UPDATE: Shares of Manitoba Telecom Services (TSX:MBT) have fallen more than seven per cent after Ottawa rejected the sale of its Allstream business to an Egyptian investment group.

The stock was down $2.43, or 7.51 per cent, at $29.93 in morning trading on the Toronto Stock Exchange.

WINNIPEG - Manitoba Telecom Services (TSX:MTS) says the federal government has rejected a deal for it to sell its business unit Allstream to Egyptian investment group Accelero Capital Holdings due to "unspecified national security concerns."

The Winnipeg company said late Monday it is "extremely surprised and disappointed" by the decision to not approve the deal, which was announced last May. At the time, the company valued the sale at $520 million.

"MTS Allstream and Accelero continue to believe this transaction is to Canada's net benefit and to the best of our knowledge would not be injurious to national security," MTS said in a statement.

The company said it and Accelero, which is owned by Egyptian telecom magnate Naguib Sawiris, have offered to "take whatever actions are necessary" to address Industry Canada's concerns, but have been rejected.

Sawiris is an original investor in small wireless company Wind Mobile, which operates in Canada.

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  • David Fuller

    <a href="http://www.huffingtonpost.ca/2013/02/21/rick-mercer-telus-stupidest-thing-ever-said_n_2734060.html" target="_blank">"I think a lot of customers don’t want a cap on their monthly cellphone bill."</a> -David Fuller, chief marketing officer for Telus

  • Darren Entwistle

    <a href="http://business.financialpost.com/2013/07/18/telus-darren-entwistle-wireless-spectrum-verizon/?__lsa=0b39-2f11" target="_blank">“There’s going to be a bloodbath, because people are not going to give up on getting that block."</a> -Darren Entwistle, Telus CEO, on what would happen if the government's rules for foreign companies who want to buy Canadian spectrum don't change.

  • Richard Schultz

    <a href="http://www.huffingtonpost.ca/2013/08/20/james-moore-wireless-verizon_n_3784535.html" target="_blank">“It was foolish, stupid, arrogant."</a> -McGill University political scientist Richard Schultz, on a letter from Anthony Fell, Bell Canada’s BCE director, to Stephen Harper.

  • Top-Down Communication

    <a href="http://www.huffingtonpost.ca/2013/08/28/kevin-crull-bell-wireless-debate_n_3830589.html" target="_blank">“Kevin Crull our President wants us to give this report some coverage. It’s a report on phone charges in Canada." </a> -Excerpt from one of the alleged emails sent from senior Bell Media employees obtained by Carleton prof Dwayne Winseck. Winseck says Bell Media's president, Kevin Crull, pressured news directors from other outlets to provide favourable coverage of the CRTC's Wall report.

  • Cruickshank

    <a href="http://fullcomment.nationalpost.com/2013/08/21/full-pundit-call-a-wambulance-for-canadas-wireless-giants/" target="_blank">“Bell, Rogers and Telus … are accountable to Canadians for the airwaves we entrust to them in ways a foreign firm with 100 million customers back home could never be.” </a> -Toronto Star Publisher John Cruickshank on the consequences of Verizon's entry into Canada

  • Ben Klass

    <a href="http://www.huffingtonpost.ca/2013/08/07/verizon-canada-wireless-rules_n_3720880.html" target="_blank">“You suggest that ‘U.S. giants don’t need special help from the Canadian government,’ but that’s exactly how Bell got to where it is today."</a> -Blogger Ben Klass on Bell

  • Telus

    <a href="http://www.huffingtonpost.ca/2013/08/09/stephen-harper-wireless-rules_n_3733569.html" target="_blank">"Given we've invested $100 billion in Canada since 2000, we've earned the equal right to bid on spectrum against a company with the deep pockets of Verizon."</a> - Josh Blair, chief corporate officer of Telus

  • Entwistle

    <a href="http://www.huffingtonpost.ca/2013/08/22/ralph-nader-verizon-canada_n_3794205.html" target="_blank">"I don't think they have a commitment to rural Canada."</a> -Darren Entwistle, Telus CEO, on Verizon

  • James Moore

    <a href="http://www.huffingtonpost.ca/2013/08/20/james-moore-wireless-verizon_n_3784535.html" target="_blank">“Nobody believes that the incumbents want robust aggressive competition."</a> -Industry Minister James Moore on Rogers, Bell and Telus

  • Anthony Lacavera

    <a href="http://windmobileblog.com/2013/08/time-to-separate-myth-and-reality/" target="_blank">"Over the past several weeks Canadians from coast to coast have been treated to a veritable all-you-can-eat buffet of misinformation on the state of the wireless industry."</a> - Anthony Lacavera, CEO of Wind Mobile on the Big Three's campaign

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    Pictured: Wind Mobile CEO Anthony Lacavera

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  • NEXT:

    What You Need To Know About Wireless Code of Conduct


    How much of the code is new?


