ARCHIVED -  Decision CRTC 97-193

TELUS Cable Holdings Inc.
Lake Bonavista, a subdivision of Calgary, Alberta - 199611208
Greenfield and Rhatigan Ridge, subdivisions of Edmonton, Alberta - 199611190

TELUS Multimedia Tariff Notices 1/1A

Applications under the Broadcasting Act and the Telecommunications Act for authority to conduct technical and market trials - Approved

Following a Public Hearing held in the National Capital Region commencing 10 February 1997, the Commission approves the applications by TELUS Cable Holdings Inc. (TELUS), under the Broadcasting Act, for licences to carry on broadcasting distribution undertakings (BDUs) for the purpose of conducting market and technical trials, one in the community of Lake Bonavista, a subdivision of Calgary and the other in the communities of Greenfield and Rhatigan Ridge, subdivisions of Edmonton. The trials, to be conducted by TELUS Multimedia, a division of TELUS, shall serve a maximum of 2,000 individual subscribers in Calgary and a maximum of 1,400 individual subscribers in Edmonton. The Commission will issue licences   expiring 31 May 1999. The licences will be subject to the conditions specified in this decision and in the licences to be issued.

The proposed trials will be conducted by TELUS by means of hybrid fibre-coaxial (HFC) distribution networks that will overlay existing telephone network facilities at each location.

The applicant also proposes to conduct technical and market trials that will make use of the HFC distribution networks to deliver a telecommunications service to subscribers, namely a high speed Internet access service. The Commission’s decisions with respect to this tariff application by TELUS and other issues arising from the applicant’s proposal under the Telecommunications Act, are also contained in this document.

The 10 February 1997 hearing was a precedent, in that it was the first occasion on which the Commission has considered applications filed by an applicant pursuant to the Broadcasting Act and the Telecommunications Act in the same proceeding in which the applicant proposed the distribution of both telecommunications and broadcasting services over the same network.

In addition to the applications by TELUS, an affiliate of the dominant local telephone service provider in Alberta (TELUS Communications Inc.), the Commission, at the 10 February hearing, considered proposals by Bell Canada, the dominant local telephone service provider in Ontario and Quebec. Bell Canada sought authority to conduct market and technical trials in London, Ontario and Repentigny, Quebec. Bell Canada’s applications are approved in Broadcasting Decision CRTC 97-192 and Telecom Decision CRTC 97-11, also issued today.

While there are important differences between the applications filed by Bell Canada and TELUS, they both raise the question of whether their approval would constitute a "head start" for the applicants in entering into competition with existing distribution undertakings, particularly in the core cable market. This matter is discussed below.

II Head Start Issue

In its 19 May 1995 report to the Government entitled Competition and Culture on Canada’s Information Highway (the Convergence Report), the Commission endorsed increased competition in cable’s core business in order to provide consumers with increased choice among distributors of broadcasting services. The Commission recommended, however, that applications from telephone companies for broadcasting licences should not be entertained until rules removing regulatory barriers to effective competition in local telephony are established. The Commission stated that the perceived need for transitional protection of the core cable business stems essentially from concerns about the market power of the telephone companies and any head start they may obtain in packaging telephony and entertainment.

The Government’s Convergence Policy Statement of 6 August 1996 confirmed that neither cable nor telephone companies should be given a head start in entering into competition in the other’s core market. The Government emphasized, however, that competition should not be unduly delayed. Subsequently, in Public Notice CRTC 1997-49 dated 1 May 1997, the Commission announced the timeframe for its consideration of applications by telephone companies for authority to carry on broadcasting distribution undertakings.

A key issue of this proceeding was thus the question of whether licensing TELUS to carry on broadcasting undertakings would be contrary to the "head start" policy. Certain interveners, particularly the cable companies, held the view that licensing the applicant would be inconsistent with the head start policy and that the applications were not "trials", but rather an early entry strategy into the core cable business. At the same time, the majority of interveners taking this position also accepted the concept of trials so long as they were genuine trials.

The applicant took the position that its proposals were indeed trials that differed from full market entry. It also argued, among other things, that the Commission had previously considered cable industry trials of local telephony to be acceptable and that the trials did not conflict with the head start policy.

