ARCHIVED -  Transcript of Proceeding

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Proceeding to consider the compliance of Globalive with the ownership and control regime


Réal Therrien Room

1 Promenade du Portage

Gatineau, Quebec

September 24, 2009


In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of


However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Canadian Radio-television and

Telecommunications Commission


Proceeding to consider the compliance of Globalive with the ownership and control regime


Konrad von Finckenstein   Chairperson

Len Katz   Commissioner

Peter Menzies   Commissioner


Cindy Ventura   Secretary

Stephen Millington   Legal Counsel

Liana Gates

Elisa Kearney

Lyne Renaud   Hearing Manager


Réal Therrien Room

1 Promenade du Portage

Gatineau, Quebec

September 24, 2009

- iv -



Globalive   1 / 6

   Gatineau, Quebec

--- Upon resuming on Thursday, September 24, 2009 at 0900

1   THE CHAIRPERSON: Good morning. Bonjour, tout le monde. I just want to make sure there is nobody in the room who is not part of Globalive or the CRTC. There shouldn't be anybody else in the room.

2   Mr. Campbell, you know your people, I don't know them. If you see a strange face, speak up now. I know who are my people. You should see nothing but your people or CRTC in here.

3   MR. CAMPBELL: No, it is the normal strange faces.

4   THE CHAIRPERSON: Okay. Then let's resume. We are now in the in camera part.

5   You heard the interventions yesterday. You know the questions and the concerns that the Commission has. So do you have an opening statement? Go ahead.


6   MR. CAMPBELL: Thank you and good morning, Mr. Chairman. Good morning, Commissioner Menzies and Commissioner Katz. Thank you again for this time.

7   We have, as a team, spent the last several hours discussing the issues, the concerns that we felt were raised yesterday. We listened carefully to you and to the other submissions.

8   Globalive Wireless is committed, very committed to getting through this process and getting to a decision within the next 30 days.

9   As a sign of this, after lengthy late-night discussions we have agreed to some major changes in the arrangements between our shareholders.

10   They address issues around governance, issues around OT participation, around shareholder liquidity rights, around vetoes and thresholds, and finally, we would like to talk to you a little bit about financing today.

11   We have here with us as part of the discussion on financing Mr. Daniel Daviau and Mr. Dvai Ghose from Genuity who will be able to also add some insight into the capital markets.

12   We propose, Mr. Chairman, to circulate a term sheet right now, which will allow us to talk you through our various amendments.

13   THE CHAIRPERSON: By all means, distribute it.

14   I assume, Mr. Sawiris has one in Egypt or do we have to fax it to him?

15   MR. CAMPBELL: We have discussed the terms with Mr. Sawiris.

16   THE CHAIRPERSON: Do you want us to fax one to him or not?

17   MR. CAMPBELL: He has one.

18   MR. SAWIRIS: It's okay, Mr. Chairman.


20   MR. SAWIRIS: I know them by heart by now.

--- Laughter

21   MR. CAMPBELL: We also, sir, will -- are you going to circulate the structure?

22   I think it would be useful to circulate the structure chart. We are going to circulate a structure chart right now, which is a proposed ownership structure. I will address some of the points we discussed after that.

23   I will hand over to Tony Lacavera, who will start off by following up on the points that were made yesterday around governance around the Chair role.

24   MR. LACAVERA: Thank you, Ken.

25   Good morning, Mr. Chairman, Commissioners Menzies and Katz.

26   The first page of the term sheet that is in front of you is a summary of -- well, an expansion of the changes that were contemplated and announced yesterday by myself.

27   So what I would like to do actually is turn it to Simon Lockie, Chief Legal at Globalive, to walk you through the specifics of those changes that elaborate on the points.

28   MR. LOCKIE: Thanks, Tony.

29   I'm essentially just going to be walking you through this term sheet.

30   The documents continue to be drafted, but as announced yesterday Tony will be the Chairperson of each board. The future Chairpersons will either be Tony or an independent director. An independent director has to meet certain qualifications that we will be speaking to later today.

31   As it was announced, AAL has agreed to remove its right to extract the wireline business.

32   There are various consequential changes as you go through the documents.

33   Section 5.2, [REDACTED]

34   The corresponding veto in relation to the undefined material change to the wireline portion of the business plan has been deleted.

35   The qualification in the veto to Schedule A, Part 2, item (c), dealing with the portion of the business plan applicable to the non-wireless business, which is an OT veto, has been removed.

36   The AAL Consulting Agreement has been amended to provide for a [REDACTED] minimum consultancy fee recovery in the event of an early termination by GWMC.

37   Also as announced, there has been a postponement of the AAL liquidity right. So section 6.7(a) and (c) as it relates to AAL's liquidity right is amended to be exercisable only during calendar year [REDACTED]. So we have delayed it by approximately [REDACTED] and the floor price has been raised from [REDACTED] to [REDACTED].

38   THE CHAIRPERSON: I'm sorry, I am not familiar with those liquidity rights. What exactly were they?

39   MR. LOCKIE: This was the put that AAL had --

40   THE CHAIRPERSON: Oh! The put.



43   MR. LOCKIE: We have also agreed with Orascom for the removal of their call right. So that has been deleted in its entirety.

44   The OT Technical Services Agreement has been amended to provide for a [REDACTED] minimum fee recovery in the event of early termination by GWMC, except for material breach.

45   So those are all the changes --

46   THE CHAIRPERSON: Sorry, how does the technical agreement tie in with the call right? I don't quite understand why these points are put together.

47   MR. LOCKIE: I would be happy to turn that over to the business people if they want to provide additional colour, but it was part of the discussion with respect to removing the call right.

48   Does anyone want to elaborate on that?

49   COMMISSIONER MENZIES: I just have a quick question on the last point on the TSA amended to provide for. Does that mean that the TSA is the same with the addition of this?

50   MR. LOCKIE: That's correct.

51   COMMISSIONER MENZIES: Okay, thanks.

52   THE CHAIRPERSON: Okay. I still don't understand why these two are put together. I don't see what one has to do with the other. Can somebody explain this to me? There is a trade-off here obviously of some sort.

53   Mr. Campbell, can you elaborate, or Mr. Lacavera?

54   MR. LACAVERA: Thank you, Mr. Chairman.

55   The rationale on that specific point was related to Orascom making obviously a significant concession with respect to the elimination of the call right and what this provides Orascom in exchange for that, or partially in exchange for the major concession, is a minimum fee on the Technical Services Agreement.

56   MR. LOCKIE: And I would just add to that that the corresponding trade-off, if you will, exists with respect to the removal of the AAL withdrawal right, the extraction.

57   THE CHAIRPERSON: Okay, thank you.

58   COMMISSIONER KATZ: Just so I understand, so there now is an early termination of both of those contracts?

59   MR. LOCKIE: Those contracts already had early termination provisions. The only change is the consequences of an early termination.

60   THE CHAIRPERSON: Sorry, Mr. Lockie, that's --

61   COMMISSIONER KATZ: I always thought the TSA --

62   THE CHAIRPERSON: Sorry, go ahead.

63   COMMISSIONER KATZ: I always thought the TSA was locked in for the [REDACTED]term with the [REDACTED] percent being the compulsory component of that as well, regardless of whether you chose to use their expertise or not.

64   MR. CAMPBELL: That's right. So what this is saying is in the event that the TSA is terminated prior to that time, then this would be a payment that would be due.

65   THE CHAIRPERSON: This was the very point on which Mr. Intven interrupted me and said please continue. Because I said as far as I understand the TSA, it can only be terminated for a material breach. You now say early termination except in circumstances of a material breach. So you are suggesting there is a way of early terminating.

66   That was my very question where I was interrupted and told please ask me it in private. So I am asking you in private now. There is an early termination right other than for a material breach? If so, where is it? Because we didn't see it.

67   MR. INTVEN: Mr. Chairman -- and others can speak to it. But the only reason -- and I apologize, I thought we were getting into confidential territory yesterday -- was that the purpose -- and the business people can talk about this. There was a lot of concern expressed about the fact that the Consulting Agreement payments are payable whether or not the services are taken.


69   MR. INTVEN: The reason for the --

--- Technical difficulties

70   THE CHAIRPERSON: Do you want to speak closer to the microphone, please?

71   MR. INTVEN: Yes. I will try this one.


73   MR. INTVEN: Okay. The [REDACTED] percent fees which are payable to OT and the [REDACTED] percent that are payable to AAL are part of the return on investment for this deal. It's part of the negotiated return.

74   I must say, we were discussing it -- and again, this is a very common mechanism used in the telecom industry and in other industries for doing this. There are things in the AAL agreement. This is within the BCE agreement. It is a common feature of an investment. So it is part of the financing package more than part of -- more than just a payment for consulting services.

75   MR. CAMPBELL: If I can also add to that, Mr. Chairman, at least in my experience, having worked in four different -- five different now -- operations, a fee of this sort is quite a typical thing, at least in other parts of the world.

76   We heard from our colleagues yesterday that it didn't seem to be as applicable in Canada and I would ask OT to see if it is a normal mechanism from their side, but from my side with both Vodafone, Orange, some other international operators, this kind of fee is quite -- not uncommon at all.

77   THE CHAIRPERSON: Okay. You explained to me now the rationale for the fee and it is part of the return on investment.

78   You still haven't answered my question, which is what I posed yesterday and I posed this morning. Where is the early termination right? As far as I can see --

79   MR. LOCKIE: I think I can answer that.

80   THE CHAIRPERSON: -- you can only terminate if there is a material breach of the terms of the agreement.




















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130   THE CHAIRPERSON: Okay. We have to come back to the Technical Services Agreement. This was exactly what I was trying to explore when Mr. Intven asked me to put it over today. So let's park this on the side. We will come back to the Technical Services Agreement.

131   Let's see the rest of the terms of your term sheet. Go on.

132   MR. MAREUSE: Good morning.

133   If you turn to the next page, yesterday we heard you on the drag along, so we have decided to remove the OT drag-along right, which was, if you remember, in the event that an offer from an eligible purchaser to purchase 50 percent or more of its shares. So we removed this right.

134   The second thing we heard also yesterday was our ability to top up in the event of dilution below 51 percent, and here also we agreed to take this right from 51 percent to 40 percent. So now, we still have this right but we will have to -- only be able to exercise this right at 40 percent.

135   THE CHAIRPERSON: I see. Mr. Sawiris yesterday mentioned there was a problem of consolidated accounting. You have found other ways to deal with that?

136   MR. MAREUSE: Yes. Remember, first of all, right now, we are not consolidating because it is not in our advantage. Also, the IFRS, which are the accounting rules which we adopt, are changing. So this is something that, you know, we would have to look at. So it is not something that we will do.

137   THE CHAIRPERSON: Okay, thank you. Go on.

138   MR. CAMPBELL: With regard to Schedule A, Mr. Chairman, the vetoes, I think this gives management much more latitude. We have -- the following vetoes are qualified now for an ordinary course of business exemption and we have also applied the ordinary course of business definition as per the BCE case.

139   So the list is there. I won't read through them, but it includes elements such as material contracts, issue of shares and expenditures.

140   COMMISSIONER KATZ: Is this verbatim, the BCE ordinary course of business definition?

141   MR. CAMPBELL: Yes.

142   COMMISSIONER KATZ: Verbatim. Okay.

143   MR. CAMPBELL: The next amendment relates again to Schedule A. We had some discussions yesterday about this and I would just like to take a moment to put the expenditures of the business in a bit of context because I'm not sure that yesterday some of the statements we heard were actually an accurate reflection of where we are spending our money and the extent to which we are.

144   There are very few agreements that we have had so far that are over $5 million. We have to remember that this is a start-up business. We are not on the scale of the incumbents, and so the thresholds or the amount, the real values that we operate within are slightly different.

145   I would have to say that even some of the benchmark data that was provided yesterday is very inconsistent with the expenditures we have and the commitments that we are making.

