By Ahmad Hathout
OTTAWA – Two years and 16 days after Rogers and Shaw announced their intention to merge, Innovation Minister Francois-Philippe Champagne indirectly approved one of Canadian history’s largest corporate consolidations Friday by allowing for the transfer of Shaw’s Freedom wireless assets to Videotron – promised as the competitive fourth player in the telecom market.
The stipulations laid out by Champagne in a press conference on Friday are as follows: Videotron will commit to offering retail services that are “at least 20% cheaper” than from those of the major players outside its home territory, it cannot transfer Freedom spectrum licences for 10 years, it must expand its 5G network in Freedom’s pre-existing territory within two years, must expand mobile service into Manitoba via a mobile virtual network operator, and increase data allotments to existing Freedom customers by 10 per cent as a near-term bonus.
Rogers must commit within five years to create 3,000 new jobs in western Canada and maintain that for at least 10 years, have the headquarters and maintain it for 10 years in Shaw’s Calgary, invest $1 billion to expand internet access at speeds of at least 50 Mbps download and 10 Mbps upload, invest $2.5 billion to enhance 5G in western Canada and $3 billion in additional network service expansion projects, and expand access to its existing low-cost broadband internet plans and launch a new low-cost mobile offering for low-income Canadians. Many of these commitments were already included in Rogers’s initial deal proposal.
The minister will also impose financial penalties of up to $200 million for non-compliance for Videotron and up to $1 billion for Rogers. According to the contracts, the cash penalties would be levied incrementally on an annual basis, with the former facing yearly fines of $25 million for certain years and Rogers facing $100 million fines per year maximum if it does not meet commitments. The department is requiring reports on the status of the commitments be made publicly available every year until the 10th anniversary of the deal’s closing or until the parties have completed their commitments, whichever happens sooner.
“Today, I am informing Canadians that I have secured on their behalf unprecedent and legally binding commitments from Rogers and Videotron,” Champagne said at the press conference. “And, after imposing strict conditions, the spectrum licences of Freedom Mobile will be transferred to Videotron.
“Should the parties fail to live up to any of their commitments, our government will use every means in our power to enforce the terms on behalf of Canadians,” he added.
Champagne said during the presser that these penalties are “unprecedented” and include the “most stringent set of conditions” in Canadian history. Asked about the companies complying, Champagne noted that this is a legally-binding contract and they will be taken to court. He advised the parties, “don’t mess with the regulator.”
The minister also announced a moratorium on large spectrum transfers until a review of the spectrum framework, introduced in 2013, is completed. Large in this case being at least 10 per cent of holdings for players with substantial holdings. Otherwise regular spectrum exchanges, including smaller batches of unused spectrum transferred to other players, are still permitted. The department said this will help “maintain the stability” of the wireless sector.
The announcement comes on the day the parties agreed to close their transaction, after numerous delays in anticipation of Champagne’s decision. The innovation minister was the last obstacle for the $26-billion deal, whose broadcasting portion was approved by the CRTC in March 2022 and that had staved off Competition Bureau challenges at the Competition Tribunal and the Federal Court of Appeal.
In a statement, the merging parties agreed to once and for the final time extend the closing date to April 7.
“We are very pleased to move forward with this transformative merger and proudly deliver on our commitments to enhance and expand network coverage, connect underserved communities, and improve access for low-income Canadians,” Tony Staffieri, president and CEO of Rogers, said in a statement. “Building on a shared legacy with Shaw, we will invest substantially to bring more choice, more value, and more connectivity to Canadians across the country.”
Brad Shaw, executive chair and CEO of Shaw, said it’s an “exciting new chapter for the future of connectivity in Canada.”
In a statement on Twitter, Pierre Karl Peladeau, the CEO of Videotron parent Quebecor said, “This is very good news for Canadians who will be coming out of the grip of Bell and Telus who used very questionable methods to oppose this transaction in the public interest.”
But TekSavvy, the country’s largest independent telecom, said it is disappointed with the decision in part because it said the minister reneged on his promise not to make a decision until there was legal clarity on the details on the deal, namely the favourable wholesale internet deal Videotron is getting from Rogers. Last week, the CRTC began probing Rogers and Bell about those types of deals after TekSavvy filed an application asking for a review of them.
“TekSavvy hopes that the CRTC’s investigation into Rogers’ and Videotron’s unlawful wholesale agreements results in meaningful action and stops the further dismantling of competition in the telecom market,” TekSavvy said in a statement.
There have been several mergers and acquisitions in the industry recently. Bell closed its acquisition of large ISP Distributel last month, Videotron purchased VMedia, Start and Altima went to Telus, and Oxio’s internet business to Cogeco. Rogers CEO Tony Staffieri said earlier this month that acquisitions of smaller providers is an option to reach 100 per cent coverage of the market.
The Competitive Network Operators of Canada, which represents independent ISPs, said in a statement that, “While it remains to be seen if the conditions laid out by Minister Champagne will result in the affordable mobile bills Canadians deserve, CNOC is encouraged by the overall regulatory changes which have developed in parallel to the Rogers-Shaw-Videotron deal.
“Service-based competition is not only key for lower prices and more innovative services…it will also enable the promises of the parties in the merger,” CNOC said. “The large players in the Canadian telecom market have embraced the role that shared network access can play to expand their footprint. At the same time, small players need to be able to access incumbents’ network on terms as favourable as those the incumbents grant each other and we are hopeful the rules against undue self-preference in the Telecommunications Act will ensure that happens.”
