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On Rogers-Shaw, Champagne faces policy choice

News | 01/26/2023 11:48 am EST
Minister of Innovation François-Philippe Champagne on Sept. 14, 2020 (photo by Andrew Meade).

All eyes are on Industry Minister François-Philippe Champagne, who is the last line of defense for opponents of the pending merger between Rogers Communications Inc. and Shaw Communications Inc.

“It’s going to wind up like an albatross — an albatross around one’s neck —  if he makes the wrong decision. And he’ll be remembered as the minister that let this happen,” Ben Klass, a PhD candidate at Carleton University examining Canadian communication law, policy, and regulations, told the Wire Report.

Klass was also a witness at the House of Commons Industry Committee hearing Wednesday into the merger.  One of the central questions facing the minister is whether to consider the transfer of Shaw’s spectrum assets to Quebecor Inc. in the broad context of the policy objectives of the Telecommunications Act, or within the more limited scope of spectrum policy. The former would introduce policy considerations – like the competition and affordability objectives laid out in the act – and would effectively allow Champagne to consider the merger as a whole, according to the merger’s opponents.  

Critics of the deal pointed to a number of concerns they say are relevant for the minister: the Competition Bureau’s opposition, a perception of broad public opposition, Rogers’ effective selection of a fourth national carrier, and a recently filed an application at the CRTC charging that aspects of the deal violate the Telecommunications Act. 

“I think this is largely a litmus test for how serious we are about competition in Canada and the state of our laws because any one of those would be concerning on their own — but perhaps not decisive. But I think the fact that they’re all lined up in one direction is telling,” Klass told the Wire Report.

Rogers has cleared some of those legal hurdles. Last month the Competition Tribunal rejected the bureau’s case against the merger, that ruling was upheld Tuesday by the Federal Court of Appeal, and now it is at the finish line, pending Champagne’s blessing.

While Champagne cannot legally stop the merger writ large, if he rejects the spectrum transfer the divestiture loses its value for Quebecor. He wouldn’t be the first minister to impact a merger by denying a spectrum transfer. In 2013, Conservative Industry Minister Christian Paradis announced he was blocking Telus’ efforts to acquire Mobilicity (then-operated by Dave Wireless Inc.)  spectrum. 

Should Champagne reject the spectrum transfer, “the basis on which the tribunal said ‘we don’t see a competitive problem’ disappears, because you’ve changed the stakes,” Jennifer Quaid, associate professor at University of Ottawa’s Faculty of Law, told the Wire Report. Champagne’s decision is a “de facto veto,” she said. 

In an exchange with Quaid about the minister’s discretionary powers, Liberal MP Nathaniel Erskine-Smith argued that the minister should expand the scope of his analysis of the deal beyond spectrum, and argued that the Competition Tribunal asked the wrong questions. Instead of assessing a merger on whether it will substantially lessen competition, the tribunal should have asked if the deal will improve competition and lower prices for consumers.

Quaid told the MP that it is worrisome to use political discretion when the merger was already reviewed through a judicial process – even though there were flaws in that process.

Klass and TekSavvy Solutions Inc. vice-president of Regulatory and Carrier Affairs, Andy Kaplan-Myrth said that is exactly what Champagne’s discretionary powers are for and he has a duty to the public to look at the merger holistically.

“There has been nobody else in the whole process who has had the ability to see the big picture of this transaction. And what it means for consumers,” Kaplan-Myrth told the Wire Report. 

The minister’s power regarding his role in this transaction stems from Canada’s Radio Communications Act. However, the act states that in exercising his powers he may have regard to the objectives of the Canadian telecommunications policy set out in the Telecommunications Act. That act’s stated objectives in section 7 include reliable and affordable telecommunications services and an efficient and competitive market. Éric Dagenais, a senior staffer at ISED, also confirmed to MPs that policy objectives are one of eight criteria taken into account when assessing spectrum transfers.

Klass argued that the stated objectives in the act function as a “political backstop,” and that the minister is the only authority in the merger’s approvals process with a degree of political accountability. 

The CRTC (which studied the merger’s impact on broadcasting, and which will eventually rule on the TekSavvy application) is led by appointees rather than elected officials. Important components of the tribunal’s hearing were also done in closed session, Klass noted. 

“Ultimately, it’s not just: ‘what we do with the spectrum.’  It’s: ‘is this deal something that’s good for our country in a democracy?” he said.

Champagne spoke to reporters at the federal cabinet retreat Wednesday morning before the Industry Committee meeting. He said he was planning to review the appeal court’s reasoning and will make a decision in due course. 

The minister has already laid out his expectations for Quebecor should he approve the spectrum transfer. The first was for the company to hold onto the spectrum licenses for 10 years, and the second was to bring prices in western Canada down to a level similar to those offered in Quebec.

“That’s what I’m going to be reflecting on. What are the expectations that I can demand that would ensure competition and ensure affordability,” he said.

Committee witness Vass Bednar, executive director of McMaster University’s Master of Public Policy in Digital Society Program, stressed that Quebecor has made no promises to protect jobs, to invest in research and development, or to advance rural or Indigenous connectivity. 

