ARCHIVED -  Public Notice CRTC 1999-72

Public Notice

Ottawa, 26 April 1999

Public Notice CRTC 1999-72

Public Notice Determination on a proposal to authorize reception by Class 2 and Class 3 broadcasting distribution undertakings of the U.S. 4+1 signals directly from U.S. service providers

Summary

The Commission has determined, by majority vote, that it will not approve a proposal to authorize Class 2 and 3 broadcasting distribution undertakings (BDUs) to receive directly from U.S. satellite service providers, the signals of U.S. television stations offering programming from the CBS, NBC, ABC and FOX commercial networks and the non-commercial PBS network (U.S. 4+1 signals).

The Commission considers that this proposal raises a number of factors that outweigh the possible benefits that could flow from its implementation. These factors are set out later in this notice in paragraphs 20-22.

Accordingly, the Commission denies the requests from Battlefords Community Cooperative (Battlefords), the Canadian Cable Systems Alliance (CCSA), and the Canadian Cable Television Association (CCTA) to add the signals distributed by U.S. satellite providers to the lists of eligible satellite services.

Background

1.  BDUs, such as cable systems, distribute a variety of Canadian and non-Canadian television services, including the U.S. 4+1 signals.

2.  Currently, many BDUs receive the U.S. 4+1 signals from Satellite Relay Distribution Undertakings (SRDUs). There are currently three such licensed services. They are operated by Canadian Satellite Communications Inc. (Cancom), Star Choice Television Inc. (Star Choice) and Bell Satellite Services Inc. (BSSI).

3.  The specific U.S. satellite signals that BDUs may distribute are set out on the List of Part 2 Eligible Satellite services (applicable to Class 1 and Class 2 BDUs) and the List of Part 3 Eligible Satellite Services (applicable to Class 3 BDUs). These are referred to as "the lists" throughout the rest of the notice. Class 1 BDUs have 6,000 or more subscribers while Class 2 and 3 BDUs are generally smaller systems and have fewer than 6,000 subscribers.

4.  In Public Notice CRTC 1998-60 dated 23 June 1998, the Commission called for comments on a proposal to authorize Class 2 and Class 3 BDUs to receive U.S. 4+1 signals directly from U.S. satellite providers (the proposal). In that notice the Commission also invited interested parties to submit requests to add specific U.S. 4+1 signals to the lists should the proposal be implemented.

5.  The Commission established a three-phase written process to deal with this matter. This process was later extended to include a fourth phase to ensure that a full public record was established.

Requests to add signals to the lists

6.  The Commission received the following requests to add signals to the lists:

·  Battlefords, a cable licensee with nine systems in Saskatchewan, requested that the signals of Netlink International (Netlink) be added to the lists. Netlink's signals are: KCNC (CBS), KMGH (ABC), KUSA (NBC), KDVR (FOX), KRMA (PBS), all from Denver, Colorado.

·  The CCSA requested addition of the PrimeTime24 (PT24) signals to the lists. These signals are: WNBC (NBC), New York, New York, WKRN (ABC), Nashville, Tennessee, WSEE (CBS), Erie, Pennsylvania, PBS Net (National), FOX Net (National), KNBC (NBC), Los Angeles, California, KOMO (ABC), Seattle, Washington, KPIX (CBS), San Francisco, California.

·  The CCTA asked, in separate requests, that the Netlink and PT24 signals be added to the lists.

7.  Battlefords, the CCSA and the CCTA made a number of arguments in support of their requests. In particular, they maintained that PT24 and Netlink offer services at competitive rates and do not vary their prices based on the location of the BDU or the availability of signal source alternatives.

8.  These parties noted that the licensed SRDUs distribute their signals in digital format. PT24 and Netlink, on the other hand, are distributed in analog format. They argued that the continued availability of U.S. network signals in analog format will assist cable operators in avoiding redundant capital costs during the period while a digital video compression (DVC) standard is being developed.