Anthony Lacavera, chairman of Globalive Capital, the investment firm that was gunning for Freedom, said in a statement that the deal will “take advantage of Canadians’ wallets, there’s no sugarcoating it.
“More market power in fewer hands will always lead to higher prices and, in this case, a slower pace of wireless industry innovation,” he added. “Despite the Competition Bureau’s warnings, the overwhelming majority of Canadians, and countless industry experts sounding the alarm, Minister Champagne gave the green light, forcing Canadians to suffer with less affordable wireless prices.
“This is ironic given that this government has just released a budget aimed at making life more affordable for Canadians,” he noted. “Today’s decision has amplified the need for a truly independent wireless carrier, and Globalive is more determined than ever to be that disruptor.” (Globalive has said it is bidding for spectrum in Manitoba held by Xplore, which exited the mobile market.)
John Lawford, executive director of the Public Interest Advocacy Centre, said in a statement that “high prices for Canadian wireless will now be cemented in the market, with no new players, for the next decade.
“The promise is a ‘new national fourth player’ wireless company and lower prices for cellphone service – this is smoke and mirrors,” he added. “We do not believe the conditions obtained by the Minister can counteract the anti-competitive effects of this merger on Canadians, and will lead to another decade of high wireless prices for Canadians.”
In a statement issued following Friday’s announcement, federal NDP Leader Jagmeet Singh said “Canadians are still paying among the most expensive cell and internet bills in the world and now, despite their conditions, Liberals just decide[d] to make it worse by approving the Rogers-Shaw merger.”
The NDP leader said the federal Liberal government “ignored the independent Competition Bureau that said that the merger is expected to make our cell and internet bills more expensive.”
Singh said the Liberals “also decided to ignore unions that represent workers of the telecommunication industry that all recommended to stop this merger because hundreds of workers may lose their job.”
“In addition to higher prices and layoffs, the Rogers-Shaw merger has already led to less competition, less innovation and less choice for consumers by encouraging other big telecommunication companies to buy smaller players,” said Singh, adding the approval shows the need for strong competition law reform and a price cap to lower bills.
Laura Tribe, executive director of the internet advocacy group OpenMedia, said in a statement on Friday that “today’s decision is the largest blow to telecommunications competition and affordability we’ve ever seen,” noting that some of the conditions incumbent on Rogers were already committed by the company as part of its original proposal.
She said that it is “hard to reconcile this week’s federal budget filled with promises of affordability measures, with such a direct assault on choice and affordability for Internet connectivity. It’s a massive betrayal that’s only made worse coming from a government that has long-promised improved telecom affordability.
“At this point, there’s only one thing he can do to save our downward spiraling telecom sector: full-scale competition reform in Canada. Without it, we could easily be looking at a Bell and Telus merger next.”
The Competition Bureau noted in a statement that it is aware of the deal and said a competitive telecom sector is “vitally important for Canadians, and the Bureau will continue to do everything in its power to protect and promote competition in this sector.” That involves, it said, participating in the wholesale internet framework proceeding the CRTC launched earlier this month.
During a House of Commons committee hearing in February, Champagne promised critical Member of Parliament Ryan Williams that “you’ll be pleased” when the Conservative expressed skepticism about the enforceability of the commitments from the merging parties, including Videotron’s promise to reduce prices in the new western markets and to hold onto the Freedom spectrum licences. (Videotron has been criticized by MPs for its record of selling spectrum for profit, including nearly half-a-billion-dollars’ worth to Shaw in 2017.)
Rogers presented several concessions and sweeteners to get regulatory approval for a deal that merges two billionaire family businesses, including promising to provide Videotron access to its internet network at favourable rates. The CRTC is currently studying that side deal, among other similar agreements, after a challenge from independent ISP TekSavvy.
In preparation for the announcement, Champagne’s department has spent the last couple of months reassuring the public of ISED’s commitment to bolster competition in the telecommunications market, including finalizing a policy direction to the CRTC to reduce fixed internet and wireless prices and asking the CRTC to address international roaming charges.
In concert with that, the CRTC has been moving quickly to address what it thinks are issues that would assist in competition-boosting measures, including studying international roaming prices and reviewing the wholesale internet framework to lower internet prices. In October, the regulator released the terms and conditions of the MVNO framework, which allows larger regional providers to get mandatory access to the incumbent wireless networks.
Champagne said Friday the MVNO framework is key to competition, saying he looks forward to similar MVNO agreements required of Videotron in Manitoba “being signed expeditiously…as they are an essential tool to drive down prices.”
Friday’s announcement also comes just days after the Liberal budget promised to tackle telecommunications “junk fees,” such as roaming and overage charges.
Shaw had argued to the Tribunal that its position in the market has diminished considerably since the deal was announced, as it was not allowed to participate in a spectrum auction critical for the next generation 5G networks. That reality, it said, compromised its position in the market and made it uncompetitive without Rogers.
The merged entity bolsters Rogers’s presence in western Canada, Telus’s home court. During the Tribunal hearing, it was revealed that Telus attempted to derail the deal.
– With files from Christopher Guly.
Screenshot of Innovation Minister Francois-Philippe Champagne on Friday.
