The Decibel - What the Rogers-Shaw deal could mean for your phone bill

Episode Date: January 31, 2023

On Monday, Rogers Communications Inc., Shaw Communications Inc. and Quebecor Inc. extended a deadline to mid-February that would finalize the largest telecommunications takeover in Canadian history. The deal would see Rogers buy Shaw for $20-billion. In an already concentrated industry, Canada’s Competition Bureau has argued that the deal would be bad for consumers who already pay some of the highest cell phone bills in the world.Telecom reporter, Alexandra Posadzki explains the implications of this deal and why, even though it has cleared significant legal hurdles, Canada’s Federal Industry Minister Francois-Philippe Champagne won’t rush his signoff.Questions? Comments? Ideas? Email us at [e-mail]

Canada's cell phone bills are among the highest in the world. That's why a deal that would see telecommunications giant Rogers take over Shaw has been met with obstacles and delays for nearly two years. One of the big concerns is around what consolidation could mean for consumer prices. And on Monday, the deadline for that deal was extended, again, to mid-February. The Globe's telecom reporter, Alexandra Posatzky, has been following this story.

And she's writing a book about the family drama and power struggles at Rogers. Today, she'll help us understand why the Rogers-Shaw deal matters. I'm Maina Karaman-Wilms, and this is The Decibel from The Globe and Mail. Alex, thank you so much for joining me today. It's great to have you in studio. Yeah, thanks for having me. So I guess my first question here really is just why is the Rogers takeover of Shaw such a big deal? Like companies are making these kind of deals all the time. So why is this one important? Well, for one thing, it's a

particularly large one, the largest in telecom history. It's valued at $20 billion, $26 billion if you include the debt. And, you know, it raises questions about what people have seen as a very concentrated market in telecom. You know, Canadians have long complained about paying what they perceive to be some of the highest wireless prices in the world. And a lot of the polling indicates that Canadians are not in favor of this transaction. They're concerned about consolidation. There's generally a concern out there that bigger is worse. And even if you're not necessarily reducing the number of competitors in each geographic market, you still have a bigger company. And therefore, that bigger company could

theoretically abuse its dominant position in various ways. And so let's, I guess, talk about this consolidation here. Can you give us, I guess, the lay of the land as it stands now? Like, who are the main mobile carriers carrier in the country. They have about 1.7 million customers in Ontario, Alberta and B.C. And as part of this deal, you Freedom, Rogers and Shaw have agreed to sell Freedom to a company called Videotron, which is a Montreal-based telecom owned by Quebecor. And Freedom right now is actually owned by Shaw, isn't that right? That's right. So Freedom is owned by Shaw. OK. So this deal, Rogers announced that it wanted to buy Shaw in March of 2021. So that's almost two years ago now. And this deal is taking so long because it faced a number of legal challenges from Canada's Competition Bureau specifically, which wanted to block the deal. And the Competition Bureau is an independent law enforcement agency that works for promoting competition in Canada for the benefit

of consumers. So what were they actually concerned about here? The Competition Bureau's claims or concerns, I guess, was that this deal would lead to higher wireless prices and poorer service, in particular in Western Canada. And even though Rogers and Shaw did agree to sell Freedom to Quebecor, the Bureau's position was that separating Freedom from Shaw's cable network was going to leave it a weakened competitor. They were concerned also with sort of a number of agreements that were struck between Rogers and Videotron that would essentially allow Videotron to replicate wireless and cable bundles in Western Canada, the Bureau felt that those agreements would essentially leave freedom vulnerable to anti-competitive actions by Rogers. Well, that sounds like a concern then for consumers who are already worried about the

prices they pay for everything. So what has Rogers and Shaw done in order to address those concerns? Well, you know, Rogers and Shaw, of course, like I've mentioned, agreed to sell Freedom. Quebecor has made a number of promises as well. They've promised Federal Industry Minister François-Philippe Champagne that they would reduce wireless prices outside of Quebec and also that they would hold on to the Freedom business for at least 10 years. It's important to note that, you know, the Competition Tribunal did conduct a four-week hearing into this merger, and they concluded that

not only was this deal unlikely to result in materially higher wireless prices, but also that the deal, in fact, was pro-competitive in a number of ways. The Tribunal, you know, basically said Videotron has been a really aggressive competitor in Quebec. It's captured about 20 percent market share. And the tribunal did not buy the bureau's arguments that prices would go up and that Videotron would sort of become complacent and join this telecom oligopoly. They felt that it would maintain the competitiveness that Freedom was providing in the market. It sounds like Freedom Mobile is a big part of what's going on here. They have 1.7 million customers. So compared to the other major three carriers, relatively small.