    <em>Answer from Marc Choma of the Canadian Wireless Telecommunications Association, the industry lobby group representing incumbent players:</em> A lot of these things are already common practice from carriers, but I think it’s good that consumers, on a national basis, know this and it applies to everybody. It’s going to supercede any provincial legislation and that was our main goal going into this because we were seeing a patchwork of regulations across provinces and it was costing the industry a lot of money to adapt their systems potentially 13 different ways.


    Are there any restrictions in the code that will prevent the cost of two-year contracts going up as a result of the new rules?


    <em>Answer from the CRTC:</em> The CRTC wireless code proceeding did not address pricing, as the Commission had previously determined that there is sufficient competition to protect consumer interests with respect to rates. Service providers are free to determine their rates for service and how much will be charged for phones up front. At the same time, improving consumers’ abilities to switch providers should push service providers to compete on price.


    How will the shorter contract length affect handset costs?


    <em>Answer from Steve Anderson, executive director of OpenMedia.ca, a wireless consumer advocacy group:</em> It’s unclear. There’s no market reason while the cell phone companies would suddenly raise the cost of cellphone service because people are on shorter contracts. So if they do that it’s really just price gouging. They could try and raise upfront handset costs, but the Canadian companies have higher revenue per user than any other telecom companies in the world and other places where we have two-year contracts, the device cost is not higher than it is in Canada, a great example is the U.S. (Pictured: Steve Anderson of OpenMedia)


    <em>Answer from Lawford:</em> It’s call your bluff time. The CRTC is saying “let’s see if it’s true that really your costs are so high and that really you're subsidizing these devices so much, or is it that you’re locking people in so the contract is longer than the usable life of the device?” If we send people back in the market every two years is that going to make competition pick up the slack. If they all go up in lockstep, [then] the Competition Bureau should be looking into what’s going on. Pictured: John Lawford of PIAC


    <em>Answer from Choma of CWTA:</em> Changing the length of the subsidy from three years to two years can actually raise the price of the upfront cost for your device. So before you had the option of putting it over three years and you could get a much lower rate for your phone, but now you’ve only got 24 months to earn that subsidy back. Obviously, carriers are going to have to adapt their business models to comply with that. But we’ll have to wait and see how carriers respond.


    The new rules allow a fully purchased handset to be unlocked immediately or a subsidized handset to be unlocked in 90 days. What effect will this have?


    <em>Answer from Anderson of OpenMedia.ca:</em> Unlocking the phone means it’s easier to switch carriers, easier to go international and use different services that aren’t Canadian, so it makes it more affordable. But I also think that area could have been better, for example they didn’t talk about what the cost of unlocking would be. And even the 90-day part could have been stronger. If I get a contract for a phone I should be able to do what I want with it. <em>Answer from Choma of CWTA:</em> Most carriers already do that now and some of them actually do it before 90 days now.


    Are providers allowed to charge a fee to unlock a phone?


    <em>Answer from CRTC:</em> Yes. Since the CRTC did not examine rates or prices, it is up to the provider to decide on their unlocking fee. However, as of December 2, that rate must be clearly identified in your contract and your critical information summary. <em>Answer from Shawn Hall, Telus spokesman:</em> We already do that – we charge $35 and allow unlocking after 90 days. That covers our costs of providing the service.


    What are the effects of the new rules on people who are not on a contract or already have their phones unlocked? 


    <em>Answer from the CRTC:</em> People not currently on a contract will be covered if they sign a contract after December 2. If they are currently on an indeterminate or month-to-month contract, they will be covered as of December 2. <em>Answer from Marc Choma of the Canadian Wireless Telecommunications Association:</em> Most of the elements of the Code deal with contract services, so the impact on no-contract customers that already own their unlocked phone would be minimal.


    Do the caps mean the carriers will cut off your data or roaming after a certain point?


    <em>Answer from Anderson of OpenMedia.ca:</em> What’s expected is once you hit your limit in data roaming charges, you’ll receive a text message notification asking if you’re okay with that and do you want to continue. <em>Answer from Choma of CWTA:</em> Most carriers already provide notifications when you are approaching your data limit, or provide you with notification that you are roaming and how to purchase roaming packages. With the new code, a customer's data services will be automatically suspended once the customer has reached $50 of usage, unless the customer expressly consents to override the $50 default limit. In the case of international roaming, a customer's service would be suspended after the customer has reached $100 of usage, again, unless the customer expressly consents to override the $100 default limit. <em>Answer from Telus:</em> Currently, Telus caps international data roaming at $200. We send customers a free text message when they hit that point letting them know (after a series of usage notifications starting at 2 MBs), and will only reactivate roaming if they ask us to. <em>Answer from the CRTC:</em> The code doesn’t prescribe how carriers should do it. The way the code is set, there is a maximum amount carriers can charge unless they make specific arrangements with the consumer or the cell user gives consent to continue after a notification is delivered.


