ARCHIVED - Decision CRTC 99-169
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Decision |
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Ottawa, 9 July 1999 |
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Decision CRTC 99-169 |
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Canadian Satellite Communications Inc. |
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Across Canada - 199901708 - 199901690 - 199901682 - 199902268 - 199902276 - 199902284 |
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3 May 1999 Public Hearing |
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Amalgamation of Cancom and Star Choice |
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Summary |
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The Commission approves a merger of the Cancom and Star Choice satellite relay distribution undertakings (SRDU), with consequent changes in effective control of Cancom, the DTH and SRDU undertakings carried on by Star Choice, and the specialty service ROBTv. |
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The parties |
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1. Canadian Satellite Communications Inc. (Cancom) is the licensee of a national satellite relay distribution undertaking (SRDU). |
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2. Star Choice Communications Inc. (Star Choice) is the parent company of Star Choice Television Network Incorporated (SC Television), the licensee of both a direct-to-home distribution undertaking (DTH) and an SRDU. |
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3. WIC Western International Communications Ltd. (WIC) is a company with extensive holdings in Canada's over-the-air television and radio industries. Either directly, or through subsidiaries such as WIC Television Ltd. (WIC TV), WIC holds ownership interests in three pay television undertakings, two pay-per-view (PPV) undertakings and a DTH PPV undertaking, three specialty programming services, Cancom, and a pay audio undertaking. |
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4. Shaw Communications Inc. (Shaw) is one of Canada's largest cable operators. Shaw's other broadcast holdings currently include controlling or minority interests in six specialty services, one video-on-demand service, one pay audio undertaking, controlling interests in twelve radio stations, and effective control of SC Television. |
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5. Report on Business Television (ROBTv) is a specialty service devoted to information related to business and finance information. ROBTv is a partnership consisting of three partners: G and M Business News Limited, which holds a 50% interest; WIC TV, which holds a 26% interest; and Cancom, with 24%. |
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The applications |
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6. A series of applications filed by Cancom sought approval by the Commission for changes in the effective control of both Cancom and Star Choice pursuant to a reorganization and share exchange agreement between Cancom and Star Choice. |
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7. Approval of these transactions would result in WIC TV's interest in Cancom declining from 54% to 29%, WIC TV no longer controlling Cancom, and the direct and indirect interest of Shaw in Cancom would increase from 9.97% to more than 36.6%. |
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8. Further applications requested authority to integrate in a form other than an amalgamation, the operations of Cancom, Star Choice and SC Television. |
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9. Cancom also requested the alteration of the conditions of licence related to the structural separation of Shaw from Star Choice already attached to the licences of the latter's DTH and SRDU undertakings and suggested such altered conditions be attached to the Cancom SRDU licence. |
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10. An application was also submitted by Cancom on behalf of the partners of ROBTv for authority to effect a change in effective control. If granted, Shaw would indirectly acquire a partnership interest of 10% or more in ROBTv. |
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Applicant's rationale for the merger |
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11. At the hearing, the applicant argued that five significant benefits would flow to the public from the approval of these applications. These benefits are as follows: |
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· A merged Cancom/Star Choice would offer small cable systems a wide range of signals at costs disciplined by market forces as the merged companies compete for broadcast distribution undertaking (BDU) customers with Bell Satellite Services Inc. (BSSI), licensee of another national SRDU known as Bell ExpressVu. |
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· The merger would provide Star Choice's DTH business with better access to financing to sustain growth as a competitor to cable and other DTH services. Retail customers would thus be assured the widest possible choice of distribution alternatives over the long term. |
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· The merger would create a competitive balance between Bell ExpressVu and the new company, as integrated satellite companies, leading to more choice and better service for consumers. |
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· The merged presence would provide an incentive to the cable industry to accelerate its rollout of digital infrastructure, thereby creating more capacity for the distribution of Canadian programming services. |
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· There would be benefits to the unregulated businesses of the merged company in the use of their infrastructure for tracking, distance learning and data transmission. These businesses support the regulated services and contribute to the competitiveness of Canadian industry. |
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12. Industry members and organizations submitted interventions, both in support and in opposition to the applications. In making its decisions, the Commission has considered all of the positions expressed by the interveners in both the written phase and at the oral public hearing held on 3 May 1999. |
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13. Details of the Commission's disposition of the applications are set out below. |
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The Commission's decisions |
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14. The Commission considers that approval of the applications for changes of effective control is in the public interest since it will improve the competitive balance in the system, thereby increasing the likelihood that sustainable competition between integrated providers of satellite services, including SRDU, DTH and other non-regulated services will develop and that retail customers will have, in the long term, the widest possible choice of distribution alternatives. |