Why is Freedom Mobile seen as such a key aspect of all of this? I guess in a nutshell, you know, Rogers and Shaw, in terms of their cable footprints, they're adjacent. They don't overlap. So the two companies don't actually compete directly with each other when it comes to the cable side of the business. So from a sort of competition perspective, you know, potentially not much of an issue there, if you look at Canada's competition laws. And when you say cable, so that means not not your cell phone, basically. Yeah, so that sort of refers to internet and television service.

Now, Freedom is different because Freedom does compete directly with Rogers. And for a long time, it's sort of been seen as the kind of scrappy competitor, the one who, you know, has made new products in the market. They started offering Big Gig, which was the sort of unlimited data buckets. And, you know, the Competition Bureau did this analysis a couple years ago where they found that in markets where regional competitors like Freedom have at least 5.5% market share, wireless prices are lower. And so, you know, this has been a big focus of not just this liberal government, but also the previous conservative government, which has always wanted a fourth carrier.

There's a sort of expectation that if we had a fourth national carrier, then perhaps there would be more competition and lower wireless prices. And so for years, the government has made these policy decisions, for example, setting aside wireless airwave licenses for these smaller competitors in the hopes of reducing the barriers to entry. And so the idea of, you know, Rogers acquiring freedom flies in the face of years and years of policy by eliminating this competitor that was seen as being very competitive and very aggressive. A study from ReWheel, which is an independent telecom research firm that looks at mobile data prices in 50 countries, it ranked Canada as one of the most expensive in the world. On that front, what has Roger Shaw said about what this deal would mean for cell phone bills, specifically cell phone bills in Canada?

Well, you know, a lot of the promises around wireless prices have actually come not from Rogers and Shaw necessarily, but from Videotron, since they're the ones that would be acquiring Freedom Mobile. And what Videotron has promised is that they would bring down wireless prices outside of Quebec to prices comparable to those in Quebec, which the minister has identified as being about 20% lower. Now, that figure is sort of in dispute. Some people have suggested that Freedom in some packages is actually already offering lower prices than Videotron. And so the really challenging thing about talking about wireless prices is that it's always you're sort of comparing apples to oranges because plants are not necessarily identical between different carriers. There's different things included, different sizes of data buckets, different amounts of things like, you know, long distance. But yeah, Videotron has basically promised that they would bring down wireless prices. What have Bell and Telus, the other big competitors in this space, what have they said about the deal? They've been vocally very opposed to this deal. You know, they opposed it at the CRTC, Canada's telecom regulator. And, you know, we've also seen documents that came out during the

competition tribunal hearing that basically really showed us how much work TELUS put into opposing this deal. They had a project that they called Project Fox that was specifically aimed at killing, slowing and shaping the merger. And, you know, this became something that, you know, Rogers and Shaw have kind of glomped onto recently saying, you know, look how pro-competitive this deal is. The best indication of that is the fact that our rivals are so threatened by the increased competition that they would face. Interesting. OK, so So this deal has gone through legal hurdles already, but it also needs sign-off from federal industry minister, François-Philippe Champagne.

What has he said about the deal? He's basically said that, you know, he's not in a rush to approve this deal and that he wants to take his time to make sure that the commitments that Videotron has made in terms of wireless prices and how long it plans to hold on to the business, he wants to make sure that those are enforceable. There's been a lot of questions about that in terms of how do we ensure that,

you know, these conditions are enforceable and, you know, it would be not great politically if, you know, the deal did go through and then wireless prices went up. And so he wants to make sure that, you know, those promises are going to be kept. Okay. Yeah, because I guess that this is the stage, I guess, to put those fail safes in place, then you don't want the deal to go through and then find that prices are going to increase there after the deal is signed. Yeah, because then what are you going to do? You can't really easily unwind a deal of that size. And so there's a number of members of parliament who also have expressed concerns. You know, we had the recent hearing in front of the Industry and Technology

Committee and, you know, Rogers and Shaw faced some tough questions from members of parliament, from the Liberal, Conservative and New Democrat parties. But why should you, Rogers, the most dominant player in a heavily concentrated sector that matters so much to affordability Canadians, why should you get to decide who the fourth player is? We went through a process together with Shaw looking at alternatives. We had many bidders. In fact, we put two other bidders. Not my question. Not my question. Why should you decide? We went through an iterative process with the regulatory bodies. In fact, we put... Not my question. Not my question.

Why should you decide? You're the most dominant player in this marketplace. Why do you get to decide who the fourth player is? Do you think that's fair? We went through the process to ensure... And, you know, the Conservatives have actually published an open letter in the past couple of days, basically urging Minister Champagne not to approve this deal too quickly

and to really kind of take his time with the review. We'll be back after this message. We've been talking about what this deal could mean for competition and prices for Canadians, but I also want to ask you about jobs, Alex, because these are two big companies, a lot of people are employed by these companies, and takeovers often come with job cuts. So what have we heard about that? So Rogers has said that, you know, on a net basis, this is going to create jobs. And so while there might be some duplication in some areas, there's going to be new job creation in other areas. Some of the MPs were not necessarily convinced by that logic during the recent hearings by the House of Commons committee.

