Rogers deal complicates Shaw’s place at 5G airwaves auction

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Rogers Communications Inc. would get the means to accelerate the build-out of its 5G wireless network through its acquisition of Shaw Communications Inc. , but if the deal falls through it could leave its Western Canadian target in a precarious position.

The $20.4-billion deal, announced Monday, would give Rogers access to Shaw’s fibre-optic infrastructure – the lightning-fast wires that power broadband internet service – putting it on more equal footing with rivals Telus Corp. and BCE Inc. , who share portions of each other’s networks. But it could also see Shaw sitting out a crucial telecom auction this summer that will provide the building blocks companies need to offer the next generation of wireless technology.

Rogers, accustomed to high debt, secures record bridge loan for Shaw deal

Building out national 5G networks, which will power everything from smart cities to driverless cars, is a massive undertaking that will cost Canadian wireless carriers an estimated $26-billion, according to a 2018 Accenture analysis. A Rogers-Shaw merger would give both companies the scale they need to move quickly in the global technology arms race. However, the deal – which would eliminate Shaw’s Freedom Mobile, the country’s fourth-largest wireless carrier – faces significant regulatory scrutiny from a government that has been focused on increasing competition and reducing wireless prices.

Early deployments of 5G have relied on adding equipment onto existing wireless networks. But in order to truly deliver on the promises of 5G – such as increased speeds and reduced lag times – telecoms will need new towers connected to fibre-optic cables, according to telecom consultant Mark Goldberg.

“Even in places that Shaw isn’t operating wireless, they’ve got extremely extensive fibre assets – that includes Manitoba and Saskatchewan, for example,” Mr. Goldberg said. If the deal goes ahead, he added, “It means that Rogers would have deep infrastructure nationally.”

wireline (internet/TV) footprints

Rogers and Shaw have “virtually no overlap”

in their cable footprints, according to Rogers CEO

Joe Natale. The companies’ founders, Ted Rogers

and JR Shaw, struck a gentlemen’s agreement in

1994, when divvying up Maclean-Hunter’s cable

assets, that they wouldn’t compete in each

other’s territories.

Regional telecom operators

Homes passed*

Operator

4.5

Shaw

2.9

Quebecor

1.8

Cogeco

0.3

SaskTel

n.a.

Eastlink

In millions

National telecom operators

Homes passed*

Operator

12.0

BCE

3.9

TELUS

4.5

Rogers

In millions

*When there is more than one unit in a single dwelling, such as an

apartment building, each unit that is a cable subscriber, or has the

ability to access cable services, is counted as an individual home passed.

alexandra posadZki and JOHN SOPINSKI

THE GLOBE AND MAIl, SOURCE: rbc capital markets

wireline (internet/TV) footprints

Rogers and Shaw have “virtually no overlap” in their cable

footprints, according to Rogers CEO Joe Natale. The

companies’ founders, Ted Rogers and JR Shaw, struck

a gentlemen’s agreement in 1994, when divvying up

Maclean-Hunter’s cable assets, that they wouldn’t

compete in each other’s territories.

Regional telecom operators

Homes passed*

Operator

4.5

Shaw

2.9

Quebecor

1.8

Cogeco

0.3

SaskTel

n.a.

Eastlink

In millions

National telecom operators

Homes passed*

Operator

12.0

BCE

3.9

TELUS

4.5

Rogers

In millions

*When there is more than one unit in a single dwelling, such as an

apartment building, each unit that is a cable subscriber, or has the

ability to access cable services, is counted as an individual home passed.

alexandra posadZki and JOHN SOPINSKI

THE GLOBE AND MAIl, SOURCE: rbc capital markets

wireline (internet/TV) footprints

Rogers and Shaw have “virtually no overlap” in their cable footprints, according to Rogers

CEO Joe Natale. The companies’ founders, Ted Rogers and JR Shaw, struck a gentlemen’s

agreement in 1994, when divvying up Maclean-Hunter’s cable assets, that they wouldn’t

compete in each other’s territories.

Regional telecom operators

Homes passed*

Operator

4.5

Shaw

2.9

Quebecor

1.8

Cogeco

0.3

SaskTel

n.a.

