TORONTO – U.S. private equity firm Quadrangle and Data & Audio-Visual Enterprises (DAVE) have filed a $1.2 billion lawsuit against Industry Canada over their respective investments in new wireless entrant Mobilicity.
In a statement of claim filed Thursday, Quadrangle accuses Industry Canada of negligence, negligent and/or reckless misrepresentation, breach of contract, intentional interference with economic relations, abuse of public office, unjust enrichment and loss of reputation and goodwill.
In brief, Quadrangle argues that Industry Canada is liable because it offered to establish and enforce rules to support a new entrant in Canada’s wireless market, promises that it later “ignored”.
“It disregarded its own foreign ownership rules, refused to require roaming and tower-sharing at commercial rates, and allowed Incumbents to engage in anti-competitive practices, including loss-making “flanker” brands to undercut the new entrants”, reads the claim. It also alleges that Industry Canada “applied different ownership and control requirements to Wind, another wireless provider, than it did to Mobilicity” and then “broke its final promise by refusing to allow a sale of the business after five years.”
John Bitove, through his company DAVE, invested $40 million in Mobilicity, while Quadrangle invested $217 million in equity and a further $95 million in debt financing, the statement of claim continues. They also spent $243 million buying spectrum licences in the 2008 AWS auction and then built out a network in large urban centres in Ontario, Alberta and BC.
In a note to clients on Friday, Canaccord Genuity managing director/head of research Dvai Ghose observed that both the wireless incumbents and new entrants, who Industry Canada is supposedly supporting, have expressed their frustration at the Government’s “regulatory inconsistencies”.
“In particular, we wonder why any financial or strategic investor would be interested in being a wireless new entrant without any obvious exit strategy, as a sale to an incumbent has been the only exit strategy for new entrants like Public Mobile, Clearnet, Microcell, Call-Net and Allstream”, he wrote.
Industry Canada has 20 days after receiving the claim to file a statement of defence or notice of intent to defend.
