For a Kinder, Gentler Society
Telecom Mergers Come Calling
German Giant's Search for a Deal Worries U.S. Politicians By Peter S. Goodman Washington Post Service

Armed with a pile of money and global aspirations, Deutsche Telekom AG has proclaimed designs on buying into the United States, elevating an ongoing wave of telecommunications deals into a trans-Atlantic phenomenon.

But that prospect has provoked considerable opposition in Washington, raising questions about the future course of globalization in the marketplace. Influential senators are reiterating worries that the entry of Germany's biggest phone company threatens U.S. competition because the German government owns a majority of the company. Given the central role of communications networks in political and economic life, some U.S. officials have raised national security concerns as well.

For those accustomed to consolidation, the hostile reception gathering force reveals an American sense of vulnerability in an era of evolving technology. The United States may be in the midst of a golden age of high-tech supremacy, but the future holds no guarantees - particularly as a slew of non-American companies eyes opportunities in the United States. France Telecom and Hong Kong-based Hutchison Whampoa Ltd. also have been sniffing for expansion opportunities in the United States.

''The political establishment of the U.S. is finding out that globalization cuts both ways,'' Reed Hundt, a former Federal Communications Commission chairman, said. He predicted that Telekom eventually will find a way in but that global competition concerns will persist. ''These are real questions,'' he said.

Telekom executives already have acknowledged their plans to buy a U.S. wireless business, along with a long-distance and Internet network to service multinational business customers. Recent weeks have been dominated by rumors of the likely targets - VoiceStream Wireless Corp., Qwest Communications International Inc., an Internet network giant, and Sprint Corp. The German company has gone quiet on the situation.

In Washington, the conversation focuses on the regulatory hurdles that await any such deal.

''It's going to be tough,'' said Kevin Sullivan, an antitrust specialist and law partner at King & Spaulding in Washington. Both the FBI and the Defense Department, he said, ''will have something to say.''

''Deutsche Telekom's going to have to make some commitment to decrease government ownership,'' he added. ''They're going to have to commit to get well below 50 percent.''

In plotting its path, Telekom must navigate a storm of countervailing winds. U.S. law bars the communications commission from handing a telecommunications license to any company in which foreign government ownership amounts to 25 percent or more. The regulator can waive that cap only if it finds the deal serves the public interest. Though the German government is gradually relinquishing control of Telekom, it still owns 59 percent of the company.

But the market-opening rules of the World Trade Organization - an institution championed by the United States - allow foreign companies to buy telecommunications companies in other countries via holding companies, an apparent conflict with U.S. rules.

Enter Senator Ernest Hollings, ranking Democrat on the Commerce Committee and an opponent of free trade. Last month, he introduced a bill that would strip away the commission's discretion to waive the cap on foreign government ownership. He promptly gained the support of many fellow senators, including Ted Stevens, a Republican of Alaska and chairman of the Appropriations Committee; Conrad Burns, a Republican of Montana and chairman of the Aviation subcommittee on communications, and Thomas Daschle of South Dakota, the minority leader.

Then Mr. Hollings sent a letter signed by 29 other senators to the commission chairman, William Kennard, asking the body to ''highly scrutinize any merger involving foreign government owned providers.''

In a second, recent letter to Mr. Kennard, Mr. Hollings wrote: ''We did not deregulate U.S. telecommunications to permit the regulated foreign-government owned telecommunications companies to take over the U.S. market.''

In defending his actions, Mr. Hollings questions whether a company owned by a foreign government - one that may enjoy subsidized space, access to cheap capital and financially interested advocates in government offices - should be allowed to compete against private U.S. companies.

Not least of his concerns, Mr. Hollings said, are the possible national security implications of allowing a foreign power to claim a piece of the communications network.

''It's lunacy to think we're going to sit back here and give away America's telecommunications to the foreigners,'' he said. ''We can't depend on the German government to always be friendly.''