Dáil Éireann díospóireacht -
Tuesday, 12 Mar 1996

Vol. 462 No. 8

Adjournment Debate. - Telecom Éireann Strategic Alliance Process.

Mr. S. Brennan

I use this Adjournment debate to call on the Minister for Transort, Energy and Communications, Deputy Lowry, to declare that the strategic alliance process at Telecom Éireann is now officially at an end. The process to try to sell 35 per cent of Telecom Éireann has now clearly been botched by the Government because of the undue delay in securing a Government mandate and in publishing it.

Ten companies expressed an interest in the purchase of a third of Telecom Éireann. However, seven of them have pulled out and are no longer interested. I call on the Minister to call off this farce of a competition that now remains. particularly after the withdrawal of British Telecom, and I ask him to go back to the drawing board. I would like him to lay before the Dáil all the options now available to the company and the consultants' reports in particular for which I have repeatedly asked in this House and have been repeatedly denied. It is time to have a full debate on the future of Telecom Éireann.

Government policy on the future of Telecom Éireann is a shambles. The 15 month ideological tug of war within the Cabinet has resulted in the best partners for Telecom Éireann withdrawing from the race. The contestants who remain look decidedly uncompetitive. In answer to a recent parliamentary question I was informed that the cost of consultants for this so-called competition amounts to £4 million. While it is well known that the Minister is something of a "consultant junkie", it is beyond belief that the Government is willing to pay so much money for advice to select a player in what has become a one horse race. Last weekend the media reported that the consultants informed the Government they are satisfied with the pace and direction of talks with the three remaining bidders. They can make such a statement because any company earning thousands of pounds per week would be very satisfied if the Telecom Éireann process continued indefinitely.

The withdrawal last week of British Telecom from the competition followed months of concern about the Minister's handling of the entire process, during which he made a number of fundamental errors. When the Minister took office, the necessary procedures were in place to ensure that a decision could quickly be taken on the strategic alliance. However, the Government and the Minister have allowed the process to become bogged down. All decisions were referred to a subcommittee of the Cabinet which took in the region of 15 months to advance the process. A Government mandate issued in January of this year and the international companies interested in Telecom Éireann had to wait until then to obtain the basic information memorandum which it had been expected would issue in early 1995. Serious questions must be asked regarding this delay in advancing matters which resulted in the withdrawal of seven of the ten bidders.

A major error is also evident in a Government statement issued in January of this year about the entire strategic alliance process. In that statement the Government made it clear that securing a large cash sum for the 35 per cent stake in Telecom Éireann was the primary aim. I understand that this emphasis on a large cash sum was the final straw for British Telecom which was already disillusioned because of the lack of clarity in the Government's approach. Interested parties such as British Telecom could not get straight answers about the investment that would be demanded or the return that could be achieved.

It is clear that Telecom Éireann has missed the boat with regard to attracting the best partners for the strategic alliance. The blame for this lies in the Government's 15 months inactivity in this area. I request that the process be officially halted to save as much as possible of the £4 million in consultants' fees. There should be a full public debate on the future options for Telecom Éireann.

Minister of State at the Department of Social Welfare (Mr. Durkan)

In the absence of the Minister for Transport, Energy and Communications I wish to state that the Government's strategy for Telecom Éireann must be seen in the context of our overall national policy objective which is to achieve a telecommunications sector which is in the upper quartile of OECD indicators of price, quality and availability as soon as possible. This objective was laid down by the Minister when the Government approved the mandate for strategic alliance negotiations in July of last year and it is now the cornerstone of Government policy.

In setting out this policy objective the Minister recognised that the long-term economic prosperity of this country is heavily dependent on the provision of top quality telecommunications services at competitive prices. What matters to this Government are jobs and the competitiveness of Irish industry and services in providing and retaining jobs. Telecommunications development into the 21st century will have a critical influence on achieving this overall goal. The performance of Telecom Éireann as the leading operating company must be consistent with this policy objective.

In essence, the Government is pursuing a strategy aimed at achieving a top quality telecommunications sector while ensuring that Telecom Éireann, as the national operator, will continue to provide a first class basic service on a nationwide basis and offering the full range of advanced services at competitive prices to the business sector. It is intended to retain a majority State ownership of Telecom Éireann.

It is the Minister's view that the formation of a strategic alliance with a suitable international strategic partner is an essential element in this process. This strategic alliance approach had been formulated and adopted by the Minister's predecessor. It was then and still is the right approach. Other strategies such as flotation or going it alone would not address the crucial long-term business strategic issues. A flotation would simply raise cash but financial considerations or the size of the cheque have never been the overriding consideration. The strategic alliance concept seeks to enhance Telecom Éireann's strengths in addition to addressing those areas of relative weakness in the company.

Securing the future of Telecom Éireann is first and foremost about addressing the company's internal weaknesses and exploiting the business opportunities that exist. The right partner will assist in meeting these goals by helping to reposition Telecom for the challenges that lie ahead in the competitive marketplace. In essence this means providing a range of strategic benefits, including marketing, managerial and technology skills. An alliance partner will help to defend the company's international revenues, which are open to competition, protect its domestic market share, accelerate the growth of mobile telephony and exploit cable TV opportunities. There will also be a valuable injection of funds to Telecom's balance sheet and to assist in its restructuring. It is also important that a partner can give access to additional business development and job opportunities in or outside Telecom's sector.

The Minister has put in place all the key enablers to allow this process to continue. The negotiating mandate was issued, advisers appointed and a management structure put in place to bring this process to a conclusion. Vital decisions have been taken on the future regulatory structure which mean that we will have independent regulation of Telecom's sector in the summer of this year. He has also taken the necessary steps to allow Irish consumers to enjoy the benefits an alliance and earlier competition will bring by announcing the liberalisation of the sector in January 2000, some three years earlier than originally envisaged.

Recent withdrawals, such as that of British Telecom, from this process are not a reflection on the selection process or on the attractiveness of Telecom Éireann as an investment opportunity. If anything, the withdrawal of British Telecom from the alliance process foreshadows the emergence of that company as a serious potential competitive threat in the marketplace which reinforces rather than reduces the need for a strategic alliance. It is correct to state that an alliance is not the panacea for all the ills that face Telecom Éireann. It is, however, the Government's view that an alliance is an essential ingredient of a multi-dimensional approach to tackling the problems of Telecom.

No alliance can be devised which will remove the need for the board and management of Telecom to take action to meet the future challenges, place its operations on an efficient base and its costs on a comparable basis to those of its competitors. The Government is committed to supporting the board and management in their efforts to address the significant issues facing the company.

The Minister is satisfied, given the players remaining in the alliance process, that a satisfactory agreement from the Government's perspective is necessary and achievable. Much of the work necessary for the conclusion of an alliance deal has now been done. As the Minister stated last week in this House, bids will be received on 15 March. This will be followed by an evaluation process leading to detailed negotiations with some or all of the potential partners in the next stage of the process. Overall, a deal could be concluded in mid-summer. It is only by following this strategy to a successful conclusion that the overall long-term policy of a dynamic and efficient Telecom sector can be achieved.

The Dáil adjourned at 9 p.m. until 10.30 a.m. on Wednesday, 13 March 1996.