Privatisation of BTC: from 1999 to 2011
By LARRY SMITH
"What I've found out about change is that when you propose it
people don't want it, when you are doing it it's hell, and afterwards
they think it's always been like that."
- former British Prime Minister Tony Blair.
IN EARLY 2008, about 10 months after the last general election, the Ingraham government appointed a new privatisation committee (headed by bankers T. B. Donaldson and Julian Francis), with a mandate to find a buyer for the Bahamas Telecommunications Company as soon as possible.
This was a goal that had been pursued ever since the FNM first came to power in 1992. In fact, even before then the Pindling regime had been seeking to divest state assets that were draining the treasury. By the early 90s the PLP had decided to offload government-owned hotels. And believe it or not, they also had confidential talks with Cable & Wireless about a stake in BaTelCo.
Privatisation continued to be pursued by the PLP during its most recent term in office, from 2002 to 2007. Although the Christie administration eventually cancelled the auction launched by the FNM, they went on to start their own process, and agreed (just before the 2007 election) to sell BTC to Bluewater Ventures, a foreign firm with an uncertain ownership and no operating history.
But the incoming FNM government could find no evidence that a deal had been finalised, although Bluewater - in the shape of American executive John Gregg and PLP politico/lawyer Brave Davis - insisted that the Christie cabinet had shaken hands on an agreement. In mid-2008, the Ingraham administration relaunched the privatisation process, eventually paying Bluewater $1.9 million to cover its out-of-pocket costs.
THE FIRST PRIVATISATION
This was surely a damnable waste of money, but the reasoning behind it was clear. The policy had always been to sell a stake in BTC to a major strategic partner - a company with the technical expertise, operating record, and bulk purchasing power needed to take the corporation to another level. There was no interest in selling to someone who merely had the financial capacity to buy.
In 1999, during the first privatisation exercise, Prime Minister Hubert Ingraham said that if the government simply transferred ownership of BTC to its employees, the corporation would go out of business as soon as it faced real competition. A strategic partner, he said, would enable BTC to compete and move forward in a transformed market.
"We seek to privatise BTC in the national interest," Ingraham said a decade ago, "and we have sought a phased approach to ensure minimal disruption." More recently he said: "We told Bahamians from day one that it was not possible to continue to have a monopoly in the telephone business and we established policies to prepare ourselves. There are hundreds and hundreds of people employed in the telecoms sector who were not so employed before we began to liberalise the market."
Before the government began downsizing BaTelCo in the mid-90s, the corporation had accumulated a workforce of 2100 to accomplish what experts said should require only a few hundred. And this padded payroll was clearly reflected in BaTelCo's dismal performance up to that point.
In 1992 the corporation's revenue was $120.3 million, with a net loss of $1.8 million that year. But after a 50 per cent reduction in staff (based on generous separation packages), BaTelCo's 2001 revenue was $226.4 million, producing a net profit of $57.3 million - almost as much as the corporation had earned over 10 years from 1982 to 1992.
THE CURRENT PROCESS
In 2008, the government appointed an advisory committee to oversee the new BTC sale process, under the chairmanship of State Finance Minister Zhivago Laing. This group would formulate the final recommendations to cabinet from information presented by the privatisation committee (headed by Donaldson and Francis). The leaders of both BTC unions were full members of the advisory committee.
The advisory committee authorised a new BTC auction in mid-2009, with the publication of a notice inviting bidders to register. Qualified parties were asked for technical proposals, and the best of these were invited to submit financial bids. The privatisation committee reviewed the bids and passed them on to the advisory committee for evaluation.
At the same time, major changes to the regulatory environment were being pursued to support market liberalisation. These included legislation to set up a new Utilities Regulation and Competition Authority to govern both broadcasting and telecommunications. In short, the government was totally reforming our antiquated communications laws.
According to the April 29, 2009 minutes of the advisory committee, Minister Laing said the new legislation was the result of "a vast amount of work and represented a new era for the Bahamas" that would bring clarity to what could, and could not, be done in the telecoms industry.
