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Deutsche Telekom plays with regulatory fire

The German giant shows no fear of its foes in Congress as it continues its purchase of wireless systems in the United States in spite of a House hearing next week.

    WASHINGTON--Deutsche Telekom showed no fear of its foes in Congress as it moved today to continue its purchase of wireless systems in the United States, in spite of a House hearing next week and upcoming floor action in the Senate.

    Just a month after announcing its plans to acquire VoiceStream Wireless for $50.7 billion, the German telecom giant said it plans through VoiceStream to purchase U.S. cell phone company Powertel for $5.75 billion.

    The announcement was made despite a strong coalition of senators and U.S. representatives who have come out in opposition of Deutsche Telekom's plans, based on the company's foreign government ownership.

    Deutsche Telekom's first battle in Washington will occur Sept. 7, when the House Commerce Telecommunications Subcommittee will hold a hearing on legislation by the committee's highest ranking Democrat, John Dingell of Michigan. Dingell's bill would prohibit the Federal Communications Commission from transferring any U.S. communications licenses to a company owned by a foreign government. see related story: D.C. skeptical about foreign buyers

    Existing law opposes such a transfer, but the FCC has the authority to waive the law in the name of public interest. The U.S. adoption of a 1997 World Treaty Organization agreement obligates the country to allow such transfers to occur, and FCC Chairman William Kennard wrote recently that he would have to take the treaty into consideration when reviewing any such license transfers.

    "These transfers shouldn't automatically be deemed to be in the public interest," a source close to Dingell said.

    The star witness at the House hearing will be Sen. Ernest Hollings of South Carolina, the highest-ranking Democrat on the Senate Commerce Committee and the author of a bill nearly identical to Dingell's. Hollings has been the lead opponent to Deutsche Telekom on this issue, writing a series of letters to Kennard, one of them co-signed by 29 senators. It is Hollings' position that U.S. law should not be overwritten by an international treaty.

    Blocking Deutsche Telekom's acquisition of VoiceStream could have serious international repercussions, however. A White House source said that such a rejection would jeopardize the United States' ability to enforce treaty provisions with other countries. The European Union has said it would have the right to withdraw from some of the 1997 treaty conditions if Deutsche Telekom were blocked by the FCC.

    While today's move is a sign that Deutsche Telekom isn't inclined to wait quietly for regulatory approval of VoiceStream before making further U.S. investments, many experts felt the German telecommunications giant hadn't further compromised itself with U.S. government officials.

    "The purchase of Powertel fit VoiceStream's current purchasing pattern," a source close to Hollings said, indicating the deal would have happened with or without Deutsche Telekom's involvement.

    "I don't think their opponents will be any more concerned," said Elliot Hamilton, executive vice president of market researcher Strategis Group.

    The House hearing is expected to produce some fireworks. But with only a month left in the 106th Congress, the betting on legislative action against Deutsche Telekom is in the Senate.

    Appropriations bill a last-minute hurdle
    Just before the August recess, Hollings used his position as the highest-ranking Democrat on the Appropriations subcommittee for the departments of Commerce, State and Justice to add language to its appropriations bill. The Senate appropriations bill is a catch-all piece of budget legislation that funds much of the government's activities for the next fiscal year.

    The language prohibits the FCC from spending even one penny on a license transfer review involving a foreign government-owned company. This language was adopted over the strident objections of Commerce Committee chairman John McCain, R-Ariz., who is not an appropriator. see story: Telecom belle: VoiceStream

    If passed, the bill would block the Deutsche Telekom-VoiceStream deal for a full year.

    In September, the appropriations bill will be introduced for consideration in the full Senate, but an aide to McCain said he will use every parliamentary means available to block the bill's consideration if it has Hollings' language still attached.

    One potential obstacle for McCain is the fact that Hollings' original bill was co-sponsored by Senate Majority Leader Trent Lott, R-Miss., and Minority Leader Tom Daschle, D-S.D.

    If the bill does reach the floor and passes with the Hollings language still included, that language could be removed when conferees hash out a bill combining the Senate and House versions. By law, a combined appropriations bill must pass both houses by the end of this Congress, currently set for the first week of October.

    Most observers still believe Deutsche Telekom will prevail. "I don't believe the deal is in jeopardy," Hamilton said. "There's not enough to nix a deal." He said those objecting to the acquisition would be mollified.

    One approach Deutsche Telekom has proposed is a reduction of the German government's stake in the company. "If the German government can dilute their holdings" in Deutsche Telekom, the deal should go through, said The Yankee Group analyst Adam Zawel. He noted that the wireless industry is quickly becoming international, something that regulators are going to have to accept.