146   But to satisfy the Commission, Orascom has made some amendments -- has agreed, rather, to some veto threshold amendments. In particular, paragraphs (d), (e), (h) and (i), the limits have been raised up to $22.1 million, which represents 5 percent of the value of our licence.

147   We certainly feel -- I certainly feel as management that this gives us a very good latitude to move and in fact is much more than I am typically used to, in a previous CEO role, running a 300 million Euro business.

148   So we have tried to --

149   THE CHAIRPERSON: You should thank us.

150   MR. CAMPBELL: I'm sorry?

151   THE CHAIRPERSON: You should thank us for upping your stature.

--- Laughter

152   MR. CAMPBELL: I have written down it's a win for management. Our folks in Toronto will be happy, yes.

153   And the following veto is deleted, it's paragraph (i), the material change to the portion of the business plan related to the non-wireline business.


155   MR. CAMPBELL: I think that was mentioned earlier.

156   So turning back to corporate structure -- I'm sorry, well, Part 2, paragraph (a) is 5 percent --

157   THE CHAIRPERSON: I'm sorry, can you -- I'm sorry, I don't know your name, the gentleman -- can you speak closer to the microphone because your voice doesn't get picked up or move the microphone closer to yourself.

158   MR. DOBBIE: I'm sorry, Mr. Chairman. I was just passing over to Ken, I think he has missed a couple of the changes.

159   MR. CAMPBELL: Yes, let me highlight it. I mentioned it, 5 percent. So paragraph (a) is amended so that an employee stock option plan -- this is important as well, thank you, David -- to 5 percent of GIHC or GWMC is exempted from the veto. So it gives management the ability to introduce an ESOP.

160   And paragraph (c) is amended to remove the reference again to the portion of the business plan of the non-wireless business.


162   MR. CAMPBELL: Thank you.

163   MR. INTVEN: Mr. Chairman, I will deal with the next parts, which are the corporate structure and the governance provisions of the company.

164   The shareholders have agreed to make very substantial changes to both the structure of the company and its governance arrangements. Perhaps I will take you through them.

165   This is illustrated on the chart that we have circulated, but I think it might be easier for me to just take you through the changes first and then refer to the chart.

166   So the first and most major change perhaps is the intermediate holding company. GCHC will be eliminated completely, so that the wireless company and the wireline company will both be held 100 percent directly by the holding company, GIHC.

167   So we really, for future discussions then, really only have two companies, HoldCo and Wireless Opco, and of course the Wireline Opco also is owned by HoldCo.

168   Now, the overall levels of the voting and equity shareholdings of the three shareholders, OT, AAL, and to a lesser extent Mojo, will remain unchanged, but they will all be held at the top-level company.

169   So the actual shareholdings of voting shares and overall equity, which you see below listed in the table there in the term sheet, are the same as they were before but they are all held at the top-level company.

170   Then --

171   THE CHAIRPERSON: Can you just stop for one second?

172   MR. INTVEN: Yes.

173   THE CHAIRPERSON: I'm just looking at the comparison to --

174   MR. INTVEN: Yes. What we have done, I believe we have done accurately. I will just look for confirmation. We have taken the table that the Commission has prepared --


176   MR. INTVEN: -- and we have just made the relevant changes on it.

177   COMMISSIONER MENZIES: Just so I'm clear, in the new holding company, now the shift is that Orascom Telecom holding now has 65 percent equity in Globalive Investment Holdings; right? We had 47 before.

178   MR. INTVEN: That's right. That's right.

179   COMMISSIONER MENZIES: And AAL holdings has 34.25 now and it had 51.4 before?

180   MR. INTVEN: That's right. But what we have done, as you will see, is we have consolidated the holdings from -- that were previously held in that intermediate company.

181   COMMISSIONER MENZIES: Right. Yes, there is generally -- there is no real shift in the balance, the overall balance through this; right?

182   MR. INTVEN: That's correct.

183   THE CHAIRPERSON: They just folded out. Okay.

184   MR. INTVEN: What we have done, Mr. Menzies, to put it in a nutshell, is we have simplified and streamlined the ownership --

185   THE CHAIRPERSON: You will have to speak closer to the microphone, otherwise the reporter can't hear you.

186   MR. INTVEN: I apologize, Mr. Chairman.

187   What has been done is the shareholders have agreed to simplify and consolidate the ownership structure, and when you see the following changes on governance I think you will agree that the locus of decision-making and the balance of powers will be very simple and straightforward.


189   MR. INTVEN: So moving on then to point 6 on the term sheet, there will be some changes to the selection of independent directors. Independent directors will play an important role in the new structure and we will explain that, but the important thing to note is that the first independent director will be selected by AAL and, as Mr. Lacavera can confirm, he has agreed to select Bruno Ducharme as the first independent director.

190   MR. LACAVERA: That's correct, Hank.

191   MR. INTVEN: Yes.

192   Now, the other independent directors there will be nominated by a committee that will be comprised of the longest-serving independent director, which in this case will be Mr. Ducharme to start with, and then one AAL nominee and one OT nominee.

193   The definition of an independent director has been bolstered from what was there before. In addition to requiring independence from the two parties, no past relationships, et cetera, there will be an experience criterion. The shareholders agreement will require that an experienced director will be someone -- well, frankly, like Mr. Ducharme. It will be someone who has acted as a director of a publicly traded company, or a private company where similar skills and knowledge and experience were required, and that includes a demonstrated ability to assist in financing such companies.

194   Part of the goal of this reorganization was to assist the company on a forward going basis with its financing efforts in the capital markets. So this is a much more typical structure for what you would see, frankly, even for a publicly traded company.

195   Now, the next change under 6 refers to the directors at the Holdco level. The first thing I will explain is that, essentially, these are mirror boards.

196   There is one slight change, which I will explain, to meet with Canadian law, but essentially there will be one board, and that will be the board of both the holding company and the wireless company.

197   The board will consist of 11 directors, of which four will be nominated by AAL, four by OTH, and three will be independent directors, selected in the manner I have just discussed.

198   THE CHAIRPERSON: So four nominated by AAL, plus one independent director nominated by AAL, is really what it should say.

199   And then there are two independent directors selected by your group.

200   MR. INTVEN: By the Nominating Committee, which consists of, in this case, Mr. Ducharme, Mr. Lacavera, or his designate, and OT.

201   Just so you understand, Mr. Chairman, I will explain the rationale for it and how it is different from the BCE structure.

202   If you want, I can do that right now. This would be an appropriate time.

203   THE CHAIRPERSON: Yes, because I specifically pointed out yesterday that I didn't see why you had to deviate from BCE, given that it was our established model.

204   MR. INTVEN: If you would give me a minute, I will explain that.

205   In the BCE structure, what the Commission decided was that BCE should -- that Teachers should increase its directors to include a higher number than the others.

206   Here are the Commission's words. This is from paragraph 36 of your decision. You said:

"At the hearing, the Commission expressed concern that, under the Principal Investor Agreement, the principal Canadian shareholder, Teachers, will have the same number of board seats as the non-Canadian shareholders, even though Teachers will hold a majority of the voting and equity shares of BCE." (As read)

207   And then you basically describe the changes you require, and at the end of paragraph 38 you say:

"The Commission is of the view that 5 of 13 directors would not reflect Teachers' equity position in BCE Holdco." (As read)

208   So, essentially, you were trying to match the economic interests to the directorships.

209   Now, this is where there is a very important point of law, if you would bear with me for a minute, that I would like to have a minute to explain.

210   The telecom ownership rules are different from the broadcasting ownership rules.

211   I pointed this out in my opening remarks yesterday, and you asked Mr. Ryan about it.

212   Mr. Ryan is a very capable lawyer, and he conceded that that's the case.

213   The Broadcasting Act requires a clear showing of Canadian control. The Telecom Act says specifically that a corporation is Canadian owned and controlled if it is not otherwise controlled by persons that are not Canadian.

214   What has to be demonstrated is that the non-Canadians cannot control the board.

215   Now, the very structure that we are putting before you was considered in detail in the Unitel decision of the Commission. In looking at that structure -- which was also a structure where there was an effort to match economic interest with directorships, although in a slightly different way -- in that structure, there was a similar board, with an equal number of directors nominated by the foreign investor and by the Canadian investors, and then a number of independents, selected in a very similar way. They were required to be people of good reputation in the business community, et cetera.

216   As I remember, they had Earl Joudrie, the Chairman of Canadian Tire, and they had Barbara McDougall, and they had a number of other senior, experienced business people.

217   The Commission looked at that structure, and then said in the Unitel decision -- and I am referring to page 22:

"Given the circumstances, including the fact that only one third of the board can be appointed of non-Canadians, one third of the board membership consists of independent directors, and there are safeguards in place to ensure the board's independence, the Commission considers that ATC has not had the means to dominate and control." (As read)

218   That is the test that was applied, Mr. Chairman. The test is quite different from broadcasting, and I think, if you look at it historically, there are good reasons for that.

219   The broadcasting and cultural concerns in this country have always focused very heavily on ensuring Canadian control, and this is why there are other differences, such as the fact that you need a programming committee to be set up under certain circumstances, et cetera.

220   The telecom rules, which are much newer -- as you know, they only went into effect in 1993 -- were never meant to act as a barrier to foreign investment in the Canadian telecom sector. Therefore, when the rules were drafted, they were not drafted in the same way as the cabinet direction on ownership in the broadcasting sector, they were drafted in a way that simply requires the Commission to find that non-Canadians do not control the board.

221   That, sir, is the reason that I believe this structure, which has been approved by the Commission before, should be approved in this case.

222   COMMISSIONER KATZ: Just so I understand -- I heard what you said, and I won't comment on that, but with regard to what is stated here, four nominated from AAL, which have to be independent Canadians, four from OTH, and three independent directors, leaves one to assume that, within that, you could actually have seven foreign directors.

223   MR. INTVEN: No, definitely not. You will see when I get to the Opco that that has been dealt with.

224   No, the intention -- the rules are that, at the operating company level, 80 percent of the directors must be Canadian -- resident Canadian citizens.

225   COMMISSIONER KATZ: But with the Holdco here?

226   MR. INTVEN: Yes, at the Holdco level, that limit -- it is simply a majority that must be Canadian.

227   Under this approach, what has been proposed is that the AAL nominees -- and we changed this at the Opco level -- could be non-Canadian.

228   The others -- yes, I suppose, in theory -- and we haven't specified this here -- I don't think it was ever the intention that they would be non-Canadian. I would imagine that there would have to be a specific stipulation that both the AAL nominees and the independents be Canadian.

229   MR. DOBBIE: Hank, if I may, I think it is already covered in Bullet Point 2 on the sheet there.

230   MR. INTVEN: Oh, I'm sorry, it was included. I apologize. We did think of that.

231   So, yes, Mr. Katz, it is the second bullet point.

232   COMMISSIONER KATZ: Can I simply replace the words in the first bullet, where it says "three independent directors", with "three independent Canadians"?

233   MR. INTVEN: Yes. Actually, using the definition you have used in your decisions, which is not, of course, in the law, but the one that you have used, you could, yes.

234   In other words, saying that they are both --

235   Well, no, the independent directors under this formula must be Canadian. They must be Canadian residents.

236   Secondly, they must not be selected by or related to the non-Canadian investor. They must be selected by the nominating committee.

237   COMMISSIONER KATZ: But the second bullet, now that I read it, says: "All AAL nominees and independent directors must be independent Canadians."

238   MR. INTVEN: Yes.

239   COMMISSIONER KATZ: So that last piece, "independent directors must be independent Canadians", leads me to say that the first bullet should simply read, "three independent Canadians".

240   MR. INTVEN: That's correct. You could say that, yes. I'm sorry.

241   COMMISSIONER KATZ: Okay. Thank you.

242   THE CHAIRPERSON: What definition are you using?

243   "Independent Canadians", the way you use that in your documentation, means independent of both parties.

