The Competition Tribunal has dismissed the Commissioner of Competition’s application to block Rogers Communication’s acquisition of Shaw Communications in the most consequential merger decision in Canadian history.
When Rogers and Shaw initially announced their proposed merger, the Commissioner expressed concern about levels of competition within the wireless (cell phone) industry. In order to allay these concerns, the parties entered into a conditional divestiture agreement with Videotron Ltd, a Quebec-based wireless and internet provider who had a goal of national expansion. The proposed divestiture agreement would see Videotron acquire the Shaw-owned Freedom Mobile, allowing it to expand its wireless footprint into Ontario, Alberta, and British Columbia. This proposed divestiture did not satisfy the Commissioner, who took the case before the Tribunal.
The Commissioner argued that the appropriate lens through which to analyze the transaction was to first examine the alleged anticompetitive effects of the initial (and by this point hypothetical) complete acquisition of Shaw by Rogers, and then examine whether the remedy of divestiture would cure any anticompetitive effects of the hypothetical transaction. The merging parties argued that the appropriate perspective was to look at the entire three-party transaction and determine whether this three-party transaction itself resulted in any anticompetitive effects. The characterization of the transaction was significant, because this would determine which side bore the onus of proof.
The Tribunal ultimately agreed with the merging parties that the “proposed merger” whose anticompetitive effects needed to be determined was the actual proposed merger as it existed at the time of the hearing – not the original, and now impossible to complete, transaction. However, in making this finding the Tribunal pointed out that based on the facts of the case, nothing turned on the characterization of the transaction since the merging parties would have prevailed even if they bore the onus of proof.
The Commissioner conceded that the acquisition of Freedom by Videotron was sufficient to address anticompetitive effects in the Ontario wireless market. However, he argued that there would be a substantial lessening or prevention of competition in the Alberta and British Columbia wireless markets, because in those provinces Shaw was able to leverage its ownership of complementary wireline assets to effectively compete in a way that Videotron would be unable to match. He argued this would lead to materially higher prices, and materially lower quality for wireless consumers in Alberta and British Columbia.
The Tribunal disagreed with the Commissioner. The Tribunal observed that Videotron had a strong history as a maverick disruptor in Quebec: it had grown in a short period of time to have a 22% market share, and it had put significant price pressure on its competitors resulting in materially lower wireless prices than anywhere else in Canada. The Tribunal held that Videotron, who was investing $2.85 billion to acquire Freedom, had been able to extract very favourable ancillary agreements from Rogers as part of the transaction, and had prepared a fully costed business plan to enter and expand in Alberta and British Columbia. Shaw, on the other hand, could no longer afford to play the maverick competitor role it had previously played in the wireless space, which would lead to a decline in competitive intensity in time. In the end, the Tribunal concluded that Videotron was likely to be a “more aggressive and effective competitor” than Shaw. Accordingly, the Tribunal dismissed the Commissioner’s application.
The Commissioner has appealed the decision, with an expedited appeal date scheduled for January 24, 2023. The merging parties have agreed not to close the transaction pending the Federal Court of Appeal’s disposition of the case.