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Globalive: InstaAnalysis of Wind Mobile Decision

Globalive’s (Wind) ability to operate and compete in Canada’s cellphone market was given surer footings and wider berth yesterday.  That’s the effect of a Federal Court of Appeal ruling that said that the Government acted properly when it used an “order-in-council’ to allow Globalive to enter the Canadian wireless market even though it was clearly owned and financed by capital from Orascom, an Egyptian company that has since passed into the hand of new owners: VimpelCom, a Russian based outfit.

The decision has not yet been posted on the Federal Court of Appeals website, and even using the mighty Google proved fruitless in turning up the original decision, or perhaps I’m just dumb. Several other sources of varying quality, however, are available: here’s Windmobile’s self-serving cant; an online source that looks useful is TelecomPaper, and the law firm Stikeman Elliot offers a thorough review. After this, there’s the cascade of your run-o-the-mill news sources — CBC, the Star, National Post, and Globe & Mail, in roughly that order — that all seemed to follow the basic line that hit the wires (and here).

So, the fact that the actual decision itself is missing is, umm, a problem. It appears that some people have not quite got that we now live in a ‘show me’ environment, where having the actual decision easily to hand would be nice. We should not have to work so hard to find important things, or rely on hand-me downs in the news and information realm.

In December 2009, the CRTC found that the Egyptian-based Orascom owned and essentially controlled Globalive, mostly because it provided the lion’s share of capital investment standing behind the erstwhile Canadian cellphone company. The CRTC denied Wind Mobile a wireless license, thereby stopping it from entering the market.

The Government overturned the regulator, but then found its own path subverted when communication workers (CEP), Telus and Public Mobile successfully challenged the Government’s ability to skirt the Telecommunications Act’s limits on foreign ownership by way of Cabinet Directive before the Federal Court earlier this year. The Federal Court agreed with them and slapped down the Government for using the power of Cabinet Directives to do an end run around the regulator and existing law, putting Wire Mobile in limbo.

Complicating matters greatly, just before the CRTC denied Wind Mobile’s application for a wireless license, Industry Canada had sold spectrum rights to Globalive, in line with Government policy.  With Industry Canada and the CRTC at odds with one another, something had to give. The CRTC was pushed aside in the end, Wind Mobile can go ahead with its spectrum and wireless markets now more firmly in hand.

Cabinet has broad authority to interpret and reconcile such clashes between different branches of ‘the State’, according to yesterday’s Federal Court of Appeal decision.

That the CRTC decision had made the spectrum rights just given by Industry Canada to Globalive useless, demanded that Cabinet step up with a novel interpretation of telecoms law and policy in Canada. It did, arguing in a novel manner that nobody else seems to have thought of that promoting access to foreign capital is part of promoting competition in the marketplace. I can see the link, but think that interpretation is pretty hard to square with the foreign ownership restrictions in the Telecommunications Act.

Many might not complain too much about promoting competition by loosening the foreign ownership rules, although some would (CEP).  Few, however, would agree that the Telecommunications Act is meant to promote access to foreign capital. A plain reading is that its restrictions are designed to limit foreign ownership and control. And few would suggest that it’s okay for the government to do end runs around the regulator and law to achieve changes to the law that it could not obtain in Parliament.

That’s what the Federal Court said in March. That set of principles, however, was thrown out on appeal yesterday by the Federal Court of Appeal, and everything else that the CRTC and Federal Court had said. The Appeal decision accepted the Government’s position. It gave a blank cheque to Cabinet to rule by fiat rather than the Telecommunications Act. And it broadened Windmobile’s scope for action and the security of its spectrum and market access rights.

The decision may delay the introduction of more competition, however, because the ground rules remain murky and the existing foreign ownership rules in the Telecommunications Act intact. The Government may find good reason to move even slower on reforming the law because there is no longer a specific case to prod its hesitant hand.

This state of affairs will serve Wind Mobile and almost all of the other incumbents reasonably well. However, Public Mobile intends to appeal the case to the Supreme Court.