244   MR. INTVEN: That's correct.

245   THE CHAIRPERSON: Which can't be; AAL's nominees are clearly not independent of AAL.

246   The independent director nominees are, but Mr. Lacavera is not independent of AAL, so that doesn't make sense.

247   MR. INTVEN: You can now tell, Mr. Chairman, that some of this was drafted rather late last night.

248   THE CHAIRPERSON: Yes, I appreciate that, but basically what we are talking about is: four people from AAL, four people from OT, one independent from AAL, and then the committee selects the other two independents.

249   MR. INTVEN: Yes, that's right.

250   THE CHAIRPERSON: That's the idea.

251   MR. INTVEN: That's the idea.

252   THE CHAIRPERSON: Okay. Now, what about at the Opco level?

253   MR. INTVEN: At the Opco level -- it is essentially meant to be a mirror board, except that at the Opco level, to comply with subsection 16(3)(b) of the Act, two of the OT nominees must be Canadian residents.

254   So they would be selected by OT, but they must be Canadian residents.

255   This is a structure that I am sure your counsel and others can say has been quite common in other telecom transactions.

256   Essentially, the plan is that these boards would act, more or less, as one board. For voting purposes, the AAL foreign directors could vote at the holding company level, but when decisions are made at the operating company level, they would have to be made by the Canadian nominees, exercising their fiduciary duties as fiduciaries of the company, of course.

257   THE CHAIRPERSON: Okay. And who nominates Mr. Campbell or his successor?

258   MR. INTVEN: Nothing has changed there. Mr. Campbell, as the CEO, will be selected by the board.


260   MR. INTVEN: Of Opco, that's correct.

261   THE CHAIRPERSON: Okay, moving on...

262   MR. MAREUSE: With respect to Point 7 -- actually, we have, since we printed this document, changed the terminology a little bit, so you will have to follow me. It's not "OT liquidity right" any more, it's "liquidity right" for both parties, as it is very important for each of us to have a liquidity path, in case we want it.

263   After [REDACTED], in the event that either party -- not just OT, but either party -- so either AAL or OT -- wants to exit, they have to provide notice to the other party. Then, the party which is sent the notice will have [REDACTED] to purchase or find a purchaser of the other party's shares, at fair market value.

264   If the party receiving the offer is unable to purchase by the end of the [REDACTED] period, then the party which sent the notice may arrange the sale of either its shares or the entire company.

265   THE CHAIRPERSON: I am looking at it and it says [REDACTED], why are you saying [REDACTED]?

266   MR. MAREUSE: It is [REDACTED]. We have changed everything to [REDACTED], and it is a reciprocal right, so it applies to either party.

267   The other thing which is not on the page here is that the right of first refusal remains, obviously, for both parties.

268   THE CHAIRPERSON: So let's assume that OT wants to exit. They give AAL notice. So AAL has [REDACTED] to find another purchaser.

269   MR. MAREUSE: Yes.

270   THE CHAIRPERSON: At fair market value, as determined in a bona fide third party offer or an FM valuation.

271   How do you go about establishing the FMV -- valuation?

272   MR. DOBBIE: That, Mr. Chairman, is pursuant to the same provisions we have now, which provide for the appointment of an independent investment bank to determine fair market value as defined in the agreement. So we would --

273   THE CHAIRPERSON: And who appoints the independent investment bank?

274   MR. DOBBIE: I can't recall, actually. We will have to check that provision for you.

275   MR. LOCKIE: It's by mutual agreement.

276   MR. DOBBIE: By mutual agreement --

277   THE CHAIRPERSON: And if the parties can't agree?

278   MR. LOCKIE: Then it is dealt with under arbitration, pursuant to the Arbitration Act.

279   THE CHAIRPERSON: And all of that is going to be done within the [REDACTED] in which you are looking for a partner?

280   You have [REDACTED] to find a purchaser, and you don't know what the price is. You can't agree on the evaluator, et cetera, so you are going to spend [REDACTED] trying to work this out.

281   Then, once you have the evaluation, you are going to go out and peddle it.

282   Is that the idea?

283   MR. DOBBIE: That's exactly why we proposed to change the period from [REDACTED], which was a little bit overly ambitious, we realized this morning, Mr. Chairman.

284   We do think that the [REDACTED] provides a sufficient time period to find a purchaser and determine the price.

285   THE CHAIRPERSON: And what is this business "...and may arrange the sale of either its share or the entire company, subject to a further right of first refusal"?

286   MR. DOBBIE: That is the final end game, Mr. Chairman. If the party receiving the notice has been unable to either purchase or find a purchaser in the full [REDACTED] period, the final end game reverts to the other party to either purchase just their stake or to arrange for sale of the entire company.

287   MR. INTVEN: Mr. Chairman, the thinking here was there was a need for some liquidity right. This is the only liquidity right that's left for either of the parties.

288   THE CHAIRPERSON: OT wants to get out, AAL cannot find a purchaser, but then it has the right to tell the entire company, i.e., AAL can say, Okay, I'm selling out to Rogers, and, by the way, OT, you sell your shares, too.

289   MR. INTVEN: Two points, Mr. Chairman.

290   It is, as Mr. Dobbie said, the end game. There has to be some way of --

291   THE CHAIRPERSON: I understand. I'm trying to make sure I understood it correctly.

292   MR. INTVEN: That's correct.

293   The other thing I would say, it is reciprocal --

294   THE CHAIRPERSON: Yeah, right.

295   MR. INTVEN: -- so AAL can find a partner, a new partner, and come to the table with the same liquidity rate.

296   THE CHAIRPERSON: And why can't --

297   MR. SAWIRIS: Mr. Chairman, can I just -- sorry, this is Mr. Sawiris speaking -- can I just ask also the lawyers that they need to address the case where we list the company in Canada. All these conditions should then be removed, because then there is a liquid -- the shares will be liquid, and then we don't need all these provisions.

298   I'm sorry that I'm interrupting, but I need to advise the lawyers that they need to have something in that regard, too. I mean, just stating that the case of IPO, and what kind of inference that would have, because the shares will be then open to Canadians in Canada, if we list in Canada.

299   MR. MAREUSE: Yeah. And this is the reason why you have the -- you know, after the [REDACTED] you have the possibility to sell the entire company right now is because, as it's not public, as long as it's not public, there is no liquidity, and this is why we have to go for this mechanism.

300   But, of course, if it's public, then all this goes away.

301   THE CHAIRPERSON: And why can you not in advance nominate the bona fide third party to make the evaluation rather than having [REDACTED] and a fight? I mean, you could right now agree at Citigroup, or whoever you want, et cetera, and then shorten the [REDACTED]. Because if you make it [REDACTED] that, I think, makes this whole clause relatively powerless.

302   MR. MAREUSE: That's a good idea. Let us think about it. But that's a good idea.


304   Continue. Who's doing this? Mr. Campbell, are you on first?

305   MR. CAMPBELL: Yes, sir, Mr. Scheschuk will now talk about point 9.

306   MR. MAREUSE: No, no, sorry.

307   MR. CAMPBELL: Oh sorry, we have got one more.

308   MR. MAREUSE: One more. One more.

309   Yesterday, also, there was a lot of discussions on the loan, so we have decided to remove all the covenants, which are clause 5.1, which are all the affirmative covenants; 5.2, which are the negative covenants; 7.2, which is the preparation of moneys; and then clause 8, which is the indemnities. So all this is now removed.

310   THE CHAIRPERSON: But your point yesterday was you wanted to make sure is this a loan and not an equity. It's still a loan, even with removing in two years that section?

311   MR. MAREUSE: It is still a loan. It is still a loan.


313   MR. SCHESCHUK: Okay. Thank you.

314   To point 9, what we have done with respect to financing is we have either had a new or a modified section 3.5 to really memorialize in a more detailed format our commitment to raising new financing.

315   You will have on Schedule A, if you flip the page two pages, one-and-a-half pages of the actual language. I don't propose to read it all to you, but I will quickly hit the sections, and please ask any questions.

316   We continue to have a "best efforts" clause, which is consistent with our activities to date: to seek and obtain additional equity and debt financing. We have really opened the structure to be any type of instrument that we can find that's reasonable; a wide swath of investors that are in accordance with RadioCom legislation. We have the requirement to select and recommend an investment banker.

317   [REDACTED] there is an ongoing obligation to have an investment banker.

318   The shareholders have agreed -- or have added additional clauses to assist the corporation to complete the financing, and you will see some of the shareholder activities: ensuring full resources are available at no cost; preparing/offering materials identifying investors; attending and participating in investor meetings; reviewing terms; providing reporting. We have also added a formal board-reporting process to ensure that the board of GIHC is aware of all financing activities; and then a general assurance clause.

319   So, in practice, how we would see this working is exactly how it has been working, whereby an AAL representative, which is myself; an Orascom representative, which is from their corporate finance area, is here with us today, Michel Hubert; and GWMC; and the wireline business, which I represent, are actively engaged with bankers, and working through, really, an ongoing financing process.

320   THE CHAIRPERSON: We talked a lot about financing yesterday. Mr. Sawiris said: I am a banker against my will. I have much better use for my money, but Globalive couldn't find the bank, so I'm here, faute de mieux.

321   You are now putting this, which is, in effect, a very elaborate "best efforts" clause to find financing. Is there anything in here that you wouldn't do anyways, given that you are a principal shareholder who wants to get out, and wants to get out as soon as possible? By his own statement, he doesn't want to be a banker. Wouldn't he do all of this, in any event?

322   MR. SCHESCHUK: From my perspective, yes, we would.

323   MR. SAWIRIS: Yes, we are, Mr. Chair.

324   MR. SCHESCHUK: Sorry, Naguib, go ahead.

325   THE CHAIRPERSON: Mr. Sawiris?

326   MR. SAWIRIS: Well, I just wanted to reiterate, yes, we are exactly doing that, you know. Mr. Chairman, the problem is that although in just recent weeks we see some signs of the return of debt or equity market, there's some positive movements on the markets, [REDACTED]

327   [REDACTED]

328   [REDACTED]

329   [REDACTED]

330   [REDACTED]

331   I also take that opportunity -- I don't want to make it too long -- to assure Your Excellency that at no time and point did we have, in all the complicated structures we had, any intentions of not fulfilling all Canadian rules or regulations, you know.

332   I must agree with the Commission that the structures were complicated. I hope that today, with the, let's say, rectifications we have done, which also reflect the better trust we have with our partner, Mr. Lacavera -- it took a year. You know, we didn't have much time before the bidding process to get to know each other. I think within this one year we have worked together, and I think the chemistry works very well.

333   I also take the point that he should not be regarded as a small player, like some comments yesterday from the incumbents that he's too small. If we wanted someone that's big, then the only way we would have had to is to go to the incumbents themselves, which would have been contradictory to the issue of introducing competition into the Canadian market.

334   Thank you, Mr. Chairman.

335   THE CHAIRPERSON: Thank you.

336   Back to you, Mr. Campbell.

337   MR. CAMPBELL: Thank you, Mr. Chairman.

338   There's no additional questions on financing. We just have a couple of other clarifications, points that came up yesterday, Mr. Lockie will address.

339   COMMISSIONER KATZ: Mr. Campbell, can I just interject, since we are on the topic of banking?

340   So is it my understanding that [REDACTED]


342   THE CHAIRPERSON: What was the tail end of your sentence?

343   MR. SCHESCHUK: If necessary, given the type of raise or the nature of the financing, or someone brings us a deal, a financing deal, there are provisions to inject additional bankers, as co-leads, already built into the structure.


345   MR. INTVEN: I can't hesitate to add, Mr. Chairman, that there is another bank ready, but they chose not to appear at the hearing.

