ARCHIVED -  Public Notice CRTC 1998-60

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Public Notice

  Ottawa, 23 June 1998
  Public Notice CRTC 1998-60

A Policy Framework for the Introduction of Competition to the Satellite Relay Distribution Industry

  Introduction to Decisions CRTC 98-171 to 98-174; and call for comments and related requests on a proposal to authorize reception by Class 2 and 3 broadcasting distribution undertakings of the 4 + 1 U.S. television network signals directly from U.S. service providers using U.S. satellites
  1. The purpose of this public notice is to announce the Commission's policy framework for a competitive satellite relay distribution industry, and to introduce decisions issued today on a number of applications heard at a Public Hearing commencing 16 February 1998 in the National Capital Region.
  2. In this notice, the Commission also calls for comments on a proposal that would serve as a key element of its overall policy framework, namely a plan to permit Class 2 and 3 broadcasting distribution undertakings (BDUs) to receive the 4+1 U.S. television network signals directly from U.S. satellite service providers, and calls for requests to add specific signals to the List of Part 2 Eligible Satellite Services and the List of Part 3 Eligible Satellite Services (satellite lists).
  3. At the 16 February hearing, the Commission considered an application by Canadian Satellite Communications Inc. (Cancom) for renewal of its licence to carry on a national, multiple channel television and radio relay distribution undertaking. In Decision CRTC 98-171 of today's date, the Commission has renewed this licence for a period of two years. The renewed licence authorizes Cancom to carry on what will now be called a Satellite Relay Distribution Undertaking (SRDU).
  4. In other decisions issued today, the Commission announces its determinations with respect to certain other applications presented at the 16 February 1998 hearing. All of these contemplate the introduction of competition, whether on a national or regional basis, to Cancom's licensed broadcasting activity, that being the distribution of television services to terrestrial BDUs and direct-to-home (DTH) BDUs. In Decision CRTC 98-172, the Commission has approved an application by Star Choice Television Network Incorporated (Star Choice) for a licence to carry on a second national SRDU service similar to that currently offered by Cancom. Star Choice is the licensee of an existing, national, DTH distribution undertaking. As in the case of Cancom, the new SRDU licence is for a term of two years.
  5. The Commission's SRDU policy will generally rely upon competition to ensure that the broadest possible choice is available to BDUs at a reasonable cost. While the Commission has decided to renew Cancom's licence and issue a new licence to Star Choice, there exists uncertainty concerning the future ownership structure within the Canadian SRDU industry. In the circumstances, the Commission considers that the two year licence terms granted to Cancom and Star Choice are warranted.
  6. All of the remaining applications have been denied, including one by Prime Time Canada, on behalf of a company to be incorporated, proposing what would have been a third, national SRDU service. The Commission found Prime Time Canada to be ineligible to hold a broadcasting licence under the Direction to the CRTC (Ineligibility of Non-Canadians) P.C. 1997-486(see Decision CRTC 98-173). The other applications, either by or on behalf of a number of BDUs, sought authority to distribute U.S television signals (in the case of one application, U.S. radio signals as well) received directly from U.S. satellites. These applications have been denied for the reasons set out in Decision CRTC 98-174.
  7. Based on the evidence provided at the 16 February 1998 hearing, however, and in keeping with its overall policy objective of providing subscribers of smaller BDUs with the broadest possible choice at an affordable cost, the Commission proposes to implement measures that would permit Class 2 and Class 3 BDUs to receive the 4+1 U.S. television network signals directly from U.S. satellite service providers. Specifically, the Commission contemplates that the existing satellite lists would be amended, by adding signals that Class 2 and 3 BDU licensees would be permitted to receive directly from U.S. satellite service providers, whether through authorizations now contained in the Broadcasting Distribution Regulations (the regulations) affecting Class 3 licensees, or through authorizations that, upon application by Class 2 licensees, may be granted pursuant to a condition of licence. Class 1 and Class 2 licensees are reminded that, in accordance with the Distribution and Linkage Requirements for Class 1 and Class 2 licensees (Public Notice CRTC 1997-151 dated 22 December 1997), a condition of licence is required in order to distribute these signals as part of the basic service.
  8. The Commission notes that, although the applications dealt with in Decision CRTC 98-174 have been denied, the flexibility that most of the applicants sought would be achieved under the Commission's proposal to amend the satellite lists.
