Introduction

On 19 March 2021, the Standing Committee on Industry and Technology[1] (the Committee) adopted the following motion:

That pursuant to Standing Order 108(2), the committee undertake a study on the proposed acquisition of Shaw Communications by Rogers Communications; that the study consist of a minimum of 8 hours; that the clerk schedule witnesses for 1 hour panels; that opening remarks for witnesses be limited to 3 minutes; that the meetings take place during the Easter break weeks if possible; and that the committee report to the House as soon as possible after witness testimony has concluded.

Between March and April 2021, the Committee heard 28 witnesses and received four briefs for this study.

The Committee wishes to note that the context of this study changed after it adopted its motion in March 2021. The Committee was unable to “report to the House as soon as possible” because an election was called in the summer of 2021, dissolving Parliament and the Committee. The Committee restarted its study as early as possible in the 44^th Parliament, resulting in the presentation of this report. The Committee would also like to point out that the Canadian Radio-television and Telecommunications Commission (CRTC) issued two important decisions in the spring of 2021, after the Committee had finished hearing witnesses for this study. In April 2021, the CRTC announced the creation of a mobile virtual network operator (MVNO) regime.[2] In May 2021, it announced that it was changing course and reversing its August 2019 decision on wholesale rates.[3]

Background on the Proposed Merger

Proposal of Rogers Communications and Shaw Communications

On 15 March 2021, Rogers Communications (Rogers) announced in a news release that it is proposing to buy Shaw Communications (Shaw) for $26 billion.[4] During their appearance before the Committee, Joe Natale, President and Chief Executive Officer of Rogers, and Brad Shaw, Executive Chair and Chief Executive Officer of Shaw, described the benefits of the transaction. They explained that combining the two companies would increase the level and pace of investment across the country to meet the growing needs of Canadians. With more resources, they believe they could more quickly close the digital divide in Canada.[5] Mr. Natale said that Rogers wants to offer more choice in unserved regions and areas with only one telecommunications service provider (TSP).[6] In their view, the merger would create a stronger competitor, which would maintain the downward trend in prices.[7] It would also expand network coverage (cable, wireline, wireless, satellite and Wi-Fi) across the country and lead to the creation of a national fibre-optic network. Mr. Shaw said that all Canadians would benefit from the proposed transaction.[8]

Witnesses from Rogers and Shaw emphasized the need for their companies to work together. Paul McAleese, President of Shaw, asserted that, by itself, Shaw has too little investment capacity to meet Canada’s needs:

The best example of that is probably the rural and remote areas in B.C. and Alberta that are currently being served by fixed wireless, an asset that relies on a series of spectrum bands. This is a collection or portfolio of spectrum that we simply don’t have today. The 25‑year head start that the incumbents have had on this means that, while we have participated in the recent auctions, we simply don’t have the depth of spectrum to be able to provide that product to rural and remote B.C. and Alberta. What that means for many of those communities is that they simply have one carrier, a simple monopoly.[9]

Shaw pointed out in its brief that it has reached the limit of what can be accomplished in Canada by a competitor of its size.[10] Mr. Natale added, “Together we can go further and faster. [Telecommunications] is a business of scale.”[11]

The executives argued that the proposed merger would also speed up the deployment of fifth-generation wireless service (5G) in Canada. Mr. Shaw said that Shaw cannot invest enough to deploy 5G unless it merges with Rogers.[12] The combined TSPs would deliver 5G more quickly and widely across Canada.[13] Mr. Natale believes that Rogers could subsequently provide 5G to rural and remote regions more rapidly.[14] Furthermore, Rogers has committed to investing $2.5 billion to build 5G networks in Western Canada, which Mr. Natale said would enhance its competitiveness and more swiftly bridge the digital divide between urban and rural communities.[15]

Mr. Natale also explained what Rogers has promised to do if the merger is approved. Rogers would not increase the prices of Freedom Mobile services for three years.[16] The merger would create nearly 3,000 jobs in Western Canada, including 500 in Calgary to establish a national centre of technology and engineering excellence.[17] Mr. Natale noted that these would be net new jobs resulting from the expansion required to build out 5G and connect rural areas.[18] He also stated that Rogers would invest $1 billion to create a rural, remote and Indigenous community connectivity fund. Rogers would also consult with Indigenous groups to create new TSPs based in their communities. Finally, Rogers plans to extend its Connected for Success program nationally in order to provide affordable Internet packages.[19]

Overview of Concerns Raised

A number of witnesses expressed serious concerns about the proposed merger to the Committee. Some voiced outright opposition to the deal, arguing that no condition could outweigh the negative impacts of the merger, which include less competition and, consequently, higher prices for services.[20] They added that, if the government’s priorities are to foster competition and improve affordability, it cannot allow the merger.[21] Telecommunications service prices are already very high in Canada, and the merger would only make the situation worse.[22] The merger would therefore be a step backward relative to the government’s recent policies to promote competition and make services more affordable.[23] Moreover, some witnesses asserted that the merger would result in job losses, as Rogers is looking for efficiencies.[24] In short, as Matt Stein, President and Chief Executive Officer of the Competitive Network Operators of Canada (CNOC) argued, this transaction would benefit only Rogers and Shaw, not all Canadians.[25]

In addition to the competition issues raised by the merger, witnesses highlighted other problems in their briefs, including the following:

• One witness explained that only Freedom Mobile agreed to take part in the Toronto Transit Commission (TTC) subway wireless network. As a result, passengers can use the Freedom Mobile network to make 911 calls, even if they subscribe to a different TSP. The witness questioned whether the 911 service would still be available to TTC users following the merger if Freedom Mobile were to disappear;[26] and
• Some witnesses noted that the merger would give Shaw and Rogers access to a significant amount of personal data, raising serious market power, privacy and data protection issues.[27]