UNION ISSUES
At the July 13, 2009 meeting of the advisory committee, Minister Earl Deveaux recalled that during the first privatisation exercise, BTC workers rejected the decision and responded "in a way that brought great distress to the nation." He asked the union leaders for assurances that this would not be repeated. The BCPMU is the middle managers union. The BCPOU is the line staff union.
At that meeting BCPMU president William Carroll said the major issue for the unions in 1999 had been the separation packages, and that was why workers demonstrated. He added that treatment of staff should be one of the determinants for a successful bid, but went on to acknowledge that BTC employees now accepted the fact of imminent privatisation.
In response to a comment from BCPOU leader Bernard Evans that Bahamian buyers had been excluded from the process, Minister Laing said the search was for a strategic partner who would have the financial and technological resources to "take BTC to the level at which the government wanted it to be." That position did not necessarily exclude Bahamian proposals, but it was unlikely that a Bahamian group would fit the bill.
According to the minutes, Minister Carl Bethel said the government wanted a strong international connection, a company with experience in all areas of telecommunications and with the financial strength and operating platform to be able to support BTC's infrastructure and mission. He questioned whether any Bahamian entity possessed those qualities.
Minister Laing said that unlike the previous attempt, this time the government was not seeking to shape the product that was on offer, outside of its conviction that privatising BTC would be better for the country, for the economy, and ultimately for the workers. The government was reforming the regulatory environment and selling BTC as it exists today, and the role of the advisory committee was to determine the best buyer.
CABLE & WIRELESS
The BTC auction notice attracted six initial responses, and four were invited to submit bids. Only two were received by the December 11, 2009 deadline - from JPMorgan Chase's private equity arm and from Atlantic Tele-Network, a consortium that included Colina Financial Advisors. Neither was considered to have met the government's criteria.
According to minutes of the July 23, 2010 meeting, the advisory committee unanimously rejected both bids as "departing significantly in their requirements and expectations from the conditions acceptable to the government."
The committee was then informed by Julian Francis that, following its recent restructuring, Cable & Wireless had expressed an interest in BTC. While both union leaders had reservations about C&W in terms of employee relations, the advisory committee unanimously endorsed a recommendation to engage in talks with the company, which is a major regional and international telecoms operator.
In October of last year, the advisory committee met for the final time to consider the report of the working committee on its talks with Cable & Wireless. According to Julian Francis, a non-binding memorandum of understanding had been drafted that valued BTC at $400-450 million, based on a two-year exclusivity period.
"However, Cable & Wireless believes that an extension may be necessary for BTC to prepare for competition, which would be aggressive given the low threshold for investment under the new regulatory regime," Francis said. "In comparison, the Bluewater proposal was for a five-year exclusivity period for mobile, with each year being valued at between $60-70 million by the committee's advisors."
THE MEMORANDUM OF UNDERSTANDING
Francis said the MOU called for Cable & Wireless to produce a five-year business plan acceptable to government before a deal could be closed. This plan would spell out Bahamian involvement in the management of BTC and Cable & Wireless' international operations.
Going forward, he said, the government wanted to have a veto over remuneration, staff cuts, the sale of assets and the location of operations. According to Francis, Cable & Wireless was "convinced that BTC should be run by a Bahamian and the government had indicated that management must remain in the Bahamas."
Both union leaders reiterated their focus on job protection, but Minister Deveaux pointed out that taxpayers wanted better service. Sir William Allen, the government's economic advisor, said technology would continue to erode whatever advantages BTC currently had, even if the market was not liberalised.
With respect to workforce restructuring, BCPOU leader Bernard Evans said "voluntary separation packages are an acceptable option once the terms are suitable." Minister Laing responded that there was room for standstill, with compulsory reductions tied to the end of the exclusivity period. Both union leaders agreed that a three or four year exclusivity period would be "more manageable" in this regard.
