OTE Privatisation


Former Chairman and CEO of OTE, Panagis Vourloumis, in 2007



I was CEO of the Greek Telecommunications Organisation from April 2004 to November 2010 and fully involved in all the phases of its privatization, the largest and most complex so far in Greece. Some of the problems and issues that had to be dealt with were peculiar to the Greek environment and culture, other were of a universal nature. Regardless of whether it was ultimately to be sold, OTE was also urgently in need of a reorganization. So, in parallel with the efforts to privatize, which might fail, a transformation would have to take place. OTE was privatized about eight years ago and the lessons learned could be useful to those who will be involved in the coming wave of privatisations. An additional benefit is what we can learn from the observation of OTE during the years it has been under private management and foreign control. Regarding transformation, the main objective was to unblock the paths allowing change, a condition necessary for survival in a competitive environment.

In the pages that follow I comment on forces and institutions that influenced the dual effort and describe the main reforms and actions taken to reach the objectives. What made the exercise so difficult, but also relevant to todays realities, was that the application of technocratic solutions necessitated the prior removal of political obstacles and of legacies created by years of mismanagement, inertia and cynicism prominent among them. I do not pretend I was unprejudiced and neutral in this affair. Many of the conditions existing in OTE I had met already in my career and had formed views on how to deal with them. The challenge in OTE gave me the opportunity to practice my free market beliefs, to apply my ideas on management, private or public, and to test them on a vast scale. While on the job, I could not afford to be detached and tolerant because getting things done usually involved confrontation. Now, from a distance, I try to be more understanding but it is still difficult because the struggle is not over. The bogies that stood in the way of progress may have been exorcised from OTE but are still alive and well in our country’s economy and administration.

What I write here is addressed to managers and aspiring managers. Students of recent Greek history may also find it interesting.


Early warning

It is not my intention to discourage good people from joining the public sector. On the contrary, talent and enthusiasm are badly needed there and the only hope to improve things. Therefore go, but do it with open eyes. Taking over the management of a DECO[1] is like entering a minefield. The number of mines increases if, after sitting on your throne, you also attempt to fix broken things and it multiplies if the job involves privatization. Slander is still the preferred method, with the ultimate objective of getting the target involved with the Greek justice system, well known for its speed and capacity to understand matters involving business decisions.

Your risks will not be limited on what you will do but also on what was there already. Companies under state control have many things to hide. As a rule, a new management should look forward and not dig into the past but buried skeletons have a habit of surfacing and this may cause you major distractions and derail what you are trying to do. Take the risk seriously, especially unresolved legal disputes and cases which may have been swept by your predecessors under the carpet. Do not underestimate the potential for damage of seemingly minor such matters, especially in an environment where reforms and privatization have strong enemies and you are obliged to take unpopular steps. There is no standard advice but having a competent and trusted outside lawyer on your side is essential, also legal liability insurance cover. Do not spare the money and do not rely on the existing legal department of the company, they are usually covering up. It was one of my mistakes when I took over OTE, so I speak from experience.

Back to the future

From Thassos to Gavdos, phone and internet service for all the 117 inhabited Greek islands. (Photography: Giannis Kontos)

From Thassos to Gavdos, phone and internet service for all the 117 inhabited Greek islands. (Photography: Giannis Kontos)

OTE went full circle, from Telefunken in the 1930’s back to the Germans 75 years later. Its trajectory in the intervening years is in some ways typical of how things evolve in Greece. It is therefore, helpful to briefly put the process of the privatization of OTE in a historical perspective.

Modern infrastructures in Greece were created in the 1920’s and particularly in the 1930’s by foreign capital and know how. The British owned and operated Athens Power, Ulen, a US company, its water and sewers, the Germans telecoms and so on. After the war, and through the late 1940’s and 1950’s, most large infrastructure operations were nationalised. This was dictated less by ideology and more for technical and financial considerations, such as the need to build nationwide networks and electrify the countryside. Of course telecoms could not remain in German hands. I am told that Telefunken managers wore Wehrmacht uniforms the day German occupying forces entered Athens. During the early post war years no private concerns, local or not, were capable or willing to undertake such projects and the State had to move in. Whatever the motives, the acquisition and control of large economic concerns gave the governing political class a taste they liked. In the 1970’s and 1980’s there was a new wave of nationalizations – Olympic Airlines, the Bodossakis Group, the Andreadis Group, Hellenic Shipyards, Niarchos Refinery, Scalistiris Mines, to mention a few. They added up to a considerable part of the economy. These nationalisations were more political. A strong motive on the part of the Governments that did them was to avoid unemployment, as many of the concerns taken over by the state during this period were on the verge of collapse. Characteristically, one of the causes of their problems was labour and other legislation passed after 1974, which prevented them from adjusting to rapidly changing market realities. One reason for the need to adjust was worsening conditions created by the oil crisis of the 1970’s but the main catalyst was accession to the EEC, requiring open markets. The Greek economy had operated for decades under strong customs duty protection and most companies, private and public, had grown flabby and complacent.

Europe gave Greece time to adjust, some private companies did, others not, including the publicly controlled sector. As the economy began to open to competition the state found itself increasingly the owner of a large number of problematic loss making companies, in some cases corpses not allowed to be buried. The strain on the budget and on the banking system became serious and pressure to do something grew. The obvious solution was, and is, to close the terminal cases and auction off the rest to private bidders. It sounds simple but by then there were in existence powerful anti-privatisation lobbies representing three main groups. Politicians at national and local levels who derive power and influence through the control of public companies, jobs for votes etc. Labour, the public sector unions which are very strong and often in a position to bring the country to a standstill. They protect overstaffing and generous entitlements, which are among the main reasons why the state sector is problematic. The third group consists of suppliers of equipment and services to the state sector who, over the years, have built special lucrative relationships. In this group we should include the media which obtain generous advertising revenues from public concerns, indirect government subsidization. It is a formidable combination of forces and no wonder privatization in Greece proceeds at a snails pace.

