Canada: New Wireless Entrant Fails to Satisfy Canadian Ownership Rules

Last Updated: November 17 2009
Article by Laurence J.E. Dunbar

CRTC Issues Important Decision On Canadian Ownership And Control

On October 29, 2009, the Canadian Radio-television and Telecommunications Commission (CRTC) issued its decision respecting the eligibility of Globalive Wireless Management Corp. (Globalive) to operate as a telecommunications common carrier in Canada. Globalive was a successful bidder in Industry Canada's 2008 Advanced Wireless Spectrum (AWS) auction, and had announced plans to launch its wireless service in the next quarter.

In a landmark ruling (Telecom Decision CRTC 2009-678, Review of Globalive Wireless Management Corp. under the Canadian Ownership and Control Regime), the CRTC has determined that Globalive's ownership structure is not compliant with the Canadian ownership and control provisions of the Telecommunications Act and related Canadian Telecommunications Common Carriers Regulations. This means that unless and until Globalive significantly restructures its financial, corporate governance and other arrangements with its principal foreign investor, it will not be eligible to operate as a public mobile wireless carrier in Canada, as the latest competitor to Bell, Rogers and Telus.

This decision is an important one for a number of reasons.

First, this marks the first time since the CRTC's review in 1996 of Unitel Communications that the CRTC has released a written decision with respect to the ownership and control of a Canadian carrier. It is also the first time that the Commission has conducted a public review of a telecommunications carrier's ownership structure. Although public reviews are conducted under the Broadcasting Act with respect to the ownership and control of broadcasting undertakings, the practice under the Telecommunications Act has been for these reviews to be done behind closed doors. Following submissions from a number of carriers earlier this year, which called for a detailed review of Globalive's compliance with the statutory requirements, the CRTC reviewed its prior practice and announced a new Canadian ownership and control review process in Telecom Regulatory Policy CRTC 2009-428.

This new policy identified four types of ownership application that would be subject to varying forms of review depending on their complexity, the perceived benefit of public comment and whether the facts were considered to give rise to the possibility of a new precedent. The corresponding review process would in turn range from a confidential CRTC review to a public hearing process with participation by interveners.

Immediately following the release of this new policy, the CRTC announced that Globalive's application satisfied the criteria for a public hearing to be convened. This hearing took place in September, 2009 and the process concluded on October 7, 2009 with the filing of final reply argument by Globalive.

A second reason why this proceeding has attracted so much attention is that it highlights in a very real way the double jeopardy that facilities-based wireless carriers face under the Radiocommunication Act and the Telecommunications Act. Although the tests for Canadian ownership and control are the same under both statutes, they are administered by separate bodies. A government department, Industry Canada, reviews compliance under the Radiocommunication Act in connection with the issuance of radio spectrum licences required to compete in the public mobile wireless market, whereas the CRTC reviews compliance under the Telecommunications Act by Canadian telecommunications common carriers, which include public mobile carriers. In this case, Industry Canada conducted a confidential review of Globalive's ownership structure earlier this year and found it to be compliant with the requirements of the Radiocommunication Act. In its public hearing process, that followed several months later, the CRTC was reviewing under the Telecommunications Act a structure that had already been approved by Industry Canada.

While this type of double jeopardy is not unknown in other regulatory contexts, such as the review of mergers in the broadcasting sector by the Commissioner of Competition and the CRTC and the review of ownership of broadcasting undertakings by the CRTC under the Broadcasting Act that are associated with radiocommunication undertakings whose ownership has previously been reviewed by Industry Canada under the Radiocommunication Act, this marks the first time it has occurred in a public context in a purely telecommunications ownership review. This raises serious questions as to the efficacy of having two separate reviews conducted by two different governmental bodies – whether both are private or whether one is private and one is public.

A third reason for the high level of interest in this particular ownership review stems from the circumstances surrounding Globalive's entry into the public mobile market. Globalive participated in Industry Canada's 2008 AWS auction as a "new entrant" entitled to bid on spectrum that had been set aside to encourage additional competition in the Canadian wireless market. Like all spectrum auctions conducted by Industry Canada, the rules required a successful bidder to pay for the AWS spectrum it successfully bid on in advance of Industry Canada's review of its ownership structure. This meant that Globalive had to pay approximately $450 million to secure the spectrum in advance of knowing whether its ownership and control structure was compliant. The regulatory risk that this situation generated for Globalive's investors served to heighten interest in this case, as well as bringing into question the timing of the ownership review process.

