Will the Content Tail Wag the Wireless Dog? The Rogers/Shaw Merger in Canada

Credit: Author

Nowadays it is not uncommon for major telecommunications companies (telcos) to provide infrastructure in the form of wireless, wireline and fibre optic, cable and satellite connectivity while also directly controlling some of the content distributed via this infrastructure. Think AT&T/Warner Media, NBC Comcast, Sky (owned by Comcast) and, in Canada, Bell Canada and Rogers Communications. In addition, even telcos that are not vertically integrated play a gatekeeper role for content providers (except for content providers that reach audiences through streaming) through their control of distribution platforms. Therefore when telcos merge, there can be significant implications for content providers.

This is the situation in Canada with the proposed acquisition by Rogers of Shaw Communications, a merger estimated at CAD$26 billion. For those not familiar with the Canadian telecommunication and broadcasting landscape, Rogers is a major provider of cable and internet services, primarily in Ontario and Atlantic Canada, and operates one of the four national wireless (mobile phone) networks. Rogers also owns a number of TV stations such as CITYtv in Toronto, the multicultural OMNI channel and sports channels. Shaw is a leading cable and satellite provider in addition to operating a wireless mobile phone division, based in Western Canada. If the merger is approved, Rogers would acquire Shaw’s cable networks in Western Canada, and its national mobile phone division known as Freedom Mobile plus a number of community broadcast channels. Shaw also used to own major content assets, such as the Global TV network, (one of two major private national TV networks in Canada) but spun them off to Corus Entertainment in 2016 although the Shaw family maintains a controlling interest in Corus (but as a separate entity).

Despite Shaw no longer controlling media assets, opponents of the merger–among whom are (to no-one’s surprise) Rogers’ main telco competitors Bell Canada, (itself a vertically integrated company that controls Canada’s other major private TV network, CTV, along with a number of specialty general interest and sports channels and a Pay Per View service called CraveTV), and Telus Corp—are claiming that if allowed to proceed, the combined Rogers/Shaw company would dominate the Canadian television distribution landscape, controlling 47 percent of English-language broadcast subscribers in Canada. According to testimony provided by opponents of the merger, the transaction will give Rogers a dominant position in negotiations for carriage with independent channels, leading to reduced revenues for Canadian content producers.

The real issue is really not about broadcasting, however. It is all about wireless. The Government of Canada has long pushed to have 4 major competing national wireless networks as a means of promoting more competition in the market. Critics are constantly pointing out that Canadian consumers pay some of the highest cell phone rates in the world, and the government wants to change this. What Canadian consumers enjoy right now could be characterized as access to 3 ½ networks; Bell, Telus, Rogers and Shaw’s Freedom Mobile as a weak fourth. Shaw bought the fourth carrier, then known as Wind Mobile, in 2016 after its previous owners found they did not have the deep pockets needed to compete with the “Big Three”. The government had done policy backflips in order to allow Wind to come into existence, making exceptions to the policy that mobile carriers had to be majority Canadian owned, with foreign ownership limited to 33 percent. When Shaw finally stepped in to takeover Wind (selling its media assets to finance the purchase), policy makers breathed a sigh of relief. However, even Shaw could not get the fourth network up to scale and with the need for further major investment to build out 5G technology, the folding of Freedom Mobile into one of its three big rivals began to look inevitable. Rogers got there first.

The combination of Shaw’s market predominance in the west with Rogers strong base in Ontario makes a lot of market sense, unless you happen to be a competitor or perhaps a consumer. Cell phone plans will not go down in price, but at least a combined Rogers/Shaw operation can compete with Bell and Telus in terms of rolling out 5G. The real issue with the merger is going to be whether it will advance or impede competition in the wireless market. That call will be made by the Competition Bureau, which has already called for submissions. (It is not the practice of the Bureau to hold public hearings.) However, unlike the Competition Bureau, the Canadian Radio-television and Telecommunications Commission (CRTC)—the regulator–has recently completed public hearings to review the merger from the perspective of its implications for broadcasting.

While the CRTC is responsible for both broadcasting and telecommunications regulation, it has determined that it has no need to review the telecommunications aspects of the proposed deal. According to the CRTC;

“…the transaction also involves Shaw’s wireline telecommunications services (including home telephone and Internet), wireless telecommunications services (including wireless telephony operating under the brands Freedom Mobile and Shaw Mobile), and business automation and security. The present application does not include these services since the change in ownership of these elements does not require prior approval from the Commission. However, these elements will be subject to review by the Competition Bureau and Innovation, Science and Economic Development Canada.”

