ARCHIVED -  Public Notice CRTC 1999-126

Public Notice

Ottawa, 3 August 1999

Public Notice CRTC 1999-126

Distribution of Specialty Services

Summary

In this document the Commission clarifies the regulatory obligations of Class 1 cable distribution undertakings regarding the distribution of specialty services licensed in September 1996, as well as its expectations regarding the appropriate terms of carriage of these services.

It also sets out a streamlined dispute resolution process for dealing with unresolved issues.

Background

1.  In September 1996, in Decisions CRTC 96-595 to 96-617, the Commission licensed two groups of English-language specialty services. A core group of four specialty services was given an immediate right of access to analog channels of Broadcast Distribution Undertakings (BDUs). For another group of 13 specialty services, access rights were deferred, to no later than 1 September 1999.

2.  Four of the 13 services - Star!, CLT, ROBTv and TalkTV - remain unlaunched on all systems, while the others have launched and are distributed by most Class 1 BDUs.

3.  Class 1 BDUs are required under section 18(5) of the Broadcasting Distribution Regulations (the regulations) to distribute the services of all licensed specialty and pay television undertakings and at least one general interest pay-per-view (PPV) service in the official language which is predominant in their market, to the extent of available channels.

4.  An exception to these requirements was incorporated into the regulations, to give effect to the Commission's decision to delay the obligation to carry the 13 new services licensed in 1996, when the the regulations came into effect on 1 January 1998.

5.  Section 18(8) of the regulations delays the application of section 18(5), until the earlier of two dates: when the BDU makes use of digital technology for the delivery of programming to at least 15% of its subscribers, or 1 September 1999. The expression "makes use of digital technology for the delivery of programming" is defined in section 18(3). A BDU is deemed to make use of digital technology when at least 15% of its subscribers receive one or more programming services on a digital basis. It appears that no Class 1 cable distribution undertaking has met the 15% digital delivery threshhold or will meet it by 1 September 1999.

6.  In the event that a BDU is not delivering one or more programming services on a digital basis to at least 15% of its subscribers by 1 September 1999, section 18(9) requires it to distribute the service on an analog channel (to the extent of available channels), unless the service agrees to its digital distribution.

7.  Finally, section 18(10) provides that, once a BDU is distributing programming on a digital basis to at least 15% of its subscribers, it may choose to distribute the service on an analog or on a digital basis or both.

8.  In view of the 1 September 1999 deadline, the Commission sent letters, in March and May of this year, to all Class 1 cable systems and to the four unlaunched services requesting information on their launch plans. The responses indicated that Star!, CLT and ROBTv intend to launch in September. Talk TV has elected to postpone its launch for up to one year. The correspondence also indicated that some cable distribution licensees were unclear about the carriage requirement for the specialty services that will launch, or have launched, as of 1 September 1999. The Commission, therefore, wishes to clarify certain aspects of its regulations and expectations regarding the carriage of such services.

Distribution Requirements

9.  As noted above, the distribution requirements for Canadian pay, specialty and PPV services that are applicable to Class 1 cable distribution undertakings are set out in section 18 of the regulations. The Commission wishes to emphasize that compliance with the regulations is not optional.

10.  The requirements set out in section 18 of the regulations reflect the general policy set out in Public Notice CRTC 1996-60 Access Rules for Broadcasting Distribution Undertakings. These requirements are based on the principle that BDUs should distribute all licensed Canadian programming undertakings appropriate for their markets, including specialty services.

Interpreting the Regulations

Definition of "making use of digital technology"

11.  The Commission will require any licensee who, in response to a complaint, claims that it has met the threshold for making use of digital technology on or after 1 September 1999 to demonstrate that it has done so.

12.  The definition in section 18(3) was meant to ensure that at least 15% of the subscribers of a licensee are actually using digital set-top boxes to receive one or more services. It was meant to preclude the mere "offering" of digital services as a means of satisfying the regulatory requirement. To "receive" a service must mean to receive it in an intelligible form.

13.  In view of this definition, a cable licensee cannot consider that it meets the requirements of the regulations because it sends digital signals to over 15% of its subscribers. Signals must be received in digital form by 15% of its subscribers for the requirement to be met.

14.  Since no Class 1 distribution undertaking appears to have met the 15% digital threshhold, on 1 September 1999 all Class 1 cable distribution undertakings will be required to distribute all available specialty services referred to in section 18(8), on an analog basis, to the extent of channel capacity, unless the service has agreed to its distribution on a digital basis.

Available channel capacity

15.  The Commission will require any licensee who, in response to a complaint, claims that it is relieved of its obligation to distribute the specialty services on an analog basis, on 1 September 1999, due to insufficient channel capacity, to demonstrate that it is in compliance with the regulations.

16.  Based on the information filed at the request of the Commission, it appears that some cable companies who are under the obligation to distribute the specialty services on an analog basis may claim that they have insufficient channel capacity to distribute these services on 1 September 1999.

17.  The regulations provide the necessary tools to clarify licensees' obligations. "Available channel" is defined in section 1 of the regulations to mean:

 "any unrestricted channel of a distribution undertaking, other than a channel on which is distributed

(a)  the programming service of a licensed programming undertaking other than a video-on-demand programming undertaking;

(b)  community programming;

(c)  a programming service comprising the proceedings of the House of Commons; or

(d)  a programming service comprising the proceedings of the legislature of the province in which the undertaking is located."

