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Ottawa, 6 February 1990
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Decision CRTC 90-84
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Western Cablesystems Ltd.
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New Westminster and Surrey, British Columbia - 891164600M.S.A. Cablesystems Ltd.Abbotsford and Clearbrook, British Columbia - 891165300
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Following a Public Hearing in Vancouver beginning on 3 October 1989, the Commission, by majority decision, approves the applications for authority to transfer effective control of Western Cablesystems Ltd., licensee of the broadcasting receiving undertaking serving New Westminster and Surrey, and M.S.A. Cablesystems Ltd. (MSA), licensee of the broadcasting receiving undertaking serving Abbotsford and Clearbrook, through the transfer of 55% of the common voting shares of the licensees' parent company Western Cablevision Limited (Western) from members of the McDonald family to Rogers Cable T.V. Limited (RCTV).
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RCTV is a wholly-owned subsidiary of Rogers Communications Inc. (Rogers). Rogers Cablesystems Inc., also a 100%-owned subsidiary of Rogers, currently holds 45% of the common voting shares of Western. The Commission notes that, as part of these transactions, Rogers Cablesystems Inc. will transfer its 45% voting equity in Western to RCTV; Rogers has also indicated that Western will subsequently be amalgamated with Rogers Cable T.V. Limited.
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Rogers Cablesystems Inc. acquired its existing 45% interest in Western in July of 1980 when it acquired 100% control of Premier Communications Limited (Decision CRTC 80-495). The Commission stated in that decision that the creation of large corporate entities does not of itself necessarily raise major concerns, noting that in certain cases 'significant and positive benefits can derive from cable concentration'.
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The McDonald family shareholders have twice previously applied for authority to transfer their controlling interest in Western to Rogers. In its assessment of those applications in 1981 and 1983, the Commission addressed the question of ownership concentration and the impact such a transfer would have on the cable industry in the Lower Mainland of British Columbia. The Commission also examined the proposed benefits that would accrue to subscribers, the communities involved and the Canadian broadcasting system as a result of the transaction. As outlined in Decisions CRTC 81-732 and 83-678 dated 30 September 1981 and 17 August 1983 respectively, the Commission was not convinced that the benefits were of such significance as to outweigh the potential harmful impact on the ownership balance in that region or that the benefits were beyond attainment under the existing ownership arrangement or through a transfer of control to other regional interests. At the Vancouver hearing in October 1989, members of the McDonald family declared their unequivocal intention to divest themselves of the systems, stressing their desire to pursue different interests after 25 years in the cable television industry. Further, the McDonalds expressed a concern for future 'competitive threats' to the cable industry's traditional business, and submitted that without rationalization, cable companies will be ill-prepared to face these challenges.
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The applicants also noted that under the current ownership structure, there is already considerable interaction between Rogers and Western. The significant role played by Rogers in the management of Western is exemplified by the fact that of the seven members on the Board of Directors of Western, three are from Rogers. At the hearing, officials of RCTV declared their firm intention of maintaining their existing 45% share in Western, regardless of the outcome of the current applications.
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As stated in a number of decisions relating to applications for authority to transfer ownership or effective control of broadcasting undertakings, and because the Commission does not solicit applications for such transfers, 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. In the case of these applications, another issue which the Commission must examine is that of concentration of ownership. In this respect, as stated by the Commission on several previous occasions, concentration is not necessarily a concern in itself. Further, given today's highly competitive environment in all sectors of communications, as well as the high costs and risks involved, the ownership structure must be composed of broadcasting undertakings of various sizes, including large entities with access to substantial resources and with the capacity to undertake the capital projects that will enhance the broadcasting system. The Commission must, however, be convinced that the benefits that will accrue from the transfer outweigh any possible disadvantage that could result from increased concentration and that approval would be in the public interest.
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The Commission notes that, in the period following the last application by the McDonald family shareholders for a transfer of ownership, the cable television industry has been altered by the emergence of a number of large corporate entities. In this regard, any concerns with respect to the increased size of a cable company are tempered by an appreciation of a licensee's ability, given the current technological and financial challenges facing the industry, to ensure the provision of high quality cable service to its subscribers.
