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Tech

When Does a Merger Hurt National Security?

The bidding war for Sprint raises questions about foreign ownership of American telecoms.

Softbank has offered over $20 billion to buy Sprint. If the deal goes through, the Japanese firm will be the only foreign company with a controlling interest in a top-tier U.S. telecom operator.(Shizuo Kambayashi/AP)

photo of Brian Fung
May 22, 2013

Correction: An earlier version of this story erroneously claimed that Vodaphone is seeking a takeover of Verizon. 

There's a war on. It's a bidding war—involving Softbank, a major Japanese telecom company, and Sprint and Dish Network. Dish has been trying to derail Softbank’s $20.1 billion buyout of Sprint. If the sabotage attempt succeeds, Dish stands ready to take over. In April, Dish met Softbank’s bid with a rival counteroffer of $25.5 billion. Whoever wins will gain control of the nation's third-largest wireless carrier. 

As if outbidding Softbank wasn’t enough, Dish is now also making its case with ads atop National Journal along with The Hill, Roll Call, Politico, and The Washington Post. The ads warn of the danger posed by letting the U.S. telecom industry out of "American hands." The campaign also comes along with a website raising the alarm about a potential foreign takeover.

 

Dish's intentions are apparent: Target Washington policymakers susceptible to arguments about national security. The message comes as high-profile hacking attempts are exposing vulnerabilities in the country's communications infrastructure. Even if the connection between an obscure financial transaction and the nation's defense aren't immediately clear, the concerns are real. Softbank uses telecom hardware from China, which has been linked to countless cyberspying attempts against U.S. companies and government agencies. If Softbank were to integrate the Chinese equipment into its operations with Sprint, it's fair to ask whether hackers would have a convenient backdoor into the United States.

Sprint and Softbank have recently resolved not to use Chinese equipment if the merger went through, prompting Rep. Mike Rogers, R-Mich., the chairman of the House Intelligence Committee, to say he was “pleased” but would continue to watch the national security implications of the deal with a close eye.

Dish’s ads don't declare foreign influence in the U.S. telecom industry should be treated with suspicion. Still, judging by the U.S.-centric tone of the ads, it's easy to get a false impression.

A Dish exec clarified, saying the company's objection is targeted primarily at "the China issue."

"It's pointing out legitimate concerns," said Jeff Blum, Dish's senior vice president and deputy general counsel. "We're not the experts; we don't have access to classified information. We've just gathered what's publicly available and allowed the decision makers to evaluate that by drawing attention to it."

It's not unusual to see international operators hold major stakes in U.S. communications companies. Until very recently, T-Mobile was owned and managed by Germany’s Deutsche Telekom. Great Britain’s Vodafone has a minority stake in Verizon Wireless. It's not clear what, if anything, there is to make of the fact that "non-American" seems to be a codeword for "Chinese" in Dish's ads. But it's very likely to gain traction among the policymaking set in Washington. 

 

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