In the Rogers-Shaw takeover, even if the appeal court finds that the Competition Tribunal erred, it will likely also find that this error had no impact.DADO RUVIC/Reuters
Michael Osborne is the chair of Cozen O’Connor’s Canadian competition practice.
The Competition Tribunal’s ruling last year in favour of the Rogers-Shaw takeover was greeted with a hail of criticism. The Commissioner of Competition appealed before even reading the full decision, accusing the tribunal of analyzing the deal the wrong way in a rush to judgment.
What has been lost in the din is that the tribunal found the deal would actually increase competition. Because of this finding, the outcome would have been no different had it analyzed it the way the Commissioner argues it should have. Thus, when the Federal Court of Appeal hears the case Tuesday, even if it finds that the tribunal erred, it will likely also find that this error had no impact and, for that reason, dismiss the appeal.
Originally, Rogers RCI-B-T proposed to buy all of Shaw, SJR-B-T including Freedom Mobile, a stand-alone mobile carrier. But just over a month after the Commissioner challenged the deal, Rogers and Shaw agreed to sell Freedom Mobile to Videotron Ltd. Crucially, Shaw will sell Freedom to Videotron first, before Rogers buys Shaw. As a result, Rogers will never own Freedom.
Despite this, the Commissioner took the position that the tribunal must examine the original deal before considering whether selling Freedom would remedy any harm to competition. Essentially, the Commissioner’s position was that the merger is just what he chooses it to mean, regardless of how the parties may have changed the deal.
The tribunal refused to go through the looking glass with the Commissioner, for the eminently practical reason that it should not ignore reality. Because Rogers will never own Freedom, the deal challenged by the Commissioner was no longer being proposed.
But would the result have been any different had the tribunal used the two-step process proposed by the Commissioner?
Clearly not. The test is the same either way. The tribunal asked whether the modified deal would result in a substantial lessening or prevention of competition (SLPC). Had it first considered the original deal and then the Freedom divestiture as a remedy, it would have asked itself whether the divestiture would restore competition to the point where there is no longer an SLPC. The question in both cases is: When the dust has settled, is there an SLPC?
The answer turned on whether Videotron, as the owner of Freedom, would be an aggressive and effective competitor. After a detailed review, the tribunal concluded that Freedom will be more competitive under Videotron’s ownership than if it remains under Shaw’s.
Central to the Commissioner’s case was the theory that Freedom could not compete were it cut off from Shaw’s wireline network. The tribunal found that the evidence did not support this contention. Bell and Telus both compete effectively in areas where they do not own a wireline network – Bell in Western Canada, Telus in Eastern Canada. As well, the Commissioner’s own expert predicted that Videotron would reduce Freedom’s prices by more than 15 per cent.
Meanwhile, the takeover would make Rogers more competitive in Western Canada. Bell and Telus have launched “very significant competitive initiatives” since the deal was announced. The combined effect would be to increase competition in Western Canada.
Since the test is the same, the only difference between the one-step analysis conducted by the tribunal and the two-step analysis insisted on by the Commissioner is who bears the burden of proof. With the one-step approach, the Commissioner bore the burden throughout. With the two-step analysis, the burden shifts to the deal’s parties to show that the divestiture would be an effective remedy.
But cases almost never turn on who bears the burden of proof. This case is no exception. Even with the current one-step analysis, the tribunal relied on evidence from Rogers, Shaw and Videotron in finding that the takeover plus divestiture would be good for competition.
Recently, the Commissioner has been pushing for a higher remedial standard for deals that harm competition, namely that a remedy should completely restore competition. According to the tribunal, the Freedom divestiture will give him even more than that; it will increase competition. This finding will likely doom the Commissioner’s appeal.