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Ottawa, 26 August 1986
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Decision CRTC 86-789
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QCTV Ltd.
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Edmonton and surrounding areas, Barrhead, Bowden, Cardston, Claresholm, Didsbury, Drumheller, Drayton Valley, Edson, Fort Macleod, Granum, High River, Innisfail, Jasper, Lacombe, Lloydminster, Okotoks, Olds, Ponoka, Raymond, Stettler, Vegreville, Viking, Vermilion and Westlock, Alberta - 860897800 - 860898600 - 860899400 - 860900000 - 860901800 - 860902600 - 860903400 - 860904200 - 860905900 - 860906700 - 860907500 - 860908300 - 860909100 - 860910900 - 860911700 - 860912500 - 860913300 - 860914100 - 860915800 - 860916600 - 860917400 - 860918200 - 860919000 - 860920800 - 860921600
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Following a Public Hearing in Vancouver on 8 July 1986, the Commission approves the applications by QCTV ltd. (QCTV), licensee of the cable television undertakings serving part of Edmonton and the twenty-four other Alberta communities noted above, for authority to transfer effective control of the licensee company through the transfer of common shares representing approximately 52% of the total issued voting shares from the present shareholders to Vidéotron Ltée. (Vidéotron).
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Parties to the Application
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QCTV, with more than 120,000 subscribers, is the second largest cable television operator in Alberta. Most QCTV subscribers (over 90,000) are served by the undertaking located in the western part of Edmonton. The remainder are residents of Lloydminster and several other smaller communities throughout the province. The licensee is a public company and is controlled by a group of eighteen of its shareholders through a pooling agreement dated 26 July 1985 in which the pooled shares, representing more than 60% of the total issued, are voted as a block.
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The largest group of shares within this voting block (22.8%) is owned indirectly by Mr. E.J. Polanski, who has served as President of QCTV since the Edmonton cable system was established in 1970. Mr. Polanski and QCTV have an established reputation for providing cable subscribers with service of high technical quality.
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Under Mr. Polanski's direction the company has demonstrated initiative in extending cable television service to small rural communities and in providing community programming of high quality.
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Vidéotron is the largest cable television enterprise in Quebec and second only to the Rogers cable group in size in Canada. Through its seventeen separate undertakings, including those in the Montreal area, Quebec City, Sherbrooke and Victoriaville, and such smaller systems as those at Cap-de-la-Madeleine and Mont-Laurier, Vidéotron serves a total of approximately 675,000 subscribers.
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Vidéotron is effectively controlled by Mr. André Chagnon of Montreal through his indirect ownership of 60% of the issued voting shares. Mr. Chagnon has been active in cable television for many years, beginning with the operation of a small system in Montreal North in 1964. His ability and success as an entrepreneur are well established. Like Mr. Polanski, Mr. Chagnon also has a record as an innovator in Canada's cable television industry through his involvement in the support of the production of specialized programming services targeted to narrow segments of subscribers, his use of computer technology in various aspects of his cable television operations and his participation in the research and development of Videoway, a two-way terminal device.
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The Transaction
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As described at the hearing, Mr. Polanski and other QCTV shareholders have agreed to sell, and Vidéotron has agreed to purchase, shares of QCTV representing approximately 52% of the issued voting shares of the licensee. At $31.00 per share, this represents a purchase price of approximately $15,000,000. The purchase agreement stipulates that the same offer is to be made available to all other shareholders. If all shareholders were to take up the offer, the cost to Vidéotron would increase to approximately $28,000,000.
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Mr. Polanski, in explaining the control group's decision to divest, cited the advancing age of many of these shareholders, and their increasing reluctance or inability to meet demands for the additional funding necessary to finance the expansion of the public company and maintain control within the group:
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The group opinion was that they could no longer do justice to the need for scale and expansion with the way the company was structured ... They had considered the sale as a group in order to hold it down by virtue of their own inability to fund it.
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The test of Significant and Unequivocal Benefits
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The Commission has examined the applications in order to determine, as a first test, whether significant and unequivocal benefits will accrue to the various Alberta communities served by QCTV and to the Canadian broadcasting system as a whole, and whether the transaction is in the public interest. Although Vidéotron's status as the country's second largest cable television operator does not change as a result of this transaction, the Commission has also examined the increased concentration of ownership in the cable television industry that will result from this transaction.
