Hedge funds and Private Equity - PES

The importance of Europe’s transition to an information society is documented in the EU –
Lisbon Agenda 2010 Information Society initiative launched in June 2006, which is a renewed
commitment to the Lisbon reform agenda. It seeks to promote an open and competitive digital
economy as well as an integrated approach to information society and audio media policies in the
EU. This requires upgraded telecom networks across Europe that can provide the broadband
capacity needed for information societies. There are three main priorities for Europe’s information
society and media policies:
1) the completion of a single European information space which promotes an open and competitive
internal market for information society and media;
2) strengthening innovation and investment in ICT research to promote growth and more and
better jobs;
3) achieving an inclusive European information society that promotes growth and jobs in a
manner that is consistent with sustainable development and that prioritises better public services
and quality of life49 . It is difficult to see how private equity ownership of telecom
infrastructure operators will promote these objectives, and experience suggests that in many
cases they would be acting contrary to these objectives.
BTC case, Bulgaria
Set-up in 1992, the Bulgarian Telecommunications Company (BTC) is the former national
operator in Bulgaria. The company provides 97% of fixed line services in the country as well
as holding a substantial interest in the mobile market.
Following a lengthy two-year privatisation process, Advent International agreed the purchase,
through the Austrian operation, Viva Ventures, of a 65% stake in BTC in June 2004 for
EUR 230 million plus a E 50 million capital increase. In 2004 the owners took dividends
of EUR 75m.
During this period, relations with BTC employees have deteriorated very badly. Employment
has been reduced from 24.000 to less than 10,000 under conditions seen as secretive and
arbitrary by the employees, and in violation of the BTC privatisation agreement. After local
unions filed complaints with the Bulgarian government of BTC’s failure to live up to its commitments
in the Bulgarian Labour Code and European directives on information and consultation
(98/59/EC and 2002/14/EC), a social partnership agreement was finally agreed with the
company in July 2006. There is no confidence that BTC will be able to build a modern telecom
network for Bulgaria in the near future.
Issues of the financial stability of some large infrastructure operators have risen, affecting their
capabilities to invest in long term network development. To illustrate, in 1999 at the height of
the dotcom stock market boom, British Telecom, France Telecom, Deutsch Telecom, KPN
Netherlands, Vodafone and others all bid extraordinary sums for a limited supply of third generation
(3G) mobile spectrum licenses. This raised their debt ratios and interest obligations to such
a high level (the managements called them debt mountains) that they had to scale back their 3G
investment programmes in major ways, significantly slowing economic growth in both the
telecom services and equipment manufacturing sectors and delaying the introduction of new
3G mobile services for several years, until debt mountains were reduced to levels that would
support sustained long term development. During this period Europe lost its global leadership
in mobile telecom development to Asia, where operator investment plans were not constrained
by debt mountains. As a result, investment in new European broadband telecom networks to
provide enhanced Internet services for the future information economy, which was anticipated
in the Lisbon Agenda targets for economic growth, have been slower than expected.
49 COM (2005) 229 “i2010 – A European Information Society for growth and employment.” p. 4
Part II – Six concerns about our European social market economy
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