Keldon Bester

On Rogers-Shaw, Canada’s Competition Watchdog Should Heed Parliament’s Advice

Momentum is building for Rogers to offer the sale of Shaw’s Freedom Mobile business as a solution to Competition Bureau concerns about the proposed $26 billion merger of the two telecom giants. Rogers is reportedly engaging potential buyers, including the founder of Freedom’s predecessor Wind Mobile, and reports suggest the federal government is testing the interest of international players to pick up the assets.

But as we've passed the one-year mark since the announcement of the Rogers-Shaw merger, the Standing Committee on Industry and Technology (INDU) released its report following public hearings and study of the proposed transaction. Although initial reports suggested the report would advocate for the sale of Shaw’s wireless assets, the path Rogers is now pursuing, the committee’s recommendation was much stronger than expected: namely, that arguments in favour of the merger are unconvincing, and it should not proceed.

The recommendation contrasts with the open-ended statement by Minister of Innovation, Science and Industry François-Philippe Champagne on March 3, which left open the possibility for the merger to be allowed with the transfer of at least some of Shaw’s spectrum assets, potentially those previously discounted to foster wireless competition, and a complex and risky remedy focused on carving off Shaw’s wireless business.

By providing a clear path forward, the committee’s recommendation should encourage the Bureau to buck the trend of its previous action in the telecommunications sector, and truly protect Canadians.

INDU Rightly Skeptical of Proponents’ Claims
The committee’s report clearly illustrates why regulators and Canadians should be skeptical of this merger. First, the committee is aware there is no formal mechanism to hold the merging parties accountable for any promises and is doubtful the merger is required for the parties to make good on their commitments.

Regarding the incentives to make good on promises to expand services to rural communities, the committee correctly points out that “the size of a company does not change the profitability of a region.” The committee also takes issue with the competitive change of heart Shaw evidenced by reversing claims it had made to the same committee (just months before the merger announcement) that regional players such as itself were disrupting the hold Rogers, Bell and Telus have on Canada’s wireless markets. Shaw’s about-face casts doubt on not only its own claims but also those of players offering to pick up the competitive slack should the transaction proceed.

In light of this skepticism and the scale of potential harms detailed by witnesses contributing to the committee’s report, it is disappointing to not see similarly forceful language from Champagne, the minister most directly involved with the future of Canada’s telecommunications market, and under whose departmental portfolio the Bureau falls.

The minister’s formal authority is limited to approving the transfer of spectrum assets, a required input for mobile wireless service, between the parties. While his statement led with an emphasis on delivering competitive and affordable telecommunications service for Canadians, he committed only to blocking the “wholesale transfer” of Shaw’s spectrum assets to Rogers, a statement that Rogers’ newly appointed CEO considered very helpful.

This position leaves room for Rogers to acquire at least some of Shaw’s spectrum assets. Those assets could include spectrum that has been reserved by successive federal governments for smaller telecom companies in an attempt to spur wireless competition. It also suggests the minister would not take issue with a merger remedy that only forces Rogers to divest some of Shaw’s wireless business to satisfy competition concerns.

A more generous interpretation of Champagne’s statement is that he is trying to avoid any appearance of interfering with the Bureau’s analysis of the transaction and to give it a free hand in the development of remedies. But a stronger stance against the merger could, at a minimum, shift the balance of negotiation between the Bureau and the merging parties and, ideally, embolden the enforcer to pursue decisive action as suggested by the committee.

Read the full publication here.

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by Keldon Bester

Report Reveals the Extent of Canada’s Competition Problem

Earlier this month, Minister of Innovation, Science and Industry François-Philippe Champagne announced his intention to review Canada’s Competition Act, beginning with potential near-term changes to address wage fixing, deceptive pricing practices and Canada’s anemic penalties for anti-competitive conduct. The day after the announcement, the Competition Bureau released its submission to Senator Howard Wetston’s recent consultation on the Competition Act, laying out the enforcer’s vision of the problems with our current law, and of what a modernized competition regime could look like for Canadians.

While the interest signalled by the minister is a positive step, the breadth of issues highlighted by our sole competition enforcer, hardly a radical advocate, shows how out of step Canada is with its competition laws, especially relative to international peers already acting to update their laws.

The most troubling aspect of the Bureau’s submission is its commentary on its ability to address threats to competition in fast-moving digital markets. The motivation for international reviews in Australia, the United Kingdom, the European Union and the United States over the past five years has been the fitness of competition law regimes for the competitive challenges of digital markets, recently summarized in a Group of Seven policy compendium. The Bureau suggests that across mergers, abuse of dominance and agreements between competitors, the Competition Act does not adequately support the protection of competition, particularly in its protection of emerging competitors. Regarding mergers, the Bureau goes so far as to say it would be “particularly difficult — or even impossible” to block the acquisition of a nascent competitor, especially in a dynamic market.