The Commission considers that it would be appropriate to approve the applications provided that it is convinced that the applicant proposes genuine trials, and is satisfied that it is in the public interest to permit such trials to proceed. The Commission also notes that the Government announcement of 6 August 1996 does not explicitly address the issue of trials. In the Commission’s view, any concerns relating to the head start policy would arise principally in relation to a full service roll out, and not in relation to trials.

To determine if the proposals constitute genuine trials rather than representing instances of full blown market entry, and if their approval would be in the public interest, the Commission has examined the applications from three perspectives: the technology to be employed, the proposed service offerings, and the number of participating households.

The proposed trials will use an HFC trunk and a switched fibre-coaxial trunk. TELUS argued that parts of the design architecture of the proposed networks are innovative, experimental and cost prohibitive in a commercial sense. For example, TELUS stated at the hearing that many of the network components to be used in the trials were at such an early stage of development that they would need to be replaced in a commercial roll out. TELUS also argued that the single drop wire architecture that it proposes to connect to individual households is an innovative design that has not been successfully implemented to date.

In response to Panel questioning, however, the applicant acknowledged that part of the network would employ a proven HFC design widely used within the cable industry, and that the network would not be a true switched point-to-point broadband network in that the bandwidth would be shared among users. This is evidenced by the fact that the applicant may not offer true video-on-demand (VOD) services or subscriber-to-subscriber video interaction.

Nevertheless, the Commission considers that certain technical aspects of the TELUS proposals are truly experimental and innovative, including the deployment of digital servers, asynchronous transfer mode (ATM) switching, and the set-top box technology that interfaces with the ATM side of the network in the delivery of "multimedia" applications used in conjunction with traditional broadcast programming. In this sense, this portion of the network is a key distinguishing feature since it would enable new programming and multimedia content applications to be developed, integrated and tested. As stated by TELUS, interactive multimedia is a critical component of the future communications environment and "... that is why we want to undertake this trial to get a better understanding of what that future world is all about". In addition, the Commission notes there will be opportunities to test particular technical sub-systems as upgrades and new designs are introduced into the trials.

TELUS proposes to distribute a number of services that are not widely distributed by cable companies. These include: a navigator that will highlight Canadian services and programs; digital transmission of programming; digital multimedia interactive content in conjunction with traditional programming services; and enhanced near video on demand (NVOD) services.

The Commission considers that the overall nature of these services supports a conclusion that the TELUS proposals are genuine trials. In particular, the Commission considers that the bridging of Canadian-produced multimedia content to Canadian-produced traditional broadcasting content is an important feature of these trials that serves to distinguish them from existing distribution undertakings, and encourages TELUS to pursue this aspect of its applications.

The size of the trials is one indicator of whether the proposals would represent a head start, and this was clearly a key concern to some interveners. For its part, the Commission would be concerned with any undue long term competitive advantage the trials might give the applicant should it conduct them primarily as a "showcase" for its services as part of an early entry strategy, to the disadvantage of incumbent distributors on a going-forward basis. On the other hand, the Commission would not wish to limit the scope of the trials unduly, or impair the applicant’s ability to conduct the trials and achieve its stated objectives, particularly those related to the promotion of Canadian programming and services in a digital environment.

The cable industry argued that the proposed maximum of 2,000 and 1,400 homes to be served in Calgary and Edmonton, respectively, demonstrate that the proposals are not trials, but veiled market entry, and suggested that the trials be limited to 400 subscribing households in each market, noting that this is the maximum permitted under the Commission’s experimental VOD exemption order (Public Notice CRTC 1994-118). TELUS countered that the figures of 2,000 and 1,400 are the maximum numbers of homes that will be passed in Calgary and Edmonton, and that only a "fraction" of these homes will subscribe to the services distributed as part of the trials.

the 400-home limit specified in Public Notice CRTC 1994-118 is not a relevant benchmark as the exemption order contemplates a single type of service offering (namely VOD), and further, the trials under consideration will be conducted under the authority of a broadcasting licence rather than through exemption.

Having considered the technology that TELUS proposes to use, the services it intends to offer, and the relatively limited number of households that will be participating, the Commission is satisfied that the applicant’s proposals constitute genuine trials.

