[Congressional Record Volume 146, Number 83 (Tuesday, June 27, 2000)]
[Senate]
[Pages S5884-S5885]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HOLLINGS (for himself, Mr. Inouye, Mr. Rockefeller, Mr. 
        Dorgan, and Mr. Kerry):
  S. 2793. A bill to amend the Communications Act of 1934 to strengthen 
the limitation on holding and transfer of broadcast licenses to foreign 
persons, and to apply a similar limitation to holding and transfer of 
other telecommunications media by or to foreign governments; to the 
Committee on Commerce, Science, and Transportation.


               foreign government investment act of 2000

  Mr. HOLLINGS. Mr. President, in Saturday's Washington Post business 
section there is a headline story: German Phone Giant Seeks U.S. Firm. 
The concluding paragraph:

       But Hedberg stressed that a joint venture will not, under 
     any circumstances, be considered as the means of crafting an 
     offering for

[[Page S5885]]

     multinationals: Deutsche Telekom wants full control of 
     whatever course it pursues.

  Accordingly, on behalf of Senators Inouye, Rockefeller, Dorgan, 
Kerry, and myself, we introduce legislation to clarify the rules 
governing the takeover of U.S. telecommunications providers by overseas 
companies owned by foreign governments. The original rules in this area 
were established by statute in the 1930's, and while the law has not 
changed, the FCC's interpretation of this statute has.
  It is time to revisit this matter to ensure that current policy is 
consistent with efforts to promote vigorous domestic competition, 
maintain a secure communications system for National Security while 
meeting our International Trade Obligations.
  The statute expressly prohibits the transfer of a license to any 
corporation owned 25 percent or more by a foreign government, but 
allows the FCC to waive this prohibition if doing so would be in the 
public interest. Unfortunately, the FCC in previous rulemaking has 
found that the public interest is satisfied solely on the basis of 
whether the foreign government owned company is based in a WTO country. 
If the country is a member of the WTO, the FCC assumes that the public 
interest standard has been met.
  The legislation we introduce today will bar outright the transfer or 
issuance of telecommunications licenses to providers who are more than 
25 percent owned by a foreign government. We would not be alone in 
taking this step. Governments across the globe have prevented 
government owned telecommunications providers from purchasing assets in 
their countries. In the last month, the Spanish government prevented 
KPN, the Dutch provider, from purchasing Telefonica de Espana because 
of the Netherlands government's stake in KPN. They were not alone; the 
Italian and Hong Kong governments have recently thwarted takeover 
attempts by Deutsche Telekom, of Telecom Italia, and Singapore Tel, of 
Hong Kong Telecom, for just such reasons.
  Recent comments by Deutsche Telekom are particularly disturbing. 
During a recent press conference in New York, DT's CEO, Rom Sommer, 
stated ``that the market cap of Deutsche Telekom today vs. any American 
potential acquisition candidate means that nobody is out of reach.'' DT 
is approximately 59 percent government owned, has approximately 100 
million euros in cash and operates essentially from a protected home 
market. NTT, the Japanese Government owned provider and France Telecom, 
the French Government owned provider are similarly situated.
  Since 1984, U.S. telecommunications policy has encouraged vigorous 
domestic competition. The modified final judgment and the 1996 
Telecommunications Act are key examples of our efforts in this area. 
While our efforts to foster competition have benefited consumers, these 
efforts have depressed the earnings and stock prices of U.S. domestic 
providers.
  But in ``Promoting competition'' here at home we may be facilitating 
the ease by which foreign protected players may emerge with key U.S. 
assets. So for example, regulated European monopolists Deutsche Telekom 
and France Telecom, both majority foreign government owned--and subject 
to considerably less domestic competition, are reportedly eyeing U.S. 
companies.
  For more than fifty years, U.S. international trade policy has 
encouraged governments to separate themselves from the private or 
commercial sector. Throughout the 1960s and 1970s, the U.S. Government 
encouraged various privatizations of foreign government-owned 
commercial ventures.
  With the end of the Cold War and the rise of global capitalism, we 
can justifiably claim an enormous amount of success in these efforts. 
Unfortunately, these efforts are far from complete. Around the globe, 
some of the world's most important sectors remain shackled with 
government-owned competitors. These government owned companies distort 
competition and undermine the concept of private capitalism.
  To allow these government-owned entities to purchase U.S.-based 
assets would undermine longstanding and successful U.S. policy. 
Moreover, allowing these competitors into the United States could 
potentially undercut our efforts to ensure competition in our domestic 
telecommunications market and in markets abroad.
  Government ownership of commercial assets results in significant 
marketplace distortion. Companies owned by governments have access to 
capital, capital markets and interest rates on more favorable terms 
than companies not affiliated with national governments. Many lenders 
may assume, correctly, that individual governments would not allow 
these companies to fail.
  In addition, companies competing with these providers may suffer from 
increased costs as a result of the entrance of such providers into the 
market. Lenders may conclude that the difficulty in competing with a 
government-owned company will increase the likelihood of failure. As a 
result, the entrance of a government supported provider into a market 
raises troubling anti-competitive issues. Many of these anti-
competitive effects can be relieved merely by the elimination of 
government-owned stakes.
  Finally, with regard to foreign markets, it is troubling to permit 
companies to be regulated by the governments that own them. While there 
is little we can do to effect this situation, we can take care to see 
that it is not exacerbated. These companies may use profits from these 
anticompetitive markets to unfairly subsidize U.S. operations.
  I must raise the national security concerns that trouble me greatly. 
We can all agree that telecommunications services are important for 
national security concerns. To permit a foreign government to own such 
assets would raise too many troubling questions.
  The United States government--for national security purposes--created 
and nurtured the Internet in the 1960s and 1970s to ensure redundancy 
in communications. To permit foreign government owned companies to 
purchase the infrastructure necessary to support the Internet would 
undercut the very success of these efforts.
  This bill is timely for one additional reason. In recent days we have 
seen an increase in European Union antitrust scrutiny in the 
telecommunications area. Much of that activity has focused on two high 
profile proposed mergers, WorldCom-Sprint and Time Warner-AOL, despite 
the limited impact that these mergers will have on the European Union. 
This trend has become so pronounced that it received coverage in last 
weeks Washington Post in a story entitled, ``EU Resists Big U.S. 
mergers.''
  This increased antitrust activity is particularly troublesome because 
competitors to both companies are owned by European governments 
including the German, French and Dutch governments.
  Moreover, several of these government owned companies are widely 
reported to be interested in purchasing the remnants of Sprint that may 
be separated as a result of this investigation. In fact, according to a 
recent Financial Times story, as a result of aggressive antitrust 
enforcement, a strong American competitor--MCI WorldCom may fall prey 
to one of these government owned-competitors.
  For the United States Justice Department to take this step is one 
matter--these mergers involve American companies, primarily doing 
business in the United States. For the EU to take this step--when it is 
likely to assist European Companies owned by its member governments--is 
quite another.
  Moreover, this is not the first time that the EU has intervened in a 
U.S. merger to protect European government owned companies. Several 
years ago, the EU objected to the Boeing-McDonnell Douglas merger in 
order to protect the government owned Airbus consortium.
  In conclusion, this legislation establishes all of the correct 
incentives. It does not prohibit foreign investment; rather, it 
prohibits foreign government investment. Many companies have expressed 
a desire to enter the U.S.; ours is a lucrative market. By encouraging 
additional privatization of the government-owned telecommunications 
providers interested in providing services in the United States we will 
further the ideals of international capitalism.
                                 ______