Whether they like it or not our governments are now obliged to privatize in order to meet the conditions imposed on Greece by its lenders. As in the past, private Greek capital is, in most cases, reluctant or unable to meet the challenge and foreign concerns are moving in to acquire control of our harbors, airports, railways and other sectors of the economy. To many here this is double anathema. First for going private and on top, giving the assets to foreigners. Fertile grounds for political exploitation. The position of the protesters is of course wrong because it is to everyone’s interest that economic exploitation is carried out by the most efficient and technically advanced. This maximizes economic benefit. What should concern a government is the country’s share in this benefit, protection of national interest and control of monopoly power. It is important that agreements negotiated with private buyers or operators of state assets, especially foreigners, should cover these areas, be fair and equitable and perceived as such. It goes without saying that any agreement, however good, is worth very little unless it is diligently monitored after it has been signed.

OTE was already “private”

I was given the mandate to privatize a company which was already private but only in name. In the 1990’s, in order to raise cash, the Government listed OTE in the Athens Stock Exchange and changed its legal status from that of DECO to Societe Anonyme. On the news of the listing, OME-OTE, the union, revolted and was bought off by laws which tied OTE closer to the state than before. One such measure was giving permanent status to OME-OTE’s members, another a law that prohibited anyone other than the state to hold more than 5% of the shares. So, while appearing to go the private way, OTE was going in the opposite direction.[2] The Board and CEO continued to be appointed by the Government and Government departments, especially Transportation, considered they had a right to interfere in its management. There was a grey, uncharted area as to who had the final word on appointments, promotions and especially selection of suppliers of equipment. Was it the legally accountable management or some minister or other? Since the CEO was always a political appointee he had little power to resist orders from above. As a result he often became the fall guy for decisions which were not his. Another tradition was the arbitrary hijacking of employees who, while remaining on the payroll were attached to some government department or to individual MPs. There were at least 300 such cases in 2004. The union had also decisive influence in running OTE. Its power derived mainly from a law which, under the name “General Personnel Regulations” (GPR), tied management’s hands in many areas of internal administration. Needless to say, performance evaluation of employees was not allowed. Finally, the legal obligation of OTE to provide universal service continued to exist, a very expensive undertaking as Parliament continuously voted rebates to various categories of citizens without providing for compensation to OTE.

Short profile of OTE in 2014

The center right government elected in early 2004 included in its program the privatization of OTE by means of its sale to an internationally important telecom operator. The same government asked me to become its CEO with a mandate to carry it through. My experience in moving between the private and public sectors for three decades had convinced me that, at least in Greece, state control was tantamount to bad and corrupt management. My views were known and I could not refuse the challenge.

In 2004, OTE was the largest Greek company in terms of revenue, the second biggest employer and had one of the highest market capitalizations in the Athens Stock Exchange. It was probably the largest business group in the Balkans, being the main telecom provider in Romania, FYROM and Albania with a strong presence in Serbia and Bulgaria. It was also the main telecom company in Armenia. Both because of its size and position in a strategic sector, OTE was very important to the economies of the region and even more so to Greece where it accounted for almost 3%of GNP and was a potential source of considerable “soft power” in the neighborhood. The exclusive operation of telecoms also involved it in internal security and defense. OTE’s share was traded in the NYSE in the form of ADR’s and was part of the portfolio of many international professional investors. In spite of its size and apparent strength, in 2004, OTE was in serious trouble. Until around 2000, it was a monopoly and, as a result, extremely profitable. Public ownership and plenty of cash nurtured a culture of managerial laxity in all directions. Over decades it was there to be exploited by politicians and their parties in order to give jobs to their supporters. Media to blackmail for advertising revenue. Unions in order to establish parallel management structures. Suppliers of equipment virtually running the procurement process. Such characteristics were transplanted to some of OTE’s subsidiaries. Similar conditions were not unusual in state controlled entities and could go on as long as the country was able to borrow in order to cover its deficits. However, in OTE, developments since the mid 1990’s did not give this option and posed the dilemma – either shape up or go bust.


Why change was urgently needed

Factors dictating change where:
Opening of the market: The main reason dictating transformation was the obligation, imposed on Greece by the European Union, to open its telecoms to competition. A comfortable period of adjustment was granted during which nothing was done. One morning OTE, totally unprepared, was faced with fierce competition and, worse, with regulation, a new EU imposed obligation.

Regulation: In the early 2000’s the Telecom Regulator, EETT, a newly created Independent Authority, indiscriminately issued licenses for fixed telephony, at least 25, and then started to protect its wards. Regulation basically consisted of forcing OTE to lease its lines to its competitors at very low prices and preventing OTE from lowering its own prices to the public, or from creating new products and services. Regardless of the merits of this shortsighted behavior (only 4 of the original licensees survive, three of them rather weak), the results on OTE were devastating with rapid erosion of customer base and revenue. Measures were needed urgently. Since a loss of market share was pre-ordained, the only solution was to attack costs and increase efficiency and service quality.

Mobile telephony: Even before the landline monopoly was legally abolished, it was de facto broken by the advent of mobile telephony. OTE was initially excluded from this field though later, with Cosmote, became its leader.

Listing: When in the 1990’s OTE was listed, the motive of the socialist Government was financial, not political. It wanted the cash without losing control. However, after foreign Funds became shareholders and, especially, after the share began to be traded in the NYSE, it became necessary to file with the SEC and transparency and full disclosure became issues that could not be avoided. There was pressure to change the style of management in ways alien to state control.

In 2004 OTE had a positive EBITDA, much assisted by Cosmote’s performance. It was also underborrowed. There was still time to turn it around and almost unlimited room for improvement. It is significant that a lot of pressure and encouragement to transform came from foreign institutional investors.

Taking over reception

Damage repairs in mud water. According to OTE technicians “a dirty work that needs to be done neatly and quickly”. (Photography: Giannis Kontos)

Damage repairs in mud water. According to OTE technicians “a dirty work that needs to be done neatly and quickly”. (Photography: Giannis Kontos)

Managements in Greece’s state controlled companies change all the time. Every new government, even every new Minister, brings in his own people. As a result, CEOs are mostly treated as tourists by the more permanent denizens. OTE in 2004 was an extreme case, with 7 CEOs in 9 years. The method used by employees, politicians, suppliers and all others who dealt with the Organisation was to ambush the newcomer and grab whatever they could before he understood what it was all about. There is a Greek expression “na ton arpaxis apo ta moutra”, grab him from the face. A few examples:

●          Before I was even formally voted in by the AGM, the head of the union sent

me a letter threatening a strike during the Olympic Games unless… and a

list of exorbitant demands. (I was appointed just before the Games).

