Case Documents

PUBLIC

THE COMPETITION TRIBUNAL

CT-2022-002

IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34; AND IN THE MATTER OF the proposed acquisition by Rogers Communications Inc. of Shaw Communications Inc.; and

AND IN THE MATTER OF an application by the Commissioner of Competition for one or more orders pursuant to section 92 of the Competition Act.

B E T W E E N :

COMMISSIONER OF COMPETITION

- and - ROGERS COMMUNICATIONS INC. AND SHAW COMMUNICATIONS INC.

Applicant

Respondents ______________________________________________________________________ RESPONSE OF SHAW COMMUNICATIONS INC. ______________________________________________________________________

1.

PART I - OVERVIEW This Application by the Commissioner of Competition (the “Commissioner”) for an order under section 92 of the Competition Act (the “Act”) blocking a proposed transformative and pro-competitive acquisition (the “Transaction”) of Shaw Communications Inc. (“Shaw”) by Rogers Communications Inc. (“Rogers”) is premised on fundamental misconceptions concerning the business of Shaw, as well as unsubstantiated assertions concerning the Canadian communications industry.

2.

3.

4.

5.

6.

PUBLIC

The Canadian communications industry is at an inflection point. To compete successfully in a global future, Canada needs investment to bring technological innovation to all corners of the country, giving all Canadians - including those living in Indigenous, rural and remote communities - an opportunity to participate meaningfully in the digital society of the future.

These required investments - which are generational in scale, and concern both wireline and wireless services - are necessary to deliver affordable and ubiquitous access to the next-generation connectivity platforms of all types that are essential to Canada’s economic competitiveness.

In light of the dynamic and rapidly changing trends in the Canadian communications industry, Shaw and the Shaw Family Living Trust (which controls Shaw) have been carefully exploring strategic options, including a sale of the company. Ultimately, on March 15, 2021, Shaw announced that it had entered into an agreement with Rogers, under which Rogers will acquire Shaw in a transaction valued at $26 billion (inclusive of the assumption of debt).

The Transaction will enhance competition in numerous tangible and meaningful ways, including in both the Canadian wireline and wireless services markets. The new combined entity will have the scale, assets and capabilities needed to compete in Canada’s dynamic and rapidly changing communications industry.

The Commissioner concedes the absence of any significant negative competitive effects from combining the wireline businesses of Shaw and Rogers. That is a

-2-

7.

8.

9.

PUBLIC

significant concession given that Shaw generates the overwhelming majority of its revenues and earnings from its wireline business, not its wireless business.

The Commissioner also ignores the many pro-competitive impacts of the Transaction in both the Canadian wireline and wireless services markets. Instead, the Commissioner’s Application focuses solely on alleged anti-competitive effects of the Transaction in discrete geographic markets for wireless services. The Commissioner seeks with this Application to block the entirety of a pro-competitive and transformative Transaction from proceeding based solely on an alleged prevention or lessening of competition in the wireless services market in parts of Alberta, British Columbia and Ontario. There is simply no basis for this extraordinary measure.

While Shaw and Rogers both disagree with the Commissioner’s concerns regarding the possible impact of the Transaction on Canada’s competitive wireless market, Rogers has offered to address those concerns through the divestiture of the entirety of Freedom Mobile, including all of its spectrum licences, customers, infrastructure, retail distribution network and other assets.

The Commissioner’s concerns regarding the alleged inseparability of Shaw’s wireline and wireless businesses are wholly misplaced. Shaw has by purposeful design managed Freedom Mobile - formerly known as Wind Mobile - as a fully standalone business in every meaningful respect from the time Shaw entered the Canadian wireless market in 2016. Shaw has built and managed Freedom

-3-

10.

11.

12.

13.

PUBLIC

Mobile in a manner that ensures it can be cleanly and easily separated from Shaw.

Contrary to the Commissioner’s allegations, Freedom Mobile’s success under Shaw’s ownership has not depended on “leveraging” Shaw’s wireline assets. Indeed, Freedom Mobile has been most successful in Ontario, where Shaw does not have any retail outlets or backhaul assets to leverage as well as no wireline customers within its wireless footprint.

For these reasons, Shaw submits that the Application is without merit and should be dismissed with costs.

PART II - FACTS ADMITTED AND DENIED Except as expressly admitted herein, Shaw denies each and every allegation in the Commissioner’s Statement of Grounds and Material Facts.