Finally, the substantive arrangements between the Canadian and foreign investors in Globalive, which were the focus of the review process, were in many ways unique. They commanded the interest of the telecommunications and broadcasting industries in Canada as having the potential to stretch the boundaries of what had previously been considered possible under the ownership and control regulations. The original Globalive arrangements, if approved by the CRTC, created a new ownership blueprint for others to follow.

This process also generated considerable interest in the press, with Globalive depicting itself in a David and Goliath struggle pitted against the incumbent wireless carriers.

The Ownership Rules

The Canadian ownership and control tests for telecommunications or radiocommunication common carriers are on their face quite simple. In a nutshell, the carrier must be incorporated in Canada, 80% of its board of directors must be Canadian, 80% of its voting shares must be owned by Canadians, and it must not be otherwise controlled by foreign interests. Corporations investing in the operating carrier (holding companies) are considered to be Canadian if 66⅔% of voting shares of that corporation are held by Canadians and it is not otherwise controlled by foreign interests. "Control" in this context is defined as control in any manner that results in control in fact.

These tests have led to the use of a number of mechanisms over the years to increase the economic participation of foreign investors in Canadian carriers, as well as their influence over key corporate decisions. These mechanisms have included two-tiered investments by non-Canadians at the holding company (33⅓%) and operating company (20%) levels, the issuance of non-voting shares to non-Canadians to raise their level of economic participation, the use of independent Canadian directors as an alternative to board control by Canadian shareholders that are required to hold the majority of voting shares, and the use of veto rights and negative covenants in shareholder and loan agreements.

The use of these mechanisms, which are not specifically addressed in the regulations, focus regulatory attention on the "control in fact" part of the ownership and control tests. This involves an analysis of all of the arrangements between the parties, including shareholder agreements, board participation, loan arrangements, technology and intellectual property agreements, the relative industry know-how and experience of the Canadian and foreign investors and their relative financial strength.

The Investors

There are two principal investors in Globalive – AAL and Orascom.

AAL is a Canadian company controlled by a Canadian, Anthony Lacavera. Its principal businesses are in the operator services and long distance service markets. It has revenue of approximately $120 million. AAL's capital contribution to the Globalive venture appears to have been in the form of its existing wireline business and a $400,000 loan. It has no prior experience operating a wireless company.

Orascom is an Egyptian-based wireless communications company with revenues of $5.3 billion and assets of $9.9 billion (2008). It has wireless networks in 14 countries and has 130 million subscribers.

The relative size and related experience of the two principal investors became an important issue in the proceeding in the application of the control in fact test.

The Proposed Structure

Globalive's ownership structure involved many of the usual mechanisms that are used to enhance the influence of foreign investors in Canadian communications companies, as well as a number of less common ones. The structure that was initially presented to the CRTC for consideration had the following features:

  • a two-tiered holding company structure with Orascom holding approximately one-third of the voting shares in both holding companies, which were stacked one on top of the other;
  • 65% of equity of Globalive held by Orascom;
  • 99% of debt (approximately $508 million in short-term loans at 18%) held by Orascom;
  • equal participation on the board of directors by Orascom and AAL with the balance of power held by independent Canadian directors selected by a committee with equal representation by the two investors and the swing vote held by a former employee of an Orascom affiliate;
  • the right of AAL to exit the wireless business and retract its former wireline business in year one at a fixed price;
  • the right of AAL to "put" its shares to Orascom at a fixed floor price in the first five years;
  • the right of Orascom to sell the business and "drag along" AAL thereby forcing AAL to sell;
  • a technology agreement with Orascom that included a $100 million fee regardless of whether the technology services were used;
  • an intellectual property agreement for the "WIND" trademark which is owned and used by Orascom in other countries; and
  • veto powers for Orascom on a number of key business decisions, including the business plan, at relatively low monetary thresholds.

