ARCHIVED - Public Notice CRTC 2000-164

Public Notice CRTC 2000-164

See also: 2000-164-1

Ottawa, 7 December 2000

Review of certain aspects of the regulation of cable undertakings

The Commission invites comments on certain aspects of its regime for licensing and regulating cable distribution undertakings. The Commission wishes to consider if there are more appropriate ways to regulate such undertakings while still ensuring that the objectives of the Broadcasting Act are met and the public interest is served. The Commission also wishes to reduce the administrative burden on cable licensees as well as on itself. This public notice sets out a number of specific questions on which the Commission seeks comment. These questions can be found in paragraphs 33 and 36 of this notice. Comments filed and transcripts gathered as part of the proceeding related to the provision of French-language services initiated in Public Notices CRTC 2000-38  and 2000-74 will also be placed on the file for the proceeding that is being initiated by this notice.

Information about how to submit a comment is provided at the end of the notice.

This notice is one of three that the Commission is issuing today that relate to its regulation of cable distribution undertakings. In Public Notice CRTC 2000-162 Proposed exemption order for small cable systems, the Commission invites comments on a proposal to exempt from licensing requirements any person that provides cable service to fewer than 2,000 subscribers and serves communities with populations less than 10,000. In Public Notice CRTC 2000-163 Licensing cable undertakings - A regional approach, the Commission calls for comments on issues related to licensing cable systems on a regional basis.

Introduction

As a result of an extensive public process initiated in May 1996, the Commission issued Public Notice CRTC 1997-150, dated 22 December 1997, which set out revised Broadcasting Distribution Regulations (the regulations). At that time, the Commission announced that it intended to

.undertake a general review of the effectiveness and appropriateness of the new regulations after two years, and to consider whether further refinements to the regulatory framework are appropriate in pursuit of the objectives of the Broadcasting Act.

The Commission has reviewed specific aspects of the regulations since their adoption in 1997, but has not yet conducted a broader review on the continued effectiveness of its licensing and regulatory approach to small cable systems. Despite continued consolidation and interconnection of many small cable systems by one owner, there are still approximately 330 different cable companies serving fewer than 2,000 subscribers each.

At a convention held by the Canadian Cable Television Association (CCTA) in April of this year, the Commission announced that it was conducting an internal review of how it licenses broadcasting distribution undertaking (BDUs), with a particular emphasis on how it deals with smaller cable systems. Since that time, the Commission has received written submissions from the CCTA and the Canadian Cable Systems Alliance (CCSA). These associations provided information on the operations of the various classes of cable systems and made proposals for changing the current regulatory approach. The CCTA and CCSA submissions will be discussed in more detail later in this document and the Commission will seek comments on the changes that are proposed. The Commission has also received submissions from several individual cable companies that generally support the positions taken by the CCTA and CCSA.

The current regime

By packaging local and regional over-the-air signals with other programming services such as pay and specialty services, as well as programming from foreign sources, BDUs provide Canadians with a wider diversity of programming than they would receive only from over-the-air transmitters. To further ensure that they make a strong contribution to the objectives set out in the Broadcasting Act (the Act), BDUs must respect a number of regulations and signal carriage obligations. These obligations vary according to the class of the undertaking.

Theregulationsestablish three classes of licence based primarily on the number of subscribers that a cable BDU serves. These are:

• Class 1 licensees, generally systems having 6,000 or more subscribers;

• Class 2 licensees, generally systems with 2,000 or more but fewer than 6,000 subscribers; and, generally systems with 2,000 or more but fewer than 6,000 subscribers; and

• Class 3 licensees, generally systems with fewer than 2,000 subscribers. As well, this class includes systems in remote areas that were formally known as Part III cable licensees, regardless of the number of subscribers they serve.

