More than a year after they unveiled a merger valued at $20.6 billion that would create a cable and telecom powerhouse north of the border, Rogers Communications and Shaw Communications have agreed to put their union on hold as Canadian regulators grapple with the competitive aspects of the deal.

Rogers agreed to buy Shaw in a cash and assumed-debt deal valued at C$26 billion (US $20.6 billion) in March 2021. Among the benefits of the pairing were faster deployment of 5G wireless networks in Canada. Rogers, already the country’s largest provider of 5G service, pledged to invest C$2.5 billion (US$2 billion) in 5G networks across Western Canada, creating up to 3,000 new jobs. In addition, Rogers said it would create a C$1 billion (US$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 (US$2.4 billion) to support additional network, services and technology investments.

The deal was expected to close in the first half of 2022, but over the past few weeks Canadian regulators have expressed doubts about the deal. On May 9, Canada’s Competition Bureau said it was seeking to block the merger, “in an effort to protect Canadians from higher prices, poorer service quality and fewer choices, particularly in wireless services.”   

On May 30, both Rogers and Shaw said they would postpone the closing of the merger while they worked with regulators to iron out any concerns. 

“Rogers and Shaw strongly believe the Transaction is in the best interests of Canadian consumers, businesses and the Canadian economy, and that a settlement is the best path forward in ensuring that the benefits of the Transaction are fully and expeditiously realized,” the companies said in a press release.

The Canadian government’s main concern appears to be the combination of Rogers’ and Shaw’s wireless businesses. In the May 9 press release announcing its intentions, the Competition Bureau said that it has worked diligently over the past several years to diversify the Canadian wireless business, currently dominated by three operators -- Rogers, Bell Canada and Telus, with a combined 87% share of the market. Teaming Rogers with Shaw, according to the agency, would give the former access to the fourth largest wireless carrier’s 2.1 million Freedom Mobile customers, widening the gap between it and its closest competitors.

But what concerns the agency most is the impact the deal could have on pricing. According to the filing, Shaw has doubled its subscriber base since launching service in 2017 by aggressively pricing its service, offering bigger data allowances and other innovations. According to the agency, by its mere presence in the market, Freedom Mobile has forced the three largest carriers to retain customers, keeping prices down after they had been rising year-over-year.

“The Bureau’s investigation has concluded that competition between Rogers and Shaw has already been lessened – and the harm to competition will only worsen if the proposed transaction is allowed to proceed,” the agency said. “For this reason, the Bureau has filed an application for an order to block the proposed transaction.” 

Both Rogers and Shaw have said they would divest the Freedom Mobile business as part of the merger and that the process is advancing. Some reports indicate that Freedom’s buyer could be Xplornet Communications, a rural internet service provider owned by Stonepeak Infrastructure Partners. Stonepeak made news last year after buying Astound Broadband from TPG in a deal valued at $8.1 billion.

While the Competition Bureau’s objection to the merger could prolong the deal closing, few in the Canadian press believe it will quash the transaction, with several reports pointing to a recent attempt by the Bureau to block a merger between oil & gas waste services companies  Secure Energy Services and Tervita Corp., that was ultimately consummated.

Investors don’t seem too concerned either. Rogers stock was down 5% ($2.62 each) to $49.36 on May 9 when the Competition Bureau’s objection was first made known, but has climbed back, closing at $51.26 per share on June 2. Shaw stock has had the same trajectory -- it was down 8% ($2.35 each)  on May 9 to $26.73 per share, but has gained a lot of that back in subsequent trading, closing at $28.39 on June 2. ■

The Senate has confirmed a fifth commissioner, Lina Khan, to the Federal Trade Commission, so that regulatory body has at least has a Democratic majority — some five months into the Biden administration — though it is still operating under an acting chair, Rebecca Kelly Slaughter.

The FTC is under pressure from Congress to exercise more muscular oversight of antitrust, particularly when it comes to Big Tech mergers, and was deeded more responsibility for internet-access regulation with the Federal Communications Commission‘s reclassification of internet service providers as a Title I information service. Then there are issues of intellectual property protection in an age where online video is increasingly the delivery system of choice. So, there is plenty to work on over at the FTC.

Khan has been an associate law professor at Columbia Law School, teaching and writing about antitrust law, infrastructure industries, and "the antimonopoly tradition," as the White House put it in nominating her. She is former counsel on the House Judiciary Committee Antitrust Subcommittee and was a legal advisor to Democratic FTC member Rohit Chopra.

”We applaud the Senate‘s bipartisan vote today to confirm Lina Khan to the Federal Trade Commission,” Charles Rivkin, chairman and CEO of the Motion Picture Association, said. “The FTC stands at the forefront of protecting consumers and the creative community from the ills caused by content theft, including the malware so often spread by piracy sites and services. We look forward to working with commissioner Khan and the entire FTC to protect content creators and our audiences, educate consumers about the harms of stealing the work of America’s film and television creators, and hold accountable those actors in the online ecosystem who turn a blind eye to online crime.”

“USTelecom and our members congratulate Commissioner Khan on her bipartisan confirmation," said USTelecom President Jonathan Spalter. "We look forward to working with her to strengthen the digital economy and make progress on two key priorities. First, achieving a national privacy framework that respects and protects consumers across the entire internet ecosystem. Second, growing our existing partnership to crack down on robocall scammers who illegally pollute our communications networks.”

