Public dislikes Rogers-Shaw deal, but will that matter?
Some hope pressure will lead to a sell-off of Freedom to another party entirely
One month into Rogers Communications Inc.’s campaign to win approval of its deal to acquire Shaw Communications Inc. — the second-largest cable company in Canada and owner of the fourth-biggest cellular provider — public reaction has been resoundingly negative, yet experts still expect the deal to get the green light in some form.
Family controlled Rogers has locked up the support of the Shaws, who control the Calgary-based company, and in early public statements about the $20-billion deal ($26 billion including debt), executives spoke warmly about the friendly relationship between the two families, each their own dynasty of decades of consolidation in the cable business.
When the companies were summoned to parliamentary committee hearings on the proposed transaction, the CEOs shifted from backslapping to earnest promises about investments the combined company will make. Speaking to obviously skeptical MPs from every political party, Rogers’ Joe Natale pledged a faster rollout of nextgeneration 5G technology in western Canada and a $1-billion fund for high-speed rural internet.
The transaction makes business sense for the companies, but a range of academics and consumer advocates along with thousands of ordinary Canadians have come out against it, lamenting the loss of yet another wireless competitor, Shawowned Freedom Mobile, the latest in a long history of consolidation in the sector. And while the deal’s approval feels inevitable to many, some hope that public pressure could influence the outcome around the edges or even see Freedom Mobile sold off to another party entirely.
With Freedom operating in mostly urban areas in Ontario, British Columbia and Alberta, Shaw’s own numbers say about 50 per cent of the Canadian population stands to lose access to this option. Across the country, the combined cable networks of Shaw and Rogers would reach almost 60 per cent of households and in Ontario alone, the company would have 52 per cent of the wireless market share.
“People understand enough about the oligopolies in Canada that Rogers/Shaw just seems outlandish to them,” said Vass Bednar, executive director of the master of public policy program at McMaster University.
Freedom’s consumer-friendly policies — it kicked off the move toward unlimited monthly data plans with no overage fees — have helped put pressure on national operators Rogers, BCE Inc.’s Bell Canada and Telus Corp. that collectively control about 90 per cent of the wireless market. (The Big Three each operate subbrands at different price points, with Fido, Virgin Mobile and Koodo, respectively, competing most directly with Freedom.)
In a long-awaited ruling Thursday, the Canadian Radiotelevision and Telecommunications Commission concluded wireless prices are higher in Canada than in similar international markets and said the Big Three collectively have the power to control the prices consumers pay in most parts of the country. It said regional players like Freedom have helped check that power and ruled that those smaller wireless operators should get access to the networks of the Big Three to help build out their own areas of coverage.
Ironically, initial reaction from financial analysts indicates the ruling could help strengthen the case for Rogers’s takeover to be approved, because it could help players like cable operator Cogeco Communications Inc. get into the wireless market.
Shaw itself only got into the wireless game in 2016, when it bought what was then Wind Mobile. It now has two million wireless customers in addition to almost 4.5 million cable television, internet and telephone customers in the western provinces plus about 640,000 satellite TV subscribers across the country.
Rogers, meanwhile, has 11 million wireless clients nationwide and in the range of five million TV, internet and home phone customers in Ontario, New Brunswick and Newfoundland (Rogers no longer reports how many cable TV and home phone subscribers it has, making it difficult to get an exact count).
Combining the heft of both companies strikes many casual observers as a bad idea.
Most Canadians don’t spend much time contemplating the intricacies of competition policy, which is often simplified to mean big equals bad, Bednar said. She noted there is nothing in Canada’s laws that says a deal should be ruled out based on size alone and said she expects the deal will win approval from the Competition Bureau based in part on the companies’ arguments that combining forces will make them more efficient.
Still, she said, the transaction comes as the pandemic has highlighted the importance of connectivity and the depth of the digital divide in Canada, both when it comes to rural access as well as the prices many low-income Canadians struggle to afford.
Since the deal was announced, the Competition Bureau has received more than 7,500 submissions from the public, the most it has ever received on any potential takeover.
