The Egyptian billionaire and the Canadian entrepreneur behind upstart Globalive Wireless Management Corp. have changed the company's ownership structure in an effort to appease Canada's telecom regulator.
Naguib Sawiris, head of Orascom Telecom Holding SAE, and Anthony Lacavera, founder and chairman of Globalive Communications Corp., have killed one of two holding companies and altered the terms of their service and loan agreements.
"We went in knowing we might have to make changes," Mr. Lacavera said in an interview yesterday. "We are confident that these changes will satisfy the CRTC."
The moves, which come about three weeks before the Canadian Radio-television and Telecommunications Commission is to make a decision on whether Globalive can operate as a telecom company, are designed to quell concerns that the new wireless company is trying to circumvent Canadian limits on foreign ownership. But they have not ended the opposition from incumbent telecom companies
Rogers Communications Inc., Telus Corp. and BCE Inc.'s Bell Canada unit are arguing that Toronto-based Globalive does not meet foreign ownership and control rules because Orascom is providing most of the financing.
CRTC chairman Konrad von Finckenstein seemed to draw the same conclusion last week at the hearings when he said: "I don't understand how the person at the bottom can control the top. It's illogical."
Ted Woodhead, vice-president of telecom policy and regulatory affairs at Telus, said that although Globalive has made some concessions, it is still offside.
The novel structure of the partnership sees Orascom with 65 per cent of the equity and most of the debt. Rogers, Bell and Telus argue that it is inconceivable that an international company would provide all the startup cash and most of the expertise and yet not retain control of their investment and operation.
"Significant levers of control have not been addressed," Mr. Woodhead said from Ottawa. "They need to fix their capital structure and significantly reduce the debt held by Orascom."
Orascom and Globalive have said they plan to do just that, but only when market conditions improve, and this may prove to be the key issue in the review. Mr. Lacavera, who as part of the changes will now become chairman of the remaining holding company and the wireless outfit, says the venture cannot afford to be told to add more Canadian investors before launching service in Toronto and Calgary this year.
"We cannot be forced to take capital we don't need on anything but commercial terms," he said. "If we were to be told we have to take this amount of money by this date, that would hurt us, because it would be on onerous terms."
Ottawa's rules require that at least 80 per cent of voting shares in any telecom carrier be owned by Canadians and at least 80 per cent of the board be Canadian. Additionally, a telecom company must be deemed to be "controlled in fact" by Canadians at all times.
Globalive and Orascom submitted other changes this week in response to concerns expressed by the CRTC. Previously, Orascom was going to have a veto on most decisions at Globalive Wireless that involved expenditures of more than $10-million. That threshold has been increased to $22.1-million.
Orascom is also giving up a right to force Mr. Lacavera's holding company to sell its share in the event of an offer from a third party and a right to compel its Canadian partner to sell its shares to a designee of Orascom's.
Globalive is attempting to become the country's fourth national wireless operator after paying $442-million for 30 spectrum licences last year. Industry Canada has already determined that it does meet foreign ownership and control rules, although the CRTC must conduct its own investigation.
Rogers, Telus and Bell have won third-party status at the CRTC hearings, which began last week and are scheduled to end tomorrow.