Globalive, the only real hope for the wireless industry in Canada, is about to find out whether A) the Government of Canada supports more cell phone competition or B) the Government of Canada is controlled like a puppet by Bell (BCE.TO), Telus (T.TO), and Rogers (RCIb.TO).
If you haven’t heard about his story yet here is a little bit of background:
- Last year, the Canadian Government held an auction for new wireless contracts in the country. They held aside a number of contracts that Bell, Rogers, and Telus were not allowed to bid on in the hope that New Wireless competition would emerge.
- Globalive bought $442 million worth of contracts in the auction.
- The ownership structure of Globalive is such that the majority, around 65%, is owned by a Cairo-based wireless carrier that is owned by Egyptian billionaire Naguib Sawiris and the remainder is owned by Canadian, Anthony Lacavera.
- The Canadian Radio-Television and Telecommunications Commission decided last month that Globalive could not operate in Canada since it is under the control Naguib Sawiris through his Egyptian company Orascom Telecom (ORTE.CA) and therefore does not comply with Canada’s foreign ownership rules.
So there’s the background, but what’s missing? Did the Government of Canada that decided to hold the wireless auction not provide parameters for who could participate in the auction? Is $442 million not considered a significant enough amount to require some due diligence? Or, is the CRTC in cahoots with Bell, Rogers and Telus?
The Canadian Governments response last week to the CRTC ruling was clear, “We are still very much in favor of more competition in the telecom space for Canadian consumers,” Industry Minister Toney Clement said.
Minister Clement back peddled a bit today however as he stated in the House of Commons, “We take this situation very, very seriously. We’re currently studying the CRTC’s decision, and the government will be in a position to comment further shortly.”
Sounds to me like we could hear about a major upset shortly and that could lead to devastating ramifications throughout the Canadian Cell Service Industry. If that upset allows anyone of the industry giants whether Bell, Rogers, or Telus, or some form of those wireless providers to buy Globalive’s contracts it would be a huge fraud. It was Bell, Rogers, and Telus that lobbied hard to prevent Globalive from becoming new competition and now they may get a chance to buy Globalive’s wireless contracts that were only supposed to go to new competition.
If the Government of Canada supports the CRTC decision look for the stocks of Bell (BCE.TO), Rogers (RCIb.TO), and Telus (T.TO) to rally as they will continue to have a strangle hold on the industry and continue to keep cell phone rates high and profit margins fat.
If on the other hand, the members of the Parliament of Canada are not getting kickbacks from the wireless giants and decide to do what they intended in the first place Bell, Rogers and Telus are in trouble. We will see cellular competition heat up with deals never seen before in Canada. The big 3 will have profits margins squeezed and the average Canadian will benefit.
A decision is likely after November 18. Stay tuned to find out
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I think it’s unfair for Globalive to break the rules that every other player has to follow in the market and get away with it. The sale of the Wireless Spectrum will have many players emerging in the market. They have spend billions by following the rules, yet here comes Globalive which hasn’t and we should just bow to them in the name of “competition”?
I have nothing with players wanting to play the game. But you come on my field in my country, you better play by the rules.
Thanks for your comment Sebastien.
Although the CRTC said Globalive should not be allowed to operate due to it’s majority foreign ownership, the Goverment of Canada that held the auction approved the sale. If this was such an issue I think Globalive should have been disallowed before they purchased the wireless contracts. Further, I believe Canadian Foreign Ownership Rules are outdated compared to other countries.
Globalive is the only real potential for a nation-wide wireless competitor agianst Bell, Rogers, and Telus. These foreign ownership rules have not be looked at any nearly as closely for many of China’s recent purchases in the Canadian Oil Fields for example.
I main issue is with Rogers saying that they will purchase Globalives wireless contracts however. This is because the contracts were meant to be sold to new competition only! Allowing any of the big 3 wirelss carriers to even think about purchasing Globalives contracts is outrageous.
Some great insights…I have to say for anyone considering investing in this asset class right now, be cautious. Increasing competition in a market where, at least within the wireless sector, Canada has some of the highest rates is tricky business.