Pierre Karl Péladeau wants the rest of Canada to look like Quebec.
Deep in talks with Rogers Communications Inc. RCI-B-T to buy cell phone network Freedom Mobile and transform his regional telecom company into a national player, Quebecor Inc.’s QBR-B-T chief executive officer asked The Globe and Mail for an opportunity this week to set out his vision of the country’s wireless future.
It was quite the 90-minute ride.
With the passion he once used to pitch Quebec sovereignty to voters – Mr. Péladeau was leader of the Parti Québécois for a year – the 60-year-old executive campaigned for a country where citizens pay less for their cell phones and get better service.
Holding court over a video call from his desk at Quebecor’s Montreal head office – it was a foggy morning, and neighbouring towers popped in and out of view – the telecom leader kept coming back to one theme: The country’s future prosperity depends on affordable, robust wireless networks.
The path to the promised land, he preached, is the same aggressive competition between four major carriers that Quebeckers have enjoyed since Quebecor’s Vidéotron division launched wireless services 12 years ago. Vidéotron grew rapidly, in part by bundling cellphone service with cable, and now has 1.5 million wireless lines in the province, or 22 per cent of the market. In investor presentations, one of Mr. Péladeau’s favourite slides displays Bell newspaper ads that show cell phone rates are significantly lower in Montreal than in Toronto.
In the digital era, where cell phones are essential to everything people do, Mr. Péladeau said Canadian consumers and the country’s economy are being held back by a clubby oligopoly of Rogers and two former telephone monopolies, Telus Corp. T-T and BCE Inc. BCE-T Together, the trio earn 90 per cent of the country’s wireless revenues. Meanwhile, the price of cell phone service has become a hot-button political issue.
“What we’re seeing is the Big Three trying to do whatever they can to stop or slow down or try to avoid competition to maintain their privileges,” Mr. Péladeau said, citing Telus Corp.’s failed attempt last year to block Vidéotron’s purchase of 5G airwaves in Western Canada. “I understand that they work for their shareholders. But there are other things than shareholders today. ... Is what we’re doing right for Canada?” he said.
To illustrate how he says rivals such as Telus stifle competition, Mr. Péladeau revealed that he reached out last month to Darren Entwistle, CEO of the Vancouver-based telecom. Telus had just struck a network and spectrum sharing alliance with Globalive Capital, which launched Freedom in 2008 and operated it for eight years before selling it to Shaw, and now wants to buy it back. In contrast to Quebecor’s regional expertise, Globalive is a startup with no existing telecom operations, and thus a weaker potential competitor, Mr. Péladeau said. (Globalive has argued that a wireless-only player could compete more aggressively than a communications conglomerate that would have to protect legacy businesses.)
“I sent a letter to Darren Entwistle saying I would also like a network-sharing agreement with you,“ Mr. Péladeau said. With a smile, he added: “I don’t have an answer yet. I guess I will not receive one.”
When asked for comment on Quebecor’s request, Telus spokesperson Richard Gilhooley said: “We have responded on more than one occasion to Mr. Peladeau to say that once the CRTC confirms the [wireless-network access] parameters, we would be happy to engage in discussions with qualified partners.”
Mr. Péladeau said Telus wants to choose the fourth wireless player: “They just don’t want to have Vidéotron and Quebecor there, for the obvious reasons.”
Rogers may be forced to let Quebecor into the club to win regulatory approval for its proposed $26-billion takeover of Shaw Communications Inc. SJR-A-X The Competition Bureau and federal Minister of Innovation, Science and Industry François-Philippe Champagne must agree to the acquisition. Both have said they will only allow a transaction that maintains a strong fourth wireless provider in B.C., Alberta and Ontario, markets where Freedom operates.
Mr. Péladeau and a spokesperson for Rogers declined to discuss the talks. Sources close to the negotiations say the discussions have proven to be challenging. The Globe is not identifying the sources because they are not authorized to speak publicly about the matter.
However, Quebecor’s controlling shareholder did go out of his way to praise the leadership of Rogers chair Edward Rogers. “Our relationship with Rogers has been always very strong,” Mr. Péladeau said. “I have the highest amount of esteem for the Rogers family.”