346   THE CHAIRPERSON: As I told you, we work transparently, not with secrecy.

347   Okay, let's finish.

348   COMMISSIONER KATZ: Let me just understand.

349   [REDACTED]

350   MR. SCHESCHUK: Oh, sorry. Sorry, no. I don't want to interrupt you, Mr. Katz. I see the line of questioning.

351   [REDACTED]

352   COMMISSIONER KATZ: And I guess we will talk about that later on, I guess.

353   MR. SCHESCHUK: Yes.


355   THE CHAIRPERSON: Let's finish the term sheet and the chart.

356   MR. LOCKIE: Three very brief clarifications from yesterday.

357   We can clarify that the CEO of GWMC, Ken, reports to the board of directors rather than the chairman.

358   We can clarify that the managing director term will be removed from the documents. That means the same thing as CEO, and that will be made clear.

359   We can also confirm at the same time that Bruno Ducharme will remain CEO of the holding company.

360   And finally, any references to a "Strategic Plan" will be corrected to refer to a "Business Plan".

361   COMMISSIONER KATZ: Just a quickie.

362   There's no reference anywhere to the CEO always being Canadian, but I gather that's implicit in all this?

363   THE CHAIRPERSON: And the chairman.

364   COMMISSIONER KATZ: And the chairman.

365   MR. INTVEN: Mr. Chairman, I'm not sure that was discussed. It really hasn't been discussed, but I will just go ahead and say, from my experience, that has not been required in telecom transactions. That's rather unique to broadcasting transactions because there is concern about control over content in that.

366   In telecom transactions, I think the wise decision that has been taken in the past is that Canadian companies should be able to go to the best in the world to be able to retain them as --

367   THE CHAIRPERSON: Well, it's a straightforward question. The answer is no.

368   MR. INTVEN: No.

369   THE CHAIRPERSON: Thank you.

370   MR. INTVEN: No, that's the reason, Mr. Chairman.

371   MR. DOBBIE: Hank, sorry, if I could interrupt and add to your comments for the chairman?

372   Mr. Chairman, we have actually agreed that all future CEOs will also be independent Canadians, so that is actually a part of the agreement between the shareholders.

373   Sorry, to correct you, Hank.


375   I think, you know, there has been considerable changes. Let's take a 15-minute break. I would like to get my head around them before we continue the questioning. Okay?

376   Thank you.

--- Upon recessing at 0959

--- Upon resuming at 1020

377   THE CHAIRPERSON: Okay, thank you. Let's resume.

378   Mr. Sawiris, you can hear me? Can you hear me, sir? Good, wonderful.

379   MR. SAWIRIS: Yes, sir, I can hear you.

380   THE CHAIRPERSON: Then let's continue.

381   Mr. Campbell, you said you brought some bankers with you who were going to talk about financing. Why don't we listen to their presentation before we go on?

382   MR. CAMPBELL: Very good. I will ask them to come up to the big round table here.

383   We have Daniel Daviau and Dvai Ghose.

384   THE CHAIRPERSON: You can all come to the table, there is room beside Mr. -- if you want to.

385   MR. SCHESCHUK: So, Mr. Chairman, just by way of introduction, Mr. Daviau to my left is an investment banker a principal of Genuity, he can speak to the firm's credentials and so on. Tony and I have known Dan for probably, I don't know, five to 10 years and have had a long strong working relationship with him.

386   Across the table is Mr. Dvai Ghose. I believe, at last count, the number one ranked telecom analyst in Canada, and he has been covering the industry for years and has a lot of good knowledge and things to talk about with respect to the history of financing, new entrant financing, incumbent financing, capital structures and so on.

387   So I will turn it over to Dan to give an overview. And Aldo and I can take it back and relate it a little bit more to our situation, as necessary.

388   MR. DAVIAU: Thank you, Brice.

389   I didn't come with a series of prepared remarks today, thinking more particularly we would be addressing any questions that the Commission had.

390   I think it is fair to say you have heard a series of people tell you for the last day that it would have been impossible to finance this company through from the end of the wireless spectrum auction until today, [REDACTED]. I mean, there has been virtually -- there has been two private equity transactions in that period of time, both of them unrelated to anything that even resembles this sector in Canada. In other words, of the seven or eight large private equity participants in this country only two have written cheques since the end of the wireless auction until now.

391   There has also been, up until very recently, zero IPOs, new companies coming to market to be public. You know, that all being said, we are at an interesting time, this hearing is falling at an interesting time, in that we are seeing a significant recovery in the market. We are seeing, you know, there has been three IPOs in the last month and a half raising close to $2 billion.

392   There's another IPO on file right now that just got filed the other day. So the markets have opened up substantially and we are starting to see, you know, green shoots is what everybody seems to call them, but green shoots out there in the market.

393   The debt market, as well, is getting better. There was virtually, in the U.S., almost no telco-related high-yield bonds sold. Now, this isn't my area of expertise per se, but we have seen an improvement in that market as well. There has probably been close to 18 transactions in the last little while. More seasoned issues than what Globalive will be, not complete start-ups, but wireless operators in the U.S. having funded in the high-yield market.

394   THE CHAIRPERSON: I have to take issue with what you are saying. Since the AWS auction is over everybody is in the same boat, save for the incumbents; they have their licence from industry, they don't have one from us.

395   MR. DAVIAU: Right.

396   [REDACTED]

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414   [REDACTED]

415   At that point we --

--- Laughter

416   MR. SCHESCHUK: Thank you, Naguib.

417   At that point, you know, we --

418   MR. SAWIRIS: I'm sorry, I had to laugh, yes.


420   [REDACTED]

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424   [REDACTED]

425   When we talk about the EastLinks, Vidéotrons and Shaws, Rogers, Bell and TELUS as comparables from a capital markets raising perspective I just don't think that is a fair comparison. I think it is almost self-evident.

426   But if you look at post-AWS when the world started to collapse, you know, everyone in Canada was looking to shore up balance sheets, similar to, you know, obviously south of the border and internationally, and all of the telcos, I think, except for EastLink, which has a slightly different profile -- and Dvai and Dan can corroborate this -- I think they all did debt issuances and they all did them at fairly reasonable yields actually. So they stood up relatively well through the process.

427   [REDACTED]

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434   [REDACTED]

435   If I may take a very specific conversation just to give you an example of kind of where the world might be going.

436   [REDACTED]

437   [REDACTED]

438   [REDACTED]

439   I want to fall back, though, to the point of our existing capital structure. I don't want to lose that in this entire analysis.

440   When we came out of the -- actually, when we went into the auction, we had a strategy to buy, you know, a reasonable amount of spectrum. We knew it wasn't going to cost zero, so we had to be thinking through financing.

441   [REDACTED]

442   [REDACTED]

443   [REDACTED]

444   [REDACTED]

445   [REDACTED]

446   I think I will stop there and answer any questions if anyone else wants to speak.

447   MR. SAWIRIS: Just one comment, Mr. Chairman.

448   THE CHAIRPERSON: Go ahead.

449   MR. SAWIRIS: Just one comment, Mr. Chairman, if you allow me.

450   [REDACTED]

451   [REDACTED]

452   [REDACTED]

453   [REDACTED]

454   THE CHAIRPERSON: Okay. I heard your explanation, Mr. Sawiris.

455   What I don't understand though, you made yesterday the point that your financing would be much easier once you get approval from us because regulatory uncertainty carries a risk.

456   I would like to hear from the bankers on that, [REDACTED]

457   [REDACTED]

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467   MR. SCHESCHUK: If I could add one other comment.

468   [REDACTED]

469   [REDACTED]

470   THE CHAIRPERSON: You appreciate you get very little sympathy from me on that point. We wrote to you already last year and said, come on in early so you don't find yourself in the situation where you are.

471   We wrote to you specifically asking to file contemporaneously with Industry Canada. You chose not to do it. You chose to do a two-step process. You also suggested to us that we go on a process by process to clarify.

472   So that we are here at this point in time is not because of CRTC delay, it's because of tardiness by Globalive to come in with its application. Let's make that absolutely clear.

473   MR. SCHESCHUK: Sir, I agree with you and by no means am I looking for any kind of sympathy.

474   What I would say is that if -- I am confident in saying that if this CRTC process was happening on March 14th or whatever, we were getting our approvals concurrent, it is the same issue, it just would have happened earlier.

475   I by no means am blaming the CRTC for our problems. It's just the nature of the beast in this type of process, that's all.

476   THE CHAIRPERSON: Okay. We have a consultant here. You were sold as a kind of a pre-eminent telecom consultant. I have no reason to doubt that. So could you give us your perspective?

477   MR. GHOSE: [REDACTED]what I would like to add to what was already mentioned by the company, as well as my partner, Mr. Daviau, is the fact that we have a long history of successful telecom investment in Canada and by nature of the fact that we have seen tremendous consolidation since the fragmentation of the early 2000-1999 period that investment is virtually all in the hands of the incumbent telcos.

478   As you know, sir, the aggregate market capitalization of Bell, TELUS and Rogers today is something in the $50 billion level. Not surprisingly, therefore, they are the people who are the most interested in how this process evolves. Needless to say, investors like to hedge their investments and that is why there is a tremendous amount of interest from the investment community about these hearings, initially in terms of the defence of their incumbent investments and then, as time evolves, in terms of opportunities for new investments.

479   [REDACTED]

480   [REDACTED]

481   [REDACTED]

482   [REDACTED]

483   THE CHAIRPERSON: Okay. Thank you.

484   Peter and then Len.

485   [REDACTED]

486   [REDACTED]

487   [REDACTED]

488   COMMISSIONER MENZIES: Give me your best guess.


490   We took TeraGo public; Fixed Broadband Wireless, we were the lead there. We took XM Canada public, we were the lead there. We took that public with zero subscribers, as you may be aware. And we took a number of other technology companies public.

491   [REDACTED]

492   [REDACTED]

493   We had $13 billion raised last quarter. That is as strong as any quarter in history in terms of raising money.

494   Now, it started off being a resource base. That is just what always happens, that's the kind of country we are. So a lot of gold companies and a lot of oil and gas companies raising money. The financial services companies then all had to shore up their balance sheets. All the banks raised money.

495   So the big bellwether companies in this country have all raised a lot of money. Like I said, $13 billion a quarter for the last couple of quarters. Now we are just getting into a cycle where more risky investments are being considered by investors. They are still flush with cash.

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510   MR. LACAVERA: If I could on that -- thanks, Dan.

511   [REDACTED]

512   COMMISSIONER MENZIES: I got you. I heard that.

513   MR. LACAVERA: Yes.

514   MR. GHOSE: If I can add one point --

515   MR. SAWIRIS: Can I make a --

516   MR. GHOSE: Sorry.

517   MR. SAWIRIS: Can I make a comment, too?

518   This is Naguib Sawiris speaking.

519   THE CHAIRPERSON: Please go ahead, Mr. Sawiris.

520   [REDACTED]

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530   THE CHAIRPERSON: Thank you for the very honest assessment.

531   I'm sorry, I didn't mean to --

532   MR. GHOSE: Yes, sorry. Actually Mr. Sawiris covered the points that I was going to make, because the prior comments were focused on the volatility of the financial markets and the fact that they are in an early recovery stage.

533   My point as well was, now the investor focus, my job is to speak to investors and potential investors every day and the sector is very much in operations. There is at times a conceptual window when a company wins a licence in terms of this is Canada, this is the penetration, this is the ARPU, this is a margin, this is why it's a good opportunity, and so on.

534   [REDACTED]

535   THE CHAIRPERSON: Len, you had some questions?

536   COMMISSIONER KATZ: Yes, on this issue as well.

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545   So sort of it begs the question that I alluded to earlier, Mr. Scheschuk, whatever his name is --

546   MR. SCHESCHUK: It's actually pronounced Scheschuk.

547   COMMISSIONER KATZ: Okay, Brice. Brice is easier.

548   MR. SCHESCHUK: Yes.


550   Maybe I should be asking Mr. Mareuse the same question.

551   MR. SCHESCHUK: I mean, I think you --

552   [REDACTED]

553   MR. SCHESCHUK: Right. I will give you --

554   MR. SAWIRIS: I have a good suggestion. I have a good suggestion, is that the Canadian government would replace Orascom's loan to Globalive and enjoy this very high interest rate that we are charging Globalive. We would welcome that sept very much, you know.

