ARCHIVED -  Public Notice CRTC 1987-260

Public Notice

Ottawa, 30 November 1987

Public Notice CRTC 1987-260

INTRODUCTORY STATEMENT TO DECISIONS CRTC 87-895 TO 87-906: CANADIAN SPECIALTY AND PAY TELEVISION SERVICES.

TABLE OF CONTENTS

I.BACKGROUND

a) Licensing History

b) Forums for Public Discussion

c) The Role of Cable Television

d) Existing Television Services
(i) Anglophone Market
(ii) Francophone Market

e) Demand for New Specialty Services

f) The Commission's Objectives

g) The Call and Applications Received

h) The Hearing

II. SPECIALTY SERVICES ON BASIC: DISCUSSION OF POLICY ISSUES

a) Introduction

b) Access

c) Distribution of Specialty Services as Part of the Service
(i) Mandatory to Basic
(ii) Optional-to-Basic

d) Impact
i) Impact on Subscribers
(ii) Impact on ConventionalBroadcasters and Independent Producers
(iii) Impact On Existing Specialty and Pay Television Licensees and on the Distribution and Linkage Rules

e) Rate Regulation

III.LICENSING APPROACH AND REGULATORY FRAMEWORK

A. Licensing Approach

B. Regulatory Framework

a) Francophone Market

b) Anglophone Market

c) Complaints re Access for Existing Discretionary Specialty Services

d) Rate Regulation

e) Positioning

f) Revised Linkage Rules

I. BACKGROUND

a) Licensing History

The Commission first considered specialty programming services in 1982 following a Public Hearing on the introduction of pay television in Canada. In Decision CRTC 82-240 dated 18 March 1982, which licensed pay television networks, the Commission noted that it would, in the future, be prepared to explore the introduction of discretionary specialty television services, designed to appeal to particular audiences with special interests.

At a Public Hearing in January 1984, the Commission heard proposals and comments from a large number of participants on the establishment of specialty services in a wide range of formats such as youth and family-oriented services, religious, music, sports, and ethnic programming. The Commission, conscious of the uncertainty faced by the pay television licensees in their first few years of operation, took a conservative approach in licensing the first few specialty services, which were to be distributed on a discretionary basis. Licences were issued for the provision of two English-language services, MuchMusic and The Sports Network (TSN), and for two ethnic services, Telelatino, which would distribute programs predominantly in the Italian and Spanish languages, and Chinavision, operating primarily in Chinese languages. In addition, a Public Hearing on 5 February 1985 resulted in the licensing of The Life Channel for an English-language health and lifestyle specialty service.

In view of the absence of licensed French-language specialty services, the Commission encouraged Canadian specialty licensees to consult with cable television operators in francophone areas with a view to providing some French-language specialty programming in their markets. In response, the Commission received and approved an application to amend the MuchMusic licence to permit the partial substitution of its English-language service by the French-language service, MusiquePlus, for distribution to affiliated cable undertakings situated in francophone markets in eastern Canada. The Commission also licensed Vidéotron Ltée, on a short-term, experimental basis, to operate a French-language youth special programming service, Télé des jeunes (Decision CRTC 86-214), to be distributed on the basic service by the vast majority of Quebec cable systems.

With the exception of The Life Channel, which ceased operations in November 1986, these services continue to be available to an increasingly higher proportion of the Canadian public through cable television systems.

Since 1984, the Commission has recognized that it would be desirable to license specialty services in other formats, particularly youth and religious programming. It has received applications for such services over the years but, for a variety of policy and procedural reasons, a hearing to consider such applications has been delayed.

b) Forums for Public Discussion

In addition to the Commission's extensive hearings and public consultations across Canada, recent government initiatives such as the Canada-Quebec Committee on the Future of French-language Television, the Task Force on Broadcasting Policy and the Standing Committee on Communications and Culture's assessment of the Task Force Report have provided forums for wide consultation and public discussion of issues related to the desirability, structure and impact of specialty services.

In December 1984, the Ministers of Communications of Canada and Quebec formed a Federal-Provincial Committee to study the future of French-language television. the Committee Report was released in May 1985 and recommended that the CRTC further the development of specialty French-language services in eastern Canada, to be financed through advertising and a small surcharge on the basic cable subscription rate.

In April 1985 the federal Minister of Communications established the Task Force on Broadcasting Policy to make recommendations on a cultural and industrial strategy to govern the future evolution of the Canadian broadcasting system through the remainder of the century. Following extensive consultation with members of the broadcasting and cable industries and the general public, the Task Force report which included a number of research studies was tabled in Parliament on 29 January 1987. It devoted a whole chapter to specialty services policy.

The House of Commons Standing Committee on Communications and Culture subsequently examined the Caplan-Sauvageau Report, and heard representations from the public, industry and special interest groups and the Commission on matters discussed in the Report before releasing its comments and recommendations on specialty services in April and May 1987.

Moreover, in December 1986, the Minister of Communications announced changed to the Broadcast Program Development Fund (the Telefilm Fund). These changes included provisions which would allow independent productions to qualify for Telefilm Fund financing where such productions are to be exhibited on specialty networks, provided those networks are distributed on basic cable service in the major metropolitan areas of Canada, or on pay television networks if the program is also exhibited on conventional television within two years of completion.

These above-noted initiatives have made a significant contribution to informed public discussion of the options, implications and policy considerations for the licensing of specialty programming services. In particular, applicants for licences before the Commission have benefited from these wide-ranging discussions and from the research and the information contained in these Reports in preparing their proposals for new Canadian programming services.

c) The Role of Cable Television

In order to ensure the delivery of new Canadian services to the largest possible audiences, the Commission has been mindful of the special characteristics of the Canadian broadcasting system. Individual Canadian markets, for the most part, are not large enough to support specialty services targeted to a local audience. Therefore, applicants have proposed services which would be delivered using satellite-to-cable technology.

Canada's cable television industry has played a central role in the extension of wide range of programming to Canadian viewers living in urban areas and in the more isolated rural regions of Canada.

Approximately 66.7% of Canadian television households receive cable service and, of this number, about 49.6% are equipped with converters or "cable-ready" receivers and so have access not only to services distributed on the basic band (channels 2-13) but also to those services available on the mid- and super-bands. Of the approximately 6 million cabled households in Canada, over 87% or 5.3 million are connected to cable systems which have made significant investments to provide capacity greater than the basic band. In addition, recent initiatives from cable licensees and CANCOM have resulted in the extension of cable service to smaller and more remote communities in Canada than has ever been feasible anywhere in the world. The high penetration rate for cable service in Canada, the large channel capacity of most systems, and the large number of conventional and other satellite-delivered services offered in Canada and the U.S. have combined to create a situation where Canadian cable subscribers have access to a wide variety of different programming services, certainly one of the greatest offered to television audiences anywhere in the world.

As noted on several previous occasions, the Commission is of the view that, for the foreseeable future, cable television is the best available system to ensure the delivery of a wide range of services to Canadian audiences.

d) Existing Television Services

There are two distinct markets for television in Canada, one predominantly English-language (the anglophone market), the other predominantly French-language (the francophone market).

i) Anglophone Market

In the anglophone market, most Canadians receive at least two conventional networks, the CBC and the CTV Television Network, and have access to a third independent service over-the-air. Cable subscribers in Atlantic Canada receive the Atlantic Satellite Network. Most parts of Ontario receive the Global service through its string of retransmitters, and about 50% of Ontarians receive programming from CHCH-TV (Hamilton) and CITY-TV (Toronto). Four other independent stations, CKND-TV, CITV-TV, CFAC-TV and CKVU-TV, provide third service in Manitoba, Alberta and British Columbia respectively, and another recently licensed television station, CHMI-TV (Portage La Prairie), now provides fourth service in Manitoba. Two recently licensed television stations, CKRE-TV Regina and CFSK-TV Saskatoon, have just begun operations and are now providing third service in Saskatchewan, while two newly-licensed independent stations, one in Halifax and one in Saint-John (with retransmitters in Fredericton and Moncton), are expected to provide third service in those cities within the next year.

Many parts of the country receive programming broadcast by provincial educational authorities, and distribution of this programming is sometimes via satellite. In addition, in order to extend conventional television service to underserved areas, and generally to increase Canadian choices, the Commission's 1985 distant Canadian signal policy permits many cable systems to distribute certain distant Canadian signals by means of microwave or via satellite.

Moreover, most Canadian cable subscribers also receive the signals of at least three commercial U.S. networks (NBC, ABC and CBS) and PBS, received at cable head-ends over-the-air, by microwave or via satellite from the CANCOM network.

In addition to receiving the conventional television services, the majority of English-language cable subscribers have access to Canadian discretionary services. The general interest pay television services operated by First Choice Canadian Communications Corporation in eastern Canada and by Allarcom Pay Television Limited in western Canada (First Choice/Superchannel) have shown satisfactory growth both in number of subscribers and in revenue since the re-structuring allowed by the Commission in Decisions CRTC 84-32 dated 24 January 1984 and CRTC 84-654 dated 16 August 1984. The existing English-language specialty services, MuchMusic and The Sports Network, are also enjoying good revenue and significant subscriber levels as discretionary services.

ii) Francophone Market

The Canadian francophone market in the eastern part of Canada has access to a lesser range of French-language services tailored to meet its programming needs, despite the measures taken by the Commission to stimulate the development and distribution of French-language programming and the licensing of several new services in Quebec during the last few years. In Quebec, conventional French-language television services now include the CBC's French-language network (Radio-Canada) and Le Réseau de Télévision TVA Inc. (TVA) which, directly or through their affiliates, cover 98% of the province as well as neighbouring regions of New Brunswick and Ontario. The provincial educational service, Radio-Québec, is also available in Quebec and a new network, the Réseau Quatre Saisons (TQS), which began operations in September 1986, provides a third commercial service to 90% of Quebec through its station in Montreal and its affiliates and retransmitters in Quebec City, Hull, Sherbrooke, Trois-Rivières, Rimouski, Jonquière and Val d'Or.

