I thank the Cathaoirleach for the courtesy afforded me when he suspended the Seanad to allow me take part in a vote in the other House. Another vote was called when I was there, but now that I am speaking here, I am paired, so they can call as many votes as they like there.
I am glad to introduce the Postal and Telecommunications Services (Amendment) Bill, 1998, to the Seanad. Its passage concluded yesterday in the Lower House. Second Stage is being taken today in the Seanad with Committee Stage being taken tomorrow.
The purpose of the Bill is to allow for the amendment of the legislation covering Telecom Éireann to facilitate an initial public offering of shares in the company. Its purpose is also to make the legislation governing the company compatible with its subsequent status as a publicly quoted company.
Before going into the detail of the Bill, I will say a few words on the background to this issue to put the proposals in a clearer context. Telecommunications has come a long way since the first developments in the telegraph system took place more than 160 years ago. Ireland has had its part to play in the history and development of global telecommunications throughout this time with a number of remarkable firsts for a country of our size. Some of these happened because of Ireland's geographical location. The first trans-Atlantic telegraph line was laid in 1858 between Valentia in Kerry and Newfoundland. The first commercial use of radio came about with the setting up of two stations, one near Crookhaven and the other at Malin Head, to communicate with the vessels on the Atlantic shipping routes.
Since that time, the world of telecommunications has changed utterly and never more so than in the last decade with developments in information technology and with the increasing convergence between that sector and the communications and broadcasting sectors. These three previously distinct areas are now slowly but surely becoming one. This convergence has as its common denominator the concept of the dissemination of information and has already happened to such an extent that people now talk of the information and communications technology sector and the information age. We had a first when the Taoiseach and President Clinton signed up to the digital age last September. It is a long way from the days of the humble telegraph.
It is the Government's aim that the progress achieved to date should be maintained and built upon and the Government's strategy with regard to the sector has been shaped with this in mind. The primary focus of different Governments in recent years in regard to communications has been on the introduction of strong and effective competition in the marketplace. This is being done to ensure that Irish industry and domestic consumers alike receive the full range of high quality and competitively priced services now available.
Effective competition is rapidly being achieved and, with the Government's decision last year to bring forward the date of full liberalisation to 1 December 1998, the pace of change is very fast. There now exists in the telecommunications sector an equitable and open regulatory regime. It is based on a solid legal framework provided by the EU telecoms directives and our primary legislation and the Director of Telecommunications Regulation, Etain Doyle.
It is important for the country to ensure that, like its global competitors, it should have a modem and high quality telecommunications service. The Government's strategy would not have been complete without recognition of the importance for the development of the sector of the national telecommunications operator, Telecom Éireann. Without a strong and competitive Telecom Éireann, which is able to compete in a fully liberalised environment, the plans for Ireland to be among the top nations in this area would come to nought.
This was why the strategic alliance with KPN of the Netherlands and Telia of Sweden was established in 1996. This agreement entailed initially selling 20 per cent of the State's shareholding in Telecom Éireann, with an option for the strategic partners to buy a further 15 per cent later this year. The strategic alliance agreement gave a vital injection of cash which helped deal with the company's debt and gave the company access to the expertise needed to prepare for competition. In the three years since the agree ment, the company has made major progress in restructuring its costs and tariffs and technologically in the range of advanced digital services it now provides.
The employee share ownership plan, ESOP, between the company and the unions, which will shortly be finalised, is also of major importance to the company's ability to look forward to the future with confidence. The agreement involves the sale of 9.9 per cent of the company to the employees with an additional 5 per cent being transferred to the employees in return for an agreement on company transformation, such as work practices and changes in staff numbers.
Before I move on from this point, I will give a brief overview of the present shareholding structure of the company. The net result of the strategic alliance and the ESOP has meant that the Government's shareholding in the company will be reduced to 65.1 per cent. Part of the agreement with KPN and Telia is that they have the option of buying a further 15 per cent of the Government's shares. This option comes into effect soon and, if they choose to exercise it, the amount of shares held by the State would come to 50 per cent. The purpose of the Bill is partly to allow for the reduction of the State's shareholding below the 50 per cent level.
