ARCHIVED -  Public Notice CRTC 1986-182

Public Notice

Ottawa, 1 August 1986

Public Notice CRTC 1986-182

REGULATIONS RESPECTING BROADCASTING RECEIVING UNDERTAKINGS

For related documents: please refer to Public Notice CRTC 1984-305 (12 December 1984); Notice of Public Hearing 1985-27 (4 April 1985); Public Notice CRTC 1985-60 (22 March 1985); Public Notice CRTC 1985-155 (22 July 1985); Public Notice 1985-175 (2 August 1985); Public Notice CRTC 1986-27 (13 February 1986); Notice of Public Hearing 1986-30 (14 April 1986).

I. INTRODUCTION

Pursuant to subsection 16(1) of the Broadcasting Act, the Commission has enacted Regulations Respecting Broadcasting Receiving Undertakings. The new regulations have been registered with the Clerk of the Privy Council to come into effect today. A copy of the regulations will be published shortly in the Canada Gazette, accompanied by an order revoking the previous Cable Television Regulations C.R.C. 1978, c.374 as amended. A copy of the new regulations is included as Appendix A of this public notice.

These new cable television regulations are the culmination of an extensive and thorough public process which has elicited wide-ranging commentary and participation from individuals, consumer associations, industry associations, cable and broadcasting licensees and governments.

The process was initiated in December 1984 with a call for comments on the proposed regulations set out in Public Notice CRTC 1984-305. The volume and variety of the responses resulted in a hearing on 30 April 1985 (Notice of Public Hearing 1985-27).

Since non-programming services and advertising on cable were not discussed at that hearing, they were the topics of a subsequent hearing that began on 29 October 1985, during which the Commission reviewed a series of issues related to these two areas, particularly the extent to which non-programming services should be regulated and the most effective means to approach a possible policy change with reference to advertising on cable television.

Presentations made at these hearings resulted in several significant changes to the proposed regulations. Subsequently, in Public Notice CRTC 1986-27, the Commission published a comprehensive revised draft which also took into account the Commission's response to the report of the Task Force on Access to Television in Underserved Communities (the Klingle Report). Further comments were solicited and another hearing took place on 29 April 1986.

The l976 regulations have been in force for approximately a decade with relatively few amendments. Consequently, they required updating to account for the rapid growth and technological change experienced during that period, including the introduction of discretionary and specialty services, the widespread use of satellites to deliver new programming options, the unparalleled spread of VCRs in Canadian homes, as well as the vast array of non-programming services which can now be developed and offered. As a result, the cable industry in many areas of the country faces increasing competition in the home entertainment field.

The Commission's response to this altered communications environment has been to develop a new regulatory approach for the cable industry.

As stated in Public Notice CRTC 1986-27, the Commission has adopted:

 a more supervisory course of action. The Commission is confident that such an approach is now required in view of the increasingly competitive environment confronting the cable television industry, the perceived need for a more comprehensive menu of both programming and non-programming services to be offered to each community and the urgent need for reinvestment in cable systems in order to ensure continued quality of service to all subscribers.

The structure of the new regulations not only eliminates obsolete items but is designed to reduce regulatory lag by minimizing areas in which licensees currently must apply for authorization. Formerly, licensees were required to apply to the Commission for any use of the undertaking other than for the distribution of priority services. Under the new regulations, authorization for the carriage of most programming services is contained directly in the regulations and no longer requires an application and Commission approval. If a service, other than a programming service, is to be distributed, no authorization from the Commission is necessary.

Similarly, major changes have been made to accelerate the current process of amending installation and monthly subscriber fees. Installation fees will no longer be authorized for each licensee. Instead, a "cap" has been instituted and will be more fully described later in this notice. Concerning monthly fees, subscribers will be better informed than in the past by the inclusion of a new requirement that licensees notify all subscribers of any pending or proposed change in fee.

While fully maintaining the objectives of the Broadcasting Act, the Commission hopes that these regulations will help reduce the regulatory burden, the cost of which are eventually borne by the subscribers, and permit the Commission to develop a more supervisory role with respect to the general operation of systems across the country.

