Network pact between Rogers, Quebecor crumbles with Videotron compensation lawsuit

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The legal salvo by Videotron represents a souring of the relationship between the two companies.Ryan Remiorz/The Canadian Press

A long-standing wireless network pact between Rogers Communications Inc. and Quebecor Inc.’s flagship Videotron unit is crumbling as the two telecom giants enter a legal battle that could reshape cellphone service in Quebec and the National Capital Region.

Videotron on Friday sued Rogers in Quebec Superior Court for $850.3-million in compensation over a joint network operating agreement between the two companies in Quebec and the Ottawa area. Rogers made an increasing number of demands on Videotron designed to deliberately sabotage the alliance, Montreal-based Videotron alleges in the lawsuit.

The legal salvo by Videotron, led since June by Pierre Karl Péladeau, Quebecor’s chief executive and controlling shareholder, represents a souring of the relationship between the two companies. The question now is whether those ties can be salvaged.

Rogers and Videotron announced an agreement in 2013 to pool their efforts to build out and operate a shared long-term evolution (LTE) network in Quebec. Under the terms of the 20-year pact, Rogers was to pay Videotron $93-million for services over the period while Videotron was to pay Rogers $200-million.

The idea was that by combining their networks, the two companies could improve coverage for their respective subscribers while minimizing cost. The partners do not share all their spectrum like Bell Canada and Telus do in a similar agreement, but they committed to invest in the portion they did share to improve its performance.

Things deteriorated after then-Rogers CEO Nadir Mohamed left the company in 2014, according to Videotron. When Jorge Fernandes joined the Toronto-based Rogers as chief technology officer in early 2018, he examined the deal, called it the worst partnership agreement he’d ever seen, and said whoever negotiated it and still worked for Rogers “should be fired,” the lawsuit states.

As the partners tried to hash out how to update their agreement in the months that followed, Rogers tried to force a renegotiation of the deal that included calling on Videotron to pay more to use the spectrum Rogers contributed to the network, according to Videotron. When the Montreal company refused, Rogers then told its partner it was starting to put in place its own parallel network, the lawsuit states, which forced Videotron to do the same.

Videotron claims it tried to reach a compromise with Rogers to make the agreement work but that Rogers acted in bad faith and against its contractual obligations to co-operate, making escalating demands on Videotron with the ultimate aim of fabricating a pretext to unwind the joint network. It blames a change in Rogers’ leadership for the sudden urge to recast a deal signed just a few years before.

None of the allegations have been tested in court.

In a statement Friday, Rogers said: “Unfortunately, Videotron has decided it does not want to jointly invest in network improvements in Quebec. Their lack of investment is not in the best interest of consumers and does not align with our goal of providing the highest quality connectivity to our customers. With regards to Videotron’s lawsuit, we look forward to responding more fulsomely in the court of law.”

Rogers has not yet filed a statement of defence.

Rogers, Canada’s largest wireless carrier, says it has invested more than $2-billion in its wireless network in Quebec over the past decade and that it is committed to further expansion. The company bills itself as a major economic player in the province, with almost two million subscribers, 500 wireless towers and 3,000 employees. It was the first company to bring next-generation 5G service to Quebec last year.

The view of Rogers executives is that Videotron simply failed to keep up its end of the bargain financially, according to a person familiar with the matter. The Globe and Mail is not naming the person because they are not authorized to talk about private company deliberations.

Rogers was genuinely shocked to find out through the media that Videotron had started to deploy its own parallel network with South Korea’s Samsung Electronics, the person said. The equipment supplier Rogers and Videotron use for their agreement is Ericsson AB, not Samsung. Rogers took it as a sign that its eight-year partnership with Videotron was on the verge of collapse, the source said.

How the companies will sort out their differences remains to be seen. If the pact ends, each company would need to build more infrastructure in order to maintain coverage and service because their customers currently connect in certain places on their partner’s cellular towers.

Videotron says that the development of the joint network is stalled. It is asking the court to order Rogers to respect its obligations under the joint agreement until the end of the 20-year period in 2033, not including the distinct LTE-A – a fourth-generation mobile communication standard – and 5G investments both companies have separately made.

A bitter power struggle for control of Rogers is pitting the wife and daughters of the company’s late founder, Ted Rogers, against his son, Edward Rogers. Mr. Rogers is trying to remove and replace five independent members of the Rogers board of directors with his hand-picked replacements.

Meanwhile, Quebecor is pushing ahead with a plan to offer wireless service from coast to coast and become Canada’s fourth national telecom player. Mr. Péladeau has said he wants to “break the Bell-Rogers-Telus oligopoly.”

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