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A cell tower outside the One Mount Pleasant Road offices of Rogers Communications in Toronto on March 15, 2021.

Melissa Tait/The Globe and Mail

Rogers Communications Inc. may have to sell off some wireless assets to get its $20.4-billion bid for Shaw Communications Inc. past a government that has been pushing to increase wireless competition and reduce cellphone bills, analysts say.

The deal announced on Monday is likely to face significant regulatory hurdles, analysts said, because it would eliminate Canada’s fourth-largest wireless carrier, Shaw-owned Freedom Mobile. The regional carrier – which operates in Ontario, Alberta and British Columbia – has been credited with driving price competition in recent years.

“We see potential for additional remedies to be required prior to a transaction being approved,” Canaccord Genuity analyst Aravinda Galappatthige said in a note to clients.

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Mr. Galappatthige pointed out that when BCE Inc. struck a deal to acquire Manitoba Telecom Services Inc. (MTS) in 2016, it was forced to divest a portion of its wireless subscribers to Telus Corp. and rural internet provider Xplornet Communications Inc.

American telecoms are our best hope for sustainable competition

Rogers seeks to buy Shaw for $20.4-billion in deal that would transform Canadian telecom market

The deal pits two of Ottawa’s priorities – reducing wireless prices and expanding rural broadband – against each other. Rogers has promised to make investments if the deal goes through, including creating up to 3,000 new jobs in Alberta, British Columbia, Manitoba and Saskatchewan, spending $2.5-billion to roll out 5G networks in those provinces, and creating a new $1-billion fund to connect rural, remote and Indigenous communities in Western Canada to high-speed internet.

However, the Liberal government campaigned on a promise to reduce wireless prices by 25 per cent over two years, and regional competitors such as Freedom are seen as playing an important role in affordability. According to a Competition Bureau analysis, wireless prices are 35 per cent to 40 per cent lower in markets where regional competitors have reached a market share of more than 5.5 per cent.

The federal government spent years trying to encourage competition in Canada’s mobile market, including by setting aside spectrum – airwaves used to transmit wireless signals – and selling it at discount prices to new entrants. Many of the new entrants who bought that spectrum, including Public Mobile and Mobilicity, were later swallowed up by larger telecoms.

Shaw acquired Wind Mobile Corp. in 2016, rebranded it as Freedom Mobile, which emerged as a viable competitor after its new owner poured billions of dollars into network expansion. Freedom was the first wireless carrier to offer large data packages at competitive prices when it launched its Big Gig plans – offering 10 gigabytes for $50 – in 2017. Last year, the company also launched a competitively priced Shaw Mobile service for its internet customers in Western Canada.

“They were making some headway, providing important competition,” said Robert Yalden, a corporate law professor at Queen’s University. “It is significant when one of the Big Three [telecoms] is trying to acquire a company like that, and so it will pose significant issues both for the Competition Bureau and the government.”

The deal is subject to approval by the Competition Bureau, the Ministry of Innovation, Science and Economic Development and the Canadian Radio-television and Telecommunications Commission (CRTC).

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Rogers chief executive officer Joe Natale said he is confident it will get approved, but that it’s “too early to speculate on the regulatory outcome over all.” There is “virtually no overlap” in the companies’ cable businesses, he said. Rogers owns television and radio stations including Citytv and Sportsnet, as well as the national broadcast rights to all National Hockey League games. Shaw sold its media business to Corus Entertainment Inc. in 2016.

“This comes down to discussions on the wireless business,” Mr. Natale told analysts during a conference call on Monday, adding that Rogers is committed to getting the deal done. “We’re going to sit down with regulators and just work through the pieces.” The regulatory review could take nine to 12 months, Mr. Natale said.

Innovation Minister François-Philippe Champagne said the government has been clear that greater affordability, competition and innovation in the Canadian telecom sector are priorities. “These goals will be front and centre in analyzing the implications of today’s news,” Mr. Champagne said in a statement.

The Competition Bureau said it will review the transaction.

Kaan Yigit, president of Toronto-based consumer research consultancy Solutions Research Group, said if Rogers acquires Shaw without divesting any wireless assets, the country’s three largest telecoms would have about 95 per cent of the country’s wireless subscribers, up from about 88 per cent. Examples of assets that could be sold include spectrum licences and wireless customers.

“While it is true that the U.S., which is 10 times our population, also has only three major dominant carriers, a 95 per cent number doesn’t have great optics in a setting where the government has been focused on trying to increase competition and affordability,” Mr. Yigit said in an e-mail.

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If divestitures are required to satisfy regulators, Bank of Nova Scotia analyst Jeff Fan said he believes Quebecor Inc. and Xplornet could be interested in expanding beyond their current footprints of Quebec and Manitoba, respectively. Cogeco Communications Inc., which has been looking to get into the wireless industry, could snap up assets in Ontario.

“These transactions would provide an elegant solution for the regulators to keep the industry from consolidating down to three players,” Mr. Fan said.

Cogeco declined to comment on whether it would be interested in acquiring the wireless assets, but said the deal, as it is currently structured, is worrying.

“Canadian consumers are still dissatisfied with wireless pricing, service and network access issues. The right solution is more wireless competition in every market, including regional markets, and the deal announced this morning is the opposite,” the company said in a statement.

John Lawford, executive director of the Public Interest Advocacy Centre, said even if wireless assets are sold, he can’t see any other viable competitors emerging to take Freedom Mobile’s place.

“It removes all hope of getting a fourth carrier for quite some time,” Mr. Lawford said.

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The deal comes ahead of a spectrum auction for airwaves deemed crucial for 5G wireless services, and a key wireless decision from the CRTC. The regulator is expected to announce in the coming weeks or months whether Canada’s large national carriers should be forced to open up their wireless networks to resellers to increase competition.

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