ARCHIVED -  Public Notice CRTC 1997-32

Public Notice

Ottawa, 20 March 1997

Public Notice CRTC 1997-32

Broadcasting Licence Fee Regulations, 1997

Background

In Public Notices CRTC 1996-149 and 1996-149-1 dated 22 and 29 November 1996, respectively, the Commission called for comments on its proposal to make new broadcasting licence fee regulations (Fee Regulations), in replacement of the existing fee regulations.

The proposed regulations were drafted by the Commission in response to the Treasury Board's decision to grant the Commission vote-netting authority for the broadcasting activity. As a result of this decision, the Commission will henceforth require that a portion of the licence fees be paid as of 1 April each year to finance the Commission's operating expenditures.

The Commission's intent in drafting the proposed new regulations was to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on both an industry-wide and individual undertaking basis over the period of the next three years, assuming that the Commission's approved funding level remains stable.

Commission's Determination

Having considered the comments received, pursuant to subsections 10(1) and 11(1) of the Broadcasting Act, the Commission, with the approval of Treasury Board, has made the Broadcasting Licence Fee Regulations, 1997 (SOR/97-144). With the exception of the amendments noted below, these regulations are essentially the same as those proposed in Public Notices CRTC 1996-149 and 1996-149-1 and published in the Canada Gazette, Part I, on 30 November 1996.

The new Fee Regulations (a copy of which is attached to this notice) were registered with the Clerk of the Privy Council on 17 March 1997 and will come into effect 1 April 1997. They will be published in the Canada Gazette, Part II, on 26 March 1997 (SOR/97-144). As contemplated by section 10 of the Fee Regulations, the Commission notes that the estimated regulatory costs to be recovered through Part I licence fees for the fiscal year commencing 1 April 1997 is $20.35 million.

Key elements of the new Fee Regulations

The new Fee Regulations contain two key elements. The first is a revised fee structure, whereby each licensee subject to the regulations will remit to the Commission a Part I licence fee, payable on 1 April each year, and a Part II licence fee, payable on or before 30 November each year. The Part I fee is based on the broadcasting regulatory costs incurred each year by the Commission and other federal departments or agencies, excluding spectrum management costs; while the Part II fee amounts to 1.365% of a licensee's gross revenue in excess of an applicable exemption limit.

The second key element of the new Fee Regulations is a licence fee process streamlined through the elimination of the $25 basic licence fee and by an expansion of the classes of undertakings exempt from the regulations to include native, community, campus/community and independent corporations, as defined in the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences), which derive none of their revenues from the sale of air time. As a result, approximately 2,000 undertakings will no longer be required to file an annual licence fee return or pay licence fees.

Public comments

In response to Public Notices CRTC 1996-149 and 1996-149-1, comments were received from the following parties: Canadian Association of Broadcasters (CAB), Canadian Cable Television Association (CCTA), CJRT-FM (CJRT), Kincardine CABLE TV Ltd. (KCTV), The National Campus and Community Radio Association (NCRA), Public Interest Advocacy Centre (PIAC), and YTV Canada Inc. (YTV). A summary of the substantive issues raised in the comments, and the Commission's response in respect of each, are set out below.

a) Differences in fee structures - broadcasting licence fee regulations versus telecommunications fee regulations

The CCTA and CAB acknowledged that new regulations were necessary in order to respond to Treasury Board's decision granting the Commission vote-netting authority for the Commission's broadcasting activity. Both parties contended, however, that inequities would continue to exist between these regulations and the Telecommunications Fees Regulations, 1995.

Both parties indicated that, with the increasing convergence of broadcasting and telecommunications technologies, and particularly in light of growing competition between telephone companies and broadcasting distribution undertakings, there was no longer any justification for placing a licence fee burden upon broadcasters that would be any greater than that borne by telecommunications companies. Accordingly, the CAB and CCTA urged the Government and the Commission to undertake a comprehensive review of the way licence fees are applied, with a view to establishing equal treatment between the converging broadcasting and telecommunications industries.

