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ARCHIVED - Decision CRTC 2001-171

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Decision CRTC 2001-171

  Ottawa, 12 March 2001
  Saskatchewan Telecommunications (SaskTel)
Regina, Saskatoon, Moose Jaw, Prince Albert, Yorkton, Estevan, Weyburn, Swift Current, North Battleford, Battleford, White City and Pilot Butte, Saskatchewan 2000-1706-3
  30 October 2000 Public Hearing in Calgary
 

New cable distribution undertaking in Saskatchewan

  The Commission approves the application by SaskTel to establish a new cable system that will serve the Saskatchewan communities listed above. The licensee will offer a fully integrated Internet and broadcast service known as digital interactive video. Using this system, consumers will be able to receive programming and access the Internet using their television sets. SaskTel will distribute the service using the network it has established to provide telephone service.
  SaskTel is a crown corporation established by the Government of Saskatchewan. Pursuant to the provisions of the Direction to the CRTC (Ineligibility to hold broadcasting licences) the Commission must ensure that the government does not directly control SaskTel or unduly influence the content of the service. This authority will, therefore, only be effective and the Commission will only issue the licence when the applicant has filed documents that clearly demonstrate that members of its board of directors are appointed for fixed terms and may not be removed at the pleasure of the cabinet, as is currently the case. The Commission is also, by majority vote, imposing a condition of licence that prohibits the licensee from operating a community channel.
1. The Commission approves the application by SaskTel for a licence to carry on a cable distribution undertaking to serve Regina, Saskatoon, Moose Jaw, Prince Albert, Yorkton, Estevan, Weyburn, Swift Current, North Battleford, Battleford, White City and Pilot Butte. Subject to the requirements of this decision, the Commission will issue a Class 1 licence expiring 31 August 2007.
2. The operation of this undertaking will be regulated pursuant to the Broadcasting Distribution Regulations (the regulations) and the licence will be subject to the conditions specified in this decision and in the licence to be issued.
  Description of the service
3. SaskTel will provide a service called digital interactive video (DIV). Using this system, viewers will be able to receive programming and access the Internet using their television sets. Thus, it will be possible for customers to connect with the Internet without a home computer.
4. The DIV service will provide all broadcasting services required by the regulations and the Commission's access rules. It will also provide a number of discretionary television services, pay audio and pay-per-view channels, as well as high-speed Internet access, e-mail, local weather and other information of interest to customers.
5. Conditions of licence and authorizations relating to signal carriage may be found in the appendix to this decision.
  Issues
6. Fourteen interveners supported the application in all of its aspects. Among other things, they noted that SaskTel would provide additional choice for consumers as well as additional support for the production of Canadian films and video programs.
7. Other interveners, however, either opposed the application or raised issues related to it. These issues are discussed below.
  Licensing a crown corporation
8. SaskTel is the incumbent telephone company for the province of Saskatchewan. It is also a provincial crown corporation. In general, under the terms of Direction to the CRTC (Ineligibility to hold broadcasting licences) (the direction), provincial governments and their agents may not hold broadcasting licences. However, the direction provides for an exception that would allow SaskTel to be licensed if it qualifies as an "independent carrier." The direction defines an independent carrier as follows:
 

"independent carrier" means a corporation that is either a Canadian carrier within the meaning of the Telecommunications Act that is owned by Her Majesty in right of any province, that was operating on August 6, 1996 and that continues to be operated as a Canadian carrier, or a subsidiary corporation of the Canadian carrier, where

 

(a) the Commission determines that the corporation is not directly controlled by Her Majesty in right of any province, and

 

(b) without limiting the generality of paragraph (a), the corporation enjoys freedom of expression and journalistic, creative and programming independence in the pursuit of its objects and in the exercise of its powers.