9.  Further, parties noted that there is no restriction on the source of U.S. 4 + 1 signals for direct-to-home (DTH) distributors. Approval of the proposal would therefore help equalize the rules between DTH providers and Class 2 and 3 cable systems. They argued that approval would provide Class 2 and 3 BDUs with the flexibility and negotiating power that is currently available to DTH service providers and to larger BDUs that are permitted to receive their signals off-air, by microwave or by terrestrial interconnections.

10.  These parties further maintained that approval would permit the selection of signals from different satellite providers and originating cities. In particular, some argued that authorizing the Netlink signals would be of significant benefit to cable systems in Western Canada, from the standpoint of time zone sensitivity and the community of interest between the Western regions and the Denver area.

11.  The Commission also received interventions from the Director of Investigation and Research, Competition Bureau and a number of smaller cable operators in support of the proposal.

Interventions opposing the proposal and the specific requests

12.  In response to the proposal and the specific requests to amend the lists, the Commission received a number of opposing interventions from licensed SRDUs and seven smaller cable operators. In addition, the National Aboriginal Achievement Foundation, Television Northern Canada, l'Alliance des radios communautaires du Canada inc., and Canal Savoir each filed comments in opposition to the proposal.

13.  In its intervention, Cancom maintained that it uses revenues from the provision of U.S. 4+1 signals to subsidize the delivery of Canadian signals. Revenues from more profitable U.S. 4+1 signals are also used to subsidize the distribution of different sets of U.S. 4+1 signals. In its view, allowing U.S. service providers to distribute U.S. 4+1 signals directly to Canadian BDUs would result in a loss of revenue to Canadian SRDUs and, as a result of its cost structure, Cancom argued that it would have to adjust its service offerings or prices to offset this loss. Cancom concluded that this would most likely lead it to drop signals that do not currently recover the costs of their delivery.

14.  Cancom considered that U.S. service providers would have a competitive advantage over Canadian SRDUs since they would not be subject to the same regulatory obligations. Cancom argued that it would be unfair for the Commission to impose requirements on licensed SRDUs, and then permit unlicensed U.S. providers to operate in Canada without similar obligations.

15.  BSSI addressed the issue of a continued demand for U.S. 4+1 signals in analog formats. It maintained that competition among Canadian SRDUs, along with price reductions for digital decoders, will help reduce the cost of digital services. Further, BSSI argued that it would be regressive for the Commission to implement a proposal that would encourage the distribution of analog signals when it has indicated that universal addressability is a significant policy objective.

16.  BSSI also argued that the competition between licensed Canadian SRDUs should be permitted to develop before small cable operators are allowed to receive U.S. 4+1 signals from non-Canadian providers.

17.  In addition, Cancom maintained that the proposal contemplates that U.S. satellite providers would be permitted to operate in Canada without a licence or an exemption from licensing. Cancom submitted that the Commission lacks the jurisdiction to implement the proposal without either issuing a licence to U.S. satellite providers or exempting them, as a class of undertakings, from the requirement for a licence under Section 9 of the Broadcasting Act (the Act).

Response by supporters

18.  In a joint submission, the CCTA and l'Association des câblodistributeurs du Québec (ACQ) (and supported by similar arguments from both Battlefords and the CCSA) argued that approval of the proposal should have no impact on the overall revenues of SRDUs, since the total number of subscribers served by the Class 2 and 3 systems is relatively small. They maintained that, if Canadian SRDUs offer competitive rates, most BDUs will continue to take their signals from them.

19.  The CCTA/ACQ maintained that Class 2 and 3 systems will continue to receive between three to five Canadian signals from Canadian SRDUs. Further, they argued that the savings that may be realized by taking signals from U.S. providers and the expansion in the channel capacity of cable systems would result in an increase in demand for Canadian services.

20.  With respect to Cancom's cross-subsidization of signals, both the CCTA/ACQ and CCSA stated that they are not prepared to accept Cancom's claims since it filed the detailed information with the Commission on a confidential basis.

