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ARCHIVED - Broadcasting Decision CRTC 2004-4

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Broadcasting Decision CRTC 2004-4

  Ottawa, 14 January 2004
 

Cablevision TRP-SDM Inc.

 

Cogeco Cable Inc.

 

Complaint by Cablevision TRP-SDM Inc. against Cogeco Cable Inc. alleging contraventions of section 9 of the Broadcasting Distribution Regulations

  The Commission allows that portion of the complaint filed by Cablevision TRP-SDM Inc. (Cablevision) against Cogeco Cable Inc. (Cogeco) dealing with exclusive marketing clauses contained in service agreements signed by the latter, and concludes that Cogeco contravened section 9 of the Broadcasting Distribution Regulations, which prohibits a licensee from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage.
  The Commission dismisses that portion of Cablevision's complaint against Cogeco dealing with an alleged breach of the Winback Rules established by the Commission.
 

The complaint

1.

Cablevision TRP-SDM Inc. (Cablevision) is the operator of a multipoint distribution system (MDS) radiocommunication distribution undertaking serving Rimouski. Cogeco Cable Inc. (Cogeco) is the operator of a cable broadcasting distribution undertaking (BDU) that also serves Rimouski. The Commission has received a complaint filed by Cablevision against Cogeco alleging that the latter contravened section 9 of the Broadcasting Distribution Regulations (the Regulations). Cablevision filed its complaint in two phases, by letters dated 20 December 2002 and 6 January 2003. In its complaint, Cablevision claimed that Cogeco, (a) by entering into service agreements containing exclusive marketing clauses and provisions establishing financial incentives for the owners and managers of multi-unit dwellings (MUDs) in Rimouski, had contravened the requirements contained in the Regulations concerning access to MUDs served under commercial bulk accounts, and (b) by offering discounts to subscribers who had contacted Cogeco directly to request disconnection, had violated the winback rules set out by the Commission in CISC Dispute - Rules Regarding Communication Between the Customer and the Broadcasting Distribution Undertaking, CRTC letter decision, 1 April 1999 (the Winback Rules). Further, Cablevision cited several occasions on which it claimed to have been prevented from installing its access cables in buildings.

2.

More specifically, Cablevision alleged that:
 
  • Cogeco has offered inducements to building owners and to senior citizens residences, such as free decoders and services at discounted rates, in return for commitments to promote Cogeco's services; and that such inducements have placed these owners in a conflict of interest and have influenced them to deny Cablevision access to their buildings;
 
  • a large number of owners have accepted such inducements from Cogeco, with the result that Cablevision has been effectively prevented from offering its services to more than 2,000 tenants in Rimouski. While Cablevision acknowledged that there were no exclusive service agreements between Cogeco and these other parties, it argued that the effect was the same as if there were such agreements in place, namely the creation of a conflict of interest for the building owners;
 
  • Cogeco has practised a policy of misinforming building owners and managers who have contacted Cogeco to ask if Cablevision was entitled to use the inside wiring in their buildings. The alleged misinformation was to the effect that Cablevision was operating illegally, that Cablevision had no access rights to inside wiring, and that Cablevision would not be in business much longer.

3.

Cablevision submitted that it was clear that Cogeco's strategy was to remove Cablevision as a competitor by indirectly preventing Cablevision from accessing buildings and offering its services to residents. Under cover of a letter dated 3 February 2003, Cablevision provided the Commission with a copy of a Cogeco promotional document dated 17 October 2002 which described a "special offer" reserved for the owners of MUDs. This document filed by Cablevision included the following statements:
 

[TRANSLATION]

 
  • This agreement gives you a significant competitive edge, as it represents savings of close to $15 per month per tenant, while eliminating the presence of satellite dishes on your building(s).
 
  • Your only obligation: to demonstrate the importance we give to the program, Cogeco is offering a certain number of free services to managers or owners provided that a certain penetration rate is achieved.
 
  • Strategy: Offer, free of charge, X number of decoders to tenants. Savings representing $15 per month are available to each occupant who decides to subscribe to the digital service of Cogeco Cable Canada Inc.
 
  • Free services: A limited number of free services may be offered to managers and owners of buildings provided that a 60% penetration rate is achieved.
 
  • Penetration rate of less than 60% = no free services.
 
  • Penetration rate of 60% to 69% = Complete cable package (having a value of $75.89/month, tax and decoder included) = $910.68 per year.
 
