Liberalisation of State assets can land us in trouble

BUSINESS OPINION: Back in the good old 1990s when AIB and Merrill Lynch were looking forward to the fees that would be made from the flotation of Eircom, a simple reason was given for the decision to sell off the then State asset.

What was the State doing running a telecommunications company? It was a rhetorical question but it has since been answered.

With legislation currently being prepared to provide for the future sale of Aer Lingus, it may be timely to take another look at the Eircom decision and privatisation generally.

The key issue is national policy and the effect of privatisation on national policy for key aspects of the economy. In other words, the sort of thinking which led to the creation of State companies in the first place.

Within weeks of it being floated, Eircom started to follow a totally unexpected plotline. The plan had been that the company would use its new-found status to source investment and to grow, eating into the UK market while at the same time investing heavily in various new technology opportunities in the Republic. Eircom would compete with its competitors and the market would ensure that the State was awash in telecommunications investment.

What happened was that the telecommunications sector bombed around the world and any plan that may have existed for Eircom plc had to be thrown in the bin. The company was broken up and sold off, with the result that the bulk of the land-line infrastructure in the State now belongs to a company owned by US venture capitalists who need to keep up their repayments to the banks while at the same time securing a return in the region of 20 per cent per annum on their investment. Not much room there for long-term investment decisions.

Furthermore, three years after the sale of Eircom the State is once again involved in the telecommunications sector. The Department of Communications, Marine and Natural Resources has a broadband investment programme for 19 towns and cities whereby, working with local authorities, it will spend €65 million during 2003 and 2004 putting in place cable which privately owned telecommunications companies are not interested in installing. When the cable is in place then access to the cable will be sold wholesale to the private companies.

The odd aspect of the project is its management. It is being run by the department and the local authorities, the latter because of their knowledge of ducts and the digging up of roads and the like, the former because of its knowledge, from the old Telecom Éireann days, of the development and maintenance of a telecoms infrastructure. In time the management of the lines in the 19 towns and cities will be handed over to a management company. In other words, the department is doing its best to cobble together the bits and pieces of the telecoms infrastructure provision operation that used to be provided by the State telecoms company.

In time, some are even speculating, the State will have to hold up its hands and surrender. Who will then come to the rescue and save the State's infrastructure from falling even further behind in the international telecoms stakes? Eircom, of course. And, you can bet your bottom dollar, at some price.

The Telephone User Group, which is part of IBEC, confesses to its members having very mixed feelings about the fallout from the privatisation of Eircom. While being in favour of competition and liberalisation, the group now complains about member companies not being able to get the services they require.

There is a feeling that larger clients can get the capacities they require but that smaller users are left hanging on the telephone, so to speak. This is especially so for companies outside the Dublin area who require capacity for their email and internet needs.

With regional development and e-business being two of the policies so frequently articulated by the Taoiseach, Mr Ahern, these complaints are significant. So too the complaint, or observation really, that our telecommunications infrastructure needs to be developed for future needs, as part of a programme of competing for international investment.

The telecommunications companies, however, have a "demand stimulated" approach. In other words, they will only put in the lines when they are sure they have the customers. The solution, according to IBEC, is State investment in telecoms infrastructure.

So much for hypothetical questions.

Investment may not even be demand led. The sale of Eircom by the State transformed a State near monopoly company into a privately owned near monopoly company. The company has no vested interest in seeing infrastructural development as each new development is likely to reduce the dominance of its position.

The sale of Aer Lingus will almost inevitably have unforeseen repercussions. One obvious possibility, however, is that some future crisis will cause the new owner to close down ex-Dublin transatlantic routes. The closure of our air links with the US would have very negative effects on tourism and on investment by US multinationals. So the decision is not without risks for national policy.

The problem with not privatising Aer Lingus is that EU competition rules will not allow the State pump capital into an airline that is competing with privately owned companies in a liberalised market.

This is an argument for privatisation but it can be turned around and made into an argument for introducing more flexible EU rules. Indeed there is some discussion on this matter now under way as part of the European Convention process.

The whole liberalisation/ privatisation drive has been too ideological and too prescriptive, some people are arguing, though this is not the sort of argument one expects cuts much ice with the Minister for Transport, Mr Brennan.