●          Demand by the then Minister of Transportation to replace a number of top

people with his own friends. He even came to the OTE building surrounded by pressmen and made a public scene calling for my resignation.

●          Presentation of a new organization chart by the syndicalist organ of the

political party that had just won the elections. The chart consisted of

hundreds of names who should replace other hundreds of names in middle

and lower management. “We have been waiting for 20 years to take care of

our boys”.

●          Exploratory visits by suppliers’ representatives, invitations to “innocent”

lunches, etc. by well-known middlemen.

●          Warning shots insinuating scandals in newspapers and television channels.

Ignore us at your cost.

And many other similar things.

How does a new management cope?

During these first months, when they are testing you, you in turn need to test the support of the Government that put you there. If they falter you better leave immediately. In my case, during this difficult time, I had the full support of both the Prime Minister and of the Minister of National Economy and OTE’s principal shareholder.



Below I describe a number of changes made by the management that took over in 2004. All of them equally important except “governance” because, to paraphrase, you need the knife to cut the melon.

[Governance] Company law provides that the top decision making organs are the Board of Directors and the CEO. OTE’s governance reflected the “democratic” school of management prevalent in DECOs. The CEO was a “primus inter pares” his authority circumscribed by committees, while the Board had been turned into a debating society paralysing decision making. A Shareholders Meeting, immediately after my appointment amended the Statutes. Among many other things, it reduced the number of Board members and strengthened considerably the hand of the CEO. These critical reforms were easier than another which had to do with Board membership. In the state sector directorships are spoils for political friends. Even one rotten apple can destroy the spirit of mutual trust that must exist in a Board and in the beginning ours had three. It took two years before OTE could get the kind of Board it deserved.

[Structure] Even the best decisions can be wrecked in execution. The effectiveness of management depends on many things. Among them is the structure of the company. In OTE, the lines of communication were long and mixed up. Functions were split between a number of units and these units resembled upside down Christmas trees, organograms inside organograms, confusion and overlapping, dilution of responsibility and mutual obstruction. One cause for such complexity had been to provide ranks, titles and pay for as many people as possible. Things accumulate over the years and a rigid structure loses any relationship to the needs of efficient management. Because people are involved, changing it is always difficult but also a good opportunity to tidy up and stir the waters. In OTE it was done relatively quickly, though, for reasons I will explain later, reorganising the personnel department took longer.

[People] You need the right people in the right places. A big organization with thousands of employees has in it almost every talent it needs. Rather than bring outsiders, it is advisable to first look inside, it is good for the morale and less expensive. Within one year most department heads and many in the subsidiaries had been replaced, principally from inside the organization. Exceptions were made for areas such as marketing where ex monopolies are hopeless. It is useful to search in the “freezer”, internal exile of those in disgrace. Since in state companies it is almost impossible to fire, employees who for some reason are considered undesirable to the current management are given an office and nothing to do. The freezer sometimes contains creative independent spirits without political protection. In retooling the top ranks we got it about 75% right though we also made some horrible mistakes. We gradually moved down to lower layers which was more difficult because below the rank of deputy department heads employees were union members protected by the GPR, providing, among other things, promotion only by seniority. We had often to disregard the GPR which was a law and this caused endless legal complications. However, on the whole, the staff welcomed the changes because they were not politically motivated.

Telecoms is a service industry. Monopoly power had bred in OTE personnel an attitude of contempt for the public they served. With competition growing it was essential to turn them into polite salesmen. Getting rid of other bad habits was also necessary. One such custom was to do repairs only on weekends because of overtime. If a customer’s phone went dead on a weekday, he had to wait until the weekend because repairmen were too “busy”. In some places the local OTE man doubled as town electrician, or run a tavern on the side, and so on. Such things were considered acceptable and it was difficult to uproot them. At higher levels there were also culture problems to be dealt with. I joined OTE during the Easter holiday of 2004. Soon after, I started receiving Easter presents from my regional managers and other top ranking personnel. Some presents were quite pricey. I looked into the matter and discovered that there was a custom for higher officers to exchange presents during holidays, a commendable tradition, except that they charged them to the company. Did they plan to make me an accomplice? Many of the regional high ups had acquired semi-independent status and one of them even published his own annual report with his photograph. Such things had been tolerated for too long.

It was easier to deal with the top levels of management who had no union protection and could be fired or demoted, than with the rank and file. Without the authority to punish let alone dismiss and without performance reviews, the task of changing attitudes was not easy but eventually things started to improve. Most people are by nature honest and take pride in a job well done. If they realize that performance is appreciated and rewarded they react positively. My predecessor had installed a bonus system for top officers – excluding himself. He was sued after being falsely accused of squandering the company’s money and was eventually acquitted. We kept and expanded the system to include almost everybody. Individual bonuses for higher ups – group bonuses for lower ranks, all tied to targets. It worked.

[The voluntary exit scheme (VES)] A study by McKinsey done in 2003 calculated that OTE could be run with less than 10.000 people. We did not need a study to tell us this as it was visible to the naked eye. In 2004 OTE had almost 18.000 employees who, up to the grade of deputy department head, enjoyed tenure. They could not be laid off for any reason. Besides the extra cost, in a sector of rapid technological change total personnel rigidity spelled disaster – it also dictated an organization chart designed to provide thousands of useless positions. Reducing numbers was absolutely essential but could only be done voluntarily. To be induced to leave, employees would have to be guaranteed an income roughly equal to that they would have earned if they continued working, plus full payment of contributions for their social security. Such a deal was considered scandalous – paying people for not working the same as if they worked – and it was so. However what else to do with a Government that was afraid to abolish permanence?

A new study showed that in spite of the high cost, payback of a VES, from financial savings alone, would take about 5 years. We decided to proceed and designed a very generous offer to 6.000 employees, those closest to retirement. The response was overwhelming, so we told the union that if they wanted the offer to go ahead they must agree that new hires from then on would have no tenure. Under the pressure of 6.000 of their members they signed and their presidium was subsequently expelled from the socialist party for betraying the working class, but in reality for setting a precedent. The abolition of permanent status, even if it only affected the newcomers, was considered a revolution and still is.

