On a High Wire: Canada (Commissioner of Competition) v Rogers Communications Inc and Shaw Communications Inc, 2023 Comp Trib 1

Probably the hottest topic in the world of Canadian regulation in recent months has been the proposed merger between two telecommunications behemoths, Rogers and Shaw, with the former essentially to absorb the latter. In extensive reasons published on New Year’s Eve, the Competition Tribunal found that the merger could go ahead: Canada (Commissioner of Competition) v Rogers Communications Inc and Shaw Communications Inc, 2023 Comp Trib 1. This decision has been appealed to the Federal Court of Appeal, which entered a stay of the decision pending its resolution of the appeal: the hearing has been scheduled for January 24 (EDITED). The proceedings have generated significant public interest and comment, some of which is (in my view) misplaced or misdirected, and have given rise to an important question of law about the enforcement of Canadian competition law.

Canada’s Competition Act is administered by the Commissioner of Competition, who heads the Competition Bureau. The Bureau monitors anti-competitive behaviour on an ongoing basis and can seek to bring enforcement action. As far as mergers are concerned, the Commissioner can apply to the Competition Tribunal to prevent a proposed merger with substantial anti-competitive effects: CA, s. 92. The Competition Tribunal is established by the Competition Tribunal Act and is constituted of judicial and lay members; only judicial members may opine on questions of law arising in the course of the Tribunal’s work: CTA, ss. 3, 12. The Tribunal is a quintessential quasi-judicial body. Its decisions are appealable to the Federal Court of Appeal: CTA, s. 13.

There has been a significant amount of adverse comment about the Tribunal’s handling of the proposed merger, which has been the subject of particularly intense interest. By way of general background, it is worth noting that prices for wireless (i.e. cellular or mobile) services in Canada are quite high by international standards. Wireless industry players retort that the quality of service in Canada is correspondingly high, and there is some truth to this, at least in urban areas: whereas in England only one cellular network reliably served the Faculty of Law and my home, in Canada I can make high-quality voice and video calls from my basement. Nonetheless, there is significant dissatisfaction about wireless prices, so much so that the current federal government pledged to reduce the costs to consumers. This dissatisfaction is nested within broader social unrest about rising prices due to inflation and concern that many sectors of the Canadian economy (e.g. transportation, pharmaceuticals and food-agriculture) are uncompetitive. Hence the intense interest in the Tribunal proceedings.

Hence also some misconceptions about what was at stake. The role of the “Competition” Tribunal is somewhat counterintuitive, especially in layperson’s terms. The Tribunal’s role is not to enhance competition; it does not have a mandate to rove the country drumming up competition in uncompetitive markets. That is the Commissioner’s job. The Tribunal’s role is to adjudicate on applications made to it and apply the tests set out in the legislation to the facts before it. When the Tribunal makes a decision on a proposed merger, it is not opining on whether the merger is a good or bad thing for consumers but only whether merger satisfies the standards in the CA. Specifically, the Tribunal is not interested in whether a proposed merger will enhance the lives of Canadians but whether the merger will have anticompetitive effects (and, if so, whether efficiency gains will offset these effects). If the merger is not going to make things worse, the Tribunal cannot stand in the parties’ way.

The pace of proceedings and recent developments has been very quick, as the parties have fixed January 31 as the closing date for their deal. The Tribunal was subject to criticism last week for rushing its decision, as it issued a summary of its reasons several days before publishing them. To my mind, this criticism was misplaced and underpinned by more general concerns about competition in Canada. There is nothing wrong with courts making decisions ‘with reasons to follow’ and there are other administrative tribunals, such as the Canadian Human Rights Tribunal, which issue summaries of their reasons for decision well in advance of the decisions themselves. Swift decisions are one of the advantages of administrative decision-making and give parties legal and commercial certainty. Moreover, the Tribunal published its reasons in both official languages, English and French. Given that the final decision stretches to 413 paragraphs spread over 79 pages, bilingual publication was a considerable challenge. Nonetheless, the reasons for decision were made publicly available less than a week after the summary, and the summary itself was sufficiently complete that the Commissioner could lodge a notice of appeal. Whatever one thinks about the state of competition in key Canadian markets, the Tribunal deserves commendation, not criticism, for delivering a detailed decision in a timely manner.

That said, there is an important legal issue at stake. The Tribunal’s conclusion that the merger will not substantially lessen competition rests on its analysis of the nature of the “proposed merger”. Between the Commissioner’s application to the Tribunal and the commencement of the proceedings, Rogers and Shaw agreed that Shaw would divest its wireless business, operated by Freedom Mobile, to a third party, Videotron (a major player in the Quebec market but not in English Canada). The Tribunal concluded that it had to analyze the merger at the time of the proceedings rather than at the time of the application:

