Globalive seeks cash to build new cellular network

Globalive Wireless CEO Anthony Lacavera has hardly finished mailing a $442 million cheque to Ottawa for the spectrum he won in the recent AWS auction and he’s already looking for more cash.

Lacavera, who heads parent Globalive Communications, and his partner in the wireless venture, Naguib Sawiris, who heads Egyptian-based Orascom Telecom, said Thursday they’ll need $1.9 billion over the next decade to build a national cellular network.

Of that, Orascom is willing to put in up to $700 million over the next three to four years to get the company going. That doesn’t include vendor financing of hardware the company will need.

Globalive Wireless aims to start doing business a year from now in five cities – Toronto, Vancouver, Calgary, Edmonton and Ottawa – with a target of signing up 1.5 million subscribers in the first three years. By 2014, they hope to have 3.5 million. According to an Orascom slide presentation for the press and investors, the initial target market will be consumer rather than business users. Those living in rural areas will have to wait a while. One slide says the AWS spectrum just purchased is unsuited for rural areas. Service there will have to wait until spectrum in the 700Mhz is auctioned, which, it believes, will be in 2011 or 2012.

Globalive Communications, which owns long distance dial-around services such as Yak Communications, will be able to leverage its estimated 1.5 million customer base, the presentation says. On the other hand, it adds, as a newcomer the wireless company will have trouble attracting enterprise customers.

In an interview Lacavera said he hopes the entire monetary burden won’t fall on his company and Orascom. “So we’re in discussion with various vendors, with a number of potential investors,” he said.

One of them won’t be Iceland telecom entrepreneur Thor Bjorgolfsson, who before the auction started was listed as a partner in Globalive Wireless. Lacavera wouldn’t say when Bjorgolfsson decided to end his participation in the group. He added that “at the end of the day the opportunity wasn’t big enough” for both Bjorgolfsson and Sawiris.

Instead, Orascom now has a 65 per cent equity share in Globalive Wireless and a 20 per cent voting interest. Lacavera will get a chance next week to pitch to investors when he speaks at BMO Capital’s telecom and media conference in Toronto.

Exactly what plans and phones Globalive Wireless will sell isn’t clear. Most industry analysts are certain the new entrants will go for the GSM standard, which only Rogers offers in Canada, over CDMA. Not only is GSM gear less expensive than CDMA thanks to royalty payments that have to go to Qualcom, Rogers earns fat international roaming commissions with GSM.

But Lacavera said no decision on that has been made yet. As for his product offerings, Lacavera said that initially Globalive Wireless will sell “cost-effective, simple” pre-paid plans because it’s a market less well served compared to other countries, “and then expand from there.”

However, yesterday he also launched a Website called, ostensibly to find out what kind of service Canadians want from the new carrier. It also serves as a publicity machine for the yet to be born service.

Of the new entrants, Globalive didn’t spend the most on spectrum. Quebecor, which owns cableco Videotron, was the top bidder. But Globalive won the most spectrum across most of the country – except for coverage over Montreal.

Videotron and a numbered company, 6934579 Canada Inc., which had been headed by Montreal financial firm Novacap and includes U.S. venture capital firms, hold spectrum that would give Globalive true national coverage in major urban centres. The federal ban on auction participants has only just ended, meaning Lacavera is just starting to call what he hopes will be his allies. He want to see “if there’s common ground for a positive relationship and partnership,” including the sharing of tower or antenna locations to help defray each others costs.

The plans of 6934579 Canada Inc. are a particular mystery. One of its U.S. investors told IT World Canada before the auction that the group planned to buy enough spectrum for national coverage. However, before bidding started Novacap said there were problems finding Canadian partners and that after the auction finished the northern ownership would change. As a result, with its Canadian financing unsettled, the group was able to have high bids on only four licences totalling $52 million. For Globalive and other would-be newcomers who want a national presence, they are attractive: 10Mhz licences covering southern Quebec, eastern Quebec, southern Ontario and eastern Ontario.

The would-be new Canadian shareholders of this company, with just over 66 per cent ownership, include BMO Capital, the venture capital arm of the Bank of Montreal, Rho Canada Ventures and another numbered company. Each have 22 per cent of the shares, while U.S. venture investors would evenly split the rest.

It is unknown if those investors are satisifed with what the numbered company won and still want to participate, and whether Industry Canada has approved the new ownership. Calls to BMO Capital and several other of the numbered company’s Canadian investors in the past several days have not been returned.

This week was the deadline for new entrants to submit their ownership documents.

Industry Canada, which has set foreign ownership restrictions, still has to certify the bidders. Other spectrum winners are also being cagy. Spokesmen for Bragg Communications of Halifax, which won spectrum in the Maritimes and central Ontario, and Toronto’s Data and Audio-Visual Entertainment (DAVE), which won 10Mhz licences in southern Ontario, Vancouver, Calgary Edmonton and several smaller cities, also refused in the past few days to be interviewed.

Meanwhile Lacavera, with his wealthy backer behind him, is plowing ahead. Already he is looking at potential antenna sites. Orascom, which sent several advisors to Toronto to help Lacavera through the auction, is a valuable and experienced asset, he said, which has built some 40 wireless companies around the world. As such it can get “great vendor pricing,” he said.

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