ARCHIVED - Decision CRTC 2001-527

Decision CRTC 2001-527

Ottawa, 28 August 2001

Édouard G. Trépanier
Director
Regulatory Affairs,
Broadcasting
Vidéotron ltée
300 rue Viger est
Montréal, Quebec
H2X 3W4

Dear Mr. Trépanier:

This is in reference to your application for rate increases for the licensees that are controlled by Vidéotron ltée and that serve the areas listed in Appendix 1 to this letter. It is our understanding that, with the exception of the Sorel undertaking, the proposed increase of $0.68 is in respect of your plans to add the Canal D service to the basic service of each of these undertakings. In the case of the Sorel undertaking, the proposed rate increase is $1.43, reflecting your plans to add VRAKTV (formerly Canal Famille) and YTV, as well as Canal D, to the basic service.

The addition of Canal D to the basic service is for the purpose of freeing a channel within the TéléMax 1 tier for the distribution of the ARTV service.

In accordance with section 54(2)(b) of the Broadcasting Distribution Regulations, the Commission has decided, by majority vote, to deny the rate increase of $0.68 for the addition of Canal D to the basic service of the various undertakings concerned, as proposed in your application dated 13 June 2001.

In Report on the Establishment of a National French-language Arts Television Service -Public Notice CRTC 1999-187, 19 November 1999, the Commission expressed concern regarding the affordability of the basic service, especially in Quebec, where the percentage of cable subscribers is appreciably lower than elsewhere in Canada. Moreover, in Decision CRTC 2000-386 dated 14 September 2000, the Commission awarded a licence to Télé des Arts (now known as ARTV). The Commission arranged for the distribution of this service in a manner designed to ensure its availability to the largest possible number of subscribers, but without causing any increase in the basic service rate.

In the circumstances, the Commission is of the view that the basic service rate increases proposed by Vidéotron ltée would be inconsistent with the principles set out in the above-mentioned notice and decision.

The Commission also wishes to bring your attention to the fact that, in accordance with section 18(5)(b) of the Broadcasting Distribution Regulations, the licensees controlled by Vidéotron ltée and listed in the appendix to this letter are required to provide the ARTV service as soon as the service commences operation on 1 September 2001. Further, the Commission considers that, under this same regulation, Vidéotron has at least one channel available on the TéléMax 1 tier that could be used to distribute ARTV without causing an increase in the basic service rate.

With regard to the Sorel undertaking, the Commission has no objection to the addition of VRAKTV and YTV to the basic service, or to a consequent increase in the basic service rate of $0.75.

Yours truly,

Ursula Menke

Appendix

Applicants' names, and locations of the
cable distribution undertakings concerned

Dissenting Opinion of Commissioner Andrée Noël

BACKGROUND:

To understand the significance of the applications submitted by Vidéotron in this instance, it is necessary to bear in mind the context in which they were presented.

In Decision CRTC 2000-386 dated 14 September 2000, the Commission granted a licence to Télé des Arts, now known as ARTV, and required that this service be distributed as part of the existing discretionary tier having the highest penetration. This was in order to guarantee the viability of ARTV, which has high operating costs due to the very nature of the service. By requiring ARTV's distribution as part of the tier with the highest penetration, the Commission ensured that ARTV would earn sufficient subscriber revenues to support the cost of high-quality programming.

The Commission's decision was made in the wake of Order in Council C.P. 1999-1454 dated 6 August 1999, and the report to the Governor in Council contained in Public Notice CRTC 1999-187 dated 19 November 1999 entitled Report on the Establishment of a National French-Language Arts Television Service. It also followed upon the Commission's Report on French-Language Broadcasting Services in a Minority Environment (Public Notice CRTC 2001-25 dated 12 February  2001).

THE TECHNICAL REALITY:

In an analog universe, and in the current regulatory environment, I believe that, if Vidéotron is to meet the Commission's requirements, it has but two options: either delete the carriage of a service currently offered as part of the optional tier with the highest penetration (Télémax), or move a service from the tier to the basic service. The analog traps currently in place at the homes of individual subscribers simply do not permit the inclusion of an additional service in the Télémax tier.

To add a service to the Télemax tier, the existing traps would have to be replaced by new, larger traps. These high-capacity traps are not a standard type of equipment and must be custom-ordered from a supplier. A Vidéotron technician must then install these new traps for each individual subscriber. This operation would take several months, at an approximate cost of $12 million. This amount does not include the undepreciated capital cost of the old traps, which would essentially have become obsolete and have to be disposed of.

AVAILABLE OPTIONS

It appears that, given the exorbitant cost of replacing the traps, the only two avenues open to Vidéotron, options that would enable it to make room for ARTV and thereby conform to the Commission's decision, would be either to remove a service from the Télémax package altogether or move a service from the tier to the basic service package.

In the first case, the Broadcasting Distribution Regulations preclude the deletion of a French-language service in the Francophone market. On the other hand, only two English-language services, namely that of the FOX network and of CTV Sportsnet, have been added to the Télémax package since May 1996. According to the regulations, either of the channels used for the distribution of these two services qualifies as an available channel, one that may be vacated in order to permit the distribution of a service such as ARTV.

With respect to the second option, that being the relocation of an existing Télémax service to the basic service, making the choice as to which service to move requires consideration of a number of important issues, both social and commercial.