Radio-Canada is also available across Canada via satellite. As well, the TVA network is available across Canada via satellite as part of the CANCOM service. The Réseau Quatre Saisons and Radio-Québec, which are distributed on the eastern beam of Anik C-3, are available from Manitoba to the Atlantic provinces.

In addition, cable subscribers in the francophone market have access, via satellite, to the French-language pay television service operated by Premier Choix: TVEC Inc. (Super Écran) and to MuchMusic's partial French-language specialty music service, MusiquePlus.

Recognizing the limited choice of French-language discretionary services available to Francophones due to the small size of the francophone market, the Commission authorized the distribution of special programming services under specific conditions. The vast majority of the cable systems in quebec and a few in New Brunswick were authorized to distribute two additional French-language special programming services on the basic service: La Sette (TVFQ-99), a service consisting of some 90 hours per week of programming originating from France, and Vidéotron's cable-originated youth programming service, Télé des jeunes. The cable subscribers who have access to these two services already pay, as part of their monthly fee, an amount corresponding to the distribution cost of these services.

A variety of other cable-originated special programming services are also offered to Montreal and Quebec City area cable subscribers.

In addition to receiving the French-language services noted above, most francophone Canadians residing in the eastern part of Canada have access to a wide range of English-language services, including the CTV and CBC and the three commercial and one non-commercial U.S. networks.

Canadians in both the francophone and anglophone markets also have access to a variety of ethnic programming services. In addition to the local ethnic programs offered by conventional broadcasters or produced by ethnic groups and distributed by ethnic producers on cable systems in different communities across Canada, CFMT-TV provides an ethnic television service over-the-air, by cable and via microwave to over 2 million residents of southern Ontario. Telelatino and Chinavision are also licensed to provide ethnic specialty services on a natural basis, and Cathay International Television Inc. (Cathay) is licensed to provide a regional ethnic pay television service in British Columbia.

Canadians in the North also have access to native programming services provided by a number of regional native broadcasting networks and, to a limited extent, by the CBC Northern Service.

e) Demand for New Specialty Services

Canadians have demonstrated considerable interest in specialized services from the United States since the services were introduced in the late 1970s. The familiarization of Canadian audiences with a growing number of U.S. satellite services in a variety of formats has contributed to increasing demands for their carriage on cable. The popularity of these specialty services has also become evident in the U.S. where, in addition to receiving the pay movie channels, many U.S. cable subscribers receive a large number of satellite-delivered superstations as well as satellite-to-cable networks which operate in such diverse formats as news, family and youth-oriented programming, rock or country music, health, sports, religion, weather, travel and educational programming.

In answer to demands from Canadian audiences for the type of programming offered by these U.S. specialty services, the Commission in 1984 allowed Canadian cable licensees to choose among a list of eligible, non-competitive available U.S. services for distribution to their subscribers. In urban areas, U.S. specialty services are distributed as discretionary services and, in order to support Canadian discretionary services, are subject to CRTC requirements for linkage and tiering with Canadian pay television and specialty services. In remote and underserved areas, cable systems are permitted distribution of some U.S. services as part of the basic service.

As it has done earlier when it licensed pay or specialty services, and when it authorized the distribution of distant Canadian signals, before even considering the importation of additional U.S. services or superstations, the Commission offered Canadian entrepreneurs the opportunity to provide new Canadian alternatives to the public.

Consistent with its mandate under the Broadcasting Act, in particular its responsibility to ensure that programming on the Canadian broadcasting system uses "predominantly Canadian creative and other resources", the Commission has chosen to encourage the development of specialty services owned and operated by Canadians in order to provide Canadian content to the greatest extent possible and a much desired opportunity and appropriate window for Canadian talent.

f) The Commission's Objectives

In arriving at its decision to call for applications for licences to provide new Canadian specialty services, the Commission had as its major objective the timely improvement of the choice and quality of services available to Canadians.

At this point in the development of the Canadian broadcasting system, the Commission considered that there was a demand for new specialty services that would appeal to the many specialized interests of discerning Canadian audiences and provide a range of attractive new programming choices. There was also a great deal of public discussion of how best to go about meeting this demand.

The Commission took into consideration recent developments in the licensing of new conventional television services in both the francophone and anglophone markets and the extension of distant Canadian signals into new markets, all of which have significantly improved the availability of conventional television services across Canada. Another concern important to the Commission was that any new specialty service not have an unduly negative impact on the viability of conventional broadcasters or other general interest licensees. However, it considered that the very nature of specialty services, which are targeted to specialized audiences, would minimize any negative effects on existing broadcasters. It also noted that Canadian pay television and other discretionary services are enjoying much greater financial stability than in the past.

There has continued to be a lack of specialty services designed for francophone audiences, however, and the Commission has been particularly concerned about the need to equalize the availability of such services to the extent possible and avoid a gradual shift in francophone viewership to English-language services.

Moreover, the Commission has been aware of the continuing interest shown by Canadian entrepreneurs in developing new services for launch at the earliest possible date.

The Commission has been encouraged by the expertise, enthusiasm and careful planning shown by many of the applicants, and is convinced that all of the above circumstances combined have presented it with an excellent opportunity to explore proposals for new Canadian program choices.

g) The Call and Applications Received

On 13 August 1986, the Commission issued Public Notice CRTC 1986-199, calling for applications for network licences to offer Canadian specialty programming services "designed to reflect the particular interests and needs of different age, language, cultural, geographic or other groups in Canada".

The Commission set out the general principles and objectives that would guide it in considering applications. It further outlined the types of programming services for which applications would be encouraged in order to achieve the greatest possible diversity and complementarity to existing services. The Commission called for applications for youth and family-oriented specialty services, for an interfaith religious network and for a nationally-distributed ethnic programming service - formats which had been identified as desirable when the first specialty licences were issued. In addition, Public Notice CRTC 1986-199 specifically called for: English-language services in formats other than music, sports and health and lifestyle; and for French-language services in all formats. The Commission also announced its willingness to consider applications which included plans for distribution on other than a discretionary basis.

The deadline established by Public Notice CRTC 1986-199 was extended twice, first to allow applicants to take into account changes to the Telefilm Fund, and second, to accommodate requests from applicants and from the Standing Committee on Communications and Culture. The Commission received 31 applications by the 30 April 1987 deadline, and heard 21 applicants at its 20 July 1987 public hearing. Eight applications were withdrawn for lack of completeness (CRTC - Notice of Public Hearing 1987-52 dated 29 May 1987), and the subsequent filing by one applicant of an agreement in principle to acquire all the shares of another applicant resulted in the withdrawal of both applications (CRTC - Notice of Public Hearing 1987-62 dated 15 July 1987). Applications were heard for ethnic services and for French- and English-language services in many formats, including children's youth and family-oriented programming, religious programming, news, weather, music, sports, and alternative Canadian programming. The applications are listed below:

Applications to provide French-language services:

Premier Choix: TVEC Inc. "Canal Famille"

Vidéotron Ltée "Télé des jeunes"

Consortium de télévision Québec

Canada "TV5 Québec Canada"

Jean Paul Champagne, (OBCI) "La Télévision des sports (TVS-25) Limitée"

Le Réseau des sports (RDS)

Réseau de Musique Télévisée du Québec (MTVQ) Inc.

CHUM Limited and Radiomutuel (1985) Limitée, (OBCI) "MusiquePlus"

Canal Santé Inc.

Applications to provide English-language services:

YTV Canada Inc. TPTV Inc.

Canadian Broadcasting Corporation

Allarcom Ltd. "Canadian Cable News (CCN)"

Philip B. Lind, (OBCI) "Cable Public Affairs Channel (CPAC)"

Canadian Interfaith Network (formerly David Nostbakken and Randolph Lyle Naylor, OBCI)

Applications to provide services in both French and English:

François N. Macerola, (OBCI) "Canadian Non-Commercial and Public Television Inc. (TV Canada/Télé-Canada)

MeteoMedia Inc.

Application for an ethnic service:

MTV Broadcasting System Incorporated "Multilingual Television Network"

Application for an English-language pay television service:

Susan Douglas Rubes (OBCI) "The Family Channel"

Applications to amend existing specialty licences:

CHUM Limited "MuchMusic" The Sports Network (TSN) Telelatino Network Inc.

h) The Hearing

Prior to the public hearing on specialty programming services, the Commission issued Public Notice CRTC 1987-121 dated 4 May 1987 in which it raised a number of issues associated with the introduction of specialty services on basic cable service. Applicants and interveners were asked to address, in the context of the applications filed, matters such as the notions of mandatory and optional-to-basic distribution; the resultant impact on subscribers, on conventional broadcaster, and on pay television and existing specialty licensees; the differences between the francophone and anglophone markets; the regulation of rates for new services; the channel capacity of cable systems; and the revision of the Commission's linkage rules.

The hearing took place from 20 July to 13 August 1987 and constituted the longest broadcasting hearing in CRTC history. There were four phases to the hearing. During Phase I, the twenty-one applicants presented their proposals. Following each presentation, the Commission examined the application on its merits in terms of demand, attractiveness of programming, financial strength and market viability, impact on consumers and on other licensees, ownership structure and other related matters. During Phase II, which began 31 July and lasted two hearing days, the applicants were permitted to intervene to other applications and to comment on the specific concerns outlined by the Commission in Public Notice CRTC 1987-121. During Phase III, which extended through six hearing days, the Commission also heard 61 appearing interveners who presented their views both on the applications and on the policy concerns outlined in Public Notice CRTC 1987-121. The final two days were devoted to Phase IV, when the applicants were given an opportunity to reply to the interventions.

In addition to the material filed by the 21 applicants and 61 appearing interveners, the Commission received in excess of 1800 written interventions. Interveners covered a very wide range of interests, including representatives from federal and provincial governments and their departments, as well as cultural agencies, Telefilm Canada and the mayors of many cities and towns. The Standing Committee on Communications and Culture expressed its views in writing, and many Members of Parliament and provincial legislatures also wrote. The broadcasting, cable and advertising industries filed interventions as did representatives of live action and animated film producers, actors, music producers and distributors, and theatrical groups. Many members of the public wrote individually to present their opinions to the Commission, and many others were represented by public interest or community groups. These groups included educational institutions and educators, sports clubs, ethnic cultural organizations, and representatives of the special interests of women, children, natives, francophones in quebec and in other provinces, the hearing-impaired, and the disabled. The Commission also heard the views of several labour unions, trade organizations and a number of religious denominations.

