Opinion: Canada’s telecom Family Compact wins again

There are two main conclusions to be drawn from this week’s Federal Court of Appeal decision rejecting the Competition Bureau’s request to block Rogers Communications’ takeover of Shaw Communications. Neither of them makes Canada look good.

The first is that the federal Competition Act is a toothless international embarrassment, wholly incapable of stopping corporate concentration in sectors that are critical to productivity growth in the Canadian economy.

The second is that the way this country regulates telecommunications puts way too much emphasis on stability and too little on innovation.

Bay Street loves this. The telecommunications industry is no different from other sectors of the Canadian economy that make the Family Compact, which ruled early 19th-century Upper Canada, look wonderfully democratic. In this country, we shield our telecom, banking and transportation oligopolies from foreign and domestic competition; in exchange, they use their market power to extract exorbitant rents from consumers to pad the pockets of shareholders, Bay Street brokers and lawyers, and the lobbyists in Ottawa who ensure this cozy arrangement is never upset.

Canadian wireless operators generate more revenue per gigabyte consumed than those in any of the 44 countries studied last year by U.S. telecommunications consulting firm Teleficient. Wireless customers in Britain, Australia and France pay about one-third of what Canadians fork out each month, whether they consume 5GB or 50GB.

If this was only about couch potatoes streaming Netflix on their iPhones, there might not be much to get riled up about. But no modern economy can reach its potential without abundant and affordable access to telecommunications services.

Yet Competition Commissioner Matthew Boswell was derided on Bay Street as a party-pooper for challenging Toronto-based Rogers’ $20-billion deal to buy Calgary-based Shaw. Mr. Boswell arguably made a strategic error in insisting that the Competition Tribunal should have only ruled on the original Rogers-Shaw application, instead of considering the amended deal that included the sale of Shaw’s Freedom Mobile unit to Montreal-based Quebecor. But no one can fault him for that. He had a weak hand he had to play, given our deeply flawed Competition Act.

“To make an order blocking the overall transaction, the tribunal would have had to find that it would be likely to prevent or lessen competition substantially,” the Federal Court of Appeal noted in its ruling this week. “Close this case was not.”

Ottawa has undertaken a review of the Act, the first in 15 years, suggesting the SLPC (substantial lessening or prevention of competition) threshold “may be unduly strict.” Clearly it is, when all that is required for approval is showing that a merger will not make an already anti-competitive situation even worse.

The court went so far as to declare the overall transaction, including Quebecor’s $2.85-billion deal for Freedom, to be “pro-competitive.” But that assertion was predicated on a side deal under which Rogers will provide Quebecor’s Videotron unit with access to its network infrastructure at “very favourable” rates that are below the wholesale tariffs set by the Canadian Radio-television and Telecommunications Commission. This sweetheart arrangement is being challenged before the CRTC by Chatham, Ont.-based TekSavvy, an independent internet service provider, or ISP.

In 2021, the CRTC reversed a 2019 ruling that would have forced incumbent telecom behemoths to reduce the broadband wholesale rates they charge to independent ISPs that access their networks. Bell, Rogers and Telus complained the lower rates would discourage them from investing in new infrastructure. The regulator obediently rolled over.

Since then, independent ISPs have become an endangered species.

“The Rogers-Shaw deal does not benefit Canadians,” Matt Stein, the head of Ottawa-based Distributel, told the House of Commons industry committee in 2021. “If it proceeds it will benefit only those two companies and Bell and Telus, unless our government and its regulators get on the same page about the need for service-based competition.” In September, Bell swallowed Mr. Stein’s company.

In its 2022 report on the Rogers-Shaw transaction, the industry committee recommended that the federal government “examine the implementation of structural separation in the telecommunications sector between businesses that build infrastructure and those that provide services in order to ensure a level playing field.”

Governments in several European countries have opted for this model. Britain and Australia have also moved in this direction. “Structural separation would limit overbuilding and enable governments to target their investments to build the missing infrastructure in rural and remote communities,” the committee report said. “This would promote network sharing.”

Strict functional separation, or requiring telecom incumbents to operate their infrastructure and service divisions as independent entities and provide access to their networks to affiliated and third-party providers on equal terms, would also shake up our current Family Compact.

Bell, Rogers, Telus and Quebecor would hate that. So would Bay Street. Which is why it will likely never happen.