This licensing system is based on issuing individual licences for a set territory, regardless of whether or not the same person or company owns systems serving adjoining areas. The recent trend toward consolidation and regionalization of operations has resulted in an environment where many cable companies own more than one licensed system, and often own several separately licensed systems that serve contiguous areas. These systems may be interconnected, have only one head end, and fulfil identical requirements with respect to the local and regional stations that they distribute. In Public Notice CRTC 2000-163, Licensing cable undertakings - a regional approach issued today, the Commission addresses issues relevant to this trend.

The current regulatory system attempts to balance the regulatory obligations imposed on cable systems with the resources that the systems have to fulfil them. Thus, regulatory obligations are generally more extensive for larger systems. However, some regulatory obligations apply to all BDUs, regardless of their size. For example, all cable BDUs must:

• ensure that the majority of the signals they distribute are Canadian.

• provide a basic service. A basic service is a package of signals provided to all subscribers for a single monthly fee. The basic service must include priority Canadian programming services identified in the regulations.

• adhere to a number of competitive safeguards. These include submission to a dispute resolution mechanism, and refraining from granting undue preference to particular services.

• file an annual statement of accounts with the Commission.

• apply for permission to change their service area.

• notify the Commission and, in certain circumstances, obtain the Commission's prior approval for changes in ownership.

Other regulatory mechanisms are applied differently, depending on the class of the undertaking. The most significant differences between a Class 1 and 2 system's obligations relate to the requirement to perform simultaneous substitution, the obligation to carry specialty services, the regulation of rates for basic service, and contributions to support Canadian programming. While Class 2 licensees are required to perform certain substitutions requested by local, conventional television programming undertakings with a studio located within the licensee's service area, this situation occurs infrequently and effectively removes the majority of Class 2 licensees from the simultaneous substitution requirements that apply to Class 1 licensees. As well, Class 1 systems are required to carry all licensed analog Canadian specialty services in the same official language as the mother tongue of the majority of the population in its market, while Class 2 systems may carry these services at their discretion. The basic service rates for incumbent Class 1 systems are regulated, but such rates are not regulated for Class 2 systems. While both Class 1 and Class 2 undertakings must make an annual contribution to Canadian programming, Class 2 undertakings may devote their full contribution to local expression, usually a community channel.

The distinctions between the regulatory obligations of Class 3 systems and those of other systems are more substantial. Class 3 systems have much greater flexibility with respect to the services they may offer. They are not required to carry specific Canadian services other than local and regional television stations, but rather may carry such services at their discretion. In addition, distribution and linkage rules do not apply to Class 3 systems. These rules, which are set out in Public Notice CRTC 2000-155 dated 8 November 2000, determine how Canadian pay and specialty services may be packaged with foreign services and establish the eligibility of different types of signals for carriage on a BDU's basic service. The distribution and linkage rules are intended to ensure that a wide variety of Canadian services is available.

Current proceeding

The Commission is currently conducting a proceeding related to increasing the availability of French-language broadcasting services in French linguistic minority communities in Canada. In Public Notice CRTC 2000-38, the Commission called for comments on a proposed policy intended to increase the availability of minority official language specialty services for cable subscribers in the new digital environment. In Public Notice CRTC 2000-74, the Commission sought public input for a report to the Governor in Council on measures to encourage and facilitate the provision of and access to the widest range of French-language services in French linguistic minority communities in Canada. Comments filed and transcripts gathered as part of the proceeding relating to the provision of French-language services initiated in PN 2000-38 and PN 2000-74 have been placed on the file for the proceeding that is being initiated by this notice.

During the proceeding on French-language services, the Commission received comments from some participants requesting that its proposed policy intended to increase the availability of minority official language specialty services apply to all classes of cable undertakings.

The current environment

According to 1999 annual returns, 1840 licences have been issued to cable companies that provide service to a total of 7,977,000 subscribers and are held by more than 420 different licensees. While Class 1 systems represent less than 8% of licences issued, they serve more than 86% of all subscribers. Conversely, Class 3 systems represent more than 85% of licences issued, but serve less than 9% of all subscribers. Class 2 systems represent less than 7% of licences issued and serve 5% of all subscribers.

