Foreign owners trigger review of Consolidated deal

The FCC is recommending a deeper review of a $3.1 billion deal to take fiber network operator Consolidated Communications private. The agency said the move is due to the "foreign individuals and foreign-organized entities" involved in the transaction.

Private equity firm Searchlight Capital Partners and British Columbia Investment (BCI), one of the largest institutional investors in Canada, announced in October their plan to take Consolidated private. Consolidated is one of the ten largest fiber network providers in the US, with operations across more than 20 states including California, Texas and Florida.

As noted by Policyband, the FCC is referring the Consolidated transaction to the White House's Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector. That committee, previously known as "Team Telecom," was formally established in 2020 to advise the FCC on "national security and law enforcement concerns associated with applications for telecommunications licenses meeting certain thresholds of foreign ownership or control."

The US Attorney General is the chair of the committee and the secretaries of the Defense Department and the Department of Homeland Security are also members.

'Foreign interests'

According to the FCC, Searchlight had claimed the additional review was not necessary because the White House is already familiar with Searchlight's management team through prior dealings. But the FCC said that BCI "will acquire certain governance rights and there will be new foreign interest holders."

As a result, the agency said it would seek White House approval "given that there are foreign individuals and foreign-organized entities with interests that were not previously approved by the Commission or reviewed by the Committee."

According to the FCC's lengthy analysis of Searchlight's ownership structure, the firm is ultimately controlled by Eric Zinterhofer (a US citizen), Erol Uzumeri (a Canadian citizen) and Oliver Haarmann (a German citizen).

As noted by Policyband, Searchlight also holds ownership stakes in All Points Broadband and Ziply Fiber. The FCC's proceeding on Consolidated's transaction is now open to comment.

Indeed, according to Policyband, Searchlight's ownership structure may also be an issue in Ziply's proposed purchase of a Washington telecom operator.

A review of foreign ownership in the Consolidated transaction may simply represent more red tape for a deal that could ultimately be approved. But it also comes amid heightened concerns over foreign participation in US telecom operations.

For example, the FCC recently moved forward with efforts to block China's Huawei from participating in the agency's certification process for wireless devices. Further, the Department of Commerce has also reportedly moved to prevent Qualcomm and Intel from supplying some chips to Huawei.

Broadly, the developments reflect increasingly chilly relations between the US and its allies and China and its allies. That situation has been affecting a variety of market sectors, including telecom.

It's also not clear what the FCC's latest actions might mean for T-Mobile. That US wireless network operator is now majority owned by Germany's Deutsche Telekom, and it recently inked a deal for fiber operator Lumos.