Aggressive wireless competition and lower prices fuel Quebecor CEO’s thirst for Freedom Mobile

Pierre Karl Péladeau, President and CEO of Quebecor, speaks with reporters in Ottawa on May 31.PATRICK DOYLE/The Canadian Press

Pierre Karl Péladeau wants the rest of Canada to look like Quebec.

In extensive talks with Rogers Communications Inc. RCI-BT to buy the Freedom Mobile cellphone network and transform its regional telecommunications company into a national player, the CEO of Quebecor Inc.’s QBR-BT asked the Globe and Mail an opportunity this week to lay out his vision for the country’s wireless future.

It was quite the 90 minute ride.

With the passion he once had for touting Quebec sovereignty to voters – Mr. Péladeau was leader of the Parti Québécois for a year – the 60-year-old executive campaigned for a country where citizens pay less for their cellular and are better served.

Holding a hearing over a video call from his office at Quebecor’s Montreal headquarters — it was a foggy morning, and nearby towers came and went — the telecommunications chief kept coming back to one theme: the The country’s future prosperity depends on affordable and robust services. wireless networks.

The path to the promised land, he preached, is the same aggressive competition between four major carriers that Quebecers have enjoyed since Quebecor’s Videotron division launched wireless services 12 years ago. Videotron has grown rapidly, in part by bundling cellphone service with cable, and now has 1.5 million wireless lines in the province, or 22% of the market. In investor presentations, one of Mr. Péladeau’s favorite slides shows advertisements in Bell newspapers showing that cell phone rates are significantly lower in Montreal than in Toronto.

In the digital age, where cellphones are essential to everything people do, Péladeau said Canadian consumers and the country’s economy are being held back by a clubby oligopoly of Rogers and two former telephone monopolies, Telus Corp. TT and BCE Inc. BCE -T Together, the trio earns 90 percent of the country’s wireless revenue. Meanwhile, the price of cellphone service has become a hot political issue.

“What we’re seeing is the Big Three trying to do everything they can to stop or slow down or try to avoid competition to keep their privileges,” Péladeau said, citing Telus’ failed attempt. Corp. last year to block Videotron service. purchase of 5G waves in Western Canada. “I understand that they work for their shareholders. But there is something other than shareholders today. … Is what we are doing good for Canada? he said.

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To illustrate how he believes rivals such as Telus are stifling competition, Péladeau revealed that he contacted Darren Entwistle, CEO of the Vancouver-based telecommunications company, last month. Telus had just entered into a network and spectrum sharing alliance with Globalive Capital, which launched Freedom in 2008 and operated it for eight years before selling it to Shaw, and now wants to buy it back. Unlike Quebecor’s regional expertise, Globalive is a startup with no existing telecommunications operations, and therefore a weaker potential competitor, Péladeau said. (Globalive argued that a wireless-only player could compete more aggressively than a communications conglomerate that should protect legacy businesses.)

“I sent a letter to Darren Entwistle saying that I would also like a network sharing agreement with you,” Mr. Péladeau said. With a smile, he added, “I don’t have an answer yet. Guess I won’t get any.

Asked about Quebecor’s request, Telus spokesman Richard Gilhooley said: “We have responded to Mr. Péladeau on several occasions to say that once the CRTC has confirmed the [wireless-network access] parameters, we would be happy to engage in discussions with qualified partners.

Mr. Péladeau said that Telus wants to choose the fourth wireless player: “They just don’t want to have Videotron and Quebecor there, for obvious reasons.

Rogers may be forced to let Quebecor into the club to gain regulatory approval for its proposed $26 billion takeover of Shaw Communications Inc. SJR-AX The Competition Bureau and Federal Minister of Innovation, Science and Industry Francois-Philippe Champagne must agree to the acquisition. The two said they would only authorize a transaction that maintains a strong fourth wireless service provider in British Columbia, Alberta and Ontario, markets where Freedom operates.

Mr. Péladeau and a spokesperson for Rogers declined to discuss the talks. Sources familiar with the negotiations say the talks have proven difficult. The Globe does not identify the sources as they are not authorized to speak publicly on the matter.

However, the majority shareholder of Quebecor spared no effort to praise the leadership of Rogers president, Edward Rogers. “Our relationship with Rogers has always been very strong,” said Mr. Péladeau. “I have the highest regard for the Rogers family.”

