Monday, 18 October 2021

Canada mega-merger leaves Freedom Mobile’s future uncertain

by Harry Baldock, Total Telecom
Wednesday 25 August 21

The Shaw Communications’ acquisition by Rogers is a regulatory minefield, potentially being forced to divest their wireless subsidiary Freedom Mobile

Back in March, it was announced that Canadian operator Rogers was set to acquire its rival Shaw Communications in an enormous deal worth around $21 billion.  The move would see two of the country’s largest cable operators combine, as well as reducing the country’s total wireless operators from four to three. As a result, the deal has naturally come under heavy scrutiny from the wider industry, with detractors claiming that it will be bad for customers, reducing competition and driving up prices. Rogers, on the other hand, has of course claimed that the move will be good for the industry…

Back in March, it was announced that Canadian operator Rogers was set to acquire its rival Shaw Communications in an enormous deal worth around $21 billion. 

The move would see two of the country’s largest cable operators combine, as well as reducing the country’s total wireless operators from four to three. As a result, the deal has naturally come under heavy scrutiny from the wider industry, with detractors claiming that it will be bad for customers, reducing competition and driving up prices.

Rogers, on the other hand, has of course claimed that the move will be good for the industry, creating jobs and improving national connectivity. It has also highlighted the enormous sums of money it will invest to developing Canada’s infrastructure; just a month ago, Rogers CEO Joe Natale noted once again that Canada’s telecoms industry will spend close to CAD$26 billion by 2025 on improving 5G communications, with Rogers supplying the lion’s share.

“That’s an incredible number,” said Natale. “I would challenge most industries in Canada to lay down a number that is that large, in terms of investing in the future prosperity of Canada.”

But the industry remains widely unconvinced. In April, Laura Tribe, executive director of consumer advocacy group OpenMedia, spoke against the deal at a hearing, reminding the regulator of the job losses and increased prices that ultimately resulted from a similar merger between BCE and MTS back in 2017.

Currently, the deal is awaiting approval from the Competition Bureau, the Canadian Radio-television and Telecommunications Commission (CRTC) and Innovation, Science and Economic Development Canada, with most onlookers expecting the regulators to impose numerous conditions, including the divestment of Shaw’s mobile unit, Freedom Mobile. 

The merger of Freedom with Roger’s own wireless operations would reduce the number of mobile players in Canada to three, something which Canada has long sought to avoid. 

One of the most vocal opponents of the merger is Québecor Media Inc., the Montreal-based owner of cable and wireless operator Vidéotron Ltd., whose CEO Pierre Karl Péladeau said the move would be a “return to square one”, calling the dominance of Rogers, BCE, and Telus in the mobile space a “cartel or oligopoly”.

In fact, Péladeau noted that Québecor would consider buying Freedom from Shaw if the regulators deemed divestment of the mobile company necessary.

“We certainly are the candidate with the expertise, the experience and financial means when it comes to telecommunications and marketing, that we would be able to meet the necessary criteria to be successful,” he said in April.

Speculations that Québecor could be lining up the purchase were made even more lively back in July, when the operator spent around $666 million on 5G spectrum licences in Canada’s latest auction, with analysts suggesting the move reflected ambitions of challenging the countries dominant trio.

But Québecor is not the only potential buyer for Freedom, which could conceivably be snapped up by another regional player, such as Cogeco Communications Inc.

However, it should be noted that the purchase of Freedom alone does not instantly equate to a competitive position in Canada’s mobile arena. Scotiabank analyst Jeff Fan suggests that a potential buyer would need to invest up to $1.5 billion in rolling out 5G if Freedom were to compete more directly with Telus, Bell, and Rogers.

Nonetheless, Québecor seems confident that it could profitably make the acquisition if the option becomes available, with chief financial officer Hugues Simard saying the company has “the balance sheet to support this acquisition” in an interview earlier today.

For now, however, the future of the Rogers–Shaw merger remains unclear, with regulatory investigations still ongoing and no deadline yet announced.

 

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