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Ottawa, 17 May 1991
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Decision CRTC 91-317
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Skyline Cablevision Limited
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Part of Ottawa and part of the regional municipality of Ottawa-Carleton, Ontario - 900563800 - 901890400
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Following a Public Hearing in the National Capital Region beginning on 27 November 1990, a majority of the Commission approves the applications for authority to transfer the effective control of Skyline Cablevision Limited (Skyline), licensee of a broadcasting receiving undertaking serving part of Ottawa and the regional municipality of Ottawa-Carleton, to Rogers Communications Inc. (Rogers). Rogers is a minority shareholder in Skyline with 44,999 (29.9%) common voting shares.
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Skyline, a Class 1 licensee, currently serving over 112,000 subscribers in the Ottawa area, was first authorized to provide cable service to part of Ottawa in l965. For most of that time, control of Skyline has resided with the members of a voting trust agreement, including Soloway Holdings Limited (Soloway), Kamlo Holdings Limited (Kamlo) and Shenkman Corporation (Shenkman).
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By virtue of this transaction, Rogers will own 100% of Skyline's issued voting shares through its acquisition of 6,001 common voting shares currently held by Standard Broadcasting Corporation Limited and a further 99,000 common voting shares held within a voting trust by Soloway, Kamlo and Shenkman.
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The purchase price for the common shares is approximately $70 million. 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.
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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 and that the transaction is in the public interest.
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In line with the Commission's policies, Rogers was called upon to demonstrate that the benefits to be derived as a result of the transfer are significant and unequivocal, commensurate with the size and nature of the transaction, taking into account the resources and responsibilities of the purchaser and will yield measurable improvements to the community served by the broadcasting undertaking concerned and to the Canadian broadcasting system as a whole.
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One issue raised by these applications is concentration of ownership. In this respect, as stated by the Commission in previous decisions, concentration is not necessarily a concern in and of itself. The ownership structure of the Canadian broadcasting system's privately-owned components consists of broadcasting undertakings and ownership groups that vary in size and financial capacity. There has been a trend in recent years towards increasing concentration of ownership within the broadcasting industry, which is not surprising given today's highly competitive environment and the high costs and risks involved in communications endeavours. It is also reasonable that the Commission expect those larger ownership groups within the broadcasting industry possessing the greatest financial capacity to innovate and invest in technological improvements for the betterment of the system as a whole.
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The Commission would be concerned about the potential harm to the broadcasting system as a whole if any broadcaster, including any member of the cable television industry, were to attain a position of sufficient dominance to influence unduly the operational environment of other elements within the system, including program suppliers such as the licensees of the Canadian specialty or pay television networks. Thus, in cases such as the one before it, the Commission must determine whether the increase in concentration is, in fact, contrary to the public interest.
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Rogers has extensive holdings in the country's radio, television, cable television, satellite service and telecommunications industries. Through its subsidiaries, Rogers wholly-owns three AM and six FM radio stations and four rebroadcasting undertakings in British Columbia, five AM and one FM station and a rebroadcasting undertaking in Alberta, and an AM and joint FM station in Ontario. Rogers also owns, indirectly, Canadian Home Shopping Network (CHSN) Ltd. and 99.5% of Multilingual Television (Toronto) Limited, licensee of CFMT-TV in Toronto.
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Rogers also holds indirect minority interests in the children's specialty programming network undertaking, YTV Canada Inc., and the recently-licensed pay television network undertaking, Viewer's Choice Canada. In the satellite service industry, Rogers holds 21.58% of Canadian Satellite Communications Inc. (CANCOM).
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Rogers interests also extend to the telecommunications industry through its indirect ownership of 100% of Rogers Cantel Inc. and its 40% interest in Unitel Communications Inc.
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Rogers, through its subsidiaries, is currently the largest multi-system cable operator in the country, serving 23% of the country's cable subscribers. In addition to its minority holdings in Skyline, Rogers wholly owns Rogers Cable T.V. Limited, licensee of 12 cable systems in central and southern Ontario, five others in British Columbia and one in Alberta. Through its acquisition of 100% of the voting shares of Skyline, Rogers' position within the cable television industry will be increased from 23% to 24.4% of the national cable market.
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Notwithstanding the above, the Commission notes that the respective market shares of the four major cable operators in the country, namely Rogers, Vidéotron Ltée, Maclean Hunter Limited and Shaw Cable Systems Ltd., will remain virtually unchanged.
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Rogers' cable operations are primarily concentrated in large urban centres. The Commission is concerned that, as noted earlier, this form of concentration may unduly influence operational arrangements with program suppliers whose viability is dependent on access to major market centres.
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Following careful examination of the issue of concentration in the context of the current applications, a majority of the Commission has concluded that, given the continued presence and influence of other large ownership groups within the industry, the incremental increase in Rogers' cable holdings resulting from this transaction does not raise a sufficient concern to warrant the denial of these applications.
