[Congressional Record Volume 146, Number 96 (Friday, July 21, 2000)]
[Senate]
[Pages S7427-S7429]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DEUTSCHE TELEKOM
Mr. HOLLINGS. Mr. President, two Saturdays ago, Mr. Peter S. Goodman
reported in the Washington Post on the design of Deutsche Telekom, a
German government company, which is designed to take over any and all
U.S. telecommunications. In the final paragraph of that particular
story, the head of Deutsche Telekom said, no, they were not interested
in joint ventures. They were interested in total control.
This Senator from South Carolina participated in the 1996
Telecommunications Act, deregulating and decontrolling the American
telecommunications industry. We certainly didn't take it out from under
American control to put it under German government control.
I placed a call to the head of the Federal Communications Commission.
We had a conversation.
I ask unanimous consent that my letter of June 28 denoting that
conversation be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
U.S. Senate,
Washington, DC, June 28, 2000.
Hon. William Kennard,
Chairman, Federal Communications Commission, Washington, DC.
Dear Mr. Chairman: When I called, I knew what your answer
would be. Section 310 of the Communication Act of 1934
forbids a foreign government or any entity with 25% or more
foreign government ownership or control from being granted a
license by the FCC. I knew of the public interest waiver, but
in the 66 years of the Act the FCC has never waived, in any
significant fashion, the law for foreign government
ownership. I knew, also, that the Global Telecommunication
Agreement permitted the FCC to consider the public interest
satisfied if the entity or government was a member of the
WTO. However, this was permissive and not mandated. And other
countries, members of the WTO--Italy, Spain, and Hong Kong--
have prohibited foreign government ownership. I knew, also,
that the Congress and the Commission have been all out for
competition and that competition has cost domestic companies
their profits and values, making our companies vulnerable to
foreign takeover. And to my amazement, when I asked the FCC
position on foreign government ownership you hedged. First,
you said it ``was complicated''. You did mention the 310
statute, but then talked about the WTO requirement. I
countered it was not a required and certainly not in the
public interest. You continued telling me you wanted to come
up to discuss it with me to learn my position. I kept telling
you I was giving you my position by calling. I'm opposed to
foreign government ownership. Yesterday, I introduced a bill
tightening legal prohibitions against foreign government
ownership. Thereupon, you said well, if US West was taken
over by a foreign government the Western states would be in
an uproar. I countered I was already in an uproar. Again, you
wanted to come up and discuss to learn my position. I stated
that no further discussion was necessary and I asked that
when responding to any downtown lawyers inquiring to learn
the position of the Commission, that you refer them to the
law. You then said you weren't getting any calls, that your
phone ``wasn't ringing off the hook''. I said I knew that the
downtown lawyers were smart enough not to call directly, but
to find out indirectly the position of the Commission. The
call was then terminated without you stating your position,
leaving me totally frustrated.
A treaty confirmed by a \2/3\ vote in the Senate amends the
law--not an agreement. And the global telecommunications
agreement was never submitted to Congress. I can't emphasize
enough that the WTO provision isn't absolute, only
permissive. I can't imagine you taking the extreme position
of foreign government ownership and concluding this was in
the public interest--particularly after all the effort we
have made with the 1996 Telecommunications Act to deregulate
and afford competition. Now, to allow a foreign government,
protected from competition, to pick up a domestic
telecommunications company, bloodied by the competition, and
control telecommunications in the United States is
unthinkable.
With kindest regards, I am
Sincerely,
Ernest F. Hollings.
Mr. HOLLINGS. Mr. President, since the distinguished Chairman of the
Federal Communications Commission was rather elusive in that
conversation, I then prevailed on 29 other colleagues in the Senate in
a letter of June 29--the next day--and again on July 12, since I had
not received a response.
I ask unanimous consent to have printed in the Record those
particular letters dated June 29 and July 12 to the Chairman of the
Federal Communications Commission.
There being no objection, the letters were ordered to be printed in
the Record, as follows:
U.S. Senate,
Washington, DC, June 29, 2000.
Hon. William Kennard,
Chairman, Federal Communications Commission, Washington, DC.
Dear Mr. Chairman: Recently, a foreign government owned
telecommunications monopoly announced that it planned to
purchase a controlling interest in a major U.S.
telecommunications firm. This is contrary to U.S. law and is
inconsistent with our policy to promote competition and
maintain a secure communications system for our national
security.
We would not be alone among WTO member countries in
adopting this point of view. Italy, Spain and Hong Kong have
prohibited similar transactions when the acquiring company
was owned by a foreign government. U.S. regulators should be
similarly skeptical of such acquisitions in this country.