21.  The CCTA/ACQ and the CCSA also noted that Cancom has signed about 80% of its affiliates to long term contracts that have three to five years remaining. Given that the potential loss of revenues would be from systems not committed to Cancom via long term contracts, they were of the view that the potential loss of revenue to Cancom would be extremely limited. The CCTA/ACQ also maintained that since approval of the proposal should not impact on the overall revenue generating capability of SRDUs, funding to native and French-language broadcasting (or other groups that might have difficulty in obtaining funding) will not decrease.

22.  With respect to the issue of jurisdiction, PT24 argued that U.S. satellite providers should not be seen as carrying on business in Canada and do not, therefore, require a licence. In addition, Battlefords maintained that the Commission has the legal authority and jurisdiction to implement the proposal. Specifically, Battlefords argued that the role and function of a U.S. satellite supplier when it delivers U.S. 4+1 signals is indistinguishable from the function of delivering other authorized signals that are currently on the lists.

The Commission's determination

23.  The Commission has carefully considered the potential impact that approval of the proposal and the related requests could have on the Canadian broadcasting system.

24.  The Commission supports the objective that Class 2 and Class 3 cable operators should have access to time zone sensitive U.S. 4+1 signals via satellite at reasonable prices, and considers that approval of the proposal could have had that effect. It believes, however, that the proposal raises a number of factors that outweigh these potential benefits to the Canadian broadcasting system.

25.  First, the Commission is concerned that approval of the proposal and the related requests could lead to licensed Canadian SRDUs responding to this new type of competitor by ceasing to distribute certain Canadian signals. Specifically, SRDUs might drop Canadian signals that, from their perspective, do not generate enough revenue to justify their continued carriage.

26.  Second, the Commission considers that it remains appropriate to encourage the development of a competitive Canadian SRDU industry. It considers that the achievement of this objective may be impeded by allowing direct delivery by U.S. satellite providers of U.S. signals to Canadian BDUs, in competition with Canadian SRDUs.

27.  Third, the Commission is concerned that approval of the proposal would create an environment where U.S. satellite providers may have a competitive advantage over licensed SRDUs unless the Commission relieved its licensees of some of their regulatory obligations. The Commission established these obligations in the SRDU policy framework set out in Public Notice CRTC 1998-60 dated 24 July 1998. Specifically, under the policy, licensed Canadian SRDUs must:

·  distribute a preponderance of Canadian signals;

·  distribute all Canadian French-language services, other than those of the CBC, that purchase national programming rights;

·  not give undue preference or subject any person to an undue disadvantage;

·  submit to a dispute resolution process;

·  contribute a minimum of 5% of gross annual revenues from broadcasting activities to the creation and presentation of Canadian programming.

28.  As a result of these concerns, and the Commission's determination that its SRDU policy framework remains appropriate, the Commission, by majority vote, considers that approval of the proposal would not be in the best interests of the Canadian broadcasting system. The Commission also denies the specific requests to add the previously noted U.S. 4+1 signals to the lists.

29.  Given the Commission's decision not to approve the proposal, a determination on the Commission's jurisdiction to authorize Canadian BDUs to receive U.S. 4+1 signals directly from U.S. satellite providers is not necessary.

Related CRTC documents

n  Public Notice 1998-60 dated 23 June 1998: A policy framework for the introduction of competition to the satellite relay distribution industry
n  Decision 98-171: renewal of Cancom's SRDU licence
n  Decision 98-172: licensing of Star Choice as an SRDU
n  Decision 99-87: licensing of BSSI as an SRDU

Secretary General

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

Dissenting Opinion of Commissioner Stuart Langford

I disagree with the majority decision and would approve the proposal to allow Class 2 and Class 3 broadcasting distribution undertakings (BDUs) to receive directly from U.S. satellite service providers the signals of U.S. television stations offering programming from the CBS, NBC, ABC and FOX commercial networks and the non-commercial PBS network (4+1 signals). In my opinion the benefits to the BDUs in question, to their customers and to the health of a competitive Canadian broadcasting system in general, far outweigh any negative impact of approval.

