Long an instrument of politicians, OTE moving to competitive hands

The Greek government and the German telecoms incumbent Deutsche Telekom are likely to sign a shareholders agreement this week, writing the last chapter in the history of Hellenic Telecommunications Organization (OTE) as we have come to know it. It is a sad and pleasant development at the same time that shows that no state-controlled organization in competitive industries can expect to survive as long as political parties and trade unions treat them as their own property. Speaking at the annual general shareholders meeting of listed Hellenic Postbank (TT), its chairman Angelos Philippidis said something that goes beyond his bank, which the state controls, directly and indirectly, with a 44 percent shareholding stake. Phillipidis told shareholders Hellenic Postbank will be privatized either by this government or the next if it does not succeed in becoming more competitive. The story of OTE is not exactly the same as TT’s but they share some common characteristics, and therefore some of the same principles apply. Like TT, OTE also operates in a competitive industry and, despite making progress in becoming more efficient and less politicized since its chairman Panagis Vourloumis took over in 2004, it is still regarded by many, including politicians and union leaders, as a purely state company. It is no coincidence that political party leaders, such as Coaltion of the Radical Left (SYRIZA) head Alexis Tsipras, visited OTE’s headquarters a few weeks ago and tried to make a point by using it as a communications ploy. George Papandreou, the leader of the main socialist opposition party PASOK, also visited OTE’s headquarters, although with less fanfare, to be briefed by Vourloumis about the organization’s plans and issues related to its shareholder structure. At the time, the government had enacted a law limiting a third party’s shareholding in companies of strategic importance to the state to no more than 20 percent to help fend off Marfin Investment Group’s (MIG) attempt to control OTE and consolidate it in its financial accounts. So, it is not surprising that trade union leaders also regard OTE as a state company which, according to them, ought to behave in a different way in many areas than its competitors in a competitive industry. Although Vourloumis has made efforts to make OTE more efficient, such as aligning the mother company’s charter with that of its mobile subsidiary Cosmote, which is more liberal on labor issues, he found out himself how difficult that was. Some trade unionists were adopting positions having first in mind how they would look in their political party’s headquarters rather than looking at the interests of the company. Also, thanks to Vourloumis, OTE has disentangled itself from the special interests of its longtime suppliers. It is no secret that there was suspicion in the past that some OTE executives and others were putting in orders for supplies, such as digital supplies, which had more to do with the main suppliers’ own interests than the company’s needs and priorities, resulting in hundred of millions of drachmas in worthless systems over the years. Party politics Nevertheless, a large company operating in a competitive industry such as the telecommunications market cannot retain its independence and flourish as long as party politics take precedence over reasonable business practices. The fact that the state has decided to reduce its equity stake in OTE to below the 33.3 percent threshold needed for control last summer must have played an important role in convincing investment holding company MIG to acquire a sizable minority stake in the Greek incumbent since then. In doing so and given the state’s unwillingness to cede control of OTE to a financial investor such as MIG, the opportunity to turn Greece’s telecoms operator into a story like the new National Bank of Greece went awry. It should be noted that the state has no equity stake in the country’s largest commercial bank but controls indirectly via some state pension funds a minority stake of no more than 20 percent. Turning OTE in telecoms into what National Bank is in the banking sector would have been the best possible outcome for the country and OTE’s employees. Of course, one can argue that in today’s world, where there are no national barriers and competition is stiff, OTE could not survive alone. Although there is some merit to this argument we would not buy it. Despite proclamations to the contrary, we have not found more than two convincing arguments in favor of Greece’s ceding control of OTE to a large foreign company. The first argument is Deutsche Telekom’s great leverage in neighboring countries and European Union bodies. The second and more powerful one is that with German control, OTE can shed the influence of political parties and partisan trade unions in the telecom’s affairs over the years. So, if someone is to blame for not applying the so-called National Bank solution to OTE it is the same people who have always wanted to have a say in OTE and who are now screaming foul over the government’s agreement with Deutsche Telekom. Some also blame MIG for helping to bring things to this stage. We must not forget that MIG is a financial investor which is primarily interested in maximizing the value of its shareholders in a world of free capital movement. Undoubtedly, the government will receive the praise or blame for signing the shareholders agreement with the German company, which essentially hands over a good deal of control of OTE. It is likely this would not have been the outcome had OTE been regarded as a private company by politicians and their followers. Since this has never been the case, handing over OTE to Deutsche Telekom may be the best possible outcome after all.