Administration Said To Pressure FCC On Global Crossing

Telecom Policy Report, Oct 15, 2003

Pentagon Officials Remain Concerned About National Security Issues

Purportedly under pressure from the Bush Administration, the FCC last week approved the transfer of various authorizations and licenses held by bankrupt Global Crossing to GC Acquisition Ltd. (New GX), a "temporary" business entity put in place last year to facilitate Global Crossing's reorganization. The FCC's decision last week, in reality, turns Global Crossing's licenses over to a foreign carrier, Singapore Technologies Telemedia Pte. Ltd. (STT), a decision that has stirred emotions and concerns among some officials within the U.S. Defense Department (DOD), sources tell TPR.

Citing actions "consistent with established [FCC] precedent," the commission Oct. 8 issued a joint decision from its Wireless Telecommunications Bureau and the Wireline Competition Bureau granting transfer of Global Crossing's licenses to the foreign company, which is - as its name suggests - based in Singapore. The federal regulator said approval of the transfer was in the public interest. However, sources at the Pentagon and elsewhere tell TPR that the FCC's action may be anything but that.

"This has the potential of creating very serious national security problems," one DOD insider said.

The source said that the commission was "under pressure from the White House" to consummate the Global Crossing license transfer, and added that the pressure most likely came from Vice President Dick Cheney's office.

However, Kathy Martin, a spokesperson for the Vice President, said neither Cheney nor anyone connected with his office had anything to do with the FCC's measure. "Everyone here stayed completely away" from the commission's Global Crossing decision, she told TPR.

Another Bush Administration source told TPR that the White House Office of Science & Technology Policy (OSTP) "may very well have had something to do with" the FCC's decision. Calls made by TPR to OSTP's Richard Russell, the Administration's telecom expert, as well as to the FCC, were not returned as of press time.

What is known is that President Bush late last month sent a letter to the House and Senate, in which he assured that his office would not stand in the way of the proposed STT acquisition of Global Crossing. Included with Bush's Sept. 19 letter was a classified report detailing the reasons.behind his decision to "take no action to suspend or prohibit the proposed 61.5 percent investment by Singapore Technologies Telemedia Pte. Ltd., a company indirectly owned by the Government of Singapore, in Global Crossing Ltd.," Bush wrote.

Global Crossing, which holds FCC domestic and international Section 214 authorizations, has significant interests in submarine cable landing licenses and certain radio licenses. Through its various subsidiaries, Global Crossing, which is organized under the laws of Bermuda with principal offices in New Jersey, owns and operates a global fiber optic network - more than 100,000 miles long - that provides integrated telecom services, including data, voice and Internet services.

Under the transaction approved by the commission, Global Crossing will transfer virtually all of its assets and operations - including ownership in subsidiaries holding FCC licenses - to New GX. (New GX was formed under the laws of Bermuda for the purposes of carrying out the reorganization of Global Crossing under Chapter 11 of the U.S. Bankruptcy Code and Bermuda insolvency law.)

STT, which is a subsidiary of Singapore Technologies Group, which, in turn, is owned by Temasek Holdings, the investment arm of the Singapore government, will obtain common and preferred stock equal to a controlling interest of 61.5 percent of New GX's equity and voting interests. Certain prepetition creditors (aka: creditor shareholders) of Global Crossing will receive 38.5 percent of New GX common stock.

The U.S. Bankruptcy Court for the Southern District of New York has approved Global Crossing's reorganization plan, which, among other things, includes the transaction involving STT and the creditor shareholders that is the subject of the FCC's granted applications.

Originally, the reorganization plan included Hutchison Telecommunications Ltd. as a joint investor with STT. However, Hutchison withdrew - reportedly a result of pressure resulting from an investigation involving the U.S. intelligence community and the FBI. Sources closely following the Global Crossing debate say Hutchison is controlled by recluse Chinese billionaire Li Ka Shing, an individual whom sources within the U.S. intelligence community describe as "a person of interest." These sources tell TPR that Li is believed to have close ties to China's communist government.

The FCC's order of last week only obliquely refers to national security concerns the agency had to address in allowing the Global Crossing transfer of licenses. It noted that in this case, "some Executive Branch agencies raised such concerns and requested that FCC action be deferred until all the issues identified were resolved."