The advisory committee agreed to recommend only voluntary staff cuts prior to the end of the exclusivity period, and urged government to extend this period "to help with job preservation in the short term." In a closing note, the October minutes recorded that the committee's recommendations would be passed to government for a final decision, with Minister Laing satisfied that that "all major issues have been discussed and agreement reached."
On December 2, the government announced the signing of the memorandum of understanding, as recommended by the advisory committee, on the same day it was signed. Talks then began to develop more precise contract language to clarify all issues. The agreement included a three-year exclusivity period for mobile and a voluntary workforce restructuring.
POLITICAL RESISTANCE
But within days of that announcement, the two union leaders and the PLP had begun a drumbeat of opposition to the deal - which was already 13 years too late. "This is just not the right time," said BCPOU leader Evans. "We don't support Cable & Wireless - period." He insisted that separation packages offered to workers should be more than BTC employees got in 1999 (which cost the country some $90 million), and should be enough to last workers a lifetime.
According to the prime minister, "the PLP agreed just before the election to sell BTC to a foreigner, who some think was fronting for some of them. And they never told the public a single word that they agreed to sell BTC. The reality is that the union and the PLP are at one in their fight against this exercise. And you can figure out why the PLP, which agreed to sell to a one-man show, is now opposed to selling to a $2.5 billion publicly traded company that operates around the world.
As the minutes of the advisory committee show, the plain fact is that the union leaders were part and parcel of the entire privatisation process, and after seeking concessions from the government they signed off on the major components of the memorandum of understanding.
"We went out of our way to protect jobs at BTC to the public's disadvantage," the prime minister told a meeting in Grand Bahama recently. "As night follows day, rates are high because BTC has more people employed than they need, and they are seeking to protect what they have because there's plenty juice there for them."
As for the prospects of general strike similar to that which occurred in 1958, it seems clear that the BTC unions' action is a greedy attempt on the part of special interests to hold the nation to ransom rather than a struggle for democracy. And as for the question of Bahamian as opposed to foreign ownership, why hasn't this been raised before?
What do you think?
Send comments to
larry@tribunemedia.net
Or visit www.bahamapundit.com
January 12, 2011
tribune242
A political blog about Bahamian politics in The Bahamas, Bahamian Politicans - and the entire Bahamas political lot. Bahamian Blogger Dennis Dames keeps you updated on the political news and views throughout the islands of The Bahamas without fear or favor. Bahamian Politicians and the Bahamian Political Arena: Updates one Post at a time on Bahamas Politics and Bahamas Politicans; and their local, regional and international policies and perspectives.
Showing posts with label Bluewater Ventures. Show all posts
Showing posts with label Bluewater Ventures. Show all posts
Sunday, January 16, 2011
Sunday, December 26, 2010
...the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures
The secret deal to steal BTC
By LARRY SMITH
JUST before the 2007 general election, the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures. The electorate wasn't aware a deal had been struck and didn't know the terms, although official talks had been ongoing for two years.
Bluewater described itself as "a private equity firm specializing in turnarounds and investments in the media and telecommunications sectors." It was set up in 2003 by John Gregg, an American who worked for a couple of European cable companies. Based in the Channel Islands, an offshore financial centre, its actual shareholders have never been identified.
Soon after the election, ex-finance minister James Smith urged the new FNM government to close the Bluewater deal, arguing that there would never be a better one. According to a confidential Bluewater document relating to the sale, BTC's own business plan for 2007-2009 valued the company at $333 million, meaning that a 49 per cent stake should have been worth about $163 million.
But as has since been revealed, the net cash to government from the secret PLP deal would have been only $150 million. Bluewater would have paid another $40 million (interest-free) years after the sale, but this money would have come from BTC's own revenues. The deferred payments were a significant and hidden discount on the price to this unknown foreign entity.
It is common knowledge that BTC's value as a mobile monopoly has been heavily eroded by poor management and new technologies. For example, it took just a few years for voice over internet services like Vonage to turn BTCs long-distance calling into a losing business.
