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Globalive Wireless Management Corp.'s fight to be Canada's next big cellphone company appears headed to the federal government.

After the country's telecom regulator said the wireless hopeful is in violation of federal ownership rules, Globalive is expected to appeal the decision directly to the federal cabinet, according to sources in Ottawa.

The Canadian Radio-television and Telecommunication Commission said Thursday that Globalive's corporate structure ran afoul of the law because an Egyptian company, Orascom Telecom Holding SAE, has put up most of the money for the venture.

The decision carries significant implications for the telecommunications industry.

Had the controversial structure been approved, industry players said it would have opened the door for Canada's telecom players to seek more foreign investment.

Orascom owns slightly more than 65 per cent of the equity in Globalive and nearly all of its debt, which the regulator said gave the foreign investors too much control over the company's daily operations.

Globalive, which has hired 800 staff and was preparing to begin selling cellphone service as Wind Mobile in certain markets in the next few weeks, is now scrambling for a contingency plan.

In a written statement, Globalive chairman Anthony Lacavera called the ruling “a bad day for Canadians and wireless competition in Canada.”

However, Mr. Lacavera suggested Globalive has merely been delayed in its launch. Sources in Ottawa suggest the company may now appeal directly to the Harper government, which has pushed for more competition in the wireless industry by allowing new companies to bid for licences. Cabinet has the power to overturn or alter the CRTC's decision if it wants.

“Having already received approval from Industry Canada, we are extremely disappointed that the CRTC has come to a different conclusion,” Mr. Lacavera said in the statement. “Canadians deserve competition in wireless and this decision represents a major step backwards.”

Globalive was among the most aggressive bidders for the new licences that came up for grabs, spending $442-million during a government-held auction – with much of that money coming from the Egyptian firm.

Canada's incumbent cellphone companies argued that allowing that structure would open the door for other firms to seek large amounts of foreign investment, thereby altering the landscape of the Canadian industry. Rogers Communications Inc. Telus Corp. and BCE Inc. all opposed Globalive at CRTC hearings in September.

“I don't think the CRTC had any choice, this thing was so obviously foreign controlled. I don't see how they could have come out with a different decision,” said Ken Englehart, senior vice-president of regulatory affairs at Rogers. “If this was approved it would have been tantamount to the CRTC saying we don't have any foreign ownership rules in Canada.”

Ronald Gruia, a telecom analyst with Frost & Sullivan in Toronto, was surprised the regulator didn't instead propose its own changes to the ownership structure before turning Globalive away.

“I thought in the worst case scenario the CRTC was going to say yes, but with some reservations. I didn't imagine they were going to slam the door shut like this,” Mr. Gruia said, adding the country could use more cell phone players to drive competition on monthly rates and plans. “When you look at this decision, you say ‘Well, yes, that maintains the status quo.' But how has the status quo helped Canada?”

Globalive attempted in recent weeks to change the structure of its operations to meet ownership standards in Canada, but the CRTC determined the changes weren't enough.

“The Commission examined the influence of Orascom Telecom Holding over Globalive's business decisions and day-to-day operations,” the regulator said. “Despite the fact that Globalive made significant structural changes to reduce its dependence on Orascom, there were other factors that, taken together, led the Commission to conclude that Globalive does not meet the statutory test.”

Under CRTC rules, a Canadian carrier is eligible to operate as long as it is a Canadian-owned and controlled corporation. At least 80 per cent of the board of directors must be Canadian, at least 80 per cent of the voting shares must be owned by Canadians, and the company can't be indirectly controlled by non-Canadians, through holding companies.

In addition to Orascom owning 65.1 per cent of the equity in Globalive, the CRTC had concerns with other influences the foreign company potentially holds over Globalive's operations. The Egyptian firm also owns the company's brand, and holds the “overwhelming majority of the outstanding debt,” the regulator said, which gives it the ability to exert control.

The CRTC has approved deals before that have been heavily financed by foreign dollars. The most notable came in the broadcast industry in 2007, when CanWest Global Communications Corp. purchased Alliance Atlantis Communications Inc. for $2.3-billion. U.S. investment bank Goldman Sachs footed two-thirds of the bill for that transaction.

The CRTC approved that deal because CanWest held the majority of the voting shares, and Goldman Sachs reduced the amount of debt it held relating to those assets.

In recent weeks, Mr. Lacavera attempted to make changes to his company's structure to make it more palatable to the CRTC, including putting limits on when Orascom could veto corporate decisions. Mr. Englehart at Rogers indicated he wouldn't be surprised if the matter ends up being decided by cabinet. “They might go to cabinet, they might try to restructure their current arrangement, they're both available to them. The government is very, very pro entry, but they've always made it clear that you had to be Canadian owned and controlled,” Mr. Englehart said.

An official in Industry Minister Tony Clement's office said only that the government was reviewing the decision. It's rare for a government to overturn a CRTC ruling.

The move presents a golden opportunity for other upstart wireless carriers looking to enter the market, since Globalive was one of the more aggressive new players and will now be delayed. However, the head of DAVE Wireless said the CRTC decision won't lead the company to push up its plans to launch early next year.

“We've been very quiet, but we've been very busy,” said DAVE Wireless president David Dobbin. “ I can assure you Canadians will have choice in the wireless market.”