The Commission extends its appreciation to all those who contributed to the hearing and submitted their comments orally and/or in writing. The extensive and well-informed public participation in this pivotal hearing allowed a comprehensive discussion of all the issues raised by the applications.

The Commission also wished to acknowledge the co-operative efforts of the CBC and cable companies in televising the proceedings across the country. The Commission considers that this exposure has contributed to a more informed discussion of issues important to the Canadian broadcasting system by a greater number of Canadians than has ever before been possible.

II. SPECIALTY SERVICES ON BASIC: DISCUSSION OF POLICY ISSUES

a) Introduction

The CRTC's first call for new Canadian specialty programming services in 1983 (Public Notice CRTC 1983-93 dated 4 May 1983) specified that these new satellite-to-cable narrow-cast services would be distributed on a discretionary, user-pay basis at the option of the subscriber and informed prospective applicants that, although some degree of foreign programming would be allowed, the Commission would expect the new programming services to:

a) contribute to the realization of the objectives set out in the Broadcasting Act and strengthen the Canadian broadcasting system;

b) increase the diversity of programming available to Canadians; and

c) make available high quality Canadian programming from new programming sources by providing new opportunities and revenue sources for Canadian producers currently unable to gain access to the broadcasting system.

In response to the 1983 call, the Commission received 41 applications, many of which were predicated on basic cable distribution to all subscribers on a non-discretionary basis. In confirming its determination to hear, at that time, only those applications which proposed distribution on a discretionary basis, the Commission noted:

The applications proposing basic cable distribution of specialty services also raise broad policy issues that have far reaching implications for the future development of the Canadian broadcasting system. As a result, the Commission does not contemplate authorizing basic cable service distribution of any narrowcast specialty services in the forseeable future and, in any event, not before there has been public discussion of the fundamental policy issues that such a course of action would raise.

Accordingly, TVOntario's Galaxie application, which was predicated on non-discretionary distribution, was not considered at the 24 January 1984 specialty hearing. TVOntario nevertheless appeared at the hearing and, in a general representation, informed the Commission of the considerable difficulties it had encountered in its efforts to market its Galaxie children's service to cable television licensees across Canada. Based on the severe funding and distribution problems it had experienced, it urged the Commission to reconsider its policies with respect to the cable distribution of Canadian youth specialty services, submitting

...that the distribution, on a subscriber discretionary basis, of a specialty service of high standard designed specifically for Canadian youth, will not generate revenues sufficient to allow the service to survive...

In 1984, the Commission held a series of public meetings with respect to the difficulties encountered in the development of applications for a national youth service. Based on the information and comments received at those meetings and at various public hearings and public forums during the period 1984-1986, including consultation with industry representatives and other interested parties with respect to the development and viability of other potentially valuable narrowcast services, the Commission in its August 1986 call for applications announced that it would consider the advisability of modifying its policy prohibiting basic distribution of specialty services.

In that call, the Commission made specific reference to the number of applications for specialty services it had already received which proposed basic service distribution as an integral part of their overall business plans. The Commission invited those previous applicants, as well as others, to submit new or revised applications for services in a variety of formats which would be complementary to existing services and which would be distributed by cable television systems either on the basic service or on a discretionary tier.

Subsequently, in Public Notice CRTC 1987-121, the Commission announced the 20 July 1987 hearing and invited applicants and interveners to address important issues associated with the introduction of specialty services on basic cable service. Of the 21 applicants at that hearing, twenty contemplated distribution on basic service. The other applicant applied for a discretionary pay television service.

b) Access

Access to the broadcasting system for Canadian specialty services has been an ongoing concern for the Commission since their introduction in 1983. In Public Notice CRTC 1983-93, the Commission noted that the discretionary nature of specialty programming services "makes them particularly vulnerable to unsatisfactory or prohibitive exhibition arrangements". Subsequently, on a number of occasions, the Commission has expressed its concern with respect to the pricing, packaging and marketing of Canadian pay television and other discretionary services and advised that it would monitor the situation closely to insure that their development was not hindered by discriminatory carriage arrangements or unrealistic retail rate structures.

Problems of access for certain Canadian specialty services to Canadian cable systems, however, continued to exist. In Public Notice CRTC 1985-174 dated 2 August 1985, the Commission noted that Telelatino and Chinavision, which commenced service in late November 1984, had "experienced considerable difficulty in arriving at affiliation agreements with cable systems, including systems in those areas with large populations for which the services were designed". In the same public notice, the Commission also expressed concern about difficulties the newly licensed The Life Channel was experiencing in arriving at signed affiliation agreements with cable operators and again emphasized its expectation that cable licensees should: take all necessary measures to ensure that pay television services are marketed vigorously and effectively and that all Canadian discretionary services are given the maximum opportunity to succeed.

The 20 July 1987 hearing provided the opportunity to examine the access issue in detail with applicants and interveners, including representatives of the cable industry. Discussion generally centred on the ability of specialty services to obtain cable carriage commitments, and on the subjects of pricing, positioning and marketing by cable licensees.

In order to determine whether new specialty services would have difficulties obtaining access to cable systems, the Commission announced in its 1986 call that applicants intending to rely in whole or in part on subscriber revenues would be expected to provide evidence of commitments for carriage on cable systems, and in the event that such commitments were not available, to indicate the reasons.

Four of the applicants at the hearing - Telelatino Network Inc., MTV Broadcasting System Incorporated (MTN), Allarcom Ltd. and Le Réseau des sports (RDS) - informed the Commission that cable operators had been unwilling to provide them with the carriage commitments necessary to make their programming available at minimal or no cost to subscribers. Telelatino emphasized that these difficulties have been on-going since it was first licensed as a discretionary service, noting that only 11 cable licensees were currently distributing its service. MTN indicated that smaller cable operators in many rural and underserved communities, particularly in western Canada, were reluctant to carry its proposed national ethnic service. Allarcom stated that it had been unable to receive carriage commitments from any cable operator. Similarly, RDS stated that it had failed in its attempts to negotiate carriage arrangements with cable operators in Quebec. Primarily because they could not otherwise be assured of cable access, these four applicants applied to be licensed for mandatory distribution, whereby the Commission would require all cable operators to distribute their services if licensed.

A number of the other specialty service applicants at the hearing also indicated that cable operators had been unwilling to offer them firm commitments for the carriage of their services. However, on the basis of their preliminary negotiations with various cable operators, and because of a demonstrated demand for their programming, many of these applicants expressed confidence that they would be able to conclude satisfactory carriage arrangements with enough cable systems to ensure the viability of their services. When questioned about the potential for these specialty systems, representatives of the cable industry submitted that it was in their best interest to make more services available which are of interest to their subscribers. For these reasons, many of these applicants were willing to leave the option to carry their services to individual cable operators.

However, even those applicants who were confident that cable systems would provide access for their services were not all satisfied that such access would necessarily be provided on a fair and equitable basis unless the Commission addressed in particular the rates to be paid by cable licensees to the specialty service providers and the channel positioning of specialty services.

It was forcefully argued by certain participants at the hearing that access to cable systems for new specialty services would mean nothing if the wholesale rates for these services were not regulated: it would not matter how many cable licensees were willing to distribute a service, they argued, if those cable licensees were not willing to provide the service the necessary fee revenue to meet their programming commitments and remain financially viable.

Certain participants also argued that fair and equitable access could not be assured if cable licensees were free to position specialty services on any channel they wished. Channel positioning, it was argued, could have a direct effect on viability. MuchMusic referred to studies which have shown that the lower the channel position of a service, the better the viewership. The Canadian Cable Television Association (CCTA) also informed the Commission that channel converters vary as to their capacity to receive services which are positioned at the higher end of the channel spectrum. For both these reasons, channel positioning has the potential of affecting significantly the size of the audience for new specialty services distributed on basic service, thereby affecting the amount of advertiser revenue available for those services.

These access-related issues took on particular significance in the context of discussions at the hearing concerning certain applications in which the ownership structure involved the vertical integration of the distribution and exhibition functions.

At the hearing, the Commission heard four applications in which cable licensees held significant ownership interests, either alone or en bloc, as majority shareholders: YTV Canada, Inc. (Rogers Communications Inc., CUC Limited and Cablecasting Limited), Multilingual Television Network (MTV Broadcasting System Incorporated, which is indirectly and ultimately controlled by Mr. Ted Rogers through Rogers Communications Inc. and Rogers Broadcasting Ltd.), Télé des jeunes (Vidéotron Ltée) and Cable Public Affairs Channel (a consortium of cable licensees).

Central to the Commission's questioning and to the presentations by participants on the vertical integration issue, was the matter of fairness. Interveners and other applicants generally wanted assurances that cable systems involved in the ownership of specialty services would treat other licensed specialty and pay television services fairly with respect to access, pricing, positioning, marketing support and related issues. There was concern that conflicts of interest would inevitably arise as cable licensees were faced with a multiplicity of issues relating to their own and other specialty services.

The greatest fear of other applicants and certain interveners, including Cathay, concerning vertical integration was that cable owners would refuse to distribute any but the services in which they held ownership interests. This refusal to permit access could have a devastating effect on other licensed services, especially if the particular cable owner happened to control a number of cable systems serving large markets.

Another concern was that, should wholesale rates be negotiable, cable owners could discriminate in favour of the rates paid to their own service to the detriment of other services whose viability and ability to provide quality programming is dependent on achieving a projected level of subscriber revenue.

As mentioned above, the matter of channel positioning was also raised during discussions on vertical integration. Cable owners, it was argued, could favour their own service by positioning it on a preferred channel, usually on basic or mid-band, while placing other specialty services much higher up on the cable channel spectrum. In this respect, MuchMusic noted that a number of cable operators have already moved certain optional programming services previously on the mid-band, such as the promotional channel, and replaced them with non-programming home shopping services in which the cable operators have ownership interests. Some cable operators have similarly moved the House of Commons service from the mid-band to accomodate a non-programming home shopping service.

