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Rogers-Shaw deal approved — with ‘unprecedented’ conditions. Here’s what to know

Click to play video: 'Rogers must fulfill list of conditions in Shaw merger or face stiff financial penalties'
Rogers must fulfill list of conditions in Shaw merger or face stiff financial penalties
WATCH ABOVE: Canada's industry minister described the scope of the conditions and financial ramifications of the Shaw-Rogers merger on Friday as “unprecedented.” There are 21 conditions for Rogers in the deal, including that they must establish a Western headquarters in Calgary, create at least 3,000 jobs in Western Canada for at least a decade, and invest $5.5 billion to expand 5G networks. Anne Gaviola has more – Mar 31, 2023

Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. will go ahead after it received the final sign-off it needed from Industry Minister Francois-Philippe Champagne.

He called the merger a “watershed moment” for the telecom sector that he claimed would drive wireless prices down for Canadians while growing the combined firm’s overall headcount.

The merger, a union between two Canadian telecom giants valued at $26 billion, including debt, has changed significantly in response to political and industry pressure since it was first announced in March 2021.

The final permutation of the merger will see Shaw sell its Freedom Mobile business and transfer wireless spectrum to Quebecor’s Videotron as the latter seeks to expand outside Quebec.

“We are at a crossroad for the telecom sector in Canada,” Champagne said in his announcement.

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“We have… an historic opportunity to see a real fourth national player emerge and most importantly, compete in a way that will drive down prices for Canadians.”

Click to play video: 'Rogers takeover of Shaw approved by Ottawa: Minister Champagne'
Rogers takeover of Shaw approved by Ottawa: Minister Champagne

 

Champagne’s approval came on the companies’ March 31 deadline to close the transaction.

Rogers, Shaw and Quebecor released a joint statement Friday morning saying they have agreed to extend that closing date to April 7 in order to give enough time to finalize the agreement and meet other closing conditions.

While shares of Shaw were up slightly in trading on the Toronto Stock Exchange on Friday, Rogers’ stock price had dropped 2.8 per cent on the day.

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Click to play video: 'Albertans react to Rogers’ takeover of Shaw'
Albertans react to Rogers’ takeover of Shaw

Rogers CEO Tony Staffieri called the merger “transformative” in a statement on Friday, and said the combined companies “will invest substantially to bring more choice, more value, and more connectivity to Canadians across the country.”

Brad Shaw, the CEO of Shaw, said in a statement that “the merger will provide the scale necessary for the future success and competitiveness” of the Calgary-based company.

Shaw Communications and Corus Entertainment, the parent company of Global News, are owned by the Shaw family based in Calgary.

Pierre Poilievre, leader of the federal Conservative Party, fired a shot at the government’s approval of the deal in Question Period on Friday.

Click to play video: '‘Liberals love to suck up to big oligopolistic corporations’: Poilievre opines on Rogers-Shaw deal approval'
‘Liberals love to suck up to big oligopolistic corporations’: Poilievre opines on Rogers-Shaw deal approval

“When will they start standing up for consumers instead of standing up for price raising and high cost corporate oligarchs?” he asked.

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Brian Masse, the NDP’s industry critic, said Friday’s approval was a “cave” to the big telcos that would see Canadian consumers continue to pay some of the highest wireless prices in the world.

“We’re going to see less competition. We’re going to see higher prices and we’re going to see continued frustrations for Canadians as things go forward,” he said.

Pierre Karl Péladeau, president and CEO of Videotron-owner Quebecor Inc., said in a statement Friday that the company would bring its competitive force to bear on the national market.

“Just as Videotron has done in the Québec market, Freedom will promote competition by competing aggressively with Canada’s wireless carriers in order to lower prices for the benefit of consumers,” he said.

‘Unprecedented’ conditions added to the deal

In an effort to get ahead of criticisms that the merger would hurt competition, Champagne said Friday his approval is subject to 21 “unprecedented and legally enforceable” conditions.

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Videotron’s wireless prices in Quebec, which tend to be 20 per cent lower than other parts of the country, must be expanded out of the province and into Western Canada as part of Champagne’s stated goal of creating a fourth-national player to drive down Canadians’ phone bills.

“The way to drive down prices is through competition. Having a fourth, strong national player does lead to lower prices,” he told reporters Friday.

Rogers is also expected to keep a headquarters in Calgary and add 3,000 new jobs in Western Canada, both of which are expected to be maintained over the next 10 years. Champagne did not say whether any job protections are extended to Rogers’ operations in Eastern and Central Canada.

The newly merged telecom giant is also expected to spend $5.5 billion expanding 5G network coverage and invest $1 billion in connections for rural, remote and Indigenous communities.

