Industry Committee on Jan. 25th, 2023

[The Chair, Liberal, Joël Lightbound]

Good afternoon, everyone. Thank you for being here.

I call this meeting to order.

Welcome to meeting 53 of the Standing Committee on Industry and Technology of the House of Commons.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Wednesday, January 26, 2022, the committee is meeting this afternoon to study the proposed acquisition of Shaw by Rogers. Today's meeting is taking place in hybrid format, pursuant to the House order of June 23, 2022.

For the first hour of our hearings this afternoon, we will have the opportunity to hear from a number of witnesses both in person and virtually.

We have Mr. Iacobucci, a professor with the University of Toronto's faculty of law, appearing as an individual. Thanks for being with us, Mr. Iacobucci.

We have Ben Klass, Ph.D. candidate at Carleton University and senior research associate at the Canadian Media Concentration Research Project.

From Globalive Inc., we have Anthony Lacavera, chairman. Thanks for being with us in person here in Ottawa.

Also from Globalive we have Simon Lockie.

From TekSavvy Solutions Inc., we have Andy Kaplan-Myrth, vice-president, regulatory and carrier affairs, and Jessica Rutledge, regulatory counsel. Both are with us virtually.

Thanks for being here, everyone. Without further ado, we will start the first testimony with Mr. Iacobucci.

The floor is yours for five minutes.

[Edward Iacobucci, Professor and Toronto Stock Exchange Chair in Capital Markets, Faculty of Law, University of Toronto, As an Individual]

First of all, thank you to the committee for having me here today to speak with you.

I come at this from the perspective of an academic interested in competition law.

Let me state my conclusion about the competition law issues at the outset. In my view, the Competition Tribunal did an excellent job in assessing the competitive effects of the Rogers-Shaw-Videotron transactions.

Let me also say that in competition law cases—maybe even more than in any other areas of law—the particular facts matter. The tribunal is in a much better position than I am to weigh the evidence, but on my reading of its opinion, it weighed that evidence carefully and persuasively.

The evidence in this case was vast. There were 40 witnesses and thousands of pages of documents, yet the tribunal's reasons provided a thorough and coherent account of that evidence, which explained in detail and—to me—convincingly its reasons for deciding that the merger would not substantially lessen or prevent competition. Given my respect for this decision, my remarks in many ways will just draw significantly from the tribunal's analysis.

I'll give a quick word on process first. I think it's important to acknowledge that the speed at which the tribunal heard and disposed of this case—and that it did so in such a thorough manner—is laudable, as is the Federal Court of Appeal's expedited hearing of the appeal and dismissal of the appeal. Mergers are often time-sensitive and the tribunal and Federal Court of Appeal deserve credit for their efforts in this case, in my opinion.

On the merits, I think the tribunal's decision is a model of careful review, probing the evidence and weighing that against competition law principles. Competition law focuses on competition. The tribunal carefully reviewed the evidence as to why competition is unlikely to suffer as a consequence of the transaction.

At root, Shaw's divestiture of Freedom to Videotron prior to any acquisition of Shaw by Rogers diminished the competitive concerns about the acquisition. In Ontario, Shaw competed in wireless only through Freedom, so that divestiture took care of competition concerns in Ontario, as the commissioner conceded.

Shaw will continue to have a presence in Alberta and B.C. post merger, but its market shares were relatively small, so the competition concerns weren't as acute.

Moreover, I think the tribunal quite carefully reviewed the argument about whether Videotron would be an effective competitor and reasonably concluded that, given its track record of disruption and its fully costed and detailed strategy going forward, it would continue to be an effective competitor. Indeed, although not necessary to the outcome, the tribunal suggested that Videotron's acquisition of Freedom may, in fact, have some pro-competitive effects by invigorating Freedom.

Those are the basic factual findings that led to the merger's approval. Unlike some other contested mergers, there actually weren't very many interesting purely legal questions at stake in this case. The commissioner made a couple of legal arguments before the tribunal and then, ultimately, before the Federal Court of Appeal that didn't convince either the tribunal or the Federal Court of Appeal and weren't especially convincing to me.

