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Shaw logos on display at the company's annual meeting in Calgary, Jan. 17, 2019.Jeff McIntosh/The Canadian Press

The proposed takeover of Shaw Communications by cable giant Rogers has already reduced competition in the wireless market, Canada’s competition watchdog says.

In an application to stop the merger of the country’s two largest cable networks, the Competition Bureau said Shaw Communications Inc. has stopped competing for mobile phone business ahead of the planned $26-billion takeover by Rogers Communications Inc.

Shaw stock falls more than 7 per cent after Competition Bureau says it will oppose $26-billion Rogers deal

Rogers failed to listen to Ottawa, and now its Shaw deal is in jeopardy

Before striking the deal with Rogers last year, Shaw had intended to enter new wireless markets, launch 5G services and expand to business customers, the Competition Bureau said on Monday as it asked the Competition Tribunal to issue an order blocking the takeover.

Since then, the Calgary-based telecom has reduced its wireless network investments and its marketing and promotional activity, resulting in a hit to competition that will only worsen if the merger goes through, the regulator said.

The Competition Bureau’s move is a major setback for a deal that, if approved, would reshape Canada’s telecom landscape. The bureau’s case, as outlined in a Monday news release, focuses on potential harm to Canada’s wireless sector if Rogers were permitted to acquire Shaw’s Freedom Mobile, Canada’s fourth-largest wireless carrier, with about two million customers in Ontario, Alberta and B.C. That’s despite the fact that Rogers has already committed to selling Freedom and is in the midst of a sale process.

“Eliminating Shaw would remove a strong, independent competitor in Canada’s wireless market – one that has driven down prices, made data more accessible, and offered innovative services to its customers,” Matthew Boswell, the Commissioner of Competition, said in the news release. “We are taking action to block this merger to preserve competition and choice for an essential service that Canadians expect to be affordable and high quality.”

The bureau would have to prove before the tribunal that the takeover would substantially reduce wireless competition. The watchdog is also requesting an injunction to prevent the telecom companies from closing the deal until the application can be heard.

Rogers and Shaw said in a statement over the weekend that they remain committed to the transaction and plan to oppose the application. The companies also extended their deadline to close the deal from June 13 until July 31.

Chloé Luciani-Girouard, a spokesperson for Rogers, said the telecom is prepared to defend the deal in front of the tribunal and will file its formal response “in due course.”

“The Competition Bureau has stated that there must be a continuation of a vibrant and competitive wireless market. We agree, and to that end, we are engaged in a process to divest Shaw’s Freedom Wireless business in its entirety,” Ms. Luciani-Girouard said in a statement.

A spokesperson for Shaw said the company remains committed to closing the deal and is working “closely and constructively” with the Competition Bureau.

“A negotiated settlement that involves the divestiture of our wireless business is the best and most logical outcome,” Chethan Lakshman said in a statement.

The Globe previously reported that Rogers has presented regulators with potential buyers that include Stonepeak Infrastructure Partners, a New York-based private equity fund that owns rural internet provider Xplornet Communications Inc.

Rogers has also held talks with the Aquilini family, which owns the NHL’s Vancouver Canucks. Globalive Capital’s Anthony Lacavera, who founded Freedom Mobile before selling it to Shaw in 2016, has offered $3.75-billion to buy back the carrier. Rogers has also begun negotiations with Montreal-based Quebecor Inc., which owns the telecom Videotron Ltd., The Globe reported last week.

Rogers president and chief executive officer Tony Staffieri has said the Toronto-based telecom’s priority is acquiring Shaw’s cable network, rather than the wireless assets. Rogers would be able to use the cable infrastructure for its 5G wireless network.

The Competition Bureau said its investigation found that after entering the wireless business in 2016 by acquiring Wind Mobile, Shaw established itself as a strong, disruptive competitor and drove down wireless prices.

The rebranded Freedom Mobile doubled its subscriber base by improving the network and wooing customers with aggressive pricing, larger data buckets and innovative services, the competition watchdog said.

Data indicate a high level of wireless customer switching between Rogers and Shaw, making the two companies close competitors, the bureau argued.

However, since the merger between Rogers and Shaw was announced in March, 2021, Shaw has scaled back its network investments and reduced its marketing efforts, resulting in decreased competition in the overall wireless market, the bureau said.

Shaw spent $30-million on its wireless network during the three-month period ended Feb. 28, down 57.7 per cent from a year ago, when it spent $71-million.

The Calgary-based cable company added 8,632 postpaid wireless subscribers during the quarter – down significantly from the 75,069 it added during the same period last year. The telecom has attributed the decline to heightened competition during the holiday season, a limited supply of popular wireless devices and a change to one of its bundled service offerings.

Mirko Bibic, CEO of BCE Inc., said last week that the “competitive intensity” between Rogers and Shaw appears to have decreased ahead of the merger, which has made it easier for competitors such as Bell, Telus and Rogers to pick up new subscribers.

Rogers and Shaw have 45 days to file a response to the Competition Bureau’s application. The regulator then has 14 days to reply.

Separately, the takeover also requires the approval of the Department of Innovation, Science and Economic Development (ISED).

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