Federal gov’t facing second legal battle over wireless wipeout

The Canadian government could end up fighting a war on two fronts over the previous government’s drive to have four national wireless carriers. According to a notice on the Global Affairs Canada website, on June 6 the International Centre for Settlement of Investment Disputes registered an arbitration request from Egyptian telecom company Global Telecom Holdings S.A.E. (GTH) that “concerns GTH’s investment in Wind Mobile, over the period of 2008-2014.” GTH is claiming damages of “at least $1.32 billion CAD,” the notice said, over allegations Canada “breached several of its obligations” under the Canada-Egypt Foreign Investment Promotion and Protection Agreement — in force since 1997 — and that the federal government “failed to create to a fair, competitive and favourable regulatory environment for new investors” in the wireless market. GTH, alongside majority shareholder VimpelCom Ltd., sold its interest in the Globalive Wireless Management Corporation behind Wind in 2014 for about $135 million. The sale was announced a few months after VimpelCom had written down the value of its $758-million US stake in the carrier and cited “challenges” in the Canadian environment. Wind has since been sold to Shaw Communications Inc. It’s the second billion-dollar action launched against the government, which is still mired in a lawsuit brought forward in 2014 by two of the original investors in Mobilicity, which was purchased — and is in the process of being shut down — by Rogers Communications Inc. An email from Global Affairs spokesperson Jessica Seguin said the federal government “will vigorously defend the claim by Global Telecom Holdings” and that it “is not able to comment on ongoing litigation.” But court documents filed in the suit launched by Quadrangle Group LLC and DAVE Wireless Enterprises Investments Inc. may shed some light on the federal government’s defense against this kind of litigation. After an Ontario Divisional Court judge rejected the government’s attempt to throw out the case in November, the attorney general’s office filed a statement of defence in the dying weeks of 2015, more than a year after the plaintiffs filed their initial statement of claim in September 2014. In the statement of defence, the government denies all claims in the plaintiff’s $1.2-billion suit that Industry Canada officials made promises to Mobilicity’s investors “that it would regulate in a particular way and on a particular timetable in order to prevent unfair competition and create market conditions in which that new wireless provider could compete effectively and be sustainable.” Any loss suffered by Mobilicity’s investors “was the result of business and management decisions of the company, including, but not limited to, its business plan geared to talk and text plans and its inability or refusal to adapt its business in the face of market and technological transformation, including the advent of the smart phone,” the statement said. In their reply filed with the Ontario Superior Court in February, Quadrangle and DAVE said “Industry Canada represented and committed that it would exercise direct control over the wireless industry and did in fact exercise that control,” pointing to the department’s “power to ensure that Incumbents offered roaming at reasonable rates and on reasonable terms, that Incumbents provided access to towers and other infrastructure, and Incumbents did not engage in anti-competitive practices.” In its statement of defence the government sets out that Industry Canada (now Innovation, Science and Economic Development) “does not control the wireless market and does not set market conditions,” laying responsibility for rates, facilities and telecom services at the feet of the CRTC, and competition issues with the Competition Bureau. The plaintiff’s reply said the arbitration process available for disputes stemming from roaming and tower sharing agreements was “costly, time consuming and ineffective,” and that Industry Canada failed to address issues that were “repeatedly communicated” to the department. “The roaming agreement that Mobility was forced to enter into with Rogers severely restricted its strategic options and ability to co-operate with other new entrants in the wireless industry,” the reply said. According to the statement of defence, the “Defendant denies that Industry Canada ‘disallowed’ Mobilicity’s May 2013 application to transfer its spectrum licences to Telus because it wanted to punish the incumbents and block their efforts to acquire spectrum,” but maintains that “it was entirely proper and reasonable” to deny a request for a transfer within the five-year moratorium on licence transfers from new entrants to incumbents. But neither Shaw nor Quebecor Inc.’s Videotron built out national wireless networks with AWS spectrum licences set aside for new entrants, and both were allowed to sell or transfer spectrum to incumbents — Videotron doing so within the five-year timeframe, the plaintiffs allege — though Mobilicity’s attempts to sell its spectrum to Telus Corp. was repeatedly blocked, the plaintiffs said in their February reply. “Had DAVE and Quadrangle known that Industry Canada would not uphold the requirement that new entrants build out their network across the country, they would not have invested considerable resources in building out Mobilicity’s network as quickly and comprehensively as they did and in key markets,” the reply said. The statement of defence “specifically denies” that Mobilicity’s backers were told by government officials that “Industry Canada would take aggressive steps to ensure new entrants could compete effectively, create and operate a viable national network and be sustainable in the long-term.” In denying any negligent misrepresentation, the government also refuted any claims that public servants told plaintiffs that Industry Canada would prevent “the incumbent wireless service providers from making commercial decisions that might adversely affect new entrants.” It added that the investors’ losses “were caused entirely by the business failure of Mobilicity which failure was in turn caused entirely by factors wholly beyond the responsibility of the Defendant, including poor business planning, an insufficient and inflexible business model, inexperienced and unqualified management, insufficient investment, failure to deliver a wireless service that was attractive to consumers, failure to adapt to the competitive demands and the changing nature of the wireless market.” — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Federal gov’t facing second legal battle over wireless wipeout

News | August 5, 2016

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Federal gov’t facing second legal battle over wireless wipeout

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