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Dutch KPN drops bid for ST

Government hopes for a competitive privatisation of state telecoms firm Slovenské telekomunikácie (ST) held firm June 30 despite an eleventh hour pull-out from the ST tender by the Dutch telecoms giant KPN.
A letter delivered to the Telecom Ministry, which was originally thought to contain KPN's bid, told Telecom Minister Jozef Macejko that the firm was withdrawing from the tender because it was concerned that it would not be able to exercise full management control at a privatised ST, and that formulas for setting the price of telecom services had not been defined to their satisfaction.
The move has left Germany's Deutsche Telekom as the sole bidder for the state's ST stake, and comes only a few weeks after a third bidder, Telekom Austria, also withdrew from the tender.


Telecom Minister Jozef Macejko (second from left) said he was pleased with the Deutsche Telekom bid for ST.
photo: TASR

Government hopes for a competitive privatisation of state telecoms firm Slovenské telekomunikácie (ST) held firm June 30 despite an eleventh hour pull-out from the ST tender by the Dutch telecoms giant KPN.

A letter delivered to the Telecom Ministry, which was originally thought to contain KPN's bid, told Telecom Minister Jozef Macejko that the firm was withdrawing from the tender because it was concerned that it would not be able to exercise full management control at a privatised ST, and that formulas for setting the price of telecom services had not been defined to their satisfaction.

The move has left Germany's Deutsche Telekom as the sole bidder for the state's ST stake, and comes only a few weeks after a third bidder, Telekom Austria, also withdrew from the tender.

KPN representatives said that they saw too many uncertainties surrounding the sale, and that their continued participation in the tender posed too many risks for them.

"On both our concerns with management control and [price setting] legislation we saw no expectations of quick changes on these fronts from the Slovak government," KPN spokeswoman Carla van Lomwel told The Slovak Spectator. "ST would have been an expensive investment for us, and we just though it was too risky. We wanted to increase our controlling share to 75% and have the freedom to move across Slovakia's borders, but we didn't get any signs of this from the government."

Van Lomwel added that KPN had found the government's proposals on price regulation "too tied up - they didn't offer enough freedom for us."

However, the government was quick to hail the privatisation a success to date, and rejected KPN's concerns. Stanislav Vanek, director of the Telecom Ministry's regulatory department, said: "KPN had a certain approach to the [ST] tender procedure in their opinions on how to continue. They wanted more than a 51% stake and maybe in the future the government can offer more shares, but at the moment it is only 51%. But we always made that clear."

Vanek also rejected KPN's reservations over legislation. "I don't understand KPN's objections on this. Deutsche Telekom didn't have any such problems with the legislation and what we prepared [legislation in connection with the telecoms sector prior to ST's sale] was in accordance with standard legislation in the EU," Vanek said.

"With our Telecom Act [passed by parliament in May to enable the sale of ST - Ed. note] we prepared it in accordance with EU regulations. There may be some improvements made to it in terms of amendments in the future, but I don't see why KPN objected," the director said.

Vanek added: "We are pleased that the privatisation was a success. It would have been better to have more competition but we understand that Slovakia is not as interesting a location as say Poland or the Czech Republic because of the smaller number of potential customers. So in this sense, it is a success."

White & Case, legal advisors to the government on the privatisation, said that they too had been surprised at the late decision by KPN.

"We're surprised that KPN said there was a legislative problem," said White & Case's Marek Staroň. "We don't understand the objections on price regulation. The price formula that the government agreed on [in the Telecoms Law] was fine for both Deutsche Telekom and Telekom Austria."

Staroň added that the government had baulked at the company's plans to spin off the EuroTel mobile operator, in which ST has a 60% stake, and establish it as a separate entity. KPN's global Internet operations, he continued, were also seen as creating a degree of competition for any Internet services ST might offer in the future.

Staroň said that KPN's demands for a higher than 51% stake probably played the major part in its decision to back out of the tender. "KPN repeatedly raised the demand for a 75% stake and met with the government on this. The government gave the impression that this might be offered later, but they wanted KPN to submit a bid. KPN probably just realised that they were not going to get this 75% stake and stopped," said Staroň.

Had the firm won the tender, the government would have retained with its 49% share its right to veto certain decisions, including any acquisitions over 20% of the net asset value of Slovenské telekomunikácie. "I think ST just didn't fit into their overall strategy," said Staroň.

Analysts have speculated that KPN's experiences in the Czech Republic with the state firm Český Telecom, in which it holds a strategic stake, played a large part in its withdrawal from the ST bidding. KPN board members at Český Telecom have said publicly that they have been treated more like a nuisance than a strategic investor.

"This may have been a part of it," said Dušan Meszáros, an analyst at Commerzbank Capital Markets in Prague. "But with the question of management control the government made it clear [that it was only offering 51%] right from the beginning, and anyway, something could have been negotiated in a final contract," he said.

Deutsche Telekom made little comment on its international rival's decision and reaffirmed its commitment to investing in Slovakia and taking the ST stake. In its own bid, DT offered one billion euros (42 billion crowns) for the state stake - higher than the government's own predictions.

The German collossus said before KPN's announcement that it was prepared to invest between 1.8 and 2 billion euros in Slovakia over the next eight years. Under the contract, DT must also digitise ST's network and increase fixed-line penetration to 45% by the end of 2004.

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