Investigate versus adjudicate

In Canada’s competition review system, Canadians’ interests are represented by two separate, but equally important groups: the Competition Bureau, who investigate; and, the Competition Tribunal, a quasi-judicial body led by Federal Court judges who adjudicate cases brought forward under the Competition Act.

Forgive me for inserting the “Law & Order” sound effect here.

As the review of the Rogers – Shaw merger moves to this next phase, it is important to recognize that there is a clear separation between the Competition Bureau and the Competition Tribunal. My weekend post provided a high level description of the Tribunal.

The two bodies are completely separate and have not always agreed on competition policy or interpretations.

There have been a number of significant applications brought forward by the Competition Bureau that were rejected by the Competition Tribunal or the Courts.

In “Courts slam competition chief in two harsh legal putdowns”, Terence Corcoran describes what he calls “a harsh rebuke” delivered by the Competition Tribunal to the Competition Bureau this past Canada Day (2021).

Just over two years ago, the Competition Tribunal ruled against the Commissioner’s application against Vancouver Airport and ordered the Commissioner to pay $1.3M in legal costs, as described in a note from Oslers.

In a case looking at the Toronto Real Estate Board, the Competition Tribunal dismissed an application filed by the Commissioner alleging abuse of dominance.

Rogers only competes with Shaw in the mobile business, and the companies say their proposal will spin off that business.

Based on statements by Rogers and Shaw that the companies are “proposing the full divesture of Shaw’s wireless business, Freedom Mobile”, it is difficult to envision how the transaction “prevents or lessens, or is likely to prevent or lessen, competition substantially” as prescribed in the Act.

Some academics have over simplistically alluded to disappointment in the outcome from the Xplore Mobile remedy arising from Bell’s acquisition of Manitoba Tel.

There should be no parallels drawn between then and now. At the time of the Bell-MTS transaction in 2017, Xplornet had different ownership, had no prior experience in the mobile business and it did not acquire a complete national network and business operation. As I describe in “A Kobayashi Maru scenario”, the situation is very different if Xplornet acquires Freedom Mobile. Xplornet has fixed wireless services in need of additional spectrum in rural markets; Freedom Mobile owns spectrum in vast swaths of rural markets where it has not deployed (and likely will not deploy) its mobile network.

Indeed, a transaction with Xplornet could greatly strengthen the level of competitive intensity in the Manitoba market, (a market in which Freedom Mobile does not operate), by boosting Xplornet’s overall mobile operations, while enabling Rogers to leverage the Shaw wireline assets in the province to compete better against Bell. Such a remedy provides the Competition Bureau with an opportunity to gain a win on the earlier Bell-MTS transaction.

Acquiring the wireline business from Shaw enables Rogers to be a stronger competitor in Western Canada, positioned to deploy 5G network investment more efficiently to compete with the incumbent wireline phone companies: TELUS in BC and Alberta; Sasktel in Saskatchewan; and, Bell in Manitoba.

When the merger was first announced, Brad Shaw testified before the Parliamentary Industry Committee and said that the status quo was not an option, the level of investment required for wireless was beyond the ability of Shaw to undertake:

Canada’s future success depends on a forward-looking approach to connectivity. We need to bridge the digital divide to connect underserved rural and indigenous communities in the west, but we also need to build out a new 5G platform. This is an investment challenge of unprecedented scale. We cannot look backwards, as we might have worked in the past. As we look forward, it is clear that Shaw cannot build what Canada needs on our own. By joining forces with Rogers, I am confident that we can create something extraordinary for Canada.

“It is clear that Shaw cannot build what Canada needs on our own.”

As such, rejecting the merger transaction will predictably result in a weakened fourth competitor in Western Canada, unable or unwilling to make the necessary investments. Rogers would continue to operate at a disadvantage in the west, lacking the depth of infrastructure it sought from the transaction. How was this factored into Competition Bureau modeling of the status quo?

As BMO Capital indicated in an investment note last night, “We believe an outright rejection of this deal would not satisfy the government’s position of a four-player market (i.e., Shaw will not keep funding wireless, that’s why they sold).”

With a full divestiture of Freedom Mobile being proposed, the only segment of Shaw’s business in which it competed with Rogers, it will be fascinating to see the basis of the Competition Bureau’s objection to the merger.

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