IDT's Red Scare

IDT is giving a whole new meaning to the term party line.

Today, James Courter James Courter , chief executive of the Newark, N.J.-based telecom, will try to convince a bankruptcy judge in New York's southern district to nix a $250 million agreement to sell bankrupt Global Crossing to Hong Kong-based conglomerate Hutchison-Whampoa by claiming the sale would put vital U.S. national security information that might be transmitted over Global Crossing's network into the hands of China's communist government.

149409 Howard Jonas IDT

Global Crossing creditors have approved the deal, as has the court. But the U.S. Treasury's Committee on Foreign Investments in the United States, which must approve the deal, has yet to do so. That might give Courter and IDT Chairman Howard Jonas Howard Jonas the time they need. IDT has a nearly $1 billion war chest at the ready to snap up Global Crossing.

IDT held a press conference on Monday where Jonas said, "Would we give the keys to the Justice Department buildings or the board rooms of some of our largest corporations to a foreign government so they could listen in? Absolutely not." Though the U.S. has no trade sanctions against China, the trade of sensitive technologies is regulated.

"Social obligation, that's what motivates us," says Courter. "I'd much rather lose it to SBC or my neighbors at Verizon than have communist China control the network."

Courter, a former Republican congressman from New Jersey, says his company hopes to convince the judge that "he does not have the competence to make a national security decision." IDT would then make a $255 million offer for Global Crossing. Courter envisions a nightmare scenario where the Chinese government will tap into the communications of private companies in order to steal trade secrets or that they might even glean information from unencrypted government communications carried on the network.

"It's a Hong Kong company," says Courter concerning Hutchison-Whampoa. "There was a time where this would have been okay. I don't follow what's going on in Hong Kong that closely, but I understand that this crap about one country with two systems is a bunch of crap."

Though IDT's Jonas has long considered buying assets from Global Crossing on the cheap, Courter says that the company's latest tactics are the result of a Sunday afternoon epiphany about the national security implications of the Global Crossing sale.

If there's enough Chinaphobia running through U.S. regulators' veins in this "Axis of Evil" era, Courter might now have time to get other government agencies or Congress involved in scrutinizing the deal. At just about the same time as Jonas held his press conference, the Global Crossing deal parties withdrew their application from the U.S. Treasury. It's unclear why they took the step on the last day the Treasury had to approve the deal or choose to investigate it further. But they may be looking to resolve security issues themselves and resubmit their bid later.

IDT should have plenty of political capital to make its arguments heard in the U.S. Capitol. Its circle of advisers includes board member and former Massachusetts Governor William Weld William Weld , former senator and vice presidential candidate Jack Kemp Jack Kemp --now a senior advisor to the board, and former Clinton Secretary of Defense William Cohen William Cohen , who serves on the board of an affiliated company.

What IDT's tactic lacks is originality: Hutchison-Whampoa, headed by Hong Kong billionaire Li Ka-Shing, has been pasted as a pawn of the Chinese government before. Courter's rhetoric is reminiscent of his former colleague Trent Lott Trent Lott , who, as a senator in 1999, demanded that the Senate Armed Services Committee investigate the possibility that China was trying to undermine U.S. security by attempting to gain control of the Panama Canal via a long-term contract to operate ports on both ends of the passage won by subsidiaries of Hutchison-Whampoa. Lott's complaint went nowhere and, since 1999, the U.S. has had more problems with its domestic ports than with the Panama Canal.

Ivan Eland Ivan Eland , former director of defense policy studies at the Cato Institute and now a fellow at the Independent Institute in Oakland, Calif., criticized Lott's stance on Hutchison-Whampoa in a 1999 article that began "Old cold warriors never die, they just get more paranoid." Eland now believes that it's unlikely that the U.S. would send vital national security information over such a network and he cautions that "When you tamper with the market and try to claim everything's a national security issue, what you get is inefficient companies bogged down with regulations."

Courter says that IDT hasn't considered how it might integrate the 100,000-mile fiber network, which Global Crossing spent $13.7 billion to build, into its own operations. But buying assets on the cheap has been IDT's strategy since before the telecom bust. The company built up a $1.1 billion cash supply after selling 39% of its online phone service, Net2Phone , to AT&T in 2000. At the end of 2001, IDT bought Winstar 's $5 billion wireless network out of bankruptcy for just $42 million. IDT has made unrequited overtures to purchase parts of bankrupt Worldcom . Given IDT's history of careful acquisitions, this latest move carries the scent of a carefully timed acquisition attempt wrapped in on-the-verge-of-war patriotism.

But don't expect IDT to ease up on the war talk. Courter's words are driven by his experiences in a Cold War Congress, "When I would walk out of classified briefings," he recalls, "I would walk outside and be almost shaking with fear about what a totalitarian country can do."

Maybe he'll even teach members of the Chinese parliament to fear what an American company can do with a heated message and access to a free press.