CT-2022-002 COMPETITION TRIBUNAL 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 IN THE MATTER OF the 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: THE COMMISSIONER OF COMPETITION Applicant -and- ROGERS COMMUNICATIONS INC. AND SHAW COMMUNICATIONS INC. Respondents -and- ATTORNEY GENERAL OF ALBERTA AND VIDEOTRON LTD. Intervenors
RESPONDING WITNESS STATEMENT OF JEAN-FRANÇOIS LESCADRES
I, Jean-François Lescadres, of the Town of Mount Royal, in the Province of Quebec, state as follows:
OVERVIEW 1. This witness statement is in response to the public Witness Statement of Christopher Hickey; the public Witness Statement of Blaik Kirby; the public Witness Statement of Charlie
PUBLIC
Casey; the public Witness Statement of Michael A. M. Davies, and the public Witness Statement of Nathan H. Miller.
2. The aforementioned statements make a number of assertions in support of their proposition that the competitive strength of Freedom will be "greatly reduced" under Videotron's ownership. My response, including statements regarding Videotron's experience and future plans, is based on my experience as described in my September 23, 2022 witness statement, including launching Videotron and Fizz's mobile wireless businesses in Quebec; knowledge of the Canadian telecommunications industry, including other companies' publicly advertised prices and product offerings; and having participated in developing the business plan for entry into the ROC, including overseeing the financial planning related to the Divestiture and the related integration planning, capital and operational spending projections, growth estimates, cost savings, and investment decisions.
3. Capitalized terms not defined in this statement are defined in my September 23, 2022 statement.
1
FREEDOM'S PRODUCT OFFERING WILL BE BETTER UNDER VIDEOTRON 4. Contrary to Mr. Davies' evidence, Videotron is capable of providing a product offering that is as comprehensive and, in some geographic areas, more comprehensive than what Freedom/Shaw Mobile currently offer under Shaw's ownership.
5. Videotron plans to offer customers in each of British Columbia, Alberta and Ontario bundles of up to four telecommunications services: wireless, Internet, television and home
1 In reviewing my September 23, 2022 statement, I noticed that the Financial Plan is sometimes incorrectly referred to as Exhibit 68, when it is in fact Exhibit 66.
PUBLIC
3
phone. It will do so at bundled prices between % lower than what Freedom/Shaw Mobile customers currently pay in Alberta and British Columbia. In Ontario, Freedom under Videotron ownership will not only offer lower prices, it will offer customers more services as Freedom will offer these "four-play" bundles in Ontario as well, whereas Shaw does not do so today.
IPTV 6. Mr. Davies asserts that Freedom under Videotron will not be able to offer "3-product bundles". This statement is not accurate as Videotron plans to offer 4-product bundles as described above.
7. As well, Mr. Davies' statement appears to be based on a misunderstanding of or lack of knowledge of Videotron's Internet Protocol Television ("IPTV") delivery solutions. He states that IPTV is not an exact substitute for Cable TV both from a product feature and margin perspective, but that is not accurate in Videotron's experience. In fact, Videotron's current TV offering across its wireline footprint in Quebec (and outside of its wireline footprint such as in Abitibi) is now an IPTV solution, not a traditional Cable TV solution.
8. Videotron has one of the most innovative and sophisticated IPTV delivery solutions in North America. Since August 2019, Videotron has offered Helix, an IPTV and cloud-enabled video platform based on Comcast Corporation’s ("Comcast") Xfinity X1 platform. Helix offers superior product features to traditional Cable TV, including:
(a)
Cloud DVR technology allowing customers to record programming via their set-top boxes and view those recordings on mobile devices;
(b)
(c)
PUBLIC
integrated search functionalities, including the use of a voice-activated remote control, personalized recommendations and access to, and integration of content from, certain third-party Internet applications; and
two mobile applications for its Helix customers: (i) the Helix Fi app, which lets customers control their home Wi-Fi network, set time restrictions for children’s Internet use, quickly and easily disconnect a device from the network and control household smart devices; and (ii) the Helix app, which lets users control their cloud DVR remotely, watch live television as well as a large quantity of on demand content anytime, anywhere.