During the course of the CRTC's public hearing, in response to the submissions of interveners, and in particular in response to concerns expressed by the CRTC Chair and other Commissioners during their questioning of the Globalive panel, Globalive made a number of concessions and changes to the structure that had been originally presented for approval. These changes included: making Anthony Lacavera the chairman of the companies constituting the Globalive business; removal of one of the two holding companies; cancelling Orascom's "call" and "drag along" rights; eliminating AAL's retraction rights in the first year; reducing AAL's put options in the first five years to a single right in year three; eliminating the negative covenants in Orascom's loan agreement and making the loan renewable for up to five years at Globalive's option; increasing the monetary thresholds with respect to certain of Orascom's veto powers; changing the manner in which independent directors are selected; and changing the termination arrangements under the Technology Services Agreement. A number of other changes were also offered up. It is interesting to observe that these changes were made to a corporate and governance structure that had already been approved by Industry Canada.

Notwithstanding the many changes made to the structure on a voluntary basis, the three appearing interveners, Bell, Rogers and Telus, (all of whom are incumbent wireless carriers) continued to press for further changes to be made including:

  • fundamental restructuring of Globalive's capital so that Orascom is no longer a major lender to the company, in addition to being the largest equity holder;
  • elimination of AAL's put and guaranteed floor price which was argued to be inconsistent with a Canadian controlling interest in the company;
  • permitting AAL to elect a majority of directors to the board at both the operating company and holding company levels, commensurate with it holding two-thirds of the voting shares;
  • further changes to the arrangements between Orascom and Globalive under the Technology Services Agreement;
  • further changes to the manner in which independent directors are selected;
  • elimination of Orascom's right to veto the business plan and its replacement with a consultation right; and
  • modifying the monetary thresholds attached to Orascom's other veto powers to ensure compliance with the formula identified by the CRTC in other cases.

In the past, both the CRTC and the National Transportation Agency (that looks at control in fact issues in the context of the aviation industry) have expressed concerns about combining major debt and equity interests in the hands of non-Canadians. The fear that has been expressed is that this combination may place too much economic power in the hands of non-Canadians and give rise to undue influence over the affairs of the corporation. While Globalive sought to address these concerns by stripping the negative covenants out of the loan agreements and by extending their term, the interveners argued that the $508 million loan by Orascom at 18%, coupled with AAL's right to "put" its shares to Orascom at a guaranteed floor price, placed both the economic risk and reward of the wireless venture on Orascom and made AAL more of an "accommodation party" that could exit the venture at a guaranteed price.

For its part, Globalive argued that its capital structure was interim in nature – being assembled in the depths of the recession when alternative sources of capital had dried up. The CEO of Orascom stated that he was not in the banking business and was providing bridge financing until market conditions improved.

The interveners responded that without any real equity in the company, new debt financing would not be likely to materialize.

The Decision

In Telecom Decision CRTC 2009-678, the CRTC made rulings on many of the issues identified above. While in some cases, the CRTC identified specific changes that could be made to alleviate its concerns, its findings with respect to the company's debt financing will likely prove to be much more difficult for the shareholders to address. Highlights of the CRTC's specific rulings follow.

Composition Of The Boards Of Directors

The CRTC determined that the revised board structure does not ensure that the nominees of the Canadian shareholder are sufficient in number to offset the influence of Orascom. In order to address this point, the CRTC said that Globalive would have to amend its Shareholders' Agreement and corporate documents so that on each of the two boards (holding and operating company level), AAL nominates five directors, Orascom nominates four directors, and AAL and Orascom each nominate one Independent Director. This would give AAL the right to elect a clear majority of the board.

Liquidity Rights

With respect to AAL's "put", the CRTC ruled that even in its revised form, the put provides an indication of Orascom's influence over the venture. It went on to state that the specification of a floor price and the imposition of a cap on the proceeds generated in the event that AAL sells its shares are inconsistent with the relative voting interests of the shareholders.

The CRTC also considered that Globalive should broaden the scope of parties to whom AAL would be eligible to sell its shares since the proposed arrangements prevented a sale to "strategic investors" that compete in the market. The CRTC ruled that the definition of strategic competitor should be amended to include only entities which, taken together with their affiliates, hold more than a 10 percent share of the Canadian wireless market on a per-subscriber basis.

Veto Rights

The CRTC considered that the value of the spectrum held by Globalive is not an appropriate foundation on which to base the revised 5% monetary threshold for the various veto powers accorded to Orascom. Consistent with earlier rulings, the CRTC considers that Globalive's enterprise value is a more appropriate measure.