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In reaching its decision to approve the current applications, the Commission has taken into account the fact that the cable environment in British Columbia and in the Lower Mainland has changed significantly. Specifically, while Rogers remains the major cable operator in British Columbia, its share of the total number of subscribers in the province has declined over the past five years. Moreover, the recent growth of Shaw Cablesystems Ltd. to a position of strength and industry influence in the province has produced a better balance of cable operators in British Columbia. The approval of these applications would not adversely affect the development of strong regional ownership in British Columbia.
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The Commission also notes that the total benefits package proposed by Rogers represents a considerable proportionate increase over the benefits proposed in 1981 and subsequently in 1983. According to Rogers, the various projects and initiatives that will derive from the present proposal have an estimated value of $11,222,000 over a five-year period, in comparison with a total purchase price for the shares of approximately $56,000,000. The purchase price of $6,532,000 in 1981 involved 42.5% of the shares of Western while $6,240,000 in 1983 involved 26%, compared to the current proposal of $56 million for 55%. The Commission has considered the fact that, proportionately, the proposed benefits relating to the current applications are more than double those proposed with respect to the previous two applications.
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Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or the adequacy of the required financing. After careful consideration of the various projects and initiatives put forward as the benefits associated with the applications, the Commission, although disqualifying some items, is satisfied that the benefits package is clear and unequivocal, commensurate with the size and nature of the transactions involved, and takes into account the responsibilities to be assumed by the purchaser, the characteristics and viability of the cable undertakings concerned, and the scale of the management, financial and technical resources available to the parties. Further, having examined all of the evidence available to it, a majority of the Commission considers that the proposed benefits outweigh any potential negative impact of increased concentration of cable ownership and accordingly, considers that approval of these applications is in the public interest. The Commission expects that the total expenditures of $11,222,000 associated with the proposed benefits package will all be made in accordance with the schedules submitted and as outlined in the applications.
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In approving these applications, the Commission has also noted Rogers' commitment that the cost of these transactions will not be passed on to subscribers. Specifically, the Commission notes Rogers' undertaking that the costs associated with the commitments outlined in this decision will not form part of any rate increase application under subsection 18(6) or 18(8) of the Cable Television Regulations, 1986 (the regulations). The Commission reiterates its longstanding policy that subscribers should not be required to pay higher fees merely because the ownership or control of a cable television system has changed hands and the Commission views the assurances in this regard as being particularly important.
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With respect to the various initiatives put forward by Rogers, the Commission has taken particular note of the extensive technical and programming improvements to both systems' community programming services. In this respect, Rogers has committed approximately $2.9 million for additional studio and mobile production equipment; technical upgrades of existing equipment; the interconnection of city council chambers to provide expanded live programming; the delivery of Rogers community programming network to the acquired systems; a community programming office, including a video/ graphics system and production studio in Langley Township, at a cost of $759,000, which will allow for local programming input; and a reconfiguration that will allow for the independent delivery of community programming to New Westminster, Surrey and Langley communities.
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The Commission has also taken note of Rogers' undertaking to produce three special programming series of interest to New Westminster and Abbotsford subscribers. This five-year commitment will result in the annual production of ten distinct episodes for each of the three series. The programs will feature the achievements of and the challenges facing women in the communications field; the various individual contributions to the development of communities served by the acquired systems; and highlights of the native and ethnic groups which form the areas' multicultural mosaic. The Commission expects the Women in Media, People Link Profile and the multicultural series, which will be undertaken at a combined cost of $1.2 million over five years, to be developed, produced and originated within the New Westminster and Abbotsford service areas. The Commission expects that the amounts committed to this special programming commitment to be net of any financial gains from the sale of program rights associated with the series.
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The Commission has also given weight to the unconditional commitment on the part of Rogers to provide an operating grant of $500,000 for an audio reading service for persons who are blind, visually-impaired and print-handicapped due to physical reasons. Rogers will also allocate $500,000 for a closed captioning facility which would ensure access to programs by the deaf and the hearing-impaired.
