The federal government is fighting a court ruling that overturned its controversial decision to let Globalive Wireless Management Corp. launch cellphone service in Canada, a move that ensures a protracted period of uncertainty over limits on foreign ownership in telecommunications.
The government's appeal could take as long as a year to yield a judgment, during which time the court is expected to let the company keep operating. Globalive, which operates under the Wind Mobile name, is expected to file its own appeal in the next few days, a source close to the company said.
The appeal challenges a Federal Court ruling that quashed the Conservative cabinet's 2009 order to allow Globalive's mobile business to launch, even after a federal regulator concluded the company breached foreign-investment limits.
The legal battle finds the Harper government defending its attempt to skirt restrictions that normally prevent a minority government, outnumbered in the House of Commons, from acting as it sees fit.
The Conservatives were accused of rewriting foreign investment laws by stealth in December, 2009, when cabinet rejected a Canadian Radio-television and Telecommunications Commission ruling that Globalive, with its strong Egyptian ties, was insufficiently Canadian-owned and controlled. Rival telecom companies cried foul, arguing that they had stayed within restrictions on foreign capital.
Earlier this month, the Federal Court quashed the cabinet's decision, saying it had overstepped its authority under the Telecommunications Act. Mr. Justice Robert Hughes said that while the law has a mandate to promote Canadian control of telecom companies, it does not empower cabinet to act to encourage foreign investment. "It is for Parliament, not the [cabinet]to rewrite the act," he wrote.
On Tuesday, Globalive chairman Anthony Lacavera praised Mr. Clement's move. "We're very pleased he took this step," Mr. Lacavera said in an interview, adding: "When there is uncertainty there is less investment."
For a majority government, the solution at this point would be simple: rewrite the law to give cabinet broader mandate under it, or allow more foreign ownership of telecom companies. The latter is a prescription recommended by government-appointed panels.
Instead, Industry Minister Tony Clement is heading back to court to defend cabinet's authority to override the CRTC. "In this case the compelling public interest is choice, competition, and the appropriate and proper functioning of a marketplace," he said Tuesday.
He dodged questions about when the government might fulfill a promise to open the door to more foreign ownership of telecom companies. Mr. Clement has postponed a decision until later this year 2011 or into 2012, when he resolves how to design the next auction of wireless frequencies for mobile companies. That sale is to take place in late 2012.
Experts say it's hard to see the Conservatives moving ahead with politically sensitive changes to foreign-ownership rules with a possible election looming this year.
"The elephant in the room is that this is a minority government that ... is trapped with the law as it is, because it can't readily change the law - and certainly it can't amend it as we go into a possible election," said Hudson Janisch, a University of Victoria expert in regulatory law who helped revise the Telecommunications Act in 1993.
Globalive was given 45 days to comply with foreign-ownership requirements after the Federal Court's Feb. 4 ruling. The company's presence in the appeal process might make it more likely that the appeal court will grant a longer grace period.
The telecom industry largely expected the government's move. In research notes sent to clients, Bay Street financial analysts said the move had little impact on the country's big telecom companies, including Bell Canada and Rogers, since no one expected Globalive to be shut down.
"We assume that the process will eventually allow Wind/Globalive to operate under its current structure," wrote Canaccord Genuity telecom analyst Dvai Ghose in a note to clients. "The whole issue may also accelerate the removal of foreign ownership restrictions for new entrants, but not necessarily for incumbents."
Still, the move rekindled analyst speculation about how the government will eventually amend foreign ownership rules. More than one industry watcher felt this process makes it more likely the rules will be changed only for small telecom players, such as Wind, that do not own any broadcasting properties - one of three options the government has laid before the public.