In the Commission’s view, the trials will provide new learning opportunities concerning the digital environment for existing broadcasters and producers, including the opportunity to develop, test and apply multimedia content developed by Canadian producers, as well as new navigational and promotional tools to support Canadian content and Canadian services. As required by a condition of licence set out in the appendix, the results of the trials will be made public. The Commission expects that this should be to the significant benefit of interested parties. At the same time, the trials will contribute to the broad policy objective of increased competition, in that they will prepare the applicant for entry into broadcasting distribution on a commercial basis.

For these reasons, the Commission is satisfied that approval of the applications by TELUS is in the public interest.

III Applications Under the Broadcasting Act

As stated above, the Commission approves the applications by TELUS for licences to carry on BDUs for the purpose of conducting technical and market trials involving a maximum of 2,000 individual subscribers in Calgary and a maximum of 1,400 individual subscribers in Edmonton. A condition of licence to this effect is set out in the appendix to this decision.

Consistent with the licensing policy set out in Public Notice CRTC 1997-25 entitled New Regulatory Framework for Broadcasting Distribution Undertakings, the Commission will issue a Class 1 licence in respect of each undertaking. The licensee is required, by condition of licence, to operate the technical and market trials pursuant to Parts I, II and IV of the Cable Television Regulations, 1986 (the regulations), as amended from time to time, with the exception of the requirements stipulated in subsection 10(2), and sections 17 and 18 of the regulations. Subsection 10(2) pertains to distribution and linkage requirements, while sections 17 and 18 of the current regulations specify requirements concerning installation and provision of basic service, and fees for basic service, respectively.

The Commission emphasizes that its approval of these applications is for a limited duration, in keeping with the fact that the proposed undertakings are for the purpose of conducting trials. To this end, the Commission requires TELUS, by condition of licence, to advise all potential subscribers in all promotional material, and each subscriber prior to providing service, that its broadcasting services are being offered on an experimental basis for a limited duration only.

These authorities will only be effective and the licences will only be issued, at such time as the undertakings are prepared to commence operation. If an undertaking is not prepared to commence operation within twelve months of the date of this decision, or where the licensee applies to the Commission within this period and satisfies the Commission that it cannot commence operation before the expiry of this period and that an extension of time is in the public interest, within such further periods of time as are approved in writing by the Commission, the licence for that undertaking will not be issued. The applicant is required to advise the Commission (before the expiry of the twelve-month period or any extension thereof) in writing, once it is prepared to commence operation.

a) Programming services to be distributed

The applicant proposes to distribute a basic programming package in accordance with section 9 of the regulations. As proposed, discretionary programming services would be distributed in thematic tiers and on an à la carte basis.

Proposed programming services to be distributed include: national broadcasting television network services; local English- and French-language broadcast television services; Canadian aboriginal and multicultural broadcast services; Canadian specialty, pay and pay-per-view (PPV) television services; community-based programming; AM and FM radio services; and authorized non-Canadian programming services. In addition, the applicant proposes to distribute NVOD, VOD, and interactive services. The applicant expects that its basic monthly fee will be within the range of $9.95 to $19.95 per month.

b) Distribution and linkage requirements

TELUS requested that, given the limited size and objectives of its proposed trials, they not be made subject to the distribution and linkage requirements set out in section 10(2) of the regulations.

The Commission’s distribution and linkage requirements are designed to ensure the maximum access and exposure of Canadian services, and their take-up by subscribers. By authorizing the inclusion of appealing non-Canadian services within discretionary service packages, the Commission promotes the distribution of Canadian pay and specialty services. The Commission is convinced that these objectives remain valid. Given the limited scale and duration of the TELUS trials, however, the Commission considers it reasonable that TELUS be given an opportunity to explore alternative means of achieving the above-noted objective of ensuring the maximum access and exposure of Canadian services in a digital environment that permits household addressability. Accordingly, by condition of licence, the Commission has relieved the licensee from the distribution and linkage requirements of subsection 10(2) of the regulations for the purposes and duration of the trials. The Commission’s decision to relieve the applicant from these requirements should not be interpreted as a policy precedent having any broader application beyond these trials. Rather, it reflects the Commission’s desire to provide the applicant with the flexibility, within the context of these trials, to attract subscribers to Canadian services offered in a digital and addressable delivery environment.

