Rogers-Shaw-Videotron Deal Will Increase Competition, Tribunal Finds - JD Supra

The Rogers Communications Inc. woody to bargain Shaw Communications Inc. aft Shaw sells its Freedom Mobile concern to Videotron Ltd. volition summation competition, Canada's Competition Tribunal found.

The Commissioner of Competition had applied for a afloat artifact of the deal, alleging that it would rise mobile telephone program prices and trim competition. In dismissing the case, the Tribunal rejected each allegation made by the Commissioner, holding not lone that the merger would not adversely impact contention it would, successful fact, pb to much aggravated competition, little prices, and much prime for consumers.

Triple Play Merger

In March 2021, Rogers agreed to bargain Shaw for $26 billion. Rogers and Shaw are some internet, cablegram TV, and mobile telephone providers. Their net and TV businesses bash not overlap: Rogers is successful Ontario, portion Shaw is successful British Columbia and Alberta. But, their mobile businesses bash overlap. Rogers is the largest of Canada’s “big three” mobile companies, portion Shaw operates 2 mobile brands, Freedom Mobile, a low-cost provider, and Shaw Mobile, offered to its cablegram and net subscribers.  

Unsurprisingly, Canada’s Competition Bureau was acrophobic that the tie-up would harm mobile telephone competition. Proposals by Rogers and Shaw to divest Freedom to 2 antithetic fiscal buyers failed to allay this concern.

The Commissioner filed a situation to the merger successful May 2022, seeking a “full-block” of the deal.

Just implicit 1 period later, Rogers and Shaw agreed to merchantability Freedom to Videotron for $2 billion. Videotron is simply a Quebec-based internet, cablegram TV, and mobile telephone provider. Rogers besides agreed to supply Videotron with backhaul, transport, and different services astatine charismatic rates.

But, this was not capable to fulfill the Bureau. Two attempts astatine mediation failed, and the lawsuit went to a afloat proceedings that ended successful mid-December.

The Tribunal dismissed the Commissioner’s exertion successful an 88-page determination issued connected New Year’s Eve, a grounds 17 days aft the past time of argument.

Litigating a Hypothetical Transaction?

The Commissioner argued that Tribunal indispensable archetypal analyse the archetypal deal—Rogers buying Shaw, including Freedom—before considering whether divesting Freedom to Videotron would remedy immoderate important lessening oregon prevention of contention (SLPC) caused by the merger.

The Tribunal refused this invitation to regularisation connected a hypothetical transaction. It emphasized that Shaw would merchantability Freedom to Videotron before Rogers would bargain Shaw. As a result, “the ‘proposed merger,' arsenic defined by the Commissioner, is no longer being proposed.” This is due to the fact that “what Rogers proposes to get volition nary longer see the shares oregon assets of Freedom." “Rogers volition ne'er ain Freedom oregon run Freedom," arsenic Shaw’s president said. The Tribunal’s disapproval of the Commissioner was scathing, saying, “The Commissioner’s insistence that the Tribunal walk scarce nationalist resources assessing thing that volition ne'er hap is divorced from reality."

Whether the investigation is conducted successful 1 step, arsenic the Tribunal did, oregon successful 2 steps, arsenic the Commissioner insisted, should marque nary difference. The trial is the same. After some the merger and the divestiture, is determination an SLPC?

There is simply a quality successful who bears the burden, however. On the Commissioner’s two-step approach, the load shifts to Rogers and Shaw to amusement that the divestiture would beryllium an effectual remedy. On the one-step attack followed by the Tribunal, it remained connected the Commissioner throughout. However, this astir surely made nary quality due to the fact that the Tribunal recovered that the merger positive divestiture would really summation competition. Essentially, it recovered the divestiture would much than remedy immoderate SLPC.

Videotron would beryllium a “More Aggressive and Effective Competitor”

The astir important question successful determining whether the woody would origin an SLPC was whether Videotron, arsenic the proprietor of Freedom, would beryllium an assertive and effectual competitor.

The Tribunal recovered that it would. Videotron, an experienced and palmy “market disruptor” successful Quebec, “is overmuch much committed than Shaw to beryllium a semipermanent subordinate successful the applicable markets” and “would beryllium a more assertive and effectual rival than Freedom and Shaw Mobile."

The Tribunal besides rejected the Commissioner’s contention that Freedom needed Shaw’s wireline web to compete. Many wireless providers vie successfully without owning their ain wireline networks. Freedom itself has nary wireline web successful Ontario, wherever astir of its customers live. Telus, Bell, and Rogers each vie successful regions wherever they bash not ain immoderate wireline network. Nor would Freedom go overly babelike connected web services provided by Rogers, arsenic it is escaped to bargain them from different providers successful a marketplace that has been recovered to beryllium competitive.

No Material Price Increase

The Tribunal besides recovered that the merger would not pb to materially accrued mobile program prices successful British Columbia and Alberta.

The Commissioner’s adept opined that mobile prices would emergence by 0.8% successful Alberta and 2.5% successful British Columbia arsenic a effect of the merger. But, this summation would not beryllium uniform. Freedom would little its prices by much than 15%, portion Bell and Telus would permission theirs fundamentally unchanged. Only Rogers would summation prices by immoderate important magnitude (12.1% successful British Columbia and 9.6% successful Alberta).

However, these predictions were “not reliable and substantially overstated” and “highly doubtful," the Tribunal found. Roger’s adept had “persuasively demonstrated” that erstwhile definite shortcomings were addressed, the Commissioner’s exemplary would not foretell worldly terms increases.

While the Tribunal did not remark connected it, it seems improbable that Rogers could successfully rise its prices by up to 12%. The information that its closest competitors, Bell and Telus, were not raising their prices makes it improbable that Rogers could rise its prices without bleeding subscribers.

Fix it First?

This lawsuit marks a fig of firsts successful the Canadian merger review. It is the archetypal clip that a merger has been litigated pre-closing. It is besides the archetypal clip that the lawsuit has centered connected a projected remedy, that is, wherever parties “litigated the fix."

The determination besides confirms that the Tribunal volition not analyse hypothetical transactions. Thus, if parties materially alteration their woody earlier the lawsuit goes to trial, the Tribunal volition look astatine the woody arsenic it is structured astatine the clip of trial.

This does not mean parties volition modify their mergers connected the courthouse steps, arsenic the Commissioner seems to fear. Rogers and Shaw agreed to divest Freedom to Videotron conscionable implicit a period aft the Commissioner filed his application. Had they waited until conscionable earlier trial, the Commissioner would person been entitled to an adjournment successful bid to modify his lawsuit to conscionable the caller reality.

Parties to mergers that intelligibly rise contention issues are champion advised to hole it first. That is to say, incorporated a hole into the woody earlier filing a notification with the Competition Bureau, not aft the Commissioner challenges it.

The Commissioner’s Appeal

The Commissioner’s entreaty is scheduled to beryllium heard connected January 24, 2023. For our prediction connected the result of this appeal, spot Commissioner’s entreaty of Rogers-Shaw determination apt to fail.