  • Penetration rate of over 70% = Complete cable package plus High Speed Internet package (having a value of $113.85/month, tax and decoder included) = $1,366.20 per year.
 
  • Installation revenues: Possible additional revenue for owners and/or tenants (installation value = $79.99 + tax = $92.01). [The bolded text in the above translation is as it appears in Cogeco's French-language promotional document]

4.

Cablevision argued that Cogeco's practice was contrary to the Commission's objective first set out in Competition and Culture on Canada's Information Highway; Managing the Realities of Transition, 19 May 1995 (the Convergence Report)), and reiterated in paragraph 40 of Mandatory Order issued pursuant to subsection 12(2) of the Broadcasting Act against Vidéotron Ltée and its subsidiaries,Broadcasting Decision CRTC 2002-299, 9 October 2002, wherein the Commission stated that it would ".endorse increased competition in cable's core business in order to provide consumers with increased choice among distributors of broadcasting services."

5.

Cablevision also provided in its submissions the addresses of specific buildings where it claimed that its access had been hindered as a result of Cogeco's promotional offers as well as specifics as to its dealings with MUD owners. Among other things, Cablevision indicated that MUD owners viewed their agreements with Cogeco as putting in question their granting Cablevision access rights to the buildings in question. Also, Cablevision stated that a significant number of MUD owners have accepted Cogeco's offer, with the result that Cablevision has been prevented from offering its services to more than 2,000 tenants in Rimouski. In Cablevision's submission, the agreements place MUD owners in a position of conflict of interest and influenced them to deny it access to their buildings.

6.

Cablevision requested that the Commission require Cogeco to cease all promotions aimed directly and indirectly at preventing Cablevision from competing on a fair basis with Cogeco, and preventing Rimouski residents from making their own choice as to service provider.

7.

Cablevision also argued that, in the context of access to MUDs, the agreement between Cogeco and Centre polyvalent des Aînés(es) de Rimouski establishes a monthly subscriber fee that is lower than the fee Cogeco normally charges residential subscribers in Rimouski. According to Cablevision, this would also be a violation of section 9 of the Regulations.

8.

Cablevision further alleged that Cogeco was using a strategy to systematically win back Cablevision subscribers when they call to cancel their cable service. Cablevision submitted certain examples of Cogeco's alleged strategy, including offers of free digital decoders and rebates on the basic monthly rate. Cablevision argued that such practices contravene the Winback Rules.
 

Cogeco's position

9.

On 17 January 2003, Cogeco filed a response to Cablevision's complaint. This response dealt separately with the three broad issues raised by the complaint, namely access to MUDs, commercial bulk accounts, and the Winback Rules.
 

Access to MUDs

10.

Cogeco stated that it did not have any exclusivity agreements with MUD owners in Rimouski that would in any way limit access by competitors to those buildings. Cogeco claimed that it was in full compliance with the Commission's policy on exclusive contracts, as set out in paragraph 108 of New regulatory framework for broadcasting distribution undertakings,Public Notice CRTC 1997-25, 11 March 1997 (Public Notice 1997-25). That paragraph reads, in part, as follows:
 

While the Commission considers that customer access to competitors in MUDs should be left largely to market forces, it recognizes that an exclusive contract entered into in a non-competitive environment may create a significant barrier to competition and the realization of the goal of customer choice. Accordingly, the Commission does not intend to permit any distribution undertaking to take measures to restrict competitive access to a building, notwithstanding the existence of an exclusive contract, where: 1) the exclusive contract was entered into prior to the deregulation of the distribution undertaking's rates; and 2) more than five years have passed since the execution of the contract.

11.

Cogeco submitted that the Commission's policy set out in Public Notice 1997-25 does not prevent a BDU from entering into an agreement with the owner of a MUD that, without limiting access by competitors to the building, may include provisions with respect to marketing which stipulate that the MUD owner shall promote the use of that BDU's services within the building.

12.

Cogeco further submitted that the Rimouski market was a competitive market and that, while there was no service exclusivity agreement in place between Cogeco and the MUD owners, the policy, as set out in paragraph 109 of Public Notice 1997-25 should apply in any case. That paragraph reads:
 

At the same time, the Commission considers that there should be few, if any, restrictions on a party's ability to negotiate exclusive or long-term contracts in a competitive market. In such a market, the mere exclusivity or long-term nature of a contract with a building owner will not generally be considered to constitute an undue preference or advantage.

