Within a few weeks, the United States will make a pivotal decision—whether to prohibit foreign telecommunications firms that are partly owned by foreign govern- ments from competing in the US market. The decisive case is Deutsche Telecom’s bid to acquire the US mobile telephone op- erator VoiceStream (and VoiceStream’s own new acquisition, PowerTel).
Senator Ernest Hollings (D-SC) is doing everything he can to stop the German telecom giant. Along with 29 Senate co- sponsors, Hollings has introduced a bill (S. 2793) that would block Deutsche Telecom, or any other telecom owned more than 25 percent by a foreign government, from acquiring a US telecom firm. S. 2793 may not pass, but to reinforce their objections, Senator Hollings and the 29 other senators wrote a stern letter to William Kennard, Chairman of the Federal Communications Commission (FCC), urging the FCC to block the acquisition. Hollings worries about what he sees as the unfair character of competition between privately-owned US telecom firms and publicly-owned foreign firms. To put the debate in a sound bite, “How can a private firm compete with a government wallet?”
But even at the sound bite level, it’s wrong to characterize Deutsche Telecom as an extension of the German government’s wallet. Deutsche Telecom is now 42 percent privately owned (US investors own approximately 20 percent of all privately held Deutsche Telecom shares). Acquisition of VoiceStream by Deutsche Telecom, through a share exchange, will increase the private ownership of Deutsche Telecom to 55 percent. The German Federal Government is already a largely passive investor, holding no “golden share” in Deutsche Telecom and only one of 20 board seats; in fact, the German government plans to sell off the rest of Deutsche Telecom as fast as market conditions permit. Deutsche Telecom enjoys no special tax breaks. Nor can it borrow from the German Finance Ministry. Indicative of the arm’s length relation between Deutsche Telecom and the German government is that the Standard & Poor’s credit rating for Deutsche Telecom is AA- (the same as AT&T, SBC, and BellSouth), while the German sovereign rating is AAA.
