Eurasia Group’s Bremmer and Sparks On Alcatel-Lucent Merger

Alcatel’s commercial relations with Iran have some lawmakers frowning on an Alcatel-Lucent merger. Alcatel, it seems, has been upgrading Iran’s telecom network and recently provided the country with its first high-speed Internet connections.


When a state-owned Arab company chose a U.S. election year to launch its bid to operate six major American ports, it touched off a political firestorm. A number of lawmakers are now crafting sweeping reform of the process by which all proposed foreign investments in U.S. assets are reviewed and approved. As a result, they have politicized the foreign investment climate and may badly damage U.S. economic interests. But they may also undermine long-term U.S. foreign-policy goals in all sorts of unexpected ways.

Lawmakers recognize that President Bush‘s support for the Dubai Ports World deal left him with a political black eye. As they calculate their own interests ahead of November’s mid-term elections, both Republicans and Democrats are responding to public fears that some foreign investment projects might compromise national security.

A number of these deals have now come under increased scrutiny. In March, security concerns forced the Israeli firm Check Point Software to withdraw its bid to merge with the American firm Sourcefire. Toshiba‘s takeover of Westinghouse is now under the microscope. The proposed merger of the French firm Alcatel with U.S. telecom equipment-maker Lucent has been clouded by concerns that Lucent’s Bell Labs unit, which has produced remarkable cryptology and quantum-computing innovations for the Pentagon, would come under the control of a foreign firm.

But it isn’t Bell Labs that is now holding up final approval of the $13.4 billion merger. Assurances from Alcatel and Lucent that Bell Labs will be cordoned off from Alcatel’s operations, and that a board made up entirely of U.S. officials will oversee the unit’s work have eased concerns the deal might give a foreign firm access to ultra-sensitive U.S. secrets.

Instead, it is Alcatel’s commercial relations with Iran that have some lawmakers frowning. Alcatel, it seems, has been upgrading Iran’s telecom network and recently provided the country with its first high-speed Internet connections. As Iran presses ahead with its nuclear ambitions, U.S. lawmakers, mindful of their political flanks and eager to find new ways to undermine the Iranian government, are raising red flags.

But the Iranian regime’s greatest long-term vulnerability lies in its domestic political position. The country’s ruling religious conservatives fear Iran’s growing population of young people far more than they do threats from the White House or Congress.

The clerics’ mandate to rule Iran lies in its self-appointed role as guardian of the Islamic Republic’s revolutionary values. But some 70 percent of Iran’s people are not old enough to remember the revolution, let alone the Shah’s repressive rule. For many young Iranians, the Islamic revolution is simply a historical excuse for religious reactionaries to deny them access to a more modern world.

Iran’s youth pose the regime no immediate danger. The mullahs have demonstrated again and again that they can push social reformers off the political stage and dominate the country’s media. Many of Iran’s would-be liberalizers and their supporters have, for the moment, withdrawn from politics.

But the government’s drive to repress demand for social reform continues. As mayor of Tehran, Mahmoud Ahmadinejad censored western billboards. As president, he banned Western music from state-run airwaves. Few young Iranians welcome U.S. interference in their country’s affairs, but many resent the efforts of their conservative elders to block all access to Western culture.

This social divide helps explain the Iranian government’s aggressive – often belligerent – stance on its nuclear ambitions. To build their domestic popularity, the clerics and their conservative allies need a cause that rallies all Iran’s people, conservatives and modernists alike, to the national cause. Iran’s nuclear program, a powerful symbol of the country’s independence and international clout, offers just such an opportunity. U.S. efforts to block the program provide another.

That’s where Alcatel comes in. Wiring Iran - supplementing the ease with which Iranians communicate with one another and with the outside world via new Internet and communications technologies - speeds the democratization of information within an isolated state. Too many U.S. lawmakers, eager to block foreign investment that might compromise American security, fail to see that Alcatel’s investment in the Islamic Republic could substantially undermine Iran’s repressive and dangerous regime. They see only a French firm’s “ties with Iran.”

The Bush administration knows that undermining the mullahs means feeding the Iranian public’s appetite for change. That’s why the White House recently asked Congress for $75 million for a “democracy-promotion” project that would increase Farsi-language television and radio broadcasting into Iran and create opportunities for cultural exchanges. Critics charge that such a paltry sum will have little impact, and that Iranians will dismiss broadcasts from the West as propaganda. The critics may be right.

So why oppose efforts to bring Iranians online, where they can find new ideas and information on their own? Why not help Iran’s young people Google up the modernity denied them at home? Alcatel may already have done more to undermine Iran’s ruling reactionaries than the White House, Congress, and State Department can ever do. Perhaps the U.S. government should encourage Alcatel to open talks with Kim Jong-Il.

Contributor Ian Bremmer is president and founder of Eurasia Group, a global political risk consulting firm. Co-author Willis Sparks is an associate at Eurasia Group. He focuses on macro research projects.