As a result of the VES productively made a quantum jump. Administrative departments were reduced from 52 to 26, regions from 14 to 4, organization was streamlined with a much flatter structure. We hired 1.200 top graduates from technical schools who brought in a fresh spirit and familiarity with new technologies. The cost of the VES was €1.4 billion to which the state contributed about 0.4 billion but not in cash. The Ministry of Finance simply passed OTE shares of same market value to the Pension Fund insuring our employees. From one government pocket to the other. For OTE, payback was in less than 4 years. Profits jumped also because the savings in payroll went straight to the bottom line while the cost of the VES was amortized. Brussels made noises but finally accepted that there was no issue of state aid.

Telefonica, the Iberian giant, had done a personnel reduction some years earlier. I went to Madrid and asked their CEO, Cesar Alierta, to help with knowhow. He sent us three senior people from his personnel department who proved very helpful. Also he gave us access to all the relevant laws and regulations. In Spain most of the cost was borne by the State and their VES was not voluntary. Unlike in our case, Brussels did not raise a state aid problem.

Our management was accused of unloading OTE’s redundancy problem on the state social security system. Several years after the VES, the Ministry of Labour even tried to extract a huge sum from OTE but was unsuccessful. The matter had already been scrutinized by Brussels which concluded that the VES had cost nothing to the social security system

In order to cover the cost of the VES, OTE did not pay a dividend out of 2004 and 2005 profits, it was the first time in its history that it did so but the share instead of dropping responded positively.

The VES could not have been done without the full cooperation of the personnel department of OTE, part of the “deep” OTE. For obvious reasons we could not risk reorganizing them while they were carrying out this task. Their turn came later.

[Management Information Systems (MIS)] In OTE I learned the accounting term bucket – in Greek kouvas. Revenue going in, expenses out. Accounting and reporting systems badly needed improvement and managers had to be persuaded to learn and use them. It took some time and in the process several things came to light such as, for example, the number of unpaid telephone bills by MPs – 24 million Euros. Management finally acquired a reliable real time picture of the groups’ position. This made possible the introduction of a three year rolling business plan. Units, departments and subsidiaries would submit their budgets and projections, bottom up, detailed for next year, less so for the following two. These were synthesized and the overall result submitted to the Board and, when approved, made public. Participation in preparing a business plan and commitment to it imposes discipline and responsible thinking. Bonuses were tied to targets. To a private sector manager such things might appear elementary but in the public sector they are largely unknown and unwelcome.

[Legal] In 2004 there were 11.000 lawsuits by employees against the company and more were coming every day. Our legal department felt quite at home with this and was farming the defense in bulk to outside legal friends, so much per case – lose or win in court. We mostly lost. It was obviously a racket costing a lot of money and poisoning the relationship between employer and employees. A Legal Department should watch management’s back but in our case the more than 50 lawyers were passively waiting for OTE to be sued instead of preventing problems to develop. We were, in 2004, particularly weak on regulatory matters. By 2010, when I left, the situation had improved, especially on regulation, but I have often wondered if, in large outfits, it would not be better to retain inside only a very small legal staff and make extensive use of outside firms which can be changed if they do not perform.

[Brussels] To a great extent, the fate of telecom companies in Europe is determined by Brussels bureaucrats. For them ex monopolies are red rags. Catching the mood there and preempting hostile decisions was very important. OTE had for years an office in Brussels that did absolutely nothing. We closed it and hired, at the fraction of the cost, a specialized lobbyist firm which proved very effective.

[Image] OTE had the biggest advertising budget in the country but salesmanship had never been its forte. As a state monopoly it had tormented the average Greek for decades and the liberation of the market presented and opportunity for revenge. On the other hand, decades of symbiosis had created among the public something akin to a Stockholm syndrome which could be exploited. We had to retain and rebuild loyalty which was extremely difficult because regulation made OTE’s services the most expensive in the telecom market. It was a continuous struggle but the measures we look paid off. The marketing department was reorganized and an open competition led to the engagement of a first class advertiser. In the PR department, up to 2004, OTE had on the payroll journalists from every large media group as “advisors”. The idea was that they would say and write good things about us – protection money. They were all let go to the great relief of everybody and the PR department managed to gradually change and improve the stolid public image of OTE and project its social dimension. Such moves had a positive effect also on the morale of the employees. Less successful were the efforts to improve the look of OTE’s shops and the attitude of those working in them. The breakthrough there came with the acquisition of the Germanos franchise, a formidable selling engine. Its example uplifted the performance of the rest of OTE’s and Cosmote’s outlets. Eventually, the combination of better service and improved publicity contributed to a slowing of attrition and to a return of subscribers.

[The network and other] OTE had installed and owned the national fixed telephony network, millions of miles of copper wire, mostly buried. A network is a living thing, it grows in some places as new suburbs are built, shrinks in others. In OTE the grid was imperfectly charted which created continuous problems especially when some line was cut. There were also cases of clandestine use. Sometimes a pensioned off employee had to be found who remembered where the lines were passing from. Such and other similar weaknesses had to be fixed, matters which were vital but had been neglected for too long. In an organization, such as OTE, this kind of work never ends and needs constant attention. It is a matter of investment but even more of ingraining the right attitude in the staff, constant vigilance at all levels and identification of their personal interest with that of the company.



A cable world underground. A damage repair on a single cable affects up to 2,400 subscribers. (Photography: Giannis Kontos)

A cable world underground. A damage repair on a single cable affects up to 2,400 subscribers. (Photography: Giannis Kontos)

In the 1990’s I was CEO of a Greek bank in Romania. OTE had just bought control of Romtelecom, the state monopoly, and Bucharest was full of OTE employees. The picture was not pretty. In a destitute country they flaunted their relative opulence, frequented casinos and other establishments, hardly anyone spoke a foreign language. There was also talk of scandals and fights with the minority partner which was the Government. Instead of sending the best people abroad OTE was doing the opposite.

OTE’s acquisition of foreign assets in the 1990s was mostly done at the urging of its main Greek equipment supplier. In retrospect it proved to be a good strategy which could have been much better if its execution was not so bad. OTE went to Romania, Serbia and Armenia totally unprepared to manage their telecoms, something that soon became apparent to the locals. In Romania an opportunity was missed to expand early into the virgin markets of mobile telephony and in Serbia to acquire full control of the ex state monopoly. I will not dwell on all the foreign mistakes and troubles of OTE’s early years abroad, except to note that in 2004 it was entangled in serious legal fights with all the host Governments. The biggest problem was a breakdown of trust. Shuttling between Athens and various Balkan capitals we managed to repair the damage, install new managements and eventually break into the mobile market in Romania. The Serbian participation was sold in 2012 at a profit. Armenia went early, in 2005, soon after I visited the country. Our subsidiary there was a monopoly but the building of the Ministry of Communications in Yerevan housed the offices of a competitor reportedly belonging to the Minister. We sold to the Russians at a good profit. Many troublesome fronts were pacified relatively early, also thanks to OTE International, a subsidiary created to mind and supervise the foreign investments.

