Good success at Quebecor, but the competition lost

To know if a transaction will turn out to your advantage, sometimes all you have to do is look at who is clapping.

The largest telecom company in the country, Rogers, has just fought for two years to acquire 86% of the assets of the fourth telecom company, Shaw. The federal government approved the transaction on Friday.

While Rogers shareholders are popping the champagne, the Trudeau government is trying to make us believe that this $20 billion mega-deal will improve competition and lower prices in Ontario and Western Canada.

Nice try, but we won’t fall for the trap. Without being catastrophic, this transaction is not good news for consumers either. It is no coincidence that the Competition Bureau opposed it.

In Canada, telecoms are an oligopoly where there is little competition. Our wireless plans are therefore among the highest of the G7 countries.

At the risk of displeasing the shareholders of Rogers and Shaw, we will (re)state it bluntly: the Trudeau government should not have approved this transaction, which will reduce competition in the short term in wireless (Rogers and Videotron effectively separate Shaw’s wireless customers^⁠1). Even if Ottawa has made commendable efforts to reduce the harmful consequences.

Admittedly, the federal Minister of Industry, François-Philippe Champagne, refused the first version of the transaction where Rogers bought Shaw in full (it would have been catastrophic!). In the final version, Videotron acquires a portion ($2.85 billion) of Shaw’s wireless assets and will enter as the fourth player in Western Canada and Ontario. He promised to offer 20% cheaper packages, like in Quebec. It is not for nothing that Telus, number one in British Columbia, opposed this transaction.

Admittedly, Ottawa brought Rogers and Videotron to guarantee its commitments by contract with penalties, up to 200 million for Videotron and one billion for Rogers.

Admittedly, the federal government is freezing any possibility of a new telecom transaction and will reassess the regulations to promote competition.

But in the end, the numbers don’t lie: initially, Quebecor will be less threatening than Shaw was before the announcement of the transaction in March 2021. In the short term, this is a setback for the competition.

The hope is that Quebecor will become the fourth player so dreamed of in English Canada for a decade. As it has been since 2011 in Quebec. With the result that the prices of wireless plans are 20% cheaper there than elsewhere in the country.

Quebecor, an efficient, formidable and experienced telecom company, is capable of this. We wish him good luck in this expansion, both for consumers in English Canada and for Québec inc. It’s always good news when a Quebec company shines outside Quebec.

For Quebec consumers, the Rogers-Shaw transaction changes almost nothing (Shaw was not present in wireless in Quebec).

So much the better if the wireless market in Western Canada and Ontario improves and prices start to resemble those in Quebec.

But that doesn’t mean that everything is perfect in Quebec, where packages are generally more expensive than in Europe. So there is room for improvement here too. “Prices could be lower. You must leave [les entreprises] their comfort zone,” says Pierre Larouche, professor of competition law at the Université de Montréal.

How to get there? Minister Champagne will reflect on this over the next few months.

An obvious solution at first glance: encourage more consumers to migrate to lower-cost brands such as Fizz (Videotron), Virgin (Bell) or Public Mobile (Telus). It’s not a perfect solution. These brands are owned by large corporations who don’t have as much incentive to eat into profit margins as true independent players.

Low cost brands use the same network as mainstream brands. So in theory, they offer the same quality product (except for a 3G package). In practice, this is not well enough known to consumers. And the CRTC should get involved to ensure that the product is of the same quality.

The other solution is to add competition. For example with the “virtual mobile network operators” (MVNO), which connect (by paying) to the networks of the major telecom companies and offer cheaper packages. In the US, Mint Mobile’s plans start at $15 per month for 4G and 5G.

The CRTC made a compromise last year: companies with a wireless network somewhere in Canada will be able to act as MVNOs across the country on the networks of its competitors. Cogeco would thus consider launching into wireless in Quebec and Ontario.

On the other hand, die-hard MVNOs (like Mint Mobile) cannot operate in Canada.

Minister Champagne says that “everything is on the table” to have more competition and lower prices.

We will soon see if these are fine words or if Ottawa is serious this time.