ARCHIVED -  Decision CRTC 97-677

Decision

Ottawa, 22 December 1997

Decision CRTC 97-677

Star Choice Television Network Incorporated

Across Canada - 199705456 - 199705464

Merger of licensee companies authorized to provide national direct-to-home (DTH) satellite services -Approved; Proposed licence amendment - Approved in part

1. Following consideration of the applications announced in Public Notice CRTC 1997-94 dated 16 July 1997, the Commission, by majority vote, approves the request by Star Choice Television Network Incorporated (STNI) for authority to effect a merger between STNI, a wholly-owned subsidiary of Star Choice Communications Inc. (Star Choice), and Homestar Services Inc. (Homestar), a wholly-owned subsidiary of Shaw Communications Inc. (Shaw). The Commission also amends STNI's DTH licence by adding the conditions of licence set out later in this decision.

2. Both Homestar and STNI are currently authorized to carry on national DTH satellite distribution undertakings. Only STNI, however, has put its service into operation. As a consequence of the approval granted herein, Homestar will not implement its authority to operate a separate DTH service. Accordingly, the Commission will not issue to Homestar the licence that it would otherwise have issued in respect of this service.

3. Upon completion of the proposed transaction, Shaw's interest in Star Choice will amount to between 49.3% and 60.9% of the voting shares, depending on the number of outstanding warrants and options that are exercised by other shareholders. According to the applicant, control of STNI will reside with the licensee's board of directors, with Shaw having the ability to nominate 50% of its members.

4. Shaw is Canada's third largest cable television operator. It is also involved in the ownership of several specialty programming services. In Decision CRTC 97-38 approving Homestar's application for a DTH licence, and in recognition of the potential opportunities that a cable-owned DTH service would have to benefit from cross-subsidization and preferential treatment involving the cable operations of its affiliates, the Commission imposed conditions of licence 13 to 18, which were designed to prohibit such practices and ensure the maintenance of structural separation between Homestar's proposed DTH business activities and those of Shaw, particularly in cable distribution.

5. To address this concern now arising in the context of Shaw's proposed ownership participation in STNI, in a second application announced in Public Notice CRTC 1997-94, STNI proposed that its licence be amended through the inclusion of a new condition of licence. It claimed that the proposed condition would effectively serve the same purpose as conditions of licence 13 to 18 set out in Decision CRTC 97-38, in that it would prevent STNI from granting any undue preference and/or advantage to any person, including Shaw or its affiliates. Apart from this amendment, STNI confirmed that its undertaking would continue to operate in accordance with the same terms and conditions of licence contained in Decision CRTC 96-529 approving STNI's original DTH licence application.

Interventions

6. The Commission received nine interventions to STNI's applications. Of these, two expressed opposition to their approval, six were in support, and one intervention offered conditional support.

7. One opposing intervener argued that the applications should either be denied outright or given further consideration at a public hearing, on the grounds that the number of services offered is too limited and the cost of the equipment necessary to receive the service is too high. In the Commission's view, the concerns expressed by this intervener are matters unrelated to the applications under consideration. It notes, however, that STNI's service offering is comparable to that of the other licensed DTH undertaking currently in operation, and that the rates charged by DTH licensees, while not regulated, are nonetheless subject to the requirements and realities of a competitive marketplace.

8. The Canadian Broadcasting Corporation, in an opposing intervention, raised concerns about the status of its negotiations with STNI for the carriage of the intervener's pay audio service. This matter has been dealt with as part of a separate process.

9. For their part, the supporting interveners generally focused on the need for effective and sustainable competition in the DTH market, particularly from the perspective of those living in rural areas who do not have access to other forms of distribution services. They believe that the greater financial stability and strength resulting from the proposed merger of STNI and Homestar will ensure the ongoing presence of such competition. Telesat Canada Inc. also noted that the merger of the two DTH services would help alleviate the present shortage of transponder capacity, and that this would strengthen the business prospects of STNI.

10. In its intervention, ExpressVu Inc. (ExpressVu) acknowledged that the DTH industry requires investors who possess financial resources sufficient to ensure effective and sustainable competition, but expressed concern regarding Shaw's participation in STNI. ExpressVu is licensee of the other national DTH satellite distribution undertaking currently in operation, in competition with STNI. ExpressVu is effectively controlled by BCE Inc., a company with significant interests in telecommunications, including effective control of Bell Canada and Telesat Canada Inc.

11. Contrary to the applicant's claim that control of STNI would reside with its board of directors, ExpressVu stated that approval of the transaction would, in fact, place control in the hands of Shaw. With regard to the new condition of licence that STNI proposed be added to its licence, ExpressVu claimed that, while this condition would preclude STNI from conferring any undue advantage upon Shaw and its affiliates, it would not prevent Shaw or its affiliates from granting such an undue preference to STNI. ExpressVu argued that, in the circumstances, the conditions attached to Homestar's licence in Decision CRTC 97-38 should now be applied to STNI, or as an alternative, that STNI should accept a condition of licence that would clearly rule out any undue preference passing in either direction between STNI and Shaw or its affiliates.