Witnesses also questioned whether Shaw has a genuine financial need to be purchased by Rogers. Dwayne Winseck, Professor at Carleton University, pointed out that, adjusted for its size, Shaw reinvests more of its revenue into upgrading its fibre and wireless networks than Rogers.[28] Jean‑Philippe Béïque, Chief Executive Officer of EBOX Inc., added the following:

Shaw, a $5.4‑billion company, claims that, without a merger, it will no longer be competitive. However, Videotron, a $4.3‑billion company, is prepared to invest to achieve the same position, without having the benefit of an existing wireline subscriber base in the western markets. What an ironic situation, one that serves the current interests of already powerful business people.[29]

Furthermore, although Mr. Natale said that “the true economic profit of Rogers over the last five years … sits at about 8%, on average,”[30] Mr. Winseck argued that the major incumbent TSPs, including Rogers, have maintained profit margins of 30% to 40% in recent years, which is four times the average for Canadian industry as a whole.[31]

Some witnesses were not totally opposed to the merger of Shaw and Rogers, but suggested putting conditions on the deal. These conditions included the implementation of an MVNO regime and the divestment of all Freedom Mobile wireless assets to a third party. Andy Kaplan‑Myrth, Vice-President of Regulatory and Carrier Affairs at TekSavvy Solutions Inc. (TekSavvy), said that this transaction underscores the importance of regulating and overseeing the telecommunications sector.[32]

Witnesses also expressed reservations about Rogers’s promises, noting that no accountability process could be established to ensure it follows through.[33] For example, one witness applauded Rogers’s commitment to invest $1 billion into a fund for rural communities, but could not be sure whether the company would fulfill this promise, showing the need for greater regulatory oversight.[34] Moreover, there is no way of knowing where the money would be spent or how success would be measured.[35] Other witnesses added that Rogers would undoubtedly be so heavily in debt after purchasing Shaw (in addition to its spending on the 3,500 megahertz (MHz) spectrum that happened in June 2021)[36] that it may not have the financial capacity to make the promised investments.[37]

Witnesses further questioned Rogers’s promise to freeze rates at Freedom Mobile for three years. Laura Tribe, Executive Director, OpenMedia, said that Freedom Mobile has been pushing prices lower, so if these prices were frozen, they would no longer influence the prices of competitors’ services.[38] Michael Geist, Canada Research Chair in Internet and E-Commerce Law, Faculty of Law, University of Ottawa, made the argument that promising to freeze prices for three years surely means that Rogers will raise them afterward.[39] Professor Winseck and Ben Klass, Senior Research Associate at the Canadian Media Concentration Research Project, stated that this promise was meaningless and that the brand would almost certainly be retired soon after the merger.[40]

Finally, witnesses outlined similar situations to show that the proposed merger should not be allowed. Professor Winseck pointed out that positive changes occurred in the industry in the United States (U.S.) after a merger between AT&T and T-Mobile was rejected:

Second, when we looked at the United States, they were faced with a similar merger in 2011 when AT&T, the number two provider, went for T-Mobile at the time. The U.S. Department of Justice said no, and what happened immediately afterwards? T-Mobile doubled down on its maverick strategy by offering more affordable pricing plans and much more generous data allowances, and by doing something completely unheard of but that would be certainly welcome in Canada, offering “roam like home” deals to T‑Mobile subscribers that allowed them to roam in over 100 countries around the world without any extra bolt-on of $10 or $15 a day.[41]

In 2018, a merger nonetheless took place between T-Mobile and Sprint. Rogers stated that the Federal Communications Commission had recognized the competitive benefits of this merger, which would expand overall network capacity and strengthen the incentives for TSPs to innovate.[42] However, in their brief, Professor Winseck and Mr. Klass argued that this merger was a “disaster” and that it reversed the downward trend in mobile wireless prices in the U.S.[43]

Witnesses also discussed the 2016 merger of Bell and Manitoba Telecom Services (MTS). They pointed out that Bell had made the same promises as Rogers is making now, yet the outcome was higher prices, less competition and job losses.[44] Professor Winseck noted that, as part of that merger, some of MTS’s assets had been transferred to Xplornet in order to foster competition, but the results have been disappointing.[45] However, Jean‑François Pruneau, President and Chief Executive Officer of Vidéotron ltée, said that this transaction showed that mergers need specific regulatory frameworks. In his view, the mistake was not to impose conditions on the transfer of assets to Xplornet and TELUS, which could have produced viable and lasting competition.[46]

Lastly, some witnesses remarked that the federal government’s decision on this merger will reveal what kind of society it wants Canada to be. Mr. Klass explained:

a lot of it turns on a decision about what sort of economy and society we want to have. Do we want to have large powerful champions that we hand a tremendous amount of power to and then put a lot of trust in, or would we prefer to see a more decentralized competitive environment that is operating according to the sorts of pressures exerted by a marketplace?[47]

Professor Geist said that the federal government’s decision on this merger will set the tone for the telecommunications sector for years to come. If the deal goes forward, it will show that mergers are possible, as two major ones will have taken place within a few years. Other competitors, such as SaskTel, will then become takeover targets. But if it does not, the government will send a message that consumers and competition take priority in Canada.[48]

Competition Issues in the Telecommunications Sector

The Competition Bureau and Competition Act

The Commissioner of Competition, Matthew Boswell, appeared before the Committee to explain the Competition Bureau’s (CB) role in reviewing the proposed transaction. He explained that the CB will assess whether the merger would substantially reduce or prevent competition. Mr. Boswell said that the review focuses on market power: the CB evaluates a merger’s impact on prices and other factors such as quality, service and innovation. As part of its review, the CB collects evidence from a variety of sources. Mr. Boswell explained that, if he determines that the transaction will reduce or prevent competition, he can apply to the Competition Tribunal for an order to dissolve or alter the merger. He can also avoid going to the Tribunal by negotiating an agreement with the parties involved. As of April 2021, he could not say how long it would take to review the proposed merger, as timelines vary from case to case.[49]

Mr. Boswell spoke about the CB role and resources after announcing a decision on a merger. He explained that the CB monitors compliance with consent agreements, but does not have the resources to assess their effectiveness retroactively. He pointed out that the Competition Act includes a limitation period that prevents the CB from taking action one year after announcing a decision.[50] Moreover, Mr. Boswell said that, in any event,

we simply don’t have the resources to conduct after-the-fact assessments of our merger remedies. The resources we have are going full out on current mergers, which we are tasked with reviewing under the law.