Shaw has set out below specific grounds on which it opposes the Application. Shaw also adopts and relies on paragraphs 15 to 41 of the Response of Rogers dated June 3, 2022 (the “Rogers Response”), except where the Rogers Response contains factual information that is specific to Rogers, and that lies within the knowledge of Rogers rather than Shaw.

-4-

A. 14.

15.

16.

17.

1

2

PUBLIC

PART III - MATERIAL FACTS RELIED ON BY SHAW

SHAW Founded in 1966 by JR Shaw as Capital Cable Television Company, Ltd., Shaw has grown meaningfully over the past 50 plus years.

Shaw is a public company headquartered in Calgary, Alberta. Its shares are traded on the Toronto Stock Exchange, the Toronto Venture Exchange and the New York Stock Exchange.

Through the Shaw Family Living Trust, the family of JR Shaw controls Shaw. The Shaw Family Living Trust indirectly holds approximately 79% of Shaw’s voting shares.

Shaw has two operating segments: (i) wireline services; and (ii) wireless services. Although the Commissioner’s Application is focused on Shaw’s wireless business, Shaw generates the substantial majority of its revenues and earnings from its wireline business. In fiscal 2021, Shaw’s wireline business generated approximately 83% of Shaw’s service revenues 1 and 84% of Shaw’s Adjusted EBITDA. 2

As set out in Shaw’s most recent Annual Report dated October 29, 2021, Shaw reports wireless revenues in two broad categories: (i) service revenues (which includes revenues from the provision of monthly and other services to subscribers); and (ii) equipment and other revenues (which includes revenues from the direct sale of mobile devices and other equipment to subscribers and dealers). The metrics referenced exclude Shaw’s wireless equipment and other revenues. Service revenue is Shaw’s primary performance metric and driver of EBITDA. Equipment is generally sold below cost, resulting in negative margins and is dilutive to EBITDA.

In this context, “Adjusted EBITDA” means revenue less operating, general and administrative expenses. It is intended to indicate Shaw’s ongoing ability to service and/or incur debt and is therefore calculated before items such as restructuring costs, other gains (losses), amortization (a non-cash expense), taxes and interest.

-5-

18.

19.

20.

21.

3

PUBLIC

(i) Shaw’s Wireline Business Shaw’s wireline segment serves both residential and business customers primarily in Western Canada and Northern Ontario.

Shaw’s wireline offerings for residential consumers include broadband Internet access, Shaw Go WiFi, 3 video (including the BlueCurve TV application) and telephone services. Shaw also offers direct-to-home satellite television services to consumers across Canada through Shaw Direct, as well as licensed video-on-demand and pay-per-view services.

Shaw’s wireline offerings for businesses include a full suite of connectivity and managed services, including Internet access, data connectivity for multiple locations, telephone services, video and audio services, broadcast video, as well as its “Smart Suite Services”, which include voice, WiFi, remote office, security, surveillance, marketing and network trunking services, offered primarily to small and medium-sized businesses.

As explained in the Rogers Response, Rogers also offers wireline services to both residential and business customers. However, Shaw does not compete with Rogers in the market for wireline services. The companies serve different geographic markets. Whereas Shaw operates primarily in Western Canada and

Shaw Go WiFi is a network operated by Shaw that allows customers to access the Internet outside of their home through WiFi access points. Once customers authenticate their mobile devices on Shaw Go WiFi, the device will automatically connect every time the device enters a Shaw Go WiFi access point.

-6-

22.

23.

24.

25.

26.

PUBLIC

Northern Ontario, Rogers operates primarily in Southern and Eastern Ontario, New Brunswick, and Newfoundland and Labrador.

Accordingly, Shaw’s business that generated the overwhelming majority of its revenues and Adjusted EBITDA in fiscal 2021 does not compete with Rogers.

The Commissioner does not allege that the Transaction will prevent or lessen competition substantially in the wireline services market in Canada. Nevertheless, the Commissioner seeks, among other things, to block the entire Transaction from proceeding based solely on the alleged substantial prevention or lessening of competition in the wireless services market in parts of Alberta, British Columbia and Ontario.

(ii) Shaw’s Wireless Business Shaw’s wireless segment provides wireless voice and data services to approximately 2.2 million subscribers in Alberta, British Columbia and Ontario. In fiscal 2021, Shaw’s wireless segment generated approximately $891 million in service revenues, which was approximately 17% of Shaw’s total service revenues for the fiscal year.