Commission's determination

12. With respect to the question of where control of STNI would reside following the proposed merger, the Commission notes STNI's acknowledgement, contained in its reply to ExpressVu's intervention, that Shaw would have negative control at the board level.

13. The Commission has determined, however, that effective control of STNI will reside with Shaw following the merger. The Commission's determination is based, in part, on the fact that Shaw will have negative control of the licensee's board of directors, and will likely own more than 50% of the voting shares of STNI, a company in which no other shareholder will own more than 10%.

14. The Commission is satisfied that approval of this transfer of control is warranted on the grounds that it will give STNI a stronger financial base and access to the transponder capacity currently assigned to Homestar - factors that should contribute to the creation of a competitive Canadian DTH industry.

15. Nevertheless, given Shaw's activities in the cable distribution industry, and in the interest of fair and equitable competition, effective safeguards will be necessary to ensure that no undue preference or advantage passes between STNI and Shaw, or any of Shaw's affiliates. The Commission has considered the views of both ExpressVu and STNI regarding what condition or conditions of licence would serve as appropriate safeguards. In particular, the Commission has noted the following statement by STNI contained, as part of the public record of this proceeding, in a 16 June 1997 letter to the Commission:

If the Commission is only prepared to approve the merger on the basis of the Homestar conditions of licence...Star Choice and Shaw would nevertheless continue with their commitment to bring a competitive DTH service to Canadians.

16. At the same time, the Commission has considered STNI's concerns that the imposition on STNI of Homestar's existing licence conditions would create a competitive inequality between the services that STNI and ExpressVu would be permitted to obtain from their respective affiliates, either for use in conducting their businesses or for distribution to subscribers.

17. The Commission considers that STNI's concerns are justified, and has therefore decided not to impose on the licensee all of the conditions of licence that would have applied to Homestar with respect to undue preference and structural separation. Instead, the Commission has decided to impose two conditions of licence that constitute amended versions of two existing Homestar conditions, and a third condition of licence that prohibits undue preference or advantage. Accordingly, as agreed to by the applicant in a letter to the Commission dated 16 December 1997 which also forms part of the public record of this proceeding, the Commission hereby amends STNI's licence by adding the following conditions 13, 14 and 15 to those currently attached:

13. The licensee shall not give an undue preference to any person, including itself, or subject
any person to an undue disadvantage.

14. The DTH undertaking to be carried on by the licensee shall remain, at all times, an entity
that is independent of, and legally separate and distinct from, Shaw Communications Inc. and
all companies or other entities controlled directly or indirectly by Shaw Communications Inc.

15. None of the licensee's board of directors shall be persons who are members of the board of
directors of Shaw Communications Inc. or of any company or other entity controlled directly or
indirectly by Shaw Communications Inc.

18. In the Commission's view, adherence by STNI to the conditions set out above will not prevent the licensee from operating its DTH undertaking in an efficient and competitive manner. At the same time, the Commission is satisfied that these provisions will be sufficient to ensure that the licensee remains structurally separate from Shaw and should eliminate the concerns of ExpressVu and others regarding the possible transfer, in either direction, of any undue preference between STNI and Shaw or its affiliates. In particular, the Commission considers that condition of licence 13 above would prohibit STNI from giving an undue preference to Shaw or its affiliates, as well as from receiving an undue preference from Shaw or its affiliates.

19. As an example, and without limiting the activities or circumstances the Commission might determine to constitute an undue preference, the Commission would interpret these conditions as prohibiting STNI from receiving information from Shaw about a party who has notified Shaw of his or her intention to cancel a subscription with one of Shaw's cable distribution undertakings, as such information, and the opportunity it would give STNI to canvass that party as a potential DTH subscriber, would be to the undue disadvantage of other DTH licensees.

20. The Commission would also interpret these new conditions as requiring STNI to provide its service on the same terms and conditions to all persons in similar circumstances residing in the service area of any cable distribution undertaking carried on by Shaw or one of its affiliates.

21. As a further matter, the Commission notes that the conditions do not prohibit STNI from obtaining any specific service from Shaw or its affiliates, either for use in conducting its business or for distribution to subscribers. In the Commission's view, concerns about undue preference or disadvantage would not likely arise if such services are conveyed to STNI at market value or are otherwise made available to other, unaffiliated parties, at comparable rates and under comparable circumstances.

This decision is to be appended to the licence.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

Dissent of Commissioner Garth Dawley to Decision CRTC 97-677

Commissioner Garth Dawley dissents from the decision of the Commission's majority on the basis of his concern that the concentration of ownership resulting from this approval will be detrimental to the development of a competitive environment for the broadcast and delivery of Canadian services.