The solution that seemed, at first glance, to be the simplest involves relocating FOX, an American service, to the basic service package, since Vidéotron does not pay any royalties for this channel. There is no doubt that this is a simple solution, and that it would be consistent with regulatory requirements. If implemented, however, this course of action would add a non-Canadian, English-language service to the basic service offering of Quebec's largest cable distributer (1.4 million subscribers). If FOX is moved to the basic service, Francophones, who represent 88% of Vidéotron's subscribers, will effectively find themselves receiving a basic service package consisting of services, more than 60% of which operate in the English language.

I find that the majority's decision, given its scope and the limited options it offers to Vidéotron, does not take sufficient account of these facts.

Vidéotron is asking to relocate Canal D to the basic service, with an associated increase of $0.68 per subscriber in the basic package rate, except in the Sorel region, which represents a special case.

Why the proposal to move Canal D rather than Canal Vie, LCN, RDS, MusiMax, Musique Plus or Télétoon? First of all, Canal D is distributed as part of the first tier in 38 of Vidéotron's 40 cable systems. The two exceptions are the St-Cyrille-de-Lislet and St-Joachim-de-Montmorency undertakings, which are two Class 3 systems that are not affected by the current applications. Canal D is also more of a general interest service than those of Réseau des Sports, MusiMax or Télétoon. Canal D is also one of the most popular specialty services in Quebec.

Moreover, it is to be noted that, prior to September 1997, Canal D was offered as part of the basic service for $0.65 plus $0.03; the service continues to benefit from modified dual status. Thus, this proposal constitutes not a precedent, but a return to a situation that existed prior to 1997. Further, with the exception of Canal Vie's rate, the price charged to subscribers for Canal D is closest to that of ARTV. Moving Canal D to the basic service would thus avoid a double rate increase, that being one for the basic service and another for the Télémax tier.

Finally, all Vidéotron subscribers were advised of the price increase and of their right to voice any concerns to the Commission regarding the applications in question. By 1 August 2001, the deadline for receipt of interventions, only 133 out of Vidéotron's 1,400,000 basic service subscribers, less than .01% of the total, had filed comments. In fact, neither the Office de la protection du consommateur, an organization that reports to the Government of Quebec, nor Action Réseau Consommateur and Option Consommateurs, two public advocacy groups who appear regularly before the Commission, intervened on this issue. This fact would appear to indicate their low level of concern regarding the proposed rate increase.

THE Commercial Reality:

By denying the rate increase proposed by Vidéotron, the Commission is interfering in a complex tripartite contractual agreement only a few days before the planned launch date of ARTV on 1 September 2001.

In today's decision, the Commission's majority reminds Vidéotron that it is still required by the Broadcasting Distribution Regulations to offer the ARTV service as of 1 September 2001. I believe that, with less than one week remaining until the proposed launch of ARTV, this position imposes an undue hardship on Vidéotron.

As for the subscribers, what will they gain from all of this, other than a rate increase for the Télémax package? This increase could reach up to $1.10 per month for those 83% of Vidéotron's basic service subscribers who also subscribe to the Télémax tier. Unless Vidéotron decides to move FOX (the only available service on the tier whose carriage does not involve the payment of royalties) - an inappropriate choice in my view given the context - it will have to move another service to the basic service. It seems to me very unlikely that this could occur without causing an increase in the basic rate. This would be unless subscribers of the discretionary tier, through a rate increase affecting that tier, were to absorb the royalty costs associated with the service that is moved to the basic service. Should this occur, basic service subscribers would benefit from the addition of a free service, at the expense of those who subscribe to the discretionary tier. Fee increases for discretionary tiers are not regulated.

Under such a scenario, subscribers of the discretionary tier would nonetheless have the benefit of a 60-day subscription period during which they would have access to the ARTV service without charge. This is because such subscribers must be notified of a proposed fee increase 60 days in advance of its application.

CONCLUSION:

In conclusion, I would approve the application for a rate increase in respect of the addition of Canal D to the basic tier of the systems that appear in the appendix of the majority decision.

With regard to the application for a rate increase of $0.75 per month for the addition of VRAKTV and YTV to the basic tier in the Sorel region, I support the majority's decision.

In the circumstances, and in light of the majority decision, I encourage all parties to do everything within their power to find a solution that is equitable to all, and one that allows Francophones and Francophiles across Canada to have access to the ARTV service beginning on 1 September 2001, in the public interest.

Dissenting Opinion of Commissioner Jean-Marc Demers

I agree with Commissioner Noël's conclusion, as well as with the substance of her opinion. In the circumstances, the parties would reasonably have expected to receive Commission approval for these rate increases, given that they relate to the addition of a new French-language service, come about as a consequence of complex agreements negotiated amongst the parties, and follow due notification of subscribers.

The result of the proposed rate increase would be the addition of a popular French-language service to the basic service, and the carriage of ARTV on the Télémax tier, in accordance with a previous CRTC decision. ARTV is generally considered to be a less popular service. In Quebec, rates for the basic service are higher than in the rest of the country. The basic service, however, includes more costly Francophone specialty services, as well as all of the conventional, English-language Canadian services that are very much appreciated by bilingual Francophones.

I further support Commissioner Noël's recommendation that parties be urged to act quickly to ensure that Francophones and Francophiles have access to the new ARTV service as of 1 September 2001.

Date Modified: 2001-08-28