The most significant argument from the commissioner was that the tribunal ought to have considered the initially proposed transaction—that is, Rogers purchasing Shaw outright rather than the modified transaction in which Rogers would acquire Shaw only after the divestiture of Freedom to Videotron.

It's conceivable that this difference could have mattered. Prominently, if the original deal were considered and found to be anti-competitive and the sale of Freedom was proposed as a remedy, then the burden would arguably have been on the merging parties to show that the remedy addressed the anti-competitive effects of the deal. On the other hand, if the tribunal considers only the modified deal, then the burden is on the commissioner to show that the deal remained anti-competitive despite the divestiture of Freedom.

Conceivably, this decision could have mattered, but both the tribunal and, I think, the Federal Court of Appeal reasonably concluded that the tribunal ought not to consider a deal that would never happen and instead focused their attention on the deal that was actually being proposed. This makes sense to me. Courts and tribunals do not normally spend a lot of time considering moot questions.

In any event, both the tribunal and the Federal Court of Appeal pointed out that deciding otherwise would not have made much of a difference in this case. In fact, I thought the Federal Court of Appeal in particular was excellent in its explanation of the reason this burden didn't matter much. In theory, a burden might matter where there is a gap in the evidence. If you can't prove something because there's a gap in the evidence, then where the burden is allocated might matter. It might also matter where there's a tie, where the adjudicator can't make up its mind between two positions. The party that has the burden of proof is going to lose that case.

Neither of these conditions was met here. The evidence was thorough, as the tribunal reviewed in detail and the Federal Court of Appeal acknowledged, and I don't think the tribunal regarded this as an especially close case. This was not an anti-competitive merger in the tribunal's view, and indeed it might even have had some pro-competitive properties. Whether the burden of proof is on one side or the other, I don't think it much mattered in this case.

I might imagine that in some cases an eleventh-hour change to a deal could create some concerns about the scheduling of a hearing. If there's preparation for one deal and at the eleventh hour it's switched to another, there could be some questions regarding procedural fairness. Again, the tribunal considered this. The Federal Court of Appeal considered this. Both of them concluded that the commissioner had sufficient notice of the modified transactions to prepare for the hearing, so there was no procedural unfairness.

The tribunal's conclusion that it was going to consider the modified deal was a sensible one, although in the end it might not have mattered much one way or the other.

That was the most interesting of the legal issues, so I'll conclude by saying I think the tribunal's decision and the Federal Court of Appeal's respect for that decision were persuasive as a matter of competition law.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Professor Iacobucci.

I now give the floor to Mr. Klass for five minutes.

[Ben Klass, Ph.D. Candidate, Carleton University, Senior Research Associate, Canadian Media Concentration Research Project, As an Individual]

Thank you for inviting me to be here today.

When last we spoke, the Rogers network had gone dark from coast to coast, disrupting the lives of families across the country and causing business to grind to a halt. The outage should have served as a wake-up call that bigger is not always better, especially when it comes to the essential services that we all rely on in our daily lives.

This committee got it right when it took the view that the merger should not be permitted to proceed, but unelected regulators have moved the deal forward anyway. It is now up to the minister to decide. While it's widely expected that he will give approval, doing so, in my opinion, would be a mistake.

This disconnect has me wondering: What is our priority in this country? Is it to promote competition, or are we more concerned with catering to big business and paying deference to the corporate effort to control crucial markets?

I'd like to offer three general thoughts on these questions. First, I'd like to believe that our priority is competition, but actions speak louder than words. I've been studying telecommunication for 10 years now, through two degrees, and I'm getting tired of hearing nice words being used to paper over harmful, wrong decisions. From the consumer's perspective, Canada's telecom markets were in a woeful state when I began my studies. As CBC's Marketplace recently reported, we continue to pay among the highest prices for service in the developed world.

The merging parties, each of them controlled by a family of billionaires, are in a rush to get the merger approved, because they stand to benefit tremendously. I think we all know that consumers, working people and small businesses will be on the hook once this deal goes through.

The tribunal has approved the merger, but its decision was not exactly a ringing endorsement. That's because the bar is set so low that the companies had only to prove that price increases caused by this merger would not be substantial. The tribunal can accept that mobile prices will increase because of the deal, approve it anyway and call it a win for competition. I've said it before and I'll say it again: You can put lipstick on a pig, but you can't make it sing.

The tribunal's decree was based on arcane rules and opaque information presented by competing experts, but if you leave aside all the assumptions, abstractions and redactions and you look around the world, you see that people are paying a fraction of the price for mobile connectivity elsewhere in comparison with what we pay here. We need to aim higher and be more ambitious. We can do better than simply preserve the status quo—if you even accept that this is what this merger will do.

Second, this merger has been set on a collision course with the CRTC and with the future of competition more broadly in telecommunications. Beyond the lacklustre future facing mobile customers, there are grave concerns with the tribunal's decision to approve this merger. Consider that in order to get the deal approved, Rogers convinced the tribunal to accept a series of very generous arrangements it set up that ostensibly will help Videotron expand into wireless and home Internet markets in the rest of Canada. I understand that Rogers wants to get bigger, and that Videotron wants to seize this opportunity to expand. These telecom giants are simply doing what they do, but let's not pretend that they're generous to anyone but their shareholders and executives. Rogers' offer of very generous terms for network access is, in short, simply too good to be true.

For starters, what are we to make of a situation in which a dominant firm chooses who its rivals will be and offers them special favours? The fact is that dominant telecom companies like Rogers, Bell and Telus have a long history of using complex agreements like these to their advantage. They dangle these offers in front of regulators and competitors because they're too good to refuse, but the reality is that they use them to control their competitors, not to give them a boost.

By approving these agreements, the tribunal has created a serious conflict. That is because an agreement such as this one, whereby a dominant provider gives special treatment to itself or others, may very well be illegal under the Telecommunications Act. In fact, a complaint has already been filed at the CRTC that credibly alleges that this agreement will undermine competition for home broadband services across the country. I do not believe Parliament could have intended for a deal approved under one act to conflict with the other in this case, but in the meantime the CRTC will be dealing with the mess as this offending merger draws closer to completion.

My last message is that this can all be stopped before it's too late. I continue to believe that this merger will be harmful, but Rogers, Shaw and Videotron have successfully navigated it past the first two of the three barriers it has faced. In my view, the regulators have gotten it wrong, but where they failed, the minister still has a chance to get it right. His role and responsibilities go far beyond simply rubber-stamping corporate deals and selling them as a win to the public. He has broad powers to act in the public interest, powers that allow for a much broader consideration of the public good than the regulators' narrow frameworks permit them.

The minister still has a chance to do what he should have done when the merger was announced, and stop it in its tracks. He has a chance to show these corporations that they cannot run roughshod over the Canadian public and the institutions intended to ensure that our society flourishes.

The path forward for the minister is simple. Instead of giving these companies what they want, he should force them to compete.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Klass.

We'll now turn to Mr. Lacavera for five minutes.

[Anthony Lacavera, Chairman, Globalive Inc.]

Thank you for the invitation to speak with you all today.

The merger is a bad idea, and Canadians know that. Recent Angus Reid polling suggests that eight in 10 Canadians—

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I have a point of order, Mr. Chair. There is no interpretation.

[The Chair, Liberal, Joël Lightbound]

One moment, Mr. Lacavera. We will make sure interpretation is working.

You can go ahead, Mr. Lacavera.

[Anthony Lacavera]

The merger must not be allowed to proceed. Angus Reid polling suggests clearly that eight in 10 Canadians and, in fact, nine in 10 existing Rogers and Shaw customers oppose this merger because it obviously will create less choice and higher prices for Canadians.

Public interest advocates, academics and all sorts of parties oppose this merger. The Conservative Party, the NDP and a number of Liberal caucus members worry that consumers will be directly affected in Ontario, B.C. and Alberta.

