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Public Notice
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Ottawa, 28 September 1989
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Public Notice CRTC 1989-109
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ELEMENTS ASSESSED BY THE COMMISSION IN CONSIDERING APPLICATIONS FOR THE TRANSFER OF OWNERSHIP OR CONTROL OF BROADCASTING UNDERTAKINGS
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The Commission has stated on numerous occasions in public notices and decisions involving applications for authority to transfer the ownership or effective control of broadcasting undertakings that because the Commission does not solicit such applications and because there is, thus, only one proposal presented to the Commission, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature.
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Among other things, the applicant must satisfy the Commission that approval of the transaction would neither result in a reduction in the existing level of service nor create a financial burden which might impair the ability or willingness of the licensee to provide a quality service and to meet its obligations under the Broadcasting Act. In the case of transactions involving cable undertakings, the Commission wishes to be assured that the cost of financing the purchase will not result in proposed subscriber fee increases.
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The applicant must also demonstrate that the proposed transaction is in the public interest. As well as considering such matters as concentration of ownership, cross-media ownership and local participation in ownership, the Commission, in its deliberations as to how the public interest would best be served, must be satisfied that the strength of the applicant's human and financial resources are sufficient to give it the capability to improve the undertaking in question and to make a contribution to the enhancement of the Canadian broadcasting system.
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In addition to demonstrating that it has sufficient resources, an applicant is expected to propose a specific package of significant and unequivocal benefits that will yield measurable improvements to the communities served by the broadcasting undertaking and to the Canadian broadcasting system. The Commission must be satisfied that the proposed benefits package is commensurate with the size and nature of the transaction and takes into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question and the scale of programming, management, financial and technical resources available to the prospective purchaser.
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The Commission reminds applicants that, in general, only those initiatives that would not be realized without approval of the proposed transfer are viewed as benefits. Moreover, in examining transactions of this nature, the quantifiable benefits proposed by an applicant are not assessed with reference to any benchmark or formula and each application is assessed on its own merits.
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Benefits should be incremental, that is to say not part of the normal responsibilities of the existing licensee, unless that licensee could not afford the initiative or reasonably planned to delay such an improvement beyond the timeframe proposed by the purchaser.
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The Commission has generally rejected certain types of proposals as benefits. Commitments by prospective purchasers to assume existing obligations of licensees, except where continuation of the service is itself in doubt, have not been accepted nor is the Commission prepared to accept as a benefit any proposed initiative that is dependent upon approval of an application yet to be considered by the Commission.
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Applicants proposing benefits similar to those that are generally rejected will have to convince the Commission that their specific circumstances warrant a departure from general Commission practice. Some of the types of benefits that have been proposed by applicants in the past are described in the following paragraphs, as is the Commission's general practice with respect to its assessment of the acceptability of the benefits. Operating Expenditures
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Examples of proposed initiatives that fit within the parameters of what are considered normal business operating expenditures, and which the Commission generally rejects as benefits, include such items as improvements to employee training programs, memberships in industry associations, marketing surveys and similar studies, and seminars dealing with industry problems and concerns.
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The hiring of additional staff and related increases in various operating expenses, unless such additions can be tied to a specific incremental enhancement of a broadcasting operation such as the production of new programming, are also viewed as normal costs of doing business.
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Capital Expenditures
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Proposed expenditures that fall within the parameters of what can be considered normal capital expenditures are also generally rejected by the Commission as benefits of a transfer. Capital expenditures for land and buildings are normally unacceptable as benefits of a transaction inasmuch as such facilities are required irrespective of any transfer. Additionally, since land and building expenditures are generally recoverable either through reduced operating expenses or upon resale, the net cost to the applicant of the proposed benefit, if any, is not likely to be significant. Capital expenditures for items such as replacement transmitters are also usually viewed by the Commission as being part of a normal capital expenditure program. If replacements are needed, they are required irrespective of a transfer; if they are not needed, there is no discernible benefit to the public.
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With respect to proposed capital expenditures for cable system plant and equipment, the Commission generally views such expenditures as being part of a normal capital expenditure program. In order for an applicant to claim such capital expenditures as a benefit, it must demonstrate that they benefit the public in some manner. For example, the licensee may forego increased subscriber fees that it might otherwise charge in order to recover the capital costs. When an applicant proposes as a benefit capital expenditures in respect of the extension of cable service within the authorized service area of the licence, it must first establish that such service would be over and above the service requirements specified in the regulations and, further, it must demonstrate that the benefit proposed is the capital expenditure net of any recovery from subsequent cash inflows that would be derived from the expenditure.
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In proposing capital expenditures as benefits, the size and significance of the undertaking in question is assessed in order to ascertain whether the proposed capital expenditures are truly incremental or normal capital expenditures.
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Grants and Contributions
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The Commission has accepted as benefits contributions to certain organizations for the production of Canadian programming and/or the promotion and development of Canadian talent. With respect to one-time contributions to existing organizations or the funding of scholarships or the endowment of new organizations, the Commission expects the contribution to be made at the time of approval of the transaction and, further, rejects as a benefit any claim in respect of the income derived by the recipient organization from such contributions. To accept both the contributions and derived income as a benefit would constitute double counting.
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Air-Time Availabilities
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In many instances applicants have claimed as a benefit the provision of free air-time on radio stations for the promotion of Canadian talent. The Commission has considered such proposals to be non-quantifiable benefits owing to the difficulty in establishing a fair monetary value for such air-time.
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Implementation of Benefits
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The Commission has insisted on obtaining definite commitments accompanied by a firm implementation schedule. In the case of benefits that are quantifiable in dollar terms, the Commission generally expects the expenditures associated with such commitments to be included in the financial projections for the licensed undertaking.
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Public Process
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The public hearing process provides the Commision with the opportunity to seek additional explanation or clarification as to the proposed benefits. Public hearings should not be used by applicants to attempt to negotiate or to present alternative bargaining positions nor are they held for the purpose of adding to the benefit packages contained in applications being considered.
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In recent years, there has been a significant increase in the number of applications submitted to the Commission for authority to transfer ownership or effective control of broadcasting undertakings. Despite the complexity of such applications, the Commission makes every effort to process them as rapidly as possible, taking into account the public notification procedures it has in place to permit opportunity for comment.
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Beginning with the decisions released today (Decisions CRTC 89-766 to 89-772), the Commission will make an assessment as to the acceptability of the overall benefits package and, when approving applications for authority to transfer the ownership or effective control of broadcasting undertakings, will require the full monetary commitment to be implemented within the proposed timetable.
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Fernand Bélisle Secretary General
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