While the Commission acknowledges the differences between the regulations governing the fees paid by broadcasters and those paid by telecommunications companies, it notes that the Fee Regulations will be applied consistently to all relevant parties. For example, telecommunications companies granted broadcasting licences will be subject to the provisions of the Fee Regulations on the same basis as broadcasters.

The Commission is satisfied that the new Fee Regulations address the primary reason for their development, namely, to respond to the Treasury Board's decision granting the Commission vote-netting authority, while retaining a system that will generate an amount of revenue equivalent to that raised under the previous fee regulations. Accordingly, the Commission is of the view that a fundamental re-evaluation of the Fee Regulations, beyond the review identified under section c) below, is not warranted at this time.

b) Establishing a limit on the amount of licence fees payable

Three parties (CAB, CCTA and YTV) recommended that a cap be established to ensure that the sum of the Part I and Part II fees be no greater than the current rate of 1.8% of all revenues that exceed the exemption amount.

The Commission does not consider the suggestion for a cap on licence fees to be appropriate, as this would limit its spending flexibility. The Commission notes in this regard that spending flexibility under the vote-netting authority may be required from time to time in order to finance one-time unanticipated costs incurred in any given year. In such circumstances, fees in excess of those that would have been assessed under the old regulations may be required.

In approving the Fee Regulations, Treasury Board provided the Commission with limited authority for exceeding authorized funding levels. This was instituted to ensure that any one-time expenditures incurred by the Commission in excess of approved funding levels, and assessed to the broadcasters, would be minimal. The Commission notes that, under the new fee structure, any permanent adjustment to the Commission's funding levels would continue to require Treasury Board and Parliamentary approvals.

c) Request to re-define "fee revenue"

The CCTA requested that "fee revenue" be re-defined in order to ensure equitable responsibility for the payment of licence fees. Specifically, the CCTA contended that the proposed regulations are inequitable since all licensed participants in the broadcasting system, with the exception of licensed pay, pay-per-view and specialty programming undertakings, will pay an equivalent share of their revenues to directly fund the Commission's activities with respect to the regulation of broadcasting. The CCTA submitted that these types of undertakings, as well as any other subscriber-supported programming undertakings to be licensed in the future, should be obliged to include in their "fee revenue" the revenues generated through subscriber fees, and that distribution undertakings should not be required to include such amounts.

The Commission notes that the new Fee Regulations maintain the definition of "fee revenue" as it existed under the previous regulations. The Commission further notes that the CCTA's proposal would not be revenue neutral, in comparison to the previous fee structure. Thus, the Commission considers that it would be inappropriate to change the definition of "fee revenue" at this time.

Nevertheless, the Commission recognizes that the broadcasting landscape is changing as a consequence of technological developments. Therefore, the Commission considers it appropriate to undertake a review, within the coming year, to determine the principle of who should be paying licence fees. Results of this analysis may necessitate future public consultations.

The CAB commented that it was satisfied with the revised definition of "fee revenue" as set out in Public Notice CRTC 1996-149-1. It requested, however, that the definition of "fee revenue" contained in paragraph (b) be amended in order to provide clearer guidance as to the basis upon which the Commission would estimate such revenue. As part of its proposal, the CAB suggested that the term "industry trends" be eliminated as a basis for calculating estimated fee revenue, since particular circumstances could vary from licensee to licensee.