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Rogers indicated in its applications that its proposed benefits package includes quantifiable benefits of approximately $15.2 million. Among the specific proposals, the Commission notes Rogers' commitments in relation to the operation of the system's community programming, including its undertaking to establish an additional community programming channel with studio facilities in Orléans to distribute predominantly locally-produced, French-language community programming.
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At the hearing, the Commission discussed with Rogers its proposal to provide live coverage of CRTC public hearings to its subscribers. The Commission expressed its concern regarding the limited scope of the proposed benefit. At the hearing, Rogers submitted that the proposed service would be developed to provide a special programming channel that would not be limited to CRTC hearings. Instead, it would include many other local, regional and national committee meetings and would also provide coverage of other government-related activities in the National Capital Region. Given that the proposal will cover a wide range of public meetings, the Commission finds this proposal acceptable and in the public interest.
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The Commission, however, has rejected as quantifiable benefits of this transaction certain costs associated with the purchase of a vehicle and certain costs associated with the operation of the second production studio in Orléans. These expenses, in the Commission's view, relate more appropriately to the normal costs of doing business.
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Nevertheless, the Commission expects Rogers to ensure that all of the approximately $15.2 million in proposed expenditures included in the benefits package are made in accordance with the schedule outlined in the application. In approving these applications, the Commission also notes Rogers' commitment made at the hearing that the cost of this transaction including any expenses related to the proposed benefits will not be passed on to subscribers. Furthermore, the Commission reminds Rogers that, consistent with its longstanding policy, financing charges related to this transaction may not be passed on to subscribers.
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At the hearing, the Commission questioned Rogers as to the immediate need to rebuild the system which Rogers proposed to commence in the near future, particularly in light of the fact that the system underwent considerable improvements only four years ago. The Commission also expressed concern that subscribers may be expected to shoulder certain related costs.
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Rogers argued that, in order to better serve its subscribers, the system will soon require increased channel capacity and a better signal distribution technology. It noted that this proposed overhaul would incorporate fibre optic technology, thereby increasing the system's signal quality and expanding its capacity to 77 channels. At the same time, Rogers agreed that the rebuild could be "phased in over a longer period of years".
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The Commission notes, however, that Rogers will be able, during the current licence term, to file for a fee increase pursuant to subsection 18(6) of the Cable Television Regulations, 1986 (the regulations), in order to recover the eligible capital expenditures associated with the rebuild.
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The Commission has taken into account Rogers' statement at the hearing that it would phase in the rebuild, and its further commitment that, although it does not include the proposed rebuild as part of the benefits package related to this transfer, it will not file any rate increase under subsection 18(8) of the regulations during the current licence term.
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The Commission notes that Rogers could, in a subsequent licence term, include the costs related to the rebuild in the calculation of its rate of return for the purpose of filing for a fee increase under subsection 18(8) of the regulations. In approving these applications, the Commission notes the numerous interventions received from elected officials, charitable organizations, local businesses and representatives from the multicultural and artistic communities, filed in support of the present applications. The Commission also notes the fact that no opposing interventions were received.
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Allan J. Darling
Secretary General
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Concerns Respecting Corporate Concentration by Commissioner Paul E. McRae
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The decision again raises seriously the whole problem of concentration, and compels me to express my reservations about allowing such transfers until a thorough study is completed of the regulatory régime appropriate to corporations, such as Rogers, who have multi-dimensional involvement in the telecommunications field.
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In my view, the size of the corporation should not in itself be the determining factor in such transfers, otherwise, how could we justify the existence of much larger companies like Bell Canada. However, with size and with vertical integration comes increased powers. The determining factor, therefore, must be whether the regulatory régime is appropriate to the more powerful entity being regulated.
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Where a company is in the normal cable distribution business only, the present régime to me seems quite adequate, especially with the recent revisions in regulations. However, a company like Rogers presents a very different set of problems. Rogers, distributes cable broadcasting, has holdings in television and radio, as well as in cable programming in addition to the normal activity of community programming. It also has growing interests in the cellular business and in other telecommunications activities under Unitel. In the cable policy hearings held in early 1990, B.C. Tel. and Bell Canada raised concerns of fairness. Even though a service was designated competitive, the telecom regulatory régime was vigorous in determining whether indeed a competitive service was fully compensatory. The regulator required detailed cost separation information as between the monopoly and competitive services. The Telcos clearly indicated that where a cable company providing a monopoly service was involved in the provision of competitive telephone services (cellular) involving common carriers, it should be required to undergo the same degree of scrutiny as to the cost separation involved. In a previous rate case involving a hearing with Rogers, I dissented in this decision, because it was not clear to me what were the relevant costs of new cable as between the cable distributor and the cellular distributor.
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Before any further transfers are allowed to companies involved in multi-communications activities, the Commission should, in my opinion, do a thorough study of the appropriateness of the regulatory régime, and where necessary, institute changes to ensure the general public and the industry, that the regulation is adequate and fair.
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