Startup to become completely controlled by a foreign carrier, with company founder and CEO Anthony Lacavera to start venture firm

Orascom to take over Wind Mobile

The Harper government’s hope of getting a foreign telecommunications company to plant a flag firmly in Canada has been realized.

Orascom Telecom Holdings – a division of Amsterdam-based VimpelCom Ltd. – said Friday it is going to take complete control of startup Wind Mobile after being its partner and banker for five years.

That will make Wind the only foreign-owned wireless carrier in the country.

The question is whether being firmly in VimpelCom’s hands will help Wind gain more than the tiny market share its has been able to earn in just over three years, or will it get out of Canada.

No one from VimpelCom was available Friday for comment on its plans.

 Wind is the country’s fourth largest cellular carrier with 600,000 subscribers in Vancouver, Edmonton, Calgary, Toronto and Ottawa.

That would leave it roughly 7 million subscribers behind the number three carrier, Telus Communications Co.

That has lead to some wondering if after Wind’s modest growth VimpelCom wants to get rid of its investment in here. VimpelCom is a US$20 billion international telecom giant that owns or controls carriers in Russia, Italy, Ukraine and, through Orascom, in Algeria, Pakistan and Bangladesh.

In an interview Friday, Lacavera noted that VimpelCom has said Wind isn’t a strategic asset and is assessing what do to with the Canadian investment.

Amit Kaminer, a research analyst with SeaBoard Group telecom consultancy, recalls a financial analyst has written that VimpelCom put Wind Mobile in a basket of assets to be sold. Wind is the only one left.

Still, Lacavera noted VimpelCom continued to invest heavily in Wind. He said the company is “clearly a viable competitor” to the big three carriers — Bell Mobility, Rogers Communications and Telus Corp.— which is why he’s retaining a “substantial stake” in Wind.

Ron Gruia, a telecom analyst with Frost & Sullivan, agrees its possible VimpelCom will sell Wind. A sign of its plans, he added, is whether it will participate in the upcoming 700 MHz spectrum auction, or, if it does, whether it will bid aggressively.

Overall, however, he sees VimpelCom’s takeover as positive. “It assures viability of that fourth player in Canada, which I think is vital because it keeps the big three [Bell Mobility, Rogers Communications and Telus Corp.] honest with their prices.”

Orascom/VimpelCom’s move was not unexpected after Ottawa changed the Telecommunications Act last fall to allow foreign companies to completely own a Canadian carrier with less than 10 per cent of the market. Then in October VimpelCom’s board voted to convert its non-voting shares of Wind into voting shares.

At the time Wind’s Canadian founder, chairman, CEO and controlling shareholder, Anthony Lacavera, said if that occurred he and Canadian directors would still be in control.

But VimpelCom [NYSE: VIP] wanted full control, or made Lacavera an offer he couldn’t refuse. Lacavera said in an interview he’d been negotiating with Orascom for a “long time.”
“I’m very proud of what I accomplished with Wind,” he said Friday, a journey that began when the government announced in 2007 it would set aside spectrum for new entrants to encourage competition in the wireless market. Ultimately Orascom was the only investor Lacavera could find.
 
“I set out to create a fourth national carrier, and I’ve done that …. The company’s on a great growth track and I’m comfortable handing it over.”

Orascom, which has held 32 per cent of Wind’s voting shares and 65.1 per cent of its equity, will take complete control of the wireless carrier once regulatory approvals are given.

Lacavera will transfer to Orascom his indirect 66.7 per cent voting shares and 34.4 per cent economic interest.

Lacavera will keep a small percentage in the carrier, but Orascom will end up with 99.3 per cent indirect interest in Wind’s parent company, Globalive Wireless Management Corp. (GWMC).

GWMC is a partnership between Lacavera, who contributed his Canadian telecom assets including the Yak long-distance dial around service and OneConnect, a cloud-based service for some 8,000 small and medium businesses, and Orascom, which contributed close to $1 billion needed to buy spectrum in 2008 and build the wireless network.

As part of the deal, Lacavera will get back Yak and OneConnect and some cash, which he’ll use to start a venture capital firm called Globalive Capital.

Just as Orascom’s proposed share deal simplifies its position in Wind, it could have an effect on the Orascom/VimpelCom’s participation in the upcoming spectrum auction in the prized 700 MHz band. It’s an auction industry observers believe bidders will need hundreds of millions of dollars if they hope to get any frequencies. The department hasn’t set a date but hopes it will be conducted this spring.

The 700 MHz band is highly-valued by carriers for deploying the latest and fastest LTE networks.

Bell, Rogers, Telus Corp. have launched LTE service on the AWS spectrum they bought along with Wind and fellow startups Mobilicity and Videotron. However,  the startups concentrated on building their new networks, which run the 4G but slower HSPA+ technology.

The startups would like 700 MHz spectrum to keep up with the bigger carriers. However, Lacavera has maintained that the rules Industry Canada set up for the 700 MHz auction put small companies like Wind at a disadvantage.

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