The Honourable François-Philippe Champagne Minister of Innovation, Science and Industry
Mr. Matthew Boswell Commissioner of Competition
I am writing further to my earlier letters and continue to use the defined terms from those letters. I will not repeat here what I have previously articulated, but will simply note that Rogers has presented you with a number of “solutions” for the 4th Carrier Business over the last few months that you have correctly identified as unacceptable.
Rogers’ latest proposal, a sale of Freedom Mobile to Quebecor Inc. (together with its operating subsidiaries, “Videotron”), is another in this series of ersatz remedies that – at a price that is nearly $1 billion dollars lower than the written offer they received from us – fails to address the anti-competitive consequences of the Merger, including elements of a solution that the Commissioner has expressly and publicly identified (most recently, that a sale of Freedom Mobile alone would not remedy the anti-competitive aspects of the Merger).
As you have no doubt observed, since the announcement of the Merger, Shaw has starved the Freedom Mobile business while running promotions that essentially give away mobile services to Shaw Mobile customers, with the result that Shaw Mobile has acquired almost half a million subscribers and Freedom Mobile has correspondingly shed hundreds of thousands of customers. Interesting, then, that the Videotron offer does not include the acquisition of the increasingly valuable Shaw Mobile business and that Videotron has in fact refused to acquire it, preferring to leave it in the hands of Rogers (an outcome the Competition Bureau has already denounced).
Leaving aside any possible machinations involving Shaw Mobile being used by Rogers to make an end-run around your pro-competitive measures, we are not particularly surprised that Videotron has refused to acquire Shaw Mobile. The additional capital that would be required for Videotron to acquire this increasingly important element of the business likely puts it out of their reach, given their current leverage and troubled capital markets. Furthermore, as a public company, Videotron has to report its average revenue per user (“ARPU”), a key metric affecting their share price, on a blended basis, such that the acquisition of the Shaw Mobile business would actually be a significant blow to Videotron. It is a good example of why a publicly-listed regional cable company cannot be permitted to acquire the 4th Carrier Business.
Globalive is not similarly constrained. Rogers’ assertion in the media that no party has offered to acquire Shaw Mobile is, frankly, ridiculous. Our March 11 offer made clear that we would willingly acquire more than just the Freedom Mobile business should the Merger approval require it. This was an important element of our offer since, like you, we have always held the view that the divestiture of the Freedom Mobile alone was unlikely to adequately address the anti-competitive effects resulting from the Merger.
We are (and have always been) prepared to acquire Shaw Mobile and to continue to offer bundled services to its 450,000 customers. Given statements by Rogers in the media, it is clear that Globalive is the only party prepared to satisfy these concerns. And yet, Rogers has consistently refused to engage with us, or our offer, up to and including the date of this letter, even going so far as to decline to sign their own form of “Confidentiality Agreement” with us when we agreed (despite highly unusual terms and associated risks) to sign it without any modifications. Since then, Rogers is just pretending that our offer does not exist.
Even if Videotron were to acquire Shaw Mobile, Videotron is incapable of providing the robust competition that the Canadian wireless sector desperately needs. This reality has already been noted by independent industry experts and widely reported in the media, and if a sale to Videotron is permitted it will become a hard reality, to the dismay and umbrage of Canadians in the Regions. One only has to look at the almost $1 billion difference between the offer Rogers has accepted and our all-cash offer to see how feeble a competitor Rogers expects Videotron will be outside of Quebec.
Videotron – yet another dynastic billionaire family-controlled regional cable company – has been single-mindedly focused on its home markets in Quebec since its inception. While Videotron has occasionally made noises about expanding beyond Quebec, and has loudly insisted on its eligibility for set-asides of spectrum outside of Quebec, it has never made good on those statements. Videotron has made no significant investment in new infrastructure or network building outside of Quebec and has deployed only 18% of its rural spectrum overall (and as little as 9% in some of its disfavoured, non-Quebecois markets). Instead of devoting the time and resources required to build networks and expand its business outside of Quebec, Videotron has cynically made hundreds of millions of dollars by acquiring set-aside spectrum (e.g., AWS, 700MHz, and now 3500MHz) that it had no intention of putting to competitive use, and quickly flipping that spectrum to fill its coffers for the next arbitrage (e.g. their spectrum sell-off in 2017), to the detriment of Canadian telecom customers outside of Quebec and in contempt of the Government’s pro-competitive policies.
Equally concerning, Videotron’s core fixed-line business in Quebec is an exposed flank that the Big Three could (and would) attack in order to discipline the 4th Carrier Business operating in the Regions. This is a long-standing (and entirely rational) strategy of the Big Three, dating back to the early 2000s when it was used to effectively pressure Microcell by attacking their customer base in Ontario and Quebec to retaliate against the launch of City Fido by Microcell in Vancouver, resulting in a significant increase in churn rate for Microcell in those markets. The relative incentives are so stark that it beggars belief that Videotron would invest the time, capital, attention and approach required to make the 4th Carrier Business a vigorous, effective competitor in the Regions, while its core business is attacked at home. Moreover, while a sale of the 4th Carrier Business to Videotron might result in some continuing or even heightened competition in a few product markets in Quebec, it would have no positive effect whatsoever in the Regions, and as such it cannot be a remedy for the Merger with respect to those markets.
Based on the foregoing, it is abundantly clear that Videotron’s sole focus in this matter must be and is to arbitrage the remedy requirements of the Merger. They must not be allowed to do so.
We commend the Commissioner and the Competition Bureau for the positions taken in opposition to the Merger and its rejection of a number of cynical and inadequate remedy proposals, which would in our view have been devastating to the competitive landscape in the Canadian telecom industry.
Whatever the result of the process under the Competition Act, however, we note that – fortunately for Canadians – the transfer of any spectrum licences is also subject to a separate and standalone requirement for approval from the Minister. This is because spectrum is a unique and finite resource that the Government is charged with administering on behalf of all Canadians. Unlike required approvals under other legislation, such as the Telecom Act, the Competition Act and the Investment Canada Act, the Minister’s approval to a spectrum transfer is not tied to technical legal tests (such as a substantial lessening or prevention of competition, net benefit, etc.) and technical exceptions (e.g., pursuant to the maligned “efficiencies” defence) and so, unlike those other approvals and exceptions, does not require the Government to limit itself to merely adjudicating whether a transaction meets a specific test.
Rather, the Minister has the sole and absolute discretion to approve only transactions that further the Government’s policy objectives with respect to this precious and finite resource. The Minister could save significant time and expense for all parties by simply reminding Rogers, who seems undeterred in pursuing remedies unacceptable to the Commissioner, of this fact (pending the previously announced consultation and review of the Competition Act, which has not successfully blocked a contested merger in its almost 40-year history).
Regardless of the outcome of the Competition Act process, we submit that the Minister must approve only the best possible transaction in regard to those policy objectives, and must reject the Merger unless and until Shaw and Rogers present just such a remedy transaction. They have yet to do so, and we trust that you will hold firm, on behalf of all Canadians, until they do.
Globalive Capital Inc., Anthony Lacavera, Chairman
cc: The Right Honourable Justin Trudeau, The Honourable Chrystia Freeland, and Simon Kennedy, Deputy Minister, ISED