Congress and the FCC have made tremendous progress with the
passage of the 1996 Telecommunications Act in deregulating
and forcing competition in our domestic communications
market. This has promoted investment and the fruits of this
competition have been a dramatic reduction in cost and more
choice for American consumers. This competition and the
strict enforcement of our anti-trust laws have also rendered
these same domestic companies vulnerable to takeover by
foreign firms which are still owned substantially by their
governments.
To allow a foreign government owned corporation to purchase
a U.S. telecommunications company would be putting domestic
competitors at the mercy of a foreign government. No country
should allow this.
We are not opposed to foreign investment in U.S.
communications firms. Rather, as the U.S. law provides, we
oppose the transfer of licenses to companies who are more
than 25 percent foreign government owned. For example, there
was no objection to vodaphone's purchase of Airtouch or
France Telecom's holding a non-controlling (10 percent)
interest in Sprint.
For these reasons, we would urge that you highly scrutinize
any merger involving foreign government owned providers.
Sincerely, Ernest F. Hollings and 29 other Senators.
____
U.S. Senate,
Washington, DC, July 12, 2000.
Hon. William Kennard,
Chairman, Federal Communications Commission, Washington, DC.
Dear Mr. Chairman: Recent press reports indicate that
foreign government owned telecommunications monopolies are
interested in purchasing a variety of U.S. telecommunications
assets. Such an action would be contrary to U.S. law, which
is clear on this issue. I urge that you publicly address this
issue and put to an end the speculation that such a
transaction might be approved.
The World Trade Organization Global Basic
Telecommunications Agreement does not address government
owned providers. Moreover, U.S. statutory law is quite
specific. Under 47 U.S.C. 310(a) governments or their
representatives are barred outright from purchasing U.S.
telecommunications entities. Deutsche Telekom or France
Telecom, for example, fit this mold. Indeed, Business Week
specifically notes this week that one third of Deutsche
Telekom's employees are government workers who cannot be
terminated. In 1995, Scott Blake Harris, then head of the
FCC's International Bureau, testified before the Senate
Commerce Committee that Section 310(a)'s outright ban on
foreign government ownership of radio licenses should be
retained. Subsequent to the 1996 Telecommunications Act, he
wrote in the National Law Journal: ``More problematic,
however, are the restrictions placed by the Communications
Act on ownership of wireless licenses by a foreign government
or it's `representative.' Section 310(a) flatly prohibits a
foreign government or its representative from holding any
wireless license, directly or indirectly. This limitation is
not subject to being waived by the FCC.'' In that article, he
specifically mentioned Deutsche Telekom and France Telecom
relative to that ban.
Others argue that these transactions may come under Section
310(b) of the Communications Act. In 1995, U.S. Trade
Representative Mickey Kantor wrote Senator Robert Byrd that
Section 310(b) ``is regarded by foreign companies as a major
barrier to market access in the United States.'' He went on
to indicate that legislative authority was needed to ``remove
this restraint through international negotiations.'' As you
well know, after extensive debate and consideration of this
issue in both the House and Senate, the 1996
Telecommunications Act did not provide such authority. Thus,
it is not surprising that the European Union, in a 1999 trade
report, identifies Section 310 as retaining force and effect,
notwithstanding the Global Basic Telecommunications Agreement
in 1997. As the European Union correctly recognizes, an
executive agreement cannot override U.S. statutory text. As
George Washington stated in his farewell address, ``If the
distribution or modification of the powers under the
Constitution be in any particular wrong, let it
[[Page S7428]]
be changed in the way the Constitution designates, for while
usurpation in the one instance may be the instrument of good,
it is the customary weapon by which free governments are
destroyed.''
The law is clear. Moreover, public policy dictates that we
not permit the anticompetitive acquisition of our domestic
telecommunications companies by foreign government owned
entities. It's unthinkable, for example, under present law
that Bell South is forbidden from buying AT&T, but Deutsche
Telekom, a monopoly owned by the German government with one
third of their employees enjoying permanent employ, can buy
AT&T. Bottom line: We did not deregulate U.S.
telecommunications to permit the regulated foreign government
owned telecommunications companies to take over the U.S.
market.
Sincerely,
Ernest F. Hollings.
Mr. HOLLINGS. Mr. President, finally, on July 20, I received a letter
from the Honorable William E. Kennard, Chairman of the Federal
Communications Commission, which I ask unanimous consent to have
printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
Federal Communications Commission,
Washington, DC, July 20, 2000.
Hon. Ernest F. Hollings,
U.S. Senate, Russell Senate Office Building, Washington, DC.
