COMMENT : Fulfilling the dream of a British world leader
Wednesday 13 March 1996
In practice, the effect has been rather the reverse. Rod Olsen, acting chief executive, is an effective enough operator, but he is also essentially just a finance director who has made plain that he doesn't want the top job. So while BT imagined it might be able to take advantage of weakness at the top, what it has actually encountered is a caretaker who believes the decision about C&W's future should not be his. Mr Olsen wants to leave that to his successor, now certain to be one of the American candidates for the job. Talks which went as far as discussing terms, have therefore broken down, for the time being at least.
Nonetheless, there is a certain inevitability about all this. C&W's public confirmation of the talks cannot be read as anything other than a signal that the company is for sale provided the deal and price is right. It would be a shame if after all this, C&W ended up as fodder for a foreign telecom company's international ambitions. BT plainly has some formidable regulatory hurdles to jump in consummating such a deal but nothing is impossible and ministers should be using their best endeavours to bring about this union. At a stroke it would catapult BT to the forefront of international telecommunications, putting it at the cutting edge of developments in this industry. In telecoms at least, Michael Helseltine's dream of creating a nation of world leaders, would be fulfilled.
The deal would also benefit competition in the UK if, as foreseen, it involves the disposal of Mercury to a serious rival to BT such as AT&T. Nor is Hong Kong Telecom, the true object of BT's desires, in truth the stumbling block outsiders predict. The rules say that if ownership of C&W's 57.5 per cent stake change hands, then the new owner must bid for the rest, hugely inflating the cost of any C&W takeover. Furthermore, a change in ownership puts the whole Hong Kong Telecom license in jeopardy, since it can be removed in such an eventuality. In the case of an agreed deal, however, both obstacles could probably be overcome.
No doubt BT has other ways of expanding in the Far East, of finding an alternative gateway to China. But this would have been a neat and eloquent solution. Meanwhile, C&W looks as marginalised and out on a limb as ever. The new American chief executive had better be good. He's going to have his work cut out carving out an independent future for C&W.
Policyholders must share windfall profits
This seems to be the age of the windfall profit, so it is no surprise to see our life insurance companies finding their own version of the same thing. In their case the treasure troves stumbled across are the so-called "orphan estates". The term refers to the surplus accumulated in the life company over the years because of over-cautious bonus payments and unclaimed policies. In some cases the amounts are very substantial - Legal and General has identified a surplus of some pounds 1.5bn. As with all windfalls, the question is just who is entitled to the money. The big daddy of the industry is now about to decide. The mighty Pru yesterday became the latest to open negotiations with the Department of Trade and Industry over allocation.
City estimates of a surplus of anything up to pounds 5bn are probably exaggerated. Furthermore, if the precedent of London & Manchester and United Friendly is followed, only the interest earned on this money, and not the capital itself, will be allowed for distribution to shareholders. Even so, at a conservative pounds 250m a year, that is not a bad sum to keep the shareholders sweet. The actual surplus would also presumably be available to the company in the form of reserves, throwing up all kinds of acquisition opportunities.
But what about the policyholders? Are they not more entitled to the money? Well not exactly, for these orphan estates belong in truth to a previous generation of policy holders, not the present batch. Nonetheless, the Pru will be faced with a riot by angry policyholders if it doesn't give something of the windfall to them. In the case of United Friendly it amounted to a one off payment equivalent to about a half of the annual bonus. The Pru needs to be thinking of at least that.
Time for the architects of EMU to speak out
Believe it or not, there are still some people who think economic and monetary union might be a good thing. Unfortunately their convictions is nowhere near as strong as those of our increasingly rabid Euro-sceptics. If ever there was a time for Euro-fans to make the case for the single currency, this is surely it. When the European Commission launched the Single Market, it produced a mass of empirical research into the benefits of the project, published as the Cecchini Report. It argued its case with national governments. It ran an immense marketing campaign. Hard as it is to remember, British business was incredibly excited about the Single Market.
The debate about EMU could not present a greater contrast. Huge amounts have been written about it without, apparently, making anybody any the wiser over what its effects will be. A high-powered conference starting today at Chatham House is going to administer another dose of caution about the single currency. The first speaker is Eddie George, Governor of the Bank of England, who has already expressed concern about whether there will be enough real convergence between member economies for monetary union to be a practical proposition. He is likely to say the same thing again, spurred on by the new blast of scepticism from Otmar Issing, the Bundesbank's chief economist,earlier this week.
Caution and half-heartedness will continue to dog progress towards EMU - unless the European leaders in favour of it can produce some reasonable evidence of the economic benefits. They must make their case rather than asking member states to make a leap of faith. They must also spell out the links between economic and political institutions under a single currency. It is not enough to make vague speeches about the need for peace in Europe. If politicians and voters in member countries are to cede their power over monetary policy, it is reasonable to ask the single currency's architects to say what the new channels of political accountability will be - and if none, to admit it.
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