The Shaw Communications office is seen in Calgary on April 17, 2019. Rogers Communications expects more than $1-billion of cost savings to come from the Shaw merger.Chris Wattie/Reuters
The federal Competition Bureau’s continued opposition to Rogers Communications Inc.’s RCI-B-T planned acquisition of Shaw Communications Inc. SJR-B-T has one industry expert predicting the fate of the takeover may not be decided until next summer.
On Monday, the competition watchdog won a minor victory in its campaign to block the $26-billion merger of the country’s two largest cable companies when the federal Competition Tribunal ruled Rogers’ service outage in early July, which affected about 12 million customers, will be part of its planned hearings on the deal. The bureau pushed to have the outage on the agenda, while Rogers argued it was not relevant.
“The odds are increasing that it will take a full trial, and possibly a further appeal, before we get a clear view on the outcome of that transaction,” analyst Maher Yaghi at Bank of Nova Scotia BNS-T said in a report on Tuesday.
While the Competition Bureau regulates and grant approvals for takeovers, the Competition Tribunal arbitrates disputes over decisions reached by the bureau.
Rogers launched the takeover in March, 2021, and projected it would close by the first half of 2022. Now, Mr. Yaghi said the takeover may not close until the middle of 2023, “unless there is a break in the stalemate in the next few weeks when politicians return to Ottawa after their summer break.”
Tribunal hearings are scheduled to start in November. On Tuesday, the two companies declined to comment on the regulatory process and the timing of their merger.
Rogers outage will weigh on Shaw takeover hearings, Ottawa says
Earlier this month, Rogers announced a definitive agreement to sell Shaw-owned cellphone service Freedom Mobile to Quebecor Inc. QBR-B-T should the merger be approved, a move meant to win over the Competition Bureau and federal government by preserving four national wireless providers.
Buying Freedom would give Quebecor more than two million customers in B.C., Alberta and Ontario, in addition to its existing 22-per-cent share of the Quebec cellphone market.
In response to Rogers’ plan, the Competition Bureau said in a court filing released on Monday that selling Freedom to Quebecor “is not an effective remedy.”
The Competition Bureau argued that Freedom benefited from piggybacking on Shaw’s cable and internet network in Western Canada. The bureau’s filing said: “Severing Freedom Mobile from Shaw’s wireline business will substantially compromise its ability to compete and provide much-needed competitive discipline to the national carriers,” which are Rogers, Telus Corp. and Bell owner BCE Inc.
In their filings, Rogers, Shaw and Quebecor argued there is no evidence to back this view, as Freedom won a significant share of the Ontario cellphone market, where Shaw lacks any wireline network. The companies also say the U.S. and European telecom markets feature competition from stand-alone cellphone companies, with no wireline networks.
“We see [Quebecor unit] Videotron as best positioned to push the government’s fourth national wireless competitor agenda forward,” Mr. Yaghi said. “The Competition Bureau continues to argue that a fourth national wireless service provider needs to have strong economics to sell wireless and wireline bundled services, and not just wireless, to remain viable.”
Rejecting Rogers’ takeover of Shaw with the accompanying sale of Freedom to Quebecor could upend the federal government’s 15-year drive for increased wireless competition, according to several analysts.
“Rejecting the transaction will throw the four-player narrative into an untenable position,” analyst Tim Casey at BMO Capital Markets said in a report this month. He said a return to the status quo at Shaw, which seems to be the Competition Bureau’s goal, is unlikely.
“Shaw is selling because it has not made an adequate return on its wireless investment,” Mr. Casey said. “If the deal is rejected, it will not continue to fund Freedom indefinitely.”
Lawyers and analysts have consistently said Rogers, Shaw and Quebecor can expect to eventually win regulatory approval for the telecom deal because of the efficiencies argument, a federal government policy that states a takeover should be allowed if it increases overall economic efficiency, even if the transaction results in diminished competition. Federal Minister of Innovation, Science and Industry François-Philippe Champagne must also approve the transaction.
Rogers expects more than $1-billion of cost savings to come from the Shaw merger. Industry analysts say the efficiencies argument should drive the Competition Bureau to approve the transaction, now that Quebecor is committed to building a national wireless network.
“The process overseen by the Competition Bureau ultimately produced a remedy solution that satisfies government priorities and with more attractive consumer concessions,” Mr. Casey said. Historically, he said Quebecor has the country’s best track record as a disruptive cellphone provider. Despite its continued opposition to the deal, Mr. Casey said, “In our view, the Competition Bureau can rightly claim credit for a job well done.”
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