SUBSIDIES, MARKET CLOSURE,
CROSS-BORDER INVESTMENT,
AND EFFECTS ON COMPETITION:
The Case of FDI in the
Telecommunications Sector
Edward M. Graham
Senior Fellow
Institute for International Economics
2
INTRODUCTION AND MOTIVATION
Telecommunications long was a sector where sellers of services operated in protected local markets,
where law and government regulation created and enforced barriers to entry, especially by foreign firms.1
In many nations, in fact, the provision of telecommunications services was reserved for state-owned
monopoly suppliers. During the late 1980s and through the 1990s, however, many of these barriers have
been removed while formerly state-owned firms have been partially or wholly privatized.2 This has in
turn engendered some cross entry by telecom service providers; firms that once were purely domestic in
the scope of their operations thus have become multinational.
During the summer of 2000, however, US Senator Ernest Hollings, with co-sponsorship of 29
other US Senators, introduced a bill (S.2793) in the US Congress that would have effectively blocked
non-US telecommunications service providers from acquiring US telecom firms if the former were state-
owned, or even only partly state-owned. The bill was aimed specifically at the proposed acquisition of
US mobile telecommunications service provider Voice Stream by the German firm Deutsche Telekom
(DT), but the language of the bill would have served to block virtually any non-US state-owned firm in
the telecom sector from buying a US firm. While the bill did not become law, it reflected a long history
of efforts in Congress to prevent US firms from being acquired by state-owned non-US firms (e.g., a
legislative bill to do this had been introduced by Senator Frank Murkowski during the late 1980s, and
while this bill also failed to be passed into law, some provisions from the bill were incorporated into the
Exon-Florio legislation that was first enacted as a temporary measure in 1988 but subsequently made part
of US permanent law in 1992 ).