The Privatisation and Liberalisation of Dutch Telecommunications in the 1980s

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Notes

P.A. Toninelli (ed.), The Rise and Fall of State-owned Enterprise in the Western World (Cambridge, 2000).

Amongst others Eli Noam, Telecommunications in Europe (Oxford, 1992).

Volker Schneider, however, stated that there are only minor differences in outcomes. V. Schneider, ‘The Governance of Large Technical Systems: The Case of Telecommunications’, in T.R. La Porte (ed.), Social Responses to Large Technical Systems (Dordrecht, 1991), pp.19–41.

See for example: Schneider, ‘The Governance of Large Technical Systems’; E. Grande, Vom Monopol zum Wettbewerb? Die neokonservative Reform der Telekommunikation in Grossbritannien und der Bundesrepublik Deutschland (Wiesbaden, 1989); W. Hulsink, ‘In Pursuit of a New Consensus? The Liberalisation, Privatisation and Regulatory Reforms of Telecommunications in the Netherlands’, Management Report Series No.139, Erasmus University, Rotterdam, 1993.

Technological change also reduced costs. The increasing decline of the costs of microelectronics has had a dramatic impact on the cost of routing calls since telecommunications networks were increasingly controlled by sophisticated computer switching. The development of fibre-optic lines and more sophisticated data compression have increased the carrying capacity of the network and lowered the cost of carrying large volumes of voice and data. D.M. Newbery, Privatization, Restructuring, and Regulation of Network Utilities: The Walras-Pareto Lectures (London, 1999), p.293.

M. Davids and J. Luiten van Zanden, ‘A Reluctant State and its Enterprises: State-Owned Enterprises in the Netherlands in the “Long” Twentieth Century’, in Toninelli (ed.), The Rise; H. Hulsink, Do Nations Matter in a Globalising Industry? The Restructuring of Telecommunications Governance Regimes in France, the Netherlands and the United Kingdom (1980–1994) (Delft, 1996); E. Noam, Telecommunications in Europe (New York, 1992).

Hulsink, Do Nations Matter. In case of privatisation and denationalisation all the investments made in the past and which were part of the state expenditure would be converted into a capital debt of the company after denationalisation, while in the USA it was much more difficult. Large compensatory payments had to be paid.

M. Davids, ‘European Co-operation in Telecommunications and the Dutch PTT (1950s–1980s)’, in U. Olsson (ed.), Business and European Integration since 1800: Regional, National and International Perspectives (Göteborg, 1977), Proceedings of the Inaugural Conference of the European Business History Association in Göteborg, Sweden, 30 Aug–1 Sept. 1996, pp.357–79.

According to the EU, due to the national compartmentalisation of telecommunications in a technical and economic respect, European companies were delayed in realising economies of scale in production. As a result, technological diversities and minimal compatibility between national telecommunications systems would put the European market at a disadvantage in competing with the other Triad powers. The national boundaries imposed restraints on research and development, because a minimum scale was necessary, especially when R&D became increasingly capital-intensive. If R&D in the field of telecommunications became more important and the knowledge-intensive policy of the non-European powers boomed, this could have a negative influence on international competitiveness.

Article 90 of the Treaty of Rome formed the basis for the liberalisation of terminals and services. Not only did it prohibit PTTs from having exclusive rights, which would confine competition, it also empowered the European Commission to issue binding directives without seeking approval from the European Parliament or the Council of Ministers. C.D. Long, Telecommunications: Law and Practice (London, 2nd edn. 1995); W. Sandholtz, ‘Institutions and Collective Action: The New Telecommunications in Western Europe’, World Politics, Vol.45 No.2 (1993), pp.242–70. Using this Article, the EEC increasingly bypassed the national governments. Davids, ‘European Co-operation’.

M. Davids, De weg naar zelfstandigheid. De voorgeschiedenis van de verzelfstandiging van de PTT in 1989 (Hilversam, 1999), pp.22–7; B. Carlson, ‘Eli Heckscher and Natural Monopoly: The Nightmare that Never Came True’, Scandinavian Economic History Review, Vol.XL (1992), pp.53–79; G. Hogesteeger, Concentratie en centralisatie bij de openbare telefonie in Nederland 1881–1940 (Den Haag, 1984); M.L. Mueller, Telephone Companies in Paradise: A Case Study in Telecommunications Deregulation (London, 1993); J. Foreman-Peck and R. Millward, Public and Private Ownership of British Industry, 1820–1990 (Oxford, 1994); W.W. Sharkey, The Theory of Natural Monopoly (Cambridge, 1982).

