27 July 2007
An independent review of the sale of Jersey Telecom - jointly undertaken for the Treasury and the Economic Affairs Scrutiny Sub Panel - concludes that the sale is in the Island’s best interests, provided a number of conditions are met.
In response to the Scrutiny Panels main recommendations, the review was undertaken by Oxera, economic advisers to the States, and overseen by a steering group made up of a number of senior figures including Chief Executive Bill Ogley, Treasurer Ian Black; Scrutiny’s adviser on the subject, Professor David Parker and JT Chief Executive Bob Lawrence.
The report sets out a number of actions that must be taken prior to Jersey Telecom being taken into private ownership.
Regulation: Specific additional powers should be introduced to make the JCRA a more effective regulator of telecommunications. Notably greater powers to levy financial penalties for licence failures from the time the licence failure occurs.
Ownership: In the event of a sale two key pre-conditions on ownership are:i. It should not be sold to a highly geared purchaser and there should be conditions placed on the operator to ensure it does not become highly geared.
ii. In the event of the sale of JT to an incumbent operator, conditions should be imposed to ensure that the level of competition is not reduced.
In addition, the use of RUDL and licence conditions at time of sale should be structured to ensure that:
i. The States are able, if necessary, to intervene, to prohibit, or to impose conditions upon, any future transfer of ownership or control of Jersey Telecom.
ii. Employment conditions in favour of locally qualified people are applied in order to retain the skills base of the island The following points were also raised:
1. A partial sale of more that 50% may have financial benefits and should be further evaluated.
2. Potential purchasers should be required to demonstrate how they will ensure that services keep pace with demand and innovation and in particular how they will bring the benefits of economies of scale.
3. Whilst there may be a regulatory benefit in terms of vertical structural separation the risk to efficiency and effective provision of future services is far greater than the likely benefits. The steering group can not recommend this option.
The full report and the Steering Group's conclusions have been reported to and accepted by the Treasury Minister, Senator Terry Le Sueur and the Economic Affairs Scrutiny Panel chairman, Deputy Geoff Southern. The report and conclusions can be found on the States website www.gov.je/TreasuryResources
Economic Affairs Scrutiny Sub Panel Chairman Deputy Geoff Southern stated: ‘These essential safeguards need to be in place before the sale of JT can take place. They are likely to have a detrimental effect on the price achievable. The argument that we should maximise the potential financial gain (which at best was already marginal), is thereby minimised. Furthermore the secondary argument that JT must be sold to reduce investment risk must not remain an overriding reason for sale.’
The Economic Affairs Scrutiny Sub-Panel is also of the opinion that following an in -principle decision to be taken by the States in the next session, a steering group should be set up to supervise the application of the above conditions to any agreed sale.
Treasury Minister Senator Terry Le Sueur said, ‘‘I welcome the conclusion of the Steering Group, that privatisation of JT is in the best economic interests of the Island provided the conditions set out in their agreed recommendations are met. I will be working with all necessary parties to ensure that the findings are acted upon and I am confident that even after complying with these conditions, JT remains an attractive proposition for investors. The research confirms that the sale is likely to result in high quality efficient telecommunications services for the people of Jersey, and is in the best long term interests of Jersey Telecom and its staff.’
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