Rogers strikes deal to sell Freedom Mobile to Quebecor for $2.85-billion

Rogers Communications Inc. has struck a deal to sell wireless carrier Freedom Mobile to Quebecor Inc. for $2.85-billion in order to win regulatory approval of Rogers’ takeover of Shaw Communications Inc.

The two parties have been in talks for weeks, after Rogers entertained several other bidders. Shaw’s Freedom Mobile is Canada’s fourth-largest wireless carrier, with 1.7 million customers in Ontario, Alberta and BC, and has been credited with driving down wireless prices in recent years.

The takeover still requires regulatory approval. Rogers and Shaw said in a late Friday news release that they believe that the agreement with Quebecor – which includes the sale of all Freedom customer contracts, infrastructure, wireless licenses and stores – addresses the concerns raised by the Commissioner of Competition and the Minister of Innovation , Science and Industry regarding the viability of a fourth wireless competitor. Rogers has also agreed to provide Quebecor with transport and roaming services.

The Competition Bureau is attempting to block the merger of Canada’s two largest cable companies, arguing that the deal would result in higher prices, poorer service and fewer choices for consumers, particularly for mobile phone services.

Rogers president and CEO Tony Staffieri called the agreement a “critical step” toward completing the takeover of Shaw. “We strongly believe the divestiture will meet the Government of Canada’s objective of a strong and sustainable fourth wireless provider,” Mr. Staffieri said in a statement.

Friday’s announcement follows a filing from the Competition Bureau in which the watchdog said that the economic efficiencies that Rogers claims would result from its takeover of Shaw are speculative, “grossly exaggerated” and based on unrealistic assumptions and flawed methodologies.

Under Canadian competition law, companies can argue that the cost savings a contested merger would create, by allowing them to combine resources and reduce headcount, would be greater than the harm to consumers from lessened competition.

Rogers has argued that the Competition Bureau failed to weigh the effects of the deal on competition – which the telecom says would be “minimal to none” – against the economic efficiencies that the deal would create.

In a rebuttal filed with the Competition Tribunal, the watchdog argues that the benefits that Rogers is promising are insufficient to outweigh the hit to competition. The bureau says the deal “will result in a transfer of wealth from low- and moderate-income groups in society to the respondents, whose shareholders include ultra-rich members of the family ownership groups of these companies.”

“Increased profits will also be paid to non-Canadian investors. These effects are socially adverse and otherwise must be given weight against any efficiencies that may arise,” reads the filing, made public on Friday.

The bureau’s case focuses on potential harm to Canada’s wireless industry if Rogers were permitted to acquire Freedom Mobile.

Although Rogers had vowed to sell Freedom, the competition watchdog has argued that separating the wireless carrier from Shaw’s cable network would reduce the carrier’s ability to compete because it would not be able to cross-sell or offer bundled services. Shaw has called those concerns “wholly misplaced,” arguing that Freedom Mobile’s success has not depended on leveraging Shaw’s cable network.

In its rebuttal, the Competition Bureau says that the position that the telecoms have taken on the importance of the cable network is “contradictory and self-serving,” as Rogers has argued that acquiring Shaw’s cable network will enable it to compete more effectively in wireless with BCE Inc. and Telus Corp.

That “contradicts Rogers’ claim that Freedom Mobile can be severed from Shaw’s wireline business without suffering a substantial competitive disadvantage,” the filing reads.

Rogers’ takeover of Shaw also requires approval from the Ministry of Innovation, Science and Economic Development, which oversees the transfer of wireless licences.

Rogers and Shaw have both said that they hope to reach a settlement and avoid a hearing in front of the Competition Tribunal, but are prepared to oppose the application by Commissioner of Competition Matthew Boswell if one does occur.

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