A 19-hour July 8 broadband service outage for Rogers Communications customers that disrupted airlines, banking and 911 calls has prompted the Canadian government to investigate the matter, a move that some say could throw a wrench into Rogers’ pending C$20 billion merger with Shaw Communications. 

Rogers, the largest telecom company in Canada, blamed the outage on a network system failure that occurred during a planned maintenance update. In a statement on its corporate website on July 9, Rogers CEO Tony Staffieri said the problem had been addressed and its systems are now operational. 

“We know how much our customers rely on our networks and I sincerely apologize,” Staffieri said in the statement. “We’re particularly troubled that some customers could not reach emergency services and we are addressing the issue as an urgent priority.”

He added that all customers would receive a credit automatically applied to their accounts for the outage. Some reports put the cost of those credits at between C$65 million and C$75 million. 

But the biggest impact could come in the form of more intense scrutiny of the Shaw deal. Canadian regulators already are looking closely at the merger — and in June, both Rogers and Shaw said they would delay the closing of the deal as they worked out any issues the government may have. 

The latest service outage has caused some regulators to wonder if it’s a good idea to foster further consolidation in the industry. About 90% of the Canadian telecom market is controlled by three companies, Rogers, BCE and Telus.   

In a press conference on July 11, Canada Industry Minister François-Philippe Champagne said he directed Canadian telecom companies to help each other during emergencies and develop protocols to keep customers informed during outages. According to Reuters, Champagne has give the three telecom giants 60 days to enter inter a formal agreement. 

In a statement, Canadian Radio-television and Telecommunications Commission (CRTC) chairperson and CEO Ian Scott said the regulatory body ordered Rogers to answer a series of questions concerning the outage and provide a comprehensive explanation as to why it occurred. Rogers has until July 22 to respond.  

“This widespread network outage not only disrupted Canadians and Canadian businesses across the country, it prevented access to services such as 911 and emergency/public alerting as well as other critical infrastructure services,” Scott said in the statement. “The CRTC is requesting a detailed account from Rogers as to ‘why’ and ‘how’ this happened, as well as what measures Rogers is putting in place to prevent future outages. We take the safety, security, and wellness of Canadians very seriously and we are responsible for ensuring that Canadians have access at all times to a reliable and efficient communications system.”

According to Reuters, citing merger arbitrage traders, the chances that the deal would be completed fell to 62% on Monday (July 11) from 88% a week prior.  

Shares of Rogers fell 5% on July 11 to $45.15 each. The stock rose 2.5% on July 12 to $46.27 each, sliding 0.2% in early trading July 13 to $46.17 per share. 

Shaw stock fell 4.6% on July 11 to $27.95 per share and continued to slide in subsequent trading, priced at $26.24 each on the afternoon of July 13, down 1.2%. ■ 

Shaw Communications stock began to slip March 18, down nearly 2% in midday trading, as reports began to mount that the Canadian telecom company’s planned $20 billion merger with Rogers Communications could get some regulatory pushback. 

Rogers said March 15 that it had agreed to purchase Shaw in a cash and assumed debt deal worth about $20 billion. The transaction, which valued Shaw shares at C$40.50 ($32.55), was approved by both companies’ boards of directors and was expected to be completed in the first half of 2022. 

Shaw’s stock immediately rose after news broke -- it went as high as $28.05 on March 15, a 46.5% increase from its March 12 close -- but the stock was still far off from Rogers’ offering price. That the stock peaked at $28.17 per share on March 16 (13% below the offering price), and that gap continues to widen -- Shaw stock traded as low as $27.54 per share on March 18 before closing at $27.55, down 1.7% -- has caused some analysts to wonder whether the deal will face some harsh scrutiny. 

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The deal will be reviewed by three Canadian regulatory agencies -- the independent Competition Bureau of Canada, the Canadian Radio-television and Telecommunications Commission, and the Department of Innovation, Science and Economic Development. According to reports throughout the Canadian press, the main issue appears to be the removal of a fourth wireless carrier -- a sticking point with Canadian regulators -- and even Rogers’ promises to keep prices level for Shaw’s Freedom Mobile plan for three years and boost deployment of 5G may not be enough.