13.

Cogeco further argued that it is free to offer promotions it deems appropriate to customers residing in MUDs. Cogeco denied Cablevision's allegations to the effect that Cogeco has a policy of misinforming MUD owners in Rimouski, stating that such allegations were not supported by evidence.
 

Commercial bulk accounts

14.

Cogeco asserted that [TRANSLATION] "All distributors, including certainly Cablevision, offer different terms to their commercial customers, which, as for single-family and multi-family dwelling customers, are matters entirely at their discretion."
 

Winback Rules

15.

Cogeco denied Cablevision's claim that its activities in the Rimouski market contravened the Winback Rules, and argued that Cablevision did not submit any evidence to support the alleged violation of the Winback Rules. Cogeco added:
 

[TRANSLATION] the CRTC's Winback Rules in no way prevent cable companies concerned about customer satisfaction from speaking with customers who call to cancel their service and advise that they are switching to another authorized distribution undertaking, and discussing the reasons for their decision, reviewing their service offerings with them, and interesting them in other service offerings generally available to their customers.

16.

Cogeco also replied to each of Cablevision's allegations concerning violation of the Winback Rules. According to Cogeco, in response to its offers, subscribers reacted as follows:
 
  • Some customers decided to subscribe to a less expensive cable package than the package they had been receiving. For example, some customers decided to switch from the basic analog service, at a monthly rate of $26.76, to the basic digital service, at a monthly rate of $10.99 - an offer that Cogeco states was generally available to all subscribers. Other customers decided to alter their analog cable package, which translated into a savings.
 
  • Some subscribers who had leased a digital decoder for at least 12 months elected to purchase their decoder for $79.99, thereby eliminating the monthly leasing fee - an offer that Cogeco also stated was generally available to all Cogeco subscribers.

17.

In a letter dated 11 February 2003, the Commission requested that Cogeco file copies of its service agreements. In response, under cover of a letter dated 18 February 2003, Cogeco provided copies of the service agreements in place between itself and the owners or managers of the following businesses and MUDs:
 
  • Gestion Simon Brisson (Immeubles Brisson)
  • Immeubles Jean Rioux Inc.
  • Logeri Inc. (Résidence l'Oasis)
  • Centre polyvalent des Aînés(es) de Rimouski

18.

Cogeco argued that section 9 of the Regulations only applies where a BDU and an owner of a MUD enter into a distribution agreement containing an exclusivity clause pertaining to the services of that BDU. Cogeco reiterated that it does not provide services to MUDs under contracts that give it the exclusive right to do so. Cogeco also reiterated its argument that there is a distinction to be drawn between the exclusive distribution of services to a building and the owner's exclusive promotion of those services within that building, and that the latter, in its view, is consistent with Commission policy.

19.

Cogeco confirmed in its letter to the Commission dated 18 February 2003 that none of the offers it described in its 17 January 2003 letter of response to Cablevision's complaint had been advertised as such, either in newspapers or on television. It explained that they were among a number of offers that Cogeco's customer service representatives may put before customers, and that such offers were generally available to all of Cogeco's Quebec subscribers. According to Cogeco, any of its customers in Quebec who communicated with Cogeco's customer service department could subscribe to the basic digital service at its current rate of $10.99 per month, or could purchase a decoder for $79.99, provided it had by then been leased for at least 12 months.

20.

Cogeco requested that the Commission dismiss Cablevision's complaints.

21.

In a reply letter dated 24 February 2003, Cablevision indicated that it did not wish to add anything to the arguments that it had already made, other than that it considered Cogeco's arguments to be contrary to the principle that it is not legal to do something indirectly that is not legal to do directly.
 

The Commission's analysis and determination

 

Access to MUDs - exclusive marketing clauses and financial incentives

 
Do such clauses and incentives constitute a preference and/or disadvantage?

22.

Section 9 of the Regulations stipulates that: "no licensee shall give an undue preference to any person, including itself, or subject any person to an undue disadvantage."

23.

