DealBook: Some in Congress Grow More Wary of Selling Sprint to SoftBank of Japan

DealBook: Some in Congress Grow More Wary of Selling Sprint to SoftBank of Japan

11:09 p.m. | Updated

Congressional concern over the proposed takeover of Sprint Nextel by SoftBank of Japan on national security grounds grew on Thursday as Senator Charles E. Schumer of New York asked government regulators to carefully review the Asian company’s ties to Chinese telecommunications equipment makers.

In a letter to the Treasury Department and the Federal Communications Commission on Thursday, Mr. Schumer, Democrat of New York, urged the two to carefully consider the SoftBank deal in the wake of widespread attacks by Chinese hackers.

“The protection of our critical infrastructure is a topic of intense legislative scrutiny,” the Democratic senator from New York wrote in the letter, which was reviewed by a reporter for the The New York Times. He asked the two agencies to take a close look “to ensure that our nation’s security is not placed at risk.”

Mr. Schumer is the latest senior lawmaker in Washington to express wariness over the deal because of SoftBank’s relationships with Chinese telecommunications equipment makers like Huawei and ZTE. Senator John McCain, Republican of Arizona, wrote a separate letter to the F.C.C.’s acting chairwoman, Mignon L. Clyburn, on Thursday, asking the agency to carefully review the proposal.

The letters come as SoftBank cleared another regulatory hurdle on Thursday. A California state regulator approved the proposed takeover, joining 22 other states and the District of Columbia.

Now the Japanese firm needs only clearance from the F.C.C. and a government panel that reviews foreign investments in the country that is led by the Treasury Department. Decisions from both agencies are expected soon.

SoftBank, which announced its agreement to buy a majority stake in Sprint last October, is also competing against Dish Network, which is trying to derail the deal with a rival $ 25.5 billion takeover bid.

Over the last several months, both SoftBank and Sprint have tried to assuage concerns over national security. The two assured Mike Rogers, Republican of Michigan, the chairman of the House intelligence committee, that they would remove Huawei equipment from their United States network earlier this year.

Mr. Rogers, has offered cautious praise for the pledge. “I am pleased with their mitigation plans, but will continue to look for opportunities to improve the government’s existing authorities to thoroughly review all the national security aspects of proposed transactions,” he said in March.

The two companies have also agreed to give the federal government veto power over one of SoftBank’s representatives on the new Sprint board. That person would be charged with ensuring the company’s compliance on network security.

Dish Network has made national security one of its chief weapons against SoftBank, using a media campaign in Washington that tries to play on fears about a foreign company taking control of a major American telecommunications firm.

A spokesman for SoftBank argued that while it had pledged to remove Huawei equipment from Clearwire’s systems, Dish had not made a similar commitment.

“SoftBank’s proposal improves U.S. national security because only SoftBank has committed to remove equipment already located inside a U.S. network that the government has national security concerns about,” the spokesman said in a statement. “Dish has made no such commitment to remove this network equipment and to do so would require Dish to further increase the amount of debt it will need to complete any transaction.”

Other countries already own significant stakes in American wireless networks: Vodafone of Britain owns 45 percent of Verizon Wireless, the country’s biggest cellphone service provider, while Deutsche Telekom of Germany owns a majority stake in T-Mobile USA.

But SoftBank has faced questions about its connections to Huawei and ZTE shortly after its bid. The Japanese firm uses equipment from both companies in its systems outside the United States, primarily through a joint venture.

And Clearwire, a wireless network operator of which Sprint is seeking full control, uses some Huawei products in parts of its network.

Lawmakers have argued that both companies are closely tied to the Chinese government, and that allowing them entry to into critical national infrastructure could leave the country vulnerable to online attacks on vital assets like power grids and dams.

“In light of these facts, I am concerned that critical parts of Sprint’s future network may also become dependent on unsecure Chinese equipment and vulnerable to interference. With Sprint’s ultimate control in foreign hands, there are significant questions as to whether the United States would have sufficient influence and oversight to mitigate these concerns,” Mr. Schumer said in a letter to the F.C.C. and the Treasury.

“The blatant attempt to politicize” the approval process “by Dish and a senior member of the Senate banking committee is inappropriate and threatens to discourage important foreign investment in the United States,” the SoftBank spokesman said.

Mr. Schumer replied in a statement: “There’s nothing political about expressing concerns over national security.”

Mr. Schumer has sought to block takeovers in the past on national security grounds. He fought the proposed sale of six American ports to DP World, a company based in Dubai, arguing that the deal would endanger national security.

DP World eventually agreed to sell the American ports assets to an arm of the American International Group.

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This post has been revised to reflect the following correction:

Correction: May 24, 2013

An earlier version of this article misstated the part ownership of T-Mobile USA. It is Deutsche Telekom, not Deutsche Bank, that owns a majority stake.