Dáil Éireann - Volume 469 - 03 October, 1996
Private Members' Business. - Telecommunications (Miscellaneous Provisions) Bill, 1996: Second Stage (Resumed).
Question again proposed: “That the Bill be now read a Second Time.”
Minister of State at the Department of Enterprise and Employment (Mr. Rabbitte) Minister of State at the Department of Enterprise and Employment (Mr. Rabbitte)
Minister of State at the Department of Enterprise and Employment (Mr. Rabbitte): I was dealing with the necessity for strategic alliance in this context. Deputy Brennan was highly critical of the very concept of the strategic alliance transaction. The Bill deals with the reality of the evolving telecommunications markets and the strategic alliance is part and parcel of this response.
Deputy Brennan is a critic of the alliance concept, the alliance agreement, the alliance process, the alliance partners, the alliance terms and the alliance advisers. While the Deputy is unlikely in these circumstances to be converted to the benefits of an alliance agreement. I will nonetheless make the following relevant points. Alliances are common internationally. In the last few years successful transactions have taken place in the Czech Republic, Hungary and Belgium. Fresh alliance processes are slated for Portugal and South Africa. The alliance process has also been used in the past in New Zealand and in numerous other cases. Why has this happened? It has happened because alliance processes have proven to be successful in developing telecommunications capability, in equipping operators for competition and in bringing advanced services for customers to the market place.
KPN-Telia are major international players. It was the company identified as an ideal choice by the Communications Workers Union. KPN-Telia is a major player in successful alliances. They won the competition to supply telecommunications services to the Czech Republic. As individual companies they have taken up investments in Asia and in the former Soviet Union. The consortium was runner up in Belgium to Ameritech and are likely to be participants in the Portugal alliance process. As well as being successful in their own right, they have been successful as consortia members in the international environment. Perhaps we should ask why they have been so successful. These companies have successfully gone through the liberalisation process in their own countries.
The remarks of many critics about the alliance deal could be summarised as “cash is king”. The argument could be distilled to the point that all one needs to compete in the telecommunications market is cash. That was the preponderant thrust of the contributions from Members opposite. According to those critics — Deputy Brennan in particular — pension funds could contribute more in cash terms and they claim, therefore this is not a good deal.
KPN-Telia bring much more than cash to the deal. They bring technology people, skills and hardware. They bring their wherewithal to partner Telecon Éireann to liberalisation and beyond Their strategic contributions are a key part of a deal which encompasses 85  separate initiatives. The deal incorporates more than 100 job years of management input and this key part of the alliance equation will be delivered.
Independent financial comment on the terms obtained for the deal has been positive. Members opposite should read some of those comments, one of which stated “Lowry has got it just about right”. Because of its intrinsic merits, the deal received widespread welcome from various interested parties. The structure of international telecommunications is evolving around a number of key alliances. World Partners (Unisource & AT & T), Concert (BT & MCI) and Global One (Sprint, Deutsche Telekom, France Telecom) are giants on the world stage. It is inconceivable that Ireland could choose to ignore those developments.
In response to Deputy O'Malley, the transaction generates cash for the Exchequer from closing. Of the total financial proceeds to be generated, £220 million will be invested in the company. The remainder will benefit the Exchequer by offsetting the State's liability to the pension fund. Deputy Brennan put forward the argument that KPN/Telia would invest substantially in the company and then do everything possible to depress value to minimise the payments to be made by the company under the financial terms of the transaction. When would this depression of value occur? It would happen in the next three years, the crucial period leading to liberalisation. What telecommunications company would adopt such a boomerang strategy to deliberately denude the company of value in a partly protected market in order to spring back into maximum value in a wholly open market? No company would, and KPN/Telia certainly have not.
The Government has undertaken a justification procedure on the derogation from competition, a process that is ongoing. At this stage remarks on  final Commission thinking on the subject are pure speculation. The Commission has not indicated that Telecom Éireann will be required to divest itself of its interests in Cablelink. The Government has decided that, in the context of the alliance, Cablelink will be the subject of a separate dynamic business plan leading, without undue delay, to the development of a platform for delivery of a range of communications services which is open to a variety of competitive providers.
Deputy O'Malley called into question the Government's commitment to liberalisation of the market. If the Government set out to impede competition, it has achieved very little. A second GSM licence has issued this year. We have chosen not to opt for the full derogation from competition and formed a strategic alliance that will accelerate the transformation process. Our commitment to independent regulation in the legislation clearly signals our intention to create an open and fair environment for competition.
