Opposition to Rogers deal baffles some observers
Watchdog's case against telcos' proposal to sell Shaw wireless biz under scrutiny
The Competition Bureau's objection to the $26-billion merger of telecom rivals Rogers Communications Inc. and Shaw Communications Inc. has left some industry watchers scratching their heads and others wondering whether the regulatory desire to have a fourth viable wireless carrier is leaving only a few options when it comes to the potential divestiture of Shaw's Freedom Mobile assets.
The bureau's case, which was spelled out in partially redacted documents made public Tuesday, indicated that a remedy package proposed by the telcos that would see at least some of Freedom's assets sold was insufficient to alleviate concerns about reduced wireless competition. In the documents, the watchdog argued that Shaw had played the role of “competitive disruptor” since entering the wireless market and made repeated reference to its ability to leverage its wireline infrastructure and offer bundled services to cut costs, an observation that suggested to some that a large telco buyer would be preferred.
Telecom consultant Mark Goldberg said the Commissioner of Competition appeared to be arguing that once Shaw acquired its way into the wireless business with the 2016 purchase of Wind Mobile, it committed to staying there.
“Even without merging with Rogers, (the) Competition Bureau seems to be saying it would damage the competitive landscape for Shaw to sell that piece of their business,” Goldberg said. “Is that a sustainable position for a government agency?”
Others pulled apart the logic of the watchdog's objection, pointing out Shaw's stated reluctance to continue in the wireless business alongside other incumbent cable and internet players such as Quebecor Inc. and Cogeco Inc.
Adam Shine, an analyst at National Bank Financial, said in a note to clients Wednesday that “Shaw would like to call it quits as an owner of all its telecom assets,” while Quebecor and Cogeco both made investments in the last spectrum auction.
“Given what's going on now with the regulatory review of its sale, one must wonder with hindsight if Shaw ever would have bought Wind (Mobile),” Shine wrote, adding that although the competition authority paints Shaw as a maverick wireless player, the reality is that the veteran cable operator used wireless to shore up those dominant operations. Outside the cable strongholds, the offerings weren't sustainable revenue-generators or comparable to what was offered by incumbent wireless players, the analyst wrote.
He also took issue with the emphasis placed on the owner of the Freedom Mobile wireless assets to bundle them with other TV, internet and phone services. This would seemingly close the door to bidders put forward by Rogers, which are understood to include New Brunswick-based rural internet service provider and mobile network operator Xplornet Communications Inc., and Aquilini Investment Group., and favour incumbent cable companies such as Quebecor Inc. and Cogeco Inc. to get the deal done.
“Globalive launched Freedom's predecessor and was deemed a reasonable owner of the business until it sold to private equity who quickly flipped (pre-freedom) Wind to Shaw,” Shine wrote. “Why would Globalive suddenly not be a reasonable buyer of Freedom and by extension some other party with deep pockets and a commitment to grab the baton and pursue the next phase of competition for Freedom into the 5G (advanced network) age?”
In his note, Shine said it also appears that Competition Bureau officials wrote much of their argument before it became clear that Rogers was prepared to sell Shaw's Freedom Mobile wireless operation “in it's entirety,” as the company said unequivocally in a statement on Monday.
From the outset, analysts have speculated that Quebecor would be both a willing buyer of the full package of assets, and a candidate preferred by government. However, past scraps with Rogers over issues include network-sharing arrangements, combined with Quebecor CEO Pierre Karl Péladeau's public declaration that he wished to shake up the dominance of Rogers, Bell and Telus in Canada's wireless market and bring down prices for consumers, made Quebecor a less popular dance partner.
Still, Tim Casey, a telecom analyst at Bank of Montreal, wrote in a recent note to clients that the Competition Bureau's objections to the merger of Rogers and Shaw had strengthened Quebecor's negotiating position and made post-sale benefits for any bidder more likely.
“Rogers now has a weaker negotiation position with any potential remedy partner,” the analyst wrote. "This could include a lower price and/or more onerous operating conditions to close the deal, including a network sharing arrangement.”
In March, RBC Capital Markets analyst Drew Mcreynolds said there were two scenarios in which he could see Quebecor walking away with the prize. In one, the Montreal-based telco would prevail in the first round, while in the other, the assets would be sold to a “Rogers remedy partner” — whatever transaction would get the Shaw deal done — and could eventually be picked up by Quebecor.
Rogers has said it will continue talks with the Competition Bureau while preparing a formal response to the objections filed with Competition Tribunal. If a negotiated agreement cannot be reached, analysts have said the process before the tribunal could take months. Rogers and Shaw had hoped to close their deal by next month, but the outside date has now been moved to July 31.