Audit Office queries transmitter sale Transmitter network sale 'badly handled'

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The Independent Online

Westminster Correspondent

The privatisation of the Home Office's emergency services radio transmitter network could have been better handled and should have been thrown open to more likely buyers, according to a report published today.

Concern about the sale of the Home Office's Directorate of Telecommunications (DTELS), for pounds 6.6m in March 1994, to the NTL group, were first raised in the Independent. NTL not only picked up the monopoly supplier of fire, ambulance and police radio equipment but a ready-made grid of transmitter masts capable of being used for television and radio broadcasts.

Formed out of the engineering arm of the Independent Broadcasting Authority, NTL was itself sold by the Home Office in 1991 to City investment company, Mercury Asset Management, for pounds 70m. Today, it is the country's largest private distributor and transmitter for television and radio stations.

Questions have been asked by Labour, notably Alan Simpson MP, as to whether NTL has not bought DTELS on the cheap and if too much power in the lucrative, fast-growing telecommunications sector, now resides with one firm.

The NAO echoes these worries: "Although the sale was generally well-conducted, it is nevertheless difficult to demonstrate that the Home Office clearly obtained the best price for the business."

Seven bids were received for DTELS, ranging up to pounds 15m. The three highest bidders, which included NTL, went on to form the shortlist. But when the highest bidder dropped out, only two firms were left - severely reducing the competition. This decision, to restrict the shortlist to three, was misguided, the Audit Office says.

Competition and the prospect of obtaining a full price was further eroded when the Home Office decided to let the two remaining contenders - NTL and Pell Frischmann - revise their prices. Subsequently, the Home Office again moved the goal posts and chose to deal with one preferred bidder, NTL.

Pell Frischmann was excluded from the sale negotiations. The Home Office based its preferment of NTL on the fact it seemed more serious, and had taken more effort over the "due diligence" process of asking questions and examining the books. Even so, the NAO says, this left the Home Office dangerously exposed. When, late in the day, NTL demanded a pounds 1m price cut, it had no choice but to accept. As a result of this last minute cut and, writes the NAO, "the impossibility of ascertaining how negotiations would have proceeded if continued with the other bidder, there remains an element of uncertainty about the outcome".

Shortly before the sale, DTELS relocated its headquarters to Nottingham. The new owner has moved them again - raising questions about the logic and financial sense of making the move to Nottingham in the first place.

To accommodate NTL, the Home Office agreed to a further reduction of pounds 500,000 to meet future tax liabilities. In the event, these tax charges did not arise - but no provision was made in the sale agreement for clawing back the pounds 500,000. Such a clause, says the NAO, should be considered in future sales.