Merger unlikely right now, says Wind Mobile head

A court decision putting Wind Mobile’s legal status in question won’t be quickly resolved by merging with another Canadian wireless carrier to increase local control, says the company’s chairman.

“Frankly, I don’t see this as a catalyst for merger because there’s more ambiguity with this decision than there was before,” Anthony Lacavera said in an interview Tuesday.

Last week’s Federal Court decision hasn’t clarified what Wind’s parent, Globalive Wireless Management Corp., has to do to meet the regulatory requirement that Canadians have control over the company, he said.

Globalive Wireless is a partnership between Lacavera’s Globalive Holdings and Egypt’s Orascom Telecom Holdings SAE.

The Federal Court judge struck down the December, 2009 cabinet ruling that Globalive is a Canadian-controlled company although Orascom holds 65 per cent of Globalive’s shareholder and debt equity.

That would have left the earlier decision by the federal telecom regulator, the Canadian Radio-television and Telecommunications Commission (CRTC) that Globalive is controlled by Orascom intact — and Wind offside the law.

However, The Federal Court decision has been suspended for 45 days to give the Harper government and Globalive time to plot their next steps.

But swiftly finding a partner isn’t one of them, Lacavera insists.

Globalive and Wind are in compliance with the legal control provisions of  Telecommunications Act, he said, which specifies that the 80 per cent of the board of directors of a telecom carrier have to be Canadians, and that Canadians have to own directly or indirectly 80 per cent of the company’s voting shares.

However, the CRTC found Globalive didn’t meet the test of being controlled by Canadians (or, as the law puts it, not controlled by non-Canadians).

It concluded that the combination of Orascom’s right to get out of the deal, the fact that it supplies technical services to Wind, owns its trademark and the fact that it has funded Wind to the tune of $600 million meant it had effective control over the startup.

Industry observers noted that the debt was the tipping point for the CRTC, and before the cabinet intervened suggested Wind either had to find more Canadian investors to lower the debt or merge with another carrier.

After the Federal Court decision those voices were raised again, with suggested likely partners fellow startups Mobilicity and Public Mobile.

However, Johanne Lemay, co-president of Montreal-based telecom consultancy Lemay-Yates Associates Inc., said in an interview that a merger or acquisition may not satisfy a regulator or court. Globalive has already invested a significant amount of money on its network and spectrum, she pointed out, which a partner would have to take over. Mobilicity and Public Mobile have U.S.-based equity firms as shareholders, she said, which would only increase Globalive’s foreign equity.

There are other telecommunications companies in the country. However, without clear rules on the definition of Canadian control, they will hesitate. Nor has Orascom made it clear what the price will be of having its equity diluted.

This is why while Industry Minister Tony Clement was again quoted as saying the government believes Globalive is a Canadian company, Lemay said that “what is needed is clarity from the government” on the regulations for foreign investment in the telecom sector.

The three alternatives the government said last year it is looking at aren’t sufficient, she added, which try to separate the regulation of telecom and broadcast companies. “We’re making a mistake by not regulating all networks under the same framework.
The government had hoped to introduce telecom ownership reform legislation last fall, but then realized it has to first set the rules on whether foreign-controlled companies can participate in upcoming wireless spectrum auctions. A consultation on the auction rules won’t end until Feb. 28

Meanwhile, the future of Globalive’s main financier, Orascom, is unsettled. Last year Orascom’s parent Weather Investments S.p.A. (now called Wind Telecom) struck a $6.5 billion deal to be bought by Amsterdam-based telecom giant VimpelCom. Ltd., which could give Wind Canada access to more financial support. The merger would create the world’s sixth largest mobile telecom company by subscribers.

However, one of VimpelCom’s significant shareholders, Norway’s Telenor ASA, has vowed to fight the deal because it will dilute its holdings.

On Monday, Telenor applied to a court for an injunction to stop VimpelCom from holding a special shareholder’s meeting on March 17 to ratify the deal.

According to one report, Telenor now owns about 40 per cent of VimpelCom, not enough itself to stop the deal. Separately, Telenor has asked for arbitration with VimpelCom after another major shareholder bought stock in Orascom before the merger deal was finalized.

Lacavera said Tuesday that he is watching the situation. “I see it as a positive if it [the merger] does happen,” he said, but neutral if it doesn’t. Orascom, he explained, will continue to back Globalive.

“I don’t see us having a financing problem,” he said.

Globalive and the federal government have 45 days to appeal the Federal Court ruling, and they can then ask for a further extension. That could give the government time to draft new foreign telecom ownership regulations, which, unlike an amendment to the Telecommunications Act, don’t have to be passed by Parliament.

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