Shaw has yet to recoup $4.5-billion investment in Freedom Mobile, CFO tells tribunal

Shaw Communications Inc. SJR-B-T has not recouped the $4.5-billion it has invested in its wireless business since 2016, an executive for the Calgary-based telecom told a Competition Tribunal hearing into the proposed $26-billion merger of Rogers Communications Inc. RCI-B-T and Shaw.

Trevor English, chief financial and corporate development officer at Shaw, said the investment, which includes the $1.6-billion that Shaw paid to acquire wireless carrier Freedom Mobile, is “net negative” by about $3.3-billion. Shaw has also not generated any free cash flow from its wireless business, he noted.

“We have not been able to increase our dividend since 2016 when we made the investment into Wind,” Mr. English said. (Shaw rebranded Wind Mobile to Freedom Mobile in late 2016.)

As part of the proposed merger between Rogers and Shaw, the cable companies have agreed to divest Freedom, Canada’s fourth-largest wireless carrier, to Quebecor Inc.’s QBR-B-T telecom subsidiary, Videotron Ltd., for $2.85-billion. That was in order to address concerns that the merger would hurt competition in the wireless sector.

Acquiring Freedom Mobile’s 1.7 million customers would double the size of Quebecor Inc.’s wireless business, giving it a “significant footprint” to grow outside its home province, Pierre Karl Péladeau, the telecom’s president and chief executive officer, told the tribunal earlier on Monday.

Despite the divestiture, the Competition Bureau is attempting to block the merger of Canada’s two largest cable companies, arguing that the deal would leave Freedom a weakened competitor because Rogers would acquire some of the assets that currently support the carrier.

Rogers, Shaw and Quebecor have contended that the deal will make the wireless sector more competitive by allowing Videotron to expand outside its home market of Quebec. Rogers and Shaw have also argued that combining their wireless networks would allow them to better compete against Telus in Western Canada.

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Shaw has lost more than 15 per cent of its cable and internet market share to Telus since 2016, Mr. English said. That underperformance has affected the company’s share price, he said.

“Our share price hasn’t moved in 10 years – it’s basically flat, while the majority of our peer group, including Telus, has more than doubled,” Mr. English said.

The Competition Bureau has argued that separating Freedom from Shaw’s cable network would make it more difficult for the carrier to compete.

Mr. English noted that 70 per cent of Shaw’s wireless business is in Ontario, where Shaw has no cable assets. He said Shaw has not integrated Freedom with its wireline business in a “material manner.”

Mr. Péladeau told the tribunal that if Videotron wants to enjoy the same level of growth it has previously enjoyed, it must expand beyond Quebec.

He declined to comment on his company’s strategy if it is successful in acquiring Freedom, noting that competitors “are listening.”

“I’m not sure we would want to mention in a public arena what is our strategy in terms of getting customers out of [rivals’] customer base,” he said.

However, Mr. Péladeau said that while immigration drives growth in the wireless industry, Videotron “would like to be even more successful than the flow of immigrants that Canada receives and grow our business even larger than that.”

During cross-examination, Antoine Lippé, a lawyer for the Competition Bureau, noted that Quebecor has previously acquired wireless airwaves with the stated intention of expanding outside of Quebec, but later sold them at a profit.

Mr. Lippé also noted that Mr. Péladeau has previously referred to companies that purchase wholesale access to other telecoms’ networks as “parasites.” If Quebecor is successful in acquiring Freedom Mobile, it will rely on such wholesale access to provide wireless services.

The Montreal-based company has struck a deal that would allow it to access the combined Rogers-Shaw entity’s cable network in Western Canada at what the companies have described as “favourable rates.” Those rates are below the mandated wholesale rates set by the Canadian Radio-television and Telecommunications Commission.

Mr. English described the terms of the deal between Rogers, Shaw and Videotron as a “dream scenario” in terms of enabling Videotron to carry on the Freedom business.

“I don’t think you could have gotten a better solution here in terms of the fourth- and fifth-largest wireless operators coming together with the scale and size of 3.3 million customers across the four most populous provinces in this country,” Mr. English said.

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