Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. creates “very serious” competitive issues for Canadian officials weighing whether to let the deal proceed, Innovation Minister Francois-Philippe Champagne said.

Consumer prices are among the central questions in the review, according to Champagne, the point person on the case for Prime Minister Justin Trudeau. The government’s decision will be a landmark with lasting consequences for the telecommunications industry, Champagne said in an interview with Bloomberg News on Tuesday.

The US$16 billion merger results in “very serious issues and very important issues when it comes to maintaining that level of competition,” Champagne said. It would reduce the number of wireless providers to three from four in about two-thirds of Canada, including the Toronto and Vancouver markets.

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Wireless concentration is the largest regulatory hurdle to completing the deal as proposed. Canadian government policy for more than a decade has been to encourage a fourth player to compete with Rogers, BCE Inc. and Telus Corp., as a solution to consumer complaints about high prices.

“Affordability, competition and innovation are key when it comes to the telecoms sector,” Champagne said by video conference. “Obviously that proposed transaction will be reviewed with these lenses to make sure that Canadians will have access to affordable and competitive prices when it comes to telecoms, and that we also foster innovation in that sector.”

Shaw shares have been trading at a discount to the $40.50-per-share cash offer because of the long closing time -- the deal could take a year or more to complete -- and the risk regulators will block it or force changes. Shaw dropped as low as $32.25 after Bloomberg reported Champagne’s remarks Tuesday, before bouncing back to close almost unchanged at $33.28. Rogers fell 1.2 per cent to $59.64 in Toronto.

“We share the government’s commitment to affordability and closing the digital divide to ensure all Canadians have access to high-quality service,” Scott Davidson, an outside spokesperson for Rogers, said via email. “Recent Statistics Canada data shows that wireless prices are down more than 15 per cent in the past year and with Rogers and Shaw coming together and accelerating the rollout of 5G we expect that momentum to continue.” A spokesperson for Shaw declined to comment.

Combining Forces

The transaction -- announced March 15 -- would unite Canada’s two largest cable providers, but there’s very little geographic overlap in their cable television and broadband internet businesses.

The companies say the deal will allow them to spend billions of dollars on faster networks and better service to remote and rural areas over Canada’s vast geography. “We believe that Canada needs dynamic competition, not a magic number of competitors,” Shaw President Paul McAleese said Monday in answer to questions from lawmakers on a House of Commons committee.

But critics warn the loss of a small competitor like Shaw’s Freedom Mobile unit, in an industry already dominated by three large incumbents, could drive up consumer costs.

The deal needs to win backing from Canada’s competition bureau, industry regulators and Trudeau’s government. Most analysts expect the transaction will be be approved by the government and regulators in 2022, but with stipulations. For example, regulators will almost certainly force Rogers to divest some of Shaw’s wireless assets.

Champagne trumpeted the benefits that have come from the arrival of new players in the wireless sector, and said he’s not convinced by the argument from big telecom companies that consolidation is needed in order to promote innovation.

Canada has sought to foster competition by offering up discounted spectrum at auctions to new wireless players -- a policy that Shaw has benefited from. The company was the third-largest buyer of 600-megahertz spectrum in 2019, spending almost $500 million (US$396 million) to win 11 licenses across the country.

“New entrants have demonstrated time and time again that they can create that level of competition in a country as big as Canada,” said Champagne. “History has demonstrated that they have played a key role in trying to bring prices down and in bringing more competition to the sector in Canada.”

Spectrum Auction

Whether Trudeau lets Rogers keep Shaw’s spectrum licenses is one big question. Another is whether Shaw should be allowed to participate in the auction of 3,500-MHz wireless spectrum in June, since the merger won’t be approved by then.

“This is under active review as to what’s the best course of action under the circumstances of this proposed transaction,” Champagne said, referring to the auction. “That’s something we’re reviewing as the rules are being prepared with respect to that particular auction.”

Champagne said that his government is still committed to pushing phone companies to drive down wireless prices further. In the 2019 election campaign, Trudeau’s Liberals pledged to reduce the cost of wireless services by 25 per cent within four years, using the threat of further regulation.

In the government’s latest quarterly report on the subject, it said wireless prices for most plans had fallen 10 per cent to 18 per cent since early 2020.

“That’s something that we remind the telcos every time that I talk to them,” he said.