ARCHIVED - Public Notice CRTC 2001-59

Public Notice CRTC 2001-59

Ottawa, 29 May 2001

Changes to the Commission's approach to cable undertakings - Proposed exemption for cable systems with fewer than 2,000 subscribers, and implementation of a regional licensing model

Summary

The Commission will implement two initiatives related to its licensing and regulation of cable systems.

First, the Commission will exempt from licensing and associated regulations, those cable systems that serve small and rural communities and have fewer than 2,000 subscribers. A draft exemption order setting out the specific criteria that smaller systems must meet to qualify for the exemption may be found in the appendix to this notice, and comments from members of the public are invited. These criteria reflect, among other things, the Commission's policy with respect to distribution of services in the official language of the minority set out in Public Notice CRTC 2001-25 Achieving a better balance: Report on French-language services in a minority environment.

Second, the Commission will implement a system of regional licensing for cable systems. Currently, cable licences are given for specific territories. Thus, a single cable operator may hold numerous licences, even in situations where its systems serve adjacent territories, share one head end, and carry the same signals. Regional licensing will allow the Commission to issue fewer licences, thus reducing the administrative burden both on licensees and on itself. The Commission will shortly issue for public comment, revisions to the Broadcasting Distribution Regulations that are necessary to implement regional licensing.

The initiatives set out in this document will, in the Commission's view, allow cable licensees to operate with increased efficiency. They will be able to concentrate more on the service that they provide and less on administration. As a result of the exemption order, small cable systems should be able to compete more effectively with direct-to-home (DTH) and multipoint distribution systems (MDS). The savings resulting from more efficient operations should also serve to benefit customers.

The Commission considers that the initiatives set out above are a first step in updating its approach to licensing and regulating cable systems. It wishes to monitor the impact of the new exemption for very small cable systems and its move to regional licensing before implementing any further changes. The Commission will therefore not make any further amendments to its licensing framework for cable undertakings at this time.

Introduction

On 7 December 2000, the Commission announced that it was launching a review of certain aspects of its regime for licensing and regulating cable distribution undertakings, with a particular emphasis on how it deals with smaller cable systems. The Commission's stated goal was 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.

Matters relating to this review were addressed in three documents: Public Notice CRTC 2000-162 Proposed exemption order for small cable systems, Public Notice CRTC 2000-163 Licensing cable undertakings - A regional approach and Public Notice CRTC 2000-164 Review of certain aspects of the regulation of cable undertakings. The Commission's proposed approach attempted to take into account the changing broadcast distribution environment, and in particular, the growing consolidation and regionalization of the larger cable companies, while at the same time addressing the needs of the smaller cable operators who operate within an increasingly competitive marketplace.

Proposed exemption for the smallest systems

In Public Notice 2000-162, the Commission invited comments on a proposed exemption order that would exempt from licensing requirements any system that provided cable service to fewer than 2,000 subscribers and served communities with populations of less than 10,000. Under the Broadcasting Act (the Act), the Commission has the obligation to exempt certain classes of broadcasting undertakings if it determines that licensing is not necessary to meet the objectives of the Act. Small cable systems are currently less regulated than larger ones, and when it issued the call for comments, the Commission held the preliminary view that the objectives of the Act could be met through the proposed exemption order. In addition, an exemption would allow cable systems in rural areas to focus their energies on responding to increasing competition from both DTH and MDS, and on providing their customers with better and more diverse communications services.

Proposal for regional licensing

In Public Notice 2000-163, the Commission proposed a regional licensing model that would help align the regulatory process with the ownership models emerging within the industry. The current licensing system for cable broadcasting distribution undertakings (BDUs) is based on issuing individual licences for particular territories. The recent trend toward ownership consolidation and regionalization of operations has created an environment where many cable licensees own and operate more than one licensed system, and often own several separately licensed systems that serve adjacent 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. Consequently, the Commission proposed a regional licensing model where:

• Canada would be divided into five regions for the purpose of regional licensing. Region 1 would include British Columbia, the Yukon, Nunavut, and the Northwest Territories. Region 2 would include Alberta, Saskatchewan and Manitoba. Region 3 would cover Ontario. Region 4 would cover Quebec. Region 5 would include New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.

• The Commission would issue a maximum of three cable licences for each licensee operating in the region. One licence would cover all of its Class 1 systems, the second licence would cover all of its Class 2 systems, and the third would cover all of its Class 3 systems in that region.