    Why did the CRTC decide on two-year contracts, rather than one year, the direction the rest of the world is taking?


    <em>Answer from the CRTC:</em> The Commission looked at what would be best for Canadians. Many jurisdictions feature two-year contracts – we also heard evidence during the hearing that multi-year contracts with subsidized devices allow Canadians to get new, sophisticated devices at a lower upfront cost. <em>Answer from Lawford of PIAC:</em> We’re in Canada, so we’re always behind. They could have done that too, but then they would have almost certainly raised everybody’s rates, at least the cost of a handset quite a bit. I hope that as the two-year contract becomes standard the one-year will become a competitive offering.


    Are the new rules on three-year contracts retroactive? Can I get out of a three-year contract today?


    <em>Answer from CRTC:</em> The rules apply, as of December 2, to all new contracts. In addition, on June 3, 2015, all wireless customers are covered, regardless of when their contract was signed. In practice, that means that if someone signed a contract in May 2013, then on June 3rd 2015, they can cancel without penalty. <em>Answer from Choma of CWTA:</em> With most carriers right now, there isn’t a cancellation fee. If you want to cancel, you just cancel and pay off your device subsidy.


    Can a consumer use the new rules as an argument to fight an "outrageous roaming bill" they receive before they are technically protected?


    <em>Answer from CRTC:</em> Consumers are always free to contact their service provider to contest a bill. The service provider is not obligated to lower the bill simply because new rules are on the horizon. <em>Answer from Choma of CWTA:</em> Yes they could. However, the Commissioner for Complaints for Telecommunications Services (CCTS) is already available for consumers that have billing issues. The CCTS will also be the body responsible for enforcing the new Code. <em>Answer from Lawford of PIAC:</em> No. In the meantime you can go to the CCTS and say the rate being billed wasn’t made clear. The CCTS has a history of knocking those down unless the company can show the customer was made very aware of what was going on.


    If you decide to get out of a three-year contract after 2 years, do you still have to pay fees like the cost of the handset?


    <em>Answer from the CRTC:</em> If you currently have a contract and you want to exit, you will likely be charged a cancellation fee, which is determined by your service provider. Some provinces have rules setting out how these fees must be calculated. Once the code is in force, you will be able to exit after two years without any penalty or fee.


    Sky high billing is the biggest concern in Canada. Why weren't rates per second and per megabyte addressed?


    <em>Answer from CRTC:</em> The CRTC’s wireless code proceeding did not address pricing, as the Commission had previously determined that there is sufficient competition to protect consumer interests with respect to rates. The new rules will enable consumers to make informed decisions and shop around for the best deal that meets their needs. In addition, the rules around bill shock, including caps on data and roaming, will reduce the high bills that some consumers see. <em>Answer from Lawford of PIAC:</em> The code wasn’t intended to reduce rates or touch rates at all. The whole premise behind us even getting any rules was we’re not talking about rates because the CRTC says, "We’re not rate regulating, all we’re doing is putting in standards so everyone is treated relatively fairly." The Commission could regulate rates, but they don’t. But addressing high rates is the next step, so that [question is] onto something.


    Will providers have to show separately the handset cost consumers pay each month?

In a statement, Industry Minister James Moore confirmed the proposed acquisition was rejected under the national security provisions of the Investment Canada Act.

"The result of this review is that the transaction will not proceed," he said in an emailed statement.

The minister did not specify what the security concerns may be, but said: "MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada."

MTS said the decision comes after Accelero had agreed to commit to invest $300 million over three years into Allstream.

"We pursued this transaction, with Accelero as our partner, in direct response to the federal government's stated policy objectives of increasing foreign investment and driving greater competition in Canada's telecommunications sector, so this result is very difficult to understand or accept," said MTS Allstream CEO Pierre Blouin in a statement.

Accelero also expressed disappointment at the decision, adding that it was a surprise considering the federal government has repeatedly encouraged foreign investment in Canada's telecom sector.

"Throughout this process, we were comforted by Industry Canada that our filings were in order, our submissions complete and constructive, and our proposed binding undertakings serious and substantive so that the transaction would meet the 'net benefit' test," said Sawiris in a statement.

"We are disappointed by the government of Canada's unfounded and unexpected decision. Accelero has an impressive track record of successful investments in many of the countries with whom Canada enjoys global strategic partnerships.

Both companies say they will continue to review their options.

Allstream, created after AT&T Canada restructured, competes in the business telecom market against Bell Canada, Telus and the other large Canadian telecommunications carriers. MTS bought the company in 2004 in a bid to gain a national presence in certain types of telecom services, mainly geared to large corporations and institutions. When the sale was announced, the company employed about 2,000 people and served about 50,000 businesses.

MTS operates Manitoba's largest telecommunications business.

— By Linda Nguyen in Toronto

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