Security fears over telco takeovers overblown

The Straits Times, January 24, 2007
By Bryan Lee & Chua Hian Hou

CONCERNS that national security might be compromised when foreign investors buy big stakes in telecoms companies have not stopped governments from approving such sales, as recent deals show.

Since the Sept 11 terrorist attacks in the United States in 2001, governments around the world have become increasingly nervous when ownership of key phone networks or technology falls into the hands of a foreign company.

This issue has arisen again, this time over Temasek's takeover of Thailand's Shin Corp and - although they are strictly not telcos - the ongoing merger between America's Lucent Technologies and France's Alcatel.

Thailand's military leaders have gone so far as to suggest setting up a parallel communications system, saying they are unable to discuss sensitive matters without giving away secrets to Singapore.

This could mean the expensive proposition of launching a new satellite, mentioned by Prime Minister Surayud Chulanont this week. And army chief Sonthi Boonyarataglin last week said the military's top brass would switch from using mobile phones to radio and fixed-line phones.

But the record shows that such fears - which have been blown up into accusations of spying in the past - are often exaggerated and can be addressed if the buyer is willing to make a few concessions.

These often have to do with ceding some control and allowing scrutiny of the operations by the host government.

'Many countries concerned over the impact of selling a potentially critical national asset set up oversight committees or independent, trusted third parties to investigate thoroughly the impact that such sales may have,' said Mr Foong King Yew, an analyst at technology research firm Gartner.

SingTel's acquisition of its Australian unit Optus in 2001 is a case in point.

The local telco came under much fire from the Australian press, which even accused the Singapore Government of spying on the country.

At the heart of the controversy were Optus' satellite operations, which are used by Australia's defence forces to carry sensitive military communications.

SingTel eventually got the green light for the deal after the Australian government ran a check on Optus and verified that the military data was encrypted and thus safe.

SingTel and Optus also had to sign agreements to a number of unspecified security-related conditions.

In the case of Singapore Technologies Telemedia's takeover of US submarine cable operator Global Crossing, giving way meant relinquishing the chairmanship of the company despite ST Telemedia holding a majority stake in the American telco.

The Global Crossing board includes a number of prominent former US military top brass. Half of the directors are American citizens, security-cleared by their government.

Other measures put in place to placate American defence concerns included guaranteeing US law-enforcement agencies access to Global Crossing's network while restricting access to foreigners.

The efforts of phone-equipment makers Lucent and Alcatel to isolate the areas of concern have managed to keep restrictions centred mostly on the US firm's research arm Bell Labs, which does sensitive government work.

Yet despite Alcatel being based in France, a fellow member of Nato, the US government has reserved the right to roll back the deal any time if it detects a security breach.

While technology experts say it is possible to use phone networks to eavesdrop on secret conversations and obtain sensitive data, it would be too obvious for a commercial firm to do so effectively.

In any case, industry watchers question if security is always really at the heart of the discussion.

In the SingTel-Optus transaction, SingTel was buying its stake from another foreign investor - British telco Cable & Wireless.