Other providers now control most of the local VoIP market - despite the face-saving introduction in 2006 of BTC's competing Vibe service. And experts have long predicted that WiFi phones connected to a computer with Internet access will disrupt BTC's still-lucrative mobile business over time.
According to the confidential 2007 Bluewater document, other factors that affect BTC's value include exorbitant rates that would be impossible to maintain in a competitive market; the high risk of hurricanes crippling the network; and capital spending that is far greater than earnings.
"A true valuation analysis of BTC must assume that rates, and hence (earnings) will have to be lowered in the near term," the document said. "And just two years ago BTC saw its cash flow for the year virtually wiped out and submitted insurance claims close to $50 million. It is our understanding that insurers refused to honour many of these claims.
"BTC's capital expenditures have historically been higher than comparable companies. In fact the BTC business plan for 2007-2009 puts capex at a rate significantly higher than (earnings). From an investor's perspective, the need for such high spending to maintain the network is a red flag."
Several years ago, former BTC president Leon Williams boasted that the corporation had spent $353 million on capital development over a five-year period, and Bluewater reported that BTC's business plan called for another half-billion-dollar spend over the ensuing three years, compared to $429 million in projected earnings.
In spelling out the rationale for the proposed acquisition, the 2007 Bluewater document painted a dismal picture of BTC, calling the corporation's business plan inconsistent, contradictory, lacking in detail and offering nothing for its three main stakeholders - consumers, the government and employees.
Bluewater pointed out that BTC doesn't even consider improving its lousy service or cutting its outrageously high prices, and fails to justify in any way the introduction of costly new products and services. In fact, BTC's plans assumed no dividends at all for the government - just a never-emptying cookie jar for management, union leaders and staff.
Why would Bluewater pay for a minority stake in such a poorly-run state operation? Well, principally because the PLP deal would have extended BTC's profitable cellular monopoly for up to six years - while letting it offer equally profitable extra services like video. In other words, BTC would have continued as a government-owned monopoly for a very long time. And the Bluewater sale was a smoke-screen trying to hide that fact.
The deal was that a 49 per cent stake in BTC would be priced at $260 million, but Bluewater would pay only $220 million up front while keeping all of BTC's cash in the bank (about $70 million at the time). At the end of the five-year cellular monopoly, Bluewater would have paid a further $35 million, and a final $5 million in the sixth year after the sale. This was what Prime Minister Hubert Ingraham referred to shortly after taking office as "selling BTC on credit."
Even a horse's ass can see there is absolutely no comparison between a secretive instalment plan concocted with an unknown buyer with no financial or operating history, and the $210 million (plus taxes) up front purchase price agreed with Cable & Wireless - a long-established telecoms firm with revenues of over $1 billion and a long-standing operating record in several countries. So the astonishing propaganda emanating from PLP leaders on this issue should be taken with a large bicarbonate of soda. Their strategy is simply to repeat enough rubbish frequently enough so that the rubbish starts to seem believable. That, unfortunately, is the standard of political discourse in this country.
There is no other difference between the PLP and the FNM record on this issue. Both parties while in government have said they wanted to sell BTC to a foreign entity as a matter of policy to help pay down the national debt, and to modernise the Bahamian telecoms sector. The only difference has been the architecture of the deal.
You be the judge.
What do you think?
Send comments to: larry@tribunemedia.net
Or visit www.bahamapundit.com
December 22, 2010
By LARRY SMITH
JUST before the 2007 general election, the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures. The electorate wasn't aware a deal had been struck and didn't know the terms, although official talks had been ongoing for two years.
Bluewater described itself as "a private equity firm specializing in turnarounds and investments in the media and telecommunications sectors." It was set up in 2003 by John Gregg, an American who worked for a couple of European cable companies. Based in the Channel Islands, an offshore financial centre, its actual shareholders have never been identified.
Soon after the election, ex-finance minister James Smith urged the new FNM government to close the Bluewater deal, arguing that there would never be a better one. According to a confidential Bluewater document relating to the sale, BTC's own business plan for 2007-2009 valued the company at $333 million, meaning that a 49 per cent stake should have been worth about $163 million.
