RealTime IT News

When Elephants Fight

NTT Communications, sibling to Japan's telecom giant Nippon Telegraph and Telephone , is getting the probe over its proposed $5.5 billion cash acquisition of Web host provider Verio . The rubber glove treatment comes from the Committee on Foreign Investment in the United States (CFIUS), a mixed bag of nuts from the Beltway that normally investigates meatier issues related to national security.

This mystery gets filed under oddball, and that usually means an ulterior motive is at work. Which of course there is, and if you follow the bread crumbs, they'll lead you to some interesting food for thought. Here's how it breaks down.

The CFIUS finds its roots in the Exon-Florio Amendment, which gives the committee the curious authority to scrutinize and axe foreign investments in U.S. corporations. If the panel smells a so-called threat to national security, the recommendation falls on the President's desk, and it's curtains for the proposed investment. The bombshell here is that "national security" isn't defined under Exon-Florio whatsoever. Which leaves plenty of room for Gestapo-like tactics.

This latest funny business can be explained by a not-so-coincidental dispute running in lockstep with the merger scrutiny. NTT is majority owned by Japan's government and has a stranglehold on nearly all of the local landlines in Japan. The U.S. has been thumb-wrestling for some time over NTT's local connection fees that it charges competing carriers to tap into its network.

Congressmen have been stamping their feet over the Verio buyout, pressuring the U.S. government to use the proposed deal as a stick-and-carrot to force Tokyo to trim its fees. Lawmakers, not above hardball tactics, are looking for a 40% fee reduction, while Tokyo, like any seasoned monopoly, has predictably countered with 23% over the next four years.

While NTT Communications operates separately from its NTT parent's telecom units, the company is getting saddled with guilt by association. NTT Communications is a pawn in this entire affair, and the CFIUS investigation is little more than a smokescreen for hot potato politicking.

But apparently, it's effective. In a thinly-veiled response to the pending scrutiny over the Verio/NTT Communications deal, NTT released a statement an hour later indicating that it was unopposed to speeding up the talks over reducing connection fees.

Verio's share price took the brunt of the fallout over this latest brouhaha. Retail investors were treated to a 10% haircut on the heels of the news, and still have yet to recover the lost ground. It just goes to show you, when elephants fight, only the grass gets trampled.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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