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Buying rival could be solution for Wind Mobile

Naguib Sawiris, left, head of Orascom Telecom, with Anthony Lacavera, chairman of Wind Mobile

1--Sarah Dea/The Globe and Mail

As Egyptian-financed Wind Mobile grapples with renewed questions over its ownership, one possible solution is taking hold in the wireless industry: consolidation.

A Federal Court ruling on Friday that tears down cabinet's approval of Wind parent Globalive Wireless Management Corp. has injected even more uncertainty into an already muddied regulatory situation. And while the company mulls its options, including an appeal, several analysts are raising the possibility that Wind could solve its problems by buying a Canadian rival.

Globalive, which operates the Wind Mobile cellular brand, is heavily financed by Egyptian communications giant Orascom Telecom. The CRTC barred Globalive from launching because it said the company was "controlled in fact" by the Egyptian backer. The federal cabinet overturned that ruling, but on Friday a court found that the government erred in law by doing so.

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Now, Globalive is mulling an appeal. Eventually, it will also need to appease the regulator's concerns. And one way to do that could be buying up one of the other new wireless companies, Mobilicity or Public Mobile, in order to get more Canadian investors on board with Orascom.

Globalive chairman Anthony Lacavera says he is open to striking deals with the other new entrants, but he is more firmly convinced that the rules need to change, rather than him changing his company to suit rules - rules that he says seem to keep changing.

"We are still certainly interested in the consolidation of new entrants," Mr. Lacavera said. He added: "I'm embarrassed, as a Canadian, that we have this kind of uncertainty for foreign investors."

There are two main schools of thought among analysts on what Friday's ruling means: First, that the regulatory and legal confusion it prompts is embarrassing for the federal government, which now needs to act faster to reform foreign ownership rules; and second, that it could lead to consolidation.

The Globalive chairman has long been open to buying up his rivals, as has Orascom's executive chairman Naguib Sawiris. But Mr. Lacavera is not sure how much foreign money is invested in his two rivals, and has no idea whether buying one of them would reduce the level of foreign investment in Globalive or actually increase it.

However, a source suggested that since the debt at Mobilicity and Public is spread among numerous foreign investors and is not concentrated in any one entity, the regulator has no reason to be concerned that the companies would be unduly influenced by any particular one. At Globalive, the majority of the debt is held only by Orascom.

Scotia Capital telecom analyst Jeff Fan is optimistic that consolidation among new entrants could help Globalive get through these revived questions about its ownership, though he still thinks the more obvious way is to appeal. "One of the potential options for Globalive is to seek partners that would help 'Canadianize' Globalive's capital structure," Mr. Fan wrote in a research note to clients. "Public Mobile and Mobilicity have satisfied both Industry Canada and CRTC's reviews and are potential candidates for combination."

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Another option would be for the government to loosen foreign ownership rules, as it has said it will do. This remains very unlikely since it is politically controversial and an election appears to be looming. For Wind, moreover, there is little sense in betting everything on a prediction of what politicians will or won't do to the Telecommunications Act and foreign ownership rules, as Desjardins Securities analyst Maher Yaghi notes.

"While a merger was not a short-term priority for Wind, a delay in the change of the Telecommunications Act or a loss on appeal could have a disastrous effect," Mr. Yaghi wrote in a note to clients. "Hence, Friday's decision could increase the possibility of a merger occurring sooner in order to avert a potentially very negative outcome for Globalive."

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