The sections which follow are intended only as a guide to highlight major changes between the former and new regulations and changes made as a result of the 29 April 1986 hearing. In a separate Public Notice, CRTC 1986-184 issued today, implementation procedures have been published to assist licensees in making the transition to the new regulatory regime. It includes forms which may be used to achieve speedy amendment of certain conditions of licence and to inform subscribers of rate changes, plus a list of Part III licensees as of 30 June 1986 (see Section IV).

II.CARRIAGE REGULATION

1. Television Service Priorities (section 9)

The structure of carriage priorities remains essentially unchanged from that set out in the original 1976 regulations. Changes have been made to take into account satellite delivered programming services, particularly in the areas of educational services, the CBC and future national public interest services.

The provision of television services, which is still the primary function of a cable system, remains the focus of cable regulation. These regulations will require a predominance of channels (more than 50%) providing Canadian programming services over non-Canadian services for each undertaking. To comply with this requirement, the Commission will exclude alphanumeric services but, in a change from previous policy, will include the community channel in its count of Canadian programming services. A predominance of Canadian services is also required for audio channels.

At the 29 April 1986 hearing, representations were made on two issues relating to the provision of educational services. First, concerns were expressed that a new second educational programming service originating in the same province would not be accorded the same priority as an existing one under the regulatory scheme proposed in CRTC Public Notice 1986-27. This was of particular concern to the Ontario Ministry of Transportation and Communications, TVOntario and to many Francophone groups who intervened on this issue.

In discussion at the public hearing, it became evident that in the months to come, various new services would likely be licensed by the Commission which could result in changes to traditional channel lineups. This expectation, along with the widespread use of converters by subscribers, including those in Ontario where a new educational service may soon be in place, argues strongly for the changes made in section 9 (1)(b) to require the same priority carriage for all educational services provided by a provincial authority in which the undertaking is located, no matter how the service is delivered. Should particular circumstances present a problem, a licensee may apply to the Commission for a condition of licence that would relieve it from meeting that requirement.

The Commission is encouraged that representatives of the cable industry indicated at the hearing their commitment to the continued carriage of all priority services designated by the Commission. Changes in the line-up of services available on the basic band (2-13) can be disruptive. However, when provided with complete information and sufficient advance warning, subscribers will generally adjust to the new and expanded channel distribution quickly and easily.

The second issue concerns the out-of-province carriage of an educational programming service. Both TVOntario and Access Alberta stated that out-of-province carriage of their services would result in substantially higher fees for programming rights. The Commission maintains its commitment to the widest possible access to Canadian programming for all Canadians, but recognizes that because educational programming is not supported by advertising, and until more effective copyright legislation is in place, its out-of-province carriage may constitute a major difficulty.

Carriage of an out-of-province educational service received other than over-the-air for distribution on basic service will require Commission approval as currently set out in the public notice concerning Distant Canadian Television Signals (Public Notice CRTC 1985-61). The effect will be that the concerned education al authority will continue to have an opportunity to make its views known to the Commission.

Distribution of an educational television station signal received overthe-air by an out-of-province undertaking will be authorized directly in the regulations (section 9(3)).

Also discussed at the hearing was the regulatory treatment to be accorded to new television stations broadcast ing from the border areas of the United States where it is apparent that their target audience includes nearby Canadian cities.

Broadcasters cited the potential financial harm such unregulated competition might cause them, as well as the inherent unfairness in the authorization, directly in the regulations, of the basic service carriage of these new stations. In response to these concerns, the Commission has amended section 10. Accordingly, carriage of non-Canadian television stations, which began operation later than 1 January 1985, will not be authorized through the regulations. Instead, licensees wishing to carry these stations must apply to the Commission for authorization on a case-by-case basis.

Sections 10 and 24 authorize the carriage of any programming services found on the Commission's list of approved eligible satellite services. In a separate public notice issued today, Public Notice CRTC l986-183, the Commission has listed these eligible services which may be changed from time to time.

2. Audio Programming Services (section 16)

The regulations governing audio carriage remain as stated in Public Notice CRTC 1986-27, as follows:

In placing the authority for carriage of priority and optional audio signals directly in the regulations, the scheme differs slightly from that used for video. Unlike video programming services where the regulations give explicit guidance as to the services which are authorized for optional carriage, any audio service may be carried unless it is explicitly excluded.

The mandatory carriage of local AM stations was identified as an issue for consideration at the hearing, particularly the practical effect of this requirement on many systems. At the hearing, the CCTA supplied the results of a survey it had conducted, which documented the extremely low subscriber penetration of cable FM connections.

