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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
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.
