Rogers, telecom execs to meet with industry minister after outage

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Canada’s industry minister is scheduled to meet with Rogers Communications Inc. chief executive Tony Staffieri as well as other telecom leaders Monday in the wake of a massive outage of Rogers’ cell and internet networks that compromised services from 911 emergency calls to payments processing.

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The nationwide disruption, which the minister’s office called “unacceptable,” has led some to question the level of concentration of services in the telecom sector and is also raising questions about the communications giant’s plan to merge with rival Shaw Communications Inc. in a blockbuster $26-billion deal that has already prompted a challenge from the Competition Bureau.

Maher Yaghi, a telecom analyst at Bank of Nova Scotia, said the immediate impact on Rogers will be a $65-million to $75-million cost to credit customers, and a likely loss of some customers who are frustrated by the second such outage in the past 18 months, but that increased regulatory scrutiny could also pose a risk going forward.

“Beyond the immediate financial impact, increased political and regulatory risk is a possibility,” the analyst said in a note to clients, adding that “arguments for increased competition (in the telecom space) to reduce future failure risk abound.”

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Industry Minister François-Philippe Champagne was the first federal official to voice concerns about the concentration of services that would result from the merger of Rogers and Shaw, saying in March that the wholesale transfer of wireless assets to Rogers was “fundamentally incompatible” with the government’s objectives to increase mobile competition and lower prices.

Increased political and regulatory risk is a possibility

Maher Yaghi

Richard Leblanc, a professor of governance, law and ethics at York University, said Champagne and Staffieri should not be meeting behind closed doors, given the crucial services affected by the outage.

“Meetings should occur in public and ideally under oath like in the U.S.,” he said. “No doubt threat actors have witnessed what happened and how financial health care and emergency response can be impaired by a telecom outage.”

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Leblanc proposed that telecoms should be restricted in bundling of services and forced to lower barriers to switching services in the aftermath of the outage.

Yaghi, the Scotia analyst, said regulatory oversight needs to balance the risk of future failures against the increased costs of building parallel networks, including costs to consumers.

“History from other failures, in other parts of the world, shows that regulators have chosen to increase oversight rather than force a complete overhaul of the competitive landscape,” he told clients in his note.

The analyst maintained an 80 per cent probability on the merger going through, with Rogers and Shaw having struck a $2.85-billion agreement to sell Shaw’s Freedom mobile assets to Quebecor Inc. to alleviate competition concerns.

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Yaghi noted that companies and governments have recovered from other massive service interruptions, including a system failure at Amazon that brought down the internet for many hours and was blamed on human error.

“System failures (due to human error, cyber or environmental disasters etc.) are painful to users and economies, however Amazon was able to identify the cause of the issue and put in place improvements to reduce the risk of future similar failures,” he wrote. “Reputational damage was transient and AWS currently sits as the market share leader in cloud services.”

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But Leblanc said the Rogers outage exposed shortcomings in crisis management and “came at a very inopportune time for the company,” which is still trying to recover its reputation from “family squabbles” that led to a board overhaul and court challenge over control last year.

He noted that the network failure occurred at 5 a.m., but the first communications about it did not come until about four hours later.

“There was limited reporting on the root cause and even that it was not a cyberattack by a foreign threat actor would be helpful and enable customers to plan,” Leblanc said.

“There is a path to recovery but it involves serious attention to corporate governance, crisis management, and robust and independently audited internal controls.”

Leblanc said authorities with oversight of telecommunications services also bear some of the responsibility for what transpired last week, and that there should be assurance by regulators that internal controls are in place for maintenance, software and other updates.

“There should be a public interest in telecoms,” he said.

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