• Each licence would cover a number of territories or serving areas, and the portion of the system covering each territory could be subject to separate requirements with respect to matters such as the local and regional stations that must be carried. Rates for each territory could differ, with the rates charged under the current system serving as a base.

In addition to requesting general comments on its proposal, the Commission asked interested parties to indicate what particular changes should be made to the Broadcasting Distribution Regulations (the regulations) so that a regional licensing approach could be implemented.

Regulatory framework

In Public Notice 2000-164, the Commission outlined the current regulatory framework for cable distribution undertakings and requested public comments to help it evaluate proposals for change made by the Canadian Cable Television Association (CCTA) and Canadian Cable Systems Alliance (CCSA). In addition, the Commission invited comments relating to the wider use of exemption orders that could apply to cable systems not meeting the criteria set out in Public Notice 2000-162.

Comments received

The Commission received comments on the three public notices from a variety of interests, including operators of small cable systems, broadcasters, minority language interests, individuals, those with an interest in royalty payments and copyright, DTH service providers as well as the CCTA and CCSA.

As part of their submissions, the CCTA and CCSA submitted revised versions of their proposals that were outlined in Public Notice 2000-164. These revised submissions form part of the record of this proceeding.

The Commission's approach

As noted, the Commission issued its proposal for the exemption of small cable systems, implementation of a regional licensing approach, and the call for comments on its overall approach to regulating cable undertakings in three separate public notices. However, interested parties noted in their comments that these public notices raised a number of common issues. The Commission therefore has considered the submissions it received in response to the three notices together. Examination of the submissions, together with its own analysis, has led the Commission to a number of conclusions.

First, the Commission considers that it is appropriate to issue an exemption order for small cable systems that would apply to more systems than the one proposed in Public Notice 2000-162. The Commission therefore has set out in the appendix to this document, a proposed exemption order to exempt all cable systems with fewer than 2,000 subscribers that serve small rural communities and do not serve the same territory as existing Class 1 or Class 2 systems from licensing requirements provided that they meet certain exemption criteria. The exemption order would not, however, apply to Class 3 systems that do not have their own head ends. The exemption criteria are discussed later in this section.

Second, the Commission is convinced that, for the remaining systems, there are administrative and regulatory advantages to be gained by the regional licensing model proposed in Public Notice 2000-163. The Commission's response to various concerns that have been raised about the implementation of this approach can be found later in this section. Proposed changes to the regulations necessary to implement a move to regional licensing will be issued for public comment at a later date in a separate public notice. Subsequently, it is expected that licensees will be invited to file applications to implement this change.

Third, the Commission has, after careful consideration, decided not to proceed with further changes to its licensing and regulatory framework for cable undertakings at this time. The Commission considers that various aspects of the CCTA and CCSA proposals have considerable merit. However, its consideration of the record has led the Commission to conclude that implementation of these models would involve basic changes to many of the Commission's policies and requirements. Changes of the magnitude suggested could require amendments to rules and regulations related to distribution and linkage, access for Canadian programming services, provision of basic services, subscriber rates, program substitution, reception of U.S. signals, priority carriage, carriage of services in the official language of the minority, and funding of Canadian programming. The Commission considers that such changes go beyond the scope of the present review, and notes, as well, that there was no consensus among interested parties on the issues raised. Further, the Commission does not consider that the objectives set out in Section 3 of the Act would be served if these rules were eliminated at this time.

The Commission, nevertheless, wishes to underline that it considers the initiatives set out in this document are a first step in updating its approach to the regulation and licensing of cable systems. It will be open to considering more extensive revisions to its policies and regulations after it has had an opportunity to assess the impact of its exemption order for small cable systems and its move toward regional licensing.

Proposed exemption order for cable undertakings with fewer than 2,000 subscribers

Section 9(4) of the Act addresses exemption orders as follows:

The Commission shall, by order, on such terms and conditions as it deems appropriate, exempt persons who carry on broadcasting undertakings of any class specified in the order from any or all of the requirements of this Part or of a regulation made under this Part where the Commission is satisfied that compliance with those requirements will not contribute in a material manner to the implementation of the broadcasting policy set out in subsection 3(1).

The Commission originally proposed to exempt distritution undertakings where, in total, "the number of subscribers included in all systems served by the company that owns the undertaking, whether directly or indirectly, is less than 2000 and no city, town or municipality, encompassed in whole or in part within the service area of the undertaking has a population of more than 10,000."

