Anthony Lacavera is puzzling over his cellphone bills. Spread out on a boardroom table are two multi-pagers detailing his mobile use — one from Rogers and another from T-Mobile, his U.S. provider. “I spend 500 bucks and they give me five bucks off,” he says. “Isn’t that a joke, man?” More items catch his attention. “Look at this: pooling fee. Isn’t that crazy?” Lacavera says he has no idea what a pooling fee is.
He’s almost certainly hamming it up. Lacavera knows wireless. At least he should. He’s taking a billion-dollar gamble that his privately held company, Globalive Communications Corp., based in Toronto, will be the next national wireless carrier, alongside Bell, Telus and Rogers Communications Inc. (parent of Canadian Business). He’ll need to know about his competitors’ operations in detail (pooling fees, too) before he launches a wireless service in two yet-to-be-determined cities (among Toronto, Vancouver, Edmonton, Calgary and Ottawa) later this year, followed by the remaining three in early 2010.
Lacavera, an audacious 35-year-old with gelled hair and well-tailored suits, is either poised to shake up the cozy $16-billion wireless industry in Canada — or about to fail spectacularly. “I would not under any circumstances bet against him,” says Duncan Stewart, director of Deloitte Canada Research. “The only thing is, he’s in an industry where an awful lot of smart, intelligent people have done their best and not succeeded.”
A handful of newcomers are itching to charge into wireless. But Globalive is the only one with national aspirations. Lacavera spent more than any new player to scoop up spectrum the federal government auctioned last summer — $442 million on licences in every province except Quebec. And he’s committed to spending another $1.4 billion over 10 years, largely to build his network. Other newcomers have smaller ambitions, focusing on either a specific region, such as Vidéotron in Quebec, or on a single tier of customers.
Lacavera wants more. “If I say we should raise a million dollars for a venture, he’ll say, ‘Why don’t we raise $25 million?’” says Ari Yakobson, a friend and business associate. Lacavera went so far as to land a billionaire investor for Globalive — Naguib Sawiris, who runs Orascom Telecom Holding in Egypt and presides over a wireless empire in Africa, the Middle East and Asia that has more customers than Canada has people.
The partnership suggests Lacavera’s goal of snatching up to 15% of the Canadian market in less than a decade may be more than mere fantasy. But huge obstacles stand in his way. Lacavera is squarely in the sights of the three market giants—and he’ll have to fend off attempts to crush him as he girds for a possible price war. The incumbents pumped up promotion of their discount brands months ago in response to the new competition, and they’re now locking users into contracts to shrink the potential customer base available to a new rival.
Lacavera’s billionaire backer, meanwhile, is swimming in nearly US$8 billion in debt after a handful of expensive telecom acquisitions. And as if that wasn’t enough, Telus recently wrote to the Canadian Radio-television and Telecommunications Commission (CRTC), urging it to take a hard look at the partnership. In September, the regulator will subject Globalive to a rare public review to determine if it complies with foreign-ownership rules. The incumbents will no doubt argue Orascom’s involvement runs afoul of the law. The CRTC is making the review public to clarify foreign ownership rules, analysts say.
Effectively, this is a test case. Lacavera could be forced to alter the very arrangement that gives him an edge, and he clearly hates being slowed down. He bristles with energy, knee bouncing during conversation, his speech jumbled with too many thoughts. Not even building a national wireless business is enough — this guy has dabbled in producing Broadway theatre, angel investing, and he operates a charitable organization. But wireless is his biggest and riskiest venture yet — and he responds to the challenges with characteristic bravado. “We’re still going to be in the market,” he says. “There’s nothing they can do to stop us.”
Going wireless was obvious. Roughly 30% of Canadians are not yet mobile users, a large percentage compared with other countries. It was a natural extension of the business Lacavera founded in 1998 after graduating with a degree in computer engineering from the University of Toronto. Lacavera was an average student, more interested in girls and bars than studying, but he developed an entrepreneurial streak in the mid-1990s after joining a web-design business founded by fellow classmates. The venture didn’t last, so he quickly zeroed in on another.
A crop of new carriers sprouted up to compete with the likes of Bell Canada after Ottawa deregulated local phone markets in 1998. Lacavera formed Canopco Inc. with some engineering buddies at age 24 to provide the companies with teleconferencing, directory and operator services. The venture got off the ground with a $250,000 small-business loan from the Royal Bank of Canada.
After nearly a year of working the phones to pitch his services to potential customers, Lacavera had enough of a client list to embark on a $1.4-million equity financing. He targeted high-net-worth individuals, even securing cash from the late CRTC chairman Charles Dalfen. He also learned very quickly what investors want to hear: never oversell or undersell the opportunity, and be consistent with the message. Canopco hit its first major hurdle a few years later when the tech bubble burst and 11 of its first 12 customers imploded. The company intensified its focus on providing similar services to hotels, and pulled through the crash.
Lacavera created Globalive in 2003, absorbing Canopco and building a going concern of telecom services through a handful of brands. The most well-known is Yak, a discount provider of home phone and Internet. He purchased the company, then-publicly traded, for $76 million after a relentless seven-month pursuit in 2006.
Yak was bleeding cash, and analysts credit Globalive for stitching the wound. It’s difficult to know for sure how successful it has been because the operation is private. But the fact that Yak is still around is a testament to the Globalive team, according to Iain Grant, managing director of telecom consultants the SeaBoard Group in Montreal. “They’ve got the tenacity and the staying power for a market that has not seen many survive,” he says. Grant credits the company’s success in part to its brash marketing campaigns.