--- Laughter

555   THE CHAIRPERSON: Well, you should address it to the Canadian government. You are now talking to the Commission.

556   MR. SAWIRIS: I know.


558   [REDACTED]

559   I have to turn this to Mr. Mareuse as well.

560   MR. MAREUSE: I don't have any more comments. I think Brice summarized it very well.

561   MR. INTVEN: Mr. Chairman, I might actually add something, just on a note of candour.

562   [REDACTED]

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565   [REDACTED]

566   THE CHAIRPERSON: Yes, but folks, we have to work in the legal framework that is imposed upon us. We have to satisfy ourselves that non-Canadians do not exercise control over this.

567   As Mr. Intven has repeated ad infinitum, the issue here is -- and you heard it yesterday. You addressed an awful lot of points on the structure, et cetera, but the fact is that the same company owns the majority of the debt -- owns practically all the debt, owns the majority of the equity and is also your principal service supplier, and you this morning said that that Service Agreement is also another way of getting your return on investment, et cetera. So there are three large levers in one hand and that hand is not Canadian.

568   You are basically looking at us and saying, we want you to approve it nonetheless because we have done everything that we can in terms of corporate structure, and, by the way, this makes perfect good business sense and [REDACTED]

569   Basically what you are asking for is a conditional approval, you know, without a clock, but basically give it and as soon as markets allow us, we will Canadianize this thing so that there can be no question about it.

570   Except I don't have that authority. That is the issue. I mean if the Act allowed for something like that, then, you know, your business point, we all three hear it and they are very cogent, et cetera, but it is not a business issue, it is a legal issue. It is a question that there are three major levers in the hands of a non-Canadian and does not amount to control or not.

571   MR. INTVEN: Mr. Chairman, I will address that.

572   You heard Mr. Mareuse said today again that the few remaining covenants in the OT loan that could provide any lever of legal control have just been removed. I wish I had a bank that would lend money to me on those terms.

573   The reality is I would encourage you, sir, to look at this as a legal question. When Industry Canada has looked at the participation of debt in new spectrum licensees over the years -- we know you don't have to agree with what they have done in the past -- it has been my experience that they don't look at debt in the same capacity as they look at equity, and particularly voting equity.

--- Technical difficulties

574   MR. INTVEN: To determine that debt can actually operate as a lever of legal control, I think you have to look at the conditions of that debt and to determine whether that control is there. And in this case, particularly with the removal of the final covenants from this loan, there is no control.

575   The agreement, the Technical Services Agreement -- perhaps Mr. Lockie or Mr. Dobbie could talk about this a bit -- the termination clauses and everything that have been developed now are merely related kind of to the liquidity rights. There is no particular overhanging control lever in those agreements.

576   As you heard Mr. Campbell say -- and he is going to say it again, I can tell -- is it is up to him to determine when he gets any technical advice from Orascom. You have heard that the basic purpose of the agreement, essentially it is an investment return vehicle, it is part of the overall return on the investment, it is not a control lever.

577   THE CHAIRPERSON: We had a very frank exchange. You told us what your concerns are. I told you what our concerns are. Now, let's go into the details.

578   A couple of things. First of all, I notice among all the changes this morning one that you didn't address is the definition of "eligible investor." Was that an oversight or is it still that basically you cannot sell it to a telco? That is my shorthand.

579   MR. DOBBIE: Mr. Chairman, we discussed that point extensively and unfortunately both shareholders firmly believe that that definition is required here.

580   The concern with it is that it is really not an ownership and control issue. It merely prevents either of the shareholders being forced to get married to one of their competitors against their choice. I guess the concern from the Canadian shareholder is that it will become subsumed into a large incumbent telco and the concern from OT is the same.

581   So we just didn't consider that that has ownership and control implications and perhaps we would like to get more of an understanding of what your concerns with this provision are so that we can help you address them.

582   THE CHAIRPERSON: Well, it surely has implications in terms of saleability of the interests for either party and you have reduced the potential purchasers by a large factor by putting this restriction on it, while if it wasn't there, obviously, as you say, incumbents could bid, but also, you know, other start-ups or people in the telecom business but not directly in the wireless business.

583   MR. DOBBIE: Mr. Chairman, that obviously makes a lot of sense. I guess it also comes back to the commitment that the shareholders have to their current investment. None of the shareholders are in this to make a quick profit and a quick exit.

584   I think Tony could perhaps speak to this and whether he considers that it limits his exit rights. But certainly OT does not consider that this limits its ability to exit from the enterprise in any material way.

585   As Mr. Sawiris suggested yesterday, the more likely purchases from our perspective would be private equity and other financial investors.

586   COMMISSIONER KATZ: Can I just ask, when you deliberated, was there a consideration of carving out specific carriers that are of concern to each of the shareholders without making it a total carve-out?

587   MR. LACAVERA: From my perspective -- and David can speak from Orascom's perspective -- I think that putting a carve-out like that, obviously we don't know how the market is going to evolve over the time that this clause may take effect and, you know, to start listing specific ones, a new one may emerge or, you know, we have all seen over the last 10 years BCTel and AGT merging and that creates a new company.

588   I mean how do we actually start talking about what are really competitors that we would not want to, to use David's language, get married to?

589   From my perspective, it could cripple us long term, cripple me or Orascom, whoever the remaining party is, if we end up with a partner that we never wanted to sign up.

590   THE CHAIRPERSON: Even if you would say you exclude incumbents as defined under the AWS auction?

591   MR. LACAVERA: Yes. For example, I will actually speak right to that one, which is another point that I wanted to make in public.

592   I would never want to partner with Public Mobile but there is now set aside spectrum, so their frequencies can be sold at any time to an incumbent and it could end up in a backdoor type situation where I end up partnered with an incumbent or a carrier we don't want to be partnered with.

593   MR. DOBBIE: If I could just add to what Mr. Lacavera has just said.

594   We also considered that this does not severely restrict the ability of the shareholders to exit. We would point out that in the event that a shareholder really needs to exit, that shareholder could still exercise its put rights and make an exit that way.

595   So while we couldn't say that in this case there is a sword hanging over the other shareholder and that this is restricting its only ability to get out of the investment, those put rights still exist.

596   MR. INTVEN: Mr. Chairman, I would just add one thing, if I might.

597   This has obviously been discussed. It is a sensitive business issue. It is probably a sensitive competition policy issue but I would respectfully submit to you it is not a control issue. It is not a question of one company or the other. You have heard them both say that they don't want to be forced into a forced marriage and I don't think legally it actually goes to the matter of control in fact.

598   THE CHAIRPERSON: Let's agree to differ. I don't ask questions which are not relevant to my deliberations, but anyway, let's go on to the technical services.

599   Sorry, Peter, go ahead.

600   MR. SAWIRIS: Mr. Chairman, can I request -- I have been told that I am requested to stay for the two hours. I have taken other engagements. Can I just honourably ask whether you still require my presence?

601   THE CHAIRPERSON: Thank you. I think your people here will be able to answer our remaining questions. Thank you for participating, but the key questions which we wanted to hear from you, I think you have spoken to them eloquently, so we know your position. So if you have other engagements --

602   MR. SAWIRIS: Thank you very much.

603   THE CHAIRPERSON: -- you can sign off.

604   MR. SAWIRIS: Okay. Thank you very much.

605   I just want to make one last comment on the issue of this restriction that we just discussed now.


607   MR. SAWIRIS: It is very common in the telecom industry to have these restrictions not to sell to competitors because it defies also the reason of the investment itself. If you are from the beginning thinking that you are going to surrender to the incumbents and sell out to them, then that defies the whole effort.

608   We are quite eager to be a serious player and we are not -- I can assure you, from my point of view, I never thought about control when we put that issue. It was surely an industrial issue so Tony doesn't feel he is going to be swallowed by one of the big guys and we don't feel that we are going to be put into a partner with one of our competitors. So it's not a big issue for us, you know.

609   If you find at the end of this hearing that this is an issue that still demonstrates anything to do with control, I think we will be very flexible, but I just want to assure you that this was not our intention. Thank you very much.

610   THE CHAIRPERSON: Okay. Thank you for that clarification.

611   COMMISSIONER KATZ: Before we go on, can I just ask Mr. Lacavera a question?

612   If Verizon came to you with a barrel full of money four years from now, why would you want to be pre-empted from being able to negotiate?

613   MR. LACAVERA: I don't think I'm pre-empted from negotiating.

614   COMMISSIONER KATZ: Well, your deal here would say you can't sell --

615   MR. LACAVERA: Well, I would like to confer with counsel on that specific point, but what my immediate reaction to it was going to be, I am -- you know, truthfully, if both parties agree that we -- you know, if somehow the regulations change and Verizon was permitted to own control of the company and Verizon came and made an offer in four years, hypothetically, for some number that us as partners felt that, you know, we wanted to exit the business, I think that would be open to us as partners to sell the business. I can say from my personal --

616   COMMISSIONER KATZ: If they agree.

617   MR. LACAVERA: Yes.

618   COMMISSIONER KATZ: If you agree. I mean a lot of things can happen but I'm just saying --

619   MR. LACAVERA: If we don't --

620   COMMISSIONER KATZ: -- if they don't agree --

621   MR. LACAVERA: So I don't --

622   COMMISSIONER KATZ: But this is not a competitor in Canada at all, it is a new entrant who comes in because the laws have changed, you have basically pre-empted your right to do that unilaterally.

623   MR. LACAVERA: Can I just confer with counsel on that point for a second?


--- Pause

625   MR. LACAVERA: I'm going to ask Mr. Lockie to actually explain the technical side of that, but I would like to just from my perspective answer.

626   I didn't get into the partnership to get into a situation where one party could end up partnering with someone they don't want to be. You know, I certainly from my perspective don't want to be put into a situation where Verizon comes along and says, you know, we would like to -- we are going to buy Orascom out or we are going to replace Orascom in some way and I am forced to accept Verizon as my partner now.

627   COMMISSIONER KATZ: It's not necessarily a matter of Orascom saying no, it will be at a price. That's all it's going to be. There will be a price to be paid for lifting that, that's all.

628   All I'm wondering is, why would a prudent businessperson, an entrepreneur, pre-empt his ability to have something today when tomorrow he may have to pay to get that waiver from Orascom? That's all I'm asking. It is a prudent business question.

629   MR. LACAVERA: Yes, I understand. I actually don't think I fully understand -- I'm sorry, Mr. Katz, I don't fully understand the question that you have raised for me, but from my perspective, it is a reciprocal situation where there is a protection for me and a protection for Orascom in that neither of us can be put in a situation against our will, having a partner against our will.

630   If the parties agree to do the transaction, of course, it proceeds. If we don't agree...

631   I guess, maybe, if the concern is that there would be, somehow, a discount now to the value of the business, I don't really see how that would necessarily be the case either. I think that there is theoretically that possibility, but I don't think it follows.

632   MR. MAREUSE: I think, also, the intention that we both have is not, you know, to make a quick buck and sell, we are here for the long term.

633   We have, obviously, some protections, but as far as we are concerned, we are here to stay, we are not here to leave. I think that Tony is --

634   MR. LACAVERA: That is also a very important point.

635   As we have said all the way, going back to the beginning of yesterday, we developed a relationship very, very quickly, we developed agreements very quickly, and now that we have solidified a partnership, it's a long-term partnership.

636   Both of us are clearly, to use Naguib's words, industrial players. From my perspective, a long-term builder or a long-term player is really how I see myself. I don't, in any way, want to get out.

