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Will the Rogers ruling drive competition reform?

The Federal Court of Appeal's dismissal of the attempt to block the takeover of Shaw is bound to raise the pressure on strengthening our competition laws.

Rogers building in Calgary

Matthew Boswell has been vocal about the need to reform competition law in Canada, which enables, in his view, anti-competitive mergers and high levels of economic concentration. Following the Federal Court of Appeal's ruling to uphold the decision to allow the acquisition by Rogers Communications' of its rival Shaw Communications, the question is what effect it will have on the Competition Commissioner's ability to advocate for reform.

During the merger proposals, Shaw opted to sell its wireless company, Freedom Mobile, to Quebec-based Vidéotron—a transaction designed to keep a fourth active player in the markets where it carries on business. Also, Rogers and Shaw don't directly compete in the same markets in the cable television and internet business. In allowing the merger to go ahead, the Competition Tribunal declared that this would increase competition overall. The Commissioner appealed that decision and got an injunction to prevent the merger from going ahead until the matter was decided. The Federal Court of Appeal ruled from the bench rejecting the Bureau's request to stop the merger. "Close, this case was not," said Justice David Stratas.

If anything, the decision bolsters the case for reviewing the Competition Act, says Keldon Bester, co-founder of the Canadian Anti-Monopoly Project and a former special advisor at the Competition Bureau. "This weakens, not strengthens, our already weak merger law, and highlights the difference between the reality inside the Competition Tribunal and the reality for Canadians on the ground."

The Tribunal's decision was the right one, says Michael Osborne, chair of the Canadian competition practice at Cozen O'Connor in Toronto. It also shows that the system is working as it should. Osborne did not act for any of the parties involved.

"People can agree or disagree [with the decision], but this is an expert tribunal, which heard evidence from the Commissioner, from Rogers, Shaw, Vidéotron, Bell, and Telus," Osborne says. "People were cross-examined; they had documents, including those that contradicted what Bell and Telus said; they had expert reports—it's not like a Parliamentary committee which hears from a lot of people who don't know what they're talking about."

In that regard, the Tribunal cannot be accused of not doing its job, adds Osborne, acknowledging that "there is no objective test that this merger would fail." 

University of Ottawa law professor Jennifer Quaid disagrees with Osborne, noting that there are critics of the telecoms sector who question whether the Tribunal understood the situation and got the facts right.

"In litigation, you're dealing with legal truths, which is what the court decides is the persuasive evidence on the question," Quaid says. "That depends on the court being able to listen to the evidence and making an informed decision. For the system to work, you have to believe that the Tribunal, as it's composed right now, as a combination of judges and lay members, is able to listen to relatively specialized, complicated evidence, and to get it roughly right."

"Fundamentally, there are people who believe that the Tribunal did not arrive at the correct factual determination, that they don't understand how the industry works and how, despite what might be written in laws or policies, how it works informally in the industry is very much dominated by the Big Three," she says referring to Rogers, BCE and Telus. "And this deal will only make that circumstance worse and reinforce their power."

In response to the Tribunal ruling, third-party internet, telephone and television provider TekSavvy denounced the decision, saying the merger deal is predicated on an unlawful side deal with Videotron that undercuts established wholesale rates and is anti-competitive as a result. It is calling on the CRTC to investigate.

Quaid says she is skeptical Tribunal can fully understand the subtleties in the evidence provided. She says that decisions in Canadian competition matters have failed to get into that level of detail, driven partly by the case law and partly by the comforting belief that future events are uncertain and decisions about mergers amount to exercises in prediction. Quaid describes the quest for "enough evidence" to mathematically predict the outcome of a merger as "a bit of a holy grail that doesn't exist." she says. "Other jurisdictions are not quite as fussy about this level of detail."

Bester notes that the discussion around the geographic consideration—how Shaw and Rogers' cable businesses did not directly compete with one another—betrays the limits of how competition is understood.

"No matter how you slice it, if this transaction is approved, we are losing a source of competition and innovation in Canada," Bester says. "We see what is available in other parts of the country, and that changes what we demand from the companies we interact with. On the cable and home internet side, over its run, Shaw was responsible for innovations and service improvements that were eventually reproduced by competitors that existed in different markets."

Regardless, the Tribunal may have worked as intended, says Bester. But the laws are not designed to stop mergers. That needs to change.

Osborne worries that critics are instead looking for a politicized system where the minister has more of a say based on public sentiment, polling and lobbying. He compares this to the Investment Canada Act, where the minister acts as judge, jury and executioner in applying a "net benefit" test with no objective measures on foreign investment over $1.41 billion.

"You could do that, but would it be a better system?" Osborne asks. "I think it would have very serious ramifications for investment in this country because having a good competition law, having a competition law with authorities who can be trusted to apply objective standards in a proper, impartial way, that's important. Otherwise, you have the minister expropriating companies, saying that companies like Rogers belong to us instead of their shareholders."

Quaid agrees there are concerns about involving the political process. The current system doesn't require approval for mergers, per se. It relies instead on the Commissioner to challenge them before going to the Tribunal to decide. For most mergers over a certain size, the parties need to notify the Bureau, which makes an assessment. At that stage, many of the anti-competitive problems get worked out.

It's possible the Rogers-Shaw merger underscores how the Tribunal is not quite fit for purpose in addressing competition-related issues mixed with considerations that are germane to a highly concentrated and regulated industry. "Maybe we need to think about whether that is the right place to challenge this merger," acknowledging that the "Tribunal is not in a position to change how we regulate telecom."

Ultimately, the Act needs to change, says Bester, because the Tribunal relies on it in making decisions. But if the Act is amended to become more robust and assertive, we will have to consider the design of the Tribunal as well.

"There is a real question if the Tribunal, as it stands, will be able to handle that, and whether or not we should look at different models," Bester says. "The U.S., the European Union, and Australia give us different models that we can look at."

"Those who feel this decision shows the system is broken simply don't like the outcome," says Osborne." [They] would instead choose to blow the system up."

"That's not the right answer—the Tribunal did exactly what it's supposed to do," Osborne says.

Doing what it was supposed to do may be the underlying problem, says Quaid. That should be driving consultations. "Do we need to change the way we do merger review?" Quaid asks. "Do we need to change the threshold? Do we need to change the weight we give to efficiencies? Do we need to contemplate different remedies? Do we need to think about a Tribunal that is set up differently with different expertise? All of those things are on the table."

Expect more skepticism from the public, says Quaid. There is less willingness to agree with the worn-out argument that everything is fine as long as the overall economic pie gets bigger.

"The next step is for the Commissioner and his team to outline and elaborate on what policy changes they need to see to be effective," Bester says. "But then it's up to lawmakers to make those changes."