WASHINGTON-U.S. law enforcement and homeland security officials gave their blessing to Japan-based NTT DoCoMo Inc.’s proposed $72 million purchase of Guam Cellular & Paging Inc. and Guam Wireless Telephone Co. L.L.C., after the parties agreed to certain conditions.
While it pales in comparison to AT&T Inc.’s pending $79 billion acquisition of BellSouth Corp., the DoCoMo transaction nevertheless has key policy implications and provides a glimpse into the level of scrutiny likely to be given future telecom deals involving foreign investments or outright purchases of American telecom carriers in a post-9/11 world where the war on terrorism sometimes clashes with unyielding globalization and consolidation trends.
In June, TeleGuam Holdings L.L.C., which provides wireless service though its Pulse Mobile L.L.C. unit in addition to local and long distance offerings, urged the FCC to reject the DoCoMo/Guam deal because it poses competitive problems, creates a new precedent on foreign ownership and could undermine national security. In the alternative, TeleGuam said the FCC should impose competitive and national security conditions on any approval of the transfer of wireless licenses to DoCoMo.
The deal, announced in March, proposes to create a new DoCoMo Guam holding company that indirectly would be owned by DoCoMo.
The telecom act limits foreign ownership in U.S. wireless carriers to 25 percent. However, the FCC can waive the foreign-ownership cap-all the way up to 100 percent-if telecom regulators deem a particular investment would not be inconsistent with the public interest. FCC foreign-ownership rules also accord favored status to foreign investors from World Trade Organization member countries. Japan is a WTO member.
The Department of Justice, FBI and Department of Homeland Security filed the security agreement related to the DoCoMo/Guam deal with the Federal Communications Commission on Oct. 19.
“After discussions with representatives of DoCoMo, the agencies have concluded that the commitments set forth in the agreement will help ensure that the agencies and other entities with responsibility for enforcing the law, protecting the national security, and preserving public safety can proceed in a legal, secure and confidential manner to satisfy these responsibilities,” the agencies told the FCC.
According to FCC filings, Nippon Telephone and Telegraph Corp., a Japanese publicly trade company, held nearly 62-percent equity and voting ownership interests in DoCoMo as of December 2005. The Japanese government, through the Ministry of Finance, holds just over 38-percent equity and voting ownership interest in NTT. The FCC said Guam Cellular and Guam Wireless stated in license transfer applications that no other entity holds more than 5 percent direct or indirect stake in DoCoMo, and that at least 75 percent of DoCoMo’s shares and NTT’s shares are held by investors from WTO countries including Japan, the United States and the United Kingdom
TeleGuam said approval of the purchase would make DoCoMo the leader in the Guam market, having a cumulative 55 megahertz of commercial wireless spectrum and a market share between 55 percent and 65 percent.
DoCoMo, Guam Cellular and Guam Wireless have criticized TeleGuam’s concerns as exaggerated, accusing TeleGuam of trying to stifle competition. They also told the FCC there would be six wireless carriers in the market after the deal is completed. DoCoMo, which has vowed to inject $6.5 million into the newly created Guam wireless company, said the acquisitions will enable it to better serve many Japanese travelers who visit Guam and the Northern Mariana Islands.
Guam, a U.S. territory, is home to what is regarded as one of the most strategically important U.S. bases in the Pacific. Policymakers have become more cautious about foreign takeovers of U.S. companies. That skittishness boiled over when the now-defunct Dubai Ports deal became a disruptive political diversion for the Bush administration earlier this year.
Some lawmakers on Capitol Hill took the Dubai Ports flare-up as an opportunity to seek reform. It is unclear whether Committee on Foreign Investment, the U.S. Treasury-led interagency group that scrutinizes overseas acquisitions of American firms, is examining the DoCoMo/Guam deal.
CFIUS is scrutinizing French-based Alcatel SA’s pending $14 billion bid for Lucent Technologies Inc. CFIUS reviewed and registered no objections to German telecom giant Deutsche Telekom AG’s $30 billion purchase of VoiceStream Wireless Corp. (now T-Mobile USA Inc.) in 2001. T-Mobile USA is the fourth largest U.S. wireless carrier.
Aside from national security issues raised, DoCoMo’s play for Guam Cellular and Guam Wireless appears to have become a commercial battleground for the two prominent third generation mobile phone technologies: GSM-based W-CDMA and CDMA2000 1x EV-DO.
DoCoMo said it plans to improve the quality of Guam Wireless’ GSM network, adding GPRS capability to launch packet roaming services. DoCoMo also said it would introduce a W-CDMA network for third-generation wireless services utilizing frequencies of Guam Cellular-a CDMA carrier-in the future.
Late last month, the CDMA Development Group asked the FCC to thoroughly investigate roaming implications of the DoCoMo transaction in Guam.
The CDG said that while the applicants said they plan to deploy GSM-based technologies over Guam Wireless’ network and to roll out W-CDMA in Guam Cellular’s service areas, they are vague on plans for the existing CDMA network and how they will address needs of residing and visiting U.S. government and military personnel.