9. To use the Xfiniity X1 platform, Videotron must pay Comcast an average monthly royalty per customer of $ . Depending on the Helix plan in question, that represents a relatively small proportion of the retail price charge by Videotron (ranging from approximately to %).
10. Videotron's Helix offering has been remarkably successful since its launch in 2019. According to Leger's market research for Videotron, customer satisfaction rates are even higher for Helix than they were for Videotron's legacy Cable TV offering. In addition, I understand from their public advertisements and announcements that Rogers, Bell, TELUS and Shaw have all introduced their own IPTV offerings in recent years recognizing the value proposition to customers. Rogers and Shaw also use the Xfinity X1 platform.
11. In addition, VMedia has its own in-house IPTV solution. Because Videotron does not have to pay Comcast a royalty to use VMedia's existing in-house solution, that solution has a
As
PUBLIC
a result,
Videotron's Bundling Plan 12. Mr. Davies states that Freedom under Videotron's ownership will not be able to bundle as effectively as Shaw and is unlikely to match or sustain the pricing that Shaw Mobile (not Freedom) has been able to offer.
13. That is incorrect. As described in my September 23, 2022 statement, Videotron plans to offer product bundles that are more competitive than those currently offered by Freedom/Shaw Mobile under Shaw ownership.
14. Mr. Davies states that Shaw was offering a bundle discount on its Shaw Mobile wireless product to protect its wireline margin and customer lifetime value. Shaw likely had an incentive to protect its wireline base and acted accordingly; by the same token, Videotron will have an incentive to offer aggressive prices to win wireless (and wireline) market share and grow our customer base. Unlike Shaw, we do not have to worry about re-pricing an installed base of existing wireline customers. We have no installed base to protect and every incentive to grow our market share (both wireless and wireline).
15. Our strategy to do so is to offer an everyday-low price on wireless, wireline and bundled offerings, not to artificially increase the price of one service and cross-subsidize it with another. Our everyday-low-pricing strategy has worked for us in Quebec, and, based on customer surveys and research that we have conducted, we believe everyday-low-pricing will be attractive to customers outside of Quebec as well.
PUBLIC
16. Mr. Davies asserts that TPIA economics are inferior to that of facilities-based infrastructure and says that Videotron's margins will be smaller under the TPIA regime than they would be if it owned the wireline infrastructure. That may be so, but only if one ignores the capital investments required to build and maintain a facilities-based network. Real margins can actually be higher under the TPIA framework depending on the number of customers served and their location, as I described in my September 23, 2022 statement.
17. Approximately customers use Videotron's wireline network through TPIA providers. Were TPIA providers not earning reasonable margins, they could not continue to provide services to this many customers.
18. In any event, despite Mr. Davies' asserted "inferior economics", Videotron offers the same $15 discount to customers who bundle wireless and wireline services in Abitibi (where Videotron operates as under the TPIA framework) as those who bundle those services in Montreal (where Videotron has a wireline network).
19. Mr. Davies also opines that winning new customers for a bundle is more difficult if a provider is starting from a wireless service compared to starting from a fixed service. That has not been Videotron's experience in Abitibi where we provided only wireless services but in just two years grew our wireline market share to % using the TPIA regime. In addition, in the last 12 months, we have increased our number of wireless customers in the Abitibi region by %. We attribute this growth in part to introducing a wireline offering through the TPIA framework and expect this wireless growth to continue resulting in more share of the wireless market in the Abitibi region, particularly as wireless users reach the end of their two year contact terms and have a greater opportunity to switch providers.
PUBLIC
20. In addition, each of Rogers and TELUS have a comparable share of the wireless services market in Quebec as does Videotron, despite the fact that Rogers and TELUS do not offer bundled discounts and price their wireless-only offerings at the same level as Videotron (Videotron's bundled discount is typically $15).
21. Mr. Davies also appears to ignore a crucial component of profitability to Videotron's planned bundle in Western Canada: the wireless services. As I described in my September 23, 2022 statement, when considered on a bundled basis, we can charge prices lower than Shaw and still earn a reasonable margin. It is simply a matter of where each company has allocated the margin in that bundle. What matters from a business perspective is earning an acceptable margin on the overall bundle.