Cosmote’s subsidiaries in Bulgaria, FYROM and Albania were well run and profitable from the beginning. Among local subsidiaries Cosmote, by far the most important, was riding in the 2000’s the crest of the mobile boom and accounted for a large share of the groups revenues and profits. It had been organized by the Norwegian, Telenor, an original partner who had sold out, was well run and had no labour disputes. Most of the other subsidiaries, notably OTENET, had been created to meet the challenges of new technologies. Since OTE could not hire from the market and did not have the expertise, independent non-unionized companies were set up by my predecessors to advance broadband and other technologies. Eventually, some of these were absorbed by OTE, others were sold and some were left alone, like OTE Globe, which run very efficiently the international lines. The sinful subsidiary which owned and operated the only Greek space satellite was successfully reorganized and eventually sold at a profit in 2012. A new subsidiary, OTE Estate, was created to take care of OTE’s over one thousand properties. Another new subsidiary was OTE TV which proved very successful in the years that followed.

By 2006, all 17 main subsidiaries were in good shape and did not cause managerial headaches. Eventually their numbers were increased by the acquisition of the Germanos franchise and the creation of Cosmote Romania, two major strategic additions to the group.

The subsidiary which gave me the most satisfaction was OTE Academy. A fantastic building complex, specially designed as a training center, but totally neglected. It required a lot of effort and money but it was finally turned into a first class school and experimental laboratory for OTE employees, even covering its costs by renting facilities to others. It became a symbol of institutional pride.

An important change in the philosophy of OTE group’s management was the appointment of mid ranking group personnel to the Boards of the subsidiaries. The custom before was to offer such plums to politicians. This had several advantages:

-      Increased control by the mother company

-      Gave their managements a view of group corporate objectives and strategies.

-      Broke the silo mentality which develops in large corporations.

-      Gave OTE group personnel the opportunity to taste management at a higher level. It was good training and also a way to evaluate them.

-      Gave OTE the ability to upgrade and reward promising talent and also supplement their pay.

By 2010 OTE group had a large number of officers with experience in operating outside the borders of Greece. Relations with host Governments were good and synergies among the various members of the group could be identified and exploited. Holding companies, OTE and Cosmote, practiced a “federal” model, avoiding micro management, relying on control through the Boards and the approval and then monitoring of business plans.


Discussion of other factors

Above I described some of the main reforms carried out. It is now time to turn the attention to three areas which had a major influence on OTE developments during its transformation.


One of the accused at the Siemens trials in Germany testified that Siemens was bribing “between 50 and 75” OTE employees. This was widely reported in the Greek press and OTE served an affidavit to Siemens requesting the names. Siemens stonewalled and eventually OTE sued in Germany. This happened in the mid 2000’s and the lawsuit is still at an early stage. German justice is also stonewalling. While I am writing this a mega trial is beginning in Athens with 64 accused, many ex OTE and Siemens employees. It concerns a major direct order of equipment placed by OTE to Intracom and Siemens in the late 1990’s. The procurement was approved at the highest Government levels but no leading politicians are among the accused, except for a rather minor player who was caught red handed receiving a campaign contribution from Siemens. Judging by the speed Greek justice moves, the trial will continue to eternity, keeping the words “corruption” and “OTE” firmly joined to each other.

It is impossible to avoid discussing corruption when dealing with OTE’s past. Especially between 1981 and 2004, press and media had a party and journalists built careers around discoveries of OTE “scandals”. The public was ready to believe the worse and OTE’s managements were a priori suspects. Public prosecutors would pursue enthusiastically any accusation against OTE’s officers, however flimsy the evidence. Many of my predecessors suffered years of legal persecution and some are still being dragged through the courts. I and other members of the Boards of both OTE and Cosmote faced two major cases and it took several years before our names were cleared. In both instances the motivation of the accusers was to sabotage transformation and privatization. It was, in fact, a last ditch effort to preserve in OTE a state of things under which corruption could thrive.

Publicly controlled entities are a breeding ground for corruption because there is no real owner to mind the shop. In OTE corruption was of two kinds. Mega, involving mostly procurement, and petty connected with employees squeezing clients for quicker service and like things. Mega corruption required the tolerance of employees at several levels and this had bred a culture of omerta. Nobody talked, either because they were in the deal, or because they were afraid. Looseness at the top encouraged the rank and file to also take advantage. I am convinced that the percentage of employees who actively behaved in a criminal way was very small. Much bigger was the number of those who knew but would not speak. I could describe cases I found when I went, where it was obvious to me that corruption or gross negligence had been involved but it would be extremely difficult to produce sufficient evidence unless one gave up running OTE and became a full time detective. It was indicative that the same names cropped up again and again in most of these cases, names of OTE high ups, suppliers representatives, and outside “consultants”.

There is no formula for uprooting a bad culture. In OTE, fighting corruption at the top was easier because above a certain level employees could be fired or demoted and rendered harmless. A number of people in OTE and the subsidiaries were let go immediately. Heads of departments and others holding key positions were replaced on some pretext or other not related to corruption. Not necessarily because there was evidence of misconduct but because of having tolerated it for too long. They were no witch hunts but the message was taken. Other measures were:

-      The procurement process was radically changed and simplified. A suitable head for the department was brought in from outside.

-      Electronic auctions for materials were increased.

-      We stopped dependence on custom made systems and adopted a strategy of “buying from the shelf”. Prime example was billing where we replaced a system specially made for OTE (black boxes to which we had no access) with Geneva, a system used by most major telecom operators. Under the old system we were prisoners of our suppliers, paying tens of millions every year for technical support but unable to really know what we were paying for.

-      We switched philosophy from buying top quality to buying good quality, which was much less expensive. In a sector of continuous development technological obsolescence is rapid and you do not need things that last for ever.

