Rogers, Shaw won’t close deal until competition watchdog’s concerns are addressed

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Rogers Communications Inc. and Shaw Communications Inc. have agreed not to close their proposed $26-billion merger until they have resolved the concerns of the federal Commissioner of Competition, either through a negotiated agreement or via the Competition Tribunal.

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As a result, the competition authority will not seek an interim injunction as planned to block the deal over those concerns, which include reduced competition in wireless services and higher prices for consumers.

The two telco giants had already extended their planned closing date to July 31 from June. The Competition Tribunal process could take months, analysts said, although both sides have agreed to seek an expedited hearing.

In a statement late Monday, Rogers said a process to complete the “full divestiture” of Shaw’s Freedom Mobile wireless business — understood to be a crucial component of winning approval for the merger from competition and government authorities — is “advancing.”

The planned merger, announced last year, has received approval from Shaw shareholders and the Canadian Radio-television and Telecommunications Commission, but it still requires a nod from the Competition Bureau and Innovation, Science and Economic Development Canada.

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Government officials and competition authorities have indicated that the wholesale transfer of Shaw’s wireless assets would not be permitted, due to concerns about reduced competition in Canada’s wireless landscape dominated by Rogers, BCE Inc.’s Bell and Telus Communications Inc.

A “remedy” presented by Rogers and Shaw to the Competition Bureau this spring was not considered sufficient. Though authorities weren’t explicit about the problem when they formally intervened to block the merger in early May, Rogers responded by committing publicly for the first time to sell Shaw’s Freedom Mobile wireless operation in its entirety.

Analysts viewed this, as well as comments made by the Commissioner of Competition in filings with the tribunal about the importance of bundling telecom services, as an opening of the door to Quebecor Inc. purchasing Freedom Mobile. The Montreal-based telco, whose chief executive Pierre Karl Péladeau has been vocal about a plan to bring down wireless prices outside the company stronghold in Quebec, was not initially invited to take part in the bidding process for Freedom.

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Another contender, Globalive founder Anthony Lacavera, has also complained about being squeezed out of the process along with his private equity financial backers.

Lacavera signed a contingent network and spectrum sharing agreement with Telus earlier this month in an attempt to shore up the bid to acquire Freedom — estimated to be worth up to $4 billion — and told the Financial Post he has expanded his consortium of backers.

Jeff Fan, a telecom analyst at Bank of Nova Scotia, said in a note to clients at the time that he could see how the network and spectrum sharing agreement is beneficial for Globalive and Telus, but thought Rogers would be “boxed in” by the arrangement and favour selling Freedom Mobile to Quebecor.

The “remedy” Rogers and Shaw proposed to competition authorities to assuage concerns about the loss of an upstart fourth wireless player — subsequently rejected — has been widely reported to include Xplornet Communications Inc., a rural broadband provider owned by New York-based private equity firm Stonepeak Infrastructure Partners, and Vancouver’s Aquilini family.