In their submissions, some parties considered that the scope of the proposed exemption was too narrow. The Canadian Association of Broadcasters (CAB) indicated that it would support an exemption order for all cable systems with fewer than 2,000 subscribers. Regional Cablesystems Inc. (Regional), a company that holds licences for Class 3 systems in many parts of the country, also considered that a wider exemption order was necessary so that its systems would qualify.

After consideration of the submissions received during this review, the Commission now considers that it is appropriate to extend the exemption to all Class 3 systems that have fewer than 2,000 subscribers, serve small rural communities, and operate their own head ends. Exempting these smaller systems will allow them flexibility in their operations and reduce administrative costs. It should also enable them to compete more effectively with DTH and MDS services. The Commission does not consider that continuing to license such systems would contribute in a material manner to the implementation of the policy set out in subsection 3(1) of the Act.

Further, the Commission has decided to provide an additional exemption margin of 10% for those cable operators currently operating with a subscriber base near the 2,000 threshold. When the Commission issues the exemption order in its final form, BDUs with fewer than 2,000 subscribers will be eligible for the exemption. If an exempt undertaking subsequently crosses the 2,000 subscriber threshold, that cable system would be able to acquire up to an additional 200 subscribers prior to being required to apply for a Class 2 license.

The exemption order will not, however, apply to new terrestrial entrants in markets currently served by a Class 1 or Class 2 undertaking. The Commission considers that competing systems in larger markets should be subject to similar obligations. This order will have no effect on the exemption order now in effect for Satellite Master Antenna Television (SMATV) systems.

The text of the proposed exemption order is set out in the appendix, and a call for comments on the order is included at the end of this notice. In the following section, the Commission outlines its response to issues raised by those who made submissions in response to Public Notice 2000-162.

Copyright concerns

Some parties were concerned that the exemption order could increase the copyright royalties that some licensees must pay. This is because, under the terms of the proposed exemption order, some licensees might no longer qualify for the reduced rates that some small systems enjoy. The Commission notes that the subscriber count in the revised proposed exemption order set out in the appendix to this document will be applied at the level of the individual system. Subscriber levels will not be aggregated across several systems as was the case under the original proposal. The Commission therefore considers that implementation of the exemption order should not increase the level of retransmission royalties paid by the systems to which the order applies.

A number of parties with an interest in copyright obligations, including the Copyright Collective of Canada, the Copyright Board of Canada, the Retransmission Collective, the Canadian Film and Television Production Association and the Canadian Broadcasters Rights Agency were concerned about possible difficulties that could arise in collecting rights payments from exempt undertakings. They were concerned that, if cable systems were exempted from licensing, it would be difficult for them to maintain a comprehensive list of the systems that were operating and obligated to pay royalties related to the retransmission of broadcast signals. They therefore recommended that, if the Commission proceeded with an exemption order, it should establish a registry of exempt BDUs.

While acknowledging the concerns of the copyright agencies, the Commission does not consider it appropriate to establish and maintain a registry itself given that the various rights collectives are the ones that will use it. The Commission is, however, willing to co-operate with parties interested in dealing with the concern, such as by establishing a copyright registry. It notes that all of the information necessary to establish a registry is likely available on the public record since the companies that will initially benefit from the exemption order now hold broadcasting licences. Further, when the Commission adopts the final exemption order, it will publish a list of BDUs with under 2,000 subscribers as a preliminary indication of the systems that might qualify for exemption.

Implications of exemption

In their submissions, certain small cable system operators and their representatives expressed concern that being subject to an exemption order rather than holding a licence would involve a loss of status for the undertaking and make it more difficult to deal with utilities, municipal authorities and lending institutions. One concern was that cable systems not holding a licence would be subject to higher rates for access to telephone poles. The Commission notes that tariffs dealing with support structures do not distinguish between licensed and exempt undertakings, nor do provisions of the Telecommunications Act regarding access to the supporting structure of a transmission line or regarding the constructing, maintaining or operating of transmission lines on highways or other public places.

Broadcasting undertakings operate in Canada subject to the Broadcasting Act. Parliament, through the Act, has authorized the Commission to license or exempt from licensing these undertakings. In either case, they operate as federal undertakings under the authority of the Act. While there are many broadcasting undertakings currently operating under exemption orders issued pursuant to the Act, the Commission reminds interested persons that an undertaking that no longer has a licence because it is exempt from a licensing requirement remains a broadcasting undertaking subject to federal regulation.

