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FOR IMMEDIATE RELEASE: May 24, 2013

SCHUMER: CHINESE GOV’T HACKERS TARGETING AMERICAN COMPANIES AND GOV’T AGENCIES; URGES REGULATORS TO USE EXTREME CAUTION IN EXAMINING DEAL PROVIDING CHINA FAR GREATER ACCESS TO U.S. TELECOMMUNICATION AND INTERNET INFRASTRUCTURE



Softbank, A Company With Ties To Chinese Telecommunications Industry, Is Attempting To Buy Sprint’s Entire U.S. Telecommunications Infrastructure – Includes Wireless Spectrum, Sensitive Internet Infrastructure and Even Secure Networks Used by DOD

Softbank’s Purchase Would Open U.S. Telecom Infrastructure To Chinese Equipment That Could Provide Back Door For Hackers Targeting American Industries and Government Agencies

Sale Is Being Reviewed By Federal Regulators – Schumer Urges Them To Use Extreme Caution When Reviewing Deal and Acknowledge Considerable Risks To National Security

 

U.S. Senator Charles E. Schumer today wrote to federal regulators urging them to use extreme caution when reviewing the proposed acquisition by SoftBank Corporation of a controlling interest in Sprint Nextel Corporation, in light of the serious national security concerns that this deal raises.  The deal would give SoftBank – a Japanese company with reportedly strong ties to the Chinese telecommunications industry – control over a large portion of America’s internet and communications infrastructure.  With hacking from China on the rise and specifically targeting U.S. industry and government, Schumer today said that this is not the time to potentially provide a back door into critical U.S. internet and communications infrastructure. 

 

The deal is subject to review by both the Committee on Foreign Investment in the United States (CFIUS) and the Federal Communications Commission (FCC) because control of Sprint and the substantial spectrum and common carrier licenses it holds would be transferred to a foreign entity. 

 

“I have real concerns that this deal, if approved, could make American industry and government agencies far more susceptible to cyber attacks from China and the People’s Liberation Army, already the number one source of electronic espionage against American interest,” said Schumer.  “We must proceed with extreme caution before allowing something as vital as our communications and internet infrastructure from falling into the hands of foreign company with reported ties to China.”

 

Sprint, together with its affiliate Clearwire Corporation, controls more broadband spectrum than any other company.  It also controls a fiber optic network across the continental United States and contracts with numerous federal agencies.  Specifically, Sprint controls approximately 40,000 miles of a high-capacity optical fiber network that carries a significant portion of the country’s Internet traffic—both public and private.  In addition, Sprint has significant and sensitive government contracts, including with the Department of Defense and the General Services Administration.  Sprint also operates special, secure networks—called Peerless IP or PIP—used by the federal government.  PIP networks provide the government with an IP network that is completely isolated from the public Internet; these networks are important for high security government communications, but that also means that any risk of their breach is worthy of scrutiny.

 

SoftBank, which proposes to acquire Sprint as well as its spectrum, is a Japanese company with alleged ties to China, the country that is currently the leading source of cyber breaches.  SoftBank’s Japanese wireless network reportedly relies heavily on Chinese equipment manufacturers with ties to the Chinese government; the House Select Committee on Intelligence recently found the use of such equipment “could undermine core U.S. national-security interests.” In addition, SoftBank was apparently affiliated with a company that admitted to bribing Chinese officials in order to procure telecommunications contracts.   As the New York Times reported just this week, hacking from China appears to be on the rise.  In light of these facts, Schumer said he is concerned that critical parts of Sprint’s future network may also become dependent on unsecure Chinese equipment and vulnerable to interference.  With Sprint’s ultimate control in foreign hands, there are significant questions as to whether the United States would have sufficient influence and oversight to mitigate these concerns.

 

In the letter Schumer wrote:  “I write to urge careful consideration of the proposed acquisition by SoftBank Corporation of a controlling interest in Sprint Nextel Corporation, in light of the serious national security concerns that this deal raises.”

 

The full copy of the letter is below:

 

Jack Lew

Secretary

US Department of Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 202220

 

Mignon Clyburn

Acting Chairwoman

Federal Communications Commission

445 12th Street SW

Washington, DC 20554

 

Dear Secretary Lew and Chairwoman Clyburn:

 

As a member of the Senate Judiciary Committee, as well as its Subcommittees on Antitrust, Competition Policy and Consumer rights and on Privacy, Technology, and the Law, I write to urge careful consideration of the proposed acquisition by SoftBank Corporation of a controlling interest in Sprint Nextel Corporation, in light of the serious national security concerns that this deal raises.  The deal is subject to review by both the Committee on Foreign Investment in the United States (CFIUS) and the Federal Communications Commission (FCC) because control of Sprint and the substantial spectrum and common carrier licenses it holds would be transferred to a foreign entity. 

 

There are several reasons this deal requires careful scrutiny.  First, the transfer of Sprint’s substantial U.S. telecommunications infrastructure to a foreign company raises national security questions.  Sprint, together with its affiliate Clearwire Corporation, controls more broadband spectrum than any other company.  It also controls a fiber optic network across the continental United States and contracts with numerous federal agencies. Specifically, Sprint controls approximately 40,000 miles of a high-capacity optical fiber network that carries a significant portion of the country’s Internet traffic—both public and private.  In addition, Sprint has significant and sensitive government contracts, including with the Department of Defense and the General Services Administration.  Sprint also operates special, secure networks—called Peerless IP or PIP—used by the federal government.  PIP networks provide the government with an IP network that is completely isolated from the public Internet; these networks are important for high security government communications, but that also means that any risk of their breach is worthy of scrutiny.  

 

SoftBank, which proposes to acquire Sprint as well as its spectrum, is a Japanese company with alleged ties to China, the country that is currently the leading source of cyber breaches.  SoftBank’s Japanese wireless network reportedly relies heavily on Chinese equipment manufacturers with ties to the Chinese government; the House Select Committee on Intelligence recently found the use of such equipment “could undermine core U.S. national-security interests.” In addition, SoftBank was apparently affiliated with a company that admitted to bribing Chinese officials in order to procure telecommunications contracts.  As the New York Times reported just this week, hacking from China appears to be on the rise.  In light of these facts, I am concerned that critical parts of Sprint’s future network may also become dependent on unsecure Chinese equipment and vulnerable to interference.  With Sprint’s ultimate control in foreign hands, there are significant questions as to whether the United States would have sufficient influence and oversight to mitigate these concerns.

 

The protection of our critical infrastructure is a topic of intense legislative scrutiny; indeed Congress is actively debating various proposals to improve our cybersecurity.  In these circumstances, I urge you to take a very careful look at SoftBank’s proposed acquisition of Sprint, a key provider of U.S. communications networks and services, to ensure that our nation’s security is not placed at risk.  Of course, I hope and expect that your respective agencies will take whatever action you deem appropriate and consistent with existing rules, regulations, ethical guidelines, and the public interest.

 

Sincerely,

 

Charles E. Schumer

United States Senator

 

cc:        The Honorable Neal S. Wolin

The Honorable Ashton B. Carter

The Honorable Rand Beers

The Honorable James Cole

###

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