Bell/MTS presents complex options for regulators

REUTERS/Fred Thornhill
REUTERS/Fred Thornhill

BCE Inc.’s peremptory announcement, that it will sell about one-third of MTS’s and Bell’s Manitoba wireless subscribers to Telus Corp. if the company’s proposed $3.9 billion acquisition of Manitoba Telecom Services Inc. goes through, has masked some of the regulatory complexities surrounding the deal.

Much of the commentary regarding the transaction has focused on the broad question of whether the Liberals will stick to the previous Conservative government’s obsession with encouraging small carriers to allow for the emergence of a fourth national wireless carrier. But the historical and existing complexities in the market, particularly the Manitoba market, suggest there are myriad deal structuring options for both the federal government and the regulators.

“It’s going to be interesting to see how the horse trading that has characterized the sector will play out in this deal,” says Stephen Zolf of Aird & Berlis LLP in Toronto. “The difficulty with Bell’s proposal to transfer customers and some stores to Telus is that it amounts to a divestiture of subscribers in the wireless market, but not of spectrum.”

What’s interesting about that is that Bell and Telus share a network in the mobile space, so Telus was arguably the least objectionable competitor. The transfer of customers also doesn’t solve the problem of maintaining a fourth provider to go along with Bell, Telus and Rogers Communications Inc.

But there is an obvious fourth provider readily available: Shaw Communications Inc. is deeply entrenched in Western Canada and recently acquired Wind Mobile. The difficulty is that Wind doesn’t own any spectrum in Manitoba.

But there are two options by which this obstacle could be surmounted. The government or the regulators could, as a condition of approval, require Bell to divest part of the MTS Spectrum to Shaw; otherwise, Shaw could strike a deal with Quebecor Inc., which has unused spectrum in the province.

“The problem is that the Conservatives didn’t find the Quebecor route a good enough answer when Telus was trying to buy Mobilicity,” says one veteran communications lawyer who asked for anonymity due to “client sensitivities.”

But this will be the first test of the Liberals’ commitment to the “four national carriers” principle.

“The Liberals could take the position that having the Quebecor spectrum satisfies them,” says Lexpert’s source. “Or they could realize that Shaw, which has customer relationships in Manitoba and provides other services, could be a very strong competitor if given the right tools.”

For its part, the Competition Bureau has publicly stated that its perspective in these types of transactions is not one of whether there will be three or four carriers, but simply whether there will be enough competition.

Currently, MTS boasts some 50 per cent of the province’s wireless subscribers, with Rogers at 30 per cent, and BCE and Telus at about 10 per cent each. Because the core issue for the Bureau is competition, Bell’s divestiture of customers to Telus could be enough to get approval from the regulator. 

What’s not clear is how the Bureau will evaluate wireless competition in Manitoba: the regulator could look at any combination of market share, total wireless customers or spectrum.

Innovation Minister Navdeep Bains, who has jurisdiction over spectrum licenses, has a broader mandate.

“While the 2013 Spectrum License Framework issued by the Ministry implicitly incorporate competitive considerations into the policy and there will be some overlap in criteria with the Competition Bureau, the Ministry looks at broader issues, including such things as who would be better at investing in infrastructure,” Zolf explains.

Policy, of course, regularly bends to politics. It’s important to keep in mind, then, that the Liberals have seven MPs, all from the Winnipeg area, in Manitoba’s 14 ridings, two of whom –Natural Resources Minister Jim Carr and Minister of Employment, Workforce Development and Labour MaryAnn Mihychuk – are in Cabinet. They may have as much to say as Bains.

As for the CRTC, media reports have led to a general misconception that the CRTC has something to say about spectrum.

“The reality is that the CRTC has no jurisdiction regarding spectrum licenses,” Zolf says. “If this was a deal with a non-Canadian concern, the CRTC could look at the ownership or control situation because it has the mandate to decide whether a carrier is Canadian-owned,” Zolf says.

Which is not to say that the CRTC couldn’t play a part in the outcome. The CRTC has authority over the broadcast licenses owned by MTS, which are included in the proposed sale to Bell.

From a competitive perspective, Bell currently has a satellite television service in Manitoba, MTS provides a VOIP service, and Shaw offers both cable and satellite services. The Bell/MTS deal would reduce the number of providers, something that might not please CRTC Chairman Jean-Pierre Blais, whose interventionist approach is well-established.

 “If Blais has a lever on the broadcasting side, he might be inclined to use it to achieve broader ends,” says Lexpert’s source.

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