One of the MPs actually said that he had heard from Rogers Company insiders that the deal would lead to as many as 5,000 job losses. That seems pretty significant then there. This whole thing seems like a lot of trouble, frankly. We is, you know, at least a billion dollars of savings. You know, also these families have a long standing relationship with each other. Rogers founder Ted Rogers and Shaw founder J.R. Shaw, you know, broke bread many, many years ago when they essentially decided to not, you know, tread on each other's turf and in a handshake deal that kind of split the country into East and West. And some people have hypothesized that even back then there was kind of this maybe expectation that these companies would one day come together. So that's certainly part of it.

Rogers has talked about how having access to Shaw's fiber network in Western Canada would also allow it to roll out 5G faster. So, you know, while we think of wireless services as being delivered through towers, those towers actually need to be connected to fiber optic cables. And so Rogers doesn't have the kind of deep fiber optic network in Western Canada that it needs to leverage in order to roll out 5G. And so that's one of the big advantages for them here as well. That history with the families is actually really interesting. Because, Alex, of course, you're on book leave right now, because you're actually writing a book about Rogers and the

family conflict and the drama that's been happening there. I guess I just got to ask, does that family conflict or anything or the things that are being discussed there, does that have anything to play into this deal happening or not happening? I mean, my understanding is that this is one area where the family is completely aligned. Obviously, there were a number of things that, you know, various Rogers family members did not agree on. For instance, Edward Rogers, the son of the company's founder, Ted Rogers, he's also currently the chair of the company's board, as well as the chair of the trust that controls Rogers. And, you know, Edward's decision to fire the company's former CEO, Joe Natale, and replace him with Tony Staffieri, who was, you know, then the company's chief financial officer. But in terms of the importance of this deal, I think

all family members want this deal to go ahead. Okay. I think a lot of us remember that Rogers outage that happened last year when anyone on the network basically didn't have service for an entire day. It was really disrupting a lot of people's lives. Will this takeover have any impact on either, I guess, preventing another situation like that or in the event of a situation like that, not kind of having the flexibility for another carrier to maybe cover each other in the event of an outage? This was part of the Competition Bureau's argument. They suggested that, you know, this takeover would potentially impact network reliability negatively. There was a concern that, you know, in the case of a future outage, there would be more customers impacted because you're going to have a larger company. And also that, you know, when you separate freedom from

Shaw's cable network, it's going to have to be relying on other sources for what's known as backhaul connectivity. And so when you're kind of purchasing that connectivity and you don't own the network yourself, then maybe you don't have the same level of control to respond to spikes and to deal with outages when they happen. Rogers has said that, you know, that's not true. And they've made a number of commitments in terms of improving their network following the outage. So, you know, in fact, they've actually suggested that acquiring Shaw would help them make those changes quicker. So Alex, before I let you go here, I guess I want to ask about the bigger picture stuff as well. Because the Competition Bureau that we've been talking about, it was unsuccessful in trying

to block this deal. Could that set a precedent for other industries in Canada where other industries could become more consolidated, which would then mean consumers maybe have less options for those things? Yeah, that's a really interesting question. It's obviously hard to read the tea leaves. I don't have a crystal ball on this one. But you know, we do know that the federal government has committed to an overhaul of the Competition Act. And so, you know, part of, you know, the mystery is what will that overhaul look like? And is it going to, you know, address some of the issues that Commissioner of Competition Matthew Boswell feels should be addressed? You know, Boswell basically feels that competition law should not purely prioritize economic interests, but should also look at social values.

And, you know, right now, the way that our laws are structured basically prioritizes cost savings by merging parties over, you know, a dollar in the pocket of a consumer. And Boswell has said that he does not believe that that should be the case. And so a lot kind of does hinge on that review and how long that's going to take and what kinds of changes are going to be made. And Alex, we know now that the timeline for this deal has been extended to February 17th. Does it look like this deal is definitely going to happen then? I mean, there's only really one thing standing in the way of this deal at this point, and it is the approval of Francois-Philippe Champagne and his department. He certainly hasn't suggested that, you know, he's opposed to this merger. We do have a ruling from the Competition Tribunal that says this merger is pro-competitive.

We have a decision from the Federal Court of Appeal upholding that decision by the Competition Tribunal, and the Competition Bureau has said that it won't be seeking leave to appeal to the Supreme Court of Canada. So it does look like we're getting a lot closer to the finish line here. Alex, thank you so much for taking the time to walk us through this today. Thanks so much for having me. It's been fun. That's it for today. I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Kasia Mihailovic is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.