the Company charges and pays for interconnection services were reduced
under these Interconnection Agreements. Prior to the enactment of the
Interconnection Regulations, interconnection charges were based on negotiations
between the Company and other operators. Each new interconnection agreement must
provide the rights and duties agreed by each operator thereunder with
interconnection charges based on suggested benchmark guidelines by CONATEL. The
Interconnection Regulations provide for interconnection charges to reflect the
recovery of costs incurred to allow access to other carriers plus a reasonable
profit margin. See "-- Regulatory Framework -- Regulation and the Concession --
Amendments to the Regulatory Framework."

International Long Distance Services

Pursuant to the Concession, CANTV was the exclusive provider of
switched, fixed international telephone services in Venezuela until November 27,
2000. The Company's international services include voice, video and data
communication services representing 5.4% of the Company's operating revenues in
2001. The largest of these services is international voice service.

The Company provides international services through submarine cables,
satellite and microwave links. Satellite capacity is provided via the
International Telecommunications Satellite Organization ("INTELSAT"), the global
satellite consortium with 148 member countries, of which CANTV is a signatory
with a 1.119326% equity ownership interest. Traffic is primarily handled by two
satellite antenna earth stations. The Company also operates four additional
satellite antenna earth stations, which are used for international
point-to-point data transmission, video conferencing, and Very Small Aperture
Terminals ("VSAT") service. The Company owns 16.2% of the Americas I and
4.41331% of the

Columbus II fiber optic submarine cable systems. The Americas I cable system
connects South America to the United States. The Columbus II cable system
connects the United States, Mexico and the Caribbean to Western Europe. As of
2001, the Company owns 4.19083% of the Pan American system and 6.97062% of the
Americas II system. The Pan American cable system connects Venezuela to Chile
through the western coast of South America and part of the Caribbean to United
States. The Americas II cable system connects the eastern part of South America
and the Caribbean to the United States. CANTV also owns 0.46844% of the Columbus
III system. The Columbus III cable system connects the United States to Europe.
The Company is currently evaluating its possible participation in the Americas
III cable system which will also connect South America, Central America and the
Caribbean to the United States. In addition, the Company has a minor
participation in ten other submarine cable systems, Antillas I, Arcos I, ECFS,
Eurafrica, Rioja, Taino Caribe, TAT-12/13, TCS-1, TPC-4 and Unisur.

At December 31, 2001 the Company had 18,473 international long distance
circuits in service, including 7,620 leased circuits, which are not operated by
CANTV. Of the Company's international circuits in service, 89.5% were provided
through submarine cable, 6.0% were provided via satellite and 4.5% were provided
through microwave links. The Company has two international digital switches,
both located in Caracas.

Revenues from international telephone services are primarily derived
from (i) charges to subscribers in Venezuela for outgoing calls (a portion of
which the Company must pay to other international operators for calls which are
carried on their networks once outside of Venezuela) and (ii) access charges
paid by other international telecommunications operators for incoming calls
originating outside of Venezuela and carried through the Company's network once
in Venezuela.

The Company's international traffic, which is measured in outgoing and
incoming minutes, is shown in the table below for 1997 through 2001:

International Service Usage
-------------------------------------------------------------------------------------------------------------
Outgoing Outgoing Incoming
Traffic Traffic per Traffic Ratio of
(millions of Outgoing % Average Access (millions of Incoming to
Year minutes) Growth Lines (minutes) minutes) Outgoing Traffic
---- ----------- ---------- --------------- ------------ ----------------

1997 152.6 8.8 58.7 279.1 1.82
1998 165.6 8.5 62.3 302.2 1.83
1999 162.6 (1.8) 62.5 311.9 1.91
2000 187.9 15.6 72.4 366.8 1.95
2001 214.6 14.2 81.1 339.7 1.58

Total outgoing traffic increased by 8.8% in 1997 and 8.5% in 1998, due
in part to the Company's pricing strategy of reducing international long
distance rates. In 1999, outgoing traffic decreased 1.8% due to Venezuela's
recession. During 2000 outgoing traffic increased 15.6% due to a significant
reduction in the international long distance rates. In 2001, outgoing traffic
increased 14.2% as a result of lower international rates and the introduction of
a "preferred country" long distance calling plan. Incoming traffic exceeded
outgoing traffic each year as a result of competitive pricing by international
carriers.

The Concession signed in 1991 provided for rate rebalancing to allow
the Company to eliminate the subsidy provided by its international long distance
services to its basic rent for residential customers and thereby has gradually
allowed the Company to offer more competitive pricing for its international

long distance services in anticipation of the opening of the markets to
competition in November 2000. The Agreement reached by CONATEL and CANTV in
February 2000 set the rate for outgoing international long distance calls at a
weighted average rate of $0.7437 per minute. Under the new tariffs approved by
CONATEL for 2001, the international long distance rates were not changed from
the tariffs approved under the Agreement. After the new tariffs established by
CONATEL became effective on June 15, 2002, the weighted average international
long distance rates increased by 12.8%. See "-- Rates" and "-- Regulatory
Framework -- Regulation and the Concession -- Rate Regime."

In 2001, 44 direct routes to 34 countries accounted for approximately
97.0% of the Company's international traffic. Transit centers in the United
States, Italy, Canada, France, Curacao and Spain, which provide for indirect
routing of international calls to 190 countries, accounted for the remaining
3.0% of traffic. The Company's largest international traffic route is between
Venezuela and North America (the United States, Mexico and Canada), which
accounted for approximately 54.7% of its 2001 international traffic.

The following table sets forth the number of minutes of international
long distance calls in each specified category, and the percentage of total
international long distance call minutes by category, for 1997 through 2001:

Year Ended December 31,
--------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------------- --------------- --------------- --------------- ----------------
(millions of minutes)

Outgoing international long
distance minutes:
North America 81.2 18.8% 88.1 18.8% 78.8 16.6% 77.6 14.0% 87.1 15.7%
South America 30.1 7.0% 29.7 6.4% 36.7 7.7% 58.8 10.6% 67.8 12.2%
Europe 26.4 6.1% 34.6 7.4% 34.8 7.3% 39.1 7.0% 45.0 8.1%
Others 14.9 3.5% 13.2 2.8% 12.3 2.7% 12.4 2.2% 14.3 2.7%
---- --- ---- --- ---- --- ---- --- ---- ---
Total 152.6 35.4% 165.6 35.4% 162.6 34.3% 187.9 33.8% 214.2 38.7%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

Incoming international long
distance minutes:
North America 197.9 45.8% 225.8 48.3% 222.9 47.0% 252.2 45.5% 220.7 39.8%
South America 29.4 6.8% 30.1 6.4% 34.0 7.2% 51.5 9.3% 55.5 10.0%
Europe 36.5 8.5% 32.0 6.8% 40.8 8.6% 47.1 8.5% 49.0 8.8%
Others 15.3 3.5% 14.3 3.1% 14.2 2.9% 16.0 2.9% 14.5 2.7%
---- --- ---- --- ---- --- ---- --- ---- ---
Total 279.1 64.6% 302.2 64.6% 311.9 65.7% 366.8 66.2% 339.7 61.3%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

Wireless Services

As of December 31, 2001, the Company, through its wholly-owned
subsidiary, Movilnet, provided wireless communication services in areas that
covered approximately 72.3% of Venezuela's population. Movilnet provides these
services pursuant to a cellular concession (the "Cellular Concession") which has
an initial term of 20 years. The Cellular Concession may be extended, subject to
certain conditions, for an additional 20 years. The Company purchased the B-band
Cellular Concession from the Government in May 1992 for the bolivar equivalent
of approximately $82 million. Pursuant to the Cellular Concession, Movilnet was
required to pay 10% of its annual revenues to CONATEL. The New
Telecommunications Law eliminated the former annual cellular concession fee and
subjects cellular service providers to several supplemental taxes starting at
9.3% of annual revenues in the year 2001 and decreasing by 1.0% per annum until
2005. Beginning in 2006, the cellular supplemental tax of 0.5% will be
eliminated and the annual tax for cellular services providers will be 4.8% of
annual revenues. The following table sets forth the taxes for cellular services
providers:

2000 2001 2002 2003 2004 2005 2006
------------ --------- -------- --------- ---------- --------- ---------

Concession tax 10.0% N/A N/A N/A N/A N/A N/A
Activity tax N/A 2.3% 2.3% 2.3% 2.3% 2.3% 2.3%
Tax to cover CONATEL's activities N/A 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Tax for spectrum allocation (1) N/A 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Tax to create the Universal Service Fund N/A 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Tax for the Telecommunications

Training and Development Fund N/A 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Cellular supplemental tax N/A 4.5% 3.5% 2.5% 1.5% 0.5% N/A
------------ --------- -------- --------- ---------- --------- ---------
10.0% 9.3% 8.3% 7.3% 6.3% 5.3% 4.8%

-------------------------------------------
(1) The specific methodology of calculation was established by CONATEL on
February 2002. However, the tax for spectrum allocation that resulted from
this methodology can not exceed the established maximum of 0.5% under the
New Telecommunications Law.

The following chart provides information regarding the growth of
Movilnet's subscriber base and traffic from 1997 to 2001:

Year Ended December 31,
------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ------------ ----------- -------------

Number of subscribers:
Postpaid 279,011 371,347 314,933 207,134 207,216
Prepaid 95,864 267,760 866,340 1,498,856 2,254,285
---------- ---------- ------------ ----------- -------------
Total 374,875 639,107 1,181,273 1,705,990 2,461,501
========== ========== ============ =========== =============

Traffic (in thousands of minutes) (1) 563,901 945,811 1,324,220 1,556,845 2,126,630
Penetration (2) 1.6% 2.8% 4.9% 7.0% 9.9%

--------------------------------------------
(1) Billed minutes excluding night and weekend minutes, and free minutes.
(2) Customers as a percentage of total population.

Wireless services are the Company's fastest growing business. As of
December 31, 2001, Movilnet served 2,461,501 customers, which represented an
estimated market share of approximately 40%. The number of customers served by
Movilnet has increased by a compounded annual growth rate of 60.1% from December
31, 1997 through December 31, 2001. Although Movilnet has experienced rapid
growth of its customer base, the Company believes that there exists unsatisfied
demand for wireless services in Venezuela. The Company markets its wireless
services through a network of agents and the Company's commercial offices. At
December 31, 2001, the number of postpaid subscribers as of 2000 was maintained
while the number of prepaid subscribers increased by 755,429 or 50.4%. As of
December 2000, the number of postpaid subscribers decreased by 107,799 or 34.2%
and prepaid subscribers increased by 632,516 or 73% from December 31, 1999. The
decrease in postpaid subscribers was primarily due to the migration from
postpaid to prepaid services and migration to competitors.

Wireless service postpaid customers are charged an activation fee, a
basic monthly service fee, special fees and usage fees on a per-minute basis and
per-second basis. Prepaid customers are also charged usage fees on a per-minute
and per-second basis. In 2000, Movilnet introduced a per-second plan for
postpaid and prepaid services. Movilnet operates on a "calling party pays"
system under which customers are charged only for calls they originate with the
exception of roaming charges to customers receiving calls from other than a
Movilnet client outside his home area. Movilnet also receives revenues from
incoming calls to both postpaid and prepaid customers, primarily from its
interconnection agreement with CANTV.

Subscribers are offered a number of value-added services, including
voice mail, call forwarding, call waiting, caller ID, message waiting indicator,
conferencing, detailed billing, automated customer service, national and
international roaming, and Mobile Data Solutions using Cellular Digital Package
Data ("CDPD") technology. During 1999 Movilnet launched a number of new services
and products, including wireless data transmission services ("Movidata"),
value-added services such as "Moviltexto", which is a general information center
and a variety of prepaid services which target specific customer needs in
various segments of its market. During 2000 Movilnet launched Wireless Access
Protocol ("WAP") for both post-paid and prepaid customers. This new product
provides wireless Internet services with a flat fee using its CDPD network.
Movilnet plans to enhance the services and features of its wireless network.
During 2001 Movilnet introduced new services such as "Extiendete" ("Extend
yourself"), tones and icons "Sonico" ("Sonic") and "Habla mas con mucho mas"
("Talk more with much more"). The increasing interest in wireless data
transmission comes as a response to the evolution of wireless networks to third
generation cellular services ("3G"). Movilnet plans to become a leader in 3G
wireless services through the introduction of new services such as Movidata and
Tun-Tun.com and the development of advanced product offerings. Tun-Tun.com is a
personal mobile Internet portal through a wireless phone. This service allows
Movilnet's customers to receive and read selected information including web
pages and to receive and send e-mail messages. During 2002, the volume of
interconnected text messages ("SMS") exploded reaching approximately 4 million
messages a day. Beginning in May 2002, Movilnet and other wireless operators
began interconnecting their SMS platforms. Recently, the Company launched a
mobile chat service designed to realize synergies from the demand for SMS
services. The service is similar to Internet chat.

The Company continues to invest in its wireless business to increase
network coverage, efficiency, capacity and service quality. Movilnet is
developing applications that support its positioning for migration into more
advanced data services. Movilnet has installed TDMA digital technology,
including switches and cell sites, in its service areas. Movilnet plans to
complete the development of its Code Division Multiple Access ("CDMA") network
in the third quarter of 2002, which it will operate in tandem with its existing
TDMA network. Some of the benefits of CDMA over TDMA technology are, higher
voice quality, good terminal availability and diversity, higher capacity per
cellsites, higher data capacity, smother transition to 3G services and
concurrent voice and data, among others. Movilnet currently provides wireless
services utilizing switching equipment and radio base stations for TDMA and CDMA
technologies provided by Ericsson LM Tel. Co. and Lucent Technologies, Inc.,
respectively. This equipment allows for a relatively easy conversion to a
digital network. The Company believes that digital technology will be attractive
to its existing and potential customers because it allows for higher quality
service as well as advanced value-added features. At December 31, 2001,
Movilnet's digitalization level was approximately 69.9% of its voice paths
capacity. In addition, approximately 99.5% of its customer base handsets were
digital as of December 31, 2001.

Other Telecommunications-Related Services

The Company provides various telecommunications-related services that
extend beyond basic telephone service and wireless services, including data
transmission, directory information services and

value-added services including Internet access. In addition, the Company
currently provides free of charge to its customers, time information,
trouble/repair reporting, directory assistance and other operator and emergency
services.

Data Transmission

The Company's data transmission services are provided through
high-capacity private links, which at December 31, 2001 consisted of
approximately 49,300 circuits serving approximately 2,549 private line
customers. As part of its strategy with respect to large corporate customers,
the Company is implementing Virtual Private Network ("VPN") technology and
intends to encourage its private line customers to use VPN services. VPN
technology should enable the Company to provide higher quality dedicated
services while improving efficiency by increasing utilization of the network.
There are other data transmission service providers in the market. In February
2000, CANTV introduced ADSL technology. This technology allows simultaneous
voice and data traffic on the same line. At December 31, 2001, the Company had
approximately 17,884 ADSL subscribers.

Value-Added Services and Other Services

The Company offers an array of value-added services and other services,
including voice mail, call waiting, call forwarding, call blocking, speed
dialing, toll free and 800 number services, Venezuela Direct service (which
allows customers to reach a Venezuelan operator from outside Venezuela), other
country direct long distance calling services, video conferencing, "web page"
hosting, enhanced fax service, audio text, 900 service in all the country,
inside wire maintenance service, data transmission services, computer network
management, professional services including outsourcing of telecommunications
networks and other intelligent network and data capabilities, all of which lead
to higher usage of the Company's network. The Company aims to capture the
largest share of the market for value-added services by using its existing
telecommunications resources and leveraging its relationships with Verizon and
Telefonica Internacional.

Internet Access

The Company provides Internet access service through its wholly-owned
subsidiary, CANTV.Net. CANTV.Net provides nationwide one-number dial-up Internet
access as well as international Internet roaming capabilities. CANTV.Net is the
largest Internet service provider in Venezuela, serving approximately 145,218
subscribers and 363,045 users through these subscribers at December 31, 2001,
with an estimated market share of approximately 53.0%. In addition to Internet
access, subscribers may choose from an array of products such as web hosting,
Intranet development, VPN, e-commerce solutions, portal kits and integrated
products that include PC's, Internet access and financing facilities.

At December 31, 2000, The Company had a router platform that operated
at 34 locations, with a Wide Area Network (WAN) broadband capacity of up to
1,482 Mbps, which is used for dial-up access and ADSL for Internet. During 2001,
the Company added 3 locations and the broad-band capacity was increased by 468
Mbps to 1,950 Mbps. During 2002, with the implementation of the GSR (Gigabit SW
Router) in 2 locations, the platform will increase its capacity to 8,500 Mbps
distributed to 40 locations on a national scale.

During 2000, the dial-up access platform had 14,340 ports distributed
on 34 nodes. During 2001, there was a re-distribution of ports to 37 nodes, to
decrease congestion on the voice platform. The Company plans to expand the
platform to 23,500 ports, distributed on 46 nodes.

Through various initiatives, CANTV.Net is rapidly becoming one of the
most sophisticated Internet service providers in the region. During 2001,
CANTV.Net expanded its international broadband capacity from 98 Mbps to 355 Mbps
and plans to duplicate its capacity in 2002. Access to this capacity is provided
by broadband technologies that facilitate multimedia and business applications
such as Frame Relay and ADSL.

During 2000, CANTV.Net launched a prepaid card for Internet access.
This service is designed to strongly support the e-media strategies of the
Company and to expand the use of the new CANTV.Net portal. CANTV.Net includes a
new product named "el kit de e-commerce" ("e-commerce kit") which offers
e-commerce solutions.

According to Alexa Research (http://www.alexaresearch.com), an industry
research organization, in 2000 CANTV.Net was the most visited portal in
Venezuela, receiving an average of 9.6 million visits per month with more than
17 million page views during the month of December 2000 alone. Additionally, in
October 10, 2000, the magazine PC News and Report 2000 awarded CANTV.Net the
"LoMejorDe.com" award, which included recognition as the "Best Internet
Provider," "Best Free Mail" and "Best Web-Hosting Site" in Venezuela.

During 2001, CANTV.Net received ISO 9002 certification for the
monitoring and control of platforms and clients. Additionally, CANTV.Net
received from the magazine PC News and Report the following awards: "Best Dial
up", "Best Dedicated Access", "Best Web-Hosting Site", "Best Free Mail" and
"Best Internet Portal" inVenezuela. CANTV.Net also won first place for their
Internet Portal, in the International's 2001-2002 Verizon Excellence Award
Program.

Directory Information Services

The Company provides telephone directory information services through
its 80%-owned subsidiary Caveguias (the remaining 20% is owned by an affiliate
of a major newspaper publisher in Venezuela). Caveguias publishes telephone
directories ("White Pages") and business directories ("Yellow Pages"). It also
operates an Internet portal that provides on-line access to the Company's
directories as well as access to information of public interest including
special events, art exhibitions, job search services, restaurant locations and
tourist information. Caveguias derives revenues from sales of advertising space
in its printed and electronic directories. Advertisers in the Company's printed
telephone directories are charged an annual fee, which varies depending on the
size of the advertisement placed and the circulation of the edition of the
directory in which such advertisement is published. Caveguias currently competes
with all other major media suppliers in the sale of advertising.

Property, Plant and Equipment

The Company's property consists principally of network facilities, land
and structures required to provide telecommunications services. As of December
31, 2001 the Company's fixed assets were comprised of network facilities
(81.8%), buildings and facilities (10.2%), other support assets (7.6%) and
construction work in process (0.4%).

The Company provides local, national and international
telecommunications services in Venezuela through a full service
telecommunications network. Pursuant to an expansion and modernization program,
the Company has maintained access lines in service to approximately 2.7 million
lines, and has increased wireless subscribers from approximately 374,875 to
approximately 2,461,501 from December 31, 1997 to December 31, 2001,
respectively. The percentage of digital access lines installed in the Company's
network has increased from 62.3% at December 31, 1997 to 80.5% at December 31,
2001. All of the Company's international and domestic long distance switches are
digital.

The Company also continues to make investments designed to improve the quality
of its network, including the planned completion during 2002 of a high capacity
broadband fiber optic network linking Venezuela's major urban centers. During
2001, the Company has also connected several cities to newly built segments of a
high capacity broadband fiber optic network, which offers the latest technology
in fixed telecommunications networks with additional capacity for expansion in
the future. In addition, the Company provides private network, data, public
telephone, rural telephone and telex services. For a detailed description of the
development, uses and utilization of the Company's network please see
"--Domestic Telephone Services," "-- International Long Distance Services," "--
Wireless Services" and "--Other Telecommunications-Related Services."

Prior to privatization, certain municipalities granted land to the
Company in order to facilitate the provision of telephone services in their
respective communities. In many cases, no formal documentation was prepared for
the transfer of title to the Company of such land. Since privatization,
irregularities with respect to a substantial number of titles to real property
have been favorably resolved. In other cases, the Company is in discussions with
the municipalities to resolve these title issues. The Company expects that these
negotiations will be favorably resolved. At the present time, there are no legal
proceedings involving such properties.

Business Segments

Segment information for the Company's two main business segments,
wireline and wireless services, is set forth in Note 26 to the Audited Financial
Statements.

Rates

The following table sets forth information regarding the constant
average rates charged by the Company for local and domestic long distance
service, international long distance service, public telephone service and
wireless services for the years ended December 31, 1999, 2000 and 2001. Despite
the requirements under the Concession allowing for quarterly adjustments to
rates, CANTV's rates were not permitted to be increased from April 30, 1999
until March 23, 2000 when rates were again permitted to be increased in
accordance with the terms of the Concession. Movilnet's rates were adjusted on
November 15, 1999 and recently on March 21, 2002. Following negotiations with
the Government, the Agreement was reached between CANTV and CONATEL in February
2000 relating to new rate structures for regulated wireline services for the
year 2000. The Agreement also provided for rebalancing levels as well as service
level commitments in 2000. Under the Agreement CANTV was permitted to implement
new rates effective on March 23, 2000 and on June 16, 2000. Pursuant to the New
Telecommunications Law, on February 19, 2001, CONATEL approved two tariff
increases. The first tariff increase became effective on March 11, 2001 and the
second tariff increase became effective on July 1, 2001. The revised tariffs for
year 2002 pursuant to the tariff-setting system were established by CONATEL on
May 21, 2002, published on May 30, 2002 in Official Gazette No. 37,454, and
became effective on June 15, 2002. This tariff plan includes a tariff
simplification with the introduction of three new tariff plans to replace the
five existing plans and retains flat rate and prepaid services. The purpose of
the new tariff plan is to simplify the existing tariff structure and better
match the needs of each customer to their usage patterns while also
accommodating those customers who are considered heavy Internet users. See " --
Regulatory Framework -- Regulation of Tariffs." Under the new rate plans, local
usage, monthly rent and domestic long distance tariffs expressed in nominal
bolivars, were increased by approximately 20%, international long distance rates
were increased by 12.8% and local public telephone service rates were increased
by approximately 22%.

Year Ended December 31,
----------------------------------------------------------------
(Expressed in constant bolivars at December 31, 2002)
----------------------------------------------------------------
1999 2000 2001
--------------------- ------------------- --------------------

Installation (1):
Residential 56,010 52,904 50,511
Non-Residential 61,995 57,415 54,372
Subscription (2):
Residential 83,943 79,109 77,600
Non-Residential 272,282 158,386 124,014
Monthly rent charge:
Residential (3) 7,992 8,119 9,021
Non-Residential 19,179 17,215 16,154
Local usage (per minute):
Residential (3) 24 26 26
Non-Residential 31 30 29
Domestic long distance (per minute) (4):
Residential 141 136 125
Non-Residential 174 144 130
International long distance (per minute) (5): 1,108 646 487
Public telephone service (per minute):
Local call (6) 22 25 21
Domestic long distance (6) 150 143 104
Interconnection - fixed to mobile
Local usage (per minute) 290 291 234
Domestic long distance (per minute) 407 386 318
Interconnection - mobile to fixed
Local usage (per minute) 26 28 30
Domestic long distance (per minute) 136 114 104
Wireless telephone service
Postpaid (7): Activation fee 772 7,531 938
Basic monthly service fee 31,990 27,238 17,280
Usage:
Peak hour (per minute) 303 200 159
Off-peak hour (per minute) 220 153 116
Prepaid (8):
Peak hour (per minute) 344 399 377
Off-peak hour (per minute) 203 139 158

---------------------

(1) Installation fees are one time charges paid at the moment of the
installation.
(2) Subscription right fees are upfront fees paid by customers when service is
activated and also includes the charge for acquisition of new equipment.
(3) Weighted average of three plans offered by the Company during 1999, and a
weighted average of seven plans in 2000 and 2001. Represents charges for
usage in excess of free minutes.
(4) Weighted average per minute rates.
(5) Weighted average per minute rates. International long distance rates do not
vary between residential and non-residential customers.
(6) Represents a flat per minute charge. The rates as of December 31, 1999,
2000 and 2001 represent a per minute charge.
(7) Weighted average based on the number of customers by each plan offered by
Movilnet for year 1999. Weighted average based on actual billing for total
plans in 2000 and 2001.
(8) Weighted average based on the number of customers by the two plans offered
by Movilnet for year 1999. Weighted average based on actual billing of two
plans in 2000 and 2001.

The Company's revenues from local and domestic long distance telephone
services consist of installation charges and charges for new lines, monthly line
rental charges, usage charges, public telephones usage and equipment sales. All
local traffic is measured and billed based on duration and, in

the case of domestic long distance calls, are based on the time of day when the
call is made. The number of impulses counted during each call measures the
duration of local calls. A local call impulse is generated every 60 seconds.
Rates for domestic long distance do not differ for residential and
non-residential customers, but the weighted averages differ due to different
usage patterns between the two groups. Night time consumption, which is less
expensive than day time consumption, is generally greater for residential
customers.

At the beginning of 2000, CANTV offered three residential monthly rate
plans: (i) the Basic Plan had the lowest monthly rate, included 60 free local
minutes per month and charged relatively higher rates for additional local call
minutes, (ii) the Intermediate Plan had a higher monthly rate, included 100 free
local minutes per month and lower rates for additional local call minutes, and
(iii) the Premium Plan had the highest monthly rate, included 150 free local
minutes per month and the lowest rates for additional local call minutes.

The Agreement by CANTV and CONATEL increased, effective March 23, 2000,
the number of permitted plan offerings from three to six and reduced the number
of free minutes to 40, 65 and 90 minutes from the 60, 100 and 150 minutes
established in the basic, intermediate and premium plans, respectively,
available in 1999. The three additional plans include a special plan for
Internet users and a wireline prepaid plan. The Agreement provided for a single
domestic long distance weighted average rate of approximately $0.1875 per
minute. The Agreement also advanced the rebalancing process by reducing the
international long distance rates by a weighted average of 35%. The Agreement
allowed for a 23% increase in public telephone rates. CANTV introduced the four
new plans permitted by the Agreement and implemented the changes required by the
Agreement effective March 23, 2000. Additional tariff adjustments on local
services were permitted effective June 16, 2000. The tariffs provided for under
the Agreement were effective until March 10, 2001. On February 19, 2001,
pursuant to the New Telecommunications Law, CONATEL established the maximum
tariffs that became effective March 11, 2001 and a new tariff-setting system
that replaced the tariff adjustment mechanism provided under the Agreement.
Under the new tariff-setting system for 2001, the maximum tariffs may be
adjusted upwards or downwards based on a formula tied to the WPI and the rate of
devaluation ("ROD") in the bolivar, with a higher weight given to the cumulative
percentage change in the WPI. See "--Regulatory Framework -- Regulation of
Tariffs." The first tariff increase became effective on March 11, 2001 and the
second tariff increase became effective on July 1, 2001. Revised tariffs for
year 2002 pursuant to the tariff-setting system were established by CONATEL on
May 21, 2002, published on May 30, 2002 in the Official Gazette No. 37,454 and
became effective from June 15, 2002.

Under the new tariffs established by CONATEL applicable to the rates
CANTV charged effective March 11, 2001, certain calling residential plans were
modified from the changes introduced by the Agreement. See "--Regulatory
Framework--Regulation of Tariffs" for information regarding the Company's rates
for each component of residential and non-residential local service, domestic
and international long distance calls, and public telephone service effective
for years 2000 and 2001.

In the fourth quarter of 1998, CANTV launched EAS in certain parts of
Venezuela. EAS, which migrates certain domestic long distance traffic to local
area service, allowing CANTV to effectively achieve additional rate rebalancing
while providing the opportunity to shift revenues to the local service category,
which is less vulnerable to competition and price elasticity. EAS gives
customers a better tariff package for specific calling patterns. EAS became
effective as of January 1, 2002. As a result of this change, the Company expects
approximately 10% to 12% of minutes currently classified as domestic long
distance to be classified as local traffic. See "-- Regulatory Framework --
Regulation and the Concession -- Rate Regime."

By the end of 2000, the Company began the National Numbering Plan,
which upgrades the Company's national numbering system for both basic telephone
and wireless services to world class standards. The National Numbering Plan
changed the area codes from 3 to 4 numbers and this change was applied gradually
in each region. During 2001, the National Numbering Plan did not include any
migration.

Revenues from international telephone services are primarily derived
from receipts from (i) charges to subscribers in Venezuela for outgoing calls (a
portion of which the Company must pay to other international operators for calls
which are carried on their networks once outside of Venezuela) and (ii) access
charges paid by other international telecommunications operators for incoming
calls originating outside of Venezuela and carried through the Company's network
once in Venezuela. The Company charges its customers for outgoing international
long distance calls based on the destination country, duration and time of day
of the call and whether the call is direct-dial or operator assisted
(station-to-station or person-to-person). International long distance rates do
not vary between residential and non-residential customers. Payments to and
receipts from international operators for incoming and outgoing calls are made
and received pursuant to bilateral agreements between the Company and foreign
telecommunications administrations or private carriers under the auspices of the
International Telecommunications Union. The agreements govern the rates of
payment by the Company to the foreign carriers for the use of their facilities
in connecting international calls billed in Venezuela, and by the foreign
carriers to the Company for the use of its facilities in connecting
international calls billed abroad. The currency and rates of payment under such
agreements are negotiated with each foreign carrier. Such settlement agreements
generally require that outgoing traffic be routed among foreign carriers in the
same proportion as those operators carry incoming traffic to Venezuela. The
practice among carriers is for payments due in respect of the use of overseas
networks to be recorded, collected and forwarded by the carrier in the country
in which the call is billed. Settlements among carriers are normally made
monthly approximately six months in arrears on a net basis. In each of the past
several years, the Company received settlement payments from foreign carriers in
excess of payments made to such carriers.

Users of public telephones in Venezuela pay for calls based on the
duration and destination of the call. Through the first quarter of 1998, local
calls from public telephones were charged to the user based upon a fixed rate
for the first three minutes and a slightly higher rate for each minute
thereafter. In April 1998, CANTV changed its tariff structure to bill all public
telephone calls at a flat per minute charge. Domestic long distance calls from
public telephones are charged based upon the time of day and the duration of the
call at the non-residential rate. International long distance calls were subject
to a flat fee rate. Public telephones, which are available to make international
long distance calls, are located in strategic places such as tourist and high
traffic areas.

Wireless postpaid subscribers are charged an activation fee, a basic
monthly service fee, special service fees and usage fees on a per-minute or
per-second basis, in excess of a monthly free allowance of included minutes,
depending on whether the call is made during "peak" hours or "off-peak" hours.
Movilnet offers its postpaid customers 18 service plans, which vary in terms of
price and services. Prepaid customers are charged per-minute and per-second
usage only based on the number of minutes and seconds purchased on prepaid
cards. The Company currently sells a unique prepaid card named "Unica" that can
be used for wireless, wireline and Internet service. Prepaid clients may use the
"Unica" prepaid card on any one service, but it must be activated for wireless
services first to use the card for multiple services. Prepaid cards are sold for
Bs. 5,000, Bs. 10,000, Bs. 12,000 and Bs. 20,000 denominations. The prepaid
amount is valid through 45 days after the activation of the prepaid card, except
for the Bs. 5,000 denomination which is valid through 30 days after its
activation. Usage charges are based on a "calling party pays" principle under
which Movilnet's customers are charged only for calls they originate. Roaming
charges are applied to customers receiving calls outside their home area.
Movilnet charges CANTV an access fee for calls terminating on Movilnet's

wireless network and CANTV charges Movilnet an access fee for cellular calls
terminating on CANTV's network. This access fee structure also applies to
competing cellular service providers.

Billing

Since privatization, the Company has substantially improved its billing
and collection systems by, among other things, providing detailed bills, issuing
bills on a more timely basis, enabling payment through the Internet, offering
credit card/debit card and bank draft payment options and significantly
expanding the number of payment centers. Bolivar denominated bills are sent to
subscribers monthly. Large corporate customers may choose to receive their
invoices in digital CD-ROM format.

Growth of the Company's wireline operations was partially impacted by
an uncollectibles accounts receivable problem arising primarily from the
deterioration in the Venezuelan macroeconomic environment since 1998. In
response, the Company developed collections and credit policies that include a
tightening of its credit policies and strict procedures requiring temporary and
permanent disconnection of customer lines for nonpayment. The Company also
implemented a stronger system of controls and reorganized the collection
function by assigning responsibility for collections to the business unit
leaders and incorporating collection performance standards into their
compensation packages. During 2001, CANTV made 1,954,489 temporary
disconnections and permanently removed 203,313 residential and commercial lines
compared with 2,514,270 and 337,614 lines temporary and permanently
disconnected, respectively, in 2000. This decline reflects a continuing
improvement in cash collection and the application of stricter credit policies.
Permanently removed lines are being aggressively reassigned to new customers
following upfront credit history checks. During 2001, the Company's
uncollectibles provision was Bs. 65.8 billion compared to Bs. 85.9 billion in
2000. The Company's provision for uncollectibles represents 2.9% and 3.6% of
total operating revenues at December 31, 2001 and 2000, respectively.

The Company's new collections policies include a call to customers just
prior to and again shortly after the payment due date. A bill becomes overdue 30
days after the payment due date, referred to as the bill cutoff date. Customer
lines are temporarily disconnected 15 days after the bill cutoff date and, if
the bill is not settled 60 days after the bill cutoff date, the line is
permanently removed. CANTV charges a reconnection fee to the temporarily
disconnected customers. Revenues from the reconnection charge were Bs. 15,000
million for residential customers and Bs. 3,727 million for non-residential
customers for the year ended December 31, 2001. The Company also charges 12% per
annum on overdue amounts from non-Government customers.

At December 31, 2001, the average number of days that CANTV receivables
remained outstanding was approximately 41 days for all customers except
Government entities, compared to 40 days at December 31, 2000. During 1999, the
Company changed the methodology used to calculate the average number of days
that receivables remained outstanding to the "Average Billing Method" from the
"Countback Method." The new methodology consists of dividing the receivables
outstanding by the average billing for the last four months. The result is then
multiplied by thirty. The "Countback Method" calculates the average number of
days that receivables remained outstanding by subtracting the monthly billing
from the receivable balance. During 2000 CANTV modified the "Average Billing
Method," by including the undistributed payments (payments received but
unidentified and previously excluded from amounts collected) to the amount of
accounts receivables outstanding used in this calculation. The Company's
provision for uncollectibles represented 3.6% and 2.9% of total operating
revenues at December 31, 2000 and 2001, respectively.

The average number of days that receivables remained outstanding from
Government entities was approximately 353 days at December 31, 2001 compared to
280 days at December 31, 2000. Accounts receivable from Government entities
decreased 15.2% during the year to Bs. 97,898 million at December 31, 2001 from
Bs. 115,398 million at December 31, 2000. The average number of days that
receivables remained outstanding increased in 2001 although total accounts
receivables decreased primarily because payments received were used to decrease
current debt. The total accounts receivable from Government decreased during
2001 primarily due to a payment received during the first quarter of 2001, and
due to a reduction of basic telephone services rendered to Government entities
as a result of rationalization programs established by Government entities.

The amounts that Government entities pay for telecommunications
services is established pursuant to annual budgets rather than based upon actual
usage. As a result, a number of Government entities have not paid the Company in
full for telecommunications services rendered. The Company has not been able to
make adjustments for inflation or charge interest on such overdue amounts. On
November 3, 1999, the Venezuelan Congress (currently the "National Assembly")
passed a law authorizing the issuance of bonds for the purpose of paying certain
outstanding obligations including those related to telephone services. The
amount of bonds authorized for payments of debt owed CANTV as of December 31,
1998, under such legislation was estimated to be Bs. 63,218 million ($90.3
million). In December 2000, CANTV received a payment from the Government of Bs.
34,089 million ($48.7 million) from a bond issuance by the Government related to
amounts outstanding in respect of years 1998 and prior. As of December 31, 2000,
the amounts outstanding in respect of years 1998 and prior was Bs. 18,836
million. In 2000, the Government budgeted an issuance of bonds to cover the
partial payment of amounts outstanding as of December 31, 1999, which totaled
Bs. 137.5 billion after adjusting for inflation as of December 31, 2000. At
December 31, 2001, Government entities owed the Company approximately Bs. 97,898
million ($129.2 million), of which approximately Bs. 60,899 million ($80.3
million) was outstanding from prior years. See Note 9 to the Audited Financial
Statements. The amount set aside for payments of debt owed to CANTV in the five
year period 1996-2000 was Bs. 43,300 million. In 2001, the Government approved a
decree authorizing the issuance of bonds for the payment of basic services.
During 2001, the Company collected Bs. 6,633 million from these bonds. As a
result of continuos negotiations with the Government and financial strategies
adopted by the Company, CANTV received, in February and in March 2002, payments
of approximately Bs. 23,521 million from the Government related to accounts
receivable from prior years representing 38.6% of prior years outstanding
balance at December 31, 2001.

Competition

Under the Concession, the Company was the exclusive provider of
switched, fixed, local, domestic and international telephone services in
Venezuela until November 27, 2000 except in certain circumstances. Beginning on
November 27, 2000, however, the Concession allowed direct competition for these
services.

In addition, the Concession also allowed the Ministry to grant
concessions for basic telephone services to third parties prior to November 27,
2000 in certain circumstances. See "-- Regulatory Framework -- Regulation and
the Concession -- Competitive Framework." From December 1996 to January 1998,
the Ministry exercised its authority under this provision to grant concessions
to three companies to provide multiple services, except domestic and
international long distance services.

On January 15, 1991, CONATEL granted the first cellular concession to
Telcel. On May 19, 1992, the Company purchased the other cellular concessions
from the Government and established Movilnet. In December 1996, Infonet was
granted a rural concession to provide multiple services, except

national and international long distance services, to population centers with
5,000 or fewer inhabitants in eight western states of Venezuela. In January
1998, two additional companies were granted multiple service concessions.
Digitel was granted a concession to provide service in seven central states and
Digicel was granted a concession to provide service in six eastern states.
Infonet and Digitel are providing digital fixed wireless and cellular services
and both have expanded their services into larger population areas where they
compete directly with services provided by Movilnet and indirectly with services
provided by CANTV. The Company also faces competition in certain value-added
services.

The New Telecommunications Law enacted on June 12, 2000, provides the
general legal framework for the provision and regulation of telecommunications
services in Venezuela with the stated objectives of establishing the conditions
for fair competition between operators and service providers, setting the rules
on tariffs and interconnection, developing and modernizing the
telecommunications systems, and establishing universal service contributions.
See "-- Regulatory Framework -- Regulation and the Concession -- Amendments to
the Regulatory Framework." With the opening of the telecommunications market to
competition in Venezuela, CANTV is subject to competition in all areas of its
business. Several companies have completed the process of applying for
administrative licenses and concessions for various services. See "-- Regulatory
Framework -- Regulation and the Concession -- Competitive Framework."

Competition in services provided by the Company may arise from a
variety of existing competitors and new entrants, including telecommunications
services providers from other countries. Such competitors will be able to
provide telecommunications services either through newly installed facilities
and networks or through facilities and networks of existing providers. As of May
31, 2002, after the opening of the telecommunications market to competition, the
Venezuelan Telecommunications market is composed of two integrated service
providers, CANTV and Telcel; wireless service providers, such as Movilnet,
Telcel, Digitel and Infonet; wireless fixed service providers, such as Telcel,
Genesis Telecom, Entel Chile, Millicom, Digitel and Digicel; data transmission
service providers, such as ImpSat, Compsat, Bantel, NetUno, Viptel, BellCanada
International and Texcom; ISPs, such as CANTV.Net, T-Net, Etheron, AOL, UOL and
Eldish; paging operators, such as Skytel, Telemensajes Metropolitanos, Radio
Contacto and TeleKontacto; trunking service providers, such as Americatel, Radio
Movil Digital and Conmovil; and Cable TV operators, such as SuperCable, Cabletel
and Intercable, including DirectTV via satellite transmission. These
telecommunications services providers and other market entrants may establish
customer relationships, as well as other capabilities and resources to expand
their current service offerings. The Company believes that its competitors will
target large clients, top tier commercial customers and high-income residential
customers. As of May 31, 2002, only NetUno is operating as a local service
provider.

CONATEL intended to auction concessions for frequencies to provide LMDS
in each of five regions of Venezuela. LMDS is a fixed wireless service that
offers broad band access and fast data transmission. On April 2, 2001, CONATEL
temporarily suspended the auction process for LMDS. CONATEL has not yet
announced the new date for the LMDS auction.

CANTV is constantly evaluating the impact of the new market entrants on
its market share for basic telephone services. As of May 31, 2002, the Company
believes that any loss of market share during 2002 attributable to the entry of
competitors into the market for basic telephone services is not likely to have a
material adverse impact on its financial position. See "-- Regulatory Framework
-- Regulation and the Concession -- Competitive Framework."

The scope of increased competition and any corresponding adverse effect
on the Company's results will depend on a variety of factors. Among such factors
are the business strategies and financial

and technical capabilities of potential competitors, prevailing market
conditions, as well as the effectiveness of the Company's efforts to prepare for
increased competition. Increased competition will further change the environment
in which the Company operates. Competition will require the increased
development of a competitive culture, including greater customer care,
differentiated services, continuous introduction of innovative technologies,
competitive cost positioning and operational efficiencies. The Company believes,
however, that its existing network, market share, quality and range of services,
position it to operate effectively in a competitive environment.

Corporate Image

The Company promotes its image through advertisements based on
nationwide and regional mass campaigns via television, radio and print media. A
significant effort has been made to target the messages to each particular
segment of the market by its business unit. In September 2000, CANTV launched a
new corporate logo and image in a nationwide campaign to reflect the changes
that the Company has made in preparation for full competition. The campaign
emphasizes the open communication between the Company and its customers,
adopting a new slogan "comunicacion abierta" ("Open communication") and
reaffirms its commitment to become a world class telecommunications company by
offering innovative products and quality services. In April 2001, Movilnet and
CANTV.Net changed their logos to resemble CANTV's logo, as part of a brand
consolidation strategy including the presentation of a uniform image to
customers. Using the same graphics and font, Movilnet launched its new slogan
"contigo siempre" ("Always with you") and CANTV.Net also launched its new slogan
"te acerca el futuro" ("Taking you closer to the future"). During 2000, CANTV
made public for the first time its donations to nonprofit organizations, through
a massive advertising campaign to reflect the Company's good corporate
citizenship. Additionally, in order to reinforce its new corporate image, the
Company has changed the names of its operating units, as part of an
organizational restructuring. Customer satisfaction survey design and
methodology was not completely reviewed and approved by CONATEL as part of the
Government's review of service quality mandate during 2000 and as of May 31,
2002, CONATEL had not approved the customer satisfaction survey. For this reason
customer satisfaction measures were not taken during 2000 and 2001. CONATEL
plans to introduce a new regulation covering quality of service mandates,
including customer satisfaction measurement methodology, which will apply to all
operator companies. Customer satisfaction surveys conducted by independent third
parties indicated that approximately 88.2% and 83.2% of the public was satisfied
with CANTV's residential and non-residential service, respectively, as of
December 31, 1999 compared to 89.8% and 88.2%, respectively, at December 31,
1997.

REGULATORY FRAMEWORK

Set forth below is a summary of certain provisions of the general legal
framework for the regulation of the Company's activities, including the rates it
charges for telephone services. The principal components of this regulatory
framework have been created by (1) the "New Telecommunications Law," which
supersedes the former telecommunications law enacted on August 1, 1940; (2) the
telecommunications regulations established on November 24, 2000 (collectively,
the "Telecommunications Regulations"), composed of (i) the Reglamento de
Apertura del Servico de Telefonia Basica (the "Regulations for Basic Telephony
Services"), (ii) the Reglamento de Interconexion (the "Interconnection
Regulations") and (iii) the Reglamento de la Ley Organica de Telecomunicaciones
Sobre Habilitaciones Administrativas y Concesiones de Uso y Explotacion del
Espectro Radioelectrico (the "Administrative and Concessions Regulations"); (3)
the Concession; (4) the Cellular Concession; (5) the Value-Added Services
Concession; and (6) the Agreement dated on February 21, 2000 between CANTV and
CONATEL.

Regulation and the Concession

General

The Ministry is the Government entity principally responsible for
overseeing telecommunications services in Venezuela and has delegated
supervision and control of the telecommunications sector to CONATEL, an
independent regulatory body under its jurisdiction. CONATEL was created by
presidential decree in September 1991 (the "CONATEL Decree"). The CONATEL Decree
provides that CONATEL has the authority to plan, manage, regulate and supervise
telecommunications services in Venezuela. The CONATEL Decree further provides
that CONATEL shall promote telecommunications investment and technological
innovation in Venezuela.

The Concession, granted to CANTV by the Government in October 1991, and
amended in November 1991, has an initial term of 35 years and, subject to the
approval of the Ministry and the satisfactory performance by CANTV of its
obligations under the Concession, may be extended for an additional 20 years.
The Concession provides that CANTV was the exclusive provider of switched, fixed
local, national and international telephone services, existing or to exist in
accordance with technological advances in telephony throughout Venezuela until
November 27, 2000, except in limited circumstances. See "-- Competitive
Framework."

CONATEL has the authority to review and approve CANTV's tariffs, to
require information regarding the expansion and modernization plans, to inspect
CANTV's equipment and properties, as well as its accounting and other records,
and to impose sanctions, including forfeiture of the Concession, for violations
of the New Telecommunications Law, the Telecommunications Regulations and the
Concession. Under the Concession, CANTV is required to provide CONATEL with
information necessary for monitoring CANTV. Among other things, CANTV is
required to report annually to CONATEL on the status of various services under
the Concession, including CANTV's compliance with quality improvements
requirements and annual reports on network expansion and modernization.

In February 2000, CANTV entered into the Agreement with CONATEL in
respect of the rate structures and previously regulated services under the
Concession including rate rebalancing and service level mandates. The Agreement
superseded the Concession with respect to these matters specifically referred
to therein and the Concession continued to control as to subject matter not
specifically covered by the Agreement. In the event of a conflict between the
Agreement and the Concession, the Agreement controlled. See "-- The Agreement."
As of 2001, the New Telecommunications Law and the

Telecommunications Regulations govern and regulate telecommunications
activities. The Concession and the Agreement control specific items not included
or regulated in the Telecommunications Law and its Regulations.

The Agreement was arrived at following the delays in tariff approvals
in 1999 and the commencement of a preliminary proceeding in contemplation of a
legal action by CANTV against the Government for breach of the Concession. The
Agreement concluded a mandated eighth year review required under the Concession
and resolved the differences outstanding between CANTV and CONATEL relating to
the definition of goals and measures of service mandates and methodologies. In
effect, the Agreement retained for the Company the most significant rights
provided for under the Concession. The Agreement included: (i) a significant
rebalancing between long distance and local tariffs, and between non-residential
and residential tariffs; (ii) a definitive ruling on tariffs and adjustments
based on an agreed projected devaluation of the bolivar against the U.S. dollar
during 2000; (iii) quality and service mandates including the elimination of the
service expansion mandate and the introduction of a new 80% digitalization by
the year end 2000 mandate; (iv) the introduction of new tariff plans including a
fixed prepaid plan and optional plans which CANTV may introduce without
CONATEL's prior approval and which, in the case of certain optional plans, CANTV
may offer with higher basic rent and free minutes up to a $80 maximum; and (v)
CANTV's agreement to refrain from taking any action, judicial or administrative,
as a result of the failure by the Government to approve tariffs during 1999,
provided that the Government meets the terms and obligations pursuant to the
Agreement.

The tariffs provided for under the Agreement were effective until March
10, 2001 if CANTV and CONATEL were not able to reach an agreement on the tariffs
to apply after November 27, 2000. During 2000, CANTV and CONATEL did not reach
an agreement on tariffs to apply after November 27, 2000. On February 19, 2001,
pursuant to the New Telecommunications Law, CANTV reached an agreement with
CONATEL for the approval of new tariffs effective on March 11, 2001 and a new
tariff-setting system, which has been used to adjust the rates the Company
charges since March 11, 2001. See "-- Regulation of Tariffs."

Amendments to the Regulatory Framework

The New Telecommunications Law, enacted on June 12, 2000, provides the
general legal framework for the provision and regulation of telecommunications
services in Venezuela with the stated objectives of establishing the conditions
for fair competition between operators and service providers, setting the rules
on tariffs and interconnection, developing and modernizing the
telecommunications systems, and at the same time obtaining and establishing
universal service contributions. The New Telecommunications Law respects all
previously conferred rights and duties, including obligations under
interconnection agreements among operators, and provides for an equitable tax
regime.

The New Telecommunications Law establishes CONATEL as an independent
regulatory body charged with overseeing the implementation of regulations
pursuant to the established framework for a new competitive market. The New
Telecommunications Law considers telecommunications services to be an economic
activity that affects the public interest, which may be provided by the private
sector on a competitive basis subject to regulation. The New Telecommunications
Law includes a requirement for universal contributions and public service
obligations to be shared by telecommunications service providers. Under the new
tariff structure, providers are free to set their own rates unless there is
insufficient competition and certain telecommunications services would become
subject to tariff regulation. In this case, CONATEL may subject any
telecommunications service to price regulation through the application of a
tariff-setting system. CONATEL is regulating CANTV's tariffs under a
tariff-setting system, until there is meaningful competition. The Superintendent
of Promotion and

Protection of Free Competition ("Pro-Competencia") is the body that has the
authority to designate a company a dominant position in the market. See "--
Regulation of Tariffs."

The New Telecommunications Law provides for a new tax regime applicable
to all telecommunications service providers on the basis of annual revenues. The
new taxes replace the former annual tax and concession fee of 5.5% for wireline
and 10.0% for wireless services. The new taxes are: a 2.3% activity tax, a 0.5%
tax to cover CONATEL's activities, a maximum 0.5% tax for spectrum allocation, a
1.0% tax to create the Universal Service Fund, a 0.5% tax for the
Telecommunications Training and Development Fund and charges for administrative
procedures. In addition, cellular providers are subject to a supplemental tax
starting at 4.5% of annual revenues in the year 2000 and decreasing by 1.0% per
annum until 2005 after which time the supplemental tax will be eliminated.

The New Telecommunications Law provides for the creation of the
Universal Service Fund and the Telecommunications Training and Development Fund.
The purpose of the Universal Service Fund is to afford to every citizen the
opportunity to have access to telecommunications services including Internet
services. This fund will be used to subsidize the development of infrastructure
for the provision of telecommunications services by operators in unprofitable
areas. Also, a research and development fund (the "Research and Development
Fund") will be used to provide financial resources to universities, technology
institutes and research institutions to study and research telecommunications
technology.

On November 24, 2000, the Regulations for Basic Telephony Services, the
Administrative and Concessions Regulations and the Interconnection Regulations
were published and together with the New Telecommunications Law opened the
telecommunications services sector in Venezuela to free competition. Prior to
the enactment of the New Telecommunications Law and the Telecommunications
Regulations and pursuant to the Concession, the Company had the right to provide
fixed local telephone services and domestic and international long distance
telephone services and international long distance services on an exclusive
basis until November 27, 2000, except in limited circumstances.

(i) The Regulations for Basic Telephony Services

The Regulations for Basic Telephony Services establish the general
model, requirements, conditions, limitations and general provisions necessary to
ensure the opening of the basic telephony services market to free competition,
transparency and equality of opportunity among established operators and market
newcomers. Minimum infrastructure developments have been set for those operators
who wish to provide local and domestic long distance services in certain areas
of the country. International long distance carriers must comply with, and
provide service to, pre-determined locations (i.e., certain countries of origin
and call termination). A new regional scheme has been established, which divides
the country in five regions and allows for modifications of the tariff regime.
Regional operators will be able to set regional tariffs as appropriate.

These regulations also govern the system for pre-selecting domestic and
international long distance carriers. Pursuant to the Regulations for Basic
Telephony Services, an independent third party has been contracted to handle the
pre-selection process under CONATEL's supervision. The selected third party is
the database administrator and will be responsible for the supervision and
migration of the long distance registry of all present consumers and the
selections they make. This mechanism has been used successfully in several
countries and is designed to provide equality to carriers and consumers.
Consumers can also select the long distance carrier of choice on a per-call
basis by dialing the operator's prefix before the desired phone number based on
quality, price or service. CANTV will provide both of these types of
presubscription services to consumers.

(ii) The Interconnection Regulations

The New Telecommunications Law provides for mandatory interconnections
with charges based on costs to stimulate the commencement of effective
competition, eliminate cross subsidies and to promote self-regulation of the
sector. The Interconnection Regulations require access for the interconnection
of other operators' networks to CANTV's telephone network and allow interested
parties to negotiate the terms and conditions of their interconnections subject
to general principles of non-discrimination, equality of access and good faith.

Pursuant to the Interconnection Regulations, operators are required to
make available to other operators soliciting interconnection the essential
resources of its network needed to render telecommunication services, including:
call transport, origination and termination of calls for fixed, wireless and
mobile local services, subscriber numbers, sufficient information for billing
and collection, systems used in transmission or routing of calls, signaling and
network access for "smart" features, and operator and directory assistance.
Signaling, the process of sending information between two parts of a network to
control, route and maintain a telephone call, is required to be provided using a
new system, the SS7, employing as many separate channels as may be necessary to
establish interconnections and optimal use of the network. In 1997 the Company
began to install SS7 and at December 31, 2001, the Company had installed the SS7
system through its local tandem, domestic and international long distance
switches, and plans to continue expanding this system during 2002. The
Interconnection Regulations also require CANTV to provide at least one
centralized point of interconnection in each local area for local traffic and
one centralized point of interconnection for each central long distance office.
New market entrants are required to provide less points of interconnection than
CANTV.

New interconnection agreements are required to be consummated no later
than 60 days following the receipt of a request for interconnection and are
subject to review by CONATEL. Each new interconnection agreement must provide
the rights and duties of each operator thereunder, which may be amended no later
than two years from the execution of the agreement. In the event parties fail to
enter into an interconnection agreement within 60 days, CONATEL is required to
establish the terms and conditions of interconnection between the two parties
within 30 days, setting interconnection charges based on long-term incremental
costs related to the provision of unbundled network elements pursuant to the
Interconnection Regulations. Until November 2002, in case of disagreement among
parties, CONATEL will set interconnection charges based on a benchmark study.
After that date, a long run incremental cost model will be used to set the
charges. As of May 2002, CONATEL is working on the model.

Interconnection agreements entered into prior to the enactment of the
Interconnection Regulations remained in force provided they were amended to
conform to the Interconnection Regulations on or before May 24, 2001. Prior to
the enactment of the Interconnection Regulations, interconnection charges were
based on tariffs established by the Company. The Interconnection Regulations
provide for interconnection charges to reflect the recovery of costs incurred to
allow access to other carriers plus a reasonable profit margin. Currently, the
Company has entered into interconnection agreements with the main operators such
as Movilnet, Telcel, Digitel, Infonet and Veninfotel, and is in negotiations
with other new soliciting operators. The Company experienced a reduction in the
interconnection rates and charges.

(iii) The Administrative and Concessions Regulations

All service providers are required to obtain an administrative license
to provide basic telecommunications services and to establish and make use of a
network. The Administrative and Concessions Regulations establish the process
and requirements for applying for administrative licenses (habilitaciones
administrativas) and concessions for basic telecommunications services. Basic

telecommunications services include fixed local telephone services and domestic
and international long distance telephone services.

CONATEL has established the general conditions required to be met to
obtain an administrative license with the stated objectives of providing
adequate telecommunication services, consumer protection, free competition among
operators, efficient and effective numbering administration, satisfaction of
interconnection technical and service quality obligations, and universal service
contributions, among others. CONATEL is required to evaluate requests for
administrative licenses within 30 days of their solicitation starting on
November 28, 2000. Administrative licenses have a term of up to 25 years, are
subject to renewal and may only be granted to persons or entities domiciled in
Venezuela.

Administrative licenses for each service requested are subject to
compliance with a set of specific criteria. The specific criteria are based on
technological convergence and on the services promoted by the Telecommunications
Regulations. While fixed local service operators are not subject to certain
minimum service obligations applicable to domestic long distance service
operators, fixed local service operators are required to have exchange
facilities or access to exchange facilities, and be able to satisfy the demand
for fixed local services, in their assigned area. Also, fixed local service
operators are required to install a number of public telephones equal to at
least 3% of their lines in use. Domestic long distance operators are required to
service all of the newly established five national geographical regions within
two years following the receipt of an administrative license for this service.
International long distance operators are required, at a minimum, to provide
international long distance service between Venezuela and the United States,
Colombia, Spain, Italy and Portugal within one year of obtaining an
administrative license for this service and provide, within their second year of
service, international long distance service between Venezuela and Ecuador,
Peru, Mexico, Bolivia, Brazil and Canada.

The rights and obligations granted pursuant to existing concessions
remain in effect notwithstanding the grant of administrative licenses covering
competing services. According to the New Telecommunications Law CONATEL has the
right to designate unprofitable areas to operators and assign the funds derived
from the Universal Service Fund to the operator which has the lowest subsidy
level requirement. Operators may be required to offer basic telephone services
in areas previously designated by CONATEL as deserted.

In order to use the radioelectric spectrum, an interested party must
apply for a limited period concession covering a pre-determined portion of the
spectrum. The process to obtain a concession for the radioelectric spectrum
includes a qualification phase and a selection phase based on a public auction
as it is considered a public resource under the new regulatory scheme. CONATEL
determines at the beginning of each calendar year the portion of the spectrum to
be auctioned and conditions for selection. When the spectrum is auctioned, the
winning bid obtains a non-assignable right to use the spectrum in addition to an
administrative license to provide services and establish and use the network.
Concessions, such as cable television or fiber optic telephony, may be granted
shortly after a request is approved since they are not subject to open bidding.
Concessions for the use of the radioelectric spectrum for broadcast television
and standard radio transmission are granted through an administrative
proceeding. Foreign investors are prohibited from participation in broadcast
television and standard radio transmission in Spanish. The basic telephony
concession requires the payment of a surety bond.

Network Expansion, Modernization and Quality Improvement Requirements

The Concession required the Company to carry out a plan of network
expansion and modernization based on the construction of a specified minimum
number of new digital lines, the

modernization of analog lines and installation of public telephones, each year
until the year 2000. In accordance with the Concession, the Company has filed
with CONATEL certain network expansion and modernization plans: annual plans, a
plan through 2000 and a fifteen-year plan. Each annual plan has been subject to
CONATEL's approval. The Company's plans have incorporated its expansion and
modernization proposals for national, regional and city network build-outs. The
plans have been based on a principle of uniform growth for all regions in the
country. Compliance with the approved plans and mandates were required by the
Concession until December 31, 2000. During year 2000, the Agreement established
and controlled expansion and modernization mandates eliminating mandates
required under the Concession. After December 31, 2000, CONATEL has not
established new mandates to control expansion, quality and modernization
standards. CONATEL plans to introduce a new regulation covering quality of
service mandates in the near future, including customer satisfaction measurement
methodology, which will apply to all operator companies.

The economic forecasts developed and relied upon in 1991, on which the
nine year Concession mandates were originally based, assumed the substantial
growth of Venezuela's GDP. Since 1992, the Venezuelan economy began to
experience a downturn, which has continued throughout subsequent years. As a
result of the downturn in the economy and the emergence of wireless services,
the Company experienced a decrease in the rate of demand for fixed telephone
lines and, in certain of its service areas, had more available facilities than
demand from persons able to afford telephone service. Pursuant to a proposal
submitted by the Company, on September 9, 1996, the Ministry adopted a
resolution to reduce the Company's expansion mandates for 1996 through 2000.

Under the Agreement reached in February 2000, quality and service
mandates have been substantially modified, including the elimination of the
mandatory access line expansion requirements and an agreement by the Company to
ensure that 80% of its lines are digitized by December 31, 2000. After 2000, no
specific expansion, modernization and digitalization requirements need to be
complied under the Concession. The New Telecommunications Law and the Regulation
for Basic Telephony Services provide additional obligations for operators, such
as the installation of a new signaling system for interconnections based on the
SS7 protocol and the installation of the minimum equivalent of 3% of lines in
use in public telephones.

The access mandate under the Agreement required that the average
installation period be not greater than 67 days and that pending orders over 30
days must represent less than 82% of pending orders. Under the Agreement,
operator response was required to be no more than 5 seconds for repair requests,
8 seconds for domestic long distance service, 20 seconds for information
requests and 20 seconds for international long distance service. Billing
performance under the Agreement was required to be 99.5% accurate and 95.0% of
billings were required to be completed within less than 45 days for domestic
long distance and international long distance outgoing calls. Also, no billing
of international long distance service was allowed after 110 days other than
when other international carriers are used. CANTV has complied with the quality
and service mandates under the Agreement.

Under the Agreement, CANTV and CONATEL agreed to develop measures and
corresponding quality and service level mandates for certain services where
specific mandates are not currently provided in the Agreement. The Agreement
contemplated that these matters were to be agreed upon during the first quarter
of 2000. Some of the measures developed included: (i) customer satisfaction,
(ii) time to complete a call, (iii) billing effectiveness and (iv) operator
service. To develop the customer satisfaction measure, the Agreement
contemplated that both CANTV and CONATEL would designate an expert to jointly
develop a customer satisfaction survey from which a customer satisfaction
mandate would be developed. The time to complete a call refers to the time that
passes between the moment that the last digit is dialed and the answer tone is
received. In accordance with the Agreement, CANTV and CONATEL performed
measurements during the first quarter of 2000 to agree on the establishment of
the

new annual measurement to be used based on actual results allowing for a monthly
deviation. The Agreement also contemplated that service access in areas where
CANTV did not provide services would be measured based on the percentage of
pending service orders in those areas as of December 31, 1999. In the event that
CANTV was unable to provide service to these areas, other operators would be
allowed to offer their services as long as they used comparable technology to
CANTV's. CANTV was able to provide service to all these areas during year 2000.
The Agreement also contemplated that both CANTV and CONATEL would perform
several operator service measurements during the first quarter of 2000 and
develop a new annual measurement. CONATEL retained inspection rights during the
first quarter of 2000 to survey and adjust, as needed, these quality measures.
All of these studies have been completed except for customer satisfaction and
time to complete a call, which are still in progress, and the Company expects
that those quality measures will be incorporated in the Regulation of Quality
Services. CONATEL has not yet agreed on a consistent statistical measurement
methodology for customer satisfaction.

The following table sets forth CANTV's actual expansion, modernization
and quality improvement results through 2000; these service mandates have not
been revised since 2000:

1997 1998 1999 2000
--------------------------------------------------------------

Expansion and modernization: (1)
New digital lines for expansion 171,844 148,285 N/A N/A
Modernization of lines 41,000 82,000 87,620 N/A
Total lines for expansion and modernization
208,900 212,844 230,285 87,620 N/A
Total public telephones (2) 70,012 75,097 80,033 85,016
Total lines installed (2) 403,521 3,551,706 3,546,538 3,074,506
Quality improvement:
Dial tone delay (3) 99.0% 99.2% 99.3% 99.5%
Call completion (4)
Local 64.3% 67.3% 68.7% 97.7%
Domestic long distance 52.5% 55.6% 57.5% 96.7%
International long distance 49.9% 60.7% 60.3% 98.1%
Operator assistance (seconds):
Domestic long distance 4.1 3.5 2.1 2.9
Directory assistance (5) 4.0 N/A 3.9 3.8
International long distance 3.3 3.6 2.4 2.8
Repair answer (6) 3.8 4.5 3.4 2.3
Trouble reports and repair time:

Trouble reports per 100 lines (7) 3.5 3.0 2.5 2.0

Repaired in 24 hours 60.5% 68.8% 70.7% 86.2%
Repaired in 48 hours 83.9% 89.9% 89.6% 96.9%
Repaired in 72 hours 92.7% 93.1% 91.7% N/A
Installation interval
(within days) (8) N/A N/A N/A 29
Billing:
Accuracy (with error) 0.8% 0.5% 1.0% 0.3%
Time from providing service
to bill (days) (9) 21 22 19 N/A
Customer satisfaction
(percent satisfied) : (10)
Public telephones 70.1% 69.6% 72.3% N/A
Residential 89.8% 91.5% 88.2% N/A
Non-residential 88.2% 88.5% 83.2% N/A

-----------------------------
(1) During 1999, CANTV completed the expansion and modernization requirements
by using excess digital capacity; consequently no new digital lines for
expansion were installed. The Agreement didn't establish expansion and
modernization requirements.
(2) Does not show details of decreases or increases resulting from the
relocation or retirement of analog lines.
(3) Percentage of initiated calls that received dial tone within 3 seconds
during the busiest hour of the day.
(4) Percentage of completed calls, which were appropriately dialed and
connected.
(5) Statistics for 1998 are not available due to problems experienced in
connection with the upgrade and testing of the Company's new directory
assistance platform in Caracas and Barquisimeto. The Company has formally
notified CONATEL of the problems encountered and inability to measure
compliance with the mandate.
(6) Average time in seconds for repair operators to answer customer calls
reporting problems with their telephones.
(7) Monthly reported failures divided by number of lines in service at
month-end, multiplied by 100. In 1999, the Company installed a mechanized
repair tracking system, which improved its ability to identify trouble
reports and repair times.
(8) Initially percentage of service requests completed. The standard for
measurement was never agreed with CONATEL and accordingly no statistics
were available until 1999. The Agreement eliminates this quality service
mandate and introduces mandates for installation interval.
(9) Days from the moment when the call is made to the billing day, per 100
bills. The Agreement substitutes this mandate with a 99.5% accuracy
requirement and a requirement that 95.0% of billings be completed within
less than 45 days for domestic and international long distance outgoing
calls.

(10) As measured by customer opinion surveys conducted by third parties. The
lower customer satisfaction results obtained from the 1999 customer survey
compared to the 1998 survey are primarily attributable to differences in
survey design and methodology. The survey design and methodology was not
completely reviewed and approved by CONATEL as part of the Government's
review of service quality mandate during 2000. For this reason the customer
satisfaction mandate did not apply for 2000.

The Company did not meet certain Concession mandates relating to call
completion rates in 1998 and 1999 due to the Concession's definition of an
uncompleted call. Under the Concession, a call was not completed if a line was
busy or a person did not answer. Under the Agreement all calls are considered
completed unless there is a technical failure. In 1998, the Company failed to
meet the Concession's customer satisfaction requirement for users of public
telephones. The Company started to develop with CONATEL an objective measure of
customer satisfaction for users of public telephones such as the percentage of
public telephones in service, which was no longer applicable under the
Agreement. Since 1995, the Company has failed to meet the Concession's
requirement that a specified percentage of new lines be installed within a
specified number of days from request. The standard for measurement of this
mandate was never agreed with CONATEL and accordingly no comparable results are
available. The Company also failed to meet certain repair time requirements
under the Concession in 1994 through 1997. In 1998, 1999 and 2000 the Company
met all repair time requirements. In addition, in 1994 the Company failed to
satisfy the billing statement improvement mandate of the Concession as well as
certain provisions dealing with treatment of third party equipment providers. As
a result of a 1996 inventory of public telephones, the Company determined that
the number of public telephone lines in service was 8,591 less than the number
on its records at June 30, 1996. Due to this shortfall, the Company only had
52,031 public telephone lines installed at December 31, 1996, representing just
over 80% of the Concession's requirement of 65,000.

The failure by the Company to meet the Concession's mandates may result
in sanctions, including the possible imposition of fines of up to a maximum
amount of 1% of CANTV's billings and, if the failure exceeds 20% of the relevant
requirement, revocation of the Concession. The Agreement establishes that if
CONATEL detects noncompliance with the established quality and service mandates,
it must notify CANTV which in turn must present a corrective plan within fifteen
days after receiving formal notification and correct the noncompliance within
the following quarter unless otherwise justified to CONATEL. Failure to comply
with the corrective plan may lead to a penalty equivalent to 50% of the basic
rent charged to affected customers in the most recent month and must be credited
directly to the customers' accounts within the next two months. The penalty is
calculated for each parameter or measurement per line per month that has not
been complied with. CONATEL will also verify compliance with annual goals. As of
December 31, 2000, the Company was in full compliance with the Agreement
mandates, which had replaced the quality and service mandates under the
Concession. The actual results for 2000 were submitted to CONATEL on February
14, 2001. As of December 31, 2001, CONATEL has not promulgated quality and
service mandates regulations to apply to CANTV under the control of the New
Telecommunications Law.

Rate Regime

Prior to February 2000, when CANTV entered into the Agreement with
CONATEL, CANTV's rates were regulated under the Concession. The Concession had
provided for a "price-cap" mechanism to set and adjust rates on a quarterly
basis throughout each calendar year. The price-cap mechanism was designed to
vary quarterly based on the WPI. Although in principle tariffs were to be
adjusted to reflect inflation in the preceding quarter, tariffs were, in
practice, generally calculated based upon rates of inflation during the second
preceding quarter. The delay was due to the time period required by CONATEL to
calculate the inflation rate during a specific quarter. Accordingly, in many
instances tariffs were implemented based on inflation levels relating to periods
ending as much as six months preceding their implementation date.

The increase in CANTV's tariffs did not, in all cases, fully offset the
effects of inflation used in preparing the Company's financial statements since
the rate of inflation used in preparing the Company's financial statements is
based on CPI which, at times, significantly exceeded the rate of inflation as
measured by the WPI. Further, the price-cap mechanism was not always implemented
as described in the Concession. CONATEL sometimes delayed the approval of rate
increases, or did not approve the full tariff increases allowed by the
Concession's price-cap mechanism. In other cases the Company decided not to
implement the full increase authorized for competitive or other reasons. In
1998, all four tariff increases were approved with minimal delay. In the first
three quarters of 1998, CANTV did not increase domestic long distance rates by
the full amount permitted based on competitive pricing strategies. In 1999,
CANTV received authorization for a rate increase effective on January 1, 1999
and in March 1999, CONATEL approved a tariff increase, which became effective on
April 30, 1999. At the request of CONATEL, CANTV agreed not to implement the
rate increase permitted pursuant to this authorization for basic residential
rent. During 2000, two tariff increases went into effect in accordance with the
Agreement.

The following table sets forth the increases in the CPI, the WPI and
the Company's tariffs based upon this price-cap mechanism from 1996 through
1999:

% Increase
----------------------------------------------------------
Consumer Wholesale CANTV's Weighted
Year Price Index Price Index Average Tariffs
---- ----------- ----------- ---------------

1996 103.2 105.8 89.0
1997 37.6 17.3 25.5
1998 29.9 23.3 12.3
1999 20.0 13.6 8.1

Under the Agreement, the adjustment mechanism was based on devaluation
rates and as a result comparisons with earlier years are not meaningful.

In addition to the price-cap mechanism, the Concession contemplated the
implementation of a rate rebalancing program designed to allow CANTV to
eliminate the subsidy provided by its long distance services to basic rent
charges for residential customers. The program was intended to permit CANTV to
offer competitive pricing for its international and domestic long distance
services by the end of 2000. The Concession contemplated the implementation of
certain specific rate rebalancing steps each quarter commencing in the first
quarter of 1994.

Due to the economic conditions existing in Venezuela since 1994, as
well as other factors, rate rebalancing did not take place as contemplated by
the Concession. On September 9, 1996, CANTV entered into the Rebalancing
Agreement with the Ministry, which was intended to achieve the level of rate
rebalancing originally contemplated by the Concession. Under this Rebalancing
Agreement, effective on January 1, 1997, CANTV was allowed to accelerate rate
rebalancing. Prices for domestic and international long distance services were
allowed to be reduced through 2000 and prices for local services were allowed to
be increased. Due to further delays in tariff approvals, CANTV did not achieve
the full rebalancing goals permitted under the Rebalancing Agreement. The
Agreement reached in February 2000 allowed CANTV to achieve further rebalancing
of its tariffs in 2000 consistent with the general rebalancing objectives of the
Concession. The tariffs, as stipulated in the Agreement and detailed below,
substantially reduce subsidies to local services, while bringing domestic and
international long distance tariffs more in line with general industry
benchmarks. See "-- The Agreement."

In 1998, CANTV negotiated the implementation of its EAS program with
CONATEL and in the fourth quarter of 1998, the Company successfully launched EAS
in certain parts of Venezuela. EAS migrates certain domestic long distance
traffic to local area service, permitting CANTV to effectively achieve
additional rate rebalancing while providing the opportunity to shift revenue to
the local service category that is less vulnerable to competition and
elasticity. The Company's fourth quarter 1998 tariff increase included an
additional 4.6% rate increase, to compensate for the introduction of EAS.

In February 2000, CONATEL and the Company entered into the Agreement,
allowing CANTV to increase rates in 2000. During 2000, two tariff increases went
into effect on March 23, 2000 and on June 16, 2000. See "-- The Agreement" and "
-- Regulation of Tariffs" for a discussion of new rate regime.

The Agreement

Under the Agreement, CANTV was permitted to make an adjustment to its
tariffs effective on March 23, 2000 and on June 16, 2000. The tariffs provided
for under the Agreement were effective until March 10, 2001 if CANTV and CONATEL
were not to reach an agreement on the tariffs, which were to apply after
November 27, 2000. During 2000, CANTV and CONATEL did not reach an agreement on
tariffs to apply after November 27, 2000. On February 19, 2001, pursuant to the
New Telecommunications Law, CANTV reached an agreement with CONATEL on tariffs
effective on March 11, 2001 and a tariff-setting system to be used to adjust
rates CANTV charges during 2001. See "-- Regulation of Tariffs."

The Agreement was entered into by CANTV and CONATEL following CONATEL's
denial of the tariff increase permitted under the Concession following CANTV's
last tariff increase under the Concession effective on April 30, 1999. Newly
appointed representatives of CONATEL had expressed their disagreement with the
Concession's price-cap mechanism and informally took the position that since
CANTV failed to satisfy certain of the Concession's service mandates, it should
not be entitled to rate increases. In essence, CONATEL linked rate increases
permitted under the Concession to the fulfillment of the Concession service
mandates. The Company believes that such a link was not contemplated in the
Concession. As a result, on July 12, 1999, CANTV took the first step in
instituting a breach of contract action and damage claim by starting a
preliminary administrative procedure before the Attorney General of the
Republic. CANTV temporarily suspended the procedure in September 1999 when CANTV
and CONATEL signed a letter of understanding that named two independent
international telecommunications experts to evaluate and recommend appropriate
tariff and quality standards and methodologies for Venezuela after comparison
with similar information for twelve other countries. As set forth in the letter
of understanding, the experts presented their recommendations to CANTV and
CONATEL. Following receipt of the recommendation of experts, which were
nonbinding, both entities entered into the Agreement, which provided for revised
tariffs. See "-- Network Expansion, Modernization and Quality Improvement
Requirements."

The Agreement introduced seven residential service plans in
substitution for the basic, intermediate and premium plans previously in effect.
Customers were switched automatically from their existing calling plans to the
new plans under the Agreement. Additionally, customers were able to switch twice
without cost among calling plans within one year. These plans, on average,
increased the tariffs of the plans they were replacing by 11% and also called
for a reduction of free minutes. Free minutes were reduced to 40, 65 and 90
minutes compared to 60, 100 and 150 minutes included in the old plans. The
Agreement introduced a prepaid plan for clients with lower purchasing power. The
prepaid plan provides attractive tariffs established at a minimum of Bs. 10,000
for two months and Bs. 60.32 charge per minute on local usage. A new premium
public telephony plan is available in hotels and higher income level areas. The
new tariffs also included a special plan for Internet users with basic rent at
Bs. 40,220, per

month, 2,500 free minutes, that become a flat rate plan in 2001, and a charge
per minute on local usage, which decreased with increases in usage.

Under the Agreement, tariffs on Plans D and E could be modified by
CANTV without the authorization or approval of CONATEL up to a maximum monthly
basic rent of $80. The only requirement was to publish changes during three
consecutive days in two national papers at least a month before their effective
application. CANTV could also offer additional plans, but in no instance could
the basic rent exceed $80.

The Agreement advanced the rebalancing process between long distance
tariffs and local tariffs, by reducing outgoing international long distance
weighted average rates by approximately 35%. Under the terms of the Agreement,
outgoing international long distance rates were decreased in some cases by 68%,
depending on the country. Domestic long distance rates were combined into one
nationwide plan with a weighted average of $0.1875 per minute.

The Agreement provided for extraordinary adjustment mechanism for
certain of CANTV's tariffs in the event that actual exchange rates, as defined
in the Agreement, deviate materially from the agreed projected exchange rates
set forth in the Agreement. If such variance in exchange rates exceeded certain
pre-determined percentage, the Agreement allowed CANTV to adjust its tariffs to
partially account for this variance subject to a maximum cumulative adjustment,
subject to approval by CONATEL. The agreed projected exchange rate at November
30, 2000 was Bs. 729.00 per $1.00. During 2000 and 2001, the rates measured at
the end of each month agreed with the projected rates under the Agreement and no
extraordinary adjustments were necessary.

The Agreement also allowed CANTV to provide discounts on its domestic
long distance and international long distance rates subject to certain
limitations.

Regulation of Tariffs

Effective in early 2001, CANTV became subject to tariff regulation under
the new regulatory framework as the established dominant operator in the
telecommunications market in Venezuela. On February 19, 2001 pursuant to the Ley
Organica de Telecomunicaciones (Gaceta Oficial No. 36,970, enacted on June 12,
2000) (the "New Telecommunications Law"), CONATEL established the maximum
tariffs for 2001 that were applicable to the Company effective on March 11, 2001
and a new tariff-setting system that modified the tariff adjustment mechanism
provided under the Agreement. The first tariff increase became effective on
March 11, 2001 and the second tariff increase became effective on July 1, 2001.
The revised tariffs for year 2002 pursuant to the tariff-setting system were
established by CONATEL on May 21, 2002, published on May 30, 2002 in Official
Gazette No. 37,454, and became effective from June 15, 2002. This tariff plan
includes a tariff simplification with the introduction of three new tariff plans
to replace the five existing plans and retains flat rate and prepaid services.
The purpose of the new tariff plan is to simplify the existing tariff structure
and better match the needs of each customer according to their usage patterns
while also accommodating those customers who are considered heavy Internet
users. See " -- Regulatory Framework -- Regulation of Tariffs." Under the new
rate plans, local usage, monthly rent and domestic long distance tariffs
expressed in nominal bolivars, were increased by approximately 20%,
international long distance rates were increased by 12.8% and local public
telephone service rates were increased by approximately 22%. The tariff
adjustment mechanisms used for 2002 tariffs have not changed from those applied
in 2001.

Under the new tariff-setting system, the maximum tariffs are adjusted
upwards or downwards based on a formula tied to the WPI and the ROD in the
bolivar with a higher weight given to the cumulative percentage change in the
WPI. The price-cap formula is used to calculate

a compound index of adjustment ("ICA") based on the cumulative percentage change
in the WPI and the ROD over a given measurement period from projected rates. The
tariff-setting system provides for an upward or downward adjustment to the
established tariffs based on deviations of 2.5% above or 2.5% below monthly
projected estimates of the ICA. CANTV may apply for an upward adjustment to the
established rates up to the excess percent that the ICA is greater than 2.5%
above the projected ICA. CONATEL may request a downward adjustment to the
established tariffs by the excess percent that the ICA is less than 2.5% below
the projected ICA. Where the actual ICA deviates in excess of 7.5% from the
projected ICA, CONATEL is required to revise the tariff-setting formula. Upon an
adjustment to the tariffs, the projected ICA is also adjusted for subsequent
adjustments of the tariffs under the tariff-setting system.

The following table sets forth information regarding the Company's
rates for each component of residential and non-residential local service,
domestic and international long distance calls, and public telephone service
effective from March 23, 2000 through December 31, 2002:

Tariffs Tariffs Maximum Tariffs Maximum Tariffs Maximum Tariffs
Effective from Effective from Effective from Effective from Effective from
March 23, 2000 June 16, 2000 March 11, 2001 July 1, 2001 June 15, 2002
through through through through through
June 15, 2000 March 10, 2001 June 30, 2001 June 14, 2002 December 31, 2002
------------- -------------- ------------- ------------- -----------------

Residential Service
-------------------
Installation
Primary line 43,746.46 46,294.73 47,195.64 48,931.82 58,589.81
Secondary line 12,861.37 13,610.55 13,111.66 13,593.99 16,271.57
Subscription
With equipment (5) 67,982.66 71,942.68 N/A N/A N/A
Without equipment 44,442.36 47,031.15 47,946.39 49,710.19 59,501.49
Monthly Rent
Primary line
Plan A 4,752.30 5,028.88 5,126.74 5,315.34 N/A
Plan B 7,291.20 7,715.55 7,865.70 8,155.05 N/A
Plan C 8,200.65 8,677.92 8,846.80 9,172.24 N/A
Plan D (1) 13,404.20 13,404.20 14,271.42 14,271.42 N/A
Plan E (1) 18,095.67 18,095.67 18,860.02 18,860.02 N/A
Plan F 40,212.60 42,555.00 43,383.13 44,979.07 N/A
Plan I N/A N/A N/A N/A 6,173.43
Plan II N/A N/A N/A N/A 10,450.97
Plan III N/A N/A N/A N/A 13,145.15
Plan IV N/A N/A N/A N/A 53,838.50
Secondary line (5) 360.91 360.91 N/A N/A N/A
Local usage (per minute) (2)
Plan A 29.56 31.28 31.89 33.06 N/A
Plan B 20.91 22.13 22.56 23.39 N/A
Plan C 19.10 20.21 20.60 21.36 N/A
Plan D (1) 18.77 18.77 18.77 18.77 N/A
Plan E (1) 17.09 17.09 17.09 17.09 N/A
Plan F 6.70 7.09 7.09 7.09 N/A
Plan I N/A N/A N/A N/A 44.70
Plan II N/A N/A N/A N/A 31.93
Plan III
From 61' to 240' N/A N/A N/A N/A 27.67
From 241' to 480' N/A N/A N/A N/A 25.55
From 481' to 900' N/A N/A N/A N/A 22.35
From 901' to 1,800' N/A N/A N/A N/A 18.09
Over 1,800' N/A N/A N/A N/A 12.77
Plan IV (6) N/A N/A N/A N/A 14.11
Wireline Prepaid 60.32 63.83 63.83 63.83 67.94

Non-residential Services
------------------------
Installation
Primary line 47,373.32 50,132.84 51,108.44 52,988.56 63,425.60
Secondary line 15,855.63 16,779.22 16,164.19 16,758.82 20,059.77
Subscription
With equipment (5) 110,990.51 117,455.75 N/A N/A N/A
Without equipment 87,450.21 92,544.22 94,345.16 97,815.83 117,062.39
Monthly rent
Primary line 14,074.41 14,894.25 15,184.10 15,742.67 18,843.47
Secondary line 1,741.74 1,843.20 1,879.07 1,946.19 2,331.92
Local usage (per minute) (3) 25.07 26.53 27.05 28.04 33.56
Domestic Long Distance (4)
--------------------------
Residential and non-residential 118.99 118.99 128.63 128.63 153.97
International Long Distance (4) 462.47 462.47 462.47 462.47 521.80
-------------------------------
Public Telephone Service (4)
----------------------------
Local Call 20.91 22.13 25.25 25.25 30.87
Domestic Long Distance 118.99 118.99 128.63 128.63 153.96
Premium 42.22 44.68 45.55 47.23 50.27

--------------------------------------------------
(1) CANTV was permitted to modify Plans D and E and create new plans subject to
a maximum monthly rent of $62.61 and $64.91. These rates were originally
issued in Venezuelan bolivars and translated into U.S. dollars at the
exchange rate of Bs. 718.75 per dollar as of July 1, 2001.
(2) Figures represent usage in excess of free minutes.
(3) Non-residential customers do not receive free impulses.
(4) Charge per minute.
(5) During 2001, these tariffs are not subject to regulation.
(6) Local calls from CANTV's network to other operator's network (fixed to
fixed traffic) are not included on flat rate plan.

Under the tariffs established by CONATEL, applicable to the rates CANTV
charged until June, 2002, certain calling residential plans were modified from
the changes introduced by the Agreement. Additionally new tariffs approved by
CONATEL and effective from June 15, 2002 to December 31, 2002, changed previous
residential plans by introducing three new tariff plans to replace the five
existing plans, while maintaining a flat rate plan and prepaid services. The
following table sets the plans differences for years 2000, 2001 and 2002:

Residential service
----------------------------------------------------------------------------
Under the 2000 Under 2001 tariffs Under 2002 tariffs
Agreement resolution resolution
----------------------- ---------------------- -----------------------
(free minutes per month)

Plan A - Adjusted Plan 40 50 N/A
Plan B - Discrete Plan 65 65 N/A
Plan C - Moderate Plan 90 90 N/A
Plan D - Efficient Plan 360 360 N/A
Plan E - Large Plan 600 600 N/A
Plan F - Free Plan 2500 Unlimited N/A
Plan I - Limited Plan N/A N/A 50
Plan II - Classic Plan N/A N/A 50
Plan III - Talk more, Pay less Plan N/A N/A 60
Flat Rate Plan N/A N/A Unlimited

Residential customers have 15 days to choose the plan they prefer,
however, if they do not choose a specific plan, they are assigned a plan
according to their usage. CANTV will maintain current promotional tariffs of Bs.
44,979 per month for the Flat rate and Bs. 63.83 per minute for Prepaid
services.

The Limited plan requires that the customer have only one telephone
line and is limited to a maximum of 120 minutes of use monthly average per
quarter. If customers exceed this limit, they are automatically transferred to
the Classic plan.

The following table sets forth information concerning the Company's
rates for wireless services, expressed in nominal bolivars, effective since
March 21, 2002:

Tariff effective since
Wireless Telephone Service March 21, 2002
-------------------------- --------------
Postpaid (1)
Activation fee --
Basic monthly service fee 24,803
Usage

Peak hour (per minute) 186
Off-peak hour (per minute) 183
Prepaid (2)
Peak hour (per minute) 425
Off-peak hour (per minute) 157

----------
(1) Weighted average of 18 plans offered by Movilnet effective March 21, 2002.
(2) Weighted average of 2 plans offered by Movilnet effective March 21, 2002.

On March 21, 2002, wireless tariffs increased by approximately 18% for
prepaid services, 28% for postpaid services, and 33% for special services
including mobile originating. Wireless

tariffs are unregulated, and only require information to be filed with CONATEL
15 days before the tariff's effective date.

Competitive Framework

The Concession contains various provisions designed to introduce
competition in the provision of telecommunications services. The Concession
provides that CANTV has the right to provide switched, fixed telephone services
in accordance with technological advances in basic telephony, local, national
and international, on an exclusive basis until November 27, 2000, except in
limited circumstances. For example, the Ministry had been permitted to grant
concessions for basic telephone services to third parties before November 27,
2000 to (i) serve population centers with 5,000 or fewer inhabitants if CANTV
was not providing telephone services in such areas and did not contemplate doing
so and (ii) serve population centers with more than 5,000 inhabitants if CANTV
had not installed an automatic switching center within a specified period or the
Ministry determined that CANTV had materially failed to meet the Concession's
network expansion, modernization or service quality terms for two consecutive
years, and believed that such action would markedly improve the existing
situation.

In December 1996, Infonet was granted a rural concession to provide
multiple services, except domestic and international long distance services, to
population centers with 5,000 or fewer inhabitants in eight western states of
Venezuela. Infonet has also installed GSM digital fixed wireless and cellular
services in rural areas in western Venezuela and has also expanded its services
into large population areas. In January 1998, two additional companies were
granted multiple services concessions. Digitel was granted a concession to
provide services in seven central states and Digicel was granted a concession to
provide services in six eastern states. Infonet and Digitel are providing
digital fixed wireless and cellular services and both have expanded their
services into larger population areas where they compete directly with services
provided by Movilnet and indirectly with services provided by CANTV. The
Concession also contemplates that the Government would be permitted to grant
other concessions in non-basic telecommunications services, including
packet-switched data transmission, public telephones, telex services, rural
services, private telecommunications networks and value-added services.

Among the primary objectives of the New Telecommunications Law is the
provision of an up-to-date regulatory framework for the newly open
telecommunications sector and offers customers the benefits of a competitive
environment. The New Telecommunications Law respects all previously conferred
rights and duties, including obligations under interconnection agreements among
operators, and provides for the deregulation of tariffs and an equitable fiscal
regime. Under the New Telecommunications Law, telecommunications services are
offered on a competitive basis, and universal and public service obligations are
shared by telecommunications service providers as determined by CONATEL. The New
Telecommunications Law also adopts a new tax regime applicable to all
telecommunications service providers on the basis of annual revenues. These
taxes replaced the former annual tax and concession fee of 5.5% for wireline and
10.0% for wireless services. See "-- Concession and Other Fees." The New
Telecommunications Law includes provisions that provide for mandatory
interconnections using cost-based charges to stimulate the commencement of
effective competition, eliminate cross subsidies and promote self-regulation of
the sector. It also contemplates rights of way guarantees, number portability
and long distance operator pre-subscription. The New Telecommunications Law
provides for the creation of a universal fund and a research and training fund.
See "-- Regulation and the Concession" and "-- Amendments to the Regulatory
Framework."

CONATEL divided the regulated services among basic or local service
providers, domestic long distance providers and international long distance
providers, allowing several providers to operate in all three-service areas.
With the opening of the telecommunications market to competition in Venezuela,

CANTV is subject to competition in all areas of its business. Several companies
have completed the process of applying for administrative licenses and
concessions for various services.

Basic Telephone Services

Basic telephone services include fixed local services and domestic long
distance and international long distance services. As of May 31, 2002, companies
such as Telcel, Genesis Telecom, Entel Chile, Millicom, Digicel and Digitel have
obtained concessions from CONATEL to provide wireless basic telephone services.
As of May 31, 2002, companies such as Convergence Communications and Veninfotel
have obtained administrative licenses from CONATEL to provide fixed local
telephone services and domestic and international long distance services. New
Global Telecom, Telcel and Totalcom Venezuela C.A. have obtained an
administrative license to provide domestic and international long distance
services. As of May 31, 2002, companies such as Multiphone de Venezuela, C.A.
and Etelix have obtained administrative licenses from CONATEL to provide
international long distance services. Entel Chile has obtained an administrative
license to provide fixed local telephone services and international long
distance services.

The Company, like most Latin American telephone companies, also
competes in international telephone services with a number of alternative
services including calling cards, the rerouting of calls by other international
operators, leased private line networks for large telecommunications providers
and "call-back" services (despite call-back services being illegal in
Venezuela). As in many other countries, the costs of local telephone service in
Venezuela were historically subsidized by revenues from international services,
thereby causing the price of international services to remain significantly
above their cost. The Company believes that as of May 31, 2002 its rates for
international long distance services are competitive with those of other
international service providers. During 2000, the Company introduced two
international long distance plans referred to as frequent country and preferred
country, which provide lower international long distance rates and on
consequence call volume increased during 2000 and 2001.

CANTV is currently evaluating the impact of the new market entrants on
its market share for basic telephone services. As of May 31, 2002, the Company
believes that in the short term any loss of market share during 2001 and 2002
attributable to the entry of competitors into the market for basic telephone
services is not likely to have a material impact on CANTV's financial condition
or results of operations.

Public Telephone Services

As of May 31, 2002, CANTV, Telcel, Infonet, Digitel and Digicel were
the providers of public telephone service in Venezuela. Under the Regulations
for Basic Telephony Services, fixed local service operators will be required to
install a number of public telephones equal to at least 3% of their lines in
use.

Wireless Telephone Services

The Company faces competition in wireless services from Telcel, and
recently from Digitel. Telcel, which is majority owned by BellSouth Corporation,
began its operations one year earlier than Movilnet and Digitel began its
operation in 1999. Movilnet's market share was approximately 38%, 36% and 40% at
December 31, 1999, 2000 and 2001, respectively. The Company estimates that
Telcel's market share was approximately 62% at December 31, 1999, 60% at
December 31, 2000 and 49% at

December 31, 2001. Digitel's market share was not significant during 1999, and
was approximately 3% at December 31, 2000 and 10% at December 31, 2001.

Beginning in November 2000, the Government started the auction of
frequencies for WLL services. Thirteen qualified bidders were announced by
CONATEL. Five regions were defined and three permits in each region were
auctioned. CANTV was not permitted by CONATEL to participate in the WLL auction.
Telcel and Genesis Telecom are two of the companies awarded concessions for
wireless services. Additionally, companies with existing facilities in Venezuela
have fulfilled requirements to obtain operator licenses in basic fixed telephone
service based on the new regulations. Convergence Communications, Veninfotel and
Telcel have obtained operator licenses to provide local, domestic and
international long distance services. New Global Telecom has an operator license
to provide domestic and international long distance services. The following
table summarizes the WLL auction results:

Wireless Local Loop (WLL) auction (1)
----------------------------------------------------------------------------------------------------------------------
Capital Region Andean Region Central Region South-East Region West Region

----------------- ------------------- ------------------ ------------------ ------------------

Granted to:
Frequency A Telcel Telcel Deferred Telcel Telcel
Frequency B Genesis Genesis Telecom Telcel Genesis Telecom Genesis Telecom
Frequency C Telecom Millicom Genesis Telecom Digicel Digitel
Entel Chile

Auction close price
($):
Frequency A 2,500,000 1,500,000 Deferred 800,000 1,000,000
Frequency B 3,800,000 860,000 4,300,000 560,000 400,000
Frequency C 1,500,000 800,000 1,200,000 300,000 720,000

----------------------------------------
(1) Information source: CONATEL

CONATEL intended to auction concessions for frequency to provide LMDS
in five regions of Venezuela. LMDS is a fixed wireless service that offers a
broad-band access and fast data transmission. On April 2, 2001, CONATEL
temporarily suspended the auction process for LMDS and a new date for the LMDS
auction has not been announced. It is anticipated that this auction will have
the same structure of the WLL auction process, by defining five regions.

Other Services

There are other data transmission service providers in the market.
CANTV.Net is among the two largest Internet service providers in Venezuela and
at December 31, 2001 had an estimated market share of approximately 53.0%. The
major competitor of CANTV.Net for Internet-related services is Telcel through
its subsidiary, T-Net.

Competition in services provided by the Company may arise from a
variety of new entrants, including telecommunications services providers from
other countries. Such competitors will be able to provide telecommunications
services either through newly installed facilities and networks or through
facilities and networks of existing providers. As of May 31, 2002, after the
opening of the telecommunications market to competition, the Venezuelan
Telecommunications market is composed of two integrated service providers, CANTV
and Telcel; wireless service providers, such as Movilnet, Telcel, Digitel and
Infonet; wireless fixed service providers, such as Telcel, Genesis Telecom,
Entel Chile, Millicom, Digitel and Digicel; data transmission service providers,
such as ImpSat, Compsat, Bantel, NetUno, Viptel, BellCanada International and
Texcom; ISPs, such as CANTV.Net, T-Net, Etheron, AOL, UOL and Eldish; paging
operators, such as Skytel, Telemensajes Metropolitanos, Radio Contacto and
TeleKontacto; trunking service providers, such as Americatel, Radio Movil
Digital and Conmovil; and cable TV operators, such as SuperCable, Cabletel and
Intercable, including DirectTV via satellite transmission.

These telecommunications services providers and other market entrants may
establish customer relationships, as well as other capabilities and resources to
expand their current service offerings. The Company believes that its
competitors will target large clients, top tier commercial customers and
high-income residential customers. As of May 31, 2002, only NetUno is operating
as a local service provider.

The scope of increased competition and any corresponding adverse effect
on the Company's results will depend on a variety of factors. Among such factors
are the business strategies and financial and technical capabilities of
potential competitors, prevailing market conditions and the effectiveness of the
Company's efforts to face the increased competition. Increased competition will
further change the environment in which the Company operates. Competition will
require the increased development of a competitive culture, including greater
customer care, differentiated services, continuous introduction of innovative
technologies, competitive cost positioning and operational efficiencies. The
Company believes, however, that its existing network, market share, quality and
range of services, position it to operate effectively in a competitive
environment.

Concession and Other Fees

The Concession required that CANTV pay the Government and CONATEL,
respectively, an annual tax and an annual concession fee equal to 5.0% and 0.5%,
respectively, of the billings for all basic switched telephone services and
other telephone services provided by CANTV. In December 1998, the Company
reached an agreement with CONATEL over payments due from the Company for the
years 1991 through 1996. The Company then paid all outstanding amounts owed to
CONATEL in full.

The New Telecommunications Law provides for taxes calculated on the
basis of annual revenues to be paid to the Government by all telecommunications
providers as follows: a 2.3% activity tax, a 0.5% tax to cover CONATEL's
activities, a 0.5% tax for spectrum allocation, 1.0% to create the Universal
Service Fund and 0.5% to create the Telecommunications Training and Development
Fund. In addition to the taxes previously described, cellular providers are
subject to a cellular supplemental tax starting at 4.5% of annual revenues in
the year 2000 and decreasing 1.0% per annum up to 2005 when the cellular
supplemental tax will be eliminated. These taxes would replace the current
annual tax and concession fee of 5.5% for wireline and 10.0% for wireless
services. As a consequence, cellular providers are subject to several taxes
starting at 9.3% of annual revenues in the year 2001 and decreasing by 1.0% per
annum until 2005. Beginning in 2006, the cellular supplemental tax of 0.5% will
be eliminated and the annual concession fee for cellular services providers will
be 4.8% of billings. These taxes became effective on January 1, 2001 and
supercede taxes established in the Concession.

The Concession provides, without prior authorization of CONATEL, CANTV
may not transfer or assign, in whole or in part, the concession granted thereby
or the obligation to fulfill such concession. It further provides that the
control of CANTV may not be assigned or transferred without the approval of the
Ministry. In case of war, rebellion or other circumstances constituting a
serious threat to national defense and security, the Government may replace
CANTV as the holder of the Concession and take possession of the assets,
equipment, facilities and accounting records of CANTV. In such an event, the
Government is required to restore all assets, equipment, facilities and records
at the end of the period during which such circumstances occurred and provide
CANTV compensation for those damages imputable to the Government for which CANTV
could demonstrate as having resulted directly from such action.

The Concession is for 35 years ending in 2026, and may be renewed for
an additional period of 20 years subject to the approval by the Ministry and
satisfactory performance by CANTV of its obligations under the Concession. The
Concession may be revoked and terminated before its scheduled expiration date in
the event of a material breach of the Concession by CANTV, as determined by

CONATEL, including (i) the assignment or transfer of the Concession, in whole or
in part, without prior authorization of the Ministry, (ii) the engagement by
CANTV in practices obstructing or restricting free competition in those areas
open to competition, (iii) the complete or partial interruption of services
provided by CANTV, except in the case of a local or national catastrophe or with
the Ministry's authorization, (iv) the failure to pay the concession fee or
annual taxes specified in the Concession, (v) the liquidation or bankruptcy of
CANTV, (vi) the failure to renew or the lapse of the surety bond delivered by
CANTV under the Concession and (vii) the failure to meet, on an annual basis,
80% of any of the modernization and expansion goals specified in the Concession,
without the prior authorization of the Ministry. The Concession provides that if
termination occurs pursuant to any of the above circumstances, CANTV will be
required to indemnify the Government in an amount equivalent to 5% of CANTV's
revenues for the most recent fiscal year for which audited financial statements
are available upon notification by the Government.

Upon any termination of the Concession, all of CANTV's real estate,
equipment, structures and facilities assets allocated to the rendering of
services under the Concession would be forfeited to the Government in exchange
for a payment equal to the book value of such assets without depreciation or
amortization as recorded on the books used by CANTV for income tax purposes. The
depreciated value of CANTV's assets at December 31, 2001 on such basis, was
approximately Bs. 3,400 million.

In addition to revocation, CONATEL has the power to impose sanctions on
CANTV for certain violations of the Concession. Sanctions may include public
censure or a fine of up to a maximum amount of 1% of CANTV's billings for the
most recent fiscal year for which audited financial statements are available.
Violations that may lead to sanctions, in addition to those mentioned above for
termination, include (i) failure to give customers equal treatment, (ii)
assignment or transfer of goods and equipment used in telecommunications
services without prior authorization of the Ministry, (iii) failure to prevent
unauthorized installations of equipment that result in damage to the
telecommunications network, (iv) installation of faulty, obsolete or
unauthorized telecommunications equipment, (v) performance of unauthorized
telecommunications services, (vi) charges to customers in excess of the approved
tariffs, (vii) obstruction of inspections ordered by CONATEL, (viii) violation
of labor laws or the applicable union contract and (ix) failure to present or
comply with a proper numbering plan.

Surety Bond

The Company has delivered, as required by the Concession, a surety bond
to the Government to guarantee the performance of its obligations under the
Concession. The bond must be renewed every two years during the term of the
Concession, including any extensions thereof.

Other

The Concession also requires that CANTV implement a public telephony
program in population centers having 5,000 or fewer inhabitants without
telephone service, including providing for the annual installation of at least
one public telephone in each of at least twenty such population centers. Under
the Regulations for Basic Telephony Services, fixed local service operators will
be required to install a number of public telephones equal to at least 3% of
their lines in use. The Telecommunications Regulations require that the Company
annually publish printed telephone directories that include all non-private
customer listings, that the directories are made available annually to all
telephone service customers and that a classified directory is provided.

Additional Concessions

The Cellular Concession was granted to Movilnet in May 1992 and has an
initial term of 20 years. Subject to certain conditions, the Cellular Concession
is renewable for another 20-year term. The Cellular Concession gives Movilnet
the right to interconnect with CANTV's basic network and required the payment to
CONATEL of an annual concession fee equal to 10% of billings. The New
Telecommunications Law eliminated the annual cellular concession fee and
established that cellular services providers are subject to several supplemental
taxes starting at 9.3% of annual revenues in the year 2001 and decreasing by
1.0% per annum until 2005. Beginning in 2006, the cellular supplemental tax of
0.5% will be eliminated and the annual concession fee for cellular services
providers will be 4.8% of billings. The Cellular Concession requires that
Movilnet expand and digitalize the cellular network, improve the quality and
productivity of cellular services when technically, materially and economically
feasible as well as provide certain rural, public and emergency services.
Compliance with the requirements of the Cellular Concession is monitored by
CONATEL. Movilnet expects to exceed demand and quality of service requirements
mandated by the Cellular Concession and all non-market-based Cellular Concession
obligations such as rural service, emergency service and public phone service.
Movilnet has fully complied with all concession mandates.

Movilnet may set the tariffs it charges its customers for wireless
services within minimum and maximum limits set by CONATEL. Within such limits,
the Company may create different tariff plans, including incentives and
promotional programs. In December 1998 and in November, 1999, rate limits were
established by CONATEL, pursuant to a request by the wireless operators. On
March 21, 2002, CONATEL approved new tariffs for Movilnet.

Pursuant to regulations relating to the operation of cellular
telephony, CANTV and Movilnet must operate separately. Each company must
maintain independent personnel, management, accounting and marketing
departments, among other requirements. However, under the New Telecommunications
Law, this requirement no longer applies and all services could be rendered by
one company.

The majority of the Company's value-added services are provided
directly by the Company's wholly owned subsidiary, CANTV.Net, under a
concession, the "Value Added Services Concession." On October 5, 1995 CONATEL
granted to CANTV.Net the Value Added Services Concession, which has an initial
term of 10 years. The Value-Added Services Concession is renewable for another
10-year term subject to certain conditions. The Value-Added Services Concession
granted CANTV.Net the right to offer voice-mail services nationwide. The
Value-Added Services Concession has been expanded to allow CANTV.Net to offer
additional services such as Internet access. The Value-Added Services Concession
also requires the payment to CONATEL of an annual concession fee equal to 5% of
the revenues.

CANTV.Net also offers fax and voice-mail with alert messages to pagers
and cellular telephones, enhanced fax, computer network management and
professional services including outsourcing of telecommunications networks. The
Value-Added Services Concession was recently expanded to include Virtual Private
Networks, access to extranets and intranets, electronic banking, video
conferencing and fax over Internet Protocol. CANTV.Net is a full Internet
service provider.

In accordance with the Concession, services provided pursuant to the
Cellular and Value-Added Services Concessions may not be subsidized by CANTV.

Item 5. Operating and Financial Review and Prospects

Introduction

Basis of Financial Data

The information in this section should be read in conjunction with the
Audited Financial Statements of the Company and Notes thereto included elsewhere
in this Form 20-F.

The Company prepares its financial statements in bolivars and in
conformity with Venezuelan GAAP, which differs in certain important respects
from U.S. GAAP. Note 28 to the Audited Financial Statements provides a
description of the principal differences between Venezuelan GAAP and U.S. GAAP
as they relate to the Company and a reconciliation to U.S. GAAP of net income
for the years ended December 31, 1999, 2000 and 2001 and total stockholders'
equity at December 31, 2000 and 2001.

In accordance with Venezuelan GAAP, the Company's consolidated
financial statements are presented on a constant bolivar basis. Accordingly,
except where otherwise indicated, consolidated financial data have been
presented in constant bolivars as of December 31, 2001 to reflect inflation in
Venezuela using the CPI. References to variations in average real rates over
periods within this section are based on adjustments made in accordance with
movements in the CPI. Until 1999 tariffs were adjusted by the Government, in
accordance with movements in the WPI which, at times, has been substantially
below the CPI. In 2000, tariffs were adjusted pursuant to the terms of the
Agreement between CANTV and CONATEL. Beginning in March, 2001, tariffs were
adjusted based on a projected inflation based on the WPI and projected exchange
devaluation of the bolivar against the U.S. dollar. See "Item. 4. Information on
the Company -- Regulatory Framework -- Regulation and the Concession --
Regulation of Tariffs." Although the restatement of nominal bolivar amounts into
constant bolivars lessens the distorting effect that an inflationary environment
has on comparisons of financial statements over time, such restatement does not
wholly eliminate these distortions, and the evaluation of period to period
trends may be difficult. See "Introduction" and Note 4(b) to the Audited
Financial Statements.

Significant Developments in Venezuela's Economy

Substantially all of the Company's businesses are conducted in
Venezuela. Demand for telephone services in Venezuela and the Company's results
of operations and financial condition have been, and are expected to continue to
be, affected by the state of Venezuela's economy. There can be no assurance that
economic conditions in Venezuela will improve or that they will not continue to
have an adverse effect on demand for the Company's services or on the Company's
results of operations and financial condition. Venezuela's GDP increased by 2.7%
in 2001, partly due to the adoption of a fiscal policy with the stated objective
to reduce or eliminate taxes on consumption and increase activity in the oil
sector, which is a significant part of Venezuela's economy.

The Company's financial condition and results of operations are
significantly impacted by changes in Venezuela's GDP, the rate of inflation and
the value of the bolivar compared to the U.S. dollar and other foreign
currencies. The petroleum industry is the principal source of Government
revenues and foreign exchange receipts. As a result, fluctuations in the
international petroleum market strongly influence the Venezuelan economy. In
1999 and 2000, international oil prices rebounded from 1998 levels, but
contracted by 23.1% in 2001. See "Item 3. - Key Information -- Risk Factors --
Importance of Oil Sector."

In November 2001, President Chavez enacted forty-nine (49) laws, by
decree, under the Enabling Law including the Hydrocarbons Law, Land and
Agricultural Development Law, and General Banking and other Financial
Institutions Law

Discontent and dissidence against the current Government has been
expressed in Venezuela and reflects no only dissatisfaction with the Enabling
Law, but also with the management of economic policy and international relations
and the increasingly confrontational attitude of President Chavez against
diverse social sectors considered as key institutions, such as the Catholic
Church, the media and the CTV.

In early 2002, several active members of the armed forces and the
National Assembly considered loyal to President Chavez, publicly expressed their
dissent with the government. In the economic sector there is uncertainty
regarding very important laws, particularly relating to taxation and social
security matters. The political uncertainty in Venezuela has increased
substantially in recent months. Specifically, tensions within the media, labor
unions, management of PDVSA and industrial associations has intensified, leading
to regular demonstrations both in favor of and against the Venezuelan
Government. Managers of PDVSA, who did not support the appointment of President
Chavez loyalists to the Company's board of directors and increased government
control of the company, participated in a work slowdown in late February 2002
and began a strike on April 4, 2002. On April 9, 2002 leaders of CTV and
Fedecamaras joined PDVSA's strike calling for a general strike that lasted three
days and culminated on April 11, 2002 with a massive opposition march in
Caracas. The violence that erupted between protesters and supporters of
President Chavez on that march resulted in the death of 17 Venezuelans. This
event prompted dissident officers of the armed forces, to intervene and ask
President Chavez to resign. During the early hours of April 12, 2002 President
Hugo Chavez, was forced out of office. A transitional government led by Pedro
Carmona Estanga, head of Fedecamaras, replaced President Chavez. Mr. Carmona's
decision upon taking office to dissolve Venezuela's elected National Assembly,
as well as to fire members of the Supreme Justice Court and revoke the package
of controversial laws enacted in November 2001 pursuant to the Enabling Law,
were met with severe domestic and international criticism. Under pressure from
military forces loyal to President Chavez, and public demonstrations in support
of President Chavez (who has denied that he ever resigned on April 12), and as a
result of the lack of support for Mr. Carmona from moderate factions within the
military and the general public, Mr. Carmona resigned and President Chavez was
reinstated as President on April 14, 2002 . In a conciliatory move, President
Chavez dissolved the recently installed board of directors of PDVSA.

These events demonstrate the divisions within the military as well as
the discontent with President Chavez within the business and labor sectors. The
issues and problems that mobilized many sectors of Venezuelan society against
President Chavez remain unresolved. These factors present an environment of
increasing ungovernability, political polarization and political and social
instability. There can be no assurance that the economic and political
uncertainty which has negatively affected the growth of the Venezuelan economy
in the past will not persist.

Venezuela's gross domestic product decreased by 7.2% in 1999 and
increased by 3.2% in 2000 and by 2.7% in 2001. Not considering for
petroleum-related activities, Venezuela's gross domestic product decreased by
4.9% in 1999 and increased by 2.7% in 2000 and by 3.8% in 2001. Despite
increased oil prices, the continuation in 2002 of constraints on oil production
requested by OPEC will create Government revenue shortfalls, which will mean
that the efforts to spur growth through public spending and investment will be
curtailed. There can be no assurance that economic conditions in Venezuela will
improve or that they will not continue to have an adverse effect on demand for
the Company's services or on the Company's results of operations and financial
condition. See "Item 5. Results of Operations for the years ended December 31,
1999, 2000 and 2001."

Inflation in Venezuela as measured by the CPI was 20.0%, 13.4% and
12.3% during 1999, 2000 and 2001, respectively. Inflation as measured by the WPI
was 13.6%, 15.8% and 10.2% during these same years, respectively. Consumer and
wholesale prices are expected to increase on 2002, fueled by currency
devaluation. Consumer prices rose by 4.2% in March 2002, the highest monthly
rate since 1996, and 1.1% in May 2002, raising accumulated consumer price
inflation for the first five months of 2002 to 10.2%. The Company estimates
consumer and wholesale inflation of 26% and 35%, respectively for 2002. In high
devaluationary periods the wholesale prices tends to exceed consumer prices,
since the adjustment in wholesale foreign component is higher than the domestic
one. The remaining devaluations adjustments expected by year end 2002 and the
increase in the minimum wage, effective on May 1, 2002 will only add further
upward pressure on prices, to be offset, in part, by weak domestic demand. CANTV
tariffs are subject to a price-cap mechanism using inflation rates based on the
WPI and devaluation rates, in order to maintain the value of the tariffs in real
terms.

Devaluation of the bolivar against the U.S. dollar was 14.9%, 7.8% and
8.3% for the years ended December 31, 1999, 2000 and 2001, respectively. The
change in the value of the dollar against foreign currencies resulted in a net
exchange loss of Bs. 37.9 billion, and Bs. 2.9 billion and a net exchange gain
of Bs. 21.0 billion for the years ended December 31, 1999, 2000 and 2001,
respectively. The deterioration of Government revenues streams and the
increasing political and legal instability, sustained capital flight and the
erosion of foreign reserves that began in late 2001, forced the government to
announce, on February 12, 2002, that the bolivar would float freely. The Company
believes that the currency may depreciate further in 2002, and expects
Venezuelan GDP to contract as the political tensions increase, credit is
constrained due to high interest rates, and inflation erodes purchasing power
and consumption. Net exchange gain or loss is included in the "financing cost,
net" caption in the consolidated statements of operations and in Note 17 to the
Audited Financial Statements and represents the additional or fewer bolivars, a
the case may be, that the Company requires to settle its U.S. dollar and other
foreign currency denominated net liabilities. Despite continued devaluation of
the bolivar against the U.S. dollar, the bolivar remains overvalued relative to
the U.S. dollar, which will have the negative effect of reducing demand for
domestic products both abroad and in Venezuela. This situation explains the
dynamism in the demand for imports despite the moderate expansion of the
economic activity. In the event of a continued decline in the value of the
bolivar relative to the U.S. dollar and other foreign currencies, as occurred in
1999, 2000, 2001 and the first half of 2002, the Company's results of operations
and stockholders' equity could be adversely impacted by additional exchange
losses. See "Item 3. Key Information" and "Item 11. Quantitative and Qualitative
Disclosures About Market Risk."

Significant Developments in the Company's Business

The information in this section should be read in connection with "Item
4. Information on the Company."

In general, the Company has increased employee productivity, realigned
operations by key customer groups and improved network planning and design. The
Company has also made substantial progress on its network expansion and
modernization program. The number of access lines in service increased up to
December 31, 2001. However, due to the implementation of stricter collection
policies, the Company permanently disconnected an aggregate of approximately
1,005,000 lines from 1999 to 2001. The lines, which have been permanently
removed, are being reassigned to new customers on the basis of credit checks.
Access lines in service totaled approximately 2.7 million at December 31, 2001
of which 80.5% were digital.

The number of cellular subscribers increased, from 1,705,990 at
December 31, 2000 to 2,461,501 at December 31, 2001 due to an increase in
prepaid customers of 50.4% from the continued success of prepaid services and
migration from postpaid to prepaid services, the number of postpaid customers
remained

relatively flat during 2001 after declining by 34.2% over 1999-2000 period.
The number of Internet subscribers and related users also grew, from 113,226 and
283,065, respectively, at December 31, 2000 to 145,218 and 363,045,
respectively, at December 31, 2001.

To achieve profitable growth and continue to reduce costs and improve
productivity, the Company has implemented strict procurement and cost
containment programs. In 2001, the Company continued refining its customer focus
units, emphasizing quality and efficient service in order to promote a
customer-oriented service culture. The Company uses improvements in customer
service and technological infrastructure to market its services more effectively
and increase revenues and profitability. These improvements focus on efficiently
meeting customer needs while optimizing productivity, and are expected to
position the Company for the current competitive environment.

The Company's strategy is to increase market penetration and continue
to broaden its product portfolio by offering an array of fixed, wireless, data
transmission, Internet and value-added services. The Company seeks to capture
the largest share of high growth markets by providing packages of services that
maximize and leverage its existing infrastructure, by continuing to expand
capacity and modernize its wireline, wireless and Internet networks, and by
seeking to improve its service offerings through innovative value-added
services.

Growth of the Company's wireline operations was partially impacted by
an uncollectibles accounts receivable problem arising primarily from the
deterioration in the Venezuelan macroeconomic environment since 1998. In
response, the Company developed collections and credit policies that included a
tightening of its credit policies and strict procedures requiring temporary and
permanent disconnection of customer lines for nonpayment. The Company also
implemented a stronger system of controls and reorganized the collection
function by assigning responsibility for collections to the business unit
leaders and incorporating collection performance standards into their
compensation packages. During 2001, CANTV made approximately 1,954,489 temporary
disconnections and permanently removed 203,313 residential and commercial lines
compared with 2,514,270 and 337,614 lines temporary and permanently
disconnected, respectively, in 2000. This decline reflects continuing
improvement in cash collections and the application of stricter credit policies.
Permanently removed lines are being aggressively reassigned to new customers
following upfront credit history checks. During 2001, the Company's
uncollectibles provision was Bs. 65.8 billion compared to Bs. 85.9 billion in
2000. The Company's provision for uncollectibles represents 2.9% and 3.6% of
total operating revenues at December 31, 2001 and 2000, respectively.

On December 29, 2000 the Company announced a workforce reduction
program. This program was implemented, after a thorough review of business
processes, to eliminate non-strategic activities and associated costs in order
to improve the operational and administrative efficiency of the Company. This
program resulted in an accrual of a special one-time charge of Bs. 123,948
million in the Company's results of operation in 2000. In addition, in 2001, the
Company recognized approximately Bs. 36,109 million in the statement of
operations in respect of pension and postretirement plan special termination
benefits related to the effect associated with this employee reduction program.
The program ended on January 19, 2001. Employees affected by this program
received additional severance benefits based on the number of years of service
with CANTV ranging from 30 to 90 basic monthly salary payments. Employees who
were eligible for early retirement received a six-month basic salary severance
payment in addition to a 25% increase in their monthly pension. As a result of
this program, the Company terminated approximately 3,752 employees
(approximately 34.0% of CANTV's work force).

Regulatory Environment

The information in this section should be read in conjunction with
"Item 4. Information on the Company -- Regulatory Framework."

In February 2000, CANTV entered into the Agreement with CONATEL with
respect to the rate structures and previously regulated services under the
Concession including rate rebalancing and service level mandates. The Agreement
superseded the Concession with respect to these matters and the Concession
continued to control as to subject matters not specifically covered by the
Agreement. The tariffs provided for under the Agreement were effective until
March 10, 2001 if CANTV and CONATEL were unable to reach an agreement on the
tariffs, to apply after November 27, 2000. During 2000, CANTV and CONATEL did
not reach an agreement on tariffs to apply after November 27, 2000. On February
19, 2001, pursuant to the New Telecommunications Law, CANTV reached an agreement
with CONATEL for the approval of new tariffs applied effective on March 11, 2001
and a new tariff-setting system used to adjust the rates the Company charges
since March 11, 2001. Revised tariffs for year 2002 were established by CONATEL
on May 21, 2002 pursuant to the tariff-setting system, published on May 30, 2002
in the Official Gazette (No.(degree)37,454) and became effective on June 15,
2002 . This tariff plan includes a tariff simplification with the introduction
of three new tariff plans to replaced five existing plans, while maintaining the
flat rate and prepaid services. The purpose of these new rate plans is to better
match the needs of each customer according to their usage patterns while also
accommodating those customers considered as heavy Internet users. See "Item 4.
Information on the Company -- Regulatory Framework -- Regulation of Tariffs."
Local usage, monthly rent and domestic long distance tariffs expressed in
nominal bolivars were increased by approximately 20%, international long
distance rates were increased by 12.8% and local public telephone service
charges were increased by approximately 22%.

The Agreement was arrived at following the delays in tariff approvals
in 1999 and the commencement of a preliminary proceeding in contemplation of a
legal action by CANTV against the Government for breach of the Concession. The
Agreement concluded a mandated eighth year review required under the Concession
and resolved the differences outstanding between CANTV and CONATEL relating to
the definition of goals and measures of service mandates and methodologies. In
effect, the Agreement retained for the Company the most significant rights
provided for under the Concession. The Agreement included (i) a significant
rebalancing between long distance and local tariffs, and between non-residential
and residential tariffs; (ii) a definitive ruling on tariffs and adjustments
based on an agreed projected devaluation of the bolivar against the U.S. dollar
during 2000; (iii) quality and service mandates including the elimination of the
service expansion mandate and the introduction of a new 80% digitalization by
the year end 2000 mandate; (iv) the introduction of new tariff plans including a
fixed prepaid plan and optional plans which CANTV may introduce without
CONATEL's prior approval and which, in the case of certain optional plans, CANTV
may offer with higher basic rent and free minutes up to an $80 maximum; and (v)
CANTV's agreement to refrain from taking any action, judicial or administrative,
as a result of the failure by the Government to approve tariffs during 1999,
provided that the Government met the terms and obligations pursuant to the
Agreement.

Prior to entering into the Agreement with CONATEL relating to rates for
2000, CANTV's rates were regulated under the Concession. The Concession had
provided for a "price-cap" mechanism to set and adjust rates on a quarterly
basis throughout each calendar year. The price-cap mechanism was designed to
vary quarterly based on the WPI. Although in principle tariffs were to be
adjusted to reflect inflation of preceding quarter, tariffs were, in practice,
generally calculated based upon rates of inflation during the second preceding
quarter. Accordingly, in many instances tariffs were

Regulatory Environment

The information in this section should be read in conjunction with
"Item 4. Information on the Company -- Regulatory Framework."

In February 2000, CANTV entered into the Agreement with CONATEL with
respect to the rate structures and previously regulated services under the
Concession including rate rebalancing and service level mandates. The Agreement
superseded the Concession with respect to these matters and the Concession
continued to control as to subject matters not specifically covered by the
Agreement. The tariffs provided for under the Agreement were effective until
March 10, 2001 if CANTV and CONATEL were unable to reach an agreement on the
tariffs, which were to apply after November 27, 2000. During 2000, CANTV and
CONATEL did not reach an agreement on tariffs to apply after November 27, 2000.
On February 19, 2001, pursuant to the New Telecommunications Law, CANTV reached
an agreement with CONATEL for the approval of new tariffs applied effective on
March 11, 2001 and a new tariff-setting system used to adjust the rates approved
on June 14, 2002 the Company charges since March 11, 2001. Revised tariffs for
year 2002 were established by CONATEL on May 21, 2002 pursuant to the
tariff-setting system, published on May 30, 2002 in the Official Gazette
(No.(degree)37,454) and became effective on June 15, 2002 . This tariff plan
includes a tariff simplification with the introduction of three new tariff plans
to replace the five existing plans, while maintaining flat rate and prepaid
services. The purpose of these new rate plans is to better match the needs of
each customer according to their usage patterns while also accommodating those
customers considered as heavy Internet users. See "Item 4. Information on the
Company -- Regulatory Framework -- Regulation of Tariffs." Local usage, monthly
rent and domestic long distance tariffs expressed in nominal bolivars were
increased by approximately 20%, international long distance rates were increased
by 12.8% and local public telephone service charges were increased by
approximately 22%.

The Agreement was arrived at following the delays in tariff approvals
in 1999 and the commencement of a preliminary proceeding in contemplation of a
legal action by CANTV against the Government for breach of the Concession. The
Agreement concluded a mandated eighth year review required under the Concession
and resolved the differences outstanding between CANTV and CONATEL relating to
the definition of goals and measures of service mandates and methodologies. In
effect, the Agreement retained for the Company the most significant rights
provided for under the Concession. The Agreement included (i) a significant
rebalancing between long distance tariffs and local tariffs, and between
non-residential and residential tariffs; (ii) a definitive ruling on tariffs and
adjustments based on an agreed projected devaluation of the bolivar against the
U.S. dollar during 2000; (iii) quality and service mandates including the
elimination of the service expansion mandate and the introduction of a new 80%
digitalization by the year end 2000 mandate; (iv) the introduction of new tariff
plans including a fixed prepaid plan and optional plans which CANTV may
introduce without CONATEL's prior approval and which, in the case of certain
optional plans, CANTV may offer with higher basic rent and free minutes up to an
$80 maximum; and (v) CANTV's agreement to refrain from taking any action,
judicial or administrative, as a result of the failure by the Government to
approve tariffs during 1999, provided that the Government met the terms and
obligations pursuant to the Agreement.

Prior to entering into the Agreement with CONATEL relating to rates for 2000,
CANTV's rates were regulated under the Concession. The Concession had provided
for a "price-cap" mechanism to set and adjust rates on a quarterly basis
throughout each calendar year. The price-cap mechanism was designed to vary
quarterly based on the WPI. Although in principle tariffs were to be adjusted to
reflect inflation of preceding quarter, tariffs were, in practice, generally
calculated based upon rates of inflation during the second preceding quarter.
The delay was due to the time period required by CONATEL to calculate the
inflation rate during a specific quarter. Accordingly, in many instances tariffs
were

implemented based on inflation levels relating to periods ending as much as six
months preceding their implementation date.

The increase in CANTV's tariffs did not, in all cases, fully offset the
effects of inflation used in preparing the Company's financial statements since
the rate of inflation used in preparing the Company's financial statements is
based on the CPI which, at times, significantly exceeded the rate of inflation
as measured by the WPI. Further, the price-cap mechanism was not always
implemented as described in the Concession. CONATEL sometimes delayed the
approval of rate increases or did not allow the full tariff increases allowed by
the Concession's price-cap mechanism. In other cases, the Company decided not to
implement the full increase authorized for competitive or other reasons. In
1998, all four tariff increases were approved with minimal delay. In the first
three quarters of 1998, CANTV did not increase domestic long distance rates by
the full amount permitted as a result of competitive pricing strategies. In
March 1999, CONATEL approved a tariff increase, which became effective on April
30, 1999. At the request of CONATEL, CANTV agreed not to implement the rate
increase permitted pursuant to this authorization for basic residential rent.
CANTV was unable to obtain approval to increase its tariffs as stipulated in the
Concession following CANTV's rate increase effective on April 30, 1999. In
February 2000, CONATEL and the Company entered into the Agreement which allowed
CANTV to increase rates in 2000. The first tariff increase became effective on
March 23, 2000 and the second tariff increase became effective on June 16, 2000.
The Agreement is more fully described under "Item 4. Information on the Company
-- Regulatory Framework -- Regulation and the Concession -- The Agreement."

The Agreement advanced the rebalancing process, between long distance
tariffs and local tariffs, by reducing outgoing international long distance
weighted average rates by approximately 35%. Under the terms of the Agreement,
outgoing international long distance rates were decreased in some cases by 68%,
depending on the country. Domestic long distance rates were combined into one
nationwide plan with a weighted average rate of $0.1875 per minute.

The Agreement provided an extraordinary adjustment mechanism for
certain of CANTV's tariffs in the event that actual exchange rates, as defined
in the Agreement, deviate materially from the agreed projected exchange rates
set forth in the Agreement. Under the Agreement, the variance between projected
exchange rates and actual exchange rates was measured at the end of each month.
If such variance in exchange rates exceeded a certain percentage, CANTV could
adjust its tariffs to partially account for this variance subject to a maximum
cumulative adjustment. CONATEL was required to authorize and approve all
extraordinary adjustments. The Agreement also allowed CANTV to provide discounts
on its domestic long distance and international long distance rates subject to
certain limitations. During 2000 and 2001, the rates measured at the end of each
month agreed with the projected rates under the Agreement and no extraordinary
adjustments were necessary.

The New Telecommunications Law enacted on June 12, 2000, provides the
general legal framework for the provision and regulation of telecommunications
services in Venezuela with the stated objectives of establishing the conditions
for fair competition between operators and service providers, setting the rules
on tariffs and interconnection, developing and modernizing the
telecommunications systems, and at the same time obtaining and establishing
universal service objectives. The New Telecommunications Law respects all
previously conferred rights and duties, including obligations under
interconnection agreements among operators, and provides for the deregulation of
tariffs and an equitable tax regime. See "Item 4. Information on the Company --
Regulatory Framework -- Amendments to the Regulatory Framework."

The New Telecommunications Law established CONATEL as an independent
regulatory body charged with overseeing the implementation of regulations
pursuant to the established framework for a new competitive market. Under the
New Telecommunications Law telecommunications services providers are free to set
their own rates unless there is insufficient competition, at which point certain
telecommunications services must be subject to tariffs regulation. In this case
CONATEL may subject any telecommunications service to price regulation through
the application of a tariff-setting system. CONATEL is regulating CANTV's
tariffs under the new tariff-setting system until there is meaningful
competition, this system replaced the tariff adjustment mechanism provided under
the Agreement.

The New Telecommunications Law and the Regulations for Basic Telephony
Services provide additional obligations for operators, such as, the installation
of a new signaling system for interconnections based on the SS7 protocol and the
installation of the minimum equivalent of 3% of lines in use, in public
telephones. In addition, as the established operator, CANTV is also subject to
more demanding interconnection requirements, and may be subject to greater
universal service obligations and quality and service standards to be determined
under the new regulatory framework.

Summary of Operations

The Company provides substantially all of its services in Venezuela and
substantially all of its operating revenues are derived from Venezuelan
domiciled customers and from settlements with international carriers for calls
completed in Venezuela. The Company's operating revenues are derived from
domestic telephone services, including public telephones and rural telephone
services, and from international telephone services, wireless services,
directory information services, Internet access, data transmission, and other
value-added services.

Local and domestic long distance services generate the largest portion
of the Company's operating revenues, representing 27.0%, 25.5% and 23.6% of the
Company's total operating revenues for the years ended December 31, 1999, 2000
and 2001, respectively. Revenues from local and domestic long distance services
depend on the number of access lines in service, utilization of the network as
measured by minutes of use or by seconds of use, the rates charged by the
Company to its customers and the number and availability of public telephones.
Revenue from public telephones is generated by utilization measured by minutes
of usage.

The Extended Local Area Service, which expands the local calling area
to better serve community calling patterns, will cause certain traffic currently
classified as domestic long distance to be redefined as local. This change is
effective as of January 1, 2002. As a result of this change, the Company expects
approximately 10% to 12% of minutes currently classified as domestic long
distance to be classified as local traffic.

In October 2001, the Company changed its method to report and book
interconnection revenues and cost. The Company presents the revenue derived from
fixed to mobile calls and the revenue received from mobile to fixed calls
separately. The fixed to mobile revenue is labeled as "Fixed to Mobile -
outgoing" in the statements of operation. Under the "calling party pays" concept
in Venezuela, when the wireline customer makes a fixed to mobile call, he pays
the Company a rate to terminate the call on the cellular network. Previously
this revenue was reported net of the interconnection cost under local or
national long distance revenue, depending on the destination. Mobile to fixed
call revenue is now separated and shown under "Interconnection incoming" in the
statement of operations. This revenue consists of charges paid by other
operators for connection to the Company's network. Previously this revenue was
reported under local or national long distance revenue, depending on the
termination destination. The Company believes that this change better
illustrates the dynamics of interconnection

revenues and costs under the recently implemented interconnection regime, and
makes the financial statements more transparent. The effect of this change is to
increase reported revenues and expenses compared to the prior method. Results
for all prior periods included in the financial statements have been restated to
reflect this change in presentation. Under the previous method, revenues for the
full year 2001 would have been $2.6 billion versus $3 billion under the new
method. The EBITDA margin under the old reporting method would have been 47%
versus 41%, under the new methodology. This change in reporting has no effect on
net income, cash flow, or taxes paid.

The Company previously recognized the sales of prepaid public telephone
cards as revenue at the time of sale. To better align itself with industry
practice and as a result of the availability of a more improved public telephone
monitoring system and database, the Company recognizes such revenue based on
card usage and has restated all periods to reflect this change.

International long distance services generated 8.2%, 6.1% and 5.4% of
the Company's total operating revenues for the years ended December 31, 1999,
2000 and 2001, respectively. International long distance revenues are generated
by outbound traffic billed to the consumer market at local regulated rates and
the settlement with international carriers for traffic to/from Venezuela from/to
foreign countries at rates which are subject to the approval of the local
regulator and the respective foreign agency. Revenues are generally collected by
the originating carrier and shared with the terminating carrier through
international agreements. Revenues from international long distance services
depend on the volume of traffic, the rates charged by the Company to its
customers and the settlement rates agreed with each foreign carrier. In recent
years, certain international operators, including operators in the United
States, have reduced settlement rates. In 1997, the United States Federal
Communications Commission adopted a "report and order" that has significantly
reduced international long distance telephone rates by setting new, lower
benchmarks in international settlement rates. This order took effect on January
1, 1998 until December 31, 2001. The accounting rate as of December 31, 2001
between the United States and Venezuela was $0.38 per minute.

The following table sets forth the Company's negotiated accounting
rates per minute with U.S. international carriers for the period 1999 through
December 2001:

Rate in $
Period (per minute)
------------------------------------ -----------------

January to June 1999 0.74
July to December 1999 0.64
January to June 2000 0.54
July to December 2000 0.46
January to December 2001 0.38

Despite these negotiated accounting rates, most agreements signed with
foreign carriers include accounting rates based on the volume of traffic.

Due to the current imbalance between the Company's outgoing and
incoming international call volumes, the reduction in settlement rates paid to
the Company has had, and may continue to have, a negative effect on the
Company's revenues from international long distance services. See "Item 4.
Information on the Company -- Business Overview -- International Long Distance
Services."

Revenues from other wireline-related services consist of
interconnection facilities charges, data transmission services, including VPN,
VSAT and Frame Relay, late payment charges, reconnect fees and miscellaneous
charges.

Revenues from wireless services comprised 14.8%, 14.1% and 17.9% of the
Company's total operating revenues for the years ended December 31, 1999, 2000
and 2001, respectively. Revenues from wireless services consist primarily of
charges paid to the Company for calls terminating on its network
(interconnection facilities revenue), monthly service fees, usage charges,
revenues from equipment sales, and activation fees. Revenues from wireless
services depend on the number of cellular subscribers, utilization of the
network as measured by minutes of use and rates charged by the Company to its
customers. Usage charges are based on a "calling party pays" principle under
which the Company's wireless customers are charged only for calls they
originate. The Company charges a usage fee to customers, other than Movilnet's
customers, accessing the Company's wireless network.

Revenues from other telecommunications-related services primarily
include Internet-related services and directory information services.
Internet-related services include Internet access via dial-up or dedicated
channels and network administration outsourcing. The Company earns directory
information services revenues from sales of advertising space in its printed
White Pages and Yellow Pages, sales of information from its database, and
electronic dissemination of information. Revenue is recognized based on the
point-of-publication method.

The Company's operating expenses consist of a provision for
uncollectibles, operations, maintenance, repairs and administrative expenses,
depreciation and amortization, interconnection cost and concession and other
operating taxes. Additionally, operating expenses include a nonrecurring charge
for 1999 and 2000, a special charge for 2000 and pension and post-retirement
plan special termination benefits for 2001.

The provision for uncollectibles is an estimate that reflects the
anticipated loss due to uncollectibles accounts receivable. The provision for
uncollectibles comprised 5.2%, 3.6% and 2.9% of the Company's total operating
revenues for the years ended December 31, 1999, 2000, and 2001, respectively.

The Company's operations, maintenance, repairs and administrative
expenses represented 38.8%, 40.5% and 37.2% of the Company's operating revenues
for the years ended December 31, 1999, 2000 and 2001, respectively. The
Company's operations, maintenance, repairs and administrative expenses for the
year ended December 31, 2001 are comprised of salaries (15.6%), labor benefits
(24.8%), contractors (22.2%), materials (12.2%) and other expenses (25.1%). Such
expenses depend on the number of employees, changes in wages and benefits
negotiated in collective bargaining agreements, pension plan assumptions,
employee productivity and procurement efficiencies together with other factors.
As a result of productivity improvements, the Company has been able to reduce
the number of its employees, from 14,769 at December 31, 1999 to 10,227 at
December 31, 2001, while simultaneously expanding its business. At May 31, 2002
the Company had 10,383 employees.

During 2001, CANTV decreased its workforce by approximately 3,752
employees as a result of a workforce reduction program, which only covered
wireline employees and eliminated primarily administrative positions. This
program was implemented to eliminate non-strategic activities and associated
costs after a thorough review of business processes that were not consistent
with CANTV's competitive and growth objectives. The program ended on January 19,
2001. Employees terminated under this program received additional severance
benefits based on the number of years of service with CANTV from 30 to 90 basic
monthly salary payments. Employees who were eligible for early retirement
received a six to twelve-month basic salary severance payment in addition to a
25% increase in their monthly pension. This program resulted in a special
one-time charge of Bs. 123,948 million included as current accrued employee
benefits and recognized as a special charge in the Company's results of
operation in 2000. In addition, during 2001, the Company recognized
approximately Bs. 36.1 billion in the statement of operations for the pension
and postretirement plan special termination benefits, related to the

effect associated with this employee reduction program. See "Item 4. Information
on the Company." In 2001, CANTV's subsidiaries increased their combined work
force by approximately 49 employees due to the growth of the wireless and
Internet businesses. CANTV entered into labor agreement with FETRATEL on
September 3, 1999, which terminated on June 17, 2001. The Company is currently
in negotiations with FETRATEL concerning a new collective bargaining agreement.
Although FETRATEL has recently threatened to call a strike, the Company expects
to finalize a new labor agreement in July 2002. See "Item 6. Directors, Senior
Management and Employees -- Employees."

Depreciation and amortization expense recognizes utilization of the
Company's telecommunications network and other long-lived assets. Depreciation
expense is dependent on the book value of telecommunications plant and equipment
and other assets as well as the periods used to depreciate and amortize such
assets.

Interconnection cost refers to all traffic from CANTV's network to
other operators' network, including traffic from fixed to mobile, traffic from
fixed to fixed and all traffic from Movilnet's network to other operator's
network, including traffic from mobile to mobile and from mobile to fixed.

Concession and other operating taxes consist primarily of amounts due
to the Government under the various concession agreements. The amount of
concession and other taxes is generally assessed based on a percentage of
billings. See "Item 4. Information on the Company -- Regulatory Framework."

Other income expense, net consists of net foreign exchange gain or
loss, loss from net monetary position, interest income and interest expense and
other income (expense), net. Foreign exchange gain or loss represents the impact
of devaluation of the bolivar on the Company's net holdings of net monetary
liabilities denominated in U.S. dollars and other foreign currencies. During
2001, the Company sustained a foreign exchange gain due to higher short-term
investments in foreign currencies. The Company had at December 31, 2001 a net
liability position in foreign currency of $156 million, which includes $66
million denominated in Japanese yen. The gain or loss from a net monetary
position represents the gain or loss resulting from a monetary denominated net
liability or net asset position during an inflationary period.

The income tax provision is determined in accordance with Venezuelan
income tax regulations. Under these regulations, the Company is subject to tax
on its net taxable income calculated on a historical cost basis with an
adjustment for inflation with respect to the Company's non-monetary assets and
liabilities, net of stockholders' equity. Venezuelan income tax currently is
calculated at a maximum rate of 34% of taxable income. The Venezuelan
legislation provided an investment tax credit of up to 20% on the amount of new
investments through December 31, 1999 in fixed assets that have not been used
previously in the country. Unused investment tax credits can be carried forward
up to three economic periods from the year when each arose. The Venezuelan
Income Tax Law (the "Income Tax Law") authorizes the carry forward of
non-compensated losses up to three years subsequent to the period in which they
were incurred. The business asset tax results from applying a 1% rate to the net
average amount of non-monetary assets adjusted for inflation and monetary assets
devalued for inflation. The amount payable is the greater of the business asset
tax and the income tax for the period. In case of tax losses, such tax can be
carried forward up to three subsequent years from the period in which such tax
loss originated.

On October 22, 1999, the Government published a Partial Reform to the
Income Tax Law. The most significant changes are as follows:

. Implementation of a transfer pricing regime for imports and exports
of goods and services between related companies.

. Losses from adjustments for inflation may be carried forward up
to one period.

. Investment tax credits for fixed assets of 10% of the amount of
new investments, for industrial companies, to be applied for five
years from the effective date of the Amended Law.

. A new regime that taxes worldwide income to individuals or
companies residing or domiciled in Venezuela. It also allows a
credit for income taxes paid abroad.

. A proportional tax on dividends to be introduced based on the
excess of book over taxable income. This excess will be taxed at
34%, and that amount is proportionally applied to the dividends
to be paid.

On December 28, 2001, the Government published, in the Extraordinary
Official Gazette No. 5,566, Law No. 71, including the Amendment of the Income
Tax Law. This Amendment does not allow the imputation of foreign losses to
domestic income or losses and establishes that the financial income to be
considered shall be that approved by the Shareholders' Assembly on the basis of
the consolidated financial statements and a 1% advance tax shall be paid in case
of dividends declared. Additionally, it eliminates the provision for
non-deductibility of expenses in cases where the income tax withholding agents
do not comply with their special income tax withholding duties. See Note 19 to
the Audited Financial Statements. A convention for the avoidance of double
taxation (the "Tax Treaty") between the United States and Venezuela also became
effective on January 1, 2000.

In the normal course of business and as limited by applicable debt
agreements, the Company enters into transactions with certain of its
stockholders and their respective affiliates. Transactions with related parties
are at arms-length and subject to conditions similar to transactions with
independent third parties. See Note 20 to the Audited Financial Statements and
"Item 7. Major Shareholders and Related Party Transactions-- Related Party
Transactions."

Key Data for the Years Ended December 31, 1999, 2000 and 2001

The following table sets forth key data of the Company for the years
ended December 31, 1999, 2000 and 2001, and presents each amount as a percentage
change from the prior year:

Year Ended December 31,
--------------------------------------------------------------
% %
increase increase
(decrease) (decrease)
from prior from prior
1999 2000 year 2001 year
--------- --------- ----- --------- --------

Lines:
Lines installed 3,546,538 3,074,506 (13.3) 3,093,110 0.6
Percent digital 68.5% 80.0% N/A 80.5% N/A
Access lines in service:
Residential 1,870,859 1,892,801 1.2 1,970,161 4.1
Commercial 634,969 627,785 (1.1) 621,369 (1.0)
Public telephones 80,033 85,016 6.2 87,748 3.2
ADSL -- 4,473 100.0 17,884 299.8
--------- --------- ----- --------- --------
2,585,861 2,610,075 0.9 2,697,162 3.3

Utilization ratio 75% 84% N/A 87% N/A
Access lines per 100 inhabitants 10.8 10.7 (0.9) 10.9 1.9
Access lines per CANTV employee 218 236 8.3 369 56.4

Call Volume (1):
Local unbundled minutes (billed):
Residential 7,171 7,212 0.6 5,888 (18.4)
Commercial 4,076 4,195 2.9 3,950 (5.8)
Public telephones 1,416 1,335 (5.7) 1,194 (10.6)
Telecommunications Centers -- 31 100.0 77 148.4
--------- --------- ----- --------- --------
12,663 12,773 0.9 11,109 (13.0)

Local bundled minutes consumed:
Residential 1,781 1,953 9.7 3,206 64.2
Commercial -- -- 0.0 125 100.0
--------- --------- ----- --------- --------
1,781 1,953 9.7 3,331 70.6
--------- --------- ----- --------- --------

Total bundled and unbundled minutes 14,444 14,726 1.95 14,440 (1.9)

Domestic long distance:
Residential 766 719 (6.1) 522 (27.4)
Night and weekends -- 35 100.0 866 2,374.3
Commercial 903 859 (4.8) 780 (9.2)
Public telephones 462 345 (25.3) 501 45.2
Telecommunications Centers -- 27 100.0 59 118.5
--------- --------- ----- --------- --------
2,131 1,985 (6.9) 2,728 37.4

International:
Incoming minutes 312 367 17.6 340 (7.4)
Outgoing minutes 163 188 15.3 215 14.4
--------- --------- ----- --------- --------
Net settlement minutes 149 179 20.1 125 (30.2)
Incoming/outgoing ratio 1.91 1.95 N/A 1.58 N/A
Outgoing minutes charged to customers 160 192 20.0 223 16.1

Interconnection
Local Fixed to mobile
Residential 531 584 10.0 556 (4.8)
Commercial 662 820 23.9 719 (12.3)
Public telephones 168 214 27.4 298 39.3
--------- --------- ----- --------- --------
1,361 1,618 18.9 1,573 (2.8)
DLD Fixed to mobile
Residential 115 135 17.4 166 23.0
Commercial 162 205 26.5 231 12.7
Public telephones 72 143 98.6 211 47.6
--------- --------- ----- --------- --------
349 483 38.4 608 25.9

Local Mobile to Fixed 1,198 1,274 6.3 953 (25.2)
DLD Mobile to Fixed 220 324 47.3 271 (16.4)

Total Employees:
CANTV 11,851 11,076 (6.5) 7,302 (34.1)
Other 2,918 2,876 (1.4) 2,925 1.7
--------- --------- ----- --------- --------
Total 14,769 13,952 (5.5) 10,227 (26.7)

Year Ended December 31,
-------------------------------------------------------------
% %
increase increase
(decrease) (decrease)
from prior from prior
1999 2000 year 2001 year
----------- ----------- ------------ -------- ------------

Wireless Services:
Wireless subscribers:
Postpaid 314,933 207,134 (34.2) 207,216 0.0
Prepaid 866,340 1,498,856 73.0 2,254,285 50.4
--------- ---------- ----- --------- ----
Total 1,181,273 1,705,990 44.4 2,461,501 44.3

Percent digital:
Handset 97% 99% 2.1 99% 0.0
Voice path 61% 67% 9.8 70% 4.5

Average wireless subscribers 910,190 1,443,632 58.6 2,083,746 44.3

Minutes of use (1)
Postpaid 788 689 (12.6) 703 2.0
Prepaid 537 868 61.6 1,424 64.1
--------- ---------- ----- --------- ----
1,325 1,557 17.6 2,127 36.6

Minutes of use outgoing (collect) 595 964 62.0 1,189 23.3

Minutes of use incoming:
Fixed to mobile - 400 100.0 747 86.8
Mobile to mobile - 193 100.0 192 (0.5)
--------- ---------- ----- --------- ----
- 593 100.0 939 58.3

% Penetration (2) 4.9% 7.0% N/A 9.9% N/A

Average Monthly Revenue per User ("ARPU") (3) 53.0 39.5 (25.5) 30.1 (23.8)

Internet Services
Internet subscribers 86,671 113,226 30.6 145,218 28.3
User 167,048 283,065 69.5 363,045 28.3
Market share subscribers 39.4% 47.0% 19.3 53.0% 12.8

Financial Statistics:
Average interest rates 8.26% 9.07% 9.8 9.61% 6.0
Average outstanding borrowings 378,858 391,237 3.3 371,195 5.1

Economic Statistics:
Increase in the CPI 20% 13% (35.0) 12% (7.7)
Increase in the WPI 14% 16% 14.3 10% (37.5)
Exchange rate at the end of year 649.25 700.00 49.2 758.00 8.3

------------------

(1) Represents billed minutes of use, excluding free minutes included in
certain of the Company's tariff plans, in millions of minutes.
(2) Customers per total population.
(3) In U.S. dollars.