“I think the role of consumers has been underestimated with this proposed merger,” Bednar said. “If anything, it will be public opinion that causes them to put the brakes on it.”
Ambarish Chandra, associate professor of economic analysis and policy at University of Toronto’s Rotman School of Management, said the Competition Bureau will likely approve the merger with conditions, such as requiring Rogers to give up some of its licences for spectrum (the airwaves used to build cellular networks) or wireless subscribers in some markets.
“But it’s a little bit unusual in this case just given the sheer volume of public pressure and all the feedback and comments the bureau has been getting,” he said, adding that while he does not think that will influence the competition watchdog’s analysis, it could sway the federal department of Innovation, which also must approve the deal.
“We’re all aware of our cellphone bills but, for example, when there are big railroad mergers that drive up the cost of all the goods we buy, we don’t tend to notice even though those can affect us more,” Chandra said. “I wouldn’t be surprised if the bureau doesn’t object to this merger, but the government, maybe bowing to public pressure, imposes some stricter conditions than the bureau goes for.”
Telecom prices are a perennial political talking point. The Conservatives under Stephen Harper pursued a policy meant to encourage more choice and competition with four wireless operators in every market and the current Liberal government has pledged to lower cellphone prices by 25 per cent within two years.
Since the beginning of 2020, when Ottawa said it wanted to see a drop in price of phone plans with two to six gigabytes of data per month, the government says the cost for most plans offered by Fido, Virgin and Koodo has decreased between 10 and 18 per cent. The price of a 6-GB monthly plan in Ontario was $50 as of December, down from $60 at the beginning of 2020.
The CRTC ruling on Thursday also said the Big Three will have to offer 3GB wireless plans for $35 per month, offerings meant to appeal to seniors and lowincome earners.
Against this backdrop, Rogers has committed not to increase prices for Freedom Mobile customers for three years. But that would actually be like going backwards, said consumer advocate Laura Tribe, executive director of OpenMedia, who spoke at the parliamentary committee hearings earlier this month.
“When you look at what’s been happening in the cellphone market overall, prices have actually been coming down slowly — slower than they have around the world, but they have been coming down,” Tribe said. “So even just staying where we are is falling further and further behind.”
“And Freedom itself has been the one that has been helping push Bell, Telus and Rogers to lower their prices,” she said. “So if you have (Freedom) locked in and no pressure for other companies to lower their prices, immediately you’re going to see the effects of that.”
On the rural speed gap, the Canadian Internet Registration Authority, which collects usersubmitted data based on a free internet speed and performance test, found that the median download speed for citydwellers in March was 51 megabits per second, while rural users saw median speeds of just under 10 MBps.
The big players say telecom is an expensive business and Canada — with much of its population clustered in a handful of urban centres — is a difficult country to wire up. Rogers says it needs to do this deal to get big enough to keep making those investments (it spends $2 billion to $3 billion per year); and Shaw has said its wireless business still doesn’t generate more cash than it burns and it was considering a number of options, including going private, to bulk up its balance sheet.
“With Shaw and Rogers together, we can go further and we can go faster in 5G, right into rural Canada. It would not have been the case alone,” Natale said. He told MPs the $1-billion fund the company plans to create for rural and Indigenous communities is on top of what Rogers would have otherwise invested. (David Peterson, who sits on Rogers’ board of directors, is also vice-chair of Torstar Corp., the company that owns the Toronto Star.)
But some question how much the merger would truly improve broadband access in underserved parts of the country. Byron Holland, chief executive officer of the Canadian Internet Registration Authority, said estimates for how much it would cost to close the digital divide range from $8 to $12 billion.
And while the CRTC as well as federal and provincial governments have broadband programs that chip in public money to support private sector spending, Holland said it is not clear what kind of return on investment Rogers expects from its fund and whether it will see the company invest in more densely populated areas first.
“I certainly think that Rogers has their political antennae up. They’re obviously recognizing that this area of investment — rural and Indigenous — is going to be important to government,” he said. “I hope that they follow up on those commitments.”
The transaction comes as the pandemic has highlighted the importance of connectivity and the depth of the digital divide in Canada