New wireless entrants encourage foreign ownership

Allowing foreigners to invest more in Canadian telecommunications carriers will result in more competition in the wireless space, according to executives from two new Canadian cellular providers.

“I can tell you by allowing more foreign capital you will have more competition in the short term,” said Alek Krstajic, CEO of Public Mobile Inc., which plans to launch wireless service in Ontario and Quebec next month.

Krstajic made his comments during testimony Tuesday before the House of Commons Standing Committee on Industry, Science and Technology. The committee is examining Canada’s foreign ownership restrictions.

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Also testifying Tuesday was Simon Lockie, chief legal officer of Globalive Communications Corp. Globalive owns Wind Mobile, which launched cellular service in December. Currently the market for wireless service is dominated by Bell Canada Enterprises Inc. (TSE:BCE), Telus Corp. (TSE:T) and Rogers Communications Inc.(TSE:RCI.B)

So in 2008, the federal government reserved some of the Advanced Wireless Spectrum to new entrants.

Lockie said Tuesday the federal government should implement recommendations from both the Competition Policy Review Panel, released in June 2008, and the Telecommunications Policy Review Panel, released in March, 2006.

Both reports recommended easing the current foreign ownership restrictions.

The federal Telecommunications Act requires that Canadians own at least 80 per cent of voting shares of facilities-based telecommunications carriers operating in Canada. There is no specific limit on foreign-held non-voting shares or loans, but the law does require that carriers be “not otherwise controlled” by foreigners.

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This “control in fact” stipulation was the stumbling block for Wind Mobile owner Globalive Wireless Management Corp. Wind Mobile is the only new wireless entrant that bought frequencies in the 2008 spectrum auction that is actually providing service now.

In addition to Public Mobile, other new entrants that plan to launch this year include DAVE Wireless, using the Mobilicity brand and Videotron Ltd. Shaw Communications Inc. (TSE:SJR.B) plans to launch its wireless service in 2011.

Most of Globalive’s startup funds came from Egypt-based Orascom Telecom Holding SAE and last year, the Canadian Radio-television and Telecommunications Commission (CRTC)  denied Globalive a carrier licence on the grounds that it was, in fact, controlled by Orascom. The federal Cabinet over-turned that ruling.

Then last month, the government stated in the throne speech it intends to “open the doors” to more foreign investment, though Industry Minister Tony Clement did not go into specifics.

But the industry committee, which includes members of parliament from both the ruling Conservative and opposition parties, voted to complete a study and has heard from a wide range of witnesses.

Last week, CRTC chairman Konrad von Fickenstein testified that carriers should still be controlled by Canadians, but that the foreigners should be allowed to hold up to 49 per cent of the voting shares. At the time, committee member Dan McTeague, the Liberal MP for the Toronto-area riding of Pickering-Scarborough East, asked von Fickenstein whether his proposed limit would give new entrants access to the capital they need. Von Fickenstein said he believed it would.

On Tuesday, McTeague asked representatives from both Public Mobile and Globalive if they have reached the maximum foreign ownership allowed by law.

“I’d like someone to tell me that number is,” Krstajic replied. “With my esteemed friend over here, 100 per cent of that money is coming from foreigners.”

Wrong, retorted Globalive Wireless chief legal officer Andrea Wood, who also testified Tuesday. Wood alluded to company chairman Anthony Lacavera, who holds 80 per cent of Globalive’s voting shares, though it was not clear how much of his own money Lacavera invested.

Globalive has spent $442 million on spectrum two years ago and millions more on its network.

Public Mobile’s Krstajic said although his company has now built its network and bought its spectrum, it will need to spend millions more on advertising.

He also claimed Cabinet effectively changed the Telecommunications Act when it over-ruled the CRTC in allowing Globalive to turn on Wind Mobile.

“The same rules should apply to us,” he said. “This is like a hockey game. There are rules. They say you are allowed to put five players are the ice. More capital allows you to play the game harder. By allowing more capital you are allowing Globalive to have six players on the ice.”

But Lockie pointed out Cabinet has the right to over-rule the CRTC.

“Everyone has the right to bring in as much foreign capital as they like, on terms that respect those rules,” he said.

The committee is planning to hear from more witnesses later this week.

Last week, officials from Rogers, Bell, Telus, Shaw and Manitoba Telecom Services Inc. (TSE:MBT) testified. The general consensus was, the same rules that apply to new entrants should apply to incumbents who are also in the broadcasting sector.

The CRTC’s von Fickenstein also said the government should not change the rules for telecommunications without implementing the same rules for broadcasters.

But Lockie said Globalive is not recommending changes to foreign ownership restrictions on broadcasters.

“We are a pipeline,” he said. “We are not a broadcast company.”