News

Rogers, Shaw Speed Canadian Consolidation

2/13/2000 7:00 PM Eastern

Montreal -- It was the America Online Inc.-Time Warner Inc.
merger that moved Rogers Communications Inc. CEO Ted Rogers to make the biggest cable deal
in Canadian history.

That deal -- the takeover of No. 3 Canadian MSO Le Groupe
Vidéotron Ltée by market-leader Rogers Communications -- was unleashed on an
unsuspecting Canadian public Feb. 7.

Rogers told reporters the AOL-Time Warner merger had
"transformed the communications industry."

Faced with this, both Rogers and Vidéotron saw the
necessity of combining forces through a stock swap. Had the two companies remained
separate, Rogers said, "we would be two slivers in the North American context, and we
would be less and less potent."

Potency is no longer an issue. If approved by the Canadian
government, the combined Rogers Communications-Vidéotron behemoth would have a market
value of $US17.2 billion. Across Canada, it would serve 3.7 million cable TV subscribers
and 260,000 Internet-access customers.

By comparison, Shaw Communications Inc., the next-largest
MSO, has 1.8 million subscribers. Meanwhile, Cogeco Cable Canada Inc. and Moffat
Communications, next in line, appear positively puny with only 835,000 and 383,000
subscribers, respectively.

Should Shaw Communications be worried? In his comments,
Rogers singled out telco Bell Canada Enterprises and Shaw Communications'
direct-to-home subsidiary, Star Choice TV, as his biggest competitors. He even joked,
"We might make a takeover bid for Shaw. Who knows?"

Despite repeated calls, Shaw Communications CEO Jim Shaw
wasn't available to comment on Rogers' apparent effort at humor. But Shaw's
actions may speak louder than words: In the past week, Shaw Communications has acquired
roughly 10 percent stakes in both Cogeco and Moffat.

In each case, Shaw Communications issued news releases
saying it had no "current intention" of taking over either company. But
intentions have a way of changing in business: There's nothing to say that Shaw
couldn't make a pitch for either or both companies sometime in the future.

But even if Shaw Communications doesn't move on Cogeco
or Moffat, its stakes in those companies are a good counterpoint to Rogers
Communications' Vidéotron takeover.

"They're positioning themselves so a deal
can't be done without bringing Shaw to the table," explained George Karidis,
director of research with The Yankee Group in Canada. "That's good business
strategy."

In the meantime, Rogers has other things to worry about
besides Shaw. First and foremost, he has to iron out the actual details of taking over
Vidéotron.

For instance, it's not clear whether the new company
would continue to support "Videoway," Vidéotron's pioneering analog
interactive terminal, which is still in use in many Quebec households.

Also to be determined is whether Rogers Communications
would extend its set-top technology deal with Microsoft Corp. into Vidéotron's
Quebec territory -- a region with 1.5 million potential customers for Microsoft chairman
Bill Gates.

Finally, the whole deal has to be approved by the Canadian
Radio-television and Telecommunications Commission (CRTC).

Ironically, this last point may prove to be the easiest
hurdle for Rogers Communications. The reason: the Vidéotron takeover excludes
French-language TV network TVA. Under the deal, TVA remains in the hands of
Vidéotron's founders, the Chagnon family. This means the expanded Rogers
Communications won't be taking on any new TV channels.

This exclusion will please the CRTC, which doesn't
like to see any one company with extensive holdings in both distribution and programming.
This was why Shaw Communications spun off its own channels into an arm's-length
company called Corus Entertainment Inc.

The move may also mollify Quebec's separatist Le Parti
Québécois government. To say the least, it would have shrieked at Rogers -- a
stereotypical English-Canadian tycoon -- running TVA.

Given this, it's likely that Rogers
Communications' Vidéotron takeover will win official approval. With that, the
company will transform the Canadian cable landscape.

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