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The Commission has assessed the proposed benefits and their acceptability against the background of Public Notice CRTC 1989-109 dated 28 September 1989. In that Public Notice, the Commission summarized the type of benefits that, for one reason or another, it is unable to accept in its deliberations with respect to applications for the transfer of control of broadcasting undertakings, as distinct from those benefits it is generally prepared to accept as 'significant, unequivocal and incremental'. Certain benefits proposed by Rogers fall into the former category and have thus not been taken into account by the Commission in its assessment of the current transfer. Some of the disqualified items are addressed below. For example, with respect to the applicant's proposal to reconstruct the existing mobile production unit, it stated at the hearing that the unit has already been upgraded and is currently operating satisfactorily. The Commission is not convinced that the rebuild proposed by Rogers would necessarily improve the quality of service currently provided to subscribers, and therefore does not accept the associated $145,000 as a significant and unequivocal benefit of the transfer.
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While the Commission recognizes the intangible benefits of a proposed radio advertising campaign to encourage community interest in and access to the New Westminster and Abbotsford community channels, it is not convinced that the project will bring about any quantifiable improvement to the local programming services currently provided. Accordingly, the Commission does not accept as an unequivocal benefit the proposed costs of the radio campaign totalling $250,000 over a five-year period.
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As part of the benefits package, the purchaser has also committed to spend $600,000 over five years to extend business hours at both the New Westminster and Abbotsford offices. In the Commission's view, however, any costs associated with this initiative are most appropriately considered part of the normal cost of doing business. Rogers also proposed to continue its current video services in Victoria, British Columbia, and Ottawa, Ontario, which provide provincial and federal government officials with video equipment and studio facilities in order to communicate with their respective constituents. Specifically, Rogers has claimed as a tangible benefit the costs associated with the operation of its Victoria bureau ($250,000) and of its Ottawa bureau ($850,000) for a further three years. Rogers has also allocated another $250,000 for the construction and equipping of a studio in Ottawa.
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Upon being questioned at the hearing, Rogers indicated that it hoped these services 'would continue indefinitely' even if the transfer were not approved. Therefore, the Commission does not consider the costs associated with the continued operation of the two video services as an incremental benefit arising from the present transactions. Nevertheless, the Commission has accepted the incremental expense of $250,000 for the new Ottawa studio.
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With respect to the intervention submitted by the Fijian Commonwealth Forum Society requesting programming access to the system's community channel, the intervener explained at the hearing that Rogers has adequately addressed the group's concerns by agreeing to provide at least two and a half hours weekly of Fijian-language programming to subscribers.
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The Commission notes that no other interventions opposing the transactions were received.
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The Commission acknowledges the 82 supporting interventions received in respect of the applications, including those from elected officials, businesses, local organizations and from subscribers to the New Westminster and Abbotsford systems. The Commission has also taken into account the views expressed in the intervention received from Western International Communications Inc., and the written intervention from the Ministry of Regional Development of British Columbia.
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Fernand Bélisle
Secretary General
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DISSENT TO DECISION CRTC 90-84 BY COMMISSIONERS FREDERIC ARSENAULT, PAUL MCRAE, BEVERLEY ODA AND EDWARD ROSS
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We dissent from the majority decision to approve these applications for the reasons set out below, based on our examination of the written applications and of the transcript of the public hearing.
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In a transaction of this nature, one of the Commission's main concerns is whether it will result in an excessive or undue concentration of ownership. Notably, this concern was raised by the Commission in its two previous decisions which denied applications by the McDonald family to transfer indirect control of Western Cablesystems Ltd. and M.S.A. Cablesystems Ltd. to Rogers.
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In the first instance, Decision CRTC 81-732, the Commission addressed the question of concentration of ownership and the impact the transaction would have on the cable industry in the Lower Mainland of British Columbia. It concluded that approval of the transaction would have a potentially harmful impact on the ownership balance in that area.
