Despite National Security Concerns, U.S. Seen Nearing Action on Softbank Deals

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By Paul Barbagallo

Though national security concerns have grown about Japan-based Softbank Corp.'s $20.1 billion takeover bid for Sprint Nextel Corp. and Sprint's separate buyout offer for Clearwire Corp., the federal government may be close to acting on the deals, several analysts said May 24.

The Department of Justice has already cleared the transactions on antitrust grounds, but the Federal Communications Commission is still reviewing the deals for competition concerns, while CFIUS--short for the Committee on Foreign Investment in the United States, an inter-agency committee chaired by the Secretary of the Treasury--as well as DOJ, the Federal Bureau of Investigation, Department of Defense, and the Department of Homeland Security are assessing the risks associated with a foreign corporation owning a majority stake in critical U.S. wireless infrastructure.

For the FCC, May 28 marks day 179 of the agency's informal 180-day “shot clock” for completing reviews of mergers and acquisitions. As for the other agencies' reviews, the timeline is less certain.

Softbank has reportedly offered to give the U.S. government full veto power over one nominee to Sprint's board to ease security concerns stemming from Softbank's relationships with Chinese telecommunications equipment makers Huawei Technologies Co. and ZTE Corp. And other news reports indicate that Softbank and Sprint have agreed to enter into a national security agreement with the DOJ and DHS.

McCain, Schumer Urge Caution

But with the government's review process possibly nearing an end, two prominent senators, John McCain (R-Ariz.) and Charles Schumer (D-N.Y.), wrote letters to the Treasury Department and the Federal Communications Commission the week of May 20 urging officials to carefully consider the Softbank deal in the wake of widespread attacks by Chinese hackers. In their letters, they cited a House Intelligence Committee report warning U.S. companies about the long-term cybersecurity risks of doing business with both Huawei and ZTE. In an effort to allay these concerns, and prior to the senators' letters, Softbank had promised lawmakers not to use Chinese telecommunications equipment in its Sprint or Clearwire networks.

Meanwhile, Dish Network Corp., which made a rival, $25.5 billion counteroffer for Sprint in April, has launched an aggressive media campaign to dissuade the government from giving the green light to the deals. They even launched a web site called http://www.nationalsecuritymatters.com.

Headlines May Be Good News for Softbank

In the end, however, all this renewed national security attention--the senators' letters, media reports, and stepped-up Dish advocacy--could foretell good news for Softbank, according to Jeffrey Silva, senior policy director of telecommunications, media, and technology for Medley Global Advisors, LLC.

“Rather than viewing media reports as a heightened risk factor for U.S. government approval of Softbank/Sprint/Clearwire, we suspect the latest headlines actually reflect a national security review process in its waning stages in which firm conditions are being put on the table by the Obama administration for processing by parties to the transactions,” Silva wrote in a research note May 24. “Indeed, we regard Dish's animated behavior on national security issues … as confirmation that government action is nearing and as representative of a company desperately trying to keep its $25.5 billion counteroffer for Sprint in play.”

If the Obama administration did not want the Softbank-Sprint-Clearwire deals to proceed, Silva added, “that would be the narrative at this late hour.”

Dish Making Other Plans?

Another sign that the federal agencies are close to completing their reviews is Dish's recent reported $2 billion bid for spectrum from LightSquared Inc., even though the FCC has yet to approve its use, Roger Entner, an analyst and founder of Recon Analytics, who follows the wireless industry, told BNA.

“It indicates that Dish sees their chances of winning Sprint as rather limited,” Entner said.

He pointed out, too, that Dish also has announced that it will develop a fixed-mobile broadband service with regional cellphone company Ntelos, which has an existing wholesale relationship with Sprint.

Entner said Dish may be seeking a long-term partnership with Sprint, possibly a spectrum-leasing arrangement. Last year, Dish secured FCC approval to use 40 MHz of spectrum that it had acquired from bankrupt satellite operators TerreStar Networks Inc. and DBSD North America Inc. for mobile broadband services, giving it the largest contiguous nationwide block of spectrum for such services in the United States.

“Ultimately, Dish would like to make a deal with Sprint,” Entner said.

State Approvals Locked Up

The flurry of activity also comes as Softbank secured approval for its proposed takeover from the California Public Utilities Commission, which now joins 22 other states and the District of Columbia to sign off on the deal.

The FCC is believed to be waiting until CFIUS, the DOJ, Federal Bureau of Investigation, the Department of Defense, and the Department of Homeland Security complete their reviews.

“Our sense is [interim] FCC Chairwoman Clyburn will not want to intervene in the battle between Softbank and Dish, though if Clearwire shareholders turn down Sprint's offer and Sprint's board decides to pursue the Dish bid, the FCC might put the current proceedings on hold,” wrote David Kaut, a telecommunications regulatory analyst at Stifel, Nicolaus & Company, in a research note issued the week of May 20.