Foreign Ownership Stirs Battle

Fight is brewing over measure to limit foreign govt. ownership of U.S. telecom companies (S-2793) when Congress returns in Sept. Bill opponents are gearing up for likely tough battle because sponsor Sen. Hollings (S.C.) has attached it to Commerce- Justice Appropriations bill (HR-4690), which has cleared full Appropriations Committee, and it will be difficult to alter bill against his will. Hollings is ranking Democrat on both Commerce- Justice Appropriations Subcommittee and Commerce Committee.

Bill would bar transfer of broadcast or telecom licenses regulated under Communications Act to companies in which foreign govts. hold more than 25% stakes. That would apply immediately to Deutsche Telekom's pending $51 billion takeover of wireless carrier VoiceStream. It was unclear whether measure would block NTT's acquisition of Verio, which recently survived fight with FBI. European Union already has said bill could violate some World Trade Organization (WTO) provisions, and some free traders predicted it could cause "full-blown telecom trade war," in words of Heritage Foundation analyst Adam Thierer. He predicted Europe would follow with "retaliatory strike" on U.S. carrier, starting "classic tit-for-tat" exchange.

"Just because of the nature of the legislative beast," Hollings rider "could somehow sneak its way through," said Thierer, who now rates measure as most likely piece of major telecom legislation to pass this year. Proactive work is required to remove it, he said, and "plenty of people in Congress... don't like the idea of a foreign-owned carrier coming in and acquiring an American company." Measure "has an increasing chance of going through," Precursor Group analyst Rudy Baca agreed.

Persuading Hollings to drop provision could require some show of force, and spokeswoman for Senate Commerce Committee Chmn. McCain (R-Ariz.) promised McCain wouldn't be afraid to use his clout. McCain has been leading opponent, both because he supports free trade and telecom deregulation and because Hollings circumvented usual Commerce Committee process by moving his bill via appropriations. "McCain has made it clear to the leadership that he will object on a motion to proceed on the bill," said spokeswoman. She said he would use all parliamentary moves allowed in Senate, which generally gives great power to individual lawmakers.

Also working behind scenes is Clinton Administration, which has publicly opposed bill and floated possibility of veto. Veto is "virtual certainty," Baca said. He said free trade is "a core issue for this Administration... One thing [Clinton] proudly claims passage of is NAFTA and the WTO agreement. It's part of his legacy -- he'll want to protect it." However, veto would force Administration to oppose many prominent Senate Democrats just before Presidential election. Among sponsors are Minority Leader Daschle (S.D.) and Sens. Rockefeller (D-W.Va.) and Dorgan (D-N.D.). Former U.S. Trade Representative attorney Laura Sherman recently said Administration "doesn't have the will to fight it." Baca predicted Administration officials would ask Hollings to avert confrontation and work through normal legislative process.

One source said White House has found itself in delicate position of not wanting to publicly fight Hollings, who has backed Administration on important issues. As result, Clinton officials have expressed concerns quietly to Hollings to avoid playing up irony of Democratic administration siding with Republican McCain against Democratic senator.

Issue will get airing before House Telecom Subcommittee at hearing Sept. 7. While it's not clear who will testify, we're told Hollings is likely to be invited. House has companion bill (HR-4903) backed by ranking Commerce Committee Democrat Dingell (Mich.) and ranking Subcommittee Democrat Markey (Mass.).

Hollings's standalone bill is unlikely to move because it would have to pass McCain's committee first, said Sherman, attorney with Paul, Weiss, Rifkin & Garrison. She said Commerce- Justice appropriations bill could well be wrapped into omnibus appropriations package rather than moving on its own, but even then, "I would never underestimate the ability of Senator Hollings" to add his language to omnibus vehicle too. Meanwhile, White House has been seeking allies between McCain and like-minded members in House to keep tabs on similar language that might move, she said.

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