WASHINGTON-Is Deutsche Telekom AG’s proposed purchase of VoiceStream Wireless Corp. a case of foreign investment or a protectionist grab of a foreign government? This was the question examined last Thursday by the House telecom subcommittee in a five-hour hearing.
“We know good and well that we didn’t get into deregulation … to deregulate from American-government control to put it under German-government control. … My point is that we don’t object … about foreign companies. We welcome foreign companies, not foreign governments,” said Sen. Ernest Hollings (D-S.C.), ranking member of the Senate Commerce Committee.
Hollings is the sponsor of the Senate legislation-both a free-standing bill and language in the commerce, state, justice appropriations bill awaiting Senate action-that would forbid the Federal Communications Commission from approving a license transfer to any company that is more than 25-percent owned by a foreign government. The German government owns more than 50 percent of DT.
Reps. John D. Dingell (D-Mich.) and Edward Markey (D-Mass.), ranking members of the House Commerce committee and telecom subcommittee, respectively, have authored companion legislation in the House.
The Hollings/Dingell/Markey view contrasts with a “Dear Colleague” letter signed by Rep. Michael G. Oxley (R-Ohio), vice chairman of the House telecom subcommittee, and Sen. John McCain (R-Ariz.), chairman of the Senate Commerce Committee, which quoted a July 24 Financial Times editorial.
“The idea that the German government-a NATO ally-poses a threat to U.S. security is risible. … [Members of Congress] should also recognize that harassing foreign investors is not a clever policy for a country whose prosperity depends on attracting vast inflows of foreign capital to finance its current account deficit,” said the editorial quoted by McCain and Oxley.
A majority of members of the telecom subcommittee who spoke at the hearing seemed to favor the Oxley/McCain approach.
The Clinton administration, represented by the office of United States Trade Representative, the Department of Justice and the FBI, all said there were sufficient safeguards in place to protect national-security and competitive concerns.
In addition, proponents of the deal say there is little that can be done to stop the DT takeover because of the 1997 World Trade Organization Basic Telecom Agreement. Hollings refuted this, saying licenses cannot be awarded to entities with more than 25-percent foreign-government control.
“The agreement can’t change the law. Only Congress can do that,” said Hollings.
In the past, the FCC has waived this rule and awarded licenses to entities with more than 25-percent foreign ownership if it deemed the transfer to be in the public interest. The Hollings/Dingell/Markey legislation would prohibit such waivers. The FCC has never reviewed a takeover by a company owned by a foreign government, said FCC Chairman William Kennard.
Kennard, however, said that an application by DT/VoiceStream had yet to be filed with the FCC, so he refused to prejudge how the FCC would rule on the matter.
It is unclear when DT/VoiceStream will file its application papers.
“I don’t know. When my lawyers tell me,” VoiceStream CEO John Stanton told RCR Wireless News.
Rep. Billy Tauzin (R-La.), chairman of the House telecom subcommittee and a self-professed free trade proponent, led the grilling of a panel of government witnesses. Tauzin was especially concerned when the USTR representative said after a long series of questions that he had not spoken with the German government about diluting its stake in DT and then after more questioning said Europe was not in his portfolio of responsibility.
“Let me express some extreme disappointment with your testimony. … We have some uneasiness of what we are hearing from you,” Tauzin said, noting that USTR should be obligated to tell a foreign government that state-owned companies need to be privatized.
The panel also examined what type of access law enforcement would have to VoiceStream’s networks.
Kennard said those types of questions are usually left to the FBI.
“Normally we negotiate directly with the parties and keep the FCC up to date along the way,” said Larry R. Parkinson, general counsel of the FBI, explaining the process.
Dingell questioned whether, once the license transfer had been completed, the FCC or the FBI would have any leverage to enforce any negotiated agreement.
“How will you unscramble the egg?” said Dingell.
Stanton said VoiceStream had been through the FBI negotiated review process before when Hong Kong-based Hutchison Whampoa Ltd. took a 23-percent stake in the company. He said he was confident that VoiceStream/DT could reach an agreement with the FBI.
Tauzin also questioned whether the Justice Department criminal division had been involved in discussions with the DOJ antitrust division, which on Thursday let lapse a mandatory waiting period, thus clearing the deal.
Kevin V. DiGregory, deputy assistant attorney general of the DOJ criminal division, said the criminal unit had not been involved in the antitrust review.
Tauzin said he would send a letter urging the criminal division’s involvement in the antitrust process. At RCR Wireless News’ press time, no letter was available.
In other action, VoiceStream on Wednesday announced the close of DT’s $5 billion investment. The investment is in exchange for VoiceStream preferred stock, convertible in certain circumstances into common stock at a price of $160 per share. The investment was announced on July 24 at the time the companies entered into their merger agreement.
RCR Wireless News Washington Bureau Chief Jeffrey Silva contributed to this report.
