A fledging new national wireless network faced a stiff challenge Wednesday from both rivals and the federal regulator to prove its Canadianness or face being shut out of the domestic cellphone market.
CRTC officials repeatedly questioned how Toronto-based Globalive Wireless Management Corp. could maintain its independence despite being 65 per cent owned by Egyptian cellphone giant Orascom Telecom Holding SAE, which also holds most of Globalive's debts.
With Orascom holding most of the equity and acting as the new firm's banker, how could the upstart Toronto firm maintain effective control? they asked.
It got worse when Globalive's future competitors – Rogers Wireless RCI.B-T , Telus Corp. T-T and Bell Mobility BCE-T – took the floor.
Telus vice-president Ted Woodhead and Rogers executive Ken Engelhart accused Globalive of being little more than a convenient “front” allowing Orascom to enter the Canadian market.
Under the Telecom Act, telecom companies must be Canadian-owned and controlled, although there is no set definition of what constitutes control.
If no ownership requirements were in place, Orascom would likely have simply moved its operations into Canada without seeking a Canadian face, said Mr. Woodhead.
“This is not by any stretch of the imagination a merger of equals,” he told the commission. “The capital structure is not-compliant, and the web of other connections and control can lead to no other conclusion that Globalive has yielded control to non-Canadians.”
Mr. Engelhart added that the partnership gives Orascom effective veto on major decisions and makes Globalive dependent on Orascom's wireless expertise and “Wind” brand.
The true nature of the partnership, he said, was made clear in March when it was an Orascom agent – not Globalive – that represented the operation in the federal government's spectrum auction.
Bell official Mirko Bibic argued that Globalive's structure is so “outside the law” that the commission has no choice but to deny it a licence.
That would deal a big blow to the federal government's goal in holding a wireless spectrum auction last spring of bringing greater competition to a market now dominated by three players, Telus, Rogers and Bell.
Earlier, Globalive head Anthony Lacavera said the main aim of the three incumbents was to keep competitors out.
He said if given approval, Globalive could begin operations in major populations outside Quebec by early 2010.
Still, Mr. Lacavera said he recognized the commission's concerns and offered several last-minute changes that he said would increase Canadian control over Globalive, including placing himself as chairman of the new entity.
As well, he said Globalive had strengthened its partnership with Orascom to ensure that their arrangement remains in place for at least three years.
“I own 35 per cent of the business and I clearly have the management of the votes,” he explained.
Orascom head Naguib Sawiris, who participated through a television feed from Egypt, also insisted he would not control Globalive.
And he said new investors would be sought to take over his share of loans to the Toronto firm.
“[Orascom] does not want to be the sole lender or the primary lender for the Globalive Wireless business, and is doing it out of necessity,” he said.
Mr. Sawiris added that he decided to become a lender only after the credit crisis last summer made seeking financing elsewhere impossible.
But the arcane management and business arrangement Mr. Lacavera and Mr. Sawiris presented the Canadian Radio-television and Telecommunications Commission clearly were of concern to the commissioners.
Commission chairman Konrad von Finckenstein at one point called “stunning” an arrangement that allows Orascom to sell half its shares and compel Mr. Lacavera's holding company to sell its stake. There is no reciprocal arrangement.
The so-called “drag-along rights” was the equivalent of holding a “sword of Damocles” over the head of the Toronto-based firm, Mr. von Finckenstein said.
The commissioner also questioned other aspects of the agreement, and at times appeared exasperated with the responses he was receiving.
“What is so special about Globalive that we should say notwithstanding our precedents, notwithstanding our clear rules, that this is acceptable?” he asked.
“I don't understand how the person at the bottom can control the top, it's illogical,” he said at another point.
The CRTC will wrap up the hearings in a private session with the players Thursday and expects to issue a decision at the end of October.