The 330 licensees that individually serve fewer than 2,000 subscribers hold 450 licences and serve less than 135,000, or 1.6%, of the total number of cable subscribers in Canada. By comparison, the 10 largest Canadian cable operators serve approximately 7,180,000 subscribers, or 90% of all cable subscribers. These 10 companies hold approximately 1,070 (58%) of the licences issued by the Commission.

The Commission's objective

The purpose of the current review is to establish a framework that will reduce the administrative burden on small cable systems that may result from the current licensing system, thereby creating efficiencies both for licensees and the Commission. At the same time, the Commission must ensure that the public policy objectives set out in Section 3(1) of the Act are met.

The CCTA and CCSA proposals

As indicated earlier, the Commission received proposals from the CCTA (letter dated 2 May 2000) and the CCSA (letter dated 1 May 2000) suggesting changes to the current regulatory regime and outlining circumstances under which the Commission might use its power to exempt parties from licensing requirements. The Commission also received letters from several operators of smaller cable systems who generally supported the positions of the CCTA and CCSA. All of these submissions are available on the public file of this proceeding. The CCTA and CCSA letters are summarised below.

The CCTA proposal

The CCTA is a national association representing the Canadian cable television industry. Its members, which include some of the largest cable operators as well as some of the smallest, hold 846 licences of all classes and collectively serve more than 7.3 million Canadian households.

In its submission, the CCTA noted the high level of consolidation in the cable industry that has occurred in recent years. This has resulted in four Canadian cable companies (Rogers Cablesystems Ltd., Shaw Cablesystems Ltd., Cogeco Cable Canada Inc., Vidéotron ltée) serving close to 90% of all cable subscribers and collectively holding 370 licences. The remaining 400 licensed cable operators hold approximately 1600 licences and serve only about 10% of all Canadian cable subscribers.

The CCTA suggested that licensees of smaller cable systems not owned or operated on an interconnected basis by a large multiple system operator (MSO) should not be subject to the same degree of regulation as licensees of larger systems. The CCTA noted that the Commission has already made distinctions between small operators and large MSOs in recent decisions related to third-party access to high-speed Internet services delivered by cable.

The CCTA proposed a model for "light-handed regulation" that, it suggested, would permit smaller cable systems to compete more effectively, particularly with direct-to-home (DTH) systems. It proposed that the Commission develop a series of exemption orders that would affect all licensees with fewer than 20,000 subscribers.

Under the CCTA's proposal, all Class 3 licensees would be exempt from licensing and from all regulations, except for the obligation to carry local signals.

All Class 2 licensees would be exempt from the provisions of the regulations, except requirements to:

• provide the prioritised list of "must carry" signals on their basic service;

• ensure that the preponderance of signals offered are Canadian; and

• contribute 5% of gross annual revenues to Canadian programming, less all money spent on local expression such as the community channel.

Class 1 licensees with fewer than 20,000 subscribers and not affiliated with one of the four largest MSOs would be exempt from all regulations except requirements to:

• provide the prioritised list of "must carry" signals on their basic service;
  

• ensure that the preponderance of signals offered are Canadian;
  

• contribute 5% of gross annual revenues to Canadian programming, less all money spent on local expression such as the community channel;

• perform simultaneous substitution when requested by licensees of local stations; and
  

• apply for approval of rate increases, except increases related to the addition of new services.
  

All Class 1 licensees with fewer than 20,000 subscribers, including those affiliated with the four largest MSOs, would be exempt from all regulations related to the packaging of services on various tiers and the linkage of Canadian and non-Canadian services. Under the CCTA's proposal, such cable licensees would also be permitted to receive U.S. 4+1 signals from U.S. satellites. The U.S. 4+1 signals are the signals of U.S. television stations offering programming from the CBS, NBC, ABC and FOX commercial networks and from the non-commercial PBS network.

