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.

Late Friday evening (or very early Saturday morning), Rogers and Shaw issued a joint press release in response to having received notification that the Commissioner of Competition intended to file applications to the Competition Tribunal opposing the companies’ proposed merger.

A number of people may not understand what this means, so I will try to sort out the players.

The Competition Tribunal is “a specialized tribunal that combines expertise in economics and business with expertise in law”. Members of the tribunal are appointed by the Cabinet, but are independent of any government department”.

The Governor in Council appoints judicial members from the Federal Court on the recommendation of the Minister of Justice. Lay members are appointed by the Governor in Council on the recommendation of the Minister of Innovation, Science and Economic Development. They provide expertise based on their individual backgrounds in economics, business, finance, accounting or marketing. Lay members are appointed on a part-time basis.

The members are appointed for fixed terms of up to seven years and may be reappointed. One of the judicial members is appointed Chairperson of the Tribunal by the Governor in Council.

There are 5 judicial members of the panel, but interestingly, the Tribunal’s website indicates that terms expired last week (April 29) for 2 of the members, including the Chair, The Honourable Mr. Justice Denis Gascon.

Procedurally, the Tribunal hears applications for orders under Part VIII of the Competition Act (Matters reviewable by the Tribunal) in panels of three to five members. A judicial member presides at the hearing and there is at least one lay member on the panel.

There is a formal protocol defining the separation between the Commissioner of Competition and the Tribunal. Notably, the Tribunal is defined as “strictly an adjudicative body that operates independently and at arm’s length from the Government of Canada, its departments and the Commissioner.”

So, the Commissioner of Competition carries out competition related investigations independently with the support of Competition Bureau staff, but that body is independent of the Tribunal. “At all times, the Parties will strive to ensure that any interactions will not create potential or future conflicts of interest, or undermine the public perception of the Parties’ independence and impartiality.”

If it is helpful, think of the separation of roles between the police and the judicial court system. Under this metaphor, the Competition Bureau is the police force, the Commissioner is the Chief of Police, and the Competition Tribunal is the Court. The position of “Commissioner of Competition” used to be known as the Director of Investigation and Research, which was more descriptive of the role played in cases such as this merger.

I’ll have more on this in the coming weeks.

Last week, MediaSmarts released “From Access to Engagement: Building a Digital Media Literacy Strategy for Canada” [pdf, 2.9MB].

The report is an output from a symposium held in February. MediaSmarts has been advocating for digital literacy for more than 15 years, since its earlier incarnation as the Media Awareness Network, and you will see references to digital literacy on this blog dating back almost as long.

A national strategy will provide experts, advocates and service providers in the digital media literacy field with a unified but flexible approach for preventing and responding to online harms through education and critical skills development. At the same time, people living in Canada will be empowered to use, understand, create and engage with digital technology and digital media, which is at the heart of active digital citizenship and innovation.

Unfortunately, Canada doesn’t have an accurate baseline to measure our digital media literacy skills, unlike some of our closest trading partners, such as the United States, the United Kingdom, or Australia. As I recently noted, digital literacy appears to be a significant inhibitor in increasing adoption of internet connectivity among vulnerable populations eligible for affordable broadband and devices. The report notes “that when it comes to digital participation, access to technology and training is crucial for historically marginalized people in Canada, including Indigenous communities, people living in poverty, newcomers and people with disabilities.”

A recent article in Policy Options by the report’s authors observed “Access alone cannot close the digital divide.”

Digital literacy is more than technological know-how. It includes various ethical, social and reflective practices essential to developing online resilience and ethical digital citizenship. We must then embed these practices in our work, learning and daily life. Approaches to digital literacy that overemphasize access, hard technological skills and risk-avoidance constrain rather than bolster user agency. The risk is that while most people do not need coaxing to use digital technology, many users become deeply immersed in online life without the necessary digital literacy skills and supports.

Let’s take a look at that last sentence. I would agree that “most people do not need coaxing to use digital technology”, but we also need to consider the challenge of digital literacy training for those who do need coaxing. While the number of folks who don’t use internet is closing, last week’s release from Statistics Canada [Full Report: pdf, 820KB] shows there is still over-representation of some groups that are getting left behind. Statistics Canada data identifies age and education among the most significant factors impacting internet skills.

We are making progress. Statistics Canada reports “Fewer Canadians are on the ‘have not’ side of the digital divide”.

From 2018 to 2020, the shares of Canadians identified as either Non-users or Basic users of the internet and digital technologies declined by almost 5 percentage points, from 23.8% to 18.9%. This represented a shift of almost 1.4 million Canadians from the ‘have-not’ to the ‘have’ side of the digital divide.

Leaders of the various low-income broadband programs (Connecting Families, Connected for Success, Internet for Good) may be able to provide valuable input to help inform the development of Canada’s national digital literacy strategy on factors influencing non-adoption of internet connectivity. As I wrote last year, “we have learned that getting people online isn’t just a matter of price.”

Of those who do not currently use the internet, a significant portion attribute their lack of online activity to issues of digital literacy and concern for cybersecurity.

Access alone cannot close the digital divide.

Canada needs to place greater emphasis on development of digital literacy among users and non-users alike.