While Telus and Bell will certainly oppose the merger in their submissions to the Competition Bureau based on their opposition to consolidation of wireless and wireline phone and internet services, since the CRTC’s review was focused only on broadcasting, that is where they aimed their guns in the public hearings. While the merger entails the acquisition by Rogers of very few direct broadcast content assets (just a few Shaw community channels), the real impact will come when/if it takes over Shaw’s cable and satellite distribution. This will result in one less platform available to content providers (although perhaps the combined platform will have as many or more subscribers), a concern for smaller, independent channels.

Prime space on platforms is limited. Ideally, from the perspective of a small independent channel, the CRTC would give it “must carry” status, meaning in effect it will get a few cents from the platform for every sub whether or not it has much of an audience. Providing diversity of content is the main argument for such a practice. If not a “must carry” then an independent channel must negotiate for carriage with the platform and a Rogers/Shaw merger not only gives the new combined platform considerable market share and consequently power, but also means one less platform for the content providers to negotiate with. It is not surprising, therefore, that several CRTC interventions were made on behalf of independent content providers seeking guarantees of carriage. In particular ethnic media channels, such as TLN Media Group and the Ethnic Channels Group expressed concern that their content could be shut out from an enlarged Rogers platform.

Concern was also expressed by another Rogers competitor, Telus Corporation, about the impact of the merger on Global News, one of Canada’s three private news networks (Rogers’ CITYtv and Bell’s CTV being the others). Global, formerly owned by Shaw but now owned by Corus Entertainment (which as noted above is still controlled by the Shaw family but as a separate entity) currently receives $13 million annually, or about 10 percent of its budget, from Shaw. Shaw is required by the CRTC to contribute to Canadian programming (even though it does not directly own any commercial channels) and is permitted to direct part of its mandated contribution to local news production, which it does through its contribution to Global News. Rogers is proposing to instead redirect these funds to its own network, CITYtv, which has a very limited presence in western Canada. So why would Telus, a major telco but one which owns no media assets and has no connection with Global News, suddenly be so concerned about a network ultimately controlled by the Shaw family, one of its biggest rivals? The answer is that anything that Telus or Bell can do to put a spanner into the works of a Rogers/Shaw merger is worth raising as an issue.

In response to the various criticisms, Rogers agreed to increase the number of independent channels it will carry from 40 to 45, but rejected demands for revenue guarantees. As for being required to continue to fund Global, a Rogers spokesperson said it was hard to “get our head around” the idea of funding a rival network to its own CITYtv. Eventually, sometime in the new year, the CRTC will issue its report. It will likely consider imposing some requirements on Rogers to continue to ensure the vitality of Canadian specialty channels, but these will just be road-bumps for Rogers. The CRTC could in theory recommend that the merger not be permitted to proceed because of the extent of control it will give Rogers over English language broadcasting content distribution in Canada, but this would truly be a case of the content dog wagging the wireless dog.

The real review will be the one conducted by the Competition Bureau. The Bureau’s examination scope is wide, covering mobile wireless services, internet service, fibre transport service, supply of television programming and broadcasting distribution services. However, it is expected to focus primarily on wireless and internet issues. The Bureau could possibly require that Rogers divest Shaw’s Freedom Mobile and not absorb it into Rogers own mobile platform. That seems unlikely as it raises the question of who would buy it. A forced spinoff could cause the entire deal to fall apart and besides, there aren’t many potential suitors for the struggling fourth mobile network. Despite years of government effort, Canada’s wireless market will likely continue to be dominated by the Big Three of Bell, Telus and Rogers, and Canadians will probably continue to complain about the cost of wireless plans. One potential solution is for the CRTC to force the Big Three to open their networks to smaller operators who “ride on top” of their networks. These independents are known as MVNO’s (Mobile Virtual Network Operators). Not surprisingly the big telcos are very resistant to giving these competitors an opening.

In the final analysis, wireless concentration is the major issue that will be addressed in this merger. Despite the not insignificant implications for broadcasting, the CRTC’s review late last year was, frankly, a side show to the main Competition Bureau event.

© Hugh Stephens 2022. All Rights Reserved.

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