The Commission, however, by condition of licence, and consistent with the policy determination set out in Public Notice CRTC 1997-25, requires TELUS to ensure that a preponderance of Canadian programming services is received by each subscriber participating in these trials. The Commission is satisfied that this minimum requirement is appropriate in that, for the purpose of the trials, it provides the applicant a regulatory incentive to promote Canadian services, even in the absence of the distribution and linkage requirements. The Commission also notes the applicant’s commitment to require a buy-through of the basic service before a trial participant may subscribe to any discretionary tier containing specialty and/or pay television service, with the exception of PPV and VOD services. The Commission also notes the applicant’s commitment to distribute a "big basic" package consisting of all licensed Canadian specialty services.

c) Analog distribution of broadcasting services

The applicant stated that a primary objective of the trials is to test and develop broadcasting services in a digital environment. The Commission agrees that this is a worthwhile objective. Accordingly, the Commission requires TELUS, by condition of licence, to ensure that all households participating in its trials subscribe to a digital broadcasting service before they are permitted to subscribe to an analog broadcasting service that may be offered by TELUS.

d) Access requirements

TELUS indicated that the channel capacity of its undertakings will allow it to accommodate all existing and newly licensed Canadian programming services. TELUS stated that, subject to the negotiation of mutually satisfactory distribution arrangements, it intends to provide access to the services of all licensed Canadian programming undertakings that wish to be distributed as part of the trials. The Commission requires the licensee, by condition of licence, to adhere to the Access Rules for Broadcasting Distribution Undertakings stipulated in Public Notice CRTC 1996-60.

e) Rate regulation

Consistent with its policy determinations announced in Public Notice CRTC 1997-25 concerning the rate regulation of new entrants, the Commission will not regulate the fees charged for broadcasting services distributed as part of the TELUS trials. Consistent with the applicant’s statement at the hearing, and in the interest of ensuring that the trials yield meaningful results, the Commission expects TELUS generally to charge fees similar to those charged by the local cable incumbent for a similar package of broadcasting services and higher fees for value added services. The Commission also reminds the applicant of the requirements concerning billing clarity set out in Public Notice CRTC 1993-74 dated 3 June 1993 and entitled Structural Public Hearing.

f) Contributions to Canadian programming

In Public Notice CRTC 1997-25, the Commission stated that all distribution undertakings, with the exception of Class 3 terrestrial distribution undertakings, should be required to contribute a minimum of 5% of gross annual revenues derived from their broadcasting activities to assist in meeting the objectives set out in paragraph 3(1)(e) of the Broadcasting Act.

In its applications, TELUS advised that it does not expect to generate any significant revenues from its trials. Nevertheless, it proposed to serve those objectives through financial contributions totalling $ 200,000 over the period of the trials. Of that amount, $100,000 will be contributed to an independently-administered Canadian production fund. TELUS proposed to direct the remaining $100,000 to the operation of community channels, one in partnership with Grant MacEwan Community College in Edmonton and the other with Mount Royal College in Calgary. According to TELUS, these commitments will translate into a contribution far in excess of 5% of the gross annual revenues to be derived from the broadcasting activities associated with the two trials.

Based on the evidence before it, the Commission is satisfied that the financial contributions proposed by TELUS are reasonable. Accordingly, it is a condition of licence that the licensee, during the term of its licences, contribute a minimum of $100,000 to an independently-administered Canadian production fund, and a minimum of $100,000 to the production of community programming. As part of this condition, the licensee is required to report to the Commission, prior to commencing operations, naming the existing production fund to which it will make its contributions. In this regard, TELUS is reminded of the Commission’s proposal, as set out in Public Notice CRTC 1997-27 dated 11 March 1997, to require that programming contributions, other than expenditures on community expression, be directed to the Canada Television and Cable Production Fund.

In addition to the services required or authorized for distribution pursuant to the applicable sections of the regulations, the licensee is authorized to distribute, at its option and as part of the basic service of both undertakings, the signals of KOMO-TV (ABC), KING-TV (NBC), KCTS-TV (PBS) and KCPQ (FOX) Seattle; and KSTW (CBS) Tacoma, Washington, received via satellite from CANCOM.