The Commission recognizes that the mandatory carriage of all local stations will create problems of spectrum availability in some major urban areas. It deems it appropriate however, to accord all local services the same guaranteed access to cable distribution as is given to video services. Given the current economic problems facing AM stations, and considering their transition to stereo service, this required carriage should be beneficial. In the same way as for video programming services, in those instances where major problems relating to spectrum availability do arise, licensees may apply for a condition of licence to modify the priority carriage requirements.

It should be noted that the definition of "local AM station" has been modified to refer only to those stations whose principal studio is within 30 km of the local head end of the cable undertaking.

In most cases where channel availability is not a problem, a broad selection of optional audio services may be carried without authorization, provided that the licensee maintains an overall preponderance of Canadian over non-Canadian services. Certain non-Canadian FM or AM audio services will not be directly authorized in the regulations: those not received directly over-the-air at the local head end, those soliciting advertising and, to reflect current policy concerns, those with predominantly religious themes.

Many interventions were filed which assumed or feared that certain non-Canadian stations currently available through cable systems would, based on their religious character, be removed. The Commission notes that while the authorization to carry these stations is not granted directly in the regulations, services of a religious nature currently authorized pursuant to a condition of licence will not be affected by the changes to the regulations.

3. Community Programming (sections 13, 14, 15)

The Commission has observed with interest the evolution of the community channel during the past decade and is pleased to note that cable licensees are currently contributing over $40 million dollars annually to this unique and valuable community service.

The new regulations will permit contra, credit and sponsorship messages on the community channel to enable licensees to continue to improve the quality and quantity of community programming. This revenue should not accrue to the general revenues of the cable system, but instead should be used to help initiate or improve community programs.

As stated in Public Notice CRTC 1986-27, no evidence has been brought forward to indicate that this type of advertising activity would have any serious effect on the revenues of local broadcasters or that the nature of the community channel would be altered. The Commission will monitor the results of such advertising and will assess its impact at licence renewal time. Commercial type "spot" advertising, however, will continue to be prohibited.

The Commission notes that in accordance with its policy of sharing the community channel, Public Notice CRTC 1985-151, Class B systems may provide a wide range of complementary pro-community programming is not being distributed. This policy has been incorporated into the regulations and extended to systems serving up to 6,000 subscribers rather than the previous limit of 3,000.

4. Substitution of Identical Programming Services (section 20)

Included in Public Notice CRTC 1986-27 was a proposal put forward by the Canadian Association of Broadcasters (CAB) that the regulations be amended to allow substitution of non-identical episodes of strip programs. At the 29 April hearing, the Commission heard differing points of view on this matter. In the Commission's view, the CAB and those individual broadcasters who favoured the proposal failed to demonstrate either the efficacy of such a measure or its likely positive impact on the broadcasting industry. Similarly, there was a failure to substantiate any need for such a provision on the part of the broadcasters or any measurable benefits that it would bring to the system.

Moreover, the Commission notes that even within its current permissible limits certain problems related to the simultaneous substitution process have been an irritant to subscribers. In light of the above, the proposed "strip programming" provisions are not included in these regulations. At the same time certain minor changes to improve the regular substitution process are retained, as suggested in Public Notice CRTC 1986-27. As in the former regulations, substitution may only be requested by a local or regional television station. No changes have been made affecting the current rules regarding captioned programming.

5. Alteration or Curtailment of Programming Services (section 1)

Only minor changes to this provision of the regulations were proposed in Public Notice CRTC 1986-27, notably to permit alteration or curtailment of any programming service in order to comply with subsection 105(1) of the Canada Elections Act. No changes resulted from the 29 April 1986 hearing.

6. Tiering (section 10(2))

As proposed in Public Notice CRTC 1986-27, the carriage of Canadian and non-Canadian services on a discretionary basis will be authorized through the regulations. At the hearing, pay and specialty licensees expressed concern that the regulations would authorize the carriage of Canadian and non-Canadian specialty services but cable licensees would be under no legal obligation to adhere to the tiering and linkage rules set out in Public Notice CRTC 1984-81. Such a legal obligation had been contemplated in the draft regulations published in Public Notice CRTC 1984-305. The Commission has been persuaded that these requirements should be reintroduced and therefore has made the discretionary carriage of specialty and pay services subject to the rules set out in Public Notice CRTC 1984-81. The main elements are that a Canadian pay service may be packaged with up to five channels of eligible non-Canadian services and a Canadian specialty service may be packaged with up to two eligible non-Canadian services. No single discretionary tier can contain more than five channels of non-Canadian services. The rules apply to all Class 1 and Class 2 licensees.