Membership in the Cable Television Standards Council (CTSC)

In Public Notice 2000-162, the Commission raised the issue of customer service and service standards. It was concerned that customers in small communities not be placed at a disadvantage compared to those in areas served by licensed systems. The Commission therefore asked for comments on whether or not membership in the CTSC or a similar organization should be one of the criteria to qualify for an exemption from licensing.

While some parties supported mandatory CTSC membership for exempt undertakings, mandatory membership was opposed by the CCSA and some individual cable operators. They noted that existing licensees are not currently required to be CTSC members. They also pointed out that members must pay a membership fee. This would tend to offset some of the financial benefits of exemption. After reviewing the comments, the Commission considers that, in view of the concerns raised and the presence of competitive alternatives in the form of DTH services and, in some markets, MDS services, it is not necessary to require exempt cable systems to be members of the CTSC or a similar body.

Retained obligations

In its submission, the CAB noted that Class 3 undertakings are currently subject to certain baseline obligations set out in sections 5 to 7 of the regulations. It was concerned that these obligations, which relate to such matters as the provision of a basic service, the distribution of Canadian services, and prohibitions concerning alteration or deletion of programming signals, were not mentioned in the proposed exemption order.

The Commission agrees that these obligations should be conditions of exemption in order to ensure that consumers continue to have access to a wide range of broadcasting services, including Canadian services. It has added them, as well as the provisions of section 8 of the regulations that restrict the distribution of prohibited content, to the revised order set out in the appendix. The Commission notes that all Class 3 systems are already subject to these requirements, so transferring them to the exemption order will not place any additional burden on smaller cable systems.

Obligations related to carriage of services in the official language of the minority, and the services of CBC

In Public Notice CRTC 2001-25 Achieving a better balance, the Commission announced measures to encourage more extensive distribution of services in the official language of the minority. Public Notice CRTC 2001-26 indicated that the Commission would begin a process to amend the regulations to reflect the Commission's initiatives. Two of these initiatives relate to Class 3 undertakings that provide digital service. First, Class 3 cable distributors using medium-capacity or high-capacity digital technology (550 MHz or more) must distribute at least one Canadian specialty service in the official language of the minority for every ten programming services (Canadian or non-Canadian) distributed in the official language of the majority. Second, a Class 3 system that is fully interconnected to another system must provide the same number of Canadian services in the official language of the minority as the system to which it is interconnected, unless it does not have the technical capacity to do so.

Further, the Commission will require all cable systems, including Class 3 systems, to distribute at least one CBC signal in each official language, provided that the CBC assumes responsibility for delivering its signals to distributors. Specifically, once the CBC provides signals to a distributor's head end, then the distributor would be required to deliver these services to its subscribers and assume responsibility for the associated distribution costs. The Commission has incorporated these requirements into the proposed exemption order. The Commission notes that, by issuing a proposed rather than a final exemption order at this point, it will be able to ensure that the final order includes the same language as that eventually adopted in the regulations.

Reception of non-Canadian signals

As is the case with the SMATV Exemption Order, the proposed exemption order requires that exempt undertaking distribute only authorized services.

Regional licensing

For the cable systems that continue to be licensed, the Commission considers that a regional licensing approach is appropriate and responds to the regionalization and consolidation of the cable industry that is currently taking place. The submissions received in response to Public Notice CRTC 2000-163 raised a number of issues related to the Commission's proposal for regional licensing. These are discussed below.

Level of copyright payments

Representatives of the cable industry, including both the CCTA and CCSA, were concerned that regional licensing would increase the copyright royalty payments required of cable licensees.

Cable operators in Canada must pay copyright royalties for the retransmission of distant television and radio signals, and for the use of musical works featured in the programming of pay and specialty television services. The cable industry was concerned that the Commission's proposal to replace system-based licences with regional licences would dramatically increase the royalties that cable operators pay. Specifically, it considered that, under a regional approach, many small cable operators would no longer qualify for preferential "small system" copyright rates and would be required to pay substantially higher royalties. As well, because cable royalties are determined by the number of subscribers in a licensed service area, concern was expressed that many Class 2 systems would be forced to pay higher rates per subscriber.

The Commission notes that the concerns expressed by the cable industry appear to assume that the regulations governing copyright payments would not be amended. Given that copyright is not within the Commission's jurisdiction, it will be up to the copyright collectives to update their royalty payment regimes to reflect the new regional licensing model. The Commission notes that the purpose of regional licensing is simply to create administrative efficiencies and to recognize consolidation occurring within the industry. The territories served by cable licensees will not change as a result of regional licensing. The Commission notes that conversion to regional licensing will not begin until the licence renewals considered in 2002. This will provide an opportunity for changes to the regulations governing copyright payments to be made before regional licensing is in place.

