Globalive-Telus Clash Raises Foreign-Cap Issue: Corporate Canada
Canadian telecommunications companies are keeping a close eye on the foreign ownership levels of their competitors as they look to raise capital for the faster networks that consumers demand.
Telus Corp. (T), Canada’s third-largest wireless carrier, may have violated the country’s restrictions on foreign shareholdings of phone companies, a competitor backed by VimpelCom Ltd. (VIP) said in a filing yesterday with the Canadian Radio-television and Telecommunications Commission.
About 48 percent of the holders of Telus’s voting shares reside outside Canada, Globalive Wireless Management Corp. said in the filing, which was obtained by Bloomberg News. Foreigners can hold no more than 33.3 percent of companies that own telecom carriers under Canadian law. Shawn Hall, a spokesman for Telus, said the company is “fully compliant” with the restrictions and that Globalive’s methodology is faulty.
Canadian carriers such as Telus, BCE Inc. (BCE) and Rogers Communications Inc. (RCI/B) are vying with Globalive and other upstart competitors to build networks that can handle data-hungry smartphones and tablets. Foreign money can help fund those projects, and companies are lobbying for more leeway in seeking international investors. Telus Chief Financial Officer Robert McFarlane urged the federal government earlier this month to lift foreign-ownership restrictions on large phone companies, as it has done for smaller carriers.
Globalive -- funded by a foreign investor itself, Amsterdam-based VimpelCom -- offers wireless services in Canada under the WIND Mobile brand. It has asked the CRTC, a commission that regulates phone companies and broadcasters, to review whether Telus complies with the ownership rules.
“If Globalive has its facts correct, it presents an interesting view as well as a dilemma for both Telus and the Industry Minister, given restrictions surrounding telecom ownership in Canada,” Neeraj Monga, an analyst at Veritas Investment Research Corp. in Toronto, said in an e-mail.
Telus’s “complicated and rarely used” methods for controlling its foreign ownership levels, as well as a proposal to eliminate its dual-class share structure, raise “complex and novel issues that have not been dealt with by the CRTC to date,” Simon Lockie, chief regulatory officer for Globalive, said in an e-mailed statement.
“There’s an obvious benefit to the entire industry to understand how it all works,” Lockie said a telephone interview today, referring to Telus’s share structure. “It’s an opportunity for the commission to enforce its act.”
Globalive, based in Toronto, says it based its estimate of Telus’s foreign ownership on an analysis of the location of owners who hold shares through Canadian brokers, dealers and other financial intermediaries.
Telus’s Hall took issue with Globalive’s approach. The report that supports Globalive’s allegation relies on postal codes rather than actual residency, and it covers shares that are “materially different” than those used in Telus’s share register, he said.
“Telus has been and continues to be fully compliant with foreign-ownership restrictions, and have our own control processes in place to ensure we remain compliant,” Hall said in an e-mail.
Telus, based in Vancouver, proposed in February to scrap its dual-share structure by converting all nonvoting shares into voting stock on a one-to-one basis. Telus wanted to boost the appeal of its stock as the carrier competes for a bigger share of Canada’s wireless market.
The company said in March that “approved and pending” applications to buy its common voting shares may push foreign ownership beyond the 33.3 percent limit. Telus blamed the surge on “event-driven” foreign investment funds seeking to profit from changes in the prices of the two classes of shares expected under the company’s proposal.
Telus dropped the proposal on May 9, saying it had become apparent that it wouldn’t survive a shareholder vote. Hedge fund Mason Capital Management LLC, which accumulated 19 percent of the common shares, had opposed the change.
Chief Executive Officer Darren Entwistle said after withdrawing the proposal that he remains committed to a one-for- one share conversion and plans to introduce a new proposal “in due course.”
McFarlane said on June 5 that Canada should allow foreign investment for all companies in the telecommunications industry. In March, Industry Minister Christian Paradis said the federal government would allow companies with less than 10 percent market share to be fully owned by foreign investors.
Other large carriers, such as Rogers, want the rule change to apply to them as well. Rob Bruce, an executive at the Toronto-based carrier, said on June 4 that the company is disappointed with the government’s decision to only lift ownership caps for smaller operators.
Globalive has faced its own criticism over foreign holdings. Telus asked the CRTC to review Globalive’s ownership structure in 2009. While the commission initially ruled that Globalive violated the foreign-ownership rules, Prime Minister Stephen Harper’s cabinet reversed the ruling.
In April of this year, the Supreme Court dismissed a challenge to the government’s decision.
“It’s a soap opera,” Dvai Ghose, an analyst with Canaccord Genuity Corp. in Toronto, said in a phone interview. “They are going tit for tat.”
Denis Carmel, a CRTC spokesman, confirmed that the commission had received Globalive’s filing. The public typically has 30 days to respond to the application, after which Globalive will have 10 days to reply to any submissions, although the deadlines could be extended, he said.
The CRTC isn’t equipped to monitor the shareholder data of a widely traded company such as Telus, a role that should probably fall to securities regulators, said Lawrence Surtees, a communications analyst with IDC Canada Ltd. in Toronto.
“Do we want the CRTC sitting there counting stock? I don’t think so,” Surtees said in a phone interview. “They have enough problems doing what they do.”