It should be noted that the Commission has already announced that it will hold a hearing to review these rules in 1987.

7. Use of Equipment and Facilities (section 3)

Under the new regulatory approach to cable as described in Public Notice CRTC 1986-27, the terms of section 3 of the new regulations only address programming services. These are defined in the regulations as services designed generally to inform or entertain the public at large. Alphanumeric services, also defined, are specifically excluded from the programming services definition and will thus encourage the provision of more of these services to cable subscribers. Services not falling within the definition of programming services may therefore be created, developed and offered by a licensee without the need to seek authorization from the Commission.

An examination of the best ways to help develop such services took place at a hearing on 29 October 1985, and the Commission's findings and proposals were first published in the public notice and proposed regulations issued on 13 February 1986. No changes have been made in the final version issued today.

The Commission reiterates that spectrum priority must be given to programming services and that there should be no cross-subsidization of non-programming services from basic service revenues. These general conditions were specified in the Introductory Statement to Decisions CRTC 81-919 to 922.

Licensees are reminded that conditions of licence currently in place for these services do not lapse with the coming into force of these new regulations (see Public Notice CRTC 1986-184 "Implementation Procedures Related to the New Cable Television Regulations").

Public Notice CRTC 1986-27 elaborated on the cross-subsidy issue and on the process currently underway to ensure cost separation:

 As a result, new incremental operating and capital costs associated with the provision of discretionary and non-programming services may not be included in the rate base relating to basic services. The Commission will continue to consult with the industry to develop a financial reporting form which will facilitate supervision of this cost separation requirement for all systems required to file annual returns."

This process will be accelerated in order to protect the interests of direct subscribers and so that licensees may know as quickly as possible the reporting requirements which will be acceptable to the Commission. The Commission expects the Canadian Cable Television Association (CCTA), as representative of the cable industry, to take further appropriate action on this matter.

In the context of the development of non-programming services, such as opinion polling or home banking, the use of computers involving home use and interactive services raises issues concerning user privacy and security.

In response to concerns previously raised (in the Introductory Statement to Decisions CRTC 81-919 to 922) the CCTA has developed an industry code to deal with issues such as user privacy. In the Commission's view, this voluntary code is an important and responsible initiative which should prevent the improper use of individual subscriber data. As part of the licence renewal process, the Commission will assess the effectiveness of this code in light of any complaints or comments filed with the Commission during the licence term.

In response to comments submitted at the 29 April 1986 Public Hearing, the Commission has made a minor change to the definition of alphanumeric services by including background music. Background music is provided with most alphanumeric services and this change will eliminate the need for application.

With respect to requests that the term "simply and briefly" in the alphanumeric definition be changed, the Commission is convinced that as adopted, the definition will adequately allow for the non-traditional commercial message format which will be expected to develop in support of new non-programming services.

III. REVENUE REGULATION

In response to Public Notice CRTC 1986-27, the Commission received some 4,500 submissions commenting on the proposed changes to the regulations, the vast majority of which dealt with the rate-setting provisions.

Much of the opposition appeared to reflect incomplete information as to exactly what was being proposed and how the rate-setting process would operate. The predominant theme, however, was that the Commission should continue to regulate the monthly subscriber fees.

The 29 April 1986 hearing afforded an opportunity for discussion and clarification of some of these matters with the Consumers Association of Canada (CAC) whose members sent a majority of the letters filed in opposition to the rate-setting proposals at the suggestion of the CAC. In the Commission's view, the hearing produced no new information on the general issue of the regulation of fees for basic service that had not been fully reviewed in the earlier submissions and hearing and had not been addressed in Public Notice CRTC 1986-27. On a specific proposal, concerning capital expenditures (section 18(6)), which was new to this hearing, no specific objection or argument was filed by the CAC.

