Bell, Telus and PIAC want CRTC to deny Rogers’ acquisition of Shaw’s broadcasting interests

BCE Inc. and Telus Corp., considered to be two of Rogers Communications Inc.’s greatest competitors, have asked the CRTC to deny Rogers’ proposed acquisition of Shaw Communications Inc.’s broadcasting business following a slew of nearly identical interventions submitted in favour of the deal. Monday was the deadline for interventions for the CRTC’s hearing on the Rogers-Shaw merger and Bell and Telus both submitted arguments stating Rogers’ application should be denied. They were joined by the Public Interest Advocacy Centre (PIAC) and the National Pensioners Federation (NPF) in raising concerns over market share and the power Rogers stands to gain through the merger. “Denial is the only response proportionate to the concerns raised by the transaction, and is most compatible with protecting the public interest. The transaction provides no benefit to the broadcasting system that can outweigh the harmful impacts of the merger,” Telus said in its intervention. Shaw has been widely acknowledged as a driver of lower prices in the wireless sector in its position as a fourth competitor to Bell, Telus, and Rogers. Bell argued Rogers would end up with “an unprecedented level of market dominance with respect to the provision of broadcasting distribution and internet access services” and “an unparalleled ability to dictate which programming services will be available to Canadians.” “This transaction is not about swapping out one local (broadcasting distribution undertaking) BDU for another,” Bell said. “It is about acquiring a stranglehold over programming services’ access to BDU and (over-the-top) OTT platforms.” According to Bell’s intervention, calculations show Rogers would control 47 per cent of the English-language broadcasting distribution market if the merger is approved, resulting in a 135 per cent increase in its market share. Bell said Rogers would additionally account for 47 per cent of English-language BDU subscription revenues, resulting in a 123 per cent increase in its related market share, and would control one of every three internet connections in Canada -- an 82 per cent increase in its market share. “The level of market power sought by Rogers exceeds every relevant market power threshold ever established,” Bell said. “Such dominance is unprecedented in a market of this size and will give Rogers the power to ‘make or break’ programming services, resulting in one provider being able to dictate what content is available to Canadians, on what distribution platforms the content is available, regardless of where they live or which BDU they subscribe to.” Speaking Tuesday at the BMO Annual Media and Telecom Conference, Bell CEO Mirko Bibic said the CRTC has "got to confront the fact that there is an unequal playing field between traditional players, Canadian players, and the large foreign giants -- whether or not its content contributions, content spending, corporate taxation, GST, all those things." "We've got a gatekeeper function, unprecedented market power in terms of subscription revenues. You've got this foreign competition coming. So what are we going to do about the ecosystem, and I think that hasn't been talked about in the context of this transaction, and that's what we're putting forward in this hearing," Bibic said. Telus has similar concerns, saying in its intervention that “Rogers will effectively become a gatekeeper for programming due to its increased incentive to withhold affiliated content from rival BDUs, and its ability to ‘make or break’ unaffiliated programming services by denying them carriage on Rogers’ distribution platforms.” Bell pointed to its own attempted acquisition of Astral Media in 2012 -- the first application for which was denied by the CRTC when it stood to gain a smaller market share than Rogers is seeking now. The regulator was not convinced at the time the deal would provide significant and unequivocal benefits to the Canadian broadcasting system, it said. “Ironically, Rogers intervened in that process to voice its concern that, if approved, more than one third of BDU wholesale fee payments would be to Bell Media services, significantly enhancing BCE's market power,” Bell said in its intervention. “We recognize that these are two separate markets but parallels can and should be drawn given that both markets are part of the same industry,” the company argued. It also references a decision in the United States where Comcast was made to abandon its merger with Time Warner Cable, which would have resulted in Comcast having less than 30 per cent of the paid television market. Even if the CRTC allowed the acquisition of Shaw without its satellite service Shaw Direct, “the monopsony power that Rogers would exercise would be far too great,” Bell said. Telus includes the divestment of Shaw Direct in its intervention too, saying that “while this divestment alone is grossly insufficient to mitigate the negative impacts of this transaction, it has the added benefit of reducing Rogers’ BDU subscriber share by the 687,000 subscribers that are served by Shaw Direct.” Telus would additionally want to see the CRTC require the Shaw family to divest its controlling interest in Corus Entertainment Inc. and require Rogers to continue funding local news production by Global TV. “Under the circumstances, Corus cannot be considered to be truly independent from Rogers,” Telus said. “Given the terms of the proposed transaction, Rogers can be expected to receive advantageous rates or terms of carriage from Corus’ programming services as this will financially benefit the Shaw family.” Bell also raised the point that Rogers hasn’t proposed any safeguards “or even acknowledged there is a potential for it to abuse its market power.” Telus is concerned Rogers would have increased incentive to deny others access to “must-have programming.” The company said in recent years, Rogers has attempted to foreclose its access to Sportsnet, defied the “head-start” rule by refusing to provide Telus access to its 4k programming unless Telus agreed to pay “exorbitant rates,” restricted access to VOD programming, and provided exclusive access to GamePlus, which offers unique camera angles during NHL games, to its own wireless of cable subscribers. “The proposed transaction will only serve to amplify this anti-competitive calculus on Rogers’ part, and in TELUS’ case, will also amplify the harmful effects as Rogers becomes a direct competitor in the western marketplace,” Telus said. “In particular, Rogers will have added incentive, and will reap greater