  9. In the circumstances, the Commission considers that interested parties should be given a further opportunity to provide written comments and supporting evidence with regard to the potential impact of this measure on the Canadian broadcasting system and the ability of its components to achieve the policy objectives set out in the Broadcasting Act (the Act). These comments will assist the Commission in reaching its ultimate determination on implementation of this policy proposal. Details concerning the public process that the Commission will conduct on this matter are provided later in this notice.
  10. In view of the above, the Commission denies the request, presented at the 16 February 1998 Public Hearing by the Canadian Cable Systems Alliance, that the signals of the U.S. satellite service provider known as Prime Time 24 be added to the satellite lists.
  11. The policy framework described below addresses, among other things, the role that SRDU undertakings are expected to play within the Canadian broadcasting system and the contributions they are required to make to the creation and presentation of Canadian programming. In order to ensure fair and sustainable competition, the policy framework also prescribes a specific condition of licence to deal with concerns about undue preference or disadvantage. Further, the Commission has imposed conditions on licensees regarding their conduct and obligations in resolving disputes between themselves and either their affiliates or program providers.
  Fair and sustainable competition
  12. Fair and sustainable competition within an industry is taken to require increased reliance on market forces for the provision of facilities, products and services. The Commission's policy framework for the SRDU marketplace favours entry to all qualified applicants, with primary consideration being given to the financial ability of the sector to sustain competition, rather than to the financial viability of specific undertakings.
  13. The Commission is satisfied that the introduction of competition to this sector will benefit the viewing public and the Canadian broadcasting system generally, and the subscribers of smaller systems in particular. Objectives include both the development of a strengthened Canadian distribution sector better able to compete with the unlicensed "grey market", and the emergence of certain system-wide benefits, including enhanced choice and cost-competitiveness, flowing from the greater efficiencies, innovation and customer service that generally exist in a competitive
  Extension of Service
  14. While the role of an SRDU has grown to encompass more than the original goal of extending Canadian services to remote and underserved communities, the Commission emphasizes that this remains its fundamental purpose and objective. The Commission notes that SRDUs also serve as signal suppliers for urban areas. New entrants to the SRDU marketplace should bring the benefits of competition to these areas as SRDUs increasingly compete with terrestrial alternatives, such as optical fibre and microwave distribution networks.
  Preponderance of Canadian signals
  15. Licensed SRDUs will be required to distribute a preponderance of Canadian signals. The Commission notes that the two successful applicants proposing national operations indicated their acceptance of such a requirement in order to help ensure the continued availability of, and choice among, Canadian signals.
  Minimum levels of French-Language services
  16. Licensed SRDUs offering a national service will be required to provide national distribution for the signals of all conventional, Canadian, French-language television services that purchase national program rights, other than the French-language television network service of the Canadian Broadcasting Corporation (CBC), which service is already generally available to BDUs via satellite. With respect to regional SRDUs, the Commission is prepared to consider exceptions to this general requirement on a case-by-case basis.
  17. The Commission encourages Cancom and Star Choice, as resources permit, to increase the range of French-language services that they make available to affiliates.
  Contributions to the creation and presentation of Canadian programming
  18. Licensed SRDUs will be required to provide contributions to the creation and presentation of Canadian programming representing a minimum of 5% of their annual gross revenues derived from broadcasting activities. This is the same level of contribution that is generally required of all BDUs under the regulations, with the exception of Class 3 terrestrial distributors.
  19. At the hearing, the Commission discussed with Cancom the appropriateness of including, as part of that licensee's required contribution to Canadian programming, the annual costs that are currently absorbed by Cancom through its policy of subsidizing the cost of the equipment used by its BDU affiliates to decode Cancom's satellite signals. In the Commission's view, Cancom's decoder subsidy program has served essentially as a marketing technique to attract and retain affiliates. As such, the costs associated with this program are most appropriately identified as a cost of doing business rather than as a bona fide contribution to Canadian programming. Accordingly, and as a matter of policy applicable to all licensed SRDUs, the Commission has decided to disallow the inclusion of decoder costs as part of required annual contributions to Canadian programming.
  20. Otherwise, considerable flexibility will be accorded SRDUs in choosing where their contributions will be directed. For example, the Commission would be disposed to accept financial contributions to independent Canadian program production funds, or to certain named parties who might otherwise have difficulty obtaining funding, including groups active in native and French-language broadcasting, and in programming involving distance learning.
  21. Licensees will be required, by condition of licence, to file a report for the Commission's approval within three months, identifying the recipient(s) of their contributions to the creation and presentation of Canadian programming, as well as the projected annual amounts that they intend to allocate to each and the timing of such contributions, if the contribution is to a recipient other than a production fund. Contributions directed to a production fund are required to be made on a monthly basis. The due date for Cancom is set out in Decision CRTC 98-171 and in Decision CRTC 98-172 for Star Choice.