Calson cites here C.G. Veljanovski, ‘Privatisation: Monopoly, Money or Competition’, in idem (ed.), Privatisation and Competition: A Market Prospectus (London, 1989), p.38; Carlson, ‘Eli Heckscher’, p.73.

W.J. Baumol, J.C. Panzar and R.D. Willig, Contestable Markets and the Theory of Natural Monopoly (New York, 1982); W.J. Baumol and J.G. Sidak, Toward Competition in Local Telephony (Cambridge, 1994); J.S. Foreman-Peck, ‘Natural Monopoly and Railway Policy in the Nineteenth Century’, Oxford Economic Papers, Vol.39 (1987), pp.103–22; Newbery, Privatization; K.E. Train, Optimal Regulation: The Economic Theory of Natural Monopoly (Cambridge, MA, 1991), pp.5–12. See also note 5: reducing costs as a result of technological change.

P. Slaa, Telecommunicatie en beleid: De invloed van technologische veranderingen in de telecommunicatie op het beleid van de Nederlandse overheid inzake de PTT (Amsterdam, 1987), p.229.

Davids, ‘European Co-operation’, p.368; J. Scherer, ‘Telecommunications Laws in Europe’, in J. Scherer (ed.), Telecommunications Laws in Europe (Boston, 1993), p.99.

Davids, De weg naar zelfstandigheid, pp.32–4; Hulsink, Do Nations Matter, pp.106–7.

E. Noam, Telecommunications in Europe (Oxford, 1992), pp.170–71; B. Wieland, ‘Telecommunications in the Netherlands’, in J. Foreman-Peck and J. Müller (eds.), European Telecommunication Organisations (Baden-Baden, 1988), pp.203–19. From the 1980s onwards it was no longer necessary to invest in the basic telephone network. The argument of sunk costs no longer worked against denationalisation of the state company for telecommunication and postal services.

Slaa, Telecommunicatie en beleid, p.228. The number of computerised switches increased from 27 per cent in 1980 to 44 per cent in 1985. A large part of the investments came from internal funding. From the end of the 1950s, part of the revenues could be used for investments. See also part V. Wieland, ‘Telecommunications in the Netherlands’, pp.210–11.

M. Davids, ‘The Relationship between the State Enterprise for Postal, Telegraph and Telephone Services and the State in the Netherlands in Historical Perspective’, Business and Economic History, Vol.24 No.1 (Fall 1995), pp.194–205.

The increasing need for scarce telecommunications and information experts also complicated the role of the trade unions in their policy regarding the denationalisation of the PTT. Before the 1980s the labour unions fiercely resisted denationalisation to prevent the loss of civil servant status. But in the 1980s internal coherence of the various trade unions representing the PTT personnel declined. When the PTT became privatised, the position of the higher ranked PTT employees and their representatives would improve as a consequence. For the unskilled or semi-skilled PTT personnel, however, civil servant status was still preferable in terms of primary and secondary working conditions. At the same time, all public service trade unions were confronted with decreasing membership, declining internal coherence and, subsequently, a loss of bargaining power. (An example of the declining bargaining power of the public sector trade unions is illustrated by the reduction by only 0.5 per cent of the salary cut of 3.5 per cent which the Cabinet (Lubbers I Cabinet) had imposed on civil servants. This happened in spite of a massive strike by civil servants, including PTT staff, in protest against these cuts.) After initial opposition from the trade unions of the lower civil servants, they no longer opposed denationalisation. Staying involved in the decision-making process and trying to counter a deterioration of the position of the former PTT personnel was given priority. See P. van den Besselaar and J. Visser, ‘The Dutch Case’, Bulletin of Comparative Labour Relations, Vol.25 (1993), special issue: ‘Industrial Relations Developments in the Telecommunications Industry’, pp.194–205.

