Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. I do not quite follow this. Why would it have been a breach of the rules if Hutchison had agreed to take over TIW before the auction but it was acceptable afterwards when Hutchison themselves were going to be a new entrant?
  (Mr Hendon) Hutchison could have declared itself a bidder at the outset but, of course, there was a complication because Hutchison was owner of Orange, or had a large share in Orange I think at that stage. The sale to Mannesmann was not complete at that stage of the auction, I think.

  121. But was quite clearly going to happen. It was pretty clear down the road it was going to happen.
  (Mr Hendon) Yes but the auction rules did not deal in probabilities, they dealt in certainties.

  122. Right.
  (Mr Hendon) I believe it was not possible for Hutchison to come into the auction because they were related to Orange at the outset.

  123. Right. Let me get this clear. Hutchison could not come into the auction because they already had a chunk of Orange but they could arrange with TIW to buy all the capacity, that was entirely acceptable, and then subsequently buy the firm out. It beggars belief actually.
  (Mr Hendon) They could make an agreement to take the capacity on the network, yes, because that was not covered by the auction rules. They could not make an agreement to buy the company. That must have been something they did subsequent to the auction.

  124. Do you think it had never occurred to them before the auction?
  (Mr Hendon) They were not able to do it before the auction because they were still connected to Orange at the point—

  125. Okay. They had this firm, Orange, in this hand that they were in the process of selling and in this other hand they had this company that they had already committed to buy the entire capacity thereof. It does not take a rocket scientist to assume if they sold that and they had this firm they effectively controlled they could buy that as well.
  (Mr Hendon) It did not work like that. The timing did not work like that. We required companies to declare their intention to enter the auction on a certain date and those companies had to then say how they were made up and who they were connected to and all the other things. After that point it was not possible for anyone to enter the auction, that was not allowed.

  126. Right.
  (Mr Hendon) At the point when they would have had to come into the auction they were connected to Orange, as I understand it. Subsequently, when they developed their interest in TIW it was not possible for them to come into the auction because there was no means to come into the auction.

  127. Okay. I understand that. You are now down to an OBE by the way. This beggars belief actually that they got away with this. It seems to me absolutely clear this is a scam. Just tell me if I have got this wrong. Here is a firm which owns one of the bidders but is in the process of selling it. It wants to remain in the market and understands completely that it cannot sell that firm and be bidding at the same time. It can buy, however, the capacity or make an arrangement to take the entire capacity but it cannot buy TIW and then, low and behold, it buys it subsequently. It just seems to me there is perhaps—I will put it no stronger than that—the possibility of an informal arrangement, a nudge, nudge, wink, wink, that "If we win the contract then we will buy you out". Indeed that could very well have been why TIW were able to win it because they knew they had Alistair Moneybags behind them and there was a distortion of that section of the market.
  (Mr Hendon) We found no evidence of any such agreement is all I can say.

  128. If it was an informal agreement they are hardly likely to leave it on the desk, are they? Does it not seem a trifle odd to you?
  (Mr Hendon) If there is no agreement we can see then there is no breach of the auction rules.

  129. Right. That is a very diplomatic way of putting it.
  (Mr Hendon) Let me read what my advisers behind are saying. We sought explicit assurance from Hutchinson and TIW that there was no breach of the rules. Had the rules been breached TIW would have been expelled from the auction or we would have deprived them of the licence.

  130. Knowing that if they breached the rules they would be expelled from the auction, as presumably TIW might have been, they are hardly like to tell you that, are they?
  (Mr Hendon) I am sorry?

  131. They are hardly like to tell you that they had an informal arrangement, if indeed such a thing existed, are they?
  (Mr Hendon) When we asked them if there was an agreement, if they lied to us and we discovered subsequently that they had lied then they would have been expelled from the auction, they would have forfeit their deposit, which was a substantial amount of money, and would have gone away with their tail between their legs. It does not seem a credible thing for them to do.

  Mr Davidson: If you did not catch them they would have got away scot free with one of the licences.

  Chairman: There is another note on the way.

Mr Davidson

  132. Your assistant will probably get an OBE out of this. Tell me, what is she saying now?
  (Mr Hendon) I am not sure that I want to tell you what she says!

  133. She may not have passed a note across, it may be an entirely blank piece of paper.
  (Mr Hendon) What she is saying to me is that they could also have forfeit the licence. They could have paid for the licence and then we could have discovered that this agreement that you are suggesting might have existed was there and then they would have forfeit the whole licence, which would have been quite a bad outcome for them.

  134. Okay, that is one way of looking at it. Can I ask you a question about why there was nothing built in to make sure that if there was any sell off of the licence that some of the profit or some of the surplus would come back to the state. We have had examples in other circumstances where we either have or have not had sell-off clauses, was it considered in these circumstances?
  (Mr Hendon) Yes, and I do not think we have any difficulty with that. You cannot trade licences because the European Union Directive prevents it, as I was explaining to the Chairman before, but there is no reason why the company should not be traded and providing the new owner continues to meet the licence conditions then it is doing what we wanted. It is perfectly normal for companies to be sold.

  135. I understand that. There is no way then that if a company, the main asset of which is the licence, was sold on for twice the money, there is no way in which the state then benefits, is that right?
  (Mr Hendon) I suppose that is right, yes, but the company that buys it has still got to implement the licence.

  136. I understand all of that.
  (Mr Hendon) What we are after—

  137. I understand that, I know that bit. Suppose this auction had been a flop and you had ended up with a very small number of bidders and you sold it for the reserve price and the market had then transformed, that must have been one of the options that you considered. Did you not consider at any stage building in something that meant in any subsequent sell-on the gains would come back to the Government?
  (Mr Hendon) Yes. We looked very carefully at how this market was going to work and if we thought that we would have had a small number of bidders then we would not have used this sort of auction. This style of auction is suitable where you have got a large number of bidders relative to the number of things you are trying to sell.

  138. You might still have got a small price. You told us earlier on a number times that you were not sure that you would get as much as you did, you might have got a tenth or a twentieth of it, which was still beyond your wildest dreams, not as much as you eventually did, which was clearly the market price. I just wonder did it never occur to you or were you never advised that there ought to be an option there for Government to allow subsequent gains?
  (Mr Hendon) If you start building in those sorts of rules for one sort of asset which is different from another sort of asset, it is very difficult to incentivise the company to go ahead and use the asset to the best advantage. How do you distinguish between money made by selling the licence on effectively by selling the company, exploiting it?

  139. I appreciate it is difficult but there are parallels elsewhere. You mentioned earlier on that you thought nobody had any idea of how successful the auction would be. Can I put it to you that having looked at paragraph 2.28, where Rothschild were keen to have a fee linked to the profits raised in the auction, they thought they were likely to get more money that way than by the system that was eventually devised. They perhaps had a betting inkling than yourselves of what might happen in these circumstances. Did they never suggest that you might get as much as you did?
  (Mr Hendon) No, they never suggested it. I think everyone expected the auction to be successful but I do not think anyone expected the proceeds to be so high. The auction would have been successful even if the proceeds had not been so high because what we were trying to do was not to extract the maximum amount of money but to put the licences in the hands of companies that exploit them.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 26 April 2002