637   I recognize that we need mechanisms to separate ourselves from each other, which I think we have provided for in the [REDACTED] timeframe, but certainly from our plans and how we both have behaved over our histories as businesses -- Naguib and his team at OT, and myself, AAL, and my team -- we want to do this for the long term.

638   We want to build a true, viable competitor over the long term, and having a risk -- you know, if one party changes his mind and says, suddenly, "I have changed," for whatever reason, "and now Verizon is going to be your partner," that, to me, would not be acceptable, necessarily, and I could understand certainly how it would not be acceptable to Mr. Sawiris.

639   COMMISSIONER MENZIES: Mr. Intven, I just wanted to get myself assured on a couple of points.

640   Your argument is, essentially, that the negative requirement in the Telecommunications Act means that it's up to others to prove that Globalive is not Canadian controlled.

641   And assuming that I am correct on that, how does that --

642   I am not correct on that?

643   MR. INTVEN: I wouldn't actually put it as much as an onus issue; in other words, whose job is it to prove it.

644   Yourselves, as Commissioners making a finding, if you find that non-Canadians control the business, then the company is offside.

645   If you do not find that non-Canadians positively control the business, the company is onside under the law.

646   That, sir, is the way it has been interpreted.

647   THE CHAIRPERSON: Or, another way of putting it: We have to satisfy ourselves that non-Canadians do not control it.

648   MR. INTVEN: Yes.

649   THE CHAIRPERSON: That is really what we have to do.

650   MR. INTVEN: Yes, that's correct.

651   COMMISSIONER MENZIES: I just want to be clear where your argument applies -- where your position applies to the control in fact, as opposed to control.

652   MR. INTVEN: The way the Act works, sir, is that section 16(3) says that it's Canadian controlled if it meets three requirements: 80 percent of the board is Canadian; 80 percent of the voting shares are Canadian -- this is at the operating company level; and the corporation is not otherwise controlled by non-Canadians.

653   "Control" is defined in the front of the Act to mean "control in fact".

654   So it is your function, I would submit, to look at all of the arrangements, as you have been doing, but once you have looked through the arrangements, then to make an assessment, just as the Chairman said, to see if you have made a finding that any of those specific arrangements result in control in fact on the part of the non-Canadians.

655   COMMISSIONER MENZIES: I just wanted to be assured that your last summary included all facets of control, that you weren't just referring to the legal structure that you were referring to, that your argument was encompassing everything, and having been assured of that --

656   MR. INTVEN: That is the case.


658   THE CHAIRPERSON: Could we return to the Technical Services Agreement?

659   I want to understand this, and I have the feeling that you and I, Mr. Campbell, read this differently.

660   As far as I can understand, you have signed this agreement, and you are paying them [REDACTED] percent of your gross revenue, plus you are reimbursing them for any services that you purchase.

661   You mentioned yesterday that you are free to purchase from other sources, but, of course, that does not in any way diminish the [REDACTED] percent that you have to pay.

662   Secondly, if I understand it correctly, you can terminate it, but only for breach. If there is no breach, but the services rendered by Orascom are of a nature that they do not satisfy you, let's say from a technical quality point of view, or from a diligence point of view -- they do it, but they are slow and they hold you up, or whatever -- as I understand it, you have no lever to terminate this agreement.

663   MR. CAMPBELL: I think, if we refer to the Management Services Agreement, certainly there are -- it clearly outlines exactly under which conditions I can terminate the agreement. But if there is no material breach, then you are correct, sir, I cannot terminate the agreement.

664   THE CHAIRPERSON: Thank you.

665   MR. CAMPBELL: Just one clarification, also --

666   THE CHAIRPERSON: When we went to the term sheets this morning, you seemed to suggest termination for other than material breach, and the only one I can see is the one that, actually, Orascom can trigger if it falls below 51 percent.

667   MR. CAMPBELL: Yes.

668   THE CHAIRPERSON: Okay, so we have the same understanding, that's fine.

669   Do my colleagues have any other questions?

670   Go ahead, Peter.

671   COMMISSIONER MENZIES: On the TSA, when we were getting into that discussion yesterday -- I can't remember which one of you, but you turned that over and said that you wanted to turn it over to today, to give us a full explanation on the Technical Services Agreement and its purpose and function.

672   I don't think we are completely clear on its history, and that it is more than a services agreement, and that it's part of the shareholder operations.

673   So if somebody could -- I don't need a lecture, but, basically, tell us why it is there, and whose interest it serves, and does it have a strategic purpose or is it --

674   I need to know, frankly, whether it is a control mechanism. So, if you could address it from that perspective...

675   MR. CAMPBELL: Yes, I can tell you --

676   COMMISSIONER MENZIES: I know you are going to tell me that it's not, but I need to understand --

677   MR. CAMPBELL: What I can certainly tell you, Mr. Menzies, is the value that we get as management from the Technical Services Agreement.

678   I suppose, if you think about it in the context that you have set it up, you have to ask yourself how would we operate as a business without the Technical Services Agreement.

679   First of all, we have a very strong, a very engaged team now in place in Canada, who, as I mentioned yesterday, are making significant operational and technical decisions and implementations every day.

680   We are building towers. We did our first test call in Ottawa yesterday, coincidentally.

681   So all of the real, day-to-day decision-making around that is happening.

682   Now, in particular, what we are able to leverage from OT -- which, frankly, we have been able to use, especially in our large vendor agreements --

683   Just a reminder; there is really only a handful -- on the technology side, there are only around five or six major global vendors able to deliver a radio access network today in the spectrum in which we operate. So there are only a few people that you can choose, and OT has been able to give us, through the TSA, access to the price book.

684   So, clearly, what an Orascom or a Vodafone pays for equipment is different than, let's say, my previous experience operating a business in the Baltic States.

685   The value that the TSA brings, in my mind, is particularly around that, that scale and that access to scale.

686   Does that control us? Absolutely not. I could still buy equipment from any one of these vendors. Now I have the advantage, of course, of having those contracts in place and those relationships, but it doesn't necessarily control our operation. So that's a distinction.

687   Now, I would separate that from the commercial arrangement, which, as I said before, I have seen quite regularly, in various operations around the world. It is a way for shareholders to extract some value from the business. It is typically a percentage of service revenues.

688   The way that my shareholders have structured it, I do not think is anything uncommon.

689   As management, we have to work within it. Of course, I would love all of those services to be free, but it is simply the way things work.

690   THE CHAIRPERSON: But it is a dual purpose agreement. It is both for technical services, as you said, and it is also part of your shareholder getting back a return on his investment.

691   Mr. Sawiris made that quite clear this morning, and that's why it was part of the original shareholders' agreement.

692   MR. DOBBIE: Mr. Chairman, if I could speak to that for the shareholders, this was one of the very first parts of the deal that was reached between OT and AAL. It arose initially out of the fact that the shareholders needed to leverage their own experiences and bring the benefits to the company, and AAL was quite insistent that OT would provide these technical services, and OT also needed to ensure the commitment and involvement of AAL for the things that it does under the Consultancy Agreement.

693   So, sure, there is the actual need to ensure that the shareholders are committed to providing that expertise, and it is purely advisory only. The Technical Services Agreement is clear about that.

694   But the other side of this is the part we discussed earlier today, which is very much the revenue share. This is an arrangement that OT uses in almost all of the countries in which it operates, and it is very common in our part of the world.

695   This is really akin to a royalty, or I could even go so far as to say a dividend. It is really a shareholder distribution right to a share of profits, and the same applies to AAL.

696   I would point out that if you adjust for the relative shareholdings, the concept here is that the royalty payment is equivalent to the economic interest that the shareholders are taking.

697   [REDACTED]

698   [REDACTED]

699   Perhaps Tony or Simon might like to expand on this from AAL's side.

700   THE CHAIRPERSON: Before you do that, the question from Mr. Menzies was: Is this a control instrument or not.

701   Clearly, it has an aspect of control. Mr. Campbell is not obliged to use the services, but if he uses something, he has to pay for it anyway.

702   So it doesn't lock him in, he is not obliged to only use your services, but there is, clearly, a great incentive to do so. Presumably, he would be very reluctant to do otherwise, because it would actually cost him.

703   MR. CAMPBELL: If I use alternative services, it would cost me, but if I put aside the economics of it for a moment, can I run the business without a Technical Services Agreement? Yes.

704   Do I benefit from it? Absolutely.

705   Personally, I don't view that as control, I view that as a benefit of the shareholders.

706   Incidentally, it is not simply OT, I also benefit from Tony, Brice, Simon -- the AAL team and the synergies that we get on that side, which is also important.

707   THE CHAIRPERSON: They are Canadian, and we would be looking here for control by non-Canadians.

708   The other point that was made yesterday by Bell, very clearly, was that they were saying that, essentially, it is too late. Because of your very deep involvement with Orascom, all of the key decisions, in terms of technology, have been made -- in terms of trade name, in terms of handsets, in terms of vendor suppliers, et cetera.

709   Essentially, the horse is out of the barn. You have already made all of these decisions, and you have made them under the influence of Orascom.

710   That was Bell's submission, as I understood it.

711   MR. CAMPBELL: First of all, let me comment on some of the statements from yesterday.

712   In fact, the negotiations with major vendors began before -- as a point of clarification, the negotiations with vendors started, yes, before I joined the business. I, personally, signed the ITP with all of the major vendors -- the Instructions to Proceed.

713   I, personally, signed the final contracts with these vendors.

714   Decisions made around our core sites, where we house our equipment, in Toronto, Ottawa and Vancouver, I and my management team have made all of those decisions.

715   So to say that the horse is out of the barn is not, in fact, correct. Our handsets, unfortunately -- have I lost my sound?

716   THE CHAIRPERSON: It seemed to, I don't know what --

717   MR. CAMPBELL: I'm just trying to speak louder.

718   Can you hear me now?

719   THE CHAIRPERSON: Yeah, yeah. Yes, that's --

720   MR. CAMPBELL: Sorry.

721   So to say the horse is out of the barn is not entirely correct. We are making many, many decisions every day around this business, where, in fact, we are not consulting OT, where we are simply going forward.

722   Handsets, you mentioned as an example, we are arranging -- we certainly arrange our own handsets, and we try to leverage the scale of OT to the extent possible, but the selection of handsets, the negotiations with handset suppliers, the procurement of handsets is definitely something that my team is doing. And if we can leverage OT, we certainly -- we do, but, typically, it's done in house.

723   So the other comment which I found to be a bit provocative yesterday was the technology chosen. Well, we only have -- I mean, in this business, we only have a few -- a couple of choices to make. Unfortunately, some of the Canadian operators made perhaps the wrong choice years ago, and we see them building a new network today.


725   MR. CAMPBELL: Well, you know, we are on the path to LTE. We are building -- we built -- and the call I received last night at 11:30 here in Ottawa was an all-IP call, it was a technology that, frankly, everybody -- every operator in the world is moving towards. So to say we have made a technology decision based on OT is absolutely ludicrous.


727   UNIDENTIFIED SPEAKER: Mr. Chairman --

728   THE CHAIRPERSON: Just a second, can I just -- and it's around technology and internal. It's not a control question, just for my own education.

729   You mentioned today somewhere in one of your answers that this is not a terribly good frequency or something and --

730   MR. CAMPBELL: Mr. Sawiris mentioned this.

731   THE CHAIRPERSON: Yeah, Mr. Sawiris. What is the issue there? This is the first time I have heard of it.

732   MR. CAMPBELL: Well, the handset, I mean, if you remember where we were at with PCS 10 years ago --


734   MR. CAMPBELL: -- when they first launched there were only -- handset suppliers only had a small range of terminals/handsets -- I use terminals and handsets the same way -- available. And we have the same situation today with 2100.

735   This is a nascent frequency. Yes, you see it in the United States with T-Mobile, but it is new to Canada, it is new to many markets. And, as a result, we are at a distinct disadvantage, as a new player, with the terminals.

