CFIUS Clears SoftBank-Sprint Deal On National Security Issues

SoftBank and Sprint said they signed a national security agreement with “Team Telecom” -- the Departments of Defense, Homeland Security and Justice -- in order to get CFIUS clearance. The agreement, which took effect immediately, will terminate if SoftBank’s bid terminates. SoftBank and Sprint said they still expect SoftBank’s $20.1 billion purchase will be completed by July 1. Sprint shareholders are to vote on the deal June 12.

The Team Telecom agencies are expected to notify the FCC that it can complete its own ongoing review of the proposed deal. Wednesday marked day 180 on the FCC’s unofficial 180-day shot clock for a decision on the transaction. The commission wanted to “make sure CFIUS was absolutely completed” before it moved ahead, Silva said. “It’s my assumption that the FCC will approve the transaction with days,” he told us. The FCC’s order may contain some “interesting” provisions from the public interest standpoint, but there’s unlikely to be anything surprising, Silva said.

The national security agreement gives the Team Telecom agencies veto power over one of SoftBank’s appointees to Sprint’s board, Sprint said in a filing with the SEC. That appointee, who will act as the Security Director, will keep in contact with the agencies and will ensure implementation of the agreement. The agencies will also be able to approve “certain network equipment vendors and managed services providers” Sprint uses, and have a one-time right to demand Sprint remove and decommission specific equipment within Clearwire’s network if it gains full control of that carrier, Sprint said in the filing. That right expires Dec. 31, 2016 (http://1.usa.gov/12ir9mg). Sprint is attempting to buy Clearwire for $2.5 billion; Clearwire shareholders are expected to vote on that deal Friday.

The agreement’s terms are certainly “not run of the mill” within the telecom sector, but they aren’t a surprise given the national security concerns critics have raised, Silva said. The national security concerns over SoftBank’s bid have centered on its use of equipment manufactured by Chinese telecom equipment vendors Huawei and ZTE on its 4G LTE network in Japan. The Chinese companies have been under scrutiny as a potential national security threat. Scrutiny of Sprint’s Clearwire bid has centered on Clearwire’s use of Huawei equipment on its network. The deals’ national security issues have gotten attention on Capitol Hill recently, with Sen. Chuck Schumer, D-N.Y., urging the FCC and CFIUS in a letter last week to “take a very careful look” at the deal (CD May 28 p8). Former Director of National Intelligence Mike McConnell said during a cybersecurity hearing earlier this month that SoftBank should not be permitted to buy control of Sprint (CD May 22 p9). Although those issues have been at the forefront of the debate recently, the government’s reviews have occurred in an environment in which the agendas of the Obama administration, SoftBank and Sprint aligned “fairly neatly,” Silva said. “That always helps when you need to negotiate a national security agreement.”

Dish Network, which has long opposed the SoftBank deal and made a $25.5 billion counteroffer for Sprint in April, said in a statement Wednesday that the U.S. government “should continue to proceed with deliberation and caution in turning over assets of national strategic importance -- such as the Sprint fiber backbone and wireless networks -- to a foreign-controlled entity with significant ties to China. Oversight and accountability for our national network infrastructure is critical at a time [when] offshore cyber-attacks continue to rise.” Dish has been a frequent critic of the national security aspects of SoftBank’s bid in recent weeks (CD May 24 p14). The CFIUS decision is “a blow to Dish’s counteroffer” rather than a positive SoftBank can tout with Sprint shareholders, Silva said. CFIUS’s decision “makes the whole counteroffer less and less likely to go anywhere,” he said.