The $6.5 billion in spending and promises to add jobs and maintain the western HQ were included in the original announcement from Rogers and Shaw in March 2021.

Violating the conditions would come with “significant” penalties of up to $200 million in fines for Videotron and up to $1 billion in charges for Rogers, Champagne said.

He added that all of these conditions are set out in a legal undertaking he called a “contract with Canadians” and are subject to arbitration if the companies violate the agreement.

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Champagne said he would watch the telcos “like a hawk” on Canadians’ behalf.

Michael Geist, Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, argues that the significant number of conditions placed on the deal amount to a tacit confession from the federal government that what they’ve approved won’t benefit consumers.

“It’s largely illusory,” he tells Global News.

“Let’s recognize we’re talking about a 10-year horizon. We don’t even know who’s going to be in the government at that stage, much less what the environment will look like.”

The NDP’s Masse, too, was skeptical of Champagne’s conditions and critical of the proposed penalties, which he said would end up being paid by Rogers and Videotron’s customers on their bills, not by the companies or their executives.

“He may be watching them like a hawk, but I mean, he’s left Canadian consumers to be basically open to the buzzards,” Masse said.

Champagne’s office confirmed in a statement to Global News on Friday that the companies’ agreement is signed with the Government of Canada, not the minister himself, and will remain in force even if the Liberals leave office over the next decade.

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Minister threatens more regulation if prices don’t drop

The industry minister also announced a freeze on the transfer of large amounts of spectrum from major carriers for an indeterminate period and a comprehensive review of Canada’s spectrum transfer rules for the first time in a decade to ensure the framework is appropriate for the modern telecom landscape.

If prices do not materially lower following the completion of this deal, Champagne threatened that he might seek more legislative powers to force companies to offer Canadians better deals.

Click to play video: 'What Rogers purchase of Shaw will mean for Canadian consumers'
What Rogers purchase of Shaw will mean for Canadian consumers

“Everything is on the table,” he said.

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Michael Osborne, a competition lawyer with Cozen O’Connor in Toronto, says the conditions imposed on the deal largely amount to “political theatre” but they are “real.” He says the conditions reinforce actions Rogers already said it would take, like maintaining a presence in Western Canada.

He says the introduction of Videotron, which will be incentivized on its own to offer cheaper rates to compete in the market, will result in less concentration in Canada, rather than more.

As for Champagne’s suggestion that he could seek more powers to force telecom prices lower in the years to come, Osborne says the impulse to regulate the market rather than letting competition run its course is misguided.

“There seems to be a bit of a view out there that we should regulate prices charged by businesses in our economy. We’re seeing that in telecom. We’re seeing that from people in relation to groceries,” he says.

“Having the government decides what prices are going to be is not historically a winning formula for having an efficient, competitive, strong economy that grows.”

How did we get here?

Champagne’s sign-off was the final regulatory hurdle needed to get the deal across the finish line.

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The Competition Tribunal approved the deal on Dec. 30, 2022.

The Competition Bureau had appealed the tribunal’s decision, citing what it claimed were legal errors in the judgment. But a Federal Court of Appeal judge ruled last month that the Bureau’s arguments did not meet the threshold needed to overturn the ruling.

The Bureau had lobbied against the merger, saying the transaction would hurt competition in the telecom industry in Canada.

The Competition Tribunal concluded that the merger was not likely to result in higher prices for wireless customers in Western Canada, and that the Tribunal was satisfied the plan to sell Shaw’s Freedom Mobile to Videotron was adequate to ensure competition isn’t substantially reduced.

Osborne believes that if Champagne had shut down the deal — disagreeing with the call made by a judicial body — Canada’s reputation as a good place to do business could be at risk.

“It would be catastrophic for merger review in this country,” Osborne says.

“It would mean that instead of a system which is governed by law and by an objective, measurable standard … that in fact, merger review in this country is based on how many letters the minister got opposing the deal.”

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But Keldon Bester, co-founder of the Canadian Anti-Monopoly Project, tells Global News that the deal’s approval reflects the “poor state of Canada’s competition laws” and called for a boost in oversight that would prevent industry consolidation like this in the future.

While he says it’s “entirely possible” that Videotron will become a strong national competitor, there are many questions about the effectiveness of the conditions imposed on the deal and whether the long-term drop in prices described by Champagne will come to pass.

Finance Minister Chrystia Freeland said Friday that, like the 2023 budget tabled earlier in the week, the Liberal government’s focus is on “affordability” for consumers.

“Our focus is very much on Canadians. It’s on Canadian consumers. It’s on imposing tough conditions to ensure that Canadian consumers get the services they need at prices they can afford,” she said.

— with files from Global News’s Anne Gaviola, David Baxter

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Liberals pitch their ‘fiscally responsible’ budget

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