I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to amend the legislation governing Telecom Éireann to facilitate an initial public offering of shares in the company and to make legislation pertaining to the company compatible with its subsequent status as a publicly quoted company. Before outlining the provisions of the Bill, I would like to provide some background to the present position in order that the significance of these proposals may be fully appreciated.
For millennia, human communication could only go as fast as the fleetest runner, the swiftest horse or the fastest ship. As we approach the new millennium, we can now send messages to each other literally at the speed of light along fibre optic cables or via radio signals which can be relayed around the planet in a matter of moments by satellite.
Developments in telecommunications in the past 160 years have been truly amazing. The telegraph system, developed in the 1830s, was introduced to Ireland in the 1850s. The first services were established by private companies such as the private railway companies. In 1869, however, as the magnitude of linking the whole country to the telegraph system became apparent, the Government stepped in and nationalised the telegraphs system. Through the office of The Postmaster General, and later through the Department of Posts and Telegraphs of the Irish State, the State retained control of this essential means of communication.
The first major change took place in 1984 when, almost at the dawn of the new information age, Telecom Éireann was established as a State-owned company to take over the running of the telecommunications system. The company has since established a world class communications infrastructure and service in Ireland. Some 150 years after the development of the first telegraph companies in Ireland, I am happy to present this Bill aimed at facilitating the proposed initial public offering of the State's shares in the company.
Government strategy in regard to the telecommunications sector over recent years has been focused very much on the introduction of strong and effective competition in the marketplace. One of the main planks of this strategy has been the introduction of an equitable and transparent regulatory regime. This has been effected through the transposition of relevant EU Directives into law and the setting up of the independent office of the Director of Telecommunications Regulation. I pay tribute to the previous Government for setting up the office, the director of which, Ms Etain Doyle, has worked extraordinarily diligently.
The development of Telecom Éireann commenced with a strategic alliance with Comsource, involving KPN of the Netherlands and Telia of Sweden, which initially entailed selling 20 per cent of the Government's shareholding in the company. The objective of this agreement was to provide a vital cash injection to the company which had, at that time, a substantial amount of debt to deal with – more than £1.2 billion – and to provide access to the expertise necessary for the company to deal with the impact of forth coming competition. The deal proved to be a turning point for the company. It made considerable progress in restructuring its costs and tariffs and in introducing substantial reductions in many of its charges to its customers over the past two years. More are expected over the coming year.
Telecom Éireann has also been able to make major strides technologically and is now capable of providing the full range of services to its customers, including the largescale multinational information and communication technology companies. The second part of the development process within Telecom Éireann entailed involving the workforce in the whole process of change within the company. The agreement of the employee share option plan between the company and the unions, which was my achievement, is now being finalised and involves the sale of 9.9 per cent of the company to the employees for £190 million with an additional 5 per cent being transferred to the employees. This is in return for an agreement on company transformation including specific measures relating to changes in work practices and staff numbers.
In the past the most widespread organisational structure for telecommunications was an integrated State owned monopoly such as Telecom Éireann. The company operated solely in the home market and was given the task of providing essential services to the State where the provision of such services would not have been economically attractive to the private sector.
Now new service providers have the technical and economic means to compete against the public telecommunications operator. The globalisation of businesses requires advanced international services and the growing demand for telecommunications services requires speedy responses to meet customer needs. The Government believes these needs are best met by a vibrant competitive and fully liberalised market in which Telecom Éireann will continue to play a major part. As for the company, it no longer needs or wants the protection of the State and can only achieve its commercial mandate by being able to operate freely in pursuance of its own commercial strategic goals.
Similar positions were taken in regard to and by former national telecommunications operators in other countries with liberalised markets and which see the need to operate in a fully commercial environment. There is an international trend evident with a number of high profile divestments of State shareholdings in companies such as France Telecom in France and Swisscom in Switzerland. However, it is very much because of the circumstances prevailing in Ireland that the Government agreed to conduct this initial public offering of shares in the company. It is not simply because we wish to follow blindly the current international trends.
The Government has agreed particular objectives for the initial public offering of shares in Telecom Éireann. These comprise maximising the proceeds to be returned to the Exchequer, ensuring a successful initial public offering, promoting wider share ownership and ensuring value for money on expenditure related to the sale.
