The confusion created by the Federal Court's rejection of a cabinet order allowing cellphone company Wind Mobile to operate, despite a large amount of Egyptian capital, puts new pressure on Ottawa to remove foreign ownership rules for the telecom sector.
On Friday, the court said the federal cabinet had overstepped its powers in 2009 by overturning a CRTC ruling that found Wind Mobile's parent, Globalive Wireless Management Corp., was "controlled in fact" by its Cairo-based backer, Orascom Telecom. Globalive chairman Anthony Lacavera spent the weekend consulting with lawyers to figure out the best route of appeal during the 45-day stay granted by the court.
"We had the CRTC's view. We had the government's view. And now we've got the court's view. And all three are different, which is, I guess, Canada," Mr. Lacavera said. "It's pretty strong evidence that our control and ownership regime needs an overhaul."
Iain Grant, managing director with the Seaboard Group telecom consultancy, says legislative change is required if the government wants to continue increasing competition in the sector. That, Mr. Grant said, involves changing the Telecommunications Act's Canadian ownership requirements to make it explicitly clear that foreign competitors are welcome in Canada.
The court's surprise ruling, which came from a judicial review sought by rival wireless company Public Mobile, has further muddied the regulatory situation governing how much foreign capital telecom companies can use. Under current legislation, Canadian telecom companies cannot be owned by foreigners and there are strict limits on the amount of foreign investment. Orascom holds about 90 per cent of Wind Mobile's equity and debt.
The government pledged in the last budget to remove the restrictions, but has been vague on its timeline to do so. RBC Dominion Securities Inc. analyst Jonathan Allen says Friday's development could force the government to act sooner - to help stabilize Wind Mobile, which has more than 200,000 customers, and to prevent the Conservatives from embarrassment before a possible election.
"With Wind at risk of failing, we believe the government should be able to introduce the necessary legislation in the next few months - and other political parties would likely have to support it or risk being responsible for the company's failure," Mr. Allen wrote in a note to clients on Sunday.
The matter is crucial in this capital-intensive business where other new wireless companies use foreign investment to pay for licences and build network infrastructure.
Mr. Lacavera is among those pushing for change to how the Canadian Radio-television and Telecommunications Commission determines whether companies here are too influenced by foreign capital.
Mr. Lacavera said the foreign financiers of Public Mobile, such as Columbia Capital and M/C Venture Partners of the United States, have more control over that company than Orascom does on his.
"There's way more foreign influence in Public Mobile than in Globalive, but the incumbents have never gone after Public because they're not a threat," Mr. Lacavera said, referring to the fact that large wireless companies such as BCE Inc. and Rogers Communications Inc. have gone after Wind in the marketplace because of its size.
Public Mobile could not be reached to comment on Sunday.
At the same time, industry watchers say the government needs to step in and stem the mounting confusion, and that the only way to do so is by changing the foreign ownership rules. The matter is controversial because Canada's carriers own broadcasting businesses, and powerful cultural interest groups object to foreign companies stepping in.
With files from reporter Rita TrichurReport Typo/Error