Assessment revealed through judicial review request in Federal Court by China Mobile
By Ahmad Hathout
OTTAWA – A Chinese state-owned company that resells services on the Telus network was told by the federal government last month it must divest its operations in Canada over national security concerns, according to court documents.
The federal government’s decision on August 6 to force China Mobile to divest from the country was revealed when the mobile virtual network operator filed a request to review the decision in Federal Court on Tuesday.
In the application, China Mobile said Innovation Canada was wrong to refer the company to the Governor in Council for review because it determined the company “may,” but not “would,” pose a threat to national security, which is the legal bar required to refer the matter. The company is also charging the minister of drawing “inappropriate conclusions” from the evidence it presented, including that it does not own or operate networks and has no access to sensitive telecom or personal data.
The Canadian division of China Mobile, which has an office in Markham, Ontario, was established in 2015 and provides prepaid wireless plans primarily to customers “with a connection to both China and Canada” through a partnership with Telus, the court documents say. In effect, China Mobile distributes plans on the Telus network and does not own or operate a telecommunications network, it said, hence its characterization as a virtual operator. In 2015, the company received a basic international telecommunications service (BITS) license, which allows a telecom to move data traffic across borders, from the CRTC for a period of 10 years.
While it has been operating for five years, China Mobile said it “inadvertently” did not tell Innovation Canada about that and only alerted the ministry in October 2020, when it said it would be established as a new Canadian business. This started the review process. (Ed note: One wonders why being granted a licence by the Commission which ISED actually oversees didn’t alert the ministry of China Mobile’s presence back then.)
The company and the ministry had a back and forth over several months, where the government asked for more information about the business. China Mobile said it told the government that it does not own or operate a network, it has a “limited presence” in the country, and it does not collect personal information through the resale of wireless voice and data services “other than non-verified contact information (name, email addresses, delivery address) and payment information.”
The company said it told the ministry it primarily provides non-telecom related services, such as data and business support services, including marketing, product advisory services, and data analytics, to its parent company.
“CMI Canada indicated that it also offers resale wireless voice and data telecommunications services through its partnership with Telus,” it said in the court documents. “In this capacity, CMI Canada simply acts as an agent of Telus pursuant to the Telecommunications Agreement by re-selling Telus SIM cards and pre-paid rate plans primarily to immigrants from China, international students and business visitors from China to Canada.” It’s website offers a range of plans.
ISED probed China Mobile about the nature of the partnership with Telus, “how particular consumer hardware works, and how CMI Canada manages traffic between Canada and China,” according to the documents. It responded that it does not alter any Telus packages and has no access to Telus’ portals or customer interface.
On May 11, the minister held a meeting with Telus representatives, according to the documents, to discuss the agreement between the company and China Mobile.
The federal government said its summary of concerns included that, as a state-owned enterprise controlled by the Chinese state, “this investment could result in the Canadian business being leveraged by the Investor’s ultimate controller for non-commercial purposes, such as the compromise of critical infrastructure and foreign interference, to the detriment of Canada’s national security.”
In an email, an Innovation Canada spokesperson said: “Under the Investment Canada Act, all foreign investments are subject to national security review. Reviews are conducted on a case-by-case basis as part of a rigorous and evidence-based process.
“Due to the confidentiality provisions of the Investment Canada Act, no other comment can be made at this time.”
Telus did not respond to a request for comment.
Beside Telus, China Mobile also provides mobile communications to Montreal-based data centre firm eStruxture. That partnership was formed last year. It is unclear what will happen if eStruxture loses that partnership.
It also has peering agreements with Toronto Internet Exchange for traffic and points of presence owned by Equinix and Cogeco.
China Mobile said in the application that the decision to upend the Canadian business would “require the termination of its client base and operations.”
The decision to force China Mobile’s parent to relinquish the business in Canada comes at a politically sensitive and curious time.
The federal government is currently dealing with a diplomatic crisis concerning two high-profile Canadians detained by the Communist government, while the Canadian government has resisted pressure from the Chinese to stop the extradition of a Huawei executive to the United States to face trial on investment-related charges.
The decision also adds further speculation about what the federal government will produce from its review of the national security implications of having Huawei provide equipment for the next generation 5G networks.
It has been years since the investigations have been launched into Huawei and the security of 5G networks generally. But as time rolls on without a decision, some telecoms have been partnering with other equipment manufacturers, including Finland’s Nokia, Sweden’s Ericsson, and South Korea’s Samsung.
Telus announced last year it is partnering with the two European companies for its 5G network, and said previously it would stick with Huawei equipment outside its core network.
Others, like Iristel, have decided to stand by their decision to partner with Huawei.
