U.S. Wireless Ownership
10.24.2012 by Andrew M. Seybold
The issue I have is why the shift within the federal government to permit foreign companies to own a majority of these networks when we are trying to keep jobs and money in our own country.
The ground rules keep changing. Of the top four networks in the United States today—AT&T, Sprint, T-Mobile, and Verizon—two are already fully or partially owned by companies headquartered outside the United States. Deutsche Telekom in Germany owns T-Mobile, and T-Mobile has made an offer to buy MetroPCS. If that deal goes through, the new T-Mobile-MetroPCS will be foreign owned. Vodafone UK owns about 46% of Verizon, and Sprint is about to become 70% owned by SoftBank of Japan. That will also mean that with Sprint’s control of Clearwire, Clearwire will be controlled if not owned by SoftBank as well. What we see here is a trend toward foreign ownership of our U.S. wireless network operators like never before.
Looking back a few years, we see that when NextWave showed up at the PCS auctions in 1996, bid on, and won spectrum, the FCC and the federal government said it had too many foreign investors. What ensued was a long drawn-out battle that ended up in court with NextWave returning spectrum to the FCC, which signaled the end of NextWave as a viable network operator. Next came the failed AT&T purchase of T-Mobile.
NTT DoCoMo, the largest network provider in Japan, had, I believe, a 20% investment in AT&T at the time of the Cingular/AT&T merger, but AT&T bought NTT out either before or during the merger. At one point, SK Telecom, a Korean network, made a bid for Sprint that was rejected.
As you can see, there is a long history of foreign investors coming after U.S. networks, and you can’t blame them because we have some of the lowest customer prices while maintaining relatively high margins. I am not writing this article because I am against SoftBank’s purchase of Sprint. If it will strengthen Sprint it will be good for the industry as a whole. However, since SoftBank will obviously have majority control over the board of directors and may not fully understand the differences between the Japanese market and our market, the result might actually be to lessen the competitiveness of Sprint, and thus Clearwire. We will have to wait and see.
The issue I have is why the shift within the federal government to permit foreign companies to own a majority of these networks when we are trying to keep jobs and money in our own country. I am curious about the ownership rules apparently changing over time and, of course, I am concerned as a U.S. citizen about the profits from these foreign-owned companies flowing off-shore and perhaps not being used for further investment and/or research and development here.
Companies that invest in or buy other companies do so for several reasons, but primarily to make more money for the company and its shareholders. They do not make money by leaving all of the profits in the companies they purchase; they take the money out of the company and put it into their own coffers. In the case of Verizon Wireless, for example, over the past few years, Vodafone UK has received many billions of dollars. This is great for Vodafone, and certainly a return on its investment, but I am not so sure that in the long term it is good for the U.S. wireless marketplace. One could argue that it was partly Vodafone’s investment in Verizon that enabled Verizon to expand its network and service offerings and therefore it is entitled to a return on that investment. There is no clear or definitive, black-and-white answer for foreign investment.
Certainly Sprint can use the billions it will receive from SoftBank, and certainly Sprint has taken steps to end up with control over Clearwire and Clearwire’ s spectrum holdings (which are substantial). However, I have to wonder whether the investment directly into Sprint will be enough to help it get back on track. Sprint appears to be on its way back in any event, and perhaps this will enable it to move more rapidly. More than half of the SoftBank investment will go to existing Sprint shareholders—good for them—but it doesn’t really help Sprint in either the long term or the short term. Further, with only 30% of the Sprint stock still in play, I am not at all sure what this will do to Sprint’s ability to raise additional funds when and if needed.
It really confuses me when our federal government denies AT&T and T-Mobile the ability to become one company and to reduce the foreign ownership of T-Mobile in the bargain, and then, if the Sprint-SoftBank deal passes, to permit yet another of the top four networks to become not only foreign owned, but to acquire by control a huge amount of additional spectrum from Clearwire. What I don’t see in the U.S. policy for commercial wireless networks is any consistency. There should be one set of rules that is known to everyone and those in the business of providing commercial wireless service should know and understand the rules.
Today it seems that if there are any rules in place they are simply guidelines and each situation is looked at differently. I am guessing that this purchase will fly through the U.S. government because it strengthens one of the four major network operators as opposed to consolidating the top four into three as the AT&T/T-Mobile deal would have done. But at the same time I have to ask whether making money for a Japanese company is something that is okay with our government instead of helping make our network operators stronger within the United States and keeping the re-investment and profits in the United States. I have to wonder what will happen a few years from now when Sprint/SoftBank decides to buy T-Mobile.