Jan Macháček

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Czech Business Weekly

Myths and truths about selling Český Telecom

25. 10. 2004
Prime Minister Stanislav Gross rarely speaks about the economy. Thus, it came as a surprise when he announced that he preferred privatizing Český Telecom via the capital markets.

It was probably the most concrete and specific announcement ever made by Gross on political economy. His comments on Telecom were in sharp contrast to his response recently when asked about the controversial award of bonuses to its current board members. Gross’ spokeswoman told journalists that the bonuses were an economic matter and that the prime minister preferred leaving his economic ministers to comment on such things.
Telecom is going to be the first major privatization under Gross and the first privatization carried out by a reshaped coalition government. But it’s also the first privatization for which there has been talk about using the capital markets. Selling state-owned assets via the capital market has rarely been tried in post-communist countries, and to do so, a nation must have developed capital markets with sufficient liquidity.  
Since Gross’ announcement, the discussion on how to organize Telecom’s sale has spread to the media. At first glance, it looks like a dispute between experts and their different opinions. But it should be realized that almost none of the analysts or experts are entirely independent. Most of their employers have stakes in this game.   
For instance, what does a privatization via the capital markets actually mean? We have a Prague stock exchange, there is a London exchange and there is the New York Stock Exchange. Should the sale be via a combination of these, and how big should be the role of the Prague bourse or the London exchange?  There are firms with the know-how and expertise to profit from Telecom’s sale through the Prague exchange. And there are firms whose parent companies are equipped to offer Telecom shares on the London or New York exchanges. Then there are investment banks with expertise in advising and organizing a tender for strategic partners and which would love just such a contract. 
There are already several myths circulating. One is that privatization via the capital markets diminishes the role of lobbyists. This is not true; all privatization methods have their active lobbyists. Another misconception is that the government should be able to use the sale of Telecom as a last chance to revive the capital market. But should it be the role of the government to promote a local capital market? 
Before the government decides on the privatization, it should set out to evaluate its priorities. These should be: income for the state, the benefits for Eurotel and Český Telecom, the interests of consumers and the speed of the sale.
But Telecom should not be privatized using an experimental Czech method — there was enough of that in the 1990s and everyone has learned those lessons.

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