Unionists’ party politics play into plans to shape up OTE

Analysts question if selling up to 20 pct best serves shareholder interests

By Dimitris Kontogiannis - Kathimerini English Edition

If one had to pick a company that stirs up emotions and causes political turmoil, it would be OTE. The government’s well-advertised campaign to seek a foreign strategic investor for the state-controlled telecoms operator has caused a rift in its ranks in addition to the much-anticipated protests by the political opposition and the trade unions. Perhaps more importantly, the government has failed to explain convincingly why this solution is better in making OTE more competitive than others.

OTE unionists, dominated by the main opposition PASOK and other leftist parties, like to recall the glory of the 1990s. After all, it was the attempt by another conservative government in 1993 to privatize OTE, the state-controlled telecommunications operator, which cost it its power – and the mobilization of the unions helped play a role.

However, things are not the same anymore. After all, 2006 is not 1993. The direct control of the Greek state in OTE has dropped to 38.7 percent nowadays from 100 percent in 1993 thanks to successive flotations organized by the previous PASOK governments.

Moreover, the landscape in the telecoms sector has been much different than in the 1990s. The full liberalization of the sector is in effect for years and OTE is competing against smaller alternate carriers. In addition, Greeks continue to speak for more and more minutes per month using their mobile phones at the expense of fixed line.

OTE’s fixed-line market share has come down to about 70 percent in a few years and it is estimated to grab about 40 percent of the mobile market via its highly successful 67 percent subsidiary Cosmote. The incumbent also seems to be 70 percent or less in the promising broadband, which is a high-speed method of transmitting data, voice and video services.

Undoubtedly, things are going to get tougher in the future in all sorts of business lines, especially broadband, attracting the interest of mobile operators like Vodafone, and large foreign players like the Russian holding company Sistema via its high-technology and telephone units.

However, OTE is also more prepared than before to face competition. Under the leadership of Panayis Vourloumis, a former banker, the telecoms operator has become a better, more efficient company.

It successfully completed a voluntary retirement program, concerning some 5,000 or more employees, which is going to reduce its headcount and operational costs.

Of course, OTE should have done much more in the domestic market to improve its competitiveness and in the international markets to expand its reach. But the inability of the top management to hire managers from the market, pay them accordingly and appoint them to key positions has hindered restructuring efforts in an organization where seniority and picking from inside were the overriding rules.

The same held true with regard to promotions policy and incentives.

Despite the fact that many trade unionists recognized the need for reforming the rules governing recruitment from the market for key manager positions, promotions and relevant issues, they failed to come to terms with OTE’s management for a very simple reason. A number of them did not want to have the faith of their predecessors who agreed with Vourloumis on the voluntary retirement program. Their predecessors were treated like traitors and were deprived of their party status because it presumably gave the conservative government the opportunity to enhance its reform image and agenda.

The failure of the unions and OTE’s top management to agree on the need for commonly accepted new labor rules and the government’s desire to speed up the privatization of OTE, widely regarded as its last reform deed before the new elections scheduled for the spring of 2008, produce a legislative initiative whereas OTE mainly adopts the labor rules governing its 67 percent stake in mobile subsidiary Cosmote.

Despite a number of issues which may arise, i.e. OTE employees work for seven hours and 40 minutes per day under the previous regime compared to 8.0 hours in Cosmote, the new rules give the OTE management the degree of freedom it needs to make the organization more efficient.

Under these circumstances, more and more analysts and others question whether the government’s intention to sell an equity stake up to 20 percent of OTE to a foreign strategic investor, preferably a large West European telecoms operator is well timed and best serves the interests of the state and OTE’s other shareholders.

There is no doubt that an organization with more flexible working rules and better managers recruited from the private sector is going to be more efficient and better company in the medium term.

Still, the issue of ownership will have to be dealt with if OTE is to behave as a shareholder-maximizing listed company. After all, it is no secret that OTE has often been used by various interests in the past to the detriment of its shareholders.

There is no question that the privatization of OTE can take various forms, gradual or more abrupt. Seeking a foreign strategic investor, such as a large West European telecoms operator, is one of them and has some advantages. Everybody knows though that a strategic investor always aims at control of the target-company down the road.

This may not be the best outcome from the point of view of OTE’s Greek shareholders, employees and customers. After all, there is no guarantee that the interests of OTE’s stakeholders will be taken into account when the company finally becomes another dot on the international map of a major foreign telecoms operator.

Moreover, OTE is not another asset in the Greek telecoms sector. It is the largest and the last domestically controlled big asset in that sector.