Before the debate was adjourned I was saying that Irish Governments traditionally have been reluctant to promote competition in these State dominated industries in the fields of transport, energy and telecommunications particularly but we are being forced to do so by European directives. It has taken an outside body to tell us what was good for us, even though it was obvious what we should have done and what we should still do.
The establishment of an independent office for the regulation of the telecommunications industry is a significant departure from traditional policy and as such I welcome it, even if it is forced on us against the wishes of, presumably, the Government and the Department by European requirements. It will, I hope, mean direct responsibility for regulation is removed from ministerial control. Independent regulation on its own will not lead to increased competition; that will require political will which I do not see in the present Government. The State controlled Telecom Éireann dominates the telecommunications sector in this country and currently it faces competition in some areas of its business, for instance, in international calls, and it will soon face competition in others, such as mobile phone services.
Essentially the company's control of the Irish telecommunications network means that it will be the dominant player in the overall market for a considerable time yet. Irish consumers are paying an unduly high price for the maintenance and protection of this State monopoly. This is apparent from the results of the survey published yesterday by the Telephone Users' Advisory Group. That survey showed that Ireland has the highest home telephone rental fee in Europe. It also showed that we have the highest charges for both local and internal trunk telephone calls in Europe. Monopolies, particularly unregulated State monopolies such as this, are an expensive luxury in any economy. This survey clearly illustrates that in so far as telecommunications in Ireland are concerned.
As long as Telecom Éireann controls the country's basic telecommunications infrastructure the movement towards full competition will be slow. This does not have to be the case. The Government could take decisive action to encourage the rapid development of competition in the Irish telecommunications sector. The best way to do this would be to separate Cablelink from Telecom Éireann.
Cable television companies are now recognised as the most natural competitors to telecommunications companies in deregulated markets. With direct access to huge numbers of homes and businesses, modern technology allows them to supply a range of telephone and telecommunications services as well as television signals. Cable television is set to become the key piece of information infrastructure for domestic consumers and for small and medium enterprises during the coming years. For example, in Northern Ireland the company which has won the cable licence for that region has already announced its intention to compete aggressively against British Telecom in that market. Consumers will benefit from significant reductions in charges.
This Bill, by virtue of section 7, envisages only increases in already penal charges. Unfortunately, the reductions in Northern Ireland will not be copied in the South. Cablelink, the most obvious competitor in the mainstream telephone services market, is effectively controlled by Telecom Éireann which owns 75 per cent of it. The other 25 per cent is also controlled by the State through RTE.
It is estimated that for an investment of £30 million-£50 million the Cablelink infrastructure could be upgraded to compete fully with Telecom Éireann in voice telephony and other services. As long as Cablelink is owned by Telecom Éireann this will not happen. There is no reason Telecom should invest money in a subsidiary to enable it to compete with its core business. Monopolies do not function in that way. Cablelink should be allowed to operate as an independent company. It would then be in a position to develop as an innovative and aggressive player in the Irish telecommunications market, offering strong competition to Telecom Éireann and providing a real choice for hundreds of thousands of consumers. Some years ago when I was Minister for Industry and Commerce I sought to achieve that but could not prevail against the Fianna Fáil and the Department's desire to hand Telecom Éireann a total monopoly with no potential competitors.
Ideally, the Cablelink company should also be privatised in addition to Telecom Éireann. This would benefit the taxpayer in two ways: first, the sale of the company would net several hundred million pounds for the Exchequer and, second, the State would not be required to fund that company's heavy capital investment requirement in the years to come. The best option would be to float the business on the Stock Exchange. This would allow the company to remain under Irish control and ownership while giving it independent access to an unlimited supply of new capital.
It is not just the Progressive Democrats Party which believes that Cablelink should be hived off from Telecom Éireann. A recent report on industrial policy states:
There is a good case for the sale of Cablelink to an independent network provider, subject to conditions on significant investment and upgrading in order to promote competition and new services.
