ARCHIVED -  Decision CRTC 97-634

Decision

Ottawa, 13 November 1997

Decision CRTC 97-634

Videotron Communications Ltd.

Calgary (part of), Alberta - 199705331Edmonton (part of) and areas, Alberta - 199706165

Request for an exemption from the distribution and linkage requirements - Denied

1. Following Public Notice CRTC 1997-93 dated 16 July 1997, the Commission denies the applications by Shaw Cablesystems Ltd. (Shaw) and Videotron Communications Ltd. (Videotron) for a condition of licence relieving them of the distribution and linkage requirements imposed under subsection 10(2) of the Cable Television Regulations, 1986 (the regulations). The applicants requested this condition for a period ending 31 May 1999, to test a variety of alternative means of providing digital services.

2. In Decision CRTC 97-193 dated 8 May 1997, the Commission licensed TELUS Cable Holdings Inc. (TELUS) to carry on broadcasting distribution undertakings for the purpose of conducting limited-duration technical and market trials involving a maximum of 2,000 individual subscribers in Lake Bonavista, a subdivision of Calgary, and a maximum of 1,400 individual subscribers in Greenfield and Rhatigan Ridge, subdivisions of Edmonton. The Commission also approved TELUS's request to be relieved of the distribution and linkage requirements contained in section 10(2) of the regulations to allow TELUS to carry out its proposed trials.

3. The distribution and linkage requirements provide that authorized foreign satellite services may only be offered in a discretionary package that also contains Canadian specialty services on the basis of no more than one foreign service for each Canadian service in each tier or package and no more that five foreign services for each Canadian pay television service. The flexibility granted to TELUS for its market trial allows it to package foreign and Canadian discretionary services without any linkage requirement in any one tier so long as overall, at the level of any individual subscriber, there is a preponderance of Canadian services. Shaw and Videotron applied for the same relief.

4. The applicants, who are incumbent cable operators in the areas where TELUS is licensed to conduct its tests, are proposing to undertake similar trials. Shaw has already begun its roll out of digital video compression (DVC) set top units in Calgary, including the Lake Bonavista area. Videotron is currently implementing a strategy to roll out DVC set top units in Edmonton. Shaw expected that more than 26,000 subscribers would take part in its trial. However, Shaw indicated that, if the Commission found the proposed test group too large, the applicant would reduce that number to 2,000 to match the individual subscribers authorized for TELUS in the Lake Bonavista area. Videotron stated that its trial would be limited to the deployment of 300 DVC boxes in 300 residential homes.

5. In support of their applications, the applicants argued that the proposed exemption would give them the opportunity to test different service offerings to determine which packaging options would be most attractive to subscribers and would best stimulate the penetration of DVC boxes. The applicants claimed that they and other cable operators must achieve, as quickly as possible, subscriber penetration levels high enough to sustain the new Canadian digital specialty services when they launch. They further maintained that the proposed trials would give access and exposure to the new Canadian digital specialty services.

6. Shaw argued that approval of its application would be consistent with the Commission's policy stated in its 19 May 1995 report to the Government of Canada entitled Competition and Culture on Canada's Information Highway that "all distributors should be subject to similar rules and obligations with respect to predominance of Canadian programming, priority carriage, linkage, and fair and equitable access for programming sources".

7. The Commission received 15 interventions regarding these applications: seven were in opposition, six were in support and two offered comments on the proposals.

8. The opposing interveners pointed out that the Commission, in Decision CRTC 97-193, clearly stated that the exemption granted to TELUS was limited in scope and not intended to establish a precedent. They noted that, in a letter dated 8 July 1997, the Minister of Canadian Heritage indicated strong support for the distribution and linkage requirements. According to the opposing interveners, if these applications were approved, other licensees of broadcast distribution undertakings would request the same exemption which could lead to demands that the Commission reconsider its distribution and linkage requirements. Noting that the TELUS trial was targeted to new subscribers, whereas the trials proposed in these applications were aimed at existing subscribers, the interveners argued that it would be inappropriate to provide existing subscribers with service offerings during the exemption period and then remove these services at the end of the trial.

9. In its supporting intervention, the Canadian Cable Television Association stated that approval of these applications would be consistent with the Commission's policy of granting fair and equitable treatment to all distributors; in this case, to all the distributors operating in the locations where the TELUS trial would take place.

10. TELUS commented that, in its application, it was required to demonstrate that its proposal constituted a genuine and valuable trial. TELUS claimed that these applicants had failed to do so.

11. CHUM Limited commented that, if the Commission were to approve these applications, it should impose conditions of licence on the applicants to ensure that the trials are equivalent in scale and scope to the trial approved for TELUS.

12. On 10 September 1997, Videotron advised the Commission that it would not be replying to the interventions. For its part, Shaw responded that it was seeking an exemption identical to that granted to TELUS and that approval of its request would have no more impact on the Commission's rules or its broadcasting policies than would the exception permitted TELUS. Shaw also claimed that having two similar tests operating in the same area would provide more comparative information and valuable research on subscriber behaviour for the parties involved, the Commission and Canadian programming service providers.

13. In licensing TELUS in Decision CRTC 97-193, the Commission stated that the:

... distribution and linkage requirements are designed to ensure the maximum access and exposure of Canadian services and their take-up by subscribers. By authorizing the inclusion of appealing non-Canadian services within discretionary service packages, the Commission promotes the distribution of Canadian pay and specialty services. The Commission is convinced that these objectives remain valid. Given the limited scale and duration of the TELUS trials... the Commission considers it reasonable that TELUS be given an opportunity to explore alternative means of achieving the above-noted objective of ensuring the maximum access and exposure of Canadian services in a digital environment that permits household addressability. .... The Commission's decision to relieve the applicant from these requirements should not be interpreted as a policy precedent having any broader application beyond these trials. Rather, it reflects the Commission's desire to provide the applicant with the flexibility, within the context of these trials, to attract subscribers to Canadian services offered in a digital and addressable delivery environment.

14. Given the limited application of the relief granted to TELUS, the Commission does not consider it appropriate to relieve Shaw of the distribution and linkage requirements for over 26,000 individual subscribers. While it acknowledges Shaw's willingness to reduce the scope of its experiment to 2,000 subscribers, and that Videotron's experiment would be limited to 300 subscribers, the Commission does not consider these experiments support the applicants' arguments that their proposed trials would provide access and exposure to new Canadian services.

15. Furthermore, the Commission notes that TELUS is required, by condition of licence, to file, for the public record, a series of reports that will contain information similar to that which Shaw and Videotron could obtain in separate trials. In the circumstances, the Commission questions the necessity of repeating trials to collect information on subscriber behaviour which will be obtained through the TELUS trials.

16. With regard to the issue of consistency with the Commission's policy of granting fair and equitable treatment to all distributors, the Commission notes that TELUS's limited size trial does not constitute true "competitive entry" into the affected markets. At the 10 February 1997 public hearing at which TELUS's application was heard by the Commission, TELUS stated that the architecture of the network it is deploying is "not the kind of network it would deploy commercially". Accordingly, the Commission considers that competitive equity does not require symmetrical treatment in this case.

17. The Commission reaffirms the importance it attaches to its distribution and linkage requirements. As stated in Public Notice CRTC 1997-25 dated 11 March 1997 and confirmed in Public Notice CRTC 1997-84 dated 2 July 1997, which sets out the proposed new broadcasting distribution regulations, the Commission intends to retain the current distribution and linkage requirements in the new distribution regulations with only minor changes.

18. In view of all of the foregoing, the Commission has denied the applications by Shaw and Videotron.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.