Shaw offers its wireless services under both the Freedom Mobile and Shaw Mobile brands. Freedom Mobile is headquartered in Toronto, Ontario.

Shaw entered the Canadian market for wireless telecommunications services following its acquisition of Wind Mobile in March 2016. Shortly after that acquisition, in November 2016, Shaw rebranded Wind Mobile as Freedom

-7-

27.

28.

29.

30.

PUBLIC

Mobile. Freedom Mobile offers services to customers in parts of Alberta, British Columbia and Ontario.

In the period since it acquired Wind Mobile in 2016, Shaw has completed a multi­year investment cycle in the Freedom Mobile network. In particular, Shaw has invested over $4.5 billion in acquiring and building Freedom Mobile. These investments have included the transformation of the Freedom Mobile network from a 3G network (or third generation wireless network) into a more competitive LTE-Advanced network and 5G-capable network.

As a result of Shaw’s investments, Freedom Mobile now utilizes a modern wireless network with robust distribution that will provide it with the ability to continue to invest, innovate, compete and grow.

Although Shaw has invested heavily in Freedom Mobile over the past five or so years and has enjoyed substantial success in many respects, Shaw’s wireless business has yet to become free cash flow positive. Instead, the wireless business of Shaw still seeks to recoup the significant capital investments referred to above.

Wind Mobile was a standalone business when Shaw acquired it in 2016. Since that time, Shaw has by purposeful design continued to manage this business on a fully standalone basis in every meaningful respect. From spectrum, infrastructure, back office, billing systems and IT to retail distribution and

-8-

31.

32.

33.

34.

35.

PUBLIC

customer care, Shaw has built and managed Freedom Mobile in a manner that ensures it can be cleanly and easily separated from Shaw.

Freedom Mobile derives a substantial majority of its revenue from the retail distribution channel. There are approximately 800 Freedom Mobile bricks-and-mortar retail locations across Alberta, British Columbia and Ontario, plus another 600 prepaid distribution focused outlets. In addition, Freedom Mobile products are available for sale online through FreedomMobile.ca.

On July 30, 2020, Shaw launched a second wireless brand under the trade name Shaw Mobile. This recently introduced offering, which was launched during the COVID-19 pandemic, serves customers solely in Alberta and British Columbia.

Shaw Mobile was launched by Shaw as a wireline customer retention tool in the face of intense competition from Telus in consumer wireline services.

Considering Shaw’s deliberate strategic positioning of Shaw Mobile, the introductory pricing was offered only to select wireline customers of Shaw in Alberta and British Columbia and has had no appreciable downward pricing pressure on wireless prices generally – either in those provinces or nationally.

Although Shaw Mobile is available only in Alberta and British Columbia (and not in Ontario), the majority of Shaw’s wireless customers continue to be based in Ontario, where they are serviced exclusively by Freedom Mobile.

-9-

B.

36.

37.

38.

39.

PUBLIC

BACKGROUND TO THE TRANSACTION

Shaw has been carefully considering its strategic options in light of the current and potential future state of the Canadian telecommunications and broadcasting sectors, including the near term generational network investments required within the industry to meet the demands of consumers and businesses in future years. This has included assessing the company’s strengths and challenges across all of its segments in light of key sector trends and developments (including future wireline and wireless network strategies and capital requirements).

The advent of fifth generation wireless networks (so-called “5G” networks) will require significant and ongoing levels of investment that are different in kind and in scale from the investments that were required in respect of prior generations of wireless technology.

At the same time, wireline connectivity is rapidly evolving with increasing consumer and business demands, technological developments and intensifying competition. This will also drive significant, long-term and transformative investments in the coming years.

Against this backdrop, and given the continued industry evolution, regulatory uncertainty and sector trends across the Canadian telecommunications sector in the period prior to the announcement of the Transaction, Shaw had been carefully considering various standalone and strategic alternatives available to it.

-10-

40.

41.

42.

C.

43.

44.

PUBLIC

Throughout the Fall of 2020, the Board of Directors and senior management of Shaw, as well as the Shaw Family Living Trust, regularly considered and evaluated the strategic direction of the company.

By early 2021, the Shaw Family Living Trust had decided to explore the possibility of engaging in a strategic transaction, including a potential sale of the company.

Ultimately, Shaw engaged in a competitive sales process that involved the most likely buyers of the company.

