Wind Mobile emphasizes secure network as national security issues raised

Wind Mobile emphasized the security of its network as Industry Canada continues to review an application to transfer ownership of the company to Amsterdam-based VimpelCom Ltd. The Globe and Mail reported Friday, citing anonymous sources, that the federal government's delayed approval of the transfer of ownership to VimpelCom is due to national security concerns related to Mikhail Fridman, a major Russian shareholder in VimpelCom, as well as Wind’s use of network infrastructure made by Chinese manufacturer Huawei Technologies Co. Ltd. "WIND Mobile is proud to say there has never been a security breach (hacking, spying or otherwise) on our network,” Alexandra Maxwell, a spokeswoman for Wind, said in an emailed statement. “ur core network is ring-fenced with firewalls from Juniper Networks (a top tier, groundbreaking North American company with security products being one of their key strengths). Like all of the other major mobile operators in this market, WIND uses equipment from more than a dozen (best of class) suppliers in our core network,” she said, adding that Wind is not commenting on the application to Industry Canada for a change in control. VimpelCom, an international mobile operator based in Amsterdam, filed an application last October, under the Investment Canada Act, to acquire a controlling stake in Wind from Wind CEO Anthony Lacavera, The Wire Report reported last month. At the time, the company expected that the agreement would be approved within a standard time period of 45 days, though it has still not been approved and VimpelCom has extended the closing date for its deal with Lacavera to June 30. Independent telecom consultant Jean-Francois Mezei said in a phone interview that it's not logical for the government to stop Wind's change of control due to its use of Huawei’s equipment. “What are they going to do, force Wind to change their equipment?” he asked. Mezei said he believes the government does not want to transfer Wind's control without knowing VimpelCom’s plans for the company, such as whether it will continue operating in the Canadian market or what potential buyers may exist. Mezei said Lacavera, who has a reputation for speaking out about unfavourable regulatory decisions, has been silent about the delays. “Do you hear him complaining about the delay in approval? I think that’s your answer. If the government was stalling, he’d be complaining,” Mezei said. “Don’t do two transactions, one after the other: do just one. To me, that would probably be the more likely reason for this delay.” Canaccord Genuity analyst Dvai Ghose agreed with Mezei in a research note Friday, writing that he believes Industry Canada’s delay in approving the transfer does not relate to security concerns. “We wonder if the delay is really due to Huawei or because VimpelCom has made it clear that it wants to exit Canada and so Industry Canada is waiting to see who may bid for longer term ownership of WIND before giving any approvals,” Ghose wrote. “In our view, the delay may be because VimpelCom has been increasingly open about its intention to exit Canada.” The Wire Report reported last month that incumbent telecom providers were in talks with Wind Mobile, which has also received an offer from Accelero Capital Holdings, a Paris-based investment firm owned by former Wind Mobile investor Naguib Sawiris. Industry Minister Christian Paradis has a policy objective of ensuring four competing wireless carriers in each region of Canada, and when asked by The Wire Report Thursday whether Industry Canada is trying to keep Wind Mobile independent from the incumbents, Paradis said he will pursue his policy aim. “The industry is free to consolidate. This is their call. On the other hand, also, the industry has to get that we have this policy in place, about having a fourth player in every region of the country,” Paradis said following a speech in Ottawa at a symposium about internal Canadian trade barriers. The minister added it is his policy that no carrier will be permitted to acquire an “undue” concentration of spectrum holdings in one market. “We want to keep going with this policy. We believe that this is feasible. Now we see that, in some areas of the country, you have some players in good shape as a fourth player. I think more can be done, and I think that by reiterating our policy, and by taking concrete steps, we can achieve that,” Paradis said. Julie Carmichael, a spokeswoman for Public Safety Minister Vic Toews, declined to comment by email Friday, saying that Industry Canada is the “lead” on the file. Industry Canada spokesman Michel Cimpaye declined to comment on any national security matters related to Wind Mobile. He said the government is “clearly committed to encouraging competition in the wireless sector” and that the “strict confidentiality provisions of the Investment Canada Act do not allow further comment on this investment at this time.” Scotia Capital analyst Jeff Fan said in a research note to clients Friday that restricting foreign players from acquiring Wind could further dampen investment prospects in Canada’s wireless market, which are already “grim.” “This would add even more regulatory uncertainty for potential investors,” Fan wrote. “While the government wants to have a viable 4th operator, we believe this is evidence that there are limits that it will not cross and makes the investment prospect even less attractive.” He added: “Even though the government is doing what it can to entice capital investment into a viable 4th operator, we believe it is not enough for investors to act and that the regulatory concern is noise.” Wind is not the only Canadian carrier to use Huawei network technology. Huawei supplies fourth-generation network equipment to BCE Inc., Telus Corp., and SaskTel, and has supplied equipment for a northern telecom project by Iristel Inc. Huawei and ZTE Corp.—another telecom suppliers based in Shēnzhèn, China—faced spying allegations last fall in a report from the U.S. House of Representatives committee on intelligence, and in March this year, Paradis said the government was reviewing possible rules on the use of foreign-made wireless network equipment. “This is something that we clearly have to pay attention to,” Paradis told Bloomberg in an interview at the time. Bobby Leach, a spokesman for VimpelCom, told The Wire Report in an emailed statement Friday that the company is “registered in Bermuda, Headquartered in Amsterdam and listed on the NYSE. Our governance structure reflects our international provenance and we would strongly refute and take issue with any statement which suggested that should VimpelCom achieve control of this or any other business there would be any increased risk of security breaches.” Maxwell said in the emailed statement that Wind works “cooperatively and proactively” with the Canadian Security Intelligence Service and other law enforcement agencies and departments on security, emergency and 911 issues. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Wind Mobile emphasizes secure network as national security issues raised

News | June 14, 2013

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