FCC 4-0 APPROVES DT-VOICESTREAM MERGER AS IN PUBLIC INTEREST

Transaction marks first significant merger approval since FCC Chmn. Powell took over helm. It also is first time that telecom acquisition involving carrier with more than 25% foreign govt. ownership has gone before full Commission for approval. Because of precedential value of decision, full text of order is being watched closely for details such as public interest reasons on which approval was based and extent to which indirect govt. ownership in VoiceStream drove application of Sec. 310(b) of Communications Act, rather than more restrictive reading of Sec. 310(a).

Deal’s staunchest foe in Congress, Senate Commerce Committee ranking Democrat Hollings, said he was “deeply disappointed” and would respond by reintroducing a bill to prevent companies owned by foreign govts. from buying U.S. telecom companies. Bill still would apply to DT-VoiceStream because Hollings said he would add provision requiring companies that had completed such deal to reduce their foreign govt. ownership below 25% by Dec. 31. He said he held off this long in hopes that Powell would do the right thing: “This confidence was misplaced.”

FCC concluded that when foreign govt. proposed to buy indirect interest in licensee, that transaction would be analyzed only under Sec. 310(b) of Communications Act. Agency officials declined to elaborate on whether that meant that only direct foreign govt. ownership would trigger application of Sec. 310(a), saying reasoning would be outlined in order. FCC said neither subsection barred foreign govt. from indirect interest in excess of 25% if public interest is met. Companies had argued for application of Sec. 310(b), saying it was relevant when foreign govt. owned interest of more than 25% of capital stock of corporation that controlled U.S. subsidiary, regardless of whether govt. exercises control over license. That provision allows FCC to approve such deals as long as it finds transaction to be in public interest. Hollings had argued for application of Sec. 310(a), saying it plainly barred foreign govts. or their representatives from acquiring U.S. telecom licenses. He has argued that Sec. 310(a) supersedes Sec. 310(b) in cases in which foreign govt. has indirect control of radio licenses, barring approval of indirect foreign govt. interest that confers control over U.S. licenses.

FCC decision also has been closely watched because it marks first time since 1997 World Trade Organization basic telecom agreement that agency has given nod to telecom transaction that involves foreign carrier with more than 25% govt. ownership. Deal, which still awaits decision by Committee on Foreign Investment in U.S., will result in German govt.’s owning 45% of VoiceStream. Companies have said that Berlin is on way to reduce its stake in company, although FCC official said in background briefing with reporters Wed. that Commission scrutinized current govt. ownership levels and not future plans. Official said decision provided public, investors and companies with clarification on how Sec. 310(a) and Sec. 310(b) would be applied on case-by-case basis. “It provides some greater clarity and certainty,” official said.

“This is a significant precedent,” another FCC official said. “It’s an issue of first impression at the Commission level.”

How Commission lays out public interest considerations for ratifying deal is being scrutinized closely, particularly because of Hollings’ strong objections on unfair advantages he said company would gain from German govt. stake. Among public interest reasons FCC cited as flowing from merger is benefit for U.S. consumers, including “the build-out and extension of VoiceStream’s network -- significantly expanding VoiceStream’s national and international reach,” Commission said. U.S. consumers also will benefit from “new communications services and new features,” agency said.

No special conditions were placed on merger, except standard ones such as those in 1997 foreign participation order, which describes carrier safeguards on international routes where DT is dominant, including accounting, structural separation and reporting requirements “designed to address the possibility that a foreign carrier like DT could discriminate against rivals of its U.S. affiliates,” FCC said. Consistent with Commission’s foreign participation order, “DT’s foreign ownership does not pose a high risk to competition in U.S. markets that otherwise would warrant imposition of tailored conditions to address such risk,” agency said.

Separately, Commission held that DT’s $5 billion investment in VoiceStream last Sept. didn’t cause latter to violate foreign ownership restrictions in Sec. 310 of Communications Act. Last Nov., Hollings told FCC that DT’s initial $5 billion investment in VoiceStream appeared to be directly earmarked for wireless auctions and that bidding would be under DT’s control. He questioned whether $5 billion already might have put DT over 25% govt. ownership limit before FCC could grant approval for investment above that level. FCC said that: (1) $5 billion investment didn’t cause VoiceStream to violate foreign ownership restrictions. “Based on the level of foreign ownership that the Commission had previously approved for VoiceStream, DT’s investment did not require prior Commission approval.” (2) Provisions of merger agreement relating to VoiceStream’s participation in spectrum auctions while transaction was under review “did not require prior Commission approval.”

Commission said that VoiceStream and DT must comply with separate written agreement earlier this year involving 2 companies, Dept. of Justice and FBI that addressed national security concerns raised by federal agencies. Agreement covered issues such as provisions that limit control or influence of German govt. through exercise of its control of DT as shareholder. Furchtgott-Roth dissented on that aspect, with written statement elaborating on his concerns expected as early as today. In past, he has expressed concerns on “hijacking” of FCC’s license transfer authority by other govt. agencies, complaining that DoJ and FBI used license process to extract concessions from applicants in exchange for approval of license transfers.