FCC SPELLS OUT PUBLIC INTEREST REASONS FOR DT-VOICESTREAM DEAL

FCC spelled out for first time at Commission level, in order on VoiceStream-Deutsche Telekom (DT) merger released Fri., relationship between Communications Act provision that bars foreign govt. ownership and section that allow indirect govt. investment. In granting license transfers in Powertel- VoiceStream-DT merger, order stipulated that indirect ownership by foreign govt. should be addressed only under Sec. 310(b)(4) of Act, not Sec. 310(a), which bars direct govt. ownership. Sec. 310(b) allows for foreign govt. to hold greater than 25% stake in corporate license “unless the Commission finds that the public interest will be served by refusal or revocation of the license,” order said. While text of final order contained no surprises, language has been closely watched for road map that it will provide for similar deals in future.

“It sets a template for how the Powell Commission will look at these deals as presumptively in the public interest unless they can be found through strong evidence to be otherwise,” Precursor Group analyst Rudy Baca said. “I think what this means is a green light for other deals. This means that the road has been paved for such transactions. It was a dirt road under the previous Administration, with some hairpin turns.”

Order was adopted 4-0 by Commission April 24, but not released until Fri. afternoon. It provides details as to why Commission didn’t side with interpretation of Communications Act by Sen. Hollings (S.C.), ranking Democrat on Senate Commerce Committee and merger’s most vocal congressional critic. He argued that Sec. 310(a) directly prohibited both direct ownership of license by foreign govt. and indirect control of licensee by foreign govt. But Commission concluded that Sec. 310(a) didn’t expressly ban indirect foreign govt. control of licensees: “Nothing in the language of Sec. 310(b)(4) limits its application to holdings that amount to less than control.” Order also stipulated that nothing in language of that subsection indicated that foreign govts. were to be treated differently from foreign corporations in that context. FCC rejected argument that DT essentially was “representative” of German govt. in light of Sec. 310(a) because govt. allegedly influenced carrier’s management decisions, provided financial backing and guaranteed certain civil service benefits to DT employees. (When deal closes, German govt. will own 45% of VoiceStream). “This interpretation of the term ‘representative’ seems to be based on the assumption that if it can be shown that a foreign government exercises de facto control over an entity, the entity becomes a ‘representative’ of the foreign government,” order said. That reading would expand definition beyond plain language of statute and Commission precedent, it said. FCC instead has interpreted “representative” to mean individual acting on behalf of foreign entity, order said.

Also of interest, according to industry source, is extent to which Commission stipulates that it focuses analysis only on DT’s entry into U.S. domestic markets. While that position is consistent with past FCC policy, source said it was important that order spelled that out expressly. Several commenters, particularly competitors to DT in Germany, had raised concerns about “tangled” relationship between DT and German regulator, charging discriminatory regulatory treatment for incumbent carrier. Order said there was “low” probability that combined company would engage in predatory behavior in U.S. markets based on DT’s dominant market position in Germany. “We find it highly unlikely, however, that the German government, through its control of DT, would direct the applicants to engage in unprofitable predatory practices in the United States to pursue national goals unrelated to maximizing profits,” order said. Based on DT’s fiduciary responsibility to its shareholders, order said carrier was likely to be deterred from pursuing anticompetitive, cross- subsidy schemes. Commission concluded that price predation by combined company wasn’t likely, particularly because there were 6 larger national wireless competitors.

“Unfortunately, the Commission in prior decisions had sent unclear signals about the application of Section 310 to this situation,” said Comr. Furchtgott-Roth, who issued separate statement. He approved decision, but dissented on national security agreement involving FBI, Justice Dept. and companies. “It is my hope that today’s decision -- built on the plain language of the statute -- will clear up any lingering ambiguity about our interpretation.” Furchtgott-Roth also lauded placement of public interest burden on Commission, not applicant, under Sec. 310(b)(4). While Commission ultimately failed to agree with arguments on Sec. 310 put forth by Hollings, Furchtgott-Roth said his input still strengthened final decision. “Senator Hollings has reminded us to remain faithful to the law and that is what this Commission has attempted to do.” Finally, he praised “subtle shift” in Commission’s approach to license transfers, saying order departed from past role of agency as “competition police.” Commission hasn’t undertaken market analysis for sake of market analysis, Furchtgott-Roth said. But he dissented on incorporation of voluntary side agreements on national security issues in FCC decision, saying Executive Branch concerns weren’t covered under Commission’s license transfer authority. “These agreements are not very voluntary, without such a deal, the FCC has refused to grant the license transfers.”