While the CAC remains opposed to any reduction in the Commission's scrutiny of rate change applications, the Commission considers that the built-in limitation on indexing and pass-through increases, the passive disallowance control and the direct subscriber notification process will achieve the desired objectives for both the industry and the public. It is the Commission's opinion that these features will provide the adequate protection expected by subscribers, will reduce the costs of rate regulation borne by subscribers, and at the same time meet the needs of licensees in planning system changes and improvements. Moreover, the Commission notes that emerging new technologies which supply competitive entertainment services to the consumer will also serve to mitigate excessive fee increases.

The new regulations respecting installation and monthly fees are contained in sections 17 and 18.

1. Installation (section 17)

Installation fees will no longer be established by the Commission pursuant to an application. Operators will be able to charge an installation fee up to a maximum equivalent to the actual expenses incurred in making the installation or reconnection of the subscriber drop. The subscriber drop is defined as that part of the system used for a subscriber's exclusive benefit, and does not include a converter. This "cap" of the actual non-recurring expenses will include both capital and related administrative costs.

It is expected that licensees will, upon request by a subscriber or Commission, provide details to show how the total installation charge was derived. Because the actual expenses incurred to provide the subscriber drop may be directly recovered, these amounts, for purposes of financial reporting to the Commission, will be "expensed", not "capitalized", as is currently required.

Consistent with the current policy on billing practices (Public Notice 1982-37 dated 18 May 1982), a licensee may demand prepayment for one month in advance only. While a licensee may withhold service to a subscriber who has personally failed to pay for the provision of basic service in the face of a request by the licensee for payment, there is a clear obligation to provide service as long as a subscriber has paid the installation charge, one month's fee in advance and has not failed to pay an overdue debt for the basic service.

In addition, the regulations require the wiring of all residential areas within the service area which are provided with municipal water or sewer services. Whenever a potential subscriber requests service, the licensee must install the equipment needed to receive the basic service. Exceptions for unusual situations where service cannot reasonably be provided may be authorized by condition of licence.

2. Monthly Fees (section 18)

The Commission has adopted the proposals contained in Public Notice CRTC 27.

The regulations now provide four separate processes for increasing the basic monthly fee which apply to all Class 1 and Class 2 licensees.

The first two processes (subsections 18(2) and 18(3)) allow a licensee to increase its monthly fee without application, after advance notification of at least 40 days to subscribers and to the Commission.

All Class l and Class 2 licensees will be allowed annual rate adjustments after 1 September of up to 80 percent of the annual percentage increase in the Consumer Price Index (CPI) during the twelve month period ending the previous 30 April. The Commission expects that the indexing scheme will allow for more timely implementation of rate increases and will allow licensees, in part, to recover expenses without the regulatory costs and time required using the former rate approval process.

Licensees are hereby notified that for the twelve months ending 30 April 1986, the CPI increased by 3.9% and therefore for purposes of the calculations in section 18, the base portion of a licensee's monthly fee may be increased after 1 September 1986 by 3.% (The Consumer Price Index, catalogue 62-001, Table 2).

Additionally, a licensee will be permitted to increase its monthly subscriber fee to recover any new or increased costs associated with a direct per subscriber or lump sum payment to a third party, related to the transmission of programming services, separately approved by the Commission or a provincial regulatory authority. Specifically, pass-through charges will include charges for microwave, pole and conduit use, and fees paid to a telephone company or Commission licensee for rate-regulated programming services.

This procedure will enable licensees to pass through cost increases over which they have no control and which are normally approved under the existing rate approval process. It will thus allow for the immediate addition of service for which a fee will be paid by the cable licensee once the service is distributed.

As a result of this addition to the charges which may be passed through, the licensee must indicate to the Commission the number of direct and indirect subscribers to whom the notice was sent, as well as evidence attesting to the third party change in fee or rate.

With respect to both indexing and pass-through increases, advance notice of at least 40 days will be given to all subscribers and to the Commission, setting out the existing authorized rate and the amount of the proposed increase in the basic monthly fee.

Provided the calculations and notification process as detailed in the appropriate sections of the regulations have been done correctly, there will be no other regulatory requirements to satisfy.

Licensees may also increase their monthly rate in two other ways as indicated in subsections 18(6) and (8).

A majority of Commissioners approved a capital expenditure plan (subsection 18(6)). In effect this will permit licensees to increase the basic monthly fee by an amount which reflects 10% of the amount of the eligible investment distributed over the subscriber base. These increases are subject however to a disallowance mechanism.

A licensee will be permitted to increase its rate, following the notification period, unless the Commission disallows or suspends the implementation of that increase prior to the date on which the proposed increase is to take effect. Such suspensions would be invoked in cases where the Commission believes it desirable to have access to additional information, further public process, or both.

Forty days following notification of all subscribers, and providing the Commission does not disallow or suspend the implementation of all or part of the proposed increase pending further consideration, it may be put into effect. If the Commission intervenes, the licensee will not be allowed to change the monthly fee until the Commission issues a written decision. In making the determination whether to intervene, the Commission will take into account, among other matters, any previous fee increase awarded to a licensee on the basis of already committed future capital expenditures and the eligibility of such capital expenditures according to subsection 18(5) of the Cable Television Regulations.

The Commission's objective with respect to this proposal is to encourage licensees to rebuild and improve old plant and equipment, to increase channel capacity and to improve the technical capabilities of their systems so that the delivery of services to subscribers will be facilitated and their quality improved.

Eligible capital expenditure projects, either purchase or lease, are defined as capital expenditures for new construction and replacement or improvement of existing physical plant which will enhance basic service. This includes head ends, amplifiers and distribution plant. Capitalized leases are eligible under this option. However, the interest component associated with the lease will not be eligible. The Commission will monitor systems making capital expenditures using this process to ensure that the projects have been carried out in the twelve month period stipulated.

For rate changes based on capital expenditure, the licensee will be required to provide documentation which will describe the proposal so as to allow the Commission to determine that the purpose of the expenditure does in fact conform to the regulation requirements and is not intended for the provision of discretionary or non-programming services. This will reduce or eliminate the deficiency process.

For those cases where a licensee requests a rate in excess of that which would be allowed using the other previous options, a fourth procedure is provided under which the Commission would analyse a filing as it does at present (section 18(8)).

A licensee will be permitted to implement such an increase 90 days after notification to all subscribers and to the Commission, providing the Commission does not disallow or suspend the implementation of all or part of the increase as described above within the 90 day period.

Using either of the disallowance options, the 40 or 90 day advance notification period required in the regulations will begin only after the Commission is in receipt of all the information indicated in the regulations and only if the required calculations have been accurately performed.

The notification given to subscribers at least 40 or 90 days in advance of any rate increase proposed under these procedures will be made in accordance with the simplified form, set out in the schedule to the regulations. An outline of the changes in rate structure will be provided in the schedule. In the case of increases related to capital investment, this requirement will provide subscribers with immediate and pertinent information about improvements and additions to the service they may expect in the next year. This significantly improves the Commission's present public notification procedures through advertisements placed in local or regional media.

The schedule also includes the address where the complete filing, and any other information which may be requested by the Commission, is available for public inspection. The Commission's address will be included in the individual notification for the convenience of any subscriber wishing to intervene and all interventions will be assessed by the Commission in determining whether or not to suspend or disallow the proposed increase.

The Commission wishes to emphasize that the provisions for partial indexing and pass-through increases and the capital investment credit should not be used as a means of obtaining interim partial rate increases. A filing for an increase under section 18(8) in the same year where a licensee has implemented a rate change using any or all of the other options would not ordinarily be granted unless there is a clear demonstration of exceptional economic need, substantially higher operating costs or qualification under any of the other criteria set out in the Commission's public announcement dated 18 September 1974.

Because of the nature of these changes, the effect of this new approach to rate regulation will be reviewed by the Commission two years following the date upon which the new proposed regulations go into effect.

Licensees are advised not to file a proposal under any of these four procedures (18(2)(3)(6) and (8)) until they have applied and have received a decision from the Commission changing the conditions of licence which currently apply to the licensee regarding the maximum monthly authorized fee.

Licensees are advised that the maximum monthly subscriber fee authorized on the date of coming into force of these regulations may be used to file for the first rate change made under subsection 18(2). Changes in subsequent years will be made according to the definition of "base portion" contained in the regulations (see Public Notice CRTC 1986-184 issued today, "Implementation Procedures Related to the New Cable Television Regulations" for details).

