Shaw-Rogers spectrum deal shafts Canadians

06 Feb
So happy together: Jim Shaw and Ted Rogers years ago.

So happy together: Jim Shaw and Ted Rogers years ago.

It’s times like these when you can’t help but feel for politicians. Almost.

Despite the federal government’s best intentions, Canada’s wireless market just isn’t turning out how it hoped, as evidenced by the recent announcement of a spectrum deal between Shaw and Rogers, two supposedly competitive companies. Rogers says it is buying spectrum licenses and Hamilton, Ont.-based Mountain Cablevision from its Calgary-based “rival” for a cool $700 million.

For the government and the general public, the whole deal stinks something fierce.

Five years ago, after months of lobbying from potential new market players including Shaw, the federal government thought it was pretty clever by announcing rules for a spectrum auction that favoured more wireless competition. Desperate to break the Big Three’s stranglehold on services and prices, Ottawa reserved 40 per cent of the licenses for bidders not named Bell, Rogers and Telus.

Shaw jumped in and spent $190 million on licenses, stirring hope that Western Canadians would have another choice for cellphone service.

Continuing its expansion, Shaw then bought Mountain in 2009 for $300 million. The acquisition was odd, since it meant Shaw was venturing outside its traditional cable fiefdom in the West and encroaching on Rogers’ territory in Ontario (the company does, however, operate Shaw Direct satellite TV in the province).

Rogers quickly moved to block the purchase with a lawsuit, saying it shouldn’t be allowed because the two companies had an agreement to cut the country in half; Shaw was to stay in the West while the east belonged to Rogers. Rogers said the purchase was just Shaw’s opening gambit - that a new era of competition between the two was about to begin, which ran counter to what the companies had agreed to.

Shaw cheekily countered by saying that no such agreement existed, because if it did, it would have been anti-competitive and illegal. Rogers’ “intent is to create two monopolies,” said a lawyer for Shaw at the time. “It’s not a matter of undue competition. It’s a matter of eliminating competition.”

The court threw out the lawsuit, but how little ultimately came of the whole affair is really unbelievable. Rogers effectively admitted in court to having an illegal anti-competitive agreement in place with Shaw, yet no one - not the Competition Bureau, not the CRTC, not the government - took action. It’s amazing that admitting to collusion isn’t even enough to provoke a crackdown in this country.

In 2011, Shaw announced it was giving up on plans to build a wireless network, effectively signalling that it would sit on its licenses until it was allowed to sell them. Fast forward to today and the company stands to make a tidy profit, in the order of $100 million or so, with the spectrum-Mountain deal. So much for protesting the “matter of undue competition” and “two monopolies.” It also mirrors what’s happened in the United States, where cable companies such as Comcast similarly bought spectrum with thoughts of getting in wireless, but ended up backtracking and ceding the market to existing players.

Given the history between Shaw and Rogers, how does anyone know this wasn’t the plan all along? Did Shaw really ever entertain notions of getting into wireless? Upon learning of the set-aside rules in the 2008 auction, did Rogers ask Shaw to buy and hold some licenses at a discounted price? It’s all plausibly deniable, but also entirely possible.

The Competition Bureau’s record when it comes to telecom matters is laughable, and that’s being charitable, so we’ll probably never know the real deal. If anything, the transaction is more proof that Canada badly needs a proper anti-trust authority.

Regardless of what really happened, the government got gamed - and good. In regards to the spectrum itself, Canadians are getting shafted just as badly. Wireless airwaves are a valuable public asset and, despite Cabinet’s best intentions to the contrary, more of them are going to end up in the hands of the one company that already has more than anyone else.

Consumer groups are right to be angry about this deal since it flies in the face of everything the government tried to accomplish five years ago. Financial analysts, unsurprisingly, are also speculating that a merger between the two companies is inevitable, although such a union would surely require the sell-off of some broadcasting assets to be allowed.

If the feds had any cajones, they’d recall Shaw’s spectrum and resell or gift it to new companies that actually are using it, such as Wind or Mobilicity (the same could be said for Eastlink, which has continually been promising new wireless services in the Maritimes, to no avail so far). Such a move, however, would result in a giant legal battle, with Rogers and Shaw suing the government, so it’s extremely unlikely.

That’s another way of saying that when it comes to real power over telecommunications in Canada, it’s the industry that wears the pants while government and consumers keep taking it on the bottom.

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Posted by on February 6, 2013 in rogers, shaw, telecommunications


6 Responses to Shaw-Rogers spectrum deal shafts Canadians

  1. Infostack

    February 6, 2013 at 8:21 am

    Tragic, really. When you think that Canada was the country that introduced 10 cent wireless. Boy do I remember George Cope blowing his stack at my analysis of Fido’s plans. But it heralded the revolution we are all benefiting from today. Why can’t the monopolies just understand that they are impediments? The answer lies in the fact that no one has a good framework that models rapidly shifting supply and demand a priori.

  2. russellmcormond

    February 6, 2013 at 8:25 am

    I fundamentally have a problem with government granted monopolies being treated as if it were “property” able to be bought and sold. Shaw should not have been able to “sit on” the spectrum in the first place (use it or loose it should be built into monopoly grant), and this spectrum monopoly grant shouldn’t be able to be “sold” at all.

    I understand why copyright and patents should be able to be bought and sold (different concept from licensing), and why this ability to transfer ownership makes it have property-like traits, but see absolutely no legitimate reason why monopoly grants like spectrum or right-of-way should be treated this way.

    • Jason J Kee

      February 6, 2013 at 10:21 am

      Russell, the primary reason why spectrum licenses are bought and sold is because it is the most efficient way to allocate a scarce resource. Over 50 years ago, Ronald Coase penned the definitive article on this, which is here:

      You also continue to draw a distinction between “property” and “government granted monopoly” that does not actually exist. Property *is* a government granted monopoly. And there are plenty of other cases where government issued licensed have been held to be property (and capable of being sold). For instance, the SCC recently held a fishing license could be property for the purposes of bankruptcy and sold to settle debts:

      • russellmcormond

        February 6, 2013 at 1:27 pm

        You are likely aware of “Coase’s Penguin, or Linux and the Nature of the Firm”

        Benkler has expanded on this thinking quite a bit since that earlier article:

        The question here isn’t whether “property” is the most efficient way to allocate a scarce resource, but whether these specific resources should be artificially treated as scarce. Technology is very different today than it was, and “unlicensed” uses of spectrum in the presence of these newer technologies have proven themselves to be more efficient and allow for greater innovation (WiFI, etc).

        There is natural scarcity which applies to physical/tangible things where governments can help with efficiency in allocation, and there is artificial scarcity created by the government itself (for valid or invalid reasons). You like to pretend these are the same, when they clearly are not.

      • craigbamford

        February 12, 2013 at 2:59 pm

        Yeah, sorry, but trying to argue “efficient markets” in this particular case is just ludicrous. Efficient markets require keen oversight, and building markets out of natural monopolies require a LOT of it.

  3. Tom

    February 6, 2013 at 10:44 am

    It should also be noted that the spectrum in question is, I believe, AWS spectrum. This is the same technology used in the phones sold by the new entrants, but not by Rogers. In other words, it would be readily usable by the new entrants.


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