9. In their interventions, Access Communications Co-operative Limited (Access), the Canadian Cable Television Association (CCTA) and The Battlefords Community Cablevision Co-operative Limited (Battlefords) indicated that they considered that SaskTel does not qualify as an independent carrier under the direction to the CRTC cited above.
10. Access noted that the provincial government holds several powers over SaskTel. For example, the provincial cabinet appoints SaskTel's directors. It noted that the appointments are not for specific terms so the cabinet could remove members of the board at any time.
11. Battlefords noted that SaskTel is responsible to the Crown Investments Corporation of Saskatchewan (CIC). CIC is responsible for all of Saskatchewan's crown corporations and is managed and controlled by a board of directors that includes ministers of the provincial government. The CIC has several important powers relating to SaskTel including the approval of commercial and financial objectives, payment of dividends, capital budgets, and the appointment of the Chief Executive Officer.
12. Interveners argued that a corporation such as SaskTel, whose operations could be so heavily influenced by government would not enjoy the requisite freedom of expression and journalistic, creative and programming independence required under the direction.
13. SaskTel argued that it was not directly controlled by the government, and that it enjoyed the editorial freedom required under the direction. It considered that its board was independent and noted that there was no requirement that government ministers be represented on the board. The government could therefore not give direct orders to the board but could only act through intermediaries, i.e. SaskTel's board. SaskTel further stated that the first responsibility of board members is to act for the good of the crown corporation.
14. With respect to the degree of journalistic and creative freedom enjoyed by SaskTel, the applicant noted that the government has never interfered with the company's existing Internet service or a service operated by SaskTel that provides movies to hotels. It also considered that there would be little journalistic activity involved in operating a broadcasting distribution undertaking (BDU) since the prime purpose of such an undertaking is to distribute signals provided by other broadcasters and the signals that are carried are governed by the Commission's regulations and policies.
15. Finally, SaskTel presented an Order in Council issued by the Government of Saskatchewan empowering SaskTel to "accept from the Canadian Radio-television and Telecommunications Commission a licence to operate a broadcasting distribution undertaking on the condition that such licence is operated by Saskatchewan Telecommunications' officers and other employees with freedom of expression and journalistic, creative and programming independence in pursuit of this power."
16. The Commission notes SaskTel's assurances that it is not now directly controlled by the Government of Saskatchewan and exercises the editorial independence required under the direction. It further notes that the opportunities for journalistic and creative input for operators of a BDU would be confined largely to the community channel. SaskTel indicated that it did not propose to offer a community channel, at least at the outset.
17. The Commission, however, considers it appropriate to adopt measures to ensure that SaskTel will continue to enjoy the independence required under the direction. The Commission is especially concerned that members of the applicant's board of directors may be removed at the pleasure of the cabinet. This could lead to situations where undue pressure might be exerted on board members concerning particular matters. At the hearing, the applicant was asked to react to a suggestion that board members be appointed for specific terms. In reply, Mr. Don Ching, president of SaskTel, stated:
 

That I think is not only a welcome suggestion, but I believe that, probably by year end, there will be, at least in policy if not in statute, a set term for board appointees.