22. For example, Mr. Bennett, one of the Commissioner's witnesses, states that his monthly wireless bill as a Shaw Mobile customer was $0. It would appear Shaw did not receive any margin on its provision of wireless services to Mr. Bennett. In fact, it probably lost money providing those services to Mr. Bennett. But Mr. Bennett appears to be paying $200 per month for a bundled service from Shaw, meaning he is paying a high price for internet and television.
23. Based on our experience in Quebec and forecasting for Western Canada, we believe it is possible to operate with a significant profit margin in the bundled offerings and still offer prices % lower than those offered today. A lean cost structure and facilities-based mobile network operation allow us to generate appreciable free cash flow from our prospective Western Canadian and Ontario operations.
PUBLIC
PUBLIC
PUBLIC
leading levels of customer satisfaction, innovative products and quality services, and the competitive prices that Videotron offers to Quebeckers.
30. Videotron had to capture market share from Mr. Kirby's employer, Bell, to build its internet subscriber base long before it was able to leverage it to capture share in the wireless segment. The common theme has been that Videotron is a maverick and willing to price aggressively to build its subscriber bases, regardless of service line or geography. Videotron plans to replicate this model of aggressive pricing, and cross-selling Internet services to Freedom's existing wireless base and potential customers in the ROC.
31. Mr. Kirby goes on to opine that if Videotron were to expand into other provinces, it could or would not have the same disruptive impact as it did in Quebec because its brand is unique to Quebec and aligned with Quebec's unique political environment.
32. Videotron has a strong brand in Quebec, regardless of customers' political affiliation. Fizz, in particular, has attracted Anglophone and Allophone customers with customers and % of Fizz wireline customers coming from those groups.
% of Fizz wireless
33. As well, Videotron's market research indicates that Canadians – regardless of regional politics – will be attracted by lower prices for wireless and wireline services.
PUBLIC
34. Finally, Videotron's share of the wireless market in Ottawa is not a sign of Videotron's disinterest in or weakness in markets outside of Quebec. Videotron has always faced challenges advertising in Ottawa owing to the way TV advertising is sold. It is not possible to buy most TV advertising for Ottawa only; as such, Videotron has been faced with the decision to either pay to advertise to large parts of Ontario where it has no operations or to forego TV advertising and seek more targeted advertising options locally, which admittedly have been less effective.
Videotron's acquisition of Freedom solves the advertising dilemma Videotron has faced and will allow Videotron to advertise more effectively in Ottawa.
35. Mr. Kirby goes on to speculate that even if Videotron expands into other provinces, it will prioritize retention in Quebec even at the expense of growth in other areas.
36. Not only is Mr. Kirby incorrect but he has no direct knowledge of Videotron's plans or priorities. In fact, in the past 18 months, in furtherance of our strategic expansion plan, Videotron has sought approval from the board of directors of Quebecor to purchase several 3500 MHz spectrum licences in the ROC at a cost of $ acquire Freedom for $2.85 billion; and approve a 10-year investment plan of nearly $ to roll out a 5G network across the Freedom footprint in order to better compete against the Big 3's 5G networks. Videotron would not undertake investments totalling approximately $ billion if it did not intend to vigorously compete and grow in the ROC.
37. Videotron is eager to aggressively pursue growth and competitive disruption in the ROC; at the same time we expect continued growth and success in Quebec as we overtake each of the
PUBLIC
Big 3 in total wireless share in the near future. Our objectives of pursuing growth and expansion in the ROC and Quebec are not mutually exclusive.
DISTRIBUTION CHANNELS WILL BE ENHANCED UNDER VIDEOTRON 38. Mr. Davies asserts that the Freedom business will lose advertising spending and scale under Videotron's ownership. Mr. Davies is incorrect.
39. I understand that Freedom has spent an average of $ per year on advertising expenses over the past three years. Videotron plans to increase the annual average advertising spend to $ over a ten year period – nearly a % increase.
40.