-      We abolished the virtual monopoly of OTE’s traditional suppliers of equipment and technologies. Especially, we allowed Chinese firms to compete with the result that the cost of major orders often fell by over 50% without affecting quality. Until then, the Chinese were snubbed by OTE on grounds of lack of technical support.

-      We tried to cope with the problem of the 11.000 lawsuits by our own employees against OTE, a racket set up by crooked lawyers to milk OTE by taking advantage of “mistakes” by our personnel department regarding benefits. The flow of new lawsuits was much reduced but not entirely stopped. This problem will never go away unless the Greek justice system improves.

-      Entry to premises was restricted only to persons who had official business. Before this seemingly minor measure, OTE was open to all and sundry. Suppliers’ representatives entered offices without knocking, journalists were promenading the corridors for gossip and scandals, lawyers were canvassing staff to represent them in cases against their employer.

-      A “compliance” department was organized and eventually much expanded.

-      The improvement of MIS helped enormously because accounting messiness is a principal cause of corruption.

With such and other steps OTE scandals gradually disappeared from the headlines and corruption is no longer a major issue.

Myself and others have often been pressed to quantify the damage suffered by OTE by the big orders of equipment in the 1990s. If there was damage it would be impossible to put numbers to it. There may be even cases where OTE paid very low prices. The problem was not prices but unloading on OTE technologies which, if not already obsolete, were on the way out. The suppliers and some in OTE had to know that. The main damage, however, was the harm done to OTE by the sick atmosphere of scandal and suspicion.


Regulatory authorities exist to safeguard the interests of the consumer from abuse by companies dominating a market. In Greece they are not subject to political or other kinds of oversight. Their members, once appointed by Parliament or, in the case of EETT by the Government, are inviolable and not accountable to anyone. The creation of a fourth “power” besides the Legislative, Executive and Judiciary is an issue for the constitutional expert. For OTE it was a nightmare.

EETT, the regulator for telecoms and postal services, had the mission of seeing to the creation of a competitive telecom market. The job was admittedly not easy. OTE, until around year 2000, was the sole fixed telecoms provider and would continue to own the lines which would be used by competition. In most EU countries where conditions were similar, the ex-monopoly and the regulator worked closely together to allow an orderly market to develop. We had first-hand experience of it in Romania where OTE owned the ex-monopoly. In Greece things had gone wrong from the beginning. It would take very wise men on both sides, EETT and OTE to oversee a smooth transition to a new reality and obviously the responsibility for this not happening must be shared. Be as it may, when I joined OTE in 2004, it was open war and continued to be so for most of my time there. The real casualty was the development of telecommunications, especially broadband penetration and quality of internet service where Greece is still behind most European countries.

The opening of the market forced OTE to reform and in this Regulation undoubtedly played a positive role. On the other hand, having thought hard about this matter I have concluded that in areas such as telecoms and certainly energy, it is not productive to leave matters in the hands of independent authorities, with a blank checque. There should be a national (industrial) long term policy and all major players should be made to cooperate in order to implement it. In Greece, in the absence of such a policy, EETT assumed a role resembling more that of a policeman and less of a regulator and tried to impose a wrong model on the industry by threats and fines. Ignoring the realities of the market they had by 2004 issued licenses for fixed telephony to about 25 companies, mostly speculators without capital or technical expertise. They were all using OTE lines at a very low rent, fixed by EETT, the idea being that this would allow them to offer low rates to induce OTE subscribers to switch. OTE was not allowed to lower its charges, also EETT delayed for ever approving new services by OTE. All this was dressed up in hocus-pocus pseudoscientific formulas which nobody took very seriously. In spite of the favourable treatment, very soon many of the newly created competitors became delinquent in their payments to OTE for the use of its lines. When, after repeated warnings, OTE cut them off, EETT started raining fines on OTE. There were endless legal squabbles, some of which may still go on. Of the original licensees there are today four survivors, three of them in bad shape, the fourth a subsidiary of Vodaphone. The basic mistake was made early on. In a country the size, population and GNP of Greece there is room for very few competitors because telecoms need deep pockets which require in turn critical mass in terms of number of subscribers. If instead of issuing licenses right and left, yielding to political and other pressures, EETT had narrowed the field, results would have been much better for all around. Part of the responsibility for things going wrong lies with Brussels and its policy of “one size fits all”. The Commission often behaved as the prompter and protector of EETT. The idea of splitting ex monopolies was quite popular there and the publicly declared intention of EETT’s President to take away OTE’s network and from a separate company to run it did not help matters.[3]

In the continuous fighting between OTE and EETT the former was wounded but the real damage was to the consumer and the country. OTE twice offered to undertake a major project bringing fast internet (VDSL) to all Greece and make the lines accessible to all players. The offer was made to the then Minister of Transportation, once before and once after DT had taken over. The Government was mildly interested but EETT’s attitude, supported by Brussels, was “do it first and then we will see how we regulate it”. Obviously, an investment of billions could not be undertaken without ironclad regulatory certainty regarding its future depreciation. Regarding infrastructure in general it was the same story. Instead of a national plan, there were several separate projects, companies, penetrating neighborhoods with high density and income, duplicating and sometimes triplicating lines when one line could have served all. Large amounts of EU funds were spent by local authorities to build networks in provincial cities, lines of optical fiber unconnected at both ends. OTE is now picking up the pieces and making them work but there was waste and delay.

With the reduction of the number of players, the market in telecoms has now steadied and friction between OTE and EETT is less. However, the problem with Regulatory Authorities in Greece will continue because absolute power is not a healthy condition. In an environment where governments change often, regulators with their tenure, and their staffs, become too powerful and succumbe to the temptation to impose ideological fixations and/or pursue personal agendas.



When discussing change and especially privatization, either in general or with reference to a particular case, one cannot leave out the syndicalist movement. Militant trade unionism in Greece is closely related to developments in the state controlled sector of the economy. It had a critical role in political decisions leading to nationalizations and is now one of the main forces trying to block privatization. Perversely, syndicalist behavior against reforms, accelerated the destruction of whole sectors of the economy, giving strength to the argument in favour of privatisation.