The Commission considers that there is merit in the CAB's suggestion, and accordingly, has amended paragraph (b) of the definition of "fee revenue" to provide clearer guidance. As a result, if a licensee does not file a licence fee return covering the full 12 months of the previous return year, the Commission will estimate fee revenues based on the trends of the market in which the undertaking is licensed to operate, the previous financial performance of the undertaking, and, where applicable, the licensee's business plan for the first 12 months of operation.

d) Expanding the classes of licensees exempt from the fee regulations

Three parties filed comments concerning paragraph 2(a) of the proposed regulations which relates to the classes of licensees exempt from the provisions of the Fee Regulations.

i) Campus/Community undertakings

The NCRA expressed support for the proposed regulations. It noted that:

 The elimination of the Licence Fee and the need to file a Licence Fee Return will be of benefit to the campus/ community radio sector. Many campus and community stations operate with a small staff and action on the part of the CRTC to reduce the workload required to meet regulatory requirements is welcome.

The Commission notes the NCRA's mention of the "campus/community" radio sector. The proposed regulations attached to Public Notice CRTC 1996-149 made reference to "community" broadcasting undertakings. Reference, however, should also be made to campus/community undertakings, which constitute a class of undertaking separate from community undertakings. Accordingly the Commission has amended paragraph 2(a) of the regulations in order to include campus/community undertakings among those that are exempt from the provisions of the Fee Regulations.

ii)  Clarification of fee exemption status for undertakings that provide educational programming

In the proposed regulations attached to Public Notice CRTC 1996-149, educational broadcasting undertakings were included as exempt undertakings. Comments regarding this subject were received from PIAC and CJRT.

PIAC  stated that it takes "educational broadcasting undertakings" to mean public, as opposed to private (commercial), undertakings. CJRT requested clarification of its status and asked if it would be exempt under the provisions of the proposed regulations.

The Commission considers that clarification of the fee exemption status for undertakings that provide educational programming is warranted. Accordingly, section 2 of the regulations has been amended and a new paragraph 2(c) has been added. This paragraph stipulates that, among those undertakings that provide educational programming, only independent corporations, as defined in the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences), which derive none of their revenues from the sale of air time, are exempt from the provisions of the Fee Regulations.

As a consequence, broadcasters who provide educational programming, but who earn a portion of their revenues from the sale of air time, will continue to be subject to the Fee Regulations.

Broadcasters providing educational programming, but who are in direct competition with commercial undertakings for advertising revenues, will be required to pay licence fees in respect of that portion of their advertising revenues that exceeds specified exemption limits, regardless of whether they are primarily publicly or commercially funded. This ensures equitable treatment of all broadcasters.

While CJRT is thus not exempt from the requirements of the regulations, it is not required to file an annual fee return, nor is it liable to pay any licence fees, until such time as any revenues it receives from its licensed activity, through, for example, the sale of air time, exceeds the applicable exemption level.

e)  Exemption levels and proposal for a minimum flat licence fee

Four comments were received regarding exemption levels and a minimum flat licence fee.

Both the CAB and CCTA expressed their support for the Commission's proposal to eliminate the minimum flat licence fee of $25. They noted that this initiative would reduce the regulatory burden on smaller broadcasting operations.

KCTV recommended that, to strengthen the financial position of smaller cable operators, the exemption level for distribution undertakings be increased to $1,000,000 from the current level of $175,000.

PIAC suggested that the exemption levels for radio and television undertakings are too high, and submitted that a minimum flat fee should be applied as part of these exemption levels. It indicated that this would be appropriate, since broadcasting undertakings use publicly owned spectrum.

The Commission notes that in revising the fee regulations, there was no intent to review the appropriateness of exemption levels. Furthermore as KCTV's proposal would result in a decrease of revenues (i.e. would not be revenue neutral), the Commission does not consider this proposal to be appropriate.

With regard to PIAC's comment, while the Commission agrees that radio and television undertakings make use of spectrum that is public property, it considers that this fact should not be viewed in isolation. It considers that the advantages associated with reduced regulatory burden for the industry and reduced administration costs are sufficient public benefits. Accordingly, the Commission has not accepted PIAC's proposal that a minimum flat fee be applied as part of the revenue exemption levels.

f)  Adjustment of the Part I fee to actual costs

PIAC indicated that it does not support the Commission's proposal to credit back to the broadcasters any Part I revenue collected in excess of actual regulatory costs. PIAC stated that any excess revenue should be considered as payment for using the broadcasting spectrum, which is a public resource.

