Summary:

Sprint-SoftBank clears a big regulatory hurdle, but according to the WSJ, there are numerous national security strings attached, including a ban on Huawei gear from Sprint’s network.

softbank

Sprint revealed on Wednesday that its acquisition by SoftBank had passed a key regulatory hurdle. Normally telecom mergers are the sole purview of the Federal Communications Commission and the U.S. Department of Justice, but since Japan-based SoftBank would effectively take over a U.S. company, the Committee on Foreign Investment in the U.S. also gets its say on the deal’s national security implications.

CFIUS has given its blessing, and Sprint has entered into a national security agreement with the U.S. government. But according to a Wall Street Journal report there are plenty of strings attached. Sprint will create a national-security committee and appoint an independent security director to its board, according to the report. The deal also gives the government the unusual right to veto infrastructure deals and even ban certain vendors outright from Sprint’s network, the Journal said.

huaweithumbThe target here is clearly Huawei, which has waged a long political battle with lawmakers and government officials over whether privately-owned Chinese networking giant presents a security risk to U.S. interests. According to the Journal, Sprint would not just be banned from working with Huawei and other Chinese equipment vendors, but it would have to rip out existing Huawei gear in its networks. That would include equipment Sprint’s affiliates installed, but most significantly it would mean a major overhaul for Clearwire if the mobile broadband operator accepts Sprint’s buyout offer on Friday.

Huawei has built a substantial portion of Clearwire’s WiMAX network, which could cost as much as $1 billion to remove. Huawei is also building a portion of Clearwire’s new LTE network, but Clearwire CTO John Saw told FierceWireless last week that the carrier is reducing its dependence on Huawei, and the Chinese vendor accounts for only 5 percent of its LTE spend.

Sprint is encountering problems with the multiple deals it’s juggling. Despite upping its offer to Clearwire shareholders last week, institutional investors are still opposed to the deal. That could make the Friday’s shareholder vote awfully hairy. Sprint is also forced to weigh a takeover counter offer from Dish Network. Despite those distractions, Sprint said today that it expects its deal with SoftBank will become final in July.

For that to happen, Sprint and SoftBank still needs a thumbs up from both the FCC as well as a formal clearance notice from the Justice Department. The DOJ in January raised a red flag about security concerns, but this week’s agreement seems to address all government agencies’ national security questions. There are really no antitrust issues, since Sprint isn’t being acquired by a U.S. telco. Antitrust regulators signed off on the deal in December. The only thing remaining is the FCC’s public interest review.

Correction: A previous version of this post incorrectly stated Sprint-SoftBank is still waiting on antitrust approval. The deal received antitrust clearance last year.

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