VimpelCom’s takeover of Wind Mobile, which was supposed to have been completed within six weeks, is taking more than eights months. The reason? National security concerns raised by the federal government.
According to multiple sources familiar with the matter, as cited by the Globe and Mail, Ottawa is hesitating before giving the go-ahead for Dutch company VimpelCom to take full control of Wind Mobile for two reasons: first, VimpelCom is controlled by Russia’s second-richest man; and secondly, Wind has built its core network by using Huawei (a Chinese Chinese telecoms equipment company) gear.
Founded by a former member of the People’s Liberation Army, Huawei has been facing accusations for a while now from US politicians that its gear (which is at the core of Wind’s network) is designed to enable the Chinese government to intercept and sabotage foreign communications systems.
Both Wind Mobile and Huawei officials emphasized the lack of security breaches, hacking, spying, or other such activities, but this wasn’t enough for officials.
When contacted about the delay in the decision, Industry Canada replied:
“The government is clearly committed to encouraging competition in the wireless sector. The strict confidentiality provisions of the Investment Canada Act do not allow further comment on this investment at this time,” Industry Canada wrote in an e-mailed statement.
Yet the back and forth will probably continue until July 4, which is the final deadline for the decision. VimpelCom’s takeover of Wind Mobile will be the first materialization of the updated foreign-investment rules, which allow full foreign control of telcos with up to 10% market share.
A decision on whether to allow VimpelCom to acquire full ownership of Wind must now be made before July 4. One stumbling block is that Mr. Lacavera’s buyout deal expires on June 30, according to people familiar with the matter.
An official statement from VimpelCom states:
“VimpelCom is a company registered in Bermuda, headquartered in Amsterdam and listed on the NYSE. Our governance structure reflects our international provenance and we would strongly refute and take issue with any statement which suggested that should VimpelCom achieve control of this or any other business there would be any increased risk of security breaches,” VimpelCom spokesman Bobby Leach said in an e-mail.
Wind Mobile, on the other hand, has taken action to comply with the government’s expectations:
“We work co-operatively and proactively with CSIS and other law-enforcement agencies (federally and provincially) on both security and emergency/9-11 matters. … Although we regularly work alongside these agencies on security matters, we must emphasize that we have never had any security issues with our network,” Wind said in a statement.
Huawei has been operating in Canada since 2008 without issue.
“From the beginning, we’ve operated in an environment that has placed a premium on ensuring the security of networks in Canada, and we continue to work transparently and openly with our carrier partners and the federal government to ensure the equipment we provide in Canada is safe, secure and reliable,” Scott Bradley, spokesman with Huawei Technologies Canada Co. Ltd. wrote. “Any suggestion to the contrary is completely false. We are proud of our contribution to Canada’s telecom industry.”
Yet the Chinese company poses a national security threat alongside ZTE in the eyes of the US and Australian governments, despite being at the core of the UK cellular network. The US committee has found that Huawei likely has substantially benefited from the support of the Chinese government. The company rejected allegations that it is being financed to undertake research and development for the Chinese military, but the US committee claims it has received internal Huawei documentation from former employees showing the company provides special network services to an entity alleged to be an elite cyberwarfare unit within the People’s Liberation Army.