State to get £383m from Telecom alliance

THE Government will receive a minimum of £383 million for 35 per cent of Telecom Eireann over the next three years, according to the Minister for Communications Mr Lowry.

The Dutch Swedish alliance of KPN/Telia has agreed to pay an initial £183 million for 20 per cent of the company and has the option to buy an additional 15 per cent for £200 million in three years time.

The arrangement also involves a complex mechanism which will result in additional payments to the Government if Telecom Eireann exceeds certain unspecified growth targets over the next three years. The Government expects these payments to exceed £100 million.

Under the clawback arrangement, Telecom will be revalued in three years either by independent consultants or by selling some shares into the market. The difference between what 35 per cent of the company is worth at that stage and the £383 million minimum price agreed by KPN Telia will form the basis of the additional payment.

If the difference exceeds a certain threshold set by the three partners, the Government will be entitled to 60 per cent of the amount by which the value of the 35 per cent exceeds the threshold.

The Government claims that the mechanism is intended to ensure that the State will benefit from the improvement in Telecom Eireann's performance that are expected to flow from the rationalisation undertaken over the last two years, as well as the benefits of the alliance.

The mechanism was proposed by the KPN/Telia consortium and allows it to proceed cautiously with the alliance. However, the partners are fully committed to the venture, according to Mr Ben Verwaayen, chief executive officer of PTT Telecom, part of KPN. "We are not spending so much money for something we do not like," he pointed out at a press conference to announce the alliance in Dublin yesterday.

The phased nature of the payment by KPN/Telia will mean that the injection into Telecom Eireann of £220 million of the proceeds will also be on a phased basis. They will receive the majority of the £183 million initial payment, according to Mr Ron Bolger, the chairman of Telecom.

Mr Verwaayen refused to be drawn on the extent to which Telecom Eireann's workforce would be cut under the strategic alliance. "Staffing is not a goal in itself. It is a result of how well the company is performing," he said.

He added that both KPN and Telia, which are former stateowned monopolies, had good track records in their own markets in this area.

The Communications Workers Union last night welcomed the Government's choice of KPN/ Telia, pointing out that it was the potential partner most favoured by the union. Under the strategic alliance the employees of the company will be offered 5 per cent of the equity and are to negotiate for a higher level. However, the issue of the number of worker directors that will be on the board has not been resolved.

The alliance is very strong in the area of strategic benefits, according to Mr Lowry. It links Telecom Eireann to Unisource, the consortium of European Telecom companies comprising KPN, Telia and the Swiss and Spanish telecoms companies. Unisource is itself linked to the giant US carrier AT&T through an alliance known as Uniworld.

As well as access to the Unisource international network at very competitive prices, the strategic alliance will give Telecom Eireann access to its partners' technical and marketing expertise. "It will allow Telecom Eireann to offer new types of service which are only possible on pan European basis," explained Mr Verwaayen.

KPN Telia will have three directors on the board of Telecom Eireann and will also be seconding up to 30 senior managers to the company. There are 84 separate technical assistance and cooperation agreements encompassed in the strategic alliance and over 100 man years of consultancy type services, according to Mr Alfie Kane, the chief executive of Telecom Eireann.

The alliance will apply to all elements of Telecom's business, including the mobile phone subsidiary Eircell and Cablevision, the cable television network. Telecom believes that its new partners can offer considerable expertise in these areas.

The initial objective of the alliance was to ensure that Telecom Eireann was in a position to compete once the Irish telecommunications market was completely deregulated at the end of the decade, explained Mr Kane. The company would have to become customer focused and market orientated and substantially reduce its cost base, he said.

This process would take around 10 years at the present rate but would be speeded up through the strategic alliance, he forecast.

Mr Kane described the alliance as a marriage and added that it would take time to see if "the marriage is going to work".