TORONTO (Reuters) - The fate of Wind Mobile, one of three wireless upstarts challenging Canada’s dominant carriers, rests with an appeal court that must decide if the government or regulators better judged its homegrown bone fide.
Wind’s owner Globalive spent C$442 million for spectrum and turned on its network in December 2009, after the government overturned a regulator ruling that blocked the Egyptian-backed company from offering wireless service.
It had signed up more than a quarter of a million customers to its low-cost, no-contract and unlimited calling plans when a federal court said in February 2011 that the government ruling was wrong.
Losing the appeal case, which opened on Wednesday, would not threaten Wind and Globalive’s immediate future in a newly competitive Canadian wireless market. But a victory could ease investor concerns and lead to an influx of funding ahead of a fresh sale of wireless airwaves, due late next year.
One of its fellow upstarts, Mobilicity, raised C$215 million in debt financing in April.
Globalive’s chairman, Anthony Lacavera, said in mid-2010 that Wind had ample cash for two to three more years and intended to be the fourth national provider, competing with established giants Rogers Communications, BCE Inc’s Bell and Telus.
The Canadian wireless industry, long dominated by these three, features some of the highest fees in the world.
Any ruling could be moot if the Conservatives use their new majority in Parliament to push through a change in Canada’s Telecommunications Act to ease foreign ownership restrictions, a prospect that it has already raised.
“The ability of the Conservative government to change the law has been greatly enhanced. Whether the desire is there remains to be seen,” Canaccord Genuity analyst Dvai Ghose said.
Tony Clement, a longtime supporter of more competition into the sector, was replaced as industry minister by Christian Paradis on Wednesday.
That may delay the review of foreign ownership and the rules for the 700 megahertz spectrum auction, according to UBS analyst Phillip Huang.
“Mr Paradis may need time to acquire up-to-date knowledge of the sector, and may also prioritize and approach his new files differently,” he wrote in a note to clients.
The Telecommunications Act restricts foreign ownership to 20 percent of a telecom company’s voting shares and limits direct and indirect foreign control to 46.7 percent.
Egypt’s Orascom Telecom holds a third of the voting shares and two-thirds of the equity in a holding company that the courts consider Canadian. It has committed to more than C$500 million in loans, essentially all of Globalive’s debt, plus further guarantees, but it does not directly own any shares in it.
Neither Canadian telecommunications regulators, the government nor the judge that overturned the government disputed Globalive’s ownership on points of law.
What is at issue is the reading of a more subjective “control in fact” clause in the Act that questions whether a telecom company is controlled by non-Canadians in another way.
Canaccord’s Ghose said a favorable ruling for Globalive without an overhaul in the ownership laws would be tough for others to replicate.
“Wind is an unusual example,” he said. “It’s not like Carlos Slim from Mexico can come in and say ‘I‘m going to bid for a 700 megahertz spectrum license and I‘m going to be in business’.”
The hearing may continue into Thursday and a decision is not expected for several weeks.
The case, which was raised by third new entrant Public Mobile, can then be brought to the Supreme Court.
The Appeal Court case, Globalive Wireless Management Corp v. Public Mobile Inc et al, is court file A-78-11 and follows Federal Court docket T-26-10.
Globalive is represented by Thomas Heintzman, Malcolm Mercer and Anna Matas from McCarthy Tetrault and Public is represented by John Laskin from Torys and Michael Ryan from Arnold & Porter.
Editing by Janet Guttsman