Licence fees

Several parties were concerned about the effect that regional licensing, in conjunction with exemption of Class 3 systems, could have on the licence fees paid by cable licensees. Most of the suggestions received would necessitate changes to the Broadcasting Licence Fee Regulations, 1987.

The Commission notes that, pursuant to a request from Treasury Board, it will be conducting a comprehensive review of its fee and funding structure. The Commission therefore will consider the comments that it received relating to licence fees as part of that review. Nevertheless, some systems currently paying license fees will no longer be required to pay such fees, once the exemption order for small cable systems becomes final.

Signal carriage and program substitution

Several parties raised concerns about how regulations dealing with program substitution and signal carriage would apply under a regional licensing regime. The CAB and Friends of Canadian Broadcasting were of the view that the existing obligations of cable licensees must be maintained. The CBC was concerned that all French-language specialty services retain their current carriage status.

Cablevision du Nord du Québec called for a reduction in the obligations imposed on cable systems, whereas the Canadian Film and Television Production Association considered that the obligations applying to larger systems should also be imposed on smaller systems.

Aliant Telecom Inc. was of the view that obligations related to signal carriage and substitution could be addressed on a market-by-market basis. Boardwalk Equities Inc./Suite Systems Inc. (Boardwalk) submitted that requirements for distribution of signals and program substitution should be the same as those currently fulfilled by incumbent distributors.

The Commission considers that rules related to the carriage of programming services and program substitution must be maintained within a regional licensing context. It proposes to shortly issue, for public comment, proposed amendments to the regulations that reflect this position.

Changes to the regulations to reflect regional licensing

The CCTA, Boardwalk and Regional suggested that changes to the regulations might be necessary if the Commission were to move to a system of regional licensing.

The CCTA generally considered that the Commission's proposal raised significant regulatory issues and suggested that amendments must be made so that provisions related to the carriage of local and distant signals as well as access rules for Class 1 licensees would no longer be imposed on an entire licensed service area. Instead, such requirements could be imposed on the numerous serving territories that would fall under the modalities of a regional licence.

The CCTA also considered that it was not clear if the existing obligation to serve now set out in section 48 of the regulations could be defined or implemented under a regional licensing scenario. It further was of the view that the regulations should include measures that would allow cable operators to harmonize basic rates, on a revenue-neutral basis, across an area covered by a regional licence.

Boardwalk considered that the concept of a regional licence should be added to the regulations, but that it should be applied in a flexible manner. It was of the view that the Commission should allow an operator to provide, under one licence, service that encompasses an area broader than one of the five regions outlined in the Commission's proposal.

Regional considered that introducing the concept of a regional licence and making changes to certain areas of the regulations, such as to the definition of "licensed area," would allow the Commission to implement regional licensing.

The Commission agrees that changes to some of its regulations are necessary to implement its regional licensing proposal, but considers that they can be developed and implemented without undue difficulty. It further considers that Regional's ideas will be useful in this process. With respect to Boardwalk's concerns, the Commission agrees that a flexible approach is in order and will be willing to consider proposals concerning the territories for which regional licenses would be applicable based on the way a licensee conducts its business. Consequently, the Commission will not confine regional licensing to the five areas identified in its proposal. The regional licensing system, when in place, will operate in the following manner:

• The Commission will issue a maximum of three cable licences for each licensee operating in the each region identified for the licensee. One licence will cover all of its Class 1 systems, the second licence will cover all of its Class 2 systems, and the third will cover any of its Class 3 systems in that region that are not exempt.

• Each licence will cover a number of territories, serving areas, or zones and the portion of the system covering each territory could be subject to separate requirements with respect to matters such as the local and regional stations that must be carried. Rates for each territory may differ, with the rates charged under the current system serving as the basis for the new rates.

The Commission will shortly propose amendments to the regulations to reflect regional licensing. These amendments will be published and members of the public will be given an opportunity to comment on them.

Implementation of regional licensing

The Commission considers that conversion to regional licensing should begin with the licence renewals considered in 2002. As that time approaches, the Commission will provide details concerning the procedures for licensees to follow.

In general, however, the Commission considers that it would be most appropriate for conversion to regional licensing to occur when the first of a licensee's systems in a region comes up for licence renewal. The Commission will, however, consider applications to convert to regional licensing from licensees who do not have any systems whose licences expire in 2002 after it has completed the 2002 renewals.