After 1974, unions of state sector employees become a dominant force in politics, growing in strength in tandem with the growth of the public sector. They derived their influence from their proven ability to deliver to their members a privileged status compared to that of the rest of the working population. Higher pay and pensions, shorter hours, early retirement, etc. If to such entitlements we add legally protected job security, the attraction of a job in the public sector becomes irresistible. A job in OTE, PPC, any central or local government department, set someone up for life, earning lifelong family and clan loyalty. This loyalty went to the politicians who distributed the jobs and to the union which safeguarded them and fought for more entitlements. The oxymoron of using anticapitalistic arguments and violent methods to extract benefits from an employer which was the state did not bother anyone.

Until quite recently syndicalism in OTE provided a parallel management. In a company where the average duration of a CEO was 14 months, OME-OTE had the clear advantage of continuity. Another advantage was that while management had a thousand other things to do, they were full time dedicated to one purpose, how to get as much as possible out of OTE. In this they cooperated closely with the political establishment, regardless of ideologies. Employees, including top ranks, paid lip service to managements but took OME-OTE seriously. In the period before me, managements and OME-OTE had achieved a sort of symbiosis by avoiding encroaching into each others territories. Confrontations were rare and mostly for show. This could not last under a management which had to privatize and transform the company. OME-OTE wanted things to stay as they were and was dead against privatization and so, after a truce of a few months for the summer 2004 Olympics, there was constant war which lasted until privatization was completed.

OME-OTE had once been very powerful but by the early 2000’s their power was ebbing. The main reason was technology. Automation and the mobiles had destroyed their main weapon. Strikes in telecoms, unlike in energy and transport, did not hurt much. To compensate for their weakness OME-OTE used violent tactics, disrupting meetings, locking with chains the doors of OTE buildings and shops and other such ugly performances which, however, had little effect.

For the benefit of managers who may face the same problems, I will describe some of the methods I found effective when dealing with unions.

-      Treat their leaders as rational human beings, regardless of their behavior.

-      Never lie. Tell the bitter truth and keep your word.

-      Be proactive and demand changes. It throws them off balance because they are used to be always the ones asking.

-      Make your demands for changes public and well-reasoned, always based on what is best for the company. In this way you go directly to the entire personnel and put pressure on the union to discuss.

-      Also be proactive when you have something to offer to the personnel. In their confrontational logic unions need to demonstrate that any improvement in the lot of their members is the result of a struggle against a reluctant employer. If you have something to give don’t wait to be asked.

-      Disregard legal niceties and, if necessary, face lawsuits. The unions use this tactic all the time because they regard themselves above the law. Turn the tables on them and do the same, dare them to sue and sue yourself. The justice system takes forever and in the meantime you do what you have to do.

It is a pity when a management is forced to resort to such tactics. Ideally, management and labour should work together for the benefit of the company, to make it more efficient and competitive. This is, as a rule, the case in DT and I will not forget the faces of our German colleagues when OME-OTE shock troops occupied and disrupted our Board meetings.

State sector unions are a major contributor to the present crisis. They have blackmailed the system loading the budget with the cost of entitlements and at the same time destroying the productivity of the sectors whose employees they represent. In a country where the state is half the economy the damage is crippling. Today, the state sector unions fight a rearguard action, trying to defend their privileges and the legislation that protects them.



There was an attempt to privatize OTE in the early 1990’s. It came to nothing because the center right government did not last long enough. The 1990’s and 2000’s were exciting years for telecoms. Mobile telephony grew explosively and broadband was coming fast behind. Telephone companies were a hot commodity, targeting takeovers and themselves targets. OTE had taken part in this by acquisitions in neighboring countries (there were even abortive attempts in Ukraine and Georgia) but remained a midsized player attracting various kinds of interest. One kind was to merge, coming from similar size European companies which were afraid of being swallowed by bigger ones. Their strategy was to grow so as to become difficult to digest. We were approached by the Portuguese, the Austrians and the Belgians, all smaller or of comparable size, but a merger did not make sense. Another approach by companies and Funds, not only in the telecom’s sector, was cherry picking. They showed interest in parts of OTE, especially Cosmote. An Icelandic fund wanted Globul, our Bulgarian mobile. Such efforts were discouraged, except in the case of OTESAT, the satellite owner and operator where negotiations had started early. It was finally sold in 2012. The two serious suitors, for the entire group, were Telefonica and Deutsche Telecom (DT). Discussions had started before my time but never gone too far. After the 2004 election and the declared intention of the new government to privatize, interest revived. Telefonica was the frontrunner, however, they would like OTE to wait because they were digesting an acquisition in Britain. DT, on the contrary, wanted to move fast. We entered substantive talks at CEO and CFO levels as early as 2005 and things progressed well on a working level, but there was a big snag. DT did not want to go through a competitive bidding process. The Greek government insisted on it, quite rightly and there was deadlock. The solution to this seemingly insoluble problem came from an unexpected quarter when a Greek professional raider became stuck with a big block of OTE shares. DT bought them after a triangular negotiation – government – raider – DT, and so DT came into OTE. The “Shareholders Agreement” between the Government of Greece and DT has proven durable in the years since and could serve as a prototype for similar operations.

I will not dwell on the emotional – political, often violent background to OTE’s privatization. Most of the Shareholders Meetings the agendas of which included matters related to the privatization had to be held outside OTE’s premises which were occupied by OME-OTE. There were personal threats and a pledge by the Opposition in Parliament to renationalise OTE and so on. DT was not put off by such antics, and the government’s determination to go ahead held. A few months after DT took control the opposition came to power but the promises to renationalize had been forgotten and relations between the two shareholders did not suffer much. I stayed in OTE under the new government for almost two more years to supervise the transition and my successor was the first ever OTE CEO who was not a political appointee.



In years 2004-2010 OTE group faced two challenges. One was to control and slow down the shrinkage of fixed telephony, its traditional source of revenue. The other to create new streams of revenue from mobile telephony and the new products related to ADSL and VDSL. To meet successfully these challenges it was necessary to remove obstacles created by laws, rules and habits, some internal other imposed from outside. In other words, the main objective of transformation was to make the organization adaptable to change. Judging by results the objective was attained, more in some areas than in others.

Attrition and lower incomes from fixed lines in both Greece and Romania, a result of regulation, were countered by reducing costs, improving service and increasing productivity, so the bottom line remained positive, though less that before. Mobile compensated for this in Greece, less in Romania and the overall results stayed satisfactory. For reasons already discussed, the introduction of fast internet was delayed in Greece and its positive contribution will come later. The acquisition of “Germanos” played a decisive role in supplementing the public face of the group with a strong marketing franchise.

