Approval of Globalive ownership could open door for greater foreign control of Canadian telecom

Canada’s Telecommunications Act could be put to its toughest test yet as the CRTC begins unraveling Globalive Wireless Management Corp.’s complex ownership structure to determine if Egypt-based Orascom effectively controls the wireless start-up. According to its competitors, there is little doubt that Orascom, which is putting $500 million of its money on the line, is calling the shots for all major investment, branding, technology and operational decisions. At issue is just how much control Orascom has over Globalive. Its 65% ownership of parent company Globalive Holdings was accepted by Industry Canada when the spectrum licence was granted in March. Globalive is being subjected to the CRTC’s type 4 ownership and review process, the most public in a newly created arsenal. The review allows third parties to submit comments in advance of an oral hearing scheduled for Sept. 23-24 in Gatineau QC. The commission expects to issue its decision within 30 days after the hearing ends, which would still give Globalive enough time to launch its wireless service in late 2009, as planned. If that were to happen under Globalive’s current ownership structure, its competitors warn that Canada will set a troubling precedent. Shaw Communications Inc. suggests in its Aug. 24 intervention that Globalive’s structure essentially creates a roadmap showing how foreign telecom companies can use shareholder, loan and technology licensing agreements to get around Canada’s ownership rules. “In summary, a corporate and governance structure similar to that applicable to Globalive will provide for a degree of non-Canadian ownership and control not previously approved for a telecommunications common carrier in Canada,” writes Jean Brazeau, Shaw’s senior VP, regulatory affairs. Bell Canada echoes Shaw’s concerns, noting that Orascom has provided all of Globalive’s funding, holds 65% of the equity and is the sole creditor. Bell says these “highly aggressive corporate structure and governance mechanisms” also give Orascom vetoes over every fundamental operational expenditure and contracts over $5 million. “...this veto gives Orascom complete control over the entire business of (Globalive)... including over matters such as choice of technology, network inputs, billing systems, distribution outlets, advertising, handset selection and procurement, selection of roaming partners and many other matters,” writes Bell. Interveners also raise concerns with the Canadian shareholder in Globealive, AAL Holdings, which owns 35% of the equity. CEO Anthony Lacavera has maintained that he still controls the company, despite being a minority owner. But Globalive’s competitors contend that Orascom, in addition to providing all the capital and technical expertise, also controls AAL’s continued participation in the business. For example, if Orascom sells 50% or more of its shares in Globalive, it can require AAL to sell its equity as well. Orascom can also require AAL, between years two to five of the relationship, to sell its shares to another Canadian of Orascom’s choosing. “Orascom has provided has provided the Canadian investor with an exit strategy, allowing it to leave the wireless business in Orascom’s hands and take back its former long distance and operator services business,” writes Rogers Communications Inc. “Orascom can remain in the business, but force out AAL,” argues Bell, adding, “The combination of these rights and mechanisms is without precedent in Canada.” Telus Corp. questions whether Orascom’s influence over Globealive’s affairs would compromise “the ability of management to act with the degree of independence which is the object of the Canadian ownership and control regime.” It suggests that even the board structure is tilted in Orascom’s favour. “Orascom is entitled to appoint three of the seven directors of the holding company that owns Globalive,” Telus writes in its Aug. 24 comments. “While this is a minority, the cumulative impact of all of the contractual arrangements put in place by investors as part of the deal that has secured the investment by Orascom means that the authority of the board is quite limited.”

Approval of Globalive ownership could open door for greater foreign control of Canadian telecom

News | September 2, 2009

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