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Ruling in Rogers-Shaw deal shows reform of Competition Act is badly needed

A problematic ‘efficiencies defence’ within the Act has effectively hamstrung Canada’s Competition Bureau

Canadian PoliticsMedia Canadian Business

Photo by Timon Schneider/Dreamstime

Does the Competition Bureau have a hope in hell of stopping Rogers from swallowing Shaw and creating a nationwide cable monopoly? Probably not, but that’s just the point, and it’s a point the bureau itself has been trying to make for years. Its enabling Competition Act is not just unfit for purpose, it was seemingly designed to actually prevent competition. I call it the Prevention of Competition Bureau for its demonstrated inability to stop even the most blatant of monopolies. In reality, however, the bureau is simply a creature of 1986 legislation that could be called the Prevention of Competition Act. It has been nothing less than a disaster for competition, especially in the media sector, where it has led to some of the highest levels of ownership concentration in the world. As a result, Canadians are poorly served by their news media and also pay through the nose for telecommunications services such as cable TV, Internet service provision, and cellular telephony.

The problem is that the Competition Act enacted by the Conservative government of Brian Mulroney contained a section which requires that mergers or acquisitions that result in a monopoly must be allowed if they create economic efficiencies which outweigh any public detriment. According to a 1995 analysis by Toronto competition lawyer Paul Crampton, the so-called efficiencies defence was “unique among competition/antitrust statutes around the world,” and was adopted because the Mulroney government “had high hopes that it would play a significant role in facilitating efficient restructuring in Canada,” which in the end went largely unrealized. Not requiring efficiencies to be passed on to consumers, he added, was a different approach from the US, “which appears to require efficiency gains to be so great that prices will not rise as a result of the merger.”

The efficiencies defence lay dormant in the Competition Act for almost 30 years, however, until being tested in a Supreme Court of Canada case in 2015. By sheer coincidence, the case was decided just as the Competition Bureau was considering a takeover by Postmedia Network, the country’s largest newspaper chain, of Sun Media, its second-largest. The case involved a hazardous waste removal monopoly in northern BC that the Competition Bureau blocked.

Tervita Industries, however, appealed the order all the way to the Supreme Court, which allowed it under the efficiencies defence. The company calculated that a merger would cut costs amounting to half of one job, but the Competition Bureau failed to even put a number on its anti-competitive effects. The decision, noted one legal analysis, “reinforces the role of efficiencies in merger reviews, which will benefit merger parties.” The bureau quickly waved the white flag and allowed the Postmedia acquisition, giving it 15 of the 21 largest English-language dailies in Canada, including eight of the nine largest in the three westernmost provinces. The chain, which is 98 percent owned by US hedge funds, has been very efficiently bleeding the dailies dry ever since, ravaging them with cutbacks and combining their newsrooms in four of Canada’s largest cities despite promising not to.

While most of the focus in the $26 billion Rogers takeover of Shaw has been on the cellular side, perhaps because of the outrageous prices Canadians pay to service their smartphones every month, the nation-wide cable monopoly it will create should not be ignored. I was shocked when I taught in Malta recently at how low the cable rates are there. I paid €45 a month, or about $65, for cable TV and high-speed Internet. Since I returned, I have been paying Telus $158 a month for the same type of service. That’s because there is competition in Malta, where several cable companies are forced to share the same wires, while there is no such requirement in Canada. Since the monopoly cable companies supposedly now compete with the monopoly phone companies like Telus and Bell, the CRTC deregulated rates decades ago, meaning they can charge as much as they like.

The joining of an eastern cable monopoly with a western one is the end game of a real-life game of Monopoly™ that has been played out for close to 50 years in Canada. The cable business is actually a lot like the newspaper business because they were all local enterprises before being gobbled up by chains and national networks. Cable television service began in the 1950s when local viewers who could only watch the CBC erected antennae to get a better signal from distant stations, usually across the US border. The coaxial cable they wired their homes with to share the signal became the first local cable systems. These small businesses grew into ever-bigger commercial enterprises because of the ever-bigger money involved with satellite, pay-TV, and now Internet service provision.

Ted Rogers of Toronto and Jim Shaw of Edmonton proved the most adept entrepreneurs, creating regional monopolies in the 1970s by buying, selling, and even trading local cable systems. We first had Vancouver Cablevision where I grew up, but it was soon bought by Rogers, who then traded it to Shaw. It was enough to make your head spin. In exchange for such lucrative monopolies, they were at least expected to provide one channel of community programming with public access. The CRTC removed that requirement in 2016, however, and allowed the cablecos to instead put that money into local TV news, which was convenient since they were making so much money that they had both already bought TV networks, with Rogers acquiring Citytv in 2007 and Shaw grabbing Global in 2010.

While the Competition Bureau has finally taken a stand and challenged the Rogers takeover of Shaw, it is likely just for show and simply to make a point. The bureau’s new head, Paul Boswell, has been complaining since he took the job that his agency is hamstrung by its enabling Act, specifically the efficiencies defence. “That’s why we see a very concentrated economy and we see multiple oligopolies that control our economy in different sectors,” he told the Globe and Mail in an interview. The Competition Bureau has promised to appeal the decision by a Competition Tribunal, which resolves disputes under the Competition Act, to allow the acquisition, which it can do first in Federal Court of Appeal and finally to the Supreme Court. Not only did the Tribunal cynically release its ruling after the close of business on the eve of a New Year’s long weekend, it did so in only two weeks because the parties were hoping to complete their transaction by month’s end. Most Tribunal rulings, critics pointed out, take months. Perhaps the haste also had something to do with the Tribunal being chaired by Crampton, who is now chief justice of the Federal Court, as he should know the efficiencies defence.

Luckily the Competition Act is currently under review, so in making his point in such a high-profile case, Boswell could be all but assuring reform.

Marc Edge is a journalism researcher and author who lives in Ladysmith, BC. His books and articles can be found online at www.marcedge.com.

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