Financing available for smaller players, even in shallow Canadian pool, executives say

Canadian financing is available for telcos with strong business plans and proven track records, even if it requires a some searching, executives say. Xplornet Communications Inc. (formerly Barrett Xplore Inc.) announced $230 million in new financing Tuesday, a few weeks after new wireless entrant Mobilicity announced $215 million of new capital. “We’re very proud that we were able to raise this money,” Xplornet CEO John Maduri said in an interview. “We think it’s a very strong validation of the market opportunity serving rural Canadians with broadband, and we think it’s a great validation of our business model with the use of a hybrid combination of wireless and satellite. This is a big day for the company.” Maduri did not name the investors but said the company received $230 million in debt financing from “a very strong group of private equity investors who really understand telecom,” adding that a majority of the funds came from Canadians. “We can’t give you the specifics but it was very well participated-in with Canadian names,” he said. Last month, Mobilicity also announced new capital through a debt offering with Canadian companies National Bank Financial Inc. and GMP Securities as the key investors. “It wasn’t the easiest thing in the world but it wasn’t incredibly taxing,” chief operating officer Stewart Lyons said in an interview. “If you have a pretty good business plan and people believe in it, they’ll support it.” Lyons said investors in Canada and abroad found Mobilicty’s business plan “achievable” and liked the company’s approach. “It’s a small country, so clearly the resources aren’t quite as deep, especially on the debt side for the kind of company we are—a brand-new company that would sort of be a higher-yielding type of instrument than regular debt-financing,” he said. Still, Lyons said backers were available in Canada’s “much more shallow pool.” The financing announcements come as another new wireless entrant, Globalive Wireless Management Corp., continues to wrestles with issues surrounding its foreign-owned debt. Last week, Globalive defended its right to operate in Canada before the Federal Court of Appeal. In February, the Federal Court struck down a Conservative government order-in-council decision in late 2009 that had overturned an earlier CRTC ruling. The CRTC had ruled that, due to Globalive’s debt with Egyptian telco Orascom Telecom, the company was controlled “in fact” by non-Canadians. Orascom Telecom owns almost all of Globalive’s debt. The main restrictions in Canada's Telecommunications Act limit foreign investment to 20 per cent direct investment in the carrier and 33 per cent indirect investment in the holding company. But the act also has a "control-in-fact" test that goes beyond the basic requirements to look at other ways that a foreign entity can influence a Canadian company, such as the amount of debt lent by a holding company or the number of non-voting but participating shares. Last month, Globalive chairman Anthony Lacavera told the Canadian Telecommunications Consultant Association that in order to compete in the 2008 wireless spectrum auction, his company needed “more capital than we could shore up on Canadian soil,” which is why he secured the partnership with Orascom. Lacavera said he wants the Telecom Act’s foreign ownership rules loosened. Lyons said he’s not in favour of dropping the foreign ownership restrictions “for the sake of dropping them.” He said Orascom was an exception, and that “it isn’t really that there are all these foreign operators that can’t wait to come into Canada and invest in a new entrant.” Big American companies like Comcast Corp. would much sooner buy one of Canada’s incumbents, Lyons said. “That’s very different from buying into a little company like ours, which is brand new, small, and yet to show profit,” he said. Maduri said Xplornet has attracted Canadian investors because of its 4G technology, new service category of rural broadband, and six years' experience in the business. “It’s really a testament to the market opportunity, our ability to execute, and the technology and business model that we have,” he said. “I think we’ve earned it over the last six years.” Xplornet also announced Tuesday that it is abandoning its Barrett Xplore title for the new moniker. “When we launched the company, we leveraged the name of Bill and Ed Barrett, the founders, who were well-known as entrepreneurs in this country and the weight of their name told the business community that we were serious and helped us get to the investment level that we’re at today,” company spokesman Jeff Hecker said. mburgess@thewirereport.ca

Financing available for smaller players, even in shallow Canadian pool, executives say

News | May 25, 2011

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