The Commission does not concur with the position expressed by PIAC. The Commission notes that the Part I fee billing that is due on 1 April each year will be calculated in a manner to approximate, as closely as possible, the actual costs of regulation. Nevertheless, if the Part l billing amount is too high, broadcasters would be credited the excess over actual costs. Similarly, if the Part I billing is not sufficient, the Commission would bill undertakings for its actual regulatory costs. Any such adjustment would be made as part of the annual adjustment process provided for under subsection 8(2) of the Fee Regulations. Thus, the Commission concludes that the principle of adjusting estimated costs to actual costs will remain as presented in Public Notice CRTC 1996-149.

The Commission thanks all of the parties who submitted comments in this proceeding for their assistance in the development of the Broadcasting Licence Fee Regulations, 1997.

Allan J. Darling
Secretary General

JUS-97-66-01
(SOR/DORS)

BROADCASTING LICENCE FEE REGULATIONS, 1997

interpretation

1. The definitions in this section apply in these Regulations.

"associated corporation" has the meaning assigned to that expression in section 256 of the Income Tax Act. (société associée)

"exemption level" means

(a) for a distribution undertaking, $175,000;

(b) for a television undertaking, $1.5 million; and

(c) for a radio undertaking,

(i) subject to subparagraph (ii),

(A) where the  fee revenue of the undertaking is $2 million or less, $2 million, and

(B) where the  fee revenue of the undertaking is greater than $2 million,
$500,000, and

(ii) in the  case of a joint radio undertaking,

(A) where the  combined fee revenue of the radio undertakings
is $4 million or less, $4 million, and

(B) where the  combined fee revenue of the radio undertakings
is greater than $4 million, $500,000. (franchise)

"fee revenue", in respect of a licensee of a broadcasting undertaking, means the gross revenue derived during a return year from the licensed activity of the licensee, whether received by the licensee or by an associated corporation, and, without limiting the generality of the foregoing, includes

(a) any  revenue received in respect of all transmitters forming part of the undertaking, where the broadcasting undertaking consists of more than one transmitter;

(b) the  estimated annual revenue, based on the trends of the market in which the undertaking is licensed to operate, the previous financial performance of the undertaking, and, where applicable, the licensee's business plan for the first 12 months of operations, where the licensee has not filed a licence fee return covering 12 months of the most recently completed return year; and

(c)  revenue that is derived from the sale of air time of the broadcasting undertaking by the Corporation and paid by the Corporation to the licensee.

This  definition does not include any amount received by the licensee from another licensee, other than the amounts received from the Corporation for the sale of air time. (recettes désignées)

"fiscal year" means the one-year period beginning April 1 in any year. (exercice)

"joint radio undertaking" means an AM radio undertaking and an FM radio undertaking operated by the same licensee, or by a licensee and an associated corporation, where any part of the FM 3 mV/m contour overlaps any part of the AM daytime 15 mV/m contour. (entreprise de radio conjointe)

"licensee" means a person licensed to carry on a broadcasting undertaking. (titulaire)

"Part I licence fee" means the licence fee set out in Part I. (droits de licence de la partie I)

"Part II licence fee" means the licence fee set out in Part II. (droits de licence de la partie II)

"radio undertaking" includes a broadcasting undertaking licensed by the Commission as a (Radio) Programming Undertaking, a (Pay-Audio) Programming Undertaking or a (Radio) Network. (entreprise de radio)

"return year" means the one-year period beginning September 1 in any year. (année de rapport)