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15. As a result, the Commission approves the applications by Cancom for authority to: |
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· effect a change in its effective control, through the issuance of additional shares of Cancom, to shareholders of Star Choice; |
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· effect a change in the effective control of the DTH and SRDU undertakings carried on by SC Television; and |
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· effect an ownership change in one of the partners of ROBTv, allowing Shaw to temporarily acquire 8.8% indirect ownership of the specialty service. |
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16. Appendix A to this decision sets out conditions of licence with respect to structural separation, undue preference and signal carriage, as discussed at the public hearing. |
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Technological migration |
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17. The Commission notes that the applicant foresees an orderly technological transition following any approval of its applications. The applicant indicated that it would provide assistance to BDUs with the expenses of any migration of Cancom and SC Television SRDU services to another technological platform. Given the high cost involved in such a migration, the Commission is concerned that any capital expenditures necessitated by technological changes and re-configuration of the delivery system resulting from this merger not be borne entirely by small cable operators or their subscribers. |
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18. Accordingly, the Commission expects that Cancom/Star Choice will work with its customers to ensure a successful transition and an equitable sharing of the associated financial and technical burdens as well as any cost savings that may result. The Commission also expects the merged entity to implement an orderly transition schedule for the swap-out of equipment, in case of a change in technology. |
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19. Finally, in this regard, the Commission expects that no BDU customer will experience a rate increase during the term of its contract as a result of a shift in technology. |
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Master Affiliation Agreement |
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20. The Commission notes that the Canadian Cable Systems Alliance (CCSA) has recently reached a ten-year Master Affiliation Agreement (the Agreement) for its members with Star Choice. At the hearing, the CCSA expressed the concern that, if the merger were approved, it would no longer be entitled to the terms of this Agreement. The applicant responded by indicating that the same terms and conditions of this Agreement would remain available after the merger, even if the Star Choice SRDU licence were surrendered. |
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21. The Commission expects, as discussed at the oral phase of the hearing, that current CCSA cable operators not participating in the Agreement will be able to opt in, on the same terms and conditions, at any time during currency of the ten-year Agreement. Similarly, the Commission expects that new CCSA members will also be able to opt in. |
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Corporate reorganization |
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22. As noted, in its applications, the applicant sought authority for any corporate reorganization, other than an amalgamation, of Cancom, Star Choice and SC Television, that would require specific approval of the Commission. However, at the oral phase of the hearing, the applicant acknowledged that, in the absence of concrete details of integration other than by way of amalgamation, it may not be appropriate to continue with that request. |
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23. In the Commission's view, it is not appropriate to grant authority in this case in the absence of specific details, and accordingly, application 199902268 is denied. The Commission notes, however, that a corporate reorganization by way of amalgamation would not require Commission approval. |
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The ROBTv decision |
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24. With respect to ROBTv, the applicant stated in its reply comments that it intends to sell its interest in this specialty undertaking. At the oral phase of the hearing, the applicant indicated that it was prepared to accept as a condition of approval that an application regarding the proposed divestiture of ROBTv be filed with the Commission within twelve months of any such approval. |
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25. In the circumstances, and considering the issue of vertical integration in specialty services involving a distribution undertaking such as Shaw, the Commission expects such an application to be filed within twelve months of the date of this decision. Until the Commission approves the application, Cancom's interest in ROBTv, (or the merged entity's interest following an amalgamation), cannot be increased without prior Commission approval. If an application for divestiture cannot be filed within 12 months, Cancom (or the merged entity following an amalgamation) will be required to place its interest in ROBTv in trust until such an application is filed and a decision is issued by the Commission. |
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Structural separation |
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26. As noted, Cancom, on behalf of SC Television, initially requested as part of these applications, changes to the existing conditions of licence applicable to the SRDU and DTH operations of SC Television, with respect to structural separation and the addition of such modified conditions to the SRDU licence of Cancom. |
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27. The applicant subsequently modified its position, requesting that no structural separation conditions be imposed, since none had been imposed in the case of its SRDU competitor BSSI. Following discussions of the importance of structural separation at the hearing, the applicant did agree to accept conditions of licence in this regard, should the Commission deem them necessary. |
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28. The objective of such conditions is to prevent the possibility of undue preference and disadvantage that Shaw could confer, due to its dominant position in the cable distribution sector and its vertically- and horizontally- integrated corporate structure, which includes both programming and cable distribution arms. In approving these applications, the Commission considers that, as a result of the influence that Shaw could have on the merged entity, the continuation of conditions of licence creating structural separation is necessary. |