Results of Operations for the Years Ended December 31, 1999, 2000 and 2001

The following table sets forth the results of operations of the Company
for the years ended December 31, 1999, 2000 and 2001, expressed in millions of
constant bolivars as of December 31, 2001, and presents each amount as a
percentage of total operating revenues, and as a percentage change from the
prior year:

Year Ended December 31,
---------------------------------------------------------------------------------------------
(millions of constant bolivars as of December 31, 2001, except per share and per ADS data)
---------------------------------------------------------------------------------------------
1999 2000 2001
----------------------- --------------------------------- -----------------------------------
% %
% of % of increase % of increase
total total (decrease) total (decrease)
operating operating from operating from
Bs. revenues Bs. revenues prior year Bs. revenues prior year
---------- ------------ ----------- ---------- ---------- ----------- ----------- -----------

Operating revenues:
Local usage 320,617 12.9 344,472 14.4 7.4 294,309 12.9 (14.6)
Domestic long distance usage 353,632 14.2 265,660 11.1 (24.9) 243,398 10.7 (8.4)
Basic rent (1) 407,216 16.3 354,980 14.9 (12.8) 346,364 15.2 (2.4)
--------- ----- --------- ----- ----- --------- ----- ------
Local and domestic long
distance 1,081,465 43.3 965,112 40.4 (10.8) 884,071 38.7 (8.4)
International long distance 169,576 6.8 112,541 4.7 (33.6) 103,042 4.5 (8.4)
Net settlements 35,683 1.4 32,981 1.4 (7.6) 19,797 0.9 (40.0)
--------- ----- --------- ----- ----- --------- ----- ------
International long distance 205,259 8.2 145,522 6.1 (29.1) 122,839 5.4 (15.6)
Fixed to mobile--outgoing (6) 567,975 22.8 674,031 28.2 18.7 569,494 24.9 (15.5)
Interconnection incoming (6) 40,224 1.6 59,407 2.5 47.7 37,001 1.6 (37.7)
Other wireline-related
services (2) 182,402 7.3 156,912 6.6 (14.0) 204,612 9.0 30.4
--------- ----- --------- ----- ----- --------- ----- ------
Total wireline services 2,077,325 83.3 2,000,984 83.8 (3.7) 1,818,017 79.6 (9.1)
Wireless services 368,466 14.8 335,707 14.1 (8.9) 409,413 17.9 22.0
Other telecommunications-
related services (3) 49,242 2.0 51,859 2.2 5.3 55,596 2.4 7.2
--------- ----- --------- ----- ----- --------- ----- ------
Total operating revenues 2,495,033 100.0 2,388,550 100.0 (4.3) 2,283,026 100.0 (4.4)
Operating expenses:
Provision for uncollectibles 128,767 5.2 85,909 3.6 (33.3) 65,800 2.9 (23.4)
Operations, maintenance,
repairs and administrative 968,385 38.8 967,376 40.5 (0.1) 849,887 37.2 (12.1)
Depreciation and amortization 748,509 30.0 692,457 29.0 (7.5) 756,366 33.1 9.2
Interconnection cost (6) 309,263 12.4 339,261 14.2 9.7 286,500 12.5 (15.6)
Concession and other taxes 157,411 6.3 155,391 6.5 (1.3) 141,469 6.2 (9.0)
Pension and post-retirement
plan special termination
benefits - 0.0 - 0.0 0.0 36,109 1.6 100.0
Special charge (4) - 0.0 123,948 5.2 100.0 - 0.0 (100.0)
Nonrecurring charge 4,587 0.2 710 0.0 (84.5) - 0.0 0.0
--------- ----- --------- ----- ----- --------- ----- ------
Total operating expenses 2,316,922 92.9 2,365,052 99.0 2.1 2,136,131 93.6 (9.7)
Operating income 178,111 7.1 23,498 1.0 (86.8) 146,895 6.4 525.1
Other expense, net:
Exchange (loss) gain, net (37,875) (1.5) (2,970) (0.1) (92.2) 21,016 0.9 (807.6)
Loss from net monetary
position (7,440) 0.3 (17,790) (0.7) 139.1 (31,327) (1.4) 76.1
Interest income 28,433 1.1 33,390 1.4 17.4 38,205 1.7 14.4
Interest expense (51,453) (2.1) (47,829) (2.0) (7.0) (40,103) (1.8) (16.2)
Gain from indexation of tax
units 14,124 0.6 - 100.0 (100.0) - 0.0 0.0
--------- ----- --------- ----- ----- --------- ----- ------
Financing cost, net (54,211) (2.2) (35,199) (1.5) (35.1) (12,209) (0.5) (65.3)
Other income (expense), net 7,109 0.3 (4,297) (0.2) (160.4) (12,535) (0.5) 191.7
--------- ----- --------- ----- ----- --------- ----- ------
Total other expense, net (47,102) (1.9) (39,496) (1.7) (16.1) (24,744) (1.1) (37.4)
--------- ----- --------- ----- ----- --------- ----- ------
Income (loss) before income
taxes and cumulative
effect of accounting
change, net of tax 131,009 5.3 (15,998) (0.7) (112.2) 122,151 5.4 (863.5)
Income tax provision 17,391 0.7 39,779 1.7 128.7 43,024 1.9 8.2
--------- ----- --------- ----- ----- --------- ----- ------
Income (loss) before
cumulative effect of
accounting change, net of
tax 113,618 4.6 (55,777) (2.3) (149.1) 79,127 3.5 (241.9)
--------- ----- --------- ----- ----- --------- ----- ------
Cumulative effect of
accounting change, net of
tax - 0.0 (45,494) (1.9) (100.0) - 0.0 (100.0)
--------- ----- --------- ----- ----- --------- ----- ------
Net income (loss) 113,618 4.6 (101,271) (4.2) (189.1) 79,127 3.5 (178.1)
========= ===== ========= ===== ===== ========= ===== ======

Year Ended December 31,
---------------------------------------------------------------------------------------------
(millions of constant bolivars as of December 31, 2001, except per share and per ADS data)
---------------------------------------------------------------------------------------------
1999 2000 2001
---------------------- ---------------------------------- -----------------------------------
% %
% of % of increase % of increase
total total (decrease) total (decrease)
operating operating from operating from
Bs. revenues Bs. revenues prior Bs. revenues prior year
year
-------- --------- ------- --------- --------- -------- --------- ----------

Operating income per share 178.13 N/A 24.68 N/A (86.0) 160.64 N/A 551.0
Operating income per ADS 1,246.90 N/A 172.79 N/A (86.0) 1,124.45 N/A 551.0
Income (loss) per share before
cumulative effect of
accounting change 113.63 N/A (58.59) N/A (151.5) 605.70 N/A 247.8
Income (loss) per ADS before
cumulative effect of
accounting change 795.41 N/A (410.14) N/A (151.5) 605.70 N/A 247.8
Net income (loss) per share 113.63 N/A (106.38) N/A (193.5) 86.53 N/A 181.4
Net income (loss) per ADS 795.41 N/A (744.67) N/A (193.5) 605.70 N/A 181.4
Basic net income (loss) per
share (5) 113.63 N/A (106.38) N/A (193.5) 86.53 N/A 181.4
Basic net income (loss) per
ADS (5) 795.41 N/A (744.67) N/A (193.5) 605.70 N/A 181.4

--------------------------------

(1) Includes installation charges.

(2) Includes special services and data revenues.

(3) Includes value-added services, primarily Internet access, and directory
publishing fees.

(4) Workforce reduction program (see additional information in "--Year Ended
December 31, 1999 and 2000 -- Special Charge").

(5) As of December 31, 2001 there were no common stock equivalents having a
dilutive effect on net income per share data.

(6) In October 2001, the Company changed its method to report and book the
interconnection revenues and cost (see additional information in "--Summary
of Operations").

Years Ended December 31, 2000 and 2001

Operating Revenues

Consolidated net operating revenues decreased by Bs. 105.5 billion
(4.4%) in 2001 to Bs. 2,283.0 billion compared with Bs. 2,388.5 billion in 2000,
primarily due to lower local, domestic and international long distance revenues
attributable to a soft economy, the continuing shift of customers to flat rate
plans, fewer postpaid access lines, lower domestic and international long
distance real rates and the significant drop in fixed to mobile end user rates
resulting from the interconnection agreement that came into effect in June 2001.
This decline was partially offset by revenue growth in wireless and Internet
business of 22.0% and 21.7%, respectively, combined with increases in revenues
from data services and other wireline-related services.

For the years ended December 31, 2001 and 2000, 79.6% and 83.8% of
total operating revenues were from wireline services, respectively. Revenues
from wireless communications services and Internet accounted for 17.9% and 1.2%
of total operating revenues for the year ended December 31, 2001, respectively,
and 14.1%, and 1.0% for the year ended December 31, 2000, respectively.

Operating Volumes

The total number of access lines in service increased by 87,086 (3.3%)
to 2,697,162 at December 31, 2001, from 2,610,075 at December 31, 2000. The
increase reflects the success of the prepaid platform combined with fewer
permanent disconnections. In 2001, CANTV permanently disconnected approximately
203,313 residential and commercial lines. During 2001, residential access lines
increased 4.1% and commercial access lines decreased 1.0%. The number of public
telephones in service increased by 3.2% during this same period.

Local billed minutes of use carried by the Company's network decreased
by 1,664 million (13.0%) to 11,109 million billed minutes for the year ended
December 31, 2001, from 12,773 million billed minutes of use for the year ended
December 31, 2000. Residential billed minutes of use decreased by 1,324 million
(18.4%) to 5,888 million from 7,212 million billed minutes for the years ended
December 31, 2001 and 2000, respectively, due to customer migration to higher
bundled minutes plans. Commercial billed minutes of use decreased by 245 million
(5.8%) to 3,950 million from 4,195 million billed minutes, for the years ended
December 31, 2001 and 2000, respectively. The drop in commercial billed minutes
was primarily attributable to customer migration to the flat rate plan for
Internet users and to a decrease in the number of postpaid commercial lines.
Public telephones minutes decreased by 95 million (6.9%) to 1,271 million in
2001, from 1,366 million in 2000, as a consequence of the market penetration of
wireless communications in the Caracas metropolitan and surrounding areas.

Domestic long distance bundled and unbundled minutes increased by 743
million (37.4%) to 2,728 million during 2001 from 1,985 million during 2000.
Residential bundled and unbundled minutes of use increased by 634 million
(84.1%) to 1,388 million for the year ended December 31, 2001 from 754 million
for the year ended December 31, 2000, bundled minutes of use decreased by 197
million (27.4%) and unbundled minutes of use increased 831 million (2,374.3%) as
a consequence of the special flat rate national long distance plan introduced in
November 2000. Approximately 203,924 customers enrolled in the plan and
generated 866 million unbundled minutes by the end of December 2001. Commercial
long distance minutes of use decreased by 79 million (9.2%) to 780 million from
859 million for the years ended December 31, 2001 and 2000, respectively, driven
by a reduction in the number of commercial postpaid customers as well as a
decline in the number of average minutes per commercial line. Public

telephones minutes increased by 188 million (50.5%) to 560 million during 2001
from 372 million of minutes during 2000.

International minutes billed locally to customers in Venezuela
increased by 31 million (16.1%) to 223 million for 2001 as compared to 192
million for 2000. This increase occurred in each of its consumer markets; the
residential sector grew by 22.2%, the commercial sector grew by 9.7% and public
telephones grew by 22.2%. Domestic long distance and international long distance
rates were significantly reduced in March 2000 contributing to the growth in
call volume. In 2001, net settlement minutes with international carriers
decreased by 54 million (30.2%) to 125 million from 179 million in 2000. In
2001, outgoing minutes increased by 27 million (14.4%) while incoming minutes
decreased by 27 million (7.4%). This result is due to the rate decrease for
outgoing calls and promotional discounts in 2001, as well as a decrease in
incoming minutes from Pensat, MCI and Colombia ETB of 29.0, 11.8 and 3.1 million
minutes, respectively. The incoming minutes of use to outgoing minutes of use
ratio, for the year 2001, decreased to 1.58 as compared to 1.95 for 2000.

Local Usage

Local usage revenues decreased by Bs. 50.2 billion (14.6%) to Bs. 294.3
billion in 2001 compared to Bs. 344.5 billion in 2000. This decrease was
primarily attributable to a 13.0% decrease in residential, commercial and public
telephone local billed minutes combined with a decrease in the average local
usage real rate of 1.7%. Total residential billed minutes of use decreased by
1,324 million (18.4%) in 2001 compared with 2000, primarily as a result of
customer migration to higher bundled minute plans. This decline was a
consequence of a real rate increase in residential local usage of 0.7% and the
introduction of a prepaid wireline platform in the fourth quarter of 2000, which
further contributed to this trend. As of the end of 2001, there were
approximately 232,000 prepaid residential lines. The prepaid customer segment is
generally a lower-usage consumer. Contributing to the local usage revenues
decline was a decrease in total commercial billed minutes of use amounting to
245 million (5.8%) in 2001 compared with 2000. Additionally, the real rate in
commercial local usage decreased 3.3%.

One of the Company's strategic objectives is to offer pricing plans
that satisfy each customer's communication needs while also attempting to reduce
cash flow volatility by encouraging customers to migrate to higher bundled
minute plans with a lower variable component. Total residential bundled minutes
of use increased by 1,253 million minutes (64.2%) to 3,206 million minutes in
2001. This growth was primarily the result of the unlimited access to dial up
Internet or voice rate plans. At December 31, 2001, there were 100,450
residential customers using such plans. As a result of this customer migration
to flat rate plans, monthly postpaid residential unbundled minutes of use per
line decreased 13.5% year over year.

Public telephones revenue decreased by Bs. 5.6 billion (16.9%) to Bs.
27.0 billion in 2001 from Bs. 32.6 billion in 2000. This decline was due to a
decrease of 6.9% in public telephone local minutes of use in 2001 as compared to
2000, combined with a real rate decrease of 11.3% during 2001. The growth of
wireless communication continues to reduce the use of public telephones.

Domestic Long Distance Usage

Revenues from domestic long distance usage decreased by Bs. 22.3
billion (8.4%) to Bs. 243.4 billion in 2001 from Bs. 265.7 billion in 2000. This
decline was due to a real rate decline of 14.5%, combined with an unbundled net
volume decrease of 4.5%. This volume reduction was primarily the result of fewer
residential and commercial access lines as well as customers migrating to
bundled flat rate plans.

Total domestic long distance bundled and unbundled minutes increased to
2,728 million minutes at the end of December 31, 2001 compared to December 31,
2000. Residential bundled minutes of use increased by 831 million minutes of use
(2,374.3%) during 2001 and unbundled minutes of use, decreased by 197 million
minutes of use (27.4%) during 2001 compared to the prior year as a result of a
decrease in the number of postpaid subscribers combined with customer migration
to prepaid services and flat rate plans. The unbundled domestic long distance
average minutes of use per residential line decreased by 27.0% compared to the
prior year. Commercial long distance volume decreased by 79 million minutes of
use (9.2%), driven by a reduction in the number of commercial postpaid customers
as well as a decline in the number of average minutes per commercial line.
Average domestic long distance minutes of use per commercial line decreased by
4.7% compared to the prior year.

Approximately 203,924 customers now use "Nights and Weekends" special
flat rate national long distance plan first introduced in November 2000, which
generated Bs. 19.4 billion in revenue and 866 million minutes of use, at the end
of December 2001. This plan provides residential customers unlimited domestic
long-distance calls placed between 9:00 p.m. to 5:59 a.m. during the week and
all day on Saturdays and Sundays, for a monthly fee of Bs. 10,000.

Domestic long distance public telephones revenues increased by Bs. 5.9
billion (11.2%) to Bs. 57.9 billion in 2001 from Bs. 52.0 billion in 2000. This
growth is attributed to an increase of 50.4% in public telephone domestic long
distance minutes of use combined with a real rate decrease of 26.4% in 2001 as
compared to 2000.

Basic Rent

Basic rent revenues include basic monthly flat fees, installation
charges and equipment sales. These revenues decreased by Bs. 8.6 billion (2.4%)
to Bs. 346.4 billion in 2001 compared to Bs. 355.0 billion in 2000, mainly
attributable to a decrease in the installation charges by Bs. 7.7 billion
(38.8%) in 2001 to Bs. 12.2 billion compared with Bs. 19.9 billion in 2000,
largely due to a decline of 29.4% in lines installed that are generating
revenues and 55.9% in equipment sales, during 2001 compared with 2000. The basic
monthly flat fee decreased by Bs. 899 million (0.3%) in 2001 to Bs. 334.2
billion compared with Bs. 335.1 billion in 2000 as a consequence of a decrease
of 3.5% in the average access lines in service that are generating basic rent.

The total number of access lines increased by 87,087 lines (3.3%) to
2.7 million, driven by an increase of approximately 154,000 prepaid lines,
partially offset by a decrease in postpaid subscribers of approximately 82,900
lines. At December 31, 2001 the Company had approximately 254,000 prepaid
customers, of which approximately 167,000 were new customers and 87,000 were
transfers from postpaid plans. The prepaid service option provides the Company
with several benefits, including upfront cash, no billing and collection issues
and utilization of existing network capacity, while increasing teledensity and
offering a wider spectrum of the Venezuelan population access to
telecommunications services.

International Long Distance

Total international long distance revenues decreased by Bs. 22.7
billion (15.6%) to Bs. 122.8 billion in 2001 compared to Bs. 145.5 billion in
2000. Revenues from customer charges billed locally decreased by Bs. 9.5 billion
(8.4%) to Bs. 103.0 billion in 2001 from Bs. 112.5 billion in 2000. This decline
is attributable to a real rate decrease of 24.5% that was partially offset by a
volume increase of 16.1% as a result of lower international rates and the
introduction of a "preferred country" long distance calling plan. This plan
allows the customer to select up to five countries and receive a discount of up
to 20% for calls made to the selected countries.

Net settlement revenue with international carriers decreased by Bs.
13.2 billion (40.0%) in 2001 to Bs. 19.8 billion compared to Bs. 33.0 billion
recorded in 2000. This revenue decline was driven in part by a net volume
decrease of 30.2% due to a reduction in incoming minutes of 7.4% and an increase
of 14.4% in outgoing minutes. The weighted average settlement rate at year-end
was approximately $0.21. The ratio of incoming calls was 1.58 in 2001 compared
to 1.95 in 2000.

The Company's largest international traffic route is between Venezuela
and North America (the United States, Mexico and Canada), which represented
55.6% and 59.4% of the minutes recorded in 2001 and 2000, respectively. The
settlement rates for international traffic between the United States and
Venezuela remained flat during 2001 at $0.38 per minute.

Fixed to Mobile - Outgoing

Under the "calling party pays" concept, wireline customers pay a rate
to terminate a call on a wireless network. The Company records this charge as
revenue under "Fixed to mobile - outgoing." Fixed to mobile revenues decreased
by Bs. 104.5 billion (15.5%) in 2001 compared to 2000. This drop was mainly due
to an anticipated annualized rate reduction of 37.9% or a 17.9% weighted-average
impact for the year in accordance with the new interconnection agreements signed
in June 2001. Consistent with industry trends, the Company expects further fixed
to mobile rate reductions. Also contributing to this revenue reduction were 2.8%
lower outgoing local minutes (45 million minutes) compared to 2000. Partially
offsetting this volume decrease was an increase in outgoing domestic long
distance minutes of 125 million minutes, or a 25.9% increase to 608 million,
compared to 2000. This growth was generated by increases in residential,
commercial and public telephone domestic long distance calls to wireless phones
of 23.0%, 12.7% and 47.6%, respectively.

Local fixed to mobile residential and commercial minutes decreased by
28 million (4.8%) and 101 million (12.3%), respectively. This downtrend is
attributed to the decrease in the number of postpaid lines in service and the
migration to wireless communications (mobile to mobile).

Minutes of local use from a public telephone to a cellular phone
increased by 84 million (39.3%) as compared to the prior year. This growth is
primarily due to a rate decrease of 20.2% compared to 2000.

Customers using a domestic long distance nights and weekends flat rate
plan are not eligible to place cellular calls under the terms of this plan, but
customers using a local flat rate plan are eligible.

Interconnection Incoming

Interconnection incoming revenue consists of charges paid by other
operators for connection to the Company's wireline network, which is recorded as
revenue under Interconnection - incoming.

Interconnection incoming revenue decreased by Bs. 22.4 billion (37.7%)
in 2001 compared to 2000. Incoming minutes of use decreased by 374 million
(23.4%) partially offset by a real rate increase of 1.5%. Local incoming minutes
decreased by 321 million (25.2%) year over year. Domestic long distance
termination minutes decreased by 53 million (16.4%) in the same period. Both the
change in settlement methodology from rounded minutes to seconds and the
popularity of wireless communications (mobile to mobile) caused this decline.

Other Wireline-Related Services

Wireless Services

Wireless service revenues increased by Bs. 73.7 billion (22.0%) to Bs.
409.4 billion compared to Bs. 335.7 billion recorded in 2000, reflecting
continued growth in the prepaid customer base combined with the effect of the
new interconnection agreement signed in 2001.

Growth of 44.3% in the wireless customer base was primarily driven by
the continued success of prepaid services during 2001. The prepaid customer base
grew steadily during 2001, with significant growth (19.8%) occurring in the
fourth quarter. The postpaid customer base ended flat in 2001 at 207,000
subscribers compared with the year ended 2000. In 2001, prepaid subscribers
increased by 50.4%, reaching a total of 2,254,285 customers at December 31,
2001, compared to 1,498,856 prepaid customers at December 31, 2000.

In the second quarter of 2001, Movilnet introduced Mobile Originated
MO Text Messages, which proved to be very popular among customers, generating
594 million messages since its introduction. The Company expects to sign
interconnection agreements with other operators which will have a positive
impact on future revenue generation related to MO services.

Total minutes of use (incoming and outgoing) increased by 570 million
(36.6%) to 2,127 million in 2001 compared to 2000. Approximately 740 million of
these minutes were originated by wireline operations. All revenue generated by
these minutes has been eliminated in the consolidated financial results. Total
minutes from postpaid customers increased by 14 million (2.0%) due to
promotional campaigns targeted to stimulate use. Outgoing postpaid minutes
increased by 25 million (5.0%) offset by a decrease of 11 million incoming
minutes year over year. Prepaid minutes increased by 556 million (64.1%) in 2001
due to prepaid customer growth.

As a result of the expansion in the prepaid customer base, overall
penetration into the potential customer market improved from 7.0% in 2000 to
9.9% in 2001. Partially offsetting the impact of customer growth is the
declining monthly revenue per customer due to expansion in lower-usage

customer segments through prepaid wireless service offerings and the
introduction of more economical postpaid plans.

Interconnection revenue (incoming traffic) grew by Bs. 42.1 billion
primarily due to the new interconnection agreement. Previously, cellular
operators conducted interconnections under a "Bill and Keep" agreement whereas
now calls are settled under the rates established by the new interconnection
agreements. Net interconnection revenues from other operators totaled Bs. 10.0
billion for the period ended December 31, 2001. Revenues from new services, such
as Mobile Originated "MO" Text Messages contributed Bs. 10.3 billion and Bs. 4.5
billion from voicemail which previously was free of charge for prepaid
customers. Also contributing with this revenue increase was Bs. 4.0 billion in
revenue resulting from the growth in prepaid customers using domestic long
distance. Increase in airtime revenue of Bs. 40.8 billion due to a 23.3%
increase in outgoing minutes, partially offset by a 10.9% decrease in weighted
average peak hour real rates, contributed to this revenue growth. This growth
was partially offset by lower monthly access and activation fees resulting from
decreases of 20.6% in the average postpaid subscribers during the year, and
lower average real rates of 36.5% driven by the migration of customers to lower
price plans, and promotional campaigns, which exempted customers from paying
activation fees.

Other Telecommunications-Related Services

Revenues from other telecommunications-related services, including
Internet services and directory publications, increased by Bs. 3.7 billion
(7.2%) to Bs. 55.6 billion in 2001 from Bs. 51.9 billion in 2000.

Internet revenues increased by Bs. 4.9 billion (21.7%) to Bs. 27.4
billion in 2001, due to a 28.3% increase in the subscriber base, which reached
145,218 at year-end 2001. The growth in the subscriber base is due to effective
promotional campaigns, improved connectivity and attractive pricing, and was
attained despite the Company's stricter credit policies. During 2001, the
Company continued offering customers a flat rate plan and the added facility of
using the Company's prepaid cards to access the Internet. Additionally, the
number of users grew in 2001 by 79,980 (28.3%) as compared to 2000.

The Company's broad-band Internet access products showed a strong
growth during 2001, ending with 609 Frame Relay customers and 17,884 ADSL lines
generating revenues, representing a growth of 132% and 299.8%, respectively,
during the year. This increase enhances the Company's leadership in the Internet
broad-band access market.

Revenues from directory service decreased by Bs. 1.2 billion (3.9%) to
Bs. 28.2 billion in 2001 compared to 2000.

Operating Expenses

Total operating expenses decreased by Bs. 229.0 billion (9.7%) to Bs.
2,136.1 billion in 2001 compared to Bs. 2,365.1 billion in 2000. In 2000, the
Company recorded a special charge of Bs. 123.9 billion related to the special
workforce reduction program, which produced savings of Bs. 95.0 billion in labor
costs during 2001.

Uncollectibles expense decreased by Bs. 20.1 billion (23.4%) in 2001.
The decline in uncollectibles expense reflects continuing improvement in cash
collections resulting from a higher quality customer base, the application of
stricter credit policies and the introduction and customer acceptance of prepaid
services. As a result, approximately 203,313 residential and commercial lines
were permanently

disconnected during 2001. Uncollectibles expense, expressed as a percentage of
total operating revenues, amounted to 2.9% for the year ended December 31, 2001.

Operations, maintenance, repairs and administrative expenses decreased
by 12.1% in 2001 to Bs. 849.9 billion compared to Bs. 967.4 billion in 2000. The
decrease is attributed to lower expenses for salaries and labor benefits of
22.2% and 29.8%, respectively, due to a work force reduction plan. On December
29, 2000, the Company announced its intention to consolidate, centralize and
eliminate certain operating and administrative positions during the first
quarter of 2001, through a formal program. As a result of this program, in
January 2001, 3,572 employees were separated from the Company and, in 2000, the
Company recorded a special one-time charge of Bs. 123,948 million included as
current accrued employee benefits and recognized as special charge in the
Company's results of operation in 2000.

Depreciation and amortization expense increased by Bs. 63.9 billion
(9.2%) to Bs. 756.4 billion in 2001 from Bs. 692.5 billion in 2000. This
increase was a result of the depreciation of wireline and wireless capital
investments made particularly in the last quarter of 2000.

Interconnection costs decreased by Bs. 52.8 billion (15.6%) in 2001 to
Bs. 286.5 billion compared to Bs. 339.3 billion in 2000 due to both the change
in measurement to seconds from rounded minutes and the reduction of
interconnection tariffs.

Concession and other non-income taxes decreased by Bs. 13.9 billion
(9.0%) as a result of the reduction in tax rates from 5.5% to 4.8% of gross
wireline revenues, and from 10.0% to 9.3% of gross wireless revenues, in
accordance with the new concession tax rules applicable under the new regulatory
framework which came into effect in January 2001.

In 2000, the Company recorded a loss of Bs. 709 million resulting from
massive floods in Venezuela in late 1999.

Pension and post-retirement plan special termination benefits

In 2001, the Company recorded a one-time charge of Bs. 36.1 billion
resulting from special termination benefits, related to the pension and
post-retirement plans offered under the employee reduction program implemented
in January 2001. The program reduced the Company's wireline employees by 29%.
Under the terms of the program, affected employees with 14 years of service or
more were eligible for retirement and received special pension benefits as well
as post-retirement medical benefits on the same basis as current retirees. On a
going-forward basis, pension expense levels, as compared to the levels of
expense prior to the implementation of the employee reduction program, should be
reduced by an estimated 20 to 25 percent. Post-retirement medical benefit
expense levels will not be materially affected on a going-forward basis.

Other expense, Net

Total other expense, net totaled Bs. 24.7 billion for 2001 compared to
Bs. 39.5 billion for 2000. This decrease was primarily due to an increase in the
exchange gain or loss, as well as a decrease in interest expense resulting from
lower debt and interest rates. Total other expense includes a Bs. 16.3 billion
charge to cover additional administrative expenses incurred in the last quarter
of 2001 in connection with the Third Repurchase Program.

The loss from monetary position increased to Bs. 31.3 billion in 2001
from Bs. 17.8 billion in 2000 as a result of the impact of inflation on a higher
net monetary asset position mainly due to higher short-term investments carried
out in the beginning of the year.

Exchange gain or loss, net increased by Bs. 23.9 billion (807.6%) to
Bs. 21.0 billion gain at December 31, 2001 compared to Bs. 2.9 billion loss at
December 31, 2000. This increase was due to higher short-term investments in
foreign currencies carried out in the beginning of the year.

Interest income increased by Bs. 4.8 billion (14.4%) to Bs. 38.2
billion for 2001 from Bs. 33.4 billion for 2000, due to higher short term or
temporary investments made during 2001. The average investment made during 2001
was approximately Bs. 5.6 billion compared to Bs. 3.1 billion during 2000
slightly offset by lower interest rates earned by the Company during 2001. The
average interest rates for investment denominated in U.S. dollars decreased
approximately 39% from approximately 6.5% during 2000 to 3.9% during 2001. In
December 2001 the investments decreased due to the Third Repurchase Program.

Interest expense decreased by Bs. 7.7 billion (16.2%) to Bs. 40.1
billion in 2001 compared to Bs. 47.8 billion in 2000. This decrease was
primarily the result of a reduction of Bs. 84.4 billion in the Company's
outstanding debt in 2001.

In 2000, the Company recorded a loss of Bs. 709 million resulting from
massive floods in Venezuela in late 1999.

Income Taxes

The Company's income tax provision totaled Bs. 43.0 billion for 2001
compared to Bs. 39.8 billion for 2000. The higher tax expense is mainly due to
higher taxable income.

Taxes in Venezuela are calculated and paid on the basis of historical
bolivar statements, including an inflation adjustment component. The high
effective tax rate is due to the inflation adjusted financials produce a higher
depreciation result than is allowed for tax purposes. As a result, the inflation
adjusted financial statements show a significantly lower taxable income than is
that used in calculating the Company's taxable income and taxes payable.

Cumulative Effect of Accounting Change, Net of Tax

The Company reviewed its revenue recognition polices for prepaid
services and subscriber right fees and changed the way it was accounting for
these services. Subscriber right fees, which are upfront fees paid by consumers
when service is activated, are now classified as a liability on the Company's
balance sheet. The Company believes that the opening of the telecommunications
market to competition where consumers will have a choice of carrier requires a
change in the way of subscriber rights fees. At December 31, 2000 the cumulative
effect of such change, net of tax, was Bs. 38.9 billion. In line with industry
practices and much improved monitoring systems, prepaid card sales will be
recognized as revenue when the customer utilizes the service rather than when
the card is sold. The cumulative effect accounting of this change related to
both the prepaid public telephone card and the prepaid cellular cards, net of
tax was Bs. 6.5 billion in 2000.

Years Ended December 31, 1999 and 2000

Operating Revenues

Consolidated net operating revenues decreased by Bs. 106.5 billion
(4.3%) when compared to 1999. This decrease was due, in part, to the Company's
pricing and rate rebalancing strategy and significant reductions in wireline
domestic long distance and international long distance rates during 2000. These
real rate decreases spurred higher commercial call volumes but did not offset
the decline in prices.

For the years ended December 31, 2000 and 1999, 83.8% and 83.3% of
total operating revenues were from wireline services, respectively. Revenues
from wireless communication services accounted for 14.1% and 14.8% of total
operating revenues for the years ended December 31, 1999 and 2000, respectively.

Operating Volumes

The total number of access lines in service increased by 24,214 (0.9%)
to 2,610,075 at December 31, 2000, from 2,585,861 at December 31, 1999. This
increase reflects the success of the prepaid platform combined with fewer
permanent disconnections. In 2000, CANTV permanently disconnected approximately
337,614 residential and commercial lines. During 2000, residential access lines
increased 1.2% and commercial access lines decreased 1.1%. The number of public
telephones in service increased by 6.2% during this same period.

Local billed minutes of use carried by the Company's network increased
by 110 million (0.9%) to 12,773 million billed minutes for the year ended
December 31, 2000, from 12,663 million billed minutes for the year ended
December 31, 1999. Residential billed minutes of use increased by 41 million
(0.6%) to 7,212 million from 7,171 million billed minutes for the years ended
December 31, 2000 and 1999, respectively. Commercial billed minutes of use
increased by 119 million (2.9%) to 4,195 million from 4,076 million billed
minutes for the years ended December 31, 2000 and 1999, respectively. The growth
in commercial billed minutes occurred throughout 2000, reflecting a healthier
commercial customer base. Also, part of this volume increase is attributed to a
higher demand for Internet service. The growth in Internet usage resulted in the
sale of approximately 76,900 additional residential and commercial access lines
to existing customers compared to approximately 17,498 lines during the same
period in 1999. The introduction of value-added services, such as voicemail,
increased network utilization also contributed to the increase in minutes of
use. Public telephones minutes of use decreased by 50 million (3.7%) to 1,366
million from 1,416 million minutes for the years ended December 31, 2000 and
1999, respectively.

Domestic long distance bundled and unbundled minutes decreased by 146
million (6.9%) to 1,985 million during 2000 from 2,131 million in 1999, while
total unbundled minutes decreased by 8.5% during 2001. Residential bundled and
unbundled minutes of use decreased by 12 million (1.6%) to 754 million from 766
million for the years ended December 31, 2000 and 1999, respectively, as a
result of the new tariff structure which went into effect during the second
quarter of 2000. This new rate structure eliminated one of the off-peak hour
rate plans. To stimulate residential usage the Company introduced, in November
2000, a special flat rate national long distance plan where the customer pays a
fee of approximately Bs. 10,000 per month and is allowed unlimited long distance
calls placed between certain hours. This plan attracted approximately 89,000
customers and generated 35 million bundled minutes by the end of December 2000.
Commercial minutes of use decreased by 44 million (4.9%) to 859 million from 903
million for the years ended December 31, 2000 and 1999, respectively. Public
telephones

minutes of use decreased by 90 million (19.5%) to 372 million from 462 million
for the years ended December 31, 2000 and 1999, respectively.

International minutes billed locally to customers in Venezuela
increased by 32 million (20.0%) to 192 million for 2000 as compared to 160
million for 1999. This increase occurred in both consumer markets; the
residential sector grew by 32% and the commercial sector grew by 9.4%. Domestic
long distance and international long distance rates were significantly reduced
during 2000 contributing to the growth in call volume. In 2000, net settlement
minutes with international carriers increased by 30 million (20.1%) to 179
million from 149 million in 1999. Factors contributing to this volume growth
included competitive pricing by international carriers, which were able to offer
their customers customized packages combined with lower settlement rates that
the carrier must pay the Company for terminating traffic on our network. In
addition, the Company entered into agreements with certain large carriers in
which the settlement rate is reduced based on volume. The ratio of incoming
minutes of use to outgoing minutes of use for the year 2000 increased to 1.95 as
compared to 1.91 for 1999.

Local Usage

Local usage revenues increased by Bs. 23.9 billion (7.4%) to Bs. 344.5
billion in 2000 compared to Bs. 320.6 billion in 1999. This increase was
primarily attributed to a 0.9% increase local billed minutes combined with a
rate increase of 4.7%. Commercial and residential billed minutes of use
increased 2.9% and 0.6%, respectively, in 2000 compared to the prior year.
Billed minutes of use per commercial line increased by 2.9% during the same
period, reflecting an increased demand for Internet services and the effect of a
commercial rate decrease of 4.0%. Total residential billed minutes of use
remained relatively flat during 2000 compared with 1999 primarily as a result of
an increase in the number of customers migrating to the 2,500 free minutes per
month plan targeting Internet customers. In addition, a rate increase in
residential local usage of 10.8% and the introduction of the prepaid wireline
platform in the fourth quarter of 2000 contributed to this trend. As of the end
of 2000, there were approximately 100,000 prepaid residential lines. The prepaid
customer segment is generally a lower-use consumer.

Domestic Long Distance Usage

Revenues from domestic long distance use decreased by Bs. 87.9 billion
(24.9%) to Bs. 265.7 billion in 2000 from Bs. 353.6 billion in 1999. This
decline was due to an unbundled minutes decrease of 8.5%, combined with a rate
decrease of 11.0%.

Total domestic long distance volume decreased to 1,985 million bundled
and unbundled minutes at the end of December 31, 2000 compared to December 31,
1999. Commercial usage volume decline by 44 million minutes of use in 2000
(4.9%) compared to 1999. Residential bundled and unbundled minutes of use
decreased by 12 million minutes of use (1.6%) in 2000 compared to 1999,
primarily as a result of the new tariff structure, which went into effect during
the second quarter of 2000. The new rate structure eliminated one of the most
economical plans as well as one of the off-peak hour rate plans. To stimulate
residential use the Company introduced, in November 2000, a special flat rate
national long distance plan where the customer pays a fee of approximately Bs.
7,500 per month and is allowed unlimited long distance calls placed between
certain hours. Approximately 89,000 customers enrolled in this plan which
generated 35 bundled million minutes at the end of December 2000.

Basic Rent

Basic rent revenues include the basic monthly flat fees, installation
charges and equipment sales. These revenues decreased by Bs. 52.2 billion
(12.8%) to Bs. 355.0 billion in 2000 compared to Bs.

407.2 billion in 1999. The decrease was primarily the result of a reduction of
Bs. 36.4 billion (64.7%) in installation charges to Bs. 19.8 billion in 2000
from Bs. 56.2 billion in 1999, largely due to a decline of 29.9% in lines
installed generating revenues during 2000 compared to 1999. The basic monthly
flat fee decreased by Bs. 15.8 billion (4.5%) in 2000 to Bs. 335.2 billion
compared to Bs. 351.0 billion in 1999. This decrease is attributable to a 2.5%
decline of the average access lines in service and 4.2% decrease in basic
monthly flat fee real rates.

Subscription right fees, which are upfront fees paid by the consumers
when service is activated, were previously recognized as revenues. The opening
of the telecommunications market provides the consumer with a choice of service
provider and the subscriber fee may be refundable. To better align itself with
the industry practice, the Company now recognizes upfront fees as a liability on
the Company's balance sheet, and has restated all fiscal quarters for 2000 to
reflect this change. At December 31, 2000 the cumulative effect of such change,
net of tax, was Bs. 38.9 billion.

International Long Distance

Total international long distance revenues decreased by Bs. 59.8
billion (29.1%) to Bs. 145.5 billion in 2000 compared to Bs. 205.3 billion
recorded in 1999. Revenues from customer charges billed locally decreased by Bs.
57.1 billion (33.6%) to Bs. 112.5 billion in 2000 from Bs. 169.6 billion
recorded in 1999. This decline is attributable to tariff decreases of 41.7% and
32.7% in real and nominal terms, respectively, partially offset by a volume
increase of 20.0%.

Settlement revenue with international carriers decreased by Bs. 2.7
billion (7.6%) in 2000 to Bs. 33.0 billion compared to Bs. 35.7 billion recorded
in 1999. This reduction was the result of a real rate decrease of 20.8%
partially offset by a volume increase of 20.1%. Factors contributing to incoming
traffic growth include competitive pricing by international carriers as well as
lower settlement rates. The ratio of incoming minutes of use to outgoing minutes
of use, for the year ended December 31, 2000 increased to 1.95 times compared to
1.91 times for 1999.

The Company's largest international traffic route is between Venezuela
and North America (the United States, Mexico and Canada), which represented
59.4% and 63.6% of the minutes recorded in 2000 and 1999, respectively. The
settlement rates for international traffic between the United States and
Venezuela decreased to $0.38 per minute during 2000 from $0.64 per minute in
1999.

Fixed to Mobile - Outgoing

Under the "calling party pays" concept, wireline customers pay a rate
to terminate a call on a wireless network and the Company records the charge as
a revenue under "Fixed to mobile - outgoing." Fixed to mobile revenues increased
by Bs. 106.1 million (18.7%) in 2000 compared to 1999. The increase of 18.9% and
of 38.4% in local minutes and domestic long distance minutes of use,
respectively, and an increase in local rate of 0.5%, contributed to this trend.
Local fixed to mobile residential, commercial and public telephone minutes
increased by 53 million (10.0%), 158 million (23.9%) and 46 million (27.4%),
respectively. Outgoing local minutes increased by 258 million and outgoing
domestic long distance minutes increased by 133 million, when compared to the
prior year period. Growth in outgoing domestic long distance minutes was
generated by increases in residential, commercial and public telephone domestic
long distance calls to wireless customers of 17.4%, 26.5% and 98.6%,
respectively.

Customers using domestic long distance nights and weekends flat rate
plan are not eligible to place calls to a cellular telephone under the terms of
this plan, but customers using local flat rate plan are eligible.

Interconnection Incoming

Interconnection incoming revenue consists of charges paid by other
operators for connection to Company's wireline network, which are recorded as
revenue under Interconnection - incoming.

Interconnection incoming revenues increased by Bs. 19.1 billion (47.7%)
in 2000 compared to 1999 due to a growth in incoming minutes of 178 million
(12.6%) combined with a rate increase of 5.5%. Local incoming minutes and
domestic long distance termination minutes increased by 74 million (6.2%) and
104 million (47.5%) year over year.

Other Wireline-Related Services

Other wireline-related service revenues, which include data services,
interconnection facilities charges, reconnection fees, late payment charges and
miscellaneous charges, decreased by Bs. 25.5 billion (14.0%) to Bs. 156.9
billion in 2000 compared to Bs. 182.4 billion in 1999. Revenues from data
transmission services, including Frame Relay, VPN and VSAT services, decreased
by Bs. 16.6 billion (14.0%) in 2000 to Bs. 101.7 billion compared to Bs. 118.3
billion in 1999. The decline in revenues was a result of the Company's strategy
of promoting its packet switching data network, which is more efficient and
economic to both the customer and the Company. This strategy produced a 30%
revenue increase in this kind of packet switching data services, in real terms,
which was more than offset by significant revenue declines in analog and
dedicated circuits. Interconnection facilities revenue declined Bs. 11.2 billion
(60.2%) to 7.4 billion in 2000 compared to Bs. 18.6 billion in 1999 due to a
reduction in the fees that the Company receives from wireless operators. This
decrease was provided for in the interconnection agreement between cellular
operators and CANTV. Other miscellaneous charges increased by Bs. 2.3 billion
(5.1%) to Bs. 47.8 billion compared to Bs. 45.5 billion in 1999 due to growth in
vertical services and a facility rental settlement with a competitor. This
increase was partially offset by the decision not to charge late payment fees to
permanently disconnected wireline customers due to the low probability of
collecting these charges.

Wireless Services

Wireless service revenues decreased by Bs. 32.8 billion (8.9%) to Bs.
335.7 billion compared to Bs. 368.5 billion recorded in 1999, reflecting
customer migration to more economical prepaid plans and the introduction of
billing per second postpaid plans.

Growth of 44.4% in the wireless customer base was primarily driven by
the continued success of prepaid services during 2000. Handset sales declined to
Bs. 30.0 billion (78.0%) during 2000 compared to 1999 as a result of the
Company's decision to outsource sales of handsets to authorized sales agents. In
2000, prepaid subscribers increased by 73.0%, reaching a total of 1,498,856
customers at December 31, 2000, compared to 866,340 prepaid customers at
December 31, 1999. Postpaid customers decreased by 34.2% to 207,134 at December
31, 2000 compared to 314,933 at December 31, 1999 due to customer migration to
more economical prepaid plans, which contributed to a weighted average real rate
decrease in the basic monthly fee and peak hour usage rate of 14.9% and 1.7%,
respectively, at December 31, 2000.

As a result of the expansion of the customer base, overall penetration,
defined as the number of customers as a percentage of the total population,
improved from 4.9% at December 31, 1999 to 7.0% at December 31, 2000. Offsetting
the impact of customer growth is declining monthly revenue per customer due to
the expansion in lower-usage customer segments through prepaid wireless service
offerings and the introduction of more economical postpaid plans, including
billing per second. The introduction of the

prepaid service has generated a reduction in ARPU to $39.5 at December 31, 2000
compared to $53.0 at December 31, 1999.

The decline in access revenue was partially offset by an increase in
airtime revenue of Bs. 64.0 billion (45.7%) resulting from an increase of 17.6%
in total minutes as the customer base increased.

The minutes of use per average postpaid customer increased 31% over
1999 due to the migration of low usage customers to postpaid plans while minutes
of use per prepaid customer decreased by 4.3% in 2000. Generally prepaid plans
are subscribed by users with fewer financial resources than other customer
groups.

Other Telecommunications-Related Services

Revenues from other telecommunications-related services, including
Internet services and directory publications, increased by Bs. 2.6 billion
(5.3%) to Bs. 51.9 billion in 2000 from Bs. 49.2 billion in 1999.

Internet revenues increased by Bs. 4.4 billion (24.2%) to Bs. 22.5
billion in 2000 from Bs. 18.0 billion in 1999, due to a 30.6% increase in the
subscriber base, which reached 113,226 at year-end 2000. The subscriber base
increase was due to effective promotional campaigns, improved connectivity and
attractive pricing. During 2000, the Company offered customers a flat rate plan
and the added facility of using the Company's prepaid card to access the
Internet. Additionally, the number of users grew in 2000 by 116,017 (69.5%) as
compared to 1999. This growth was attained in spite of the Company's stricter
credit policies.

Revenues from directory service, decreased by Bs. 1.8 billion (5.6%) to
Bs. 29.3 billion in 2000 as a result of real decreases.

Operating Expenses

Total operating expenses increased by Bs. 48.1 billion (2.1%) to Bs.
2,365 billion in 2000 compared to Bs. 2,317 billion in 1999. This increase was
due to a special charge recorded in December 2000 related to workforce reduction
and increase in the interconnection cost. See "-- Special Charge." The increase
was partially offset by a reduction in depreciation and amortization and
provision for uncollectibles.

The provision for uncollectibles decreased by Bs. 42.9 billion (33.3%)
to Bs. 85.9 billion in 2000 from Bs. 128.8 billion in 1999. The decrease in
uncollectibles expense reflected improvements in CANTV's collections as
management continued to focus on the application of strong credit policies. As a
result, approximately 337,614 residential and commercial lines were permanently
disconnected during 2000.

Operations, maintenance, repairs and administrative expenses decreased
Bs. 1.0 billion (0.1%) to Bs. 967.4 billion in 2000 from Bs. 968.4 billion in
1999, mainly due to a decrease in materials of Bs. 54.5 billion partially offset
by an increase of miscellaneous of Bs. 63.1 billion, compared to the prior year.

Depreciation and amortization expense decreased by Bs. 56.0 billion
(7.5%) to Bs. 692.4 billion in 2000 from Bs. 748.5 billion in 1999. This
decrease was due to a portion of the Company's wireline network assets reaching
their useful life and the increase in the useful life of a portion of the
cellular real estate infrastructure.

Interconnection costs increased by Bs. 30.0 billion (9.7%) to Bs. 339.3
billion in 2000 from Bs. 309.3 billion in 1999. This increase was due to a real
rate increase of 0.8% and a call volume increase of 22.9%.

Concession and other taxes decreased by Bs. 2.0 billion (1.3%) to Bs.
155.4 billion in 2000 compared to Bs. 157.4 billion in 1999, mainly due to lower
revenues.

During December 1999, massive floods impacted Venezuela. The flooding
caused serious damage to homes and businesses, leaving them without basic
services such as water, power and phone services. In 1999, the Company made an
initial financial assessment of central offices and public telephone plants and
calculated the damage to be approximately Bs. 4.6 billion recorded as a
non-recurring charge. In October 2000, the Company received the final payment of
the total compensation based on actual damages caused by the floods of Bs. 8.9
billion, resulting in a loss in 2000 of Bs. 710 million included in the
statements of operations as a non-recurring charge. Despite the magnitude of the
floods endured, this natural disaster did not have a material impact on its
financial results.

Special Charge

On December 29, 2000 the Company announced that it would record a
special one-time charge of Bs. 123.9 billion related to a workforce reduction
program. This program, which only covered wireline employees, was implemented to
eliminate non-strategic activities and associated costs, after a thorough review
of business processes, that were not consistent with CANTV's competitive and
growth objectives. The program ended on January 19, 2001 and as a result 3,752
employees were terminated. The functions eliminated were, for the most part,
administrative in nature. The Company fully expects that labor and non-labor
related savings associated with this head-count reduction will provide the
Company with a cost structure that can meet competitive pricing pressures as a
new era of full competition begins. See Note 23 to the Audited Financial
Statements.

The effect of the Company's pension and other post-retirement benefits
liability associated with this employee separation program was recognized in
2001 when the separation occurred.

Other expense, Net

Total other expense, net totaled Bs. 39.5 billion net expense for 2000
compared to Bs. 47.1 billion net expense for 1999. This decrease was primarily
due to a decline in the exchange loss, decrease in loss from net monetary
position and a decrease of gain from indexation of tax units.

Exchange loss, net decreased by Bs. 34.9 billion (92.9%) to Bs. 3.0
billion for the year 2000 compared to Bs. 37.9 billion for the year 1999. This
decrease is related to CANTV's Japanese yen-denominated debt and due to the
appreciation of the bolivar against the Japanese yen, combined with higher
dollar denominated temporary investments. Additionally the average foreign
currency denominated net monetary asset position during 2000 increased,
primarily as a result of higher cash balances and temporary investments. This
increase was partially offset by a lower devaluation rate of 7.8% as compared to
14.9% in 1999. The Company's average net monetary position increased from a net
liability position in 1999 of $136 million to a net asset position of $130
million in 2000.

Interest income increased by Bs. 4.9 billion (17.4%) to Bs. 33.4
billion for 2000 from Bs. 28.4 billion for 1999, due to an increase of
approximately 17% of the average interest rate and an increase of approximately
4% of the average investment made during 2000.

Interest expense decreased by Bs. 3.6 billion (7.0%) to Bs. 47.8
billion in 2000 compared to Bs. 51.5 billion in 1999. This decrease was
primarily due to a reduction in the Company's debt of Bs. 57.6 billion in 2000
partially offset by a higher average interest rate during 2000 of 9.07% compared
to 8.26% in 1999.

Income Taxes

The Company's income tax provision increased by Bs. 22.4 billion to Bs.
39.8 billion at December 31, 2000 compared to Bs. 17.4 billion at December 31,
1999. The increase reflects the 2000 reduction of investment tax credit
percentage from 20% to 10% in 2000 and lower capital expenditures.

Cumulative Effect of Accounting Change, Net of Tax

100

Financial Condition, Liquidity and Capital Resources

The following table summarizes cash flow data for the Company for the
years ended December 31, 1999, 2000, and 2001:

Year Ended December 31,

-------------------------------------------------------
1999 (1) 2000 (1) 2001 (1) 2001 (2)
------------ ------------ ------------- -------------

Cash and temporary investments
beginning of the year Bs. 174,439 Bs. 411,487 Bs. 649,726 $ 857

Operating activities:

Net income (loss) 113,618 (101,271) 79,127 104
Adjustments to reconcile net income (loss)
to net cash provided by operating activities 922,591 970,837 877,728 1,158
Changes in current assets and liabilities (45,284) 122,622 (132,889) (175)
Changes in non-current assets and liabilities (13,228) 4,370 (21,079) (28)
------- ------- ------- -----
Net cash provided by operating activities 977,697 996,558 802,887 1,059
------- ------- ------- -----

Investing activities:

Capital expenditures, net of disposals (446,777) (340,304) (205,463) (271)
Acquisition of intangibles 33,454 (27,823) (50,750) (67)
------- ------- ------- -----
Net cash used in investing activities (413,323) (368,127) (256,213) (338)
------- ------- ------- -----

Financing activities:

Proceedings from borrowings - 34,426 - -
Payments of debt (44,363) (58,623) (65,067) (86)
Dividend payments (206,844) (72,013) (287,653) (379)
Repurchase shares (3,413) (240,099) (450,078) (594)
------- ------- ------- -----
Net cash used in financing activities (254,620) (336,309) (802,798) (1,059)
------- ------- ------- -----

Increase (decrease) in cash and temporary
investments before loss in purchasing power
of cash and temporary investments 309,754 292,122 (256,124) (338)
Loss in purchasing power of cash and
temporary investments (72,706) (53,883) (92,127) (121)
------- ------- ------- -----
Increase (decrease) in cash and
temporary investments 237,048 238,239 (348,251) (459)
------- ------- ------- -----

Cash and temporary investments
end of the year 411,487 649,726 301,475 398
======= ======= ======= =====

---------------
(1) Bolivar amounts are in million of constant bolivars as of December 31,
2001.
(2) Bolivar amounts have been translated into millions of U.S. dollars, solely
for the convenience of the reader, at the rate of Bs. 758.00 per $1.00, the
Daily Exchange Rate on December 31, 2001. See "Item 3. Key Information --
Selected Financial Data-- Exchange Rates."