The Communication Energy and Paperworkers will likely join it. As the banner hanging from CEP Headquarters in Ottawa proudly declares, “it’s your’s, own it”, by which they mean telecoms, culture, broadcasting, lumber, energy plants, etc. “The need to maintain Canadian-control of telecom and broadcasting is more critical than ever”, Peter Murdoch, CEP’s VP media, states.  I am not so sure. Is that really true?

I do agree with CEP and PM (Public Mobile), though, that opposing giving Cabinet the authority to do end-runs around regulators and laws, to rule from the top rather than the messy processes of ‘regulation from below’, is a bad thing.

One thing that CEP might take cold solace in is that foreign ownership ain’t gonna happen just because Harper et. al. and the Federal Court of Appeal have opened the Pearly Gates to Canada’s telecom market — big as it is, ranking around eighth or so, depending on whose doing the counting.  But make no doubt about it, that we’ll need rules . . . . , and even then it is not certain how much capital will come.

When the rule of law and regulators clashed with policy and politics yesterday, it was the former that crumbled. Of course, Globalive, and its ultimate owners and investors, Vimpelcom, are the immediate beneficiaries of this court decision. So, too, are customers, a point made with no time wasted by Windmobile Chairman Anthony Anthony Lacavera, and figure-head for the concept that, regardless of where the money comes from, it is Canadians like him and other Directors on Windmobile’s board that are in control.

As Lacavera exclaimed, “we and our 300,000 customers are thrilled with this decision.” Well, maybe not thrilled . . . . . but you know what, he’s not entirely off the mark.

Just yesterday, another OECD report placed Canadian wireless users at the bottom of the international heap for outrageous international roaming charges, 25 bucks/MB for Canadians versus less than $5 for people in Greece and just under $10 for OECD countries on average. The full report can be found here.

Lacavera’s other comments were little more than self-serving cant: “Now we can continue . . . without the distraction and expense of challenges by our competitors to our right to operate.” Ya, sure, whatever.

I do not like it when politics and policy trump law and regulation in a heavy handed way. There’s lots of room to finesse this, but for now I can say that I do not thing that rule by Order in Council is a good way to make policy. It politicizes it. In fact, there seems to be a penchant for this in Canada when it comes to telecom, media and the Internet, as I have shown in a previous post. You can see for yourself by looking at the Privy Council Office’s Order-in-Council database.

The penchant for rule by Cabinet Directive has been ramped since the Chretien Liberals in the mid-1990s and has not abated since. Canadian levels of intrusiveness appear to be high by my estimation points to a certain backwardness in Canada that allows relationships between telecom-media-Internet titans, regulators and the ruling Government of the day to be too close. That’s code, in other words, for the cozy relationship between politics and telecom-media-Internet companies in Canada is a bad thing, anti-democratic and at odds with the ideals a free and open network media system.

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Ottawa Globalive Appeal: Open Network Fans Should Beware the Strong Arm of the State

In several of my previous posts, I talked about the current Government’s penchant for intervening in the CRTC’s affairs and bringing about policies that it had been unable to do by normal routes. I have also argued that such interventions have played a crucial role in transforming the Internet from a user-controlled and open model to a provider-controlled, pay-per medium.  Without any formal changes in policy or law, the Internet has been changed beyond recognition. All the while, the Government sings from the rooftops that it is the champion of competition, innovation and the consumer.  It is doubtful that it is any of these.

In December 2009, the Government stepped into reverse another decision: this time it was the CRTC’s decision to reject Wind Mobile’s bid to become a new player in the Canada’s notoriously uncompetitive and technologically backwards wireless industry that was over-ruled.  Wind Mobile was rejected because most of the cash behind the company came from an Egyptian company, Orascom, and while most of the directors would be Canadian, the CRTC ruled that ownership conferred control in fact. The bid was not in synch with Telecommunications Act’s restrictions.