Davids and van Zanden, A Reluctant State and its Enterprises, p.269.

Davids, De weg naar zelfstandigheid, p.36.

For the PTT, liberalisation of the telecommunication market was not acceptable without more freedom. However, nationalisation (see also note 24) is often considered insufficient by proponents of deregulation. They urge for privatisation. Newbery, for example, states that competition of network utilities is difficult to achieve within the public sector, so there is a natural complementarity between liberalisation and privatisation. Newbery, Privatization.

The postal and telecommunications services, which, as in most other countries, functioned during most of the twentieth century as one integrated company (Volkers Sneider calls this horizontally integrated) would also remain in one organisation after denationalisation. This is in contrast to, for example, the United Kingdom, where the postal service remained in public hands, while telecommunications became private.

This form of privatisation is called denationalisation. Therefore, from now on we will use the term denationalisation.

It would be possible to sell shares publicly in the future, as was done in June 1994. Two years after the reduction of the state ownership to 70 per cent, it was further reduced to 30 per cent.

The cabinet standpoint only stated that in future the telecommunications subsidiary would be separated. Due to strong pleas from the Ministry of Economic Affairs, the obligation to split up within five years was stated in the law. When the law passed through Parliament, there was strong political opposition from the Social Democrats against establishing the separation date. The compromise was that this period would be extended by two years. Later – in the 1990s – the issue was totally removed from the political agenda, and the separation never materialised. Davids, De weg naar zelfstandigheid, pp.144–9.

Noam, Telecommunications in Europe, p.171.

Hulsink, Do Nations Matter, pp.384–95; A. van Iterson and R. Olie, ‘European Business Systems: The Dutch Case’, in R. Whitley (ed.), European Business Systems: Firms and Markets in their National Contexts (London, 1992), pp.98–116.

Especially the civil servants of the Ministry of Transport and Public Works still considered the PTT a company with public tasks and a ‘public service attitude’.

In 1893 the PTT, which until that time had functioned as a division of the Department of Transport and Public Works (which was then called the Department of Public Works, Commerce and Industry), was transformed in the so-called Administration for Postal and Telegraph Services. On 1 January 1915, the Administration for Postal and Telegraph Services became a state enterprise. Not all telephone services, however, were incorporated. During the first decades private, municipal and provincial telephone networks were in use. The last municipal networks (Amsterdam, Rotterdam and The Hague) became state-owned in 1940. Davids, ‘The Relationship between the State Enterprise’; O. de Wit, Telefonie in Nederland 1877–1940. Opkomst en ontwikkeling van een grootschalig technisch systeem (Amsterdam, 1998).

In the early 1920s, for example, the government economised on the PTT, which led to tariff increases and the dismissal of personnel. In the early 1930s, the government again had to economise as a result of the Depression, and the PTT further reduced its personnel costs.

The PTT pleaded for freedom to create a general reserve fund in times of increasing profits. In the period 1935–39 the profits grew from 4.0 to 9.4 million guilders for the telephone and from – 0.5 to 0.6 million for the telegraph. Only the postal services suffered a decline, from 4.8 to 2.9 million. During this time, the PTT wanted to create a general reserve fund. Although the Cabinet was not against this proposal, parliament feared it would lose effective control. Moreover, the PTT should not become more independent than other state enterprises and departments. Above all, the PTT's profits were urgently needed for other governmental activities. A reserve fund could only be formed for the personnel hired on short-term contracts. PTT Annual Reports, 1935–39; Davids, De weg naar zelfstandigheid, p.115.

The same situation existed for several of the PTT's funds, including a so-called ‘automation fund’.

Moreover, the state was free to use these reserves; it was therefore a ‘reserve on paper’.

APTT, Archief sect.dr., nr.18, Beslispunten op financieel gebied voor de Ministerraad van 22 November 1985.

Table 6 shows that business volume increased from the start of the twentieth century onwards. The only exception was the telegraph service. The decrease started at the beginning of the 1950s.

After 1970, the PTT's return on investment was considerably higher than that of Dutch business as a whole. See A. Dek, H.K.P. Manders and C. de Vries, ‘Een kapitale zaak’, in Honderd jaar telefoon (Den Haag 1981), pp.225–48. (Percentage of invested capital calculated on the basis of replacement value.)