41. Mr. Davies asserts that despite the acquisition of all of the Freedom-branded retail locations, the loss of access to Shaw-branded retail stores will weaken Freedom under Videotron's ownership.
42. Mr. Davies' statement appears to be based on a misunderstanding of or lack of knowledge of the Freedom business. My understanding is that Shaw-branded retail stores do not sell, and have never sold, the Freedom brand. If Shaw-branded retail stores are not selling the Freedom brand, they cannot be driving growth for Freedom, and losing access to Shaw-branded retail stores cannot have any effect on the Freedom business under Videotron's ownership. .
43. According to our due diligence, Freedom's subscriber numbers in British Columbia and Alberta – where all of the Shaw-branded retail stores are located – are flat over the past two
PUBLIC
years further supporting the fact that Shaw-branded retail stores are not driving growth for Freedom in some intangible way.
44.
In any event, it is easy to replace brick-and-mortar stores if we decided it was important for Freedom's growth.
45. Finally, Mr. Davies also cites the loss of access to Shaw.ca as a reason why Freedom will be weaker under Videotron's ownership as compared to under Shaw. My understanding is that Freedom wireless plans are not and have never been advertised or available on Shaw.ca. In any event, Videotron has a website, as does Fizz. According to Mr. Davies' source (SimilarWeb), Videotron.com and Fizz.ca had a combined 10.9 million site visits in August 2022, which is higher than Shaw.ca's total site visits during that same month (9.6 million). Moreover, given that the vast majority of Freedom's sales come from its brick-and-mortar retail stores, Videotron considers losing access to Shaw.ca to be irrelevant to the competitiveness of the overall business.
Freedom's Cost Structure will be Lower under Videotron 46. Mr. Davies posits, without any financial analysis, that Videotron is unlikely to be able to provide wireline services at a cost structure needed to compete as effectively for both bundling and customer acquisition. Contrary to Mr. Davies' assertions, as noted above, Videotron has performed extensive and sophisticated financial analyses regarding the acquisition and
PUBLIC
integration of the Freedom business with Videotron and our ROC expansion plan. Our cost structure is sustainable and supports prices lower even than Shaw's existing bundled prices.
47. Part of our cost structure includes the favourable price at which we have agreed to acquire Freedom. A higher purchase price would have required Videotron to take on more debt. More debt would have resulted in higher interest payments and more principal to repay. These higher costs would require us to charge higher prices to meet our debt reduction targets.
48.
Another aspect of our cost structure
49. Mr. Davies goes on to say that Freedom, under Videotron, will "have greatly diminished scale relative to Shaw with its Freedom Mobile and Shaw Mobile products." While Mr. Davies is correct that Videotron is not acquiring 400,000 Shaw Mobile subscribers, he is incorrect in saying Freedom's scale will be "greatly" diminished. In fact, Freedom will be joining Videotron's 1,661,000 wireless subscribers and approximately 2.6 million wireline subscribers. Freedom will also be part of the Quebecor group of companies, which once combined with Freedom will immediately have higher total revenues than Shaw does today (pro forma estimate of $ billion versus $5.51 billion for Shaw during its most recently completed fiscal year). Videotron's scale will only continue to grow as it leverages a new national 5G network and adds new customers pursuant to its business plan.
PUBLIC
50. As well, as described in my statement and Mr. Drif's statements, combination of the Videotron and Freedom businesses will reduce Videotron's costs and enable it to spread some costs over a larger customer base making it a more efficient competitor – and one better able to offer low prices.
Transition and Lower Prices under Videotron Ownership 51. Mr. Davies asserts that the process of divestiture, acquisition and subsequent reconfiguration of wireless services to create the new Freedom entity will negatively affect the Freedom business.
52. A transition period is inevitable with any acquisition. But transition does not necessarily imply a negative effect, particularly owing to the circumstances surrounding our proposed acquisition of Freedom.
53. First, on October 19, 2022, the CRTC issued Telecom Decision 2022-288 in which the CRTC made a number of determinations related to the implementation of facilities-based wholesale mobile virtual network operator (MVNO) access service and associated tariff notices, pursuant to its findings in Telecom Regulatory Policy 2021-130. The CRTC's determinations in its October 19, 2022 decision are aimed at ensuring that wholesale MVNO access service is as effective as possible in achieving its purpose.
