Rogers Communications Inc. RCI-B-T stands to pick up 450,000 new cellphone clients as part of its agreement to sell wireless carrier Freedom Mobile to Quebecor Inc. QBR-B-T for $2.85-billion, a deal that marks a crucial step in Rogers’ campaign to win regulatory approval of its takeover of Shaw Communications Inc. SJR-B-T
Late on Friday, Rogers announced plans to sell Shaw’s Freedom Mobile division – Canada’s fourth-largest wireless carrier, with 1.7 million customers – to Quebecor. The sale would transform the Montreal-based company, which has 22 per cent of Quebec’s wireless market, into a national wireless platform, with customers in Ontario, Alberta and B.C.
The deal would also assuage the concerns of regulators, who have said that Canada would be deprived of a strong, national fourth wireless competitor if Rogers were allowed to absorb Freedom as part of its takeover of Shaw.
Although the sale would prevent Rogers from adding Freedom’s customer base to its own, the company would still gain some wireless clients. In weekend briefings, Rogers chief executive Tony Staffieri told analysts that his company plans to retain 450,000 Shaw Mobile subscribers in Alberta and B.C., because Quebecor and other potential buyers of Freedom refused to bid on the division.
The takeover of Shaw by Rogers still requires approval from the Competition Bureau and the Ministry of Innovation, Science and Economic Development. The Competition Bureau is attempting to block the merger, which would combine Canada’s two largest cable companies, arguing that the deal would result in higher prices, poorer service and fewer choices for consumers, particularly when it comes to mobile phone services.
Mr. Staffieri said in an e-mail that Rogers has “worked very hard to find a new owner for Freedom that we believe meets the requirements that the government and regulators have laid out to promote competition and affordability in wireless.”
He added that the Freedom deal would fulfill Industry Minister François-Philippe Champagne’s objective of maintaining a strong fourth wireless carrier. “Quebecor, as a well-established Canadian operator with a strong balance sheet and a track record of competing hard in wireless, is the ideal buyer for Freedom because it has proven that it has what it takes to step into Shaw’s shoes as Freedom’s owner and will continue to drive a very competitive wireless market in Canada,” Mr. Staffieri said.
Regulators have yet to provide Rogers with feedback on the agreement with Quebecor, which under the proposed deal would acquire Freedom’s customer contracts, infrastructure, wireless licenses and retail stores. Rogers would provide Quebecor with roaming and backhaul services at market rates.
“We view Quebecor as the most likely buyer to satisfy the Competition Bureau and believe that the agreement signals that Rogers is committed to closing the Shaw transaction,” analysts at CIBC said in a report on Saturday.
Pierre Karl Péladeau, president and CEO of Quebecor, called the agreement “a turning point for the Canadian wireless market.” For Quebecor, which owns Montreal-based cable company Videotron Ltd., the deal presents an opportunity to expand nationally.
“Quebecor’s Videotron subsidiary is the strong fourth player who, coupled with Freedom’s solid footprint in Ontario and Western Canada, can deliver concrete benefits for all Canadians,” Mr. Péladeau said in a statement Friday.
Shaw Mobile is sold in bundles with cable and internet services in Western Canada – regions Quebecor doesn’t serve – while Freedom is a stand-alone business. Shaw launched the bundle in 2020, in an attempt to retain its cable and internet customers by offering them steeply discounted wireless services. The move was a response to competitive pressure from Telus Corp., which had been eating away at Shaw’s market share.
Mr. Staffieri told analysts that Quebecor did not bid on Shaw Mobile because it was concerned those clients would switch cellphone providers if threatened with the loss of their other telecom services as a result of a change in the division’s ownership. In their report, the CIBC analysts offer a similar assessment. “Shaw wireless customers are bundled and receive a single bill, making it difficult to untangle in any sale,” they wrote.
Shaw Mobile generates about $100-million in annual revenue. If regulators allow Rogers to hold on to the business, Mr. Staffieri told analysts, the company will be better positioned to pay down around $19-billion worth of acquisition-related debt and maintain an investment-grade credit rating.
Rogers views the total valuation of Shaw’s wireless business, including the Shaw Mobile customers that it plans to retain, at $3.85-billion, according to a source close to Rogers, whom The Globe and Mail is not naming because they were not authorized to discuss the valuation publicly.
Along with Quebecor, Rogers fielded a bid for Freedom Mobile from rural internet provider Xplornet Communications Inc., backed by private equity firm Stonepeak Infrastructure Partners. It also received a bid from a consortium made up of Fengate Asset Management, the LiUNA Pension Fund of Central and Eastern Canada, Indigenous investors and Vancouver’s Acquilini family.
Over the past two weeks, Quebecor executives pushed aggressively to strike a deal on concerns that Rogers was prepared to commit to a sale to Xplornet, which is based in New Brunswick, and take that transaction to the federal Competition Tribunal, according to two sources familiar with the process. The Globe is not naming the sources because they were not permitted to speak for Quebecor.
Quebecor and Rogers have long been partners on telecom networks, but the relationship has sometimes been rocky. In October, Quebecor sued Rogers for $850-million, alleging the Toronto-based company had breached their network-sharing contract. The CIBC report says the Freedom deal does not include any provisions that would resolve that dispute.
Anthony Lacavera, chairman of Globalive Capital, which also attempted to buy Freedom, said Rogers is accepting $900-million less than the $3.75-billion his company had offered, because Quebecor would be a less aggressive competitor.
“Rogers has shopped this deal to a succession of billionaire friends and friendly parties who won’t compete with them and are willing to sell Freedom back to them at any time,” Mr. Lacavera said in an e-mail Saturday. Globalive Capital founded Freedom Mobile in 2008, formerly called Wind Mobile, and sold it to Shaw eight years later.
Although Rogers plans to sell Freedom, the Competition Bureau has argued that separating the wireless carrier from Shaw’s cable network would reduce Freedom’s ability to compete because it would not be able to cross-sell or offer bundled services. Shaw has called those concerns “wholly misplaced,” arguing that Freedom’s success has not depended on leveraging Shaw’s cable network.
Rogers and Shaw have both said that they hope to reach a settlement and avoid a hearing in front of the Competition Tribunal, but are prepared to oppose the application by Commissioner of Competition Matthew Boswell.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.