Japanese ownership of Sprint probably isn’t a security risk

May 27, 2013

Sen. Chuck Schumer (D-N.Y.) is the latest policymaker to express concern about the Japanese telecommunication firm Softbank's bid to acquire Sprint. "The transfer of Sprint’s substantial U.S. telecommunications infrastructure to a foreign company raises national security questions," Schumer wrote in a letter to two Obama administration officials who will review the merger.

(Photo by Yumi Kimura)
(Photo by Yumi Kimura)

Sprint operates key parts of America's networks and also does significant contracting work for the American government. Softbank's critics contend that the Japanese firm is too closely tied to the Chinese government, and could give the Chinese an opening to install telecommunications equipment in the United States that is vulnerable to Chinese attacks.

But so far, the evidence that the Chinese government has undue influence over Softbank has been thin. At least one vocal critic, Dish Networks, is a rival suitor for Sprint that has a vested interest in sinking Softbank's bid. Legitimate security concerns can likely be addressed by attaching conditions to the merger rather than blocking it outright.

There's good reason for concern about foreign companies controlling U.S. telecommunications infrastructure. If malicious equipment were installed in U.S. networks, it could allow hostile powers to intercept or disrupt American communications—a serious threat to national security. And compromised equipment can be extremely difficult to identify because it can be programmed to behave normally until it receives a specific signal.

So using a company's IT equipment or services necessarily means trusting the firm's engineers and executives. And some firms are so close to foreign governments that we can't afford to give them control over U.S. infrastructure. For example, an October Congressional report found that close ties between the Chinese government and two Chinese firms, Huawei and ZTE, made it dangerous to use their equipment in U.S. networks.

But Softbank seems to be in a different category. Japan is a liberal democracy and a U.S. ally. Its government is not known for launching attacks on U.S. networks. And while critics claim that Softbank is tied to the Chinese government, they haven't produced very much evidence for that claim.

There's particular reason to be skeptical of arguments made by Dish Networks, which is also seeking to acquire Sprint. The U.S. firm has launched a PR offensive to portray Softbank's acquisition of Sprint as a security threat. But Dish's interests are obvious: raising national security concerns makes it more likely that Sprint will choose to accept Dish's offer rather than Softbank's.

The genuine security concerns with the merger can probably be addressed through merger conditions. The government is seeking removal of some Chinese equipment from the network of Sprint subsidiary Clearwire. The feds also want the right to approve some of Sprint's future purchases of telecommunications equipment. And it wants a seat on Sprint's board to allow it to monitor national security issues at the company. If Softbank agrees to such conditions, that should avoid the risk that the security of Sprint's network will be compromised.

Careful scrutiny of the Softbank-Sprint transaction is warranted. But blocking the deal probably isn't.

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