DESCRIPTION OF THE TRANSACTION

On March 15, 2021, Shaw announced that it had entered into an arrangement agreement (the “Arrangement Agreement”) with Rogers, under which Rogers will acquire Shaw in a transaction valued at approximately $26 billion (inclusive of the assumption of debt).

The business combination of Shaw and Rogers builds on the strong legacy of two family-founded Canadian companies. The new combined entity will be well positioned to compete effectively in Canada’s dynamic and rapidly changing communications industry. It will also be positioned to deliver leading-edge advanced connectivity solutions to consumers and businesses nationally, positioning Canadians to compete effectively and efficiently in the global marketplace.

-11-

45.

46.

47.

48.

PUBLIC

The Transaction is subject to customary closing conditions, including: (i) approval by the shareholders of Shaw; (ii) court approval in Alberta; (iii) clearance under the Act; (iv) the receipt of approval from the Canadian Radio-television and Telecommunications Commission (“CRTC”) under regulations made pursuant to the Broadcasting Act; and (v) approval by the Minister of Innovation, Science and Industry (the “Minister”) under the Radiocommunications Act in order to transfer spectrum licences.

As of the date of this Response, the Transaction has been approved overwhelmingly by the shareholders of Shaw, and has been determined to be fair and reasonable by the Court of Queen’s Bench of Alberta. In addition, the CRTC has concluded its comprehensive review and approved the transfer of Shaw’s licenced broadcasting undertakings to Rogers, subject to several conditions and safeguards designed to ensure that Canadian consumers benefit from the Transaction. The waiting periods for clearance under the Act have also expired.

Pursuant to the conditions that apply to the Freedom Mobile spectrum licences, prior approval of the Minister is required for any direct or indirect transfer of those licences. That approval has not yet been provided.

Although Shaw and Rogers disagree with the Commissioner’s concerns regarding the possible impact of the Transaction on Canada’s competitive wireless market, Rogers has offered to address those concerns by proposing the full divestiture of Freedom Mobile, including all of Freedom Mobile’s spectrum licences.

-12-

49.

D.

50.

E.

51.

52.

53.

PUBLIC

On May 9, 2022, the Commissioner filed this Application alleging, among other things, that the Transaction would substantially prevent or lessen competition. Shaw specifically denies each of the Commissioner’s allegations.

THE RELEVANT MARKETS

Shaw adopts and relies on paragraph 29 of the Rogers Response with respect to the relevant markets at issue in this Application. Shaw denies that the Transaction is likely to result in a substantial lessening or prevention of competition in any of the relevant markets identified by the Commissioner.

BACKGROUND ON WIRELESS SERVICES

As a “facilities-based” operator, Shaw provides its wireless services through wireless networks. A main component of Shaw’s and other Canadian wireless networks is “spectrum”, which refers to the radio frequencies that are licensed by Innovation, Science and Economic Development Canada (“ISED”) to carry communications between a customer’s mobile device and various “cell sites”.

The “cell sites,” which include radio antennae, towers and other facilities and infrastructure, are connected to “backhaul” facilities that carry the voice and data traffic to the “core” of the network, where traffic is routed appropriately (for example, to the public Internet or across public switched telephone networks).

There are various forms of “backhaul”, including fibre optic cables (or more traditional copper and coaxial cables) or wireless microwave transmissions.

-13-

54.

55.

56.

F.

57.

PUBLIC

The Canadian wireless market is heavily regulated. Under the authority of the Radiocommunications Act, ISED sets terms and conditions in spectrum licences that require, among other things, mandatory roaming (where one carrier’s subscribers can roam outside of that carrier’s footprint on the network of another carrier) and tower and site sharing (where one carrier must share access to radio sites where feasible).

Under the authority of the Telecommunications Act, the CRTC regulates certain aspects of retail services and various wholesale services of wireless carriers, including the rates and other terms and conditions of incidental roaming on the networks of Bell, Telus and Rogers.

The CRTC has also established a new framework for regulated mobile virtual network operator (“MVNO”) access services, the details of which are in the process of being finalized. This MVNO framework will enable certain eligible wireless service providers to activate new customers on the networks of Bell, Telus and Rogers (in contrast to roaming, which allows only for incidental access to their networks). Competitors that provide their services using MVNO access are often referred to as “service-based” competitors, or “resellers”, in contrast to “facilities-based” operators.

