Why Champagne’s intervention in the Rogers-Shaw merger rings hallow

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At 5.30 pm on Oct. 25, Industry Minister François-Philippe Champagne announced that he was denying the wholesale transfer of wireless spectrum licences to Rogers Communications Inc. from Shaw Communications Inc.

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Champagne’s intervention came on the eve of the parties of the proposed Rogers-Shaw merger beginning mediation with the Competition Commissioner. The minister said his “only concern is to provide better prices for Canadians.”

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In effect, Champagne was setting the terms of the deal he would ultimately approve, placing some pressure on the Competition Bureau to settle on those terms.

At first, the instinct may be to cheer Champagne for intervening on a crucial competition case that has been painfully playing out over the past 19 months. But deeper reflection suggests the move could be more like kabuki political theatre. This isn’t a government that is as serious about competition as it sometimes professes to be. Champagne pledged to review the Competition Act in February 2022. Eight month later, the review has yet to begin.

If Champagne truly wanted to take action to provide better prices for Canadians, then he could kill the entire merger and move forward with a comprehensive (and overdue) review of the Competition Act. Instead, it’s possible to interpret this week’s move as low-key bullying Competition Commissioner Matthew Boswell into doing what the government wants. It brings to mind former commissioner John Pecman’s argument that the bureau needs more independence and should not be nested within the Industry Department.

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Even if Champagne didn’t intend to influence Boswell, some will interpret it that way. A clearer separation would avoid such conflicts.

Rogers and Shaw sought to make their combination for palatable by agreeing to sell Shaw’s Freedom Mobile assets to Quebecor Inc.’s Videotron. Champagne said he wants guarantees from Quebecor that it was committed to competing with Rogers and the other big telecommunications companies. Yet a quick look at the Freedom Mobile website suggests that a customer can get 20GB for $45 per month. The Videotron website offers 20GB for $50 per month — and only if you bundle the internet. It appears customers would be better off with the current constellation of providers, not one that removes Shaw from the marketplace.

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Canadians are dealing with real cost-of-living pressures in this inflationary period. Many causes of inflation are beyond the government’s control, but authorities do have some tools they could use to make a difference. The federal government is taking quick action to deal with rising prices targeted at the most vulnerable, including increasing the GST rebate and the housing benefit. But these are cash transfers meant to offset rising prices. They do not actually address rising prices themselves, though the Competition Bureau’s study on the grocery sector could help.

At the same time, the government must know that monopolistic behaviour and a lack of competition contribute to higher prices. In fact, the prime minister’s mandate letter to the Champagne asks him to, “undertake a broad review of the current legislative and structural elements that may restrict or hinder competition. This includes directly reviewing the mandate of the Commissioner of Competition [to]…ensur[e] that Canadians are protected from anti-consumer practices in critical sectors, including…telecommunications.”

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So, the government has acknowledged that the Competition Act is no longer fit-for-purpose, and it moved forward with initial amendments earlier this year. The assumptions and standards embedded within the act have not been critically examined for about fourteen years, and the act itself was introduced back in 1986. This includes the controversial  “efficiencies defence,” which allows for mega-mergers that result in higher prices if the acquiring company can demonstrate other efficiencies.

As competition researcher Robin Shaban pointed out earlier this year, “no other major jurisdiction on the planet has an efficiencies defence for mergers that permits monopolies and is so blatantly unfair to consumers and workers.” The evidence on the failure of the Competition Act to stop some kinds of uncompetitive behaviour that drive up prices is overwhelming. On top of that, since its creation, the Competition Bureau has never won a merger case on final judgement.

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There is an immediate threat about to make the situation worse, and it’s not limited to spectrum considerations. The Rogers-Shaw merger is about to decrease competition, decrease choice, lead to layoffs and very likely increase prices for Canadians. The Competition Bureau was very clear: the merger would eliminate a low-cost provider and reduce competition and choices for many consumers across the country.

To put this all in context, the Government of Canada recognizes the problem of corporate concentration, has acknowledged the policy deficiencies that the Competition Bureau frequently raises, and has committed to launching consultations on overhauling the Competition Act. Logically, it therefore would be a mistake to allow the merger to go through because the act is currently too weak to meet the realities of our contemporary economy.

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Are politicians waiting for one of the largest mergers in Canadian history to conclude before going ahead with their investigation? With Champagne’s announcement, it seems clear that the bureau needs more intellectual and policy independence from the government, especially considering it’s been widely reported that the current minister may harbour greater political aspirations in Quebec, making it too easy to assume — again, rightly or wrongly — that his decisions involving a powerful Quebec-based company are political.

There is a clear solution. The minister could agree with the analysis of the Competition Bureau, honour the spirit of his mandate letter, and offer a real response to Canadians’ concerns about rising prices by killing the Rogers-Shaw merger, and get on with a review of the Competition Act.

The only political intervention that competition in Canada needs right now is that review. The commissioner outlined three very basic priorities last week in a speech at the Canadian Bar Association’s Competition Law Fall Conference: merger reform, timeliness, and inadequate powers regarding market studies. Peer jurisdictions are revolutionizing their competition regimes with a citizen-first approach that privileges the public interest. For now, Canada seems content to gesture and pantomime, at the price of meaningful reform.