In answer to Commission questions and in response to interventions, the applicants who were also affiliated with cable television licensees, as well as representatives of the cable industry, submitted that the benefits for the Canadian broadcasting system of cable ownership of specialty services far outweighed any potential disadvantages. These applicants argued that the services they were proposing would not otherwise be made available to Canadians without the initiative, expertise and financial backing of members of the cable industry. They also argued that they had the financial resources and could guarantee the necessary carriage commitments to ensure their own services would remain viable. It would be preferable, they said, that they be permitted to re-invest the profits they make as cable operators into the Canadian broadcasting system, rather than be forced to invest elsewhere. In a country the size of Canada with its relatively small population, they submitted, some vertical integration is both necessary and inevitable. In any event, they argued, the nature of their services was such that they would not be competitive with other proposed services, thereby lessening the likelihood that conflicts of interest would arise.

In terms of the potential for other than their own specialty services to be distributed on their cable systems, the presidents of Rogers Cablesystems Inc. and Vidéotron Ltée, Canada's two largest cable companies, indicated the degree to which they were committed to providing access to new services. Mr. André Chagnon, president of Vidéotron Ltée, stated [TRANSLATION]:

 If the Commission instead approved services other than the five we supported - not the services themselves but other licensees - we would still carry these services. The only provision would be the subscribers' ability to pay. If the total price became too high at some point, a decision would perhaps have to be made. But to answer your question regarding the five services we supported, if the applications approved were other than those we supported directly, Vidéotron would carry these other services.

For his part, Mr. Ted Rogers, president of Rogers Cablesystems Inc., stated:

 ...where the Commission licenses discretionary services on an optional choice basis to cable companies, discretionary or basic, Rogers will continue to distribute them on a discretionary basis and will give access to them all.

 In cases of services licensed only for distribution on the basic service, based exclusively on advertising revenue or publicly funded, with no charge to cable or its subscribers, we will carry all that are made available to us. We guarantee access to such CRTC licenced services.

 Mr. Chairman, this leaves the most difficult category: Canadian programming services licensed on basic only, which are funded by charged to cable and cable subscribers.

 Our basic thought is to carry all of them for two reasons. First, as a broadcaster, our thrust is to promote Canadian programming and to contribute to the system. Access to Canadian homes is vital for this to be accomplished.

 Second, as a cable licensee, I am sensitive to a special mandate and extra responsibility to rogers to do more than most, to go the extra mile, because of our position as the largest cable company in Canada.

 Now, I would stop short of committing to carry every licenced service, regardless of its programming, and regardless of its cost. But, I would say that you can count on us to be the leader in the industry in giving support, as well as access, to this category of CRTC licenced programming service.

When pressed by the Commission to address what safeguards they contemplated to ensure fairness with respect to access, rate negotiations, positioning, marketing support and related issues, the applicants who were affiliated with cable television licensees offered to introduce new or expand the mandate of existing fairness committees. While the proposed committees each differed in structure, they were all designed to respond to the issue of fairness. Not all participants at the hearing, however, were satisfied that the committees as proposed adequately addressed their concerns, particularly with respect to the matter of rate negotiations.

Commission Remarks

Since they provide in fact the primary vehicle for the exhibition of television programming in Canada, cable licensees have a responsibility to ensure that Canadian services are provided fair and equitable access to their cable systems. This responsibility is as significant in respect of cable television's ability to contribute to meeting the objectives of the Broadcasting Act as the Canadian content requirements are in respect of radio and television licensees.

As part of its decision-making process with respect to each application in which the applicants were affiliated with cable television licensees, the Commission considered whether the benefits flowing to the Canadian broadcasting system from the application, as a whole, outweighed the potential disadvantages of vertical integration. The individual licensing decisions, where applicable, and the Commission's regulatory framework include safeguards designed to address these potential disadvantages, especially in relation to the questions of fair and equitable access, pricing and positioning.

Furthermore, with respect to channel positioning, the Commission reaffirms that spectrum priority must be given to the distribution of programming services over non-programming services.

c) Distribution of Specialty Services as Part of the Basic Service

(i) Mandatory to Basic

The Commission first addressed the issue of mandatory or universal distribution in the pay television decision in 1982 (Decision CRTC 82-240). In that decision, the Commission recognized that, notwithstanding its ability to inject substantial revenues into the development of quality Canadian programs, such a universal service could not be introduced until a number of basic problems were resolved, including how to ensure that those providing such a service would be accountable for the nature, quality and funding of their programming. The Commission announced its intention to canvas these issues at a future hearing.

Subsequently, in Public Notice CRTC 1983-245 dated 26 October 1983, which, among other things, addressed universal pay television, the Commission stated that a significant number of briefs and letters opposed the universal concept for pay television "generally on the grounds that accountability is incompatible with the mandatory nature of a universal service and that there is a marked absence of consumer demand for such a service". While again noting the potential of a universal service to inject substantial revenues into quality Canadian programming, however, the Commission was still not satisfied that all of the important issues raised by a universal service had been satisfactorily resolved.

Of the twenty applicants at the 20 July hearing that contemplated distribution on basic service, five sought mandatory distribution - four of them primarily to secure guaranteed access to a sufficient number of cable systems to be financially viable.

One of those four applicants, Le Réseau des sports (RDS), submitted that, in the unique circumstances of the Quebec market, where a few large cable operators serve a significant percentage of subscribers, refusal by even one of these large operators to distribute a French-language specialty service on its cable system could seriously threaten the viability of that service. Madame Liette Champagne, Vice-President of Télémédia, outlined the concerns of RDS with respect to access [TRANSLATION]:

In calling this hearing and issuing its Public Notice of 4 May, the Commission insisted on how important it was for the applicants to obtain a commitment from cable operators as to the distribution of their services. We submit to you that in doing so there may be a danger that the Commission has accorded too much importance or given too much power to the cable operators. The gatekeeper role that they presently have with respect to discretionary services now threatens to be extended to the basic service, notably, to the specialty services on the basic service.

 We submit to you that this situation is extremely sensitive inasmuch as the better the quality of the services we wish to offer, the more they will cost and consequently, the less interest the cable operators have in carrying them. RDS is a service that the cable companies have refused to carry. One of the reasons is that RDS does not meet the philosophy of one of these cable operators, namely Vidéotron, in terms of the content of the service.

 Thus, we find ourselves in a situation where, if we were to be awarded a licence, for all practical purposes, there would only be one buyer for the service we are offering. We are alerting you this situation, particularly because this buyer is now in direct competition with us at this hearing.

Another applicant requesting mandatory distribution - TV Canada/Télé Canada - was also concerned about access; however, it justified its request for mandatory distribution primarily on the basis that its service would provide programming of a uniquely Canadian character and would fill specific programming voids.

The CBC submitted that if the Commission were to license any services as mandatory for policy reasons, its news and information application, if licensed, should also be authorized for such distribution. Otherwise, however, the CBC's application was not predicated on mandatory distribution.

In addition, applicants for mandatory distribution submitted that their proposed services were "of national public interest" and should be treated pursuant to subsection 9(4) of the Cable Television Regulations, 1986. Subsection 9(4) reads:

 Where a licensee has satisfied the [television service priority] requirements set out in subsection (1) and the Commission has determined that a programming service is of national public interest and has licensed the service as a mandatory service, the licensee shall distribute the service as part of the basic service, to the extent of available channels.

The Commission questioned each of these applicants on the reasons why its proposed service would be "of national public interest" and each was asked to suggest criteria by which the Commission should be governed in making such a determination.

Apart from the applicants who themselves proposed mandatory distribution for their services, there was little support at the hearing for the mandatory approach. The cable industry as well as the Consumers' Association of Canada (CAC) argued that the imposition on all cable systems of services such as those proposed would ignore the realities of the marketplace and be insensitive to the interests of individual communities and subscribers. Conventional broadcasters expressed the fear that narrowcast services distributed on a mandatory basis might take the place of popular general interest services currently on the basic cable service. One applicant, MuchMusic, submitted that the specialized content and narrowcast nature of specialty services are incompatible with the broad distribution of mandatory services and predicted that, as a result, a mandatory specialty service would inevitably try to transform itself into a general interest service more akin to a conventional broadcasting service.

Furthermore, many participants argued that the applications for mandatory distribution could not be characterized as being "of national public interest" for the purpose of subsection 9(4) of the Regulations.

Certain interveners at the hearing, including the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), the Canadian Broadcasting League and TVOntario, addressed the need for mechanisms to ensure that any service licensed for mandatory distribution, with a resulting guaranteed subscriber base, would continue through the course of its licence term to meet the programming interests of its target audience. In its questioning of those applicants proposing mandatory distribution of their specialty services as part of the basic service, the Commission again stressed the importance of accountability. The Chairman asked of one applicant [TRANSLATION]:

 If we give you mandatory carriage...we are indeed giving you a licence to earn many millions of dollars in the next five years without, to some extent, the possibility for a check on what you are doing during that period of time - even if the audience would not like your service, even if subscribers would be totally disappointed by the kind of service you would put up, you would still receive your revenues. The laws of the market would not apply to you, except to a very limited extent...If you are asking for such a privilege, how can you be accountable during that period of time? How can we be sure that the service you will be of the quality that you are proposing?

When pressed to respond to this or similar questions, the applicants seeking mandatory distribution offered the following or similar suggestions: that the Commission's existing regulatory powers would be sufficient to ensure accountability; that the applicants' internal management structures would respond to any concerns; and that short-term licences or increased reporting obligations would provide adequate monitoring of the situation.

(ii) Optional-to-Basic

As previously noted, the remaining fifteen applicants who applied to have their services distributed on the basic service were prepared to leave the option to distribute their services to individual cable operators, and constructed their business plans accordingly. Thirteen of these applicants proposed that their new specialty services be distributed on an optional-to-basic basis. Under this scenario, individual cable operators could choose whether or not to distribute the services; if they chose to do so, however, they would be required to distribute the services to all of their subscribers as part of their basic service.

