Thank you.
Good afternoon. I'd like to thank the chair and members for inviting me to appear before you today.
My name is Bryan Keating. I'm an economist at Compass Lexecon, which is a global economics consulting firm.
By way of disclosure, my colleagues and I were retained by Rogers throughout the regulatory process, and comments I'll make today were informed by the analysis we did as part of that process.
I'd like to discuss the transaction from the perspective of economics.
For avoidance of doubt, when I talk about the transaction, I'm really referring to both pieces of the transaction: the transfer of Shaw's wireline assets to Rogers and the transfer of Freedom's wireless assets to Videotron. I'm talking about the transaction that is currently under review, not the original transaction.
My colleagues and I have been involved in assessing this transaction in various forms for close to two years now. In the course of that review, we looked at thousands of pages of documents and many terabytes of data. Our conclusions about the competitive effect of the transaction are informed by that analysis.
To me, it's clear that if you are pro-consumer and pro-competition, you should be in favour of this transaction. I'll talk a bit about why.
From an economist's perspective, the concern about mergers is that you reduce competition: You eliminate the competitor. That's not the case here. There's no situation in which you're going to reduce the number of competitors in any province in either wireline or wireless.
The transaction is going to create large benefits through economies of scale and economies of scope. Really, the only parties that are harmed are potential competitors to Rogers and Videotron, because they're going to have to compete more aggressively. That's good for consumers. That's good for competition.
The conclusion that the merger is good for competition is shared by two independent bodies, as we've already heard today.
In December, the Competition Tribunal, after a month of hearings in which they heard from dozens of witnesses and reviewed thousands of pages of documents, reached the conclusion that the transaction would not substantially lessen competition but would in fact increase competition. Just yesterday, we heard from the Federal Court of Appeal, which affirmed the tribunal's decision and in fact said that from a competition perspective, it was not a close call.
I'd like to talk a bit about why we reached that conclusion.
On the wireline side, even the competition commissioner did not challenge the transaction. Shaw's and Rogers' wireline footprints do not overlap at all. In fact, by combining those footprints, Rogers will benefit from the economies of scale that you realize from having a bigger footprint. We already see the benefits of that competition in the responses from Bell and Telus to the announcement of the transaction and to the process. Both Bell and Telus have announced billions of dollars of investment in their own networks, in part in response to what they anticipate coming out of this merger process.
On the wireless side, the combination of Videotron and Freedom, I think it's fair to say, will help achieve a long-standing policy goal in Canada, which is to create a fourth national—or at least national-scale—competitor. Videotron's footprint will cover close to 90% of the Canadian population after this transaction. As I said, achieving a strong fourth competitor is pro-competition and will achieve a goal that I think has long been sought in Canada.
As with the wireline side of things, there will not be any reduction in the number of competitors in any province. You will continue to have four competitors in every province. What the transaction is going to do is reallocate Shaw's assets, with the wireline piece going to Rogers and the wireless piece going to Videotron. Both are competitors that are well positioned to make use of those assets to enhance competition.
I'd like to say a few words about Videotron, because I think there have been a lot of questions and a lot of talk about various potential divestiture candidates.
From an economic perspective, Videotron is well positioned to compete aggressively. It has a strong incentive to compete aggressively. I think the experience in Quebec is that Videotron has been a vigorous competitor. Prices in Quebec tend to be low relative to the rest of Canada. Videotron also has important assets that it brings to bear. Most importantly, it recently licensed 3.5 gigahertz of spectrum. Combining that spectrum with Freedom's spectrum makes efficient use of a scarce and valuable resource. We've heard questions before about how companies use the spectrum they have licensed.
This transaction is a mechanism for Videotron to quickly deploy its 3.5 gigahertz spectrum into a 5G network, which has the potential to be a really high-quality network. It also creates a lot of capacity in Videotron's network. If you look at the number of subscribers Videotron will have relative to the amount of spectrum and other network assets it will have, it will have a lot of capacity to deliver high-quality services. This creates a huge incentive for Videotron to compete aggressively to grow and attract new subscribers, and that's a benefit to competition.
We've heard questions about Videotron's commitments and whether they're enforceable. From an economic point of view, our analysis doesn't rely on those commitments. It relies on the ability and the incentive of Videotron to compete aggressively.
I have two more comments about Videotron.
We heard questions before about Videotron's dependence on various facilitated agreements with Rogers. One thing that's important to note is that by creating a close-to-nationwide network for Videotron, this transaction will actually reduce dependence by Videotron on other operators in an important respect. Roaming is a critical aspect of wireless network service. Currently, because Videotron is based in Quebec, it has to rely on roaming agreements with other carriers to provide service to its customers outside of Quebec. By creating a national and international network, Videotron actually reduces its dependence on other networks, and that is an important element of competition.
The last thing I'll say about Videotron is that by increasing the scale, it has the potential to realize other benefits in terms of negotiating for handsets, network equipment and international roaming. For all these things, Videotron has a strong possibility to reduce its costs relative to what exists today. One can expect those costs to be passed on to consumers in various forms of benefits.
We've made a written submission for the committee, which involves more detail, but I'm going to stop here. I'm happy to take any questions from the committee.