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A man walks past a Freedom mobile store in Calgary, Feb. 2, 2021.Todd Korol/The Globe and Mail

In early January, RBC Capital Markets analyst Drew McReynolds published what proved to be a prescient report, predicting Rogers Communications Inc. would buy Shaw Communications Inc. as part of a wave of consolidation in Canadian telecom.

Wait until you hear what he said Telus Corp. would do in response.

Mr. McReynolds’s crystal ball has admirable clarity. He nailed the price Rogers would pay – 10 times Shaw’s earnings before interest, taxes, depreciation and amortization (EBITDA). Then he made a follow-up prediction: If this deal happened, Rogers would be forced to sell Shaw’s Freedom Mobile cellphone network to win regulatory approval. And he said the only logical buyer is Quebecor Inc.

You know Quebecor chief executive Pierre Karl Péladeau has his chequebook ready. In the past, to promote competition, regulators have demanded the three big telecom players spin off parts of the businesses they buy. Most recently, BCE Inc. had to give up a third of Manitoba Telecom Services’ wireless subscribers to acquire the company in 2017. Rivals Xplornet Communications Inc. and Telus got those customers for a bargain price.

Mr. McReynolds even helped Mr. Péladeau draft his talking points, by saying Quebecor could better contribute to expansion of the country’s 5G networks if it had a larger customer base. Speeding up introduction of essential telecom infrastructure, including 5G, is increasingly important to the politicians and civil servants who oversee the industry.

For all Quebecor’s advantages – the relative upstart in cell phones now holds an impressive 21 per cent of Quebec’s market, so it’s an experienced player – Mr. Péladeau will face competition if Rogers is forced to sell assets. Under the right circumstances, Xplornet would want a piece of the action, and so would Cogeco Inc.

However, there’s a debate kicking off over whether regulators need to force Rogers to give up assets in order to preserve competition in the cellphone market. The public argument will be matched by a fierce behind-the-scenes lobbying campaign over the next few months, as Rogers and Shaw press the merits of the deal in Ottawa, and rivals and consumer groups take the opposite view.

Shaw’s non-voting shares closed Thursday at $34.51 on the Toronto Stock Exchange, much less than Rogers’s $40.50 offer. That gap shows investors expect the takeover will face serious regulatory opposition. Several analysts take a different view.

“The market still thinks all the regulators, politicians and policymakers care about is reducing prices by 25 per cent,” Scotia Capital telecom analyst Jeff Fan said in a report. “That was the case back in 2019. Since then, there have been a few significant changes.”

The biggest change in the perceptions of telecom came with the COVID-19 pandemic: It revealed how important our computer networks and cellphones are for work and education. Regulators are also more conscious of Canada’s digital divide, with half of rural homes and two-thirds of Indigenous communities lacking the high-speed internet that urban Canadians take for granted. Rogers CEO Joe Natale and Shaw boss Brad Shaw are making a case for bridging that divide, and building a globally competitive 5G network, as the centre points of their arguments for regulatory approval.

Where will Rogers and Shaw end up? BMO Capital Markets analyst Tim Casey said in a report that in the great Canadian tradition, the two companies and the regulators will compromise. To get the deal done, he predicted ”a combination of subscriber and/or spectrum asset divestitures. An outright sale of the Shaw wireless business does not seem obvious to us.”

And what’s the next wave of telecom consolidation going to bring? Mr. McReynolds’s crystal ball calls for Telus, a company born out of government privatizations, to buy SaskTel from the province of Saskatchewan.

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