Okay, let’s back up a minute and try to understand why Canada blocked the sale of MTS Allstream Inc. to Accelero Capital Holdings under the far-reaching but oh-so-conveniently veiled national security test of the Investment Canada Act.
For starters, it isn’t because Accelero is a foreign state-owned enterprise; we don’t want to see those SOEs anywhere near the Alberta oil patch, and we barely put up with them elsewhere. No, Accelero is controlled by Egyptian billionaire Naguib Sawiris, an entrepreneur who built his fortune the American way, by offering cellphone services in Africa, Asia, Europe and in the Middle East.
Canada knows him quite well. Mr. Sawiris answered Ottawa’s call for increased wireless competition in 2008. He bankrolled Wind Mobile in its early days as it bid for licenses and built its network across Canada. The Conservatives even went out of their way to back Wind, bypassing the CRTC which then believed Mr. Sawiris exerted too much control over the company and contravened the foreign ownership limits of the day. (The rules have since changed – foreigners can fully own a carrier whose market share is 10 per cent or less.)
It turns out Mr. Sawiris was not that grateful for the help. In 2011, he castigated Ottawa for inviting new entrants in and for watching them drown, as industry rules made it extremely difficult for upstarts to compete with Canada’s wireless oligopoly – Bell Inc., Rogers Communications Inc., Telus Corp., aka the Big Three. Mr. Sawiris went as far as to say that he “totally” regretted his decision to invest in Canada and started telling his fellow billionaires to stay away.
But even if Stephen Harper’s government held a grudge – which is likely – the Conservatives would still need stronger grounds to block a $520-million deal that was to increase competition and bring in $300-million in investments. So what gives?
Since the Conservatives took power, they have blocked a number of high-profile deals from Potash Corp. of Saskatchewan (a “strategic resource”) to the space division of MacDonald Dettwiler & Associates (essential to Canada’s sovereignty). Ottawa dragged its feet for so long on the takeover of Wind by Orascom Telecom Holding SAE, the Egyptian subsidiary of Amsterdam-based VimpelCom Ltd., that it might as well have just said no. In June, Wind’s foreign backers gave up on formalizing their control of the company after months of delays.
Two issues raised a red flag in Ottawa, The Globe reported last spring. VimpelCom’s biggest shareholder is a firm controlled by Russian oligarch Mikhail Fridman, a financier whose empire spans banking, retailing, oil and gas and telecom. Evidently, if you have made money in Russia, you are de facto suspicious in Ottawa. The second is that Wind reportedly uses telecom gear made by equipment manufacturer Huawei Technologies Co. Ltd., a company founded by a former officer of the Chinese army. Huawei’s technology is frequently portrayed as allowing espionage, but Wind has never reported any security breach and Huawei has always refuted those allegations.
If the Huawei gear is tested and found capable of leaking Canada’s commercial and state secrets to Beijing and Moscow, why would it even be allowed in the country? And if it is impervious to breaches, then Canada should stop harbouring such conspiracy theories.
It is easy to understand why Canada would want to look into who owns MTS AllStream, which caters to businesses. The company’s roots go back to the telegraph days of the CN and CP railways. When the two companies’ telecom affiliates merged and changed their name to Unitel, they offered one of the first competing long-distance phone services in Canada. Rogers later bought Unitel, but resold it to AT&T Communications and a consortium of banks. AT&T Canada then merged with Metronet and changed its name to Allstream before being acquired by Manitoba Telecom Services Inc. in 2004.
MTS AllStream’s history is intertwined with that of corporate Canada. And along the way, the fourth communications provider in the country picked up high-profile corporate clients. Bank of Montreal, WestJet Airlines Ltd. and the federal government all use its national fibre-optic network, which relies on no Huawei equipment.
At the same time, there is a fine line between being careful and being prejudiced. Ottawa can’t invite foreign investors in its telecom market and then start cherry-picking companies in a selection process that, for lack of a better explanation – and MTS received none – looks like national profiling.
Verizon Communications, come on up! We need you to shake up the Big Three. But Egyptian – and Russian-controlled companies? Maybe your services are not required after all.
The Conservatives have been inconsistent on foreign takeovers as they have meddled in the telecom market. The surprise decision to block the sale of the MTS AllStream unit will only send another confused message to the world. And it will only reinforce Mr. Sawiris’s conviction to steer clear of Canada.