  Undue preference and dispute resolution provisions
  22. Each SRDU licensee will be subject to a condition of licence containing provisions comparable to those found in section 9 of the regulations. This condition will prohibit the licensee from giving an undue preference to any person, including itself, or from subjecting any person to an undue disadvantage.
  23. The Commission notes that it will take some time for transition to full competition in the delivery of signals to distribution undertakings. Accordingly, it has imposed a condition of licence requiring an SRDU licensee to submit to a dispute resolution process, where the Commission is of the view that such a process will assist in resolving a dispute. The Commission, however, encourages parties to make every effort to resolve disputes in a timely and effective manner on their own.
  24. The Commission contemplates a process for dispute resolution similar to that set out in the regulations. At the hearing, parties expressed particular concern about releasing confidential information, especially agreements with affiliates. Recognizing this concern, the Commission intends to keep information submitted in the course of such a process confidential, and not to use such information in subsequent processes before it (unless obtained independently). Nevertheless, the Commission intends to tailor the dispute resolution process to the requirements of each particular situation.
  25. In this regard, having considered requests from various parties that it require SRDU licensees to file affiliation agreements, the Commission has decided not to do so at this time. It may, however, require that such agreements be filed, on a case by case basis, at a later date. The Commission may, on request, grant confidentiality concerning all or part of such agreements that it requires be filed.
  Rate regulation
  26. Cancom is currently subject to rate regulation in the form of a cap on the overall rate that it may charge affiliates who receive some or all of its signals (rate cap). Because Star Choice is already in operation as a licensee of a DTH distribution undertaking, the Commission is satisfied that it is in a position to compete immediately with Cancom in the SRDU market. Accordingly, rate regulation by means of a rate cap will not be imposed at this time on either of these SRDU licensees. Nevertheless, as mentioned earlier in this notice, there is considerable uncertainty surrounding the future ownership structure within the Canadian SRDU sector. The Commission therefore emphasizes that it is prepared to reconsider the possibility of regulating the rates charged by SRDUs at the time it considers the licence renewals of Cancom and Star Choice in two years.
  27. In the absence of a rate cap, and as a consequence of BDUs having the choice of obtaining signals from two competitors, the Commission notes that, over time, any cross-subsidization of one signal by another that may have occurred in the past will likely disappear (or at least be reduced), and the price charged by an SRDU for any given signal will more closely reflect the actual cost of providing that signal.
  Other matters
  28. The television satellite services that Cancom and Star Choice are authorized to distribute by condition of licence also appear in Part 2 or Part 3, or both as appropriate, of the revised satellite listsissued today in Public Notice CRTC 1998-61.
  29. The Commission notes that an exempt distribution undertaking, such as a master antenna television system (MATV), is permitted to distribute the same signals that a licensed terrestrial BDU is authorized to distribute in the same area served by the exempt undertaking.
  30. The Commission also notes that Cancom and Star Choice both indicated that they did not require exclusivity with respect to the programming services they will offer. Accordingly, the Commission is disposed to deal expeditiously with applications by either licensee to distribute any service that has been authorized, by condition of licence, for distribution by the other.
  31. As indicated earlier in this notice, the Commission is satisfied that the circumstances of Class 2 and 3 BDUs in the emerging competitive marketplace and, in particular, their need for maximum choice and affordability in choosing the 4 + 1 U.S. television network signals they deliver to their subscribers, warrant particular consideration by the Commission. The Commission therefore proposes to authorize the licensees of these smaller BDUs to obtain the signals of these network services directly from U.S. satellite service providers.
  32. While the Commission considers that it may be in the public interest to allow direct access by Class 2 and 3 BDUs to the 4+1 U.S. television network signals from U.S. satellite service providers, this enhanced flexibility has, as its rationale, the desire to ensure maximum choice and affordability for such undertakings within a competitive marketplace. Accordingly, interested parties are advised that should the Commission decide to implement this measure, it may, following due public process, remove authorizations for the carriage of signals obtained from any U.S. satellite service supplier that it determines to be engaging in anti-competitive behaviour.
  33. Parties wishing to submit comments should also take into account the following statement contained in the Schedule of Specific Commitments (the schedule) made by Canada to the World Trade Organization on 11 April 1997:
   On March 1, 2000, Telesat Canada will no longer be authorized to be the sole operator in Canada of fixed satellite space segment facilities used to provide national and Canada-U.S. fixed satellite services.
