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.