BCE Inc.'s purchase of Manitoba Telecom Services Inc. is expected to face a lengthy review process that will test the federal government's four-player policy on the wireless sector, raising the question of what BCE could give up to get the deal approved.
The companies announced the $3.1-billion transaction Monday, saying it took about two weeks to negotiate but admitting that the process of winning regulatory approval will drag out for the rest of the year and possibly into next. "We expect the transaction to take a fairly long time," said Glen LeBlanc, chief financial officer of BCE.
He noted that the company reached a separate deal to divest one-third of MTS's contract wireless subscribers and dealer locations to Telus Corp., in part to help "enhance wireless competition to the benefit of all Manitobans."
It's a nod to the fact that a combined BCE-MTS would otherwise control 60 per cent of Manitoba's wireless market, a level of concentration that would very likely make regulators uncomfortable. But industry watchers say that probably won't be enough to convince the government to bless the deal and suggest that BCE will have to consider other steps to enhance competition such as divesting some of its wireless airwaves in the province to a fourth player.
Under the Conservatives, the federal government's policy goal was to support a sustainable new entrant or regional telecom operator with a wireless business in every part of the country to compete with the Big Three national carriers, BCE, Rogers Communications Inc. and Telus Corp.
That is ostensibly the situation that exists now, but the MTS deal would threaten that policy by reducing the Manitoba market to three players from four. The Big Three have been fighting to win market share in that province and consumers actually enjoy lower prices than in many other parts of Canada, a success story that some fear could disappear with the consolidation of the sector.
OpenMedia, which advocates for a consumer-friendly digital policy, has already decried the deal, warning that Manitobans might lose their lower cellphone prices. And Diane Finley, the Conservative critic for the ministry of Innovation, Science and Economic Development, says the government should only approve transactions "that increase competition in the wireless sector."
A spokesman for Innovation Minister Navdeep Bains, who must review the deal, would not comment specifically on the deal Monday but said the government wants to "ensure competition for Manitobans and continued investment in rural service." (The Competition Bureau and Canadian Radio-television and Telecommunications Commission must also approve the transaction.)
"We have heard very little from the new Liberal government on telecom policy, particularly on the matter of wireless competition," said Canaccord Genuity analyst Aravinda Galappatthige. "Against that backdrop, making a call on the regulatory outcome is tricky," he said, adding that he gives the deal a "better than 50-per-cent chance of regulatory approval."
Ottawa previously blocked deals that would have seen one player own a high concentration of spectrum, the valuable airwaves used to build cellular networks. But it permitted Rogers to buy startup carrier Mobilicity last year on the condition that it divest swaths of airwaves to Wind Mobile, and several analysts have speculated that a similar approach could be used here.
"We do not think it is an easy decision given history and current market dynamics. We believe it is likely that Bell could be required to offer some additional remedies to get the regulators onside," said Desjardins Securities analyst Maher Yaghi.
To get the deal done, it's possible BCE could agree to divest airwaves to Shaw Communications Inc., which owns cable systems in the province and recently acquired wireless operator Wind Mobile. Wind does not have a network in Manitoba, but rules forcing cell-tower sharing could help it build. This might be enough to convince the government it was not setting a dangerous precedent that would allow for further consolidation.
However, the landscape of spectrum ownership and wireless networks in Manitoba is complicated. BCE does not currently own much spectrum but operates there thanks to its national spectrum-sharing agreement with Telus. Rogers owns ample spectrum but also has a network-sharing agreement with MTS. And MTS is the only carrier that has any real network infrastructure in rural areas while the others offer service based on roaming agreements.
It's not clear how exactly an agreement to divest spectrum could work without disrupting that patchwork arrangement and potentially leaving the fourth player with unsustainable operating conditions.
A more extreme option would be forcing BCE to spin off MTS's wireless business, but that makes the deal less attractive as BCE executives emphasized their interest in acquiring the stable base of Manitoba wireless customers.
"We look forward to working productively with the regulators but we're not commenting on the process," BCE spokesman Mark Langton said Tuesday when asked if the company would consider other concessions, beyond divesting subscribers to Telus, to win approval.