J. Sturgeon | Financial Post | Oct. 1, 2009
Globalive Wireless's bid to become the country's fourth major cellphone provider was stopped dead in its tracks on Thursday after the industry's regulator said the company was controlled by its foreign backer and offside with Canadian telecom law.
The fledging Toronto-based carrier has been preparing for months to shake up Canada's staid wireless market, and was to introduce services in Calgary and Toronto within weeks.
Those plans have been in limbo for the last month as the Canadian Radio-television and Telecommunications Commission has deliberated on whether or not Globalive -- which is almost totally reliant on a Egyptian carrier Orascom Telecom Holdings (OTH) for its financing, technical expertise, even branding -- was in fact Canadian. Domestic ownership is a requirement under the current regulatory framework.
"The Commission considered whether non-Canadians do not own or control Globalive as currently structured. The Commission determined that Globalive does not meet that test," the regulator said.
The decision will surely be seen as shocking to Globealive and its backers, but a relief to the country's big wireless carriers.
Earlier this year, critics led by Rogers Communications Inc., BCE Inc. (Bell Canada) and Telus Corp. attacked Globalive's partnership with Orascom -- a wireless behemoth and the largest provider in the Middle East. They charged that the US$700-million Orascom pledged to the startup combined with its operational involvement handed the foreigner de facto control.
A lot is at stake for the incumbents who pull in hundreds of millions in profits annually selling wireless plans to Canadians that rank among the most expensive in the world. Globalive has vowed to offer cheaper services, presenting itself as the alternative for Canadian subscribers fed up with the established players.
In rare public hearings held last month at the behest of the incumbent carriers, CRTC chairman Konrad von Finckenstein seemed inclined to side with the them, blasting Globalive for tabling a proposal on its ownership structure that virtually split decision-making powers with the Middle East operator. The chairman also criticized certain rights Orascom held in connection with the US$508-million in loans the firm has already extended to Globalive.
In response, the startup carrier agreed to reshuffle and enlarge its Canadian board representation and amend its agreements with Orascom to give Globalive clearer operational control.
The commission ruled on Thursday that the amendments did not go far enough to bring Globalive in line, in part because Orascom, which holds a 65% overall equity interest mostly through non-voting shares, still held too much economic control.
"In circumstances such as the present, where a company is heavily debt financed, this opportunity can translate into significant influence," the CRTC found.
During last month's proceedings, Globalive's chairman Anthony Lacavera (left, photo above) as well as the head of Orascom, Naguib Sawiris, said their original plan did not call for a massive injection of capital solely from the foreign carrier.
However, the financial crisis that turned capital markets into a desert last year -- after Globalive had already committed $442-million to acquire airwave licenses from Ottawa -- required Orascom to extend almost complete start-up financing.
Mr. Lacavera said Globalive planned to pay back the loans or have institutional investors take portions when the firm was beginning to generate cash and could demonstrate its viability.
Yet the commission rebuffed that promise on Thursday, stating it "has no authority to issue a conditional approval on the basis that the carrier undertakes to bring itself into compliance in the future."
In a recent interview with the Financial Post, Mr. Lacavera said he attempted to find other sources of money but was turned down by domestic and international financial institutions. "This was the only way to do it, I believe. We looked inside Canada," he said. "Banks don't lend money easily into companies like this."
Most observers agree that a decision in favour of the would-be cellphone startup would have established a new precedent that undermined Canada's foreign-ownership rules for the telecom sector, which are designed to prevent international giants from overrunning the domestic market.
"The CRTC really had no choice," said Ken Engelhart, senior vice-president of regulatory affairs for Rogers, the country's biggest cellphone provider. "The facts in this case were just so overwhelmingly pointing to control by Orascom. I don't think the commission could have done anything else."
Two other wireless startups, DAVE Wireless and Public Mobile plan to launch within months after acquiring licenses of their own, but both lack the backing of a global wireless heavyweight.
The CRTC ruling flies in the face of an approval from Industry Canada in March that determined Globalive was Canadian-owned and controlled.
For its part, Globalive, which has hired more than 500 employees since last year and is rolling out its network now, said on Thursday it was determining its course of action, which could include returning to the commission with another proposal.
The decision must also come as a personal shock to Mr. Lacavera.
"I'm very confident we'll get a favourable ruling. We've fully cooperated and fully complied with all their concerns and made all the changes they've raised," he said last week.
"For us, it's about getting into the market."