potential benefits, for depriving TELUS of ‘must have’ programming that it can use to draw away TELUS’ subscribers.” Both interventions claim Rogers will also have an advantage related to over-the-top services as it would, Bell said, “not just be in a position to dictate the distribution strategy for the market, it would have a competitive advantage over other BDUs as it could use its scale to negotiate preferential or exclusive distribution arrangements with OTT services in order to further solidify its dominant position relating to the provision of OTT services both as part of its BDU platform and on a direct-to-consumer basis.” Ahead of any set regulatory framework from the CRTC on OTT distribution, Rogers would have had the opportunity to utilize its dominant position and determine what programming choices are available in the market, making it “far too late,” Bell asserts. Telus uses the example of Rogers and Shaw’s previous partnership in an OTT streaming service named Shomi -- which was shut down in 2016 -- and said they initially chose to restrict access to for their own internet and television subscribers. The company argues this demonstrates that the service was never meant to compete with foreign OTTs but rather bolster Rogers’ and Shaw’s own BDU and internet service offerings. Rogers now has its own SmartStream service, which aggregates content from OTT subscription streaming services, which Bell uses as another example. This service -- launched last year -- is available only to its customers, Bell wrote, and “aims to rapidly transition subscribers from the traditional BDU ecosystem to one that is completely unregulated.” Bell said that even if Bill C-10 had been passed, it would have taken at least two years to determine and implement new rules for foreign OTT providers operating in Canada. It said it’s impossible to know whether or not the regulatory regime could withstand and control Rogers; monopsony power until such rules are established. “It is against this sea of uncertainty that Rogers seeks to get out ahead of the regulator and cement its position as the single and only dominant BDU and OTT distribution platform in English Canada,” Bell said, also saying elsewhere in the intervention “Rogers' proposed acquisition of Shaw is focused on ensuring that it alone will be the preferred internet access services by offering a gateway to foreign-owned OTTs at the expense of the entire Canadian broadcast ecosystem.” “(Rogers) has put forward no compelling benefits for the broadcasting system apart from a commitment to invest in Internet Protocol Television (IPTV) technology which offers nothing incremental and is something other BDUs have been offering Canadians for more than a decade,” Bell wrote. At the BMO conference, Rogers CEO Joe Natale said of the Bell intervention that "we were very surprised to see that. It's not something we fully expected." He also shot back that "even after Shaw and Rogers come together, we will still be smaller than Bell Canada from a market cap point of view, overall wireline business point of view." Meanwhile, the PIAC-NPF intervention takes aim at a number of supposed benefits of the merger, including increased wireline internet buildout to rural and remote areas which the groups say mainly benefit’s Rogers’ profit margins “to the detriment of many consumers who will be forced to pay for undesired and more expensive bundled service. The PIAC-NPF duo, which said they represent a collective of nearly one million consumers and senior Canadians, commissioned its own survey on public opinion of the merger which it said found people, particularly in British Columbia, Alberta, Saskatchewan, and Manitoba, are concerned by the merger and its potential to impact pricing. They say Shaw customers transitioned to Rogers’ Ignite TV service within the first few years of the transaction could be required to change their service, and this means Shaw customers who pay only for cable and TV service and not for internet access could be required to pay for both as this is how Rogers Ignite is structured. To demonstrate what kind of financial gain that would mean for Rogers, PIAC-NPF calculated that Shaw likely has about 600,000 TV subscribers that would be transitioned and would have to pay for both internet and TV. They assume half of these people are not interested in internet service but could be paying for the unwanted and indeed service for roughly $50 extra a month. This would mean Shaw customers would be paying an additional $180 million a year for unwanted and unnecessary internet service. PIAC-NPF also take aim at Rogers’ tangible benefits calculations, saying the number should be much higher as Rogers has understated the value of the transaction as Shaw will surrender licenses for its terrestrial VOD and Terrestrial PPV undertaking, so their value is not included in the transaction. “By excluding Shaw’s two terrestrial licences from the tangible benefits value, Rogers avoids paying contributions that would otherwise compensate for lessening competition in the BDU sector,” they said. The groups argue the $5.7 million tangible benefits package proposed by Rogers is inadequate and calculated their own number of at least $23,387,653. They argue that 10 per cent of that number, plus a bit extra, be directed to the Broadcasting Participation Fund and Broadcasting Accessibility Fund, which support groups in participating in broadcasting matters before the CRTC and projects advancing accessibility. They said the Broadcasting Participation Fund is expected to be depleted by June 2022 and the extra money would be enough to continue operating it for up to two years. “Here we are dealing with two huge broadcasting services which earned $33 million (Shaw on Demand) and $12 million (Shaw PPV – terrestrial) as stated by Shaw, last year. As argued above, this large a removal of competition from the market is certainly material and has at least the revenue value attributed to it in these filings, if in fact not far more over time,” PIAC-NPF said. “This sleight of hand has both removed potential competitive licensees and greatly reduced Rogers’ tangible benefits package. We therefore call upon the commission to recognize this stratagem and to require the full valuation of these channels.” - Reporting by Hannah Daley at hdaley@thewirereport.ca with files from Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Jenna Cocullo at jcocullo@thewirereport.ca

Bell, Telus and PIAC want CRTC to deny Rogers’ acquisition of Shaw’s broadcasting interests

News | 09/14/2021 7:50 pm EDT

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