IV. REGULATION OF CABLE SYSTEMS IN CORE MARKETS

With the coming into force of these regulations and after meeting any new requirements, licensees referred to as Part III licensees will be able to benefit from the recommendations made in the Klingle report. Each of its recommendations was endorsed by the Commission in Public Notice CRTC 1985-60 subject to the limitations contained in the four recommendations for Class B systems. The minimum regulatory control now applicable to these kinds of systems is evidence not only of the Commission's commitment to the supervisory approach but also its continuing objective of providing Canadians, no matter where they live, with the potential for a viable and attractive television service which can operate with a minimum involvement from the Commission.

A Part III licensee known to date as licensee of a "core" system, is defined as any licensee who had never been authorized prior to the licensing of CANCOM (14 April 1981) to distribute non-Canadian services received over-the-air or by microwave, and whose local head end is located within the Grade B official contour of two or fewer licensed television stations, on or after the date of the coming into force of these regulations. The method used to determine whether two or more countable services are available is described in the definition of a Part III licensee.

Effectively, if a system at the time of licensing was not within the Grade B contour of a Canadian independent commercial station, it likely met the "two or fewer" requirement. The problem of defining these "remote and underserved" communities, a term first used in the recommendations of the Therrien Committee in 1980, was recognized by the Klingle report when it accepted the term "core", as the Commission had done, to describe those areas which would be authorized to receive CANCOM's package of Canadian services. The "core" concept was first suggested by CANCOM itself.

While the Commission is confident that the definition of a Part III licensee will encompass most of the intended systems, anomalies may occur. In such cases the Commission may, upon application by a licensee for licence amendment, designate a system as a Part III licensee by condition of licence.

Conversely, there may be a limited number of cases where a Part III licensee finds it difficult to comply with the signal carriage requirements of section 23. For example, some Part III licensees receive U.S. and other signals via the Intervision network. If they also distribute Canadian or U.S. eligible satellite services and do not want to meet the section 23 carriage requirements, they must apply for an exemption through a condition of licence.

Mandatory television carriage for Part III licensees is limited in section 22 to local and regional television stations (excluding network duplicates). Monthly fees, provision of service and installation fees will not be regulated; optional programming services approved directly in the regulations or including those in the lists used by Part III licensees (Public Notice CRTC 1986-183) may be distributed as part of the basic service; and the proportion of Canadian to non-Canadian channels applicable to Class 1 and Class 2 licensees will not apply. Although a community channel is not mandatory, should a licensee elect to distribute community programming it must adhere to the requirements of sections 13 and 15, which include the new rules allowing sponsorship, contra and credit messages, applicable to all Class 1 and Class 2 licensees.

Some changes have been made to the proposal in Public Notice 1986-27 regarding optional signal distribution. The new regulations follow the approach used for optional services for Class 1 and Class 2 licensees. Should a Part III licensee wish to distribute a non-Canadian television station with predominantly religious themes or a non-Canadian television station that began operation after 1 January 1985, an application for authority will be required.

In Public Notice CRTC 1985-60, those recommendations pertaining to "Class B" systems were restricted to apply to systems utilizing 12 channels (channels 2 - 13) or less to distribute authorized services. These policy provisions will now apply to Class 2 systems utilizing 12 channels or less. The effect will be that systems serving up to 6,000 subscribers and meeting the l2 channel criterion as described, may apply to the Commission for permission to distribute services in accordance with recommendations 9, 10, 12 and 19 of the Klingle Report. These applications will be assessed on their merits, taking into account the policy statements made by the Commission in Public Notice CRTC 1985-60, regarding signal availability, impact on local service and the size and location of the community involved.

V. OTHER RATE AND FINANCIAL ISSUES

In Public Notice CRTC 1986-27, the Commission described several outstanding financial issues which had been raised in Public Notices CRTC 1984-143 and 1983-156 and indicated a course of action for each.

1. Cost Separation

The Commission confirms its position on the need for cost separation, so that basic service subscribers neither directly nor indirectly subsidize the provision of discretionary programming services or non-programming services. The Commission will immediately request that, on behalf of the cable television industry, the CCTA provide a standard financial reporting methodology which will be acceptable to the industry. The Commission will then decide if the system will enable it to supervise the cost separation requirement. This does not apply to Part III licensees for which the rate setting process has been eliminated. It should be noted that the provisions for rate changes based on capital expenditure expressly state that the expenditure must relate to the basic service (subsection 18(5)).

2. Research and Development

As indicated in Public Notice CRTC 1986-27, the Commission is eliminating the costs associated with research and development from those expenses allowable for inclusion in calculating the fee for basic monthly service when a licensee proposes a rate increase under subsection 18(8).