54. While we continue to consider the decision, from Videotron's perspective, several of the CRTC's determinations will facilitate Videotron's entry into the ROC, rapid deployment of its planned 5G network across the Freedom footprint, and significantly improve Videotron's ability to integrate the Freedom business. For example, the CRTC:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
PUBLIC
determined that the MVNO access coverage area is to be considered as an extension of a regional wireless carrier’s home network, which eliminates the need for a regional wireless carrier to differentiate between its end-users who reside in the MVNO access coverage area and those who do not. This determination simplifies the service and creates an incentive for its use;
mandated seamless hand-off functionality for the MVNO access service to prevent dropped calls and data sessions when end-users move between the MVNO access coverage zone and a regional wireless carrier’s home network;
determined that MVNO access service is to be offered on all current and future Global System for Mobile communications (GSM)-based network generations (3G, 4G/long-term evolution, 5G, and beyond);
determined that the available footprint of an incumbent’s MVNO access service includes the RAN of its joint-network builds, as well as the RAN owned and operated by its network-sharing partners under RAN-sharing arrangements;
denied provisions that would restrict the resale of the MVNO access service;
denied provisions that would require regional wireless carriers to compensate incumbents for inaccurate traffic forecasts;
denied provisions that impose a wind-down period towards the end of the wholesale MVNO access service mandate period;
(h)
(i)
(j)
(k)
(l)
(m)
PUBLIC
denied a number of provisions related to the suspension and termination of service;
determined that negotiated MVNO access rates be open to renegotiation at least every two years from the date they are last established;
directed the incumbents to begin accepting requests for wholesale MVNO access on the date this decision is issued and to enter into good-faith commercial negotiations with regional wireless carriers upon request to agree on a rate;
directed the incumbents to have the service operational and ready for use no later than 30 days following the date the tariffs are finalized, and seamless hand-off functionality must be in place within 90 days following the date the tariffs are finalized;
directed executed agreements to be in place within 90 days of the date of the decision approving the final tariffs. If this time frame is not met, the CRTC will consider adding time to the term of the seven-year mandate; and
directed the incumbents to make changes, for CRTC approval, to the proposed terms and conditions in their wholesale MVNO access tariffs according to these determinations and file revised tariffs within 30 days of the date of this decision.
55. Quebecor has already sent written requests to Bell and TELUS to enter into good-faith commercial negotiations for wholesale MVNO access on their respective networks. Attached as Exhibit "1" is a copy of Mr. Péladeau's letter to Mr. Bibic of Bell dated October 19, 2022, and attached as Exhibit "2" is a copy of Mr. Péladeau's letter to Mr. Entwise of TELUS also dated
PUBLIC
October 19, 2022. Videotron plans to use the CRTC's MVNO framework to fill in any coverage gaps if or where the Rogers network is not available in the ROC.
56. Second, given the statements of the Freedom dealers in this matter, they appear to be deeply unsatisfied with Freedom's continuing competitiveness under Shaw, with these concerns arising even before Rogers agreed to acquire Shaw.
57. On July 11, 2022, Allan Dick, counsel to the Freedom dealers association, emailed our counsel, Mr. Rook, to request a meeting with Videotron executives to discuss the dealer channel under Videotron ownership. Attached as Exhibit "3" is a copy of Mr. Dick's email.
58. On July 19, 2022, I and other Videotron executives met with representatives of the Freedom dealers association to express our support for the dealer channel should Videotron acquire Freedom. We described how Videotron is eager to work alongside the Freedom dealers to support and promote the long-term success of the dealer channel, including through the new bundled offerings described above, in order to create effective and sustained competitive disruption in the wireless industry that will bring lower prices and better services to customers in Ontario, Alberta, and British Columbia. I am hopeful that such meetings will smooth the transition process and invigorate the dealer channel so that we and the dealers will work together to immediately bring lower prices and more services to customers in the ROC.