101

Years Ended December 31, 2000 and 2001

Free cash flow (net cash provided by operating activities minus capital
expenditures) decreased by Bs. 58.8 billion in 2001 to Bs. 597.4 billion as
compared to the same period in 2000. This decrease was primarily due to lower
working capital as a result of payments related to work force reduction program.

Net cash provided by operating activities decreased by Bs. 193.7
billion (19.4%) to Bs. 802.9 billion for the year ended December 31, 2001 from
Bs. 996.6 billion for the year ended December 31, 2000 primarily due to a
decrease of accrued employee benefits of Bs. 101.1 billion as a consequence of
the work force reduction program implemented during the first quarter of 2001,
partially offset by an increase of accounts receivable by Bs. 60.9 billion and a
decrease of other current liabilities by Bs. 53.9 billion mainly attributable to
a drop in payable taxes during the year 2000 as a result of a drop in taxable
income.

Capital expenditures decreased by Bs. 134.8 billion (39.6%) to Bs.
205.5 billion in 2001 compared to Bs. 340.3 billion in 2000. During 2001, the
Company reduced its investment program. The reduction in capital expenditures in
2001 from prior years was primarily due to smaller incremental capital
investments made to optimize existing plant facilities compared to greater
investments made in plant facilities in prior years. Capital expenditures made
during the period were for the expansion and continued modernization of the
wireline network and expansion of the wireless and Internet platforms. The
Company funded these expenditures with internally generated funds.

Net cash used in financing activities increased by Bs. 466.5 billion
(138.7%) to Bs. 802.8 billion in 2001 compared to Bs. 336.3 billion in 2000. Net
cash used in financing activities included Bs. 450.1 billion to fund the Third
Repurchase Program at December 31, 2001, Bs. 287.7 billion to make dividend
payments and Bs. 65.1 billion to fund debt payments, all funded with internally
generated funds and existing cash balances.

Years Ended December 31, 1999 and 2000

Free cash flow increased by Bs. 125.3 billion to Bs. 656.3 billion as
compared to the same period a year ago. This increase was due to improved
working capital management combined with lower capital expenditures.

Net cash provided by operating activities decreased by Bs. 18.9 billion
(1.9%) to Bs. 996.6 billion for the year ended December 31, 2000 from Bs. 977.7
billion for the year ended December 31, 1999, primarily due to a decrease of
accounts receivables by Bs. 155.7 billion as a consequence of improvement in the
collection process and a decrease in operating revenues as a consequence of
migration to bundled minutes rate plans and flat rate plans, partially, combined
with an increase of other current liabilities by Bs. 86.3 billion and a decrease
of accounts payable by Bs. 94.9 billion.

Capital expenditures decreased by Bs. 106.5 billion (23.8%) to Bs.
340.3 billion in 2000 compared to Bs. 446.8 billion in 1999. During 2000, the
Company reduced its investment program. The reduction in capital expenditures in
2000 from prior years was primarily due to the smaller incremental capital
investments made to optimize existing plant facilities compared to greater
investments made in plant facilities in prior years. Capital expenditures in
2000 were also affected by the continued reduction in the price of new
technologies. Capital expenditures made during the period were for the expansion
and continued modernization of its wireline network and expansion of its
wireless and Internet platforms. The Company funded these expenditures with
internally generated funds.

102

Net cash used in financing activities increased by Bs. 81.7 billion
(32.1%) to Bs. 336.3 billion in 2000 compared to Bs. 254.6 billion in 1999. Net
cash used in financing activities included Bs. 240.1 billion to fund the share
repurchase program at December 31, 2000, Bs. 72.0 billion to make dividend
payments and Bs. 58.6 billion thousands to fund debt payments, all funded with
internally generated funds.

Research and Development

The Company, through its business units, performs multiple market
studies to develop new products and services and to remain competitive.
Additionally, the Company upgrades its systems to adapt the network to the new
technological requirements of new products and services. These activities are
not classified as research and development expenses by the Company. The Company
conducts no other research and development activities.

Liquidity and Capital Resources

As of December 31, 2001, the Company's current assets totaled Bs. 812.5
billion, a decrease of Bs. 395.9 billion (32.8%) compared to Bs. 1,208.4 billion
at December 31, 2000. The Company's current liabilities totaled Bs. 946.8
billion at December 31, 2001, an increase of Bs. 70.9 billion (8.1%) compared to
Bs. 875.9 billion at December 31, 2000. As a result, the Company's working
capital ratio decreased to 0.9 at December 31, 2001, from 1.4 at December 31,
2000. This drop is attributable to the reduction in cash balances used to fund
extraordinary dividend payments and the Third Repurchase Program. See "Item 4.
Information on the Company-- History." Management believes that the Company's
working capital is sufficient to meet actual requirements.

Accounts receivable from Government entities decreased by Bs. 17.5
billion (15.2%) during the year, to Bs. 97.9 billion at December 31, 2001 from
Bs. 115.4 billion at December 31, 2000. CANTV has strengthened and restructured
its Government collections group, and is coordinating efforts with appropriate
Government entities in order to facilitate the collection of current and future
Government receivables. On November 3, 1999, the Venezuelan Congress passed a
law authorizing the issuance of bonds to refinance external and internal debts,
as well as other past-due obligations. During 2000, CANTV received a payment of
Bs. 34.1 billion related to the Government's bond issuance, and in 2001, the
National Assembly approved a decree authorizing the issuance of bonds for the
payment of basic services. The amount set aside for payments of debt owed CANTV
in the period 1996-2000 amounted to Bs. 43.3 billion. During 2001, the Company
collected Bs. 6.6 billion. During the first quarter of year 2002, the Company
received from the Government a payment of approximately Bs. 23.5 billion from a
bond issued by the Government related to the amount outstanding at December 31,
2001. The Company still faces uncertainty regarding the timing of collections
from Government entities. See "Item 3. Key Information -- Risk Factors," "Item
4. Information on the Company -- Billing" and Note 9 to the Audited Financial
Statements.

During 2001, the Company reduced its total debt obligations by Bs. 84.4
billion (18.9%). As of December 31, 2001, the Company's outstanding indebtedness
totaled Bs. 361.2 billion, with Bs. 133.1 billion classified as short-term, as
compared to total debt of Bs. 445.6 billion with Bs. 62.3 billion classified as
short-term debt at December 31, 2000. The Company continues to maintain a strong
capital structure as evidenced by a 13.3% debt-to-equity position at December
31, 2001. Management believes that this capital structure will enable the
Company to confront the potential impact of deterioration in the Venezuelan
economic outlook. The current outstanding debt of the Company is primarily
denominated in U.S. dollars with some debt denominated in Japanese yen. As of
December 31, 2001, the principal amount of short-term debt outstanding was Bs.
133.1 billion and the principal amount of long term debt

103

outstanding was Bs. 151.5 billion. See Note 12 and 13 to the Audited Financial
Statements. The total debt of the Company is comprised of bank loans and bonds
denominated in U.S. dollar, Japanese yen and Venezuelan bolivars. At December
31, 2001, the debt denominated in Japanese yen had average maturity dates of
eight years and average interest rates of 5.8%. At December 31, 2000, the debt
denominated in Venezuelan bolivars had maturity dates between two and nine years
and average interest rates between 23.3% and 25.7%. The notes payable in U.S.
dollars have maturity dates between one and six years and average interest rates
between 3.7% and 9.3%. See "Item 11. Quantitative and Qualitative Disclosures
About Market Risk."

On June 7, 1996, CANTV entered into an agreement with the International
Finance Corporation the ("IFC Facility"). Pursuant to the IFC Facility, CANTV
obtained loan commitments of $261 million, of which $175 million was disbursed.
Of the amount disbursed, $75 million was used in CANTV's modernization and
expansion program as mandated by the Concession and for certain other capital
expenditures. The remaining $100 million represents the conversion of certain
debt outstanding into longer term debt. In March 1998, CANTV paid $150 million
of the debt outstanding under the IFC Facility with the proceeds from the sale
of variable interest rate notes issued by CANTV Finance Ltd., a wholly-owned
subsidiary of CANTV, which are unconditionally and irrevocably guaranteed as to
payment of principal and interest by CANTV. The principal on the remaining loan
is payable as a single payment of $25 million in 2005. The interest rate on this
loan is based on LIBOR plus a margin and an additional amount of up to 3% based
on CANTV's annual net income equivalent in U.S. dollars.

Under the IFC Facility, CANTV may pay dividends only if it is current
with respect to its semi-annual payments. In addition, CANTV is required to meet
certain financial ratios, including a long-term debt-to-equity ratio, a current
ratio and a fixed charge coverage ratio, each as defined by the agreement. CANTV
was in compliance with these covenants as of December 31, 2001.

Movilnet has a line of credit of Bs. 1,996 million at December 31, 2001
with AB Svensk Exporkredit, which is guaranteed by CANTV, and the Swedish Export
Credits Guarantee Board "E.K.N." The interest rate on this line of credit is
based on LIBOR plus 0.25%. Movilnet paid financing insurance premiums to
("E.K.N.") of Bs. 4,846 million in 2001. These premiums are recorded as deferred
charges and are being amortized over 102 months, under the terms of the loan
agreement. As of December 31, 2001 and 2000, accumulated amortization amounts
were Bs. 4,424 million and Bs. 3,856 million, respectively. Under this line of
credit, the operating assets of Movilnet cannot be pledged in connection with
any present or future debt that could have a significant impact on the capacity
of Movilnet to comply with its obligations pursuant the terms of this line of
credit; and the obligation of the lender to grant and maintain the line of
credit will terminate if the applicable laws and regulations are amended to make
such negative pledges illegal.

At December 31, 2001 Movilnet's loans from the International Finance
Corporation were Bs. 50.2 billion. The interest rates on these loans are based
on LIBOR rate at six months plus 1.75% and 2%, and mature in 2005 and 2007.
Under these agreements, Movilnet may pay dividends provided if it is current
with its semiannual payments and in compliance with certain financial ratios
including a long-term debt ratio. As of December 31, 2001, Movilnet was in
compliance with all of the covenants under this loan agreement.

The Company's debt agreements have standard default clauses that
provide for acceleration of payment of principal and interest and other clauses
including Compliance with Statutes, Maintenance of Corporate Franchises,
Governmental Approvals, Maintenance of Property and others. All three agreements
have cross-default clauses.

104

Devaluation of the bolivar against the U.S. dollar was 14.9%, 7.8% and
8.3% for the years ended December 31, 1999, 2000 and 2001, respectively. The
devaluation of the bolivar against U.S. dollar and other foreign currencies
resulted in a net exchange gain or loss for the Company of Bs. 37.9 billion
loss, Bs. 3.0 billion loss and Bs. 21.0 billion gain for the years ended
December 31, 1999, 2000 and 2001, respectively. The deterioration of fiscal
accounts and increasing political and legal instability, sustained capital
flight and the erosion of the foreign reserves as of December 2001, forced the
Government to announce, on February 12, 2002, that the bolivar would float
freely. Under this new exchange rate policy, the reference rate for the Central
Bank of Venezuela was Bs. 1,132.25 per U.S. dollar at May 31, 2002. The currency
devalued 49.4% from December 31, 2001 to May 31, 2002, and the Company believes
that the currency may depreciate further in 2002.

Net exchange gains or losses are included in the "Financing cost, net"
caption in the consolidated statements of operations in Note 17 to the Audited
Financial Statements and represent the additional or fewer Venezuelan bolivars
that the Company requires to settle its U.S. dollar and other foreign currency
denominated net liabilities. Despite continued devaluation of the bolivar
against the U.S. dollar, the bolivar remains overvalued relative to the U.S.
dollar, which will have the negative effect of reducing demand for domestic
products both abroad and in Venezuela. This situation explains the dynamism in
the demand for imports despite the moderate expansion of the economic activity.
In the event of a strong future decline in the value of the bolivar relative to
the U.S. dollar and other foreign currencies, as occurred in 1999, 2002, 2001
and the first half of 2002, the Company's results of operations and
stockholders' equity could be adversely impacted by additional exchange losses.
If reductions in the value of the bolivar against the U.S. dollar were to
continue to decline substantially, the Company's consolidated net income and
stockholders' equity, in certain circumstances, would be greatly diminished when
expressed in U.S. dollars, and the market price and liquidity of, or the return
on an investment in, the ADSs and the Class D Shares could also be adversely
affected. See "Item 3. Key Information" and "Item 11. Quantitative and
Qualitative Disclosures About Market Risk." Substantially all of the Company's
revenues are denominated in bolivars while a substantial majority of its capital
expenditures and liabilities have been and are expected to continue to be
denominated in U.S. dollars. Although the Company continually reviews
opportunities to minimize its exposure to devaluation maintaining 80% of its
cash denominated is U.S. dollar, the Company currently does not engage in
hedging activities, as there is no substantial organized market for financial
instruments and derivatives in Venezuela.

During 2001, the Company continued generating strong cash flows due to
strong working capital management combined with lower capital expenditures.
While there is no assurance that current liquidity levels can be maintained in
the future, operating cash inflows are expected to continue to be strong based
on the Company's growth strategies and continued demand for telecommunications
services in Venezuela.

The Company has met its liquidity requirements in recent years with
cash flows from operations and proceeds from borrowings. The Company mainly uses
the borrowings for the purchase of equipment through supplier financing
arrangements. During 2001, the Company did not undertake new borrowings. The
Company expects to meet its capital requirements from internal funds and
short-term bank loans in the near term. Based on market conditions, the Company
will consider a number of financing options to meet its capital requirements for
the long term including bank loans and equity and debt issuance.

The Company has significant capital expenditures and net liabilities
denominated in U.S. dollars and other foreign currencies and expects this to
continue in the future. The expansion and modernization of the Company's
telecommunications network and the introduction of new services since
privatization have required significant capital expenditures, which have totaled
over $5.1 billion from January 1, 1992 to December 31, 2001. These capital
expenditures and improvements have been financed through operating cash flow and
debt denominated in U.S. dollars and Japanese yen. At December 31, 2001, the

105

Company had debts outstanding of $434 million denominated in U.S. dollars and
Japanese yen. Although the Company continually reviews opportunities to minimize
its exposure to devaluation, the Company currently does not engage in hedging
activities, as there is no substantial organized market for financial
instruments and derivatives in Venezuela.

The Company's capital expenditures for 2002 are estimated to be $440
million, with approximately $208 million dedicated to the wireline business,
$186 million to the wireless business, $12 million to Internet and directory
information services and $34 million for other. The growth in the capital
expenditure program for 2002 compared with expenditure provisions made during
2001 is attributable to the change in the Movilnet's network technology, from
TDMA to CDMA2000, which is expected to be completed in the third quarter of
2002. The Company is prepared to reduce the capital expenditures program further
if economic conditions warrant. Capital expenditures are expected to drop to
lower levels in the 2003 to 2006 planning periods. Based on its current working
capital surplus, the Company believes that it will generate sufficient cash from
operations to fund anticipated capital expenditures.

The Venezuelan Commercial Code, Capital Markets Law and some
regulations issued by the CNV regulate the Company's ability to pay dividends.
In addition, some of the Company's debt agreements provide for certain
restrictions, which limit the ability of the Company to pay cash dividends. See
Note 16 to the Audited Financial Statements. The Commercial Code establishes
that dividends shall be paid solely out of "liquid and collected earnings," and
the Capital Markets Law mandates that the Company distribute every year among
its shareholders no less than 50% of its net annual income, assessed on a
non-consolidated basis and without reflecting its share in the net income of its
subsidiaries. Companies may exceed the minimum income limit established by the
Capital Markets Law and declare dividends in excess of net annual income.
However, at the general Shareholders' Assembly held on March 22, 2002 the
Company declared cash dividends to shareholders of record as of May 24, 2002,
from liquid and collected earnings of prior years of Bs. 41.6 per share ($0.05)
or Bs. 291.2 per ADS ($0.32). The Capital Markets Law also provides that at
least 25% of such 50% shall be paid to the shareholders in cash. However, if the
Company has accumulated losses, any net income shall initially be applied to
offset such deficit. Until 1996, net income for this purpose was computed as the
lesser of (i) net income according to historical figures or (ii) net income
according to inflation adjusted figures. However, in May 1997, the CNV modified
its regulations and provided that inflation adjusted net income would be the
sole basis for the calculation of dividend payments. The requirements of the
Capital Markets Law are subject to the provisions of the Commercial Code, that
is, dividends are required to be paid out of "liquid and collected earnings."

In October 1998, a new Capital Markets Law was passed. One of the
principal changes is that dividends must be declared in a Shareholders' Assembly
during which the shareholders determine the amount, form, and frequency of the
dividend payment, and that dividend policies must be stated in the company's
by-laws. The CNV cannot exempt a company with publicly traded securities from
paying the minimum dividends required by the Capital Markets Law. See Note 16 to
the Audited Financial Statements for a discussion of additional changes under
the new law.

Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS 141 and 142 entitled, "Business
Combinations" and "Goodwill and other Intangible Assets", respectively. SFAS
141, among other things, eliminates the pooling of interests method of
accounting for business combinations entered into after June 30, 2001. The
Company did not engage in any business combination during 2001. With the
adoption of SFAS 141, goodwill will no longer subject to amortization over its
estimated useful life, but rather it will be subject to at least an annual
assessment for impairment by applying a fair-value-based test. Additionally,
negative goodwill will be recognized as an extraordinary gain at the time of the
business combination.

106

SFAS 142 is effective for financial statements of fiscal years beginning after
December 15, 2001, and the Company plans to adopt these new standards in 2002.
CANTV does not expect the adoption of SFAS 141 and 142 to have a significant
impact on the Company's consolidated financial statements.

In June 2001, the FASB issued SFAS 143 entitled "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 is effective for
financial statements of fiscal years beginning after June 15, 2002 and the
Company plans to adopt this new standard in 2003. CANTV expects that the
adoption of SFAS 143 will not have a significant impact on the Company's
consolidated financial position, results of operations or cash flows.

In August 2001, FASB issued SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 will be effective for financial
statements of fiscal years beginning after December 15, 2001, and the Company
plans to adopt this new standard in 2002. SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," although it retains the fundamental provisions of SFAS 121.
SFAS 144 also expands the scope of discontinued operations presentation to a
component of an entity and eliminates the exception to consolidation for a
temporarily controlled subsidiary. CANTV does not expect the adoption of SFAS
144 to have a significant impact on the Company's consolidated financial
statements.

Cautionary Statement Regarding Forward-Looking Statements

The Company is making forward-looking statements in this Form 20-F
based on the Company's estimates and assumptions which are subject to certain
risks and uncertainties. These forward-looking statements include information
concerning possible or assumed future results of operations of the Company. For
each of these statements, the Company claims the protection of the safe harbor
for forward-looking statements contained in the U.S. Private Securities
Litigation Reform Act of 1995. The future results of the Company could be
affected by subsequent events and could differ materially from those expressed
in the forward-looking statements depending on a variety of factors discussed in
"Item 5. Operating and Financial Review and Prospects" and elsewhere in this
Form 20-F, including factors set forth in "Item 3. Key Information -- Risk
Factors." 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.

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Item 6. Directors, Senior Management and Employees

Directors

CANTV is managed by its Board of Directors which, in accordance with
its By-laws, consists of the President of CANTV and eight other principal
directors, each of whom will have an alternate to act in his or her absence.
The members of the Board of Directors are elected at the annual shareholder
meeting. Until January 1, 2001, the President and the four principal directors,
who comprise a majority of the Board of Directors, were elected by VenWorld, as
holder of the Class A Shares, and two principal directors were elected by the
Government, as holder of the Class B Shares. After January 1, 2001, VenWorld, no
longer has special voting rights and, it will vote its shares, together with
Class D Shares. Also, after January 1, 2001, the Government has the right to
elect only one principal director so long as it continues to own at least one
Class B Share. Holders of Class C Shares have the right, voting as a separate
class, to elect two directors provided such shares represent at least 8% of
CANTV's share capital and will have the right to elect only one director
provided such shares represent at least 3% of the equity share capital of CANTV.
Holders of Class D Shares have the right, voting together with all other holders
of the equity capital of CANTV, to elect any director not elected by the
Government or holders of Class C Shares voting as separate classes.

Beginning on December 4, 2000, VenWorld shareholders had the right to
have their shares redeemed. The redemption of VenWorld shares enabled a
shareholder to receive its pro rata portion of CANTV Class A Shares held by
VenWorld, provided that the remaining VenWorld shareholders would not exercise a
right of first refusal set forth in VenWorld's by-laws. If the right of first
refusal were exercised, the redeeming shareholder would receive cash for its
CANTV Class A Shares. All Class A Shares transferred to an entity other than
Verizon, Telefonica Internacional, Banco Mercantil, C.A. or their respective
affiliates will be, pursuant to CANTV's By-laws, automatically converted into
Class D Shares. During 2001, AT&T, Electricidad de Caracas and more than 150 of
the CIMA trust beneficiaries requested the redemption of their shares. As of
December 31, 2001, only Verizon, Telefonica Internacional and Banco Mercantil,
C.A., as successor to CIMA, individually and as trustee, remained as VenWorld
shareholders As a result of this share redemption, VenWorld's ownership in CANTV
decreased from 43.19% at December 31, 2000 to 32.95% at December 31, 2001.

In addition, pursuant to regulation adopted by the CNV any individual
or group composed of holders of Class A Shares and/or holders of Class D Shares
may be entitled to proportional representation on the Board of Directors,
provided such individual or group holds at least 20% of CANTV's issued and

108

outstanding capital stock and meet certain other conditions. The entire Board of
Directors, and their respective alternates, are elected annually, and serve
until each respective successor is elected and takes office. Directors may be
removed and replaced in the same manner they were designated prior to the end of
their term by the same class or classes of stockholders who designated them as
directors. Until a vacancy is filled, the respective alternate fills temporary
and permanent absences of the principal director. CANTV's By-laws require that
the Board of Directors meet at least once every three months. A quorum at any
meeting of the Board of Directors is five members.

CANTV's current directors are:

Current Position And PresentPrincipal
Name First Appointed Current Term Ends Occupation or Employment
--------------------------------- --------------- ----------------- -------------------------------------

Elected by all shares voting as a
single class:

President-
Gustavo Roosen June 1995 March 2003 President, Chairman and Chief Executive
Officer, CANTV
Alternate President-
Steven E. Zipperstein March 2002 March 2003 Senior Vice President and Deputy General
CounselVerizon Communications Inc.

Directors-
Fares F. Salloum March 1998 March 2003 President International - The Americas,
Verizon Communications Inc.

Terry W. Lewis March 2002 March 2003 Group Senior Vice PresidentBusiness Services
and SupportVerizon Communications Inc.

Howard M. Svigals March 2001 March 2003 Group Vice President Finance, International
-The Americas, Verizon Communications Inc.

Manuel Costa Marques March 2002 March 2003 Head of Strategic Planning, M&A and Corporate Finance,
Telefonica Internacional, S.A.

Ricardo Hausmann March 2002 March 2003 Professor of Economic Development at Harvard
University

Alternate Directors-
Alfred C. Giammarino March 2001 March 2003 Senior Vice President & CFO, - Information
Services and International, Verizon
Communications Inc.

Ruben G. Perlmutter March 2001 March 2003 Associate General Counsel - Americas, Verizon
Communications Inc.

Luis Esteban Palacios December 1991 March 2003 Palacios, Ortega & Asociados, Partner

Arminio Borjas March 2001 March 2003 Mendoza, Palacios, Acedo, Borjas & Asociados,
Partner
German Garcia Velutini March 2001 March 2003 PresidentVencred, S.A.

109

Elected by the Government
as holder of Class B Shares:

Director-
Alberto Maman March 2001 March 2003 Engineering Consultant of Telecommunications

Alternate Director-
Cesar Quintini Rosales March 2001 March 2003 Engineering and Management Consultant

Elected by CANTV Employees
and Retirees as holders
of Class C Shares:

Directors-
Yelitza Garcia March 2001 March 2003 Coordinator to CANTV's Retirees
Luis Parra March 2001 March 2003 General Secretary of FETRAJUPTEL

Alternate Directors-
Ubaldo Suniaga March 2000 March 2003 Technician in Telecommunications, CANTV
Igor Lira March 2002 March 2003 Technician in Telecommunications, CANTV

----------------------------------------------------------------------------------------------------------------------------

Executive Officers

Until January 1, 2001, the President of CANTV was selected by VenWorld,
as the holder of Class A Shares. Since January 1, 2001, holders of all shares
voting as a single class are entitled to elect the President. All other
executive officers of CANTV are appointed by the Board of Directors and hold
office at the discretion of the Board.

The Company's current executive officers are:

Current Position
Name Position Held Since
-------------------------------- --------------------------------------------------- ----------------------

Gustavo Roosen President, Chairman and June 1995
June 1995
Chief Executive Officer, CANTV

Vicente Llatas Executive Vice President and Chief Operating May 1998
Officer

Bernardo Fischer (1) Manager, Communications and External January 2001
Relations
Arnaldo Slavick (1) Manager, Planning October 2000

Francisco Palma General Manager, General Counsel February 2002

Regulo Carpio General Manager, Information Systems September 1999

Kathleen de lzaguirre General Manager, Network March 1998

Luis de Leon General Manager, Shared Services July 1994

Eloina Perez Di Giacomo (2) General Manager, Regulatory Affairs April 2000

Pedro Gonzalez General Manager, Human Resources June 1998

Armando R. Yanes General Manager, Chief Financial Officer July 2000

Miguel Benatuil President, CANTV.Net April 1997

Guillermo Olaizola (3) President, Movilnet January 1996

---------------
(1) Acting General Manager in charge.
(2) Ms. Eloina Perez was acting as General Manager, Regulatory Affairs
beginning April 2000 and was appointed on a permanent basis in January
2001.
(3) Mr. Olaizola resigned as President of Movilnet in June 2002.

110

Set forth below is additional biographical information concerning
certain Company's directors and executive officers:

Gustavo Roosen, President, Chairman and Chief Executive Officer, CANTV.
Mr. Roosen has been the President, Chairman and Chief Executive Officer since
June 1995. He was President of Petroleos de Venezuela S.A. from 1992 to March
1994. He served as President of the Junta Interventora del Banco Latino (the
Government-created committee charged with reorganizing Banco Latino) since March
1994, Special Commissioner for the Reform of the National Financial System since
April 1994 and has served and continues to serve on the boards of directors of
many Venezuelan companies, including Envases Venezolanos, S.A.

Steven E. Zipperstein, Senior Vice President and Deputy General Counsel
of Verizon Communications Inc. Mr. Zipperstein was Vice President and Deputy
General Counsel for GTE Service Corporation since August 1999. In 1997, he
joined GTE and served as Assistant Vice President and Associate General Counsel
for GTE's west areas. Previously, Mr. Zipperstein served as Chief Assistant
United States Attorney in Los Angeles from 1987. He also served in Washington
D.C. as Counsel to the Assistant Attorney General for the Justice Department's
Criminal Division.

Fares F. Salloum, President International - The Americas, Verizon
Communications Inc. Mr. Salloum has held his current position since July 2000.
Mr. Salloum has been Chairman of the Board of Directors of Grupo Iusacell, S.A.
de C.V. since August 2000, and also serves as a member of the Board of Directors
of Telus Corporation, Codetel C.A. and Telecomunicaciones de Puerto Rico, Inc.
Prior thereto Mr. Salloum was senior Vice President - International Operations
for GTE Corporation beginning in June 1997. From 1995 until June 1997 he served
as Executive Vice President - Communication Services for BC Telecom, Inc.

Terry W. Lewis, Group Senior Vice President - Business Services and
Support for Verizon Communications Inc. Mr. Lewis was President of GTE
Telecommunication Services Inc. since July 1997. He was also Vice President
-Marketing and Product Management for GTE wireless. Mr. Lewis joined GTE in
1979. He serves on the boards of the Cellular Telecommunications Industry
Association.

Howard M. Svigals, Group Vice President, Finance International, The
Americas, Verizon Communications Inc. Before assuming his current position, Mr.
Svigals was Vice President - Finance and Planning, responsible for providing
financial and planning support for GTE's international activities. Mr. Svigals
began his career with GTE in 1977. From 1977 to 1989, he held various positions
including Director - Strategic Financial Plan Development for Telephone
Operations; Director - Capital Markets for GTE; and Vice President and General
Manager of GTE Finance Corp. From 1989 to 1995, Mr. Svigals held various
positions in GTE Spacenet Corp., including that of Vice President and General
Manager. In December 1994, Svigals was named Vice President - Planning and
Development for GTE Wireless. Mr. Svigals also serves on the Board of Directors
of the Telecomunicaciones de Puerto Rico, Inc.; Grupo Iusacell, S.A. de C.V. and
CTI Holdings, S.A.

Manuel Costa Marques, Head of Strategic Planning, M&A and Corporate
Finance for Telefonica Internacional, S.A. Mr. Costa has primarily worked for
Telefonica International, S.A. and other companies of the Telefonica's Group
such as Telefonica Data, S.A. and Emergia NV, and currently is a board member of
these companies.

Ricardo Hausmann, Professor of the Practice of Economic Development at
Harvard University. Previously, he served as the first Chief Economist of the
Inter-American Development Bank from 1994 to 2000. He has served as Minister of
Planning of Venezuela from 1992 to 1993, and member of the Board

111

of the Central Bank of Venezuela. He also served as Chairman of the
International Monetary Fund - World Bank Development Committee. Mr. Hausmann was
Professor of economics at the Instituto de Estudios Superiores de Administracion
(IESA) from 1985 to 1991 in Venezuela.

Alberto Maman, Engineer and Consultant of Telecommunications. Prior to
serving at CANTV's Board of Directors, Mr. Maman was Director of Planning at
INELECTRA from 1992 until 1998. Prior thereto, he served as consultant to
CONATEL from 1991 to 1992 and a consultant to the Government in connection with
the privatization of CANTV from 1989 until 1991.

Alfred C. Giammarino, Senior Vice President and Chief Financial Officer
- Information Services and International, Verizon Communications Inc.
Previously, he had served as Senior Vice President - International Finance,
Planning and Business Development for GTE since July 1998. Prior thereto, he had
served as Vice President - International Finance and Planning since 1997 and
prior thereto, as Vice President -Finance since 1995. Mr. Giammarino is a member
of the board of directors of Telecomunicaciones de Puerto Rico Inc., Grupo:
Iusacell, S.A. de C.V., and FLAG Telecom (UK).

Ruben G. Perlmutter, Associate General Counsel, Americas - Verizon
Communications Inc. Mr. Perlmutter has held his current position since September
2000. From February 1997 through April 2001, Mr. Perlmutter served as an
executive officer of Grupo Iusacell, S.A. de C.V., as Senior Vice President,
Mergers and Acquisitions, and General Counsel from May 2000 through May 2001,
and as Vice President, Mergers and Acquisitions, and General Counsel from
February 1997 through April 2000. From November 1993 until February 1997, Mr.
Perlmutter was employed by Bell Atlantic Network Services, Inc. in its mergers
and acquisitions legal group based in Philadelphia, PA. Mr. Perlmutter is an
alternate member of the Board of Directors of each of Grupo Iusacell, S.A. de
C.V. and CANTV.

Luis Esteban Palacios, Partner of Palacios, Ortega & Asociados. Mr.
Palacios is currently Director of Scout Foundation, alternate Director of Banco
Mercantil C.A. and legal advisor to IBM in Venezuela and was alternate Director
of VenWorld until its liquidation among others. Mr. Palacios has held several
positions as legal counsel, including subsecretary to the Board of Directors of
the Colegio de Abogados del Distrito Federal and President of Montepio de
Abogados de Venezuela.

Arminio Borjas, Partner of Mendoza, Palacias, Acedo, Borjas &
Asociados. Prior to his current position, Mr. Borjas taught law at the
Universidad Catolica Andres Bello.

German Garcia Velutini, President of Vencred, S.A., Venezolana de
Bienes, S.A. and Valores Vencred, S.A. Mr. Garcia is member of the board of
Banco Venezolano de Credito, S.A. since 1984.

Cesar Quintini Rosales, Engineer and Management Consultant. Mr.
Quintini has been a consultant to various Venezuelan private and government
entities, including the Ministry of Energy and Mines and C.A. Energia Electrica
de Venezuela. Mr. Quintini is a member of the Board of Directors of C.A. Energia
Electrica de Venezuela and C.A. Energia Electrica de la Costa Oriental.

Vicente Llatas, Executive Vice President and Chief Operating Officer,
CANTV. Mr. Llatas has been Executive Vice President and Chief Operating Officer
since May 1998. Currently, Mr. Llatas serves as director of the
Venezuelan-Japanese Chamber of Commerce and is a member of the Engineering
Association. He is also a Vice President of the Venezuelan-Spanish Chamber of
Commerce, and of the Venezuelan Executive Association (AVEX). He was appointed
Vice President of Bitumenes Orinoco, S.A. (BITOR), a subsidiary of Petroleos de
Venezuela, S.A., in 1988 and Supply Coordinator of Petroleos de Venezuela S.A.,
in 1990. In 1994, he was appointed Vice President of Lagoven, a subsidiary of
Petroleos de Venezuela, S.A., and in September 1997 became President of Lagoven
until accepting his current position at CANTV.

112

Bernardo Fisher, Manager, Communications and External Relations (in
charge). Mr. Fisher has served as General Manager of CANTV, Communications and
External Relations (in charge) since January 2001. Prior to that time, Mr.
Fisher served as External Communication Manager of CANTV since 1992. Mr. Fisher
also worked in various positions at El Nacional, a leading Venezuelan daily
newspaper. Mr. Fisher received a Bachelor of Arts degree in Communications from
Universidad Catolica Andres Bello in Venezuela in 1976.

Arnaldo Slavick, Manager, Planning (in charge). Mr. Slavick has served
as General Manager of CANTV, Planning (in charge) since October 2000. Prior to
that time, Mr. Slavick served as Planning Manager of CANTV since 1997. Prior to
that time, Mr. Slavick served as Assistant Project Manager at Andersen
Consulting Puerto Rico since 1994 to 1996. He also served in various positions
at Baker & McKenzie and the Company in their respective offices in Venezuela and
the UK.

Francisco Palma, General Manager, General Counsel. Mr. Palma has served
as acting General Manager of CANTV, since February 2001. Mr. Palma has been an
international partner of Baker & McKenzie since 1979. Prior thereto, Mr. Palma
worked as Director of Administration at Envases Venezolanos from 1973 to 1975;
and from 1966 to 1973 as Counsel and Industrial Relation Manager at Union
Carbide of Venezuela.

Regulo Carpio, General Manager, Information Systems. Mr. Carpio has
served as General Manager of CANTV Information Systems since September 1999.
Prior thereto, Mr. Carpio served as Manager in CANTV 2000 Project since January
1998. From 1985 to 1989 he served as Consultant for Krygier, Morales y Asociados
(former representation of Arthur Andersen) and from 1989 to 1994 also served as
Systems Manager at Industrias Savoy.

Kathleen de Izaguirre, General Manager, Network. Ms. Izaguirre has
served as General Manager of CANTV, Network, since March 1998. Prior to such
time, Ms. Izaguirre served as Executive Vice President, Planning and Technology
and Corporate Realignment, since June 1997 and as Executive Vice President,
Planning and Technology since July 1996. She has also occupied various
managerial positions at CANTV and Venezolana de Cementos C.A.

Luis de Leon, General Manager, Shared Services. Mr. de Leon has served
as General Manager of CANTV, Shared Services, since July 1994. Prior thereto, he
served at Cerveceria Polar C.A., a brewery and beer distribution company
incorporated in Venezuela, as Director of Human Resources from 1992 to 1994 and
Director of Operations, from 1986 to 1992.

Eloina Perez Di Giacomo, General Manager, Regulatory Affairs. Mrs.
Perez has served as General Manager of CANTV, Regulatory Affairs, since April
2000. Prior to that time, she served as a consultant for Movilnet, as a legal
consultant to the Ministry of the Secretary of Presidency (1996) and as a legal
consultant to CORDIPLAN. Additionally, she served as a legal consultant to the
Ministry of Transportation and Communications from 1991 to 1993.

Pedro Gonzalez, General Manager, Human Resources. Mr. Gonzalez has
served as General Manager of CANTV, Human Resources, since June 1998. Prior to
that time, he served as Vice President of Human Resources for Movilnet since
December 1995. From 1992 to 1995, he served as the Vice President of Human
Resources for United Distillers of Venezuela, and from 1978 to 1992 as Human
Resources Manager for Warner Lambert in both Venezuela and Argentina.

Armando R. Yanes, General Manager, Chief Financial Officer. Mr. Yanes
was appointed General Manager of CANTV, Chief Financial Officer in July 2000.
Prior to that time he served in

113

various capacities at GTE since 1976. From 1995 to 2000 Mr. Yanes served as
Chief Financial Officer in GTE China and from 1993 to 1995 as Controller in
Compania de Telefonos del Interior (CTI) in Argentina. He also served as
Director - Budget, Plans and Analysis and Corporate Controller in GTE Data
Services, as Manager - Corporate Audit in GTE Service Corporation.

Miguel Benatuil, President, CANTV.Net. Mr. Benatuil was appointed
President of CANTV.Net in April 1997. Since 1983 to 1997 he founded and managed
Infotrol a high-tech enterprise serving the telecommunication and security
markets. Prior to such time, he founded and managed AETI, a Venezuelan supplier
company of data communication systems for industrial applications from 1978 to
1983.

Guillermo Olaizola, President, Movilnet. Mr. Olaizola has served as
President of Movilnet since January 1996. Mr. Olaizola resigned as president of
Movilnet in June 2002. Prior to that, he founded and served as President of the
following companies: Logramsa S.A., GlobalNet C.A., OpenLink C.A. and TRUEnet
C.A., which are engaged in telecommunications related businesses and Fonomet
C.A., which is engaged in the design and manufacture of metal parts for the
electronics industry. He has also served on the Board of Directors of CAFADAE,
AFETEL, CANAEMTE, FUNDAVAC and FARMATODO.

Compensation

For the year ended December 31, 2001, the aggregate amount of compensation
paid by the Company to all principal directors, alternate directors and
executive officers was Bs. 1,923 million ($2.7 million) and the aggregate amount
accrued by the Company to provide pension, retirement or similar benefits for
executive officers, pursuant to existing plans, was Bs. 790.8 million.

Board Practices

Under Venezuelan law, CANTV's Board of Directors owes a duty of loyalty
and care to CANTV. They must exercise the standard of care of a prudent and
diligent businessman and bear the burden of proof of this standard if their
actions are contested. The Board of Directors must consider the interests of
CANTV's shareholders and its workers and, to some extent, the public interest.
Those Directors who violate their duties may be held jointly and severally
liable for any resulting damages, unless their actions were approved by
resolution at a stockholders' meeting. See "Item 10. Additional Information -
Memorandum and Articles of Association" for further information about the Board
of Directors.

The Audit Committee is responsible for assisting in the appointment of
independent auditors to be elected by the annual general meeting of shareholders
and review the scope of external audit services. The Audit Committee also
provides support to the Board of Directors of CANTV in supervising the correct
application of generally accepted accounting principles, reviewing compliance
with internal control systems, reviewing the annual and semi-annual financial
statements of CANTV and maintaining the integrity of the preparation of
individual and consolidated audits. The members of the Audit Committee are
Messrs. Salloum, Svigals, Hausmann, Costa Marquez, Maman and Parra.

114

Employees

At December 31, the Company had 14,769, 13,952 and 10,227 employees for
the years 1999, 2000 and 2001, respectively. At May 31, 2002 the Company had
10,383 employees. The Company's workforce has decreased by 4,790 employees from
15,017 at December 31, 1997 to 10,227 at December 31, 2001, primarily as a
result of the CANTV workforce reduction program of January 2001. Non-CANTV
employees experienced a small increase because of the growth of the Company's
wireless and Internet businesses. In total, the number of employees of the
Company dropped 26.7% in 2001 compared to 2000. CANTV had 369 access lines in
service per employee at December 31, 2001, compared to 203 at December 31, 1997.
At May 31, 2002, CANTV had 362 access lines in service per employee.

On December 29, 2000 the Company announced a workforce reduction
program. This program was implemented after a thorough review of business
processes to eliminate non-core activities and associated costs in order to
improve the operational and administrative efficiency of the Company. This
program resulted in a special one-time charge of Bs. 123.9 billion included in
the Company's results of operation in 2000. In addition in 2001, the Company
recognized approximately Bs. 36.1 billion in the statement of operations in
respect of pension and postretirement plan special termination benefits related
the effect associated with this employee reduction program. The program ended on
January 19, 2001. Employees affected by this program received additional
severance benefits based on the number of years of service with CANTV ranging
from 30 to 90 basic monthly salary payments. Employees who were eligible for
early retirement received a six-month basic salary severance payment in addition
to a 25% increase in their monthly pension. As a result of this program, the
Company terminated approximately 3,752 employees (approximately 34.0% of CANTV's
work force compared to December 2000).

At December 31, 2001, approximately 46.0% of CANTV's employees were
members of one of the 28 unions, which deal directly with the Company or through
FETRATEL, compared to approximately 99.9% at privatization. Since privatization,
the Company has experienced work stoppages from time to time of various duration
and levels of participation. These work stoppages have not had a material effect
on the Company's results of operations. The most recent stoppage occurred in
connection with contract negotiations when approximately 1,500 of CANTV's
workers undertook a 23-day strike in March 1997. On April 2, 1997, the
Government suspended the strike and convened an arbitration panel to draft a new
collective bargaining agreement. This agreement expired effective on June 18,
1999. On September 3, 1999, the Company signed a collective bargaining
agreement, which terminated on June 17, 2001. This agreement established a 20%
base salary increase retroactive to June 18, 1999, a Bs. 30,000 weekly salary
increase to all union workers on June 18, 2000, and merit increases in June 2000
and 2001. Annual profit sharing increased from 110 days to 120 days of salary
and the vacation bonus was increased from 45 days to 48 days. Moreover, the
agreement modified the obligatory years of service for post-retirement benefits
to 23 years for employees covered after June 1997. The option to select lump-sum
benefit payments instead of the benefits derived from the retirement program was
also established by this agreement.

CANTV is currently in negotiations with FETRATEL and expects to
finalize a new labor agreement in July 2002. In recent weeks, FETRATEL has
threatened to call for a strike. Future conflicts or disagreements with FETRATEL
or with the Company's unionized employees or other employees could have a
material adverse effect on the Company.

The latest negotiated collective bargaining agreement provides job
security benefits to employees who have worked for the Company for at least 30
months and were hired during the period from June 18, 1997 to September 3, 1999.
Other employees may receive similar job security benefits provided they have met
certain minimum service requirements. Positions may be terminated for just
cause. Venezuelan

115

law requires that employers pay a severance package to those employees
terminated for just cause. Effective June 19, 1997, the Venezuelan Congress
enacted a partial amendment to the labor law regarding employee severance
benefits. Under the new system the retroactive payment was eliminated and double
severance payments applicable to those workers who are dismissed without just
cause were limited. See Note 4(k) to the Audited Financial Statements.

CANTV has three pension plans: normal, deferred and special. The normal
pension plan is available to workers meeting certain age and/or service
criteria. The deferred pension plan is applicable to those workers that the
Company retains beyond the time of normal retirement. The special pension plan
is available to certain workers who have completed at least 20 years of service
(14 years for people employed as of June 23, 1995) and who CANTV dismisses
without just cause. The Company also provides various other benefits to its
employees.

The Caldera administration passed the Ley del Subsistema de Pensiones,
a partial reform of the Social Security System regarding pensions (the "Pension
Reform"). This law was partially reformed by a recent Statute "Law of Partial
Reform of the Decree No. 426," published on January 23, 2001, which postpones
the effective date from January 1, 2001 to January 1, 2002. On December 31,
2001, the Government postponed the effective date from January 1, 2002 to July
1, 2002 announced in the Extraordinary Official Gazette No. 5,568. The National
Assembly is reviewing the Pension Reform. The Pension Reform is intended to
provide income following retirement and in the case of disability, as well as
provide survivor benefits and funeral assistance. The Pension Reform establishes
a contributory pension plan for all employees based on a contribution of
approximately 12% to 13% of each employee's salary. When the Pension Reform
becomes effective, the Company will be required to contribute 75% of the amount
for each employee, with each employee contributing the remaining 25%. The
contributions made by the Company and employees will be invested in private
pension funds established under the Pension Reform, and in a public pension
fund.

In connection with the privatization of CANTV in 1991, the Government,
through the Venezuelan Investment Fund (currently the Bank of Economic and
Social Development), transferred 110 million of the Company's Class C Shares,
representing 11.0% of the equity share capital of CANTV, to certain employee
trusts ("Employee Trusts"). Eligible employees and retirees were offered the
right to purchase up to 100 million Class C Shares from the Employee Trusts
pursuant to a stock purchase program by paying nominal Bs. 286.0488 per Class C
Share in full in cash or through a non-interest bearing installment payment plan
through salary deductions over a period of up to 12 years (the "1991 Installment
Plan"). The Company does not finance or administer the acquisition of shares by
employees. Any balance due at the end of such period not paid by salary
deductions or pension payment deductions is forgiven, provided that all previous
installment payments have been made. The proceeds from the sale of such Class C
Shares, after deduction of any fees, dividends or distributions, are paid to the
Venezuelan Investment Fund.

On October 24, 2001, an Extraordinary Shareholders Assembly of the
Company's shareholders approved an increase of such number of shares comprising
up to 2% of the capital stock of the Company as of December 2, 1991 for grants
of stock for eligible employees pursuant to the existing Excellence Award
program and the creation of a new benefit plan covering up to 5.5% of the
capital stock of the Company called the Value Fund. Both programs are to be
effected through the purchase of Class C Shares. As of December 31, 2001, the
Company had not made effective the increase of the Excellence Award program or
the creation of the new benefit plan Value Fund. In March 2002, the Company
provided Bs. 4,200 million in funds to increase the number of Class C Shares of
the Company held by the trust administering the Excellence Award program. This
trust as of May 31, 2002 holds 11,150,372 Class C Shares. As of the date of this
Form 20-F, the Value Fund has not yet been created.

116

Based upon the number of Class D Shares that were sold in the Initial
Public Offering, the Venezuelan Investment Fund announced its intention to offer
Class C Shares, representing 9% of the equity share capital of CANTV, for
subscription by employees and retirees of CANTV at the bolivar equivalent of one
seventh of the price per ADS in the Initial Public Offering. In August 1998,
eligible employees and retirees were offered the right to purchase up to 90
million New Class C Shares from the Employee Trusts pursuant to a stock purchase
program ("Stock Purchase Program") established by the Venezuelan Investment
Fund. In accordance with the Stock Purchase Program, 25% of the 90 million Class
C Shares were reserved for retirees of CANTV and 75% of the shares were reserved
for active employees of the Company based on employee base salary and length of
employment at August 1996, with no employee eligible for more than 15,000 Class
C Shares. Under the Stock Purchase Program, eligible employees were offered a
non-interest bearing installment payment plan to purchase the Class C Shares
through salary deductions over a period up to 12 years, with the purchase price
to be paid in full at the end of this period. Those employees still paying for
Class C Shares under the 1991 installment plan are granted a grace period under
the Stock Purchase Program until all prior Class C Shares have been paid in
full. At that time, salary deductions for the Class C Shares purchased will
begin, provided that an established percentage of the Class C Shares have not
been sold by the employee or retiree. If the Class C Shares are sold, an
accelerated payment plan will apply. In accordance with the Stock Purchase
Program, dividends paid by CANTV prior to payment in full for the Class C Shares
are distributed with 50% paid to the Class C shareholder and 50% applied to the
shareholder's unpaid balance of the Class C Shares.

