Oct. 29 (Bloomberg) -- A Canadian regulator ruled that Globalive Wireless Management, the highest bidder in a wireless auction last year, doesn’t meet the nation’s ownership rules and can’t start a phone service to compete with rivals including Rogers Communications Inc.

The telecommunications regulator held public hearings on Globalive’s ownership and the company proposed changes to its structure in a bid to satisfy the agency’s concerns. Canada doesn’t allow foreign-owned firms to compete with domestic phone providers.

Orascom Telecom Holding SAE, a Cairo-based carrier owned by Egyptian billionaire Naguib Sawiris, holds a 65 percent stake in Globalive and the Canadian company’s founder, Anthony Lacavera, owns the remainder.

“Despite the fact that Globalive made significant structural changes to reduce its dependence on Orascom, there were other factors that, taken together, led the commission to conclude that Globalive does not meet the statutory test,” the Canadian Radio-television and Telecommunications Commission said in a statement today.

Globalive, which bid C$442 million ($414 million) to acquire the right to mobile phone airwaves in major cities, called the ruling a “bad day” for Canadians and for competition.

“Having already received approval from Industry Canada, we are extremely disappointed that the CRTC has come to a different conclusion,” Lacavera said in an e-mailed statement. The decision is a “major step backwards” for wireless competition in Canada.

Launch Date

Globalive, which had planned to begin operating in the next few weeks with its staff of 800, is evaluating its options on how to proceed, the company said.

“Some minor tribunal has decided they’re not Canadian enough after the minister has already decided that they are,” said Iain Grant, managing director at Montreal-based SeaBoard, a consulting firm. He said the regulator was bound by telecommunications rules. “I would suspect that (Sawiris) thought when he bought the license that Canada was a sophisticated enough country that it could control its bureaucracies.”

Some of Globalive’s rivals supported the decision.

“I don’t think CRTC had any choice as it was a case of Globalive being clearly foreign controlled,” Ken Engelhart, Rogers Communications’s senior vice president, regulatory affairs, said in an interview. “The landscape is competitive today and it will remain competitive.”

Two other new entrants, Data & Audio-Visual Enterprises Wireless Inc. and Public Mobile Holdings Inc., are expected to begin service by the end of this year or early in 2010. Rogers, Telus Corp. and BCE Inc. are the three largest wireless carriers in the country.

Meet Requirements

Globalive may be able to reorganize its ownership and financing to meet the regulator’s rules, Engelhart said.

The regulator said that at Globalive a non-Canadian holds two-thirds of the company’s equity, is the principal source of technical expertise and provides it with access to an established trademark.

The company may still change its structure in response to the regulator’s decision or ask the government to overturn the decision, Johanne Lemay, an analyst with Lemay-Yates Associates Inc., said in an interview with BNN television network.

The government is reviewing the decision, Lynn Meahan, a spokeswoman for Industry Minister Tony Clement, said in an e- mailed statement.

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.

Last Updated: October 29, 2009 18:21 EDT