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Innovation, Science and Industry Minister Francois-Philippe Champagne holds up a contract between the telecoms and the federal government as he speaks at a news conference about the Rogers-Shaw merger on Parliament Hill on March 31.PATRICK DOYLE/The Canadian Press

Federal Industry Minister François-Philippe Champagne knows that in the past, CEOs made all manner of promises to his predecessors to get takeovers approved, only to break those vows, without consequence, once the deals got done.

That’s not going happen after Rogers Communications Inc. RCI-B-T acquires Shaw Communications Inc., SJR-B-T and sells its 2.2 million-customer Freedom Mobile cellphone business to Quebecor Inc. Before approving deals that create four national wireless rivals, Mr. Champagne extracted conditions and penalties he rightly termed “unprecedented” in a press conference on Friday.

Breaking promises on cellphone prices, 5G networks and rural expansion over the next decade could cost Rogers up to $1-billion, while Quebecor faces $200-million in potential sanctions. The new regime will be Mr. Champagne’s legacy to his successors. In a telecom industry long regulated by telecom experts, for the benefit of the largest telecom companies, the consumer now has a seat at the table.

Anyone questioning whether cellphone customers are going to be well served by an industry with four deep-pocketed competitors, and regional players, is forgetting the old adage “follow the money.” The prospect of Rogers landing Shaw and Quebecor replicating its success at grabbing about 22 per cent of the cellphone market in its home province has rival telecom companies throwing money at their networks.

SaskTel recently announced it will spend record amounts on upgrading its wireless and fibre optic networks next year as part of a $413-million program, up from $337-million the previous year. Saskatchewan’s government-owned network is upping its game as Shaw’s cable network is rolled into Rogers’s wireless platform in the province.

Telus Corp. accelerated $1.5-billion of capital spending when Rogers announced its bid for Shaw, and will pour $2.6-billion into its operations this year. Bell parent BCE Inc. boosted its capital spending by 6 per cent to $5.1-billion last year.

To understand how far Mr. Champagne has come in boosting competition, recognize where he started. In overseeing a deal that rewires the wireless industry, the only tool in the minister’s toolbox was the power to approve, or withhold, the transfer of wireless spectrum from Shaw to Quebecor. (Spectrum refers to the airwaves used to transmit wireless signals.)

The minister used leverage that vanishes once the deals are approved to extract contracts with Rogers and Quebecor containing 21 conditions, enforced with annual reviews and the threat of financial sanctions. This sort of accountability is truly unprecedented in Canadian takeovers, and Mr. Champagne put the entire telecom sector, including Bell and Telus, on notice that he will be watching cellphone prices “like a hawk.”

“We had anticipated that Mr. Champagne would have tough words for incumbents and general pricing in Canada, but the tone was a bit harsher than we expected,” said analyst Jerome Dubreuil at Desjardins Securities in a report. The minister “has made it clear that he wants lower telecom prices in Canada, but at least the government appears to favour price reductions stemming from additional competition rather than through set pricing objectives,” he said.

Family-controlled Shaw holds an outsized presence in Calgary as both an employer and sponsor of the arts and sports. In a win for a city that has been rocked by office closings, Rogers agreed to create 3,000 new jobs in the west to get approval for its $20-billion takeover. In a report, analyst Tim Casey at BMO Capital Markets said: “We expect the job commitments in Western Canada can be met through onshoring call centre personnel and wireline infrastructure builds.”

On Friday, the government also launched a review of Canada’s spectrum transfer policy, a move that can only mean Mr. Champagne plans to increase the regulator’s authority. In a report, analyst Adam Shine at National Bank Financial said the minister “indicated that if pricing in telecom doesn’t come down within a reasonable undisclosed period of time, he’ll seek further legislative powers to drive down prices with nothing off the table.”

In the past, Quebecor and smaller cellphone providers gamed the regulator, and failed consumers, by acquiring wireless spectrum at discount prices, then flipping it to larger rivals at significant profits. That get-rich-quick scheme no longer flies. Quebecor’s contract with Mr. Champagne stipulates the Montreal-based company must hold on to Freedom Mobile spectrum for at least 10 years.

The COVID-19 pandemic highlighted the fact that robust, widely available and affordable internet and cellphone services are essential infrastructure. The entire economy – businesses, schools, health care – is now online. As Rogers and Quebecor take on larger roles in providing those services, a hawk in Ottawa is going to ensure they keep their promises.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/04/24 4:00pm EDT.

SymbolName% changeLast
RCI-B-T
Rogers Communications Inc Cl B NV
+1.13%52.77

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