Competition Bureau remains firm in its decision to challenge proposed Rogers-Shaw merger

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The federal Competition Bureau says it is still intent on challenging the proposed $26-billion merger between Rogers Communications Inc. and Shaw Communications Inc., a day after Industry Minister François-Philippe Champagne laid out a potential path toward his department’s approval of the deal.

Shares of Rogers and Shaw soared in Wednesday morning trading, as investors wagered that mediation talks scheduled for Thursday would resolve the competition watchdog’s opposition to the merger of Canada’s two largest cable networks. But the companies’ stock prices slid slightly lower in the afternoon, when the Competition Bureau dampened hopes with its statement.

The market’s initial optimism stemmed from a Tuesday evening press conference by Mr. Champagne, where he outlined the conditions under which his department, Innovation, Science and Economic Development Canada, would approve a necessary step in the merger: the sale of Shaw’s Freedom Mobile wireless carrier to Quebecor Inc.

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Ottawa attaches conditions to Quebecor’s acquisition of Freedom Mobile as part of Rogers-Shaw merger

Shaw needs to divest itself of its wireless assets in order to win regulatory approval for the merger. Mr. Champagne and the Competition Bureau are concerned that Rogers would become too dominant in the Canadian wireless market if it were allowed to add Shaw’s cellphone customers and wireless spectrum licences to its own. (Spectrum refers to the airwaves used to transmit wireless signals.)

Industry analysts said Mr. Champagne’s conditions, which include that Quebecor commit itself to lowering cellphone bills and agree not to sell Shaw’s wireless licences for 10 years, suggest that the Rogers-Shaw merger would be acceptable to his department as long as the divestiture of Freedom results in a long-term competitor for Rogers and Canada’s other major wireless providers.

The Competition Bureau has argued that the merger will lessen competition and result in higher cellphone bills, poorer service and less choice for consumers. It referenced this argument in its Wednesday statement.

“The Bureau is aware of the Minister’s statement from yesterday regarding the transfer of spectrum licenses from Shaw to Rogers,” the competition watchdog said. “We remain firm in our decision to challenge this proposed merger to protect the public interest.”

Rogers shares still finished the day up nearly 6 per cent, closing at $56.76 on the Toronto Stock Exchange, while Shaw closed more than 7 per cent higher, at $36.52.

Representatives of Rogers and Shaw declined to comment on the Competition Bureau’s statement.

Earlier this year, Quebecor struck a deal with Rogers and Shaw to acquire Freedom, Canada’s fourth-largest wireless carrier, for $2.85-billion. The move would allow the Montreal-based telecom to expand outside of its home province of Quebec.

The Globe has reported that Rogers has put forward a settlement proposal ahead of Thursday’s mediation talks. Under the terms of the proposal, Quebecor would buy some fibre-optic infrastructure to resolve the Competition Bureau’s concerns that the company doesn’t own enough infrastructure outside of Quebec to support Freedom’s wireless business.

If the mediation talks do not result in a settlement, the case will likely head to a weeks-long hearing in front of the Competition Tribunal.

In his comments on Tuesday, Mr. Champagne said that, if Quebecor acquires Freedom, he expects wireless prices in Ontario and Western Canada to be comparable to what Quebecor-owned wireless carrier Videotron Ltd. is currently offering in Quebec. Those prices are, on average, 20 per cent lower than wireless prices in the rest of Canada, Mr. Champagne said.

Pierre Karl Péladeau, Quebecor’s president and chief executive officer, has agreed to Mr. Champagne’s conditions, saying they are in line with his company’s “business philosophy” of capturing market share through competitive pricing. In a statement issued late Tuesday, Mr. Péladeau said Quebecor, Rogers and Shaw will incorporate Mr. Champagne’s criteria into a new version of their agreement.

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But Ben Klass, a telecom researcher and PhD candidate at Carleton University, said Mr. Champagne’s pricing criteria could backfire. Comparing phone plans can be challenging, as carriers often offer different add-on services or amounts of data. Mr. Klass said he has found that Freedom’s pricing on some entry-level plans is already cheaper than Videotron’s offerings in Quebec.

He noted that, for a “bring your own phone” plan with data, Freedom’s cheapest offering is $35, with 10 gigabytes of data. Videotron charges $45 and includes just six gigabytes.

If Videotron applied its current pricing standards to any new business it took on from Freedom, there’s a possibility that the prices for Freedom plans could actually rise, Mr. Klass said.

“The minister is just creating policy on an ad hoc basis through the media,” Mr. Klass added. “That’s a government by elite consensus, not democracy.”

Critics also noted that it’s unclear how the government would ensure that Quebecor meets the price reductions it is committing to.

“If they see five years down the road that Videotron has not lowered its price, perhaps they can take them to court, and perhaps there can be financial penalties, but they can’t put Shaw back together again,” said Keldon Bester, a fellow at the Centre for International Governance Innovation, a think tank. One other possible avenue of recourse would be for the government to revoke Videotron’s spectrum, he said, but that would involve disconnecting millions of Canadians from their wireless service.

OpenMedia, an organization that advocates for widespread inexpensive internet access, said in a statement that, although the Competition Bureau “can nominally reverse buyouts if conditions placed on them are not met, they have yet to exercise this power in their 132 year history.”