That quotation is taken from the document "Shaping our Future" published recently by Forfás, the Government's advisory body for industrial development which is part of the Department of Enterprise and Employment. The steering committee which oversaw the production of that report included representatives of Government, the business sector and the trade union movement. The document was launched with considerable fanfare and the impression was clearly given that it represented official Government policy. Yet the Minister for Transport, Energy and Communications appears to be moving in the opposite direction. When he announced the sale of a 20 per cent stake in Telecom Éireann to KPN-Telia it became clear that Cablelink was to remain part of Telecom. This means that one company will, in effect, continue to control two separate information monopolies. I ask the Minister to reconsider this decision. If he is genuinely concerned about promoting competition then there is no reason he should not proceed with the demerger of Cablelink. If he goes ahead with his present plan then he is missing a great opportunity to increase consumer choice and reduce consumer costs. I understand that the European Commission is looking at the question of Telecom's ownership of Cablelink. I note that Mr. Herbert Ungerer of the Competition Directorate DGIV in Brussels has publicly questioned Telecom's continued control of Cablelink, particularly as Telecom has unfortunately been given a derogation to preserve its monopoly and voice telephony until the year 2000. It would be embarrassing if, yet again, we are to be forced by pressure from Brussels to do the right thing which we are not prepared to do voluntarily. Surely the rights of consumers, both private and commercial, must be addressed in the decision-making process. The rights of consumers come last in the decision-making process in which we are now engaged.
The Bill stipulates that while part of Telecom Éireann may be sold to the private sector the State is to retain a majority shareholding in the company. Why should this be the case? Section 8 (2) which provides for that is a disgrace. There is no longer any rationale for State control by ownership of the telecommunications industry. All over the world Governments are coming to this realisation. In Britain, New Zealand and even in the former Communist countries of Eastern Europe it is recognised that telecommunications is a commercial business which should be regulated by Government but not owned by them. The fact that telecommunications is a vital industry is no argument for State control through ownership. The same used to be said of the Irish Sugar Company, Irish Life and the B & I Line but the State has long since ceded control of these firms to the private sector and everyone has gained from that including, above all, the employees.
This ideological obsession with State ownership has cost us dear in terms of Telecom Éireann's so-called strategic alliance which is merely a euphemism for partial minority privatisation. It was the Government's insistence on continuing State control which scared away potential bidders for the Telecom stake. Companies such as British Telecom were simply not interested in becoming minority partners in a State controlled company, particularly one with the record of Telecom Éireann. In the end the Government was effectively left with one bidder. It seems incredible that we had to pay consultants £5 million in fees to assist competing bids when there was only one bid to be considered. Why does the Government want to retain control of Telecom Éireann? The State has nothing to offer in management terms, otherwise it would not have sought what it calls a strategic partner for the company. Equally the State has nothing to offer in terms of capital, otherwise it would not be selling part of the company.
I could understand a sensible strategy, whereby the Government sold its holding in the company in tranches, gradually reducing its stake over a number of years. This is what successfully happened in Irish Sugar-Greencore and Irish Life. However, such a move is not planned with regard to Telecom Éireann. Continuing State control of the telecommunications industry is deliberately included in the Bill. What does the Government think it has to contribute to the long-term development of the company that the private sector cannot offer? The only justification for it appears to be ideological and related to the welfare of trade unions and their officials.
I question the manner in which the sale of the stake in Telecom Éireann has been handled. The Exchequer received a nominal £1 from the sale of Irish Steel. It will not receive anything from the sale of 20 per cent of Telecom Éireann. The purchase price of £183 million will be reinvested in the company. Effectively, this means the buyers, KPN-Telia, will get their money back. Any proceeds from the sale of a further 15 per cent of the company of KPN-Telia will be swallowed up in meeting the State's obligations to the Telecom Éireann pension fund, where the liability is vast and measured in many hundreds of millions of pounds.
KPN-Telia's option over the remaining 15 per cent apparently cost it nothing. This means the State is locked into an arrangement whereby the Dutch-Swedish consortium has an effective lock on Telecom Éireann's long-term future. Without paying the Government a penny, is has, for all practical purposes, secured effective control of what is perhaps the State's most valuable commercial asset. It is ironic also that control of Telecom Éireann should now pass to foreign ownership. In other countries, governments have sold their telecommunications networks by floating them on their stock exchanges.
For example, in New Zealand, the Government pocketed £2 billion from the flotation of the New Zealand Telecom Corporation. If Ireland had followed that route, Irish investors would have had an opportunity to purchase shares in Telecom Éireann. The company would have remained in Irish hands and under Irish control. It is a strange state of affairs when Irish pension funds can put their members' money into British Telecom and the telecom companies in New Zealand and Hong Kong, but they are precluded by the Government from investing in Telecom Éireann.
