Microsoft co-founder backing Bitove's cellphone bid

BY PETER NOWAK Microsoft Corp. co-founder Paul Allen is backing Toronto entrepreneur John Bitove's quest to offer cellphone services, while a potentially major player has dropped out of the running.

Allen, the 11th-richest American with a personal worth of $16 billion US according to Forbes, is backing Bitove's company, Data & Audio-Visual Enterprises Wireless Inc.,throughhis investment fund, Vulcan Inc. Bitove's company, which is also backed by New York-based Quadrangle Group, has submitted a $106-million letter of credit to Industry Canada.

Allen founded Microsoft in 1975 with Bill Gates,whileBitove owns XM Satellite Radio Canada and hundreds of KFC,Taco Bell and Pizza Hut restaurants across the country.

The Microsoft founder'ssupportwas revealed Monday as Industry Canada announcedthe list of qualified bidders for the auction, which begins May 27.

One of the big surprises in the announcement was thatthe mysterious company known as Niagara Networks Inc., which has no operations in Canada,had dropped out of the auction. Niagara Networkslodged the biggest application ahead of the March 14 deadline with a letter of credit for $881 million enough to bid on all the spectrum being auctioned prompting industry observers to speculate it had the support of a major foreign telecommunications company.

Niagara Networks president Douglas Evashkow could not be reached for comment Monday.

Winning bidders are expected to begin building cellphone networks and competing with the country's three established players, Rogers Communications Inc., Bell Canada Inc. and Telus Corp., by early next year.

Foreign ownership to be reviewed after auction

Leonard St-Aubin,director general for the telecommunications policybranch ofIndustry Canada, said the approval process extended only to credit checks and did not include a review of whether interested bidders would pass foreign ownership restrictions. Those reviews will be done after the auction concludes, St-Aubin said.

Ownership rules limit foreign firms to controlling 20 per cent of voting shares in a company that has telecommunications infrastructure. The rules allow a further 26 per cent sharein a holding company, giving foreign players a maximum stake of 46 per cent. Foreign bidders thereforeneeda Canadian partner to acquire spectrum.

Winnipeg-based MTS Allstream Inc. and the Canada Pension Plan Investment Board previously revealed a partnership that includes New York-based private equity firm Blackstone Group.

Toronto-based Globalive Communications Corp.has announced it isbacked byEgypt's Weather Investments and London's Novator. Boston-based M/C Venture Partners and Virginia-based Columbia Capital previously revealed themselves as partners, through a numbered company, with Canadian investment firm Novacap.

Besides Niagara Networks, Saskatoon-based YourLink Inc. also withdrew its application while a company known as Canadian Tele Corp. did not make Industry Canada's cut, leaving the number of qualified bidders at 27.

Industry Minister Jim Prentice in November ruled that Canada's cellphone market was not competitive enough, so new entrants would be given a leg up in the coming auction. The majority ofspectrum 60 per cent is open to bids from anyone, while the remaining 40 per cent is reserved for new entrants, which Industry Canada defines as any company that currently earns less than 10 per cent of the nation's $12.7 billionin cellphone revenue.