Second, we don’t have powers in the Competition Act to compel the necessary information and data from parties in the marketplace in order to properly assess the effectiveness of a prior remedy.[51]

He also noted that such a limitation period does not exist in the U.S., so regulators there can reopen a case after more than a year, which has occurred in the past.[52]

In light of these issues, Mr. Boswell underlined the importance of a comprehensive review of the Competition Act.[53] Because the law as it stands does not require the parties to provide the data and information necessary to adequately review the effectiveness of a prior remedy, he would like to establish a remedies unit, a centre of expertise that follows up on consent agreements.[54] Mr. Boswell believes that the law should be thoroughly examined to identify potential amendments that would better account for the digital and data-driven economy. Canada’s trading partners are already doing this. Mr. Boswell further believes that the standard for a merger review should be reconsidered, including “whether there ought to be presumptions in Canadian law with respect to mergers and parties then have to rebut those presumptions.” He added that a large number of issues need to be addressed.[55]

During his appearance, Mr. Boswell discussed the implications of the efficiencies exception in section 96 of the Competition Act for the proposed merger. He explained that this section provides the following:

where efficiency gains are likely to be brought about by the merger and are greater than and offset the anti-competitive effects, that will carry the day, and even if there is a finding of substantial lessening and prevention of competition, the merger will be allowed to proceed.[56]

As a result, this provision enables “an otherwise anti-competitive merger to go forward based on efficiencies.”[57] Mr. Boswell stated that, if Rogers and Shaw use this exception, they would have to prove the efficiencies and the CB would need a lot of time to carefully examine the evidence provided.[58] Finally, Mr. Boswell said this provision has been controversial both here and abroad since it took effect in 1986 and that he believed it would be worthwhile for parliamentarians to debate it.[59]

Witnesses said they were worried that Rogers is quite likely to use this exception to justify the merger. Robin Shaban, Co-founder and Senior Economist, Vivic Research, believes that Rogers will employ the exception to gain approval for the deal because, in its announcement, it emphasized that the merger would generate $1 billion in synergies and efficiencies annually.[60] She explained: “If their claim is truthful, then the bureau may be unable to take any action to protect competition in telecommunications markets.”[61] Ms. Tribe added that, if the companies are looking for efficiencies, no jobs will be created. Accordingly, she wondered what types of jobs Rogers promises to create. Moreover, OpenMedia has received many letters from Canadians who are concerned about the merger’s employment impacts.[62] Ms. Shaban pointed out that only the CB and the members of the Competition Tribunal can determine whether Rogers’s claims are true.[63]

A number of witnesses criticized the efficiencies exception in the Competition Act, arguing that it is contrary to the interests of consumers. Ms. Shaban offered the following explanation:

It’s important to have efficiency as part of the mandate of competition policy. In that sense, it would make sense to retain some of that goal in any revisions to the Competition Act.

The problem with the efficiencies defence is that it’s very structured in the way it forces the Competition Bureau and the Competition Tribunal to assess efficiencies. It pits consumer interests against those of businesses and gives preference to businesses.

As our economy evolves and we move towards a more digital age, the philosophy underpinning the efficiencies defence isn’t really that relevant.[64]

In addition, Mr. Kaplan‑Myrth said the CB “must be vigilant in protecting the consumer and competition from abuses of market power.” He further noted that “the efficiencies defence only works if the Bureau ensures that parties with market power don’t abuse their dominance and use these efficiencies to squeeze out competitors.”[65]

In view of the economic situation in Canada, witnesses questioned the merits of using the efficiencies exception for this merger. They pointed out that Canada is the only country in the Organisation for Economic Co-operation and Development (OECD) with such a provision.[66] Ms. Shaban explained that a few small countries (such as Malta and Barbados) have this kind of exception, probably to help their businesses grow enough to be internationally competitive.[67] However, Canada is the eighth-largest wireless market in the world, valued at $29.2 billion.[68] Accordingly, there is no reason for companies to have access to the efficiencies defence.[69] Ms. Shaban said that applying this provision to businesses that genuinely plan to engage in international trade would be at least somewhat logical, but this does not seem to be true of Rogers.[70]

In arguing against the exception, Ms. Shaban cited the case of Superior Propane’s acquisition by ICG Propane in the 1990s. She explained that this transaction was approved because of the efficiencies exception, even though forecasts indicated that it would increase the retail price of propane by about 8%. The outcome of this merger was a monopoly in 16 communities across Canada.[71]

Consequently, witnesses argued that the efficiencies exception, as set out in section 96, should be repealed, as it does not benefit Canadians. Ms. Shaban remarked that there may be “a way to imbue the act with a frame of efficiency, but the way that provision is structured is not conducive to creating equitable economic outcomes.”[72] John Lawford, Executive Director and General Counsel, Public Interest Advocacy Center, pointed out that the exception is a standalone provision in the Competition Act and could therefore be deleted without any other impacts.[73] Ms. Shaban added that Canadian merger laws are generally not designed to protect consumers, as the Superior Propane merger shows.[74] She does not believe the CB has the tools necessary to serve the interests of consumers.[75]

Lastly, Geoff White, Director, Legal and Regulatory Affairs, CNOC, voiced concerns about this discussion. He asserted that, while the problems with the Competition Act are important, they should be considered separately from the merger at hand. For example, while he also considers the exception in section 96 of the Competition Act problematic, Mr. White did not agree that it is critical to the Rogers–Shaw merger. He explained that, although he believes the efficiencies defence is “awful,” if the government attempts to change the law to prevent this merger, years of challenges will result.[76] In his view, the CB has the resources and “all the remedies it has and needs to deliver the right outcome for Canadians.”[77]

