The Canwest/Globalive Ownership Dilemma

By , September 1, 2009 10:36 pm

CanWestGlobaliveGlobalive, the wireless company launching soon under the brand name Wind Mobile, has been under some attack by the other carriers for it’s ownership structure. With significant investment by Orescom out of Egypt, our telecom and media ownership restrictions are coming under some scrutiny. The issue has become more complex for the CRTC because of a decision they made last year allowing Canwest, with a large investment from Goldman Sachs, to purchase specialty provide Alliance Atlantis.
Canada has restrictions and rules on foreign ownership of media and telecom companies. The essential rule (with a number of variations) is that no more than 20% of the voting shares of company may be owned by foreign entities, and ‘control’ must remain with Canadians. The restrictions apply to both telecoms and media companies equally, despite the differing goals of law within each vertical.
When the Asper family, the majority owners of Canwest, bid to purchase Alliance Atlantis in early 2007 they couldn’t raise enough money in Canada, so they solicited some help from New York bank Goldman Sachs, who loaned the company money (or the Aspers directly, or a subsidiary company – it is not clear) so they could complete the purchase. The CRTC decided at the time that the deal was kosher, likely looking both the media consolidation angle, as well as from a foreign ownership perspective.
Globalive, a feisty Canadian telecom startup, which had been chipping away in the Canadian telecom space for quite some time and made their big mark purchasing Yak Communications, decided they wanted to be in the running for last year’s spectrum auction. Looking for investors they found Orescom, another feisty and entrepreneurial company with a number of global wireless investments, based out of Egypt. Orescom decided Globalive, and its CEO Anthony Lacavera was the company in Canada to back and grow their international wireless investment portfolio.
Before the spectrum auction the CRTC (actually Industry Canada, which runs the auction process) requires quite minimal evidence that the ownership of the companies bidding do, in fact, abide by the ownership rules. They did require letters of credit ensuring that companies bidding could pay their bills after the bidding was complete.  Globalive obviously satisfied these conditions.
Now that the bidding is complete and the specifics on Globalive’s ownership structure is still not clear, the other carriers are calling foul. Building a large Canadian wireless carrier is not cheap. None of the major Canadian investors (Teachers, CPPI, etc.) threw their money behind Globalive. Orescom is the big supporter and believes in the potential of the Canadian market, especially when combined with their other investments.
The CRTC has backed themselves into a corner. By allowing the Goldman Sachs investment in Canwest to go through, they are now tied to stick by the structure. Making an investment that large in Canwest obviously gives Goldman ‘control’ over the investment, if not on paper, but certainly de facto control. Orescom is likely in the same position with Globalive. If they aren’t, they can just ask the CRTC how that deal went through and mimic the structure.
If the other carriers wanted to complain about the ownership structure they should have said something at the time of the Canwest deal. That’s what set the precedent. But they wouldn’t have, because, in Canada, it’s not comfortable disturbing the family compact.
The CRTC is now compelled to approve the deal. The variations on ownership structure has become so convoluted that perhaps it’s time to reexamine the rules. We live in a global economy, and telecom, much more than media, is an increasingly global business. Isolating Canada from the ownership and innovation of foreign companies just limits the technology and economies of scale we could leverage to bring down our wireless and telecom prices.

2 Responses to “The Canwest/Globalive Ownership Dilemma”

  1. [...] The Canwest/Globalive Ownership Dilemma | Think Forward [...]

  2. [...] wrote earlier about how I thought that the CRTC was hampered in their decision by the Canwest – Alliance Atlantis merger decision from a couple years ago. The CRTC decided in this case that foreign money from [...]

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