Two existing specialty service licensees, The Sports Channel (TSN) and MuchMusic, also applied for optional-to-basic distribution; however, unlike the applicants for new specialty licences, these two applicants, who are currently licensed as discretionary services only, proposed that they be permitted distribution either on an optional-to-basic basis or as discretionary services, as could be agreed upon with the cable operator. For its part, MuchMusic stated its clear preference to remain as a purely discretionary service. However, it applied for optional-to-basic distribution to avoid being isolated on a discretionary tier in the event the Commission were to approve the optional-to-basic distribution of TSN or any other new specialty services.

Opposition to allowing cable operators the choice of whether or not to distribute specialty services on their basic service was voiced by the CAC, which argued that cable subscribers, rather than cable operators, should have the option to subscribe to any pay an additional fee for any specialty service. One applicant requesting mandatory distribution rather than optional (TV Canada/TéléCanada) submitted that the public interest would be better served if the Commission, as the broadcast regulator - and not cable licensees - decided whether a particular service should be available to subscribers or not.

Support for allowing cable operators the option to choose whether or not to distribute these fifteen services on their basic service was based primarily on the flexibility it provided to individual cable operators to make carriage decisions according to their knowledge of their own local markets. The cable industry submitted that the needs of large markets are not necessarily the same as those of small markets and that each cable operator is in the best position to judge subscriber demand for different programming services in its own service area.

Most cable representatives advocated being allowed to offer any or all of the licensed specialty services either as part of their basic service or as discretionary services, as contemplated in the MuchMusic and TSN applications. This added degree of flexibility, they argued, would allow cable operators to continue to place Canadian and non-Canadian specialty services on low-priced discretionary tiers. The English-language pay television licensees, First Choice Canadian Communications Corporation and Allarcom Pay Television Limited, expressed concern, however, that these low-priced discretionary tiers may be marketed so as to be perceived by subscribers as forming part of the basic service, although the rates for discretionary services are not regulated and discretionary services are not required to meet the same programming commitments as Canadian services which are actually part of the basic package.

The cable industry also asked for flexibility on other matters, such as rate negotiations and channel positioning. The extent to which cable operators should be granted flexibility was the subject of lengthy and extensive debate during the hearing.

Commission Remarks

In its licensing approach and in the decisions which are issued today, the Commission has fully considered the views of the applicants and of the cable industry on the overall matter of access to cable systems. In devising a regulatory framework, the Commission also carefully weighed the arguments for and against allowing specialty licensees and cable operators a significant degree of flexibility with respect to the introduction of specialty services on the basic service.

In general, the Commission finds that the applicants seeking mandatory distribution of their services failed to propose adequate mechanisms by which they would, if licensed, ensure that they remained accountable to their audiences and to the Canadian broadcasting system.

The Commission was also not convinced, based on the applications as filed and presented at the hearing that the services contemplating mandatory distribution could be characterized as being "of national public interest" for the purpose of subsection 9(4) of the Regulations.

In light of the foregoing reasons, the Commission has not licensed any of the applications as mandatory services.

d) Impact

Keeping in mind the effect that distribution of some specialty programming services on basic cable service could have on the composition and price of basic service, the Commission asked applicants and interveners to comment on the impact that the services would have on subscribers, on conventional broadcasters, on independent producers and sources of production funding, such as Telefilm Canada's Broadcast Program Development Fund, on existing specialty and pay television network licensees, and on the distribution and linkage rules established for discretionary services.

(i) Impact on Subscribers

In the 1986 call for specialty service applications, the Commission announced that applicants were expected to provide firm evidence which would clearly support and substantiate all aspects of their proposals, particularly the financial viability of, and market demand for their proposed services. In response, a number of applicants submitted supporting surveys and market studies evaluating subscriber demand for specialty services in general and their proposals in particular. Certain surveys submitted by applicants and interveners also evaluated the price elasticity of demand for cable services. In total, the Commission received and considered 23 studies or surveys, including two which the CRTC itself commissioned from Angus Reid Associated Inc. and Nordicity Group Ltd., one submitted by the Government of Ontario and three submitted by the Government of Quebec.

At the hearing, the Commission questioned each applicant on the demand for its service and the willingness of subscribers to pay the rated proposed. These issues were also canvassed during the intervention stages, both in terms of specific applications and with respect to the introduction on the basic service of a broad range of new, high-quality, narrowcast programming services.

A number of the applicants' studies showed that Canadians are interested not only in the type of service they proposed, but also in areas of programming which other applicants were proposing to offer. These studies indicated that clearly one-third of Canadians are interested in receiving additional programming services and that those who are very or somewhat interested in specific services ranged as high as 34% for a children's service, and 49% for an all-news service. In addition, the Angus Reid study showed that 23% of Canadians consider that a religious service would be "a good idea".

Other studies and presentations also addressed subscriber satisfaction with cable service and demonstrated subscriber acceptance of various price increases when offered new programming choices. The Government of Ontario study indicated that 77% of cable subscribers in Ontario are prepared to pay as much as $3.00 more for their cable service if provided access to new programming services, while the Sorécom Inc. study submitted by RDS showed that 82% of francophone subscribers would similarly accept paying an additional $3.00 for their cable service.

(ii) Impact on Conventional Broadcasters and Independent Producers

At the hearing, participants were asked to respond to the Commission's concern that new specialty services not threaten the viability of existing broadcasters or jeopardize their ability to meet their programming commitments. Participants were also asked to address the matter of program siphoning and the possible impact on program rights acquisitions should specialty services be distributed on the basic service.

Those claiming that there would be serious negative impact in these areas were asked to demonstrate the potential damage with empirical data wherever possible.

In their interventions, Canadian conventional broadcasters predicted that permitting the proposed specialty services on basic service would lead to program siphoning, higher program costs resulting from increased competition for limited product, and the loss of already declining advertising revenues due to audience fragmentation.

The Canadian Association of Broadcasters (CAB), the industry group representing most of Canada's private conventional radio and television broadcasters, expressed particular concern about the effect specialty services would have on the national advertising accounts of small market television stations, and about the effect on Top 40 radio stations of the licensing of music video services on the basic service. the CAB also spoke to the principle of a "level playing field", arguing that specialty services distributed on the basic service should not have the privilege of support from both subscriber fees and advertising revenues. At the same time, while acknowledging a positive trend in advertising revenue growth in the first quarter of 1987, television broadcasters submitted that any new competition for advertising revenues would impact negatively on their projected revenues and affect their ability to fulfill their programming commitments. They also expressed fear that certain specialty services, if introduced on the basic cable service, would gradually develop into general interest networks without being required to meet the local programming or Canadian content commitments of conventional stations.

With respect to the impact of new specialty services on independent production and existing sources of production funding, the Canadian Film and Television Association (CFTA), a body representing independent producers, worried that new competition would spread existing funds for program production too thinly unless new sources of revenue could be found. the CFTA was encouraged, however, by the fact that the subscriber fees to be charged by certain of the applicants could provide a "real opportunity for new revenue".

For their part, most applicants responded to the impact issue by pointing out that, since their narrowcast services are designed to appeal only to small segments of the population, they would not cause significant viewer fragmentation nor have a sufficient audience base to compete to any significant extent for existing advertising dollars. Many of the applicants also submitted that, as their services would target audiences that are presently underserved, they would be tapping new sources of advertising revenue. In response to concerns about siphoning and rising program costs, the applicants generally pointed out that their services were designed to complement the programming of existing broadcasters, that they did not intend to compete for the same programs and that, in any event, they would not have the budgets to compete effectively with general interest licensees. In addition, certain of the applicants offered clear commitments not to siphon programs presently shown by conventional broadcasters.

One study submitted by the Government of Quebec indicated that the introduction of a music and sports channel in that province [TRANSLATION] "would not have a significant negative impact on the audience share and advertising revenues of conventional broadcasting services". According to the Nordicity Group Ltd. study, specialty services will have a gradual and modest impact on conventional television advertising revenues, such that "they will slow but not arrest the growth of television advertising revenues". In its intervention, the Government of Ontario commented that, "even in the somewhat turbulent environment of the last few years... with modest increases in the numbers of new services coming along, [broadcasters] have managed to hold their own quite well". Ontario suggested that any negative impact on conventional broadcasters would be minimized "if the CRTC ensures that specialty services that are licensed are truly specialty services".

(iii) Impact On Existing Specialty and Pay Television Licensees and on the Distribution and Linkage Rules

It was argued at the hearing that the migration to the basic cable service of TSN and MuchMusic, which have tended in many anglophone markets to be marketed in a package together with pay television, would have an adverse effect on existing subscriber levels for Canadian English-language pay television services. Representatives of Allarcom Pay Television Limited and First Choice Canadian Communications Corporation, who appeared together at the hearing as applicants for a new discretionary pay television licence, submitted that their existing subscriber base could drop by as much as 40% if each were left isolated as a stand-alone service on a high-priced discretionary tier. Significant subscriber churn could also result, they argued, if the Commission licensed new specialty services for distribution on basic service: since subscribers must subscribe to basic service before they can take pay television service, an increase in the basic rate would amount to a price barrier being imposed that would effectively increase the price of the pay channel. The pay licensees submitted that subscribers would react negatively to any perceived rise in the already higher price associated with the premium pay services.

The Commission has always recognized that the high cost of subscribing to the premium pay television channels - which is due, in part, to their need to acquire expensive program rights and to the cost of decoders - places the Canadian pay television industry in a potentially precarious position.

This is one reason why the Commission, in 1984, established linkage rules for discretionary services. These rules were first set out in Public Notice CRTC 1984-81 dated 2 April 1984, and were subsequently incorporated by reference in the Cable Television Regulation, 1986.

In Public Notice CRTC 1987-121, the Commission noted that the distribution of some specialty services on basic service could require modifications to the existing linkage rules.

Accordingly, the Commission asked that participants at the 20 July hearing address what changes, if any, should be made to the linkage rules to ensure the popularity and perceived value of discretionary services and pay television in particular.

