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Decision
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Ottawa, 19 July 1989
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Decision CRTC 89-489
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MSA Cablesystems Ltd.
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Abbotsford and Clearbrook, British Columbia - 880174800Mr. Leigh Hillier, representing a company to be incorporatedMatsqui Village, Mount Lehman and area, British Columbia - 880699400
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Mr. Leigh Hillier, representing a second company to be incorporated Ryder Lake and surrounding areas, Sumas Prairie and Chilliwack Valley, British Columbia - 882597800
Vedder River, British Columbia - 882596000
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284000 B.C. Ltd.
Matsqui Village, Mount Lehman and Bradner, British Columbia - 880685300
Matsqui Village, Mount Lehman and adjacent rural areas (the Central Fraser Valley), British Columbia - 870089000
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Tower Vision Corporation
Matsqui Village, Mount Lehman and adjacent rural areas, British Columbia - 874009400
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Valley MMD Systems Ltd.
Sumas Prairie, Hatzic, Matsqui Village, Mount Lehman, Chilliwack and surrounding areas, British Columbia - 880641600
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At a Public Hearing in Vancouver commencing 20 February 1989, the Commission considered eight proposals by six different applicants seeking authority to distribute broadcasting services to various parts of the Fraser Valley. Residents throughout most of the area are able to receive, over the air, at least one U.S. and three Canadian television services, and all of the larger population centres in the Fraser Valley have access to a wider range of broadcasting services delivered via cable television.
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The villages of Matsqui and Mount Lehman were the only areas specified by the Commission in a call for applications issued on 9 February 1988 (Public Notice CRTC 1988-17). The service areas proposed under certain of the applications, however, extend as far west as the boundaries of existing cable systems in New Westminster, Surrey and White Rock, and as far east as the cable system serving Chilliwack.
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In the call, the Commission reiterated its longstanding policy position that cable technology represents the preferred method of extending service.
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One of the applicants, MSA Cablesystems Ltd. (MSA), licensee of the cable television undertaking serving Abbotsford and Clearbrook, has requested authority to extend the boundaries of its system to include Matsqui Village as well as small areas to the north, in the direction of Mount Lehman, and to the south and east. Leigh Hillier, representing a company to be incorporated, requested a licence for a cable television undertaking to serve a large, essentially rural area extending west from the boundaries of MSA's Abbotsford cable system to the boundaries of the cable undertakings serving New Westminster, Surrey and White Rock.
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Leigh Hillier, representing a second company to be incorporated, under different shareholding arrangements, proposed to establish a small cable system at Vedder River, adjacent to the existing cable system at Chilliwack, with a companion STV system to serve the surrounding Sumas Prairie, Chilliwack Valley and Ryder Lake areas. 284000 B.C. Ltd. proposed a cable system to serve the Matsqui and Mount Lehman area, and a companion STV system to serve a larger surrounding area in the Central Fraser Valley. Both of these applicants stated that the small cable systems they have proposed would not be viable unless licensed in conjunction with their proposed companion STV systems. Tower Vision Corporation applied for a licence to carry on an STV undertaking to serve the Matsqui and Mount Lehman area. It did not propose a companion cable television system.
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Valley MMD Systems Ltd. (Valley) proposed the use of multipoint distribution technology. Its application was the first such proposal tocome before the Commission since the issuance of Public Notice CRTC 1987-254 dated 26 November 1987. That notice, entitled Regulatory Policy for Direct-to-Home (DTH) Satellite Broadcasting Systems, Multipoint Distribution Systems (MDS), and Subscription Television (STV) Systems, set out guidelines for the use of MDS technology and other methods of signal distribution to achieve a further extension of broadcasting services to Canadians.
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In considering the applications before it, the Commission has weighed a number of factors, including the reasonableness of the financial projections prepared by the applicants, their financial ability to implement and maintain their proposed undertakings (particularly should their financial performance fall short of the projections filed as part of their applications), as well as the technical strengths and weaknesses of the proposed methods of signal delivery and the Commission's policies with respect to each. The Commission has also considered the broadcast services already available to residents of the area, either over the air or via cable, in comparison with the range of services proposed and the fees that would be charged for them, and the number of potential subscribers to be served.
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Based on its consideration of all the evidence before it, and for the reasons outlined below, the Commission has decided to deny all of the applications, except that by MSA.
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MSA's proposal to amend the licence of its broadcasting receiving undertaking at Abbotsford and Clearbrook by including parts of the District of Abbotsford and parts of the municipality of Matsqui is hereby approved. This approval is conditional upon the construction in the extended area being completed and the extended system being in operation within six months of the date of this decision or, where the licensee applies to the Commission within this six-month period and satisfies the Commission that it cannot complete construction and begin operation of the extended system before the expiry of this six-month period and that an extension of this period is in the public interest, within such further period of time as is approved in writing by the Commission.
