ARCHIVED -  Decision CRTC 97-238

Decision

Ottawa, 30 May 1997

Decision CRTC 97-238

Shaw Cablesystems (Manitoba) Ltd.

Part of Winnipeg, Manitoba - 199702189

Fee increase pursuant to subsection 18(8) of the Cable Television Regulations, 1986 - Partial disallowance

1. Pursuant to subsection 18(8) of the Cable Television Regulations, 1986 (the regulations), Shaw Cablesystems (Manitoba) Ltd. (Shaw) proposed to increase its basic monthly fee by $2.03, effective 1 June 1997.

2. Shaw requested that the Commission allow this increase, in excess of the Commission's guidelines outlined in Public Notice CRTC 1993-146 dated 21 October 1993 (P.N. 1993-146), based on "exceptional circumstances".

3. After its review of the financial information provided by the licensee, the Commission notes that Shaw does not exceed the profitability thresholds set out in P.N. 1993-146 and considers, therefore, that an increase of $0.86 pursuant to subsection 18(8) of the regulations is justified on "economic grounds", as set out below. Accordingly, the licensee may increase its basic monthly subscriber fee by no more than $0.86. However, the Commission considers that Shaw has failed to demonstrate that "exceptional circumstances" exist and, accordingly, disallows implementation of the balance of the proposed $2.03 fee increase.

The licensee's arguments

4. In support of its request, Shaw argued that its basic monthly subscriber fee continues to be among the lowest in the country when compared to the fees charged by other cable operators regardless of their class or size. It contended that the circumstances that have led to the exceptionally low basic monthly fee in Winnipeg are unique in Canada, and that its applications for rate increases have often in the past been restricted by upper limits imposed by section 18(6) of the regulations.

5. Shaw also expressed concern that, if the approach to rate regulation proposed by the Commission in Public Notice CRTC 1996-69 dated 17 May 1996 (P.N. 1996-69) were to be implemented, the basic monthly fee would be essentially "frozen" at an artificially low rate which would perpetuate the existing inequity in Winnipeg.

6. Shaw further noted that the current low rate had made it difficult to make upgrades to the existing plant and equipment. It claimed that like all cable distribution undertakings in Canada, it will soon be facing competition and will be required to incur significant capital expenditures in order to meet that competition successfully.

7. Shaw contended that cable systems in Winnipeg have been without the ability to keep pace with the industry in terms of network upgrades and improvements. With ownership of only a small portion of distribution system assets, the Winnipeg undertaking could rarely qualify, if at all, for rate increases based on the undertaking's return on average net fixed assets (RNFA). Shaw further contended that the Winnipeg undertaking was clearly at a disadvantage when compared to other Canadian cable distribution undertakings with respect to competitive readiness. Shaw stated that this represented an extreme circumstance which needed to be corrected at this time.

Comments

8. The Commission received 23 comments by subscribers on Shaw's proposed fee increase. Many of them argued that this would be the second rate increase in just five months - a rate increase of $0.56 was implemented on 1 January 1997 - and that the subscribers would be subsidizing services that they either do not want or cannot afford.

The Commission's findings

9. The Commission acknowledges that Shaw's basic monthly cable fee is lower than that of other cable operators. 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).

10. 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 Shaw'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.

11. The Commission further notes that the processing of Shaw's fee increase filing has been overtaken by the issuance of Public Notice CRTC 1997-25 dated 11 March 1997 (P.N. 1997-25) in which the Commission announced that it will not proceed with the "price cap" regime proposed in P.N. 1996-69. Accordingly, Shaw's concerns in this regard are no longer applicable.

12. In P.N. 1997-25, the Commission confirmed its intent, as outlined in P.N. 1996-69, that since the bulk of technological upgrades such as the ones described in Shaw's submission 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.

13. In addition, an examination of Shaw's rate profile indicates that in three of the last four years, Shaw's fee increases pursuant to subsection 18(6) of the regulations were limited to 3% of the base portion of its monthly fee. Such a situation has contributed to Shaw having comparatively lower rates. Furthermore, the fee profile indicates that there have been no increases granted pursuant to section 18(8) within the past ten years at least. This can be explained by the fact that overall profitability exceeded Commission benchmarks.

14. However, the Commission notes that the licensee's projected RNFA for the current year and the three following years is below the profitability benchmarks set out in P.N. 1993-146. Shaw is therefore eligible to an increase equal to 10% of the base portion of the monthly subscriber fee in effect at the time the filing was received in the Commission, pursuant to subsection 18(8) of the regulations. Consequently, the Commission has determined that an increase of $0.86 is justified on "economic grounds".

15. For the balance of the proposed $2.03 fee increase, over and above the $0.86 referred to above, the Commission considers that Shaw 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

This document is available in alternative format upon request.

DEC97-238_0