Competition Bureau squares off against Rogers, Shaw over whether sale of Freedom Mobile would address anti-competitive concerns

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The Competition Bureau squared off against two of Canada’s largest cable companies at the Competition Tribunal on Monday over whether the proposed divestiture of Shaw Communications Inc.’s Freedom Mobile would address any anti-competitive effects stemming from Shaw’s $26-billion merger with Rogers Communications Inc.

The Competition Bureau argued that selling Freedom Mobile, Canada’s fourth-largest wireless carrier, to Quebecor Inc.’s Videotron Ltd. would leave Freedom a weakened competitor because Rogers would acquire a number of Shaw’s assets, such as infrastructure and personnel, that currently support the carrier.

Rogers and Shaw, meanwhile, argued Freedom Mobile would be a stronger rival under Videotron’s ownership, with one of the lawyers for the cable companies alleging Commissioner of Competition Matthew Boswell has been convinced otherwise by lobbying from BCE Inc. and Telus Corp., which are threatened by the increased competition they would face as a result of the merger.

John Tyhurst, a lawyer for the Competition Bureau, kicked off the first day of a weeks-long hearing into the proposed merger. The Competition Bureau is asking the tribunal to block the merger entirely, arguing it will lessen competition in the wireless market, resulting in higher prices, poorer service and fewer choices for consumers.

In order to address those concerns, Rogers and Shaw have struck a deal to sell Freedom Mobile to Quebecor Inc.’s Videotron Ltd. for $2.85-billion. Videotron has said the deal would allow it to expand beyond its home province of Quebec and challenge the oligopoly of Canada’s Big Three wireless carriers: Rogers, BCE’s Bell Canada and Telus.

Under the terms of the proposed divestiture, Rogers would acquire 450,000 Shaw Mobile customers in Western Canada, who receive steeply discounted wireless services that are sold in bundles with cable and internet services.

Mr. Tyhurst argued on Monday Freedom Mobile would not be able to compete as effectively under Videotron’s ownership in Western Canada because Rogers would acquire assets such as cable and WiFi infrastructure, the Shaw Mobile customers and the Shaw brand as well as personnel who support the wireless carrier.

“The divestiture will not replace the vigorous, disruptive and growing competitive presence offered by Shaw in the market,” Mr. Tyhurst said.

Mr. Tyhurst also claimed that as part of the proposed divestiture of Freedom to Quebecor, Rogers has entered into a number of “problematic” 20-year agreements with the Montreal-based company that would leave Quebecor reliant on Rogers as a supplier.

“These [agreements] are likely to make Videotron more aligned with Rogers than Shaw ever has been. And importantly, they make Videotron vulnerable to anti-competitive actions by Rogers,” Mr. Tyhurst said.

Mr. Tyhurst said while the Competition Bureau has accepted that the divestiture would remove the “substantial” lessening of competition in Ontario, it will continue to argue the sale of Freedom would not adequately do so in British Columbia or Alberta.

Lawyers representing Rogers and Shaw, meanwhile, argued that the deal will enhance the competitiveness of the country’s telecommunications industry, both for cable and wireless services.

“This transaction is, in all respects, manifestly pro-competitive,” said Jonathan Lisus of Lax O’Sullivan Lisus Gottlieb LLP, who is representing Rogers.

Kent Thomson, a lawyer at Davies Ward Phillips & Vineberg LLP who is representing Shaw, argued the deal will benefit consumers by creating a strong fourth wireless competitor, while putting the combined Rogers-Shaw entity in a position to compete more aggressively against Telus in Western Canada.

“Rogers will be able to hammer away at Telus in a way that Shaw currently cannot and hasn’t been able to for years,” Mr. Thomson said.

He and Mr. Lisus both argued that a wireless carrier does not need to own a cable network to succeed, citing the success of T-Mobile, a wireless-only player, in the United States.

Mr. Thomson accused the Bureau of bowing to aggressive and repeated lobbying efforts by Bell and Telus to block the merger on the basis of a supposed co-dependency between wireless and cable networks.

“They fed the commissioner the self-serving and misguided theory that lies at the heart of this case – about the supposed need to own and operate a wireline business to be successful as a wireless carrier,” Mr. Thompson said.

Mr. Thomson alleged that Bell and Telus sought to conceal documents pertaining to their lobbying efforts, adding that Paul Crampton, the Federal Court Chief Justice who is presiding over the hearings, has ordered those documents to be disclosed.

Mr. Thomson argued that Rogers would only see its wireless market share in Alberta and B.C.’s mobile-phone markets increase modestly, by about 5 per cent, as a result of acquiring the Shaw Mobile customers.

The position being taken by the competition watchdog undermines the federal government’s desire for increased wireless competition, Mr. Thomson said, arguing that if the deal is blocked, “the government’s goal creating a viable and effective fourth national wireless carrier will be defeated yet again, perhaps permanently.”

“That would be a tragic result,” Mr. Thomson said.

John Rook, a lawyer for Quebecor, noted the commercial arrangements that Videotron has struck with Rogers for access to cable infrastructure in Western Canada are non-binding.

“If you’re looking at it from my client’s perspective, we have the best possible outcome,” Mr. Rook said. “We get the entirety of Freedom and we get attractive arrangements that we can take advantage of if we so choose, or disregard, if it is in the company’s interest to do that.”

Mr. Rook also noted Videotron examined the WiFi hot spots Rogers is planning to acquire from Shaw and concluded the technology was not desirable. If Videotron believed the hot spots were vital to Freedom Mobile’s success, then the company would have availed itself of the opportunity to buy them, Mr. Rook said.

“But that’s not good enough for the commissioner,” Mr. Rook said. “He prefers to second-guess the judgment of my client with respect to those matters.”

The hearings will resume on Tuesday.