How the company that denied Wind Mobile auction financing came to Canada
An international telecommunications giant headquartered in Amsterdam and controlled by a Russian magnate pulled the plug on Canadian startup carrier Wind Mobile’s hopes of buying valuable 700 MHz spectrum in the auction that starts Tuesday.
How did VimpleCom get to do this?
Because it’s Wind’s banker.
To understand we have to go back five years to the controversial birth of the Canadian startup.
When long distance telecom entrepreneur Anthony Lacavera decided in 2007 he was going to bid for spectrum in the following year’s auction, he went looking for an international partner.
He found it in Orascom Telecom Holdings, headed Egyptian telecom mogul Naguib Sawiris. Orascom owned or controlled a number of carriers including Wind Telecom of Italy, Mobinil of Egypt, OTA of Algeria, Mobilink of Pakistan, SAIT in Congo and others.
Through a partnership dubbed Globalive Wireless, named after one of Lacavera’s company, Orascom advanced the $442 million Lacavera needed to win spectrum in the 2008 auction, plus hundreds of millions more to build its network.
But before what became Wind Mobile opened its doors, the Canadian Radio-television and Telecommunications Commission (CRTC) held public hearings on its ownership.
Orascom held the largest chunk of equity in Globalive, while Lacavera, through a holding company and a partner, held voting control.
The CRTC allowed Wind’s competitors hours of time to publicly attack the arrangement, alleging that Orascom had to be in control in violation of the foreign investment law because of its financing. But at the hearings Lacavera said no one else in Canada wanted to invest in a startup preparing to fight Bell, Rogers and Telus.
Despite the fact that Industry Canada had approved the ownership structure, the CRTC turned thumbs down. Eventually the Harper cabinet had to over-rule the commission in December, 2009.
After that Lacavera said he continued to try for years in vain to find Canadian investors.
Even after the Harper government liberalized foreign investment in 2011, allowing a foreign company to own up to 49 per cent of a Canadian carrier with less than 10 per cent of the market, Wind couldn’t tempt another investor (although there was a report in 2013 that Rogers was backing a Canadian private equity firm interested in buying Wind).
Meanwhile VimpelCom, an international telecom carrier with holdings that dwarfed Orascom, was looking for an acquisition. In 2011 it bought Orascom for US$6 billion.
With its subscribers numbering in the hundreds of thousands, Wind Mobile was one of VimpelCom’s smallest carriers. It was never clear that it figured strongly in the company’s plans.
In 2012 it began negotiations with Ottawa on conditions under which it could buy out Lacavera and take complete control of Wind. Some wondered if that was a sign VimpelCom wanted full power to sell the company.
But in June 2013 VimpelCom abandoned the effort. There were reports Ottawa wasn’t happy with VimpelCom’s Russian investors.
After that the telecom industry wondered how much money VimpelCom would advance Wind to bid on more spectrum, continue operations and build out its network.
With VimpelCom refusing to give Wind funds to bid in the 700 MHz auction, one of those questions was answered.