A U.S. Justice Department request to defer regulatory action on Softbank Corp. (9984)’s $20 billion bid for Sprint Nextel Corp. (S) follows criticism that an acquisition could expose domestic networks to Chinese companies.
The Justice Department, FBI and Department of Homeland Security asked the Federal Communications Commission to give them time to complete an assessment of the transaction’s national security and law enforcement implications, according to a filing posted yesterday on the FCC’s website.
The FCC is due to take comments on the transaction until Feb. 25 and is about one-third of the way through its informal six-month timeline for considering acquisitions. The Justice Department’s request is common during reviews triggered when overseas companies, such as Tokyo-based Softbank, seek control of a U.S. telecommunications company, said Jeffrey Silva, an analyst at Medley Global Advisors.
“I wouldn’t look at the DOJ letter as a red flag at all,” Silva, based in Washington, said in an interview. “It’s routine given that foreign ownership is involved.”
Softbank said in October it would buy 70 percent of Overland Park, Kansas-based Sprint. The deal could harm U.S. security because Softbank works with Chinese phone-equipment makers whose devices could expose American networks to Chinese spying, the Communications Workers of America said in an FCC filing Jan. 28.
Softbank, Japan’s third-largest mobile-phone company, rose 1.5 percent to 3,110 yen as of the midday break in Tokyo trading, while the nation’s benchmark Nikkei 225 Stock Average climbed 1.2 percent. Sprint, the third-largest U.S. wireless carrier, rose 8 cents to $5.64 in New York yesterday.
Takeaki Nukii, a spokesman for Softbank, declined to comment, as did Justin Cole, an FCC spokesman.
The Justice Department action is “a routine request,” John Taylor, a Sprint spokesman, said in an e-mail. A U.S. official who requested anonymity to discuss the continuing review said the request to the FCC isn’t unusual in such situations.
Softbank’s billionaire founder and President Masayoshi Son said in an interview in October he knew the deal would be subjected to scrutiny on national-security grounds.
“I am aware in the U.S., the government is sensitively looking at it, and we understand national security,” Son said. “If the U.S. government decides, don’t do it, we would comply.”
The communications workers’ union said Softbank is working with Huawei Technologies Co. and ZTE Corp. (000063), China’s two largest phone-equipment makers, to help build a wireless network in Japan. Softbank’s acquisition of Sprint could lead to “significant penetration” of Huawei and ZTE into the U.S. market, the union’s filing said.
A U.S. House Intelligence Committee report released in October said the U.S. government should block acquisitions or mergers by Huawei and ZTE, saying the companies provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying.
“Huawei is not a party to the transaction at hand,” William Plummer, a Washington-based spokesman for the company, said in an e-mail. “Misguided proposals to blackball a company based on country of origin do nothing to secure networks in an industry where every vendor leverages common global supply chains.”
Softbank buys base band units and antenna systems from Huawei and ZTE for its fourth-generation mobile network in Japan. Alcatel-Lucent and Ericsson AB provide the core network.
The Japanese carrier’s dealings with Huawei and ZTE are through one of its group subsidiaries, Son said in October.
Executives for Huawei and ZTE, both based in Shenzhen, China, have denied links to Chinese espionage.
“What we’re talking about is the very heart of our critical infrastructure,” said Frank Cilluffo, director of George Washington University’s Homeland Security Policy Institute.
“It’s only appropriate that questions be asked not only from a regulatory perspective but also as they pertain to potential national security considerations,” said Cilluffo, a former special assistant to President George W. Bush for homeland security.
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