Sale of Freedom to Videotron would weaken company, Competition Tribunal hears

OTTAWA — A consultant says selling Freedom Mobile to Quebecor Inc.-owned Videotron Ltd. would lessen competition in the telecom market in arguments before the Competition Tribunal about Rogers Communications Inc.'s $26-billion proposed takeover of Shaw Communications Inc.

Professor and founder of Endeavour Partners Michael Davies said Thursday that a combined Freedom and Videotron would be less competitive than Freedom operating under Shaw. Shaw acquired Wind Mobile, now Freedom Mobile, in 2016.

Freedom's competitive position was especially strong before the announcement of the Rogers-Shaw merger in March 2021, Davies said, because Shaw was in a position at the time to deploy 5G and acquire 3,500 MHz spectrum licences.

Davies said the combined business will have a weaker product offering and that there will be a loss of economies of scale.

He also said the new Freedom would lose distribution advantages, including access to Shaw's distribution channels and brand awareness.

Davies added that there would be a lack of access to Wi-Fi hotspots, which he explained would lessen the new Freedom's competitiveness in the marketplace.

Videotron pushed back against Davies' presentation in cross examination, arguing that he does not have detailed enough knowledge about Canada's telecom network infrastructure and market.

Videotron also argued that it is a strong purchaser of Freedom partly because it acquired 3,500 MHz spectrum in July 2021, has obtained a discount on wholesale access and has obtained favourable arrangements on roaming charges.

On Tuesday, Rogers tried to build the case that the combined business of Freedom and Videotron would become a significant player in the telecom industry and put pressure on incumbents, therefore enhancing competition, particularly in Western Canada.

"As far as I’m concerned, this is a classic case of 'a bird in the hand is worth two in the bush.' Could Videotron compete effectively? Maybe," said telecom watcher Ben Klass.

"But it’s a big risk, essentially all of which falls on Canadian consumers and the Canadian economy, whereas the merger benefits, to the extent that there are any, fall predominantly to the owners of the three companies involved.

Quebecor agreed to buy Freedom in a $2.85 billion deal earlier this year.

The sale of Freedom Mobile to Videotron would see Quebecor buy all Freedom-branded wireless and internet customers as well as all of Freedom’s infrastructure, spectrum and retail locations in a move that would expand Quebecor’s wireless operations nationally.

Freedom offers service in large parts of Ontario and Western Canada, while Videotron operates primarily in Quebec as well as bordering regions in eastern Ontario.

The hearing before the Competition Tribunal is expected to last until mid-December and aims to resolve the impasse between the Commissioner of Competition, who wants to block the deal, and Rogers and Shaw.

The Competition Bureau is one of three regulatory agencies that must approve the deal, in addition to the CRTC and Innovation, Science and Economic Development Canada.

Rogers wants to close the Shaw deal by the end of the year, with a possible further extension to Jan. 31, 2023.

This report by The Canadian Press was first published Nov. 17, 2022.

Companies in this story: (TSX:RCI.B, TSX:SJR.B, TSX:QBR.B)

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