Wireless startup Public Mobile Inc. will have to make change to its ownership structure to ensure control by Canadian shareholders before it can get its carrier licence, says the federal telecom regulator.
Existing veto rights, the monetary threshold for vetoes and liquidity rights make it possible that non-Canadian shareholders could exercise a “determinative influence over the decision-making activities of Public Mobile,” the Canadian Radio-television and Telecommunications Commission (CRTC) said Thursday.
But, it added, these can be resolved if the Toronto-based company makes suggested changes.
Lisa Papas, the company’s director of communications, said the changes are “minor” and are being looked at today by company executives.
Public Mobile has been banking on getting CRTC permission to operate and started opening stores in Toronto and Montreal this month to pull in early subscribers. Those who sign early have been promised life-time free Canadian long distance. There are 18 stores in Toronto and 10 in Montreal. The company has said would like to have 50 when it goes into business, which it expected to do next month.
One change would make it clear that at board meetings 80 per cent of the directors have to be Canadian. Another would essentially ensure that at least some Canadian shareholders are part of decisions that must be approved of by A-class shareholders by raising an approval limit to 75 per cent of shareholders. Other business matters should only need majority approval of these shareholders, the commission also said.
Finally, the CRTC ordered a tweak in the definition of the enterprise value of the company, which affects monetary threshold needed for certain shareholder vetoes.
If these changes are made the commission will issue Public Mobile its carrier licence.
It already has its spectrum licences from Industry Canada as a result of paying $52 million for spectrum covering southern Ontario and southern Quebec.
Public Mobile is trying to avoid a direct confrontation with the country’s three biggest wireless carriers, BCE Inc.’s Bell Canada, Rogers Communications Inc. and Telus Corp. by going after so-called “working-class Canadians.” It will offer no-frills handsets and what it believes are stripped-down plans.
Canadian investors own 66.7 per cent of the voting shares of Public Mobile’s parent company, including the Ontario Municipal Employees Retirement System (OMERS); Private Equity Wireless Opportunities Corp.(29.9 per cent voting interest); Donald A. Wright, president and CEO of Toronto’s Winnington Capital Group (12.32 per cent); company CEO Alek Krstajic (9.9 per cent), and Thomvest Seed Capital Inc., an investment wing of the Thomson family. (6.3 per cent).
The remaining 33.3 per cent is held by non-Canadians, including Columbia Capital of Alexandria, Va., (8.1 percent voting interest), M/C AWS Canada S.à.r.l., part of M/C Venture Partners of Boston (8.1 percent voting interest), and CRP XIII AWS Canada S.à.r.l. (3.86 percent voting interest).
Canadian investors hold 31.4 per cent of the non-voting class A shares, including OMERS Private Equity Wireless Opportunities Corp. (19.7 percent), Thomvest (3.9 percent), and the private equity funds of Toronto’s Kensington Capital Partners(2.8 per cent).
The remaining 68.6 per cent of A shares are held by non-Canadians including Columbia (16.6 per cent), M/C AWS Canada S.à.r.l. (16.6 per cent), and Rho Canada Ventures of Montreal, affiliated with Rho Ventures of New York (11.42 per cent).
In its decision, the commission noted Canadian shareholders can nominate the majority of the boards of directors of the holding and operating companies.
The shareholdings of non-Canadians in Public Mobile “is in line with other ventures in the telecommunications and broadcasting industries,” it added. “Significantly, all financing comes through arm’s-length, third-party arrangements without any equity conversion rights or other factors that are relevant to an analysis of control in fact.”
By contrast, the commission was highly critical of the control Orascom Telecom Holdings SAE had over Globalive Wireless Management Corp., the parent of Wind Mobile, although Canadians held the majority of votes at the board level.