FCC Eases Rules on Foreign Ownership : Telecom: Move would make it easier to buy U.S. firms. But pending bill could affect that and other proposed changes.


Moving to boost competition in both domestic and overseas phone markets, federal regulators on Tuesday adopted rules that will make it easier for foreign companies to own U.S. communications firms and to compete for international phone traffic originating in the United States.

The new Federal Communications Commission rules will allow foreign companies to own more of a U.S. communications firm than the 25% that is permitted today--but only if the foreign firms’ countries offer equivalent opportunities to U.S. telephone firms. Similarly, overseas competitors will be allowed to vie for a piece of the $14 billion in international calling business only if their countries allow similar competition.

The authority of American regulators to block foreign investments on national security grounds remains unchanged.

The rule change sets the stage for the FCC to resolve Sprint Corp.'s longstanding bid to sell 20% of its stock to Deutsche Telekom and France Telecom for $4.2 billion. It could also affect another dozen pending applications by foreign carriers seeking authorization to invest or offer phone service in the United States.


But the Sprint deal, as well as the FCC rule change itself, could be upset by telecommunications reform legislation pending in Congress. A bill passed by the Senate would eliminate the 25% limit on investment in U.S. carriers by foreign companies or governments, and a House-passed bill would waive the limit if it would be consistent with “national security, effective law enforcement and existing international agreements.” A House-Senate conference committee is trying to work out a compromise between the two versions of the bill.

In recent months, the FCC had come under sharp criticism from some foreign carriers for failing to move quickly to set ground rules that would allow them to compete in the lucrative U.S. market.

Germany’s minister of post and telecommunications, Wolfgang Boetsch, has flown to the United States three times this year to urge the FCC to act. About a half dozen foreign carriers, including France Telecom, Mexico’s Telemex and Spain’s Telefonica, have filed applications with the FCC seeking authorization to offer long-distance phone service.

“The global telecom marketplace needs more than one or two service providers,” Ron Sommer, chairman of Deutsche Telekom, complained in a speech in Geneva last month. “DT needs approval from the FCC . . . as soon as possible.”

The FCC contends that 91% of the world’s markets, including Germany’s and France’s, have no effective telecommunications competition.

Although the rules adopted Tuesday appeared to be more liberal than the strict reciprocity rules first proposed last February, some analysts and industry officials said the Sprint deal was still likely to face tough FCC scrutiny and possible modification.

“I think the FCC will probably approve the $4-billion investment but restrict Sprint’s German and French partners from offering or financially benefiting from handling U.S. calls placed to France and Germany,” said one industry analyst.

There appeared to be little dissent to the FCC’s decision, as most U.S. long-distance carriers praised the ruling.