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The Commission is satisfied that the new areas to be served represent a natural extension of MSA's existing service area, and that this licensee will provide subscribers with the greatest viewing choice at the least cost. Given the financial resources available to MSA's owners, the Commission is further satisfied that the extension will be completed within the six-month period specified above.
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At the hearing, MSA indicated that it was its intention to charge an installation fee of $200 to subscribers in the new areas to be served. MSA acknowledged that this amount would be $75 more than the expected non-recurring costs for installing subscriber drops in these areas. It therefore requested that it be granted a condition of licence exempting it from the requirements of section 17 of the Cable Television Regulations, 1986 (the regulations) which limit installation fees to such non-recurring costs. The Commission is not convinced that an exemption is warranted in the circumstances and, accordingly, denies MSA's request. The licensee stated at the hearing that, should the Commission deny the above request, it would nevertheless be prepared to proceed with the extension. MSA made a further commitment not to seek to recover any portion of the capital costs for constructing the cable plant in the new areas through any future subscriber fee increase under subsection 18(6) of the regulations. The Commission expects MSA to abide by these commitments.
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The Commission denies the two applications by Leigh Hillier. In its call for applications, the Commission emphasized that applicants would be required "to provide evidence of their financial capability ... and the viability of the proposed service." The Commission's decision to deny these applications is based on unresolved concerns regarding the soundness of the business plans put forward and the viability of the proposed services.
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In the application by Leigh Hillier for authority to carry on a cable television undertaking in the large unserved area west of Abbotsford, the Commission notes the technology proposed and the 3,000 potential households that, according to the applicant, would have access to the service. It is concerned, however, that the applicant's estimate of the costs of constructing the proposed system may be substantially understated. While the applicant presented evidence of its financial capacity to meet the projected construction costs, no evidence was provided regarding the availability of additional funding.
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In the case of the applications by Mr. Hillier for licences to operate a cable and an STV system to serve Vedder River and surrounding areas, the Commission notes the applicant's failure to provide sufficient evidence of Mr. Hillier's ability to contribute the sum of $40,000, representing his share of equity funding in the company, which funding, according to the application, would be required to complete construction of the proposed cable and STV systems.
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The Commission also denies the applications by 284000 B.C. Ltd. and by Tower Vision Corporation.
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In the case of 284000 B.C. Ltd., the Commission is concerned by the lack of sufficient evidence regarding the applicant's capacity to finance its proposed cable television and STV undertakings to serve Matsqui, Mount Lehman and surrounding area. The two undertakings were to have been financed by a public offering on the Vancouver Stock Exchange of shares in Reg Resources Ltd., holder of 20% of the applicant's voting shares. The offering, however, would have only taken place following Commission approval. Subsequent to the hearing, the applicant submitted documentary evidence of the ability of one of the applicant's principals to guarantee approximately 47% of the total amount necessary to finance the proposed cable and STV systems. Satisfactory evidence as to the availability of the remainder of the required financing has not been provided however, and, as a consequence, the overall proposal fails to meet the Commission's requirement that the necessary funds be unconditionally available.
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The Commission's decision to deny the STV proposal by Tower Vision Corporation and the combined STV/cable applications by Leigh Hillier and the numbered company is also based on policy concerns regarding the use of STV technology to serve the area in question. Under the Commission's licensing policy for STV undertakings set out in Public Notice CRTC 1987-254, such undertakings are normally to be licensed to provide service in parts of Canada where the Commission regulates cable television operators under Part III of the regulations. These areas generally have two or less licensed television services available over the air. As noted earlier in this decision, however, residents throughout most of the Fraser Valley are able to receive the signals of three licensed Canadian television stations, when counted using the method specified for Part III licensees in the regulations, as well as that of at least one U.S. station. The Commission has not been convinced that any of the STV proposals currently before it would represent an appropriate use of the technology and does not consider that an exception to its STV licensing policy is warranted in the present circumstances.
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The Commission has also taken into account the extent to which the availability of over-the-air services might reduce the attractiveness of an STV service in the eyes of potential subscribers, particularly given the relatively high monthly fees involved and the limited number of signals that STV technology can deliver. The Commission notes in this regard the likely familiarity that most rural residents in this area would have with the far greater range of services available to, and the substantially lower monthly fees paid by, their neighbours in nearby communities served by cable. The Commission notes further the absence of interventions submitted in support of any of the three STV applications.
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Several of the concerns raised above in connection with the STV applications, including the number of services readily available over the air in the proposed service areas, the proximity of these areas to Vancouver and to various other urban communities served by cable, and hence the possible resistance by potential subscribers to the high monthly fees proposed, apply equally to Valley's MDS application. An additional concern with the MDS application relates to the large number of channels Valley proposed to use. The MDS frequency band consists of 31 channels, 15 of which are allocated to broadcasting. The other 16 may be used for broadcast purposes, but are allocated primarily to "fixed" services, examples of which would include the transmission of signals between university or college campuses or from remote locations to facilities monitoring roadway or maritime traffic. Valley proposed to use a total of 20 channels, including all 15 allocated to broadcasting and 5 of those allocated to fixed services. In the Commission's view, Valley's proposal for the use of 20 MDS channels would restrict, to an unacceptable degree, the number of such channels that would remain available for future use to distribute broadcast services in the Vancouver/Chilliwack area.
