WASHINGTON-Sen. Ernest Hollings (D-S.C.), angered by the Federal Communications Communication’s approval of the VoiceStream Wireless Corp.-Deutsche Telekom AG merger last week, said he will introduce legislation that would force the German government to drastically reduce its stake in DT by year’s end and ban future purchases of U.S. wireless firms by overseas firms more than 25-percent owned by foreign governments.
“Last session, I championed legislation that would have prevented the FCC from making this decision. This year, with a new FCC chairman, I had refrained from re-introducing this legislation, in order to allow the new chairman to get off to a fresh start. The commission’s action today shows that this confidence was misplaced,” said Hollings in reaction to the FCC’s 4-0 vote.
The ruling, made last Tuesday but not announced until the next day, represents the first time the FCC has ruled on a transaction involving an overseas firm significantly owned by a foreign government. The commission said the decision should provide clarity and direction on similar mergers in the future. “We looked at this very carefully,” said an FCC official.
The FCC said the law does not prevent a company that is more than 25-percent foreign-government-owned from buying an American wireless carrier if it determines the transaction is in the public interest. Hollings insists the law clearly bans such deals.
The German government owns 58 percent of Deutsche Telekom, but has pledged to reduce its holdings in DT. Once the deal closes in late May or early June, the German government’s share in DT will drop to 44 percent.
The FCC, mindful of this government’s free-trade policy and World Trade Organization commitments to open telecom equipment and services markets, ruled the DT-VoiceStream merger met the public-interest test and would not invite anticompetitive activity.
The FCC conditioned its approval of the deal (which also included DT’s purchase of Georgia-based Powertel Inc.) on standard accounting, structural separation and reporting safeguards. In addition, the agency said VoiceStream and Deutsche Telekom must stick to an agreement with federal law enforcement agencies governing wiretaps and other public-safety issues.
FCC Commissioner Harold Furchtgott-Roth objected to conditioning approval of the DT-VoiceStream merger, a position taken in other telecom deals reviewed by the agency.
“U.S. consumers will benefit from the effects of the proposed merger, which will include the buildout and extension of VoiceStream’s network-significantly expanding VoiceStream’s national and international reach,” the FCC stated.
The deal still needs clearance from the Committee on Foreign Investment in the United States, an interagency government group led by the Treasury Department that scrutinizes foreign purchases for national security implications.
The merger frees VoiceStream-which utilizes European-engineered GSM technology-from having to scrap for private financing in a slumping equities market. VoiceStream can now enjoy strong financial backing from a well-heeled parent company, just as competitors Verizon Wireless, Cingular Wireless and Sprint PCS do today in the competitive mobile-phone services market. And it means a huge payoff for VoiceStream Chairman John Stanton, who originally was set to pocket more than $1 billion but now will receive less because of sagging stock prices.
“We can now focus on building the business,” said Brian O’Connor, vice president for legislative and regulatory affairs for VoiceStream. O’Connor, noting that cell-site acquisition, marketing and third-generation technology upgrades consume significant capital, said VoiceStream expects to be profitable by the end of the year.
On Tuesday in Chicago, VoiceStream will promote what is being billed as the largest geographic launch ever in the wireless industry. The coverage area will encompass Chicago, running north beyond Milwaukee, and include all of Indiana.
VoiceStream, which will retain its name after the deal closes, will have 4.4 million U.S. mobile-phone subscribers. DT counts approximately 37.9 million subscribers in Europe.
When the VoiceStream-DT merger was announced last July, it was valued at $50.7 billion. But shares of DT and VoiceStream have taken a beating since then, lowering the dollar value of the deal to about $30 billion.
As such, if the revised Hollings legislation became law, millions of DT shares would have to be sold on short order at depressed prices.
“It would be devastating to shareholders of DT,” said O’Connor.
Hollings, ranking minority member of the Senate Commerce Committee, pursued legislation last year to kill the DT-VoiceStream deal but his efforts fizzled after the powerful South Carolinian lost support of fellow senators. That did not happen by accident.
VoiceStream and Deutsche Telekom hired an army of high-powered lobbyists. It paid off. Many senators who initially backed Hollings withdrew support for his bills. The Washington state congressional delegation wrote new FCC Chairman Michael Powell in March to voice support for the deal. Additional pressure to approve the merger came from the European Union, which hinted there would be trade retaliation if the DT-VoiceStream merger were scuttled.
