Brad Shaw, CEO of Shaw Communications Inc., at the Toronto head office of Freedom Mobile. In January, 2021, Mr. Shaw sat down with his opposite number at Rogers in a chilly Calgary airplane hangar and kicked off what became a $26-billion takeover.Fred Lum/The Globe and Mail
In the fall of 2020, Brad Shaw ran the numbers on how much money Canada’s fourth-largest telecom company needed to spend over the next five years to keep pace with far larger rivals.
Shaw Communications Inc. SJR-B-T had already invested more than $5-billion over the previous four years expanding its cellphone service, Freedom Mobile, and roughly the same amount on upgrading its cable and internet network. Despite spending, Shaw was losing a tech arms race with regional rival Telus Corp., which used faster networks and lower prices to win away customers in Western Canada.
Shaw’s planning sessions reached a shocking conclusion. Mr. Shaw, the company’s 55-year-old chief executive and son of founder JR Shaw, said in an interview this week that when he added up the cost of rolling out high-speed fibre-optic cables and 5G wireless networks for seven million customers, and compared the potential bill to the Calgary-based company’s financial resources, “we came up billions of dollars short.”
So, Mr. Shaw and his executive team ran the numbers again. And again. At a series of secret, offsite sessions, they modelled all sorts of scenarios – splitting up the company, taking on more debt, finding financial partners – to raise cash. Despite pouring $10-billion into its networks, and potentially investing billions more, Shaw could not find a way to staunch a steady bleed of its internet subscribers to Telus T-T, while also expanding Freedom Mobile by winning cellphone customers in Eastern Canada, home turf for Rogers Communications Inc. RCI-B-T and Bell Canada, owned by BCE Inc. BCE-T
One path forward emerged. In January, 2021, Mr. Shaw sat down with his opposite number at Rogers in a chilly Calgary airplane hangar – to keep the meeting confidential – and kicked off what became a $26-billion takeover.
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How does it feel to be the leader who sells a family-controlled business that has only had three CEOs over 50 years – the founder and his two sons? In a wide-ranging interview this week, Mr. Shaw said: “It’s humbling. Frankly, it sucks.”
Yet to Mr. Shaw, the logic of the deal is compelling. His father, a cable pioneer, stressed offering high-quality, reliable service from the moment he launched the company in 1971, with a few thousand cable customers in the Edmonton suburbs. The founder died in March, 2020, but his ethos still guides the telecom company.
“We take enormous pride in taking care of our customers,” said Mr. Shaw, who started his career by spending three years dealing with subscriber complaints in a company call centre. Two years ago, “when we looked at our options, we realized we couldn’t serve our customers the same way, we couldn’t bring the same level of products and services. There’s a different game being played,” he said.
Federal regulators take an opposing view.
The federal Competition Bureau is attempting to block the Shaw takeover, arguing it will result in higher cellphone bills and diminished service. Prime Minister Justin Trudeau’s government also needs to approve the deal, and has said it will not sign off until the conclusion of a court process between the telecom companies and the competition watchdog.
To meet the Competition Bureau’s concerns, Shaw and Rogers agreed in August to sell Freedom Mobile to Quebecor Inc. The move would create a fourth national wireless network with more than three million customers in British Columbia, Alberta, Ontario and Quebec. Mr. Shaw agreed to an interview last week – one of only a handful during 12 years as CEO – as part of a campaign to highlight the deal’s merits.
When Alberta business leaders face opposition from prime ministers named Trudeau, sparks tend to fly. Yet to flip a phrase from Shakespeare, Shaw’s CEO came to praise Mr. Trudeau, not to bury him. “I give huge credit to the government and the Competition Bureau, because their process brought Quebecor to the table,” Mr. Shaw said. “That’s a win for their four-player wireless policy, and a huge win for Canadian consumers.”
Mr. Shaw sat down for an interview at Freedom’s head office in downtown Toronto – a spanking-new mix of modern black wood and tan carpets. The space opened just as COVID-19 hit; the majority of its 600 employees – from Freedom and Shaw – still work remotely. It is clear not all systems are up and running: To fuel our session, and the few staff at their desks, the boardroom is stocked with Tim Hortons QSR-T 10-cup cardboard boxes of coffee.
Freedom Mobile’s sleek space – which Shaw cedes to Quebecor QBR-B-T if the deal goes forward – symbolizes the advantages the Montreal-based company will enjoy as it expands. While Quebecor agreed to pay $2.85-billion for the cellphone business, Mr. Shaw said once assets such as prepaid leases are deducted from the price, the true cost is $2-billion for a business that cost Shaw more than $5-billion to build. He said Quebecor also negotiated terms of agreement related to broadband and roaming with Rogers that Shaw never enjoyed.