Judging by numbers, OTE has since 2010 remained solid with a strong EBITDA and comfortable liquidity. It continues to invest and pay dividends. Its debt equity ratio has improved and can borrow from the international markets, something Greece is unable to do. The share has behaved much better than the Athens index, it is one of a handful of storks that have withstood the crisis. Given all this one might be justified to ask, why if things were arranged so well, it was necessary to privatize? The answer is, in order to secure that the reforms responsible for the good health of OTE would not be reversed by a Government in the future. Greek experience, not only recent, teaches that when the state manages, politics take precedence to reason and good practices.

It would be interesting to try and glimpse at what the future holds for OTE. The sector of telecoms is becoming increasingly volatile. Mobile growth, which was the engine in the first decade of this century has stopped and other products, such as OTE TV and VDSL are not yet able to replace the momentum and may never be. On the other hand, in the unpredictable field of telecommunications, OTE is well placed to lead in new products and uses which will be certainly coming in the future. This provided it retains its ability to adapt and move fast. I would even go a step further. In a small economy such as ours, a company of OTE’s size, with its cash flow and large number of competent managers, could expand into other areas, as for example energy and recycling. Such moves, of course, would depend primarily on DT’s appetite for adventure.


OTE was lucky because its transformation coincided with a period of Government stability. From 2004 to 2009, the crucial years, Greece had the same government, a very rare occurrence. I write elsewhere that I was the seventh CEO in nine years. What can a management do, however good, when it is not given adequate time? I was lucky too, because the government was supportive and on occasion protective. The main reason transformation and privatization were successful, therefore, was the continuity provided by the political environment. Nothing serious can be completed without such a condition and the lack of it is the tragedy of Greece.

Another reason why the efforts were successful was that they were embraced by the personnel. This may sound paradoxical since there were endless protests, strikes and violent actions by the union. The once all powerful OME-OTE was venting their frustration because they were impotent to stop change. They were actively supported by only a tiny minority of the employees. The early moves of the transformation produced quick visible results, success breeds success and creates momentum. A series of good years had a material and “morale” impact on the bulk of the employees. The early risks paid off.

The challenges of the transformation and of the impending sale of OTE obliged the management appointed in 2004 to spend much of its time and energy on political and legal battles and existential issues. There was strong opposition to the privatization even from inside the governing party. By 2010, when new people took over Greece the dust had settled, OTE was off the headlines and management could concentrate on its business proper. For the company it was a fortunate sequence of events.

It is now about eight years since control passed to DT, enough time to allow some observations. The overwhelming benefit of the transition is the removal of the Greek State from the everyday running of OTE. Clientliism has disappeared as a major problem and decisions are made with professional criteria. In spite of the crisis and of measures taken in Brussels, which reduce the income of European telecom companies, OTE remains profitable, continues to invest and to hire. It is an island of optimism in an otherwise gloomy landscape. Prospects also look good. Predictably, the mistakes of the earlier Regulators have led to the narrowing of the field of competition to very few players and OTE’s position in the market is not threatened. Fears that DT would fill OTE with expatriates have proven baseless, rather the opposite happens with OTE losing good human material to DT and its subsidiaries. OTE is one of the most successful companies in the DT group and, on the whole, to the outsider, the marriage appears happy. No marriage, however, is entirely without any clouds in the horizon and it would be useful to mention certain areas which could cause friction.

OTE has now become member of a large group of similar companies, under the control of D.T. It is natural that group strategy takes precedence over the interests of any individual member. In practice this means a number of things including the temptation to favor the bottom line of the mother. Subsidiaries may be milked through fees and all kinds of payments for services, real or not. Another I mentioned already, the siphoning off of good people, though this has also benefits in giving “group” careers to promising individuals. Concerning the cost advantages of central procurement by DT, my experience during the almost two years I was CEO under DT was that OTE and Romtelecom could usually get better terms when they were allowed to negotiate themselves, without interference from Bonn. Fear of Grexit must be the explanation why DT has refused to use its financial muscle in order to secure better terms for OTE’s borrowing. The result is a few tens of millions Euros less in profits since the crisis. On the other hand, without DT OTE might have had difficulty in approaching the markets at all. On the plus side, belonging to a large and powerful group has big advantages when introduction of new technologies and methods are concerned.

I believe DT’s decision to buy control of OTE was not purely business motivated but had a political dimension. Private DT is very close to Federal Germany and OTE’s footprint in the Balkans, in a strategic sector, must have played a role in DT’s decision. In a way this was to be expected because a country like Germany is in a position to make better use than Greece of the “soft power” created by controlling telecoms in other countries.

In relations between a mother and a daughter there is also a human element, competition between similar departments in the controlling company and its subsidiaries, heavy handled decisions from the center in disregard of local conditions and sensitivities. Such things need to be watched because DT has only 40% of OTE which is a listed company. There are outside shareholders, among them the Greek state with 10%. According to the “Shareholders Agreement” as long as the 10% is not reduced, Greece appoints five of the eleven members of the Board and this gives it the ability to watch over the interests of the non DT shareholders and also over certain strategic interests of its own that go beyond mere business considerations. The deterrent power of the “Shareholders Agreement” could also turn into a liability for the company in the hands of an irresponsible government.

Having identified possible trouble areas, it is heartening to note that no serious problems have been reported so far.



I was recruited for OTE at the tender age of 67 – its male employees retired with full pension at 55. During most of my time there, and for a few years after, I underwent legal persecution, was reviled by the media and in Parliament and was threatened with violence. All this added to the normal stress at the job and caused anxiety to my family and to me. It also made the job much harder as I had to watch my back all the time. They often ask me if the experience was worth it and the answer is yes. My years in OTE brought me in contact with what is worse and what is best in Greece and confirmed my belief that what is best can win with hard work and a bit of luck. The transformation of OTE was a collective effort and gave me the opportunity to meet and work with a lot of competent and honest people in Greece and also Romania, some of whom have become friends. Not only inside the OTE group but also in the administration, OME-OTE and DT. I will not name them, the list would be long and I might omit some and be unjust. With the help of these good people we proved that things can be done – this is a great reward.

[1] DECO: Public Utility Company.

[2] Similar moves are being tried in OLP’s current privatization.

[3] I recommend reading his book.