News that the long-anticipated merger between Rogers Communications and Shaw Communications might finally happen evoked starkly different reactions from investors, on one side, and consumer advocates on the other.
The two companies said Monday they have reached an agreement for Rogers to acquire Shaw in a deal valued at $26 billion, including debt. The deal would combine Canada’s two largest cable companies as well as their wireless networks.
The Shaw family controls both Shaw Communications and Corus Entertainment, the parent company of Global News.
The proposed transaction received a warm reaction from market watchers, with investors bidding up both companies’ shares after the announcement. Shaw shares jumped 42 per cent to $34 a share at the market open, although they failed to rise to match Rogers’ offer price of $40.50.
Rogers shares were also up seven per cent at $64 at the open, although the stock had see-sawed significantly later in the day and was trading at around $62 at 2 p.m. ET. But some experts warn the deal could be bad news for consumers.
The merger would give Rogers a “leg up” in competing with Bell as the telecom giants ramp up their investments in 5G, the next generation of wireless technology that experts say will deliver hyper speed and superior reliability, says Will Mitchell, professor of strategic management at the University of Toronto’s Rotman School of Management.
After acquiring Shaw, Rogers will be roughly as big as Bell, and “it’ll have the resources to provide the investment in the West,” Mitchell says.
And the fact that most of Shaw’s activity is concentrated in the west, where Rogers has a limited footprint, means a combined telecom behemoth could be “more efficient,” Mitchell adds.
The two companies said in a joint press release they expect the merger will yield synergies exceeding $1 billion annual within two years of the deal closing. The acquisition would also create up to 3,000 net new jobs in Alberta, British Columbia, Manitoba and Saskatchewan, the companies have said, although it’s not clear whether the transaction will also result in layoffs.
But while Shaw and Rogers aren’t direct competitors in cable and internet because their networks are in different parts of the country, they have been fierce combatants in the wireless sector since Shaw bought the former Wind Mobile, which became Freedom Mobile, in 2016.
As such, the transaction has consumer advocates concerned about wireless prices.
Ontario Hospital Association declares 3rd COVID-19 wave, cites sharp rise in variant cases
Rogers set to buy Shaw in deal valued at $26 billion
Over the past few years, discounts and competitively-priced new offerings from Freedom Mobile have repeatedly forced Canada’s big three telecom companies, Rogers, Bell and Telus, to bring down their own prices, says Laura Tribe, executive director at OpenMedia, a group that advocates for widely available affordable internet.
Eliminating a major competitor in the wireless space “means less competition and ultimately higher prices for consumers,” warns Michael Geist, who holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa.
As part of the proposed merger, Rogers has said it will not increase wireless prices for Freedom Mobile customers for at least three years. But that promise itself “is an indicator that fees are going up,” according to Geist.
The impact of likely price increases would be felt especially by consumers in Western Canada, Tribe says.
The deal is expected to receive extensive probing from regulators, including the Competition Bureau and the Canadian Radio-television and Telecommunications Commission (CRTC), Canada’s tecoms regulator.
But the Shaw-Rogers tie-up is also bound to attract intense scrutiny from politicians, Geist predicts.
“Successive governments, whether Liberal or Conservative, have really framed widespread concerns around the high wireless prices in Canada and around the need for an effective fourth competitor in the marketplace,” he says.
In the 2019 federal election, both the Liberals and the New Democratic Party campaigned on promises to deliver cheaper cellphone and internet prices. The Trudeau government has been publicly tracking cellphone prices, although the data shows price reductions so far have fallen short of the Liberals promised reduction of 25 per cent in every province except for Quebec, which has traditionally been a more competitive market.
And while Canadians have seen some price declines in recent years, they still face some of the steepest wireless bills in the world. A 2020 study by British firm Cable.co.uk, for example, ranked Canada 209 out of 228 countries in terms of the cost of 1 GB of data.
Political pressure from consumers worried about the potential impact of the deal on wireless prices is going to be “intense,” Geist says.
Geist and Tribe also dismissed the notion that a merger would facilitate investment in 5G or spur new efforts to improve connectivity for under-served consumers. As part of the transaction, Rogers has pledged to invest $2.5 billion to build 5G networks and earmark $1 billion for connecting rural, remote and Indigenous communities in Western Canada.
But Geist argues the investment in 5G will come whether or not the transaction goes through.
“The investment is going to come,” he says. “The companies have made it clear to their own investors repeatedly.”
And despite repeated promises to invest in rural connectivity, investment form Canada’s telecom giants have consistently focused on major urban centres, Tribe says.
“The lesson we should be taking from Canada over the last couple of decades is that there is an important role for government to play in terms of facilitating universal, affordable access in all communities,” Geist says.
— With files from the Canadian Press
© 2021 Global News, a division of Corus Entertainment Inc.