Videotron CEO Pierre Karl Peladeau (left) arrives at the Competition Bureau at the Competition Tribunal hearing on Oct. 27 in Ottawa.Dave Chan/The Globe and Mail
The Competition Bureau and three of the country’s largest cable companies have filed closing arguments offering conflicting views on how the proposed $26-billion merger of Rogers Communications Inc. RCI-B-T and Shaw Communications Inc. SJR-B-T would impact wireless competition in Western Canada.
Written arguments by the two sides locked in a battle at the Competition Tribunal were made public on Friday, roughly a week after the evidentiary portion of the hearings concluded.
The Competition Bureau, headed up by Commissioner of Competition Matthew Boswell, is asking the tribunal to block the deal in its entirety on the grounds that it would increase wireless prices in Alberta and British Columbia. Rogers and Shaw, along with intervenor Videotron Ltd., argue that the deal is good for competition and are asking the tribunal to dismiss Mr. Boswell’s application.
Videotron is intervening in the case because it has struck a deal to acquire Shaw’s Freedom Mobile, which serves customers in Ontario, Alberta and British Columbia, for $2.85-billion. The aim of the divestiture is to prevent the cable merger from swallowing up Canada’s fourth-largest wireless carrier, which has been credited with driving down wireless prices.
So far, the hearings have spanned roughly four weeks and have included evidence from 45 witnesses. Final closing arguments are scheduled to be heard on Dec. 13 and 14. Rogers and Shaw are aiming to complete their merger by the end of the year, with the possibility of extending their deadline to Jan. 31.
Federal Court Chief Justice Paul Crampton, who is overseeing the hearings, has said that he would like to release a decision before the end of the year, or even by Christmas if possible, citing concerns that the deal could fall apart if it doesn’t close by Jan. 31. He also noted that Rogers will have to pay millions to its bondholders to extend the deadline past the end of this year.
The Competition Bureau argues that the deal has already resulted in anti-competitive effects, as Shaw has ceased being a “maverick competitor and a competitive ‘catalyst.’”
“Within months, Shaw, under the shadow of the proposed merger, had shifted direction to a ‘middle lane’ strategy that brought price increases, reduced promotions, plummeting device subsidies and curtailed capital spending,” the Competition Bureau says in its final written arguments.
The Commissioner argues that Rogers and Shaw have failed to show that the divestiture of Shaw’s Freedom Mobile to Quebecor Inc.’s QBR-B-T telecom subsidiary, Videotron, would alleviate the deal’s anti-competitive effects.
The sale of Freedom to Videotron is accompanied by what the bureau characterizes as “a complex web of 13 agreements, covering matters from transitional services to spectrum swaps.” (Spectrum refers to the airwaves used to transmit wireless signals.)
The competition watchdog argues that those deals would leave Videotron, a “much smaller regional player,” vulnerable to anti-competitive behaviour by Rogers. The Competition Bureau notes that in a previous dispute, the Montreal-based telecom has accused Rogers of “sabotaging” their network sharing agreement in Quebec. The Commissioner also argues that separating Freedom from Shaw would weaken it.
“Added to these deficiencies is the proposed absorption of the disruptive Shaw Mobile product into Rogers, with price increases already planned by Rogers, as disclosed in ordinary course documents and admitted by their witnesses in evidence,” the court filing reads.
The cable companies, meanwhile, argue that Mr. Boswell has “not come close” to proving that the deal would likely prevent or lessen competition in the cellphone markets of Alberta and British Columbia.
“This transaction should proceed with Freedom entrusted to the experienced hands of Videotron, a bold, proven competitor with a rigorous business plan never seriously challenged. It gives Freedom an immediate path to 5G and a substantially lower cost base, making it a stronger competitor than it was under Shaw,” the companies say in their closing submissions.
Rogers and Shaw argue that Shaw Mobile was not a “true” wireless disrupter, but rather a bundled product offered with Shaw’s internet service. The offer was meant to retain internet customers, which Shaw was losing to its Western Canadian rival, Telus Corp. T-T
“[Shaw Mobile’s] limited growth peaked quickly and plateaued long ago,” the companies write.
The merger positions Rogers to use its scale and resources to compete aggressively with Telus in the Western Canadian internet and television markets and “launches Videotron as a fourth near-national wireless provider,” the cable companies write.
“The alternative – the full block the Commissioner seeks – only entrenches Bell and Telus, denies Videotron its ambition, and pretends that Shaw will return to its corner and make the additional and ongoing substantial investments needed to keep up,” the court filing from the telecoms states.
“And this is all before the Tribunal considers the overwhelming efficiencies that will arise from the transaction,” they add.
Canadian competition law allows a merger, even an anti-competitive one, to close if it generates lower total costs for the combined business.