Regulator rules that Orascom Telecom controls company, and therefore does not meet Canadian regulations

CRTC turns down Globalive Wireless

The debut of one of four startup cellular companies is in doubt after the Canadian telecom regulator refused to give Globalive Wireless Management Corp. a carrier licence to become a cellphone provider because its Egyptian partner controls the company.

In a ruling issued Thursday afternoon, the Canadian Radio-television and Telecommunications Commission (CRTC) said that just because Orascom Telecom holds two-thirds of Globalive Wireless’s equity, is the main source of its technical expertise and provides the company’s Wind Mobile brand doesn’t mean Orascom can dominate the startup.

“However,” it added, “when these levers are considered in concert with Orascom’s provision of the vast majority of Globalive’s debt financing, the commission finds that it cannot conclude that Globalive is not controlled in fact by a non-Canadian, to wit Orascom. In other words, the commission finds that Orascom has the ongoing ability to determine Globalive’s strategic decision-making activities.”

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The ruling didn’t advise how Globalive’s Canadian partners, lead by Toronto telecom entrepreneur Anthony Lacavera, can fix the problem, leaving great doubt about whether the startup can get off the ground unless it can find more Canadian investors. But Lacavera told the commission that he hasn’t been able to find Canadian financing yet, and was counting on getting the carrier licence to help persuade investors to join.
In an interview Lacavera said he was “extremely disappointed” in the ruling, in part because Globalive already has its licences from Industry Canada. “This is a bad day for Canadian consumers,” he said. “Canadians deserve competition in wireless and this decision represents a major step backwards.”
He and his partners are trying to decide their next step.
 
Lacavera and Orascom can appeal the ruling to the Federal Court or go straight to the federal cabinet. However, that would delay the company’s launch by a significant length of time, assuming it got a favourable ruling.
In the meantime, Lacavera is trying to put public pressure on the government, urging consumers to go to the company’s Web site and protest.
 
 
If Globalive Wireless doesn’t appeal, it is stuck with an asset –$442 million in spectrum licences covering much of the country, licences paid for by Orascom. Any of the other new wireless spectrum holders — including Calgary’s Shaw Communications, Montreal’s Quebecor, Halifax’s Bragg Communications and Toronto’s DAVE Wireless — might make an offer to become Globalive’s partner. Or they could offer to buy its valuable spectrum covering southern Ontario, although perhaps not at the price Globalive paid for at auction, when prices went unexpectedly high. The incumbent wireless carriers — Bell Canada, Rogers Communications and Telus Corp — can’t buy their spectrum for another four and a half years under rules set by Industry Canada.  

 

“I’m shocked,” said Ron Guria, Toronto-based telecom analyst with market reseach firm Frost and Sullivan. “I’m sad as a consumer, sad as an analyst and sad as a Canadian because I see the country losing from this. They’re losing an influx of foreign capital, they’re losing job creation. Does the CRTC think there’s enough capital inside Canada to foot the bill for buiding out the network that’s going to compete against the likes of Rogers Comunications, Telus Corp. and Bell Canada? There’s none.”
 
The ruling also dents Industry Canada’s hope of encouraging more competition in the market. On the other hand there are three other new entrants preparing to launch service in the next few months — DAVE Wireless, Quebecor’s Videotron and Public Mobile — that apparently don’t have as much foreign investment as Globalive. They don’t have their carrier licences yet, but the CRTC has given no indication yet that, unlike Globalive Wireless, there is a necessity to hold public hearings into its control. In addition, two other well-funded cablecos that won spectrum last year, Shaw and Bragg, could launch in a year.
 
The ruling was welcomed by Telus, which opposed Globalive Wireless’s strucutre. “We don’t think the CRTC had any choice or latitude under the laws of Canada to make any other decision,” Michael Hennessy, Telus senior vice-president of regulatory and government affairs said in a statement. “It is important to note that this decision does not prevent Globalive or any other new wireless company from competing in Canada or accessing capital, as several are successfully doing. It merely means they must abide by Canada’s laws.

 

Globalive Wireless is a partnership between Orascom and Lacavera, who owns several long-distance and Internet companies. Lacavera holds voting control of Globalive Wireless’s parent, with 66 per cent of the shares. Another Canadian has a tiny sliver, while Orascom has the rest. But Orascom has 65 per cent of the total equity, while the Canadians hold 34 per cent.
 
More importantly, Orascom is the startup’s banker and sole cash investor: It has loaned Globalive Wireless CDN$508 million for startup costs and for the $422 million in cross-country licences it bought in last year’s AWS spectrum auction.

 

In addition, Orascom has licenced its Wind Mobile brand to Globalive, struck a lucrative technical services advisory contract and has a shareholders agreement with several favourable conditions.

Lacavera, who will be chairman of the wireless company, is folding his companies into Globalive Wireless’s parent.

 
 

At a recent public hearing the country’s incumbent wireless carriers – Bell Canada, Telus Corp. and Rogers Communications – made it clear they believe Orascom is calling the shots.

A Bell executive said that Globalive Wireless’ structure is so offside the foreign ownership requirements that it is “irretrievably broken.” Mere tinkering wouldn’t fix it.

And there were pointed questions from the commission. Chairman Konrad von Finckenstein said he was “stunned” by a clause in one agreement that gives Orascom the right to force the Canadian majority owners to sell the company if Orascom wants to get out of the business. The net effect is there’s a “sword of Damocles” over the majority owners, he said. “I must say this clause gives me problems.”

And he said it is “illogical” that Globalive Wireless’s chief executive officer will be on a committee to chose the independent chair of the holding company, and could be the “swing vote” if there was a tie between the two Canadian and two Orascom directors.

Lacavera told the hearing that he had trouble finding investors until Orascom came along just before the spectrum auction started. Testifying from Cairo by video, Orascom chairman Naguib Sawiris said he didn’t want to be the startup’s banker and hoped that when the company gets its carrier licence that will improve the chances of Canadian investors coming on board.

But he and Lacavera urged the commission not to impose a deadline on Globalive to lower its foreign investment, for that would tie its hands in negotiating terms.

In the middle of the hearings Globalive and Orascom  made a number of changes to the shareholder and services agreements in an effort to satisfy the commission.

Globalive Wireless has started building its network and hopes to start business either late this year or early next year.

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