There are days you think Canada’s media and telecom industries are about as converged as they can be. And then another megatransaction gets announced that you think couldn’t possibly be approved by the government. And then it is.

Transactions like Bell buying Astral Media, Bell buying MTS, Rogers buying Mobilicity, Postmedia buying Sun Media, and all the other transactions that brought us to this point.

So the news that Shaw has agreed to a $26-billion sale to Rogers maybe shouldn’t come as quite a shock. But as the government professes to be pro-consumer, particularly when it comes to wireless services, can we really expect this deal to be approved?

Here are the stumbling blocks the companies will have to get over:

1. Freedom Mobile. In Ontario, Alberta and B.C., Freedom is the fourth large wireless carrier, the last surviving one from that era of increased competition after Mobilicity and Public Mobile were scooped up by the big three. Rogers, which is already Canada’s largest mobile provider, apparently believes it can just keep Freedom as part of the deal, with nothing more than a promise that it won’t raise prices for three years. If the federal government is to be taken seriously on wireless competition, it can’t possibly let that stand. It could force Rogers to sell Freedom to some other party (Quebecor? Xplornet? Cogeco? Some random rich guy?), or it could come to some agreement where Rogers sheds just enough Freedom customers to another party, like Bell did when it bought MTS.
2. Corus. Shaw and Corus are separate companies, with separate boards of directors and different shareholders, but both are controlled by the Shaw family. The CRTC treats them as if they’re the same for competition reasons. The issue here is that, as part of the transaction, the Shaw family gets two seats on the Rogers board. That doesn’t give them control of Rogers, but does it present enough of a competition concern to warrant increased scrutiny?
3. Cable and satellite. Because Shaw and Rogers have essentially split the country geographically, with Shaw serving western Canada and Rogers serving eastern Canada, there’s not much overlap in terms of wired coverage to deal with. But these are still big companies. Shaw has 1.4 million cable TV subscribers and more than 600,000 satellite TV subscribers, making almost $4 billion in annual revenue on TV services alone. Add that to Rogers’s 1.5 million TV subscribers and $3.5 billion revenue, and you get a company 30% larger than Bell on that front. That’s a change in dynamic in bargaining position when, say, negotiating carriage contracts with TV services. There’s also the fact that if Rogers buys Shaw’s satellite service, that’s one less TV service option for subscribers in Rogers territory. They go from having to choose between Rogers, Bell Fibe/satellite and Shaw Direct to having to choose between Rogers and Bell alone.
4. Sheer size. Rogers has $15 billion in annual revenue. Shaw has $5 billion. Combined, they still fall short of Bell’s $24 billion, but not by much. No doubt Rogers will use the need to compete against Bell as an argument for approving the transaction, because the only way to fight ownership consolidation is more ownership consolidation.
5. Jobs. Rogers has promised to create 3,000 “net new jobs” in western Canada as part of the deal. But it also says “synergies are expected to exceed $1 billion annually within two years of closing.” I’m curious what synergies can be achieved without cutting any jobs.

Mobile service seems like the only potential dealbreaker here, unless there are some minor assets that compete directly that would also need to be divested. Rogers would probably be fine ditching Freedom if that was a condition of approval.

Will political and regulatory forces accept such a deal? We’ll have to see. Recent experience suggests they probably will, and companies don’t go through this kind of trouble if they don’t think a deal can succeed. (At least that’s what I’d like to say, but Rogers’ proposed purchase of Cogeco fell flat, so…)