The CCTA argued that implementation of its model would bring significant benefits. Although it considered that the negative effects would be minimal, it did note two possible drawbacks to its proposal. First, while total licence fees charged by the Commission would remain the same, there would be an increase in the percentage of licence fees paid by the four largest MSOs. The CCTA considered, however, that any negative effect would be offset by the reduced costs that the CCTA approach would bring to the Commission. Second, the amount of money advanced to the Canadian Television Fund from cable operators would decrease by approximately $1 million annually. The CCTA noted that cable operators provided $61.4 million to the CTF in 1999.

The CCSA proposal

The CCSA represents 90 cable television licensees that hold a total of 279 licences and serve approximately 450,000 subscribers. These companies operate 11 Class 1, 34 Class 2, and 234 Class 3 systems serving predominantly rural or small urban communities.

In its submission, the CCSA noted that as ownership within the industry continues to consolidate, the differences between small and large companies are becoming more pronounced. The CCSA suggested that competition has been successfully introduced into markets served by small operators and has replaced the need for detailed regulation by the Commission. Accordingly, the association suggested that resources now spent on regulatory obligations could be redirected to financing technical improvements, introducing new digital services, and improving the content offered to subscribers.

The CCSA's proposal included two aspects - increased subscriber thresholds for defining classes of licence, and exemptions for Class 2 and Class 3 licensees.

Increased thresholds

The CCSA suggested a change in the subscriber thresholds used to establish three classes of cable licensees. These new thresholds would, however, apply only to systems that are not affiliated to the four largest MSOs. Under the CCSA's proposal, a Class 1 licensee would be a system with more than 60,000 subscribers, a Class 2 licensee would have between 20,000 and 60,000 subscribers, and a Class 3 licensee would have fewer than 20,000 subscribers. The CCSA considered its revised definition would be similar, in a Canadian context, to the definition of a "small cable company" established by the United States Federal Communications Commission, in the Telecommunications Act of 1996.

Exemptions for Class 2 and 3 systems

The CCSA further proposed that all systems with fewer than 60,000 subscribers (i.e. its proposed Class 2 and Class 3 systems) that are not affiliated with the four largest MSOs, be exempt from all regulations made under Part II of the Act, with the exception of the following obligations:

• carriage of priority services, as currently provided for under section 17 of the regulations.

• distribution of a preponderance of Canadian video and audio services, as provided under section 6.
  

• continuation, for existing licensees, of simultaneous substitution obligations, as provided under section 30.
  

• restrictions on distributing programming services except as authorised or required by the Commission, as provided under section 3. The CCSA noted that such restrictions also apply to Master Antenna Television Systems (MATV), and are set out in the MATV Exemption Order (Public Notice CRTC 2000-10).

The CCSA argued that exemption orders, under the terms described above, would have a minimal negative impact on the Canadian broadcasting system and may even generate certain benefits. It considered that removal of the various regulatory obligations it identified would permit resources to be redirected to the upgrade of facilities and the provision of new services.

The CCSA also pointed out that the Commission's access rules are designed to ensure that distributors do not act as gatekeepers with regard to programming services by distributing some services in preference to others. It submitted that smaller cable systems are unable to mobilise sufficient market power to hinder the development of programming services.

Finally, the CCSA argued that the introduction of digital services will stretch the resources of smaller cable systems. The imposition of access rules for digital services would therefore be particularly onerous for them, and may slow down or stall the transition of these systems to digital distribution.

Key questions for consideration

Both the CCTA and CCSA proposals are based on significant modifications to the existing licensing regime. For example, both parties proposed changes to the subscriber levels used to define different classes of licence. To help it evaluate these suggested approaches, the Commission invites comments on the proposals filed by the CCTA and CCSA. In particular, the Commission seeks comment on the following questions:

• What are the advantages and disadvantages of the specific provisions of the CCTA and CCSA proposals?
  

• What would be the impact of the CCTA and CCSA proposals on programming undertakings and the program production industry?
  

• Should these proposals or parts of these proposals be implemented? If so, how? Are there any modifications that would enhance their appropriateness?
  