18.  The net effect of this definition is that any channel used to distribute a foreign programming service is an available channel. However, available channel capacity is modified for the purpose of satisfying the distribution requirements under section 18. Pursuant to section 18(7), a channel used to carry a foreign programming service for the first time on or after 6 May 1996, becomes an available channel for the purposes of distributing any pay or specialty programming service licensed after that date. A distribution undertaking would therefore be required to drop a foreign service that was first carried on or after 6 May 1996, should there be insufficient analog capacity to carry the new services as required under section 18(5).

Terms of analog carriage

19.  The Commission reminds licensees that it expects distribution undertakings and programming undertakings to negotiate equitable carriage arrangements.

20.  The Commission expects that when the services are carried on an analog basis, they will be distributed in a manner that is fair and equitable, taking into consideration the terms of carriage applicable to the other specialty services of the group licensed at the same time.

21.  The Commission also considers that, under the terms of the regulations, access must be provided even in the event that satisfactory negotiations have not been concluded between the distributor and a programming service. In such cases, the distributor must provide access, in this case by 1 September 1999, and either party may apply to the Commission for dispute resolution under section 12 of the regulations, if necessary.

22.  Some cable systems may plan to distribute the remaining services on a scrambled analog basis, either as part of a tier or on a stand-alone basis.

23.  In Public Notice CRTC 1996-120, the Commission addressed carriage arrangements for the new specialty services. It stated that it expected "distribution undertakings and programming undertakings to negotiate equitable carriage arrangements." The Commission also noted that the viability of the services was an important consideration. The licensing approach for new specialty services involved "a balance between the need for competitive voices and the requirement for adequately-financed and experienced programmers." While the Commission recognized that "greater consumer choice means that financial viability cannot be guaranteed," it approved applications with a view to ensuring that the services would have a fair opportunity to establish and market themselves and to provide consumers with further choice.

24.  The Commission is therefore concerned about distribution of these services on a scrambled analog basis where such distribution is likely to result in a low penetration level that may not be sufficient for a service to meet its business plan. The Commission also has a concern that the penetration of analog decoder boxes may be declining as they are replaced with digital boxes. There may therefore be no potential for growth in penetration for any service launched on a scrambled analog basis.

25.  In view of these concerns, the Commission may consider that distribution on a scrambled analog basis is, in itself, not fair to a given programming undertaking, in circumstances where more favourable carriage arrangements have been concluded with other specialty services that were licensed at the same time. In particular, the Commission is of the view that the carriage of one of these services on a purely discretionary, scrambled, stand-alone basis would be inconsistent with fair and equitable treatment.

26.  In PN 1996-120, the Commission noted its concern with regard to any potential conflict of interest arising from the integration of ownership between distribution and programming undertakings and further noted its concerns

 ...respecting the potential for preferential treatment where a cable licensee has the option of choosing from several services in the second group for possible distribution on an unscrambled analog tier, or possibly on the basic service. In such circumstances, the Commission strongly expects these distributors to act in a fair and equitable manner.

27.  The Commission notes that most of the major cable systems have entered into contracts with some or all of the services that have launched to date, stipulating that they will be carried on unscrambled analog, either on basic cable or a tier.

28.  The Commission further notes that section 9 of the regulations prohibits a distributor from giving an undue preference to any person, including itself, or from subjecting any person to an undue disadvantage.

Dispute Resolution

29.  The Commission is adopting a streamlined dispute resolution process to ensure that the policy objectives set out in this document are met in a timely manner when carriage issues remain unresolved.

30.  Section 12(2) of the regulations provides that whenever there is a dispute between a programming undertaking and a distribution undertaking concerning the carriage or terms of carriage of programming, including the wholesale rate, either side may refer the matter to the Commission for dispute resolution.

31.  Given that the distributors and specialty service licensees have been negotiating for some time, with a view to meeting the 1 September 1999 deadline, the Commission intends to deal with disputes on an expedited basis. It will not, therefore, require parties to resort to independent mediation 45 days prior to the referral of the matter to the Commission, as is its usual practice.

32.  The Commission will adopt the following process for dispute resolution in these matters:

(a)  The process will be triggered on the request of either of the parties in the dispute. A party triggering a dispute resolution process will immediately serve the other party with a copy of its request.

(b)  The parties will then have two clear working days to agree on the issues that must be resolved. When parties have agreed to the issues in dispute, they shall immediately advise the Commission by filing an agreed statement of the disputed issues. If they cannot agree within this time period, either party may request that the Commission determine the issues.

A  party requesting that the Commission determine the issues in dispute will immediately serve the other party with a copy of its request which should clearly identify the proposed issues in dispute. The other party will have two clear days to file with the Commission its position with respect to what issues are in dispute.

(c)  Following the determination of the issues under dispute, either by agreement of the parties or by Commission determination, each party will have five clear working days to provide its final offer, as a package, which addresses all of the defined issues.

(d)  The Commission will choose either one or the other of the final offers as the basis for settlement. This decision will be made within ten days of receiving the offers.

This notice is available in alternative format upon request, and may also be viewed at the following Internet site: http://www.crtc.gc.ca

Secretary General