Deputy Brennan asked why we are entering this alliance. The answer is very simple. An extensive programme of EU liberalisation measures points clearly in the direction that national regulatory authorities will be separate and independent from the operators and owners of telecommunications networks. The telecommunications industry, consumers and not least parties across the political spectrum agree on this issue. The first steps were taken some time ago and I am now bringing before the House the process of delegating the necessary legal authority to an independent regulator.
It would have been foolish to embark on a search for a strategic alliance parnter without a proper regulatory framework in prospect. Further legislation on this subject will be introduced in future. Additional regulatory functions will be identified in due course, whether arising from EU obligations or from market circumstances. The remaining legislation will need to be  reviewed in the light of emerging competition in the telecommunications market and there is the obvious need to consolidate our telecommunications and wireless telegraphy codes. In saying that there will be a multisectoral regulator later, I was referring to the Government's proposals for a wider ranging authority covering the energy and communications sectors and the establishment of such a body will require further legislation.
I assure the House of the independence of the Director of Telecommunications Regulation. Deputies Brennan, O'Malley and Noel Ahern appear to have missed the vital provisions of the Bill that underline this. Paragraph 10 of the First Schedule provides that the Director shall be independent in the exercise of his or her functions and, under paragraphs 4 and 5, may not be removed from office except for the usual incapacity reasons. Paragraphs 3 and 4 state clearly that it is the existing functions of the Minister that are transferred and that the Director can do all such acts or things as are necessary to carry them out. Under paragraph 5, he is entitled to the necessary staff and other resources and, under section 6, to secure the necessary funding. Under paragraph 12, he can appoint additional staff with the consent of the Minister for Finance to ensure overall numbers are controlled. The fact that his opinion is inside the Civil Service does not impugn his legally separate identity and independence. The fact that his staff will be civil servants on secondment does not render them or him subject to the control mentioned by the Deputies. Other offices, such as that of the Director of Consumer Affairs, could hardly be said to be under the contol of Ministers.
The Deputies raised the question of the price cap dealt with in section 7. Again, they appear to have grasped the wrong end of the stick. The price cap is designed to ensure that there can be real price reductions in the overall basket of services and when inflation is low this can translate into real nominal  reductions. It is not, as Deputies appear to believe, a mechanism for increases.
Deputy Ó Cuív referred to the differentials between trunk and local call prices in the context of the imposition of a price cap. What the Deputy advocated would be ideal in due course, but it is not a simple or straightforward procedure. Price reductions on the scale demanded would have major implications for the country. Trunk call prices are set to fall and I hope the target set by Deputy Ó Cuív will be realised within a reasonable timespan. It is certainly not something which can be achieved overnight without major cost implications.
Deputy O'Malley raised the question about the definition of telecommunications services used in section 7. This is necessarily broad in order to protect consumers from predatory tariff adjustments in markets where competition is insufficient to drive prices down across the board. The definition provides no protection for the dominant position of any service provider but ensures maximum consumer protection.
The importance of this Bill cannot be underestimated. The availability of advanced telecommunications is increasingly important for the maintenance and enhancement of Ireland's competitive advantage. My colleague, the Minister for Transport, Energy and Communications, outlined the main considerations when he introduced the Bill. In particular, developments in telecommunications technology are increasing capacity, reducing costs and extending the range of services on offer. In addition, the growth of the services sector throughout the world requires more and more information transfers. There is a significant opportunity for Ireland to achieve additional economic growth and job creation through the further development of the services sector and the availability of competitively priced advanced telecommunications will be necessary if Ireland is to avail of this opportunity.
The Government is committed to  having a telecommunications sector which would underpin further economic growth and job creation. The Bill puts in place a number of important enablers for this: by facilitating the transformation of Telecom Éireann through the strategic alliance; by establishing an independent regulator for the sector; and by putting in place a new system for regulating telecommunications tarriffs. These enablers must be put in place as  early as possible in order to facilitate the further development of the sector without interfering with the development and implementation of longer term solutions relating to regulation and liberalisation of the sector. I have covered most of the points raised by the Deputy and I thank the House for its attention.
The Dáil divided: Tá, 67; Níl, 52.
Tellers: Tá, Deputies J. Higgins and B. Fitzgerald; Níl, Deputies D. Ahern and Callely.
Question declared carried.
Dáil Éireann 469 Private Members' Business. Telecommunications (Miscellaneous Provisions) Bill, 1996: Second Stage (Resumed).