Rogers, Shaw announce $20.8B merger aimed at 5G dominance in Canada
Canada's Rogers Communications and Shaw Communications have announced plans to merge in a transaction valued at around $20.8 billion (CA$26 billion) and both companies pointed to 5G's growth and potential as the rationale.
"The ability to scale and make 5G a reality for all Canadians and close the connectivity gap has never been more important," the companies wrote in their release. "As 5G redefines the innovation landscape, significant multibillion-dollar investments are needed to deliver the connectivity that our communities, consumers and businesses need, and our country deserves."
The deal – which the companies hope to close in the first half of next year – would combine two family-owned telecommunications companies. The companies' release featured quotes from Shaw CEO Brad Shaw and Edward Rogers, chairman of Rogers Communications, and it also made several references to the "family-founded" nature of both companies.
However, the transaction likely will face headwinds in that it would combine Canada's No. 1 (Rogers) and No. 4 (Shaw, operating under the Freedom Mobile brand) mobile network operators, thus reducing the number of mobile providers in the country from four to three. In Canada, Bell Mobility is a close second to Rogers and Telus Mobility is the nation's third-largest mobile network operator.
"It will test the government's appetite to accept more consolidation in a highly concentrated industry and one in which there has been much regulatory pressure to reduce prices. The outcome is highly uncertain," Julian Klymochko, the chief investment officer at Calgary's Accelerate Financial Technologies, told the Financial Post.
Likely in a bid to help with regulatory approval, the companies said they plan to invest CA$2.5 billion in 5G networks across Western Canada, and that they would create up to 3,000 net new jobs. Other promises included expanded investments in and coverage of remote and indigenous communities, programs for affordable access to the Internet, and "continuing support for the Shaw's Charity Golf Classic for the next ten years."
Thus, the transaction is somewhat similar to the merger between T-Mobile and Sprint in the US that closed last year, which reduced the number of nationwide wireless network operators from four to three. Prior to that merger, T-Mobile was the nation's third-largest mobile network operator and Sprint was the fourth. Now, the new T-Mobile has solidly slid into second place in the US market behind Verizon. In order to obtain the approval of US regulators, T-Mobile said it would not cut jobs and that it would cover a variety of rural areas with 5G, among other promises.
As with Shaw and Rogers, 5G sat at the heart of the Sprint/T-Mobile deal. Thanks to the massive trove of spectrum created by the merger of Sprint and T-Mobile, a number of analysts believe the new T-Mobile today has an almost insurmountable lead in the 5G industry. Rogers, via its proposed merger with Shaw, may be looking to make a similar tactical play.
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