[Congressional Record Volume 145, Number 136 (Friday, October 8, 1999)]
[Senate]
[Pages S12320-S12321]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN (for himself and Mr. Burns):
  S. 1711. A bill to amend the Internal Revenue Code of 1986 to provide 
for a deferral of tax on gain from the sale of telecommunications 
businesses in specific circumstances or a tax credit and other 
incentives to promote diversity of ownership in telecommunications 
businesses; to the Committee on Finance.


         the telecommunications ownership diversity act of 1999

  Mr. McCain. Mr. President, I rise today to introduce legislation that 
will make sure that new entrants and small businesses will have the 
chance to enter and grow in today's megacorporation-dominated 
telecommunications marketplace. Together with my good friend and 
colleague, Communications Subcommittee Chairman Conrad Burns, I am 
pleased to bring forward for the Senate's consideration The 
Telecommunications Ownership Diversity Act of 1999.
  Yesterday's Washington Post had it exactly right in reporting that, 
``the telecommunications world is being remade by technology, 
deregulation, and a relentless momentum toward greater and greater 
size.'' In the past week alone MCI/WorldComm and Sprint announced what 
could be the largest merger on record, the FCC approved a merger that 
will create the country's largest local telephone company, and it has 
pending before it many other major mergers, including those that would 
unite CBS with Viacom and Bell Atlantic with GTE.
  Although this industry restructuring is unprecedented, it is not 
unexpected. Digital technology enables formerly-separate voice, video 
and data services to be offered in combination with each other. This 
``convergence'' makes it possible for many more telecommunications 
companies to compete with each other. And so some telecommunications 
businesses sell parts of their companies in an effort to focus on 
specific markets, while others acquire new companies to expand into new 
markets.
  This has opened the door for large companies to improve their 
business prospects. But what about new entrants and small businesses? 
Unfortunately, for them the story has been quite different.
  Mr. President, no one needs to be told that any small business faces 
significant barriers in trying to enter the telecommunications 
industry. These barriers are even more formidable when the entrepreneur 
happens to be a woman or a member of a minority group, due to their 
historically more difficult job of obtaining needed financing. 
Therefore, in this current telecom industry mixer, small businesses, 
especially those owned by minorities or women, are often left without 
partners, watching as bigger, more established companies, get to dance.
  That's not right, but there is an answer. The answer isn't to forbid 
mergers out-of-hand, or to retain hopelessly outdated FCC ownership 
restrictions, or to pursue constitutionally or economically doomed set-
aside programs. The answer is to give established industry players 
economic incentives to deal with new entrants and small businesses that 
counterbalance the incentives they have to deal with larger companies.
  And that's what our bill does. The Telecommunications Ownership 
Diversity Act will promote entry into the telecommunications industry 
during this period of unprecedented restructuring by providing 
carefully-limited changes to the tax law. These changes to the tax law 
are an indispensable component of the solution. Under current law, 
smaller companies typically must purchase properties for cash, and cash 
transactions are fully taxable to the seller. So naturally sellers of 
telecommunications businesses prefer to sell for stock, which is tax-
deferred, and which large companies have to offer.
  The act will level the playing field for new entrants and small 
businesses by giving telecommunications business sellers a tax deferral 
when the property is bought for cash by a small business telecom 
company. The act will also encourage the entry of new players and the 
growth of existing small businesses by enabling the seller of a telecom 
business to claim the tax deferral or gain if it invests the proceeds 
of any sale of its business in purchasing an interest in an eligible 
small business.
  In recognition of the convergence of telecommunications services and 
the growing importance of wireless and Internet-based services as an 
essential component of the telecommunications market, the 
telecommunications businesses eligible for this capital gains tax 
deferral are broadly defined to include not only broadcast and cable 
TV-type businesses, but also wireline and wireless telephone service 
providers and resellers, Internet service providers, information 
technology hardware and software companies, and video service 
providers.

[[Page S12321]]

  The Secretary of the Treasury is directed to establish the 
eligibility criteria for small businesses and individuals to qualify, 
based on the characteristics of the different types of 
telecommunications businesses and on actual data from recent 
marketplace transactions. In setting these limits the Secretary is 
empowered to establish different qualifications for different classes 
of eligible purchasers, such as minorities and women, to the extent 
consistent with law. To eliminate the potential for abuse, the act 
would require the eligible purchaser to hold any property acquired for 
three years, during which time it could only be sold to an unrelated 
eligible purchaser. The General Accounting Office is required to 
thoroughly audit and report on the administration and effect of the act 
every two years.
  Mr. President, I could say that, by utilizing tax deferral options in 
this way, we are sharing with smaller companies a portion of the 
investment benefits our tax laws give to major telecom companies. That 
would be accurate, but the real need for this act is much more 
fundamental and much simpler than that. Hallmark developments in 
the telecommunications industry have been made by gifted individuals 
with small companies and unlimited vision. In this sense the 
telecommunications industry is a true microcosm of the American free-
market system, in which the benefits produced by its entrepreneurs 
generate benefits that extend to all of us. It is therefore critically 
important that new entrants and small businesses have a chance to 
participate across the broad spectrum of industries that will make up 
the telecommunications industry in the Information Age. The act will 
help them do that, and Senator Burns and I are proud to sponsor it and 
to work for its enactment.

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