Sprint Connection

Expect scrutiny from regulators of Sprint-SoftBank deal

Updated: 2012-10-17T04:04:05Z

By MARK DAVIS

The Kansas City Star

Uncle Sam OK’d the Chinese company that bought Kansas City-based AMC Entertainment Inc. this summer.

Next, he’ll consider the Japanese cellphone giant that wants to buy Overland Park-based Sprint Nextel Corp.

SoftBank Corp. will get several looks from federal officials before it can complete its $20.1 billion deal with Sprint.

Washington will weigh the effect on competition in the cellphone world. Regulators will need to find reason to let a foreign buyer own a big piece of an American telecom business. National security issues will come up, too.

And then, the Sprint buyout is likely to get a passing grade.

“They’ll do their job but at the end of the day there’s every expectation this deal will get cleared,” said Jeffrey Silva, a telecom policy analyst at Medley Global Advisors LLC.

Washington decided more than a decade ago that there’s nothing wrong with the kind of deal Sprint wants to do with SoftBank.

“The United States concluded that a foreign company owning a U.S. wireless carrier is okay,” said Paul Gallant, a managing director of Guggenheim Securities in Washington, D.C.

It happened in 2001 under tougher circumstances than the Sprint deal. Germany-based Deutsche Telekom wanted to buy VoiceStream Wireless Corp., which it later turned into T-Mobile USA.

Before then, no foreign owner held more than 25 percent of any U.S. wireless company.

And Deutsche Telekom was no ordinary buyer. The German government owned a big stake in Deutsche Telekom.

“It was a big debate,” Gallant said.

And it settled the issue.

T-Mobile USA is still owned by Deutsche Telekom. And Verizon Wireless is 45 percent owned by Vodafone Group, which is based in the United Kingdom.

And Sprint in all likelihood will become largely owned by SoftBank, which is not government-controlled.

To get there, Sprint will seek Federal Communications Commission approval to transfer ownership of its wireless spectrum licenses to SoftBank. The FCC will allow that if it finds the deal would be in the public interest.

Experts say it will.

Regulators are keen on the competition that comes from having several larger cell phone companies fighting over the same customers. They killed No. 2 AT&T Inc.’s proposed $39 billion buyout of T-Mobile on anti-trust concerns.

SoftBank will likely get a nod because it is funneling $8 billion into Sprint as part of this deal, money Sprint could use to compete better against its larger rivals.

The public interest test makes sense, Silva said, because a blanket ban against foreign ownership could work against U.S. economic interests.

“You don’t want to inadvertently restrict access to capital” from overseas sources, he said.

Nor does the nation want to overlook possible threats.

So, Sprint and SoftBank will need clearance from the U.S. Committee on Foreign Investment, known as CFIUS.

It’s a collection of federal agency heads from Treasury, Energy, Justice, Homeland Security, Defense, Trade and other departments.

Their question, pondered behind closed doors, will be whether foreign control of Sprint poses a national security concern.

CFIUS approved China-based Dalian Wanda Group Co.’s purchase of AMC Entertainment, one of the nation’s largest movie theater chains.

More recently, however, the U.S. House intelligence committee raised a warning about China-based Huawei Technologies Co. and ZTE Corp., two of China’s largest telecommunications equipment makers. Potential Chinese government influence, the committee’s report said, should keep those firms out of work involving U.S. government communications systems.

Again, the experts see the Sprint deal winning approval.

One more question may arise in the coming months.

The SoftBank deal would push three of the four largest U.S. wireless companies into the category of large foreign ownership. There is no precedent for that.

Gallant said he could see the Sprint deal leading to a congressional hearing on the scope of foreign ownership of the U.S. wireless industry. But he doesn’t see that happening in the same tone that encircles Huawei and ZTE.

Silva agreed.

“It wouldn’t surprise me if somebody brought it up at some point, a congressman or somebody,” he said. “Criticism by a congressman or two isn’t going to change the outcome.”

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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