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In the second denial, Decision CRTC 83-678, a majority of the members of the Commission agreed that the circumstances underlying Decision CRTC 81-732 had not changed and that the concerns expressed in that decision remained valid. The Commission stated that the ownership imbalance in the Lower Mainland, which favoured Rogers, would be exacerbated by an approval and could adversely affect the development of strong, regional cable ownership. We acknowledge that Shaw Cablesystems Ltd. now has a larger percentage of British Columbia subscribers than was the case in 1981 and 1983. However, in the Lower Mainland, with the approval of these applications, the percentage of subscribers who will be served by Rogers (76.5%) and by the next largest operator, Shaw Cablesystems Ltd. (12.9%), is substantially the same as would have been the case in 1983, when the latest denial took place. We therefore submit that the concerns of 1981 and 1983 are still valid.
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Furthermore, we believe that neither the environment, the financial situation of the cable systems nor the dynamics of the cable industry have evolved significantly enough to alter the basic principles upon which the Commission's concerns regarding concentration of ownership have been based in the past.
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The Commission has stated that it believes that operators of a certain magnitude are necessary to bring about initiatives which will result in substantial benefits for the public and for the Canadian broadcasting system. We, therefore, wish to emphasize that although it is our belief that the previous concerns about concentration of ownership in the Lower Mainland and the principles upon which they were based remain the same. An applicant could still demonstrate to the Commission that approval of the transaction would result in a net benefit to, and be in the best interest of, the public and the broadcasting system.
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Part of this demonstration would rely on the applicant's proposed package of significant and unequivocal benefits intended to yield measurable improvements for the communities served by the undertakings and for the Canadian broadcasting system. The Commission has stated that it 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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In view of this policy and given the nature of the applications, we believe that Rogers' package of benefits must be both quantitatively and qualitatively substantial. Although the proposed package of benefits carries an impressive dollar value, approximately $11.2 million, we are not satisfied that it meets the responsibility criteria mentioned above, particularly given Rogers' position in the cable industry. For example, the quality of the proposed benefits stands in contrast to that of the benefits accepted by the Commission in Decision CRTC 89-771, Rogers' acquisition of some of Selkirk Communications Limited's broadcasting properties, which were more public oriented and did not include operating expenses necessary to improve the acquired properties. Those expenses were considered by Rogers to be normal operating expenditures. However, in this instance, the proposed benefits include expenditures such as the extension of business hours which we consider to be normal operating expenditures.
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One major benefit proposed was a sum of $3.5 million, over five years, for the Cable Labs Fund. The objectives were to study the application of fibre optic technology in cable systems, the delivery of enhanced television signals, such as high definition television, and the improvement of customer service.
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It is not clear that the results of such studies would be translated into quantifiable, significant and unequivocal public benefits, since the applicant described the cable labs at the hearing as 'most speculative', '...wildcatting ... and the likelihood of success is low, to be fair'. We do not dismiss the possible value to the broadcasting industry that might be derived from the proposal, but we believe that the $3.5 million should not be included as one of the significant and unequivocal tangible benefits attached to this transaction.
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In addition, we do not accept as an incremental benefit the continued operation of the Rogers' Victoria and Ottawa bureaus. We note that Rogers committed to continue their operation for only three years, resulting in a benefits package that foresees a diminished level of service in the fourth year. A further proposed benefit of $250,000, as capital expenditure for the same Ottawa bureau, when there is only a three year operating commitment is questionable.
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Although the balance of the quantifiable benefits may have a relatively high dollar value, we note that the Commission has consistently emphasized that quantifiable benefits are not assessed with reference to any benchmark or formula in the evaluation of transactions of this nature. In this case, we are not satisfied that the remaining benefits taken as a whole, are of a magnitude and quality which we consider reasonable to expect, given the important position Rogers occupies in Canada's cable industry.
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In conclusion, we believe that approval of these applications could adversely affect the regional balance of cable ownership in a key Canadian market, the Lower Mainland of British Columbia, as would have been the case had the 1981 or 1983 application been approved. We feel that the concerns expressed in the previous denials are still valid and that no significant factors have been introduced to overcome them in the context of these applications. Although we understand the desire of the McDonald family to sell their shares, we wish to reiterate that, in our view, the benefits proposed by Rogers are not significant enough to overcome concerns regarding concentration of ownership in this transaction. Therefore, we are not convinced that approval of these applications is in the public interest.
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