Telecom Éireann moved from public to private ownership in 1999 in what for the State was a successful privatisation. But for many small investors new to the stock market it has proved a financial disaster. In particular, those long term (buy-and-hold) investors who have retained their original shareholding, now find themselves older, wiser – and poorer – despite Vodafone's later acquisition of the company's mobile business, Eircell.
The privatisation, the largest in the State’s history, raised €6.3 billion for the Exchequer but was mishandled. Ministers actively promoted the flotation to small retail investors but the government set the flotation price too high. Investors quickly faced losses as the share price fell.
In Britain, where British Telecom was the UK's first major public sector privatisation 1984, shareholders have since seen a fourfold rise in the value of their investment. By contrast Telecom Éireann/Vodafone shareholders have, after 17 years, seen the value of their initial investment decline dramatically. Vodafone, belatedly, has recognised the difficult position facing many of its small Irish shareholders (some 334,342 own less than 1,000 shares). The company has offered a cheap share dealing facility to enable small shareholders to sell their shares at minimal cost.
The Telecom Éireann debacle has been deeply damaging, both to the potential privatisation of State assets and to the development of an equity culture and of greater shareholder democracy. A major miscalculation by the Fianna Fáil/PD coalition in setting the flotation price too high in 1999 was followed in 2002 by an opportunistic attempt by Fine Gael to exploit the government’s misjudgment for electoral advantage. Fine Gael proposed allowing Telecom Éireann investors to claim their capital losses against their income tax.
Vodafone is anxious to tidy up its share register by reducing the number of small shareholders. Its move, albeit self-interested, is nevertheless welcome and should encourage some investors to exit a company in which they have been reluctant shareholders for too long.