CRTC veto shuts Globalive out of wireless competition

CRTC veto puts new wireless competitor on hold and the federal cabinet in a bind.

Anthony Lacavera was one step from turning the company he founded, Globalive Communications, into the country’s fourth national wireless carrier by launching services this year as Wind Mobile. But the 35-year-old is now shut out.

The Canadian Radio-television and Telecommunications Commission ruled on Oct. 29 that Globalive does not meet domestic ownership requirements, and cannot operate as a wireless company. Globalive has already hired hundreds of wireless employees who are now stuck in limbo while the Toronto-based firm scrambles to find a way to proceed. If it cannot meet ownership rules, it could have little choice but to sell the wireless licences it acquired for $442.4 million last year in a government spectrum auction. The feds, meanwhile, must deal with an embarrassing discrepancy between the CRTC and Industry Canada, which already approved Globalive’s application. “There’s something terribly wrong with this process,” says Ronald Gruia, a telecom analyst at Frost & Sullivan.

Globalive’s largest investor is the Egyptian Orascom Telecom Holding, a sprawling wireless operation headed by billionaire Naguib Sawiris, which holds a 65.1% equity stake. The partnership irked Canada’s three wireless giants (Rogers Communication, BCE and Telus) and other newcomers from the start, who argued Orascom’s involvement violated rules limiting foreign ownership in telecom. Lacavera insisted he controlled the company through his voting shares. Industry Canada found no problem with the structure and gave Globalive its blessing in March.

But the company still needed approval from the CRTC, which subjected Globalive to a rare two-day public hearing in September. The three incumbents eviscerated the company’s claims that its ownership complied with the Telecommunications Act. Even CRTC chairman Konrad von Finckenstein seemed bewildered by Globalive’s complex structure. “Where is the heart of this beast?” he asked.

The CRTC is most concerned that Orascom funded approximately 99% of Globalive’s debt, about $508.4 million. “Given Orascom’s equity interest in Globalive, such a high level of debt in the hands of a non-Canadian is unacceptable,” the CRTC stated in its decision, adding the stake gives Orascom too much control over Globalive. The ruling did not say how much debt is permitted, however.

Federal industry minister Tony Clement said the government will review the CRTC decision, and could ask the commission to take another look at Globalive. The Conservatives have been vocal about bringing competition to wireless. But beyond licensing the new spectrum, it may not have gone far enough, analysts say, since foreign investment is still limited. Lacavera is the only wireless newcomer attempting to compete nationally (others such as DAVE Wireless and Public Mobile are regionally focused) and domestic investors repeatedly turned him down before he went overseas.

Clement could heed the March 2006 final report of the federally appointed Telecommunications Policy Review Panel, which recommended that the federal Cabinet be given the authority to waive foreign telecom ownership restrictions when appropriate. But the Tories have yet to act on the panel’s recommendations, and observers say it’s unlikely to introduce such a measure in Parliament now given its minority situation. There’s also a fear that relaxing ownership limits could even stifle competition, says Troy Crandall, a research analyst with MacDougall, MacDougall & MacTier in Montreal. “What if Telus were to merge with Verizon?” he asks. “Now you’ve got an insanely huge competitor that new entrants would have to come up against.”

Globalive’s best option is to find other investors to dilute Orascom’s holdings. Iain Grant, managing director of the SeaBoard Group in Montreal, says any number of new wireless entrants, from Shaw Communications to Manitoba Telecom Services, could be interested. Fortunately for Lacavera, making deals is what he does best. It was Lacavera, after all, who pursued Sawiris. Friend and business associate Ari Yakobson says Lacavera will do whatever he can to ensure Globalive enters the wireless market. “This is his baby,” Yakobson says. “This is his claim to fame.”