TELUS also proposed to distribute interactive services of an entertaining or informative nature, including services that include images and sounds accompanied by alphanumeric material. Specifically, the applicant proposed to offer interactive television, an interactive navigation system and an electronic program guide, user-selectable images and graphics and access to video clips.

As proposed by TELUS, for the purpose of these trials, the Commission authorizes the applicant to distribute interactive services of an entertaining or informative nature. A condition of licence to this effect is set out in the appendix to this decision.

TELUS requested authorization to distribute a VOD programming service during the trials. Although it has not developed firm plans in this regard, the applicant suggested that such a service might include feature films, special events programming and educational programming.

The Commission notes that provision exists for the development and distribution of such programming services, on a trial basis, under the terms and conditions contained in the experimental VOD exemption order (Public Notice CRTC 1994-118). One of the conditions contained in the exemption order (paragraph 4 of the Description section) is that, in the case of a distribution undertaking licensed or exempted by the Commission, the service must not be distributed to more than either 400 subscribers or 5 per cent of its subscribers, whichever is the lesser.

TELUS noted that this condition would limit the scope of any VOD trial it might conduct to no more than 100 subscribers in Calgary and no more than 70 subscribers in Edmonton. It argued that these numbers would be insufficient to permit any meaningful results to emerge from the trials, and requested that the Commission permit such VOD trials to be extended to a maximum of 400 subscribers in the case of each undertaking.

The Commission agrees to the applicant’s request and authorizes TELUS, by condition of licence, to distribute VOD programming services on its two undertakings, provided that the services:

i) adhere to the terms and conditions of the exemption order contained in Public Notice CRTC 1994-118 (with the exception of paragraph 4 in the Description section of the exemption order which shall not apply); and

ii) are distributed to no more than 400 subscribers of each undertaking.

h) Access to inside wire

Although TELUS intends to construct its own distribution plant to the home, the applicant stated that it wants access to the inside wire at a customer’s premises from a predetermined point outside of the premises, thereby permitting the customer to decide who should be the service provider during the trials.

The incumbent cable licensees objected to the proposed use of their inside wire, at least until certain pre-conditions are met.

In its May 1995 Convergence Report, the Commission proposed that "... measures be developed to ensure that all telephone and cable subscribers have the freedom to connect the inside wire to the systems of whichever suppliers of service they choose." In Public Notice CRTC 1997-25, the Commission set out these proposed measures, which would permit the customer to acquire and own the inside wire used to receive broadcasting services.

Although the regulations to give effect to these policies are not yet in force, the Commission expects all parties, including the applicant and the incumbent distributors, to adhere to this policy framework in order to ensure that customer choice is respected wherever possible and under terms and conditions that best reflect individual circumstances.

The TELUS applications include the assumption that trial participants will take all broadcast and telecommunications services from a single supplier, namely itself. A number of interveners, however, suggested that subscribers should be afforded the opportunity to participate in the trials while continuing to receive broadcasting services from the incumbent distributor. They added that subscribers should have the ability to switch between distributors should they wish to do so.

The Commission recognizes that most, if not all, of the technology in question, is undergoing rapid development. Nevertheless, the Commission considers that it is in the public interest that increasing attention be paid to system interoperability in all its facets. This will require examination of a number of issues, including system interconnection, the use of common equipment (subscriber drops, inside wire and set-top boxes), and the development of technical standards for channel compatibility, compression and encryption hardware. The Commission encourages the applicant and interested parties, including the incumbent distributors, content providers and equipment suppliers, to take advantage of opportunities presented by the trials to address such issues.

IV TELUS Multimedia Tariff Notices 1/1A and Other Issues Under the Telecommunications Act

TELUS argued that a requirement that it provide third party access during the trials is unnecessary because the size of the trials makes the provision of third party access impractical at this time, and commercial alternatives exist for Internet Service Providers (ISPs) seeking access to broadband facilities. In the applicant’s view, given the Commission’s approach to date with respect to third party access issues for broadcast carriers and the fact that these issues are currently under consideration in relation to incumbent distributors (Regulation of Certain Telecommunications Services Offered by Broadcast Carriers, Telecom Public Notice CRTC 96-36 dated 6 December 1996), a potential new entrant such as itself, should not be required to resolve the technical issues involved prior to implementing its trial.

