Rogers Communications Inc.’s plan to divest Shaw Communications Inc.’s SJR-B-T Freedom Mobile wireless carrier – but not its Shaw Mobile business – is insufficient to mitigate the hit to competition from the $26-billion merger of Rogers RCI-B-T and Shaw, according to expert testimony provided on behalf of the Competition Bureau.
During the second week of Competition Tribunal hearings into the proposed merger, which the Commissioner of Competition is seeking to block in its entirety, two of the watchdog’s expert witnesses were grilled extensively by Crawford Smith, a lawyer representing Rogers.
The first witness was Nathan Miller, a professor at Georgetown University who specializes in antitrust economics. The second was Michael Davies, the founder and chairman of Endeavour Partners, a consulting firm that specializes in digital technologies.
In an attempt to address competitive concerns about the merger, Rogers and Shaw have struck a deal to sell Shaw’s Freedom Mobile, Canada’s fourth-largest wireless carrier, to Quebecor Inc. QBR-B-T for $2.85-billion. However, the merger would see Rogers acquire close to half a million Shaw Mobile subscribers in Alberta and British Columbia who receive steeply discounted wireless services bundled with Shaw’s cable and internet offerings.
Mr. Davies said on Thursday that even with the sale of Freedom, the Rogers-Shaw merger would lead to “less robust” competition in the wireless industry because only a portion of Shaw’s wireless business – one which has been losing postpaid subscribers – would be sold to Quebecor’s Videotron Ltd. He credited Shaw Mobile, which was launched in 2020, with contributing all of the recent growth in Shaw’s postpaid subscriber base.
Postpaid subscribers are those who are billed at the end of the month for the services they used, versus prepaid customers, who pay upfront for wireless services.
Mr. Davies also noted that after the sale to Videotron, Freedom Mobile would lose access to Shaw’s digital distribution channel and its WiFi hot spots, which reduce network costs. What Rogers is proposing to divest is not a standalone business – it’s a combination of assets and contracts – and would create a wireless entity that is less competitive than Shaw was before the merger, Mr. Davies argued.
Jonathan Lisus, a lawyer for Rogers, has argued that although Shaw Mobile has taken on “Promethean significance” in the Competition Bureau’s case, it is a small part of Shaw’s business that contributes little to its total revenue.
Mr. Lisus has said that the proposed merger is “manifestly pro-competitive” for multiple reasons, including because it would allow Videotron, which has been successful in gaining market share in Quebec, to expand nationally and compete aggressively.
Mr. Davies testified in front of a three-member panel at the Competition Tribunal the day after Mr. Miller was grilled for an entire day about his economic modelling. Mr. Miller said his research has found that the deal would result in a “transfer of wealth” from consumers to wireless carriers to the tune of $63-million a year.
Even with the divestiture of Freedom Mobile, prices across all wireless carriers would increase between 0.8 per cent and 3.4 per cent in Alberta, and between 2.5 per cent and 5 per cent in B.C., according to his analysis.
Mr. Miller noted that there are some potential harms that he was not able to quantify or factor into his analysis, such as the fact that, in his view, the deal would leave Freedom in the hands of an owner that would be incentivized to co-ordinate with Rogers.
Bank of Nova Scotia analyst Maher Yaghi said Mr. Miller was hired by the Competition Bureau to analyze the acquisition’s economic impact, and is a “very important” witness for the watchdog. He was referenced 54 times in the Competition Bureau’s opening statement, Mr. Yaghi noted in a recent research report. Therefore, it was critical for Rogers to “score points” during his cross-examination, Mr. Yaghi said.
Mr. Smith, the Rogers lawyer, questioned some of the data that Mr. Miller used in his modelling, including his method for calculating market share. He also suggested that Shaw Mobile customers would benefit from improved quality after the merger because the Rogers network has a “higher quality parameter” than Shaw’s. The lawyer noted that Mr. Miller did not analyze Videotron’s detailed business plan, which was provided to the Competition Bureau back in July.
Rogers has argued that Mr. Miller’s analysis is “fundamentally flawed” and relies on “unrealistic assumptions.” For instance, according to Rogers, Mr. Miller has failed to factor in the fact that some customers prefer bundled services over standalone wireless products in his analysis.
The company argues that the deal would result in “direct consumer benefits” totalling $43-million a year, primarily benefiting low-income consumers. Details regarding these consumer benefits are redacted in the public version of the company’s opening statements.