WASHINGTON-As Congress raises national security concerns about global telecom mergers, Nippon Telegraph and Telephone Corp.-the Japanese parent company of arguably the world’s top mobile-phone Internet operator-confirmed last week the FBI is scrutinizing its proposed $5.5 billion purchase of a Colorado Internet firm.
“All that we know is the FBI is interested because of legal issues,” said Nathan May, of Fleishman-Hillard, on behalf of NTT.
The emergence of national security fears-manifested in new telecom legislation and in a high-profile congressional correspondence to Federal Communications Commission Chairman William Kennard-could alter the dynamics of future mergers between U.S. and foreign telecommunications companies.
For example, with the WorldCom Inc.-Sprint Corp. deal all but dead, Deutsche Telekom AG may be ready to make a play for Sprint’s long-distance, Internet and national wireless properties.
Deutsche Telekom is majority-owned by the government. Newly introduced legislation would ban-without exception-firms more than 25-percent foreign-government owned from buying U.S. telecom firms. In other words, if the legislation were enacted, Deutsche Telekom would be denied its strategy to have a major presence in the United States.
NTT said it was notified by the Committee on Foreign Investment in the United States, a unit of the Treasury Department, that an investigation was launched pursuant to the Exon-Florio amendment to the Defense Production Act of 1950. The probe can take up to 45 days, after which the president has 15 days to make a final decision.
In general, the FBI weighs in on telecommunications deals to ensure it can conduct authorized wiretaps. Wiretapping in the Digital Age has presented a huge challenge for the FBI.
In 1994, Congress passed an updated wiretap bill to help law enforcement conduct surveillance on advanced communications networks that employ varying combinations of wired, wireless, cable, fiber-optic and satellite technologies.
A little more than a week ago, Congress passed additional legislation to give the FBI greater flexibility in negotiating with telecom carriers to make their switches digital wiretap ready.
The wireless industry and others are fighting the FBI in court over new digital wiretap rules they claim go beyond congressional intent and violate constitutional privacy protections.
The FBI, which declined to comment, reportedly wants assurance it can conduct authorized wiretaps if NTT is allowed by the Justice Department to acquire Verio Inc., an Englewood, Colo., Internet service provider.
NTT said it “believes that the proposed transaction does not raise national security concerns.”
Some observers speculated the possibility of the NTT-Verio deal being blocked over FBI wiretap demands could be linked to an escalating political dispute between the Clinton administration and Japan over high NTT interconnection rates.
Another view is the national security risk posed by global telecom mergers is exaggerated and is being driven by a lawmaker who tends to be a protectionist.
“The U.S. will go to international tribunals advocating free trade. This is something driven by domestic politics unfortunately,” said Thomas Hazlett, a resident scholar and telecom expert at the American Enterprise Institute.
Hazlett said that if the United States believes proposed telecom mergers pose a national security threat, the administration should address it directly, rather than have Congress impose comprehensive bans.
As it turns out, on June 29, the day before Congress broke for a week-long holiday recess, powerful Senate members sent out two letters addressing national security issues arising from global telecom mergers and NTT telecom trade barriers.
The first letter, sent by Sen. Ernest Hollings (D-S.C.) and 29 other senators, urged the FCC’s Kennard to “highly scrutinize any merger involving government-owned providers.”
The other letter, on NTT interconnection fees, was signed by Sens. William Roth (R-Del.), Daniel Patrick Moynihan (D-N.Y.)-top Senate Finance Committee members-and eight other lawmakers.
Under the telecom act, direct foreign-government control of U.S. telecom carriers is prohibited. But indirect investment by foreign governments of up to 25 percent is allowed.
However, the law allows the FCC to waive the 25-percent foreign-government-ownership cap if the agency determines it is in the public interest.
Legislation recently introduced by Hollings and others would remove the FCC’s ability to grant such waivers.
“The chairman is not going to prejudge issues likely to come before him,” said Joy Howell, an FCC spokeswoman.