APTT, Archief sect.dr., nr.18, Stand van zaken van de werkzaamheden van de financiële werkgroep van de commissie-Steenbergen, 20 Oktober 1985; Beslispunten op financieel gebied voor de Ministerraad van 22 November 1985; Archief Hagendoorn, nr.73, Rapportage van de financiële werkgroep van de projectgroep commissie-Steenbergen, 29 Oktober 1985.

Commissie Steenbergen, Signalen voor straks. Een nieuwe richting voor de PTT, 1 July 1985, pp.34–6; Archief PTT, Archief Hagendoorn, nr.73, verslag vergadering werkgroep Financiën, 24 September 1985, 4 Oktober 1985, 10 Oktober 1985; Archief PTT, Archief sect.dr., nr.18, Beslispunten op financieel gebied voor de Ministerraad van 22 November 1985.

Davids, De weg naar zelfstandigheid, p.230.

Archief PTT, Archief Hagendoorn, nr.73, verslag vergadering werkgroep Financiën, 24 September 1985, 4 Oktober 1985; Archief PTT, Archief sect.dr., nr.18, Stand van zaken van de werkzaamheden van de financiële werkgroep van de commissie Steenbergen, 20 Oktober 1985; Beslispunten op financieel gebied voor de Ministerraad van 22 November 1985; Archief PTT, Archief PVC, nr.5, Rapport van de productiegroep financiën, November 1986; Nota van de projectleiders aan de stuurgroep betreffende het rapport van de productiegroep financiën, versie 21 November 1986; Archief PVC, nr.2 verslag vergadering stuurgroep, 2 December 1986; Archief PVC, nr.6, verslag vergadering productiegroep financiën, 22 Januari 1987; Tweede Kamer, vergaderjaar 1985–1986, UCV 58, 14 April 1986, 58–15 and 58–33.

Archief PTT, Archief Kabinet drg, nr.281, Verslag van het overleg op 30 Oktober 1985 tussen de minister van Financiën en de minister van V&W over financiële aspecten advies commissie Steenbergen; Archief Hagendoorn, nr.73, Nota vertegenwoordigers departement Financiën voor werkgroep financiën van stuurgroep Steenbergen tbv overleg op 15 November 1985.

Archief PTT, Archief Sect.dr., nr.18, Opvatting PTT tav financiële kernpunten tbv commissie Steenbergen, 10 Mei 1985; Archief Hagendoorn, nr.17, PTT-nota, Gewenste verhouding Eigen vs Vreemd Vermogen, 21 November 1985; Kanttekeningen bij rapportage financiële werkgroep van projectgroep commissie Steenbergen.

Archief PTT, Archief Hagendoorn, nr.17, PTT-nota, Gewenste verhouding Eigen vs Vreemd Vermogen, 21 November 1985, nr.73, Nota vertegenwoordigers departement Financiën voor werkgroep financiën van stuurgroep Steenbergen tbv overleg op 15 November 1985.

Archief PTT, Archief kabinet drg, nr.281, Verslag overleg minister van Financiën en V&W, 30 Oktober 1985.

Archief PTT, Archief PVC, nr.64, Concernfinanciering PTT Nederland NV, November 1988.

Commissie Steenbergen, Signalen voor straks, pp.34–6.

Archief PTT, Archief PVC, nr.6, Standpunt Financiën, Februari 1987, Visie V&W over leningsvoorwaarden NV PTT, 6 Februari 1987, Rapportage productiegroep Financiën, 2 Juni 1988; nr.3, verslag vergadering stuurgroep, 3 Februari 1987.

Archief PVC, nr.6, Brief van minister Smit-Kroes aan minister Ruding aan dg PTT, 12 December 1988, Brief van dg PTT aan minister Smit-Kroes en minister Ruding, 19 December 1988.

Archief PTT, Archief PVC, nr.5, Rapport productiegroep financiën, 2 December 1986, 2 Juni 1988; Archief PVC, nr.2, verslag vergadering stuurgoep, 3 Februari 1987; nr.64, Brief van minister van financiën aan minister V&W, 11 Augustus 1987; Modaliteiten leningen overheid aan NV PTT, 6 Maart 1987.