Regulation of Competition

A representative of the CRTC explained the organization’s role in reviewing the proposed merger. Ian Scott, Chairperson and Chief Executive Officer of the CRTC, said that one component of Shaw’s operations that will be examined as part of the proposed transaction is its telecommunications businesses (wireless and Internet). However, under the Telecommunications Act, transactions involving telecommunications services do not require the CRTC’s approval, except to ensure that the company remains under Canadian control. Mr. Scott added that, while the CRTC has a limited role in the telecommunications aspect of a proposed merger, it nonetheless conducts ongoing oversight of TSPs to ensure the services provided are consistent with the objectives of the legislation.[78]

During the study, the witnesses discussed the CRTC’s role in the merger, particularly in supporting a competitive telecommunications sector. One witness said the CRTC has the tools it needs to manage the merger.[79] Professor Geist expressed concern that the CRTC is not making consumers the priority as it reviews the merger, which it has not always done, in his view.[80] Other witnesses asserted that the CRTC should show “regulatory fortitude” and implement policies that support service-based competition, such as wholesale rates, an MVNO regime and regional competitors.[81] Mr. White argued that a number of provisions of the Telecommunications Act, including sections 7 and 27, give the CRTC clear strategic direction to regulate the telecommunications sector by putting Canadian consumers first.[82] Finally, witnesses stated that, despite efforts to support competition, progress remains fragile and slow by international standards.[83]

Some witnesses took diametrically opposed positions on the way they hope CRTC regulatory policies will change. On the one hand, Shaw argued that, given technological change, Canada needs new policies. It stated that the CRTC has created regulatory uncertainty with its 2019 announcement of new wholesale rates and its consultations on the MVNO regime. Shaw advocated that CRTC policies instead support TSPs that own facilities.[84] On the other hand, one witness asserted that efforts to introduce new competitors in recent years have failed and that policies to promote competition have only strengthened the position of the incumbents. The witness concluded as follows: “Repeating these attempts will repeat the same outcomes. The box has failed. It is time to think outside of the box.”[85]

Despite these concerns, Rogers and Shaw maintained that competition in Canada’s telecommunications market is adequate. Rogers argued that the Canadian market is highly competitive; prices have fallen a great deal in recent years.[86] In its brief, Rogers stated that the two companies’ networks have little overlap and that the proposed merger would therefore not reduce competition in Canada.[87] In response to a question on the transaction’s impact on competition in the telecommunications sector, Rogers stated that government bodies are responsible for assessing these issues.[88] It added that consumer interests would be protected by the expansive oversight of the CB, the CRTC and Innovation, Science and Economic Development Canada (ISED).[89]

Rogers and Shaw both argued that the proposed merger would increase competition in Canada. They explained that, by creating a TSP large enough to take on Bell and its alliance with TELUS, this merger would spur competition.[90] In its brief, Rogers stated that the merger announcement had already sparked investments from Bell, TELUS and SaskTel.[91] Mr. Natale remarked that, even after combining with Shaw, Rogers would still be smaller than Bell in terms of wireline services.[92] Mr. McAleese said that “a dynamic, competitive environment reduces prices.”[93] Mr. Shaw added that the merger is “going to drive [competition] in a way that is terribly exciting for Canadians.”[94]

Other witnesses were not as optimistic about competition in Canada’s telecommunications sector. One witness said that, even though the two companies are not competing in every region, what one does still affects the other.[95] Witnesses expressed concern that the merger would make Rogers too large. Professor Winseck and Mr. Klass explained in their brief that the CB data show that a business with at least 35% market share has the ability to “‘unilaterally exercise market power.’” They reported that the merger would give Rogers a national market share greater than 35%.[96] A number of witnesses stated that prices would rise if Rogers were to grow that large.[97]

Witnesses also shared their concerns about the state of wireless services in Canada. Mr. Klass noted that Canada has had the lowest rate of adoption of wireless services among OECD countries for over a decade, owing to their prohibitive cost.[98] Regional TSPs such as Shaw and Freedom Mobile have helped reduce costs and have raised data caps in recent years. Yet the proposed merger would eliminate Freedom Mobile, increasing concentration in the wireless services industry and reversing the improvements of the past few years.[99] Professor Geist argued that the merger highlights a serious failure of wireless services policy. He gave the following explanation: “Successive governments have pledged to address high wireless costs, but have often instead taken half-measures or even backtracked at opposition from the incumbent providers.”[100]

Supporting Regional Telecommunications Service Providers

Witnesses discussed the importance of regional TSPs, which are often viewed as the fourth TSP in some regions.[101] Pierre Karl Péladeau, President and Chief Executive Officer, Quebecor Media inc., explained that the CB data show that the fourth TSP in Quebec (Videotron) enables Quebeckers to enjoy up to 40% lower prices than other Canadians.[102] Mr. Lawford noted that, following a merger in Austria that brought the number of TSPs down from four to three, prices rose 95%.[103] Moreover, according to the CRTC, wireless services prices are lower in regions with a fourth TSP or an independent TSP with a market share of 5% or more. Freedom Mobile has become a major TSP in Alberta, British Columbia and Ontario, where its revenue share is nearly 6%.[104] Professor Geist said he is convinced that the loss of the fourth player would decrease competition in Canada and lead to higher prices.[105]

According to Shaw and Rogers, even if the merger were to eliminate a fourth TSP, this would not harm competition in Canada. They argued that healthy competition is not measured by the number of competitors but by their strength and the way the market performs.[106] Shaw pointed out that the number of mobile telephone competitors is lower today than 10 years ago, yet the competitive intensity of that market has increased.[107] Furthermore, Rogers cited independent academic studies showing there is no optimal number of TSPs.[108] Professor Winseck and Mr. Klass questioned the credibility of these studies, pointing out that only one of them is a published, peer‑reviewed study.[109] They added that, while there may be no magic number of TSPs to have a competitive market, the literature does show that having four TSPs is desirable, if not optimal.[110]