The competition commissioner opposes this merger and did so under an act that we all recognize is deficient and is currently being overhauled by this government.

We recommend and we're calling on the minister to step in and block this anti-competitive merger.

Very importantly, there is nothing anti-Videotron about blocking this anti-competitive merger. Once the government saves Canadians from this anti-competitive merger, a fair, open and transparent process can be run for the Freedom Mobile assets.

To the extent that the Shaw family would like to sell them, the government can oversee a process to ensure that they go to a party that is qualified and that will ensure more competition for Canadians.

Again, there's nothing anti-Videotron about blocking this anti-competitive merger; it's just that the only mechanism left after the failure under the old Competition Act is for the minister to step in and decline a wireless licence transfer to Videotron.

Just by way of context and background, we at Globalive have been competing in the Canadian telecom industry for 25 years. We started competing in long-distance services back in the day. We competed in home phone and Internet service and brought prices down in those three categories. Then we founded, built and operated a facilities-based, independent, pure-play wireless carrier called Wind Mobile, and we successfully brought prices down 20%. That meant average household savings of $400 a year, whether you were a Wind Mobile customer or not. We're very proud of what we have achieved for Canadians in the past 25 years in reducing prices.

When we were in the process of continuing to build Wind from zero to almost $500 million a year in revenue, from zero to a million subscribers, from zero and start-up losses to positive $70 million of EBITDA when Shaw acquired the company, we were really committed to the long term and to continuing to build the business.

Unfortunately, in 2015 our governance was such that when Shaw approached the company with an attractive price, we were dragged into a sale to Shaw. We very publicly opposed that sale to Shaw, because our independent pure-play business model was proven and Canadians were voting with their feet. The growth of the business was spectacular, and we'd crossed strongly into positive EBITDA. We were dragged into that sale and, as I said, we opposed it.

To my mind, Wind Mobile was unfinished business. My goal has always been to provide lower prices, better service and more choices to Canadians, in all provinces and territories.

It is very much unfinished business for us. When Rogers announced the proposed acquisition of Shaw, we immediately contacted them and expressed our interest in re-entering the Canadian wireless market. Rogers told us they were not going to be selling any assets—and they were definitive about it—and that, regardless, we would not be entertained in any event.

After a year of pressing Rogers, we finally submitted a funded, all cash, no financing condition offer for $3.75 billion for the Freedom Mobile business. We were looking to re-enter and, again, finish the work and the business we had started.

Rogers did not entertain our offer for the obvious reason that we are an actual competitor. We actually had a track record of bringing prices down. They were permitted—and are being permitted, potentially, with this merger—to select who their new competitor is going to be. In no universe does it make sense for a company like Rogers to be able to select who their competitor is going to be and then prop them up with a series of commercial agreements that we see now may actually be in violation of the Telecommunications Act.

We call on the minister to block this anti-competitive merger. There is nothing anti-Videotron about blocking this anti-competitive merger and saving Canadians from it.

Once the minister steps in and does that, to the extent that the Shaw family wants to sell, the minister—the government—can oversee a fair, open and transparent process that ensures the best outcome for Canadians, and ensure that the acquirer of Freedom is committed to continuing to invest in networks, to buying more spectrum, to building into rural and indigenous communities, to creating more jobs, to bringing prices down for Canadians, and to bringing more innovation to the market, just as we did with Wind Mobile.

Wireless networks are as important as roads in the digital economy, and as such wireless networks need to be affordable, available and accessible to all Canadians.

Thank you. I look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Lacavera.

We'll now turn to our final testimony, from TekSavvy.

The floor is yours.

[Andy Kaplan-Myrth, Vice-President, Regulatory and Carrier Affairs, TekSavvy Solutions Inc.]

Thank you, Chair, Vice-Chairs and committee members for the opportunity to speak with you. I'm Andy Kaplan-Myrth, VP of regulatory and carrier affairs at TekSavvy, which is an independent Canadian Internet, phone and TV service provider. I'm joined by my colleague Jessica Rutledge, who is our regulatory counsel at TekSavvy.

