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HissyFitWatch: Shaw & Rogers Non-Compete Agreement Tossed, Allowing Shaw Acquisition of Mountain Cablevision

Phillip Dampier September 21, 2009 Canada, Competition, HissyFitWatch, Recent Headlines, Rogers, Shaw 4 Comments
Who Dares to Break the most sacred Ark of the Cable Covenant?

Who dares break the most sacred Ark of the Cable Covenant?

In March 2000, two cable magnates sat down for the cable industry equivalent of My Dinner With Andre.  Fine wine, beautiful table linens, an exquisite meal, and a Monopoly board with pieces swapped back and forth representing hundreds of thousands of Canadian consumers.  Ted Rogers and Jim Shaw drew a line on the western Ontario border and agreed to stay on their respective sides of it.  Ted and Jim divvied up each others cable interests, swapping Rogers’ systems west of Ontario with Shaw’s systems east of the provincial line. Thus was born the Ark of the Cable Covenant, with its founding principle: Thou shalt not compete or intrude in my territory.

The only question left at the end of the meal was who was going to pick up the check.  You did.

And so it was.  Since 2000, Shaw Communications has kept its operations west of Ontario, Rogers stays in Ontario and points eastward.  A very nice state of affairs, as long as you are not a Canadian consumer looking for competitive relief from high prices and lousy service.

Shaw Raids Ontario

Shaw Raids Ontario

But in July there was heard a great rumbling across the prairies and into the verdant forests and rolling hills of southwestern Ontario.  What was that sound?  Who were these cowboy hat wearing hordes riding across the lands to the shores of Lake Ontario carrying saddle bags stuffed with cash?  Why look, Calgary-based Shaw is staging a $300 million dollar buyout raid on Mountain Cablevision, Ltd., a 41,000 subscriber independent cable company based in Hamilton, Ontario.

But what of the sacred agreement?  Ted Rogers passed away in December, leaving Shaw to rhetorically ask, “What agreement? Do you know anything about an agreement?”

Indeed, there is no honor among thieves and cable executives seeking the spoils of a highly uncompetitive industry.  Rogers was shocked to discover an invasion on their turf, and they responded with a torrent of attorneys to block the deal, as Canwest News Service notes:

“Shaw is bound by the restrictive covenant which prohibits Shaw from building or acquiring any broadband wireline cable business in Ontario, Quebec or Atlantic Canada,” Rogers argued in court documents released Thursday.

Thankfully for Shaw, Ontario courts do not typically recognize “covenants” as sacred documents not to be broken.  Justice Frank Newbould on the Ontario Superior Court of Justice rejected the de facto non compete agreement and said Rogers had not proven any irreparable harm from the sale, dismissing Rogers’ “proof” as “speculative in the extreme.”

Of course, you realize this means war.

Tim Pinos of Cassels, Brock & Blackwell LLP is Rogers’ lead lawyer on the file. Shaw’s intentions are clear, he said Friday: “Shaw desires to re-enter Eastern Canada and acquire cable systems.”

Aside from picking a competitive fight with Rogers, an expansion east would pit Shaw against smaller but powerful players, such as Videotron, which is owned by giant Quebecor Inc., and commands a near-monopoly in Quebec.

With the agreement shattered, Rogers is likely casting its eyes westward, observers say.

Earlier this week, Edward Rogers was appointed to the role of deputy chairman of the company his father built. He moves from heading up Rogers Cable and will also oversee new operational responsibilities, including strategic acquisitions.

Unfortunately for consumers, some sacred agreements will remain unbroken.  Namely the one that keeps companies like Shaw and Rogers from competitively wiring communities already served by each other and competing head to head.  That simply wouldn’t do.  It would ruin a perfectly delightful meal.

Currently there are 4 comments on this Article:

  1. Rick says:

    This is basically true with one exception: The dividing line between Shaw and Rogers was Sault Ste. Marie Ontario not the Ontario Manitoba border.

    There are a number of things at play following Ted Rogers passing: Shaw purchased mobility licenses in Western Canada and has plans to swallow up one of the failed startups in 2012/13 to extend their mobility reach nationally.

    There is strong speculation that Shaw will purchase the Ontario operations of Cogeco cable to bring them into direct competition with Rogers in several Ontario markets – especially Toronto. Owning fibre and coax plant lowers the cost for offering mobility services while simultaneously enabling large returns from consumer accounts for HDTV, internet, and VoIP.

    The Shaws see Ted Rogers junior as a push over. The gloves are off

    • Thanks for letting me know about the Sault St. Marie line. I was unaware of that before and stand corrected.

      I also appreciate your insight into Shaw. I am assuming that even with a buyout of Cogeco, “direct competition” would not include a customer having the option of either Rogers or Shaw/Cogeco. It’s my understanding they do not overlap their cable coverage areas.

      Now an overbuilding Shaw/Cogeco would be interesting, and you can expect Rogers to go bananas if it happened.

      More competition is good news for consumers, especially if the players are actually willing to compete on price as well as services.

  2. Rick says:

    Thanks for the comment Phillip.

    There actually is overlapping infrastructure in parts of Oakville and Toronto

    Rogers built into Oakville and made Cogeco mad about 2 years ago. Cogeco responded by buying up Toronto Hydro’s telecom unit now known as Cogeco Data Services. I do not know this for sure but Cogeco apparently offers TV, etc. in some of the hi-rise condos and Apartments on Toronto’s lakeshore. Cogeco recently relaunched the wifi service (one zone) in the Toronto downtown core which definitely competes against Rogers.

    Yes there will be a price war. Yes it’s good for consumers.

    And yes it will be fun to watch these formerly friendly cable brethren wack each other over the head a la Bell and Telus.

  3. Rick says:

    Something of further interest which illustrates that Shaw is in an offensive mood.

    http://www.cartt.ca/news/FullStory.cfm?NewsNo=8646

    Shaw is attacking Persona/Eastlink in Delta B.C. after Shaw lost their bid to buy Delta last year.

    It seems Shaw is attacking everyone.

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