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Deutsche Telekom clears hurdle for VoiceStream buy

The German telecom giant is one step closer to owning a U.S. wireless company after a provision blocking it drops from a congressional spending bill.

Deutsche Telekom's purchase of VoiceStream Wireless has moved one step closer to reality as a provision that would have blocked the deal was removed from a congressional spending bill.

Sen. Ernest Hollings, D-S.C., had used his high-ranking position on the Senate Appropriations Committee to place a so-called rider on a spending bill that would have blocked the Federal Communications Commission from reviewing for the next year see story: Riders fall short in Congress any merger involving a telecom company owned by a foreign government. The German government owns 58 percent of telecom giant Deutsche Telekom, both directly and indirectly.

Senate Majority Leader Trent Lott, R-Miss., told reporters last week that the provision was to be removed from the bill, but Hollings and his supporters had been keeping their hopes up. Thursday, Hollings admitted defeat, at least on this one rider.

"While this provision has been removed, the issue certainly has not," Hollings said in a statement.

The Justice Department let lapse its opportunity to review the merger, but the FCC has promised a thorough examination. Still, because of a World Trade Organization treaty signed by President Clinton that permits state-owned companies to purchase U.S. companies, the FCC can only reject the merger if it is a clear violation of the public interest.

Deutsche Telekom proposed buying Bellevue, Wash.-based VoiceStream in July in a deal originally valued at $50.7 billion, but because of recent stock woes, the deal is now said to be valued at about $28 billion.

Hollings and others are concerned that foreign-government owned companies not only pose a national security risk, but have an unfair competitive advantage over U.S. companies in that they have access to government capital and receive certain protections from the government. Deutsche Telekom officials have promised U.S. regulators that the German government's stake in the company will decline.

Hollings has long maintained that a WTO treaty cannot trump U.S. law, and there is a law that prevents a company more than 25 percent-owned by a foreign government from purchasing a U.S. company. He repeated that position Thursday.

"As I have said from the beginning, I believe the existing laws that govern these transactions are clear, and the FCC cannot waive them."

see related story: D.C. skeptical about foreign buyers Hollings' provision was not removed from the spending bill because of a lack of support. Thirty-three senators joined him in signing his initial letter of concern to the FCC, and among the co-sponsors of his bill were Lott and the Senate Minority Leader, Tom Daschle, D-S.D.

Congress is already three weeks past its adjournment date, however, and Hill leaders are in the process of removing riders that might cause difficulty in order to pass relatively clean spending bills that the president won't veto. Clinton was opposed to Hollings' DT provision.

FCC Wireless Bureau Chief Tom Sugrue, who will head the commission's review of the merger, told reporters Tuesday that "there are national security issues" involved in the review.

Because of those issues, the merger must also be approved by the Committee on Foreign Investment in the United States.