Cogeco doesn’t aspire to be fourth major wireless carrier, but it has a plan that may be our last chance at real competition

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“I think it was 2015-one-seven-seven,” said Philippe Jetté, chief executive of Montreal-based Cogeco Inc., stretching his memory to come up with the name of a five-year-old decision by the Canadian Radio-television and Telecommunications Commission that suddenly represents what could be the country’s last chance at a competitive market for wireless internet.

He was right. In CRTC 2015-177, the CRTC determined that the wireless networks owned by Canada’s telecommunications oligopoly were “essential” infrastructure. More importantly, the regulator said BCE Inc., Rogers Communications Inc. and Telus Corp. were obstructing competition and impeding the expansion of rural broadband by demanding unreasonably high wholesale rates. It invited the Big Three to be more co-operative.

The CRTC “told the industry at the time that they would monitor the next four or five years to see how the incumbents behaved, and if the question of competition would change, and if regional and rural areas would be better served,” Jetté said in an interview on March 9. “Well, very little has changed.”

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That’s for sure. City dwellers who tried to do a Zoom call with family back home in the hinterland over the holidays during the pandemic will have learned that the digital divide has never been wider. It could get even wider soon. Rogers, rebuffed when it tried to acquire Cogeco’s Canadian assets six months ago, this week announced it will purchase Calgary-based Shaw Communications Inc. for $26 billion, pending regulatory approval.

It’s the most audacious attempt at coupling by two members of the Canadian corporate elite since Canadian Imperial Bank of Commerce and Toronto-Dominion Bank and then the Bank of Montreal and Royal Bank of Canada tried to merge in 1998; ill-fated gambits that would have left the country at the mercy of three big banks instead of five.

The decision of the late JR Shaw’s heirs to sell his legacy to the Rogers family will disappoint those who had projected their hopes for a fourth carrier onto Shaw Communications, which had teased a desire to grow beyond its Alberta roots by purchasing the company that owned Wind Mobile in 2015. Rather than compete, Rogers opted to remove Shaw from the field, and with considerably less resistance than it faced from the Audet family that controls Cogeco.

Consolidation is the oligopoly’s go-to move. BCE bought Manitoba Telecom Services Inc. in 2017 in a deal that hived off some MTS assets to Telus. RBC Capital analyst Drew McReynolds, who predicted that Rogers would make a play for Shaw, this week said Telus probably will attempt to buy Saskatchewan Telecommunications Holdings Corp. in order to preserve its dominance in Western Canada.

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“The decisions that they make, to limit competition, to stifle innovation, to keep prices high and keep competitors out, those are smart business decisions,” Anthony Lacavera, the Toronto-based venture capitalist who founded Wind Mobile, told the Financial Post this week.

In other words, it would be folly to believe that the telecom oligopoly and its dividend-hungry shareholders will provide an essential service at a reasonable price unless forced to do so by competitive and/or regulatory pressure.

Prime Minister Justin Trudeau’s government could scrap foreign-ownership restrictions that protect BCE, Rogers and Telus from having to compete against companies in their weight class. Those who push that option assume companies such as Verizon Communications Inc. and Orange SA would compromise their ability to compete in their home markets by investing time and money to dabble in Canada.

Regardless, the prospect of the federal government relinquishing its ability to demand favours of the telecommunications industry seems remote now that cyberattacks and digital espionage rank as present dangers. The argument for domestic control of telecommunications remains shaky, to be sure, but it’s more justifiable now than it’s ever been.

Another option would be to block the Rogers-Shaw combination outright, although that would require more courage than politicians and regulators were able to muster when BCE snatched MTS.

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The elegant solution would be to embrace Cogeco’s pitch for regulated access to incumbent networks.

Jetté said he would have done more to encourage wireless competition if BCE, Rogers and Telus had been willing to relinquish some of the monopoly rents they have been harvesting for decades. Cogeco, the second-biggest cable operator in Ontario and Quebec by a number of customers, would like to add a wireless service by purchasing access to either the Rogers network or the system that BCE and Telus share. But the oligopoly refuses to co-operate.

“We’ve been trying for years to partner with them,” Jetté said. “They don’t want anyone else in the ecosystem. They would like to keep it closed.”

The Big Three have been open about their disdain for having to make room on their networks for resellers such as TekSavvy Solutions Inc. that invest little in network infrastructure. Jetté is sympathetic, which is why he told the CRTC that companies such as Cogeco should be granted favourable wholesale prices only if they also promise to invest in expanding the reach of Canada’s wireless networks.

“We will invest and, at the same time, work in partnership with the existing network,” he said.

One thing has changed since the CRTC’s 2015 decision: the stakes.

The COVID-19 crisis accelerated the shift to a digital economy to right now from right around the corner. Everything from Canada’s ability to deliver health care to its economic competitiveness will be determined by the investment and policy decisions made during the months ahead. Laggards will be left behind.

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Earlier this year, Walid Hejazi, an associate professor at the University of Toronto’s Rotman School of Management, conducted a course in international business that had his students team with counterparts from schools in China, Singapore and Italy to develop a plan to export a Canadian product to the world, or import something from the world to Canada.

Outside academia, Mednow Inc., a Vancouver-based virtual pharmacy, raised $37 million in an initial public offering ahead of its listing on the TSX Venture Exchange earlier this month. Internet sales by Canadian retailers increased 111 per cent in January from a year earlier, to $3.5 billion, Statistics Canada reported on March 19.

The future is now. But the digital life is inaccessible to anyone who lives outside sufficiently populated areas, another reason to question the latest BCE, Rogers and Telus promises that they are committed to rural broadband.

“We do a lot of banking in northern communities, Indigenous communities, and if you use an online banking app in some of those communities, your screen times out before you actually approve a transaction,” Keith Martell, chief executive of Saskatoon-based First Nations Bank of Canada, said during a virtual conference hosted by the Canadian Chamber of Commerce last month.

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Jetté was unavailable for a second interview after the Rogers news, but Cogeco’s spokesperson Nancy Bouffard said the deal “as structured, should worry Canadians.”

Bouffard declined to comment on speculation that Cogeco would be interested in buying Freedom Mobile if Rogers was forced to sell it to win regulatory approval. In the interview, Jetté said he was focused on becoming a viable competitor in rural Ontario and Quebec, and that he assumed other regional players would step up if the CRTC sets wholesale prices.

“It has to be mandated,” he said. The incumbents “have no incentive to see other players in the market.”

Financial Post

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