Rogers and Shaw Sell Freedom Mobile to Videotron in Midst of Effort to Merge

Rogers and Shaw have finalized a deal to sell Freedom Mobile to Videotron. This as they try to appease lawmakers in their merger bid.

The push to turn Canada’s telecom industry into a noncompetitive triopoloy continues. It started in March where Rogers announced that it was buying Shaw for $26 billion. The move would further reduce the laughably noncompetitive telecom market from 4 players to a pathetic 3 players: Telus, Rogers, and Bell. This is happening as Canadian’s pay some of the highest cell phone rates in the developed world.

Already, the only real competition in the market these days is who can get away with charging Canadian’s the most while regulators turn a complicit blind eye to the market abuse. A recent effort was made by Telus who has filed a submission to jack rates up by a whopping 1.5% for anyone paying with a credit card.

Still, the effort to reduce competition further in the sector has run up against resistance. Canadians and experts agree that this deal is a bad one for Canadians. That resistance has paid some dividends as a recommendation out of the Competition Bureau said that the deal should be blocked. This despite the regulatory captured CRTC rubberstamping the deal.

While the story did die down a bit for a while, an outage last month renewed calls to block the deal. When a single non-power related outage is capable of shutting down whole chunks of the Canadian economy, you have a problem. There’s just no way of getting around that. Rogers, for their part, tried to turn the whole story around by saying that the government should let them go through with the deal. Only then, in their minds, would the next outage not shut down the Canadian economy. Suffice to say, that asinine move didn’t really work all that well. Shortly after, the deal got pushed to the end of the year.

Of course, in parts of the debate, one theory floated around that if Freedom Mobile was spun off, that it would increase the chances that regulators would agree to let the monopolistic merge to move forward. Freedom Mobile, as you might recall, was once called Wind Mobile. It was part of a previous effort to bring a hint of competition into Canada. Unfortunately, the traditional regulators successfully lobbied the government to put up as many regulatory roadblocks as possible. Eventually, investors finally had enough and bailed, leaving Wind Mobile to be bought up by Shaw after the efforts to start up in Canada failed. Freedom Mobile does have a presence in a part of the country still – conveniently close to where lawmakers conduct government business.

So, it seems that Shaw decided to go forward with spinning off Freedom Mobile in an effort to convince lawmakers that this small offering will be enough to convince them to approve the deal. From CBC:

Rogers Communications Inc. and Shaw Communications Inc. have finalized an agreement to sell Freedom Mobile to Videotron, a unit of Quebecor Inc., the companies said on Friday, paving the way for a potential merger of Canada’s biggest telecom companies.

“This agreement with Quebecor brings us one step closer to completing our merger with Shaw,” Rogers Chief Executive Tony Staffieri said.

The companies said the Freedom Mobile deal was subject to regulatory approvals and closing of the Rogers-Shaw merger.

Terms of the deal, which include Freedom Mobile’s branded wireless and internet customers, infrastructure, spectrum and retail sites, were in line with the terms agreed to in June, when Quebecor agreed to buy Freedom Mobile for $2.85 billion.

As you can tell by the price tag, that is barely above 10% of the original asking price of Shaw as a whole. It is one of many signs of how comparatively small Freedom Mobile is to the rest of the Shaw operations. It’s unlikely that Freedom Mobile would really make much of a dent in the rest of the market. It’s comical that the selling of Freedom Mobile hinges on the merger being successful as well. What’s more, is there really anything stopping Rogers from just buying back Freedom Mobile down the road anyway? After all, for all we know, this spinoff move is really just setting aside a small operation for safe keeping until the heat is finally off more than anything else. Even if it wasn’t, the market implications of losing nearly 25% of the remaining “competition” is going to have profound negative implications for the rest of the market.

At any rate, the move should really not change anything. Everyone (except maybe some politicians) knows that the deal shouldn’t move forward. We’ll have to see if lobbying, once again, overrules common sense in yet another situation or if sanity will rule the day. The deal is still waiting final approval.

Drew Wilson on Twitter: @icecube85 and Facebook.

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