Of the applicants and interveners who commented on the linkage rules, most were of the opinion that changes were needed to allow for the innovative and attractive packaging of discretionary services and to maintain or increase pay television penetration. Some parties suggested expanding the number of services on the Commission's list of eligible non-Canadian satellite services. Others advocated an increase in the number of non-Canadian services (currently two) that may be linked with each Canadian discretionary service. One applicant (TSN) stated that there should be no linkage of non-Canadian discretionary services with Canadian specialty services licensed for basic distribution. Another (CBC) submitted that non-Canadian specialty services should not be distributed on the basic service.

Commission Remarks

In arriving at today's licensing decisions, the Commission was particularly concerned with the ability and willingness of subscribers to pay for additional programming choices. It has therefore devised a regulatory framework that is designed to ensure that the potential rate increases associated with the introduction of new services on the basic service will fall below what studies have indicated subscribers are willing to pay for new, attractive viewing choices. The Commission's decisions reflect subscriber demand for new, high-quality, narrowcast services which will add significantly to the perceived value of cable subscriptions.

While the Commission recognizes that the introduction of specialty services on the basic service could have some impact on the audience share and revenues of conventional broadcasters, it is satisfied that the overall impact would be minimal. According to the Nordicity Group Ltd. study, "even assuming the full range of proposed specialty services derive all of their advertising revenue from television, the full impact of specialty is still less than the impact of a plus or minus 1% real growth in television advertising" (original emphasis). A specific analysis of the impact of each service proposed has been addressed in individual decisions.

With respect to the concerns of pay television licensees, it became apparent at the hearing that, even if no specialty services were permitted basic distribution, the growing movement by cable operators to market specialty services on low-price discretionary tiers, which exclude the pay services, could diminish pay television's subscriber base and thereby affect the ability of pay television services to contribute to Canadian program production. In order to minimize this possible impact on pay television, and after taking into consideration the suggestions of applicants and interveners, the Commission has decided to revise its linkage rules for discretionary services and to include an exclusive linkage provision for pay television services. These revisions are subject of Public Notice CRTC 1987-261 issued today, entitled Distribution and Linkage Requirements.

e) Rate Regulation

The Commission has, in the past, elected not to regulate either the wholesale or retail rates charged for discretionary services such as pay television, specialty and non-programming services. This policy has placed the responsibility on cable licensees to ensure that Canadian discretionary services have ready access to the Canadian marketplace so that each may contribute to fulfilling the objectives set out in the Broadcasting Act. The 20 July hearing provided an opportunity for the Commission and participants to re-examine the Commission's policy on the regulation of specialty services rates should the services be introduced on the basic cable service, since the Commission currently regulates the rates charged by cable licensees for the package of programming services available on the basic service.

Most of the applicants at the hearing who applied to have their service distributed on the basic service proposed to charge cable operators a monthly per subscriber wholesale fee. For each of these applicants, the wholesale fee was intended to offset either all or part of the cost of providing its programming service and was calculated on the basis of subscriber penetration predictions.

Most applicants who proposed to charge cable operators a wholesale fee asked the Commission to authorize their fees so that such fees could be treated pursuant to the pass-through mechanism in subsection 18(3) of the Cable Television Regulations, 1986. Under the terms of subsection 18(3), a cable licensee is permitted to increase its basic monthly fee to recover any new or increased cost 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. This procedure allows for the expeditious addition of services for which a fee authorized by the Commission will be paid by the cable licensee.

Representatives of the cable industry argued against the Commission authorizing wholesale rates for specialty services distributed on the basic service, preferring instead that individual cable operators be allowed the flexibility to negotiate the wholesale rate of each new service according to the unique characteristics of their markets. Most applicants, however, submitted that Commission authorization of their wholesale rates was necessary to ensure fair and equitable access and to ensure that they achieve the revenue projections upon which they based their programming plans and expenditure commitments.

Applicants and cable industry interveners generally agreed that cable operators should be allowed to include in their retail price to subscribers a mark-up to cover additional costs resulting from the distribution of specialty services as part of their basic service. Many applicants considered that allowing cable operators to add a reasonable mark-up to their wholesale fees would act as an incentive for those operators to carry their service. While some cable operators, particularly in the francophone market indicated that the increased penetration of the basic service resulting from the addition of new programming choices would offset the need for any mark-up, others, especially those whose penetration levels have effectively peaked, considered a mark-up necessary to help recover the increased non-capital operating costs associated with the expansion of the basic service. Such costs, for example, could be for administration, billing adjustments or marketing campaigns. Such a mark-up would also reflect the enhanced value of their basic service package.

Certain cable representatives advocated that any mark-up be calculated as a percentage of wholesale rates. Proposed mark-up rates ranged from 15% to 50% of the wholesale rate for each new specialty service distributed on the basic service. It was also argued, on the other hand, that a fixed per channel amount would be preferable, since a percentage approach could simply direct the cable operators' interest to the higher priced services.

Under the current regulatory scheme, a cable operator wishing to increase its basic monthly fee to cover the cost of the distribution of new specialty services on its basic service, above and beyond the wholesale fee, would be required to follow the procedures and meet the requirements of subsection 18(8) of the Cable Television Regulations, 1986. However, cable operators may be reluctant to add to their basic package until they are assured of recovering the resulting additional costs and may regard the uncertainty and processing time associated with subsection 18(8) filings as a disincentive to the early distribution of newly available services. For this reason, a number of participants called upon the Commission to provide guidelines according to which a reasonable mark-up could be approved by the Commission in a streamlined application process.

Those requests which would exceed such guidelines, it was submitted, could be subject to greater and more lengthy scrutiny under subsection 18(8) of the cable television regulations.

Commission Remarks

In today's decisions and regulatory framework, the Commission has responded to the concerns of applicants and interveners with respect to the regulation of wholesale rates for specialty services distributed on the basic service. The Commission shares the opinion that such regulation is necessary to promote the provision of fair and equitable access.

The Commission has proposed regulatory amendments which recognize subscriber concerns about rate increases while taking into consideration the expressed need for a reasonable mark-up to cover additional operating costs arising from the inclusion of new services as part of a cable operator's basic package, and for an expeditious method of implementing such a mark-up.

The Commission maintains its policy, which was not questioned at the hearing, not to regulate either the wholesale or retail rates charged for discretionary services.

III. LICENSING APPROACH AND REGULATORY FRAMEWORK

Following a thorough review of the issues discussed at the 20 July hearing and an examination of the evidence and arguments submitted by each applicant and intervener, the Commission has designed a licensing approach and regulatory framework for specialty programming services which takes into account the distinct characteristics, programming needs and marketing realities of the francophone and anglophone markets.

The Commission's licensing approach and regulatory framework reflect its desire that Canadians in both francophone and anglophone markets be given the chance to view more and better programs tailored to appeal to their different tastes and interests, and to ensure that those licensed to provide these programs are given an optimum opportunity to succeed and to contribute to fulfilling the objectives of the Broadcasting Act.

To succeed, specialty services will require access to cable systems on fair and equitable terms, and across to a sufficient subscriber base to attract the necessary revenues to meet and exceed programming commitments.

The Commission recognizes that the narrowcast nature of specialty programming services and the costs associated with providing attractive and high quality services in a limited market require that innovative and alternative methods of generating revenues be adopted if the services are to be available at a modest cost to subscribers and if they are to have only a negligible impact on the advertising revenues of existing broadcasters.

The Commission also recognizes that the size and characteristics of the francophone and anglophone markets differ and that a licensing approach and regulatory framework which addresses these differences is necessary if the distinct programming needs of viewers in each market are to be met. In this respect, the Commission has been particularly concerned with the need to expand viewing choices in francophone markets by licensing a carefully balanced selection of new French-language specialty services.

Canadians, especially those in anglophone markets, have access to various sources of general interest television programming. Despite this fact, there is still a demand for more and better television programming. Canadians want to be better informed. They want more programming of a higher quality for their children. They want more services that speak to them in their own language and reflect their own values, morals, interests, concerns, hopes and aspirations. They wish to see more of their country on television and more of Canada's artists, musicians, athletes and news-makers. Some Canadians want more sports, others want more news, or more music videos or more religious programs.

Conventional broadcasters have sought to keep pace with these increasingly specialized demands from their viewers, and in many cases have succeeded. But the role which conventional broadcasters play in responding to the varied needs of their local markets and the technical limitations under which they operate preclude them from responding to demands for dedicated services on a national scale.

It is clear that Canadians possess the initiative, the entrepreneurial spirit and the creative drive to develop these new services. Unless these energies are tapped now, however, the increasing accessibility of foreign specialty services will mean that the opportunity for Canadians to receive these new services from Canadian sources will be lost.

In arriving at its decisions and in designing a regulatory framework, the Commission has taken into consideration the resiliency, interests and existing commitments of conventional broadcasters. In this regard, the fact that these new services will derive only a portion of their revenues from advertising will minimize their impact on the revenues of existing services. The Commission has also taken into account the concerns expressed by independent producers with respect to availability of funding for Canadian program production.

Given the strong demands of the Canadian public for more programming choices, and in light of recent technological advancements, the Commission is convinced that this is an opportune time to introduce new television viewing alternatives targeted to specific audiences, that will foster and develop Canadian creative and entrepreneural resources and hence meet the objectives of the Broadcasting Act.

A. Licensing Approach

As a result of today's decisions, Canadians who subscribe to cable will have a degree of programming choice never before available to them. The broad range of newly licensed specialty services should offer high-quality, attractive, entertaining and informative programming of a specialized nature designed to appeal to different audiences and meet the distinct needs and interests of Canadians in both francophone and anglophone markets. These new specialty services will complement and diversify existing broadcasting services and will provide new outlets for Canadian creative expression, new stages for Canadian talent and new exhibition windows and sources of funding for Canadian program production.

The Commission has licensed eight new specialty services in a variety of formats: four in the French language, three in the English language and one offering its service in both official languages. The Commission has also licensed a new, English-language discretionary, family-oriented pay television service and has approved applications by the two existing English-language specialty services, TSN and MuchMusic, for amendments to their licences permitting them to be distributed also on the basic cable service. Except for TV5, the international French-language service, and for MuchMusic and TSN, all other new services are expected to commence operation on 1 September 1988, which is the date their licences will be issued.

