Canada's Newest Mobile Network, Globalive Not Sufficiently Canadian

­The controversy over the ownership of Canada's newest mobile network operator, Globalive Wireless has heated up after the Radio-television and Telecommunications Commission announced that it feels that Globalive does not meet the Canadian ownership requirements set out in the Telecommunications Act. Under the legislation, a telecommunications company is only eligible to operate in Canada if it is not at any time owned and controlled, in law and in fact, by non-Canadians.

During its proceeding, the Commission examined the influence of Orascom Telecom Holding over Globalive's business decisions and day-to-day operations. Although Globalive made significant structural changes to reduce its dependence on Orascom, there were other factors that, taken together, led the Commission to conclude that Globalive does not meet the statutory test.

The effective ownership of the company has been an issue ever since the company was granted its original license, and the incumbent operators have been particularly vocal in raising the ownership issue with regulators. Globalive Wireless participated in Industry Canada's AWS Spectrum Auction in May 2008, purchasing CDN$442 Million in provisional spectrum.

The network is currently aiming to launch in key markets in late 2009 and will continue to launch services across Canada in 2010. Service will operate on an all-IP HSPA network, which will pave the way to an LTE network in the future.

In a statement, the Commission said that it found it particularly important that Orascom owns 65.1 per cent of the equity, has entered into a strategic technical arrangement with Globalive, controls and holds the "Wind" brand under which Globalive will operate, and holds the overwhelming majority of the outstanding debt.

The Commission was also concerned about options to sell buy and sell stakes in the company. Although earlier rights of first refusal granted to Orascom were diluted, the Commission felt that the liquidity rights, even in their revised form, provide an indication of Orascom's influence over the venture.

An agreement for Orascom to provide technical support was also an issue. Given the significant benefits Globalive derives from the technical support, the Commission said that it was of the view that Orascom will continue to have influence over operating and strategic decisions related to Globalive's network.

The most contentious issue is the debt being built up by Globalive as it rolls out its network.

The Commission noted that legally, there is nothing stopping Globalive from seeking debt financing from whichever source it liked, that Orascom both owned 65.1% of the equity and had provided approximately 99 percent of Globalive's current debt - excluding some third-party vendor financing - meant that it did have a dominant controlling position over the company.

Given the changes that were made during the public hearing and presuming that the additional changes that have been identified in this decision are made, these elements taken together, while significant, would not cause the Commission, in the circumstances of this case, to reach a decision that Orascom is in a position of influence that is both dominant and determining.

However, when these levers are considered in concert with Orascom's provision of the vast majority of Globalive's debt financing, the Commission finds that it cannot conclude that Globalive is not controlled in fact by a non-Canadian, to wit Orascom. In other words, the Commission finds that Orascom has the ongoing ability to determine Globalive's strategic decision-making activities.

 

 

 

 

Posted to the site on 29th October 2009