WASHINGTON-The multi-agency government panel that will be responsible for assessing national security implications of Deutsche Telekom AG’s $56 billion purchase of VoiceStream Wireless Corp. and other future telecom mergers involving foreign buyers was sharply criticized by congressional investigators in a little-noticed report two months ago that now takes on added significance as Sen. Ernest Hollings (D-S.C.) and others attempt to tighten the law governing such transactions.
The House telecommunications subcommittee this Thursday will hold a hearing on foreign ownership. Hollings and VoiceStream Chairman John Stanton will be among those testifying.
In a June 29 report, the General Accounting Office found oversight and management within the U.S. Committee on Foreign Investments in the United States to be severely lacking. GAO, among other things, said CFIUS was lax in identifying foreign acquisitions possibly having a bearing on national security and “has no process to inform all member agencies that potentially relevant unreported acquisitions have been identified.”
The GAO report was requested by Sen. Chuck Hagel (R-Neb.), a member of the Senate Foreign Relations Committee who made millions of dollars as a cellular investor in the 1980s.
CFIUS, an 12-member interagency committee chaired by the Treasury Department, is required by the 1988 Florio-Exon law to oversee and investigate planned foreign purchases of U.S. firms for possible national security risks.
CFIUS, which is not widely known and which operates largely in secret, received media attention recently for its role in reviewing NTT Communications Corp.’s $5.5 billion purchase of Verio Inc., a Colorado Internet firm. NTT is parent to the world’s most successful mobile-phone Internet operator, NTT DoCoMo of Japan.
The Treasury Department took strong exception to the GAO report. In comments accompanying the report, Treasury Under Secretary Timothy F. Geithner said other evaluations of CFIUS have not found the panel’s national security oversight to be inadequate.
“In fact,” said Geithner, “the prevailing judgment is that the existence of Exon-Florio has raised the awareness of foreign investors contemplating acquisitions of U.S. companies to the importance of national security considerations and helped to ensure that foreign investments are structured in ways to avoid national security problems.”
At the same time, Geithner said Treasury and other CFIUS agencies have begun the process of putting GAO recommendations in place.
Any doubts about CFIUS ability to critically review foreign acquisitions for national security risks could give Hollings added ammunition as he pursues legislation on two fronts that, if enacted, could kill the Deutsche Telekom-VoiceStream merger.
Stand-alone legislation penned by Hollings and supported by nearly a third of the Senate would limit the Federal Communications Commission’s ability to waive a rule prohibiting an overseas firm more than 25-percent owned by a foreign government from buying a U.S. telecom company.
Deutsche Telekom, France Telecom and others fall into that category.
A less restrictive Hollings measure, attached to the Senate Commerce appropriations bill, would ban the FCC from spending funds in fiscal 2001 to consider mergers between any firm 25-percent owned by a foreign government and an American company.
The GAO report could undercut the Clinton administration’s contention that the Hollings legislation is unnecessary because there are already three layers of review of foreign acquisitions of U.S. telecom firms: the FCC, Justice Department and CFIUS.
Deutsche Telekom-serious about making inroads in the United States-and VoiceStream are aggressively lobbying lawmakers on Capitol Hill to snuff out the Hollings legislation.
The Cellular Telecommunications Industry Association, whose board of directors is chaired by VoiceStream’s Stanton, has waffled on what, if any, position it will take on the Hollings measures.
Stanton reportedly will collect more than $1 billion if the deal is approved.
