Apr 30, 2001 12:00 PM,

FCC OKs DT/VoiceStream combo

Kelly Carroll

After a lengthy, controversial deliberation, the FCC last week cleared Deutsche Telekom's acquisition of VoiceStream Wireless, determining that the union benefits U.S. consumers.

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News of the approval hit the wires before the FCC completed the final draft of the decision, causing FCC officials to be tight-lipped during an impromptu press conference. The officials confirmed the FCC's four commissioners unanimously approved the $26 billion merger.

The deal is subject to one more regulatory hurdle. The Committee on Foreign Investment in the U.S., managed by the Treasury Department, has yet to approve it, though it is expected to do so by early May. The deal is expected to close after May 31, said a DT spokeswoman.

However, analysts believe getting past the FCC was the German megacarrier's biggest obstacle.

“This is the first case to fully make it through the FCC. It is very positive and it makes it clear that the U.S. is open to foreign investment. It only can be good for consumers,” said Kelly Cameron, a partner at the Washington, D.C., law firm of Powell, Goldstein, Frazer and Murphy who also spent 14 years as FCC senior counsel for international trade policy in the international bureau. “There is no reason that the U.S. should close itself off. This will encourage other governments to follow our example.”

Analysts see this merger setting a precedent for the telecom sector.

“This sets a whole template of how the Powell Commission will view these matters,” said Rudy Baca, global strategist with Precursor Group. “It is a green light for consolidation and acquisition by foreign entities.”

FCC officials said consulting the foreign-ownership provisions in Section 310 of the Communications Act helped the commission reach this decision.

The FCC determined the act does not prohibit “foreign governments from having indirect ownership of commission radio licensees in any amount in excess of 25% unless the commission finds that the public interest is served by denial in a particular case.”

Because the FCC analyzed the merger on the basis of the 45% ownership stake the German government has in DT today, there has been speculation that the government's role could increase later. Those who have monitored the transaction do not believe this will be an issue.

“Even if things change and there is an increase in governmental ownership, it still is not clear how or why this would be a problem,” Cameron said.

The German government, which has gone from having 100% ownership in 1996 to 45% today, has said that it will sell all its ownership in DT during the next few years, Cameron said.

Ultimately, the FCC believes the merger will benefit U.S. consumers because it will allow VoiceStream to build out its network, which gives the carrier national and international reach.

“We are opening our markets for investments… this is pro-competitive, and it will help consumers,” an FCC official said.

Not surprisingly, Sen. Ernest F. Hollings (D-S.C.) remained an outspoken opponent of the merger. Hollings, whose legislative attempts to block the deal last year failed, released a statement expressing disappointment that “the FCC [found] it in the ‘public interest’ to allow the German government to enter the U.S. telecommunications market.” Hollings will reintroduce legislation abolishing the FCC's ability to grant foreign government-ownership waivers to mergers based on public interest.

Hollings and other critics of the deal have expressed concerns that DT could engage in predatory pricing.

“If this did happen, it would just mean that U.S. consumers would get lower rates,” Cameron said.