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Jul 10, 2022

Rogers CEO faces grilling, network woes cast deal shadow

Rogers CEO to meet industry minister after outage

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Rogers Communications Inc.’s chief executive officer will face Canada’s industry minister to account for a nationwide network failure that left millions of households and businesses without wireless and internet service. 

Rogers shares fell as much as 2.5 per cent at Monday’s open after Industry Minister Francois-Philippe Champagne’s office said he will meet Rogers CEO Tony Staffieri, along with executives from other major telecoms companies, “to discuss how important it is to improve the reliability of the networks across Canada.”

Champagne’s department has the final call on whether to approve Rogers’ proposed $20-billion (US$15.4 billion) acquisition of Shaw Communications Inc., a major internet and wireless provider based in Canada’s west. The country’s antitrust body, known as the Competition Bureau, has opposed the deal and Friday’s outage could provide the regulator with more ammunition in its battle to stop the merger.

Champagne said the network failure was “unacceptable.” It started Friday morning, stretched into Saturday and affected access to emergency services for some customers as well as bank payment systems including Interac. It even caused postponements of events like The Weeknd’s scheduled concert in Toronto. 

“These services are vitally important for Canadians in their day-to-day life and we expect our telecom industry to meet the highest standards that Canadians rightly deserve,” Champagne said in an emailed statement from his office. 

 “If I was working for the Competition Bureau, I would be thinking about ways to quantify the harm that results from an outage like this,” said Benjamin Klass, who researches Canadian telecom policy at Ottawa’s Carleton University and has presented arguments objecting to the deal at hearings.

Klass said Rogers can use a so-called “efficiencies defense” in Canadian merger law to argue that its takeover of Shaw creates a more efficient system with economic benefits for the country, and therefore should be approved. 

Still, Friday’s network collapse demonstrates that there are problems with “over-reliance on these large firms,” Klass said. “In this particular case, more smaller providers would have contained the impact of something like this.”

Hearings on the Shaw transaction are scheduled for the fall and Bay Street analysts now expect Friday’s network outage to be a focus of interest, as well as a source of regulatory risk.

The “unprecedented” failure “is likely to introduce incremental regulatory risk to the Shaw transaction, heightens investor concerns regarding Rogers’ ability to execute on deal synergies and counters a constructive industry narrative on network performance,” BMO Capital Markets analyst Tim Casey wrote in a note Monday.

Similarly, Scotiabank analyst Maher Yaghi wrote Monday that “increased political and regulatory risk is a possibility,” but added that regulators are more likely to heighten oversight of the company than “force a complete overhaul of the competitive landscape.”

Regardless, there are calls for major changes to Canada’s telecom landscape. “The Rogers-Shaw merger should have been a non-starter from the very outset,” University of Ottawa law professor Michael Geist wrote on his widely read public policy blog Sunday, adding the event should be “a wake-up for a government that has been asleep on digital policy.”

Geist wrote that neither the current government nor the telecom regulator, the Canadian Radio-television and Telecommunications Commission, have “shown much inclination to challenge the big telcos.”

Staffieri apologized in a Saturday statement and said the Toronto-based company would compensate customers with a credit, but didn’t quantify the extent of the financial impact on the company.

He also offered an explanation on what happened, blaming the issue on a maintenance update that caused its routers to fail within its core network. The disruption was so wide-ranging that even Canada’s telecom regulator lost phone service on Friday.