While the Competition Bureau’s contributions to the policy dialogue are invaluable, they come well after other countries have not only studied their own laws but also begun to take action to address the weaknesses identified in those studies. Last year, the United Kingdom began consulting on reformed competition legislation, based on the recommendations of the 2019 Unlocking Digital Competition: Report of the Digital Competition Expert Panel (“the Furman Report”). The reforms are intended to better address the power of entrenched players in digital markets deemed to have “strategic market status,” including consideration of a higher bar for dominant players to acquire competitors. The European Union has already completed its consultation on the Digital Markets Act introduced in 2020, which is anticipated to pass later this year.

If the Bureau’s concerns are justified — a point sure to be contested by Canadian competition law practitioners — Canada is years behind partner countries in assessing the extent of the limitations of our law, let alone in modernizing our legislation to address those limitations.

Read the full publication here.

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by Keldon Bester

Canada’s Competition Law: Is It Really Up to the Task?

Despite growing calls for scrutiny and reform of competition law around the world in the wake of rising corporate power, the urgency to curb monopolies is lacking in Canada.

While legal experts and think tanks work to assure policy makers we have the right rules in place, a close look at Canada’s record should give observers pause. Whether Canadian law can address challenges to competition is an increasingly open question, particularly in light of the rise of digital markets.

The title of a recent report by the Macdonald-Laurier Institute, Up to the Task, captures the general mood in much of Canada’s competition community well. While its authors, Anthony Niblett and Daniel Sokol, concede there may be a need for tweaks at the margins — for example, higher fines to reflect the increased scale of digital companies — they see nothing more than incremental reform, if that, as necessary.

But actions by our international partners, and the limits of our current laws in protecting competition, suggest that the status quo is worthy of deeper investigation.

It could be, perhaps, that Canadian policy makers had the foresight decades ago to craft a legal regime with the flexibility to respond adequately to ensuing major economic shifts. However, the confidence in the current state should be tempered by a recognition that the performance of Canada’s competition laws has yet to be thoroughly studied. And it belies the evidence that serious problems already exist in key areas of enforcement.

To begin, Canada is one of a shrinking number of peer countries that have not conducted a formal review of the effectiveness of its competition laws in the context of the rise of digital markets. Indeed, the last formal review of the Competition Act concluded well over a decade ago, in 2008, the same year Apple released the App Store.

Meanwhile, governments and regulators in the United States, the European Union, the United Kingdom and Australia all have conducted in-depth analyses of the performance of their competition laws in digital markets — analyses that have since prompted legislative or fiscal action, with increased scrutiny of dominant players as a common theme. Canada can capitalize on the work already done, but a lesson we should take away is that our peers found their own status quo to be lacking, and have already responded decisively.

In 2019, Navdeep Bains, the minister of innovation, science and economic development at the time, requested that Commissioner of Competition Matthew Boswell work with Bains’s departmental staff to review the fitness of Canada’s Competition Act for digital markets. While commentary by the commissioner suggests this work is ongoing, no public reports have emerged from that request, nor is there any timeline for any to emerge. Competition does not appear to be an element of the government’s near-term digital policy agenda. There was just one reference to fair competition in the Liberals’ 2021 platform, and other digital policy priorities, such as broadcasting reform, online harms, and news media funding, compete for the government’s attention. In short, inertia persists, despite repeated public calls for a comprehensive review of the Competition Act by Commissioner Boswell, who has highlighted the limits of enforcement in less glamorous but important markets such as industrial waste management.

This lack of urgency is cause for concern when assessing the performance of merger enforcement, a cornerstone of Canada’s competition law. Canada’s merger laws provide the Competition Bureau with the authority to challenge transactions that have the potential, in the language of the law, to “substantially lessen or prevent competition.” Effective merger law is critical, because mergers can be employed by dominant players to quash nascent competitors, which can lead to lasting harms such as higher prices, lower quality and innovation stagnation for the individuals and businesses that depend on competitive markets.

Unfortunately, Canada’s enforcement track record regarding mergers is quite poor. For one, the Competition Act, in particular section 96, known as the efficiencies defence, allows for mergers to monopolize, where competition in a market is extinguished and consumers must rely on the sole remaining business for a given good or service. In the past, mergers of this kind have left Canadians at the whim of a single corporation for access to essential goods such as propane.

Further, in the nearly 20 merger challenges that have gone before the Competition Tribunal, which first hears civil competition cases, the Bureau has only been successful in a single challenge. While there is no magic number of cases for the government to win to prove our competition regime is up to snuff, a regime in which interventions are practically never successful does not inspire confidence.

It is no surprise, then, that rather than taking these potentially harmful transactions to court, the Competition Bureau is more likely to negotiate consent agreements with merging parties to remedy the harmful effects of a merger. These agreements can include conduct requirements, such as commitments not to raise prices for a set period of time, or divestment of assets away from the merged company to bolster another competitor, for example, gas stations in markets with few remaining competitors, in exchange for allowing a merger to proceed.

Read the full publication here.

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by Keldon Bester