Share ownership

As of May 31, 2002, the members of the Board of Directors and executive
officers of CANTV as a group owned an aggregate of 151,012 shares, representing
0.02% of the CANTV's shares issued and outstanding at such date.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

Until December 1991, CANTV operated under the control of the
Government, which owned 100% of the Company's equity share capital. In December
1991, the Government, through the Banco de Desarrollo Economico y Social de
Venezuela (Bank of Economic and Social Development of Venezuela) (formerly Fondo
de Inversiones de Venezuela - the "Venezuelan Investment Fund"), sold 40% of the
equity share capital of CANTV to VenWorld for approximately $1,885 billion, and
provided for the transfer of up to 11% of the equity share capital of CANTV to
the Employee Trusts. In late 1996, the Government sold 348,100,000 additional
shares, representing 34.8% of the Company's equity share capital, to the public
in an initial public offering. Currently, the Government holds the Class B
Shares of CANTV and retains the right to appoint one director to the Board of
Directors of CANTV. Also, the Government, acting through CONATEL, regulates the
activities of the Company. See "Item 4. Information on the Company -- Regulatory
Framework." The following table sets forth certain information concerning
ownership of the equity capital shares outstanding of CANTV as of December 31,
2001 and May 31, 2002:

117

At December 31, 2001 At May 31, 2002
----------------------------- ------------------------------

Number of Ownership Number of Ownership
Class Shares Percentage Shares Percentage

---------- -------------- ------------ -------------- -------------

VenWorld A 259,321,360 32.95% - -
Inversiones Inextel, C.A. A 350,986 0.04% - -
Verizon Communications Inc. (Verizon) A - - 196,401,427 24.95%
Telefonica International A - - 54,410,144 6.91%
Banco Mercantil, C.A. A - - 367,139 0.05%
Bank of Economic and Social Development
(formerly Venezuelan Investment Fund) (1) B 51,900,000 6.59% 51,900,000 6.59%
Company employees and retirees (1)(2) C 94,849,350 12.05% 94,504,565 12.01%

Verizon Communications Inc. (Verizon)(3)(4) D 28,009,177 3.56% 28,009,177 3.56%
Brandes Investment Partners, L.P. D 101,257,100 12.86% 113,050,000 14.36%
Inversiones Inextel, C.A. D 49,903,418 6.34% - -
Others (4) D 201,549,458 25.61% 248,498,397 31.57%
----------- -----------
787,140,849 787,140,849

Treasury stock D 138,896,536 138,896,536
----------- -----------
926,037,385 926,037,385
=========== ===========

--------------
(1) In August 1998, the Bank of Economic and Social Development of Venezuela
(formerly Venezuelan Investment Fund) transferred 90 million Class B
Shares (representing 9% of the equity share capital of CANTV) to the
Employee Trusts as New Class C Shares for subscription by employees and
retirees of CANTV, as provided for at the time of the Initial Public
Offering.
(2) Class C Shares held directly or through the Employee Trusts. Class C
Treasury Shares include shares held by the Company for distribution to
employees in the form of awards. The trust for the Excellence Award
program have by approximately 9,423,154 Class C Shares and 11,150,371 at
December 31, 2001 and May 31, 2002, respectively.
(3) Verizon, acting through an indirect wholly-owned subsidiary, purchased
7,823,200 ADSs, for an aggregate purchase price of approximately $190
million, in the Initial Public Offering and in transactions consummated
following the completion of the Initial Public Offering. In December 1998,
Verizon exchanged 3,116,653 ADSs for 7,728,307 shares in VenWorld held by
a trust administered by Banco Mercantil, C.A., (Banco Universal) Trustee.
As of December 31, 2001, Verizon owned ADSs representing an aggregate of
28,009,177 Class D Shares, and owns 75.74% of the equity share capital of
VenWorld. As of May 31, 2002, Verizon owned ADSs representing an aggregate
of 28,009,177 Class D Shares and 196,401,427 Class A Shares, totaling
28.51% of the equity share capital of the Company.
(4) Includes Class D Shares held by The Bank of New York as depositary for
American Depositary Receipts of CANTV, each of which represents seven
Class D Shares.

As of December 31, 2001 the Company estimates that 50,667,975 ADSs were
held in the United States, representing approximately 93% of total Class D
Shares outstanding. The number of record holders of its Class D Shares (or of
ADSs representing its Class D Shares) in the United States was 21 at December
31, 2001.

VenWorld was a private corporation, whose principal shareholders as of
December 31, 2001 were indirect subsidiaries of Verizon (formerly GTE
Corporation) (75.74%) and Telefonica Internacional (20.98%). The remaining 3.28%
of the equity capital of VenWorld was held by Banco Mercantil, C.A., S.A.C.A.,
for itself and acting as trustee for approximately seven beneficiaries, and
approximately 60 other minority shareholders, originally part of CIMA, a former
shareholder of VenWorld, liquidated in 1995. VenWorld originally included
Verizon, Telefonica Internacional, EDC, AT&T and CIMA. During 2001, AT&T, EDC
and approximately 150 former beneficiaries of the CIMA liquidation trust
requested the redemption of their VenWorld shares.

118

On March 15, 2002, AES Comunicaciones de Venezuela, C.A., as custodian
for the Class D Shares owned by Inversiones Inextel, C.A. (Inextel) converted
50,255,184 Class D Shares into 7,179,312 ADSs. On March 19, 2002, Inextel sold
in a single transaction 7,179,312 ADSs at a price per ADS of $12.75.

The Employee Trusts were established to facilitate the sale of Class C
Shares pursuant to a stock purchase program established for certain employees
and retirees of the Company.

In August 1998, eligible employees and retirees were offered the right
to purchase up to 90 million New Class C Shares from the Employee Trusts
pursuant to a Stock Purchase Program established by the Bank of Economic and
Social Development (formerly Venezuelan Investment Fund. In accordance with the
Stock Purchase Program, 25% of the 90 million New Class C Shares were reserved
for retirees of CANTV and 75% of the shares were reserved for active employees
of the Company based on the employee's base salary and length of employment at
August 1996, with no employee eligible for more than 15,000 New Class C Shares.
Under the Stock Purchase Program, eligible employees were offered a non-interest
bearing installment payment plan to purchase the New Class C Shares through
salary deductions over a period up to 12 years, with the purchase price to be
paid in full at the end of this period. Those employees still paying for Class C
Shares under the 1991 Installment Plan are granted a grace period under the
Stock Purchase Plan until all prior Class C Shares have been paid in full. At
that time, salary deductions for the New Class C Shares purchased will begin,
provided that an established percentage of the Class C Shares have not been sold
by the employee or retiree. If the Class C Shares are sold, an accelerated
payment plan will apply. In accordance with the Stock Purchase Plan, dividends
paid by CANTV prior to payment in full for the New Class C Shares are
distributed with 50% paid to the Class C shareholder and 50% applied to the
shareholder's unpaid balance of the New Class C Shares.

Between November 1999 and September 2000, the Company implemented two
share repurchase programs. As a result of these programs, the Company acquired
73,962,616 of the outstanding shares (equivalent to 10,566,088 ADSs) of CANTV,
representing approximately 7.4% of the total number of CANTV shares outstanding
on October 31, 1999 for approximately $300 million. The weighted average price
for these purchases was Bs. 2,839 per share, equivalent to $28.39 per ADS, based
on the Daily Exchange Rate at December 31, 2000. These repurchased shares were
canceled on December 5, 2000.

The Capital Markets Law limits each repurchase program to six months
and requires publication of a maximum repurchase price per share and a maximum
number of shares to be repurchased.

On November 16, 1999 an Extraordinary Shareholders' Assembly authorized
a share repurchase program for up to 50,000,000 of CANTV's outstanding Class C
Shares and Class D Shares, which terminated on April 18, 2000 (the "1999
Repurchase Program"). The 1999 Repurchase Program specified a maximum repurchase
price up to $40 per ADS and a maximum volume of up to 5% of the outstanding
shares. Under the 1999 Repurchase Program the Company acquired 35,775,957 Class
D Shares (5,110,851 ADS) at a weighted average price of Bs. 2,794 per share,
equivalent to $29.39 per ADS. No Class C Shares were repurchased.

119

On March 31, 2000 an Extraordinary Shareholders' Assembly authorized a
new share repurchase program for 50,000,000 of CANTV's outstanding Class C
Shares and Class D Shares, for the period of April 1, 2000 to September 18, 2000
(the "2000 Repurchase Program"). The 2000 Repurchase Program specified a maximum
purchase price up to Bs. 4,871 per share or up to $50 per ADS and a maximum
volume of up to 5% of the outstanding shares (10% when combined with shares
repurchased under the 1999 Repurchase Program). Under the 2000 repurchase
program the Company acquired 20,846,931 Class D Shares (2,978,133 ADSs) and
17,339,728 Class C Shares at a weighted average price of Bs. 2,710 per share,
equivalent to $27.50 per ADS.

As part of the 1999 Repurchase Program, Class C shareholders were
permitted to offer for sale to the Company a portion of the shares purchased
either at the time of privatization (11%) or at the Initial Public Offering (9%)
during the period from February 25, 2000, through March 14, 2000. During this
time period, Class C shareholders offered over 28 million Class C Shares to the
Company. The Company did not purchase these shares under 1999 Repurchase
Program. Under the 2000 Repurchase Program, the Company purchased 17 million of
the 28 million of the Class C Shares offered. See Note 16 to the Audited
Financial Statements.

On August 29, 2001, AES Comunicaciones de Venezuela, C.A. (an affiliate
of Electricidad de Caracas and AES) commenced a unsolicited cash tender offer in
the United States to purchase an aggregate of 28,566,944 ADSs for Bs. 17,829 per
ADS ($24 per ADS), and in Venezuela to purchase 199,968,608 shares of CANTV
outstanding common stock for approximately Bs. 2,547 per share ($3.43 per share)
in order to obtain 50.1% of outstanding shares of the Company and to acquire a
controlling interest in CANTV. On October 1, 2001, the CANTV Board of Directors
deemed this offer unsatisfactory and not in the best interest either of its
shareholders, its ADS holders, employees, customers or the people of Venezuela.
On October 7, 2001, the CANTV Board of Directors called for an extraordinary
Shareholders Assembly to consider authorization of payment of an extraordinary
dividend and authorization to initiate the Third Repurchase Program. On October
9, 2001, the "CNV" issued Resolution 217 ordering VenWorld, a holder of 33.4% of
the outstanding shares of the Company, to participate on a pro rata basis in the
Third Repurchase Program to ensure that its proportional participation interest
would not increase pursuant to the Company's proposed 15% share repurchase plan.
On November 5, 2001, GTE Venholdings B.V., an indirect subsidiary of Verizon,
informed the Company of its intention to tender a number of securities to ensure
that its direct percentage ownership interest immediately prior to and after the
consummation of the Third Repurchase Program remained the same. October 19,
2001, the CNV authorized the Company's share repurchase program, subject to
shareholder consent and required AES to extend the date of its tender offer to
expire simultaneously with the CANTV offer in the Third Repurchase Program.

On October 24, 2001, CANTV held an Extraordinary Shareholders' Assembly
of CANTV's shareholders approved, in part, the proposed Third Repurchase Program
submitted by CANTV's Board of Directors. Following the affirmative vote of CANTV
shareholders approving the Third Repurchase Program, CANTV began a cash tender
offer for $30 per ADS in the United States and $4.29 per Class D Share of the
Company in Venezuela. The period of the Company's Third Repurchase Program began
on October 25, 2001 and expired on November 23, 2001. In connection with the
Third Repurchase Program, VenWorld tendered a number of shares of the Company
such that its ownership in the Company would be equal to its percentage
ownership in the Company immediately prior to the completion of the Third
Repurchase Program.

The October 24, 2001, Extraordinary Shareholders' Assembly also
approved an extraordinary cash dividend of Bs. 520 per share and Bs. 3,640 per
ADS which was paid in two installments, one of Bs. 284 per share on

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December 10, 2001 to shareholders of record as of December 3, 2001 and the other
of Bs. 236 per share on March 18, 2002 to shareholders of record as of March 6,
2002. At this same shareholders meeting, CANTV's shareholders also approved an
increase of such number of shares comprising up to 2% of the capital stock of
the Company as of December 2, 1991 for grants of stock for eligible employees
pursuant to the existing Excellence Award program and the creation of a new
benefit plan called the Value Fund which would include up to 5.5% of the capital
stock of the Company to use for stock option awards to eligible employees. The
increase to the Excellence Award program and the creation of the Value Fund
would be effected through the purchase of Class C Shares. As of December 31,
2001, the Company had not increased of the Excellence Award program or created
the new benefit plan Value Fund. In March 2002, the Company provided Bs. 4,200
million in funds to increase the number of Class C shares of the Company held by
the trust administering the Excellence Award program. This trust holds as May
31, 2002 11,150,372 Class C Shares. As of the date of this Form 20-F, the Value
Fund has not yet been created.

On November 8, 2001, AES withdrew its tender offer for the 43.2% of the
shares of CANTV and participated in the Third Repurchase Program. On March 19,
2002, AES Communications de Venezuela, C.A., sold its entire remaining equity
stake in the Company and, together with its affiliates, ceased to have any
participation in the Company.

On March 22, 2002, a dividend of Bs. 41.6 per share ($0.05 per share)
or Bs. 291.2 per ADS ($0.32 per ADS) was approved at the Annual Shareholders'
Assembly. Dividends were declared and paid in bolivars. The dividend was paid on
June 6, 2002 to shareholders of record as of May 24, 2002.

Related Party Transactions

In the ordinary course of its business, the Company engages in a
variety of transactions with its principal shareholders and their respective
affiliates. Inventories, supplies and plant and equipment of Bs. 25,040 million
and Bs. 86,690 million for the years ended December 31, 2000 and 2001,
respectively, and Bs. 1,979 million at May 31, 2002, were purchased from
affiliates of VenWorld's stockholders. These same affiliates provided technical
and administrative services to the Company at a total cost of Bs. 25,403
million, Bs. 21,091 million, and Bs. 11,743 million for the years ended December
31, 1999, 2000 and 2001, respectively, and Bs. 9,806 million at May 31, 2002.
Net operating revenues of Bs. 12,946 million, Bs. 23,795 million and Bs. 9,874
million, were recognized for the years ended December 31, 1999, 2000 and 2001,
respectively, with respect to the settlement of international telephone traffic
with affiliates. The Company has recorded net payables to Verizon and AT&T
affiliates for all such transactions of Bs. 23,580 million and Bs. 898 million,
respectively, at December 31, 2000, Bs. 7,841 million and Bs. 2,046 million,
respectively, at December 31, 2001 and at May 31, 2002, Bs. 7,118 million and
Bs. 598 million to Verizon and Telefonica Internacional, respectively.

During 1996, Movilnet received a long-term loan of $17 million from
CANTV for use primarily in the expansion plan corresponding to 1997. This amount
is divided into two loans: the "A" loan of $6.29 million and the "B" loan of
$10.71 million. Both loans bear an interest rate at the six month average LIBOR
rate, plus a financial margin. These loans are being amortized in semi-annual
installments from 1998 through 2003.

In April 1998, Movilnet obtained from CANTV, a long-term loan of Bs.
18,500 million (in historical bolivars), which was utilized to pay short-term
trade debt. This loan was going to be amortized in 12 monthly installments
beginning April 2000. In December 1999, the term of the loan was changed to 5
years to be amortized with a single payment in April 2004 with no interest
payments due during the first

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year of the term of the loan. The maximum interest rate that CANTV may collect
from Movilnet is calculated on a quarterly basis at the interest rate applied to
ninety-day loan operations by the three major banks in number of deposits.

In December 1999, Movilnet obtained a line of credit from CANTV
amounting to $100 million, which was used for the investment plan financing for
year 2000. Such line of credit bears interest based on market interest rates. In
December 1999, Movilnet used $95 million, of this line of credit. This loan has
a five-year term maturity and will be amortized with one payment in 2004 with no
interest payments due during the first year of the term of the loan.

In December 1999, Movilnet issued two promissory notes to CANTV for Bs.
9,264 million and Bs. 3,694 million (in historical bolivars), respectively. Such
promissory notes bear interest calculated on a quarterly basis at the interest
rate applied to ninety-day loan operations by the three major Venezuelan banks
in number of deposits. These promissory notes have a five-year term maturity and
will be amortized with one payment in 2004 with no interest payments due during
the first year of the term of the loan.

Interest of Experts and Counsel

Not applicable.

Item 8. Financial Information

Consolidated Financial Information

See "Item 19. Financial Statement and Exhibits" for a list of financial
statements filed under Item 18.

Other Financial Information

Legal Proceedings

CANTV is involved in numerous administrative and judicial proceedings,
the majority of which have been filed by former employees requesting additional
labor benefits, and in some cases, reinstatement of job functions held at the
time they were dismissed. During the third quarter of 2000, the Supreme Court
issued a decision against CANTV ordering the Company to rehire 140 former
employees laid off due to technological improvements in certain Company
processes. Those employees were initially rehired by the Company. However, CANTV
attorneys requested that the Court review its decision, as a consequence of
which the Court ratified its initial decision in regard to just 44 former
employees. In addition, CANTV is currently undertaking the settlement of a
number of trials initiated by former employees claiming that they are entitled
to be covered by the CANTV pension plans. Currently, about 200 settlements have
been reached. Management believes that the Company has recorded adequate
reserves as of December 31, 2001 for all such matters. There are no other
pending legal proceedings, other than ordinary routine litigation incidental to
the Company's business, which are material to the Company.

On July 7, 2000, CANTV was notified of a $2.4 million fine imposed by
the Venezuelan Competition Agency (Pro-Competencia). Pro-Competencia ascertained
that CANTV had abused its dominant position in the basic telephone market to
favor the activities of its subsidiary, CANTV.Net in

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the Internet market. On August 14, 2000 CANTV requested the Administrative Court
to nullify Pro-Competencia's decision. See Note 21(c) to the Audited Financial
Statements.

Dividend Policy

On December 14, 2001, CANTV's Board of Directors approved revised
guidelines for the annual dividend distribution, effective in 2002. These
guidelines provide for the distribution to shareholders of 50% of the prior
year's free cash flow, which the Board defined as free cash flow reported in the
audited consolidated financial statements, net of principal and interest
payments scheduled to be made during the following year. Annual payment of
dividends will be made in bolivars, in quarterly installments subject to Board
of Directors recommendation and approval of the Annual Shareholders' Assembly
in, accordance with Venezuelan legislation.

Subsequent Events

In February and March 2002, the Company received National Treasury
Bonds in the aggregate principal amount of Bs. 24,000 million. These bonds
mature in January and October 2003 and pay a quarterly variable interest at a
rate 93.46% of the TAM (average lending rate of the main six banks of the
country). Through the issuance of these bonds, the Government paid overdue debts
to CANTV of approximately Bs. 23,521 million.

On February 12, 2002, the Government announced that the bolivar would
float freely. Under this new exchange rate policy, the reference rate for the
Central Bank of Venezuela was Bs. 1,132.25 per U.S. dollar at May 31, 2002. The
currency has been devalued approximately 49.4% from December 31, 2001 to May 31,
2002, and the Company estimates a total devaluation for 2002 of 58.3%.

On March 21, 2002, Movilnet's wireless tariff increased by
approximately 18% for prepaid services, 28% for postpaid services, and 33% for
special services including mobile. Wireless tariffs are unregulated, and only
required an informational filing with CONATEL 15 days before the effective date.

On March 22, 2002, a dividend of Bs. 41.6 per share ($0.05 per share)
or Bs. 291.2 per ADS ($0.32 per ADS) was approved at the Annual Shareholders'
Assembly. Dividends are declared and paid in bolivars. The dividend was paid on
June 6, 2002 to shareholders of record as of May 24, 2002.

On May 30, 2002, CONATEL published revised tariffs for 2002 in the
Official Gazette (No. 37,454) pursuant to the new price cap system, which
tariffs became effective on June 15, 2002. This tariff plan includes a tariff
simplification with the introduction of three new tariff plan to replace five
existing plans, while maintaining the flat rate and prepaid services. The
purpose of these new rate plans is to better match the needs of each customer
according to their usage patterns while also accommodating those customers who
are considered as heavy Internet users. See "Item 4. -- Regulatory Framework --
Regulation and the Concession -- Regulation of Tariffs." Local usage, monthly
rent and domestic long distance tariff expressed in nominal bolivars were
increased by approximately 20%, international long distance were increased by
12.8% and local public telephone service were increase by approximately

123

22%. The tariff adjustment mechanisms used for 2002 tariffs have not changed
from those applied in 2001.

At the end of September 2002, the Company expects to revise projected
monthly estimates of the comprehensive index based on the WPI and the ROD in the
bolivar, both used in the local and domestic long distance tariffs adjustment,
as a result of significant increases on WPI and ROD. If the difference between
the real and the projected WPI and ROD exceeds 3%, the Company could adjust the
local and domestic long distance tariffs up to an additional 4%.

Item 9. The Offer and Listing

Offer and Listing Details

Not applicable.

Plan of Distribution

Not applicable.

Trading Markets

Following the Initial Public Offering of the Company's Class D Shares
on November 22, 1996, the Company's Class D stock began trading on the Caracas
Stock Exchange. Following the Initial Public Offering, ADSs, each representing 7
Class D Shares, began trading on the New York Stock Exchange. The Bank of New
York is acting as Depositary in connection with the ADSs.

124

The table below sets forth, for the periods indicated, the reported
high and low sale prices for the Class D Shares on the Caracas Stock Exchange:

Caracas Stock Exchange
----------------------------------------------------------------------------------
High Low Average
($) ($) Trading Volume
-------------------------- ------------------------- ---------------------------

Annual highs and lows
1997 3,500.00 1,845.00 156,078
1998 3,185.00 880.00 127,637
1999 2,640.00 1,200.00 129,968
2000 2,750.00 1,571.00 155,888
2001 2,900.00 1,505.00 71,879

Quarterly highs and lows

2000
1st quarter 3,620.00 2,213.00 176,815
2nd quarter 3,100.00 2,250.00 340,369
3rd quarter 2,750.00 2,050.00 58,716
4th quarter 2,485.00 1,571.00 47,653
2001
1st quarter 2,700.00 1,925.00 71,054
2nd quarter 2,900.00 1,920.00 89,557
3rd quarter 2,675.00 2,060.00 85,633
4th quarter 2,505.00 1,505.00 42,955

Monthly highs and lows
2001
July 2,550.00 2,120.00 95,028
August 2,380.00 2,060.25 52,361
September 2,675.00 2,240.00 118,094
October 2,505.00 2,260.00 56,887
November 2,440.00 2,205.00 16,382
December 2,045.00 1,505.00 57,751

2002
January 1,750.00 1,590.00 49,294
February 2,372.00 1,600.00 65,763
March 2,270.00 1,650.00 16,044
April 1,850.00 1,700.00 24,418
May 2,550.00 1,700.00 87,000

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The table bellow sets forth, for the periods indicated, the reported
annual high and low sale prices for the ADSs on the New York Stock Exchange:

New York Stock Exchange
----------------------------------------------------------------------------------
High Low Average
($) ($) Trading Volume
-------------------------- ------------------------- --------------------------

Annual highs and lows
1997 44-13/20 27-1/4 156,078
1998 42-15/16 10-1/8 482,539
1999 31 14-3/4 236,424
2000 39 15-9/16 190,143
2001 28-1/7 13-1/5 293,562

2000
1st quarter 39 24-3/16 298,324
2nd quarter 32-1/2 23-1/4 184,887
3rd quarter 28-5/16 20-3/4 166,184
4th quarter 25-1/4 15-9/16 111,176

2001
1st quarter 26-2/3 18-7/8 153,764
2nd quarter 28-1/7 18-1/4 200,493
3rd quarter 26-2/3 15-3/5 409,295
4th quarter 24 13-1/20 410,296

2001
July 24-6/7 20-1/20 250,545
August 26-3/50 19-47/79 404,343
September 26-3/20 20 710,413
October 24 20-3/4 432,008
November 22-4/19 18-3/10 456,652
December 18-1/2 13-1/5 336,655

2002
January 16-1/2 13-19/20 245,461
February 16-1/4 13-3/5 207,805
March 14-3/5 13 191,770
April 19-7/20 13-51/100 458,745
May 18-11/20 14-9/50 197,413

Selling Shareholders

Not applicable.

Dilution

Not applicable.

126

Item 10. Additional Information

Share Capital

Not applicable.

Memorandum and Articles of Association

For information relating to the provisions of CANTV's By-laws, as
currently in effect, and of Venezuelan law, see CANTV's Registration Statement
on Form F-1 (Registration No. 333-5840), which we are hereby incorporating by
reference into this Annual Report.

Organization and Register

CANTV is a company incorporated ("compania anonima") under the laws of
Venezuela. It is registered in the First Registry of Commerce of the Federal
District and State of Miranda under file number 405. CANTV is domiciled in the
city of Caracas, Venezuela.

Corporate Governance

CANTV is governed by a Board of Directors and the Stockholders'
Assembly. Their powers are defined by the Venezuelan Commercial Code and by
CANTV's By-laws.

The Board of Directors authorizes any contracts which may be necessary
in the pursuit of the Company's objectives. It also lays down the policies for
the preparation of the Company's plans, programs, budgets and employee
compensation policies, recommends the amount of dividends to be submitted to
stockholders for consideration, approves business and accounting reports for
submission to stockholders' meetings, recommends and establishes administrative
policies and creates such management and/or consulting committees as it deems
advisable in the interests of the Company. The Board of Directors consists of
nine Directors, each of them having an alternate. The members of the Board of
Directors are designated at the Stockholders' Assembly.

The Stockholders' Assembly appoints and removes the members of the
Board of Directors, discusses, authorizes the sale of corporate assets,
authorizes any increase in the capital stock of the Company, declares dividends
to be distributed to stockholders, authorizes amendments to the By-laws,
approves or modifies the balance sheet submitted by the Board of Directors, with
a review of the statutory auditor's report. The Stockholders' Assembly must be
convened annually within three months following the end of each fiscal year of
the Company, and may also be convened on extraordinary occasions.

Several additional corporate governance provisions applicable to CANTV
are summarized below.

Objectives and Purposes

Article 2 of CANTV's By-laws states that the purpose of the Company is
to administer, provide, develop and operate local telephone and national and
international long distance telephone services; national and international
telex; radio telephone, and cellular telephone services; value-added services;
telephotography, data transmission, means for transmitting television and radio
broadcasting programs, supply of telegraphic channels and any other
telecommunications service; possess telecommunications equipment and facilities;
adopt and exploit new services determined by technical advances in
telecommunications; issue bonds and obligations in accordance with legal
requirements; execute

127

agreements or enter into arrangements with foreign governments or companies on
everything related to the activities of the Company; participate in
associations, institutes or international groups devoted to the improvement of
telecommunications or to scientific and technology research; participate in
international agencies or organizations engaged in telecommunications; and
promote and create companies to perform activities related to and connected with
those constituting the corporate purpose. CANTV may also carry out all
commercial acts directly or indirectly related to its corporate purpose.

Directors

The By-laws provide that resolutions of the Board of Directors shall be
passed by an absolute majority vote of the Directors in attendance who are not
prohibited by law to vote on the subject matter of the meeting.

The By-laws also provide that the Company must refrain from entering
into any transaction that is related to or involves (i) any person or entity
directly or indirectly controlling the Company or any stockholder or affiliate
of such a person or entity, (ii) any stockholder holding shares representing
more than 1% of the capital stock of the Company or any affiliate of such a
stockholder or (iii) any Director of the Company or an entity in which a
Director has a direct or indirect interest, unless any such transaction is made
upon terms as favorable to the Company as those it could obtain from a
non-related third party. Any transaction entered into in contravention of these
provisions of the By-laws is not enforceable against the Company, and the
Directors taking part in such a transaction may be deemed to have incurred a
material fault that may result in their removal.

Under Venezuelan law, CANTV's Board of Directors owes a duty of loyalty
and care to CANTV. They must exercise the standard of care of a prudent and
diligent businessman and bear the burden of proof of this standard they did so
if their actions are contested. The Board of Directors must consider the
interests of CANTV's shareholders and its workers and, to some extent, the
public interest. Those Directors who violate their duties may be held jointly
and severally liable for any resulting damages, unless their actions were
validly approved by resolution at a stockholders' meeting. Furthermore, a member
of the Board of Directors may not receive a loan from CANTV unless approved by
the Board of Directors, and may not vote or deliberate on a matter that concerns
ratification of his own acts or in which he has a material interest. See "Item
6. Directors, Senior Management and Employees" for further information about the
Board of Directors.

Under the By-laws, the Directors do not have the power to vote on
compensation matters relating to directors including benefits, and retirement
benefits based on age-limit requirements. Directors may not establish
shareholding requirements to qualify as director. CANTV's By-laws require
Directors with proven experience, executive capacity, and competence to manage
the operations of the Company.

The share capital of CANTV consists of four classes of shares,
designated as Class A, Class B Class C and Class D.

Class A Shares are owned by three of VenWorld's former principal
shareholders, Verizon, Telefonica Internacional and Banco Mercantil, C.A. Any
transfer of Class A Shares to any person or entity that is not a subsidiary of
these companies will cause such transferred shares to be automatically converted
into an equal number of Class D Shares upon such transfer.

Class B Shares may be owned by the Government and other Venezuelan
public sector entities. The transfer of Class B Shares to a private sector
person or entity will cause such transferred shares to be

128

automatically converted into an equal number of Class D Shares upon transfer of
the shares, except upon transfer to employees or retirees of CANTV which causes
such transferred shares to be automatically converted into an equal number of
Class C Shares upon such transfer.

Class C Shares may be owned only by employees of the Company, retirees,
companies 100% owned by such employees or retirees and whose sole corporate
purpose is the acquisition and ownership of such shares, trusts and benefit
plans established for such employees or retirees, former Company employees who
elect to retain their Class C Shares upon termination of employment, Company
employees, former employees' or retirees' former spouses who receive Class C
Shares through partition of marital property, and Company employees', former
employees' or retirees' heirs who receive Class C Shares in succession. Any
transfer of Class C Shares to any person or entity other than those listed in
the previous sentence will cause such transferred shares to be automatically
converted to Class D Shares.

Class D Shares are not subject to any restrictions in the By-laws
relating to ownership or transfer.

Share certificates are numbered and may include any number of shares.
The certificates indicate the class of shares they represent, bear the seal of
the Company and are signed by two Directors. Record holders of ordinary shares
are registered in CANTV's share register, which is administered on behalf of the
Company by Banco Venezolano de Credito, S.A.C.A., as transfer agent and
registered in Venezuela. The Depositary in the United States acts as transfer
agent and registered in respect of holders of ADSs.

Dividends

The Venezuelan Capital Markets Law provides that dividends must be
declared in a Stockholders' Assembly during which the stockholders determine the
amount, form and frequency of the dividend payment, and that dividend policies
must be stated in the company's By-laws.

The Venezuelan Commercial Code establishes that dividends shall be paid
solely out of "liquid and collected earnings," and the Capital Markets Law
mandates that the Company distribute every year among its shareholders not less
than 50% of its of its net annual income, assessed on a non-consolidated basis
and without reflecting its share in the net income of its subsidiaries.
Dividends must be calculated in accordance with Venezuelan GAAP on a constant
bolivar basis. Likewise, the Capital Markets Law provides that at least 25% of
such 50% shall be paid to shareholders in cash dividends. However, if the
Company has accumulated losses, any net income shall initially be applied to
offset such deficit. Regulations by the CNV provide that inflation adjusted net
income is the sole basis for the calculation of dividend payments. The CNV
cannot exempt a company with publicly traded securities from paying the minimum
dividends required by the Capital Markets Law.

Voting Rights

The By-laws state that each share of CANTV, regardless of class
designation, is entitled to one vote on all matters submitted for the approval
for CANTV's stockholders at a Stockholders' Assembly. In general, matters
submitted to a vote at a Stockholders' Assembly will be adopted only if a
majority of the holders of the shares present at such Assembly vote in favor of
such matters. The quorum and majority established in the By-laws are applicable
even in situations where the Venezuelan Commercial Code requires a greater
quorum or majority.

However, the By-laws also require a vote of holders of the majority of
the Class B Shares for decisions concerning, among others, the dissolution of
CANTV, mergers or other extraordinary corporate transactions, the reimbursement
or reduction of the capital of CANTV and authorization for the sale of CANTV's
assets.

129

A vote of holders of a majority of the Class B Shares is also required
to amend the By-laws in relation to corporate purpose, classification of share
capital and the rights accorded to the classes of capital shares, stockholders'
meeting, notices and quorum requirements, composition of the Board of Directors
and Board of Directors' meetings, notices and quorum requirements, provisions
related to the approval of transactions by the Board of Directors and provisions
requiring the approval of a certain classes of shares. See also "Item 6.
Directors, Senior Management and Employees" for a further discussion of voting
rights.

Stockholders' Assembly

Ordinary Stockholders' Assemblies must take place within 3 months after
the end of each fiscal year. Any other general stockholders' meeting is an
Extraordinary Stockholders' Assembly and may be called by the Board of
Directors, the two statutory auditors, who are appointed by the Stockholders'
Assembly together with two alternate statutory auditors for a term of one year,
or stockholders representing at least 20% of the equity share capital of CANTV.
The quorum required for either an ordinary or Extraordinary Stockholders'
Assembly consists of shares representing at least 50% of the votes of the equity
share capital or, in the case of a meeting convened solely for the purpose of
election or removal of directors, shares representing at least 50% of the votes
of the equity share capital entitled to vote with respect to such directors.

Ordinary Stockholders' Assemblies are called to consider the annual
report of CANTV and its financial statements, elect the Board of Directors and
the two principal Statutory Auditors and their alternates, declare dividends and
to consider any other matters that may be properly presented to the meeting.

In order to be entitled to participate and vote at the meeting, a
shareholder must be registered in the share register on the meeting date, and
also must notify the Company no later than on the third day before the meeting
date that he or she wishes to attend the meeting. Instead of voting in person at
the meeting, shareholders in North America may vote their shares by proxy by
signing and returning the proxy card mailed to them in advance of the meeting. A
notice of the meeting, an agenda describing the items to be voted on at the
meeting, and a short-form annual report accompany the proxy card. As a foreign
private issuer, the Company is not required to file a proxy statement under U.S.
securities law. The proxy voting process for the Company's shareholders in North
America is substantially similar to the process utilized by publicly held
companies incorporated in the United States.

Amendments to the Company's By-laws must be effected by an absolute
majority vote of the Stockholders' Assembly. Amendments to the By-laws relating
to specified issues require a vote of a majority of holders of Class B Shares.
See " -- Voting Rights."

Change in Control

There are no provisions in the By-laws that would have the effect of
delaying, deferring or preventing a change in control of CANTV and that would
only operate with respect to a merger, acquisition or corporate restructuring
involving it or any of its subsidiaries.

Disclosure of Share Holdings

CANTV's By-laws do not require shareholders to disclose their share
holdings.

130

Material Contracts

Not applicable.

Exchange Controls

There are currently no restrictions under Venezuelan law on export or
import of capital including foreign exchange controls, restrictions on payments
or remittance of dividends. However, due to Venezuela's macroeconomic condition,
the Government has imposed exchange controls on foreign exchange transactions
and fixed the exchange rate during certain periods.

On June 27, 1994, the Government established certain foreign currency
exchange controls and soon thereafter fixed the official bolivar/U.S. dollar
exchange rate. The rate was originally fixed as Bs. 170.00 per U.S. dollar and
was adjusted to Bs. 290.00 per U.S. dollar in December 1995. These controls,
together with economic conditions in Venezuela, caused the Company to seek to
restructure its debt obligations in 1995. Such controls also limited the ability
of foreign investors to repatriate capital and the ability of Venezuelan
companies to remit dividends in shares of Venezuelan companies represented by
ADSs, ADRs, Global Depositary Shares or Global Depositary Receipts. These
controls were removed on April 22, 1996. Since July 1996, the Central Bank of
Venezuela has intervened to maintain the exchange rate between 7.5% above and
7.5% below the reference rate. The reference rate was originally set at Bs.
470.00 per U.S. dollar and is adjusted from time to time to account for
projected inflation. On January 14, 1998, the reference rate was reset to Bs.
508.50 per U.S. dollar and the Central Bank of Venezuela announced that it would
adjust the reference rate by 1.16% to 1.28% monthly. Under this policy, the
reference rate was Bs. 686.54 per U.S. dollar, Bs. 700.00 per U.S. dollar and
Bs. 758.00 per U.S. dollar at December 31, 1999, 2000 and 2001, respectively.
However, the deterioration of Government revenue streams, as well as increasing
political and legal instability, sustained capital flight and the erosion of the
foreign reserves beginning in late 2001, forced the government to announce, on
February 12, 2002, that the bolivar would float freely. Under this new exchange
rate policy, the reference rate for the Central Bank of Venezuela was Bs.
1,132.25 per U.S. dollar at May 31, 2002. The currency has lost approximately
49.4% from December 31, 2001 to May 31, 2002 and the Company estimates a total
devaluation for 2002 will be 58.3%.

Venezuelan Tax Considerations

The following summarizes the principal Venezuelan tax consequences
under Venezuelan law of the purchase, ownership and disposition of ADSs and
Class D Shares and receipt of dividends thereon by persons (including
corporations) who are non-residents of Venezuela. This summary is based on
current Venezuelan tax law and is for general information only.

An individual is deemed to be a resident (i.e. domiciled in Venezuela)
in the following cases:

. Any person, regardless of nationality to be domiciled in
Venezuela if it remained in the country for more than 183 days
during a given calendar year;

. Any person, regardless of nationality, who has remained in
Venezuela for more than 183 days in a given calendar year is
deemed to be resident in the following calendar year,
regardless of the number of days it has remained in the
country;

131

. Any person, regardless of nationality, is deemed to be
domiciled in Venezuela, if it has a residence in the country,
except if during the given year it has remained abroad for
more than 183 days and can prove that it is tax resident in
that other country by submitting a foreign tax residence
certificate; and

. Any Venezuelan citizen is presumed to be domiciled in
Venezuela, regardless of their physical presence in the
country or the existence of a resident in the country, except
in the event of proof to the contrary. Proof to the contrary
would consist of filing a certificate of resident abroad issue
by the authorities of the relevant country.

The term "non-domiciled" refers to a legal entity which is neither
domiciled or organized in Venezuela. If a non-domiciled entity creates a
permanent establishment in Venezuela, such permanent establishment will not be
considered a Venezuelan domiciled taxpayer subject to Venezuelan taxation on
worldwide. In this case the taxpayer would be subject to Venezuelan income tax
on its Venezuelan sourced income and on its worldwide income in respect to those
items of income that are attributable to the permanent establishment.

In general, and as discussed below, all yields derived from the
disposition of ADSs is considered foreign-source income, as such being taxable
only to resident individuals and domiciled entities that are taxed on worldwide
income; whereas non-resident individuals and non-domiciled entities are not
subject to taxation in Venezuela. Yields derived from the disposition of Class D
Shares are considered Venezuelan local-source income, taxable to any taxpayer,
regardless of its residence or domicile, except as otherwise provided by
applicable treaty. Dividends are taxable to any taxpayer regardless of its
residence or domicile, except as otherwise provided by applicable treaty.

Taxation of Dividends

Under a new regime covering taxation of dividends introduced in the
1999 Venezuelan Income Tax Law, dividend income received from CANTV with respect
to Class D Shares is not subject to Venezuelan income tax or withholding tax
with respect to distributions arising out of earnings and profits for periods
commencing on or prior December 31, 2000. All dividends arising out of either
accumulated or current earnings and profits for periods commencing on or after
January 1, 2001 and which are paid in cash with respect to Class D Shares, are
considered Venezuelan local-source income. As such, the dividend payment will be
subject to a withholding tax at the rate of 34% at the time of payment, as well
as filing obligations for the shareholder, regardless of its residence or
domicile. In the case of non-Venezuelan individuals and legal entities, the 34%
withholding rate may be further reduced or even eliminated by an applicable
treaty. Unless an applicable tax treaty provides otherwise, stock dividends paid
is stock with respect to Class D Shares will be subject to an income tax
withholding at the rate of 34% and the shareholder should pay an advance income
tax payment of 1% at the date payment of the stock dividends.

For purposes of determining the taxable base in the distribution of
dividends, and except as otherwise provided by an applicable treaty, the term
"taxable dividend" for holders of Class D Shares represents any distribution of
property made by a corporate entity to its shareholders or partners attributable
to the amount by which total accumulated earnings and profits (from January 1,
2003 this accumulated earnings and profits should be determined according to
Venezuelan GAAP) exceed the net taxable income of such corporate entity for
economic periods commencing on or after January 1, 2001. Under various income
tax treaties entered into by Venezuela and other contracting states, the term
"dividend" usually means a distribution of property made by a corporation to its
shareholders out of either accumulated or current earnings and profits.

132

The unrealized gain derived from either accumulated or current earnings
and profits for periods closing after January 1, 2001 with respect to the ADSs
(whether in cash or in stock) will be treated as a dividend arising from a
Venezuelan in situs assets (Class D Shares), taxable to any recipient of the
dividend. Where a taxation treaty applies, the ordinary 34% rate might be
reduced to a series of rates ranging from 0% to 15%.

Stock Dividend

Beginning January 1, 2003, all share dividends are subject to a tax
advance, by the recipient stockholder, of 1% over the amount of the dividend on
the date of the payment of the stock dividend. The company that is paying the
stock dividend must request evidence of the advance payment in order to register
the share ownership in the Stock Registry Book of the company.

Disposition of ADSs

Capital gains from the sale or other disposition of ADSs including
exchanges of ADSs for Class D Shares are considered Venezuelan foreign-source
income, taxable only to resident individuals and domiciled entities who are
taxed on worldwide income; whereas non-resident individuals and non-domiciled
entities are not subject to taxation in Venezuela regardless of the location
where such transactions take place. However, except as otherwise provided by an
applicable treaty, the disposition of Class D Shares effected regardless of
residence or domicile, through a Venezuelan stock exchange (which would include
a disposition by a broker/agent on behalf of an ADS holder) will be subject to a
flat and final 1% Venezuelan withholding tax on the gross sales proceeds.

Disposition of Class D Shares

Capital gains obtained from the sale or other disposition (other than
through a Venezuelan stock exchange) of Class D Shares (or rights to subscribe
for Class D Shares) will be considered Venezuelan local source income, and
except as otherwise provided by an applicable treaty, will be subject to income
tax withholding, at the rate of 3% in the case of resident individuals, 34% in
the case of non-resident individuals, and 5% in the case of entities, regardless
of their domicile condition. Capital gains obtained by a resident individual or
a domiciled entity will be subject to Venezuelan income taxes on a net basis and
according to progressive rates, whereas, and except as otherwise provided by an
applicable treaty, net capital gains obtained by a non-resident individual or by
a non-domiciled entity, from the sale or other disposition (other than through a
Venezuelan stock exchange) of Class D Shares (or rights to subscribe for Class D
Shares) will be subject to Venezuelan income taxes at the rate of 34%, or at
applicable corporate rates, respectively. Only holders of Class D Shares with
taxable capital gains realized other than through a domestic stock market will
be required to file a Venezuelan income tax return, and will be able to claim a
refund for taxes withheld in excess due with respect to such gains.

In order to benefit from the application of a tax treaty in connection
with the sale of Class D Shares, a seller must have available a tax residency
certificate issued by the Foreign Tax Administration and translated into Spanish
and legalized.

The amount of gain from the sale or other disposition of Class D Shares
(or rights to subscribe for Class D Shares) other than through a Venezuelan
stock exchange, is represented by the excess of the amount realized by the
shareholder over its own tax basis in such Class D Shares (or rights to
subscribe for Class D Shares) sold or otherwise disposed of. In general, a
shareholder's tax basis in a Class D Share will be represented by its cost of
acquisition; whereas, a holder's basis in a share received upon exercise of a
right to subscribe for a Class D Share would be represented by the sum of the
exercise price paid and the tax basis in such right. If a Class D Share were to
be received as a stock dividend after January 1, 2000, the tax basis for such
share would be zero.

133

Dividend Indebtedness Vouchers

The eventual distribution by CANTV of dividend indebtedness vouchers and
the payment by CANTV of the principal amount of such vouchers will not be
subject to Venezuelan income tax or withholding with respect to dividends
arising out of either accumulated or current earnings and profits for periods
commencing prior to December 31, 2000. However, the eventual distribution by
CANTV of dividend indebtedness vouchers with respect to dividends arising out of
either accumulated or current earnings and profits for periods commencing on or
after January 1, 2001 with respect to Class D Shares will be taxable to the
recipient. Because under the Venezuelan Income Tax Law dividends are taxed on a
cash basis, it is only at the moment CANTV pays or credits into account the
dividend that it will become subject to the same tax analysis referred to
previously relating to the distribution of dividends. This treatment obtains if
the dividend indebtedness vouchers do not cause the novation of the obligation
to pay the dividends, otherwise the dividend would be deemed paid for tax
purposes.

Moreover, interest paid by CANTV on the vouchers with respect to Class
D Shares will be treated as local source income, thus taxable in Venezuela to
all individuals and entities regardless of domicile, subject to applicable
treaties covering non-resident individuals or non-domiciled entities. The
payment of interest will be subject to income tax withholding at the effective
rate of 32.3% in the case of non-Venezuelan persons and subject to applicable
treaty; and at the rate of 3% and 5% in the case of resident individuals and
domiciled entities, respectively.

Capital gains from the sale or other disposition of a voucher with
respect to Class D Shares will be considered Venezuelan local-source income,
although not subject to income tax withholding. Capital gains, calculated as the
excess of the proceeds of the sale over the principal amount of the voucher,
obtained by a resident individual or a domiciled entity will be subject to
Venezuelan income taxes on a net basis and according to progressive rates,
whereas and unless otherwise provided by an applicable treaty, net capital gains
obtained by a non-resident individual or non-resident entity, from the sale or
other disposition of a voucher with respect to Class A Shares will be subject to
Venezuelan income taxes at the rate of 34% or the applicable corporate rates,
respectively.

Subject to applicable treaty, non-resident individuals and
non-domiciled entities receiving interest or realizing gains from the sale or
other disposition of vouchers generally are required to comply with the ordinary
annual filing requirements for residents.

Estate and Gift Tax

The acquisition of ADSs through inheritance or gift by either a
resident or non-resident from a non-resident is not subject to Venezuelan
estate, inheritance or gift tax. The acquisition of ADSs through bequest or gift
from a resident of Venezuela is subject to Venezuelan estate and gift tax.
Venezuelan estate and gift tax rates are progressive and vary according to the
kindred level between the recipient and between the decedent and the donor; as
the case may be.

The acquisition of Class D Shares (or rights to acquire Class D Shares)
through bequest or gift is subject to Venezuelan estate and gift tax, regardless
of the residence of the decedent or of the donor. The rate of Venezuelan estate
or gift tax imposed on a transfer generally depends on the value of the bequest
or gift and on the kindred level between the beneficiary and the decedent or the
donor, as the case may be. The beneficiary of a bequest or gift is responsible
and liable for the payment of the estate or the gift tax. In addition, the donor
and the donee are jointly and severally responsible for the payment of the gift
tax.

Other Taxes

There are no Venezuelan stamp, issue, registration or similar taxes or
duties payable by holders of ADSs or Class D Shares (or rights to subscribe for
Class D Shares). Other than the taxes discussed

134

above, no other Venezuelan transfer taxes are applicable to the transfer of ADSs
or Class D Shares (or rights to subscribe for Class D Shares), including
deposits and withdrawals of Class D Shares to or from the ADR facility.

United States Federal Income Taxation

The following is a summary of the principal United States federal
income tax consequences under present law of an investment in the ADSs or in the
Class D Shares. This summary applies only to investors that hold the ADSs or
Class D Shares as capital assets and that have the U.S. dollar as their
functional currency. The summary is not intended as tax advice to any particular
investor, some of which (investors, such as banks, insurance companies, dealers,
traders who elect to mark to market, tax-exempt entities, persons holding an ADS
or Class D Share as part of a straddle, hedging, conversion or constructive sale
transaction and holders of 10% or more of the voting shares of CANTV), may be
subject to special tax treatment. The Company believes, and the discussion
therefore assumes that it is not and will not become a passive foreign
investment company for United States federal income tax purposes.

As used herein, the term "U.S. holder" means a beneficial owner of ADSs
or Class D Shares that is (i) a United States citizen or resident, (ii) a
domestic corporation or partnership, (iii) a trust subject to the control of a
U.S. person and the primary supervision of a U.S. court or (iv) an estate the
income of which is subject to United States federal income taxation regardless
of its source. The term "non-U.S. holder" refers to any other holder of ADSs or
Class D Shares. Holders of ADSs (or ADRs evidencing ADSs) generally will be
treated as the owners of the Class D Shares represented by those ADSs (or ADRs
evidencing ADSs).

U.S.-Venezuela Income Tax Treaty

The United States and Venezuela have concluded an income tax treaty,
which entered into force on December 30, 1999. U.S. holders who are eligible for
the benefits of this income tax treaty will generally be subject to Venezuelan
source withholding tax on dividends at a maximum rate of 15% (or a lower rate in
the case of certain persons that own more than 10% of the Company's voting
stock) and will generally not be subject to Venezuelan income or withholding tax
on gains from the disposition of Class D Shares or ADSs. However, the
determination as to whether an U.S. person is eligible for the benefits of the
income tax treaty is very complex. In particular, a U.S. person that owns Class
D Shares that is not subject to income tax in the United States (such as a
partnership or other pass-through entity) or that has, or is deemed to have a
permanent establishment in Venezuela also may not be eligible for the benefits
of the treaty in respect of taxes on income from, or proceeds from the sale or
ADSs and Class D Shares. U.S. holders are urged to consult their own tax
advisors about eligibility for benefits under U.S.-Venezuela income tax treaty.

Dividends and Other Distributions

Dividends paid with respect to the ADSs or Class D Shares generally
will be included in the gross income of a U.S. holder as ordinary income (to the
extent paid out of current or accumulated earnings and profits, as determined
under U.S. federal income tax principles) when the dividends are received (in
the case of ADSs, by the Depositary). The dividends generally would be foreign
source income. The dividends will not be eligible for the dividends-received
deduction allowed to corporations. Dividends paid in Venezuelan bolivars will be
included in income as an U.S. dollar amount based on the exchange rate in effect
on the date of receipt (which, in the case of ADSs, will be the date of receipt
by the Depositary). A U.S. holder will have a basis in the bolivars received
equal to their U.S. dollar value on

135

the date of receipt. Any gain or loss recognized on a subsequent sale or
conversion of the bolivars for a different amount generally will be United
States source ordinary income or loss.

Distributions to U.S. holders of additional Class D Shares or rights to
subscribe for Class D Shares generally should not be subject to U.S. federal
income tax. However, such distributions could be taxable depending on the nature
of a particular distribution. A U.S. holder's tax basis in the Class D Shares or
rights that are not subject to U.S. federal income tax when received generally
is determined by allocating the U.S. holder's basis in its ADSs between the ADSs
and the Class D Shares or rights on the basis of the relative fair market values
of each, except that in the case of rights whose fair market value is less than
15% of the fair market value of the Class D Shares with respect to which the
rights are distributed, the basis of the rights is zero unless the shareholder
elects to make such an allocation.

A non-U.S. holder generally will not be subject to United States
federal income tax on dividends paid by CANTV with respect to the ADSs or Class
D Shares unless such income is effectively connected with the conduct by the
non-U.S. holder of a trade or business in the United States.

