JT and and Airtel in possible merger after announcement in States sitting
Move is dependent on approval from States and competition watchdog
Read below: Analysis from former JT chairman John Henwood
JT and Airtel – two of Jersey's main telecoms firms – could merge if the move is given the go-ahead by the States and the competition watchdog.
Indian-based Bharti Airtel – which operates in 20 countries across Asia and Africa and as Airtel-Vodafone in the Channel Islands – and States-owned JT yesterday announced that they were in initial talks to merge their operations in Jersey and Guernsey.
Treasury Minister Alan Maclean, who announced the proposal to the Assembly during yesterday's sitting, said an unsolicited written offer had been received from Sunil Bharti Mittal, the owner of Bharti Airtel, proposing to purchase 25% of the merged company, with the States retaining just under 75% of the shareholding.
'Having considered the offer, the board of JT has confirmed that it views the offer worthy of very serious consideration,' said the minister, who represents the States as JT's sole shareholder.
'I recently met Mr Mittal, at his request, and I am satisfied that his offer is intended to develop and grow the JT business and build on his long-term commitment to Jersey.'
The minister added: 'All parties realise the importance of keeping staff and customers of both companies fully informed. Accordingly JT employees are being briefed by JT directors as I speak and I understand Mr Mittal will be briefing Airtel staff at the same time.'
JT employs up to 300 staff in Jersey, with around 440 on the payroll including the Guernsey operation and overseas.
Speculation about the future of the company has been rising, following a report published last year by the States financial watchdog, Comptroller and Auditor General Karen McConnell, questioning States ownership of JT and calling for increased public accountability.
Last month Senator Maclean told the JEP that 'a number of options' were being considered as part of a review of all public investments. Public Accounts Committee chairman Deputy Andrew Lewis also expressed concern that the shareholder oversight provided by the Treasury Minister and his team was not sufficient for such a large asset – estimated to be worth in the region of £300 million – and said the panel intended to launch an inquiry.
JT's chief executive Graeme Millar has also spoken publicly about the difficulties of providing competitive services in a small market like the Channel Islands. In an interview with the JEP earlier this week, he said: 'If we did not have our overseas business, we would not be able to invest locally and we would have to borrow money, or increase prices.'
In JT's annual review – presented to States Members on Monday evening, on the eve of the merger announcement – Mr Millar described 2014 as 'not an easy year'. The company continued to be plagued with problems following the introduction of a new billing system, with customer surveys carried out by the Channel Islands Competition Regulatory Authorities (Cicra) less positive for JT than rivals Sure (owned by Bahrain-based Batelco) and Airtel.
Bharti Airtel opened for business in the Island in June 2007 as the third provider of mobile phone services in the Island, with the intention to use their Channel Islands presence as a springboard into the European market.
Following Treasury Minister Alan Maclean's statement to the Assembly, States Members were allowed 15 minutes of questions.
Treasury Minister Alan Maclean: 'That's an important question. Last night, the directors made clear that 51% comes from outside Jersey, with much of that return invested back into Jersey. We are at a very early stage, but having met Mr Mittal, who has made a considerable investment across the Channel Islands, he is committed to growing the business – there will be considerable economies of scale in being part of an international network that is the Bharti Airtel group.'
Deputy Southern: 'The sale must bear in mind the commitment of JT historically to local training, at all levels, and be aware that if work is outsourced to other parts of the group, that might cause difficulty to those based in the Island.'
Treasury Minister: 'If we do go ahead, of course there will be opportunities for those working locally to work in the international group, which is very exciting and must be good for job progression.'
St John Constable Chris Taylor: 'Does the minister agree that this is a fantastic opportunity to give Jersey better access that should benefit business in the Island?'
Treasury Minister: 'Clearly it has to be properly evaluated, but certainly appears to benefit not only JT but the Island as a whole.'
Deputy Kevin Lewis: 'It is very early days, but do you envisage a name change?'
Treasury Minister: 'No, but as the Deputy points out, it is very early days.'
Deputy Southern: 'More philosophically, is it not the case that this company is already in Jersey, unable to compete on a level playing field, and has to come before the Channel Islands Competition and Regulatory Authorities with an option to take over the dominant player, which will reduce competition?'
By John Henwood, who was the chairman of Jersey Telecom from 2002 to 2009
Jersey Telecom, as it was then, was the first States-owned business to be incorporated – the 'appointed day' of incorporation was 1 January 2003. The idea of turning a States department into a company was a sound one and it marked the beginning of a new era. However, the States had not been sufficiently joined-up in its thinking about the introduction of open competition at about the same time as incorporation.
The new Jersey Telecom company faced a huge and challenging business agenda, yet in its first year it was saddled with a £1 million bill to support the new competition regulator which the States had introduced at-a-venture, with no terms of reference and apparently without regard for the effect on JT as a publicly owned asset. From its earliest days the regulator showed little regard for proportionality and proceed to operate as if it were regulating a member state of the EU.
Within a very short period there were four licensed telecommunications operators, with the possibility of a fifth. It was the view of the board of JT, whilst welcoming competition, that the Channel Islands market was too small to sustain this number of operators.
The board of JT recognised the need to expand operations beyond the Channel Islands in order to protect the company against the challenges to its traditional, local, customer base.
The Channel Islands still represents too small a market for three major players all to operate profitably. JT Global, as it has become, has continued to develop off-islands business, but it is still by some way the smallest player, the other two, Sure and Airtel-Vodafone, being owned by much bigger entities. As ever, it has punched above its weight and, presumably, increased its enterprise value.