Looking to push new competition into the telecom sector, the federal government has cast aside historic rules against foreign ownership in a move that will forever transform one of Canada's most protected industries.
Ottawa has decided to let Globalive Wireless Management Corp. become the country's newest cellphone company this month, even though the Canadian company is mostly owned by Egyptian wireless giant Orascom Telecom. No other Canadian telecom company has been given such a provision until now. But after the federal telecom regulator blocked Globalive's bid in October, the debate was elevated to the highest levels of government a few weeks ago, culminating in a cabinet decision Thursday to allow the company into the market.
It is the clearest sign yet that the Harper government is willing to take whatever steps necessary to push through competition in the phone industry, which has been dominated by three national giants: Rogers Communications Inc., Bell Canada and Telus Corp.
“It's obviously an unprecedented, very unusual time,” Globalive chairman Anthony Lacavera said yesterday. The company hired 800 employees in the summer, but put operations on hold pending the government decision.
The Canadian Radio-television and Telecommunications Commission ruled in October that Globalive was flouting foreign ownership rules because the Egyptian investors owned 65 per cent of its equity and held nearly all of its debt. Those powerful levers allowed the foreign investors to exert control over the company's management, the CRTC feared.
However, the federal government said the regulator was interpreting the laws incorrectly.
At a hastily arranged gathering at Globalive's Toronto offices, Mr. Lacavera proclaimed victory to staff who cheered loudly, while also taking a jab at the CRTC.
“I'd like to thank the Canadian government for the decision they took today to overturn the CRTC. Clearly the CRTC has a very important role to play. They made the wrong decision, [and] the Canadian government made the right decision,” Mr. Lacavera said. He added that the company will begin selling phones in Toronto and Calgary as early as next week under the brand name Wind Mobile.
The government justified its move by stating that ownership rules set out in the Telecommunications Act should be enforced “when possible,” meaning not always. This loose interpretation of Canadian law is said to have angered CRTC chairman Konrad von Finckenstein, who is also a federal judge.
“The decision to vary the CRTC Globalive decision, let me emphasize, was based on the legal facts and not on the government's position that there needs to be more competition in the marketplace,” Industry Minister Tony Clement told reporters in Ottawa.
The government's action opens the door to a broad interpretation of Canadian telecom law, and effectively renders the CRTC irrelevant on matters Ottawa deems crucial to the industry. Mr. Clement said he believes the move does not set a precedent, but many disagree.
An executive at Telus Corp. called the Globalive situation “a stunningly obvious example of foreign ownership,” which could have implications for other industries.
“This does not only affect the wireless industry. It has precedent setting value, and I suspect other federally regulated undertakings such as banking and airlines would be affected,” said Michael Hennessy, senior vice-president of regulatory and government affairs at Telus. “The government would like to contain this, but I don't think they can because the implications are well beyond wireless.”
Hank Intven, the lawyer who represented Globalive, disagreed. “These decisions all say that every case needs to be looked at based on its own circumstances,” he said. “I think the government and the regulator will continue to look at these situations on a case by case basis.”
Globalive can begin courting new customers in Ottawa, Edmonton and Vancouver in the coming months. The company plans to offer a variety of handsets, such as Blackberries, but not the popular iPhone, or gadgets equipped with Google's Android platform.
Consumers will now have a fourth major cellphone carrier.
Mr. Lacavera said his company could not operate without the foreign financing because domestic lending dried up in the credit crunch. At that time, the company needed nearly $500-million to bid on spectrum licences in a federal auction.
Mr. Lacavera changed his lending agreement, but sources inside the CRTC say they were concerned about an agreement that allows the Globalive chairman to sell his shares at a guaranteed minimum price, even if the company fails. To the regulator, that is a guaranteed payout and suggests he can be ousted at any point by Orascom.
Canada's cable and telecom companies have long wanted to bring in more foreign money, which would push up the value of companies like Rogers Communications Inc. and Shaw Communications Inc.
A federal government official said the CRTC and the cabinet agreed that Globalive met the legal criteria for operating in Canada. Where they disagreed was in whether foreign investors controlled the company. Mr. Clement and cabinet concluded that operational control of the company would remain with Canadians, and that it should be allowed to do business.
With reports from Steve Ladurantaye and John Ibbitson