Proposed exemption order

As indicated above, both the CCTA and the CCSA have proposed that the Commission develop exemption orders for cable systems of various sizes.

The Commission is today issuing Public Notice CRTC 2000-162 calling for comments on a proposal to exempt from licensing requirements any cable operator that provides cable service to fewer than 2,000 subscribers, and serves towns with total populations of less than 10,000.

The Commission invites comments on the following questions relating to the wider use of exemption orders that would apply to small cable systems not meeting the criteria set out in PN 2000-162 Proposed exemption order for small cable systems.:

• Considering the current environment, what classes of cable undertakings should be exempt from licensing under the Act?
  

• What would be the regulatory benefits of such exemption, and how could the Commission ensure that the quality of service provided to consumers is maintained?
  

• What would be the criteria for eligibility to receive an exemption?
  

Call for comments

The Commission invites comments on the questions set out above, as well as on any other issues that interested parties consider relevant to the licensing of cable systems. The Commission will accept comments that it receives on or before 16 January 2001.

The Commission will not formally acknowledge comments. It will, however, fully consider all comments and they will form part of the public record of the proceeding, provided that the procedures for filing set out below have been followed.

Procedures for filing comments

Interested parties can file their comments on paper or electronically. Submissions longer than five pages should include a summary.

Parties wishing to file their comments on paper should send them to the Secretary General, CRTC, Ottawa, K1A 0N2.

Parties wishing to file electronic versions of their comments can do so by email or on diskette. The Commission email address is procedure@crtc.gc.ca 

Electronic submissions should be in the HTML format. As an alternative, those making submissions may use "Microsoft Word" for text and "Microsoft Excel" for spreadsheets.

Please number each paragraph of your submission. In addition, please enter the line ***End of document*** following the last paragraph. This will help the Commission verify that the document has not been damaged during transmission.

The Commission will make comments filed in electronic form available on its web site at www.crtc.gc.ca in the official language and format in which they are submitted. As well, it will make the letters from the CCTA, the CCSA and various smaller cable systems that are referred to earlier in this document available on its website. This will make it easier for members of the public to consult the documents.

The Commission also encourages interested parties to monitor the public examination file (and/or the Commission's web site) for additional information that they may find useful when preparing their comments.

Examination of public comments and related documents at the following Commission offices during normal business hours

Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage, Room G-5
Hull, Quebec K1A 0N2
Tel: (819) 997-2429 - TDD: 994-0423
Fax: (819) 994-0218

Bank of Commerce Building
1809 Barrington Street
Suite 1007
Halifax, Nova Scotia B3J 3K8
Tel: (902) 426-7997 - TDD: 426-6997
Fax: (902) 426-2721

405 de Maisonneuve Blvd. East
2nd Floor, Suite B2300
Montréal, Quebec H2L 4J5
Tel: (514) 283-6607 - TDD: 283-8316
Fax: (514) 283-3689

55 St. Clair Avenue East
Suite 624
Toronto, Ontario M4T 1M2
Tel: (416) 952-9096
Fax: (416) 954-6343

Kensington Building
275 Portage Avenue
Suite 1810
Winnipeg, Manitoba R3B 2B3
Tel: (204) 983-6306 - TDD: 983-8274
Fax: (204) 983-6317

Cornwall Professional Building
2125 - 11th Avenue
Room 103
Regina, Saskatchewan S4P 3X3
Tel: (306) 780-3422
Fax: (306) 780-3319

10405 Jasper Avenue
Suite 520
Edmonton, Alberta T5J 3N4
Tel: (780) 495-3224
Fax: (780) 495-3214

530-580 Hornby Street
Vancouver, British Columbia V6C 3B6
Tel: (604) 666-2111 - TDD: 666-0778
Fax: (604) 666-8322

Related CRTC documents

• Public Notice 2000-162 - Proposed exemption order for small cable systems
  

• Public Notice 2000-163 - Licensing cable undertakings - a regional approach

Secretary General

This document is available in alternate format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca.