By Ahmad Hathout
OTTAWA – Underlying witness testimony at Wednesday’s Standing Committee on Industry, Science and Technology meeting into the proposed merger between Rogers and Shaw was the message that there are things the government can control in the event the massive cable and wireless combination gets regulatory approval.
That includes policies on requiring facilities-based telecoms to negotiate with service-based mobile virtual network operators (MVNOs), which the CRTC is still reviewing, and which federal cabinet can send back if it doesn’t like the Commission’s call; spectrum transfers and radio wave restrictions on the merging entities; open access to towers and backhaul networks; and lower wholesale internet rates for competitors.
For Quebecor CEO Pierre Karl Péladeau, the ideal post-deal scenario would involve the spin-off of fourth player Freedom Mobile with all the tools for a fighting chance as a competitor: spectrum ownership, roaming agreements, tower sharing and a fair deal for the use of the wireline backhaul network. These are things the company asked for in 2014, when it was considering expanding beyond Quebec.
The proposed $26-billion deal, announced halfway through March, has seen attention squarely focused on how regulators would handle the fact that Shaw’s Freedom has been the catalyst behind several changes in the wireless market, including providing larger data buckets for lower prices.
The Competition Bureau, the CRTC, and Innovation, Science and Economic Development Canada must all review the deal.
On Monday, the same committee heard from the head of both merging entities. Two highlights which emerged from that hearing was the suggestion consolidating the industry down from four players to three in Ontario, Alberta and B.C., would enhance competition and choice for Canadians, and when committee members revived seemingly contradictory past statements made by Shaw executives who insisted at one point that Freedom is the carrier the country needed for better competitive choice.
The prevailing thought among critics of the deal is that if regulators approve, they must do so with the condition that Freedom is spun-off and if it is, it requires a home with lots of capital in order to be a strong competitor. Some suggest Cogeco – the only publicly-traded telecom without a mobile business – would be an obvious fit, seeing as the company has urged the government to move on regulations that would make such a move economically-sensible.
But on Wednesday, Péladeau said Quebecor would be the ideal candidate to absorb Freedom because of its experience in the field with Videotron. “We certainly are the candidate with the expertise, the experience and the financial means when it comes to telecommunications and marketing that we would be able to meet the necessary criteria to be successful.”
Péladeau admitted that conditions in a merger between the giants wouldn’t – in all cases – be bad for consumers, so long as they follow his blueprint for competition. The critics’ line of reasoning is that a fourth carrier policy must be maintained, or else competition will wither.
“If we want a strong fourth player, we need to look at transferring agreements; we need to look at spectrum, so clients can have high-quality service with extremely competitive rates,” Péladeau said in French, according to the simultaneous translation.
The Canadian Communication Systems Alliance CEO Jay Thomson argued four players “isn’t enough” for choice and affordability and there should be more, delivered by way of mandated MVNOs from the CRTC.
Andy Kaplan-Myrth, vice president of regulatory affairs at independent internet service provider TekSavvy, said Canada is “one deal away” from disastrous repercussions for competition in telecommunications service. However, he said he isn’t necessarily for or against the deal – instead, it is incumbent on regulators to ensure that a deal or no deal ultimately works out in Canadians’ favour, an ideal shared by Thomson.
Thomson cautioned that what may get lost in the whirlwind of discussion surrounding Freedom is competition in content distribution and broadcast services as well. Rogers and Shaw, after all, have TV content and the networks that it rides on serving approximately 3.5 million households.
“Rogers Cable and internet subscribers will roughly double in size,” Thomson told committee members on Wednesday. “That will double the guaranteed cable subscribers to Rogers TV services like Sportsnet at its own preferred rate.”
“Because of the strategy of encouraging a fourth player, we have this inefficient overbuilding that you don’t have on the wireline side.” – Andy Kaplan-Myrth, TekSavvy
The winning strategy pitched by Kaplan-Myrth and the TekSavvy camp is also a public relations line dating back many months: that competition really is also one step away from reality if the CRTC institutes lower wholesale internet charges large telecoms charge smaller ones for capacity. Besides the CRTC’s new wireless policies, the telecom industry is also waiting on the Review and Vary decision from the Commission on wholesale internet rates.
“The fourth player is really the wrong strategy,” he said. “As long as we have this strategy of nurturing a fourth player to introduce some degree of competition, we are really designing the system to fail. We will be one merger away from competition.
“Because of the strategy of encouraging a fourth player, we have this inefficient overbuilding that you don’t have on the wireline side… as though it would introduce enough competition,” he said.
So, while OpenMedia’s Laura Tribe outright called for the door to be bolted and the key swallowed on a deal they allege would undoubtedly harm competition in the telecom market, what committee members were instead probing for were counterweight measures for if the deal goes through.
That’s why the attention of Wednesday’s hearing shifted fluidly between caution about the deal and options that the government has to blunt any adverse effects on competition as a result of an approval.
John Lawford, the executive director Public Interest Advocacy Centre, said while it may be too late to put the brakes on this deal, it can “stop the next merger” by eliminating the “efficiencies defence” provision in the Competition Act that gives some deference to interested merging parties if they show that some harm to competition is offset by business efficiencies. NDP MP Brian Masse called Section 96 of the Competition Act “archaic.”
“The efficiencies defence only works if the [Competition Bureau] ensures that parties with market power don’t abuse their dominance and use these efficiencies to squeeze out competitors,” Kaplan-Myrth said.
Lawford said that clause of the Competition Act, section 96, is something only Canada has and should be repealed.
The INDU committee meets next to discuss this merger on April 6.
With files from Denis Carmel.