3. Financial Disclosure

Several comments were filed concerning Appendix B to Public Notice CRTC 1986-27 outlining requirements relating to financial disclosure. Various changes have been made to the language used in the document in order to remedy passages where there was apparent ambiguity or where there was confusion with respect to accounting terminology. The requirements for disclosure for fee increase proposals filed under subsection 18(8) now in place are provided in Appendix B to this notice.

VI. TWO-YEAR REVIEW

Following an extensive public process the Commission has now completed a massive revision of the regulations which affect not only the cable industry and cable subscribers but all sectors of the broadcasting system. By way of ensuring that the Commission's obligations, particularly as it concerns cable subscribers, are being met, the impact of the new rate setting provisions for Class 1 and Class 2 systems will be reviewed in two years.

The Commission hopes that the cable industry which has argued for a lighter regulatory hand will now demonstrate that a flexible, supervisory approach to regulation will benefit the broadcasting system as a whole, the subscriber, as well as the cable industry itself. If there is now a capacity to react quickly to market conditions and changing technologies, there must also be a capacity and the will to respond quickly to subscriber needs and demands by making available to them the widest possible choice of programming and non-programming services.

The Commission wishes to express its appreciation to everyone who participated in this process over the past two years. These include not only the associations, cable operators and broadcasters who prepared extensive briefs and travelled to hearings, but also the individuals who took the time to write expressing their views and concerns: this involvement and co-operation is the cornerstone of the public process.

MINORITY OPINION

Commissioner Jean-Pierre Mongeau dissenting in part, on section 3
This substantial review of our regulations has been the subject of an extensive public process including three public hearings, and of intensive scrutiny by Commissioners. As may be expected in such cases, one person may agree with all the revisions while another may not. The Commission's usual practice is to report only the majority decision on every issue, a practice I usually adhere to, unless there is no other choice than to raise publicly the reason for dissention. Section 3 presents such a compelling situation.

The old section 5, which addressed the use of the undertaking, will now be replaced by a new section 3: use of equipment and facilities. From now on, licensees may use their cable equipment and facilities for the distribution of any services other than programming services which can only be authorized pursuant to their licence or these regulations. Programming services are defined in the regulations.

A number of responsible parties have made well-informed representations on this section and have asked the Commission to clarify the status of non-programming services, the resultant required distinctions between programming and non-programming services and, within the latter category, between broadcasting-related and telecommunications-related services. They have also requested clarification as to the regulatory regime applicable to each type of service. A better understanding of the nature and role of each type of service would aid in planning for their introduction and development and, particularly, would facilitate fair and reasonable solutions to serious problems such as access to the facilities, unfair preference, unjust discrimination, privacy and distinctions between carriage and content.

Such problems were recently addressed in the United States by the F.C.C. which made the required distinctions and clarified the regulatory regime applicable to each type of service. There, cable operators have even been provided with the opportunity to choose, under certain circumstances, the regulatory regime to which they would be subjected. No type of service is exposed to regulatory ambiguities.

A majority of my colleagues has decided that there is no need, at this time, to address the issues related to the provision of non-programming services other than by policy guidelines or by conditions of licence, the latter of which also remains imprecise. I respectfully beg to disagree.

Within this review process, the Commission should have also defined non-programming services and addressed the issues raised above - and thereby avoided any unnecessary ambiguities and difficulties which will result from its decision. The Commission could then have exempted broadcastingrelated non-programming services from the application of the present regulations in order to achieve its objective. Particularly, the Commission should have clarified the use of the very same equipment and facilities for the distribution of pointto-point switched services as is currently envisaged by at least one major Canadian cable licensee. Such services are similar and competitive to equivalent telecommunications services, using the cable plant in place. Issues like priority services and cross-subsidization should have been addressed more comprehensively. The Commission has the requisite authority and capacity, directly or in an ancillary manner, to provide a regulatory regime for these services. The Commission could then have examined the possibility of characterizing such carriage as non-dominant and provided for only general obligations on the part of the carriers. Third parties would then have had a clearer framework within which to address issues of access priorities, privacy, discrimination, preference and cross-subsidization.

This discussion must remain open until a satisfactory solution is reached.

Fernand Bélisle Secretary General