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Based on the evidence before it, the Commission is satisfied that the applications meet the first test noted above. In particular, the Commission is satisfied that the benefits identified by Vidéotron, both those that can be measured in monetary terms as well as others which are not necessarily quantifiable in terms of any dollar value,
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are commensurate with the magnitude of the transaction and reflect the responsibility to be assumed by, and the resources available to, the purchaser. Moreover, the Commission considers that in this particular case the benefits described below outweigh any potential concerns that may be associated with the increased concentration of ownership that will result.
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As noted by Mr. Chagnon, one of the benefits of the proposed transaction will be the larger economic unit and the larger subscriber base that it will create, thus enabling QCTV to improve and expand the service offered to subscribers:
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This merging of resources will increase the potential for innovation far beyond that which could be achieved by QCTV working alone.
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Mr. Chagnon also stressed that the improved service to subscribers and other benefits to be derived from the transaction would be enhanced by the fact that the management styles and philosophies which have directed the growth of QCTV and Vidéotron complement each other:
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The joining of the two companies, one established in French Canada and the other in English Canada, can only enrich the evolutionary process, particularly in respect of the further exploration of cable's role in achieving social and cultural purposes ... We do believe (that) we have much to learn from each other, that our management styles will aid this process, and that we can bring this about without weakening the autonomy of our local managers. In fact what we see happening is a strengthening of local management with that management having the advantage of the enlarged perspectives that our new resource base will provide.
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The purchaser indicated that most of the directors of QCTV would be residents of Alberta:
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We intend to recruit from the Edmonton area the (majority) of the Board of Directors of the company, and once this organization is in place, we do not intend to have our corporate staff in Montreal involved in the day to day operations of QCTV.
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Vidéotron stated, however, that it will capitalize upon the increased capacity for innovation and leadership by instituting regular exchanges between the management personnel of the two companies to encourage the transfer of ideas and concepts, especially in the area of new services, changing technologies and software development:
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Such exchanges...will result in better informed staff and will ensure that, wherever feasible, better practices and systems will be implemented thereby reducing the high costs associated with independent development.
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Vidéotron also noted that the two companies will be in a better position to secure investment funds and loans, attract high calibre personnel and contribute to the development of the cable television industry in Canada.
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Vidéotron made firm commitments to implement new initiatives and introduce system improvements over the next four years that represent a combined total of new capital and programming expenditures of approximately $10.8 million. A breakdown of these capital and programming expenditures was confirmed by the purchaser in a letter dated 15 July 1986, which was submitted in response to the Commission's request at the hearing for precise clarification of the monetary value of the promised benefits.
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In the letter, Vidéotron confirmed the commitment to replace all existing block converters and traps by a more advanced system of converters and decoders over the next four years at a capital cost of $5,830,000. Vidéotron also made a commitment to implement other infrastructure improvements representing a four-year capital expenditure of an additional $3,200,000.
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Among other new initiatives proposed by Vidéotron in the application, described at the hearing, and further confirmed in the 15 July 1986 letter, is the "firm commitment" to establish a special programming service for children on the Edmonton cable system. Although the purchaser was unable to describe precise programming plans, it stated that it would approach such organizations as local school boards, Access Alberta, other government authorities and other cable operators in Alberta for their co-operation and participation in the project. It also confirmed that the project would be allocated a budget by QCTV of $762,000 for programming expenses and $32,000 for capital expenditures, over four years.
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The Commission considers Vidéotron's plans for a children's channel to be an important commitment and a significant benefit flowing from this transaction, particularly given the limited availability on Canadian television of programming directed to young viewers. The Commission will follow QCTV's progress in implementing these plans with great interest.
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Also significant is the purchaser's commitment to allocate a budget of $222,000 over four years for programming and capital expenditures associated with revitalizing and improving the programming currently offered on the Edmonton cable system and directed to the needs and interests of the various ethnic groups in that city. Vidéotron indicated that this programming service would be distributed on its own channel on the basic service and would be operated along the same lines as the ethnic programming service which is currently provided to Vidéotron subscribers in the Montreal area.
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Other initiatives proposed by Vidéotron, which the Commission acknowledges and strongly encourages, include its plans to establish a reading service for the blind, and to lease to subscribers who are hard of hearing equipment for decoding closed-captioned television programs.
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The reading service proposed by Vidéotron will be similar to a service currently produced by Vidéotron in collaboration with local organizations for the blind in Montreal and offered to subscribers on the FM service:
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What we are proposing here for Edmonton and possibly for Alberta and elsewhere is, in discussions with interested groups and parties, is to put in place a service like that ... We don't charge (blind subscribers) for the FM connection. This is what our commitment is here for Edmonton, and also possibly the small communities and other areas of Alberta.