Dear Senator Hollings: Thank you for your letter regarding
the reported plans of foreign government-controlled companies
to purchase a majority interest in U.S. telecommunications
firms. As you know, there is presently no application of the
type you describe before the Federal Communications
Commission, and thus I can only address your concerns as a
hypothetical matter. Nevertheless, I share your concern that
purchase of a U.S. carrier by a foreign government-controlled
company does present unique competition issues. Please be
assured that I will carefully scrutinize any transaction in
which a foreign government-controlled telecommunications
carrier seeks to control a U.S. carrier.
Any such proposed transaction would come before the
Commission as an application to exceed 25 percent foreign
indirect ownership of a common carrier radio license. In that
case, the applicant would have to meet both the statutory and
regulatory requirements established by Congress and the
Commission.
I wholeheartedly agree that we have made tremendous
progress since the passage of the Telecommunications Act of
1996 in deregulating and prying open our domestic
communications market and that we must remain vigilant in
ensuring that our market stays open and robust. Moreover, I
believe, as you do, that the Commission's approach must
promote competition and maintain a secure telecommunications
system for our national security. Thus, while it would be
inappropriate for me to prejudge the outcome of a
hypothetical transaction, I assure you that I would give
close scrutiny to any merger involving foreign government-
controlled providers to determine whether it would pose a
very high risk to competition in the United States,
compromise national security, and be consistent with the
Communications Act, the FCC's rules and U.S. international
obligations.
As always, I welcome the opportunity to work with you to
further address any questions or concerns related to our
scrutiny of such transactions.
Sincerely,
William E. Kennard,
Chairman.
Mr. HOLLINGS. Mr. President, sections 310(a) and 310(b) are very
clear.
It could be noted historically--because there has been an ongoing
intramural debate with respect to the turning over of our
telecommunications to foreign governments by the White House, by this
administration, by the U.S. Trade Representative, Ambassador
Barshefsky, and its minions--that we have had to struggle with, and I
included those documents.
I reference also that particular letter of July 12 because in there I
cited the ongoing concern of then former Ambassador Mickey Kantor with
respect to German government participation in America's
telecommunications.
I also cited in there that the head of the international bureau, Mr.
Scott Blake Harris, in 1995, testified before the Senate Commerce
Committee that section 310(a)'s outright ban on foreign government
ownership should be retained.
Of course, we had the act in February of 1996. Subsequent to that,
later in 1996, the head of the FCC's former international bureau, just
retired, included a very instructive article in the National Law
Journal:
More problematic, however, are the restrictions placed by
the Communications Act on ownership of wireless licenses by a
foreign government or its representative. Section 310(a)
flatly prohibits a foreign government or its representative
from holding any wireless license, directly or indirectly.
This limitation is not subject to an FCC waiver.
Mr. President, there is no question that law has not been changed.
I know about the attempts made by Ambassador Barshefsky and the
global telecommunications agreement in 1997--that if you are a Member
of the WTO, then you automatically qualify under the public interest
requirement of the telecommunications law to own U.S.
telecommunications assets. They say it's in the public interest, that
it promotes competition.
That has been the wag, or argument, that I have heard from time
immemorial. But that is not the case at all. You take Deutsche Telekom,
which recently had a bond issue. It was very successful--$14 billion.
Mind you me, they wouldn't have collected some $14 billion if it were a
private company. But this is ``a government cannot fail'' with one-
third of the employees having permanent employment. You cannot fire
them. That is Deutsche Telekom, and by the Chairman's own
acknowledgment, with 58-percent German government ownership.
We are not talking about German entities. We are talking about the
German government. You can't let foreign governmental ownership enter
the free market here, a market that has been deregulated by the 1996
Telecommunications Act, and say: Oh, yes, we are ready to compete.
We have a strange situation whereby Deutsche Telekom under Ambassador
Barshefsky and some in the White House--and perhaps some at the FCC--
say: Yes. It is already in the public interest. They are competitive;
we are promoting competition. But Deutsche Telekom can take over, let's
say, AT&T, but under the law, categorically, Bell South cannot.
Let me mention why I emphasize the German government--because there
was a letter by the distinguished chairman of our committee, the
Senator from Arizona, Mr. McCain, in which he referred to ``entities.''
He didn't refer to the government. Let's get right to entities and
globalization.
There was a recent article that said, after all, Senator Hollings was
a veteran of World War II where he fought against the Germans. It
suggested that Sen. Hollings was anti-German and that he thought maybe
the German government wouldn't be friendly. You know, coming from South
Carolina, we are supposed to be dumb, and Senator Hollings just didn't
understand that we have moved into globalization, the world economy,
and world competition.
