(Bloomberg) -- Shortly after midnight on a Saturday in early May, two of Canada’s largest wireless and cable companies dropped a bombshell.

Rogers Communications Inc. disclosed that Canada’s antitrust agency was about to file suit to block its $16 billion takeover of rival Shaw Communications Inc. It was a bid to stop one of the biggest mergers in the country’s history, and it was out of character for the agency. 

In court documents, Competition Commissioner Matthew Boswell used dramatic language, arguing that Rogers’s proposed takeover of Shaw “threatens to undo more than a decade of competitive progress to the detriment of Canadians.” Boswell’s action has already forced the companies to delay the deal; it has the potential to undo it entirely.  

The outcome of this antitrust fight may even affect the course of competition law in Canada. Boswell is increasingly using his perch to press for stronger antitrust enforcement tools and to call out corporate abuse of existing law. Now, he’s turning words into action in the Rogers-Shaw case, just as the government prepares its first significant review of antitrust law in more than a decade.

Industry Minister Francois-Philippe Champagne’s review of Canada’s Competition Act was first announced in early February. It was light on details, with promises to fix “loopholes that allow for harmful conduct,” adapt the law to “today’s digital reality” and change penalties to ensure they serve as a “genuine deterrent” to bad corporate practices. 

In April, the government took an initial step, introducing measures in budget documents that include:

• Explicitly defining drip pricing -- or the adding of hidden fees or extra charges -- as a violation that could be subject to fines
• Making it a crime for employers to collude to fix salaries or not hire one another’s employees -- known as “no-poach” deals -- and establishing severe penalties for those actions
• Allowing private companies and individuals to bring so-called “abuse of dominance” cases to the Competition Tribunal, a court-like body that can issue formal orders, which carry the weight of law

The biggest changes involve fines. If a company is found to abuse its dominant market position, the tribunal could order it to pay as much as “three times the value of the benefit derived from the anti-competitive practice,” or, if that figure cannot be determined, 3% of annual gross worldwide revenue. That’s a departure from the existing provision of a C$25 million ($19.8 million) maximum penalty, no matter the size of the firm. 

“The main effect of this is to arm the bureau with more negotiating leverage against the parties that they’re investigating to get a larger settlement rather than potentially having larger penalties ordered by the tribunal,” said William Wu, a competition and antitrust lawyer at Toronto-based McMillan LLP. He says it’s very unlikely a company would be forced to pay the maximum. 

‘Everything on the Table’ 

The amendments “are items that we wanted to move forward on following extensive consultation to address competition, to address affordability for Canadians,” Alex Wellstead, a spokesman for the industry minister, said by phone. The ministry’s review is ongoing, and more details are expected in the coming months, he said. 

“We are getting the impression that the second round of broader consultation of the competition law review will essentially have everything on the table, including the merger provisions,” Wu said. 

Boswell has been critical of big companies’ use of the so-called efficiencies defense to anti-competition. It allows for an anti-competitive merger to proceed if the deal produces enough gains in efficiency that offset any adverse effects -- and it’s a defense that Rogers and Shaw may decide to employ if their case goes to a tribunal hearing.

“Since the efficiencies defense was included in our law in 1986, no other G-7 country has followed Canada’s approach. This should be cause for concern,” Bowell said in remarks to the Canadian Bar Association’s competition law conference in October. “It’s high time we pause and ask ourselves whether our competition laws are really working in the best interest of all Canadians.” 

Those comments are still reverberating in Canadian boardrooms. “I think they are taking a more aggressive stance, and businesses will have to be wary of that,” Richard Powers, an associate professor at the University of Toronto’s business school, said in an interview.  

The bureau’s review of the Rogers-Shaw transaction has been more than a year in the making. It’s separate from the government’s review of competition law overall, but it represents a more muscular approach to evaluating a deal. 

The bureau “is taking a very hard stance on this,” Powers said. “Rogers was assuming that it was going to be a slam dunk with some concessions they knew they would have to make, but I don’t think so anymore. This deal is really at risk right now.”

They key point in Boswell’s case revolves around Shaw’s Freedom Mobile division, which has about 2.2 million wireless subscribers and competes primarily in Toronto and major cities in Alberta and British Columbia. 

Rogers says it’s ready to divest from Freedom Mobile and the company has found potential buyers for it, including Vancouver’s Aquilini family and a company owned by New York-based Stonepeak Partners LP. But Boswell has argued that separating Freedom from Shaw would weaken it as a competitor, allowing Rogers, Telus Corp. and BCE Inc. to strengthen their dominance of the market and causing prices to rise. 

In a filing last week that asked the Competition Tribunal to dismiss the case, Rogers called Boswell’s analysis “flawed and incomplete.”

Freedom Mobile was once a stand-alone wireless business, before Shaw bought it. Most of its customers have no relationship with Shaw’s other businesses. There’s simply no reason it couldn’t be an effective competitor under different ownership, Rogers said in court documents. “A divested Freedom would have the same or greater economic incentive to compete as it had when owned by Shaw.”

Michael Osborne, a competition lawyer at law firm Cassels Brock & Blackwell LLP, said Boswell has left a path open to settling the matter. 

“The bureau has telegraphed through the materials it’s filed that a divestiture of the wireless business, plus some add-ons, like bundling, will do the trick,” Osborne said. “There’s a remedy out there” for Rogers and Shaw to get their deal done. 

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