A government-mandated reduction in wireless prices by Canada’s three largest carriers had “significant and detrimental effects” on Shaw Communications Inc.’s Freedom Mobile, a Shaw executive told the Competition Tribunal hearing into the telecom’s proposed $26-billion merger with Rogers Communications Inc.
Shaw president Paul McAleese told the tribunal that Ottawa’s request in 2020 that Rogers, BCE Inc. and Telus Corp. reduce the prices of their mid-tier cellphone plans over two years was “singularly the most traumatic event for the Freedom pricing construct.”
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Freedom Mobile typically charged about 25 to 30 per cent less than its larger competitors on account of having a “less mature” wireless network, Mr. McAleese said. That left the carrier in a difficult position when BCE’s Bell, Telus and Rogers dropped the prices of their mid-tier plans – those offering between two and six gigabytes of data.
“Suddenly we found ourselves, at the earlier part of this year, with very little discount, if any, compared to the availability of a broader and higher-quality national network,” Mr. McAleese said.
Mr. McAleese testified as part of a weeks-long hearing into the proposed merger of Canada’s two largest cable companies. Shaw’s role as a disruptive wireless competitor – both through its Freedom Mobile carrier and its Shaw Mobile brand – is a key issue during the hearings.
Rogers and Shaw have agreed to sell Freedom Mobile to Quebecor Inc. for $2.85-billion in order to prevent the deal from eliminating Canada’s fourth-largest wireless carrier.
The Competition Bureau is attempting to block the merger, arguing the deal will result in higher wireless prices and that Freedom will be a weakened competitor in Quebecor’s hands.
Rogers and Shaw have argued that combining their cable networks will create a tougher internet and television competitor for Telus in Western Canada and that Quebecor’s acquisition of Freedom will improve competition in the wireless industry.
During cross-examination, lawyers representing the Competition Bureau highlighted the large payments that top executives at Shaw, including Mr. McAleese, will receive if the deal closes.
Mr. McAleese is set to receive a $5-million retention award for staying at the company until the deal closes. The award is paid only if the merger is successful. A separate document that counsel for the bureau pointed to lists a $12.7-million payment to Mr. McAleese as a result of a change in the company’s ownership.
Trevor English, Shaw’s chief financial and corporate development officer at Shaw, is set to receive a $7.5-million retention award. His “change of control” payment is listed as $12.9-million.
Earlier on Tuesday, during cross-examination of Mr. English, a Competition Bureau lawyer pushed back on suggestions that Shaw was in a troubled financial position prior to the merger.
On Monday, Mr. English told the tribunal that Shaw has not recouped the $4.5-billion it has invested in its wireless business since 2016, and that its share price has been essentially flat for 10 years as it has lost market share in its internet and television business to Telus.
Alexander Gay, counsel for the competition watchdog, pointed to the Shaw’s 2020 financial statements, which showed the company generated free cash flow of $750-million and returned $750-million to its shareholders through share buybacks and dividends.
“I’m having difficulty squaring that off with the proposition that somehow there’s a financial problem at Shaw,” Mr. Gay said. “Seems to me, these aren’t the actions necessarily of a company that’s in financial distress.”
Mr. English responded that the company is not in financial distress.
“It was about the long-term challenges that we were facing within the business from a strategic and operational perspective,” he said.
The hearings are scheduled to continue into December.
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