This is the logical cumulative effect of the wise policy measure to take in strategic partners. Other matters, such as the arrangement with KPN and Telia and pricing, will come under scrutiny later. The net result is that it is feasible next July or August, post flotation, that Telecom Éireann, or whatever it chooses to call itself once that process is completed, will be owned by the strategic partners. We used to quaintly call them foreigners but we no longer use that kind of language. It is as well to be clear about this aspect now. I intend to say it clearly in the future before a new level of caterwauling begins about it as if I had somehow hidden the fact. If the strategic partners, who have brought great expertise to the company, hold 20 per cent of the shares and stand to gain 15 per cent they will hold 35 per cent, leaving the Government holding 50 per cent. Given that the Government will sell a tranche of these shares it is highly likely that the greater number of shares of the company, by whatever name it calls itself then, will be held by KPN and Telia. I have no difficulty with that, but I have difficulty with people suddenly discovering it in a month or in six weeks and engaging in a nationwide screech about it when the arrangements are already in place. It appears to have struck nobody that that will be the situation.
In the past the most widespread organisational structure for telecommunications was an integrated State owned monopoly such as Telecom Éireann. In the past those kinds of monopolies were seen as a necessity for the security and welfare of the State. They provided essential services where the provision of such services would not have been economically attractive to the private sector. Today there are new service providers with the technical and economic means to compete fully in the telecommunications market. This is especially so in terms of our global competitiveness.
Part of the liberalisation of the market involves the restructuring of ownership and control of the former state owned telecommunications operators. Nearly all of the former state owned telecommunications companies in Europe are no longer in full state ownership and most are now public companies. It is recognised that to be competitively successful and to be able to deliver the range and standard of services these companies need to be able to operate freely.
As I have stated elsewhere it is very much because of the circumstances prevailing in Ireland that the Government has agreed to conduct this initial public offering of shares in the company at this time. It is not because of a blind desire to follow current international trends. There were highly misguided and misdirected privatisations within the UK in the 1980s, especially in the early 1980s, which did not result in better services to consumers but resulted in big fat cat salaries for groups of people at the top of such companies. By contrast, different Governments participated in this programme for Telecom Éireann and it is being proceeded with at the proper pace.
At present, the market trends for telecommunications shares seem quite favourable, although such things are always subject to market volatility. European telecommunications shares have not been immune to this volatility but they have consistently outperformed equity markets in general and have shown the ability to withstand even the most volatile of market environments. This was in evidence even a few weeks ago when there was a general rise in European stock market values following the announcement of better than expected third quarter results from British Telecom.
While all of this augers well for the initial public offering, the amount of money which the Exchequer will raise cannot be determined. The decision on what to do with the proceeds of the sale is ultimately one for the Government. Other decisions that will need to be made in consultation with Government colleagues include the price range to be set for the shares, the proportion of the shares to be divested in the IPO process and the proportion, if any, to be retained by the Government and for how long. We will be making those decisions based on the best advice available.
One of the objectives of the IPO which I mentioned earlier is that it should promote wider share ownership. It is my firm intention that there should be a significant tranche of the shares available to the citizens. This is a personal objective of mine, one which I know is shared by the Government and most parties. It is only right that the Irish people should be a significant beneficiary of this flotation. It is they, after all, who have contributed so much to the company's development.
It is estimated that, after the flotation, Telecom Éireann will be the third most valuable indigenous company listed on the Irish Stock Exchange. It is entirely appropriate that the public reap the benefits of this success, the main benefit being the opportunity to be part of the future of the company. Through a widespread shareholding, citizens will be able to share in the successes of the company and to have a say in its development over the coming years. This, in my view, 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.
A significant proportion of shares will also be available to institutional investors who are so important to the success of share offerings. While the benefits to citizens are to me the most important, institutional investors must be allowed to participate in a way which creates a positive trading environment and the proposal to opt for flotation on the Dublin, London and New York stock exchanges is in line with this view.
Before I go on to the detail of the Bill, I should mention the various discussions which have been a necessary part of the process. Participants in these include the various Departments, the company, the strategic partners, that is KPN and Telia, the trades unions and the former workers of Telecom Éireann. Each of these groups has made a valuable contribution to the consultation process. I thank all of them for that.
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 to take place. This includes providing a mechanism whereby the expenses of the process may be paid by way of moneys voted by the Oireachtas to the annual vote of my Department. That was made public in the Estimates at the end of last year. The issue of the company contributing to cost has arisen in the context of the earlier Dáil debates. I can confirm that my Department is in discussion with the company to achieve, as far as possible and having regard to all the circumstances involved, a basis for sharing the costs of the flotation.
I should mention a new provision in the Bill as a result of yesterday's Report Stage debate in the Lower House. This was an amendment proposed by Deputy O'Shea which has been inserted into the Bill as a new section 2. This section provides that, once I have agreed the details of the sale of shares with my Government colleagues, the general principles of the sale – not the terms because they would be confidential – will be laid before the Dáil for debate and the approval of the Dáil before the sale of shares commences.
