Rogers Faces Canadian Government Probe Into Widespread Outage, Operators Directed to Keep Users Better Informed

The Canadian government on Monday ordered a probe and demanded telecoms companies agree within 60 days to develop communication protocols to keep people better informed, after Rogers Communications suffered an unprecedented outage.

The glitch that lasted nearly 19 hours on Friday disrupting services from flights to banking and emergency 911 calls also cast doubt over Rogers' CAD 20 billion (roughly Rs. 1,22,503 crore) takeover of Shaw Communications. Shares in both companies fell more than 4 percent on Monday as analysts voiced concerns over increased risk to the deal.

The fallout from last week's outage spilled to Monday when Canadian payment gateway Interac said it was adding another network provider to its system after the Rogers outage left millions of Canadians locked out of online payments.

"We are adding a supplier (besides Rogers) to strengthen our existing network redundancy so Canadians can continue to rely on Interac daily," Interac said in a statement.

Rogers' Canadian-listed shares fell 4.6 percent and Shaw dropped 4.3 percent to CAD 34.67 (roughly Rs. 2,100), while the benchmark Canadian share index ended down 1.2 percent. Rogers has offered CAD 40.50 (roughly Rs. 2,400) per Shaw share.

The probability of the deal closure dropped to about 62 percent on Monday from 88 percent a week ago, according to merger arbitrage traders.

Industry Minister François-Philippe Champagne met the CEOs of Rogers, BCE Inc and Telus Corp among others on Monday in the wake of the outage.

"So in essence, what I've demanded and expect (from) the telecom companies in Canada is to enter to a formal agreement within 60 (days)," the minister told reporters.

Champagne, whose ministry has the final say on the Shaw takeover, said he will not allow wholesale transfer of licenses from Shaw to Rogers as the part of the transaction.

"It is all about affordability and competition," Champagne said.

Steep Bills

The three telecoms companies control about 90 percent of Canada's telecommunications market and consumers have complained about bills that are the among the highest in the world. Rogers' second outage in 15 months has led consumers and politicians to call on the government to allow more competition in the sector.

"The incident is likely to introduce incremental regulatory risk to the Shaw transaction," BMO analyst Tim Casey said, adding that it would also raise investor concerns over Rogers' ability to execute on deal synergies.

Friday's disruption came two days after Rogers held talks with Canada's antitrust authority to discuss possible remedies to its blocked takeover of Shaw. Canada's competition bureau rejected the deal this year, saying it would hamper competition.

"We very much remain committed to the Shaw transaction," Rogers CEO Tony Staffieri told BNN Bloomberg Television on Monday. "That transaction has always been about expanding our network capabilities, attaining more redundancy and coverage across the nation that can only help in situations like this,” he added.

Rogers on Saturday said its services were close to fully operational and narrowed the cause to a network system failure following a maintenance update.

A research note by Scotiabank estimated Rogers would have to credit between CAD 65 million (roughly Rs. 396 crore) to CAD 75 million (roughly Rs. 457 crore) to customers in the third quarter due to the outage. The company reported a net income of CAD 1.56 billion (roughly Rs. 9,515 crore) in 2021.

Montreal-based law firm LPC Avocat Inc has sought authorization to launch a class action suit against Rogers on Monday seeking CAD 400 (roughly Rs. 24,300) compensation to each of Rogers' customers for not providing services and making false representation about having the most "reliable" network.

Rogers has about 10 million wireless subscribers and 2.25 million retail internet subscribers.

Rogers was not available for immediate comment on the proposed class action suit. Staffieri said previously that the company would credit all customers for the outage.

Scotiabank analysts also said increased political and regulatory risk is a possibility after the outage.

The oversight needs to balance the risk of future failures against the increased consumer/economic costs in building other parallel networks, they added.

© Thomson Reuters 2022