The Commission's proposal was not to permit the distribution of more than one set of 4+1 signals but to allow Class 2 and 3 BDUs to substitute the 4+1 signals they now receive for 4+1 signals emanating from another source and delivered by another satellite service.

Battlefords Community Cooperative (Battlefords), for example, would continue to provide its customers with programming from CBS, NBC, ABC, FOX and PBS but would obtain the signals from sources in Denver, Colorado via Netlink International, rather than from Detroit via Canadian Satellite Communications Inc. (Cancom) and would obtain them cheaper. It would then be in the happy position of providing its customers with signals from the West and of passing on to those customers savings in the form of reduced monthly cable rates.

A further benefit for BDUs like Battlefords would be that the American satellite service providers, like PrimeTime24, from whom they propose to receive 4+1 signals, would distribute those signals in analog format. The Canadian satellite relay distribution undertakings (SRDUs), Cancom, Star Choice Television Inc. and now Bell Satellite Services Inc., distribute signals in digital format.

As a new digital video compression (DVC) format is developed by Canadian distributors, standards may change, forcing cable operators to make further capital expenditures so as to adjust to those changes. By using the analog format used by American satellite service providers, smaller cable companies would avoid incurring unnecessary costs during the transition period during which a final DVC standard is developed.

Finally, the status quo which the majority decision in this matter perpetuates, places distributors like Battlefords at a competitive disadvantage as compared to the direct-to-home (DTH) distributors who compete with them for market share.

DTH distributors are not prohibited from sourcing 4+1 signals directly from U.S. satellite service providers, whereas Class 2 and 3 cable distributors are and, because of the majority decision, will continue to be. The inequity of the status quo becomes even more glaringly obvious when one considers that larger BDUs which can receive 4+1 signals off-air, by microwave or by fibre optic transmission can take advantage of the same flexibility enjoyed by DTH distributors.

With respect to the contention by Cancom that the Commission's proposal would have a negative financial impact on Canadian SRDUs, it is important to note that the total number of subscribers served by Class 2 and 3 distributors is extremely small. I note, as well, the Canadian Cable Systems Alliance's and Canadian Cable Television Association's submission that Cancom has signed 80% of its affiliates to long term contracts guaranteeing Cancom anywhere from three to five years to adjust to any loss of business that may result from a Commission decision that would provide BDUs like Battlefords the flexibility requested.

With respect to the issue of jurisdiction, I would adopt the reasoning set out in paragraph 22 of the majority decision.

In dissenting, I take the position that to the extent BDUs are authorized to distribute 4+1 signals, the Commission should not be concerned with the source of those signals. The Commission has approved the distribution of 4+1 signals. If Canadians living in the Western time zone would be happier receiving their 4+1 signals from a Western time zone source, there is no good reason to place artificial roadblocks in their way.

Canadian SRDUs have the capacity to provide BDUs with the signals they prefer. Cancom, for instance, could meet the understandable demand by Western cable subscribers for time zone-sensitive and western-oriented American content by applying to provide affiliates like Battlefords with Denver- rather than Detroit-sourced signals. If its affiliates find that an SRDUs rates are unacceptably high, it should be up to that SRDU to adjust to the realities of a competitive market and lower them.

I am not insensitive to the concerns expressed in paragraphs 25, 26 and 27 of the Commission's decision in this matter but am of the view that these concerns should not be addressed at the expense of a small number of cable subscribers serviced by an even smaller number of Class 2 and 3 distributors.

For all these reasons, I would have approved the proposal to allow Class 2 and 3 BDUs to receive 4+1 signals directly from American satellite service providers.

Dissenting opinion of Commissioners Cindy Grauer, David McKendry and Martha Wilson

We would approve the Commission's proposal to authorize Class 2 and 3 broadcasting distribution undertakings (BDUs) to receive directly from United States' satellite service providers the signals of U.S. television stations that provide programming from the CBS, NBC, ABC and FOX commercial networks and the non-commercial PBS network (4+1 signals). The proposal would be implemented by adding 4+1 signals that Class 2 and 3 BDUs wish to receive directly from U.S. satellites to the List of Part 2 Eligible Satellite Services and the List of Part 3 Eligible Satellite Services. We refer to these lists as "the lists" in the rest of this opinion.

Class 2 and 3 BDUs are small cable television systems generally located outside major urban centres. They serve 15 per cent of cable subscribers. Class 1 systems have 6,000 or more subscribers; class 2 systems have from 2,000 to less than 6,000 subscribers; class 3 systems have less than 2,000 subscribers.

The issue in this proceeding is not whether cable systems should be allowed to distribute 4+1 signals. Canadians have been able to receive U.S. television signals for many years. The signals "spill over" the Canada-U.S. border. Canadians along the border can often receive these signals with antennas on their televisions or roofs. Cable systems, including class 2 and 3 BDUs, have distributed 4+1 signals and other US signals for many years.

Three primary issues

The primary issues in this proceeding are:

·  whether compelling arguments or significant new evidence exist that would cause the Commission not to approve its proposal in Public Notice 1998-60. This notice sets out the policy framework for competition in the satellite relay distribution industry. The Commission's proposal was developed from the record of the proceeding that led to Public Notice 1998-60; the proposal is based on certain decisions that were taken by the Commission in Public Notice 1998-60;

·  the source of 4+1 signals for Class 2 and 3 systems; and

·  whether there should be uniform rules for Class 2 and 3 BDUs and direct-to-home satellite distributors (DTH) with respect to the choice of technology for obtaining 4+1 signals. Should Class 2 and 3 BDUs be disadvantaged because DTH, the major competitors for Class 2 and 3 BDUs, can receive 4+1 signals directly from U.S. satellites?

BDUs can receive 4+1 signals three ways:

4.  Off-air from U.S. signals that "spill over" the border. Cable systems must be close to the border to use this method.

5.  Microwave or fibre optic transmission. Cable systems that use this method install an antenna near the border and use microwave or fibre optic transmission systems to deliver 4+1 signals to their cable networks. Cable systems may use this method to serve their subscribers. In addition, a cable system or a third party may receive and distribute 4+1 signals to other cable systems with or without a fee. Delivery systems that use microwave or fibre optic transmission of 4+1 signals are known as Terrestrial Relay Distribution Network Undertakings (TRDNUs). The Commission has exempted TRDNUs from obtaining licences.

6.  Satellite. The satellite distributors or wholesalers of signals to BDUs are known in Canada as Satellite Relay Distribution Undertakings (SRDUs). Canada has three SRDUs: Canadian Satellite Communications Inc. (Cancom), Star Choice Television Network Incorporated (Star Choice) and Bell Satellite Services Inc. (BSSI). Cable BDUs are not allowed by the Commission to receive 4+1 services from U.S. satellite service providers although their competitors, DTH, have been authorized by the Commission to do so. Cancom and Star Choice have applied to merge and that application will be considered at a public hearing commencing on 3 May 1999 in Vancouver.

BDUs that utilize off-air or TRDNUs can receive 4+1 services directly from the U.S. or indirectly using a TRDNU. However, BDUs that are far from the Canada-U.S. border and beyond the reach of TRDNUs are reliant on Canadian SRDUs. As noted above, this restriction has not been placed on the Class 2 and 3 BDUs' DTH competitors. DTH can receive 4+1 signals directly from U.S. satellite service providers as well as Canadian SRDUs.

Commission: Class 2 and 3 BDU circumstances warrant particular consideration

The Commission recognized less than one year ago that the circumstances of Class 2 and 3 BDUs deserve particular consideration:

 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. (Public Notice CRTC 1998-60, 23 June 1998.)

The Commission's proposal was particularly relevant to Saxe Communications (Saxe), acting as the agent for 377 cable systems, The Battlefords Community Cablevision Co-operative (Battlefords), and the Canadian Cable Systems Alliance (CCSA). Decision CRTC 98-174, 23 June 1998, denied Saxe's and Battlefords' applications to distribute U.S. signals directly from U.S. sources. On the same day, CCSA's request was denied by the Commission in Public Notice CRTC 1998-60. At the same time, the Commission created an expectation in the particular circumstances of this case that the outcome sought by Saxe, Battlefords and CCSA would be implemented by the Commission. The Commission said:

 The Commission, in denying the Saxe and Battlefords applications, has taken into account the fact that the flexibility sought by these applicants would be achieved, if the policy proposal regarding U.S. 4+1 signals announced in accompanying Public Notice CRTC 1998-60 were to be introduced.

Reasonable expectation created

In Public Notice CRTC 1998-60 the Commission proposed "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." The Commission's proposal was developed from the record that led to the policy framework for competition in the satellite relay distribution industry set out in Public Notice CRTC 1998-60. The Commission created a reasonable expectation that what was being sought by Saxe, Battlefords, and CCSA would be approved unless compelling arguments or significant new evidence caused the Commission not to adopt the proposal.

The Commission has now decided not to approve the measures in spite of implicitly acknowledging in Public Notice CRTC 1998-60 and Decision CRTC 98-174 that Saxe's, Battlefords', and CCSA's applications had merit.

The only significant new evidence in this proceeding that was not part of the proceeding that led to Public Notice CRTC 1998-60 was submitted by Cancom with respect to the jurisdiction of the Commission over SRDUs, particularly U.S. based satellite service providers that offer their service to Canadian BDUs. In this connection, Cancom submitted a legal opinion by McCarthy Tétrault. Among other things, McCarthy Tétrault stated:

 You have asked for our opinion in respect of the jurisdiction of the CRTC over satellite relay distribution undertakings (SRDUs), particularly U.S. based satellite service providers that offer their service to Canadian BDUs.

 In that connection, you have also asked whether the proposal by the CRTC in Public Notice CRTC 1998-60 to permit Class 2 and Class 3 BDUs to receive 4+1 U.S. network signals directly from such providers without either issuing a licence to such providers or exempting them as a class of undertakings under the Broadcasting Act would be within the power of the CRTC. As discussed below, we have concluded that this is not within the power of the Commission under the Act.

McCarthy Tétrault's conclusion is relevant because the Commission proposed not to issue licences or exemptions from a licensing requirement to U.S. satellite service providers, a course of action that McCarthy Tétrault believes is beyond the Commission's jurisdiction. The Commission proposed to proceed as it has done on many previous occasions: add U.S. signals to the lists.

Commission has demonstrated its jurisdiction

If one accepts McCarthy Tétrault's opinion, one must accept that the Commission has constructed a house of cards with respect to its approach to authorizing the delivery of U.S. programming signals to Canadians from U.S. satellites. This is clearly not the case.

Many U.S. signals analogous to the 4+1 signals under consideration in this proceeding have been made available by the Commission to Canadians by placing them on the lists. In particular, the Commission has authorized DTH and SRDUs to source 4+1 signals without regard for the source or method of receiving or distributing these signals. The Commission has not issued licences or exemptions from a licensing requirement to these services. Clearly the Commission has demonstrated its jurisdiction with respect to the approach of adding U.S. signals to the lists in order to authorize distribution in Canada. To our knowledge, the McCarthy Tétrault opinion submitted by Cancom in this proceeding is the first time that the Commission's jurisdiction to add U.S. signals to the lists has been challenged in spite of the Commission adopting this approach on many previous occasions.