59. I have reviewed the witness statements of the retail wireless subscribers. Videotron acknowledges their concerns regarding high wireless and wireline prices. As I have described in my witness statements, Videotron plans to offer lower prices than these customers have available in the market today.
PUBLIC
VIDEOTRON'S PARTICIPATION IN THE 3500 MHZ SPECTRUM AUCTION 60. The Commissioner is relying on some email exchanges from the first quarter of 2021 between my team and a third party consultant, , relating to auction simulations that formed part of our preparations for the 3500 MHz spectrum auction.
61.
62. Accordingly, such simulations are not necessarily indicative of eventual bidding intentions and, in any event, our simulations included "all-Canada" scenarios, as well as more localized scenarios. Finally, the simulation email exchanges are from March 2021 and pre-date the CRTC's April 15, 2021 decision regarding MVNO access (and subsequent implementation decision of October 19, 2022), which was a significant factor influencing our eventual decision to bid on 3500 MHz spectrum outside of Quebec.
INCENTIVES TO COMPETE WITH ROGERS (AS WELL AS BELL AND TELUS) 63. I have reviewed Dr. Miller's witness statement and understand his evidence to be that the terms of the Ancillary Agreements can deter Videotron from competing aggressively against Rogers after the Divestiture closes.
64. This assertion is not supported by Videotron's incentives, nor is it supported by Videotron's long history of behaviour vis-à-vis Rogers in Quebec. As I described in my
PUBLIC
September 23 statement, Videotron and Rogers have a long history of contractual relationships in Quebec; we have vigorously competed with Rogers for wireless customers since 2006.
65. In 2005, Videotron and Rogers entered into a Strategic Relationship and Services and Wholesale Agreement (the "Reseller Agreement") for Videotron to purchase and re-sell, under its own name and brand, access to components of Rogers' wireless network in Quebec. The Reseller Agreement enabled Videotron to launch its wireless business in 2006 as an MVNO on the Rogers network, without having to construct its own physical infrastructure.
66. Although Videotron was entirely dependent on Rogers and its network during our operation as an MVNO, I am not aware of any steps Rogers took to use its network ownership to disadvantage Videotron, nor did Videotron compete less aggressively against Rogers during this period.
67. On June 30, 2009, Videotron gave notice to Rogers that it intended to cease purchasing MVNO access to the Rogers network under the Reseller Agreement. Videotron was preparing the launch of its facilities-based network. Rogers accepted this notice without issue and Videotron’s subscribers were transitioned from the Rogers' network to the Videotron network in 2010 without any retaliation from Rogers.
68. Also on June 30, 2009, Videotron and Rogers entered into a separate agreement titled "One Way Domestic Roaming Agreement", which allowed Videotron's subscribers to roam on the Rogers network across Canada outside of Videotron's wireless footprint. This agreement was amended in December 2013 and remains in effect today.
.
PUBLIC
69. Also in December 2013, Videotron and Rogers entered into an agreement titled Network Operating Agreement (the "Network Operating Agreement") for the joint development and operation of a wireless network in Quebec and the Greater Ottawa Area. A copy of the Network Operating Agreement is attached as Exhibit 65 of my September 23 statement.
70. Videotron has continued to be highly dependent on Rogers as a result of these agreements since we transitioned from an MVNO to a facilities-based wireless provider, yet we have still sought to aggressively grow our wireless market share without change to our strategy owing to fear of retaliation from Rogers, and have succeeded in doing so.
71. Any suggestion that Videotron will stop pricing aggressively against Rogers if it acquires Freedom is unfounded. Despite its large and growing market share in Quebec, Videotron continues to price aggressively in that province and to lead promotions, which the Big 3 subsequently match. For example, in February 2022, Videotron executed a second push of its recent "back to school" campaign that offered customers the most aggressive pricing to that point: 20 GB for $55/month. Less than 24 hours later, the Big 3 all began offering a comparable promotion in Québec
72.
This growth occurred despite the fact that Videotron has relied on Rogers, in one way or another, since we first launched our wireless services in Canada.
Jean-François Lescadres
PUBLIC
PUBLIC
PUBLIC
PUBLIC