Call for comments

The Commission invites comments on the proposed exemption order for small cable systems set out in the Appendix. The Commission will accept comments that it receives on or before 27 August 2001. Parties should limit their comments to observations concerning whether or not the proposed exemption order accurately reflects the policy set out in this notice. 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. 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
2^nd 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 - 11^th 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

. Public Notice 2000-164 - Review of certain aspects of the regulation of cable undertakings

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 

Appendix 1 to Public Notice CRTC 2001- 59

Proposed exemption order for small cable undertakings

The Commission, pursuant to subsection 9(4) of the Broadcasting Act, by this order, exempts from the requirements of Part II of the Act and any regulations, those persons carrying on broadcasting distribution undertakings of the class defined by the following criteria:

Purpose

These broadcasting distribution undertakings serve small and rural communities and serve fewer than 2,000 subscribers.

Description

1. The Commission would not be prohibited from licensing the undertaking by virtue of any direction to the Commission by the Governor in Council.

2. In total, the number of subscribers served by the individual undertaking is less than 2,000, the undertaking has its own head end, and does not serve all or part of the same licensed area as a cable undertaking that is a Class 1 or Class 2 licensee, as defined in the Broadcasting Distribution Regulations.

Once it becomes exempt, at no time shall the undertaking have more than 2,200 subscribers.

3. (a) All services of local Canadian television stations and all services of regional television stations, other than affiliates or members of a network of which a local television station is an affiliate or member, are distributed over the undertaking, in each case with no degradation of received signal. In addition, the undertaking shall distribute the programming services referred to above beginning with the "basic band" (as defined in the Broadcasting Distribution Regulations, as amended)of its undertaking.

(b) If they are not distributed in accordance with paragraph (a), the undertaking distributes the programming service of at least one television station owned and operated by the Corporation, in each of the official languages, where the Corporation makes its signals available and pays the costs associated with the carriage and reception of its signals at the undertaking's local head end.

(c) If the undertaking receives programming services that are identical, the undertaking is required to distribute only one of them under paragraph (a).

(d) If the programming services of the two or more regional television stations that are affiliates or members of the same network are received at the local head end, the undertaking is required to distribute only one of them.

(e) If the undertaking receives over the air an educational television programming service, the operation of which is the responsibility of an educational authority designated by a province other than the province in which the undertaking is located, the undertaking is not required to distribute it under paragraph (a) but may distribute it as part of the basic service.

"Corporation" means the Canadian Broadcasting Corporation.

"Educational television programming service" means a television programming service that provides the programming described in the definition of "independent corporation" in section 2 of the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences).

"Services of local Canadian television stations" in relation to the undertaking, means a television station licensed by the Commission a) that has a Grade A "official contour" (as defined in the Broadcasting Distribution Regulations, as amended) that includes any part of the area served by the undertaking; b) that has, if there is no Grade A official contour, a transmitting antenna that is located within 15 km of the area served by the undertaking.

"Signals of regional television stations" means the signals of all television broadcasting stations licensed by the Commission having a Grade B "official contour" (as defined in the Broadcasting Distribution Regulations, as amended) that includes any part of the area served by the undertaking.

4. (1) An undertaking that uses digital technology offering nominal capacity of at least 550 MHz shall distribute at least one Canadian specialty service in the official language of the minority group for every ten programming services distributed in the official language of the majority group.

(2) An undertaking whose distribution system is totally interconnected with another system shall offer the same number of services in the language of the official language minority group as the system with which it is interconnected, unless it does not have the technological capacity to do so.

(3) For the purposes of subsection (1), there may be included, in calculating the number of French-language Canadian specialty services offered in order to meet the minimum ratio required,

(a) the TVA conventional television service, where it is distributed on a discretionary basis, and

(b) conventional educational services, where they are distributed outside their province of origin.

5. The undertaking must not provide a subscriber with any programming services, other than licensed pay-per-view services, licensed video-on-demand services or the programming services of exempt programming undertakings, without also providing the basic service described in section 3.

(a) for the purpose of complying with subsection 328(1) of the Canada Elections Act;

(b) for the purpose of deleting a programming service to comply with an order of a court prohibiting the distribution of the service to any part of the licensed area;

(c) for the purpose of altering a programming service to insert an emergency alert message in accordance with an agreement entered into with the operator of the service or the network responsible for the service;

(d) for the purpose of preventing the breach of programming or underlying rights of a third party, in accordance with an agreement entered into with the operator of the service or the network responsible for the service; or

(e) for the purpose of deleting a subsidiary signal, unless the signal is, itself, a programming service or is related to the service being distributed.