Actions in conflict with legal opinion

We note that Boscom, a U.S. satellite service provider owned by Cancom, distributes a Boston signal to Canadian BDUs. According to CCSA:

 BosCom Inc. up-links the signal of WSBK-TV from Boston and makes that signal available to U.S. cable systems who then distribute the signal to 2.3 million U.S. cable subscribers. In addition, BosCom transmits WSBK programming in Canada, solicits affiliates in Canada, authorizes decoders in Canada to permit BDUs to receive programming and extracts payment from affiliated Canadian BDUs. These are the same functions which Cancom claims would place the authorization of the U.S. 4+1 network signals directly from U.S. satellite service suppliers beyond the legal jurisdiction of the CRTC.

The Commission has included WSBK on the lists; it has not issued a licence or an exemption from a licensing requirement nor has Cancom or Boscom applied to the Commission for a licence or an exemption. Cancom's arguments in this proceeding with respect to the Commission's jurisdiction are clearly at odds with the company's actions.

Commission's jurisdiction is clear and unambiguous

Section 10(1)(g) of the Broadcasting Act states:

 The Commission may, in furtherance of its objects, make regulations ... respecting the carriage of any foreign or other programming services by distribution undertakings.

Section 10(1)(g) is clear and unambiguous. Section 10(1)(g) gives the Commission the jurisdiction to do what it proposed to do in Public Notice 1998-60 and, as noted above, what it has done on several occasions: add U.S. signals to the lists for distribution by cable and other BDUs.

Consistent with government policy

We also note that the Commission's proposal to allow Class 2 and 3 BDUs to receive 4+1 signals directly from U.S. satellites is consistent with the Government of Canada's policy for the use of Canadian satellite facilities. The Government clarified its policy in a 1995 letter to the Commission:

 ... where a Canadian broadcasting undertaking wishes to use foreign satellite facilities, the Canadian policy concerning the use of satellite facilities should be interpreted as follows:

·  The undertaking should make use of Canadian satellite facilities to carry (i.e. receive and/or distribute to Canadians) all Canadian programming services but may use either Canadian or non-Canadian satellite facilities to carry foreign originated services that are intended primarily for foreign audiences and are authorized, in whole or in part, for distribution by the CRTC; ... . (Clarification of Government Policy Concerning Use of Canadian Satellite Facilities, June 14, 1995, emphasis added.)

Previously considered in policy framework decision

Apart from Cancom's evidence with respect to the Commission's jurisdiction, the evidence in this proceeding generally revisited matters that the Commission had already considered in Public Notice CRTC 1998-60, the policy framework for competition in the satellite relay distribution industry. A concern was expressed by some parties, particularly Cancom, that an alleged subsidy from the revenues generated by certain 4+1 signals to certain Canadian signals would disappear if the Commission's proposal was implemented. The parties were concerned that rates for some Canadian signals might rise and that, as a result, some Canadian signals might be dropped by the SRDUs.

This is a matter that the Commission dealt with in Public Notice CRTC 1998-60. The cross-subsidy issue had been canvassed thoroughly in the record of the proceeding, leading the Commission to conclude that rate regulation in the SRDU industry was no longer appropriate and that the price of a signal would move towards its cost:

 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.

Nothing in this proceeding has persuaded us that the Commission's assessment that cross-subsidization will likely disappear is misplaced.

With respect to Canadian signals being dropped by SRDUs in a competitive environment, we note that Star Choice and BSSI provide integrated DTH and SRDU services. The same Canadian signals that are provided to Star Choice's and now BSSI's DTH subscribers are shared by the SRDUs, mitigating the possibility that Canadian signals will be dropped by the SRDU functions. Again, this was a matter that was canvassed in the proceeding that led to Public Notice CRTC 1998-60.

Cancom provided a confidential list of Canadian and U.S. signals that the company makes available to BDUs. The purpose of this list is to show the existence of a cross-subsidy between signals. The monthly operating margin less overhead contribution was shown for each signal. We give little weight to this evidence since no explanation was provided about the methodology employed to allocate revenues to each signal. In addition, the amount of overhead was not shown nor were the methods that were used to calculate the overhead allocations. This is a particularly important matter because Cancom has several lines of domestic and international business, including its Canadian and U.S. SRDU businesses. In any event, as noted above, the Commission has previously decided to allow the price of a signal to reflect the cost of providing a signal.