Foreign ownership has been a perennial issue in Canada, and especially in the last decade or so.  While the discussion has been endless, there has been no decision by the Canadian government to change the law.  The Industry Minister’s decision in 2009 to over-rule the CRTC and green-light Wind Mobile was essentially an attempt to change the law by stealth.  The introduction of Wind Mobile was no doubt a much needed shot in the arm for an anemic industry.  Yet, doing end runs around the law and ramming the Government’s choices down the regulator’s throat is not the proper way to do this; either a change in the existing Telecommunications Act or a new law altogether is the right way to go.

The Order in Council overturning the CRTC in the Wind Mobile was declared illegal on February 4, 2011 by a Federal Court. Industry Minister Tony Clement served notice on February 15th that the Government is appealing the court’s decision. This will certainly keep Wind Mobile on life support for a while, but it will do nothing but delay action on foreign ownership.

The problem in all of this is that we have policy by stealth and hand-to-hand combat. This is the strong state in action, and the state, to paraphrase Napolean, is Harper.  Clement’s announcement of the appeal was also accompanied by a statement meant to counter charges that it has been playing heavy-handedly with the CRTC. That is a point that I’ve been making in the past several posts. Clement wasn’t responding to me, however, but to comments made by former Liberal appointed chairwoman of the CRTC, Francoise Bertrand and another former vice-chairman of the agency, Richard French.  Both have argued in the past few weeks that such constant meddling is deeply politicizing the regulatory process and rendering the telecoms environment opaque and chaotic.

Bertrand has been denounced by Open Media and P2P.Net as an industry hack and well-connected spearhead of Quebec industry, including Quebecor (Sun Media, TVA, Videotron), where she is a board of director.  Undoubtedly, her interests are aligned with her corporate masters, but at least in this instance being against the Cabinet Directives in either the CRTC’s UBB or Wind Mobile doesn’t put you on the wrong side of the issue.

Open Media and P2P.Net’s, among others, push for much greater competition and an open Internet are indeed worthy goals, and I’m fully in support of them.  These groups have been instrumental in fomenting opposition to the recent UBB decision. On the issue of Cabinet Directives, however, Bertrand is right.  Regulation on a short leash is deeply problematic, and while it may get what we wish for with respect to the UBB decision and Wind Mobile, it is not the way to create a real competition, diversity and open media. In fact, it is the exact opposite. We should be leery of relying on the strong arm of the state to bring about ends that we might seek.

That Bertrand was on the mark is reflected in the fact that Clement directly took aim at her charges by trying to repudiate them when announcing that it would appeal the Federal Court decision on Wind Mobile (Globalive).  Indeed, an essential paragraph in the announcement aimed to give the impression that the Government has only meddled modestly in the CRTC’s affairs:

“Since 2006, the Canadian Radio-television and Telecommunications Commission has issued approximately 2,200 telecommunications decisions. During this period, there have been 13 CRTC decisions that have been formally reviewed by the Governor in Council. Of those, the Government has upheld seven decisions, varied three, and referred three back to the CRTC for reconsideration.”

In fact, however, 13 interventions into the CRTC’s telecoms decisions within five years is a lot. From 2001 until 2005, governments of the day intervened 7 times, in the five years before that 8 times, and between 1990 and 1995, just 4 (see Privy Council Office’s Order-in-Council database). Matters are different (in many ways) for broadcasting, but in the matter of telecoms, this is the strong state in action.

So, make no mistake about it, 13 interventions in the past five years is high. The CRTC has been put on a short-leash.  The use of Cabinet Directives has consequences that are sometimes ambiguous, and some that are good for competition (Wind Mobile), but it has also deterred greater competition in services, blocked speed-matching for ISPs, encouraged greater deference to incumbents’ investment plans and business models, and opened the door for UBB.  The crumbs off the table that may accrue from the Government’s likely overturning of the January 25th UBB decision by the CRTC, unless the agency beats them to it, are not even close to making up for such strong intervention into media matters.

Those who think that the Government’s directive-happy instincts can opportunistically be turned to their own advantage, I believe, are going to wake up very soon to find that they are sadly mistaken.

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