THE BIGGEST STICKING point for the proposed merger of Rogers Communications and Shaw Communications continues to be Shaw’s wireless assets.
As Cartt.ca previously reported, this is even after the companies came to a definitive agreement with Quebecor for the sale of Shaw’s Freedom Mobile. (The agreement is contingent on the Rogers/Shaw merger closing and on necessary approvals.)
Both the federal government and the Competition Bureau have been clear they have concerns about competition in Canada’s wireless market and about the impact Rogers’ acquisition of Shaw could have on it.
Industry minister François-Philippe Champagne issued a statement back in March saying he would not let Rogers acquire all of Shaw’s wireless assets. This was reiterated today in a statement from an ISED spokesperson, emailed to Cartt.ca.
“The Government has indicated that it will not permit the wholesale transfer of Shaw’s wireless licences to Rogers, as it is incompatible with the government’s policies for spectrum and mobile service competition,” the spokesperson said.
In terms of the potential transfer of Shaw’s licences to Quebecor, the spokesperson said “any such proposal would be subject to a rigorous review to ensure it is compatible with the Government’s policies for spectrum and mobile service competition.
“ISED will review the transfer of any spectrum licences associated with the proposed transaction using the Spectrum Licence Transfer Framework,” said the spokesperson.
Nevertheless, the proposed remedy seems to be in line with what the government wants.
According to BMO Capital Markets media and telecom analyst Tim Casey, the sale of Freedom to “Quebecor represents the best solution available to satisfy the government’s industrial policy.”
In a note to investors on Monday, Casey explained, “It meets ownership requirements, has an operational track record in the business and enough balance sheet capacity to fund the purchase. Moreover, it comes in at a lower cost base than Shaw and with more attractive commercial arrangements.”
Casey credits the bureau for this remedy being proposed. “It seems to us the Competition Bureau, directly or indirectly, has extracted concessions for which it can rightly claim credit,” he wrote. “The outstanding question for investors is will it take a victory lap?”
A spokesperson for the Competition Bureau, which is currently reviewing the terms of an agreement between Rogers, Shaw and Quebecor for the sale of Freedom, said in a statement to Cartt.ca today it remains “firm” in its “decision to challenge the merger to protect the public interest and filed an amended reply with the Tribunal on Monday, August 15, to that effect.”
The spokesperson pointed out the challenge before the Competition Tribunal does not prevent the parties involved from reaching an agreement at any time and that mediation is also available, noting the scheduling order for the proceedings has two opportunities for mediation to be requested. (The first opportunity was for mediation to take place July 4-5. The parties did enter mediation at that point, but it failed. The second opportunity will be Oct. 27-28, according to the scheduling order.)
There seems to be two sticking points for the bureau on the matter of Shaw’s wireless assets.
The first is Shaw Mobile. Quebecor agreed to buy Freedom, but there is no deal on the table for Shaw Mobile. Champagne’s March statement suggests he could be fine with Rogers acquiring Shaw Mobile. The Commissioner of Competition, however, has previously suggested he wants to see Shaw Mobile sold off as well.
The second is a more complicated matter.
Rogers, Shaw and Quebecor have stated they “strongly believe the Freedom Transaction provides the best opportunity to create a strong fourth national wireless services provider and addresses the concerns raised by the Commissioner of Competition and the Minister of Innovation, Science and Industry regarding the Rogers-Shaw Transaction.”
However, while the government’s desire to have a fourth national wireless player in Canada has been reported before, the Commissioner of Competition has indicated he is in favour of ensuring strong competition from regional service providers.
“Our investigation of the proposed merger found that Shaw has established itself as a strong, disruptive regional competitor,” the bureau spokesperson said in the statement today.
“In a 2019 study, we determined that the Big 3 are able to charge higher prices where they possess market power, except in regions with wireless disruptors, where prices can be 35 to 40% lower. We allege that removing a strong regional competitor like Shaw will likely result in consumers paying significantly higher wireless prices.”
The spokesperson said the bureau is not able to comment any further.
Regardless, what the bureau has said suggests there might be a bigger challenge to be resolved in the matter of Rogers’ merger with Shaw than finding a buyer for Freedom and/or Shaw Mobile. Both the government and the bureau seem to have a particular vision of what they want Canada’s wireless market to look like moving forward, but those visions do not seem to be aligned. This matters because if the outcome each is hoping for out of the sale of Freedom is different, the ideal buyer of Freedom for the government will not be the ideal buyer for the bureau, suggesting a resolution will not be quickly or easily found.
In the meantime, while all of this is being sorted out, Casey has said the delay is benefitting Telus and Bell.
“The lack of a resolution of Freedom’s future is disproportionately favourable to two parties… BCE and TELUS,” his note to investors reads. “While the three largest cable companies in Canada are effectively stalled awaiting a decision, it’s business as usual at the two incumbent telephone companies. Both parties have pulled forward capital expenditures to drive fibre and 5G infrastructure to prepare for a more scaled-up Rogers. Both parties are focused on their core business and are not distracted by the regulatory challenges incurred to date by the cable companies.”
