Competition watchdog says wholesale deal could be appealed to the CRTC
By Ahmad Hathout
OTTAWA – The Competition Bureau said in a filing to the Federal Court of Appeal on Friday that the tribunal’s decision to allow Rogers to buy Shaw assumed the fulfillment of commitments from the merging parties that could actually be challenged at the CRTC.
Those commitments include Rogers supplying Videotron – the target buyer of Shaw’s Freedom Mobile – with long-term access to its infrastructure at below market rates, which are regulated by the CRTC.
“The Tribunal failed to consider that these arrangements could be challenged by third parties at the CRTC nor did it consider the likelihood of the arrangements surviving the long durations of the contracts,” the bureau said in its memorandum of fact and law, which is a more detailed version of its arguments to be presented in front of the court on January 24.
Earlier this month, independent wholesaler TekSavvy urged the Innovation Canada minister – who must approve or disapprove of the deal after the appeal is heard – to deny the proposed combination on the basis that it allegedly hinges on the Montreal-based regional carrier getting favourable wholesale rates compared to competitors.
“Those regulated rates indirectly determine what Canadian consumers pay for internet services,” TekSavvy said. “When the Competition Bureau argued that the CRTC’s rates are so high that Vidéotron cannot use them to compete, Rogers confirmed that it will grant Vidéotron preferential rates that are below the regulated rates set by the CRTC.”
The bureau was illustrating a broader point in alleging that the tribunal, contrary to the Competition Act, accepted “behavioural” rather than “structural” commitments to alleviate competition concerns.
“The Tribunal must focus on the structural aspects of the Proposed Transaction because structural changes change the competitive positions of competitors and therefore their market power,” the bureau argues. “The behavioural commitments at the core of the Divestiture Agreement are of no relevance to the assessment of the merged entity’s ability to exercise market power.”
The watchdog also raised the uncertainty of the long-term access deal in light of pointing out existing litigation between Rogers and Videotron regarding a similar 20-year network operating agreement in Quebec. It also disputed the reason for accepting a commitment from Videotron that it will hold the Freedom licenses for at least 10 years and offer lower prices in its prospective markets when these are not “legally enforceable conditions.”
“The Tribunal’s consideration of these different behavioural arrangements made as between Rogers, Shaw and Videotron, was an error in law,” the bureau argues. “These considerations are necessarily of no relevance to the ultimate question the Tribunal was to ask itself: whether the merged entity is likely to be able to exercise materially greater market power than in the absence of the merger.”
The bureau will further argue that the tribunal took an incorrect path to analyzing the deal’s competitive effects, namely, that the tribunal combined the main Rogers-Shaw deal with the sale of Freedom in its analysis and put the onus on the bureau to argue why the sale would not alleviate competition concerns for the former. What it should have done, the bureau says, is argue first about Rogers and Shaw, and then have the merging parties argue why the Freedom deal allays competition concerns.
“The Tribunal’s approach of combining the Proposed Transaction with the Divestiture Agreement into one step was contrary to established Canadian jurisprudence and is also not supported by US case law,” the bureau said in its memorandum.
The bureau is asking that the case be sent back to the tribunal.
