Foreign Ownership Rules Unlikely to Lead to Rejection of Softbank/Sprint Deal
AT&T is raising questions about one part of Softbank’s proposed buy of a majority stake in Sprint Nextel that so far has gotten little attention, namely, provisions in the Communications Act limiting the ability of companies with more than 25 percent foreign ownership to invest in U.S. spectrum licenses. The restriction in Section 310(b)(4) provides for wiggle room, since the FCC needs to impose the restriction only if it finds doing so is in the public interest. Industry sources said Friday they do not expect the foreign ownership provisions to present an impediment to approval of the Softbank/Sprint deal.
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AT&T highlighted in its brief statement last week (CD Oct 19 p7) that the Softbank deal would give a foreign company “control of significantly more U.S. wireless spectrum than any other company” given the size of Sprint and Clearwire’s combined spectrum portfolio. AT&T had no further comment Friday. In a further wrinkle, Softbank buys some of its telecom equipment from Huawei Technologies and ZTE, Bloomberg reported. A recent House Intelligence Committee report “strongly” recommended that U.S. companies refrain from doing business with either company (CD Oct 10 p3).
One problem with AT&T’s argument could be that foreign ownership of wireless assets has become the norm, with U.K.-based Vodafone owning 45 percent of Verizon Wireless and Deutsche Telekom owning T-Mobile USA, industry sources agreed. TracFone Wireless, the biggest U.S. prepaid carrier, is owned by Mexico-based América Móvil. A telecom lawyer and former FCC official asked how the Softbank deal is fundamentally different from DT buying VoiceStream Wireless 11 years ago and launching T-Mobile: “Instead of the Germans we're talking about the Japanese."
"Anything like this can be demagogued, but I think the pros far outweigh the cons,” said public-interest communications lawyer Andrew Schwartzman. “If DT (which is partially owned by the German government) can control T-Mobile, and Vodaphone can hold a huge share of Verizon Wireless, I can’t see how a convincing case can be made that Softbank shouldn’t control Sprint. In fact, there will be more transparency and U.S. regulatory presence in the case of Sprint than T-Mobile because Sprint will remain a publicly traded U.S. company."
Free State Foundation President Randolph May agreed foreign ownership restrictions should not pose a problem for Softbank/Sprint. “I've long thought the foreign ownership restrictions in the Communications Act probably should be relaxed because the world, and our communications marketplace, are much different now than they were when the ownership restrictions were adopted,” he said. “Of course, the commission must apply the law as it stands now. That said, under the public interest standard that will govern the agency’s review, the fact that Japan is considered to be a friendly country probably means the agency will not find the ownership restriction to be an impediment."
"Foreign ownership is a very important issue and will be treated as such by the FCC and other government agencies during the review of Softbank/Sprint,” said Jeff Silva, analyst at Medley Global Advisors. “But there’s little reason at this point to suspect it will be a deal-breaker."
AT&T didn’t actually oppose the deal in its statement, noted Guggenheim Partners analyst Paul Gallant. “The AT&T statement was probably a tactical move aimed at reshaping the discussion around spectrum ownership, aimed at increasing the flexibility of AT&T and Verizon to acquire more spectrum in the future."
Public Knowledge Senior Vice President Harold Feld went on the attack against AT&T on his blog (http://xrl.us/bnu3gn). He noted that the restriction was imposed “back in the days before [World War II] when we were all worried about evil Socialist propaganda flooding our airwaves through Bolshevik controlled radio licenses.” Historically, “the Commission has been a real hard-ass on this with traditional media (occasionally causing problems for Rupert Murdoch), but not terribly concerned about this with regard to common carrier licenses (which is why Deutsche Telekom has ownership of T-Mo U.S.A.),” Feld wrote. “Nevertheless, if the Commission decided it were in the public interest to prevent a ‘foreign carrier’ from controlling ’too much’ domestic spectrum, it has the legal authority to do so if it wishes.” Feld said the complaints could resonate in Congress, but stand little chance of derailing the Softbank/Sprint transaction. “Foreign ownership (even from a friendly country like Japan) resonates better with Republicans (and even some D’s) than spectrum aggregation,” he said. “But the reality is this is still a ridiculous claim with no chance of success.”