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Deutsche Telekom acquisition under fire at Hill hearing

Congressional leaders and administration officials spar over the German government-owned telecom giant's proposed $52 billion purchase of VoiceStream Wireless.

WASHINGTON--Congressional leaders and administration officials sparred today over German government-owned Deutsche Telekom's proposed $52 billion purchase of VoiceStream Wireless, with some believing the combination sets a dangerous precedent for the U.S. telecommunications industry.

The firestorm in Washington on this issue has implications beyond the Telekom-VoiceStream merger. Other foreign government-owned carriers, such as France Telecom and Japan's NTT, also have deep pockets and are looking for further acquisitions. At the same time, many wireless and fiber carriers in the United States are considered prime takeover targets.

Sen. Ernest Hollings, D-S.C., testified at a hearing of the House Telecommunications Subcommittee that if the German phone giant is able to "get their foot in the door with VoiceStream," the company "will come back and get Sprint."

The hearing came as the Justice Department's antitrust division let lapse its ability to review the merger for antitrust concerns. That action was expected, as the concerns about the merger don't center on antitrust. The Federal Communications Commission and the multiagency Committee on Foreign Investment in the United States still must approve the merger, as must the president.

Most members of the subcommittee in appearance were sympathetic with Hollings and his arguments, including chairman Billy Tauzin, R-La., and the highest-ranking Democrat, Edward Markey of Massachusetts. Another vocal supporter was the House Commerce Committee's highest-ranking Democrat, John Dingell of Michigan, who with Markey has introduced a bill similar to Hollings' in the House.

With only weeks left in the current Congress, few expect action on either bill. Yet Hollings, who is also the highest-ranking Democrat on the subcommittee that oversees the FCC's spending, attached to that spending bill an amendment that would prohibit the commission from spending even one penny on a review involving a foreign government-owned telecom company.

That bill must be voted on this month to procure spending for next year, but Senate Commerce Committee Chairman John McCain, R-Ariz., has vowed to see Hollings' language stripped from the bill.

Capitol Hill insiders said that while some members are sympathetic with Hollings and his position, they fear starting a trade war or undermining the ability of the United States to open up other markets, such as China. In fact, while Hollings was testifying at the House subcommittee, his fellow senators were considering a bill that would extend permanent normal trade relations to China.

Several witnesses and subcommittee members, including FCC Chairman William Kennard and subcommittee Vice Chairman Michael Oxley, R-Ohio, noted the benefit of foreign investment in the United States, something they said was both expected and welcomed after the passage of the Telecom Act in 1996.

Current regulatory oversight of investment by foreign government-owned companies "strikes the right balance" in national security and fair competition, VoiceStream chief executive John Stanton told the subcommittee.

Telekom's purchase will enable VoiceStream "to become an even more vigorous U.S. wireless competitor," Stanton said. He said his company's rapid growth did not come as a result of "government largess," and the company's role as a new competitor to larger wireless companies won't change as a result of the merger.

see story: Telecom belle: VoiceStream But Markey said a World Trade Organization agreement the administration cites as permitting the Telekom deal "is wholly silent on any distinction between foreign investment and foreign-government investment," which he said was "a glaring omission."

The mere perception of protectionism might be enough to jeopardize world trade agreements, however, according to Deputy U.S. Trade Representative Richard Fisher.

"Some countries may perceive as protectionist" the legislation of Hollings and Dingell, he testified, noting the European Union has already expressed "strong concerns." In his testimony, Fisher made no distinction between foreign investment in the United States and foreign-government investment.

Fisher and other witnesses also mentioned a possibility of reprisals against U.S. companies abroad if Telekom were blocked from entering the U.S. market.