Eastlink

In millions

National telecom operators

Homes passed*

Operator

12.0

BCE

3.9

TELUS

4.5

Rogers

In millions

*When there is more than one unit in a single dwelling, such as an apartment building,

each unit that is a cable subscriber, or has the ability to access cable services,

is counted as an individual home passed.

alexandra posadZki and JOHN SOPINSKI/THE GLOBE AND MAIl

SOURCE: rbc capital markets

The takeover, which requires shareholder and regulatory approvals, would see Rogers pay $40.50 a share for Shaw, a 70-per-cent premium to where the Calgary-based telecom’s stock recently traded.

The announcement comes three weeks ahead of the April 6 deadline for telecoms to pay their deposits if they wish to participate in the June auction for airwaves critical for 5G. Experts say the deal raises questions about Shaw’s ability to bid on licenses for the 3,500-megahertz spectrum – airwaves used to transmit wireless signals.

“Based on a reading of the auction rules, there is a non-negligible possibility that the announced merger may jeopardize Shaw’s participation as a stand-alone entity in the upcoming spectrum auction,” Johanne Lemay, co-president of telecom consultancy Lemay-Yates Associates Inc., said in an e-mail.

The 3,500-MHz band is a key one for the delivery of fifth-generation wireless services because it can carry large volumes of data over long distances.

“Sitting out this auction could make or break a company,” said Gregory Taylor, a spectrum expert and associate professor at the University of Calgary. “If Shaw were out of this auction and then somehow the deal does not go through, Shaw is in big trouble.”

According to the rules set out by Innovation, Science and Economic Development Canada – the federal ministry responsible for regulating spectrum – companies that are in an agreement to merge are considered associated entities. They can participate separately in the auction only “if they can demonstrate that they intend to separately and actively provide services,” John Power, a spokesperson for the department, said in an e-mail.

“Innovation, Science and Economic Development will apply these rules when it reviews all applications to participate in the auction following the April 6, 2021, application deadline, and make its assessment of eligibility on the facts of each specific application,” Mr. Power said.

Shaw and Rogers declined to comment on the upcoming auction.

The decision is going to be a tricky one for the government to make, Prof. Taylor said.

“I suspect they’re going to have to come up with creative solutions here,” he said. “It could be that Shaw gets to bid on set-aside spectrum and then if the deal [with Rogers] goes through they have to return it. ... We’re into uncharted waters.” (Set-aside spectrum refers to a block of airwaves that is earmarked specifically for newer wireless carriers, such as Freedom Mobile, to encourage competition.)

Analysts are expecting strong demand for the 3,500 MHz spectrum. A report published by TD Securities analyst Vince Valentini earlier this year predicts that BCE, Rogers and Telus will spend roughly $2.8-billion combined on the airwaves. South of the border, an auction for similar airwaves netted US$80.9-billion.

Carriers will need a mix of different frequencies to deliver 5G services. Higher frequencies provide faster speeds, while lower frequencies are better at travelling long distances. The airwaves in the 3,500 MHz range, known as mid-band spectrum, are considered ideal because they provide a mix of both.

If Shaw isn’t able to participate in the auction, that could create opportunities for smaller players to bid on those blocks of spectrum, Prof. Taylor said.

“It would mean that those looking for the set-aside [spectrum] will probably get a much better deal,” he said. “Of all the groups that qualify for set-aside spectrum, Shaw has some of the deeper pockets.”

The Canadian Radio-television and Telecommunications Commission (CRTC) is currently mulling whether to force the national carriers to open up their wireless networks to resellers. The decision, which is expected in the coming weeks or months, could determine whether companies such as Cogeco Communications Inc. enter the wireless business.

If the deal between Rogers and Shaw goes through, Shaw will likely have to return airwaves in the 600 MHz range that it bought in a 2019 auction. Those airwaves were also set aside for smaller competitors and are not allowed to be transferred to one of the three big telecoms for five years.

The Rogers-Shaw merger is subject to approval by the Competition Bureau; Innovation, Science and Economic Development; and the CRTC.

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