In terms of maximisation of the proceeds of the sale and subject to market volatility, the market trends for telecommunications shares are now quite favourable. They recovered well from fluctuations and investor uncertainty evident in world equity markets prior to last Christmas. While European telecommunications shares were not immune to this volatility, they consistently outperformed equity markets in general and each of the flotations I mentioned earlier were oversubscribed.
The power of telecommunications shares to withstand even the most volatile of market environments was evident recently. Following the fall in the market as a result of the Brazilian devaluation, the merger between AirTouch of the United States and Vodafone from the UK, which created the world's largest mobile phone consortium, sparked tremendous activity in world markets. The amount of money due to the Exchequer from the proceeds of the sale cannot be stated with any degree of certainty. The decision as to what to do with the proceeds of the sale is ultimately for the Government to make.
The question of the price has been and continues to be a major consideration in the offering of Telecom Éireann shares. I know my advisers are following the market trends closely so that we have the best advice available at the time when the price range needs to be set.
Questions also arise as to what proportion of the shares will be divested in the IPO process and what proportion, if any, is to be retained by Government and for how long. As some of you no doubt will be aware, the net result of the strategic alliance and the employee share option deal has meant the Government's shareholding in the company will be reduced to 65.1 per cent. As part of the agreement with the strategic partners, KPN/Telia has the option of buying a further 15 per cent of the Government's shares. This option comes into effect later this year and, if they choose to exercise it, the amount of shares held by the State would come to 50.1 per cent. The purpose of this Bill, which has been approved by Government, is partly to allow for the reduction of the State's shareholding below the 50 per cent level.
The final decision on the precise size of the offer will be one which will be taken in consultation with my Government colleagues closer to the time of the offer and will depend largely on equity market conditions. Likewise, the issue of what proportion of shares will be retained by Government and for how long will also be taken by Government.
One of our stated objectives of the IPO is that it should promote wider share ownership. However, I expect there will be a significant tranche of the shares available to the citizens. It is a personal objective of mine, and I know Government and Opposition colleagues are at one on this, that the Irish people should be a significant beneficiary of this flotation. It is, after all, they who have contributed so much to the company's development and success over the years, as is the case with other State companies.
The contribution of the people in reality covers the entire history of the organisation from when it was part of a Government Department, funded by tax revenues, with the task of providing vital telecommunications services on a nationwide basis to the public and to industry. Telecom Éireann has now developed into a high value player in the world telecommunications market and it is only appropriate that the public reaps the benefits of this success. The main benefit, as I see it, is the opportunity for the public to be part of the future of the company, to be able to share in its successes and to have a say in its development over the coming years. This is the essence of what being a public company means; a company which is literally owned by the people through the widest possible share ownership.
Nonetheless, the proportion of shares available to the citizens needs to be balanced by the availability of shares to institutional investors who are so important to the success of any public flotation. While the benefits to the citizens are uppermost in my mind, I am fully aware that these will only be maximised if the institutional investors are allowed to participate in a way that creates a positive trading environment. Having a number of good quality institutional investors holding significant shares in the company is desirable.
The plan at this stage is to opt for flotation on the Dublin, London and New York Stock Exchanges. While Dublin and London were to a large degree self-selecting, the choice of New York is seen as a reflection of the level of interest that prevails in the US in Irish companies. The decision is also a mark of the confidence the Government and the advisers have in the market potential of the company and the move will undoubtedly act as a stimulus to the ultimate success of the IPO.
One of the issues I had to address in preparing the company for an initial public offering was that of corporate governance, in particular, the composition of the board. Following advice from the Department's advisers, Merrill Lynch and AIB Capital Markets, I met each of the ministerially appointed directors and outlined the position with regard to the IPO. Four of the board members agreed voluntarily to relinquish their positions as directors and their understanding of my wish to effect pre-IPO changes at board level was very much appreciated by me and by the Government.
I state clearly and without equivocation how much I value the contribution made to the company by those who chose to relinquish their board directorships. My request to them should not be taken as reflecting negatively on their perform ance or their ability. On the contrary, Mr. Ron Bolger has been a distinguished chairman and has guided the company with great skill and professionalism through an era when the company's value and turnover has increased substantially. I am glad he agreed to remain on the board in his new role as deputy chairman where his knowledge of the company and of the Irish telecommunications sector will be of undoubted assistance.
