ARCHIVED -  Decision CRTC 97-172

Decision

Ottawa, 25 April 1997

Decision CRTC 97-172

Videon CableSystems Inc.

Winnipeg, Manitoba - 199701001

Fee Increase pursuant to subsection 18(8) of the Cable Television Regulations, 1986 - Disallowed

1.  Pursuant to subsection 18(8) of the Cable Television Regulations, 1986 (the regulations), Videon CableSystems Inc. (Videon) proposed to increase its basic monthly fee by $2.00, effective 1 May 1997. The Commission disallows implementation of the proposed fee increase for the reasons set out in this decision.

2.  As part of the package which Videon submitted to the Commission, the licensee also proposed, pursuant to subsections 18(3) and 18(6) of the regulations, to increase its basic monthly fee by $0.02 and $0.26 respectively, effective 1 May 1997. The Commission considers these proposed fee increases to be acceptable.

Videon's Arguments

3.  Recognizing that it had exceeded the profitability thresholds, as outlined in Public Notice CRTC 1993-146 dated 21 October 1993, Videon requested that the Commission allow a $2.00 increase to the basic monthly fee, based on "exceptional circumstances". In support of its request, Videon argued that its basic monthly cable fee has, for many years, been substantially lower than that of other cable operators of a similar size. Videon contended that its current low basic monthly fee limits the extent to which subsequent 18(6) and 18(8) fee increases would be implemented. Moreover, Videon expressed concern that, if the "price cap" regime proposed by the Commission in Public Notice CRTC 1996-69 dated 17 May 1996 were to be implemented, a higher rate than the existing one would be essential, in order to set an appropriate "going-in" rate, before the proposed regulations are promulgated.

4.  Further, Videon claimed that significant plant upgrades, which it plans to undertake between 1997 and 2000, would be undermined if it was subject to "capped" fee increases based on its current fee structure. Videon also argued that only through a significant increase in its basic service revenues would it be able to acquire the money needed to finance the capital expenditures "required to meet the technological challenges of higher system capacity, addressability and digital compression".

5.  Moreover, Videon contended that its long history of low basic cable rates is primarily because, for many years, the Manitoba Telephone System (MTS) owned and controlled a substantial portion of the cable plant. Videon claimed that this circumstance prevented it from making capital investments in the plant, and that, therefore, it could not avail itself of basic fee increases similar to those implemented by other cable operators.

Comments

6.  The Commission received 68 comments on Videon's proposed fee increase pursuant to subsection 18(8) of the regulations. Several interveners, including the Manitoba Society of Seniors (MSOS), noted that Videon, in its notice to subscribers, did not relate the proposed increase in the basic fee to improvements in its basic service. MSOS argued that the high level of consumer satisfaction and the relatively low incidence of service calls, as stated in Videon's own Supplementary Brief, indicates that there is no need for Videon to undertake the plant upgrades which provide part of the justification for the proposed basic fee increase. In addition, MSOS reiterated the Commission's intent outlined in Public Notice CRTC 1996-69 that "basic service subscriber(s) should (not) be required ... to help finance cable's participation in the competitive distribution market". Moreover, MSOS pointed out that the proposed increase of $2.00 in the basic monthly fee would constitute a 23% increase, and stated that such an increase would substantially exceed the limit of 10% of a fee's base portion which the Commission has imposed on fee increases of this type.

7.  In response, the licensee reiterated that its basic monthly fee is lower than that of other cable operators and argued that the increase is needed "to provide Videon with the cash flow that will allow it to participate in the market of the future".

The Commission's Findings

8.  The Commission acknowledges that Videon's basic monthly cable fee is lower than that of other cable operators of a similar size. Before 1989, the Commission accepted "variance of fees" between cable operators as one of the factors to justify fee increases. In 1990, however, the Commission announced that it would evaluate all such future submissions on the single criterion of economic need, using well-defined profitability measures and associated benchmarks (Public Notice CRTC 1990-53 dated 15 May 1990). Subsequently, the Commission set out the criteria it would use in assessing such fee increase filings (Public Notices CRTC 1991-29 dated 1 March 1991, 1993-74 dated 3 June 1993 and 1993-146).

9.  Since 1990, the Commission's policy with regard to fee increase filings pursuant to subsection 18(8) of the regulations has progressively evolved towards a more restrictive framework for economic need increases. Approving Videon's proposed increase in the basic monthly fee on the basis of "variance of fees" would be inconsistent with the Commission's overall direction in regulating cable rates.

10.  The Commission further notes that the processing of Videon's fee increase filing has been overtaken by the issuance of Public Notice CRTC 1997-25 in which the Commission announced that it will not proceed with the "price cap" regime proposed in Public Notice CRTC 1996-69. Accordingly, Videon's concerns in this regard are no longer applicable.

11.  In Public Notice CRTC 1997-25, the Commission confirmed its intent, as outlined in Public Notice CRTC 1996-69, that since the bulk of technological upgrades such as the ones described in Videon's argument are not likely to be required in the delivery of basic service, basic service subscribers should not be required to support expenditures likely to be used more extensively in the delivery of discretionary and non-programming services.

12.  With regard to Videon's argument that MTS's ownership and control of the cable plant prevented the licensee from making capital investments in its cable undertaking and therefore it could not fully avail itself of fee increases pursuant to subsection 18(6) of the regulations, the Commission notes that, in 1987, Videon signed a long-term agreement with MTS specifying that ownership of the cable drops, amplifiers and inside wiring would rest with Videon. Since 1987, Videon has been in a position to undertake eligible capital expenditures which would have enabled it to avail itself of further fee increases pursuant to subsection 18(6). Furthermore, the Commission notes that, before the 1987 agreement with MTS, Videon was able to provide a level of service without incurring the level of investment similar to that required of other cable systems of comparable size.

13.  Moreover, the Commission notes that Videon's overall profitability is substantially above the profitability benchmark that the Commission uses in assessing fee increase filings pursuant to subsection 18(8) of the regulations.

14.  The Commission considers that Videon has failed to demonstrate that the proposed increase to the basic monthly fee, pursuant to subsection 18(8) of the regulations, can be justified on the grounds of "exceptional circumstances".

This decision is to be appended to the licence.

Allan J. Darling
Secretary General

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