Startup says Bell, Rogers, Telus are trying to block competition. Meanwhile, an industry analyst suspects one of the trio may stall Globalive with an appeal to Ottawa

Globalive blasts incumbents at ownership hearing

 Globalive Wireless has vigorously attacked the country’s incumbent wireless carriers for “opposing us every step of the way” before it can open its doors for business.

After hearing hours of complaints from Bell Canada, Rogers Communications and Telus Corp. to regulators that Egyptian-based co-owner Orascom Telcom runs the startup, Globalive executives lashed back Thursday.

Allegations Orascom pulls its strings are “divorced from reality,” Globalive Wireless CEO Ken Campbell told the Canadian Radio-television and Telecommunications Commission in Gatineau, Que.

“The idea that anyone other than my team and I are running this business is inaccurate and offensive.”

Globalive hopes to go into business before the end of the year under Orascom’s Wind Mobile brand. With licences covering most of the country except southern Quebec and hundreds of millions of dollars from Orascom, it could mount a serious threat to the incumbents.

Industry Canada has already approved its ownership structure, but the CRTC has to approve its carrier licence. Under the Telecommunications Act non-Canadians cannot control a carrier.

While Orascom is a minority shareholder with 32 per cent of the votes in Toronto-based Globalive’s holding company, there are questions about Orascom’s power in the partnership. Orascom, which has interests in cellular companies around the world, has lent Globalive more than $500 million, owns 65 per cent of its shareholder equity and has a $100 million services contract.

That combined, argue the incumbents, gives Orascom the whip hand.

So as the CRTC’s public phase of its hearing ended Thursday, Globalive pulled out all the stops to confront any criticism.

In addition to making major changes to its original structure, that included suggestions that Globalive is close to getting on the air: Campbell said it has just made its first test call, in Ottawa, erected its first transmission tower in Calgary and is hiring sales staff for stores in Toronto. The company has just under 300 employees.
To see Globalive’s new ownership structure, click here

Globalive lawyer Hank Intven also noted the CRTC has accepted that a minority shareholder may have influence over a company, but there has to be evidence it dominates a carrier’s decision-making. There is no such evidence Orascom does that, he said.

There was also a plea from Globalive’s chairman and majority Canadian shareholder Anthony Lacavera that the commission not order the company to dilute Orascom’s debt with more Canadian investors. Lacavera wants more investors, but if the CRTC imposes a deadline financiers would have an advantageous bargaining position.

“To accept such terms would crush Globalive Wireless,” Lacavera said.

The commission will issue a decision by Oct. 23.

Although Bell insists the Orascom deal puts Globalive so far offside the Telecommunications Act it should surrender its licences now, it isn’t clear if the CRTC would make a ruling that could prevent Globalive from opening its doors.

At one point Globalive lawyer Hank Intven argued the legislation only applies to companies that are actually operating – which, at the moment, Globalive isn’t. “We don’t question that point,” replied commission chair Konrad von Finckenstein.

Among the things on his mind, though, was Orascom’s original loan agreement with Globalive that had a number of “elaborate controlling provisions” favourable to the Egyptian company. If Orascom didn’t want to be Orascom’s banker, he asked why were they inserted, and then suddenly dropped last week when the contract was adjusted? (Or, as he put it, “fell like snow melting in the sunshine.”)

We didn’t think some things through, acknowledged Orascom chief financial officer Aldo Mareuse.

He added that there was no intent to use the debt as a vehicle for controlling Globalive. The loan deal now, he said, is very flexible. “I don’t know what else we could do apart from giving them free money.”

However, looming over the hearing is the possibility the commission may not have the final say. Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy, suspects Bell or Telus will immediately appeal to the federal cabinet any CRTC ruling allowing Globalive/Wind Mobile to start.

The reason, he said, is that the two incumbents are expected to launch their new HSPA-based wireless network by the end of the month.

“Stalling Globalive into Q1 next year gives Bell and Telus a nice clear romp through the Christmas season” to get subscribers, he said.

If there is an appeal, it would toss the problem onto the shoulders of Industry Minister Tony Clement, who would have to make a recommendation to cabinet. Clement backed rules for last year’s AWS spectrum auction to encourage new entrants like Globalive to bid for licences because the government wants more wireless competition.

Clement has already accepted Globalive’s ownership structure, and cashed a $442 million cheque – paid for by Orascom – for its licences.

In their closing arguments Thursday, more than one incumbent argued that Globalive is trying to get around the Telecommunications Act’s requirements in complaining that under the current economic conditions it can’t find additional investors. Give us a licence despite being offside the law, they say the startup is arguing, and once we’re operating and pull in revenue, investors will see it us in a better light and we’ll be able to dilute the Orascom debt.

Not so, retorted Globalive CFO Brice Scheshcuk. Despite Orascom’s debt, shareholder equity and other contracts, “we do not suggest we are not currently in compliance” with the legislation, he said. Moreover, he added, there is no rule limiting the debt a Canadian carrier can owe a non-Canadian.

As for raising more Canadian capital, “it may take a little time,” he said, “but you have everyone’s commitment that we are trying to move that debt off Orascom’s books as soon as possible.”

The players have one more opportunity to persuade the CRTC of their positions. The incumbents have until Oct. 5 to submit final written arguments, while Globalive has until Oct. 7.

 

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