We're pleased that the committee is reconvening to examine the Rogers-Shaw merger in light of how the deal has evolved. In particular, to sweeten Videotron's acquisition of the Freedom Mobile business, Rogers has offered Videotron preferential wholesale terms, such as discounted wholesale access rates and discounted transport capacity. This sweetheart wholesale deal is where TekSavvy can offer a unique perspective.

I'll give you a bit of background on our business model. TekSavvy has been serving customers for over 25 years. We have almost 300,000 customers across Canada. In Chatham-Kent and surrounding communities in southwestern Ontario, we have invested and continue to invest in building our own facilities, including our growing fibre-to-the-home network. In the rest of Canada, we connect customers through a combination of wholesale services that we buy from the large incumbent carriers in their serving areas, including Rogers, Shaw and Videotron, and our own facilities across the country. The CRTC requires incumbents to offer this wholesale access in order to create competition.

In this model, the wholesale rates are the largest cost component of our business. If the rates are too high, we can't offer competitive resale prices.

In 2019, the CRTC found that wholesale tariff rates charged by the incumbents were massively inflated, and they dramatically reduced those rates. While the incumbents' appeals of this decision to the Federal Court of Appeal, to the Supreme Court and to cabinet all failed, the CRTC reviewed its own decision and reverted to almost the same rates as before the process. Unfortunately, cabinet later rejected several petitions to overturn that decision.

Since then, the higher rates have destabilized this industry. Three of the largest wholesale competitors—other than TekSavvy—exited the market within the year, including VMedia, which was acquired by Videotron. TekSavvy is losing customers and has had to put investment plans on hold, including plans to purchase spectrum. The wholesale regime is failing, and consumers have been paying the price. Internet prices in Canada continue to rise, including 13% annual increases for some of the most popular speeds.

Why is this important? The regulated wholesale rates are the context for the Rogers and Videotron arrangements. Rogers could have provided Videotron with wholesale services using the regulated wholesale rates as for any other competitor, but it didn't. It knew that the current wholesale rates would not pass muster for the competition process, since they would not have allowed Videotron to sufficiently compete. Rogers needed Videotron to be seen as a credible competitor to get its merger through.

Instead, Rogers is offering Videotron lower favourable wholesale rates and terms. By doing this, Rogers is tacitly acknowledging that the current regulated wholesale rates are so inflated that they are not feasible to support competition. It's also showing that it can profitably offer rates below the tariff.

Because of the CRTC's failure to set appropriate wholesale rates, large incumbent carriers can leverage the inflated rates that they fought for to work out deals between each other, with preferential terms that would further harm independent competitors.

In short, the largest telecom merger in history is predicated on unlawful and anti-competitive agreements between incumbent carriers. The Telecommunications Act prohibits carriers from granting an “undue or unreasonable preference” to some companies and not to others.

TekSavvy has asked the CRTC to review the Rogers-Videotron wholesale deal, and we're calling on the minister to not approve the deal until the CRTC has made its decision. If our application is successful, the CRTC could void the Rogers and Videotron side deal, or it could require Rogers to offer those same terms and discounts to all competitors.

If we had a properly regulated, robust and effective wholesale regime, we would not need a patchwork of side deals or 10-year behavioural commitments for rates and terms.

If we had workable regulated rates like the lower 2019 rates, Rogers merging with Shaw wouldn't have the same impact, because consumers would have their choice of affordable and competitive options.

If the government addressed the unjust wholesale rates, wholesale competitors would be able to offer lower prices on what is now an essential utility for consumers. This would give consumers' pocketbooks some much-needed relief in today's cost of living crisis.

Thank you again. We look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Kaplan‑Myrth.

We will start our discussion without further ado.

Mr. Williams, you have six minutes.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

Today we have heard from quite a few experts. We're obviously looking at the whole convoluted, complicated situation that we're in. We're looking at a big merger here in Canada.

One thing I start thinking about is how we get the fundamentals right. We're looking, really, at competition as a whole across Canada. Why is competition important? It's because when we have competition, Canadians have choices. They have better service and better prices. That's evidently what should be at the top of all of our minds as parliamentarians right now, especially going through high inflation.

