Episode 144: Keldon Bester on the Rogers-Shaw Merger and the Problem with Canadian Competition Law
"The proposed Rogers-Shaw merger was back in the news last week as Canadian Industry minister Francois Philippe Champagne held a mid-week press conference to announce that the original deal was dead, but that a reworked deal that brings in Videotron might be a possibility if certain government expectations on restrictions on transferring spectrum licences and consumer pricing outside of Quebec were met."
Canadians Deserve Laws That Better Protect Competition
Last Tuesday, two days before parties in the Rogers-Shaw merger entered a second round of mediation to attempt to address competition concerns, Industry Minister François-Philippe Champagne laid out the conditions needed for his department to approve the deal, paving the way for a settlement and undermining the Competition Bureau’s ongoing efforts to block the transaction outright.
A dominant firm buying a disruptive rival in a market where Canadians pay some of the highest prices in the world should be a non-starter, but Canada’s weak competition laws lead regulators to craft complex and risky solutions instead of simply saying no to harmful mergers.
Through his statement, the minister created a path for the merger between Rogers Communications Inc. and Shaw Communications Inc. to be approved — with the existing competition of Freedom Mobile being replaced with the hope that Vidéotron, owned by Quebecor Inc., will be able to pick up the competitive slack going forward.
That Canada’s competition law is willing to trade away existing competition for the hope of future competition is emblematic of our permissive treatment of mergers, where the guiding principle has long been getting the deal through rather than protecting Canadians.
On the surface the minister’s conditions appear reasonable. Quebecor would need to agree to hold onto any spectrum licences, a key input to providing wireless service, for a minimum of 10 years, and the minister would expect Vidéotron to have pricing in Ontario and Western Canada comparable to what it currently offers in Quebec, an average reduction of 20 percent. But both provisions reveal the limitations to our current thinking about competition law.
First, the 10-year provision puts a best-before date on wireless competition in Canada, ignoring the lesson of the Competition Bureau’s 2017 decision to not challenge BCE Inc.’s acquisition of Manitoba Telephone System (MTS). Rather than fight to block the merger, the bureau instead negotiated a remedy agreement to prop up a new competitor, which announced it would be pulling out of the wireless market soon after a similar spectrum sale restriction clause elapsed.
Second, although it may sound promising, the minister’s price commitment would fall short of delivering benefits to Canadians in Ontario and Western Canada. Leaving aside the administrative complexity of the remedy, as telecom researcher Ben Klass and I pointed out months ago, Freedom’s pricing in Ontario and Western Canada is already more competitive than Vidéotron’s offerings in Quebec. In effect, the minister’s condition is a request not to make things too much worse for Canadians.
If we expected these proposed solutions to protect competition, we wouldn’t have to request companies keep their prices down. Instead of the simple solution of blocking the deal, a settlement along these lines introduces complexity and the real risk that Canadians are made worse off going forward. Ultimately, this is the logic underlying Canada’s competition law: allowing competition to deteriorate at a politically acceptable rate.
In a new paper for the Centre for International Governance Innovation, I argue that Canada’s merger law has long discounted the harms caused by mergers like Rogers-Shaw, and recommend how Canadians can create a set of laws that deter these harmful mergers in the first place. Among other benefits, these changes would make it easier for the Competition Bureau to block harmful transactions outright, as the regulator is correctly attempting to do in this case.
Canadians deserve laws that push firms to compete fairly rather than swallowing up their rivals and snuffing out competition. This government has already taken an important first step in updating our competition laws and signalled its intention for deeper review and reform, and its efforts in this policy area should be recognized. In spite of his position on Rogers-Shaw, Mr. Champagne now has the opportunity to build on these initial steps and bring in a broad range of voices and perspectives to create a set of laws that truly protect competition in Canada.
See the original publication here.
Rogers-Shaw Takeover Has Multiple Court Paths to Finish Line
"Rogers Communications Inc. is preparing for the fight it had been trying to avoid -- a hearing at Canada’s Competition Tribunal over its proposed takeover of Shaw Communications Inc."
Minister Champagne’s position on Rogers-Shaw is a product of Canada’s weak merger laws
Read the publication by Keldon Bester here.
Tech’s Competition Regulators Are Themselves Overdue for Reform
“The institutions that make up the foundation of Canada’s competition laws concentrate the future of the field in too few hands and appear to be straining to meet their mandates. If Canada is to truly make competition a pillar of its economic policy, these institutions will need to change to meet the needs of a more active and vibrant competition law ecosystem.”
Merger Policy for a Dynamic and Digital Canadian Economy
As an element of competition and antitrust law frameworks, merger policy plays an important role in preventing acquisitions that would otherwise allow incumbent firms to extinguish competitive threats and entrench their dominance. But evidence suggests that current approaches to merger law in Canada and abroad have underestimated the harms these transactions can pose to competition and overestimated the effectiveness of the remedies intended to mitigate those harms. Although relevant across the Canadian economy, this permissive treatment of mergers is particularly pronounced in digital markets, where platform business models, the importance of potential competitors and the role of intangible assets such as data as a barrier to entry test the assumptions underlying the country’s merger law. Canada’s current law and jurisprudence mean the Competition Bureau, Canada’s sole competition authority, is limited in its ability to detect potentially harmful transactions, faces material barriers to intervening and fully remedying the harms of those transactions, and is unable to assess the outcome of previous action or inaction. This paper provides recommendations for Canada to ensure its merger law is calibrated for a modern economy.
Read the full paper here.