GATINEAU, Que. - Whether Canada will soon get a fourth national cellphone carrier is coming down to whether the federal regulator believes a new upstart largely owned by a foreign company can still be said to be Canadian.
Toronto-based Globalive Wireless came under a stiff challenge from rivals and the CRTC on Wednesday to prove its Canadianness despite that fact about 80 per cent of the start-up capital has been supplied by Egyptian cellphone giant Orascom though an equity stake and loans.
"I own 35 per cent (equity) of the business and I clearly have the management of the votes," insisted Globalive Holdings chief executive Anthony Lacavera.
But to the three Canadian incumbents that Globalive hopes to challenge - and at times it seemed to the CRTC commissioners - the circle could not be squared.
In separate rebuttals, Rogers Wireless (TSX:RCI.B), Telus (TSX:T) and Bell Mobility (TSX:BCE), each made the point that because Orascom owns the majority of Globalive shares and debt, the Canadian firm is in the pocket of the Egyptian entity.
In fact, they suggested, Globalive is nothing more than a convenient "front" for Orascom's desire to extend its global reach into Canada."
"This is not by any stretch of the imagination a merger of equals," Telus executive Ted Woodhead told the Canadian Radio-television and Telecommunications Commission.
The David and Goliath teaming is evident by comparing Orascom's $5.3 billion in annual earnings with the $150 million in revenues generated by Lacavera's holdings, which include Yak Communications, Woodhead said.
"The capital structure is not-compliant, and the web of other connections and controls can lead to no other conclusion that Globalive has yielded control to non-Canadians."
If no Canadian ownership requirements were in place, Orascom would likely have simply moved its operations into Canada without seeking a Canadian face, Woodhead said.
Under the Telecom Act, telecom companies must be Canadian owned and controlled, although there is no set definition of what constitutes control.
Earlier, in a television feed from Egypt, Orascom head Naguib Sawiris came close to suggesting as much, noting that it might be a good idea for Canada to end its "protectionist" telecom rules and join the global community. Egypt, for example, is served by three foreign cellphone firms, he said.
Rogers executive Ken Engelhart and Bell representative Mirko Bibic both noted that despite Globalive's purported control, the arrangement gives Orascom veto powers over most major decisions and makes Globalive dependent on Orascom's technical expertise and "Wind" brand.
The true nature of the partnership, they said, was made evident in March when it was an Orascom agent - not Globalive - that represented the entity in the federal government's spectrum auction.
Bibic argued that Globalive's structure is so "outside the law" that the commission has no choice but to deny it a licence, and have the spectrum purchased by Globalive be returned to Ottawa for re-sale to interested parties.
He even suggested Bell might be willing to purchase some, drawing laughter from Globalive officials.
Such an outcome would deal a big blow to the federal government's goal of bringing greater competition to a market now dominated by three players, Telus, Rogers and Bell.
Globalive has said it intends to be operational in major cities outside Quebec by the end of this year or early in 2010, in essence creating a fourth major player in a Canadian market often criticized for its lack of competition and high charges to customers.
The CRTC is expected to issue its decision before the end of October, but commissioners gave every indication Wednesday they had serious reservations.
Commission chairman Konrad von Finckenstein at one point called "stunning" an arrangement that allows Orascom to sell its half its shares and compel Lacavera's holding company to sell its stake. There is no reciprocal arrangement.
The so-called "drag-along rights" was the equivalent of holding a "sword of Damocles" over the head of the Toronto-based firm, von Finckenstein said.
The commissioner also questioned other aspects of the agreement, and at times appeared exasperated with the responses he was receiving.
"What is so special about Globalive that we should say notwithstanding our precedents, notwithstanding our clear rules, that this is acceptable?" he asked.
"I don't understand how the person at the bottom can control the top, it's illogical," he said at another point.
Lacavera had come prepared for the grilling. He opened the hearings with a surprise announcement that Globalive had altered its management structure, making him chairman in order to increase Canadian control.
As well, he said Globalive had strengthened its partnership with Orascom to ensure that their arrangement remains in place for at least three years.
Orascom's Sawiris also insisted he would not control Globalive.
And he said new investors would be sought to take over his share of loans to the Toronto firm.
"(Orascom) does not want to be the sole lender or the primary lender for the Globalive Wireless business, and is doing it out of necessity," he said.
Sawiris added that he agreed to become a lender only after the credit crisis last summer made seeking financing elsewhere impossible.