In a post last fall (“Canada needs to be a global leader in 5G”), I wrote about a Policy Options article that said “Market forces alone will not deliver fast 5G internet to rural areas.”

Canadians need 5G. A recent paper describes at least 3 new areas of industrial change enabled by 5G: the Internet of Things (IoT) (enabling smart homes and smart cities); vehicle automation, healthcare and smart farms; and, augmented reality and virtual reality.

These innovations are important for rural and urban Canadians alike, and we have seen 5G services being made available in some rural markets already.

Over the past two years, a number of government policy announcements have helped create a climate that encourages investment by the private sector to extend the reach of advanced technologies beyond urban centres. “Canada’s future depends on connectivity” has been guiding regulatory determinations and telecom policy, balancing the objectives of expanding network coverage, delivering world-leading service quality, and affordable prices.

As I described last week, the cost of delivering rural broadband can be substantial. A recent government announcement awarded $163M in subsidies for less than 8000 households, including one project that cost more than a quarter million dollars per household.

What if there was another approach to encourage more private sector investment in rural broadband and 5G wireless?

Is that precisely what the government is looking at with the rumoured proposal to have Xplornet acquire the divested Freedom Mobile assets from the acquisition of Shaw by Rogers?

There are other groups that have apparently submitted bids, but it is difficult to envision how any would have a plan that could result in a sustainable business where previous incarnations of Freedom have failed. As a stand-alone business, where are the synergies to promote continued investment? As I wrote in “A Kobayashi Maru scenario”, Xplornet would be able to leverage the unused rural spectrum held by Freedom to improve the quality of broadband services it offers to its fixed wireless customers.

That would improve coverage, quality and price for hundreds of thousands of rural households, funded by private sector investment.

It is important for rural Canadians to have access to applications like smart farms, healthcare telematics, smart communities, automation.

In its review of the Rogers-Shaw transaction, will we see the government continue to maintain consistency in its policy approach to telecommunications, “balancing the competing objectives of extending the reach of networks, delivering world-leading service quality, and affordable prices”?

Last week, $163 million in Federal funding was announced to bring high-speed broadband to 7,772 households in Northern Ontario.

On average, that works out to $21,000 per household, a substantial government subsidy. But there is also additional detail provided on the various communities that is worth examining.

• $46,637,325 for 182 households in the communities of Fort Severn and Peawanuck (Weenusk)
• $12,806,675 for 3,060 households in the communities of Angling Lake, Bearskin Lake, Cat Lake, Deer Lake, Dufresne (Wapekeka), Kasabonika (Kasabonika Lake), Keeyaywin, Kingfisher Lake (Kingfisher), Kitchenuhmaykoosib (Kitchenuhmaykoosib Inninuwug), Mishkeegogamang, Muskrat Dam (Muskrat Dam Lake), North Spririt Lake, Ojibway Nation of Saugeen, Osnaburgh House, Poplar Hill, Sachigo Lake, Sandy Lake, Slate Falls (Slate Falls Nation), Wawakapewin, Weagamow Lake (North Caribou Lake), and Wunnummin Lake (Wunnumin).
• $62,665,952 for 689 households in the communities of Aroland, Calstock (Constance Lake), Ginoogaming First Nation, Long Lake #58 First Nation, with a component of this project also targeting the community of Wunnumin Lake First Nation
• $2,035,881 to improve access for an estimated 258 households in the communities of Armstrong and Whitesand First Nation
• $35,730,000 to improve access for an estimated 2,565 households in the communities of Conmee, Gillies, Neebing, O’Connor, Oliver Paipoonge, Shuniah and Thunder Bay
• $2,448,446 to improve access for an estimated 327 households in the communities of Frenchmen’s Head, Kejick Bay and Lac Seul First Nation
• $1,318,561 to improve access for an estimated 691 households in the community of Ignace

The first project listed (Fort Severn and Peawanuck) implies a subsidy of more than a quarter million dollars per household, the highest level of government funding that I can recall. At $256,000 per household, it is 60 times the level of per household funding calculated for the second project ($4,185 / household for Angling Lake, Bearskin Lake, Cat Lake, Deer Lake, etc.).

The third project works out to just under $91,000 per household for Aroland, Calstock, etc.

The magnitude of funding in this announcement demonstrates why these areas have not previously been able to attract private sector investment. At $100 per month per household, and zero cost of money, it would take more than 200 years to repay the shortfall. In other words, absent a substantial government subsidy, there is no possible way for a private sector service provider to make the financials work.

Government subsidies cover the shortfall in projected revenue on a project-by-project basis. Consider this to be an addendum to “The economics of broadband expansion” that I posted a couple years ago.

These projects are examples of some of the most extreme costs for serving remote communities located in challenging geographic areas. Lower population densities mean greater distances between households and frequently, there are new backbone facilities required to connect the communities.

What led the government and the proponents to choose an architecture and solution that required such a high level of subsidy? What led the government to prioritize the allocation of more than $46 million to serve less than 200 households, as opposed to other unserved areas. Recall, when the Auditor General reviewed broadband funding programs, it found that the government did not implement its broadband improvement program in a way that ensured “the maximum broadband expansion for the public money spent.”

We know that providing broadband to rural areas is expensive. It is less clear that we have an understanding of how funding priorities are being set. Are we optimizing the allocation of limited public funding?