18. In light of the Commission's concerns and the applicant's statement cited above, the authority given in this decision will only be effective, and the licence will only be issued when the applicant has filed documents that clearly demonstrate that members of its board of directors are appointed for fixed terms and may not be removed at the pleasure of the cabinet, as is currently the case.
19. Further, the Commission, by majority vote is imposing a condition of licence stipulating that SaskTel may not offer a community channel. SaskTel will instead discharge its obligation to support Canadian programming by contributing 5% of its gross revenues derived from its broadcasting activities to funds supporting Canadian programming, as required by the regulations.
  Involvement of a crown corporation in broadcasting
20. While not opposing competition in principle, several interveners objected to a crown corporation entering a business where private companies already compete. A number of private BDU operators currently serve Saskatchewan residents, including local cable systems, the Image Wireless Multipoint Distribution System and the Direct-to-home (DTH) satellite services offered by Bell ExpressVu and Star Choice. Battlefords, and several other interveners, were concerned that additional competition from SaskTel could have a negative impact on certain aspects of the operations of local cable systems, such as the community channel.
21. SaskTel, for its part, considered that the government's 1996 Convergence Policy Statement and the subsequent Order in Council which amended the eligibility criteria to hold a BDU licence, provide clear evidence that the government considers it appropriate for crown corporations to hold broadcasting licences.
22. The Commission considers that, so long as SaskTel meets the eligibility criteria set out in the direction, there is nothing that prevents it from holding a broadcasting licence.
  Fair competition
23. Interveners such as the CCTA, Access and Shaw Communications Inc. (Shaw) expressed concern that SaskTel's entry into broadcasting was premature, and that adequate safeguards were not in place to ensure that it competed fairly.
24. Some interveners were concerned that SaskTel might offer its DIV service below cost for an extended period by cross-subsidizing it with other utility or competitive services.
25. SaskTel, on the other hand, considered that it had met all of the Commission's requirements for receiving a BDU licence.
26. The Commission set out its policy on the timing of the entry of telephone companies into cable's core business in Public Notice CRTC 1997-49 Applications by telephone companies to carry on broadcasting distribution undertakings and Telecom Decision CRTC 97-8 Local competition. In summary, the Commission's policy stipulates that applications from telephone companies to enter cable's core business should not be entertained until rules removing regulatory barriers to effective competition in local telephony are established.
27. More specifically, the Commission required that in order to create conditions for effective competition in the local telephone market, issues such as interconnection, unbundling and co-location must be resolved, and the issue of local number portability must be addressed.
28. In Telecom Order CRTC 2000-604, the Commission approved tariffs filed by SaskTel to provide competitive local exchange carriers with local interconnection and access to unbundled network components equivalent to that available in other parts of Canada. SaskTel has also taken steps to prepare to roll out local number portability. In light of the above, the Commission considers that SaskTel has met the necessary conditions to enter the BDU business in Saskatchewan.
29. SaskTel's DIV service will involve bundling of a high-speed Internet service with a BDU service. Both of these fall into the category of competitive services.
30. In Telecom Decision CRTC 2000-150 SaskTel - Transition to federal regulation (Decision 2000-150), the Commission granted SaskTel forbearance from the regulation of retail end-user Internet service. Forbearance was granted on the same terms and conditions and from the same sections of the Telecommunications Act as granted to other major incumbent telephone companies in Telecom Order CRTC 99-592 Forbearance from retail Internet services.
31. With respect to interveners concerns about cross-subsidization of SaskTel's DIV service with its utility services, the Commission has established two requirements that address such concerns, as discussed below.
32. First, in Decision 2000-150, the Commission found SaskTel's definition of its utility and competitive segments in its split rate base methodology to be consistent with current directives. SaskTel's methodology was reasonably in line with those of other telephone companies, with the exception of two differences noted by SaskTel. The company has subsequently taken steps to address the assignment methodology in question to reflect the requirements of Telecom Decision CRTC 95-21 Implementation of regulatory framework - Splitting of the rate base and related issues.
33. Second, in Decision 2000-150, the Commission also directed SaskTel to file for approval its imputation test methodology, i.e., to determine whether or not rates are compensatory. On 31 October 2000, SaskTel filed for approval its imputation test methodology, which among other things, would apply to bundled services. By letter dated 5 January 2001, the Commission found SaskTel's proposal to be generally consistent with the imputation test methodology approved for the former Stentor companies and approved SaskTel's proposal as modified to include several changes.
34. The Commission considers that SaskTel's requirements related to establishing a split rate base will prevent the cross subsidy of its DIV service by its utility services. Further, the requirement of an imputation test will prevent anti-competitive pricing when the DIV service is bundled with one or more of its tariffed telecommunications services.
35. With respect to interveners' concerns about cross-subsidization of SaskTel's DIV service with other competitive services, the Commission notes that it has not imposed any restrictions with respect to bundling on incumbent local exchange carriers that been awarded BDU licenses.
36. Some interveners noted that Decision 2000-150 indicated that a full review of SaskTel's financial situation is expected to be initiated coincidental to the upcoming proceeding to review the current price cap regime for the other major incumbent telephone companies. Interveners considered that it would be appropriate for the Commission to wait until after the 18-month transitional period expires on 1 January 2002 before issuing a broadcasting licence to SaskTel.
37. The Commission, however, concludes that, with SaskTel's split rate base methodology, the requirement for an imputation test and the elimination of barriers to local competition, the necessary mechanisms are in place to ensure that SaskTel will compete fairly with other BDUs.
  Carriage of distant signals
38. Access, the CCTA and Shaw noted that SaskTel proposed to offer certain Canadian distant signals as part of its basic service, contrary to the Commission's distribution requirements for Class 1 licensees.
39. In reply, SaskTel indicated that it had made an error, and it would offer these channels as part of its discretionary service. This is reflected in the signal authorizations set out in the appendix.
  Employment equity
40. The Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources (PN 1992-59).
  Secretary General
  This decision is to be appended to the licence. It is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca
 