Accordingly, the monetary threshold for vetoes should be set at five percent of Globalive's enterprise value as determined by its board every two years, based on a third-party valuation.

Technical Services Agreement (TSA)

The CRTC noted that the TSA provides Globalive with benefits that operate as key determinants of its success. It went on to state that it is this reliance by Globalive on Orascom which defines their relationship and allows Orascom the opportunity to influence a wide range of operating and strategic decisions. Given the significant benefits Globalive derives from the TSA, the CRTC was of the view that Globalive will maintain the TSA for the foreseeable future. Consequently, the CRTC considered that Orascom will continue to have influence over operating and strategic decisions related to Globalive's network.

Trademark Agreement

Based on information that Globalive filed in confidence with the CRTC and discussions held during the in camera oral phase of the public hearing, the term of the trademark agreement and the termination rights were not of concern to the CRTC. However, the CRTC found that Globalive's adoption and use of a trademark belonging to an Orascom affiliate do provide Orascom (or its controlling shareholder) with influence over Globalive because Orascom has the power to limit how the brand can be used.

Economic Participation Of Globalive And Non-Canadians

The CRTC ruled that while the 65.1 % equity interest held by Orascom provides an avenue for influence in this case, consistent with previous CRTC decisions, it is not sufficient on its own to convert that influence into control.

Financing Arrangements

The CRTC noted that debt levels and debt financing arrangements can be important indicia of where influence lies. It repeated its observation in the CanWest decision that the concentration of debt and equity in the hands of a single foreign entity can create an opportunity for undue influence over the venture by that non-Canadian entity.

In the present case, the CRTC noted that Orascom has provided approximately 99 percent of Globalive's current debt, excluding some third-party vendor financing, which represents the vast majority of Globalive's total financing. The magnitude of the debt provided by Orascom, the relative debt to equity financing, and the fact that the debt is concentrated in the hands of a single entity caused the CRTC concern with the loans as a source of Orascom influence. The modifications to the covenants and terms of the loans did little to reduce this concern. Furthermore, the CRTC noted that covenants similar to those deleted from the Orascom loan agreements were still contained in Schedule A to the Shareholders' Agreement.

In addition to the above-noted concerns, the CRTC considered that a company's inability to obtain financing from third-party sources may also be relevant to the issue of control in fact. As noted in the Unitel decision, "In certain circumstances it may be possible to conclude that a non-Canadian shareholder or lender may have a considerable amount of leverage, and even control, over a cash-strapped telecommunications common carrier."

It is the CRTC's view that such a significant concentration of debt in the hands of Orascom, representing the vast majority of Globalive's enterprise value, serves to provide Orascom with leverage over Globalive. The CRTC concluded on this issue by stating that, given Orascom's equity interest in Globalive, "...such a high level of debt in the hands of a non-Canadian is unacceptable".


It is clear from the decision that it was the debt structure that ultimately led the Commission to conclude that Globalive is controlled in fact by Orascom. In its concluding remarks the Commission stated that given the changes that were made during the public hearing, and presuming that the additional changes identified in the decision were made, the equity position of Orascom, its position as the principal source of technical expertise, and its control of the WIND trademark would not cause the CRTC to conclude that Orascom is in a position of influence that is both "dominant and determining".

"However, when these levers are considered in concert with Orascom's provision of the vast majority of Globalive's debt financing, the Commission finds that it cannot conclude that Globalive is not controlled in fact by a non-Canadian, to wit Orascom. In other words, the Commission finds that Orascom has the ongoing ability to determine Globalive's strategic decision-making activities."

In light of the foregoing, the CRTC determined that Globalive is controlled in fact by Orascom, a non-Canadian. Therefore, Globalive does not meet the ownership and control requirements in the Telecommunications Act and is not currently eligible to operate as a telecommunications common carrier in Canada.

While this ruling by the CRTC does not mean that Globalive cannot come back with a new structure that satisfies the stated concerns, it is clear from the CRTC's concluding remarks that the debt structure will have to be addressed before this can happen. Given Globalive's statements during the public hearing regarding the difficulty of attracting debt financing for a "green field" operation at this point in time, this decision could seriously jeopardize the timing of the company's service launch.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.