The federal Minister of Innovation, Science and Industry and the Commissioner at the Competition Bureau told Rogers Communications Inc. to do the right thing for millions of Canadians who think they pay too much on monthly cellphone bills by selling the country’s fourth-largest wireless network, Freedom Mobile, to a stable, long-term owner.
Rogers didn’t listen. Instead, the country’s largest cellphone provider played cute.
Rogers now faces the one outcome of this $26-billion takeover it desperately wanted to avoid: Handing rival Quebecor Inc. a cellphone business with two million customers as the price for being allowed to take over Shaw Communications Inc.’s cable network in Western Canada. Bankers working for Rogers have invited Quebecor’s bankers to discuss a possible acquisition of Freedom, The Globe and Mail reported Friday.
Rogers alienated the Competition Bureau by offering to sell Freedom to rural internet provider Xplornet Communications Inc., which is owned by a U.S. private equity fund, and botched an opportunity to build a competitive cellphone business in Manitoba. Regulators were also underwhelmed by the prospect of selling Freedom to Francesco Aquilini, a Vancouver real estate developer with no expertise in telecom.
The common theme for these potential Freedom owners is that they pose a relatively weak competitive threat. Which is good for Rogers and the other incumbents – BCE Inc. and Telus Corp. And bad for consumers.
In addition, the private equity fund that owns Xplornet – New York-based Stonepeak – will have to sell the business in the next few years, dropping the ownership right back in the government’s lap.
On Friday, Mr. Boswell’s Competition Bureau told Rogers just what it thinks of the remedies proposed to date. The regulator announced it plans to oppose the Shaw takeover at the Competition Tribunal.
Rogers and Shaw are now scrambling. Early Saturday, they announced the close of the transaction, scheduled for June 13, will be pushed back to July 31. The two companies said they will fight the regulator at the tribunal, “while continuing to engage constructively with the Competition Bureau in an effort to bring this matter to a resolution.”
The delay and the heightened uncertainty are significant setbacks for Rogers chief executive officer Tony Staffieri, who won the top job in November by persuading chair Edward Rogers that he could execute better than predecessor Joe Natale.
Mr. Rogers went to war with his board and his family to install Mr. Staffieri. Now, his company is fighting with regulators. A landmark transaction won’t close on schedule. And Rogers faces the prospect of coming out of this deal in a four-way fight for cellphone customers that features Quebecor’s Pierre Karl Péladeau, who has already carved out significant market share in his home province.
Until the past few days, Rogers avoided engaging with Quebecor on the potential sale of Freedom. That changed recently. Financial analysts say the talks likely began because Rogers was forced to turn to Mr. Péladeau as a buyer and potentially the only acceptable remedy for a federal government that consistently states Canadians need four national cellphone networks.
There’s a delicious irony in the federal Liberals helping steer Freedom to Mr. Péladeau, a separatist.
Rogers and Quebecor have history, and it’s bad. The two operate a cellphone network in Quebec and Ottawa. Last October, a Quebecor subsidiary sued Rogers for $850-million for alleged breach of contract, with both sides accusing the other of negotiating in bad faith.
Quebecor has a formidable history in the wireless business. Over the past decade, the company expanded its Quebec network 10-fold, to 1.6 million wireless customers.
Mr. Péladeau never lacks ambition. Last summer, Quebecor spent $830-million on wireless spectrum, including blocks in Ontario, Alberta and B.C., to further expansion. The Montreal-based company has the balance sheet to buy Freedom, which is expected to fetch up to $4-billion, though analysts say Quebecor would likely do an equity offering to help pay for the acquisition.
If Quebecor wins Freedom, look for marketing campaigns that feature discounts on cellphone fees. And Mr. Péladeau would relish the role of disruptor. Increased price competition would weigh heavily on Rogers, which looks to wireless for 70 per cent of its EBITDA, or earnings before interest, taxes, depreciation and amortization.
That’s far from the outcome Rogers wants. Yet the company’s executives and their counterparts at Shaw have repeatedly said they will do whatever it takes to close this transaction. Selling Freedom to Mr. Péladeau may be what it takes.
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