Federal Court puts Wind Mobile's cellular wireless service in jeopardy

A Canadian court has ruled that Wind Mobile's permit to operate its cellular wireless service in Canada may be illegal.

Last week's Federal Cout ruling potentially thwarts the federal Conservative government's efforts to add more choice for consumers in mobile services and will force the issue on foreign ownership restrictions in the telecommunications industry.

More information is available in a story by my former colleague Howard Solomon in Network World Canada.

Solomon, a long-time Canadian technology journalist and assistant editor of Network World Canada, has been following this issue for years.

Wind Mobile, operated by Globalive Wireless Management Corp., was the first of the new entrants in the 2008 Advanced Wireless Spectrum auction to start service. Although Globalive is 80-per-cent-owned by a Canadian, Anthony Lacavera, the company was ruled "controlled in fact" by Orascom Telecom SAE of Egypt by the Canadian Radio-television and Telecommunications Commission (CRTC) in late 2009. Orascom owns 20 per cent of voting shares but provided substantial loans to Globalive so it could build its cellular wireless network.

The CRTC ruling meant Globalive would not have been able to launch its wireless service in December, 2009, had Cabinet not overruled the CRTC. The CRTC is an arms-length agency of Industry Canada that regulates both the broadcast and telecommunications industries. However, whenever the CRTC rules against a company, that company has the right to appeal to Cabinet, which Globalive did in late 2009.

Cabinet overruled the CRTC, allowing Globalive to start its cellular service. But last week the Federal Court ruled that Cabinet was wrong in overruling the CRTC. In Canada, CRTC commissioners and federal judges are not elected, whereas Cabinet ministers are traditionally elected members of the House of Commons and therefore accountable to the Canadian people.

The central issue is Canada's federal Telecommunications Act, which stipulates that any phone company, or "common carrier," must be majority-owned by Canadians. Globalive meets this requirement because Anthony Lacavera is Canadian and owns most of the voting shares. However the law also forbids a common carrier from being "otherwise controlled by non-Canadians." That clause is referred to by CRTC chairman Kondrad von Fickenstein as "control in fact."

Last year the ruling Conservatives announced they plan to "open the doors" to more foreign ownership. More information is available in a story I wrote for my employer at the time, Network World Canada.

The federal government should introduce legislation as soon as possible repealing the foreign ownership restrictions. The experience with Globalive shows that the current law serves only the interests of an oligopoly comprised of Bell Canada, Rogers and Telus. When Wind Mobile launched its $15-a-month cellular plans in December, 2009 (with no contracts) it was the only wireless carrier whose advertised prices matched the prices that ended up on customers' bills. The only reason Wind Mobile was able to operate was due to startup money provided by Orascom.

If more telecom companies were allowed to raise money outside of Canada, we could potentially have more competitors not only in the wireless industry but also in facilities-based Internet service. This means that the whole issue of “metered Internet” could go away if small Internet service providers could raise investment capital from foreign companies, build their own networks and stop having to rely on wholesale service from the large phone and cable companies such as Bell and Rogers.

CRTC chairman von Fickenstein has argued that foreign ownership in telecommunications means you will have foreign ownership in broadcasting because companies like Bell Canada, Rogers and Shaw also operate TV stations. But this is not true of other firms, such as Globalive.

Starting up a phone company requires billions in capital spending, which requires foreign investors. Repealing the foreign ownership law would add competition and more choice for consumers.