Rogers has pledged to invest C$2.5 billion ($2 billion) in 5G networks across Western Canada, creating up to 3,000 new jobs. In addition, Rogers promised to create a  C$1 billion ($800 million) fund dedicated to connecting rural, remote and Indigenous communities to high-speed internet across the four Western provinces and spend another C$3 billion ($2.4 billion) to support additional network, services and technology investments 

While the regulatory agencies have pledged to scrutinize the deal, some Canadian politicians have expressed doubt about the benefits of the merger.

“Big telecom companies are gouging Canadians and continuing to make massive profits in a time where most families are struggling to get by. A merger between two of Canada’s biggest providers will just make it worse,” New Democratic Party leader Jagmeet Singh said in a statement after the deal was announced.  

On the conservative side, MP Pierre Poilievre, the Conservative Shadow Minister for Jobs and Industry, called for hearings into the proposed deal. 

“Some argue the Rogers-Shaw deal means more investment, others that it means less competition,” Poilievre said in a statement. “The only way to know for sure [is] through careful and intense debate. Conservatives want the Industry Committee to hear from customers, workers, business leaders, engineers, economists and other experts to get a complete understanding of the proposed deal.”

Poilievre added that the deal, which would create a C$50 billion telecom powerhouse with C$20 billion in annual revenue, 33,000 employees and about 13 million wireless customers, would be important in any era, but is especially critical during the COVID-19 pandemic, which has forced many Canadians to work from home. 

“If some communities cannot get fast, affordable connections, their people will be left behind.” he continued. “Conversely, fast, affordable wireless combined with remote work could revive struggling rural, remote and indigenous economies like we have not seen since the urbanization phenomenon began. For it to happen, we can no longer accept poor internet at high prices.”   

Canadians pay some of the highest cell phone bills in the world. According to a report by Finnish telecom research company Rewheel, the Big Three Canadian wireless service providers -- Bell, Telus and Rogers -- had the least competitive rates globally. Other reports have compared Canadian wireless rates between 15% and 40% higher than in the U.S. 

It has become such an issue that reducing Canadian wireless bills was a key part of Prime Minister Justin Trudeau's 2019 reelection platform. In March, Trudeau made good on that promise, requiring telecom operators in the country to reduce their charges by 25% over the next two years.

Shares of Shaw Communications rose more than 40% on the Toronto Stock Exchange Monday in the wake of its $20 billion purchase by Rogers Communications, but the stock price was still well below Rogers’ offer as questions persist around the deal’s potential impact on wireless competition in Canada. 

Shaw shares closed at C$33.85 each on the Toronto Exchange March 15, up 41% or C$9.95 each while Rogers stock rose 3.4% (C$2.02 each) to C$61.57 per share. Both stocks are also traded on the New York Stock Exchange, and saw similar gains. Shaw was up 41% ($7.93) to $27.10 per share on the NYSE, while Rogers increased 3.5% ($1.69) to $49.42 each.     

Rogers agreed to purchase Shaw for C$40.50 ($32.40) per share (about $16 billion in total) in cash, a 70% premium to its March 12 close, and the assumption of C$6 billion ($4.8 billion) in debt. The $20 billion deal would create a wireless communications powerhouse with about 13 million customers in Canada.

Both companies also own cable TV operations, but most reports point to possible regulatory concerns on the wireless side of the business. Rogers already is the largest wireless service provider in Canada with about 10.9 million subscribers. Shaw is the fourth largest -- behind BCE and Telus Communications -- with about 2 million wireless customers.  

The Canadian government has been sensitive to competitive issues in the wireless market. Last March Prime Minister Justin Trudeau’s minority Liberal government ordered the three largest wireless service providers to slash prices in their middle range plans by 25% within two years or face regulatory action. 

As part of the Shaw deal, Rogers pledged not to raise prices for Shaw’s mid-range Freedom Mobile plan for three years after the deal closes. It also said it would invest about C$2.5 billion over five years to speed up construction and deployment of 5G networks.   

On a conference call with analysts to discuss the transaction, Rogers CEO Joseph Natale said it was “too early” to determine whether there would be regulatory issues, but that he was confident the deal would win approval.

The transaction will be examined by at least three Canadian government agencies -- the independent Competition Bureau of Canada, the Canadian Radio-television and Telecommunications Commission, and the department of Innovation, Science and Economic Development.