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The Commission also discussed with Valley concerns raised in respect of certain of the services it proposed to distribute. Because cable systems located in the Fraser Valley are all regulated in accordance with Parts I and II of the regulations, at issue is whether the basic service of MDS systems in this or any such area should be permitted to include services that cable systems would not normally be permitted to distribute other than on a discretionary basis. WDIV (NBC) Detroit, received via CANCOM, and the USA Network are two services proposed by Valley that appear on the list of Part II eligible satellite services and thus fall into this category. British Columbia Television Broadcasting System Ltd., licensee of CHAN-TV Vancouver, expressed these concerns in an intervention, particularly with regard to the proposed carriage of WDIV.
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Further, Valley did not propose to distribute the signal of CKVU-TV (IND) New Westminster, even though the station's grade B contour does not appear to cover completely Valley's proposed service area. An intervention requesting that Valley be required to distribute this signal was submitted by the licensee of CKVU-TV. An intervention was also submitted by the CBC concerning Valley's plans not to distribute the signals of CBUT and CBUFT Vancouver. Although the grade B contours of these two stations, taken together with those of their rebroadcasters at Chilliwack, appear to cover all of the service area proposed by Valley, there are certain parts of the Fraser Valley where, according to the CBC, the terrain renders reception of these services difficult. The CBC therefore requested that, if licensed, Valley be required to distribute the signals of CBUT and CBUFT. At the hearing, Valley indicated that it would be prepared to delete the proposed distribution of both the USA Network and the signal of WDIV and, should the Commission so require, stated that it would be prepared to add the distribution of all local Vancouver television signals to its proposed service. Valley also expressed the view that the MDS service would be viable even if limited to 15 channels.
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The Commission acknowledges the applicant's preparedness to alter its proposal in these areas, but is concerned by the impact that such substantial and fundamental changes might have on Valley's overall business plan. In light of these and other unresolved concerns attached to this proposal, the Commission denies the application.
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The licensing policy for MDS enunciated in Public Notice CRTC 1987-254 was designed by the Commission to enable this new delivery system "to be introduced without an undue regulatory burden". In the notice, the Commission stated that its policy would be to require cable television licensees using MDS to extend service within their authorized cable service areas to include the carriage of all priority television services required by the regulations, except for the signals of stations "... whose grade B contour completely covers the authorized area to be served by MDS". The Commission also stated that MDS subscribers in such circumstances should be charged rates no higher than the rates charged subscribers served by cable, unless higher fees for MDS subscribers were specifically approved by the Commission. The Commission added that those applicants, such as Valley, who propose the use of MDS to provide service to a new, unserved area would also be required to distribute the priority television services, as qualified above, but would not be subject to rate regulation.
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The policy statement included recognition by the Commission that it might be necessary to revise its policy "if the evolution of either the technology or its use indicate the need for changes". In the Commission's view, the issues raised in connection with the MDS application considered at the Vancouver hearing clearly point to the need for certain policy revisions at this time.
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Specifically, the Commission has concluded that it would be inappropriate and potentially inequitable for it to determine the extent to which it will regulate the rates and the distribution of services of an MDS undertaking by reference to whether this new technology is intended to introduce service to a new, unserved area or to extend service within the boundaries of an existing cable system.
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Instead, when considering future subscription-based MDS applications for a given area, the Commission will be guided by the criterion that would apply to an applicant seeking a cable licence to serve the same area, namely the number of licensed television stations whose grade B official contour encompasses the local head end site.
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The Commission wishes to emphasize that, while it continues to view cable as the preferred method of extending service, today's decision in no way prejudges any future MDS applications it may receive to extend service to the Fraser Valley. However, applicants proposing the use of MDS technology to serve this or any other area will be expected to address the various issues set out in this decision, including the revised policy framework for the regulation of MDS rates and services, and such other related issues as priority signal carriage, the distribution of discretionary and specialty services, and predominance of Canadian signals.
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The Commission acknowledges that one unavoidable consequence of its decision with respect to the various applications considered at the Vancouver hearing will be a delay in the extension of broadcasting services to rural areas in the Fraser Valley. Accordingly, in Public Notice CRTC 1989-82 issued today, and consistent with what it has done in respect of other parts of the country, the Commission is issuing a further call for applications to serve this and any other unserved areas within the Province of British Columbia, the Yukon Territory and the Northwest Territories.
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Fernand Bélisle
Secretary General
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