Comp. Bureau moves to block Rogers-Shaw merger; Quebecor “has apparently entered the process”: analyst

The Competition Bureau has filed an application with the Competition Tribunal seeking a "full block" of the proposed acquisition of Shaw Communications Inc. by Rogers Communications Inc., in a move which will likely send ripples throughout the telecom sector. In a Monday afternoon release, the Competition Bureau said that it is seeking to block the merger "in an effort to protect Canadians from higher prices, poorer service quality and fewer choices, particularly in wireless services." While the full contents of the bureau's application with the tribunal was not yet available Monday afternoon, the regulator's decision to fight the merger is sure to delay Rogers' expected close of the deal by late June of this year, with analysts predicting that the tribunal process will take six to 12 months to run its course. In its statement, the bureau wrote that it "alleges that removing Shaw as a competitor threatens to undo the significant progress it has made introducing more competition into an already concentrated wireless services market," and added that the big three – Rogers, alongside BCE Inc, and Telus Corp. – have approximately 87 per cent of the wireless market. The bureau also wrote that following "an extensive investigation, the Bureau determined that competition between Rogers and Shaw has already declined." "The Bureau’s position is that if the proposed merger is allowed to proceed, that harm will continue and may worsen. The applications filed seek to safeguard an effective, growing and disruptive regional competitor for the benefit of consumers." In July 2021, the bureau went to federal court to demand information on the Canadian wireless and wireline markets from a number of companies – including Bell, Xplornet Communications Inc., Quebecor Inc., and Telus – as part of its review of the Rogers-Shaw merger. On Monday, the bureau said that following its investigation, it had determined that the proposed merger would substantially prevent or lessen competition by "eliminating an established, independent and low-priced competitor; preventing future competition for wireless services, including 5G, within and outside Shaw’s existing service area; and preventing competition in wireless services for business customers in Ontario, Alberta and British Columbia." The release also pointed to Shaw's impact on the wireless market in areas where the company competes with the big three. "It has consistently challenged the Big 3 by improving the quality of its network and attracting customers through its aggressive pricing, bigger data allowances and service innovations," the bureau wrote. Indeed in 2019, Shaw executives were taking credit for driving down the cost of wireless data. “For the Big Three, these new rate plans offer a dramatic about face from the expensive data overages that their customers have been paying for years,” CEO Brad Shaw told analysts on a June 2019 quarterly earnings call. When Freedom Mobile introduced its “big gig” plans back in 2017 — offering a base rate 10 GB of data for $50 a month — it sent shockwaves through the broader wireless industry, with the incumbent providers quickly following suit. Just over a year later in November of 2018, Freedom Mobile upped the ante, introducing a limited offer of 100 GB for customers already on the Big Gig plan. "If wasn’t clear before, it certainly is clear now. So It’s nice to see the incumbents coming down and sort of chasing us in that regard,” Shaw's wireless president Paul McAleese said at the time. "Eliminating Shaw would remove a strong, independent competitor in Canada’s wireless market – one that has driven down prices, made data more accessible, and offered innovative services to its customers," Competition Commissioner Matthew Boswell said in the Monday release. The bureau announcement comes three days after Rogers and Shaw announced just after midnight on Saturday morning that the Competition Bureau had notified the companies of its intent to oppose the merger, but reiterated that they "remain committed to the transaction." "The companies have offered to address concerns regarding the possible impact of the Transaction on Canada’s competitive wireless market by proposing the full divesture of Shaw’s wireless business, Freedom Mobile," the two companies wrote. "Rogers and Shaw are engaged in a process to sell Freedom Mobile, with a view to addressing concerns raised by the Commissioner of Competition and ISED." Analyst reaction over the weekend was generally surprised at the development. "Despite this apparent twist in this process, we continue to believe the probability of a deal ultimately getting approval remains high," RBC Capital Markets analyst Drew McReynolds wrote in a weekend note, adding that he believed there were wireless remedies still available to get the deal over the line. "We do not believe the Commissioner’s application is an indication that the Rogers-Shaw transaction cannot be remedied, and continue to believe that the Competition Bureau is focused on the nature of the remedy package rather than outright prescribing who that remedy partner should be." National Bank Analyst Adam Shine, for his part, wrote that the Competition Bureau's move put the prospect of Quebecor's acquisition of Freedom Mobile back on the table, a development which analysts felt might speed up the regulatory process. Quebecor, Shine wrote, "has seen a door opened when no access was previously provided to the Freedom data room. The company has apparently entered the process. We'll see whether a bid occurs, is indeed palatable to the government, and regulatory approvals can be achieved for the Rogers Shaw merger in July or perhaps by the fall." While Quebecor had been an early contender to acquire Shaw's wireless assets following the announcement of the deal in March of 2021, enthusiasm for the idea has waned in recent months as reports of deals with Xplornet and U.S. private equity emerged, and Quebecor executives seemed more focused on national expansion through mobile virtual network operator agreements with established national carriers. While the Competition Bureau's move over the weekend was a surprise to many industry-watchers, some signs had been visible over the past year. During hearings at the House of Commons Industry committee in April of 2021, Commissioner Matthew Boswell appeared to express some reservations about the Competition Act's so-called 'efficiencies defense", in which two parties are allowed to complete a merger that will harm or lessen competition if they can prove that there are certain efficiencies that can be gained. “It’s controversial both inside and outside of Canada. Certainly from the perspective of the person who administers and enforces the act, I think it would be worthwhile in this country to discuss this particular section of the act, and that’s for parliamentarians,” Boswell told MPs at the time. Now-ousted CEO Joe Natale had raised the prospect of efficiency gains in his own testimony to the committee. “This is a scale business with massive fixed costs. Adding Cogeco or adding Shaw brings those efficiencies — fibre, spectrum — it allows us to do things that wouldn’t have been otherwise the case,” Natale told MPs. The Industry committee ultimately declared that it thought the merger should not proceed. This past February, in a move which surprised many, Boswell called for a complete overhaul of Canada's Competition Act – including the elimination of the efficiencies defense – in response to Senator Howard Wetston’s October consultation invitation on the act. The Competition Bureau is one of three regulatory agencies which must sign off on the deal. The CRTC has already approved the transfer of Shaw's broadcasting licenses to Rogers, while a decision from ISED is expected soon. – Reporting by Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Paul Park at ppark@thewirereport.ca .

Comp. Bureau moves to block Rogers-Shaw merger; Quebecor “has apparently entered the process”: analyst

Broadcast | May 9, 2022

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Comp. Bureau moves to block Rogers-Shaw merger; Quebecor “has apparently entered the process”: analyst

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