A stringent examination of the state of wireless competition in four provinces is delaying BCE Inc.'s $3.1-billion deal to acquire Manitoba Telecom Services Inc.
As BCE and MTS await a range of regulatory and government approvals for the deal, the federal competition authority has gone to court to compel companies not directly involved in the deal to turn over reams of information about their own wireless businesses.
The Competition Bureau obtained orders from the Federal Court in August and September forcing both Rogers Communications Inc. and Telus Corp. to provide more than three years of information – on details such as new wireless customers, prices, revenues and expenses, network quality and transfers of phone numbers to new accounts – first in Manitoba and then Alberta, Saskatchewan and Ontario under the second set of orders.
In documents filed with the court, the bureau said it needed the additional data to determine whether the merger will "lessen or prevent competition substantially" but BCE and MTS argue that the lengthy information-gathering process from non-parties to the deal has unreasonably delayed the path to a decision.
BCE announced its planned takeover of one of the last remaining provincial telephone companies – and competitor to the three national wireless carriers – on May 2. In a letter to the bureau, Paul Collins, a lawyer for MTS, stated that under the usual timelines for reviews of large mergers, the "statutory waiting period" for this deal would have expired on Sept. 30., but is now expected to take much longer.
Under the timelines of the orders, the bureau would only recently have received the information from Rogers and Telus (who are not parties to the main transaction, although Telus has agreed to acquire MTS subscribers and retail locations from BCE in a separate deal), and must now analyze it.
"While the Commissioner [of competition] has discretion at the early stages of a review to examine the facts, that does not justify a nationwide sweep for information about, for example, pricing in markets unaffected by the merger, especially at such a late stage in the process," wrote Brian Facey, a lawyer for BCE, in a letter to the bureau in September, ahead of a court hearing for the second request.
Federal Court Chief Justice Paul Crampton limited the production of material to just Manitoba in his first order in August, however, the bureau clearly saw a need for more information and persisted in its requests.
It returned in September seeking a broader order and filed an affidavit from an academic and consultant, Paul Johnson, who said data on one or two provinces is insufficient to determine whether lower prices in Manitoba are due to a more competitive environment in that province.
Sorina Sam, a competition officer with the bureau, also swore an affidavit stating the review so far had suggested that wireless prices were lower in Manitoba than in other provinces and more information from Rogers and Telus would help the bureau better understand risks to the state of competition.
She also said that MTS and BCE have disputed that prices are lower in Manitoba than other provinces and pointed to data from the federal telecom regulator that includes average revenue per user (ARPU). For 2014, it shows that ARPU in Manitoba was higher than about half of the other provinces. However, Ms. Sam noted that in a 2014 submission to the CRTC, BCE itself had argued that, "ARPU is not a measure of price, it is a measure of aggregate consumer expenditure that depends on both price and quantity."
BCE's lawyer Mr. Facey wrote in the September letter that BCE does not currently have a large share of the Manitoba wireless market (BCE and Telus are the two smallest wireless players in the province). Based on a merger simulation the company provided to the bureau, he said it is BCE's position that prices in Manitoba will actually be lower.
"The transactions will not result in any competitive harm, including any price increases, but instead will produce very significant cost savings and dynamic efficiencies and innovations," he said.
Over the summer, BCE made a series of announcements regarding planned investments in telecom infrastructure in Manitoba in an effort to get key stakeholders on board with the deal and overcome concerns about reduced wireless competition.
BCE spokesman Mark Langton said Wednesday that the company is eager to get started with its pledge to invest $1-billion over five years after the deal closes. "We see tremendous opportunity in Manitoba and believe we'll be a major contributor to economic growth as we enhance broadband communications across the province. We continue to work with regulators to achieve required approvals and complete the transaction on schedule."
Taylor Bildstein, a spokeswoman for the bureau, said the competition watchdog "consults with a wide range of industry participants" as a normal part of the review process. Because merger reviews are conducted in confidence, Ms. Bildstein said she could not comment on whether the competition watchdog would seek further information on this deal.
"It is difficult to say how long a particular review will take, as the bureau evaluates the steps that need to be taken on a case-by-case basis," she said regarding timing. "As always, we work to complete our reviews as expeditiously as possible."
BCE and MTS have already received court approval for the deal and MTS shareholders have voted to approve the transaction, but regulatory approvals remain outstanding.
The parties are hoping to receive either a "no-action letter" or an "advance ruling certificate" from the Competition Bureau. They also need permission from the Canadian Radio-television and Telecommunications Commission (CRTC) to transfer MTS's broadcast licences in the province. The CRTC solicited public feedback on that issue and the period for that process closed on Oct. 14. CRTC spokeswoman Patricia Valladao said the commission aims to publish its decision in such cases within two months – which would be by Dec. 14 – but it has discretion not to do so.
The ministry of Innovation, Science and Economic Development must also approve the transfer of wireless spectrum licences from MTS to BCE. If the government is concerned about BCE exceeding "caps" on spectrum ownership in certain frequency bands, it could require the company to divest some of its airwaves before approving the deal.
Asked about the status of the ministry's review on Wednesday, ISED spokesman Hans Parmar said, "Transactions that require regulatory approval will be considered accordingly. Each spectrum licence transfer request is treated on a case-by-case basis and is confidential while under consideration." He said any decisions will be published online once taken.
MTS's information circular for its shareholders, published in June, outlined the expectation that the deal would close late this year or in early 2017. It stated that the "outside date" to close the transaction is May 1, 2017, but that could be extended by the parties until up to Oct. 28, 2017.