Will Globalive’s late changes satisfy CRTC?


As a public hearing resumes on the influence of its Egyptian-based financer, the backers of Globalive Wireless Management have made major changes its structure in hopes of assuring the country’s telecom regulator it is under Canadian control.

“We want to be very proactive and demonstrate our flexibility and our willingness to co-operate fully and make the CRTC comfortable [that] this company’s controlled by Canadians—in this case me – and we’re moving ahead,” Globalive chairman Anthony Lacavera explained in an interview.

The hearing started last week and wraps up Thursday into whether Orascom Telecom, which is lending Globalive $508 million to launch service, has so much control under finance and other agreements that regulators shouldn’t allow Globalive to start business.

Operating under the Wind Mobile brand, Globalive hopes to start operations by the end of the year in Toronto and spread to other parts of the country. It has licences covering most of Canada except southern Quebec.

The fact that Globalive – one of four wireless startups hoping to challenge incumbents Bell Canada, Rogers Communications and Telus Corp. in the next few months – was making its second set of structural changes during the hearings is a sign of how much is at stake.

If the three-member panel of the Canadian Radio-television and Telecommunications Commission (CRTC) demands onerous changes, Orascom could pull out of the Globalive deal. That would put a significant hole in Ottawa’s plan to bring more competition to the wireless business.

According to telecom consultant Mark Goldberg, the most recent Globalive changes are “significant,” involving simplifying Globalive’s corporate structure, giving greater representation to Canadians on its board of directors, dropping certain Orascom shareholder rights, and removing negative covenants and indemnities in Orascom’s loans.
To see Globalive’s new structure, click here
For example, Orascom used to have the right to veto business deals of over $5 million. That’s now been raised to $22.1 million.

However, it isn’t known if the changes will be enough for the commission, which has to ensure Globalive meets the conditions of the federal Telecommunications Act. It specifies a Canadian telecom carrier have to meet three tests: 80 per cent of the board is Canadian, 80 per cent of voting shares of the operating company are Canadian, and that the corporation is not otherwise controlled by non-Canadians.

It is this last condition that could prove the stickiest – what’s the definition of “not otherwise controlled.”

At a closed door hearing last week – held privately because it was examining Globalive’s business documents – CRTC chairman Konrad von Finckenstein told Globalive and Orascom executives what the problems are: [A transcript of the hearing, where the latest structural changes were revealed, was only released Wednesday]:

“The fact is that (Orascom) owns practically all the debt, owns the majority of the (shareholder) equity and is also your principal service supplier,” he said. In addition, Orascom has a services agreement with Globalive that “is another way of getting your return on investment …. So there are three large levers in one hand, and that hand is not Canadian.

Noting that Globalive and Orascom have said that due to the recession they have been futilely looking to expand the amount of Canadian financing, the chairman concluded the partners are asking for conditional approval without a time limit on boosting Canadian ownership.

“Except,” he added, “I don’t have that authority. That is the issue.”

To which Globalive lawyer Hank Intven replied that with the changes to the debt agreement, Orascom has no legal control over Globalive. He added that Industry Canada – which has already blessed the Globalive-Orascom deal – doesn’t look at company debt the same way as it looks at director voting power.

Under the newest changes, the dual holding company that controlled Globalive Wireless has been reduced to one: Globalive Investment Holding’s Corp. (click here for a graphic).

GIHC is controlled by Orascom, AAL Holdings Corp. and a third company.

AAL Holdings, controlled by Globalive chairman Anthony Lacavera, has 66.68 per cent of the voting shares of GIHC. Orascom has 32.02 per cent.

However, Orascom has 65 per cent of the shareholder equity of GIHC, while AAL Holdings has 34.25 per cent.

Among the structural changes, GIHC and Globalive Wireless will have a joint board of 11 persons. Four will be appointed by ALL, four by Orascom – at least two of whom have to be resident Canadians – plus there will be three independent Canadian directors.

Lacavera will be chairman of both boards.

While Orascom is putting in the money, Lacavera is putting in his Yak Communications long-distance and Internet companies.

Today’s session will deal with closing arguments from Globalive and incumbent wireless carriers Bell Canada, Rogers Communications and Telus Corp., who have been loudly critical of the Orascom-Globalive deal.

It means they’ll face a well-funded competitor, better funded than DAVE Wireless, the other new entrant that has licences covering much of the country. DAVE (soon to be re-named) has foreign investment from U.S. venture capital funds. However, it didn’t spend as much on licences as Globalive did. DAVE’s ownership structure hasn’t been revealed, but it is assumed the VC’s won’t be that startup’s financiers, technical advisors and service suppliers.

Also in the race are regional players Quebecor’s Videotron, whose licences blanket Quebec and Toronto, and Public Mobile, which will operate in Toronto and Montreal.
The CRTC has promised a decision by Oct. 23. However, Bell, Rogers and Telus could appeal any ruling to the cabinet, which could delay Wind Mobile’s debut



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