The federal Competition Bureau says it still intends to challenge the proposed $26 billion merger between Rogers Communications Inc. and Shaw Communications Inc., a day after Industry Minister Francois- Philippe Champagne, outlined a potential route to the approval of the agreement by his ministry.
Shares of Rogers and Shaw soared on Wednesday morning as investors bet mediation talks scheduled for Thursday would resolve the competition watchdog’s opposition to the merger of Canada’s two largest cable networks . But company stock prices fell slightly in the afternoon, when the Competition Bureau dampened hopes with its statement.
The initial market optimism stemmed from a Tuesday evening press conference by Mr. Champagne, where he outlined the terms under which his department, Innovation, Science and Economic Development Canada, would approve a necessary step for the merger: the sale of Freedom Mobile wireless service from Shaw carrier to Quebecor inc.
Ottawa imposes conditions on Quebecor’s acquisition of Freedom Mobile as part of Rogers-Shaw merger
Shaw must divest itself of its wireless assets in order to obtain regulatory approval for the merger. Mr. Champagne and the Competition Bureau are concerned that Rogers could become too dominant in the Canadian wireless market if it were allowed to add Shaw’s cell phone customers and wireless spectrum licenses to its own. (Spectrum refers to the waves used to transmit wireless signals.)
Industry analysts said Champagne’s terms, which include Quebecor committing to lower cellphone bills and agreeing not to sell Shaw’s wireless licenses for 10 years, suggest the merger Rogers-Shaw would be acceptable to his department as long as the Freedom divestiture becomes a long-term competitor to Rogers and Canada’s other major wireless service providers.
The Competition Bureau argued that the merger will reduce competition and result in higher cell phone bills, lower quality service and less choice for consumers. He referenced that argument in his statement Wednesday.
“The Bureau is aware of the Minister’s statement 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.”
Shares of Rogers still ended the day nearly 6% higher, closing at $56.76 on the Toronto Stock Exchange, while Shaw closed more than 7% higher at $36.52.
Representatives for Rogers and Shaw declined to comment on the Competition Bureau’s statement.
Earlier this year, Quebecor reached an agreement with Rogers and Shaw to acquire Freedom, Canada’s fourth-largest wireless service provider, for $2.85 billion. This decision would allow the Montreal telecommunications company to expand outside of its home province of Quebec.
The Globe reported that Rogers submitted a proposed settlement ahead of Thursday’s mediation talks. Under the terms of the proposal, Quebecor would purchase fiber optic infrastructure to address Competition Bureau concerns that the company does not have 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 week-long hearing before the Competition Tribunal.
In his comments Tuesday, Champagne said that if Quebecor acquires Freedom, he expects wireless prices in Ontario and Western Canada to be comparable to what the wireless carrier wire owned by Quebecor, Vidéotron ltée, currently offers in Quebec. Those prices are, on average, 20% lower than wireless service prices in the rest of Canada, Champagne said.
Pierre Karl Péladeau, president and CEO of Quebecor, agreed to Mr. Champagne’s terms, saying they are consistent with his company’s “business philosophy” of capturing market share through competitive prices. In a press release published Tuesday evening, Mr. Péladeau indicated that 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 telecommunications researcher and doctoral candidate at Carleton University, said Champagne’s pricing criteria could backfire. Comparing phone plans can be tricky, as carriers often offer different add-on services or data amounts. Klass said he found that Freedom’s rates on some entry-level plans are already cheaper than Videotron’s offerings in Quebec.
He noted that, for a “bring your own phone” plan with data, Freedom’s cheapest plan is $35, with 10 gigabytes of data. Videotron charges $45 and includes only six gigabytes.
If Videotron applied its current pricing standards to any new business it takes over from Freedom, it is possible that prices for Freedom plans will increase, Klass said.
“The minister is just creating policy on an ad hoc basis through the media,” Klass added. “It’s elite consensus government, not democracy.”
Critics also noted that it is unclear how the government would ensure Quebecor meets the price cuts it has committed to.
“If they see five years later that Videotron hasn’t lowered its price, maybe they can sue them, and maybe there can be financial penalties, but they can’t put Shaw back together,” said Keldon Bester, a fellow at the Center for International Governance Innovation, a think tank. Another possible remedy would be for the government to revoke Videotron’s spectrum, he said, but that would mean disconnecting millions of Canadians from their wireless service.
OpenMedia, an organization that advocates widespread, inexpensive internet access, said in a statement that while the Competition Bureau “can theoretically reverse takeovers if the conditions imposed on them are not met, it has no not yet wielded this power in its 132-year history”.
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