The Rogers-Shaw Merger Shouldn’t Go Through, But it Will
Opinion by Georgia Evans. This article is part of the Corporations and Competition, a series by Georgia Evans on Canadian Telecommunications policy.
Our competition policy is designed to enable mergers and acquisitions – even the big ones. In the telecommunications-media-internet sectors with already high levels of concentration, a merger is looming that will make the big, bigger. The sixth biggest merger in Canadian history will remove a fourth mobile wireless carrier – an entity that is known to drive down prices – from Alberta, British Columbia (B.C.), and Ontario, and lessen competition in Internet access and cable television markets Canada-wide.
On March 15, 2021, an agreement was announced for Rogers to acquire Shaw in a twenty-six-billion-dollar deal [1]. Rogers and Shaw are both vertically integrated communications and media conglomerates [2]. Rogers offers cellphone plans, internet services, and TV broadcasting. Shaw offers internet services, TV broadcasting, owns Corus Entertainment, and the wireless network operator Freedom Mobile [3]. Freedom Mobile has 8 per cent of mobile wireless subscribers in Ontario, Alberta, and B.C., which puts downward pressure on prices in the area. Without this competitor, Rogers will capture 35.3 per cent of the national mobile wireless market [4].
When justifying their market power and high prices, telecommunications service providers tend to cling to a narrative of innovation and investment. Currently, the rollout of 5G is the harbinger of higher consumer costs, as the “world-class” networks are expensive to build and is the primary impetus for this merger. In his justification of Roger’s acquisition of Shaw, Brad Shaw claimed that the company “isn’t big enough on its own to make the billions of dollars in future investments that will be necessary for it to build a competitive 5G wireless network.” And Joe Natale, the CEO of Rogers, has claimed that the company must get bigger to become more competitive [5]. This begs the question – how can a dominant player become more competitive when it has one less competitor? Answer: it doesn’t, it just gets away with more, and justifies its anti-competitive behaviour through investments in the innovative 5G.
There is no doubt that this merger would lessen competition, strengthening Rogers’ and other dominant players’ ability to impose price increases that Canadians would be forced to accept. The loss of a fourth carrier in Alberta, Ontario, and B.C. will be a serious blow to the mobile wireless market. As we’ve seen, the bigger a player is, and the less choice consumers have, the more power these players have to set high prices that hurt consumers. The loss of Shaw’s competition, combined with the CRTC’s recent decisions on access to infrastructure, means that Canadians are in for even higher communications bills. While Rogers has pledged to add 3,000 jobs after the merger, we can expect that there will be lots of job losses between the two companies [6]. When companies merge, they get cost savings by getting rid of redundant physical and human capital – there’s no doubt that many current Shaw and Rogers and employees will lose their jobs once the companies merge.
Given all of this, you’d think the merger wouldn’t be allowed to go through. But it will. The Canadian Radio-television and Telecommunications Commission (CRTC), Innovation, Science, and Economic Development Canada (ISED), and the Competition Bureau, will be responsible for reviewing the merger. The CRTC is responsible for approving a transfer of ownership of broadcasting assets, ISED will review how the Rogers-Shaw deal will impact the concentration of spectrum, and the Competition Bureau will review the merger to ensure adequate competition in the sectors the companies operate in [7]. In theory, the Competition Bureau has the most power to stop the merger.
The efficiencies defense in the Competition Act will allow the merger to go through. This clause states that if the cost savings from a merger are greater than or offset the competitive harm, then it can be approved. Rogers and Shaw have claimed that the merger will create a whopping one billion dollars in synergies a year, which will limit the Competition Bureau’s power to stop it [8]. It’s likely that by early 2022, the two companies will have merged, and Rogers’ market and political power will increase significantly. Price hikes to cover the costs of buying Shaw and investing in 5G infrastructure will surely hit customers not long after.
Of course, since this article was written, Canadians have borne witness to the inner turmoil of the Rogers family – and therefore, the “soap-opera” like drama of the Rogers Board [9]. To add salt in the wound, of course, because Rogers is a vertically-integrated conglomerate, their drama surpasses their communications products and taints their ownership of Toronto sports teams, as it has been leaked that Ed Rogers wanted to remove Raptors coach Masai Ujiri [10]. Should one company really be trusted to own this much?
If approved, the Rogers-Shaw merger will be another big win for the Big Three, and the concentration of Canadian network infrastructure will only increase. The power of these corporations hurts Canadians again and again. So how do we move forward? How do we take meaningful strides to ensure affordable, reliable connectivity for Canadians, regardless of where they live? The second half of this series will dig into the various policy options moving forward. First, we’ll review the government’s current approaches to bridging the digital divide through various broadband funding initiatives. Next, we’ll look at how community networks have helped various communities connect across North America. Then, we’ll examine a hot topic in the technology world: anti-trust and competition reform. Finally, we’ll conclude with an analysis of why any of this mattersanyway; why communication and connection are fundamental.
Shaw Corporate, “Rogers and Shaw to come together in $26 billion transaction, creating new jobs and investment in Western Canada and accelerating Canada’s 5G rollout,” March 15, 2021, https://newsroom.shaw.ca/corporate/newsroom/article/materialDetail.aspx?MaterialID=6442452489
Dwayne Winseck, “Media and Internet Concentration in Canada, 1984-2019,” Canadian Media Concentration Research Project Carleton University, 2020, p. 20, https://doi.org/10.22215/cmcrp/2020.2
Ben Klass, Dwayne Winseck & Bianca Wylie, “The Proposed Rogers-Shaw Merger Exposes a Deeply Flawed Internet Access Model,” Centre for International Governance Innovation, April 06, 2021, https://www.cigionline.org/articles/proposed-rogers-shaw-merger-exposes-deeply-flawed-internet-access-model/
Dwayne Winseck & Ben Klass, “The Great Reversal: Why the Rogers-Shaw Merger is a Raw Deal and Regulators Should Deny It,” Brief to INDU Committee, https://www.ourcommons.ca/Content/Committee/432/INDU/Brief/BR11324705/br-external/Jointly1-e.pdf
David Paddon, “Rogers’ $26B Shaw takeover will improve competition, telecom networks in Canada: execs,” The Canadian Press, March 29, 2021, https://globalnews.ca/news/7725917/rogers-shaw-deal-virtual-commons-committee/
Laura Tribe, “The Rogers-Shaw deal will raise prices, kill jobs and hurt working families,” The Toronto Star, April 01, 2021, https://www.thestar.com/opinion/contributors/2021/04/01/the-rogers-shaw-deal-will-raise-prices-kill-jobs-and-hurt-working-families.html
Jolson Lim, “Three federal regulators will review the Rogers-Shaw deal. Here’s how.” iPolitics, April 08, 2021, https://ipolitics.ca/2021/04/08/three-federal-regulators-will-review-the-rogers-shaw-deal-heres-how/
Robin Shaban, “Canada’s efficiencies defence may enable Rogers-Shaw merger,” The Globe and Mail, March 17, 2021, https://www.theglobeandmail.com/business/commentary/article-canadas-efficiencies-defence-may-enable-rogers-shaw-merger/
Chris Selley, “Chris Selley: Canadians are paying good money to enjoy this Rogers family meltdown,” October 27, 2021, National Post, https://nationalpost.com/opinion/chris-selley-canadians-are-paying-good-money-to-enjoy-this-rogers-family-meltdown
Ibid.