Canada’s Competition Bureau (the Bureau) has issued a technical backgrounder summarizing the reasoning behind its clearance of the November, 2004 acquisition of #4 positioned Microcell Telecommunications Inc. (Microcell) by #3 positioned Rogers Wireless Communications Inc. (Rogers Wireless). The deal created the largest (by subscriber base) wireless telecoms provider in the country, and reduced the number of principal wireless competitors to three.1 The backgrounder is noteworthy, because it provides guidance as to how the Bureau is applying the revised Merger Enforcement Guidelines (the MEGs)2 with respect to, among other things, market definition in the fast-moving world of telecoms, co-ordinated effects (or "interdependence") analysis, and the influence (or lack thereof) of a "maverick" firm. It also clearly reveals a forward-looking focus to merger analysis. After a hiatus of several years, the Bureau has indicated that, in the interests of transparency (but bearing in mind confidentiality obligations) it will again be issuing backgrounders on selected cases that raise interesting issues.3
In Rogers-Microcell, the Bureau concluded that the relevant product market is mobile wireless (voice and data) telecommunications services, and that the relevant geographic market is provincial in scope. When analyzing the relevant product market, while recognizing that the ability to "bundle" wireless with other telecommunications and broadcasting services provides a competitive advantage, the Bureau found little current substitutability between mobile wireless and other telecommunications services, including wireline. It also found that the different technological platforms in use do not discourage customer switching and that "mobile wireless" forms a single product market, regardless of technology. Variations in provincial prices and competitors, and the lack of demand-side substitution to service providers located elsewhere, meant that geographic markets were no broader than provincial.
The Bureau found that there are very high barriers to facilities-based entry, including high capital costs to construct and run a network, regulatory requirements and foreign ownership restrictions. Barriers to entry for resellers are much lower,4 but the Bureau concluded that their impact on competition would be limited.
The Bureau found that the combined firm would create Canada’s largest competitor nationally by subscriber base (#1 in Ontario and #2 elsewhere), but that its major competitors (Bell Mobility and Telus) were mounting aggressive attacks on that subscriber base, and that subscriber retention would continue to be a serious issue post-merger. Moreover, given the history of intense, multi-market competition between Bell, Telus and Rogers – and the fact that Rogers does not compete with Telus or Bell in wireline - vigorous and effective competition would continue to exist in all markets after the merger.
The Bureau also examined the likelihood of coordinated behaviour among the remaining major service providers. It noted that some important and necessary conditions for coordinated behaviour exist, including market concentration among Bell Mobility, Telus and Rogers Wireless, and the high barriers to entry discussed above. However, the Bureau observed that certain market conditions that effectively constrain coordinated behaviour would not be diminished by the merger. These factors include the expected continued rapid growth in mobile wireless penetration in Canada, continuing rapid technological change, and fierce competition among the three remaining principal rivals.
A key factor in the Bureau’s decision appears to be its view that Microcell could not have continued in its role as a "maverick" in the mobile telecommunications market. As noted by the Bureau, "a maverick is a firm that may have less to gain from coordination or be less threatened by punishments from rivals because of the kinds of products it sells or its cost structure." Microcell had been considered an industry maverick, largely due to its innovative flat-rate price plans, per-second billing and its City Fido plan in Toronto and Vancouver. However, the Bureau noted that Bell, Telus and Rogers were able to offer service bundles to consumers based on product offerings from other markets that Microcell could not match. Ultimately, the Bureau found that Microcell would have had great difficulty playing the role of maverick in the future, due to its relatively small coverage area, its inability to offer bundled services, and its absence from market segments that would have provided revenue to fund the capital investment required for next-generation mobile service offerings.
Assessing the competitive impact of a merger on a dynamic basis, taking into account likely changes in the competitive landscape is always a challenge for regulators, but this difficulty is perhaps extenuated in telecoms mergers. The Bureau appears to have met the challenge in this case.
 In acting for Microcell in connection with this transaction, Stikeman Elliott LLP also provided competition advice. The Backgrounder is available on-line at www.competitionbureau.gc.ca (see "News Room" under "Technical Backgrounders" (and not under "Backgrounders").
 The MEGs were issued by the Bureau in September 2004.
 Information Bulletin: "Competition Bureau Implements Policy for Greater Transparency" (April 28, 2005), available at: www.competitionbureau.gc.ca.
 The Bureau noted that Virgin Mobile, an established player in several other countries, recently launched a mobile wireless service offering
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