Rogers, Shaw merger hearings coming to a close

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After 18 days of testimony, scores of witnesses and tense moments of cross-examination, the Competition Tribunal hearing into the proposed $26-billion merger of Rogers Communications Inc. RCI-B-T and Shaw Communications Inc. SJR-B-T is coming to a close.

While the tribunal typically takes months to render a decision, Federal Court Chief Justice Paul Crampton, who is overseeing the hearings, said he would like to release a decision before Christmas if possible. Oral arguments are set to be heard on Dec. 13 and 14, more than a week after Thursday’s conclusion of the evidentiary portion of the hearing.

The Competition Bureau is asking the tribunal to block the merger of Canada’s two largest cable companies, a deal in which Quebecor Inc.’s QBR-B-T Videotron Ltd. would acquire Shaw’s Freedom Mobile – Canada’s fourth-largest wireless carrier – for $2.85-billion.

Over the course of roughly four weeks, the competition watchdog has put forward economists, consultants and several executives from rival telecoms Telus Corp. and BCE Inc. in an attempt to demonstrate that the merger would lessen competition in the wireless sector, resulting in higher cellphone bills and poorer service.

Lawyers representing the Competition Bureau have argued that separating Freedom from Shaw’s cable network, WiFi hotspots and other assets would result in a weakened competitor, and that agreements between Videotron and Rogers would leave the Montreal-based telecom overly reliant on its larger rival as a supplier of network access.

The Competition Bureau has also noted that Rogers is set to acquire 450,000 Shaw Mobile customers in Western Canada. The watchdog has argued that the Shaw Mobile brand was a disruptive competitor that was responsible for much of the telecom’s recent wireless subscriber growth.

Explainer: How the Rogers-Shaw merger ended up in front of the Competition Tribunal

The telecoms, meanwhile, have argued that Freedom would be a stronger competitor in Videotron’s hands. During the final days of expert testimony, Mark Israel, a competition economist hired by Rogers, told the tribunal that if Videotron is permitted to acquire Freedom Mobile, the Quebec-based telecom will become a nearly national carrier with “strong economic incentives and assets to compete vigorously.” Those assets include a larger portfolio of spectrum licences. (Spectrum refers to the airwaves used to transmit wireless signals.)

A number of top executives from the cable companies testified in front of the tribunal, including Quebecor CEO Pierre Karl Péladeau, Shaw president Paul McAleese, Shaw’s chief financial officer Trevor English and Shaw CEO Brad Shaw. That testimony revealed a number of new details, including that Quebecor believes it could launch 5G wireless services outside of Quebec within three months of acquiring Freedom, and that it would get four years of free “backhaul” network access from Rogers. (Backhaul refers to the infrastructure that connects the core of a network to the gear at its edges.)

Ron McKenzie, the chief technology and information officer of Rogers, and Dean Prevost, the president of integration at Rogers, also appeared as witnesses in the case, while Rogers CEO Tony Staffieri did not.

Significant portions of the hearings have taken place behind closed doors, during confidential, or “in camera” sessions, and many of the public versions of witness statements are heavily redacted. It’s common for portions of Competition Tribunal hearings to occur in private to shield sensitive business information.

The tribunal has also heard evidence about the potential cost savings, or efficiencies, that would result from the deal. Canadian competition law allows a merger to close if it generates lower total costs for the combined business, even if it lessens competition.

During the hearings, Rogers and Shaw have not disclosed the dollar value of the efficiencies that they expect their merger to generate. Several witnesses, including Andrew Harington, an accountant hired by Rogers, and Marisa Fabiano, a senior vice-president of finance at the telecom, have testified on behalf of the cable companies regarding these calculations. That testimony has occurred largely during confidential sessions.

However, National Bank analyst Adam Shine noted that Rogers signalled back in March, 2021, that it expects the merger to result in $1-billion of synergies over three years.

Counsel for the Competition Bureau has attempted to challenge the telecoms’ calculations, noting, for instance, that Mr. Harington did not deduct the retention bonuses that will be paid to Shaw executives from the efficiencies. Those retention payments will cost the company up to $50-million.

The hearing has also revealed the lengths to which Telus has gone to try to influence the merger. An internal company presentation highlighted efforts relating to an initiative called Project Fox, which included attempting to persuade Innovation, Science and Economic Development Canada that Quebecor should not be permitted to acquire Shaw’s wireless licences.

Mr. Shine said in a recent research note that the Competition Bureau should consider the fact that Shaw has been steadily losing market share to Telus in its core internet and television business over the past decade.

“Can Rogers do a better job going forward? We’ll see, but it’s not expected to do worse,” Mr. Shine wrote.

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.

The tribunal’s decision could be appealed to the Federal Court of Appeal by either side. If the Competition Bureau loses, it could seek a stay that would prevent the merger from closing until the appeal can be heard.