Mr. Péladeau said the transformational Shaw acquisition shows Mr. Rogers has clear vision of how to expand the business launched by his father, Ted Rogers, “who was, if not the most important, then certainly one of the best Canadian entrepreneurs.”
Since Mr. Péladeau took the top job at Quebecor in 1999, he has transformed the printing company he inherited from his father – the founder – in part with takeovers such as the $4.9-billion acquisition of Vidéotron in 2000. While acquiring Freedom would be a seminal event, Mr. Péladeau repeatedly said his company has numerous expansion options and will do a deal with Rogers only if it makes financial sense. Analysts predict Freedom could fetch up to $4-billion.
“Certainly acquiring 1.7 or 2.1 million customers enhances your position,” Mr. Péladeau said, referring to the current number of subscribers at Freedom, then adding in the number served by Shaw Mobile. “But as you can imagine, there’s always a price for everything. And some clever people said, never fall in love with an asset.”
Quebecor has said its other option to build a national mobile carrier is to take advantage of recently announced regulations that require incumbent telecoms to open up their wireless infrastructure to eligible regional competitors.
Negotiations on Freedom are taking place with an unresolved legal battle hanging over the two companies. Last October, Vidéotron sued Rogers for $850.3-million over a joint network operating agreement in Quebec and the Ottawa area. The 20-year pact, inked in 2013, saw the two combine networks to improve coverage for subscribers while minimizing costs.
In last October’s court filing, Vidéotron alleged Rogers was deliberately sabotaging the partnership. This week, Mr. Péladeau said the lawsuit reflected a contract dispute with now departed CEO Joe Natale. He held out an olive branch by suggesting there’s an opportunity for a “reset of the relationship” with Rogers’ new executive team, including CEO Tony Staffieri and Robert Dépatie, who heads Rogers’ home and business division and is a former CEO of Vidéotron.
If Quebecor does reach a deal to buy Freedom, Mr. Péladeau outlined what he considers essential conditions for the carrier’s success, including agreements on bundling services, wireless spectrum licences and roaming.
In opposing Rogers’ bid for Shaw, the Competition Bureau highlighted the need for wireline networks – such as Shaw’s cable operations in Western Canada – to underpin a successful cell phone business. In filings earlier this month, the two companies challenged this view. Shaw pointed to the successful launch of Freedom in Ontario, where the Calgary-based company has no wireline network, and said the regulator holds “fundamental misconceptions” about its business.
In sketching out Quebecor’s ambitions, Mr. Péladeau said the company has proven a freestanding cell phone business can compete against an incumbent telecom – an experience that backs Shaw’s argument to the regulator. Vidéotron won significant numbers of subscribers away from Bell in Quebec cities such as Rouyn-Noranda, which has a population of about 45,000, and built a profitable business without an underlying cable network, Mr. Péladeau said.
This is not the first time Quebecor has planned a national expansion of its wireless business. In response to critics who point to Quebecor’s track record for buying wireless spectrum, then flipping the licences for significant profits, Mr. Péladeau explained why this time is different.
In the 2008 spectrum auction, Vidéotron shelled out $96.4-million for a block of airwaves in Toronto. But the telecom never built a network in Canada’s most populous city, and in 2015 it scrapped its national ambitions, saying the federal government had moved too slowly on wholesale roaming rates and tower-sharing rules.
In June, 2017, Vidéotron sold the wireless licenses to Rogers for $184.2-million, netting an $87.8-million profit. A month later, the telecom earned an even larger windfall – $243.1-million – by selling spectrum to Shaw.
“We were in a different environment at that time,” said Mr. Péladeau, with Shaw changing the landscape by spending far more than Quebecor had anticipated to build Freedom after acquiring the business in 2015 for $1.6-billion. He said: “We didn’t bid for spectrum expecting to sell.”
This time, regulatory policies are more favourable for competitors such as Quebecor, he said, citing decisions such as a wireless policy that requires national carriers to enable roaming between their networks and those of regional carriers.
In addition, Mr. Péladeau said Quebecor was deeply in debt five years ago, but has paid down loans and built one of the industry’s strongest balance sheets. Now, Quebec’s dominant telecom player wants to put his capital and expertise to work across the country.
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