Uniform rules necessary for competition

The Commission's proposal is merely an extension of what has already been approved by the Government of Canada and the Commission. The Commission has authorized DTH and SRDUs to source 4+1 signals without regard for the source or method of receiving or distributing these signals. DTH is the primary competitor to Class 2 and 3 BDUs. For example, Battlefords seeks to provide Denver 4+1 signals to consumers because the co-operative believes that a community of interest exists between the people who live in the Denver area and Battlefords' customers. Battlefords' DTH competitors are authorized by the Commission to distribute Denver 4+1 signals. It is reasonable and fair that Battlefords should also be allowed to do so.

The Commission's reasons

The Commission states three reasons for not approving the proposal under consideration. First, the Commission is concerned that SRDUs might drop Canadian signals. We have discussed this issue above.

Second, "the Commission considers that it remains appropriate to encourage the development of a competitive Canadian SRDU industry." So do we. As discussed above, the development of competition lay at the heart of the Commission's proposal:

 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. (Public Notice CRTC 1998-60, 23 June 1998.)

The Commission's proposal in Public Notice 1998-60 was supported in this proceeding by several parties, including the Government of Canada's Competition Bureau and associations representing hundreds of small cable systems. The proposal was supported because it encouraged competition. The proposal, if approved, would have encouraged competition between satellite service providers. The proposal also would have enhanced competition between DTH and cable by allowing Class 2 and 3 BDUs to offer the same services that are offered by DTH. We note that Class 2 and 3 BDUs are particularly exposed to DTH competition.

Third, "the Commission is concerned that approval of the proposal would create an environment where U.S. satellite providers may have a competitive advantage over licensed SRDUs unless the Commission relieved its licensees of some of their regulatory obligations." The Commission cites five obligations. With respect to the distribution of French language signals and a preponderance of Canadian signals, we note that these obligations are implemented by the Commission's regulations at the BDU or retail level of signal distribution, thereby ensuring that these signals are available to Canadians. It is not possible for a BDU to distribute less than a preponderance of Canadian signals to viewers regardless of what is available at the wholesale level from SRDUs.

The Commission states that SRDUs contribute 5 per cent of gross annual revenues to the creation and presentation of Canadian programming. The Commission believes that this contribution may be at risk if the proposal were approved. However, the proposal would have required Class 2 and 3 BDUs to contribute 5 per cent of the gross payments they made to U.S. satellite services to Canadian programming, removing the concern expressed by the Commission. We also note that the Commission does not require TRDNUs, major competitors to SRDUs, to contribute to Canadian programming.

With respect to the Commission's other concerns, the proposal stated that the Commission would remove signals from the lists if it determined that a U.S. satellite service provider was engaging in anti-competitive behaviour.

The sky would not fall

The Commission's proposal, if approved, would not turn the world on its head. The proposal applies only to Class 2 and 3 BDUs, small systems that serve 15 per cent of Canadian cable subscribers.

The Commission has already ruled in favour of competition in the satellite relay distribution industry, including rate deregulation and cost based rates. As discussed above, the Commission's proposal is merely an extension of what has already been approved by the Government of Canada and the Commission.

No new services are being proposed - some or all of the 4+1 signals from U.S. satellite service providers may replace existing 4+1 services, depending on the ability of competing satellite service providers to sell their services to Class 2 and 3 BDUs. In this connection, we note that many, if not all, Class 2 and 3 BDUs have contracts with the existing Canadian SRDUs that may prevent these BDUs from purchasing services from U.S. satellite service providers for some time.

We would approve the Commission's proposal to allow Class 2 and 3 BDUs to receive 4+1 signals directly from U.S. satellite service providers. The Commission reaches a contrary conclusion. We dissent from the Commission's decision.