  34. The applications of Cancom and Star Choice are both predicated on their use of Canadian fixed satellite space segment facilities, which may soon be open to competition. The Commission notes that broadcasting is excluded from the schedule. Accordingly, direct broadcast satellites (DBS) are not considered to be fixed satellite space segment.
  35. As discussed earlier, the Commission's policy framework requires each SRDU licensee to provide a contribution to the creation and presentation of Canadian programming representing 5% of its gross annual revenues derived from broadcasting activities. Should the Commission, following its consideration of comments received, decide to implement its proposal to permit direct access to the 4+1 U.S. television network signals from U.S. service providers using U.S. satellites, the Commission intends to require those licensees of Class 2 and 3 BDUs who avail themselves of the new policy to make a similar contribution. Specifically, and in the interest of maintaining a competitive balance among distributors, those Class 2 and 3 licensees who subsequently obtain any of the 4+1 U.S. television network signals directly from a U.S. satellite service provider (such as Prime Time 24 or Netlink International) would be required to make a 5% contribution to an independent Canadian program production fund. The 5% would be calculated based upon the annual gross amount of the payments by the BDU to the U.S. satellite service provider. This requirement would be enforced through the inclusion of a notation in the satellite lists, whereby a Canadian licensee would only be authorized to continue distributing these services so long as it makes the requisite contributions.
  36. The Commission does not wish to limit the scope of the comments that may be filed addressing this matter. Indeed, in the interest of maintaining a balance among the economic, social and cultural objectives of the Act, it seeks to benefit from the broadest and most enlightened discussion possible of the many related and important issues at stake in implementing the policy change it is currently proposing. In particular, the Commission wishes to receive documentary evidence that would substantiate or lend support to any opinions submitted. Supporting documentation could include, but need not be limited to, specific economic models or analysis and information on cost structures for individual signals.
  37. Examples of areas that might be addressed include the potential impact that such a decision may have on the following:
  · the viability of the current and future SRDU licensees, as well as the sustainability of competition within the SRDU sector;
  · the ability of SRDUs to distribute a variety of Canadian signals, including French-language signals;
  · the pricing and affordability of distant signals supplied by SRDUs, particularly the pricing of Canadian signals, including French-language signals; and,
  · the level of contributions provided by licensed SRDUs to certain parties who might otherwise have difficulty obtaining funding, including groups active in native and French-language broadcasting, as well as the level of contributions by licensed SRDUs to the Canadian programming funds.
  38. The Commission will consider requests for confidentiality on a case-by-case basis. Persons submitting commercially sensitive information that they wish to be held confidential are requested to identify and substantiate all claims for such confidential status.
  39. The Commission will follow a three phase written comment process in this proceeding. As the first phase, interested parties are invited to file written comments no later Friday, 7 August 1998 Parties requesting to have specific U.S. television network signals added to either or both of the satellite lists(i.e. signals that are now uplinked to U.S. satellites by such service providers as Primetime 24 or Netlink) should file such requests with the Commission by that same date.
  40. In the circumstances, such requests shall not be considered to fall within the moratorium on additions to the satellite lists announced in Public Notice CRTC 1997-33-2. However, all other requirements governing such requests, including the requirement for sponsorship, remain unchanged.
  41. In the second phase, interested parties, regardless of whether they have participated in phase one, will have an opportunity to reply to any or all of the written comments and requests for additions to the satellite lists that are received by the Commission during phase one. These replies must be filed with the Commission, and be served upon the party or parties who submitted the comments or requests to which the replies are addressed, by no later than Friday, 21 August 1998.
  42. In the third phase, involved parties will have an opportunity to rebut any comments made in phase two related to requests for additions to the satellite lists. These rebuttals must be filed with the Commission, and be served upon the party or parties who submitted the comments to which the rebuttals are addressed, by no later than Monday, 31 August 1998.
  43. The Commission will only accept submissions that are received by the Commission on or before the prescribed dates noted above.
  44. Comments filed in response to this notice must be addressed to the Secretary General, CRTC, Ottawa, Ontario K1A 0N2 and must be filed in hard copy form.
  45. Parties filing submissions that are over five pages in length are asked to include a short executive summary.
  46. All comments will be considered by the Commission, and will form part of the public record of the proceeding without further notification, provided the procedure set out above has been followed. Interested parties are therefore strongly encouraged and expected to monitor the content of the public examination files.
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  Laura M. Talbot-Allan
Secretary General
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