Mobilicity Investors Sue Ottawa for $1.2 Billion For Breach of Contract

by Istvan Fekete on September 8, 2014

Mobilicity’s original investors are suing the Canadian government for $1.2 billion, claiming Ottawa broke the promises that attracted them in the first place. The struggling wireless startup has been under creditor protection for a year now, and the investors have had to face the harsh reality that Ottawa won’t allow them to recoup their original investment by selling the wireless airwave licences to Telus (you may recall that the government twice rejected the Telus–Mobilicity deal, and that the third Telus bid was withdrawn).

The Mobilicity story dates back to 2006, when a government official approached Canadian businessman John Bitove with the investment idea of a new wireless venture. Back then, the government had just finished its review of the competitiveness of the wireless industry, and since there wasn’t any, it was making preparations to auction off wireless spectrum. Bitove was already known in the country for his development of satellite radio provider Sirius XM Canada.

As the lawsuit documents reveal, the government encouraged Bitove to put together a business plan and seek financial backers. He was assured that the government would establish conditions to support the growth of new entrants into the wireless market, including establishing rules to mandate roaming on the incumbents’ networks and share their cell towers.

The result: Bitove and New York–based Quandrangle Group LLC (a private equity firm) purchased wireless spectrum licences worth $243 million during the 2008 auction, built a network, and launched Mobilicity, a wireless startup covering Ontario, British Columbia, and Alberta. But, as you may already know, the company has been struggling to take off since its launch.

The US private equity firm said the following in a statement released on Friday: Industry Canada “breached its assurances that it would enforce foreign-ownership rules, require incumbent carriers to provide roaming and access to cell towers at reasonable rates and terms, prevent unfair and anti-competitive practices and allow spectrum to be transferred. The prospect of any meaningful foreign investment in Canadian wireless industry for the foreseeable future has been lost.”

Bitove’s DAVE Wireless firm invested $44 million, while Quandrangle invested $217 million in equity and another $95 million in debt financing. The two are seeking damages for beach of contract and loss of goodwill through a damages claim of $1.204 billion.

Industry Canada has 20 days to file a statement of defence or notice of intent to defend.

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Written by: Istvan Fekete. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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