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6 October 2020

Rogers revives old network investment pledges to secure Cogeco deal

The quest by Altice USA and Rogers Communications to acquire and split off Canadian cableco Cogeco is quickly escalating into one of the most dramatic and unorthodox M&A stories of the year.

Rogers’ latest strategy to secure a deal is to pledge C$3bn of network infrastructure investments in Quebec. In reality, all it has done is redress an old investment promise as a brand-new commitment.

Earlier this year, when Rogers set out to become Canada’s first operator to launch commercial 5G, it warned that regulatory uncertainty surrounding rules for 5G, and for shared access, could jeopardize its plans to invest almost C$3bn in infrastructure build-out. At the time, CTRC, the Canadian regulator, was reviewing whether to mandate the main operators – BCE, Rogers, Telus and Shaw Communications – to provide better access to MVNOs, which the agency claims are virtually shut out of the market.

The country’s largest operators have since contested the lowered wholesale rates that they are legally allowed to charge subscribers for high speed broadband connectivity, claiming the move will stifle network investments. The latest update came in mid-August this year, a whole year after the CTRC lowered wholesale rates, when innovation minister Navdeep Bains said in a statement: “On the basis of its review, the Governor in Council considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high quality networks, particularly in rural and remote areas.”

Now, Rogers is giving the impression that this C$3bn funding has been specifically siphoned off as a sweetener to acquire Cogeco and sell off its US assets to Altice USA, when Rogers was always planning to accelerate network deployments and speeds in the Quebec province, which is home to some 8.5m people.

According to Rogers, C$1.5bn of this multiyear pledge would be poured into network investments, while promising that Cogeco would remain headquartered in Canada and the Cogeco brand would live in, and that 5,000 jobs across Quebec would be safe. As for the remaining C$1.5bn, other investments would include a new tech hub focusing on software development in digital media as well as AI-based projects, creating 300 new jobs.

If Altice USA succeeds in buying Cogeco, after its initial $7.8bn offer was rejected, the bizarre deal would involve it then immediately selling Cogeco’s Canadian assets to Rogers, while keeping Cogeco’s US footprint for itself, primarily for the Atlantic Broadband business.

While much of the investment focus is on 5G, Rogers has stated that any deal for Cogeco would involve upgrading Cogeco video subscribers to the X1-based Ignite TV service from Rogers.