“We have been clear that greater affordability, competition and innovation in Canadian telecommunications are as important to us as a government as they are to Canadians concerned about their cell phone bills,” ISED minister of Innovation, Science and Industry Francois-Philippe Champagne said in a statement.  “These goals will be front and centre in analyzing the implications of today’s news. This transaction will be reviewed by the independent Competition Bureau of Canada, the CRTC, as well as ISED and we won’t presuppose the outcomes of these processes.”

In a blog post, Morningstar Research wrote that while there may be reasons regulators would want to nix the deal, it didn't see a strong reason to block it. 

“Most importantly, the companies are not major competitors -- 80% of Shaw’s revenue and 90% of its EBITDA come from its wireline business, which has essentially no overlap with that of Rogers,” Morningstar wrote. “In wireless, we estimate Shaw has only 4%-5% national market share, leaving it a minor player based on that metric.”

But the deal would remove the fourth largest player from the Canadian wireless market, which could cause some regulators concerns. 

“Regulatory actions and rules of spectrum auctions indicate regulators prefer four national wireless competitors, and Shaw has made major strides in recent years to position itself as the fourth,” Morningstar wrote. “Although Shaw’s wireless business remains relatively tiny, it has shaken up the industry. Most notably, we think it is responsible for moving each of the major companies to offer unlimited data plans and keep pricing down with its consumer-friendly and innovative deals.” 

That dilemma could be solved in any number of ways, including requiring the company to divest of some assets, similar to what the Competition Bureau required BCE to do when it bought Manitoba Telecom Services in 2017. 

Ride TV said the Canadian Radio-television and Telecommunications Commission (CRTC) determined that the equestrian-focused programmer will be added to the list of non-Canadian programming services and stations authorized for distribution in Canada. The channel said it will be "the first network of its kind in Canada" and will be available to subscribers across the country.

“This is groundbreaking for Ride TV and it proves that the popularity of horses transcends the globe. Canada is a vibrant horse market, and we look forward to making Ride TV available to subscribers on every cable, satellite or IPTV platform in the country,” Michael Trujillo, the network's SVP of international distribution, said in a release. “We are extremely grateful to our sponsor TELUS for their extraordinary vision in recognizing the need for a unique, entertaining and compelling network like Ride TV in Canada.”

Based in Fort Worth, Texas, Ride TV carries original programming, such as the musical profile series Unbridled Song, plus live equestrian sports.

As the Canadian government readies hearings next week that could substantially reduce roaming rates for cellular telephone service, Montreal-based cable operator Cogeco Cable – which also has interests in the U.S. cable market – is contemplating creating its own wireless service for its customers.

Cogeco Cable already offers TV, Internet and landline phone service in Quebec and Ontario. In 2012, Cogeco purchased U.S. cable operator Atlantic Broadband in a deal worth about $1.36 billion.

In a statement, Cogeco said it would consider offering its own wireless service if the Canadian government manages to cut prices wireless networks charge to lease their lines. CEO Louis Audet has proposed creating a mobile virtual network operator (MVNO) which would buy network airtime from carriers and resell it to customers.

“Given the high concentration in the Canadian mobile wireless market, Cogeco strongly believes that regulatory measures fostering the entry of MVNOs in addition to other measures will increase competition in the market and enhance consumer choice,”Audet said in a statement. “A regulated MVNO option would definitely be in the best interest of Canadian customers and businesses.”

The Canadian Radio-television and Telecommunications Commission (the chief communications regulator in Canada, similar to the Federal Communications Commission in the U.S.) is scheduled to begin hearings on possibly regulating wholesale roaming rates next week. Cogeco is slated to testify before the CRTC on Sept. 29.

The regulatory agency has pushed for a fourth wireless competitor in the market to compete with Telus Corp., BCE Inc., and Rogers Communications, but hasn’t had much success. The three carriers currently control more than 90% of the wireless market in Canada, and Cogeco believes an MVNO, which would not have to spend the billions of dollars to build its own network, has a better chance of success.

In the U.S., the wireless business has been an elusive one for cable, dating back to the industry’s original partnership with Sprint PCS. Sprint, Comcast, Cox, Time Warner Cable and Bright House Network tried to partner again on a wireless service, called Pivot, which was abandoned in 2008.  In 2011, as part of its agreements to sell its wireless spectrum to Verizon Communications, Comcast, TWC and Bright House negotiated the right to co-market Verizon Wireless service with their cable packages. Cox, which didn’t sell its wireless spectrum in that deal, sold some of its licenses to Verizon later that same year, about a month after abandoning plans to build its own wireless network.