Financial Post
jasturgeon@nationalpost.com
Globalive Wireless's bid to become the country's fourth major cellphone provider was stopped dead in its tracks on Thursday after the industry's regulator said the company was controlled by its foreign backer and offside with Canadian telecom law.
The fledging Toronto-based carrier has been preparing for months to shake up Canada's staid wireless market, and was to introduce services in Calgary and Toronto within weeks.
Those plans have been in limbo for the last month as the Canadian Radio-television and Telecommunications Commission has deliberated on whether or not Globalive -- which is almost totally reliant on a Egyptian carrier Orascom Telecom Holdings (OTH) for its financing, technical expertise, even branding -- was in fact Canadian. Domestic ownership is a requirement under the current regulatory framework.
"The Commission considered whether non-Canadians do not own or control Globalive as currently structured. The Commission determined that Globalive does not meet that test," the regulator said.
The decision will surely be seen as shocking to Globealive and its backers, but a relief to the country's big wireless carriers.
Earlier this year, critics led by Rogers Communications Inc., BCE Inc. (Bell Canada) and Telus Corp. attacked Globalive's partnership with Orascom -- a wireless behemoth and the largest provider in the Middle East. They charged that the US$700-million Orascom pledged to the startup combined with its operational involvement handed the foreigner de facto control.
A lot is at stake for the incumbents who pull in hundreds of millions in profits annually selling wireless plans to Canadians that rank among the most expensive in the world. Globalive has vowed to offer cheaper services, presenting itself as the alternative for Canadian subscribers fed up with the established players.
In rare public hearings held last month at the behest of the incumbent carriers, CRTC chairman Konrad von Finckenstein seemed inclined to side with the them, blasting Globalive for tabling a proposal on its ownership structure that virtually split decision-making powers with the Middle East operator. The chairman also criticized certain rights Orascom held in connection with the US$508-million in loans the firm has already extended to Globalive.
In response, the startup carrier agreed to reshuffle and enlarge its Canadian board representation and amend its agreements with Orascom to give Globalive clearer operational control.
The commission ruled on Thursday that the amendments did not go far enough to bring Globalive in line, in part because Orascom, which holds a 65% overall equity interest mostly through non-voting shares, still held too much economic control.
"In circumstances such as the present, where a company is heavily debt financed, this opportunity can translate into significant influence," the CRTC found.
During last month's proceedings, Globalive's chairman Anthony Lacavera (left, photo above) as well as the head of Orascom, Naguib Sawiris, said their original plan did not call for a massive injection of capital solely from the foreign carrier.
However, the financial crisis that turned capital markets into a desert last year -- after Globalive had already committed $442-million to acquire airwave licenses from Ottawa -- required Orascom to extend almost complete start-up financing.
Mr. Lacavera said Globalive planned to pay back the loans or have institutional investors take portions when the firm was beginning to generate cash and could demonstrate its viability.
Yet the commission rebuffed that promise on Thursday, stating it "has no authority to issue a conditional approval on the basis that the carrier undertakes to bring itself into compliance in the future."
In a recent interview with the Financial Post, Mr. Lacavera said he attempted to find other sources of money but was turned down by domestic and international financial institutions. "This was the only way to do it, I believe. We looked inside Canada," he said. "Banks don't lend money easily into companies like this."
Most observers agree that a decision in favour of the would-be cellphone startup would have established a new precedent that undermined Canada's foreign-ownership rules for the telecom sector, which are designed to prevent international giants from overrunning the domestic market.
"The CRTC really had no choice," said Ken Engelhart, senior vice-president of regulatory affairs for Rogers, the country's biggest cellphone provider. "The facts in this case were just so overwhelmingly pointing to control by Orascom. I don't think the commission could have done anything else."
Two other wireless startups, DAVE Wireless and Public Mobile plan to launch within months after acquiring licenses of their own, but both lack the backing of a global wireless heavyweight.
The CRTC ruling flies in the face of an approval from Industry Canada in March that determined Globalive was Canadian-owned and controlled.
For its part, Globalive, which has hired more than 500 employees since last year and is rolling out its network now, said on Thursday it was determining its course of action, which could include returning to the commission with another proposal.
The decision must also come as a personal shock to Mr. Lacavera.
"I'm very confident we'll get a favourable ruling. We've fully cooperated and fully complied with all their concerns and made all the changes they've raised," he said last week.
"For us, it's about getting into the market."
Financial Post
jasturgeon@nationalpost.com
