Correction: A previous version of this article incorrectly reported that Dish Network said SoftBank chief executive Masayoshi Son admitted to Justice Department officials that the company bribed Chinese officials for telecom contracts in China. Son is a former board member of a company that reached a settlement with the Justice Department on corruption charges. SoftBank said Son had no knowledge of the activities investigated by the department.
As it tries to win a bidding war over Sprint, Dish Network has made no secret that it is drumming up national security concerns over a rival’s offer for the nation’s third-largest wireless carrier.
In newspaper ads this week, Dish compared the $20 billion offer by Japan’s SoftBank to the controversial 2006 efforts by a Dubai company to acquire U.S. seaports, a proposal foiled by security concerns. The satellite television firm also launched nationalsecuritymatter.com, which warns: “The sale of wireless and wireline infrastructure with national strategic importance to a foreign company will weaken the security of the United States.”
A congressman from Colorado, where Dish is based, raised similar fears during a recent House hearing.
“Do you agree that surrendering control of a critical infrastructure provider like Sprint to a foreign entity like SoftBank beyond full U.S. oversight deserves careful consideration and should not be hurried?” Rep. Cory Gardner (R-Colo.) asked an expert on the matter.
But hammering away at the issue may backfire, experts say.
When Gardner raised his question, he got an answer he probably didn’t expect to hear: Letting a foreign owner buy Sprint may be preferable to U.S. officials, because it gives them more oversight over the deal.
“So there is an odd set of incentives for the U.S. government, where they might actually have more regulatory authority if they let [the SoftBank] transaction go through,” Stewart Baker, former head of the Committee on Foreign Investment in the United States (CFIUS), the agency that reviews foreign mergers, told Gardner this week at the House Energy and Commerce Committee hearing.
Through foreign ownership conditions in CFIUS and Federal Communications Commission reviews, regulators can create rules that would stop SoftBank from buying foreign equipment for Sprint’s networks. U.S. officials wouldn’t have that degree of control if Dish were to buy Sprint and wanted to import Chinese equipment, he said.
CFIUS has yet to rule on the mega-deal, though a decision is expected within days. Some analysts watching the competition for Sprint say that if regulators approve the merger with SoftBank, Dish’s offer will become less attractive to Sprint shareholders, even though Dish offered $5 billion more. That’s because Dish’s bid came in later and faces regulatory reviews that will take months.
Dish’s campaign against SoftBank appears more like a last-ditch effort to use its influence in Washington, some analysts say. Dish has been on a buying spree, snatching up bankrupt Blockbuster and LightSquared, in a scramble to transform itself from a television service provider to an Internet and mobile powerhouse.
“There’s ample evidence to suggest these 11th-hour rumblings are misleading byproducts of a U.S. government review that’s nearing completion,” said Jeffrey Silva, a telecom and media industry analyst at Medley Global Advisors.
The concerns voiced by lawmakers, including Sen. Charles E. Schumer (D-N.Y.), focus on SoftBank’s business relationship with Huawei, a Chinese telecom equipment maker that has been under scrutiny by the House Intelligence Committee.
Dish in recent weeks raised concerns with federal officials that SoftBank chief executive Masayoshi Son had past connections to UTStarcom, a company that settled corruption charges brought by the Justice Department in 2009. Son had served on the company’s board until 2004. SoftBank denied that Son had any knowledge of UTStarcom's activities in the Justice probe and was not mentioned in the investigation.
SoftBank has promised to rip out $1 billion in Huawei equipment from any of Sprint’s assets.
The Japanese tech and wireless giant also has agreed to give U.S. officials unusual access into Sprint’s business if the deal goes through. It said it would allow U.S. security officials to approve a board member and vet purchases of foreign equipment.
“You have stronger regulatory controls when a foreign acquirer goes throughTeam Telecom at the FCC or CFIUS,” said Nova Daly, a consultant at Wiley Rein and former head of CFIUS at Treasury. “So you clearly have more power in that sense.”
SoftBank would own 70 percent of Sprint, which has a significant fiber network and owns massive amounts of airwaves, a rare resource.
Some analysts say the concern over SoftBank’s use of Huawei equipment is overblown.
Deutsche Telekom, which owns T-Mobile USA, uses Huawei equipment in Europe. Vodafone, which owns half of Verizon Wireless, last year named Huawei its global supplier of the year. Huawei equipment is not used in Verizon Wireless systems.
Gardner, who received $23,000 in campaign donations from Dish in his 2010 election campaign, said he would be concerned about any foreign buyer of a wireless firm.
“Any time you have a foreign entity taking over critical infrastructure of a company like Sprint that owns so much spectrum, there is cause for concern,” Gardner said in an interview. He denied being influenced by Dish’s contributions, saying Dish, Sprint and SoftBank officials have all lobbied his office on their merger plans.
“It’s obvious as a Colorado company, I’ve talked to Dish about this issue and many other issues. But I’ve also heard from Sprint and SoftBank,” Gardner said.
Schumer voiced similar concerns in letters this week to Treasury Secretary Jack Lew and the acting chairman of the Federal Communications Commission, Mignon Clyburn.
“SoftBank, which proposes to acquire Sprint as well as its spectrum, is a Japanese company with alleged ties to China, the country that is currently the leading source of cyber breaches,” Schumer wrote.
Dish has connections with Schumer’s office. The company’s senior manager for congressional affairs, Jessica Straus, served as Schumer’s campaign fundraiser between 2009 and 2011. Schumer’s office said the lawmaker discussed the issue with Straus but only after he had decided to weigh in with concerns. “The issue was decided on the merits,” spokesman Matt House said.
Dish strongly denied using donations and personal ties to influence lawmakers.
“We are proud to have Ms. Straus on our team. This question is a side show that fails to address the serious national security concerns raised by SoftBank-Sprint that have been recognized by a growing chorus of leaders from both sides of the aisle,” Dish spokesman Brian Maddox said.
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