XN000022-1975-01-22 — Page 3

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WEDNESDAY, JANUARY 22, 1975

MR. HADDON-CAVE SAID THAT AS AN INDICATION OF THE GOVERNMENT'S INTEREST IN THE AFFAIRS OF AN ESSENTIAL PUBLIC UTILITY COMPANY, THE COMPANY'S CONSENT WAS ALSO BEING SOUGHT TO THE APPOINTMENT OF A GOVERNMENT DIRECTOR TO THE BOARD.

THE FINANCIAL SECRETARY ALSO ANNOUNCED THAT IF THE COMPANY ACCEPTS THE GOVERNMENT'S PROPOSALS, A BILL WILL BE INTRODUCED ON FEBRUARY 5 SEEKING TO WAIVE ROYALTY PAYMENTS BY THE COMPANY FOR 1974 AND 1975. THE BILL WILL ALSO PROVIDE FOR THE APPOINTMENT OF A GOVERNMENT DIRECTOR.

HE EMPHASISED THAT THE MEASURES TO BE ADOPTED HERE ALL IMMEDIATE MEASURES AND REPRESENT THE GOVERNMENT'S RESPONSE

TO THE URGENT AND DIFFICULT SITUATION FACED BY THE COMPANY AND THE PUBLIC ALIKE. BUT ON THE INFORMATION AVAILABLE THE GOVERNMENT IS NOT IN A POSITION TO SUGGEST LONG TERM 'SOLUTIONS TO THE COMPANY'S FINANCIAL SITUATION.

TO DEAL WITH THE LONGER TERM, THE GOVERNMENT WILL SET UP A COMMISSION OF ENQUIRY TO GIVE THE PUBLIC SOME ASSURANCE THAT IT WILL NOT BE FACED WITH A RECURRENCE OF THIS SORT OF SITUATION IN FUTURE.+

+THE TERMS OF REFERENCE HAVE YET TO BE WORKED OUT, BUT THEY WOULD INCLUDE AN EXAMINATION OF THE COMPANY'S PRESENT MANAGEMENT STRUCTURE AND FUTURE PLANS, ITS DEBT LIABILITIES AND ITS PROFITABILITY, MR, HADDON-CAVE SAID.

THE COMMISSION, HE SAID, WOULD ALSO BE ASKED TO RECOMMEND WHETHER, AND IF SO WHEN, FURTHER INCREASES IN RENTALS WOULD BE NECESSARY TO SECURE THE PERMANENT VIABILITY OF THE COMPANY.

IN ADDITION, IT WOULD BE ABLE TO MAKE RECOMMENDATIONS ON AMENDMENTS WHICH MIGHT BE HADE TO THE TELEPHONE ORDINANCE TO ENSURE ADEQUATE PUBLIC CONTROL OVER THE FUTURE OPERATIONS OF THE COMPANY AS A PUBLIC UTILITY.

REFERRING TO THE ADVISORY COMMITTEE ON TELEPHONE SERVICES REPORT, THE FINANCIAL SECRETARY SAID IT HAD BEEN ESTABLISHED THAT THE COMPANY WAS FACING A CHRONIC CASH SHORTFALL DUE TO ITS LARGE CAPITAL EXPANSION PROGRAMME AND INTEREST COSTS ON PAST BORROWINGS, TOGETHER WITH A CONSIDERABLE SLOWING DOWN IN 1974 IN THE DEMAND FOR NEW TELEPHONE LINES.

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+IN OTHER WORDS, THE COMPANY HAS SPENT MORE THAN IT HAS EARNED, HE SAID.

IN 1974. THE COMPANY'S NET CASH BHORTFALL WAS ABOUT $160 MILLION AND THIS IS ESTIMATED TO RISE TO $250 MILLION THIS YEAR IF CHARGES ARE NOT INCREASED.

THE ADVISORY COMMITTEE ALSO ESTABLISHED THAT ADDITIONAL LOANS TO MEET SUCH CASH SHORTFALLS COULD NOT BE RAISED, AND IF THE FINANCING HAD TO BE MET BY INCREASED CHARGES, IT WOULD BE NECESSARY FOR ANNUAL BUSINESS AND RESIDENTIAL LINE RENTALS TO BE INCREASED BY 52 PER CENT AND 50 PER CENT RESPECTIVELY AND INCREASES MADE TO MANY OF THE OTHER CHARGES.

EVEN ON