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Rogers Communications Inc. has struck a deal to sell wireless carrier Freedom Mobile to Quebecor Inc. for $2.85-billion in order to win regulatory approval of Rogers’ takeover of Shaw Communications Inc.

The two parties have been in talks for weeks, after Rogers entertained several other bidders. Shaw’s Freedom Mobile is Canada’s fourth-largest wireless carrier, with 1.7 million customers in Ontario, Alberta and B.C., and has been credited with driving down wireless prices in recent years.

The takeover still requires approval from the Competition Bureau and the Ministry of Innovation, Science and Economic Development, which oversees the transfer of wireless licences.

Rogers, Shaw and Quebecor said in a joint news release Friday evening that they believe the agreement with Quebecor – which includes the sale of all Freedom customer contracts, infrastructure, wireless licenses and stores – addresses the concerns raised by the Commissioner of Competition and the ministry regarding the viability of the fourth wireless competitor. Rogers has also agreed to provide Quebecor with transport and roaming services.

The Competition Bureau is attempting to block the merger of Canada’s two largest cable companies, arguing that the deal would result in higher prices, poorer service and fewer choices for consumers, particularly for mobile phone services.

Rogers president and CEO Tony Staffieri called the agreement a “critical step” toward completing the takeover of Shaw. “We strongly believe the divestiture will meet the Government of Canada’s objective of a strong and sustainable fourth wireless provider,” Mr. Staffieri said in a statement.

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 the 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.

Brad Shaw, the executive chairman and CEO of Shaw, said the announcement “ensures that Freedom Mobile will remain a strong competitor,” while Rogers chairman Edward Rogers called it a “truly Canadian-made solution that will benefit all Canadians by delivering increased competition and choice, the next generation of telecommunications services and enabling the transformative benefits of a combined Rogers and Shaw.”

Rogers, Shaw and Quebecor said they will work quickly “and in good faith” to finalize the documentation for the sale, which is “on a cash-free, debt-free basis at an enterprise value of $2.85 billion.”

Quebecor is paying $900-million less than the $3.75-billion offered by Globalive Capital, which founded Freedom Mobile (formerly called Wind Mobile) in 2008 and sold it to Shaw eight years later.

Globalive chairman Anthony Lacavera said he believes that Rogers accepted Quebecor’s lower offer because the wireless giant “is afraid to compete.”

“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 email Saturday, adding that if Videotron competes aggressively against the national wireless carriers, it risks a retaliatory strike against its legacy cable business in Quebec.

Friday’s announcement follows a filing from the Competition Bureau in which the watchdog said the economic efficiencies that Rogers claims would result from its takeover of Shaw are speculative, “grossly exaggerated” and based on unrealistic assumptions and flawed methodologies.

Under Canadian competition law, companies can argue that the cost savings a contested merger would create, by allowing them to combine resources and reduce headcount, would be greater than the harm to consumers from lessened competition.

Rogers has argued that the Competition Bureau failed to weigh the effects of the deal on competition – which the telecom says would be “minimal to none” – against the economic efficiencies that the deal would create.

In a rebuttal filed with the Competition Tribunal, the watchdog argues that the benefits that Rogers is promising are insufficient to outweigh the hit to competition. The bureau says the deal “will result in a transfer of wealth from low- and moderate-income groups in society to the respondents, whose shareholders include ultra-rich members of the family ownership groups of these companies.”

“Increased profits will also be paid to non-Canadian investors. These effects are socially adverse and otherwise must be given weight against any efficiencies that may arise,” reads the filing, made public on Friday.

The bureau’s case focuses on potential harm to Canada’s wireless industry if Rogers were permitted to acquire Freedom Mobile.

Although Rogers had vowed to sell Freedom, the competition watchdog has argued that separating the wireless carrier from Shaw’s cable network would reduce the carrier’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 Mobile’s success has not depended on leveraging Shaw’s cable network.

In its rebuttal, the Competition Bureau says that the position that the telecoms have taken on the importance of the cable network is “contradictory and self-serving,” as Rogers has argued that acquiring Shaw’s cable network will enable it to compete more effectively in wireless with BCE Inc. and Telus Corp.

That “contradicts Rogers’ claim that Freedom Mobile can be severed from Shaw’s wireline business without suffering a substantial competitive disadvantage,” the filing reads.

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 if one does occur.

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