Stakeholders explained that the proposed merger shows how costly it is to be a regional TSP in Canada. Mr. Lawford made the following comments regarding Shaw:

It’s also, unfortunately, showing the difficulty of mounting a full attack and being a fourth player in Canada. I think it’s tiring and it takes a lot of capital, and even with all the advantages they have of being a big, strong cable, they’re feeling the heat.[111]

He added that, “at the end of the day it’s about money, it’s a big deal, and they’re [the Shaw family] probably just cashing out.”[112] In addition, Mr. Péladeau reported that, when Videotron wanted to invest to become the fourth player in Quebec, it had to spend $500 million on spectrum licences in 2008 and over $2 billion to build its own network.[113]

In light of the concerns about the loss of a fourth TSP, some stakeholders suggested that Shaw’s wireless assets (Freedom Mobile) be divested as a condition of approving the merger, in order to create another competitor.[114] Some witnesses proposed that the CRTC set up an MVNO regime and that Freedom Mobile’s assets be transferred to one or more MVNOs.[115] Mr. Stein said that, without an MVNO regime, the bare minimum would be divestment of all Freedom Mobile assets to a party committed to service‑based competition.[116] Mr. Péladeau said the merger could benefit consumers if Shaw were to sell Freedom Mobile.[117]

However, Professor Winseck did not think this strategy would do enough to offset the negative consequences of the merger. He argued that it makes little sense to destroy one TSP only to create others:

First, trying to create an imaginary, new fourth competitor to replace one that’s already existing is a fool’s errand. We’ve already seen that with the Bell MTS deal. The fourth competitor just hasn’t gotten off the ground, and it’s been a complete failure. I’m referring to Xplornet here.[118]

Another witness added the following point:

The fact that Shaw, despite being a very solid incumbent, is throwing in the towel says a lot about its hopes to grow Freedom or any hopes of seeing a true competitor emerge in an environment where only facilities-based competition is allowed.[119]

Some witnesses do not believe the federal government should focus solely on the fourth player. Mr. Kaplan‑Myrth explained that, with only four players, the sector is always one merger away from a collapse of competition. He argued that the fourth player helps lower prices, but does not provide for robust competition. The government therefore needs to encourage multiple forms of competition.[120] Mr. Kaplan‑Myrth also noted that the fourth-TSP strategy leads to overbuilding, as it encourages companies to build rather than share network infrastructure.[121] He advocated an approach that supports service‑based competition and enables multiple independent TSPs to enter the market. Mr. White added that “the fourth player model is clearly broken. We need a full, open, wholesale access model. The CRTC currently has the tools for it.”[122]

Supporting Independent Telecommunications Service Providers

Given the important role that independent TSPs can play, some witnesses highlighted the need for an MVNO regime in Canada,[123] especially if the merger is approved.[124] Mr. Béïque said that only an MVNO regime can provide for sufficient competition and affordable prices.[125] If this model were adopted in a broad and completely open way, it would enable more dynamic competition and reduce consolidation in the telecommunications sector, as it would allow for more than three or four main TSPs.[126] Mr. Béïque added that government policy must establish this regime because, in his experience, negotiating with the incumbent TSPs to share their mobile networks is impossible.[127] According to Mr. Lawford, creating an MVNO regime would dampen the anti-competitive impacts of approving the merger.[128] One witness expressed reservations about this statement, pointing out that such a regime would take at least several years to set up.[129]

Mr. Béïque also said that regulating MVNOs to create market discipline is the only way of ensuring robust competition. However, he did note that the following is necessary to ensure the regulations function properly:

That means restrictions are needed to prevent the dominant players from using their power, for example, discount brand competitors owned by big companies, which very often price their services close to regulated rates in the hope of choking off the competition. To quote a popular saying, it takes a parasite to know one.[130]

However, Mr. Péladeau disagreed that MVNOs can improve competition in Canada enough to justify implementing a regime as a condition of approving the merger. He argued that an MVNO regime could not overcome the impacts of the deal. In his view, independent TSPs do not have the same impact on the market as TSPs with their own facilities, as they do not have the means to innovate. Mr. Péladeau said that he spoke from experience, as Videotron itself started as an MVNO.[131] Mr. Béïque rejected this argument, stating that independent TSPs invest “tens of millions of dollars in [their] customer experience, transport network and data centres, as well as the in-house development of digital TV software … proportional to the company’s size.”[132] Furthermore, Mr. Kaplan‑Myrth pointed out that TekSavvy is proof that investments and competition are both possible.[133]

Supporting Foreign Competition

Some witnesses lamented the rigid rules on foreign companies that prevent them from setting up in Canada and boosting competition in the country’s telecommunications sector. Professor Winseck and Professor Geist said Canada should be open to American companies entering the Canadian market and eliminate all barriers in this regard.[134] According to Professor Winseck, Canada has overly strict foreign ownership rules. He remarked that Canada has “some of the most restrictive foreign ownership rules in the world. The last time I checked on this, South Korea was the only country in the OECD that had more restrictive rules than Canada.”[135] Professor Geist explained that Verizon had tried to enter Canada, but “saw enormous opposition from the big three and just decided Canada wasn’t worth their while. There were other places where they could make money without having to fight three large incumbents.”[136]

Professor Geist also discussed ways of making it easier for foreign companies to set up in Canada. Examples include removing the caps on controlling a Canadian entity and considering whether to maintain the current restrictions on broadcast ownership.[137] He noted the following:

opening up the market fully so that a company could think about entering—potentially not just with those assets, but with some of the larger assets as well—might provide at least someone with the perspective that this is an attractive enough market. From a consumer perspective, bringing in that kind of pricing power, that sort of roaming ability on a global level, opens the door, I think, to opportunities that Canadians don’t experience, but consumers in many other countries do.[138]