Mr. Péladeau said the transformational acquisition of Shaw shows that Mr. Rogers has a clear vision of how to expand the business started by his father, Ted Rogers, “which was, if not the most important, at least certainly one of Canada’s top entrepreneurs.

Since Mr. Péladeau took the reins of Quebecor in 1999, he has transformed the printing company inherited from his father – the founder – in part through takeovers such as the acquisition of Videotron for $4.9 billion. in 2000. While the acquisition of Freedom would be a landmark event, Mr. Péladeau repeatedly stated that his company had many options for expansion and would only enter into a deal with Rogers if it made financial sense. Analysts predict Freedom could bring in up to $4 billion.

“Acquiring 1.7 or 2.1 million customers definitely improves your position,” Péladeau said, referring to the current number of subscribers at Freedom, then adding the number served by Shaw Mobile. . “But as you can imagine, there is always a price for everything. And some smart people said never to fall in love with an asset.

Quebecor said its other option to create a national mobile operator is to take advantage of recently announced regulations that require incumbent telecom operators to open up their wireless infrastructure to eligible regional competitors.

Negotiations over Freedom take place with an unresolved legal battle hanging over both companies. Last October, Videotron sued Rogers for $850.3 million over a joint network operating agreement in Quebec and the Ottawa region. The 20-year pact, signed in 2013, saw the two networks combine to improve subscriber coverage while minimizing costs.

In the court filing last October, Videotron alleged that Rogers deliberately sabotaged the partnership. This week, Mr. Péladeau said the lawsuit reflected a contract dispute with now-deceased CEO Joe Natale. He extended an olive branch by suggesting there is an opportunity to “reset the relationship” with Rogers’ new management team, including CEO Tony Staffieri and Robert Dépatie, who leads the home and business division of Rogers. Rogers and is a former CEO of Videotron.

If Quebecor reaches an agreement to buy Freedom, Mr. Péladeau described what he considers to be essential conditions for the operator’s success, including agreements on bundled services, wireless spectrum licenses and roaming.

In opposing Rogers’ bid for Shaw, the Competition Bureau pointed to the need for wireline networks – like Shaw’s cable operations in Western Canada – to support a successful cellular phone business. In filings earlier this month, both companies disputed that view. Shaw pointed to Freedom’s successful launch in Ontario, where the Calgary-based company doesn’t have a wireline network, and said the regulator has “fundamental misconceptions” about its business.

Outlining Quebecor’s ambitions, Mr. Péladeau said the company has proven that a standalone cellphone company can compete with an incumbent telecom – an experience that supports Shaw’s argument to the regulator. Videotron has won a significant number of Bell subscribers in Quebec cities like Rouyn-Noranda, which has a population of about 45,000, and has built a profitable business without an underlying cable network, Péladeau said.

This isn’t the first time Quebecor has planned a national expansion of its wireless business. Responding to criticism that points to Quebecor’s track record of buying wireless spectrum and then trading licenses for big profits, Péladeau explained why this time is different.

At the 2008 spectrum auction, Videotron paid $96.4 million for a block of waves in Toronto. But telecoms never built a network in Canada’s most populous city, and in 2015 abandoned national ambitions, saying the federal government had moved too slowly on wholesale roaming rates and rules. sharing turns.

In June 2017, Videotron sold the wireless licenses to Rogers for $184.2 million, making a profit of $87.8 million. A month later, telecoms made an even bigger windfall – $243.1 million – by selling spectrum to Shaw.

“We were in a different environment then,” Péladeau said, with Shaw changing the landscape by spending far more than Quebecor had planned to build Freedom after acquiring the company in 2015 for $1.6 billion. of dollars. He said: “We didn’t make an offer for the spectrum hoping to sell.”

This time, regulatory policies are more favorable to competitors such as Quebecor, he said, citing decisions such as a wireless policy that requires national carriers to allow roaming between their networks and those of regional carriers. .

Additionally, Péladeau said Quebecor was deeply in debt five years ago, but has paid off its loans and built one of the strongest balance sheets in the industry. Today, the dominant telecom player in Quebec wants to put its capital and expertise to work across the country.

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Casey J. Nelson