ARCHIVED -  Decision CRTC 95-57

Decision

Ottawa, 17 February 1995

Decision CRTC 95-57

CUC Broadcasting Limited

Various locations in Ontario - 941057200

Transfer of effective control of CUC Broadcasting Limited to Shaw
Communications Inc. - Approved.

Following a Public Hearing in Vancouver beginning on 1 November 1994, the Commission approves the application for authority to transfer effective control of CUC Broadcasting Limited (CUC) through the transfer of all of CUC's issued common voting and Class E non-voting shares from current shareholders to Shaw Communications Inc. (Shaw).

As a result of this approval, Shaw acquires effective control of all of CUC's broadcast holdings. These holdings include 100% of Trillium Cable Communications Limited (Trillium), licensee of 30 cable systems serving more than 350,000 subscribers in more than 80 communities in western, central and eastern Ontario. Trillium's cable systems are listed in the appendix to this decision. The largest of these systems is that serving Scarborough, with some 162,300 subscribers; Trillium's other cable undertakings are considerably smaller, and many serve fewer than 1000 subscribers.

Through CUC, Shaw also acquires 35% of UMG Cable Telecommunications Limited, licensee of cable television undertakings serving Brockville, Cobourg and Port Hope; and 34.3% of YTV Canada Inc. (YTV), licensee of the national specialty television service undertaking that provides programming to children and youth.

Shaw is controlled through a voting trust agreement by James R. Shaw of Edmonton. Through a wholly-owned subsidiary, Shaw Radio Ltd., Shaw currently holds effective control of radio stations in British Columbia, Alberta and Ontario. Through other subsidiary companies, it also has control of numerous cable distribution undertakings in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Nova Scotia.

The cumulative result of the share transfer approved herein and the exchange of cable assets between Shaw and Rogers Communications Inc. (RCI), previously approved by the Commission in Decision CRTC 94-924, is that Shaw becomes Canada's second largest cablecaster, after RCI, and will serve approximately 20% of all Canadian cable subscribers.

The purchase price involved in this transaction is $626.5 million, subject to adjustments. Of this amount, $458.5 million is in respect of CUC's shareholdings in the licensed broadcasting undertakings noted above. The remaining $168 million represents the value attached to CUC's ownership interests in activities unregulated by the Commission. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, 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. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the communities served by the broadcasting undertakings and to the Canadian broadcasting system as a whole, and that it is in the public interest.

In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the management, financial and technical resources available to the purchaser.

Shaw proposed a package of quantifiable benefits that includes its commitments to make direct, incremental expenditures on various initiatives amounting to approximately $45 million, all within a period of five years.

More than half of the expenditures proposed by Shaw as quantifiable benefits, or approximately $26.5 million, is earmarked for improvements to the technical plant and the community programming operations of the various cable systems licensed to Trillium. Shaw stated that most of the technical improvements, including plans for increasing the channel capacity of these systems to accommodate new Canadian specialty services, will be completed within the first two years.

The Commission views as an important element of this transaction the applicant's commitment to ensure that none of the costs associated with the quantifiable benefits, or of any other aspect of this transaction, is passed along to subscribers or will form part of any fee filing under subsections 18(6) and 18(8) of the Cable Television Regulations, 1986. The Commission also notes Shaw's confirmation that, for each of its cable undertakings, it will meet or exceed the Commission's policy guideline announced in Public Notice CRTC 1991-59, that 5% of base portion revenues be devoted to the operation of the community channel, exclusive of capital expenditures.

As a further benefit, Shaw will contribute $17.5 million over five years to the "Dr. Geoffrey R. Conway Programming Fund". The fund, named in honour of CUC's late founder, will be used to support the development and production, on a commercial basis, of new, quality Canadian programming for children, particularly those between the ages of three and five. The fund will be combined with another fund, now containing approximately $8 million, which is committed to the support of children's programming and was established by Shaw as a benefit of its applications to acquire effective control of another cable company, Cablecasting Limited, approved in Decision CRTC 92-829.