Ms. Shaban pointed to a further issue respecting the size of Canadian companies. She explained that, if Canadian businesses become too large because of the efficiencies defence, foreign companies will not be competitive in the Canadian market.[139]

Considering Various Types of Competition

Lastly, in examining policies to support competition in the telecommunications sector, it is important to identify which kind of competition is being sought: service-based competition or facilities-based competition. Mr. Kaplan‑Myrth explained that discussions on promoting competition often centre on the end-user experience and therefore on service choice and prices. These issues fall into the category of service-based competition. However, when Rogers and Shaw discuss building networks and making efficiency gains, they are referring to facilities‑based competition. Mr. Kaplan‑Myrth emphasized the following:

These are definitely important issues of competition, but they’re different. As you develop policies and you think about what safeguards need to be put in place to protect competition, it’s important to distinguish what kind of competition you’re talking about so that the policies achieve the ends you’re trying to meet.[140]

When the government makes policies and takes measures to foster competition, it needs to determine which type of competition it is pursuing in order to achieve its goals. According to Mr. Kaplan‑Myrth, the merger of Rogers and Shaw will not lead to the kind of competition that produces better services and more affordable prices.[141]

In view of these issues, witnesses proposed structural separation. As noted earlier, TSPs often build networks and deliver services, but these are two distinct kinds of business.[142] Mr. Stein explained that this model would allow for service-based competition:

What you’re referring to, when you talk about splitting up the major telcos, is structural separation, separation where the infrastructure… I referred earlier to the infrastructure owners. The underlying infrastructure is owned by one company and the retail operation—the brand, the customers and so forth—is in another. By setting it up that way, as has been done in some other countries around the world, very large economies, the retail body ends up buying on well understood and well disclosed terms from the infrastructure body, but at the same time, other retailer bodies can do so at the same rate, with the same tools, with the same prices, with the same timelines and so forth.[143]

A witness argued that this approach is needed and would enable wholesale services to be sold and give incumbent TSPs the incentive to focus on that business. Under this model, ISED could divide spectrum licences among facility based TSPs, reducing their cost for TSPs and speeding up spectrum distribution.[144]

Other Issues in the Telecommunications Sector

Spectrum Management and 5G Deployment

As part of the review of the proposed merger, ISED assesses and approves the transfer of commercial spectrum between the parties. Mr. Scott explained that the CRTC has no role to play in approving transfers of ownership or spectrum, except to ensure they remain under Canadian control (pursuant to foreign ownership rules).[145]

Éric Dagenais, Senior Assistant Deputy Minister of the Spectrum and Telecommunications Sector at ISED, explained that the review of spectrum licences is guided by the Framework Relating to Transfers, Divisions and Subordinate Licensing of Spectrum Licences for Commercial Mobile Spectrum, which supports the government’s policy objective “to maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource, including the efficiency and competitiveness of the Canadian telecommunications industry and the availability and quality of services to consumers.” He explained that, to assess the potential impacts of a licence transfer on this objective, ISED analyzes factors such as the resulting changes in spectrum concentration. Its determination is based on the following issues, among others:

the current licence holdings of the applicants in the licensed areas; the overall distribution of licence holdings of all commercial mobile spectrum bands; the services to be provided and the technologies available in the spectrum bands; the availability of alternative spectrum; the characteristics of the region, including urban and rural status, population levels and density or other factors that impact spectrum capacity or congestion; and, any other factor relevant to the policy objectives that may arise from the licence transfer.[146]

Witnesses raised concerns about the spectrum licences that Shaw has acquired in recent years through set-asides. To foster competition, ISED sometimes sets aside licences for regional competitors during spectrum auctions. ISED explained that Shaw obtained some licences that were set aside during the 2019 spectrum auction and that one of the conditions on them was that they not be transferred to incumbents for a period of five years.[147] Mr. Péladeau proposed that Shaw’s spectrum be transferred to another regional TSP if the merger goes through.[148]

Mr. Dagenais explained that ISED follows up after awarding licences. For example, it checks whether licence holders are complying with the deployment conditions on the licences they acquire every five years for the entire life of the licence, which is generally 20 years. He added that ISED can take away licences if the conditions are not met. Asked whether ISED has ever taken any licences away, Mr. Dagenais replied, “We have already had several discussions with Internet and telecom service providers regarding deployment conditions…. Generally, the problem was resolved afterwards.”[149]

Witnesses also shared their concerns about the 5G auction scheduled for June 2021. This auction allocated 200 MHz of the 3,500 MHz band for flexible use licensing in Tier 4 service areas.[150] As of March 2021, the participants in this auction were unknown, and witnesses were worried about Shaw’s involvement if the government did not make a decision on the merger before the auction. Some witnesses proposed delaying the spectrum auction until a decision on the deal has been made.[151] In April 2021, ISED published the list of applicants for the auction; Rogers was on the list, but not Shaw.[152]

The witnesses also discussed the deployment of 5G in Canada. Rogers stated that providing 5G service in Canada will be very costly. According to PricewaterhouseCoopers data cited by Rogers, 5G infrastructure is expected to cost telecommunications operators between 39% and 71% more than 4G owing to the need to deploy many small cells.[153] According to Rogers and Shaw, the merger would speed up this deployment thanks to economies of scale.[154] They also argued that, by itself, Shaw would not have the financial means to invest enough in building out 5G.[155] Quickly rolling out 5G in Canada is vital to the country’s competitiveness.[156] Lastly, Rogers stated that, by bringing down the costs of deploying 5G, the company could pass these savings on to its customers.[157]

Witnesses did not agree with this statement. They pointed out that Rogers and Shaw did not say how much each would spend on deploying 5G if they did not merge.[158] Some witnesses also argued that a merger is not the only way to deploy 5G in Canada: Rogers and Shaw could work together and share their networks or their fibre, as Bell and TELUS do already.[159] In addition, while they accept that providing 5G service in Canada is important, many stakeholders said that rural and remote regions would still be a long way from seeing this technology, as it would be rolled out in the major cities first.[160]

