May 11, 2022
Competition Bureau Commissioner Matthew Boswell has without doubt put his organization on the map, an agency that until recently most Canadians had never heard of.
Boswell’s decision as the nation’s competition prosecutor to apply to the Competition Tribunal for an order blocking the $26 billion Rogers-Shaw merger is detailed in a 179 page brief (plus exhibits) posted online. Bottom line: Boswell says the transfer of Shaw’s $4 billion Freedom Wireless business in Ontario, British Columbia and Alberta to Rogers would “substantially lessen competition” in the mobility market, in violation of section 92 of the Competition Act.
The Bureau application took many by surprise, including consumer advocates opposed to the merger. Perhaps this was because on March 2nd ISED Minister François-Philippe Champagne (responsible for approving the transfer of federally regulated radio spectrum in this kind of a merger) publicly signalled that Rogers needed to sell off at least part of Freedom.
In response Rogers dutifully lined up an offer from Xplornet, with at least two other bidders chomping at the bit.
From a distance, it looked like the deal was getting approved. But on May 9th Boswell surprised everyone by saying the Xplornet proposal wasn’t strong enough to continue Freedom’s competitive impact on the wireless market.
Parsing Boswell’s document it appears that the Bureau gave Rogers and Shaw a heads up back in October that for competitive reasons Rogers could not expect to hang on to Freedom. But at the same time the Bureau expressed skepticism that the buyers of a stand-alone wireless operation could exert competitive pressure on mobility prices in the absence of a fibre wireline business providing backhaul transport for wireless traffic, as well as the potential to offer bundled wireline and wireless subscriptions to consumers.
We don’t know if Rogers and Shaw agreed with Boswell’s assessment about the viability of wireless as a stand alone business (although analyst Mark Goldberg has noted that Freedom’s biggest competitive impact is in Ontario where Shaw has no supporting wireline).
We do know that Shaw wanted out of the wireless business because it couldn’t afford the massive investment required to fund the next generation 5G technology. The crucial exchange of correspondence is redacted.
Where does this leave Ed Rogers’ deal?
The Bureau appears to be saying that Shaw can’t sell Freedom to a “big three” telco like Rogers (this would also apply to Telus or Bell).
The Bureau also says Shaw can’t sell Freedom to Xplornet because it is not a strong enough wireline-wireless operation, even though their investors obviously think they can make a go of it. How about rival bids to operate a stand-alone wireless business? Probably not.
That seems to leave P.K. Péledeau’s Québecor as a possibility. Although Québecor brings a solid telco business and deep pockets to the table, it doesn’t own matching wireline assets in Freedom’s coverage areas. So would it pony up an additional $20 billion to buy Shaw’s wireline business too?
The Bureau seems to be hoping for a perfect buyer for Freedom: a telco with a strong regional wireline business to match up to Freedom’s wireless coverage, as well as capital to invest in 5G. And it can’t be Telus, Bell or Rogers.
Or perhaps the Bureau thinks there isn’t a merger deal here at all.
If that’s the case, it’s off to the Tribunal and we can expect Canada’s competition law trial of the century.