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The purchaser confirmed that a budget of $20,000 would be allocated in 1986-1987 for capital expenditures associated with processing the audio signal for the reading service.
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With respect to the smaller systems in Alberta served by QCTV, Vidéotron made a commitment to expand the range of services available to subscribers by introducing a package of specialty programming services, received via satellite, to the twelve smaller communities that do not yet have access to such services:
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It is important to look at it very carefully to see how many additional services will be done, but we are confident that it is feasible to do it for a certain number of services. So in that sense it is a commitment.
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Vidéotron confirmed that a budget of $308,000 had been earmarked for capital expenditures associated with introducing specialty services to the communities in question by the end of fiscal year 1986-1987.
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Vidéotron also stated that service to the subscribers of its smaller systems would be improved further by its commitment to promote the establishment and fund the operation of a number of rural "television societies" as a means of "bringing community programming to these communities". According to the purchaser, the 24 smaller systems can be considered as falling into five different geographic regions, each of which will be served by its own television society:
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We'll assist [the societies], provide them equipment, maintain and repair the equipment, and provide financial assistance so that they have at least one permanent person involved there that will assist the volunteers in their operation.
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In its letter to the Commission dated 15 July 1986, Vidéotron stated that funding for this new community programming initiative would consist of $381,000 in programming expenses and $50,000 in capital expenditures over the next four years.
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Vidéotron confirmed that the present arrangements for community programming on the Edmonton system would be maintained. In this regard, the Commission reminds the applicant of Decision CRTC 83-495 dated 29 June 1983, which renewed the licence for the Edmonton undertaking to 30 September 1988. In that decision, the Commission noted QCTV's statement that it would maintain a level of original community program production at 30 hours per week, at least until August 1983. As stated by the Commission, however:
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Given the size of the system, and the importance of the community programming service, the Commission expects the licensee to maintain these commitments, as a minimum, throughout the next term of licence ...
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Conclusion
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By acquiring control of QCTV, Vidéotron as the controlling shareholder, has a responsibility to ensure that QCTV's past commitments continue to be met. Accordingly, it is the Commission's strong expectation that the applicant achieve and maintain, as a minimum, a level of 30 hours per week of original, first run community program production by the Edmonton cable television undertaking.
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In Decision CRTC 86-473, which approved rate increases for many of the smaller QCTV systems, the Commission noted QCTV's commitments to make "improvements in a number of areas including customer service, staffing, regional offices, maintenance, community programming, marketing and promotion". At the 8 July 1986 hearing, Mr. Polanski confirmed that all of the commitments specified in Decision CRTC 86-473 would be implemented by 1 September 1986. With respect to community programming, Mr. Polanski confirmed that QCTV's commitment to a minimum of one hour per week of original community programming in each location "has been fulfilled as an average across all communities". The Commission expects the applicant to ensure that all of these commitments are maintained.
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It is also the Commission's strong expectation that the applicant adhere to all of the other commitments described in this decision, and that it make every effort to ensure that the significant benefits it has identified as flowing from the transaction are realized.
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In Decision CRTC 86-473 dated 26 May 1986, the Commission approved increases in the maximum monthly subscriber fee for 22 of the 24 smaller QCTV systems. In its decision, the Commission stated the following:
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In light of the increases granted herein, which for certain systems are substantial, the Commission expects the licensee to exercise considerable restraint in the next twelve months and would not expect subscribers to be charged any further fee increases during that period.
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At the hearing, Vidéotron made a commitment to abide by the Commission's expectation by maintaining the monthly subscriber fees for these smaller systems at their current levels. It also confirmed that Edmonton subscribers would not be asked to pay for the acquisition of QCTV shares by Vidéotron through rate increases:
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It will be financed by Vidéotron and it's not part of the financial statement we provided to you.
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In relation to the foregoing the Commission reiterates its long-standing policy that subscribers should not be required to pay higher fees merely because the ownership or control of a cable television system has changed hands and, as such, the Commission views the applicant's stated commitment to QCTV's subscribers in this regard as being particularly important. The Commission also notes that in the financial and operating projections for the QCTV systems that were filed with the application, the applicant has projected no fee increases prior to 1 September 1987 for any system, although 4% rate increases have been projected in each of the three years commencing 1 September 1987.
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The Commission requires QCTV to submit a report, twelve months from the date of this decision, detailing its progress towards implementing the commitments noted herein. Moreover, the Commission reminds QCTV that at the time of renewal of these licences, all of which expire 30 September 1988, the Commission may impose conditions of licence requiring the fulfillment of any commitments which remain outstanding.
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Fernand Bélisle
Secretary General
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