Another provision in this first category is that set out in section 9. The purpose of this provision is one of clarification. It basically clarifies the question of the Minister's powers to enter into agreements for the sale and/or issue of equity in the company and the scope of any such agreements.
The provision also deals with 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 when it was setting up the strategic alliance. The present provision in the Bill extends 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, and this includes the ESOP agreement.
The second broad area of the Bill covers matters of concern to the employees of the company. Section 5 deals with the pension entitlements of Telecom Éireann staff who were former employees of the Department of Posts and Telegraphs. It provides that their superannuation entitlements 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. This will apply 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 6 removes Telecom Éireann from the scope of the Worker Participation (State Enterprises) Acts, on the basis that such obligations are inconsistent with its becoming a publicly quoted company. Following the IPO, the company's 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 provides that the present worker directors and their alternates may remain in office until the appointment of the new board of the company. To allow for this, the Bill gives the Minister the power to specify, by order, the date on which their term of office ends.
This was one of the issues which arose in the debate in the Lower House and I was able to confirm to the Deputies that I am considering this whole issue and intend consulting with my Cabinet colleagues on it. I have already met with representatives of the Irish Congress of Trades Unions and I have discussed the issue with them. I have, most recently, been in correspondence with Mr. Peter Cassells on the matter and have also met with representatives of the Communications Workers Union on this issue.
I quite understand how the workers, coming from a position of worker participation under a particular Act and going into a situation where it is agreed that Act is no longer of relevance when it is a publicly quoted company, must reach an arrangement. In the talks ongoing, Mr. Cassells, representing ICTU, and Mr. Dermot McCarthy, representing the Taoiseach and Partnership 2000, hope to come to an arrangement with the input and support of my Department whereby somebody, not necessarily a worker but somebody who would be in concert with the needs of workers, will be able to be appointed to the board. There is, as the House will be aware, already an arrangement for an ESOP director, Deputy Dick Spring. The Communications Workers Union conveyed that appointment to me about a month or six weeks ago. I was happy to receive the name. I will only have a technical role in his appointment when the Bill is enacted because the name is given to me. I am quite sure Deputy Spring will be a full member of the board in every sense. I welcome his participation. Politics does not enter into the matter if a person is capable, competent and professional, qualities all of which one could attribute to Deputy Spring. I am happy to know that he will be a member of the board and I look forward to the day he is welcomed to the board. In case people would confuse the dialogue now between ICTU and the Taoiseach's office with that in regard to ESOP, this is a separate appointment.
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 seen as equally inappropriate to Telecom Éireann.
The power of the Minister to issue policy directions to the company under section 110 of the 1983 Act is also seen as inappropriate to a company with an obligation to its shareholders to pursue a commercial mandate. I cannot do so. This power is to be strictly limited to issuing directions for purposes of interception of messages under the Interception of Postal Packets and Telecommunications Messages Act, 1993.
Following an Opposition amendment proposed by Deputy Yates on Committee Stage, I have extended this provision to cover other operators in the sector. I have also used the opportunity presented by his amendment to extend to these operators other provisions which, at present, only cover Telecom Éireann. The extension of these provisions is in line with the need to have an equitable regulatory environment for all operators.
The fourth and final area dealt with in the Bill provides that the company operates on much the same basis as not just other telecommunications companies but other publicly quoted companies operating under the Companies Acts. For example, section 3 repeals certain parts of section 46 of the 1983 Act relating to the company's obligations regarding the superannuation schemes that it establishes, like the requirement for ministerial approval. Obviously that has nothing to do with it.
Subsections (9) and (11) of section 46 of the 1983 Act are also being put forward for repeal in the Second Schedule to the Bill. These concern the Minister for Finance's contributions to superannuation schemes covering former employees of the Department of Posts and Telegraphs. I can confirm, however, that these provisions will only be repealed if and when the Minister for Finance decides to discharge his liability in this regard.
The remainder of this category being dealt with in the Bill largely comprises the repeal of various existing provisions as identified in the Schedules to the Bill. They cover issues that would normally be dealt with under the Companies Acts. As for the commencement of the Act, section 11 provides that the Minister may by order bring different provisions of the Act into force at different times. The timing of the orders will, to a large extent, depend on the progress achieved in the various elements of the IPO process that I have touched upon today. The completion of the IPO process and the transformation of Telecom Éireann into a commercially driven, publicly quoted telecommunications company is seen by the Government as a major step towards the achievement of a competitive and high-quality telecommunications sector in Ireland.
Is there a sos in the House today?