Appendix to Decision CRTC 2001-171

  Terms and conditions of licence for the new cable distribution undertaking licensed to SaskTel
  Terms of licence
  The Commission will only issue the licence, and it will only be effective at such time as:
 

· the licensee has filed documents that clearly demonstrate to the satisfaction of the Commission that members of its board of directors are appointed for fixed terms and may not be removed at the pleasure of the provincial cabinet.

 

· the licensee confirms in writing that it is ready to begin operation. This must take place within 12 months of today's date. Any request for an extension to that deadline requires Commission approval and must be made in writing within that period.

  The signals that the licensee is authorized to distribute may be received by direct reception, or from any Canadian broadcasting distribution undertaking (licensed or exempted) which is authorized to provide signals to other distributors.
  Conditions of licence
  The licence will be subject to the conditions specified below and to any other condition specified in the licence to be issued.
 

1. The licensee shall not offer a community channel.

 

2. In addition to the services required or authorized to be distributed pursuant to the applicable sections of the Broadcasting Distribution Regulations, the licensee is authorized, by condition of licence, to distribute, at its option and as part of the basic service:

 

· WXYZ-TV (ABC) Detroit

 

· WCCO-TV (CBS) Minneapolis

 

· WDIV-TV (NBC) Detroit

 

· WUHF-TV (FOX) Rochester

 

· WTVS-TV (PBS) Detroit.

  Authorization
  The licensee is authorized to distribute, at its option, CKEM-TV (IND) Edmonton and CITY-TV (IND) Toronto, as part of its discretionary service.
  The Commission notes that the licensee will receive the above-noted signals via satellite.
  Dissenting opinion of Commissionner André Noël
  I concur with the majority opinion and with its underlying reasons, to the effect that SaskTel, in so far as the terms of the members of its board of directors is of fixed duration, is not directly controlled by the Government of Saskatchewan and that it enjoys freedom of expression and journalistic, creative and programming independence in the pursuit of its objects and in the exercise of its powers and consequently may hold a broadcasting licence in accordance with the Direction to the CRTC (Ineligibility to hold broadcasting licences).
  However, once the conclusion has been reached that there is no direct control, I have difficulty understanding how we can impose on SaskTel a condition of licence that far exceeds the conditions usually imposed on similar undertakings.
  How, on the one hand, can we say there is no direct control and, on the other, impose a condition of licence that prevents the undertaking from operating a community channel, on the grounds that there could be interference by the Government of Saskatchewan because of its close relations with SaskTel. You are either pregnant or not pregnant-there is nothing in between.
  As soon as you are satisfied that there is no direct control by the Government of Saskatchewan over SaskTel, an opinion which I share, there is no reason to impose a condition of licence prohibiting the latter from operating a community channel. In my opinion, such a condition of licence is totally unnecessary and unjustified.
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