Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Canada Competition Bureau issues statement regarding acquisition of GLENTEL by BCE and Rogers, (May 15, 2015)

By Michael Menzhuber, J.D., LL.M.

The Canada Competition Bureau (Bureau) has issued a statement yesterday summarizing its approach in reviewing the proposed acquisition of wireless retailer GLENTEL Inc. (GLENTEL) by BCE Inc. (BCE) and Rogers Communications Inc. (Rogers). The Bureau’s review considered whether competition for the retail sale of wireless products and services would be substantially lessened as a result of joint ownership of GLENTEL by BCE and Rogers. The Bureau concluded that, because of the safeguards that would be taken as a result of an agreement between the Bureau and the three entities, that concern was resolved.

Background. Pursuant to an agreement announced on November 28, 2014, BCE proposed to acquire all of the outstanding common shares of GLENTEL, and pursuant to an agreement announced on December 24, 2014, Rogers proposed to indirectly acquire 50% of GLENTEL from BCE such that, following completion of the transactions, BCE and Rogers would each have 50% direct or indirect interest in GLENTEL. On May 5, the Bureau announced that it had reached a consent agreement (agreement) with BCE and Rogers that resolved its concerns that the transactions would likely substantially lessen competition in the wireless sector. The agreement entered into between the Bureau and the three entities requires administrative firewalls to be put in place between the entities to prevent the sharing of competitively sensitive information, including subscriber information, pricing and promotional offers.

Review. The focus of the Bureau’s review, which was to determine whether the proposed transactions would substantially prevent or lessen competition in local markets across Canada for the retail sale of wireless telecommunications products and services, focused on two questions:

1. Would the transactions likely prevent competition substantially by hindering the retail expansion of other wireless carriers?

2. Would the transactions likely lessen competition substantially through coordinated effects by leading to less vigorous competition between BCE and Rogers?

Substantial Prevention of Competition. After examining a significant volume of company records and speaking with a wide range of market participants, the Bureau did not find that the transactions would prevent another carrier from being distributed through GLENTEL locations, or by generally raising barriers to entry or expansion for other wireless carriers. Instead, the Bureau found that the timely entry by another carrier into GLENTEL locations was not likely absent the transactions due to, among other things, the nature of the agreements that BCE and Rogers already have with GLENTEL, which contemplate continuation of GLENTEL’s two carrier business model with BCE and Rogers.

The Bureau also found that, while access to real estate in some large malls can be challenging at times for wireless carriers, the transactions would not significantly affect the ability of other carriers to obtain real estate in malls where GLENTEL is located or in the same local area as those malls. Finally, the bureau determined that the sale of wireless telecommunications products and services through GLENTEL itself was not likely a relevant antitrust market since any price increase would be constrained by consumers’ ability to purchase from other retail locations in close proximity, often in the same mall.

Coordinated Effects. The Bureau found that, in most of its locations, GLENTEL is a sales agent exclusively for BCE and Rogers. It also found that GLENTEL: (1) does not have a material influence on wireless prices; (2) has no pricing discretion over carrier rate plans offered in its locations; and (3) does not have a material influence on promotions, which are largely determined by BCE and Rogers, and this would continue post-transactions.

The Bureau did find, however, that GLENTEL has and would continue to have access to the subscriber information, pricing and promotions of BCE, Rogers and other carriers for whom GLENTEL provides distribution services. Consequently, the ownership of GLENTEL by BCE and Rogers could facilitate access to each other’s competitively sensitive information, as well as that of certain competing carriers for whom GLENTEL provides distribution services. The Bureau determined that the competitive effects that could arise from BCE and Rogers’ ability to access each other’s confidential information through joint ownership of GLENTEL could affect all sales channels, and would likely give the parties the ability to substantially lessen competition, leading to consumers paying higher prices for wireless products and services.

Remedy. To ensure the preservation of competition for the retail sale of wireless telecommunications, the Bureau determined that firewalls, in the form of a confidentiality protocol in a consent agreement, would be necessary. Also, pursuant to the consent agreement, BCE and Rogers would maintain exclusive control over their respective pricing and promotion in GLENTEL and would not exchange this information with the other party. The confidentiality protocol also prevents BCE and Rogers from obtaining information from GLENTEL’s management relating to any subscriber, or forward-looking pricing, promotions or marketing strategies of other carriers. It also limits the historic sales and revenue information that GLENTEL management can share with BCE and Rogers.

To ensure the proper implementation and compliance with the consent agreement, a monitor was appointed.

Companies: BCE Inc.; Rogers Communications Inc.; GLENTEL Inc.

News: AcquisitionsMergers Antitrust