On August 19, 2014, the Competition Bureau (the "Bureau") released a Position Statement which concluded that Eastlink's proposed acquisition of Bruce Telecom would substantially lessen or prevent competition for telecommunications services in the communities of Port Elgin and Paisley and advised the parties that it was willing to challenge the proposed transaction. As a result, the parties announced that they would abandon the transaction.
Background
On January 22, 2014, the Municipality of Kincardine (which owns Bruce Telecom) agreed to sell Bruce Telecom to Eastlink.
Bruce Telecom, the incumbent telecommunications company within Bruce County, Ontario, offers home telephone, television, wireline broadband internet, and wireless services to consumers in the towns of Kincardine, Tiverton, Port Elgin and Paisley (and surrounding rural areas).
Eastlink, a privately-held Halifax-based company, owns and operates cable systems across Canada. Within Bruce Telecom's service area, and in particular in respect of Port Elgin and Paisley, Eastlink competes directly with Bruce for the sale of telecommunications services (i.e., home telephone, television, wireline broadband internet and wireless services).
Bureau's Analysis
According the the Position Statement, the merged entity would have been the only telecommunications services provider for many consumers in Port Elgin and Paisley. The Bureau believed that the proposed transaction would have substantially lessened competition for the supply of both (i) wireline broadband internet services and (ii) bundles of home telephone, television and/or wireline broadband internet services, with the result that consumers would likely have faced materially higher prices, less choice, and received materially lower service quality for telecommunications services.
In arriving at its position, the Bureau concluded that mobile wireless and fixed wireless telecommunications services are not close substitutes for wireline broadband services. This is based on the Bureau's view that there are significant differences in terms of both performance and pricing between wireless and wireline services. In particular, the Bureau concluded that consumers viewed wireless broadband internet services as a less attractive and uneconomical alternative to equivalent wireline serives given the heavy and increasing data usage of many households and businesses.
A further factor considered by the Bureau is that it was unlikely the merged firm would face competition from new entrants given the high barriers to entry for the provision of wireline telecommunications (i.e., the costs associated with building out a network and establishing a market presence, the importance of economies of scale in achieving viability, and the challenge of overcoming historically strong position of well-entrenched incumbents).
Conclusion
The outcome in this case is also interesting for two additional reasons: (i) the proposed transaction was not subject to pre-merger notification, as it did not meet the relevant financial thresholds and was only brought to Bureau's attention due to complaints from consumers and (ii) Port Elgin and Paisley are relatively small communities (with populations of approximately 8,000 and 1,000 residents, respectively).
The takeaway from this is that (i) the Bureau is prepared to challenge transactions that fall below the pre-merger notification thresholds and (ii) the Bureau will actively protect the interests of small communities, in particular with respect to important services.
For a copy of the Bureau's Press Release, please click here.
For a copy of the Bureau's Position Statement, please click here.
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