- The Washington Times - Tuesday, July 25, 2000

German telecommunications giant Deutsche Telekom announced plans yesterday to buy VoiceStream Wireless, the country's sixth-largest nationwide wireless carrier, for $50.7 billion, giving Europe's largest telecommunications company a foothold in the United States.
Following the agreement, which the boards of both companies approved Sunday, executives from the businesses headed for Washington in an effort to squelch an unusual level of political opposition to the merger, which stems from the German government's majority stake in Deutsche Telekom.
"Now that we have a deal, we are going to make the case for it in Washington," said Jeffrey Hedberg, Deutsche Telekom's board member in charge of international operations. "We are going to argue that this is good for consumers and for competition."
Deutsche Telekom's efforts to find a partner in the United States have been the subject of intense speculation over the past few weeks, with WorldCom and Sprint being mentioned as other takeover targets.
But since Deutsche Telekom and VoiceStream did not speak publicly about their agreement until it was finalized, opposition to the German company's entry into the U.S. market has grown unchecked, said John Stanton, chief executive officer of the Bellevue, Wash.-based VoiceStream.
"A lot of what's going on right now has to do with the fact that it has been all rumors so far," Mr. Stanton said.
Deutsche Telekom and VoiceStream face opposition to their agreement from a group of 29 senators, including key Republicans, who have urged the Federal Communications Commission to block the purchase.
In addition, Sen. Ernest F. Hollings, South Carolina Democrat, managed to insert a provision into pending appropriations legislation that would prevent companies with more than 25 percent foreign government ownership from entering the U.S. market.
"The objection is not to competition, or foreign competition," Mr. Hollings said yesterday. "The objection is to [a] foreign government."
Even after taking over VoiceStream, the German government's stake in Deutsche Telekom would breach the 25 percent threshold.
Sen. John McCain, Arizona Republican and chairman of the Senate committee with jurisdiction over telecommunications issues, has vowed to defeat the Hollings legislation, partly because Mr. Hollings bypassed Mr. McCain's committee to rush passage of the 25 percent rule.
Mr. Hollings said he believes that current law would prohibit a company with more than 25 percent foreign participation from owning a telecommunications license. But most analysts say they believe the FCC has the power to waive the limit if it decides that the deal would promote competition and consumer choice.
For example, in 1997 the FCC permitted Telecom Finland, now called Sonera, to acquire licenses to operate in the United States, even though it was then wholly owned by the Finnish government.
Mr. McCain also charged that the Hollings legislation would violate a World Trade Organization agreement the United States signed in 1997 to break down barriers to investment in telecommunications networks. As part of the deal, the United States promised to allow investment by foreign entities based in countries that are members of the WTO.
Mr. Hollings said he has the support of U.S.-based telecommunications companies, and Mr. Stanton hinted that these companies, competitors to any Deutsche Telekom-VoiceStream linkup, are stoking political opposition to the deal.
But there were few other signs that U.S. companies were behind the Hollings legislation. Valerie Ploumpis, senior vice president of the European-American Business Council, a group that represents telecommunications companies on both sides of the Atlantic, called the move "a step backward."
"This would violate our WTO commitments outright," she said.
FCC Chairman William Kennard promised in a letter to senators last week to give "close scrutiny" to any takeover of a U.S. carrier. The FCC typically approves or prohibits mergers within six months.
Deutsche Telekom and VoiceStream plan to argue to regulators and Congress that the fusion of the two companies would reduce the role of the German government faster than selling its shares on the open market, Mr. Stanton said. The combination, if approved, would leave the German government with a 45 percent share, down from 57 percent currently.
In addition, the German government plays no role in the day-to-day business operations of the company and has only a small presence on its board.
Deutsche Telekom paid an expensive $20,000 per wireless telephone subscriber to buy VoiceStream, prompting speculation that markets were demanding a political premium because of the political opposition to the deal. But Mr. Hedberg insisted that, by the time the deal closes, VoiceStream's customer base would have grown enough that the price would work out to only $11,000 per subscriber.
"We did not pay a premium to accommodate the political atmosphere in Washington," he said.
Nevertheless, Deutsche Telekom's shares fell in Frankfurt amid worries by investors that it had paid too much for VoiceStream, which posted a loss of $454.7 million in 1999 as it sought to build its customer base, now at 2.3 million subscribers.
Deutsche Telekom shares fell 11.7 percent to $45.57, while VoiceStream's stock dropped 14.3 percent, or $21.50, to $128.50 on Nasdaq.
VoiceStream is a valuable acquisition for Deutsche Telekom because the U.S. upstart owns licenses to operate in 23 of the 25 largest markets in the United States. It also already uses the technical standard for wireless communication that currently prevails in Europe.

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