The MTS building in downtown Winnipeg.Joe Bryksa/The Canadian Press
What happened at MTS Allstream? Here are three theories put forward by those attempting to understand the decision.
What we now know about the failed bid by an Egyptian-led group for Manitoba Telecom Services Inc.'s Allstream division is that almost no level of concessions from the would-be buyers would allay the concerns of the government, which rejected the plan citing national security.
The initial reaction Monday night to the rejection among many was "oh here we go again" with the Conservative government blocking yet another deal. But the knee-jerk concerns about protectionism seem to miss something. The political and economic cost of this move is quite high. The Potash Corp. of Saskatchewan Inc. decision, for example, was a political win in some quarters. This one comes with no easy votes.
It does come with risks.
At the highest level, it again reminds the world that Canada does block deals every so often.
In communications specifically, the government makes it more difficult to push its fourth wireless carrier policy, because it sends a signal to foreign investors that some are not welcome.
In the immediate future, it ends the possibility that the Egyptian investor, Naguib Sawiris, and his team could use Allstream as the basis for a new competitive carrier. Take Allstream, add Wind Mobile, which is for sale, and you have a plausible competitive threat to BCE Inc., Telus Corp. and Rogers Communications. That is something the government would want in principle.
On top of that, there's the mixed message. The government bent over backward for Mr. Sawiris five years ago to let him into the Canadian telecommunications industry. The Industry Minister, Tony Clement, overruled the telecom regulator, which was concerned that Mr. Sawiris' plan to start Wind Mobile flouted Canadian ownership requirements. That was one of the reasons that Mr. Sawiris ended up the winning bidder for Allstream. MTS management thought he had already passed vetting once, and would likely do so again.
So against that backdrop, one has to at least nod at the possibility that the government really didn't want to block this deal.
But it did, so why?
Here are some theories put forward by people trying to puzzle through the ramifications.
1. Allstream's fibre network, which carries voice and data long distances and connects office buildings, is more crucial for national security than the Wind cellphone business. And that explains why Mr. Sawiris is ok to invest in cell phones, but not in the fibre networks.
There are two things to consider about that theory. The first is that Mr. Sawiris offered to stop carrying sensitive government traffic if Allstream was sold to him.
The second is that the government also delayed another foreign investor's attempt to buy Wind more recently for months on national security concerns. The foreign investor eventually bailed out. So either the government is just more concerned in general about telecommunications security, or this isn't the only reason.
2. Naguib Sawiris really upset Prime Minister Stephen Harper by calling him out on his telecommunications policy.
Mr. Sawiris was very critical of Canada's government policies on telecom investment in the wake of launching Wind. (He is no longer involved with the company.) He said publicly that he regretted investing in Canada and said there was "no political will" to really encourage competition.
The problem with this theory is that while Mr. Harper is viewed as the type of fellow who can hold a grudge, blocking a deal for that reason flies in the face of so many other policy objectives.
3. Something really did change when it comes to the government's view of Mr. Sawiris and his team.
Five years have passed since Mr. Sawiris's last attempt to invest in Canada. Perhaps the Canadian government learned something new on the national security front about network security, Mr. Sawiris or his team.
Nobody is inclined to cut this government much slack on its takeover blocking decisions, which are generally opaque and unpredictable.
But given the factors at play here – Canada's reputation, the survival of an already troubled telecom policy – one must at least allow for the possibility that the government knows what it's doing on this one and has a good reason.