I also extend my deepest gratitude to those other board members, Maurice Doyle, Evanne Kilmurray, Marie Hurley and Gerry Wrixton, each of whom played his or her part in the transformation of the company in recent years. I very much appreciate the manner in which they responded to my request and I acknowledge their public spiritedness and their commitment.
I was very pleased that Brian Thompson agreed to become the new chairman of the board. Allied to his wide business experience in the very competitive United States telecommunications sector, his commitment to Ireland and his expertise in Irish affairs gained through his work on the Ireland-America Economic Advisory Board and the Advisory Committee on Telecommunications made Brian Thompson a very suitable candidate for the job. The other new directors appointed by me are Mr. Ray McSharry and Mr. Jim Flavin, both of whom have experience as directors of boards of publicly listed companies. I know they will bring their expertise to bear in their role in Telecom Éireann and I wish them well.
Before discussing the substance of the Bill, I will briefly refer to the various discussions that have been a necessary part of the whole IPO process. Participants in these discussions include various Departments, the company, the strategic partners, KPN and Telia, the unions and the former workers of Telecom Éireann. I wish to avail of this opportunity to thank each of the groups involved for their positive contribution which has ensured the success of the whole consultation process to date and I look forward to a continuation of it in the future.
The provisions of the Bill may be grouped into four broad categories. The first of these concerns those provisions needed to permit the initial public offering of shares in the company. This includes providing a mechanism whereby the expenses of the process may be paid. In this instance, it is proposed that this should be done by way of moneys voted by the Oireachtas to the annual Vote of my Department.
A further provision in this category is set out in section 8. The purpose of this provision is one of clarification. The first part clarifies the provision in section 9 of the Telecommunications (Miscellaneous Provisions) Act, 1996 which concerns the Minister's powers to enter into agreements for the sale and/or issue of equity in the company and the scope of such agreements. The second part of this provision confirms the non-application of section 60 of the Companies Act, 1963 to certain specific arrangements involving the company. The existing exemption from this section was given to Telecom Éireann in the 1996 Act in the context of the strategic alliance. The purpose of the proposed amendment in the Bill is to extend the exemption to cover other share transactions by the company's shareholders pursuant to agreements entered into by the Ministers for Finance and Public Enterprise, including the ESOP agreement.
The second broad category relates to matters of concern to the employees of the company and is mainly covered by sections 4 and 5 of the Bill. Section 4 is concerned with the superannuation entitlements of Telecom Éireann staff who were former employees of the Department of Posts and Telegraphs. It provides that the superannuation entitlements of such staff in the company are maintained at a level at least equal to that which they enjoyed immediately before the vesting day of the company on 1 January 1984. The provision also makes clear that this applies equally to those staff of the Department of Posts and Telegraphs who retired or the beneficiaries of those who died before the vesting day.
Section 5 removes Telecom Éireann from the scope of the Worker Participation (State Enterprises) Acts, on the basis that such obligations are inconsistent with it being a publicly quoted company.
Following the change in the status of the company, therefore, and as is the case with such companies, its board membership will be determined largely by the size of shareholding. Before this change happens, however, there will be an interim period and the Bill seeks to cater for this by providing that the present worker directors and their alternates are to remain in office until the appointment of the new board of the company. To accommodate this the Bill gives the Minister the power to specify by order the date on which their term of office ends. I am considering this issue at present and will consult with my Cabinet colleagues. I have also met with representatives of the Irish Congress of Trades Unions and I have spoken with them about this issue on a general level. I have also met, and will continue to meet, with representatives of the Communications Workers Union on this issue.
The third broad category dealt with in the Bill concerns the repeal or limiting of certain existing provisions so that Telecom Éireann is put on an equal footing with other operators in the telecommunications sector. These include provisions which, for example, currently give the company power to prosecute various offences, for instance under the Telegraphs Acts. No other telecommunications operator in Ireland or publicly quoted company is empowered in this way and in the light of its imminent change of status such powers are now inappropriate to Telecom Éireann.
The power of the Minister to issue policy directions is also seen as inappropriate to a company with an obligation to its shareholders to pursue a commercial mandate. This power, which will put me in my box—