THE TRANSACTION WILL NOT SUBSTANTIALLY PREVENT OR LESSEN COMPETITION IN THE WIRELESS SERVICES MARKET

As noted above, the Commissioner does not allege that the Transaction will prevent or lessen competition substantially in any market in Canada other than

-14-

58.

59.

60.

61.

62.

PUBLIC

the market for wireless services. The Commissioner thus concedes the absence of any significant anti-competitive effects from combining Shaw’s wireline business with Rogers’ wireline business.

Nor does the Commissioner allege that the Transaction will prevent or lessen competition substantially in wireless services in Ontario if Freedom Mobile were to be divested (as Rogers has proposed).

The Commissioner therefore concedes that, with a divestiture of Freedom Mobile, there will be no significant anti-competitive effects in respect of the portions of Shaw’s business that together generated approximately 95% of Shaw’s total revenues in fiscal 2021.

The Commissioner’s allegations of anti-competitive effects that would remain following a divestiture of Freedom Mobile are confined to Shaw’s wireless business in Alberta and British Columbia, which generated approximately 5% of Shaw’s revenues in fiscal 2021.

In any event, Shaw denies that a divestiture of Shaw’s wireless business fails to eliminate any possible substantial lessening or prevention of competition resulting from the Transaction.

The allegations in the Commissioner’s Application concerning both (i) the competitive effects of the Transaction in the wireless market; and (ii) the viability of divesting Shaw’s wireless business to address any potential competitive

-15-

63.

PUBLIC

effects are flawed and incomplete for a host of reasons, including because the Commissioner’s Application:

(a)

(b)

(c)

(d)

(e)

(f)

(g)

ignores current market conditions and realities;

proceeds on the mistaken assumption that Shaw’s wireless services business cannot be separated from Shaw in an effective manner that will ensure the continuing competitiveness of the wireless services business;

misunderstands and mischaracterizes the importance and role of Shaw Go WiFi in relation to Shaw’s wireless network and in the competitiveness of Freedom Mobile;

overstates and mischaracterizes the relevance of Shaw’s wireline assets to the competitiveness of Shaw’s wireless services business;

overstates and mischaracterizes the role and significance of Shaw Mobile in relation to the competitiveness of Shaw’s wireless services business;

overstates and mischaracterizes the potential role that, in the absence of the Transaction, Shaw would likely play in a business wireless market that Shaw has never, in fact, entered; and

wrongly asserts that, since the Transaction was announced, competition between Rogers and Shaw has lessened.

Each of these matters is addressed in the sections that follow.

-16-

64.

65.

66.

67.

68.

PUBLIC

(i) The Commissioner’s Application Ignores Current Market Conditions The Commissioner’s analysis of the competitive effects at issue in this Application is flawed because it is based on a retrospective view of market conditions. The Commissioner assumes – without proper foundation – that Shaw’s past impact in the wireless market based on historical market conditions will continue unabated and indefinitely in the current market. This flawed assumption undermines the Commissioner’s entire analysis of the competitive effects that are supposedly associated with the Transaction.

The Commissioner’s analysis of competitive effects does not properly account for the dynamic and rapidly changing nature of the wireless industry in Canada.

As set out above, the wireless communications industry in Canada is at an inflection point due to the advent of 5G networks. These revolutionary new networks will require significant ongoing levels of investment that are different in kind and in scale from prior generations of wireless technology. The circumstances in the past that permitted Shaw to grow its wireless business successfully are markedly different from the present situation.

But for the Transaction, Shaw’s continued competitive significance in Canada’s wireless market could not be assured.

Moreover, the Commissioner’s Application fails to acknowledge and consider that Shaw was prevented by the auction rules promulgated by ISED from participating in the June 2021 auction for 3500 MHz spectrum licences.

-17-

69.

70.

71.

72.

PUBLIC

(ii) Severability of Freedom Mobile from Shaw’s Wireline Business The Commissioner’s Application is premised on a misunderstanding and mischaracterization of the ability of Shaw’s wireless services business to “leverage” the company’s wireline assets. This, in turn, has led the Commissioner to mistakenly conclude that Shaw’s wireless services business cannot be separated from Shaw in an effective manner that will enable its continuing competitiveness.

Contrary to the allegations of the Commissioner, Shaw’s wireless services business can be easily and effectively separated from Shaw in a manner that will enable the competitiveness of “New Freedom”.