Globalive fires back against “imaginary” and “ridiculous” claims that it’s foreign controlled

Imaginary and ridiculous are among the colourful adjectives Globalive Wireless Management Corp. uses to describe allegations from its competitors that the company is controlled by an Egyptian-based corporation, in violation of Canada’s foreign ownership restrictions. In a 27-page submission filed with the CRTC Aug. 28, Globalive responds to allegations from Telus Corp., Rogers Communications Inc. and Bell Canada (TRB) that Globalive’s complex ownership structure gives the company’s foreign investor, Orascom, effective control over the wireless start-up. According to the incumbent carriers, 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. Rogers and Bell suggest that Orascom holds a 54.68% interest in Globalive voting shares, a claim Globalive describes as “ridiculous” and “inconsistent with principles of both corporate law and mathematics”. The more likely issue for the CRTC in its review will be determining if Orascom has “control-in-fact” over Globalive, and here the company acknowledges that the regulator has significant discretion in reaching a decision. Section 2 of the Telecommunications Act defines “control” as meaning: “control in any manner that results in control in fact, whether directly through the ownership of securities or indirectly through a trust, agreement or arrangements...” Globalive also cautions the CRTC that its review should consider the government’s broader telecom and economic policy objectives which are intended to increase competition in the wireless sector. “Globalive submits that the Commission should not permit the Incumbent Carriers to persuade it to create high, new barriers to competitive entry based on protectionist principles. Globalive respectively submits that the Commission should keep in mind the public policy implications and market impacts of its control analysis, and not to make a decision in a vacuum,” the company writes. Globalive stresses that Industry Canada has already reviewed its corporate structure and determined that it complies with the ownership and control (O&C) rules, which require that Canadians own 66 2/3% of the voting shares and that 80% of the board members be Canadian. “Globalive submits that the Commission should exercise its statutory authority in a manner that provides the industry, and particularly new entrants, with a sense that there is some consistency and coherence in the application of the O&C rules by the various arms of the Government of Canada,” it writes. TRB provides no real evidence, Globalive charges Globalive takes issues with most of the arguments put forward by TRB, calling “many imaginative, and some contradictory”. It contends that TRB have provided no real evidence that Globalive is controlled by Orascom. “Instead they imply that certain factors should be interpreted as giving Orascom control over Globalive.” For example, Globalive argues that any veto rights Orascom has over the wireless start-up do not give it the right to “dominate or determine strategic or day to day business decisions”. As well, TRB suggest that Orascom can force Globalive’s Canadian shareholder, AAL Holdings, to sell its equity under certain conditions. Such “drag along” provisions, counter Globalive, are “normal mechanisms build into many shareholder agreements as a means of resolving irreconcilable deadlines between the parties.” Another concern, according to TRB, is that Orascom’s position as the largest lender will give it significant influence over Globalive. In response, the company points out the financing is a bridge loan that was needed to pay the Industry Canada spectrum fees. “Those financing efforts have been slowed by a very serious global financial crisis and credit crunch – and to some extend by the uncertainty caused by the CRTC review. However, once the business starts up, external financing will replace the Orascom bridge loans,” it states. On the technical side, Globalive disagrees that its technical services agreement with Orascom gives the latter control over the technology, network and other operational decisions, saying Globalive’s board and management can accept or reject any technical advice from Orascom. As well, TRB suggest that Globalive CEO Ken Campbell is not independent from Orascom. Bell states that “Mr. Campbell has significant ties to Orascom, having in the past been a senior executive with Orascom.” Globalive calls the allegation unfounded, saying Campbell worked briefly for two wireless operators over five years ago in which Orascom was a investor. Besides, Globalive notes, if past jobs do influence one’s independence, “the vice-Chair of the Commission could never be independent of the wireless operators, and many of the senior executives in the Canadian telecommunications industry would still be considered vassals of the competitors of their current employers. This is nonsense.” The CRTC is holding a public hearing on the issue Sept. 23-24, with a decision expected before the end of October.

Globalive fires back against “imaginary” and “ridiculous” claims that it’s foreign controlled

News | September 4, 2009

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