More than a month of hearings into the potential $26 billion merger between Rogers and Shaw wrapped up this week as lawyers representing the companies and the Competition Bureau made their closing arguments.
Commissioner of Competition Matthew Boswell has asked the Competition Tribunal to block the deal, which he claims would lead to less competition in the wireless market and increased prices for Canadians, which are already among the highest globally. Boswell has also said the proposed remedy of selling Shaw’s Freedom Mobile to Videotron was not enough to address his concerns, which became the main issue over the last month of hearings.
Rogers, Shaw and Videotron – acting as an intervenor – have been seeking to dismiss the application on the ground that the deal is good for wireless competition.
During closing arguments, a lawyer for the Competition Bureau disputed claims made by Shaw that its wireless business wasn’t profitable. Shaw executives testified during the hearings that Freedom Mobile had not generated any free cash flow and the company has not made back the $4.5 billion it has invested in wireless service since 2016.
This was to counter the Competition Bureau’s ongoing claims that Freedom Mobile had been an effective, low-cost wireless competitor that had driven down prices in markets where it was active. Losing a key competitor in the market, the Bureau has argued, would send prices up, and that Videotron acquiring Freedom would turn it into a weakened, regional player.
This is because, the Bureau argued, the deal includes several agreements, including spectrum swaps, that would make Freedom more vulnerable to anti-competitive behaviour from larger telcos like Rogers. It also said that Videotron has no track record of operating in Western Canada, and that separating Freedom from Shaw’s cable network would make it less competitive in the market.
During closing arguments, Bureau lawyers said Shaw’s claim about Freedom’s profitability didn’t stand up to scrutiny, as it was based on a definition of free cash flow that isn’t used in the company’s financial reporting. The Bureau also pointed out in its argument that anti-competitive effects had already begun, as Shaw – in anticipation of its closing – has scaled back promotions and device subsidies, resulting in higher prices, as well as capital spending and investments into innovations like 5G.
The Freedom Mobile sale would not include Shaw Mobile or its 450,000 customers in Western Canada, which would be transferred to Rogers – something the Competition Bureau cited as another deficiency of the deal that would add to Rogers’ market power. The companies countered that Shaw Mobile was not a “true” wireless competitor, but a service created to be bundled with internet as a way to avoid losing customers to Telus.
Also at issue during the hearings was the state of Shaw’s own business and ability to compete in Western Canada. Shaw testified that it was losing ground to Telus, and during closing arguments, lawyers focused on the fact that the merger would create an entity better positioned to compete with Telus in Western Canada’s television and wireless markets.
During the hearings, an internal Telus presentation was made public showing that the company was concerned about Freedom’s sale to Videotron. It adopted what it called “Project Fox,” an effort to influence government officials’ opinion of the deal and boost a competing bid from Globalive.
Shaw lawyers also said that Videotron was better-suited to run Freedom Mobile, as it was a “bold, proven competitor with a rigorous business plan” that would give it a path to a 5G network and a lower cost base that could compete better at a national scale.
Though initially left out of sale discussions by Rogers, Videotron had expressed interest in acquiring Freedom – the sale of which was expected to remedy anti-competitive concerns – and using its infrastructure to expand its wireless brand outside of Quebec.
In summary, lawyers for the companies said that the Commissioner had not proven that the deal would lessen competition in Western Canada, while the Bureau says the companies have not proven that the Freedom sale would address its anti-competitive concerns.
Chief Justice Paul Crampton did not provide an exact date for a potential decision, but said the tribunal would “bend over backwards” to deliver it by the end of the year, due to the commercial realities the companies are facing. He added, however, that it may be difficult given some of the disagreements between the sides over things like definitions of terms.
Rogers and Shaw had hoped to close the deal by the end of the year. Rogers does have the option to extend the deadline until the end of January, but would be on the hook for millions in payments to bondholders if forced to do so. Extending the closing date beyond January, both companies have said, would put it at risk of falling apart.
The merger was previously approved by the CRTC, which was primarily concerned with the merger’s impact on the broadcast and news sectors, though it came with a long list of conditions. The deal also still needs to be approved by Industry Minister François-Philippe Champagne, who has said he will not make a decision until the Competition Bureau’s process is complete. Before hearings began, Champagne said his two main conditions for approving the merger would be that Videotron keep Freedom’s existing wireless licences for at least 10 years, and that wireless prices in Ontario and Western Canada were lowered by 20%, roughly in line with Videotron’s current prices in Quebec.