Yak boasts it has more than one million customers, and the spectrum auction gave Lacavera the chance to turn them into wireless users. But he needed backing. He scoured for investors the minute Ottawa announced the spectrum sale in November 2007, and worked tirelessly for three months to score a deal. Canadian investors listened politely — but rejected him. “Everybody was like, ‘Why don’t you go back to your Yak?’” Lacavera says.
So he began to look internationally. Lacavera cold-called more than 40 potential investors and had discussions with fewer than a dozen, including Vodafone and France Telecom. By March 2008, he’d bagged two billionaires: Björgólfur Thor Björgólfsson of Iceland, and Orascom’s Sawiris.
Björgólfsson bailed as spectrum prices entered nosebleed territory during the auction, but Sawiris didn’t budge. He’s an aggressive entrepreneur with “an incredible stomach for risk,” Lacavera says. The Egyptian purchased a 65% equity stake in Globalive and committed up to US$700 million over the next four years. He operates Orascom Telecom Holding, which provides wireless services to more than 80 million people in such places as Pakistan, Bangladesh and even North Korea. Forbes pegs his personal net worth at US$3 billion.
Orascom has a reputation for being a lean, low-cost provider; it can purchase wireless equipment at a fraction of the cost that others pay because of its massive scale. Former Orascom employees now work with Globalive, including Ken Campbell, who once served as chief commercial officer for Orascom Telecom Tunisia. Campbell, a native of Lachute, Quebec, is now CEO of Globalive’s wireless unit.
Recruiting Sawiris was a coup. An acquaintance of Lacavera put him in touch with a lawyer who knew an adviser to the telecom mogul, and soon he was speaking with Michael O’Connor, a Canadian working as Orascom’s business development officer in Cairo, and now co-chairman of Globalive. “I’m from Peterborough, and you’re from Welland,” O’Connor told him. “Sounds like we’re off to a great start.”
The two bonded over the fact that they both played junior hockey in their youth, and just a few days later in late February, Lacavera found himself on a plane to Cairo to dine with Sawiris at a Chinese restaurant in the Four Seasons Hotel. By this point, he’d spent three months soliciting backers, only to be turned down again and again. This was the kind of meeting he’d been working so hard to get — and he was shocked at how quickly Sawiris agreed to it. Lacavera was nervous, but kept focused on his goal of convincing Sawiris he was the right guy to partner with; the Egyptian would already know about the wireless opportunity in Canada.
Lacavera played up the fact that both men were entrepreneurs, and talked extensively about his background. “I told him I’ve been operating a business in Canada for 10 years,” he recalls. “I’ve poured my life into it. I’ve taken a lot of financial risk.”
Sawiris wasted no time. By March 10, he contributed $200 million to a refundable deposit Globalive submitted to Industry Canada to secure the right to bid on spectrum. Lacavera trekked to Ottawa to personally deliver the application. He phoned his dad the same day, unable to contain his excitement, gushing about all the work still left to do. The elder Lacavera cut his son short — and told him to take the afternoon off and have a beer.
Lacavera’s pattern is to make a deal and allow experienced managers to take over. He’s the consummate salesman and randomly calls Yak customers to ask about their level of satisfaction, without telling them he owns the company. He possesses a disarmingly goofy smile and a booming guffaw, and comes off as more of a boisterous jock than a telecom nerd. But he’s relentless. “He’s got an absolutely insane energy level,” says his friend, Yakobson. “The guy can go without sleep for three days. He’ll go out to dinner, go to a nightclub, do some work, and just keep going.”
That drive has allowed Lacavera a chance to compete among the giants. “Deal-making is one thing,” cautions Troy Crandall, a research analyst at MacDougall, MacDougall & MacTier Inc. in Montreal. “Execution of a large-scale business is another thing entirely.” Orascom’s backing makes Lacavera a contender. But now that partnership is under intense scrutiny.
The CRTC’s review of Globalive is no rubber-stamping exercise. The commission could have done that through a quiet, confidential review. Instead, it introduced a new framework for examining telecom ownership and is subjecting Globalive to a grilling. Orascom owns the majority equity stake in Globalive, and Lacavera possesses two-thirds of the voting shares. He argues that gives him ultimate control. The Telecommunications Act says Canadians must hold the majority of the voting shares, but it also contains a clause stating foreigners cannot “otherwise” control the firm, a clause open to interpretation. Globalive already passed Industry Canada’s ownership test in March. But Telus later wrote to the CRTC to express its concern, and the company’s structure raises questions about what constitutes ownership when one party has voting control but another possesses the larger equity stake. The best-case scenario for Lacavera is the CRTC gives its blessing and he’s not significantly delayed. But the regulator could also demand Orascom cut its stake, sending him back on the fundraising trail when markets are still in the dumps.
But the CRTC ruling is just the beginning — Lacavera still has to survive in the marketplace. He talks about easy-to-understand bills, eliminating hidden fees, and not forcing customers into long-term contracts. But one area where Lacavera does not want to compete is price. That would be a war the upstart is sure to lose. Orascom’s deep pockets can keep Globalive fighting for a while, but even Sawiris’s fortune isn’t endless. According to Forbes, his net worth has fallen by more than three-quarters since 2008, as he sold a chunk of his investment firm to pay down debt. Nevertheless, the SeaBoard Group’s Grant describes the Globalive-Orascom partnership as a “potent mix, something the existing players have to watch carefully.”
So all eyes are on Lacavera, but his eyes are already drifting toward the next venture. “I like seeing whole other worlds,” he says, confessing telecom can be “a very boring business.” He’s going into film production and is always looking to invest in startups. He’ll go anywhere he can make a deal.