By Alastair Sharp
TORONTO, June 14 National security concerns have
delayed the Canadian government's approval of two deals that
would solidify Vimpelcom Ltd's ownership of wireless
carrier Wind Mobile, a Canadian newspaper reported on Friday,
citing unnamed sources.
Vimpelcom, a telecommunications company that is Wind's
largest shareholder, has been trying for months to take control
of Toronto-based Wind after Canadian investment rules were
changed to allow foreign ownership of smaller telecom companies.
However, Canadian officials wary of giving control of Wind's
infrastructure to an entity with strong ties to Russia have
hampered the closing of the deals, the Globe and Mail reported
on Friday, citing multiple unnamed sources.
Vimpelcom's top shareholder is Moscow-based Altimo, a
company controlled by billionaire Mikhail Fridman, whom Forbes
magazine ranks as the second-richest man in Russia.
Amsterdam-based Vimpelcom has said Wind Mobile is not a part
of its core business, suggesting it is open to divesting the
wireless company once it has gained full ownership.
The Canadian government said in an email to Reuters that the
strict confidentiality provisions of the Investment Canada Act
precluded it from addressing the report, but that it "is clearly
committed to encouraging competition in the wireless sector."
Canada's wireless industry is dominated by Telus Corp
, BCE Inc's Bell unit and Rogers Communications
, each of which has more than 7 million customers. Wind
has about 600,000.
The Canadian government is also concerned about potential
spying or hacking because Wind's core network infrastructure was
built by China's Huawei Technologies Co Ltd, the Globe
and Mail reported.
Huawei, founded in 1987 by a former People's Liberation Army
officer, has raised security concerns in the United States,
Canada, Britain and Australia over alleged links between it and
the Chinese state.
The company, the world's second-largest telecommunications
equipment maker, denies its products pose any security risk or
that the Chinese military influences its business.
Vimpelcom strongly denied any suggestion that its full
ownership of Wind would increase the risk of a security breach.
Wind said its network has never been hacked, spied on or
been the subject of any other security breach, and that it
worked cooperatively and proactively with law enforcement.
Huawei equipment is also used in the radio access portion of
Bell's mobile network, which it shares with Telus, a Bell
WIND IN PLAY?
Wind was started by Canadian entrepreneur Anthony Lacavera
with the financial backing of Egypt's Orascom Telecom,
which Vimpelcom later took over.
Lacavera has indirect voting control of Wind, a stake
Vimpelcom will buy out as part of the proposed deal that is
awaiting approval. That part of the deal is set to expire by the
end of June, an industry source with knowledge of the situation
Vimpelcom must first get a green light for the conversion of
Orascom's non-voting shares into voting shares. It can then
proceed with the purchase of Lacavera's economic stake.
Lacavera declined to comment on the Globe and Mail report.
New entrants like Wind, Mobilicity and Public Mobile have
helped to drive down wireless prices in Canada but have
struggled to turn a profit.
The struggles of the new entrants have frustrated the
Canadian government's hopes of having a fourth major wireless
company in all parts of the country to compete with incumbents
Bell, Rogers, and Telus.
Possible ownership changes among the new entrants are being
closely watch by shareholders of those bigger companies, said
Chris Marangi, a portfolio manager at Gabelli in New York, which
owns stakes in Rogers and Telus.
"There's a fine line," he said. "You don't want uneconomic,
irrational, desperate competitors in the market, but you don't
necessarily want very strong, well-financed competitors either."