Capital Gains

U.S. holders will recognize capital gain or loss upon the sale or other
disposition of ADSs or Class D Shares (or rights to subscribe for Class D
Shares) held by the U.S. holder or the Depositary in an amount equal to the
difference between such U.S. holder's basis in the ADSs, Class D Shares or
rights, as the case may be, and the amount realized on such sale or other
disposition. Gain and loss recognized by U.S. holder generally will be treated
as United States source income. Consequently, in the case of a disposition of
Class D Shares or ADSs that in either case is subject to Venezuelan tax, the
U.S. holder may not be able to use the foreign tax credit for Venezuelan tax
imposed on the gain unless it can apply the credit against U.S. tax due on other
income from foreign sources in the appropriate foreign tax credit category, or,
alternatively, it may take a deduction for such Venezuelan tax.

U.S. holders will not recognize gain or loss on deposits or withdrawals
of Class D Shares in exchange for ADSs or on the exercise of subscription
rights. If subscription rights expire unexercised, a U.S. holder that has
allocated basis to such rights received as a dividend will not recognize a loss
but must reallocate such basis to the remaining ADSs or Class D Shares held.

A non-U.S. holder of ADSs or Class D Shares will not be subject to
United States federal income tax on gain from the sale or other disposition of
ADSs or Class D Shares unless (i) such gain is effectively connected with the
conduct of a trade or business within the United States; or (ii) the non-U.S.
holder is an individual who is present in the United States for at least 183
days during the taxable year of the disposition, and certain other conditions
are met.

Dividend Indebtedness Vouchers

Depending upon their terms when issued, dividend indebtedness vouchers
issued by CANTV should be treated as debt instruments for United States federal
income tax purposes. A U.S. holder likely will be required to include in gross
income as a dividend the fair market value of a dividend indebtedness voucher
distributed with respect to the Class D Shares when the voucher is received
(which, in the case of ADSs, will be the date of receipt by the Depositary). The
amount included and the holder's initial tax basis in the voucher will be the
U.S. dollar market value of the voucher on the date of receipt.

The voucher may be treated as issued with original issue discount
("OID") in an amount equal to the difference between the total bolivar payments
to be received on the voucher and the bolivar market value of the voucher when
received. A U.S. holder will be required to include such OID in gross income

136

on a constant yield to maturity basis during the period from the receipt of the
voucher to the stated maturity date of the voucher, even though no cash
distributions will be received during that period. A U.S. holder's basis in the
voucher will be increased by undistributed OID included in income. A U.S. holder
may recognize foreign currency gain or loss upon the retirement of the voucher
or the sale or other disposition of the voucher and on any subsequent sale or
conversion of the bolivars received. Such gain or loss generally will be United
States source ordinary income or loss. Gain or loss on the sale or other
disposition of the voucher in excess of foreign currency gain or loss generally
will be capital gain or loss.

U.S. holders should consult their tax advisors concerning the United
States federal income tax consequences of the receipt, ownership and disposition
of dividend indebtedness vouchers.

Information Reporting and Backup Withholding

Dividends in respect of the ADSs or Class D Shares paid to
non-corporate U.S. holders and the proceeds from the sale, exchange, or
redemption of the ADSs or Class D Shares paid to non-corporate U.S. holders may
be reported to the United States Internal Revenue Service. A backup withholding
tax also may apply to amounts paid to such holders unless they provide an
accurate taxpayer identification number or otherwise establish a basis for
exemption. Payments of dividends and the proceeds from the sale or other
disposition of ADSs or Class D Shares made outside the United States to non-U.S.
holders generally are not subject to information reporting and backup
withholding, provided that, in the case of proceeds from a sale or disposition,
the broker through which such payments are received fulfills certain
requirements. In addition, non-U.S. holders may be required to provide
certification of foreign status. The amount of any backup withholding from a
payment to a holder generally will be allowed as a credit against the holder's
United States federal income tax liability.

Dividends and Paying Agents

Not applicable.

Statement by Experts

Not applicable.

Documents on Display

CANTV is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, CANTV
files annual reports and other information to the Securities and Exchange
Commission (the "Commission"). These materials, including this Form 20-F and the
exhibits thereto, may be inspected and copied at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, New York, New York 10048. Copies of
the materials may be obtained from the Public Reference Room of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
public may obtain information on the operation of the Commission's Public
Reference Room by calling the Commission in the United States at 1-800-SEC-0330.
The Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. Form 20-F reports and some of the other
information submitted by CANTV to the Commission may be accessed through this
web site.

137

Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk, including changes in interest
rates and foreign currency exchange rates. The Company does not use derivative
financial instruments in its investment portfolio. The Company places its
investments with high quality European, U.S. and/or Latin American issuers and,
by policy, limits the amount of credit exposure to any one issuer. The Company
is averse to principal loss and ensures the safety and preservation of its
invested funds by limiting default risk, market risk and reinvestment by
investing with European, U.S. and/or Latin American issuers that are guaranteed
by wholly-owned foreign companies with high credit quality securities.

The Company mitigates default risk by investing in highly liquid U.S.
dollar short-term investments, primarily certificates of deposit and commercial
paper, which have maturities of three months or less. The Company does not
expect any material loss with respect to its investment portfolio.

The majority of the Company's indebtedness is denominated in foreign
currencies, primarily in U.S. dollars and Japanese yen, which exposes the
Company to market risk associated with changes in exchange and interest rates.
The Company's policy is to manage interest rate risk through the use of a
combination of fixed and variable rate debt. Presently the Company has not
signed any hedge contract against foreign currency exposures, but keeps cash
reserves in U.S. dollars and Japanese yen as a natural hedge to meet financing
obligations.

The carrying amounts of cash and short-term investments, and short-term
and long-term debt approximate their fair values. The fair value was determined
by quoted market prices.

138

The table below presents principal amounts by year of maturity and the
related weighted average interest rates for the Company's investment portfolio
and debt obligations at December 31, 2001:

Weighted
Average
Interest Year of Maturity
Rate 2002 2003 2004 2005 2005 Thereafter Total
----------- ---------- -------- ------------ ---------- -------- ------------ ----------

Investment portfolio:

U.S. dollars

Certificates of deposit 1.31% 329 - - - - - 329
Overnight deposits 3.25% 352 - - - - - 352
Commercial paper 1.93% 233,341 - - - - - 233,341

Bolivars

Certificates of deposit 26.53% 22,893 - - - - - 22,893
Overnight deposits 2.22% 9,487 - - - - - 9,487
Long-term Government bonds 25.79% 58,593 - - - - - 58,593
---------- -------- ------------ -------- ---------- ------------ ----------
Total 324,996 - - - - - 324,996
========== ======== ============ ======== ========== ============ ==========

Debt Obligations:

U.S. dollars

Fixed rate

Guaranteed notes 9.06% 75,770 - 75,771 - - - 151,541
Bank loans 6.80% 1,494 746 - - - - 2,240
Notes payable to suppliers 6.75% 1,168 - - - - - 1,168

Variable rate

Notes 3.69% 34,110 20,845 - - - - 54,955
IFC loans 6.28% 10,896 10,896 10,896 29,848 3,316 3,316 69,168
Bank loans 4,24% 2,775 - - - - - 2,775

Japanese yen

Fixed rate

Bank loans 5,80% 6,229 6,229 6,229 6,229 6,229 15,571 46,716

Bolivars

Fixed rate

Bank loans 23,50% - - - 16,777 - - 16,777

Variable rate

Bank loans 24,21% 663 852 952 7,842 1,066 4,493 15,868

---------- -------- ------------ -------- ---------- ------------ ----------
Total 133,105 39,568 93,848 60,696 10,611 23,380 361,208
========== ======== ============ ======== ========== ============ ==========

Item 12. Description of Securities Other than Equity Securities

Not applicable.

139

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Due to adverse economic factors in Venezuela, including recession, high
inflation, devaluation and the imposition of exchange controls in June 1994, the
Company was unable to make payments on $525 million of its outstanding bank debt
and $21 million of its obligations with certain vendors. On August 25, 1995, the
Company and a bank advisory committee entered into a refinancing agreement (the
"Refinancing Agreement"), relating to such $525 million of its outstanding debt
and certain of the Company's vendors entered into similar agreements extending
the payment terms for existing obligations. The revised terms included no
forgiveness of principal or interest. The Company prepaid all amounts
outstanding under the Refinancing Agreement during 1996 and 1997.

Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds

Not applicable.

Item 15. (Reserved)

Not applicable.

Item 16. (Reserved)

Not applicable.

140

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

See Item 19 (a for a list of financial statements filed under Item 18).

Item 19. Financial Statements and Exhibits

(a) Financial Statements

Page

Index..................................................................................................... F-1
Report of Independent Public Accountants.................................................................. F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001................ F-3
Consolidated Balance Sheets as of December 31, 2000 and 2001.............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 2000 and 2001.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001................ F-6
Notes to the Audited Consolidated Financial Statements for the Years
Ended December 31, 1999, 2000 and 2001.................................................................. F-7

(b) Exhibits

None.

141

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 2000 and 2001, and
for the years ended December 31, 1999, 2000 and 2001

Page
----

Report of Independent Public Accountants ....................................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000
and 2001 .................................................................................. F-3
Consolidated Balance Sheets as of December 31, 2000 and 2001 ................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 2000 and 2001 .................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 2000 and 2001 ....................................................................... F-6
Notes to the Consolidated Financial Statements for the Years
Ended December 31, 1999, 2000 and 2001 .................................................... F-7

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Compania Anonima Nacional
Telefonos de Venezuela (CANTV):

We have audited the accompanying consolidated balance sheets of Compania Anonima
Nacional Telefonos de Venezuela (a telecommunications corporation established in
Venezuela) ("CANTV" or the "Company") and subsidiaries as of December 31, 2000
and 2001, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial consolidated
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Compania Anonima
Nacional Telefonos de Venezuela (CANTV) and subsidiaries as of December 31, 2000
and 2001 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in Venezuela.

Also, in our opinion, the amounts in the accompanying financial statements
translated into U.S. dollars have been computed on the basis set forth in Note
3.

As discussed in Note 4 to the consolidated financial statements, effective
January 1, 2000, the Company changed its revenue recognition policies.

Accounting practices used by the Company in preparing the accompanying financial
statements conform with accounting principles generally accepted in Venezuela,
but do not conform with accounting principles generally accepted in the United
States. A description of these differences and a reconciliation of consolidated
net income and stockholders' equity to United States generally accepted
accounting principles are set forth in Note 28.

Porta, Cachafeiro, Laria y Asociados
Member Firm of Andersen

Francisco Cachafeiro Arias
Certified Public Accountant No 9298
C.N.V. No C-642

Caracas, Venezuela
January 26, 2002, except for Note 30, as to which the date
is June 12, 2002

F-2

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(Adjusted for inflation and expressed in
millions of constant bolivars
as of December 31, 2001, and millions of U.S. dollars,
except per share and per ADS amounts)

1999 2000 2001 2001
Bs. Bs. Bs. U.S.$
------------ ------------ ---------- --------

OPERATING REVENUES:
Local and domestic long distance usage 674,249 610,132 537,707 709
Basic rent 407,216 354,980 346,364 457
------------ ------------ ---------- --------
Local and domestic long distance 1,081,465 965,112 884,071 1,166

International long distance 169,576 112,541 103,042 136
Net settlements 35,683 32,981 19,797 26
------------ ------------ ---------- --------
International long distance 205,259 145,522 122,839 162

Fixed to mobile - outgoing 567,975 674,031 569,494 751
Interconnection incoming 40,224 59,407 37,001 49

Other wireline-related services 182,402 156,912 204,612 270
------------ ------------ ---------- --------

Total wireline services 2,077,325 2,000,984 1,818,017 2,398
Wireless services 368,466 335,707 409,413 540
Other telecommunications-related services 49,242 51,859 55,596 74
------------ ------------ ---------- --------
Total operating revenues 2,495,033 2,388,550 2,283,026 3,012

OPERATING EXPENSES:
Operations, maintenance, repairs and administrative 1,097,152 1,053,285 915,687 1,208
Depreciation and amortization 748,509 692,457 756,366 998
Interconnection costs 309,263 339,261 286,500 378
Concession and other taxes 157,411 155,391 141,469 186
Special charges 4,587 124,658 36,109 48
------------ ------------ ---------- --------
Total operating expenses 2,316,922 2,365,052 2,136,131 2,818
------------ ------------ ---------- --------

Operating income 178,111 23,498 146,895 194
------------ ------------ ---------- --------

OTHER ESPENSES, NET:
Financing cost, net (54,211) (35,199) (12,209) (16)
Other income (expense), net 7,109 (4,297) (12,535) (17)
------------ ----------
------------ --------

Total other expenses, net (47,102) (39,496) (24,744) (33)
------------ ------------ ---------- --------

Income (loss) before income tax and cumulative
effect of accounting change, net of tax 131,009 (15,998) 122,151 161

INCOME TAX PROVISION 17,391 39,779 43,024 57
------------ ------------ ---------- --------

Income (loss) before cumulative effect of
accounting change, net of tax 113,618 (55,777) 79,127 104

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF TAX - (45,494) - -
------------ ------------ ---------- --------

Net income (loss) 113,618 (101,271) 79,127 104
============ ============ ========== ========

Earnings (loss) per share before cumulative effect
of accounting change, net of tax 114 (58) 87 0.11

Cumulative effect of accounting change, net of
tax, per share - (48) - -
------------ ------------ ---------- --------

Earnings (loss) per share 114 (106) 87 0.11
------------ ------------ ---------- --------

Earnings (loss) per ADS (based on seven shares
per ADS) 796 (745) 606 0.80
============ ============ ========== ========

Average shares outstanding (in millions) 999 952 914 914
============ ============ ========== ========

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

F-3

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 2001
(Adjusted for inflation and expressed in millions of constant bolivars
as of December 31, 2001, and millions of U.S. dollars)

2000 2001 2001
Bs. Bs. U.S.$
----------- ----------- ---------
ASSETS
------

CURRENT ASSETS:

Cash and temporary investments 649,726 301,475 398
Accounts receivable, net 390,175 368,890 487
Accounts receivable from Venezuelan Government entities 115,398 97,898 129
Inventories and supplies, net 37,392 32,691 43
Other current assets 15,697 11,508 15
----------- ----------- --------
Total current assets 1,208,388 812,462 1,072

Property, plant and equipment, net 3,628,621 3,122,840 4,120
Cellular concession, net 107,042 103,634 136
Other assets 268,161 253,084 334
----------- ----------- --------
Total assets 5,212,212 4,292,020 5,662
=========== =========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term debt 62,305 133,105 176
Accounts payable 309,277 260,179 343
Employee severance benefits, net 9,937 9,803 13
Accrued employee benefits 173,059 75,157 99
Other current liabilities 321,286 468,598 618
----------- ----------- --------
Total current liabilities 875,864 946,842 1,249

LONG-TERM LIABILITIES:
Long-term debt 383,296 228,103 301
Pension and post-retirement benefit obligations 388,367 394,989 521
----------- ----------- --------
Total liabilities 1,647,527 1,569,934 2,071

STOCKHOLDERS' EQUITY 3,564,685 2,722,086 3,591
----------- ----------- --------

Total liabilities and stockholders' equity 5,212,212 4,292,020 5,662
=========== =========== ========

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

F-4

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(Adjusted for inflation and expressed in millions of constant bolivars
as of December 31, 2001, and millions of U.S. dollars)

Capital stock
------------------------------------- Additional
Historical Inflation paid-in Retained Legal
cost adjustment Total capital earnings reserve
----------- ------------ ----------- ----------- ----------- -----------

Balance as of December 31, 1998 36,902 1,599,831 1,636,733 20,354 2,412,562 163,678

Accumulated post-retirement benefits - - - - (196,071) -
obligation

Net income - - - - 113,618 -

Dividends declared - - - - (206,844) -

Repurchased shares (45) (1,934) (1,979) - (1,434) -

Change in cumulative translation
adjustment - - - - - -
----------- ------------ ----------- ----------- ----------- -----------

Balance as of December 31, 1999 36,857 1,597,897 1,634,754 20,354 2,121,831 163,678

Net loss - - - - (101,271) -

Dividends declared - - - - (72,013) -

Repurchased shares (2,684) (116,054) (118,738) - (121,361) -

Change in cumulative translation
adjustment - - - - - -

----------- ------------ ----------- ----------- ----------- -----------

Balance as of December 31, 2000 34,173 1,481,843 1,516,016 20,354 1,827,186 163,678

Net income - - - - 79,127 -

Dividends declared - - - - (473,418) -

Repurchased shares - - - - (224,166) -

Change in cumulative translation - - - - - -
adjustment

----------- ------------ ----------- ----------- ----------- -----------

Balance as of December 31, 2001 34,173 1,481,843 1,516,016 20,354 1,208,729 163,678
=========== ============ =========== =========== =========== ===========

Cumulative Total
Treasury transaction stockholders'
stock adjustment equity
---------- ------------ ------------

Balance as of December 31, 1998 - 32,730 4,266,057

Accumulated post-retirement benefits - - (196,071)
obligation

Net income - - 113,618

Dividends declared - - (206,844)

Repurchased shares - - (3,413)

Change in cumulative translation
adjustment - 2,7 2 2,742
---------- ------------ -----------

Balance as of December 31, 1999 - 35,472 3,976,089

Net loss - - (101,271)

Dividends declared - - (72,013)

Repurchased shares - - (240,099)

Change in cumulative translation - 1,979 1,979
adjustment

---------- ------------ ---------------

Balance as of December 31, 2000 - 37,451 3,564,685

Net income - - 79,127

Dividends declared - - (473,418)

Repurchased shares (225,912) - (450,078)

Change in cumulative translation
adjustment - 1,770 1,770
---------- ------------ ---------------

Balance as of December 31, 2001 (225,912) 39,221 2,722,086
========== ============ ===============

The accompanying these consolidated statements.
these consolidated statements.

F-5

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV)
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999,
2000 AND 2001 (Adjusted for inflation and
expressed in millions of constant bolivars
as of December 31, 2001, and millions of U.S. dollars)

1999 2000 2001 2001
Bs. Bs. Bs. U.S.$
------------ ------------- --------- ---------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

Net income (loss) 113,618 (101,271) 79,127 104
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss from net monetary position 7,440 17,790 31,327 41
Exchange loss (gain), net 37,875 2,970 (21,016) (28)
Depreciation and amortization 748,509 692,457 756,366 998
Special charges - 123,948 36,109 48
Cumulative effect of accounting change, net of tax - 45,494 - -
Provision for doubtful accounts 128,767 85,909 65,800 87
Provision for inventories obsolescence - 2,269 9,142 12

Changes in current assets and liabilities:

Accounts receivable (171,856) (16,196) (77,046) (101)
Accounts receivable from Venezuelan Government entities (51,538) 21,860 5,141 7
Inventories and supplies, net 48,292 16,615 4,002 5
Other current assets 10,592 (750) 2,548 3
Accounts payable 133,317 38,451 24,867 33
Accrued employee benefits, net 24,497 14,922 (86,175) (114)
Other current liabilities (38,588) 47,720 (6,226) (8)
------------ ------------- --------- ---------
990,925 992,188 823,966 1,087
Changes in non-current assets and liabilities:

Other assets (20,590) 32,897 8,408 11
Pension and post-retirement benefits obligations 7,362 (28,527) (29,487) (39)
------------ ------------- --------- ---------
Net cash provided by operating activities 977,697 996,558 802,887 1,059

CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of intangibles 33,454 (27,823) (50,750) (67)
Capital expenditures, net of disposals (446,777) (340,304) (205,463) (271)
------------ ------------- --------- ---------
Net cash used in investing activities (413,323) (368,127) (256,213) (338)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from borrowings - 34,426 - -
Payments of debt (44,363) (58,623) (65,067) (86)
Dividend payments (206,844) (72,013) (287,653) (379)
Repurchase of shares (3,413) (240,099) (450,078) (594)
------------ ------------- --------- ---------
Net cash used in financing activities (254,620) (336,309) (802,798) (1,059)
------------ ------------- --------- ---------

Increase (decrease) in cash and temporary investments
before

loss in purchasing power of cash and temporary 309,754 292,122 (256,124) (338)
investment

LOSS IN PURCHASING POWER OF CASH AND TEMPORARY INVESTMENTS
(72,706) (53,883) (92,127) (121)
------------ ------------- --------- ---------
Increase (decrease) in cash and temporary investments 237,048 238,239 (348,251) (459)

CASH AND TEMPORARY INVESTMENTS:
Beginning of year 174,439 411,487 649,726 857
------------ ------------- --------- ---------
End of year 411,487 649,726 301,475 398
============ ============= ========= =========

SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest 42,897 48,780 34,903 46
============ ============= ========= =========
Taxes 107,253 129,846 300,193 396
============ ============= ========= =========

RESULT FROM NET MONETARY POSITION
Operating activities (22,061) (17,448) 24,242 32
============ ============= ========= ==========
Investing activities (3,468) (3,467) (7,174) (9)
============ ============= ========= =========
Financing activities 90,795 57,008 43,732 57
============ ============= ========= =========

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

F-6

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV)
AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts are adjusted for inflation and expressed in millions of constant
bolivars as of December 31, 2001, unless otherwise indicated)

1. EXPLANATION ADDED FOR TRANSLATION INTO ENGLISH:
----------------------------------------------

The consolidated financial statements were originally issued in Spanish and
translated into English.

2. COMPANY BACKGROUND AND CONCESSION AGREEMENT:
-------------------------------------------

Compania Anonima Nacional Telefonos de Venezuela (CANTV or the Company) is one
of the primary providers of telecommunications services in Venezuela, and is the
owner of a nationwide basic telecommunications network through which it provides
not only national and international fixed switched telephone service but also
private network, data, public telephone, rural and telex services. In addition,
through its subsidiaries, CANTV provides other telecommunications-related
services including wireless communications, Internet access and telephone
directories.

CANTV entered into a Concession Agreement (the Concession) with the Government
of the Bolivarian Republic of Venezuela (the Government) in 1991 to provide
national and international telecommunications services, for the purpose of
guaranteeing high quality service, modernizing and expanding the local network,
introducing progressive rate rebalancing and establishing a framework for the
introduction of competition. November 2000 marked the opening of the
telecommunications market with the entrance of new competitors (see Note 5 -
Regulation and Note 21 (d) and (e) - Commitments and contingencies - Concession
mandates and Competition).

Significant terms of the Concession are as follows:

a. The Concession establishes a special privilege regime of limited
concurrence, through which the Government guaranteed CANTV, except in some
circumstances, would be the exclusive provider of fixed switched telephone
services, including local, national and international access until November
27, 2000. Beginning on that date, any party who has obtained the
corresponding administrative concession is able to provide basic
telecommunication services in the country (see Note 5 - Regulation).

b. The Concession is for 35 years ending in 2026, and is extendible for an
additional period of 20 years subject to the approval by the Ministry of
Infrastructure (the Ministry), and satisfactory performance by the Company
of its obligations under the Concession.

c. Until December 31, 2000, CANTV paid annually a total of 5.5% of services
billed. Beginning in January 2001, CANTV is subject to a 4.8% tax on gross
revenues (see Note 5 (a) - Regulation - Organic Telecommunications Law).
Expenses for this concept are included in the accompanying consolidated
statements of operations as Concession and other taxes for Bs. 88,013, Bs.
83,822 and Bs. 71,387 for the years ended December 31, 1999, 2000 and 2001.

d. The Concession required the Company to expand, modernize and improve the
quality of its telephone network as well as to meet prescribed service
quality targets. The Concession mandates

F-7

including national and regional expansion and modernization targets as well
as annual and cumulative targets (see Note 21 (d) and (e) - Commitments and
contingencies - Concession mandates and Competition).

e. The Concession specifies various penalties that may be imposed on CANTV for
negligent or intentional violation of Concession provisions, including
depending on the violation, a public reprimand, a fine of up to 1% of
services billed and/or revocation and termination of the Concession.
Penalties assessed against CANTV through December 31, 2001, have not been
significant.

Eight-Year Review Agreement
---------------------------

On February 21, 2000, CANTV and the Comision Nacional de Telecomunicaciones
(CONATEL) signed an Eight-Year Review Agreement (the Agreement), to be effective
until December 21, 2000. The Agreement included the review of the concession
regarding quality service, tariffs framework, commercialization of new services
and the elimination of the service expansion mandate and the introduction of a
new 80% average digitalization mandate (see Note 5 - Regulation and Note 21 (d)
- Commitments and contingencies - Concession mandates).

3. CONVENIENCE TRANSLATION OF BOLIVARS INTO U.S. DOLLAR AMOUNTS:
------------------------------------------------------------

Unless otherwise noted, all financial information in these financial statements
has been stated in constant bolivars based upon the bolivar's purchasing power
as of December 31, 2001. Bolivar amounts have been translated into U.S. dollar
amounts, solely for the convenience of the reader, at a rate of Bs. 758 to
U.S.$1, the exchange rate reported by the Central Bank of Venezuela as of
December 31, 2001. The translation of amounts expressed in constant bolivars as
of a specified date by the then prevailing exchange rate may result in the
presentation of dollar amounts that differ from the dollar amounts that would
have been obtained by translating constant bolivars as of another specified
date, particularly in periods of high inflation with no corresponding
devaluation, such as has occurred in Venezuela.

Such translation should not be construed as a representation that the bolivar
amounts have been, could have been, or could in the future be converted into
U.S. dollars at this or any other rate of exchange.

4. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES:
---------------------------------------------------------

a. Basis of presentation
---------------------

The consolidated financial statements have been prepared in accordance with
Venezuelan generally accepted accounting principles (Venezuelan GAAP).

The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the amounts of revenues and expenses
during the reporting period. Actual consolidated results may differ from those
estimates.

b. Adjustment for inflation
------------------------

The Company's consolidated financial statements are expressed on a constant
bolivar basis as of December 31, 2001, in accordance with the Venezuelan
Statement of Accounting Principles Number 10 "Standards for the Preparation of
Financial Statements Adjusted for Inflation" (DPC 10) (revised and
comprehensive), issued by the Venezuelan Federation of Public Accountants.

F-8

In December 2000, the Venezuelan Federation of Public Accountants issued the new
DPC 10 (revised and comprehensive), which superseded the standard issued in 1991
and its three amendments as well as the technical publications number 14 and 19.
The main changes outlined in this standard pertain to presentation and not
methodology, and is effective for those periods beginning after December 31,
2000.

The amounts disclosed in the consolidated financial statements have been
adjusted to reflect the bolivar's purchasing power at December 31, 2001 based on
the Consumer Price Index (CPI) for the metropolitan area of Caracas as published
by the Central Bank of Venezuela (BCV).

The most representative indexes used in the preparation of the inflation
adjusted financial statements are as follows (1997 base):

1999 2000 2001
--------------- -------------- ----------------

End of year 181.58866 205.97793 231.27564
Average for year 167.78597 194.97653 219.40902

Each caption in the accompanying consolidated financial statements has been
presented on the basis of the CPI at December 31, 2001, as follows:

i. Monetary assets and liabilities (cash and temporary investments, accounts
receivable, other assets and most liabilities) as of December 31, 2001,
have not been adjusted for the effect of inflation since they already
represent their inflation adjusted value at that date. The balances as of
December 31, 2000, have been updated based upon the relative change in
the CPI between that date and the CPI at December 31, 2001.

ii. Non-monetary assets (principally inventories and supplies, net, property,
plant and equipment, net, cellular concession, net and certain other
assets) and stockholders' equity have been updated based upon the
relative change in the CPI between the time the assets and equity were
acquired or contributed and the CPI at December 31, 2001.

iii. The non-monetary liability for pension and other post-retirement benefit
obligations and its related expense, are recorded based on actuarial
calculations (see Note 15 - Retirement benefits).

iv. Monetary revenues and expenses have been updated based upon the change in
the CPI from the month in which the transaction was recorded and the CPI
at December 31, 2001.

v. Non-monetary expenses (primarily depreciation and amortization) are based
upon the values of the corresponding assets (primarily property, plant
and equipment) in the accompanying consolidated balance sheets (See (ii)
above).

vi. The monetary gain (loss) is attributable to the Company's net monetary
asset or liability position in an inflationary period and has been set
forth as loss from net monetary position as part of the Financing cost,
net caption in the accompanying consolidated statements of operations
(see Note 17 - Financing cost, net).

c. Consolidation
-------------

The consolidated financial statements include CANTV and all of its
majority-owned subsidiaries. All significant intercompany balances and
transactions among the companies have been eliminated.

F-9

d. Cash and temporary investments
------------------------------

Cash and temporary investments include short-term, highly liquid investments,
which have original maturities of three months or less. The loss in the
purchasing power of cash and temporary investments due to inflation is reflected
as a separate caption in the consolidated statements of cash flows.

e. Inventories and supplies, net
----------------------------

Inventories and supplies are presented at the lower of cost or market value
using the average method. Certain inventories and supplies whose original cost
per unit does not exceed U.S. $500 are expensed when purchased.

f. Depreciation and amortization
-----------------------------

Depreciation and amortization are calculated using the straight-line method
based on the estimated useful lives of the fixed assets and based on the
amortization period assigned to the intangible assets. The costs of other
intangible assets (see Note 11 - Other assets) and the cost of the cellular
concession (see Note 6 - Cellular concession) are amortized over the expected
periods benefited, not to exceed twenty and forty years, respectively.
Amortization expense was Bs. 45,328, Bs. 11,308 and Bs. 54,263 for the years
ended December 31, 1999, 2000 and 2001, respectively. Accumulated amortization
was Bs. 254,609 and Bs. 308,872 at December 31, 2000 and 2001, respectively.

In November 2000, the Company, based on technical evaluations, reviewed and
updated the depreciable lives of certain assets, including civil works and
buildings, towers and shelters related to wireless operations, and changed the
useful lives from seven to twenty years. This change in the estimation did not
have a significant impact in the Company's consolidated financial statements.

g. Capitalized software
--------------------

The costs of certain purchased computer software and systems for internal use
are capitalized and classified as intangible assets. The estimated useful lives
of these intangible assets are between three and seven years. Internal-use
software is defined as software which is acquired, internally developed, or
modified solely to meet the internal needs of the Company; and for which, during
the software's development or modification, no substantive plan exists or is
being developed by the Company to market the software externally. Regular
maintenance and modifications to existing software are expensed when incurred.

h. Impairment of long-lived assets
-------------------------------

The Company evaluates the impairment of long-lived assets, including intangible
assets, based on the projection of undiscounted cash flows whenever events or
changes in circumstances indicate that the carrying amounts of such assets may
not be recoverable. In the event such cash flows are not expected to be
sufficient to recover the recorded value of the assets, the assets are written
down to their estimated fair values. Under current circumstances, no adjustment
for impairment in the carrying value of the long-lived assets has been recorded.

i. Revenue recognition
-------------------

Revenues for wireline and wireless services are recognized in the period in
which the services are provided. Unbilled revenues of Bs. 144,291 and Bs. 99,234
are included in accounts receivable as of December 31, 2000 and 2001,
respectively. Revenues from settlement of traffic with international

F-10

telecommunications carriers are recognized on a net basis and are based on
estimates of traffic volume and rates. Advertising revenues and related
telephone directory printing costs are recognized upon publication of the
directories. The Company presents as deferred income, included in the other
current liabilities caption, those amounts of billed services, which have not
yet been rendered, such as submarine cable usage, basic rent for
telecommunications services and telephone directories (see Note 14 - Other
current liabilities).

The Securities and Exchange Commission (SEC) issued "Staff Accounting Bulletin
101 (SAB 101), Revenue Recognition in Financial Statements", in December 1999.
SAB 101 summarizes the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, and
establishes the criteria and attributes to recognize revenues. The Company
believes that its revenue recognition policies are in accordance with SAB 101.

During 2000, the Company reviewed its revenue recognition polices for prepaid
services and subscriber right fees and changed the way it was accounting for
these services. Subscriber right fees, which are upfront fees paid by consumers
when service is activated, are classified as a liability in the consolidated
balance sheet. The Company believes that the opening of the telecommunications
market, in which consumers have a choice of carrier, changes the way in which
subscriber right fees should be accounted for on the Company's books. The
cumulative effect of this change, net of tax was Bs. 38,962. Other changes to
revenue recognition were also made and the cumulative effect of this change
related to revenue, net of tax was Bs. 6,512.

During 2001, the Company changed the way it reports interconnection revenues and
costs in the consolidated statements of operations. Revenues from Fixed to
mobile outgoing calls include the amount paid by customers for fixed to mobile
calls terminating in a wireless operator. The portion related to basic telephony
charged to a wireless operator for mobile to fixed calls is included as
Interconnection incoming revenue, while costs charged to CANTV and its
consolidated subsidiary Movilnet from a wireless operator for the
interconnection portion of fixed to mobile traffic, as well as mobile to mobile
are presented as Interconnection costs in the consolidated statements of
operations. Previously, only the fixed portion of the fixed to mobile traffic
was included as revenue, while the cost for the outgoing fixed to mobile or
mobile to mobile traffic were presented net of such revenues. The Company
believes that this change better illustrates the dynamics of interconnection
revenues and costs under the recently implemented interconnection regimen. This
change was applied to all the periods presented in the consolidated statements
of operations for comparative purposes. These changes did not have an impact on
the reported results of operations.

j. Income tax
----------

The income tax is calculated based upon taxable income that is different from
the income before tax. Venezuelan tax legislation does not permit consolidation
of the results of subsidiaries for tax purposes. Investment tax credits for
property, plant and equipment reduce the income tax during the year in which
such assets are placed in service. Investment tax credits, as well as tax
losses, except those from the tax inflation adjustment, are permitted to be
carried forward for three years. Venezuelan tax regulations also provide for a
corporate asset alternative minimum tax based on inflation adjusted net assets
(see Note 19 - Income tax).

The Company recognizes through the deferral method, the impact of income taxes
originated from temporary differences existing between the income tax expense
calculated on the basis of net income, determined in accordance with generally
accepted accounting principles, and this concept, calculated on the taxable
income for the period, determined in accordance with current tax legislation.
Such tax effect is assigned to future periods in which such temporary
differences will be realized. Recording of the deferred

F-11

income taxes is subject to its possible realization beyond a reasonable doubt.
Based on current conditions, the Company has not recorded the asset resulting
from deferring the tax effect of temporary reconciliation differences.

k. Employee severance benefits and other benefits
----------------------------------------------

Employee severance benefits are calculated and recorded in accordance with the
Venezuelan labor law and the Company's current collective bargaining agreement.

Under current labor law, employees earn a severance indemnity equal to five days
salary per month, up to a total of 60 days per year of service. Labor
indemnities vest once an employee has completed three months of continuous
service. Beginning with the second year of service, the employees earn an
additional two days salary for each year of service (or fraction of a year
greater than six months), cumulative up to a maximum of 30 days salary.
Severance benefits must be funded and deposited monthly in either an individual
trust or a severance fund, or accrued in an employer's accounting records, as
specified in writing by each employee.

In the case of unjustified or involuntary termination, employees have the right
to an additional indemnification payment of one month of salary per year of
service up to a maximum of 150 days of current salary. Furthermore, in the case
of involuntary termination the law established the payment of an additional
severance benefit of up to a maximum of 90 days of current salary based on
length of employment.

Additionally, the Venezuelan labor law requires a mandatory annual profit
sharing distribution to all employees. CANTV made distributions equal to 120
days of salary for the years ended December 31, 1999, 2000 and 2001 totaling Bs.
48,373, Bs. 51,359 and Bs. 37,875, respectively.

l. Pension plan and other post-retirement benefits
-----------------------------------------------

The noncontributory pension plan benefits are accrued based on actuarial
estimates. The real discount rate and real rate of compensation increase used to
develop the projected benefit obligation were 7% and 2%, respectively (see Note
15 - Retirement benefits).

Post-retirement benefits relating to health care expenses are recorded based on
actuarial estimates (see Note 15 - Retirement benefits).

m. Foreign currency denominated transactions
-----------------------------------------

Foreign currency denominated transactions are recorded at the bolivar exchange
rate as of the transaction date. The outstanding balances of foreign currency
denominated assets and liabilities are translated into bolivars using the
exchange rate at the balance sheet date, which were Bs. 700 and Bs. 758 per U.S.
dollar as of December 31, 2000 and 2001, respectively (see Note 7 - Balances in
foreign currency). Any exchange gain or loss from the translation of these
balances and transactions is reflected as exchange (loss) gain, net in the
Financing cost, net caption in the accompanying consolidated statements of
operations (see Note 17 - Financing cost, net).

n. Legal reserve
-------------

The Company and each of its subsidiaries are required under the Venezuelan
Commercial Code and their Corporate By-laws to transfer at least 5% of each
year's net income to a legal reserve until such reserve equals at least 10% of
capital stock.

F-12

o. Earnings (loss) per share
-------------------------

Earnings (loss) per share are based on 999,897,508, 951,961,030 and 914,462,674
of weighted-average number of common shares outstanding at December 31, 1999,
2000 and 2001, respectively.

5. REGULATION:
----------

CANTV's services and tariffs are regulated by the rules established in the
Concession agreement, the Organic Telecommunications Law enacted in 2000 and its
Regulations, as well as the Agreement (see Note 2 - Company background and
concession agreement).

The Organic Telecommunications Law along with the Regulations, provide the
general legal framework for the regulation of telecommunications services in
Venezuela. Under the Organic Telecommunications Law, suppliers of public
telecommunications services, such as the Company, must operate under concessions
granted by the Government, which acts through the Ministry.

CONATEL is an independent regulatory body under the direction of the Ministry,
created by presidential decree in September 1991, which has the authority to
manage, regulate and control the use of limited resources in the
telecommunications services in Venezuela, and recommend the granting of
concessions, licenses and administrative authorizations as well as the approval
of tariffs and collection of related taxes. Also, it shall promote and protect
free competition, together with the Superintendent of Promotion and Protection
of Free Competition (Pro-Competencia).

a. Organic Telecommunications Law
------------------------------

On June 12, 2000, the Venezuelan Government issued the Organic
Telecommunications Law, which provides the guidelines for the opening of the
telecommunications sector for existing and new operators after November 2000.
This Law replaces the 1940 Organic Telecommunications Law and it is the result
of several years of consultation between the private and public sector. Some of
the most important aspects of the Organic Telecommunications Law are as follows:

i. Provides the legal framework to establish specific regulations related to
interconnection, universal service, spectrum, administrative concessions,
networks, taxes, as well as penalties, consumer's and operator's rights
and responsibilities.

ii. Defines telecommunications as an activity of general interest rather than
as a public service, as provided by the former law.

iii. Operator's freedom to set rates is specified, establishing controls only
in cases where dominant control is evidenced and in cases of insufficient
competition.

iv. Adopts a new tax regime applicable to all telecommunications service
providers on the basis of gross revenues. The new taxes replace the
former annual tax and concession fee of 5.5% for wireline and 10% for
wireless services. The new tax rates are: 2.3% activity tax, 0.5% tax to
cover CONATEL's activities, 0.5% tax for spectrum allocation, 1% tax to
create the Universal Service Fund and 0.5% tax for the Telecommunications
Training and Development Fund. In addition, cellular providers are
subject to a supplemental tax starting at 4.5% of gross revenues in the
year 2000 and decreasing by 1% per annum until 2005 after which time the
supplemental tax will be eliminated.

F-13

b. Telecommunications regulations
------------------------------

On November 24, 2000, the Regulations for Basic Telephony Services,
Interconnection and Administrative concessions were issued and represent the
legal framework for the market opening of telecommunication services in
Venezuela.

The most significant aspects of these Regulations include:

i. Requirements, conditions and limitations for the opening of basic
telephony services in a free competition environment and equal
opportunities between existing and new operators.

ii. Regulation for mandatory interconnection with charges based on costs,
changing the previous structure of interconnection charges based on
tariffs. It also requires the submission of quarterly accounting
information by separate accounts and before the fourth quarter of 2001,
carriers must establish accounting systems indicating costs generated by
interconnection and the allocation criteria. At December 31, 2001, CANTV
has signed seven interconnection agreements with different operators (see
Note 21 (e) - Commitments and contingencies - Competition).

iii. The rules for granting administrative concession for the network
establishment and development and the rendering of telecommunication
services and the spectrum concession usage and development. Additionally,
spectrum concession will be granted through public offering procedures
and in certain cases, direct adjudication will be granted. Value added
services, except for Internet services, does not require authorization,
only notification specifying the networks, links or systems to support
the service.

c. Tariffs
-------

Before CANTV entered into the Agreement with CONATEL, CANTV's rates were
regulated under the Concession, through a "price-cap" and a "rate rebalancing"
mechanism that promoted operating efficiency and allowed for progressive tariff
adjustments.

The Agreement signed in February 2000 (see Note 2 - Company background and
concession agreement) established two tariffs adjustments which went into effect
on March 23 and June 16, 2000.

On February 22, 2001, pursuant to the Organic Telecommunications Law, CONATEL
established the maximum tariffs that are applicable during 2001, effective March
10, 2001 and a new "price-cap" system that replaced the tariff adjustment
mechanism provided under the Agreement. Under the new "price-cap" system
applicable for 2001, the maximum tariffs may be adjusted based on a formula tied
to the wholesale price index (WPI) and the rate of devaluation of the Bolivar.
The "price-cap" system allows for an increase or decrease in the established
tariffs based on deviations of 2.5% above or 2.5% below projected monthly
estimates of those indexes. CANTV may apply for an upward adjustment to the
established tariffs up to 2.5% above the accrued excess of the projected index.
CONATEL may request a downward adjustment to the established tariffs up to 2.5%
below the accrued excess of the projected index. If accrued excess of the
projected index deviates more than 7.5% above, CONATEL must review the
"price-cap" formula.

F-14

6. CELLULAR CONCESSION:
-------------------

On May 19, 1992, the Company purchased one of two cellular concessions from the
Government for Bs. 138,387 (Bs. 5,388 on an historical cost basis) and
established Telecomunicaciones Movilnet, C.A. (Movilnet). The amount paid for
the cellular concession is being amortized over 40 years.

Until December 2000, the annual payment of cellular concession fee based on
services billed was 10%. Beginning in 2001, the tax regime applicable to
cellular services providers is up to 9.3% of gross revenues. (see Note 5 (a) -
Regulation - Organic Telecommunications Law).

For the years ended December 31, 1999, 2000 and 2001, the Concession tax
expenses included in the consolidated statements of operations were Bs. 37,279,
Bs. 43,336 and Bs. 43,946, respectively.

7. BALANCES IN FOREIGN CURRENCY:
----------------------------

The Company has assets and liabilities denominated in U.S. dollars and Japanese
yens (see Note 22 - Market risk) as of December 31, as follows:

2000 2001
-------- --------
(Expressed in millions of
U.S. dollars)

Cash and temporary investments 743 304
Accounts receivable, net 28 37
Other assets and advances to suppliers 36 29
Accounts payable (165) (92)
Short and long-term debt (512) (434)
------- -------
Net asset (liability) position in foreign currency 130 (156)
======= =======

8. ACCOUNTS RECEIVABLE, NET:
------------------------

The Company's accounts receivable, net balances as of December 31, are as
follows:

2000 2001
----------- -----------
Subscribers 426,190 367,530
Net settlements 18,382 21,088
Other 17,620 33,687
----------- -----------
462,192 422,305
Less: Allowance for doubtful accounts (72,017) (53,415)
----------- -----------
390,175 368,890
=========== ===========

9. ACCOUNTS RECEIVABLE FROM VENEZUELAN GOVERNMENT ENTITIES:
-------------------------------------------------------

The Company's largest customer is the Venezuelan public sector, including the
Government, its agencies and enterprises, and the Venezuelan states and
municipalities (collectively, Government entities). Government entities
generated approximately 9%, 9% and 5% of the Company's revenues during each of
the years ended December 31, 1999, 2000 and 2001.

F-15

The following table sets forth the aging of accounts receivable from Government
entities as of December 31:

2000 2001
------------- -------------
Year of Service
---------------

2001 - 36,999
2000 61,900 26,625
1999 and prior 53,498 34,274
------------- -------------
115,398 97,898
============= =============

The changes in accounts receivable from Government entities are as follows:

2000 2001
------------ -------------

Balance at beginning of year 154,368 115,398
Billings 188,716 117,869
Collections (210,577) (122,746)
Monetary loss (17,109) (12,623)
------------ -------------
Balance at end of year 115,398 97,898
============ =============

The amounts that Government entities can pay for telecommunications services are
established in annual budgets, which are not based upon actual usage during such
year. As a result of these budgeting processes and for other macroeconomic
reasons, a number of Government entities have not paid the Company in full for
telecommunications services received. In addition, as a result of inflation and
devaluation, the value of these balances has decreased.

Although the Company has, in the case of certain Government entities, reduced
the number of lines available, there can be no assurance that Government
entities will not continue to use telecommunications services in excess of the
amounts that can be paid, that the Company will not continue to experience
significant delays in collecting receivables from Government entities or that
inflation and devaluation will not continue to decrease the value of these
receivables to the Company. Failure by Government entities to pay the amounts
owed to the Company or the amounts to be billed in the future, has had, and will
continue to have, an adverse effect on the profitability of the Company.

In 1999, the Congress approved a Law authorizing the issuance of bonds to
refinance internal and external debt. The amount set aside for payments of debt
owed CANTV as of December 1998 amounted Bs. 37,000. In December 2000, the
Company received Bs. 34,089 from these bonds.

In 2001, the National Assembly, previously the Congress, approved a decree
authorizing the issuance of bonds for the payment of basic services. The amount
set aside for payments of debt owed CANTV in the period 1996-2000 amounted Bs.
43,300. During 2001, the Company collected Bs. 6,633 from these bonds.

CANTV's management believes all amounts from Government entities will be
collected either in cash and/or through Government bonds.

F-16

10. PROPERTY, PLANT AND EQUIPMENT, NET:
----------------------------------

Property, plant and equipment, net as of December 31, is comprised as follows:

2000 2001
----------- -----------

Plant 9,159,485 9,314,037
Buildings and facilities 1,150,531 1,157,416
Furniture and equipment 747,852 754,065
Vehicles 79,234 66,306
----------- -----------
11,137,102 11,291,824
Less: Accumulated depreciation (7,621,666) (8,258,713)
----------- -----------
3,515,436 3,033,111
Land 43,150 43,257
Construction work in progress 70,035 46,472
----------- -----------
3,628,621 3,122,840
=========== ===========

The average useful lives for the different classes of property, plant and
equipment are as follows:

Average useful
lives (in years)
-------------------

Plant 3 to 32
Buildings and facilities 5 to 25
Furniture and equipment 3 to 7
Vehicles 3 to 5

Property, plant and equipment includes capitalized direct labor and allocated
overhead costs, as well as materials used in connection with construction work
in progress. Capitalized direct labor and allocated overhead costs totaled Bs.
88,174, Bs. 71,528 and Bs. 15,181 for the years ended December 31, 1999, 2000
and 2001, respectively. Maintenance and repair costs are expensed when incurred
while major improvements and renovations are capitalized.

11. OTHER ASSETS:
------------

Other assets as of December 31, are comprised as follows:

2000 2001
--------- --------

Software and other intangible assets, net 181,320 170,370
Prepaid taxes 16,099 11,945
Investment in INTELSAT 28,194 22,275
Employees benefit fund and other 42,548 48,494
--------- --------
268,161 253,084
========= ========

Software and other intangible assets include the cost of computer software and
systems for internal use, net of accumulated amortization (see Note 4 (g) -
Summary of significant accounting principles and policies - Capitalized
software) and the cost of usage rights of satellites and submarine cables, which
are amortized over periods ranging from three to seven years based upon the
terms of contracts granting usage rights.

F-17

Prepaid taxes include taxes assessed on the inflation adjusted value of fixed
assets. In 1991, the Venezuelan Income Tax Law was revised to incorporate new
provisions. Under this new law, companies were required to pay an initial tax
equal to 3% of the inflation adjusted value of fixed assets. This initial tax
was paid prior to 1996 and has been deferred and is being amortized over the
estimated useful lives of the related assets.

As of December 31, 2001, the investment in INTELSAT represents the Company's
participation of 1.12% in the International Satellite Telecommunications
Organization. The Company accounts for this investment using the equity method.
The functional currency of INTELSAT is the U.S. dollar.

In 1993, the Company contributed Bs. 49,704 to the "Employees Benefit Fund".
This amount was deposited in a Bank Trust on behalf of employees and was
utilized to acquire 1% of CANTV's capital stock to be distributed to the
employees as part of the "Excellence Award" program launched by CANTV. The
Company amortizes this contribution as the employees earn stock awards. At
December 31, 2000 and 2001, 9,228,583 and 9,423,154 shares were available for
distribution to employees under this plan.