The four new French-language specialty services will offer a carefully chosen, balanced package of children's, sports, music and international programming. The new English-language specialty services will also offer an attractive programming package made up of a children's service, a news and information service and a service providing interfaith religious programming. Finally, the newly-licensed weather channel will offer a full service in both of Canada's official languages.

The introduction of this balanced menu of attractive specialty services on basic cable service will enhance the value of the basic service; at the same time, the addition of a new English-language pay television service for family viewing will provide a desirable supplement to the existing pay television fare and heighten the appeal of discretionary packages.

Both French-speaking and English-speaking cable subscribers will now have the opportunity to view, in their own language, a specialty service dedicated exclusively to programming directed at children. Today's licensing of Canal Famille and YTV is the culmination of many years of efforts to develop quality Canadian services which will attract young cable audiences while providing them with a reflection of their own society and culture. Canadian youth will now have access to attractive services designed to challenge their imagination while reflecting their distinct linguistic and cultural identities. They will also have access to a new pay television service, the Family Channel, which will provide them with popular, high quality entertainment programs from The Disney Channel, as well as selected Canadian programs designed for viewing by the whole family.

The Commission expects that these long-awaited services will serve to enhance children's viewing experiences and supplement the television fare for young audiences currently offered by conventional broadcasters. The Commission will follow the development of these new services with interest and will wish to ensure that the programs offered are of high standard to satisfy the needs of a discriminating young audience.

The English-language specialty services, TSN and MuchMusic, have been available as discretionary services since 1984. The Commission's approval of the TSN application for distribution on the basic cable service will mean that more Canadian sports fans will have access to this popular and diverse sports service.

This added exposure should also benefit Canadian athletes, promoters and producers, and consequently enhance the overall quality of sports broadcast coverage in Canada. Moreover, it is expected that the approval of a similar application by MuchMusic, which responds to the strong desires of a growing audience for more music video programming, will permit this already highly successful service to continue to expand and innovate, and contribute to the continued growth of the Canadian music video production industry. Increased exposure will also benefit Canadian artists and musicians and will stimulate new developments in the Canadian recording and production industries.

Cable subscribers will also now have available to them complete French-language specialty services dedicated to music and sports. The licensing today of Le Réseau des sports (RDS) and MusiquePlus - whose schedules will include, particularly, the coverage of Quebec-based sporting events and the music of Quebecois artists - will mean that subscribers in both francophone and anglophone markets will now have full sports and music specialty services tailored to meet their distinct needs and tastes. RDS will provide francophone sports fans with a distinctive service focusing on the coverage of diverse North American, Quebec and European sports events, while MusiquePlus, in addition to offering French-language popular video music programs, will stimulate new developments in the Quebec video music production industry.

For some years now, the Commission, in an effort to make available more French-language services, has made it possible for subscribers in Quebec to have access on their basic cable service to foreign broadcasting services (TVFQ-99/La Sette) which offer no Canadian content in their programming fare. With today's licensing of TV5, subscribers will have the opportunity to view for the first time an international service which will distribute an attractive blend of French-language programming from a selection of other countries as well as programming of Canadian origination. Not only will TV5 provide Canadians with access on their basic cable service to programming from French-speaking countries overseas, it is also part of an intercontinental exchange that will ensure the distribution in those other countries of the best of French-language programs produced here in Canada.

In licensing the CBC English-language news and information service, the Commission recognizes that Canadians continue to demonstrate a keen interest in news and public affairs programs originating from Canadian sources, and has given particular consideration to the high quality of the CBC's existing English-language news and information services and to its high journalistic standards. The Commission recognizes, in particular, that a Canadian perspective on the news is important to national self-awareness and cultural growth, and considers it imperative that Canadians have a choice of viewing news and information from truly Canadian editorial and professional sources. It is the Commission opinion that, based on the Corporation's extensive regional news-gathering resources across the country, the CBC is best equipped, at this time, to provide Canadians with comprehensive coverage of news and public affairs, thus creating a better link and understanding among Canadians from one part of the country to the other.

The Commission has today also licensed a service dedicated to interfaith religious programming. The decision to licence the Canadian Interfaith Network (VISION TV) to provide a unique, predominantly Canadian interfaith religious service is the end result of hearings and consultations as well as sustained dedication and efforts by the principals involved dating back to 1982. While the service will initially operate for only three hours daily, it is expected to develop gradually into a comprehensive, fully representative and broadly-based service which will reflect all of the varied religious practices and beliefs of Canadians on a national scale.

Recognizing the interest which Canadians have in the weather and the importance which they attach to having access to complete, accurate, up-to-the-minute and immediately available weather information, the Commission has today also licensed MeteoMedia to provide an all-weather specialty service. This service is not only the first in this country to be dedicated solely to providing comprehensive and up-to-the-minute weather information, it is also the first to offer its complete service in both English and French.

Before the Commission was prepared to approve any of the applications presented to it as the 20 July hearing it had to be satisfied that the applicant was financially sound, that its programming proposals were fully developed and that related programming and financial commitments were firm and realistic. The Commission also had to be assured that the applicant would be fully accountable for its service, that its financial projections were reasonable, and that control of the undertaking was clear. in particular, the Commission had to be convinced that subscribers would be willing to pay for the service proposed. For the applicants who applied to have their service distributed on the basic cable service, the Commission had to be persuaded that such distribution was both desirable and justified. In this respect, the Commission was particularly concerned with the extent to which each of these applicants was committed to meeting or exceeding the Canadian content obligations of conventional Canadian television broadcasters. In approving the eleven applications referred to above, the Commission was also concerned with the potential impact each package of services would have on the Canadian broadcasting system.

The Commission is satisfied that the total potential cost to subscribers of either the French- or English-language package falls below what studies have indicated subscribers are willing to pay to have access to new and attractive services. In this regard, the Commission notes that the potential cable rate increases associated with the addition of these new services on the basic service will also generally fall below increases which were allowed over the past few years without a corresponding rise in the number of new programming services offered to subscribers.

The Commission is also satisfied that, because of the narrowcast nature of their programming, these specialty services will not have an undue adverse impact on the revenues and programming costs of conventional broadcasters and will not cause a significant degree of audience fragmentation. In fact, in the Commission's opinion, the impact of the specialty services licensed today in terms of audience fragmentation and advertising revenue diversion will amount to the equivalent of adding one new service in the anglophone market and one new service in the francophone market.

In order to ensure that the programming of each specialty service distributed on the basic service will remain narrowcast in nature, the Commission has included in every decision the applicant's description of the proposed service, and imposed a condition of licence designed to define and limit the nature of each new programming service.

The Commission will issue shortly a circular letter to the new and existing specialty licensees which will provide clarification and set out procedural guidelines regarding the maintenance and filing of program logs and records for the purpose of section 10 of the Television Broadcasting Regulations, 1987.

The Commission is also satisfied that, rather than impact adversely on existing sources of funding for independent productions, the new services in most instances will create new sources of funding and will provide new exhibition windows. In this regard, the Commission notes that the Canadian program expenditure commitments of each licensee which have been translated into conditions of licence are based on funding to be derived from internal sources and are not predicated on the availability of funding from Telefilm Canada's Broadcast Program Development Fund.

The Commission was greatly assisted in its decision-making process by the approximately 1900 interventions received in connection with this hearing. In addition to voicing their views regarding particular applications, many interveners also raised a number of important public interest issues which they wished all successful applicants to respond to in their programming. These programming-related concerns included violence, sex-role stereotyping, representation of ethnic minorities, children's advertising and closed-captioning for the hearing impaired. The Commission has addressed these matters in its licensing decisions and, where applicable, has attached appropriate conditions of licence.

During the hearing and in the course of the Commission's deliberations, it became apparent that, despite the fact that they were complete for the purpose of being placed on the agenda and further explored at the 20 July hearing, certain of the applications contained such serious weaknesses that they could not fulfill the Commission's fundamental objectives for specialty services. These weaknesses are outlined in Decision CRTC 87-906. They existed in such important areas as programming, demand for the particular service proposed, financial and market viability, ownership structure and accountability mechanisms. In certain cases, the Commission also found a lack of evidence or firm commitments to support the applicant's conceptual proposals.

Because they contained some or a number of these weaknesses, the applications which are listed in Decision CRTC 87-906 are denied.

The Commission wishes to point out, however, that the denials of these applications are based solely on the merits of the individual applications and do not necessarily indicate that the Commission does not recognize the value or desirability of some of the concepts proposed. Indeed, the Commission is of the opinion that certain of the proposed services, notably those that would offer alternative Canadian programming that is clearly complementary in nature to existing programming services, could contribute significantly to the Canadian broadcasting system, if it were not for the particular weaknesses that led to the denial of the present applications.

Accordingly, as stated by the Commission in Public Notice CRTC 1985-139, entitled A Broadcasting Policy Reflecting Canada's Linguistic and Cultural Diversity, the Commission considers the development of broadcasting services that reflect the cultural and linguistic diversity of Canada to be an essential part of the Canadian social structure. The Commission therefore reaffirms its support for the concept of a viable and responsive national ethnic television network service.

The Commission also renews its strong support for the continuing development and expansion of television services which are designed to meet the distinct cultural and linguistic programming needs of Canada's native peoples.

Accordingly, the Commission does not foreclose the possibility of accepting applications for complementary services in the future, provided that the present weaknesses are adequately addressed.

B. Regulatory Framework

The Commission has devised a regulatory framework for the distribution of specialty services as part of the basic service which is designed to stimulate the development of these services so that, as viable components of the Canadian broadcasting system, they may contribute to fulfilling the objectives of the Broadcasting Act. In order to ensure that as many Canadians as possible have access to these services, the Commission has adopted a regulatory framework which takes into account the particular circumstances of the cable industry in francophone and anglophone markets.

a) Francophone Market

Given the limited size of the available market for French-language specialty services, and the fact that, in Quebec, a few large cable systems serve most of the French-speaking population, the issue of access is especially significant for French-language services. Unless such specialty services are assured of access to these large systems, their viability would be jeopardized. For this reason, the Commission has designed specific rules, set out in Public Notice CRTC 1987-261 which will apply to class 1 and 2 cable licensees distributing specialty services in francophone markets, as defined in the public notice.

