Canada's telecom regulator has determined that Globalive, a company hoping to enter Canada's wireless industry as a new cellphone startup, does not meet Canadian ownership rules.
Globalive, which is mostly funded by Egyptian telecom company Orascom, attempted in recent weeks to change the structure of its operations to meet ownership standards in Canada.
However, the Canadian Radio-television and Telecommunications Commission determined the changes weren't enough.
"During its proceeding, the commission examined the influence of Orascom Telecom Holding over Globalive's business decisions and day-to-day operations," the CRTC said.
"Despite the fact that 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."
Globalive chairman Anthony Lacavera issued a written statement on the decision, calling it "a bad day for Canadians and wireless competition in Canada."
However, he suggested the company, which proposes to operate under the brand name Wind Mobile, is only delayed in starting up. He noted that Industry Canada had given its approval to Globalive.
"Having already received approval from Industry Canada, we are extremely disappointed that the CRTC has come to a different conclusion," said Mr. Lacavera said in the statement. "Canadians deserve competition in wireless and this decision represents a major step backwards."
A spokesman for Mr. Lacavera said the company would not be commenting further.
Orascom owns 65.1 per cent of the equity in Globalive. The CRTC had concerns about this level of ownership in the company, but also raised issue with other influences Orascom potentially holds over the proposed new company. The Egyptian firm also owns the company's brand, called Wind, and holds the "overwhelming majority of the outstanding debt," the regulator said.
Under CRTC rules, a Canadian carrier is eligible to operate as long as it is a Canadian-owned and controlled corporation. To meet this test, at least 80 per cent of the members of the board of directors must be Canadian, at least 80 per cent of the voting shares must be owned by Canadians, and the company can't be indirectly controlled by non-Canadians, through other methods such as holding companies.
The CRTC held hearings on the company's ownership structure in September.
The CRTC has approved deals before that have been heavily financed by foreign dollars. In 2007, CanWest Global Communications Corp. purchased Alliance Atlantis Communications Inc. for $2.3-billion, with U.S. investment bank Goldman Sachs footing two-thirds of the bill. However, the regulator approved the deal based on the structure of the company, in which CanWest holds the majority of the voting shares in the assets, successfully arguing that it controlled the day-to-day operations of the TV business.
Globalive is one of several new players looking to enter the cellphone market after the government auctioned off licences a year ago for new players. The company purchased $442-million worth of wireless spectrum licences, allowing the company to operate a cell phone service and was preparing to begin seeking customers.
"Wind Mobile had planned to launch in the coming weeks," Ken Campbell, chief executive officer of Wind Mobile, said in the same written statement. "We have pulled together an excellent team of 800 people and had built a strong network and operation across the country…. We will be evaluating our options on how to proceed."
Analysts had predicted this week that the structure, if approved, would have had broader implications for the telecom sector, allowing other companies to seek more foreign ownership. Other telecom companies, including incumbent cell phone players Rogers Communications Inc ., Telus Corp. and BCE Inc. , had complained to the regulator that the structure violates Canadian standards, arguing that the debt and equity are effectively controlled by Orascom.
In recent weeks, Mr. Lacavera had been reworking the arrangement with Orascom in an effort to appease the CRTC. Globalive's board structure was changed, and the company raised the threshold for Orascom using any veto over company decisions.