But as has since been revealed, the net cash to government from the secret PLP deal would have been only $150 million. Bluewater would have paid another $40 million (interest-free) years after the sale, but this money would have come from BTC's own revenues. The deferred payments were a significant and hidden discount on the price to this unknown foreign entity.
It is common knowledge that BTC's value as a mobile monopoly has been heavily eroded by poor management and new technologies. For example, it took just a few years for voice over internet services like Vonage to turn BTCs long-distance calling into a losing business.
Other providers now control most of the local VoIP market - despite the face-saving introduction in 2006 of BTC's competing Vibe service. And experts have long predicted that WiFi phones connected to a computer with Internet access will disrupt BTC's still-lucrative mobile business over time.
According to the confidential 2007 Bluewater document, other factors that affect BTC's value include exorbitant rates that would be impossible to maintain in a competitive market; the high risk of hurricanes crippling the network; and capital spending that is far greater than earnings.
"A true valuation analysis of BTC must assume that rates, and hence (earnings) will have to be lowered in the near term," the document said. "And just two years ago BTC saw its cash flow for the year virtually wiped out and submitted insurance claims close to $50 million. It is our understanding that insurers refused to honour many of these claims.
"BTC's capital expenditures have historically been higher than comparable companies. In fact the BTC business plan for 2007-2009 puts capex at a rate significantly higher than (earnings). From an investor's perspective, the need for such high spending to maintain the network is a red flag."
Several years ago, former BTC president Leon Williams boasted that the corporation had spent $353 million on capital development over a five-year period, and Bluewater reported that BTC's business plan called for another half-billion-dollar spend over the ensuing three years, compared to $429 million in projected earnings.
In spelling out the rationale for the proposed acquisition, the 2007 Bluewater document painted a dismal picture of BTC, calling the corporation's business plan inconsistent, contradictory, lacking in detail and offering nothing for its three main stakeholders - consumers, the government and employees.
Bluewater pointed out that BTC doesn't even consider improving its lousy service or cutting its outrageously high prices, and fails to justify in any way the introduction of costly new products and services. In fact, BTC's plans assumed no dividends at all for the government - just a never-emptying cookie jar for management, union leaders and staff.
Why would Bluewater pay for a minority stake in such a poorly-run state operation? Well, principally because the PLP deal would have extended BTC's profitable cellular monopoly for up to six years - while letting it offer equally profitable extra services like video. In other words, BTC would have continued as a government-owned monopoly for a very long time. And the Bluewater sale was a smoke-screen trying to hide that fact.
The deal was that a 49 per cent stake in BTC would be priced at $260 million, but Bluewater would pay only $220 million up front while keeping all of BTC's cash in the bank (about $70 million at the time). At the end of the five-year cellular monopoly, Bluewater would have paid a further $35 million, and a final $5 million in the sixth year after the sale. This was what Prime Minister Hubert Ingraham referred to shortly after taking office as "selling BTC on credit."
Even a horse's ass can see there is absolutely no comparison between a secretive instalment plan concocted with an unknown buyer with no financial or operating history, and the $210 million (plus taxes) up front purchase price agreed with Cable & Wireless - a long-established telecoms firm with revenues of over $1 billion and a long-standing operating record in several countries. So the astonishing propaganda emanating from PLP leaders on this issue should be taken with a large bicarbonate of soda. Their strategy is simply to repeat enough rubbish frequently enough so that the rubbish starts to seem believable. That, unfortunately, is the standard of political discourse in this country.
There is no other difference between the PLP and the FNM record on this issue. Both parties while in government have said they wanted to sell BTC to a foreign entity as a matter of policy to help pay down the national debt, and to modernise the Bahamian telecoms sector. The only difference has been the architecture of the deal.
You be the judge.
What do you think?
Send comments to: larry@tribunemedia.net
Or visit www.bahamapundit.com
December 22, 2010
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