[Congressional Record (Bound Edition), Volume 146 (2000), Part 11]
[Senate]
[Pages 15791-15794]
[From the U.S. 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

[[Page 15792]]

     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 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

[[Page 15793]]

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 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

[[Page 15794]]

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.

                          ____________________