736   And that, in particular, is something that will be overcome, but it will not be overcome in the next six months, it will be overcome over the next several years. And you think back to what happened to Microcell in the early days.

737   THE CHAIRPERSON: But it doesn't affect only you, it affects everybody else who got spectrum on it.

738   MR. CAMPBELL: Oh, absolutely. Yeah, absolutely.

739   THE CHAIRPERSON: Okay. I thought there was something specific to you.

740   MR. CAMPBELL: No, it's anybody who bought this spectrum. We don't have other frequencies, of course --

741   THE CHAIRPERSON: No, right.

742   MR. CAMPBELL: -- like the incumbents would.


744   COMMISSIONER KATZ: I had another question, but you raised this issue, so I will comment.

745   The handsets still hunt and search over all the bands because they are going to be roaming over the GSM network, presumably, at some point in time, that belongs to other parties in Canada.

746   MR. CAMPBELL: [REDACTED] Roaming agreements will be done on commercial terms with the incumbents, and, [REDACTED]

747   COMMISSIONER KATZ: Sure, but as far as I know, the handsets span the entire spectrum in the 2100.

748   MR. CAMPBELL: Oh, absolutely. Absolutely. You will be able to use WIND services from here to Australia if you would like.


750   MR. SCHESCHUK: Mr. Katz, if I may, the issue is far less an existing -- or sorry, the issue is not our handsets being able to move onto other frequencies. The issue is far more other handsets being able to come onto our frequencies. That's what hurts us.

751   MR. CAMPBELL: You will not see -- you will not see roaming -- our roaming revenues will be limited, for example, because, of course, many -- international especially, I'm talking about international roaming revenues, because of that fact, as Mr. Scheschuk said.

752   MR. LOCKIE: Mr. Vice-Chair, if I can clarify I think what your question is. The reality is our handsets will be able to use that frequency, but not all handsets that use that frequency will be able to use ours.

753   COMMISSIONER KATZ: Presumably the older ones won't and the newer ones will, which is standard for any evolution --

754   MR. CAMPBELL: That's not entirely true, but we can...


756   [REDACTED]

757   [REDACTED]

758   [REDACTED]

759   [REDACTED]

760   [REDACTED]

761   [REDACTED]

762   [REDACTED]

763   [REDACTED]

764   [REDACTED]

765   COMMISSIONER KATZ: Okay. Thank you.

766   I have got a whole series of questions, Mr. Chairman --

767   THE CHAIRPERSON: Go ahead, this is your domain.

768   COMMISSIONER KATZ: -- if you want me to back to where I was yesterday at about -- I don't know what time it was.

769   [REDACTED]

770   [REDACTED]

771   So maybe we could start with that, as an umbrella.

772   MR. SCHESCHUK: Sure, let me give you a quick overview, and then, please, fire away.

773   [REDACTED]

774   THE CHAIRPERSON: Can you give us amounts, too?

775   MR. SCHESCHUK: Pardon me?

776   THE CHAIRPERSON: This is in confidence. This is in confidence, and so --

777   MR. SCHESCHUK: Yes.

778   THE CHAIRPERSON: -- some sense of proportion. How much were those?

779   [REDACTED]

780   [REDACTED]

781   [REDACTED]

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802   [REDACTED]

803   THE CHAIRPERSON: Is there any reason why you can't file this document in confidence with us?

804   [REDACTED]


806   MR. SCHESCHUK: Yes, sir, we can.

807   THE CHAIRPERSON: Thank you.

808   [REDACTED]

809   [REDACTED]

810   [REDACTED]

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819   [REDACTED]

820   [REDACTED]

821   [REDACTED]

822   [REDACTED]

823   MR. SCHESCHUK: That is what's contemplated, yes.


825   Let's go back to the August 2011 dates on the debt financing. You have made some changes this morning to some of the clauses in there. Hypothetically, let's put ourselves on that date, and there hasn't been an ability for Globalive to repay that debt. What happens then?


827   But I will turn it to Aldo to have a quick chat.

828   [REDACTED]

829   [REDACTED]

830   MR. MAREUSE: Yes.

831   COMMISSIONER KATZ: -- as always?

832   MR. MAREUSE: Yeah.

833   [REDACTED]

834   MR. DOBBIE: Aldo, are you talking about when you sit down with the vendors or when you sit down with Globalive?

835   Now, Mr. Katz, Aldo was referring to sitting down with the vendors, so in the situation where the vendor facility needs to be repaid.

836   Aldo, the question that has been put to you is what happens at the end of the shareholder facility? Just give us a moment to clarify that.

837   MR. SCHESCHUK: Sorry, just for point of clarification, Mr. Katz, were you asking about the Orascom shareholder loan coming to maturity unpaid or the vendor loans?

838   COMMISSIONER KATZ: No, the Orascom.

839   MR. MAREUSE: Thought you were talking about the vendor loans, I am sorry.

840   [REDACTED]

841   [REDACTED]

842   [REDACTED]

843   COMMISSIONER KATZ: Yeah, but you just stated and reemphasized the concern that you had before, and that is [REDACTED] And our concern is clearly that it can't survive that way.

844   MR. SCHESCHUK: My comment on that would be that -- I mean, if we look at worst-case eventualities and we come to that point in time and there is this debt and it hasn't changed as we have evolved in capital and structure and so on, you know, we are talking about worst-case scenarios, I do revert back to the overarching goal here of expanding the capital structure and so on to what we have talked about.

845   But, I mean, there is a possibility of a scenario, so it has to be contemplated. And I think, you know, you come to that scenario, there is still Orascom debt in some form and the company's unable to repay. Now, I would say that the view of Orascom, and I don't want to speak for them, would be quite a bit different than your classic lender that would, you know, as you say, extract the price and you would have new terms and --

846   THE CHAIRPERSON: Well let's hear from Orascom. We are in 2011, the loan is due, Globalive got an approval from us. Now, they are working but they are not a raging success, so they have not been able to raise private equity and they are unable to repay the loan. What happens then?

847   [REDACTED]

848   [REDACTED]

849   [REDACTED]

850   MR. CAMPBELL: I think that's a good point. Regardless, if this was let's say a transaction where you had foreign debt, which happens in Canada quite regularly, you would have the same situation, it is the same under any condition.

851   MR. MAREUSE: Not only foreign debt, any you know --

852   MR. CAMPBELL: Well, yeah, but I think they are thinking about foreign control. So this is the same. I mean, you could point to many transactions here in Canada which have been leveraged buyouts which have relied heavily on foreign debt. And so I think that is important to consider, Mr. Chairman.

853   COMMISSIONER KATZ: So if we take the next step, and I will refer you to your term loan contract dated July 31, 2008, clause 1.5, where you have your references to the [REDACTED]

854   [REDACTED]

855   So there is now contemplation that

856   MR. SCHESCHUK: I don't have the agreement in front of me, but I know [REDACTED]

857   THE CHAIRPERSON: We can give you a copy of the agreement if you like.

858   MR. SCHESCHUK: Or I can bring --

859   THE CHAIRPERSON: Yeah, you want to give it to him..?

860   COMMISSIONER KATZ: It is clause 1.5.

--- Pause

861   MR. DOBBIE: Mr. Chairman and Mr. Katz, while Brice is familiarizing himself with that, I can confirm that in fact [REDACTED] But I will let Brice speak to that once he has reviewed the clause.

862   MR. SCHESCHUK: Mr. Katz, I guess the way I would answer the question is, is that [REDACTED]

863   I am not sure if anyone has any other comments on our end. It was a --


865   [REDACTED]

866   COMMISSIONER KATZ: Okay. So now we are back to the same as we had before. So we are now in August, 2011 and this thing is in default.

867   MR. SCHESCHUK: Yes.

868   MR. HUBERT: If I am going to bid on what would be the Orascom situation here, by that time --

869   COMMISSIONER KATZ: First of all, before you answer that question --

870   MR. HUBERT: Yeah.

871   COMMISSIONER KATZ: -- can you tell us what the -- this term loan, it is for $442 million, can you tell us what the aggregated interest compounded onto the debt would be at that point in time?

872   MR. HUBERT: On top of my head, no. I can run the calculation and come back to you in 15 minutes if that is of interest.

873   COMMISSIONER KATZ: Would you agree that at LIBOR plus 18 per cent it would at least be double that, if not more?

874   MR. HUBERT: No. No, not that much. We are talking here about two years, so we are talking about say 45 per cent of it, so let's say another $200 million.

875   COMMISSIONER KATZ: You are already into one year of it as well, right?

876   MR. HUBERT: Yes. So over -- but we started -- so it would be three years from that, so 60 per cent maybe. It would be significant value, yes.

877   COMMISSIONER KATZ: So it would be $600 million, $700 million, $750 million?

878   MR. HUBERT: Yes, probably about that, yes.

879   COMMISSIONER KATZ: Okay. Go ahead.

880   [REDACTED]

881   [REDACTED]

882   [REDACTED]

883   [REDACTED]

884   [REDACTED]

885   COMMISSIONER KATZ: But ultimately, the compounded interest that has been deferred and the principal is substantial.

886   MR. HUBERT: It is, it is substantial. But the reality is --

887   COMMISSIONER KATZ: And you have also got the $66 million term loan as well that will also compound itself.

888   MR. HUBERT: Of course, they all compound. But the reality is, if there is no money to pay us down there is no money. And whether we have the claim for 600 or 800, if the company has zero it doesn't really make a difference.

889   COMMISSIONER KATZ: Well, that leads me then to this document 6.6.1. And I guess you may want provide an introduction to it, because before I jump into page 23, which is your financing plan, you may want to talk a bit about how it was developed, what it is, who it was presented to, what approvals it has and then we can jump into some of the questions that I have.

890   MR. CAMPBELL: I can start, Mr. Katz.

891   This document was developed by me and Brice and our management team. It represents a document that I initiated when I first joined the company to recalibrate on the business plan and to develop a new business plan or a revised business plan based on management's view of what we would be able to execute on.

892   The revenue side of it is based on some primary market research we did. It was developed by our strategy team in concert with our finance team and it was presented to shareholders and to our board.

893   [REDACTED]

894   [REDACTED]

895   MR. SCHESCHUK: If I may, Mr. Katz. There has been numerous scenarios run as things have evolved. [REDACTED]


897   MR. CAMPBELL: If I could add, this is an important document, Mr. Katz and Mr. Chairman, because it sets out the strategy for the business which we developed in concert with Tony, with Brice, with Simon, which we presented to shareholders and which we got approved by the board.

898   It is definitely an important perspective on how we are going to make this business come alive and it was developed by Canadians in Canada with minimal input from anybody else frankly.

899   COMMISSIONER KATZ: Okay. So if we run to page 22, which actually has your 10-year plan in it, it basically forecasts the growth of your business starting in 2009. And if we run down to the fourth line, you have [REDACTED]

900   Is that right?

901   MR. CAMPBELL: That is correct.

902   COMMISSIONER KATZ: Okay. So now, this is the engine that will run the business to finance the investment. And then we turn the page and we have the financing plan.

903   So I will run down this. It starts off with the value of the spectrum that you purchased I guess in 2008, $442 million. And then you have a forecast of capital expenditures going from 2009 out and that is to build out of the infrastructure. And to that you [REDACTED] in each of the years which flows from the previous page that is on there.

904   Then you have a line called [REDACTED] which I don't know what that is, but I guess this [REDACTED]

905   MR. SCHESCHUK: Sorry, Mr. Katz, this would be [REDACTED]

906   COMMISSIONER KATZ: Okay, so that is the [REDACTED]

907   MR. SCHESCHUK: Yeah, that's [REDACTED]

908   COMMISSIONER KATZ: And then you have [REDACTED]

909   MR. SCHESCHUK: That is correct.

910   COMMISSIONER KATZ: Now we get into the financing, the next group of rows there.

911   [REDACTED]

912   MR. SCHESCHUK: That is correct.


914   MR. SCHESCHUK: Yes, Mr. Katz. If you look a few lines below you will see [REDACTED] -- actually, do you mind if I step back for one second?


