Shaw logos on display at the company's annual meeting in Calgary, Jan. 17, 2019.Jeff McIntosh/The Canadian Press
Cable guys always win.
Brad Shaw, chief executive officer of Shaw Communications Inc., offered that axiom about his company back in 2014. Seven years later, his words have never rung truer.
Rogers Communications Inc.’s friendly deal to acquire Shaw for $20.4-billion was inevitable. Their long-standing agreement to not compete in each other’s respective home turf (Rogers taking the east and Shaw the west) on legacy services such as cable TV, and the families’ close ties meant the companies would always be the perfect match.
The future of telecommunications, however, is all about wireless. It’s a costly business and companies require scale to remain profitable. That’s why our weak-willed regulators will eventually approve this tie-up. Princely sums are needed to build high-quality 5G wireless networks across our vast country.
But let’s not pretend this colossal cable conquest won’t hurt Canadian consumers. Sure, Rogers is promising to invest billions to “create jobs and connect communities.” It’s no mystery, though, who will ultimately foot the bill for those investments. Common sense dictates that consumer prices will only go up after this deal is done.
After years of bungled attempts to create more competition in the telecom market, the federal government only has one significant lever left to pull. It must finally relax foreign ownership rules for large telecoms to allow American giants to acquire Canadian incumbents BCE Inc. and Telus Corp. – Rogers’s two main rivals – to drive down prices for consumers.
Back in 2012, the federal government made legislative changes to enable 100-per-cent foreign ownership of small telecoms that have a revenue market share of 10 per cent or less. Now is the time for Canada to take the next logical step and drop the remaining foreign investment restrictions for large players.
The proposed Rogers-Shaw tie-up is proof positive that Canada’s telecom policy has failed – again. Wind Mobile, the foreign-funded new entrant that Shaw acquired and rebranded as Freedom Mobile, will fall into an incumbent’s hands once this deal is finalized.
Let’s face it, American telecoms are our last best hope of sustainable competition. Their financial clout and the geographic proximity of their networks could lower wireless costs for Canadian consumers.
Verizon Communications Inc. and AT&T Inc. , for instance, could easily use their massive purchasing power to offer discounts on smartphones and cheaper roaming charges when Canadians travel to the United States or other overseas markets after the pandemic.
American foreign investment also makes sense for strategic reasons. Canada and the U.S. already co-ordinate on wireless spectrum – the radio waves that carriers use to provide cellular services.
Moreover, both countries are members of the Five Eyes intelligence-sharing alliance (along with Australia, New Zealand and Britain) – meaning their respective security interests are largely aligned.
National-security concerns have fuelled Ottawa’s hesitation to drop the remaining foreign investment rules. But recent tensions over the use of Huawei Technologies gear and Ottawa’s 2013 decision to reject a proposed takeover of MTS Allstream by Egyptian billionaire Naguib Sawiris on unspecified national-security grounds underscore why Canada and the U.S. must be aligned on matters of national security from here on out.
Allowing more foreign investment in the telecom market isn’t a new or radical idea. Germany-based T-Mobile has long operated in the U.S. and last year merged with Sprint Corp.
Here in Canada, at least two blue-ribbon panels have recommended Ottawa pursue a broader liberalization of the foreign investment rules for telecom and broadcasting after giving smaller telecom carriers a head start. The Telecommunications Policy Review Panel in 2006 and the subsequent Competition Policy Review Panel in 2008 both concluded that liberalizing restrictions on foreign investment would boost competition.
As those landmark reports collected dust over the years, the Organization for Economic Co-operation and Development separately concluded that greater competition in telecom and broadcasting could lower prices for Canadian consumers.
“Canada has restrictive foreign ownership rules in telecoms and broadcasting, which are intended to support Canadian cultural objectives but which also reduce competitive pressures,” the OECD wrote in a 2016 report.
It’s time that Canada get over its fear of foreigners. After all, Americans founded the Bell Telephone Co. of Canada and it was Mr. Sawiris’s Orascom Telecom Holding SAE that established Wind Mobile in Canada.
As Telus CEO Darren Entwistle said last year: “Let’s open the market to foreign investment and allow market forces to continue to drive the best consumer outcomes.”
Yes, the Rogers-Shaw tie-up was corporate kismet. But if Ottawa gives its blessing to this deal while leaving the remaining foreign investment restrictions intact, then only the cable guys will win.
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