If the CRTC decides that Globalive is Canadian enough to compete as a new national cellphone company, it's a decision that's likely to shake up foreign ownership rules.
Toronto-based Globalive wants to be Canada's fourth major wireless carrier and compete with Rogers RCI.B-T , Bell BCE-T and Telus for consumers who want to buy cellphones. But before Globalive can go ahead with its launch later this fall, it must survive a CRTC ruling expected Thursday at 4:30 p.m. on its ownership and structure.
“However, even if approved, it puts us one step closer to full elimination of foreign ownership rules — a positive for all stocks in the long run,” wrote RBC Dominion Securities analyst Jonathan Allen.
Mr. Allen said if the CRTC approves Globalive's bid, it will likely launch in Toronto and Calgary next month. Globalive is aiming for a national presence everywhere but Quebec.
Egyptian telecom company Orascom owns 65 per cent of Globalive, a structure accepted by Industry Canada when Globalive's licence to operate its network was granted last March.
Rogers, Bell and Telus have told the Canadian Radio-television and Telecommunications Commission that Globalive is breaking the Telecom Act because it's under foreign control.
Mr. Allen said the CRTC likely doesn't want to be responsible for Globalive's possible failure — without Orascom's investment it may not be able to secure enough capital to proceed — and would likely describe Globalive's situation as “unique” and one that hasn't been helped by the global financial situation.
Such a decision would set a precedent that can be “replicated” by other new competitors,“ Mr. Allen wrote in a research note on Wednesday.
Globalive chairman Anthony Lacavera maintains the company is now “fully compliant” with foreign ownership and control regulations after making changes to its structure.
“Canadians have been waiting a long time for a new choice in wireless,” said Mr. Lacavera, confident the CRTC will see things his way.
Globalive has altered its board structure, increased the threshold after which Orascom can use its veto rights on company matters and extended the terms of a $442-million bridge loan from the Egyptian firm.
“So question is, will the changes that Globalive has made be enough to satisfy the CRTC?” said industry analyst Howard Solomon.
Mr. Solomon said if the CRTC approves of the changes, then other wireless companies that had stayed away from Canada because of foreign investment restrictions may decide to take a second look.
Bell, Telus and Rogers aren't going to willingly accept competition, he said, and if the CRTC decision is favourable to Globalive they could turn to the courts or appeal to the federal cabinet.
“So there's a lot on the line,” said Mr. Solomon, assistant editor of Network World Canada, an industry publication that focuses on IT networks and communications.
Telus said it believes Globalive's equity and debt are still controlled by Orascom and any more changes would be cosmetic.
“The restructuring, etc., that Globalive presented isn't anything but really moving around the deck chairs on the Titanic,” said Michael Hennessy, senior vice-president of regulatory and government affairs for Telus.
“Clearly, we would be disappointed if that type of capital structure is interpreted as Canadian because if it is, Canada is really open for business when it comes to foreign ownership,” Mr. Hennessy said.
Mr. Hennessy said whatever the CRTC decides, it will apply to every broadcast, wireless and telecom carrier in the country.
“It will end up saying (whether) there are foreign ownership restrictions or not.”
Telecom analyst Eamon Hoey said the CRTC may be satisfied with Globalive giving it the “appearance” of being Canadian-owned.
“Essentially, I think at the commission level the whole thing about foreign investment is pretty well dead now,” said Mr. Hoey of Toronto-based Hoey Associates Management Consultants Inc.
It's a barrier to entry for new companies like Globalive, he said.
“There's such a reality out there that the Canadian financial community just cannot supply the required cash for projects of this size.”
