The Rogers Building in downtown Toronto.CHRIS HELGREN/Reuters
The Rogers-Shaw takeover saga has stretched more than 600 days. Its latest chapter is a battle at the Competition Tribunal, which began this week. The cable-internet-wireless companies believe their deal will bolster telecom competition; the Competition Bureau argues the opposite, and says the deal should be spiked entirely.
The immediate question is a crucial one. A House of Commons committee in March said it was “deeply troubled” about the “fragile” state of telecom competition. Indeed: when Rogers first bid for Shaw, the combination of two cable-internet companies operating in different areas of the country had one galling and obvious problem – one of the wireless Big Three, Rogers, would scoop the upstart No. 4, Shaw’s Freedom Mobile.
That was clearly unacceptable. Rogers eventually came up a plan to jettison Freedom, which operates in British Columbia, Alberta and Ontario, to Quebecor’s Videotron, which has a substantial wireless business in Quebec and wants to expand. Quebecor is a smaller company than Shaw, by assets and market value, so it might be a less able competitor against Rogers, Bell and Telus. But compared with what was on the table, it seemed like the least-bad outcome. The Big Three each have roughly 10-million wireless customers. A Videotron-Freedom combo would have about 3.5 million.
Rogers, Shaw and Quebecor all – no surprise – feel that’s the best resolution. The Competition Bureau, run by Matthew Boswell, isn’t convinced. It sees wireless competition particularly at risk in B.C. and Alberta, which is home ground for Shaw but far from home for Quebecor, which would use some network services from Rogers to operate.
This is a rare case to reach the Competition Tribunal, and given the size and prominence of the companies involved, it has garnered far more attention than the few cases that have come before. But while the question of the future of wireless competition in Canada is paramount, what’s unfolding in the background – the recognition that this country’s rules of competition law, forged in the 1980s, need to be updated – is equally important.
The Competition Act’s rules around mergers are permissive, so much so that if companies can prove “efficiencies,” those gains can outweigh competitive concerns. This emphasis is unique to Canada, and it’s right there at the beginning of the 1985 act, its explicit purpose: to encourage competition, the aim is “to promote efficiency” in the domestic economy, so as to help companies expand in world markets.
The rationale might have made sense in the 1980s, when the idea of bulking up to take on the Americans, or more to prevent being taken over by the Americans, had some purchase. But now? Should a Rogers takeover of Shaw be welcomed as part of a non-existent Ottawa strategy to push Canadians telcos to expand south and take on cable, internet and wireless companies in the United States? No.
Canada’s rules favour domestic mergers that benefit the companies involved. For one example, no deal has ever been vetoed in total at the Competition Tribunal. In one case, the tribunal agreed with the Competition Bureau that a waste industry deal would hurt competition but the company, Tervita, eventually won in a controversial decision at the Supreme Court in 2015.
And so Rogers buying most of Shaw (it’s a $26-billion deal, with the wireless sale to Quebecor ringing in at less than $3-billion) is the norm in Canada. The only real fight is over what’s most egregious about the arrangement. Given tribunal precedent and the state of the law, it’s hard to see the Competition Bureau winning its full case to spike the takeover. It’s almost as if Mr. Boswell is trying to put the bureau’s weak position on public display.
There is a rising chorus calling for the law to change. Mr. Boswell is out in front, beating the drum. In a speech last month, he said that Canada’s competition law enables “high levels of economic concentration – even monopolies.” He’s right.
Work on reform has started. The Liberal government last February outlined some smaller changes, and passed them in the budget bill. They include tougher rules on misleading advertising and bigger penalties under abuse of dominance provisions. What’s pending, and much needed, is a deeper rethinking of competition law, and a new Competition Act.
As for the tribunal decision on Rogers-Shaw, it could come by January – under the old rules.