In a francophone market, distribution of the French-language specialty services licensed in today's decisions, including MeteoMedia/Météo Instant, will be on an optional-to-basic basis. This means that a cable licensee operating in a francophone market will have the option whether or not to distribute the new French-language services; however, the services which the cable licensee elects to distribute must be distributed as part of the licensee's basic service. Moreover, for a limited period of 3 years, ending 31 August 1991, each licensee of a class 1 system operating in a francophone market choosing to distribute any one of the French-language specialty services licensed today must distribute the complete package of French-language services. This "take one, take all" rule is designed to help the French-language services gain an initial foothold in francophone markets and develop as wide an audience following as possible. At the end of the three-year period, these cable licensees will have the option of selecting any individual French-language specialty service or any package of these services for distribution as part of their basic service.

On the basis that class 1 systems serve a significant proportion of the cable subscribers in francophone markets, and for reasons of channel capacity, the "take one, take all" rule will only apply to class 1 cable systems. If, because of channel capacity or for other compelling reasons, a class 1 cable licensee considers that it cannot comply with the "take one, take all" rule, it may apply to the Commission to be relieved of this requirement pursuant to a condition of its licence.

The distribution of newly-licensed English-language specialty services in a francophone market will also be at the option of the cable licensee. A cable licensee may distribute these services as part of its basic service or a discretionary services. However, a cable licensee proposing to distribute a newly-licensed English-language specialty service as a discretionary service may only do so with the consent of the particular specialty licensee. The English-language services are not subject to the "take one, take all" rule.

A cable licensee serving a francophone market will continue to have the option to elect whether or not to distribute the existing English-language specialty services, TSN and MuchMusic. However, in light of today's licensing of the French-language sports and music specialty services, RDS and MusiquePlus, the cable licensee may only distribute TSN and MuchMusic as discretionary services.

b) Anglophone Market

The Commission recognizes that the size of the available market for English-language specialty services does not give rise to the same concerns as does the size of the market for French-language specialty services in Canada, and that the English-speaking population is served by a number of different cable systems, both large and small.

Moreover, the applicants for licences to provide English-language specialty services whose applications have been approved in today's licensing decisions indicated at the hearing that, following initial discussions with cable licensees, they were confident of obtaining access to a sufficient number of systems to ensure their viability. The Commission intends to monitor closely the introduction and on-going operation of these services to ensure that fair and equitable access arrangements are provided and maintained. In the meantime, the Commission has designed specific rules, set out in Public Notice CRTC 1987-261, which will apply to class 1 and 2 cable licensees distributing specialty services in anglophone markets.

In an anglophone market, distribution of newly-licensed English-language specialty services, including MeteoMedia/Weather Now will be on an optional-to-basic basis. This means that a cable licensee operating in an anglophone market will have the option whether or not to distribute the new English-language specialty services; however, the services which the cable licensee elects to distribute must be distributed as part of the licensee's basic service.

A cable licensee serving an anglophone market will continue to have the option to distribute TSN and/or MuchMusic, but may now distribute these services either as part of its basic service or as discretionary services. However, a licensee wishing to distribute either of these services as a discretionary service must obtain the prior consent of the particular specialty licensee.

The distribution of French-language specialty services in an anglophone market will also be at the option of the cable licensee. A cable licensee may distribute these services as part of its basic service or as discretionary services. However, a cable licensee proposing to distribute a French-language specialty service as a discretionary service may only do so with the consent of the particular specialty licensee.

c) Complaints re Access for Existing Discretionary Specialty Services

During the course of the specialty hearing, the Commission was made aware of the significant problems two existing Canadian specialty licensees were continuing to experience in gaining access to cable systems. The two licensees, Telelatino and Chinavision, both appeared at the hearing the former as an applicant, the latter as an intervener. Each licensee offered evidence, which was supported by certain other participants at the hearing, of the difficulties it was having in obtaining access to cable systems in those areas with large populations for which its service was designed. Chinavision made particular reference to the difficulties it was having with CF Cable and Vidéotron Ltée in Montreal. Both specialty licensees asked the Commission to intervene on their behalf.

The Commission's concerns with respect to the matter of access for specialty services have been highlighted throughout this document. As noted earlier, the Commission previously raised its particular concern respecting the difficulties Telelatino and Chinavision have been encountering in arriving at affiliation agreements with cable systems in Public Notice CRTC 1985-174.

With this in mind, the Commission calls upon Telelatino and Chinavision each to file with the Commission, within one month, a report listing the cable licensees with which each has been experiencing difficulties negotiating access arrangements and describing the particular difficulties in each case, and to copy the report to the cable licensees named therein. Furthermore, the Commission requires each of the cable licensees named in the reports to file with the Commission, within two months of receipt of the report from Telelatino and/or Chinavision, a response outlining the steps it has taken to address the access requests of Telelatino and/or Chinavision, and the results of such steps.

The Commission reiterates that the issue of cable access for Canadian specialty services is of fundamental importance for the development of the Canadian broadcasting system, and expects cable licensees to take a leadership role in ensuring that Canadians have an oppportunity to view these services. Should the Commission not be satisfied with the outcome of the access negotiations which will follow today's licensing decisions, including negotiations involving Telelatino and Chinavision, it may be force to address the matter by way of regulation.

d) Rate Regulation

The Commission maintains its policy of not regulating the wholesale or retail rates for specialty and pay television services offered as discretionary services.

With respect to wholesale rates for specialty services distributed as part of the basic cable service, the Commission has been convinced that regulation is necessary to promote the provision of fair and equitable access arrangements. Each of the applicants at the hearing based its subscriber revenue projections on the expectation that it would receive the wholesale rate specified in its application. The regulation of wholesale rates will help the specialty licensees to achieve their subscriber revenues, thus providing them both greater stability and some assurance that they will obtain the necessary revenues to meet the higher Canadian programming commitments associated with distribution on basic service. Accordingly, the Commission has in each decision authorized a specified wholesale rate either for each year of the licence term or, where applicable, according to the subscriber level achieved.

Cable licensees distributing the licensed specialty services on their basic cable service may treat the wholesale rate associated with each service as a pass-through charge pursuant to subsection 18(3) of the Cable Television Regulations, 1986. However, cable licensees in Quebec who, as a result of today's decisions, delete from their basic service existing special programming services that are of the same program type or theme as newly licensed specialty services, such as sports and children's services and TVFQ-99, will be expected to reduce their basic rates accordingly.

With respect to an amount to cover additional operating costs associated with the introduction of the new services on basic, the Commission intends to allow cable licensees to include a mark-up in their basic monthly fees amounting to one cent for every two Canadian specialty services distributed as part of the basic service. Furthermore, licensees in anglophone markets who distribute the complete package of 6 English-language specialty services on the basic service, and licensees in francophone markets who similarly distribute the complete package of 5 French-language services will be permitted a mark-up totalling five cents. In no case, however, may the total mark-up for all specialty services distributed on the basic service exceed five cents. This mark-up, which has been set to take into account subscribers' concerns about rate increases, should provide some incentive to cable operators to distribute the new specialty services and help cover additional costs for administration.

As noted in Public Notice CRTC 1987-262, issued today, the Commission proposes to amend section 18 of the Cable Television Regulations, 1986 in order to introduce this new mark-up structure. Any cable licensee wishing to add a further amount to its basic monthly fee beyond that proposed in the draft amendment will be required to follow the procedure and meet the requirements of subsection 18(8) of the Regulations. Filings for rate increases to cover capital expenditures will continue to be processed under subsection 18(6) of the Regulations.

e) Positioning

The cable dial positions used by cable licensees to distribute the new Canadian specialty services will have an effect on the potential audiences for these services and, correspondingly, on the ability of the services to achieve their revenue projections and meet their programming commitments. At present, many cable subscribers have converters that are incapable of providing access to services placed higher up on the cable channel spectrum, namely above cable dial position 30. Therefore, to ensure that as many Canadians as possible have access to the Canadian specialty services which they will be paying for as part of their basic service, the Commission, as part of its regulatory framework, expects cable licensees to group these services together and place them on cable dial positions below channel 31. Any cable licensee who, for reasons of technical feasibility, considers that it is unable to meet this expectation will be required to notify the Commission, in writing, why an exception would be justified.

f) Revised Linkage Rules

The Commission's linkage rules were first established in 1984 to ensure that Canadian services are successful in the discretionary marketplace and that the orderly introduction of non-Canadian specialty programming services would contribute to their success. These rules have been in effect for over two years. With the introduction of specialty services on basic, and because of changes currently taking place within the industry with respect to the marketing of discretionary services, the Commission now considers that amendments to the linkage rules are required if they are to continue to serve the purpose for which they were originally established.

Accordingly, in Public Notice CRTC 1987-261, the Commission announces a revised set of linkage rules for discretionary pay television and specialty programming services. These linkage rules will apply only to services distributed as discretionary services. Furthermore, a non-Canadian discretionary service may not be linked with any Canadian specialty service distributed as part of the basic service.

In designing the revised rules, the Commission was particularly conscious of the concerns raised by pay television licensees at the specialty services hearing. One aspect of the new rules is that four U.S. superstations and the USA Network may be linked exclusively with Canadian pay television services. Cable licensees will be permitted to carry any of these 5 non-Canadian satellite services or any eligible satellite services as soon as they have signed affiliation agreements with the newly licensed pay television service, the Family Channel or with the already existing Canadian pay television services. The Commission suggests that, pending amendments to Canadian copyright legislation, cable licensees choosing to offer any of these 5 services should negotiate with the foreign carriers of these services with a view to including in the fee to be paid to the carrier an appropriate amount of compensation for copyright liability.

Another aspect of the new linkage rules is that the total number of channels which a cable licensee may allocate for the distribution of discretionary non-Canadian satellite services has increased from five to eight.

The Commission has also revised the lists of eligible satellite services for class 1 and 2 and Part III cable licensees. These revised lists are attached as appendices to the public notice. No service on the list of "Part II Eligible Satellite Services" may be distributed on the basic service unless authorized by condition of licence. Other additional revisions to the linkage rules are described in the public notice.

Fernand Bélisle
Secretary General