Rogers, Shaw to Combine in $16 Billion Deal

Consumer advocates argue that the wireless-service business in Canada is already too concentrated among a few companies, and that the tie-up would lead to fewer choices.

Rogers and Shaw, in announcing their deal Monday, promised that after merging they would invest C$2.5 billion ($2.0 billion) in 5G networks over the next five years across Western Canada, and invest another C$1 billion ($800 million) to connect rural and indigenous communities to high-speed internet.

The moves would help rural communities get better internet access, bringing them more in line with what is available in urban centers, Rogers Chief Executive Joe Natale said, and would also increase the overall competitiveness of Canada’s economy.

“The conversation is really about nation building,” he said during a call with analysts.

The deal, which would remove Canada’s fourth-largest wireless provider from a thin competitive landscape, will be scrutinized by three federal government agencies: the competition bureau, the Canadian telecommunications regulator and the department of industry.

Industry minister François-Philippe Champagne said in a statement that the government would focus on affordability, competition and innovation in its analysis of the deal.

As of February, Canadian companies had deployed 5G in 49 cities, behind Spain, the U.K., and South Korea, among other nations, according to telecommunications services firm Viavi. China, with 5G in 341 cities, had the most deployments, followed by the U.S., with 279.

The companies’ investment promises are a transparent tactic to gain regulators’ sympathy, said Laura Tribe, executive director of consumer advocacy group OpenMedia, which opposes the transaction.

“It’s pretty clear that this is intended to make this an easier pill to swallow,” she said. “The 5G investment is a red herring.”

She said the companies shouldn’t wait for a deal to be approved to invest money into rural connectivity. Many remote towns and villages don’t have any access to affordable internet today, she argued, a situation that needs to be remedied even without a merger that will reduce the number of providers available to consumers.

“Lack of internet is a big barrier to participating in everyday life,” she said.

In terms of 5G, many companies have argued that shared infrastructure could speed up deployment. In China, two of the country’s state-owned wireless carriers are jointly building a 5G network, a partnership to save costs and speed up construction. In arguing for the U.S. government to approve its merger with Sprint in 2019, the head of T-Mobile said the merger would speed the nation’s rollout of 5G and let the country keep pace with China’s deployment.

Some 5G proponents argue that falling behind on its deployment could hurt an economy. The superfast speeds that are expected, about 100 times faster than 4G, could unlock new technologies, such as driverless cars, robot-run factories and internet-connected everyday objects, such as pacemakers. It could also make it easier to bring high-speed internet to rural areas, because telecom providers wouldn’t need to connect a landline to each house.

Canada has come under pressure to follow other nations such as the U.S. and Britain in restricting purchases of equipment from China’s Huawei Technologies Co. The Canadian government hasn’t yet reached a decision about Huawei, but the uncertain regulatory outlook has prompted Canada’s two largest telecom companies, BCE and Telus, which have relied heavily on Huawei equipment for their 5G network rollout, to turn to other suppliers such as Sweden’s Ericsson AB and Finland’s Nokia Corp.

Rogers has publicly criticized its competitors for buying equipment from Huawei, which it says poses security risks because of the company’s close ties to China’s government. Rogers is purchasing Ericsson equipment for its 5G network.

Canada’s C$54 billion telecommunications market is dominated by wireless communications, which accounted for C$29 billion of industry revenue in 2019, according to the country’s telecom regulator.

In recent years, Rogers wireless and cable revenue has declined as it faced increased competition and new entrants challenging its once core cable business with less expensive video-streaming services.

The cash purchase price of Monday’s proposed deal, at C$40.50 a share, reflects a premium of about 69.5% to Shaw’s closing price Friday. The Shaw family will receive 23.6 million Class B shares of Rogers as part of the deal, making it one of the combined company’s largest shareholders, the companies said.

The deal could lead to savings of more than C$1 billion a year within two years of closing and add to earnings and cash flow per share of the first year after closing, the companies said.

The broadband and wireless investments will create up to 3,000 net new jobs in Western Canada, the companies said. The combined company will have 10,000 employees across Alberta, British Columbia, Manitoba and Saskatchewan, they said.

Rogers shares rose more than 3.5% to $49.42 on the New York Stock Exchange on Monday, while Shaw’s stock jumped more than 41% to $27.10.

—Jacquie McNish in Toronto and Stu Woo in London contributed to this article.

Write to Vipal Monga at vipal.monga@wsj.com

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