12. LONG-TERM DEBT:
---------------

Long-term debt as of December 31, is comprised of the following:

2000 2001
--------------- --------------

Notes in U.S. dollars at interest rates of 8.88% and 9.25% maturing in
2002 and 2004, respectively. 157,075 151,541

Notes in U.S. dollars at interest rates of six-month LIBOR plus a margin between
1.35% and 1.75%, (averaging 8.19% and 3.69% at December 31, 2000 and 2001,
respectively), maturing through 2003. 84,492 54,955

Bankloans in Japanese yen at a fixed interest rate of 4.25%, and in U.S.
dollars at interest rates of six-month LIBOR plus a margin between 0.25% and
0.75% (averaging 5.93% and 5.83% at December 31, 2000 and 2001,
respectively), maturing through 2009. 69,508 49,735

IFC loans in U.S. dollars at variable interest rates:
a. Six-month LIBOR plus a margin of 1.75%, (averaging 8.87% and
5.57% at December 31, 2000 and 2001, respectively), maturing
through 2005. 39,299 30,320

b. Six-month LIBOR plus a margin of 2.00%, (averaging 8.22% and
5.82% at December 31, 2000 and 2001, respectively), maturing
through 2007. 24,071 19,898

c. Six-month LIBOR plus a margin between 3.00% and 6.00%
(averaging 12.36% and 7.89% at December 31, 2000 and 2001,
respectively), maturing through 2005. 19,649 18,950

F-18

2000 2001
----------- ----------

Supplier loans in U.S. dollars at interest rates of six-month LIBOR plus a
margin of 0.25% to 0.75% (averaging 6.75% and 3.84% at December 31, 2000 and
2001, respectively), maturing through 2002. 5,761 1,996

Notes payable to suppliers in U.S. dollars at fixed interest rates
(averaging 7.00% and 6.75% at December 31, 2000 and 2001,
respectively), maturing through 2002. 2,640 1,168

Banks loans in bolivars bearing interest at the average lending rate of the four
major banks in Venezuela (27.84% and 25.76% at December 31, 2000 and 2001,
respectively), maturing through 2003. 4,231 2,092

Bankloans in bolivars at a fixed and variable interest rate of 22.81% and
23.31% at December 31, 2000 and 2001, respectively, maturing
through 2010. 33,542 30,553
----------- ----------
440,268 361,208
Less: Current maturities (56,972) (133,105)
----------- ----------
383,296 228,103
=========== ==========

On June 7, 1996, the Company entered into an agreement with the International
Finance Corporation (IFC Facility). Pursuant to the IFC Facility, the Company
obtained loan commitments aggregating up to U.S. $261 million, of which U.S.
$175 million was disbursed. Of the amount disbursed, U.S. $75 million was used
in the Company's modernization and expansion program as mandated by the
Concession and for certain other capital expenditures. The remaining U.S. $100
million represents the conversion of certain debt outstanding under a Bank
Refinancing Agreement into longer term debt. In March 1998, the Company paid
U.S. $150 million of the debt outstanding under the IFC Facility with the
proceeds from the sale of variable interest rate notes issued by CANTV Finance
Ltd., a wholly-owned subsidiary of the Company, which are unconditionally and
irrevocably guaranteed as to payment of principal and interest by CANTV. The
principal on the remaining loan is payable as a single payment of U.S. $25
million in 2005. The interest rate on this loan is based on LIBOR plus a margin
and an additional amount of up to 3% based on the Company's annual net income
equivalent in U.S. dollars.

Pursuant to the IFC Facility, the Company may pay dividends only if it is
current with respect to its semi-annual payments. In addition, the Company is
required to meet certain financial ratios, including a long-term debt-to-equity
ratio, a current ratio and a fixed charge coverage ratio, each as defined by the
agreement. The Company has complied with these covenants as of December 31,
2001.

In 1997, Movilnet signed an agreement with the IFC for two loans totaling $95
million, which were disbursed during 1998. The proceeds of these loans were used
for expansion and modernization of the cellular network.

In September 2000, the Company issued discount promissory notes of Bs. 28,000
million denominated in bolivars with a maturity of five years. The promissory
notes were placed at a 44% discount and an annual fixed interest rate of 23.5%.
The discount is amortized using the effective rate method. At December 31, 2001
the balance of these notes, presented net of the unamortized discount, was Bs.
16,778 million. Additionally, two loan agreements were signed with local banks
for Bs. 7,000 million each, with maturities between one and five years.

F-19

Estimated payments of long-term debt are: Bs. 133,105 in 2002, Bs. 39,568 in
2003, Bs. 93,848 in 2004, Bs. 71,919 in 2005, Bs. 10,611 in 2006 and Bs. 12,157
thereafter.

13. SHORT-TERM DEBT:
---------------

Short-term debt as of December 31, is comprised as follows:

2000 2001
------------- -------------

Bank loans in bolivars at various interest rates (averaging 11.04% at
December 31, 2000) 5,333 -

Current maturities of long-term debt 56,972 133,105
------------- -------------
62,305 133,105
============= =============

14. OTHER CURRENT LIABILITIES:
-------------------------

Other current liabilities as of December 31, are comprised of the following:

2000 2001
------------ --------------

Concession tax 113,670 55,014
Subscriber rights 67,216 56,727
Deferred income 52,522 72,414
Accrued liabilities 25,625 28,307
Income, value-added and other taxes 18,075 28,488
Interest payable 12,668 10,196
Legal claims 11,803 16,761
Technical and administrative services due to affiliates of
VenWorld's stockholders 7,320 7,208
Dividends payable - 185,765
Other 12,387 7,718
------------ --------------
321,286 468,598
============ ==============

15. RETIREMENT BENEFITS:
-------------------

Pension plan

The Company sponsors a noncontributory pension plan for its employees. The
benefits to be paid under the plan are based on years of service rendered and
the employee's final salary. At December 31, 2000 and 2001, the Company has
funded Bs. 131,668 and Bs. 114,177, respectively, in a trust for this purpose.

The components of pension expense for the years ended December 31 are as
follows:

1999 2000 2001
------------ ------------- ----------

Benefits earned during the year 18,412 16,920 9,955
Interest cost on projected benefit obligation 27,995 22,224 22,047
Return on assets - (4,331) (9,527)
Amortization of prior service cost (10,553) (10,553) (6,895)
Other 19,372 6,931 1,858
---------- --------- ----------
55,226 31,191 17,438
========== ========== ==========

F-20

The accrued pension plan obligation as of December 31, is as follows:

2000 2001
--------- --------

Accumulated benefit obligation 296,547 367,295
========= ========
Projected benefit obligation 328,744 390,355
Funded amount (131,668) 114,177)
Unrecognized transition obligation (6,885) (3,597)
Unrecognized net losses (80,244) 112,539)
Unrecognized prior service cost 86,541 49,666
--------- --------
Pension obligations (including current portion of Bs. 7,958 and
Bs. 18,894, respectively) 196,488 209,708
========= ========

Assumptions used to develop the projected benefit obligation are as follows:

Discount rate 7%
Expected return on assets 9%
Rate of compensation increase 2%

These assumptions represent estimates of real interest rates and compensation
increases rather than nominal rates. The unrecognized transition obligation is
being amortized over 20 years.

Post-retirement benefits other than pensions

Beginning 1999, the Company recorded medical claims related to accrued
post-retirement benefit obligations other than pensions, based on actuarial
calculations. Such calculations are based on the average medical claims per
retiree for 1998.

The components of post-retirement benefit expense for the years ended December
31, are as follows:

1999 2000 2001
------- ------- -------

Benefits earned during the year 3,557 3,925 3,326
Interest cost on accumulated post-retirement benefit obligations 13,201 15,627 19,522
Other - 959 4,442
------- ------- -------
16,758 20,511 27,290
======= ======= =======

The accrued post-retirement benefit obligation as of December 31, is as
follows:

2000 2001
-------- --------

Active employees 88,077 65,272
Retirees 188,390 231,124
-------- --------
Accumulated post-retirement benefit obligation 276,467 296,396
Unrecognized net losses (73,884) (69,014)
-------- --------
Accrued post-retirement benefit (including current
portion of Bs. 2,746 and Bs. 23,207, respectively) 202,583 227,382
======== ========

F-21

Assumptions used to develop the accumulated post-retirement benefit obligation
are as follows:

Discount rate 7%
Medical cost trend rate 2%

These assumptions represent estimates of real interest rates and medical cost
trend rate increases rather than nominal rates. The unrecognized transition
obligation is being amortized over eleven years.

Workforce reduction program
---------------------------

The work force reduction program completed in 2001 (see Note 23 - Work force
reduction program) resulted in a net expense of Bs. 36,109 from additional
termination benefits and curtailment, included in the accompanying statement of
operations for the year ended December 31, 2001 as special charge.

Defined contribution plan
-------------------------

The Company has a defined contribution plan (Special Economic Protection Plan
for Eligible Retirees) to supplement the current pension benefits of retirees as
of August 15, 1995. Contributions are allocated to retirees based upon their
age, pension income and other existing benefits. At December 31, 2001, the
Company has funded Bs. 15,341 for this plan. The Company is not required to
increase the funding of this plan.

16. STOCKHOLDERS' EQUITY:
--------------------

Dividends
---------

The Venezuelan Commercial Code, Capital Markets Law and the Standards issued by
the Comision Nacional de Valores (CNV), regulate the ability of the Company to
pay dividends. In addition, some of the Company's debt agreements provide for
certain restrictions that limit the ability of the Company to pay cash dividends
(see Note 12 - Long-term debt). The Commercial Code establishes that dividends
shall be paid solely out of "liquid and collected earnings", and the Capital
Markets Law mandates that the Company distribute to its shareholders every year
not less than 50% of its annual net income, after income tax provision and
having deducted the legal reserves. Likewise, the Capital Markets Law provides
that at least 25% of such 50% shall be paid to the shareholders in cash.
However, should the Company have accumulated losses, any net income shall
initially be applied to offset such deficit.

According to the CNV Standards, the unconsolidated net income excluding the
equity participation of subsidiaries adjusted for inflation is the base for
dividends distribution.

Net income for the year ended December 31, 2001, available for dividends
distribution, is composed as follows:

Net income before income tax 71,876
Income tax (41,342)
--------
Net income available for dividend distribution 30,534
========

The Capital Markets Law provides that dividends must be declared in a
Shareholders' Assembly during which the shareholders determine the amount, form
and frequency of the dividend payment. Additionally, the By-laws of companies
under CNV regulation must state their dividend policies. The CNV cannot

F-22

exempt a company with publicly traded securities from paying the minimum
dividends in the year in which the income is generated.

On March 31, 2000, an Ordinary Shareholders' Assembly declared a cash dividend
of Bs. 60 per share and Bs. 420 per ADS to shareholders of record as of April
11, 2000. This dividend was paid on April 28, 2000.

On March 27, 2001, an Ordinary Shareholders' Assembly declared a cash dividend
of Bs. 63 per share and Bs. 441 per ADS to shareholders of record as of April 6,
2001. This dividend was paid on April 24, 2001.

On October 24, 2001, an Extraordinary Shareholders' Assembly declared an
extraordinary cash dividend of Bs. 520 per share and Bs. 3,640 per ADS to be
paid in two installments, one of Bs. 284 per share on December 10, 2001 to
shareholders of record as of December 3, 2001 and the other one of Bs. 236 per
share on March 18, 2002 to shareholders of record on a date to be determined in
March 2002 (see Note 25 - Takeover tender offer).

Guidelines for future dividends distribution

On December 14, 2001, CANTV's Board of Directors approved some guidelines for
the annual dividend distribution beginning in 2002. These guidelines include the
distribution to the shareholders of 50% of the prior year cash flow, defined as
free cash flow taken from audited consolidated financial statements, net of debt
and interest payments scheduled for the following year. Annual payment of
dividends will be made in bolivars in quarterly installments pursuant to the
Board of Directors' recommendation and approval of the Annual Shareholders'
Assembly, according to current Venezuelan legislation.

Capital stock

Capital stock is represented by 926,037,385 shares at December 31, 2001, as
follows:

2001
----------------------------------
Participation Number of shares
Stockholder Class % (in thousands)
---------------------------------------------------- ---------- ------------- ----------------

VenWorld Telecom C.A. (VenWorld) A 32.95 259,321
Inversiones Inextel, C.A. A 0.04 351
Banco de Desarrollo Economico y Social de
Venezuela (formerly Fondo de Inversiones de B 6.59 51,900
Venezuela)
Employee Trusts and Employees C 12.05 94,849
Verizon Communications, Inc. (Verizon) D 3.56 28,009
Public shareholders D 44.81 352,710
-------- ---------
100.00 787,140
========
Treasury stock D 138,897
---------
926,037
=========

VenWorld is a private consortium of companies led by Verizon (formerly GTE
Corporation), and originally included T.I. Telefonica Internacional de Espana,
S.A.; C.A. La Electricidad de Caracas, S.A.C.A.; Consorcio Inversionista
Mercantil (CIMA), C.A. S.A.C.A. and AT&T International, Inc. (AT&T)
(Participants of the Consortium).

Beginning on January 1, 2001, VenWorld shareholders had the right to have their
shares redeemed and

F-23

converted into CANTV Class A shares. Any Class A share transferred to a
non-subsidiary entity, wholly-owned by the Participants of the Consortium was
automatically converted into Class D shares.

During 2001, three of the Participants of the Consortium requested the
redemption of their shares. As of December 31, 2001, only Verizon and T.I.
Telefonica Internacional de Espana, S.A. remain as shareholders and Participants
of the Consortium, together with other minority shareholders, originally part of
CIMA, representing 3.3% of VenWorld's capital stock.

Class B shares may only be owned by the Bolivarian Republic of Venezuela. The
transfer of Class B shares to any non-public sector individual or entity will
cause the shares to be automatically converted to Class D shares, except if the
shares are transferred to a CANTV employee or retiree, in which case the shares
will be converted to Class C shares. Class B stockholders had the right to elect
two members of the Board of Directors of the Company until January 1, 2001.
Thereafter, they may elect only one member together with all other stockholders.
A majority of holders of Class B shares is required to approve a number of
corporate actions, including certain amendments to the By-laws.

Class C shares may be owned only by employees, retirees, former employees and
heirs and spouses of employees or retirees of CANTV and its subsidiaries, as
well as employees, companies and benefit plans. Any Class C shares transferred
to any other individual or entity will be automatically converted to Class D
shares. Holders of Class C shares have the right, voting as a separate class, to
elect two members of the Board of Directors provided such Class C shares
represent at least 8% of the capital stock of CANTV and the right to elect one
member provided that such shares represent at least 3% of the capital stock of
CANTV.

Class D shares are comprised of the conversion of Class A, B and C shares as
described above or capital increases. There are no restrictions on the ownership
or transfer of Class D shares. Holders of Class D shares will have the right to
elect, in conjunction with the other stockholders, any members of the Board of
Directors, at the time the Class B and C stockholders loose the right to
designate them according to CANTV's By-laws.

In November 1996, the Government sold 348.1 million shares representing 34.8% of
CANTV's capital stock in a global public offering. The Company's Class D shares
are traded on the Caracas Stock Exchange. They are also traded on the New York
Stock Exchange in the form of American Depository Shares (ADS), each
representing seven Class D shares.

Repurchase programs
-------------------

On November 16, 1999 an Extraordinary Shareholders' Assembly authorized a share
repurchase program for up to 50,000,000 shares. As required under Venezuelan
Law, the program specified a maximum repurchase price of Bs. 3,696 per share or
up to U.S.$40 per ADS. As of December 31, 1999, CANTV had acquired 1,229,900
shares at an average price of Bs. 2,472 per share, equivalent U.S.$23.50 per
ADS. Shares repurchased under this program were reduced from capital stock.

On March 31, 2000, an Ordinary Shareholders' Assembly approved a new share
repurchase program that authorized the Company to repurchase up to 50,000,000
shares. As required under Venezuelan Law, the program specified a maximum
repurchase price of Bs. 4,871 per share or up to U.S.$50 per ADS. During 2000,
CANTV acquired 72,732,716 shares related to both repurchase programs at an
average price of Bs. 2,940 per share, equivalent U.S.$28.39 per ADS. Shares
repurchased under this program were reduced from capital stock.

F-24

On October 24, 2001, an Extraordinary Shareholders' Assembly approved a third
share repurchase program to acquire up to 138,905,608 shares or 15% of the
capital stock at a price of U.S.$30 per ADS or U.S.$4.29 per share. The program
began on October 25, 2001 and ended on November 23, 2001.

Upon completion of the third repurchase program, the total repurchased shares
were 138,896,536, which were converted into treasury shares. These shares may be
offered for sale within two years following their acquisition date, or reduced
from capital stock as approved by the Shareholders' Assembly as established by
the Capital Markets Law (see Note 25 - Takeover tender offer).

17. FINANCING COST, NET:
-------------------

Financing cost, net for the years ended December 31, is as follows:

1999 2000 2001
------------- ----------- -----------

Interest income 28,433 33,390 38,205
Interest expense (51,453) (47,829) (40,103)
Exchange (loss) gain, net (37,875) (2,970) 21,016
Loss from net monetary position (7,440) (17,790) (31,327)
Gain from indexation of tax units 14,124 - -
------------- ----------- -----------
(54,211) (35,199) (12,209)
============= =========== ===========

The net exchange (loss) gain reflects the loss resulting from adjusting the debt
denominated in foreign currencies, principally U.S. dollars and Japanese yens
into bolivars at the exchange rates as of December 31, 2000 and 2001 (see Note 7
- Balances in foreign currency). The Central Bank of Venezuela has the explicit
policy to intervene to maintain the exchange rate within 7.5% (above or below)
of the reference rate, which has been set by the Central Bank of Venezuela and
is adjusted to account for projected inflation on a monthly basis. The
devaluation of the bolivar against the U.S. dollar was 15%, 8% and 8% for the
years ended December 31, 1999, 2000 and 2001, respectively.

The loss or gain from net monetary position reflects the loss from holding net
monetary assets or liabilities in a period of inflation, which was 20%, 13%, and
12% for the years ended December 31, 1999, 2000 and 2001, respectively.

18. MONETARY POSITION:
-----------------

The loss from net monetary position at December 31, is as follows:

1999 2000 2001
------- --------- ---------

Net monetary (liability) asset position at the beginning of the year (229,367) 13,323 (43,899)
Revenue and expenses, other than depreciation and amortization and other
expenses generated by non-monetary assets and liabilities 1,093,265 746,030 919,184
Additions to non-monetary assets and liabilities (579,139) (454,034) (211,549)
Pension plan payments (15,864) (16,346) (45,357)
Dividends declared (206,844) (72,013) (473,418)
Repurchased shares (3,413) (240,099) (450,078)
Exchange (loss) gain, net (37,875) (2,970) 21,016
------------ ------------- ------------
20,763 (26,109) (284,101)
Net monetary asset (liability) position at the end of the year 13,323 (43,899) (315,428)
------------ ------------- ------------
Loss from net monetary position (7,440) (17,790) (31,327)
============ ============ ============

F-25

19. INCOME TAX:
----------

In accordance with Venezuelan tax regulations, the Company is taxed on its net
income on an historical cost basis plus a tax inflation adjustment on the
Company's non-monetary assets and liabilities, net of stockholders' equity. This
tax inflation adjustment differs from the book inflation adjustment, which is
non-taxable.

The Income Tax Law also authorizes a tax credit for new investments in property,
plant and equipment. Any portion of the credit that is not used may be carried
forward to the subsequent three years. As of December 31, 2001, CANTV does not
have any carryforward tax credits. However, Movilnet, its wholly-owned
subsidiary, has Bs. 504, Bs. 12,062 and Bs. 5,876 from 1999, 2000 and 2001 of
new investment tax credits that can be carried forward until 2002, 2003 and
2004, respectively.

Additionally, the Income Tax Law allows that fiscal losses can be carried
forward to the subsequent three years. Beginning in the fiscal year as of
January 1, 2001, tax credits for fiscal losses from the tax inflation adjustment
are permitted to be carried forward for one year. As of December 31, 2001, CANTV
does not have any carryforward fiscal losses. However, CANTV.NET, its
wholly-owned subsidiary, has Bs. 8,825 and Bs. 11,150 from 1999 and 2000 of
fiscal losses tax credit that can be carried forward until 2002 and 2003,
respectively.

Reconciliation between the income tax expense included in the consolidated
statements of operations and the expense resulting from the application at the
statutory tax rate to the income (loss) before income taxes, is as follows:

1999 2000 2001
-------- -------- --------

Income (loss) before income taxes and cumulative effect of accounting
change, net of tax 131,009 (15,998) 122,151
Statutory income tax rate 34% 34% 34%
------------- ---------- -----------
Tax expense 44,543 (5,439) 41,531

Non-taxable book inflation adjustment 160,532 160,307 175,293
Utilization of investment tax credits (58,140) (33,343) (37,110)
Tax inflation adjustment (118,365) (126,442) (122,566)
Other (11,179) 44,696 (14,124)
----------- ----------- -----------
Income tax 17,391 39,779 43,024
=========== =========== ===========

For 1999, the caption other includes reversal of an existing tax provision
recorded in 1998. The caption other for 2000 includes the unrecognized deferred
tax effect comprised mainly by the provision for the work force reduction (see
Note 23 - Work force reduction program).

On October 22, 1999, the National Government published the Partial Amendment to
the Income Tax Law. The most significant changes effective from periods
beginning after the publication of the Law, are as follows:

a. Implementation of a price transfer regime for imports and exports of
goods and services between related companies.

b. Losses from adjustment for inflation may be carried forward up to one
year.

c. Investment tax credits for fixed assets for industrial companies of 10%
of the amount of new investments and to be applied for five years from
the effective date of the Amended Law.

F-26

Additionally, the Amendment to the Income Tax Law includes some regulations that
became effective January 1, 2001, as follows:

a. A new regime that taxes worldwide income applied to income obtained
abroad by individuals or companies residing or domiciled in Venezuela. It
allows a credit for income taxes paid abroad.

b. A proportional tax on dividends will be introduced based on the excess
between book and tax net income. This excess will be taxed at 34% and
that amount proportionally applied to the dividends to be paid.

On December 28, 2001, the Law N(degree) 71 including the Amendment to the Income
Tax Law was published in Extraordinary Official Gazette N(degree) 5,566. The
most significant changes effective from periods beginning after the publication
of the Law, are as follows:

a. Imputation of foreign losses to domestic income or losses, will not be
admitted.

b. The dividend tax regulations establish that the income per books to be
considered shall be that approved by the Shareholders Assembly on the
basis of the consolidated financial statements prepared in conformity
with accounting principles generally accepted in Venezuela.

c. In case of dividends declared per share, a 1% tax advance shall be paid.
This advance will be calculated on the total value of the dividend
declared.

d. Elimination of the standard for providing the rejection of the expense
for payments where the income tax withholding agents do not comply with
formal duties provided by the special income tax withholding Regime.

e. New standards were added to the tax adjustment for inflation regime, and
certain existing standards were modified.

20. TRANSACTIONS WITH RELATED PARTIES:
---------------------------------

Transactions with related parties are subject to conditions similar to
transactions with independent third parties. In the normal course of business
and as limited by applicable debt agreements, the Company enters into
transactions with certain of its stockholders and their respective affiliates.
In addition, the Government has significant influence over the Company's
tariffs, regulation, labor contracts and other matters. The Government is also a
major customer of the Company (see Note 9 - Accounts receivable from Venezuelan
Government entities).

Inventories, supplies and plant and equipment of Bs. 25,040 and Bs. 86,690 for
the years ended December 31, 2000 and 2001, respectively, were purchased from
affiliates of VenWorld's stockholders. These same affiliates provided technical
and administrative services to the Company at a total cost of Bs. 25,403, Bs.
21,091 and Bs. 11,743 for the years ended December 31, 1999, 2000 and 2001,
respectively. Net operating revenues with respect to the settlement of
international telephone traffic with affiliates of Bs. 12,946, Bs. 23,795 and
Bs. 9,874, were recognized for the years ended December 31, 1999, 2000 and 2001,
respectively. At December 31, 2000, the Company has recorded payables to Verizon
and AT&T affiliates for all such transactions of Bs. 23,580 and Bs. 898,
respectively, and at December 31, 2001, Bs. 7,841 and Bs. 2,046, respectively.

F-27

21. COMMITMENTS AND CONTINGENCIES:
-----------------------------

The Company has the following commitments and contingencies:

a. Capital expenditures
--------------------

CANTV's capital expenditures for 2002 are currently estimated at Bs. 416,900
(U.S.$550 million). The funding for these capital expenditures is expected to be
generated by internal cash flows.

b. Operating leases
----------------

The Company leases buildings under operating leases for periods of one year or
less. Lease agreements generally include automatic extension clauses for equal
terms, unless written termination notification is provided.

c. Litigation
----------

The Company is involved in numerous administrative and judicial proceedings.
Based on the opinion of its external legal counsel handling these proceedings,
management believes the majority of these actions will be resolved in the
Company's favor. In the opinion of management, the Company has recorded adequate
reserves as of December 31, 2001 for all such matters. The most significant
proceedings are as follows:

i. In May 2000, the Supreme Court of Justice issued sentences against CANTV
charging that the Company had changed the criteria on the presubscription
term and the option for special retirement. The Company is presently
exercising pertinent legal actions.

ii. On July 7, 2000, CANTV was notified of a Bs. 1,800 (U.S.$2.4 million)
fine imposed by Pro-Competencia. Pro-Competencia claims that CANTV has
abused its dominant position in the market to favor its subsidiary
CANTV.NET (formerly CANTV Servicios). In August 2000, CANTV filed an
action of nullity in the First Court of Appeals on Administrative
Matters.

d. Concession mandates
-------------------

The Agreement (see Note 2 - Company background and concession agreement)
considered an accelerated modernization program to meet an annual average target
of 80% plant digitalization nationwide by the end of year 2000. The network
expansion and modernization targets established in Annex "A" of the Concession
Agreement were effective until December 31, 1999. Quality service and
digitalization mandates agreed in the Agreement were effective until December
31, 2000. The Agreement, substantially modify the high quality service and
eliminates of the mandatory requirement of expanding the plant, and instead,
included the obligation to reach 80% digitalization by December 31, 2000. After
2000, specific expansion requirements, modernization or digitalization are not
mandatory.

Opening Regulations establish that Basic Service Telecommunication Operators are
required to install and maintain public telephone equipment equivalent to 3% of
this subscriber base.

The guidelines for the market opening in Venezuela (see Note 5 - Regulation)
include certain quality and service standards with minimum and maximum targets,
which are the base for the preparation by CONATEL of the quality service
regulations that will be effective for all basic service operators.

F-28

e. Competition
-----------

Pursuant to the Concession, prior to November 27, 2000, the Company was the sole
provider of basic telephone services. During that period, the Ministry could
grant concessions to operate in population centers with 5,000 or fewer
inhabitants if CANTV was not providing basic telephone services in such areas
and did not contemplate doing so within two years, according to the network
expansion and modernization plans established in the Concession.

In December 1996, the Ministry exercised its authority under this provision to
grant a rural multi-service concession to Infonet Redes de Informacion C.A.
(Infonet) to provide basic telephone services, excluding national and
international long distance services, to population centers with 5,000 or fewer
inhabitants in eight western states of Venezuela. Additionally, multi-service
concessions were granted in January 1998 to Corporacion Digitel, C.A. (Digitel)
and Digicel (formerly Consorcio ELCA, C.A.) for the central and eastern regions
of Venezuela, respectively. Currently, Infonet, Digitel and Digicel are
operating.

With the new Telecommunications Law, CONATEL established the basic regulatory
framework. The new regulations issued on November 24, 2000 (see Note 5 (a) -
Regulation - Organic Telecommunications Law) have the objective of creating an
appropriate environment for new entrants and allow for effective competition.
These regulations rule the sector's opening, interconnection, administrative and
spectrum concessions.

In November 2000, CONATEL formally started the auction of frequencies for
Wireless Local Loop (WLL) services. Thirteen qualified bidders have been
announced by CONATEL. Five regions were defined and three permits in each region
were auctioned in different frequency bands. Telcel BellSouth, C.A. (Telcel
BellSouth) and Genesis Telecom, C.A. (Genesis) are two of the companies granted
with a concession.

The Company, during the second quarter 2001, completed the update of five
interconnection agreements with telecommunications' operators and subscribed the
first two interconnection agreements to the basic telecommunication service with
companies authorized by CONATEL. These agreements will permit the free traffic
from CANTV's basic network systems to the local services and long distance
national and international services of these companies. Current operators
maintaining interconnection agreements with the Company are: Convergence
Communications de Venezuela, Telcel BellSouth, Digicel, Infonet, Digitel and
Veninfotel.

22. MARKET RISK:
-----------

The carrying amounts of cash and short-term investments, trade receivables and
payables, and short-term and long-term debt approximate their fair values. The
fair value was determined by quoted market prices.

The Company is exposed to market risk, including changes in interest rates and
foreign currency exchange rates.

The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with United States of America
(U.S.) issuers and, by policy, limits the amount of credit exposure to any one
issuer. The Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk, and
reinvestment by investing with U.S. and European issuers that are guaranteed by
wholly-owned foreign companies with the safest and highest credit quality
securities.

F-29

The Company mitigates default risk by investing in highly liquid U.S. dollar
short-term investments, primarily certificates of deposit and investment grade
commercial paper, which have maturities of three months or less. The Company
does not expect any material loss with respect to its investment portfolio.

The majority of the Company's indebtedness is denominated in foreign currencies,
primarily in U.S. dollars and Japanese yen, which exposes the Company to market
risk associated with changes in exchange and interest rates. The Company's
policy is to manage interest rate risk through the use of a combination of fixed
and variable rate debt. Presently the Company does not hedge against foreign
currency exposures, but keeps cash reserves in U.S. dollars to meet financing
obligations.

23. WORK FORCE REDUCTION PROGRAM:
----------------------------

On December 29, 2000, the Company announced its intention to consolidate,
centralize and eliminate certain operating and administrative positions during
the first quarter of 2001, through a formal program. The Company recorded during
the last quarter of 2000 a provision of Bs. 123,948 included as current accrued
employee benefits and recognized as a special charge in the statement of
operations for the year ended December 31, 2000. As a result of this program, in
January 2001, 3,572 employees were separated from the Company.

This program resulted in a net expense of Bs. 36,109 from additional termination
benefits and curtailment, included in the accompanying statement of operations
for the year ended December 31, 2001 as a special charge (see Note 15 -
Retirement benefits).

24. NATURAL CATASTROPHE:
-------------------

On December 15, 1999, heavy rains devastated the northern coastal areas of
Venezuela which caused serious flooding and serious damage to homes and
businesses, leaving them without basic services such as water, power and phone
services. In the state of Vargas, certain of CANTV's central offices and most of
the public telephones received considerable damage. In October 2000, the Company
received the final compensation payment from the insurance companies in the
amount of Bs. 8,942. This transaction did not have a significant impact on the
financial statements of the Company, and was reflected in the consolidated
statements of operations for the year ended December 31, 1999 as a special
charge.

25. TAKEOVER TENDER OFFER:
---------------------

On August 29, 2001, AES Corporation (AES) announced a takeover tender offer to
acquire 43.2% of the shares of CANTV at a price of U.S. $24 per ADS (Bs. 2,547
per share). This tender offer was approved by the CNV.

On October 24, 2001, an Extraordinary Shareholders' Assembly approved the
declaration of dividends, a third share repurchase program (see Note 16 -
Stockholders' equity - Repurchase programs), the increase of the "Excellence
Award" program to be executed through the internal purchase of Class C shares of
up to 2% of the capital stock as of December 2, 1991 and the creation of a new
benefit plan named "Value Fund" to acquire Class C shares up to 5.5% of the
capital stock at the same price of the repurchase program. As of December 31,
2001, the Company had not carried out the increase of the "Excellence Award"
program or the creation of the new benefit plan "Value Fund".

On November 8, 2001, AES announced its retirement from the takeover tender offer
for 43.2% of the shares of CANTV.

F-30

The accompanying consolidated statements of operations include Bs. 16,309 in
Other income (expense), net caption related to the costs incurred in the
takeover defense actions.

26. REPORTABLE SEGMENTS:
-------------------

The Company manages its operations in two main business segments: wireline and
wireless services. The Company's reportable segments are strategic business
units that offer different products and services in the telecommunications and
related services industry. They are managed separately because each business
requires different technology and marketing strategies. The wireline services
segment provides domestic telephone services, international long distance
services and other telecommunications-related services. The wireless services
segment provides nationwide cellular mobile telephone services.

Segment results for the years ended December 31, are as follows:

1999 2000 2001
------- -------- ---------

Wireline services:
Operating Revenues
Local and domestic long distance usage 672,802 627,773 543,643
Basic rent 407,212 355,628 346,396
---------------- --------------- -------------
Local and domestic long distance 1,080,014 983,401 890,039
International long distance 169,684 111,335 102,726
Net settlements 35,682 32,981 19,797
---------------- --------------- -------------
International long distance 205,366 144,316 122,523
Fixed to mobile - outgoing 567,975 674,031 569,494
Interconnection incoming 57,314 72,463 46,499
Other wireline-related services 285,656 252,903 284,988
---------------- --------------- -------------
Total operating revenues 2,196,325 2,127,114 1,913,543
================ =============== =============
Intersegment revenues 119,000 126,130 95,526
Operating income (loss) 141,337 (7,375) 88,536
================ =============== =============
Depreciation and amortization 646,015 593,026 615,305
================ =============== =============
Income tax provision 15,443 37,757 41,342
================ =============== =============
Capital expenditures
203,273 248,125 176,881
================ =============== =============
Total assets
5,294,729 5,105,767 4,271,685
================ =============== =============
Wireless services:
Operating Revenues
Access 131,169 73,058 40,763
Interconnection 118,532 215,629 205,383
Usage 169,431 263,222 328,002
Equipment sales 38,424 8,449 9,781
---------------- --------------- -------------
Total operating revenues 457,556 560,358 583,929
================ =============== =============
Intersegment revenues 89,090 224,651 174,516
Operating income 50,223 50,139 48,710
================ =============== =============

F-31

1999 2000 2001
------- -------- ---------

Depreciation and amortization 97,042 91,981 132,430
================ =============== =============
Capital expenditures 193,836 87,411 74,783
================ =============== =============
Total assets 978,376 1,032,272 1,008,889
================ =============== =============

The reconciliation of segment operating revenues, operating income and assets,
to the consolidated financial statements are as follows:

Reconciliation of operating revenues:

1999 2000 2001
------------------- -------------------- --------------------

Reportable segments 2,653,881 2,687,472 2,497,472
Other telecommunications-related services 73,098 74,285 88,311
Elimination of intersegment operating revenues (231,946) (373,207) (302,757)
------------------- -------------------- --------------------

Total operating revenues 2,495,033 2,388,550 2,283,026
=================== ==================== ====================

Reconciliation of operating income:

1999 2000 2001
------------------- -------------------- --------------------

Reportable segments 191,560 42,764 137,246
Other telecommunications-related services (12,615) (19,345) 11,031
Elimination of intersegment operating income (834) 79 (1,382)
------------------- -------------------- --------------------

Total operating income 178,111 23,498 146,895
=================== ==================== ====================

Reconciliation of total assets:

1999 2000 2001
------------------- -------------------- --------------------
Reportable segments 6,273,105 6,138,039 5,280,574
Other telecommunications-related services 362,058 331,068 318,237
Elimination of intersegment assets (1,114,442) (1,256,895) (1,306,791)
------------------- -------------------- --------------------

Total assets 5,520,721 5,212,212 4,292,020
=================== ==================== ====================

27. CONSOLIDATED FINANCIAL STATEMENT RECLASSIFICATIONS:
--------------------------------------------------

Certain amounts from the December 31, 1999 and 2000 consolidated financial
statements have been reclassified for comparison purposes.

F-32

28. SUMMARY OF DIFFERENCES BETWEEN U.S. GAAP AND VENEZUELAN GAAP:
------------------------------------------------------------

The Company's consolidated financial statements are prepared in accordance with
Venezuelan GAAP. In many respects, Venezuelan and U.S. GAAP are similar;
however, there are some significant differences that affect how certain
transactions are reported.

The primary differences between U.S. GAAP and Venezuelan GAAP that apply to the
Company are as follows:

a. Restatement for inflation
-------------------------

Venezuela has experienced significant inflation in recent years and follows
general price level accounting as prescribed in DPC 10 (see Note 4 (b) - Summary
of significant accounting principles and policies - Adjustment for inflation).

In most circumstances U.S. GAAP does not allow for the restatement of financial
statements for general price level changes. For U.S. GAAP purposes, account
balances and transactions are stated in the units of currency of the period when
the transactions originated. This accounting model is commonly known as the
historical cost basis of accounting. However, because the economy of Venezuela
has experienced periods of significant inflation in the recent past, the use of
financial statements restated for general price level changes is consistent with
the requirements of the SEC rules and with the methodology described in
Statement of Financial Accounting Standards No. 89, "Financial Reporting and
Changing Prices" (SFAS 89). The U.S. GAAP reconciliations presented herein do
not, therefore, exclude the effect of the general price level accounting as
prescribed in DPC 10.

b. Accounting for taxation
-----------------------

Venezuelan GAAP is consistent with the accounting principles set forth in the
now superseded U.S. Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes" (APB 11). Venezuelan GAAP requires that deferred taxes be provided
at the tax rates prevailing at the time of the provision. In addition, the
provision for deferred taxes is not adjusted to take into account subsequent
changes to the statutory rates of taxation.

In 1992, the Financial Accounting Standards Board (FASB) in the United States
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). This standard requires that deferred tax assets and
liabilities be established for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are provided for deferred tax assets when
realization is not assured.

Additional disclosures required by SFAS 109 are presented in Note 29 (b) -
Additional financial statements disclosures required by U.S. GAAP - Income and
other taxes.

c. Accounting for post-retirement benefits other than pensions
-----------------------------------------------------------

Until 1998, post-retirement medical benefits were recorded as operating
expenses when claims were filed and the Company did not fund its obligation
related to this plan. U.S. GAAP requires the expected costs of these benefits to
be recognized systematically over employees' service periods. In 1999, the
Company

F-33

adopted International Accounting Standard 19 (IAS 19) and recognizes
post-retirement benefits other than pension systematically over employee's
service period (See Note 4 (l) - Summary of significant accounting principles
and policies - Pension plan and other post-retirement benefits). As permitted
under IAS 19 the accumulated post-retirement benefits obligation, as of December
31, 1998, was recognized as an adjustment to beginning retained earnings,
therefore, this item is no longer a difference between U.S. and Venezuelan GAAP.

d. Capitalized interest
--------------------

In accordance with Venezuelan GAAP, in its inflation adjusted financial
statements, the Company does not capitalize interest costs incurred in
connection with the construction of major capital projects. Under U.S. GAAP, the
amount of interest incurred in connection with the construction of these
projects is reflected in inflation adjusted financial statements. The amount
capitalized is calculated by applying the composite weighted average interest
rates of outstanding borrowings to construction work in process balances during
each applicable period. Capitalized interest is included in property, plant and
equipment and depreciated over the lives of the related assets.

e. Treasury stock
-------------

As discussed in Note 11 - Other assets, 1% of the shares, or 10,000,000 shares,
issued at privatization were purchased by the Company from the Government to be
distributed to employees in the form of awards. The Company's cost of these
shares is recorded in Other assets. U.S. GAAP for publicly traded entities
reflects these shares as treasury stock.

f. Earnings per share
------------------

In 1997, the FASB adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share" (SFAS 128). This statement establishes standards for
computing and presenting earnings per share (EPS) as it applies to entities with
publicly held common stock. It replaces the presentation of primary and fully
diluted EPS with a presentation of basic and diluted EPS. It requires dual
presentation of basic and diluted EPS for all entities with complex capital
structure.

F-34

g. Reconciliation of Venezuelan GAAP to U.S. GAAP
----------------------------------------------

The approximate effects on net income and net stockholders' equity of restating
CANTV's audited consolidated financial statements for 1999, 2000, and 2001 in
accordance with U.S. GAAP is set forth below (in millions of bolivars, except
per share data):

1999 2000 2001
--------------- ---------------- -------------

Net income (loss) under Venezuelan GAAP 113,618 (101,271) 79,127
U.S. GAAP adjustments for:
Capitalized interest 11,374 11,537 6,292
Deferred income taxes:
Benefit (provision) 81,133 64,798 (30,803)
Gain (loss) from net monetary position 7,139 (4,472) (7,531
-------------- ---------------- -------------
88,272 60,326 (38,334)
-------------- ---------------- -------------
Approximate net income (loss) under U.S. GAAP 213,264 (29,408) 47,085
============== ================ =============
Approximate net income (loss) per share under U.S.
GAAP 214.93 (31.14) 52.02
============== ================ =============
Approximate net income (loss) per ADS
(based on 7 shares per ADS) 1,504.54 (217.98) 364.13
============== ================ =============
Average number of shares outstanding under
U.S. GAAP (in millions) 992 944 905
============== ================ =============

2000 2001
---------------- -------------

Total stockholders' equity under Venezuelan GAAP 3,564,685 2,722,086
U.S. GAAP adjustments for:
Capitalized interest 89,047 95,339
Treasury stock (40,238) (40,238)
Deferred income taxes:
Benefit (provision) 7,518 (23,285)
Gain from net monetary position 61,335 53,804
---------------- -------------
68,853 30,519
---------------- -------------
Total stockholders' equity under U.S. GAAP 3,682,347 2,807,706
================ =============

The following represents a reconciliation of equity at December 31, 2000 to
December 31, 2001 based on amounts determined in accordance with U.S. GAAP:

Stockholders' equity under U.S. GAAP at December 31, 2000 3,682,347
Approximate net income under U.S. GAAP 47,085
Dividends declared and paid (473,418)
Repurchased shares (450,078)
Change in cumulative translation adjustment 1,770
---------------
Stockholders' equity under U.S. GAAP at December 31, 2001 2,807,706
===============

The above reconciliations include all material differences between Venezuelan
GAAP and U.S. GAAP.

F-35

29. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP:
-----------------------------------------------------------------

a. Disclosures about pensions and other post-retirement benefits
-------------------------------------------------------------

In February 1998, the FASB issued Statement of Financial Accounting Standard No.
132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits"
(SFAS 132) which revises employer disclosure requirements for pension and other
retiree benefits but does not change the measurement or recognition of pension
or other post-retirement benefit plan.

The following tables provide a reconciliation of the changes in the plans
benefit obligations and fair value of plan assets for the years ending December
31, 2000 and 2001, and a statement of funded status as of December 2000 and
2001:

Pension Benefits Other Benefits
------------------------------- -----------------------------
2000 2001 2000 2001
--------------- -------------- ------------- --------------

Reconciliation of benefit obligation:

Benefit obligation at January 1 494,694 328,739 231,931 276,463
Service cost 16,920 9,955 3,925 3,326
Interest cost 22,224 22,047 15,627 19,522
Benefits payments (16,206) (41,264) (16,346) (19,411)
Actuarial (gain) loss (188,888) 61,689 41,329 3,369
Curtailment - (37,588) - (3,792)
Special termination benefits - 46,777 - 16,919
--------------- -------------- ------------- --------------
Benefit obligation at December 31 328,744 390,355 276,466 296,396
=============== ============== ============= ==============
Reconciliation of fair value of plan assets:

Fair value of plan assets at January 1 93,275 131,668 - -
Contributions 59,649 25,942 - -
Benefit payments (16,206) (41,264) - -
Actual return on plan assets (5,050) (2,169) - -
--------------- -------------- ------------- --------------
Fair value of plan assets at December 31 131,668 114,177 - -
=============== ============== ============= ==============
Funded status:

Funded status at December 31 197,076 276,178 276,467 296,396
Unrecognized transition obligation (6,885) (3,597) - -
Unrecognized prior service cost 86,541 49,666 - -
Unrecognized net loss (80,244) (112,539) (73,884) (69,014)
--------------- -------------- ------------- --------------

Accrued benefit cost 196,488 209,708 202,583 227,382
=============== ============== ============= ==============

F-36

For benefits other than pensions a one-percentage-point change in the assumed
health care cost trend rates would have the following effects:

1% Point Increase 1% Point Decrease
-------------------------- --------------------------
2000 2001 2000 2001
------------- ------------ ------------ ------------

Effect on total of service and interest cost components 2,713 2,662 (2,246) (2,221)
Effect on post-retirement benefit obligation as of
December 31 32,451 33,443 (27,252) (28,194)

The following table provides the components of net periodic benefit cost for the
plans for the years ending December 31, 2000 and 2001:

Pension Benefits Other Benefits
---------------------------- --------------------------------
2000 2001 2000 2001
-------------- ------------ ------------- -----------------

Components of net periodic benefit cost:
Service cost 16,920 9,955 3,925 3,326
Interest cost 22,224 22,047 15,627 19,522
Expected return on assets (4,331) (9,527) - -
Amortization of:
Transition obligation 1,381 903 - -
Prior service cost (10,553) (6,895) - -
Net loss 5,550 955 959 4,442
Net periodic benefit cost 31,191 17,438 20,511 27,290
============== ============ ============= =================

The work force reduction program completed in 2001 (see Note 23 - Work force
reduction program) resulted in a net expense of Bs. 19,189 and Bs. 16,920 for
pension and postretirement benefits, respectively, derived from additional
termination benefits and curtailment, included in the accompanying statement of
operations for the year ended December 31, 2001 as a special charge.

The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:

Pension Benefits Other Benefits
-------------------- -------------------------
2000 2001 2000 2001
-------- -------- ------------- ---------

Weighted-average assumptions as of December 31:
Discount rate 7% 7% 7% 7%
Expected return on assets 5% 5% 5% 5%
Rate of compensation increase 2% 2% 2% 2%

These assumptions represent estimates of real rates of interest, compensation
increases and health care cost trend rate increases rather than nominal rates.

F-37

b. Income and other taxes
----------------------

The (benefit) provision for income taxes for the years ended December 31, in
accordance with SFAS 109 is as follows:

1999 2000 2001
---------------- -------------- ---------------

Current 17,391 39,779 43,024
Deferred (81,134) (64,798) 30,803
---------------
---------------- --------------
(63,743) (25,019) 73,827
================ ============== ===============

The components of deferred income tax liabilities (assets) for the years ended
December 31 are as follows:

2000 2001
-------------- --------------

Current deferred income taxes:
Allowance for doubtful accounts (21,643) (16,197)
Concession tax (38,649) (18,705)
Amounts payable to shareholders (2,488) (2,451)
Early retirement program (45,906) (262)
Accounts not deductible until paid (8,710) (9,914)
Investment tax credits (53,791) (30,238)
Other (not individually significant) (4,544) (8,215)
-------------- --------------
Total (175,731) (85,982)
Non current deferred income taxes:
Capitalized labor, interest and related overhead 242,561 198,159
Pension expense (66,805) (71,300)
Post-retirement benefit expense (68,878) (77,311)
-------------- --------------
Total 106,878 49,548
-------------- --------------
(68,853) (36,434)
Valuation allowance - 5,914
-------------- --------------
Total deferred tax (68,853) (30,519)
============== ==============

Total income taxes are different than the amount that would be computed by
applying the statutory income tax rate to income before income taxes. The major
reasons for this difference are as follows:

1999 % 2000 % 2001 %
------------ --------- ------------ ------------ ------------ ----------

Income (loss) before income taxes and
cumulative effect of accounting
change, net of tax 149,520 (8,932) 120,912
Statutory income tax rate 34% 34% 34%
------------ ------------ ------------
Tax provision at statutory income tax
rate 50,837 34.0 (3,037) 34.0 41,110 34.0
Non taxable book inflation adjustment 148,438 99.3 157,905 (1,767.9) 176,613 146.1
Investment tax credits (123,364) (82.5) (48,794) 546.3 (20,220) (16.7)
Tax inflation adjustment (118,365) (79.2) (126,442) 1,415.6 (122,566) (101.4)
Other (21,289) (14.2) (4,651) 52.1 (1,110) (0.9)
------------ --------- ------------ ------------ ------------ ----------
(63,743) (42.6) (25,019) 280.1 73,827 61.1
============ ========= ============ ============ ============ ==========

For 1999, the caption other includes reversal of an existing tax provision
recorded in 1998.

c. Comprehensive income
--------------------

The FASB enacted Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" (SFAS 130) for financial statements issued after December
15, 1997. SFAS 130 establishes

F-38

standards for reporting and display of comprehensive income and its components
in the financial statements. Included in comprehensive income is the translation
adjustment from the investment in Intelsat, which effect is considered
immaterial for CANTV's financial statements.

d. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), establishes a new accounting and reporting model for derivatives and
hedging activities. The Company currently does not engage in hedging activities
and has no derivative instruments, as there is no substantive organized market
for financial instruments and derivatives in Venezuela. The adoption of SFAS 133
did not have a significant impact on CANTV's financial statements.

e. Recently issued accounting pronouncements
-----------------------------------------

In June 2001, the FASB issued SFAS 141 and 142 entitled, "Business Combinations"
and "Goodwill and other Intangible Assets", respectively. SFAS 141, among other
things, eliminates the pooling of interests method of accounting for business
combinations entered into after June 30, 2001. The Company did not engage in any
business combination during 2001. With the adoption of SFAS 141, goodwill will
no longer be subject to amortization over its estimated useful life, but rather
it will be subject to at least an annual assessment for impairment by applying a
fair-value-based test. Additionally, negative goodwill will be recognized as an
extraordinary gain at the time of the business combination. SFAS 142 is
effective for financial statements of fiscal years beginning after December 15,
2001, and the Company plans to adopt these new standards in 2002. CANTV does not
expect the adoption of SFAS 141 and 142 to have a significant impact on the
Company's consolidated financial statements.

In June 2001, the FASB issued SFAS 143 entitled "Accounting for Asset Retirement
Obligations". This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for financial
statements of fiscal years beginning after June 15, 2002 and the Company plans
to adopt this new standard in 2003. CANTV expects that the adoption of SFAS 143
will not have a significant impact on the Company's consolidated financial
position, results of operations or cash flows.

In August 2001, FASB issued SFAS 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets". SFAS 144 will be effective for financial statements of
fiscal years beginning after December 15, 2001, and the Company plans to adopt
this new standard in 2002. SFAS 144 supersedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
although it retains the fundamental provisions of SFAS 121. SFAS 144 also
expands the scope of discontinued operations presentation to a component of an
entity and eliminates the exception to consolidation for a temporarily
controlled subsidiary. CANTV does not expect the adoption of SFAS 144 to have a
significant impact on the Company's consolidated financial statements.

30. SUBSEQUENT EVENT:
-----------------

Effective February 12, 2002, the National Government decreed the free currency
fluctuation, which stopped the band system that formerly ruled the exchange
transactions from April 1996. Therefore, the exchange rate used for purchases
and sales of currencies is fixed based on the free market fluctuation resulting
from the supply and demand. Additionally, from February 18, 2002, the Central
Bank of Venezuela purchases and sells currencies in the market through an
auction system with the foreign exchange market operators. At June 12, 2002, the
exchange rate was Bs. 1,164.25 per U.S. dollar, which represents a bolivar
devaluation of 54% in comparison with the exchange parity at December 31, 2001.
The Company's management monitors the effect of free currency fluctuation on its
financial statements and any impact will be recorded during 2002.

F-39

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA
(CANTV)

By: /s/ Armando Yanes
------------------------------------------------
Name: Armando Yanes
Title: General Manager, Chief Financial Officer

June 28, 2002