Wireless startup not Canadian enough: Regulator

Canada's Canadian telecom regulator has refused to give a wireless startup its carrier licence because Egypt's Orascom Telecom has too much influence over the company in violation of the country's foreign control law.

The Canadian Radio-Television and Telecommunications Commission noted Thursday that Orasom holds two-thirds of Toronto-based Globalive Wireless's equity, is the main source of its technical expertise and provides the company's Wind Mobile brand. On top of that it owns the vast majority of Globalive's $508 million debt. As a result "the commission finds that Orascom has the ongoing ability to determine Globalive's strategic decision-making activities."

The ruling didn't give advice on how Globalive's Canadian partners, lead by Toronto telecom entrepreneur Anthony Lacavera, can fix the problem, leaving great doubt about whether the startup can get off the ground unless it can find more Canadian investors. But Lacavera hasn't been able to find Canadian financing yet, and was counting on getting the carrier licence to help persuade investors to join. In a press release he said he was "extremely disappointed" in part because Globalive already has its licences from Industry Canada. "This is a bad day for Canadian consumers," he said in the release. "Canadians deserve competition in wireless and this decision represents a major step backwards."Lacavera and Orascom can appeal the ruling to the Federal Court, or go straight to the federal cabinet. However, that would delay the company's launch by a significant length of time, assuming it got a favourable ruling.

If Globalive Wireless doesn't appeal, it is stuck with an asset --$442 million in spectrum licences covering much of the country, licences paid for by Orascom. Any one of the incumbent wireless carriers or the new entrants would be glad to make an offer, particularly for licences covering southern Ontario, although perhaps not at the price Globalive paid for at auction, when prices went unexpectedly high. "I'm shocked," said Ron Guria, Toronto-based telecom analyst with market research firm Frost and Sullivan. "I'm sad as a consumer, sad as an analyst and sad as a Canadian because I see the country losing from this. They're losing an influx of foreign capital, they're losing job creation. Does the CRTC think there's enough capital inside Canada to foot the bill for building out the network that's going to compete against the likes of Rogers Communications, Telus Corp. and Bell Canada? There's none." Globalive Wireless is a partnership between Orascom and Lacavera, who owns several long-distance and Internet companies. Lacavera holds voting control of Globalive Wireless's parent, with 66 per cent of the shares. Another Canadian has a tiny sliver, while Orascom has the rest. But Orascom has 65 per cent of the total equity, while the Canadians hold 34 per cent. More importantly, Orascom is the startup's banker and sole cash investor: It has loaned Globalive Wireless CDN$508 million for startup costs and for the $422 million in cross-country licences it bought in last year's AWS spectrum auction.

In addition, Orascom has licenced its Wind Mobile brand to Globalive, struck a lucrative technical services advisory contract and has a shareholders agreement with several favourable conditions.

Lacavera, who will be chairman of the wireless company, is folding his companies into Globalive Wireless's parent.