Government to ‘vigorously’ fight Globalive decision

The Harper government will fight  a court ruling that it bent the law to let startup wireless carrier Wind Mobile start business just over a year ago.

“We believe that our decision was the right one for Canadian consumers and we defend it vigorously,” Industry Minister Tony Clement [pictured] told reporters in Ottawa on Tuesday.

He didn’t detail the exact legal reasons for the challenge, which will go to the Federal Court of Appeal, other than to repeat that the cabinet believes Wind and its parent company, Globalive Wireless Management Corp., is Canadian-controlled and meets the requirements under the Telecommunications Act.

However, he did indicate how the government will meet a Federal Court judge’s objections to the way the cabinet made its ruling.

“I did a rigorous review of Globalive’s share structure, its capitalization, its board structure, its day to day management and I came to the conclusion, and cabinet agreed me, that it is Canadian under the terms of the [Telecommunications] Act and that is our position. From a legal basis we are within the law.”

In a Feb. 4 ruling, Federal Court Judge Roger Hughes said the December 2009 cabinet order concluding Wind is controlled by Canadians as required by the Telecommunications Act was “based on errors of law and must be quashed.”

The cabinet order was crucial for Wind’s parent, Globalive Wireless Management Corp., because it has significant investment from Egyptian-based Orascom Telecom Management that raised questions about whether it was Canadian-controlled. The federal telecommunications regulator, the Canadian Radio-television and Telecommunications Commission, ruled in October, 2009 that Globalive wasn’t controlled by Canadians, and wasn’t eligible for an operating licence.

Six weeks later it was over-ruled by the cabinet, which concluded the startup is controlled by Canadians.

But in doing so, the cabinet erred twice, the judge wrote:

–First, in concluding that the Telecommunications Act, which controls wired and wireless carriers, should be interpreted to encourage foreign investment. There is no such requirement in the act, the judge said.

–Second, cabinet erred saying its decision only applied to Globalive Wireless based on the facts of the particular case. But, said the judge, the cabinet can’t restrict its interpretations to one person or organization. 

There is a 45-day stay of the court order, which allows Wind to continue in business.

Hughes’ ruling is embarrassing to the government, for it is a challenge to the cabinet’s right to allow an upstart to challenge the three incumbents who hold an overwhelming part of the wireless market: BCE Inc.’s Bell Mobility, Rogers Comunications Inc. and Telus Corp.

But Clement said the government won’t back down. “The policy of our government is clear: We want and encourage choice in competition in wireless and Internet markets,” Clement said. He pointed out that the government set aside spectrum for new entrants in the 2008 auction for new entrants in order to increase competition and push and wireless prices lower prices and encourage better service for subscribers. “That is our guiding star on this matter,” Clement said, “and we will continue to defend consumer choice and competition.”

Globalive chairman Anthony Lacavera immediately issued a press release praising the government’s decision. “From the beginning, Industry Canada and then cabinet maintained, with a full knowledge and understanding of the facts of our structure, that we are fully compliant with the Telecom Act rules, and we are pleased that the Government is vigorously defending its decision,” the statement said.

“Today the government put another stake in the ground for wireless competition in this country to promote more choice and value for Canadians.”

As a party to Hughes’ decision, Lacavera said Globalive is still considering its options, which includes joining the government in its appeal.

“We hope our competitors will finally stop trying to game the regulatory system and allow everyone to focus on competing for customers,” he added.

The Harper government has clashed with the CRTC on several issues in the past two years, including Globalive, the ability of independent Internet providers to be able to match speeds of the carriers it buys connectivity from, and, most recently, Internet usage-based billing. That led one reporter to ask if the government has confidence in the commission.

Since 2006 the CRTC has issued some 2,200 telecom decisions (not including broadcast-related decisions) and only 13 have been reviewed by Harper cabinet, replied Clement. Of those the cabinet upheld seven, varied three and referred three back to the CTRC.

“For any of those who are arguing that we are unduly meddling with the CRTC, that’s bunk,” Clement concluded.

The commission has the day-to-day management of telecom and broadcasting, he said. “But where they go, in our view, outside of the public policy that has been enunciated by the duly-elected government of this land, we do have the right — and I would say the obligation – to have that dialogue with the CRTC.”

When a reporter suggested the government has challenged the commission on major decisions, Clement disagreed, saying it has used its power “sparingly.”
Ever since the CRTC decision the government has been wrestling with updating the foreign control provisions of the Telecommunications Act

On Tuesday, reporters asked Clement why he doesn’t just amend the act rather than appeal the Globalive ruling. But Clement said these are different issues.

“We believe this [appeal] is not about letting a foreigner in to compete. This is a case of allowing a Canadian company that does have some foreign investment as part of its capitalization – which is perfectly reasonable and acceptable under the act – to continue to offer service to Canadians.”

Amending the Telecommunications Act is a separate issue, he said, and will depend on the government’s broader foreign investment policy.

Clement had promised to introduce changes last fall after proposing three options for changing legislation. But that date was abandoned when the government realized it might also want to tweak rules for next year’s 700 Mhz and 2500 Mhz spectrum auctions to encourage foreign telecom companies or investors to participate.

The 700 Mhz auction is of particular interest to new wireless entrants like Wind, Mobilicity and Public Mobile. Spectrum in that frequency is being used by carriers for the next generation of wireless technology, Long Term Evolution (LTE). An inability to raise money to bid in that auction could cripple a startup’s future.

The public has until the end of this month to make submission on the framing of the upcoming auction rules.
In going to the Federal appeal court instead of the Supreme Court the government could be buying time while it forges its foreign telecom investment policy. That becomes more important, if, as some speculate, there will be a federal election this year.

Immediately after Clement spoke, NDP industry critic Brian Masse told reporters that the government should be asking Globalive to restructure to meet complaints by competitors that it has breached the Telecommunications Act.

“What’s going to happen now [because of the appeal] is there’s going to be a cloud over this industry and all the competitors until this situation reaches another legal hurdle, and perhaps go all the way to the Supreme Court. This is going to be timely and costly way to sort out the telecom industry and I’m not sure consumers not going to benefit from this decision at all.”

For Globalive, the government should have enforced the foreign control rules for participants before the 2008 spectrum auction, he said. Instead, he said, the government chose to circumvent the rules to favour Globalive.

[Actually, before the auction Industry Canada did have to certify bidders met certain criteria. However, it was only after the auction – when the financial backing of some winners solidified – that the department did a more thorough appraisal of whether they met the tests under the Telecommunications Act to be eligible for their spectrum licences. Clement found in the spring of 2009 that Globalive met the criteria. Even then, the CRTC had to do its own review for new spectrum licence holders to get their operating licences. It asked Mobilicity (at the time called DAVE Wireless)  and Public Mobile to strengthen or clarify their Canadian control structure. In the middle of a heated public hearing, Globalive announced structural changes to mollify critics, but the commission said the changes weren’t enough.

Critics, including Public Mobile, which launched the Federal Court challenge, also said Clement should have made his thorough review on Globalive before the auction, not after. However, Clement says both times the government made the right decision – that Globalive is Canadian-controlled.]

Masse also said the government should change the law rather than appeal. “If the base rules [on foreign investment] are easily identified and how to enforce them, you’re going to increase competition because people will know there’s going to be fair rules for all.”

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