At the hearing, the Commission sought assurance that there would be no potential for conflict of interest or preferential treatment arising from Shaw's involvement in the fund and its shareholdings in the children's and youth specialty service YTV. The Commission notes in this regard the following statement by the applicant at the hearing:

 We want to be clear that there would be no preference given to YTV in terms of where YTV is an [equity investor]. You certainly cannot exclude YTV, because they are a major player in terms of distributing children's programming. But I think that we can commit that we would not fund any production for YTV as the major equity investor, nor would we participate or fund a production where YTV is the only broadcaster. But where YTV is paired with another broadcaster, we feel that it is fair that they come to the fund for some dollars.

In an intervention presented at the hearing by Television Northern Canada (TVNC), the applicant was requested to commit 5% of the fund to programming directed to aboriginal children and youth. TVNC is the provider of television services aimed at aboriginal communities in northern Canada. Among other things, the intervener also requested that the TVNC service be distributed on Shaw's cable systems as a priority. In responding to the first of these two matters, Shaw stated that the fund's board of directors would consider requests from all independent producers:

 We have not taken into consideration any particular percentage for any area, but we would give [TVNC] every consideration and would invite them to apply.

As for the question of cable carriage, Shaw stated:

 I think our company would make a commitment that we are prepared to discuss the feasibility of carrying TVNC on a trial basis in a selected market to access and assess the acceptance and appeal of TVNC in that test market.

The Commission notes, and views as reasonable, the applicant's replies concerning these two issues raised by the intervener.

The Commission has assessed the quantifiable benefits package iden-tified by the applicant as flowing from this transaction and, in general, is satisfied that it is significant and unequivocal, and commensurate with the size of the transaction. The Commission expects the applicant to ensure that all of the $45 million in proposed expenditures included in the benefits package are made in accordance with the schedule outlined in the application.

The Commission has also assessed the non-quantifiable benefits claimed by the applicant as flowing from this transaction. Specifically, the applicant stated that approval will allow it to continue to make a valuable contribution to the Canadian broadcasting system by giving it access to a critical mass of resources, namely a larger economic base and greater cash flow, that it will require to compete against new, alternative distribution systems, both Canadian and foreign, that are expected to emerge in the near future:

 To effectively meet the challenges inherent in these proposals, to make the necessary investments in network technology and people, and to succeed in the increasingly competitive urban environment, CUC requires access to resources that it simply cannot amass on its own.

As for the issue of concentration, the applicant noted that rationalization of cable ownership has been ongoing within the industry for a number of years, as smaller players who find themselves unable or unwilling to make the investments required to keep pace with changing technology give way to larger corporate units. The applicant further contended that the competition now emerging in the communications environment, coupled with the Commission's regulatory powers, should effectively eliminate any concerns regarding concentration of ownership. The applicant added:

  We are committed to, as much as anyone is, the Canadian broadcasting system and to giving our subscribers the best service possible.... If we are the low-cost provider, with the acquisitions we are doing, we will then be able to survive, whatever competition comes along, whether it is through the telcos or whether it is through the sky.

The Commission agrees with Shaw that Canada's cable television industry will soon be faced with competition, whether in the form of non-Canadian direct broadcast satellite services, or from Canadian telephone companies and other such domestic means of delivering information services to Canadians.

In Decision CRTC 94-923 approving RCI's applications to acquire effective control of Maclean Hunter Limited, the Commission noted the competition likely to result from convergence of the traditional roles of common carrier and cable television industries, and stated that such competition:

 ...should generate incentives for innovation, foster efficiencies and spur the development of new consumer services at competitive prices. If cable subscribers, and the system as a whole, are to enjoy these and the other widely-recognized benefits of competition over the long term, however, it is essential that the competition be fair and sustainable.

