- The Washington Times - Friday, September 8, 2000

Supporters of Deutsche Telekom's planned purchase of VoiceStream Wireless defended the transaction before a House committee yesterday, saying that foreign investment in the U.S. telecommunications market has been critical to its success.

At the same time, federal regulators promised to scrutinize the proposed merger on competitive and national security grounds but gave little indication that they would prevent German suitor, partially owned by the German government, from buying Bellevue, Wash.-based VoiceStream.

Clinton administration officials warned members of the House Commerce telecommunications, trade and consumer protection subcommittee that legislation to block mergers of companies with foreign government involvement would expose U.S. companies to retaliation overseas.

"Efforts to restrict our market now could curtail the virtuous cycle of liberalization and growth that we have experienced in telecom markets around the world," Deputy U.S. Trade Representative Richard Fisher told the panel.

The $50.4 billion Deutsche Telekom-VoiceStream deal, announced June 24, has drawn unexpected political opposition because the German government owns 58 percent of the former state monopoly. With the absorption of VoiceStream, that share would drop to 44 percent.

Sen. Ernest F. Hollings, South Carolina Democrat, managed to insert a provision in a pending Senate appropriations bill that would bar acquisitions led by companies that are at least 25 percent foreign government-owned. He also marshaled a broad group of senators, including much of the Senate leadership, to oppose the Deutsche Telekom purchase.

Most observers believe the provision would violate a World Trade Organization agreement that the United States signed in 1997. American negotiators promised that the nation would allow unrestricted foreign investment in the telecommunications sector by companies from WTO member nations.

Those nations include Germany, which is represented in the WTO by the 15-member European Union.

Mr. Hollings, appearing before the subcommittee, sought repeatedly to tar Deutsche Telekom with the brush of government ownership, stressing repeatedly that the German giant could raise money and pick off American companies with impunity, since the state would not allow it to fail.

Mr. Hollings also raised the specter of outside forces obtaining the capability to spy on Americans by acquiring U.S. communication companies.

"Current U.S. law mandates that companies equip their networks to permit surveillance," he said. "Do we want a foreign government in charge of such surveillance? The answer is most certainly no."

John Stanton, VoiceStream's chief executive officer, responded with a vigorous defense of foreign investment. VoiceStream depended on $1 billion in capital from a Finnish company that is mainly owned by its government as well as $1.2 billion from a Hong Kong-based telecommunications company to become the sixth-largest carrier in the United States.

"Quite simply, without these foreign investments, VoiceStream would not be the substantial, innovative, competitive presence in the U.S. wireless markets that it is today," Mr. Stanton said.

William Kennard, chairman of the Federal Communications Commission, told the committee that regulators would examine the merger carefully. And he argued against any legal changes, stressing that the FCC has the necessary authority to deal with the foreign-ownership issue.

"We have the tools we need to do the job," Mr. Kennard said. "These tools have been part of the success story of our nation's leadership in the development of competitive telecommunications markets."

At the hearing, a top official from the FBI promised that his agency would examine the law enforcement and national security implications of the Deutsche Telekom acquisition.

Few observers expect Congress to intervene in the merger, especially since Mr. Hollings' provision has no companion in the House. Senate Commerce, Science and Transportation Committee Chairman John McCain, Arizona Republican, has dug in his heels against the change, as has Rep. Michael G. Oxley, the Ohio Republican who plays a prominent role on telecommunications issues in the House.

The Justice Department yesterday let pass a deadline for beginning an antitrust investigation on the merger. The companies had expected this move, since VoiceStream is a small player in the American market and Deutsche Telekom has no presence in the United States, giving the combination little potential to run afoul of antitrust laws.

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