When we look at this, we hear from academics and from experts on the Competition Act who are saying they have done this or they have done the other. The fact of this case that I find most alarming and that concerns me is that Rogers, in looking to buy an asset or a competitor, was given carte blanche in picking who its competitor would be. Rogers, the number one market share holder in telecommunications in all of Canada, was allowed—and Shaw gave it the full authority—to freely go and pick who its competitor would be. Maybe more importantly, it was allowed to decide to pick who it wouldn't be dealing with.

Globalive is here. Distributel is another one, and there might have been others.

Mr. Lacavera, in your own words, do you feel that the divestiture process was fair?

[Anthony Lacavera]

From our perspective, the process was secretive and closed-door. We were not included in it.

Our offer in the end was $900 million higher than the offer Rogers accepted. That's simply because we have a track record of actually competing.

When a company like Rogers is able to select who its competitor is, of course its job—from the ownership's and leadership's perspective—is to select the weakest possible competitor it can that will get approved by government.

Again, this is why we really think government needs to intervene and oversee a fair, open and transparent process.

[Ryan Williams, Conservative, Bay of Quinte, ON]

It wasn't just you. Distributel, as far as you know, was another....

[Anthony Lacavera]

Yes. My understanding is their offer was even higher than ours.

[Ryan Williams, Conservative, Bay of Quinte, ON]

There were others that weren't engaged at all with that divestiture.

[Anthony Lacavera]

That's our understanding.

[Ryan Williams, Conservative, Bay of Quinte, ON]

A lot of Canadians would be alarmed to hear—when we're looking at side deals—that there were a lot of other aspects to this deal.

Mr. Klass, you talked about the share of complementary resources that Videotron would have had with Rogers at the time. In your opinion, can Videotron achieve success with Freedom without the complementary resources they have access to in different markets in Canada?

[Ben Klass]

The fact that Videotron becomes reliant on Rogers for certain types of access puts Videotron in a difficult position.

First of all, we don't know the exact facts of the nature of those access agreements. It's going to have to go to the CRTC to see just how preferential or discriminatory they are.

The fact is that Videotron is relying on Rogers to provide those types of services. That gives Rogers a substantial measure of control. It is essentially inviting Videotron into the club.

Part of the Competition Bureau's stance in this market is that a maverick competitor—a competitor that does not move with the flock—is the best way to achieve competition.

In your initial question you asked how we get back to basics on getting competition and good prices in this market. One answer to that is to remove the dominance of the original providers. These are companies—Rogers, Telus and Bell—that have been in the market for 30 years. They are firmly in control of it. They have maintained a 90% share over even the 10 years of a fourth-carrier policy. I think it's very important that you have a competitor that's not reliant in this way on one of the dominant providers.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Mr. Lacavera, you have some experience from your Wind Mobile days, so I will ask if you agree with TekSavvy that the special network access rates that Rogers has given Videotron are illegal under the Telecommunications Act?

[Anthony Lacavera]

We don't know the specifics right now, but certainly it would seem that during the Competition Tribunal proceedings, they were very clear about how favourable the rates were.

It's pretty clear that Videotron is going to need those preferred rates to be able to compete outside of its core cable footprint. They have the benefit of a network in Quebec. They don't have the benefit of any brand equity or any network outside Quebec.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Do you feel you could have been offered those same rates if you were engaged with them, or do you think that was a special offer?

[Anthony Lacavera]

Rogers doesn't want to see any real competition in the market. I think we would have been challenged to get access to those rates, but in their desperation to try to get the merger approved, we don't really know what Rogers would have offered. What they ultimately offered to Videotron needs to be drawn out now in a proceeding with the CRTC, to see if it actually is undue preference and illegal.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Mr. Kaplan-Myrth, if the CRTC approves the challenge of the Rogers rate deal with Videotron and declares it illegal under the Telecommunications Act, what does the Competition Tribunal's decision look like, given how much emphasis is put on the rate and the tribunal's approval of the merger?