7. (1) The undertaking must not distribute a programming service that the undertaking originates and that contains

(a) anything that contravenes any law;

(b) any abusive comment or abusive pictorial representation that, when taken in context, tends to or is likely to expose an individual or group or class of individuals to hatred or contempt on the basis of race, national or ethnic origin, colour, religion, sex, sexual orientation, age or mental or physical disability;

(c) any obscene or profane language or pictorial representation; or

(d) any false or misleading news.

(2) For the purpose of paragraph (1)(b), sexual orientation does not include the orientation towards a sexual act or activity that would constitute an offence under the Criminal Code.

8. No service received over-the-air or by satellite or microwave or by optical fibre transmission is distributed over the undertaking, other than a service that the Commission by regulation, or otherwise has authorized.

9. (a) A majority of the video channels and a majority of the audio channels received by a subscriber are devoted to the distribution of Canadian programming services.

(b) For the purpose of this section, each pay television service, television pay-per-view service, and video-on-demand service shall be counted as a single video channel.

(c) This section does not apply to a broadcasting distribution undertaking that distributes programming services only on the basic band.

Dissent of Commissioners Barbara Cram and Martha Wilson1

We disagree with the majority decision insofar as we believe the exemption should be extended to the unaffiliated Class 2 cable licensees as well. By this we mean those Class 2 licensees unaffiliated with the four largest Canadian multi-system operators (MSOs): Cogeco, Rogers, Shaw and Vidéotron.

The majority has exempted all individual Class 3 licensees, including those owned and operated by the four largest MSOs. In order to be eligible for this exemption, the licensee must serve a small, rural community, serve fewer than 2,000 subscribers, have its own head end, and not serve all or part of the same licensed area as an existing Class 1 or Class 2 cable licensee. We agree wholeheartedly with this aspect of the decision.

The rationale for the exemption of Class 3 cable systems

The purpose of this process was twofold. First, the Commission was interested in streamlining its processes and in finding ways to reduce the regulatory burden for small cable licensees by allowing them more flexibility in their operations and by reducing their administrative costs. Second, in recognition of the significant competitive pressures on the smaller cable systems - from both the nationally-licensed and operated DTH undertakings and from MDS - the Commission felt it was necessary to level the competitive playing field. This is particularly true for smaller, independently-owned cable systems. These licensees are important economic contributors in their communities, but are unable to benefit from any economies of scale. Nor can the independent small operators easily access the substantial capital required to upgrade their infrastructure in order to provide their customers with a truly competitive choice of programming and communications services, such as high-speed access to the Internet. Indeed, given the "depopulation" of rural areas, the pool of potential subscribers for smaller cable systems may well be diminishing. Having said that, it could be argued that in an era of consolidation, it is more important for the Commission to be mindful of the roles these small cable companies play in their communities as employers.

The numbers tell the story about the effects of competition on these businesses. In the year 2000, there were approximately 1500 Class 3 cable systems in Canada. This represents approximately 87 percent of all cable licences in Canada. Our statistics show that there were 722,048 subscribers in 1999 and 593,099 subscribers in 2000 to Class 3 systems, a loss of almost 129,000 subscribers or 18% of the total Class 3 base. Clearly this class of licensee has been under substantial competitive pressure in the past few years. The exemption granted will provide them with the ability to reduce their costs and be more nimble in their marketplaces, hopefully giving them the increased ability to compete with the nationally and regionally licensed distribution undertakings - DTH and MDS.

Why not unaffiliated Class 2 licensees as well?

It is our view that the unaffiliated Class 2 licensees are under similar competitive pressure to the Class 3 licensees. In 1999 there were 384,738 subscribers to Class 2 licensees, 63 percent of whom subscribed to unaffiliated licensees (representing approximately 243,000 subscribers - see TABLE 1). In the year 2000, there were 329,163 subscribers to Class 2 licensees, 48 percent of whom subscribed to unaffiliated licensees (representing approximately 165,000 subscribers). From one year to the next, there were, in total, 55,575 fewer subscribers to all Class 2 systems representing a net loss of subscribers of almost 14.5%. Class 1 licensees, by comparison, at best gained in aggregate almost 10,000 subscribers and at worst lost only 31,600 subscribers or less than half a percent of their total base. (We are unable to verify the final total for year 2000 since not all systems have yet reported their results.)