916   MR. SCHESCHUK: I just wanted to caveat this capital structure for a second, if I may.


918   MR. SCHESCHUK: First of all, this document is a little bit dated. The reality is there are numerous capital structures that are always being contemplated. We have some current views on resulting capital structures and what it might look like. So I just say that as an overarching comment but I want to continue to work through this with you.

919   And yes, [REDACTED]

920   COMMISSIONER KATZ: Okay. That's down below and I see that.

921   And then if I run across the page to [REDACTED]

922   MR. SCHESCHUK: Yes. Those combined in those years, I think that is correct.

923   COMMISSIONER KATZ: So what that tells me is [REDACTED]

924   MR. SCHESCHUK: Under this capital structure, sir --


926   MR. SCHESCHUK: Under this capital structure, sir, again, which was, if I may, just post-Lehman, that is how we did reflect it.

927   Again, I will step back with my comments and I will say -- if you look there is also a line at the very bottom of that section called [REDACTED]

928   It is one representation of a capital structure at a point in time, using some thoughts from myself and our business planning group and the management team.

929   Your point is correct. There are scenarios that can occur where the debt runs for a long time and there are, you know, any combination and permutation of equity-raised Orascom partial debt conversions into equity high-yield raises with re-fis of Orascom debt and we can continue to talk through combinations and permutations. In this particular scenario, that is how it is reflected.

930   COMMISSIONER KATZ: Okay. The reason I'm coming to this is that basically if you look two more lines down, [REDACTED]

931   So this model, done when it was done, basically says [REDACTED]

932   MR. SCHESCHUK: Yes. Again, I will come back to that because we were in really the pith of the pain, if you will, with respect to U.S. high yield, and Michel and I talked long and hard at that time about, you know, our views on when the markets might open and so on, and it was -- again, it's hard sometimes to remember exactly, you know, the thoughts at that point in time but it was dismal.

933   COMMISSIONER KATZ: What bothers me even more is that there is another document that I picked up called "Globalive Wireless Management Corp. Business Plan" -- and I'm sorry I can't direct my associates here to it. It is dated 8/10/2009, which is August 10, 2009, which was submitted in confidence as well.

934   [REDACTED]

935   I don't know how to direct people to this document.

936   MR. SCHESCHUK: Mr. Katz, do you have the interrogatory number for that one?

937   COMMISSIONER KATZ: If I did, I would give it you. I pulled it out last night.

--- Off-record discussion

--- Pause

938   MR. DOBBIE: We believe that is document 6.11-4.

939   THE CHAIRPERSON: Yes, you are right.

940   COMMISSIONER KATZ: Yes. So when I look at that document and I just look at the -- I don't know what page I'm looking at. When I look at page 57, it has the forecast of revenues that are [REDACTED]

941   [REDACTED]

942   MR. SCHESCHUK: I'm sorry, Mr. Katz. I'm not clear. I am looking at 6.11-4 and I think [REDACTED]

943   MR. HUBERT: Yes. I think there is apparently a problem. The reason it is dated '09, I think, is because it was printed as a PDF at that time. So I think it is just the date of the date it was printed.

944   MR. LACAVERA: Yes. This is a much older plan.

945   MR. HUBERT: This is numbers we used when we were doing our investment committees, so those are basically at the time of the auction or before.

946   COMMISSIONER KATZ: So this date of 8/10/2009 is an incorrect date?

947   MR. LACAVERA: Yes. I apologize -- we have a date stamp.

948   THE COURT REPORTER: Can you use the microphone, please?

949   MR. LACAVERA: Yes. That's actually -- this document is actually the document that we used when we originally went to Orascom, to the investment committee. It's a document that was prepared over the course [REDACTED]

950   THE CHAIRPERSON: It has a date of [REDACTED] on the second page in the introduction, so it has to be later than that. Right here in the introduction you have [REDACTED]. So it has to be past [REDACTED]. I don't know what the date of the document is.

951   MR. LACAVERA: It was actually updated -- it was originally presented to the OTH investment committee, which Michael O'Connor and I did with Brice and the group, and then it was updated around the time the auction was going on, as we started to continue to give updates to OTH on what the spectrum prices were looking like. You will recall the auction went on for an extended period of time.

952   MR. SCHESCHUK: So, Mr. Katz, I apologize for the confusion, but yes, we really -- the PowerPoint or PDF copy that I referred you to, that 6.6, and there is another one that was very close in time, I think it was 6.15 off the top of my head, that is really the more -- in that style, that look and feel is the current business planning kind of template.

953   COMMISSIONER KATZ: Okay. So let's work from this.

954   MR. SCHESCHUK: I apologize for the confusion.

955   COMMISSIONER KATZ: Just a couple of hours of work last night, not a problem.

--- Laughter

956   MR. SCHESCHUK: I apologize, sir.

957   COMMISSIONER KATZ: Let's go back to this one here then.

958   But it basically says that there will be [REDACTED] under this plan at this time and ultimately [REDACTED]

959   And then there is something called [REDACTED] So the [REDACTED] Is that correct?

960   MR. SCHESCHUK: Yes, that is how it is reflected here, sir. Yes.

961   COMMISSIONER KATZ: Okay. So you are [REDACTED]

962   MR. SCHESCHUK: Yes.

963   [REDACTED]

964   [REDACTED]

965   MR. SCHESCHUK: Sir, that is correct. A couple of comments.

966   [REDACTED]

967   Again, I come back to we were comfortable in actually formalizing the line item at the time of high yield in commercial loans, [REDACTED] The reality is it is opening up earlier than that.

968   So again, I appreciate the focus on what is in front of you, and it should be, [REDACTED]

969   COMMISSIONER KATZ: All my questions revolve around the same issue, and that is the concern that Orascom having and maintaining a hold on the debt instruments as well as the financing instruments as well as some of the operational issues seems to be a very contentious issue for us.

970   MR. SCHESCHUK: Sir, I absolutely appreciate and that message has been received loud and clear.

971   I think the messaging back is that, you know, our current thinking on capital structure -- you know, that obviously evolves with the markets and so on -- is that we will absolutely imminently or very near term be reducing our proportionate reliance on Orascom.

972   [REDACTED]

973   That is the core message that we have been trying to get across and I guess I have said it a few ways.

974   [REDACTED]

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991   [REDACTED]

992   COMMISSIONER KATZ: When the debt instrument was issued to Globalive, the markets were in a state of major flux and I guess at that time the market rates were LIBOR plus 18 percent or whatever.

993   Are they still that today? If you had to extend money today, would it be LIBOR plus 18 percent?

994   MR. MAREUSE: Should you just walk through the comparables we have in the table -- because I think that is very, very useful to see this kind of start-up financing -- you will see that at the time of, you know, much better markets, you will see financing for start-ups at exactly the same price. This was not in a depressed market, this was done in bull markets.

995   COMMISSIONER KATZ: Were these start-ups that Orascom had an interest in?

996   MR. MAREUSE: Sorry...?

997   COMMISSIONER KATZ: Were these start-ups that Orascom had an interest in?

998   MR. MAREUSE: No, no, no, these are just market transactions.

999   COMMISSIONER KATZ: These are just greenfields, new start-ups with no large major international backers?

1000   MR. MAREUSE: Yes. Exactly. Maybe you can walk through this.

1001   MR. SCHESCHUK: Yes, thank you.

1002   The typical benchmarks that were used by virtually all bankers that were presenting to us, particularly the foreign-owned bankers, were five or six companies that were all U.S.-based.

1003   The names are TerreStar Networks and MSV, which are two U.S. satellite to terrestrial spectrum operators. They both raised substantial, what would you call it, large underfunded business plan, first debt raises, spectrum secured. We will call it new entrant type financing, okay. The IRRs to the lenders on both of those businesses were -- one was 15, the other one was 14.

1004   The next example cited is Clearwire, which I think we are all aware of. The IRR on that particular debt instrument, which included by the way an equity component of warrants, 20 percent plus.

1005   The next company cited is ICO, which I actually don't know what that company is but I -- satellite. Sorry, satellite. And a similar scenario, IRR between 15 and 20 percent.

1006   I will give you the dates of these by the way. I'm sorry, I am actually not giving you the dates.

1007   So TerreStar was a Feb. '07; MSV was a March '06; Clearwire had two raises, August '05 and February '06; ICO was in August '05.

1008   Just to repeat, on ICO, it was a 15 to 20 percent IRR; there again was convert on it.

1009   XM in the US, which we are all aware of, March 2000 -- so that went back a ways -- 18 percent IRR.

1010   And Sirius, which we also know, which was November -- we are back to '97 on that one -- IRR of 17 percent.

1011   Now, the two satellite ventures that I referred to had no equity components attached. Interest provisions were PIK'd. They were very, very, very, very similar to what we are talking about here. One was for $500 million, the other was for $436 million. Funding gap sizes were larger than ours. Years to EBITDA positive were between three and five --

1012   MR. MAREUSE: I think it is important, Brice, to mention the date.

1013   MR. SCHESCHUK: Did I give them all?

1014   MR. MAREUSE: Yes, you did mention the dates, but just to insist, the '07 ones were done in the best boom market. It was all before the debt crisis. In March 2000, it is right before the -- you remember the telecom --


1016   MR. MAREUSE: So these were done in really bullish markets. These are not the same conditions as we have now, at least not the conditions we had a year ago.

1017   COMMISSIONER KATZ: But none of those -- and some of them I don't recognize -- had the support and the backing of an established international player like Orascom, which adds credibility.

1018   I mean I understand the concern about Globalive today is not operating and therefore there is a degree of risk, but presumably one of the reasons why Mr. Lacavera picked Orascom is to mitigate that risk by having an established player that is credible, that has international businesses, that is successful in all the markets around the world, 14 countries. So there is an awful lot of credibility there that goes with that as well in order to market the benefits.

1019   That's why I'm saying, I think Orascom is getting all the benefits of the expertise and the knowledge and the experience of Orascom from an equipment perspective, but when it comes down to raising capital and the staying power and the success of Orascom, I don't see that manifesting itself into benefits for Globalive for some reason, other than paying LIBOR plus 18 percent.

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1038   MR. LACAVERA: I would like to --

1039   MR. HUBERT: If you want, I can maybe walk you through the chronology of that because --

1040   MR. LACAVERA: Michel, if I could, just for a second, I would like to go through the detail on that but I would like to -- I think Aldo presented it in a very positive light. I would just like to submit part of it from my perspective.

1041   [REDACTED]

1042   [REDACTED]

1043   MR. CAMPBELL: If I could also add.

1044   It struck us -- it certainly struck me as part of the process that this project certainly characterizes a very high-risk investment. It is not a slam dunk at all.

1045   [REDACTED]

1046   [REDACTED]

1047   [REDACTED]

1048   [REDACTED]

1049   THE CHAIRPERSON: That begs the question, [REDACTED]

1050   [REDACTED]

1051   [REDACTED]

1052   THE CHAIRPERSON: You were going to say something and you were cut off.

1053   MR. HUBERT: Maybe there has been enough explanation. I just wanted to highlight the fact that we actually had been the one -- if you look at the process, you have seen Ducharme's term sheet.

1054   [REDACTED]

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1061   THE CHAIRPERSON: Peter...?

1062   [REDACTED]

1063   THE CHAIRPERSON: Okay. I think those are our questions. It is also 12:30, so let's break now for lunch. We have to resume the public part of the hearing at least to tell people what's happening.

1064   So let's get back here at 2 o'clock and I will make a formal announcement how we go from here. Okay?

1065   So we will break now for lunch. We will be back here at 2 o'clock. Thank you.

--- Upon recessing at 1230


____________________      ____________________

Kristin Johansson         Jean Desaulniers

____________________      ____________________

Sue Villeneuve         Sharon Millett


Monique Mahoney

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