But even if Quebecor had made such promises, Champagne would not be able to bind the company to them.  

Quaid suspects that absence of recourse is why the Industry Committee held Wednesday’s hearing into the merger, even though the committee cannot make any decisions regarding the deal.

“It’s good political theater. If you get the incumbents to put promises on the record it might tie their hands,” she said.

That effort may also prove to be futile because a broken promise will have little consequence on the incumbents aside from a dent in their reputations – and a bad reputation will have a minute effect on consumer behavior, Quaid said.

“What are consumers going to do? Stop using Rogers? Maybe. But I think that the reality is that most consumers are not going to be mad enough to take their business elsewhere. I think that we overstate the time and effort that the average person, who’s got a busy life, is going to dedicate to taking a stand against Rogers.”

Executives of the three parties appeared at the hearing to defend the merger.

Shaw president Paul McAleese said Videotron will prove to be a more aggressive and effective competitor than present day Freedom Mobile and blamed BCE Inc. and Telus Corp. for the public perception that it would not be.

He said Project Fox – Telus’ public relations effort to kill the merger – was proof that Telus was threatened by the idea of more competition. He accused the company of conspiring to make Globalive Inc. the fourth national carrier. The two companies have a conditional spectrum and network sharing agreement in place.

Globalive chairman Anthony Lacavera, who founded Freedom Mobile predecessor Wind Mobile, told MPs he tried to buy the company back for $3.75 billion, higher than the $2.85 billion Videotron bid, but Rogers rejected the offer.

He said the agreement with Telus would make Globalive the better fourth carrier option over Videotron because the latter would be reliant on facilities wholly owned by Rogers. 

Mr. Lacavera, who is very clearly comfortable playing Pinocchio to [Telus CEO] Darren Entwistle’s Geppetto is an odd choice for an operating partner. Mr. Lacavera has a dubious record of running a wireless company,” McAleese told the committee.

“I know that because I have a unique first hand perspective. I operated what was Wind Mobile after Mr. Lacavera exited the building. And I have a deep understanding of the effort required to fix the many challenges that we inherited.”

Earlier in the day, Bloc Québécois MP Sébastien Lemire also took aim at Telus. He expressed concerns that “seemingly grassroots” campaigns against the merger were led, or heavily influenced, by Telus.

Quaid acknowledged Lemire’s concerns, but said that nonetheless Canadians are expressing genuine frustration. 

Bednar made similar comments to the committee. She said her organization heard from approximately 1,000 Canadians opposing the merger, and said they lacked an “appropriate outlet,” adding that the minister has a public duty to engage more fulsomely with Canadians about the merger. 

Erskine-Smith asked Rogers president and CEO Tony Staffieri why the company would accept Quebecor’s lower offer for Freedom Mobile over Globalive’s, and posited that the move signals that Rogers views Videotron as the lesser competitive threat.

Staffieri said the decision had to do with criteria laid out by the minister in negotiations over the merger, such as having a credible path toward 5G, a robust balance sheet, and operating experience. 

The MP then told Staffieri that Canadians don’t trust Rogers.

 “What I see right now is a very wealthy individual saying this is going to be procompetitive, something they’ve said time and time and time again,” Eriskine-Smith said.

“Canadians just don’t trust anymore, because these wealthy individuals are wealthy at the expense of our pocketbooks for an essential service.”

Quebecor president and CEO Pierre Karl Péladeau told the committee that consumers only have to benefit from the $26 billion deal because his company is a “market disruptor” and will “remain a linchpin of competition for the benefit of Canadian telecommunications consumers,” according to simultaneous translation. 

Conservative Industry shadow minister Rick Perkins called out Quebecor for selling “more than 100 [spectrum] licences for over $300 million in profit” in the past.

“So I know you’ve made a lot of promises at the tribunal, but we’re a little skeptical, like your past promises, that you may not do it this time. Will you agree to be bound by the business plan you have tabled with the Competition Tribunal?” Perkins asked. 

Péladeau blamed those broken promises on bad CRTC regulatory policy and said the current MVNO framework is providing the right conditions to ensure a fourth competitor can operate. He later told reporters the conditions “were achievable.” 

On TekSavvy’s Part 1 application before the CRTC, Péladeau told reporters that the deal will likely go through before any ruling comes down from the CRTC. 

Kaplan-Myrth told the Wire Report TekSavvy’s goal was never to stop the merger.

“If the CRTC does find that the deal was illegal and throws out that off-tariff agreement, Videotron would no longer be as competitive as the tribunal assumes they will be. And as a result, they would not be as good an option for the spectrum transfer,”  he said.

“So I think it is appropriate for the minister to allow the CRTC to make that determination before deciding on whether Videotron can have the spectrum transfer.”

Staffieri also said that it’s in the best interest of Canadian consumers to negotiate lower rates with internet service providers.

Stafferi said Rogers is working with a Jan. 31 deadline to complete the deal. He would not speculate on what would happen if Champagne withheld his decision past the deadline.

– Reporting by Jenna Cocullo at jcocullo@thewirereport.ca and editing by Michael Lee-Murphy at mleemurphy@thewirereport.ca.


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