Will efforts to increase competition in the Canadian cellular industry be stillborn?
That question will be answered shortly when the Canadian Radio-television and Telecommunications Commission rules later this week on whether newcomer Toronto-based Globalive Wireless Management meets foreign control restrictions and is eligible for a carrier licence.
The commission had promised a decision by Friday after a controversial week of hearings that ended earlier this month. However, a commission spokesman said that ruling is now expected Oct. 29.
Orascom Telecom, controlled by Egyptian communications mogul Naguib Sawiris, has 65 per cent of the shareholder equity in Globalive Wireless’parent, although only 32 per cent of the voting power. In addition, it has advanced every penny Globalive has spent.
But at stake is more than one company’s licence. The commission could set a new standard for foreign ownership that will allow hundreds of millions of dollars to flow into the industry. Or it could set off a chain of appeals that will end up in the hands of Prime Minister Stephen Harper and his cabinet.
Foreign investment is “the elephant in the room” said one industry observer who asked not to be named. “If you approve this,” he wondered, “why can’t [France's] Orange buy Telus?”
Or, as one competitor suggested at the CRTC hearing, why wouldn’t Bell Canada, Rogers Communications and Telus Corp. hive off their wireless divisions to get the kind of money Orascom is pouring into Globalive?
Carriers have been demanding changes in the foreign ownership laws for some time. Most recently,
MTS Allstream sounded off at this year's Canadian Telecom Summit. Depending on the wording, the CRTC ruling could conflict with government policy, which has been to insist on Canadian control of phone companies, cable companies and wireless carriers.
“If the commission says no,” the observer continued, “what does that mean for the upcoming 700 Mhz spectrum auction? Foreign investors will see Globalive has spectrum licences from the government, but the regulator refuses the carrier licence. They’ll wonder what kind of banana republic is this?”
Few will stick their necks out on which way the CRTC will rule.
“It was safer to bet on who was going to win Monday’s Denver Broncos-San Diego Chargers game,” said the industry source.
Some believe an appeal to the courts or the cabinet either by Globalive or its competitors is certain, which could delay its launch if not torpedo the company.
Of all the new entrants that bought spectrum at last year’s AWS auction, Globalive Wireless is arguably the company that can best challenge Bell, Rogers and Telus. It has more spectrum than the others, and with Orascom a bigger financial backer.
The immediate issue is foreign ownership and control: Orascom has just over 65 per cent of the shareholder equity in the Globalive Wireless’ parent company, Globalive Investment Holdings Corp. (GIHC).
On the other hand voting control over GIHC is in the hands of Orascom’s Canadian partners, telecom entrepreneur Anthony Lacavera, the chairman who has 66.68 per cent of the votes through a holding company, and Michael O’Connor – a former Orascom employee – who has a 1.3 per cent sliver.
Lacavera’s contribution to GIHC are companies he owns under the Globalive Communications banner, including dial-around long distance and Internet provider Yak Communications.
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here to see Globalive Wireless' proposed corporate structure
Orascom has sunk $508 million into Globalive Wireless, which intends do business under the Wind Mobile brand owned by Orascom. That’s 100 per cent of its debt so far and the company is only starting to build a national wireless network. Globalive believes it will take another $500 million to fully build the network.
Orascom also has a contract to deliver technical services to Globalive Wireless, which it is using for revenue, a veto over spending about $22.1 million and a say in the selection of directors.
The CRTC has to figure out if the arrangements meet the demands of the Telecommunications Act. Section 16 (3) of the act sets out three tests for a carrier to be Canadian: Not less than 80 per cent of board have to be Canadian; Canadians have to beneficially own, directly or indirectly, not less than 80 per cent of the corporation’s voting shares issued; and the corporation is not otherwise controlled by persons that are not Canadians.
Note the act says nothing about how much a carrier can be in debt to a foreign organization, nor the amount of foreign shareholder equity.
So the question is considering all the money Orascom has put in to Globalive Wireless and the contractual powers it has, is company really under Canadian control?
Obviously not, say Bell, Rogers and Telus Corp., who have 95 per cent of the wireless market. At the recent CRTC hearings into Globalive Wireless’ licence, they demanded deep changes, such as slashing Orascom’s indebtedness down to 32 per cent to match its shareholdings.
Bell went so far as to say nothing can be changed: The structure is so flawed Globalive can’t be given a licence.
For its part, Lacavera and Orascom to agreed to a number of changes in the middle of the hearing to meet concerns, including clarifying board-level control and removing some Orascom vetoes over Globalive operations. Now Orascom would have four seats on Globalive's 11-person board. There would also be four from Lacavera's holding company and three independent Canadians.
Globalive even takes the interesting position that technically the Telecommunications Act doesn’t apply to it yet – it’s not in operation, therefore isn’t a carrier.
Although CRTC chair Konrad von Finckenstein is a former Federal Court judge and therefore independent-minded, it cannot escape the commission that Industry Canada wants increased competition in the wireless industry, or that has already cashed the $442 million cheque (paid for by Orascom) for Globalive’s spectrum licences. Or that Industry Canada’s approval for those licences was given under Globalive’s earlier structure.
On the other hand, spectrum licences are granted under the Radio Communications Act, which has a slightly different definition of Canadian control than the Telecommunications Act.
Undoubtedly, what the commission doesn’t want to do is interfere with Parliament’s power to create foreign ownership law.
Certainly Globalive has put the commission into a corner. In its defence, the company told the commission that it searched high and low for investors before last year’s spectrum auction started and came up only with Orascom. Since the auction, despite having a $442 million spectrum asset, it can’t find lenders or investors. That may or may not have something to do with the terms of Orascom’s arrangements, which may make investors jittery.
Both Lacavera and SSawiris told the commission they didn't intend for Orascom to become Globalive's banker. If the company can get its carrier licence, they believe lenders and investors will come forward and lessen Globalive's reliance on one source of money.
Meanwhile, other new entrants found U.S. and Canadian venture capital. On Tuesday, DAVE Wireless announced it had secured a $125 million loan from ING Bank
Sometimes Globalive didn’t look like it had its act totally together, either. At the hearing several officials – including Sawiris – apologized for the lack of clarity in several documents, saying they were drafted in a hurry.