The Commission agrees that the applicant’s regulatory position is similar to that of broadcast carriers that currently offer Internet access service. While it considers that TELUS should not be required to file a tariff providing for third party access as a condition of interim approval of its proposed Internet access service, the Commission encourages TELUS to take advantage of the opportunity presented by its trials to work with third party service providers to address technical and other access issues.

b) TELUS Multimedia Tariff Notice 1/1A

TELUS filed Tariff Notice 1, amended by Tariff Notice 1A, in respect of its proposed high speed residential Internet access service. This service, which is intended for personal computer users, will provide access to the Internet and similar information and communications services. TELUS indicated that it contemplated including its proposed high speed Internet access service in packages of broadcasting services, as well as offering it on a stand-alone basis. The Commission notes that it has approved, on an interim basis, similar filings for other broadcast carriers. The Commission grants interim approval to TELUS Tariff Notice 1 and 1A, effective as of today’s date. The Commission intends to consider the final approval once it has addressed the issues raised in Telecom Public Notice CRTC 96-36.

c) Packaging telecommunications services with broadcasting services

TELUS does not propose to offer telecommunications services, other than the high speed residential Internet access service described above. The Commission has determined that, for the purpose of the trials, a package of telecommunications and broadcasting services may not be sold for less than the sum of the tariffed rates of the telecommunications services included in the package and the tariffed charge must be itemized on all bills on which the packaged rate appears. Further, the package may not be designed to circumvent the tariffs set for the telecommunications services included in the package. Where a trial participant pays less than the full bill for a package of broadcasting and telecommunications services, any revenues that are received must be allocated first to the tariffed telecommunications service, up to the full amount of the tariff, before any remaining amount may be allocated to broadcasting services.

TELUS stated that the trial will not employ any network equipment and facilities that are owned and installed by affiliated companies TELUS Communications Inc. (TCI) or TELUS Communications (Edmonton) Inc. (TCEI), with the possible exception of certain trunking facilities that TELUS may lease from TCI and/or TCEI. The trials in Calgary and Edmonton will be conducted by TELUS which is structurally separate from TCI and TCEI. The Commission notes that TELUS will be responsible for all investment and related expenses associated with the trial, and that no costs will be assigned to TCI or TCEI.

TELUS indicated that there may be a requirement to lease certain trunking facilities from TCI and/or TCEI between the satellite down-link location and the head end location, as well as between Calgary and Edmonton. The Commission notes that any use by TELUS of such trunking facilities would be at tariffed rates. The Commission further notes the applicant’s statement that the relevant accounting policy for the treatment of intercorporate transactions will be respected should staff from other affiliated companies participate in the trial.

e) Section 36 approval

This decision is to be appended to each licence.

Appendix to Broadcasting Decision CRTC 97-193

Conditions of licence in respect of the broadcasting distribution undertakings carried on by TELUS at Calgary and Edmonton

1. a) Except as provided below, for the purposes of the Cable Television Regulations, 1986 (the regulations), as amended from time to time, the licensee is deemed to be a Class 1 licensee;

b) subsection 10(2) and sections 17 and 18 of the regulations shall not apply to the licensee; and

c) sections 14 and 15 of the regulations shall apply, with the necessary modifications, in respect of any programs distributed by the licensee that the licensee originates.

2. The licensee shall adhere to the Access Rules for Broadcasting Distribution Undertakings stipulated in Public Notice CRTC 1996-60.

3. The technical and market trials shall provide service to no more than 2,000 individual subscribers in Calgary and 1,400 individual subscribers in Edmonton.

4. The licensee shall contribute, during the term of its licence, a minimum of $100,000 to an independently-administered production fund in support of Canadian programming (such contribution being the total amount for Calgary and Edmonton combined). The licensee is further required to report to the Commission, prior to commencing operations, naming the existing production fund to which it will make its contributions.

12. The licensee shall ensure that a majority of the video and audio channels received by a subscriber are devoted to the distribution of Canadian programming services, other than multiplexed programming or the programming distributed on program repeat channels.

16. The licensee is authorized to distribute to a maximum of 400 subscribers of each undertaking video-on-demand (VOD) programming in accordance with the criteria set out in Public Notice CRTC 1994-118, with the exception of criterion No. 4 which shall not apply to the licensee.