CRTC hearings begin on Rogers-Shaw deal that would make Big Three telcos even bigger

The recent drama of the power play within the Rogers family may be winding down, but the theatrics of getting the family-run company's massive takeover of Shaw over the finish line have only just begun.

When Rogers Communications Inc. announced last March it had struck a $26-billion deal to take over Calgary-based cable, internet and wireless provider Shaw Communications Inc., the move was instantly seen as transformative for Canada's telecom industry.

It would take a sector that is already in the hands of a very small number of companies and make it even more top-heavy, affecting millions of Canadians who consume television and radio, or subscribe to high-speed internet or cellular telephone services.

Although the families that control the two companies both back the deal, it needs the OK of three different regulatory agencies to become official. And the first of those approval processes begins today in Gatineau, Que., as the Canadian Radio-television and Telecommunications Commission (CRTC) holds hearings on what the deal would entail.

Partha Mohanram, an accounting professor at the University of Toronto's Rotman School of Management, is among those hoping the regulator takes a long, hard look at the deal because of what it would do to Canada's already-concentrated telecom landscape.

"The regulator has to look at whether … the benefit to the shareholders outweighs the cost," he said in an interview. "Because it becomes worse every time there is a merger."

Focus on broadcast

Officials from Shaw and Rogers are slated to appear first before the committee on Monday, to lay out the case for why they should be allowed to sell themselves. For the three days after, they'll be followed by those against the plan, including consumer rights groups, independent broadcasters — and most tellingly of all, Rogers' main competitors, Bell and Telus.

Newly minted Rogers chair Edward Rogers reportedly set to attend. It would be the first time he has publicly appeared since the ugly fight for control of the company came to light last month.

While the merger involves a complex handover of broadcasting, cable, internet and wireless assets across the country, the only issues the CRTC will pay attention to are the impact on the broadcasting side, which mostly consist of 16 television channels across B.C., Alberta, Saskatchewan and Manitoba; all of Shaw's cable, satellite and pay-per-view television services; and a 25 per cent ownership in CPAC, the public affairs channel.

The real thorny issues of what happens to Canada's wireless landscape once Rogers swallows Shaw's two million wireless subscribers will be largely ignored by these hearings.

The fact that Canada's telecom regulator won't really pay much attention to the most pressing telecom issues shows how bizarre the industry's landscape is, says researcher Ben Klass, who studies telecom policy as a PhD candidate at Carleton University.

"We have this siloed system in Canada, with two ships passing in the night," he said of the CRTC. "But they don't intersect as far as the regulator is concerned."

While the CRTC does have jurisdiction over the wireless market, tasked with ensuring there's a healthy competition for consumers to choose from, they're also in charge of broadcasters, too. And the regulator made it explicit in its notice for the hearings that the impact of the deal on Canada's broadcast landscape would be its main focus, Klass said.

Instead, the regulator is leaving the review of the impact on the wireless market and related issues to other watchdogs — namely Canada's Competition Bureau, and the federal department of Innovation, Science and Economic Development (ISED).

"They wanted to get out of the gate and say, 'Don't talk to us about this thing that's probably pretty important to you and implicated in this merger … you can try somewhere else,'" said Klass. "I think it's unfortunate."

On the broadcast side alone, there are reasons for concern, said Klass.

"Independent broadcasters are very concerned that instead of being able to market their content to Rogers on one half the country and Shaw on the other — and generating some bargaining power in the process — they're only going to have the one door to knock on," he said.

"That's what this is about for the CRTC, primarily," he said. "Making sure that this merger doesn't throw the [TV] industry too far out of whack."

WATCH | Why this telecom critic says the deal is bad for Canadians:

Klass gives the CRTC credit for at least making its hearings public, unlike the other two regulators, who usually announce the start of a probe — and then announce the result.

"The Competition Bureau, to my knowledge, has never successfully opposed a merger outright," Klass said.

A major driver for the deal from the perspective of Rogers and Shaw is that their businesses are so complementary.

Rogers is a force in the Ontario market, where it is next to impossible to not have to interact with at least one branch of the media conglomerate. But the company is nowhere near as dominant in Western Canada, where Shaw has more than five million cable and internet customers, and two million cellphone subscribers through its Freedom Mobile brand.

The appeal for Rogers is obvious, said Bloomberg Intelligence telecom analyst John Butler.

"Rogers can leverage Shaw's … subscriptions to offer multi-service bundles and use its network as a foundation for 5G expansion in the region," he said in a recent note to clients.

Impact of family drama

Butler said he thinks the deal will ultimately go ahead in one form or another, but the messy family battle for control of Rogers Communications likely didn't do the company any favours.

"While we don't believe the Shaw deal that's under review is in imminent danger of being derailed, the spat could taint regulators' opinion on Rogers' ability to integrate Shaw," he said.

Mohanram also doubts the regulator has the appetite to block the deal outright, but he's among those who think the telecom industry in Canada is in desperate need of overhauling.

"You've got to ask yourself, 'Where is that kind of competition going to come from?'" he said.

At a minimum, Rogers could be forced to sell off assets, like Freedom Mobile, to get Ottawa's stamp of approval. But that, too, is not without its problems.

"The value that Rogers sees in the Shaw assets, if you start eating away at that number, eventually they're going to walk away," Mohanram said. "[Regulators] don't need to scuttle the deal, but they've got to make the deal less attractive for Rogers."

Any sort of rubber-stamping would be bad for Canada, but good for the telecom companies, he said. "They have this kind of comfortable, cozy oligopoly among themselves."