Archief PTT, Archief PVC, nr.5, Rapport productiegroep financiën, December 1986.

Commissie Steenbergen, Signalen voor straks, p.36.

Tweede Kamer, vergaderjaar 1985–86, UCV, nr.58, 14 April 1986, 1 and 38.

Archief PTT, Archief PVC, nr.2, verslag vergadering stuurgroep, 7 Oktober 1986, 2 December 1986; nr.5, Rapport productiegroep financiën, December 1986, nr.22 Nota productiegroep statuten, 24 Oktober 1986.

Davids, De weg naar zelfstandigheid, pp.240–41.

Ibid.

Commissie Steenbergen, Signalen voor straks, pp.24, 35–7.

Tweede Kamer, vergaderjaar 1985–86, UVC 58, 14 April 1986, 58–19.

Tweede Kamer, vergaderjaar 1987–88, 20 369 nr.5 14–17, nr.6, 35, nr.10, 7–8, vergaderjaar 1988–89, 20 369, nr.10, 7, nr.32, nr.36, 2

Davids, De weg naar zelfstandigheid, pp.191–2; APPT, Archief Hagendoorn, nr.93, Inventarisatie van onderwerpen en uitgangspunten mbt regelgeving en concessie telecommunicatie, versie tbv de productiegroep, 2 Juni 1986; Archief Hagendoorn, nr.92, Verslag bijeenkomst subwerkgroep Regelgeving T, 7 Augustus 1986; Archief PVE, nr.12, Verslag bijeenkomst subwerkgroep regelgeving T, 26 November 1987. The reason why exclusion of the telegraph service was politically not acceptable was not only because the PTT should supply all existing telecommunications services, but also because a telegram had juridical status, while a fax did not. In the 1950s the use of the telegraph decreased (as is seen in table 5) as result of the use of the telex.

Davids, De weg naar zelfstandigheid, pp.173–4; Commissie Steenbergen, Signalen voor straks, pp.28, 49.

Although the Steenbergen Committee had advised dividing the new PTT Telecom BV into two subsidiaries (one for services in competition and one for monopoly services) in order to avoid the PTT taking advantage of its monopoly position by cross-subsidising or falsifying competition, the division was not accomplished. See also part III of this article.

Davids, De weg naar zelfstandigheid, pp.185–6; P.P. ‘t Hoen, ‘Exclusieve concessie: Waar ligt de grens?”, Informatie en informatiebeleid, Vol.6 (1988), pp.32–40; APTT, Acrhief Hagendoorn, nr.92, Verslag bijeenkomst subwerkgroep regelgeving T, 29 Mei 1986, nr.9; Achief PVC, nr.35, Brief van het Ministerie van EZ aan de projectleider, over de wijzing van de TenT-wet, 1 April 1987; Archief PVC, nr.32, Verslag bijeenkomst subwerkgroep regelgeving T, 19 Maart 1987, nr.28; Archief PVC, nr.126, Reactie van NETELCOM/FME aan de voorzitter van de Vaste Commissie voor V&W, d.d. 8 Januari 1988 en d.d. 1 Februari 1988.

The S/T-connection point was already used for several functions, for example testing and maintenance.

Davids, De weg naar zelfstandigheid, pp.186–9; Tweede Kamer, vergaderjaar 1987–88, 20 369, nr.5; Tweede Kamer, vergaderjaar 1987–88, 20 369, A&B, WTV, Art.1, lid b, f en j; APTT, Archief PVC, nr.58, Nota van dg Diensten, Midden-Kleinbedrijf en Ordening, d.d. 16 Januari 1987; Archief PVC, nr.4, Brief van CIB-RCO aan Den Besten, secretaris-generaal van het ministerie van V&W, d.d. 15 Juni 1987; Archief PVC, nr.126, reactie van VIFKA aan de Vaste Commissie voor V&W op de Wetsvoorstellen, d.d. 13 Januari 1988; Archief PVC, nr.126, Reactie van NETELCOM/FME aan de voorzitter van de Vaste Commissie voor V&W, d.d. 8 Januari 1988 en d.d. 1 Februari 1988.