“Quebecor’s lower costs, their operating expertise, their deal with Rogers, these are benefits far beyond what Freedom had in the past,” Mr. Shaw said. “You’re going to see competition thrive, with network investment from Quebecor and Rogers that would never have otherwise happened.”
Shaw and Rogers originally forecast their marriage would take place last spring. The closing date has now been tentatively pushed back to the end of this year. Analysts say it could take until next summer to consummate the union. The delay added $775-million to the cost of financing the takeover. It is possible the government will shut down the deal, as a previous Liberal regime did with bank mergers in 1998.
“Turning down the deal would be a lose, lose, lose proposition” for consumers, the industry and shareholders, Mr. Shaw said. Analysts expect the company will stop putting money into Freedom Mobile if regulators turn down the deal, as the cellphone company has fallen further behind rivals while Shaw has waited for the deal to close.
Shaw did not participate in last year’s federal auction of wireless spectrum, in anticipation of closing the takeover. In a report, BMO Capital Markets analyst Tim Casey said: “Shaw is selling because it has not made an adequate return on its wireless investment. It has not acquired any 5G spectrum. If the deal is rejected, it will not continue to fund Freedom indefinitely.”
Mr. Shaw declined to outline specific plans for his company if the government blocks the transaction, but said competitive and capital challenges are now more daunting. “There is going to be no better deal in the future” than the sale of Freedom Mobile to Quebecor, he said.
The Competition Bureau scheduled two days of mediation with Shaw, Rogers and Quebecor for late October, negotiations aimed at winning the regulator’s blessing. If those talks fail to produce an agreement, the companies and the Bureau head to quasi-judicial hearings at the Competition Tribunal in November. The tribunal is expected to rule early in the new year, a decision Shaw and Rogers could both potentially appeal.
The drawn-out regulatory process “has made us even more resolute on these being the absolute best deals for Canada,” Mr. Shaw said. “As a company, and as a family, we’re more committed, and we’re going to work with the government to see through this process.”
Heading into mediation talks and court sessions, Competition Bureau spokesperson Marie-Christine Vézina said this week in an e-mail: “The Bureau’s views in this matter are informed by the extensive evidentiary record in this case and the Bureau remains firm in its decision to challenge the merger to protect the public interest.”
Analysts and academics who have reviewed the regulator’s filings disagree with the decision to oppose the transaction, now that Quebecor has agreed to buy Freedom Mobile. “The Competition Bureau, directly or indirectly, has extracted concessions for which it can rightly claim credit,” Mr. Casey said. “Quebecor represents the best solution available to satisfy the government’s industrial policy.”
In a rapidly evolving telecom industry, professor Robert Schulz at the University of Calgary’s Haskayne School of Business said, regulators have fallen behind.
“The traditional, current competition paradigm does not fit either telecom customers or telecom companies in Canada,” he said in an interview. For example, he said the bureau is attempting to apply one set of rules to three very different groups of cellphone and internet customers: subscribers in urban centres, rural communities and remote locations.
“One competition policy for all does not work and is counterproductive,” Dr. Schulz said. He said if the goal is to encourage competition in cities and underserved rural markets, “I don’t understand why the federal government opposes a deal that strengthens Rogers and Quebecor.”
In opposing the takeover, one of the Competition Bureau’s main arguments is that Quebecor will be unable to compete in Ontario, Alberta and B.C. cellphone markets because it lacks the ability to bundle services with wireline networks – cable and landline services – owned by potential rivals Rogers, Telus and Bell.
This view fails to reflect Shaw’s success in the Ontario market, where it built significant market share over the past five years without wireline access, Mr. Shaw said. He said the Bureau’s focus on bundling goes against the U.S. experience, where cellphone market leader T-Mobile US Inc. recently sold a wireline division for just US$1 in order to exit the money-losing, non-strategic business.
In upcoming sessions with the Competition Bureau, Mr. Shaw said he plans to detail the potential of Freedom Mobile under Quebecor’s ownership. “If you really want the four-player policy to thrive, and drive competition, this is the deal,” he said.
As Mr. Shaw contemplates parting with a business his family has run for more than 50 years – an anniversary celebrated this past spring with a bash at the Chateau Lake Louise – he is confident he is honouring his father’s vision. He said the two had frequent discussions about the company’s future that included potentially selling it.
Moreover, Mr. Shaw wants the family’s legacy to reflect positioning a proudly Albertan company for strong future growth across Canada, something that is only possible through unions with Rogers and Quebecor. He will become a Rogers director and significant shareholder if the deals go through, and said he plans to represent the interests of Western Canada.
Mr. Shaw has four children and one grandchild, and he said that when the deal-making is done, “I know my kids will be able to walk the streets of Calgary with their heads held high.”