There is no reason Telecom Éireann could not have been privatised via the public floatation mechanism. There is pent up demand for quality new stock issues among Irish institutional and private investors. The Minister for Finance frequently encourages the Irish investment community to put more money into Irish companies, but how can they do so if they are not given the chance? Why should it be necessary to continue to rely on public investment and borrowing of public money when there is almost unlimited private money to make the same investment at no cost to the Exchequer and with no resulting increase in the national debt? A well managed and independent Telecom Éireann would have been in a position to command the confidence of international institutional investors. The company could then have pursued a strategic alliance on its own terms without any Government interference. The Exchequer would have benefited substantially in terms of privatisation receipts and Telecom Éireann would have been in a position to fund itself in common with any other commercial organisation. It is a great pity for the company and the investment community in Ireland that this route was not followed. The insistence on continued Government control of Telecom Éireann in the Bill is all the more surprising given the State's poor record as a strategic manager of the company.
Under State ownership, essential cost cutting at Telecom Éireann has been continually postponed, much to the detriment of the company's long-term commercial prospects. By the company's estimates, it is carrying excess costs of more than £100 million a year. As a virtual monopoly, Telecom Éireann is able to pass these costs on to consumers, keeping Irish prices above those in the UK and damaging the competitiveness of the economy in the process. Despite being lumbered with £100 million of unnecessary additional costs, the company was still able to deliver an operating profit of £218 million in its last financial year. This represents an operating margin of 20 per cent.
Failure to tackle the problem of rationalisation has left us in difficulty. KPN-Telia is likely to insist that the necessary cost cutting measures are implemented at a brisk pace. De-manning Telecom Éireann will dramatically increase profits and boost the value of the company. In a few years time, KPN-Telia's stake in the company will have risen to a strategic 35 per cent. This will effectively shut out all other bidders and leave KPN-Telia ideally placed as the sole bidder to purchase out right control of the company. The clever New Zealanders received £2 billion from the sale of their telecom company, but it is unlikely the Exchequer will ever see a fraction of that amount from the disposal of Telecom Éireann, although it is probably worth more than the New Zealand company.
It is recognised by all competitors that telecommunications will play a vital role in determining industrial competitiveness in future years. The pace of technological change in the industry will be rapid. In State controlled companies, strategic decisions are made ultimately by bureaucrats and politicians. Experience tells us such companies are not the best equipped to cope with the needs of a fast changing market. We should not be afraid of competition, as we so patently are afraid. Instead, we should welcome it.
The UK has already given itself a huge competitive advantage over all other European countries through the thorough manner in which it has deregulated its telecommunications market. This gives it an important card to play in attracting mobile investment projects in the services sector. We should seek to emulate the British achievements in this area. American companies will not be attracted to Ireland by the prospect of dealing with a largely State owned company which controls two telecommunications monopolies.
In terms of employment and prosperity, we have a huge amount to gain from the deregulation of the telecommunications market and the ending of direct State involvement in the sector. We should enthusiastically pursue this option, not seeking to protect State monopolies by postponing competition as has been done for years, a policy which the Bill perpetuates.
Regarding definitions in the Bill, I note that, in section 6 (1), providers of telecommunications services are not defined, but telecommunications service is defined in extraordinarily broad terms in section 7 (1). It is so broad that it includes virtually any form of communication. I hope this is not an attempt to extend and deepen State control of the telecommunications industry with a view to protecting Telecom Éireann's monopoly in the long-term. We have nothing to lose and much to gain by promoting competition in telecommunications. In the interests of consumers, I urge the Minister to promote competition and not to frustrate it as the Minister's strategy subtlety does.
I re-echo Deputy Brennan's observation earlier that the Labour Party and the successors in title to Official Sinn Féin appear, incredibly, to have absented themselves from the debate. We have been told, semi-officially, that they will not be contributing to the debate. That is remarkable. I would like the Tánaiste, Deputy Spring, the Minister for Social Welfare, Deputy De Rossa, or another left-wing theologian to reply to what I said and point out where, if anywhere, I am wrong. I would also like them to outline the benefits that would accrue to this country from continued State ownership of telecommunications when Hungary, the Czech Republic, the Slovak Republic, Poland, former East Germany, the Baltic Republics and, possibly, Romania and Bulgaria believe the State has nothing to contribute to efficiency or competitiveness by retaining ownership of telecommunications. As this is an open ended debate I invite them to come in and let us hear what they have to say. In the absence of that, there can be no argument for maintaining the status quo, as essentially we are trying to do, with only minor changes. The status quo has not served us well, it will not serve us well and, as our neighbours and competitors change rapidly, we will be left a long way behind if we fail to do likewise.
