THE Government's plan to sell 35 per cent of Telecom Eireann has received a serious setback with the decision of British Telecom to with draw from the bidding.
British Telecom was one of the two favourites to buy the stake but despite the withdrawal, the Government and Telecom said yesterday they would continue to seek a strategic alliance partner. However Fianna Fail argues the whole sell off process is now "fundamentally flawed".
British Telecom (BT) wrote to both the Government and Telecom Eireann yesterday morning, informing them of its decision not to proceed. Its withdrawal leaves a consortium of KPN from the Netherlands and Telia of Sweden as the clear favourites. Tele Danmark the Danish state operator and Bell Atlantic from the US are also still in discussions with Telecom, but look unlikely to succeed unless they now decide to join up with other operators.
The Government gave the go ahead for the sale of 35 per cent stake in January and is understood to hope to raise up to £500 million from the sale. Since then, Telecom Eireann has sent an information memorandum to the interested parties and opening negotiations have started.
A spokesman for BT in London said yesterday that investing in a take in Telecom Eireann did not fit with the group's strategy across Europe, which does not generally involve investing in state companies. BT and its US partner, MCI, have instead been concentrating on joint ventures with smaller companies to challenge the state operators typically aiming to become the second operator and specialising in long distance services.
British Telcom and MCI looked at Telecom Eireann because of the links between the two companies and BT's existing operation in the North, he added. However, at stage, it had decided not to ahead.
Sources close to the negotiation said yesterday that, having the information sent by Telecom Eireann, BT had decided that potential risk of the investment out weighed the likely return. Whim Telecom's financial performances has improved significantly, the company is still burdened with a large debt of £862 million and plans a major restructuring, including a large drop in staff numbers.
Last night, the Minister for Communications, Mr Lowry, said that BT's decision "did not come as a surprise".
A statement from the Minister said that the need to secure a strong partner for Telecom "remains unchanged", as this was essential to improve the company's ability to use technology and develop and market a wide product range. "The Minister is moving ahead with the arrangements already in place to continue the strategic alliance process as planned, as other companies have declared an interest" the statement said.
However the Fianna Fail spokesman Mr Seamus Brennan, said the Government was implementing a "flawed strategy". He said there were serious internal disagreements in Cabinet about what guarantees could be given to the purchaser as the future of the State's remaining 65 per cent stake. "Obviously no bidder is going to cough 500 million or more without guarantee on this issue", he said, adding he would be raising the matter in the Dail next week.
A Telecom Eireann spokesman said that "the alliance process risk continuing with interested parties". In a recent interview, Telecom chief executive Mr Alfie Kane emphasised that the company was committed to restructuring its business, separately from its strategic alliance negotiations. An alliance deal would only be done if it was for the company, he said, Mr David Begg, general secretary of the Communication Workers' Union, said news of the BT withdrawal came as a disappointment.
It is the last in a line of bidders Cable and Wireless and ATT of the US abandoned the race even before lit formally started. More recently, some of the smaller bidders, such as Singapore Telecom and US companies US West and GTE, have stood aside. This appeared to leave the bidding as a two horse race between BT/MCI and KPN/Telia, which are both members of the Unisource consortium of continental EU telecommunications companies.