"television undertaking" includes a broadcasting undertaking licensed by the Commission as a (Television) Programming Undertaking, a (Pay-TV) Programming Undertaking, a (Satellite-to-Cable) Programming Undertaking, a (Specialty) Programming Undertaking, a (Direct-to-home pay-per-view) Programming Undertaking, a (Video-on-demand) Programming Undertaking or a (Television) Network. (entreprise de télévision)

application

2. These Regulations apply to all licensees other than

(a) a radio undertaking or a television undertaking licensed by the Commission as a student broadcasting undertaking, a native broadcasting undertaking, a community broadcasting undertaking or a campus/community broadcasting undertaking;

(b) broadcasting undertakings carried on by the Corporation; and

(c) an independent corporation, as defined in the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences), which derives none of its revenues from the sale of air time.

fees

3. Every licensee shall pay annually to the Commission

(a) a Part I licence fee, payable 30 days after the date of the invoice from the Commission; and

(b) a Part II licence fee, payable on or before November 30 in each year.

4. Where a fee referred to in section 3 has become due but remains unpaid, the licensee shall pay interest and administrative charges in accordance with the Interest and Administrative Charges Regulations.

licence fee returns

5. On or before November 30 in each year, every licensee whose fee revenue for the most recently completed return year exceeds the exemption level shall file with the Commission a licence fee return, on the form provided by the Commission, with respect to each broadcasting undertaking that is carried on by the licensee.

6. A licence fee return filed pursuant to section 5 shall contain the information required in the form referred to in that section for the one-year period beginning September 1 of the year preceding the calendar year in which the return is required to be filed.

PART I

PART I LICENCE FEE

7. The components of a Part I licence fee shall consist of

(a) an initial amount calculated in accordance with subsection 8(1); and

(b) an annual adjustment amount calculated in accordance with subsection 8(2).

8. (1) The initial amount shall be calculated by the Commission using the formula

(A / B) x C

where

A is the licensee's fee revenues for the most recently completed return year, less that licensee's exemption level for that return year;

B is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that return year; and

C is the estimated total regulatory costs of the Commission for the current fiscal year as calculated in accordance with section 9.

(2) The annual adjustment amount shall be calculated by the Commission using the following formula

(A / B) x D

where

A is the licensee's fee revenues for the most recently completed return year, less that licensee's exemption level for that return year;

B is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that year; and

D is the difference between the estimated total regulatory costs and the actual total regulatory costs of the Commission for the fiscal year as calculated in accordance with section 9.

(3) The annual adjustment amount referred to in subsection (2) shall be charged or credited to the licensee in the following year's invoice and shall not, in any case, result in a disbursement of monies on the part of the Commission.

9. (1) The estimated total regulatory costs of the Commission for the current fiscal year is the sum of the following amounts as set out in the Commission's Expenditure Plan published in Part III of The Estimates of the Government of Canada:

(a) the costs of the Commission's Broadcasting Activity; and

(b) the share that is attributable to the Commission's Broadcasting Activity of

(i) the  costs of the Commission's administrative activities, and

(ii)  the other costs that are taken into account to arrive at the net cost of the Commission's program, excluding the costs of regulating the broadcasting spectrum.

(2) The  actual total regulatory costs of the Commission shall be calculated in accordance with subsection (1) using actual amounts.

10. The  Commission shall publish, each year, the estimated total regulatory costs referred to in subsection 9(1) in a public notice in the Canada Gazette, Part I.

PART II

PART II LICENCE FEE

11. A  Part II licence fee shall consist of an annual licence fee, based on the fee revenue of a licensee for the return year that terminated in the current calendar year or during that portion of that return year in which the licensee held the licence to operate the undertaking, the amount of which shall be calculated as follows:

(a) for  a distribution or a television undertaking, 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level; and

(b) for  a radio undertaking,

(i)  subject to subparagraph (ii), 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level, and

(ii) in  the case of a joint radio undertaking, 1.365 per cent of the amount by which the combined fee revenue exceeds the applicable exemption level.

repeal

12. The  Broadcasting Licence Fee Regulations are repealed.

coming  into force

13.  These Regulations come into force on April 1, 1997.