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29. The Commission hereby amends the SRDU licence and the DTH licence of SC Television by removing the current conditions of licence regarding structural separation, and replacing them with the conditions of licence set out in Appendix A to this decision. In addition, the Commission amends the SRDU licence of Cancom by imposing the conditions of licence regarding structural separation as set out in Appendix A to this decision. |
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30. As part of the merger applications, Cancom indicated that it would offer to all affiliates of the merged SRDU entity, all of the signals currently offered by both Cancom and SC Television's SRDU operations. Appendix B to this decision sets out all of the signals which, collectively, Cancom and SC Television are currently authorized to distribute. Appendix B hereby replaces the Appendices to Decisions CRTC 98-171, and CRTC 98-172, as amended by Decision CRTC 99-132. Cancom and SC Television are hereby authorized by condition of licence to distribute these signals. |
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31. The Commission notes that, at the oral phase of the hearing, the applicant stated its intention to amalgamate and surrender one of the two SRDU licences it will hold as a result of the merger. Approval of these applications will result in Cancom indirectly controlling SC Television. The applicant's stated intention is that an amalgamation will follow. |
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32. The Commission notes that all other conditions of licence and commitments set out in Decisions CRTC 98-171 (Cancom) and 98-172 (Star Choice) remain in force. |
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This decision is to be appended to the licence. It is available in alternative format upon request, and may also be viewed at the following Internet site: |
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Secretary General |
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Appendix A to Decision CRTC 99-169 |
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Conditions of licence for the SRDU licences of Cancom and SC Television: |
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Structural Separation: |
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· The SRDU undertaking to be carried on by the licensee shall remain at all times an entity that is independent of and legally separate from Shaw Communications Inc. (Shaw), and any of Shaw's subsidiaries, affiliates or related companies. |
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· None of the members of the licensee's board of directors shall be persons who are members of the board of directors of Shaw Communications Inc. (Shaw), or who are members of the board of directors of any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entities thereof. However, as an exception, members of the board of directors (who are independent of Shaw) of WIC Western International Communications Ltd., WIC Television Ltd., Electronic Digital Delivery Inc., WIC Premium Television Ltd., WIC Radio Ltd., and their subsidiaries, may be members of the licensee's board of directors. |
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· No employee of the SRDU licensee, or any individual providing services on a contractual basis to the SRDU licensee, shall, at the same time, be employed by Shaw Communications Inc. (Shaw), or by any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entities thereof. However, technical employees (for example, those working in engineering, programming and electronics) of the SRDU licensee or individuals providing technical services (for example, engineering, programming and electronics) to the SRDU licensee could, at the same time, be employed by a DTH licensee that is related to Shaw, or by a company or entity related to Shaw that is not directly or indirectly involved in cable distribution or programming activities. |
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· To the extent the licensee is entitled to information in the possession of a BDU, pursuant to an affiliation agreement, and such information is not available on the public record, the licensee shall retain an independent third-party auditor to access such information and to ensure that only aggregate information and recommendations regarding compliance with the terms of the agreement are transmitted to the licensee. |
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Undue Preference: |
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· The licensee shall not give an undue preference to any person, including itself, or subject any person to an undue disadvantage. |
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Conditions of licence for the DTH licence of SC Television |
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Structural Separation: |
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· The DTH undertaking to be carried on by the licensee shall remain at all times an entity that is independent of and legally separate from Shaw Communications Inc. (Shaw), and any of Shaw's subsidiaries, affiliates or related companies. |
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· None of the members of the licensee's board of directors shall be persons who are members of the board of directors of Shaw Communications Inc. (Shaw), or who are members of the board of directors of any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entities thereof. However, as an exception, members of the board of directors (who are independent of Shaw) of WIC Western International Communications Ltd., WIC Television Ltd., Electronic Digital Delivery Inc., WIC Premium Television Ltd., WIC Radio Ltd., and their subsidiaries, may be members of the licensee's board of directors. |
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· No employee of the DTH licensee, or any individual providing services on a contractual basis to the DTH licensee, shall, at the same time, be employed by Shaw Communications Inc. (Shaw), or by any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entities thereof. However, technical employees (for example, those working in engineering, programming and electronics) of the DTH licensee or individuals providing technical services (for example, engineering, programming and electronics) to the DTH licensee could, at the same time, be employed by an SRDU licensee that is related to Shaw, or by a company or entity related to Shaw that is not directly or indirectly involved in cable distribution or programming activities. |
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Appendix B to Decision CRTC 99-169 |
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Canadian Television signals: |
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U.S. Television Services |
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* Native-produced television programs, on a part-time basis, on satellite channels used for the distribution of these services / Émissions de télévision produites par les autochtones, à temps partiel, sur les canaux de satellite qui servent à distribuer ces services. |
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Canadian radio services: |
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U.S. radio services: |
- Date modified: