Rogers and Shaw ink C$2.85 billion deal for Freedom

Canadian telcos Rogers and Shaw have inked a deal for the sale of the latter’s Freedom Mobile arm, a move they hope will give them the freedom to push ahead with their merger plan.

The telcos have agreed to sell Freedom Mobile to telecoms and media company Quebecor for C$2.85 billion, on a cash-free and debt-free basis. Quebecor was one of a number of firms reportedly interested in acquiring Freedom Mobile, and while there was talk of higher offers from elsewhere, the regional operator has clearly taken the opportunity to boost its presence in the Canadian mobile market.

Quebecor, as its name suggests, is based in Quebec and is a big name within the province, but is less well known further afield. In its recent first quarter results announcement, the company claimed to have a 22% share of the wireless market in Quebec and made it clear that it has ambitions to replicate this success elsewhere, whether it be through the acquisition of Shaw’s mobile assets, or the rollout of greenfield services in other provinces in which it has acquired spectrum.

“We believe that these alternatives position us very favourably, as governmental and administrative authorities, including the Canadian Radio-television and Telecommunications Commission, pursue the public policy of establishing the conditions for true competition in wireless services in Canada,” the company said.

And that’s ultimately what this situation is all about: Rogers and Shaw signed their merger agreement well over a year ago but, as you might expect, the regulatory process is taking some time, because the relevant authorities are concerned about protecting market competition.

The CRTC has given the go-ahead for Shaw’s broadcasting licences to be transferred to Rogers, subject to various conditions, but there are still hurdles to be overcome. Last month, Canada’s Commissioner of Competition Matthew Boswell said he intended to block the deal and while legal action was ultimately avoided, the telcos have yet to gain a favourable answer from the Competition Bureau.

Competition concerns are largely around the state of Canada’s wireless market, and the telcos have maintained all along that they believe that selling off Freedom Mobile will allay any such fears. Videotron’s bullishness on its own mobile ambitions, coupled with the proposed Freedom buy, may well be enough to do just that.

“The Freedom Transaction will ensure the presence of a strong and sustainable fourth wireless carrier across Canada,” Rogers, Shaw and Videotron noted in a joint statement. “The parties strongly believe the agreement effectively addresses the concerns raised by the Commissioner of Competition and the Minister of Innovation, Science and Industry regarding viable and sustainable wireless competition in Canada.”

Few would describe competition in the Canadian mobile sector as ‘viable and sustainable’, aside from the regulators themselves, who have been talking up their own efforts to wrest power from the big three for years without much real impact on the shape of the market. However, Quebecor – which has built out its own network in Quebec and currently relies on roaming agreements elsewhere – is certainly making the right noises about becoming a competitive force in Canada.

“This is a turning point for the Canadian wireless market,” declared Quebecor president and CEO Pierre Karl Péladeau.

“Quebecor’s Videotron subsidiary is the strong 4th player who, coupled with Freedom’s solid footprint in Ontario and Western Canada, can deliver concrete benefits for all Canadians,” Péladeau said. “We have always believed that for there to be healthy competition in wireless services only a player with a proven track record can successfully enter the market.”

Consumers in Canada are doubtless hoping that Péladeau is correct, but it will be some time before the impact – or otherwise – of Quebecor’s expansion plans is felt. First, the Freedom Mobile deal requires regulatory approvals… and is also dependant on the Rogers-Shaw merger getting the green light; the transactions are set to close concurrently. So now it’s over to the regulators.

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