“I’m very pleased to congratulate Ms. Khan on her confirmation to the Federal Trade Commission,” said Senate Commerce Committee Chair Maria Cantwell (D-Wash.). “Her confirmation comes at a critical time for our nation as consumers have spent more time online than ever before during the pandemic, from connecting with loved ones, or staying on top of the news, to making a living by working remotely. As I said during Ms. Khan’s nomination hearing before the Commerce Committee: I believe in the promise of the internet and the information age, but I also believe that we need a policeman – or in this case – a policewoman – on the beat. That is the FTC’s core mission. We must protect consumers from the frauds and scams that have proliferated during the pandemic. We must protect their privacy and renew our focus on cybersecurity– both of which are essential to protecting our national security and infrastructure. And we have to do everything we can to help stabilize the local news ecosystem which has been severely impacted by unfair practices by the major internet advertising platforms."

“CTIA and the wireless industry congratulate Lina Khan on her successful Senate confirmation and subsequent appointment as Chairwoman of the Federal Trade Commission. We look forward to working with the Chairwoman and wish her success in her new role," said CTIA President Meredith Attwell Baker. 

New America’s Open Technology Institute (OTI) celebrated the confirmation, but added that the FCC also needs a Democratic majority ASAP. Currently it is operating at a political 2-2 tie under acting chairwoman Jessica Rosenworcel, with no fifth commissioner yet nominated and no word as to whether Rosenworcel will get the permanent nod or if Biden will nominate a new chair to fill the fifth seat.

“We applaud today’s vote to confirm Lina Khan to the FTC,” said Joshua Stager, deputy director of broadband and competition policy at the institute. "She is a proven thought leader who has helped jolt antitrust enforcement out of stagnant 1970s thinking. After years of sluggish enforcement — particularly in digital markets — the FTC needs a fresh perspective. We look forward to working with Commissioner Khan.

“Another expert agency that needs a fresh perspective is the Federal Communications Commission — but we’re still waiting for a fifth commissioner and a permanent chair," Stager added. "In the meantime, the FCC remains deadlocked and unable to turn the page from [former chairman] Ajit Pai’s failed tenure. We can’t lose any more time. President [Joe] Biden needs to get the FCC to full capacity.”

OTI is one of a host of groups that have written the president asking him to fill the FCC vacancy.

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. 

The United Kingdom could be the next nation to open the Pandora’s box that is retransmission consent, once the sole bane of U.S. distributors, based in part on a recent report commissioned by that country’s largest commercial public broadcaster, ITV.

After years of lobbying by broadcasters like the BBC, ITV and Channel 4, U.K. regulators seem open to the idea, with U.K. culture secretary Sajid Javid stating recently that the government is set to review whether more of a free-market approach to the U.K. television system, including retransmission payments, should be taken to encourage further investment in programming.

“I will be taking a long, hard look at the balance of payments between broadcasters and platforms,” Javid said at the recent Royal Television Society Conference in London, according to U.K. newspaper The Guardian.

Javid’s Department for Culture, Media and Sport intends to launch the retrans review by the end of the year.

Estimates are that U.K broadcasters — who until recently were paying satellite distributors like British Sky Broadcasting as much as $40 million annually for the right to be carried on the service — could take in up to $400 million per year in retransmission fees.

That is still a fraction of what U.S. broadcasters rake in from retransmission consent. According to the study written by NERA Economic Consulting — Delivering for Television Viewers: Retransmission Consent and the U.S. Market for Video Content — U.S. free-toair broadcasters received about $3.3 billion in retrans payments in 2013, accounting for less than 3% of cable operator revenue, but making up about 15% of total broadcast revenue — and “having little or no impact on pay TV prices.”

U.S. retransmission fees are expected to more than double by 2019, the study added.

That last quote will likely be argued to the contrary by U.S. distributors, who have said retrans payments are increasingly being passed on to consumers and have pressed U.S. government agencies to turn back the retrans clock.

Most recently, MVPD lobbying groups have proposed a “Local Choice” initiative that would require broadcasters sell their channels directly to consumers, who would have the right not to purchase the service. The Local Choice push, though, seems to have faded under pressure from broadcasters.

Across the pond, though, the pressure is high to help fund original programming, which is becoming increasingly more expensive to produce.

ITV, which is 6.4%-owned by U.S.-based international cable operator Liberty Global (which also owns Virgin Media, the largest U.K. cable company), estimates that U.K. public-service broadcasters invest about $4.8 billion per year on programming, most of it pumped back into original content.

ITV chief executive Adam Crozier said introducing retransmission fees would have clear benefits to the U.K. creative industries and the wider economy by enabling PSBs to continue to invest in original programming.

“The majority of viewing on these pay TV U.K. distributors, sounding a lot like their U.S. counterparts, warned that cherry-picking regulations from another country’s television system could provide unintended consequences.

BSkyB CEO Jeremy Darroch, speaking at the RTS conference, was supportive of deregulation but said it had to work both ways, according to The Guardian. And he added that current benefits to U.S. broadcasters — like platform access and prominent positioning on electronic programming guides — could be lost in a retrans regime.

“Be careful what you wish for,” Darroch said at the conference, according to The Guardian.

At Virgin Media, which never charged content providers for carriage in the past, CEO Tom Mockridge likened retrans to an additional tax on viewers to watch programming they’ve already paid for.

“There is a careful balance to strike,” Mockridge said, according to reports.