Government’s Globalive decision was ‘logically, mathematically, completely flawed,’ Telus tells court

OTTAWA—The federal government overlooked Orascom Communications' control over Globalive Wireless Management Corp.'s debt when it overruled the CRTC and allowed the company to launch its telecommunications services as a Canadian-controlled carrier, Public Mobile and Telus Corp. told the Federal Court Wednesday. “It's not out of left field to say that it's an element that ought to be considered,” said Baker & McKenzie LLP counsel Kenneth Jull, representing Telus. “My only point is that the CRTC got it right when they said that debt is something they should look at as an indicia of control.” Wednesday marked the first day of a Federal Court hearing on Public Mobile's legal challenge of the government's decision to allow Globalive to operate as a carrier. The decision, in late 2009, overturned a previous CRTC ruling that said Globalive could not offer telecommunications services because it was not Canadian-controlled. The decision led the way for Globalive, which had purchased Canadian spectrum during the 2008 auction, to launch wireless phone services in Canada under the Wind Mobile brand. Canada's current rules under the Telecommunications Act limit foreign investment to 20 per cent direct investment in the carrier and 33 per cent indirect investment in the holding company. Michael Ryan, counsel for Public Mobile in the case, told the court Wednesday that the CRTC rejected Globalive's application because it was controlled “in fact” by non-Canadian investors, including Egyptian-based Orascom. Ryan said the CRTC determined that non-Canadian entities controlled 32 per cent of Globalive's voting shares and 65 per cent of its total shares, adding that Orascom owned 65.6 per cent of the equity and 99 per cent of the company's debt. “The figure of the 99 per cent does not appear in the CRTC decision ... but it was never denied,” Ryan said. “ said that ... given Orascom's equity interest in Globalive, such a high-level of debt in the hands of a non-Canadian is unacceptable.” Jull said that although Canada's foreign ownership rules don't specifically identify the issue of debt, it remains an important indicator of where control lies in a company. “The concentration of debt and equity in the hands of a single foreign entity can create an opportunity for undue influence,” he said. “Our conventional governance imperative of looking at only shares is outdated and we need to look, in today's modern world, at the reality that debt holders have tremendous levers ... through which they exert control.” Jull said the government’s decision to reverse the CRTC ruling was “logically, mathematically, completely flawed.” Ryan told the court that the CRTC ruling was “binding and conclusive,” and that the Conservative government overstepped its authority in reversing it. “The Governor in Council had no authority to substitute its own contradictory findings,” he said. “The position of Public Mobile is that in so doing, the Governor in Council exceeded its powers ... The Governor in Council effectively amended the Act.” Ryan said that prior to the Globalive decision, the federal government had never reversed a CRTC finding of fact. “The Governor in Council has never, until the case that is before you, now purported to vary a CRTC finding in fact,” he said. “This case is novel and inconsistent with precedents.” John B. Laskin, a partner at Torys LLP who is also representing Public Mobile in the case, said the government decision does not create a level playing field for competitors, and that all carriers should have access to same level of foreign investment as Globalive. “One of the consequences of the Governor in Council's decision is to give Globalive access to foreign capital that has been denied to others,” he said. “But just as significant, it has created uncertainty and ambiguity on the part of potential investors.” Alexander Gay, representing the Attorney General of Canada at the hearing, said Public Mobile has no direct stake in the government’s decision. Gay said the company should bring an application similar to Globalive's before the CRTC instead of seeking a judicial review. “Nowhere is there any mention whatsoever of how has been refused access to foreign capital,” he said. “The CRTC is open for business. need only apply similar financial arrangements and get approval. There certainly isn't any evidence before the court today that the CRTC has turned them down on request they made which is similar to Globalive's.” Lawyers for the government will continue their arguments before the court Thursday, as well as counsel representing Globalive. Following the government’s reversal of the CRTC decision, Industry Minister Tony Clement said the move was “based on the legal facts and not on the government's position that there needs to be more competition in the marketplace.” Steven Shrybman, a partner at Sack Goldblatt Mitchell LLP, who is representing interveners in the case the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), the Friends of Canadian Broadcasting, and the Communications, Energy and Paperworkers Union of Canada (CEP), also appeared before the court Wednesday. Shrybman said the government’s ruling ignored the cultural implications of allowing Globalive to operate as a carrier. In a release published Wednesday, the three groups said that loosening foreign ownership restrictions would have a “devastating impact” on Canadian culture. “You can’t open up telecommunications to foreign investment without impacting broadcasting, these two industries are increasingly becoming one and our ability to control our media and protect our culture depends on owning and controlling both,” Peter Murdoch, the CEP's vice-president of media, said. kfournier@thewirereport.ca

Government’s Globalive decision was ‘logically, mathematically, completely flawed,’ Telus tells court

News | January 20, 2011

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