I don't want to sound like Vice President Gore, but I am constrained
to acknowledge that maybe I helped start globalization. As the Governor
of South Carolina in 1960, I went to Europe in order to attract German
industry investment in South Carolina. As I stand on the floor, I have
116 German industries in the State of South Carolina. I have the
headquarters of British Bowater. I have the North American headquarters
of Michelin. They have 11,600 employees. I have Hoffman-LaRoche from
Switzerland.
You ought to come down there and join the smorgasbord of global
competition.
That is not the case that concerns the Senator from South Carolina.
What concerns me is ``governmental.'' We certainly didn't deregulate
American control to put it under German control. It is that clear. It
does not require any careful review. The law is the law. We refuse to
change it. The White House acts like it has been changed. Some on the
FCC act like it has been changed. The law and the policy have not been
changed.
Several things have occurred. We have a bill in with 15 cosponsors,
with the distinguished majority and minority leaders as cosponsors. We
have over on the House side Congressmen Dingell and Markey who
introduced a similar bill. We put a rider on the Commerce-Justice-State
appropriations bill, which is an appropriations bill that lasts for
only one year, and no money is to be expended to give licenses to
foreign governments under Section 310.
You would think that they would get it. The Dutch got it. It is very
interesting that KPN tried to take over Telefonica d'Espana. They were
rejected. Incidentally, Deutsche Telekom tried to take over Telecom
Italia. Italy voted them out. Singapore Tel tried to
[[Page S7429]]
take over Hong Kong Telephone. Hong Kong voted them out.
I ask unanimous consent to have this article dated July 19 printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Dutch State To Slash KPN Stake
(By Kirstin Ridley and Matt Daily)
LONDON/THE HAGUE, July 19 (Reuters)--The Dutch government
may slash its 43.5 percent stake in Dutch carrier KPN Telecom
to just over 20 percent as part of a global share issue
slated for the fourth quarter, an industry source said on
Wednesday.
KPN is hoping to raise around 15 billion euros ($14
billion) from the issue, with about four billion slated for
third generation mobile investments in Germany, the
Netherlands and Belgium and 10 billion for the government,
the source said.
The Dutch state had hoped to raise around nine billion
euros from its current auction of UMTS licenses. But with
only five major contenders for five licenses, analysts say
earlier estimates look for too high, and some now believe the
licenses might only fetch around three billion euros.
That shortfall for government coffers could now be made up
with the KPN share issue.
The Dutch Finance Ministry, whose large KPN stake was
blamed for prompting Madrid to help derail Dutch merger talks
with Spanish carrier Telefonica in May, said only it would
take part in the stock issue ``in a big way''.
``We can't say the percentage (of our stake that will be
sold in the issue) * * * but we are going to participate in
the offering because we have said in the long-term we would
get rid of our stake,'' said Finance Ministry spokesman
Stephan Schrover.
The Dutch government has said it will have sold its entire
KPN stake by 2004. But it has so far given no timing details,
and news of the share issue sent KPN's stock plunging.
It ended 7.3 percent lower at 42.87 euros, valuing the
company at around 44.2 billion euros.
The industry source also noted that a listing of KPN
Mobile, KPN's cellphone business which is 15 percent-owned by
Japanese mobile phone giant NTT DoCoMo, was ``pencilled in''
for next February or March. It was delayed from an earlier
proposed date of September, 2000, due to the planned KPN
share issue.
kpn eyes belgium buy-out
Meanwhile KPN, which is seeking to buy the 50 percent it
does not own in Belgian mobile phone group KPN Orange, is
likely to offer its current joint venture partner France
Telecom around one billion euros for its stake.
France Telecom has to resolve questions surrounding its 50
percent stake in KPN Orange, which it inherited from its
takeover of British mobile phone company Orange, for
regulatory reasons because it holds a competing Belgian
cellphone operator.
KPN will raise the 15 billion initially through a short-
term bridging loan, which it will pay back swiftly from the
issue.
For bankers say KPN would risk compromising an implied mid
investment grade credit rating if it sought to raise a long-
term loan of that size. Any credit is strictly conditional on
prompt pay-back through the share issue, they say.
The issue will be aimed at institutional investors around
the world and at private investors in the Netherlands,
Germany and the United States. ABN AMRO Rothschild, Goldman
Sachs International and Schroder Salomon Smith Barney will
act as joint global coordinators.
FRESH SPANISH TALKS?
News that the state is cutting its stake could pave the way
for fresh merger talks with Spain's Telefonica.