What's the risk?

In the year 2000, the Class 3 licensees represented 87% of the total licences in Canada, but only 7% of the total subscribers and only 6.7% of the total revenues. Unaffiliated Class 2 licensees in the year 2000 represented only 2.4% of the total licences in Canada, 1.5% of the total subscribers to cable, and 2.5% of the total revenue to cable. The majority states in their decision that:

Changes of the magnitude suggested [in order to exempt unaffiliated Class 2 cable licensees] could require amendments to rules and regulations related to distribution and linkage, access for Canadian programming services, provision of basic services, subscriber rates, program substitution, reception of U.S. signals, priority carriage, carriage of services in the official language of the minority, and funding of Canadian programming. . the Commission does not consider that the objectives set out in Section 3 of the Act would be served if these rules were eliminated at this time. (Majority decision, paragraph 12.)

We would argue that given the extent of the conditions attached to the Class 3 exemption, it would not be necessary to eliminate these rules altogether. Similar to the Class 3 exemption, it would be possible to draft an exemption order which captured those requirements which the Commission feels are integral to the strength of the Canadian broadcasting system.

Finally.

With each decision this Commission makes, we alter the competitive playing field between parties in either a minor or substantial way. We believe the Commission should always be mindful of the new paradigm we create with each new decision and how these decisions interrelate. For example, in Decision 2001-45 the Commission approved the sale of (inter alia) a Class 1 cable licence to Télébec, thereby creating a virtual monopoly in this territory. The decision referred to the benefits that would flow from the transaction "particularly the fact that Télébec has the resources needed to offer quality distribution services to residents of less densely-populated areas". The "less densely-populated areas" referred to in Decision 2001-45 include Rouyn-Noranda and Val-d'Or with a total population of about 102,000.

Class 2 systems serve less than 6,000 subscribers each. The normal calculation is to multiply the number of subscribers by a factor of 3 or, at maximum, 4 to obtain an approximate population. By this calculation, Class 2 systems serve populations of about 18,000 to 24,000.

If exceptional relief is required for a Class 1 system serving 102,000 people, surely an exemption is required for the unaffiliated Class 2s having a total subscriber base of approximately 158,000 all across Canada in areas that are substantially less densely-populated than those described in Decision 2001-45. This is particularly so given the statistics of the erosion of their subscriber base.

In saying that, we would have granted an exemption to the unaffiliated Class 2 licensees with conditions, similar to the Class 3 conditions, which would protect the fundamentals of the current Canadian broadcasting regulatory framework.

As a result, we respectfully disagree with the majority.

TABLE 1: Class 2 Cable Systems: 1999 and 2000⁽¹⁾

1999

% of Total
Canada

2000

% of Total
Canada

(Loss)
Gain

Total Licences in Canada

1,922

100.0

1,750

100.0

(172)

Total Class 2 Licences

107

5.6

89

5.0

(18)

MSO⁽²⁾ Class 2 Licences

43

2.3

46

2.6

3

Unaffiliated Class 2 Licences

64

3.3

43

2.4

(21)

Real Loss to Unaffiliated Class 2s⁽³⁾

(18)

Total Subs in Canada

8,020,748

100.0

7,845,790

100.0

(174,958)

Total Class 2 Subs

384,738

4.8

329,163

3.7

(55,575)

MSO Class 2 Subs

141,348

1.8

170,865

2.2

29,517

Unaffiliated Class 2 Subs

243,390

3.0

158,298

1.5

(85,092)

Real Loss to Unaffiliated Class 2s

(55,575)

Total Revenues in Canada ($000)

3,313,885

100.0

3,539,713

100.0

225,828

Total Class 2 Revenues ($000)

154,018

4.6

120,456

3.5

(33,562)

MSO Class 2 Revenues

55,835

1.7

80,459

1.0

24,624

Unaffiliated Class 2 Revenues

98,183

2.9

39,997

2.5

(58,186)

Real Loss to Unaffiliated Class 2s

(33,562)

Notes:

(1) Results for 2000 are estimated due to delay in reporting for some licences.

(2) MSO = Top 4 Canadian MSOs: Cogeco, Rogers, Shaw, and Vidéotron.

(3) Real Loss to Unaffiliated Class 2s is calculated by netting out the increase to MSO Class 2s and the decrease to Unaffiliated Class 2s between 1999 to 2000. It is the same number as the loss/gain to all the totals for the Class 2 licensees.