Rural Connectivity

Considering Rogers’s announcements of potential investments in rural and remote regions, the witnesses discussed the high cost of building telecommunications infrastructure in rural areas. Rogers explained that the cost of providing services varies by region:

The challenge is strictly one of economics. To connect a home in urban Canada costs about $3,500. To connect a home in suburban Canada may cost about $5,000 to $10,000. To connect a home in rural Canada can cost $15,000 to $100,000.[161]

Rogers stated that Canada is one of the most challenging countries in the world to cover with network technology.[162] Shaw asserted that, given the high cost of connecting rural and remote regions, joining forces with Rogers and creating economies of scale would free up more resources for these regions and bring “an equality of opportunity to currently underserved Indigenous, remote, and rural communities.”[163]

However, witnesses questioned the premise of financing rural connectivity through the proposed merger. They said that, even if the transaction were approved with conditions, it is Canadians who would pay to connect rural areas by accepting a merger that hurts the telecommunications market.[164] Professor Geist described the problem as follows: “We need that connectivity, but funding it through a harmful merger is not the right way to do it.”[165]

Some witnesses also expressed reservations about the promises Rogers and Shaw made to rural regions. Jim Wood, Mayor, Red Deer County, said he communicated with Shaw briefly after the merger was announced but does not believe the company would improve rural connectivity.[166] Other witnesses said that regions that were not profitable before the merger would not be any more profitable afterward. TSPs improve their services in a given region only if it makes financial sense to do so.[167] Ms. Tribe pointed out that the size of a company does not change its financial incentive to build infrastructure in these areas.[168] Furthermore, Professor Winseck said that, while Rogers seems to want to improve wireless connectivity in rural regions, many residents of these regions would prefer to have access to fibre.[169]

Moreover, in their joint brief, Professor Winseck and Mr. Klass noted the following:

as these communities try to build their own networks, they face endless obstructionist tactics from incumbents rather than willing and reliable partners (as the public record for the CRTC’s (2019) Rural Broadband Barriers inquiry shows). We should cast a wary eye on claims that a merged Rogers and Shaw will solve problems that they have each helped to create and perpetuate over decades.[170]

Additionally, Jay Thomson, Chief Executive Officer, Canadian Communication Systems Alliance, was troubled by Rogers’s interest in providing services in small or rural communities where a TSP is already operating. He pointed out that, if these communities already have a TSP, it usually means they obtained government assistance for that purpose. He commented as follows:

What Rogers is now seeming to propose is that it’s going to overbuild in communities where the government has already been in to support the building of broadband. That doesn’t seem to us to be a good use of available resources and good public policy to be overbuilding against what taxpayers have supported building already.[171]

Finally, some witnesses argued that the lack of rural connectivity is a direct result of the lack of competition in those regions. Mr. White said that telecommunications prices are not a function of population density but of the number of TSPs in each region. He noted that independent TSPs charge 5% to 35% less.[172] Mr. Béïque pointed out that, in Abitibi, retail prices fell up to 50% when Videotron and EBOX entered the market.[173] Mr. Kaplan‑Myrth said that networks in underserved regions would be built faster if Canada’s broadband plan included competition by design.[174]

To address the problems with rural connectivity, some witnesses proposed that the government provide funding to deploy shared infrastructure in these regions. Mr. Wood said this support is “absolutely necessary.” He continued: “Legislation will also be needed to ensure that telecommunications companies share assets better, avoid duplication and reduce costs.”[175] Ms. Shaban said the federal government could also create incentives for communities to develop their own networks, as some regions will never be profitable.[176] For example, Red Deer County in Alberta was tired of waiting for services, so it invested in its own open fibre-optic network. It partnered with a TSP that will be profitable despite not having total control over the market. Mr. Wood reported that this approach has resulted in better and more affordable services than those available in Alberta’s major cities.[177]

Lastly, the provision of targeted funding would prevent overbuilding of networks and infrastructure. Mr. Stein explained that it would never be profitable for multiple competitors to build their own wireless networks and fibre-optic networks, especially in rural and remote regions.[178] Mr. Wood pointed out that no one builds multiple roads next to one another; a single road is shared, and the same should be true of telecommunications infrastructure.[179] He said that, if the network were open to all, the arguments for the merger would no longer be valid, as fewer funds would be needed to build the required infrastructure.[180]

Broadcasting Issues

Mr. Scott explained the CRTC’s role in reviewing Shaw’s cable and satellite television and video-on-demand businesses. Under the Broadcasting Act, the CRTC must approve the transfer of ownership of broadcasting assets. Mr. Scott said that, as of 7 April 2021, the CRTC was waiting for all the parties to file documents in order to start its review. He added that the CRTC would publish a notice of consultation outlining the various issues arising from the proposed transaction[181]. He remarked that, at first glance, the diversity of voices appears to be the main broadcasting-related issue stemming from the merger, as Canadians need to have access to local and community television programming.[182] Mr. Scott also stated the following: “We generally are not prepared to allow one person—one company—to control all television service providers in any given geographic market.”[183] Finally, he clarified that, in making its decision, the CRTC can use only the documentation and evidence it receives during the consultations.[184]

Some witnesses presented their respective views on this aspect of the merger. Mr. Natale and Mr. McAleese stated that the merger would not eliminate competition in the broadcasting sector because Shaw and Rogers have complementary, rather than competing, networks.[185] Professor Winseck and Mr. Klass said that, while Shaw and Rogers have monopolies in Western and Eastern Canada, respectively, Canada’s regulatory bodies have let them “set the terms of the landscape” for the past 25 years, which shows their impact on competition in the sector.[186]

