Quebecor’s Freedom Mobile purchase would be no sure victory for competition

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Canada’s Competition Tribunal did not exactly guarantee wireless customers in Western Canada and Ontario that they would see lower prices if Quebecor Inc.’s QBR-B-T proposed $2.85-billion purchase of Freedom Mobile receives final approval from Industry Minister François-Philippe Champagne.

All the tribunal said in its Dec. 29 decision rejecting the Competition Bureau’s request to block Rogers Communications Inc.’s RCI-B-T $20-billion takeover of Shaw Communications Inc. SJR-B-T was that the sale, under that same deal, of Shaw’s Freedom unit to Quebecor’s Videotron subsidiary was “not likely to result in materially higher [wireless] prices, relative to those that would likely prevail in the absence of the arrangement.”

For long-suffering Canadian wireless customers, that is nothing to get excited about.

The three-person tribunal panel did offer some hope that, because Videotron’s entry into the wireless market in Quebec was followed by a drop in cellphone rates in that province, the same result would occur in the rest of Canada.

As the tribunal noted, Mr. Champagne said in October that his approval of the sale of Freedom hinged in part on his expectation that Videotron would offer wireless prices outside Quebec comparable with those it offers in its home province. Those rates, he added, “are today on average 20 per cent lower than in the rest of Canada.”

In asking the Federal Court of Appeal to overturn the tribunal’s ruling, however, the Competition Bureau said the panel “relied on a pricing commitment made by Videotron in response to remarks made by [Mr. Champagne], despite the fact that it recognized that the price commitments were likely not legally enforceable.”

It is also worth pointing out that wireless rates in Quebec are still much higher than those paid by consumers in most other developed countries. So, Videotron’s entry into the Western Canada and Ontario markets might not be much of a victory for competition, after all. Like Bell, Rogers and Telus, Quebecor is a legacy “facilities-based” operator with huge sunk costs in its existing infrastructure and a vested interest in keeping potential new entrants at bay.

Globalive Inc., which offered about $900-million more for Freedom than Videotron ended up agreeing to pay under a sale process that is best described as opaque, has argued that Canada needs a “pure play” wireless provider to drive meaningful competition and innovation. But if the Freedom deal illustrates anything, it is that the legacy operators appear determined to prevent that from happening.

What’s more, the tribunal did not bother to probe why Videotron has been able to offer somewhat lower rates in Quebec, where Quebecor is the dominant player in the province’s French-language media and benefits from a uniquely favourable public image as a homegrown success story. Its ability to cross-promote its bundled wireless, cable and internet offerings on multiple media platforms makes it a juggernaut at home.

Videotron has no such advantage outside Quebec. It is not clear wireless customers elsewhere will sign up to line the pockets of Quebecor’s controlling shareholder, Pierre Karl Péladeau, given his previous life as leader of the separatist Parti Québécois.

Politics aside, the tribunal said that Quebecor could ensure competition in the wireless market outside Quebec, where the company does not own its own infrastructure, based on the “very favourable arrangements” under which Rogers would provide network infrastructure access to Videotron. Under these arrangements, Videotron would pay lower rates to use Rogers’s network than the wholesale rates set by the Canadian Radio-television and Telecommunications Commission.

Independent internet service providers (ISPs) have argued that the CRTC’s wholesale rates are too high for them to compete effectively. They are naturally upset about Rogers offering a sweetheart deal to Videotron that could drive them out of business altogether. To them, the arrangement smacks of anti-competitive behaviour. A legal challenge by independent ISPs is not just possible; it is most likely.

In its filing with the appeal court, the Competition Bureau also raised concerns about the nature of the network operating arrangement between Videotron and Rogers, saying it would “rely on ongoing co-operation of competing parties and require significant monitoring to ensure compliance.” It also noted that “Videotron and Rogers are currently in litigation regarding a similar 20-year network operating agreement” in Quebec and the Ottawa area. Indeed, Videotron sued Rogers in 2021 for $850-million. That sum, incidentally, is close to the difference between what Videotron has agreed to pay for Freedom and the amount Globalive offered for the wireless provider.

Mr. Champagne has said he will not decide on the sale of Freedom to Videotron before the Federal Court of Appeal rules on the case. Indeed, if the appeal court sides with the Competition Bureau, the entire deal could simply fall apart.

Meanwhile, the House of Commons industry committee could hold new hearings into the Rogers-Shaw deal. MPs from Western Canada know the deal is unpopular with their constituents. And unlike the tribunal, they are skeptical about Videotron’s promises.