KPN has said it remains open to any possible deal with
Spain's former state-owned telecoms giant. But it has also
noted that time is moving on.
Since May, it has signed up two new allies--Japanese
cellphone giant NTT DoCoMo and Hong Kong conglomerate
Hutchison Whampoa, making the accommodation of a Spanish deal
increasingly complex.
Nevertheless the aborted Spanish merger talks were partly
blamed on the fact that Telefonica's Chairman Juan Villalonga
had fallen out with his former schoolmate, Spanish Prime
Minister Jose Maria Aznar, as well as with key shareholders.
But Villalonga is now under mounting pressure from core
investors to resign amid a stock market probe into
allegations that he violated insider trading rules.
It remains uncertain whether any successor can be found
with the ambition and experience to run a Spanish/Dutch
venture.
(Additional reporting by Tessa Walsh.)
Mr. HOLLINGS. Mr. President:
The Dutch Government may slash its 43.5 percent stake in
Dutch carrier KPN Telecom to just over 20 percent as part of
a global share issue slated for the fourth quarter, an
industry source said on Wednesday.
If a foreign government owns more than 25 percent of the telephone
company, they are not welcome. If they own less than 25 percent, they
are welcome. We love the Germans. Tell them to come to America.
One addendum. This won't take but a couple of minutes because the
distinguished chairman of the Budget Committee is on the floor. I hold
the earlier announcement from a newspaper this week that the surplus
forecast has doubled. We heard the distinguished Senator, Mr. Roth of
Delaware, the chairman of the Senate Finance Committee, putting through
his budget. We had a vote this morning on the marriage penalty. Tax
cut, tax cut, tax cut. To this Senator who lives in the real world,
that is an increase in the debt.
When they announced this, I went to what they call the Budget and
Economic Outlook of the Congressional Budget Office. That is what the
article quoted that said the surplus doubled. On page 17, we can see
the debt, as reported by the CBO, goes from $5.617 trillion to $6.370
trillion, an increase of $753 billion.
It wasn't there that they found the surplus. I said, the President is
always good at finding surpluses, so I went to his Mid-session Review,
table 23 on page 49 in the back, and I see instead that the debt
increased $1 trillion.
Then I called Treasury and I asked them. I have now the most recent
report from this morning. It shows the public debt to the penny. It has
increased $22 billion according to the U.S. Treasury.
I reiterate the Budget Committee's wonderful offer: If you want to
become a millionaire--and I am sure the distinguished chairman can find
that million in the surplus; I have heard him mention it, also--we will
give $1 million to anyone who can find a real surplus that Congress and
all the media are talking about.
I yield the floor.
The PRESIDING OFFICER. The Senator from New Mexico.
Mr. DOMENICI. I wonder if I might ask Senator Hollings a question. I
was listening to the remarks about telecommunications, and I was very
impressed.
Am I to understand that we have a regulated, governmentally-owned
company that wants to buy into a deregulated market which we have
created?
Mr. HOLLINGS. The Senator's question concludes--as astute as our
distinguished chairman is--the answer. It is that Deutsche Telekom is
government regulated and controlled. That is the best answer. We were
trying to continue the competition, but we cannot compete with the
government coming in. If they are going to allow that, I vote under
your budget and mine that we go over there and take over China's
communications. If we can take over China's communications, we can cut
the defense budget in half. They wouldn't know where to go or how to do
it. We would be in charge over there in Beijing.
I thank the distinguished chairman.
Mr. DOMENICI. Senator, I don't agree on whether we have a surplus or
not, and I listened attentively to that discussion, too, but I actually
think you are raising a very good point in telecommunications. I voted
for the telecommunications reform, but one of the big strengths, we
were deregulating the industry.
Mr. HOLLINGS. That has caused part of the economic boom we are
enjoying at this particular time. All this stirring of investment and
expansion and services and competition is a wonderful dynamic that we
all enjoy. Let's keep it going.
Mr. DOMENICI. It seems to me the question we have to ask is, Do we
want a deregulated market that is working very, very well?
Mr. HOLLINGS. In this particular company, Deutsche Telekom, one-third
of the employees have permanent employment. Wouldn't you and I love
that--permanent employment?
Mr. DOMENICI. I have been here 28 years. It is almost that.
Mr. HOLLINGS. I have been here 34 years just about, and I am still
the junior Senator. And Senator Thurmond said, ``Get used to it.''
Mr. DOMENICI. On this one subject, I have great respect for you and
consider you a friend. I hope you are my friend.
Mr. HOLLINGS. You are my best friend.
____________________