Witnesses raised concerns about the broadcasting assets of Shaw and Rogers. One witness said the proposed merger would affect Canada’s television, film and cultural sectors.[187] Professor Winseck and Mr. Klass noted that the country’s television services are already heavily vertically integrated. As a result, this merger could have major repercussions on independent producers and providers, as it would reduce the number of distributors, which is already down to four in Canada[188]. According to Mr. Thomson, if the deal is approved, Rogers will become even bigger and could use its size to “squeeze smaller cable companies for higher carriage rates for its services, as well as for other concessions”, leading to higher prices and less choice for Canadian living in rural areas. He added that, without the CRTC’s safeguards (already weakened by the influence and size of large TSPs), “Rogers could use its expanded Internet size to favour itself with exclusive access arrangements for its online sports service, Sportsnet Now.”[189]

Witnesses also voiced concerns about Corus in particular. Professor Winseck and Mr. Klass noted that Shaw still holds a major portion of Corus, the country’s second‑largest television company (Rogers ranks third). Corus is also the third-largest commercial radio ownership group in Canada (Rogers ranks second).[190] In their briefs, multiple witnesses mentioned that the merger would give Shaw a seat on the Rogers board of directors, which could cause problems because Shaw would still control Corus while influencing Rogers’s assets.[191] Mr. Thomson argued that the Broadcasting Act needs to confirm the CRTC’s authority to protect consumers, or cable prices will increase and choice will diminish.[192]

Observations and Recommendations

In light of the evidence heard during this study, the Committee is deeply troubled by the current state of competition in Canada’s telecommunications sector. Given its already fragile condition, the Committee is especially worried about competition in this sector being affected by the proposed merger. Most witnesses raised serious concerns about the proposed transaction, particularly its effects on competition in Canada and, in turn, on the affordability and accessibility of telecommunications services. The Committee believes these concerns are valid and hopes they will be carefully considered by the various government bodies involved.

The Committee is puzzled by the arguments of Rogers and Shaw. Rogers has linked a number of commitments to the merger that the government has no way to enforce. The Committee therefore doubts Rogers’s promises to rural regions, as the size of a company does not change the profitability of a region. Furthermore, between December 2020 and March 2021, Shaw has made some rather contradictory statements. In its brief to the Committee of 18 December 2020, Shaw stated that

regional facilities-based competitors – Shaw, Videotron, and Eastlink – are rapidly disrupting the dominance of the Big 3 – Rogers, Bell, and Telus – and driving unprecedented levels of affordability and choice for consumers.[193]

It added that “Freedom’s entry has shifted the market dynamics, causing the Big 3 to drastically reduce overage fees and offer significantly more data for much lower prices.”[194] Yet, only a few months later, in its testimony to the Committee in March 2021, Shaw emphasized the value of the merger for Canadians and attempted to qualify the statements in its brief. In short, the Committee was not convinced by the arguments of Rogers and Shaw regarding the merits of the proposed merger.

During this study, as was the case with the Committee’s study on the affordability and accessibility of telecommunications services in Canada (report presented in June 2021), witnesses raised the option of structural separation in the telecommunications sector as a way of solving many of its problems. Structural separation would limit overbuilding and enable governments to target their investments to build the missing infrastructure in rural and remote communities. This would promote network sharing, as incumbent TSPs would be required to provide capacity to TSPs looking to deliver services to consumers. The Committee believes this idea deserves consideration in order to gain a deeper understanding of its impacts on the telecommunications sector and on services for Canadians. The Committee therefore recommends:

Recommendation 1

That the Government of Canada launch nationwide consultations to examine the implementation of structural separation in the telecommunications sector between businesses that build infrastructure and those that provide services in order to ensure a level playing field that fosters network development in both cities and rural areas.

The Committee is also concerned about the tools that regulatory bodies will use to assess the merger in the context of protecting the interests of Canadians. First, the Competition Act does not seem to give the CB the tools it needs to give priority to the interests of Canadians in its review of the merger. Mr. Boswell himself underscored the need for a comprehensive review of this legislation. Moreover, the Committee, like many witnesses, has doubts about the validity of the efficiencies exception as it is currently formulated in the Competition Act, particularly as it applies to transactions such as the merger of Rogers and Shaw. The CB should also develop a mechanism and have sufficient resources to assess the impacts of its past decisions. The Committee understands that this legislation cannot be reformed in time to change the current merger review, but it believes such a reform is vital to future merger reviews. Still, the federal government needs to ensure the CB currently has all the tools it needs to conduct a thorough review of the Rogers–Shaw merger.

Second, ISED and the CRTC have made comments in recent months showing that their regulatory directions do not seem to support service affordability and accessibility. In April 2021, the CRTC announced the implementation of an MVNO regime that is a modest step forward, given the structure of the regime announced. However, a few weeks later, it reversed its August 2019 decision on wholesale rates, which was a major disappointment to the Committee members and most Canadians. A number of witnesses had underscored the importance of these decisions, especially if the merger is approved. The Committee is concerned about the direction in which ISED and the CRTC seem to be heading. As a result, it is also worried about the effects this regulatory approach could have on their review of the proposed merger. The Committee therefore recommends:

Recommendation 2

That the Government of Canada take measures to better support the Competition Bureau’s work, including the following:

• launch an immediate review of the Competition Act, including a review of the efficiencies defence; and
• ensure that the Competition Bureau has the resources it needs to do its work, including monitoring the impacts of its decisions.

Recommendation 3

That, in reviewing the proposed merger, the Government of Canada take measures to ensure that affordability and accessibility for all Canadians take precedence over all other considerations, for example by placing emphasis on the importance of Freedom Mobile as a fourth wireless provider, and ensuring that, in reviewing the merger, the government bodies involved consider the impacts on the regulatory environment of the CRTC’s recent decisions.

Recommendation 4

That, while the Committee believes the merger should not proceed, if it does, the Government of Canada ensure that, in implementing its decision, all conditions attached to the merger approval are fully enforceable and that resources are available to enforce them.