[109] The Tribunal disagrees. The “proposed merger”, as defined by the Commissioner, is no longer being proposed. It has been substantially modified, such that what Rogers proposes to acquire will no longer include the shares or assets of Freedom. In the words of Mr. McAleese, “Rogers will never own Freedom or operate Freedom”: see Transcript, at 5327:15-16; Exhibit CA-R-0192, at para 359. Moreover, the Minister has publicly confirmed that he “would – under no circumstances – permit the wholesale transfer of wireless spectrum from Shaw to Rogers” and that this decision “formally closes that chapter of the original proposed transaction”: Exhibit P-R-0008.
[110] To the extent that the future ownership of Freedom is a major focus of this proceeding, the Commissioner’s insistence that the Tribunal spend scarce public resources assessing something that will never happen is divorced from reality. The Tribunal is not “obliged to pretend such an ignorance of realities”: Sask Govt Ins Office v Anderson, [1967] MJ No 35, at para 5 (CA). Put differently, it “cannot ignore objective facts”: Sebastian v Vancouver Coastal Health Authority, 2019 BCCA 241, at para 45. Nor should it be expected to do so. On the contrary, the Tribunal should be appropriately concerned with “the true state of affairs”: Commissioner v Canadian Waste Services Holdings Inc, 2004 Comp Trib 10, at para 34.
[111] Given that intervening events occurring after the filing of an application can have a material impact on a proceeding before the Tribunal, they cannot be ignored. This would be inconsistent with the forward-looking analysis contemplated by section 92: Tervita Corp v Canada (Commissioner of Competition), 2015 SCC 3, at paras 52-54 (“Tervita SCC”). Among other things, the Tribunal can only make an order under section 92 in respect of a proposed merger where it finds that the proposed merger “prevents or lessens, or is likely to prevent or lessen, competition substantially” (emphasis added). It is axiomatic that a previously proposed transaction that will never occur due to intervening developments cannot be likely to prevent or lessen competition substantially.
[112] This construction of section 92 is consistent with language in section 96, which contemplates the assessment of efficiencies that a proposed merger “is likely to bring about” and that “will be greater than and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the … proposed merger” (emphasis added). This contrasts with the conditional tense language (“would”) that appears elsewhere in the merger provisions of the Competition Act, including in sections 94 (“would be”), 95 (“would result”) and 100 (“would substantially impair” and “would be difficult to reverse”).

[118] The Tribunal notes that this finding is consistent with a U.S. authority directly on point. In Federal Trade Commission v Arch Coal, Inc, No 1:04-cv-00534, ECF No 67 (DDC July 7, 2004), the Commission made a motion to exclude, for the purposes of a preliminary injunction proceeding, all evidence and argument on the issue of a divestiture of one of two mines to be purchased by Arch Coal, Inc. (“Arch”). In its decision, the Court observed, “In effect, the FTC asks this Court to assess the proposed merger as if Arch would retain both the North Rochelle and Buckskin mines” owned by the acquiree, Triton Coal Co. (“Triton”). On that issue, the Defendants argued that ignoring the divestiture “would be tantamount to the Court assessing ‘a purely hypothetical transaction of the Commission’s making – that none of the parties are proposing’. Ultimately, the Court agreed and stated that it was “unwilling simply to ignore the fact of the divestiture of Buckskin to Kiewit”. The Court concluded that “the challenged transaction [consists] of both the acquisition of Triton by Arch and the divestiture of the Buckskin mine to Kiewit.”

This conclusion has important consequences. If the Tribunal had proceeded as the Commissioner argued, it would have assessed, first, whether the merger had anticompetitive effects, second, whether these effects were offset by efficiency gains (a peculiarly Canadian, and currently controversial, competition law provision) and, third, the appropriate remedy to grant. In determining the remedy, the Tribunal could have (and probably would have) ordered the divestiture of the wireless holdings: s. 92(1)(e)(ii). The upshot would then have been a binding decision of the Tribunal requiring Shaw to sell its wireless holdings and (conceivably) forbidding Rogers from purchasing them in the future. As it is, however, keeping Rogers away from Shaw’s wireless holdings rests on the current structure of the deal and ministerial discretion.

Another consequence is that the Commissioner had the burden of demonstrating the anticompetitive effects of the proposed merger at the time of the proceedings. Had the Tribunal treated the divestiture of wireless holdings as a remedy, however, the burden would have been on Rogers and Shaw to demonstrate that the sale would restore competition in the market.

The Tribunal was not persuaded by the Commissioner’s arguments:

[122] There is no completed merger from which to carve out a remedy that may or may not restore competition to the point at which an established lessening or prevention of competition can no longer be said to be substantial. There is only a proposed, two-step merger that the Commissioner asserts will likely prevent and lessen competition substantially. He makes that assertion both because Videotron will acquire Freedom and because Rogers will then acquire what remains of Shaw – i.e. the Shaw Mobile brand and its associated customer contracts.
[123] In these circumstances, the burden appropriately falls on the Commissioner to prove his allegations.

The appeal from the Tribunal to the Federal Court of Appeal on this important question of law will be determined on a correctness standard.

If nothing else, these proceedings have put Canadian competition law in the spotlight. There is increasing likelihood of significant reforms to the current legislative framework, given the intensity with which these proceedings have been followed.

This content has been updated on January 4, 2023 at 19:43.