The Commission concluded that the creation of larger and stronger corporate units in the cable industry, such as RCI and Shaw, is key to ensuring that such fair and sustainable competition is realized:

 At this particular juncture in the evolution of Canada's cable television industry, the Commission is satisfied that the public interest is served by allowing a significant expansion in the size of the applicant's cable operations, so that RCI, along with Shaw and other large players, may lead the industry more effectively towards meeting the challenges of the emerging competitive communications environment.

The Commission is satisfied that Shaw's acquisition of CUC represents a logical continuation of this process of rationalization within Canada's cable television industry, and that approval of the transaction is in the public interest.

At the same time, the Commission must be assured that the increased power and influence that Shaw acquires as a result of this transaction, particularly in its capacity as gatekeeper, serves as no impediment to third parties seeking access to its cable facilities for the distribution of programming services. The Commission notes in this regard that Shaw will participate in a future public process to be initiated by the Canadian Cable Television Association (CCTA) for the purpose of developing an industry- wide access policy respecting programming services not covered by the existing industry Access Commitment. The current Commitment is limited to pay and specialty services.

The Commission emphasizes that cable licensees are responsible to ensure, to the greatest extent possible, that access to their cable distribution systems is available to all Canadian programming services on a fair and equitable basis. In Decision CRTC 94-923, the Commission noted various concerns regarding RCI's proposed Access Policy and expected RCI to take these concerns into account in finalizing its Access Guidelines. The Commission reminds Shaw of the concerns regarding access outlined in that decision, and expects Shaw to be guided by the same expectations set out for RCI regarding access until such time as the CCTA's access guidelines are submitted to and accepted by the Commission.

Other Matters

In Public Notice CRTC 1992-59, the Commission announced implementation of its employment equity policy. It advised licensees that, at the time of licence renewal or upon considering applications for authority to transfer ownership or control, it would review with applicants their practices and plans to ensure equitable employment. In keeping with the Commission's policy, it encourages Shaw and CUC to consider employment equity issues in their hiring practices and in all other aspects of their management of human resources.

The Commission has noted and considered the numerous interventions submitted regarding this application.

Allan J. Darling
Secretary General

Appendix to Decision CRTC 95-57

Cable distribution undertakings licensed to Trillium Cable Communications Limited:

Bancroft and the Village of Maxwell Settlement; Barrie and surrounding area, Midhurst, Stroud, St. Paul's, Big Bay Point, Sandy Cove, Sandy Cove Beach, Alcona, Lefroy, Bell Ewart, Elmvale, Gilford, Churchill, Thornton, Innisfil Heights, Holly and Oro Stretch; Barry's Bay; Camp Borden, Alliston, Angus, Tottenham and surrounding area; Chatham, Blenheim, Dresden, Ridgetown, Tilbury and Thamesville; Calabogie; Dutton, Rodney and West Lorne; Dundalk; Grand Valley; Kemptville; Keswick, Pefferlaw, Sutton, Beaverton, Baldwin and surrounding area; Lakefield, Bridgenorth and surrounding area; Lanark; Leamington, Kingsville and surrounding area; Listowel, Arthur, Palmerston, Harriston, Mount Forest and surrounding area; Mildmay; Millbrook; Orillia and surrounding area, Waubaushene, Fesserton, Coldwater, Sturgeon Bay, Lagoon City/Brechin, Prices Corner, Bass Lake, Bass Lake Woodlands, Warminsters, Marchmount, Cumberland Beach, Washago, Lake St. George, Atherley, Fergus Hill Estates, west shore of Lake Couchiching and Scarlet Park; Perth; part of the Township of Pickering and part of Scarborough (West Rouge) Brougham, Greenwood and Claremont; Smiths Falls; part of Metropolitan Toronto; Windsor, Amherstburg, Belle River, Essex, La Salle/Sandwick West, St. Clair Beach and Tecumseh; Wingham; Whitney; Tara and Allenford; Wiarton; Lion's Head; Paisley; Port Elgin, Sauble Beach and Southampton and surrounding area.