Softbank’s planned $20.1 billion purchase of a controlling interest in Sprint Nextel hit another potential snag this week as the Department of Justice sent a letter to the Federal Communications Commission asking that review of the deal be deferred in order for “any national security, law enforcement and public safety issues” to be reviewed.
“We therefore request that the Commission defer action until such time as the agencies notify the commission of the completion of their review and, based on the results of such review, request appropriate action by the commission,” the request noted.
The DoJ request also involves the Federal Bureau of Investigation and the Department of Homeland Security.
The proposed deal will see Japan-based Softbank acquire a 70% stake in Sprint Nextel. The U.S. government had at one time refused to allow foreign ownership of telecom operators due to national security concerns. However, those issues seemed to have been put to rest following Germany’s Deutsche Telekom’s $35 billion purchase of VoiceStream Wireless in 2001. That deal involved much wrangling by legislatures concerning DT’s planned 100% ownership of what was the nation’s No. 6 wireless operator.
Foreign ownership of domestic wireless operators is also seen by Verizon Wireless’ 45% stake controlled by U.K.-based Vodafone Group.
Analysts did not seem concerned by the DoJ move, noting that these sorts of reviews were typical in such transactions.
“We have no reason at the moment to regard DoJ’s [Jan. 28] letter as a red flag or as unusual, especially in a transaction such as this where foreign ownership is involved in material fashion,” explained Jeffrey Silva, senior policy director of telecommunications, media and technology at Medley Global Advisors. “The DoJ-FBI-DHS review is an expression of due diligence that will likely feed into the multi-agency national security review by the Committee on Foreign Investment in the United States (CFIUS). As described in a recent note, the CFIUS process can be completed within 30 days or extended another 45 days in some circumstances. We’ve seen nothing to change our view that Softbank-Sprint will secure CFIUS approval and that FCC approval will be forthcoming later this year after the combined Softbank-Sprint-Clearwire (CLWR) regulatory review is completed.”
Silva noted that one sticking point for the deal could be Softbank’s relationship with Chinese infrastructure provider Huawei, which last year came under scrutiny by U.S. lawmakers. That scrutiny eventually led to recommendations that U.S.-based telecom operators refrain from dealing with Huawei over national security concerns. Softbank signed a deal with Huawei in 2011 to provide equipment for a TDD LTE deployment.
Softbank told Bloomberg prior to its formal bid for Sprint Nextel that it was aware of the U.S. concern over Huawei and that it would adhere to those requests.
Sprint Nextel was rumored to be in discussions with Huawei in late 2010 as a possible network partner for its Network Vision initiative before eventually agreeing to deals with Sweden-based Ericsson, the Anglo-French partnership of Alcatel-Lucent and South Korea’s Samsung.
Softbank announced last year that it had selected Nokia Siemens Networks and Ericsson at the expense of Huawei and fellow Chinese infrastructure provider ZTE to supply LTE RAN equipment.
The DoJ request follows a move by Dish Networks to outbid Sprint Nextel in its attempt to acquire Clearwire that is seen as a significant lure for Softbank. Sprint Nextel currently owns a controlling stake in Clearwire, which has a vast stockpile of spectrum assets in the 2.5 GHz band that it plans to use for the rollout of LTE services. Softbank is also in the midst of rolling out LTE services using its 2.5 GHz spectrum holdings.
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