The Commission notes that the agreements in question are not exclusive distribution contracts. Rather, the agreements provide that the MUD owner grant Cogeco an "exclusive right to announce and promote services" to the MUD tenants. The MUD owner also agrees "to promote exclusively the services of Cogeco" to the MUD tenants. In addition, the agreements provide for extensive financial incentives to the owners and managers of the MUDs to promote the services of Cogeco. Owners obtain free services from Cogeco in return for ensuring that the managers support Cogeco's promotional and marketing activities. In addition, managers can obtain free services, the extent of which varies according to the penetration rate achieved for Cogeco's services among tenants.

24.

Based on the presence of the exclusive marketing clauses and related provisions in the agreements establishing financial incentives for building owners and managers, the Commission considers that Cogeco has taken steps to prevent Cablevision and other competitors from announcing or promoting their services in the buildings affected, and to preclude the building owners from promoting the services of Cablevision or those of any other of Cogeco's competitors. In the Commission's view, therefore, Cogeco, by virtue of such agreements, has given itself a preference and subjected Cablevision and residents of MUDs in the area in which the two BDUs operate to a disadvantage.
 
Is the preference or disadvantage undue?

25.

To determine whether or not the preference or disadvantage is undue, the Commission has examined whether Cogeco's actions have had or are likely to have a material adverse impact upon Cablevision, the residents of the MUDs in question, or any other person, as well as the impact they have had or are likely to have on the achievement of the objectives of the broadcasting policy for Canada set out in the Broadcasting Act (the Act).

26.

The Commission's regulatory framework applicable to BDUs allows for the development of competition in the distribution of broadcasting services. The Commission has consistently found that fair and sustainable competition among distributors of broadcasting services is an effective and appropriate tool to stimulate choice, innovation and growth. The Commission has established rules that allow for effective competition and allow service providers equitable access to cable subscribers with a view to enabling consumers to benefit from increased choice and diversity among service providers and service packages. In this manner, fair and sustainable competition achieves a variety of the broadcasting policy objectives set out in section 3 of the Act. One such objective, as set out in section 3(1)(t)(ii), is that BDUs "should provide efficient delivery of programming at affordable rates, using the most effective technologies available at reasonable cost."

27.

The competitive regulatory framework is also consistent with the regulatory objectives set out in section 5(2) of the Act. Under this provision, the Commission is mandated to regulate and supervise the broadcasting system in a flexible manner that, for example, "is readily adaptable to scientific and technological change" and "does not inhibit the development of information technologies and their application or the delivery of resultant services to Canadians." The Commission's competitive regulatory framework seeks to maximize the opportunity for end-user choice. The Commission confirmed and strengthened its policy of end-user choice in paragraphs 80 and 81 of the Broadcasting Distribution Regulations, Public Notice CRTC 1997-150, 22 December 1997 (Public Notice 1997-150). These paragraphs read as follows:
 

80. In view of the above, the Commission considers that it is appropriate to modify the policy approach set out in PN 1997-25 of simply encouraging the provision of end-user choice. Specifically, in the case of a multiple-unit dwelling where it is technically feasible to provide competitive access to individual units, the Commission has determined that an exclusive contract between a BDU and the building's owner would not be in the public interest. In the Commission's view, an exclusive contract in such circumstances would generally constitute the conferring of an undue preference by the BDU on itself, in contravention of section 9 of the regulations. A long term contract, however, provided that it is not exclusive, would not be deemed to constitute such an undue preference.

 

81. In multiple-unit dwellings where the provision of end-user choice is not technically feasible, the Commission considers that a different approach is appropriate. Specifically, the licensee of a BDU should not take any measure to prevent the building owner from contracting with another distributor to serve the residents of the building, notwithstanding the existence of a long-term, exclusive contract between the licensee and the building owner, if that contract was entered into prior to the deregulation of the licensee's rates and more than five years have passed since its execution. Any such measure would generally be found to constitute an undue preference being conferred by the licensee on itself, in contravention of section 9 of the regulations. If, on the other hand, the long-term contract was entered into after the deregulation of the licensee's rates, the Commission considers that this would not generally constitute an undue preference.

28.

The Commission notes that the exclusive marketing and related financial incentive provisions in these agreements do not explicitly prevent an occupant from choosing to subscribe to the services of a BDU competing with Cogeco, nor do they prevent a competing BDU from providing service to an occupant. However, the Commission is concerned about the effect of these provisions on the practical ability of a new entrant to compete in these buildings, and consequently, on the practical choice available to end-users. First, the Commission notes that, under the provisions set out in these agreements, the greater the penetration of Cogeco's services among the occupants of these MUDs, the greater the benefits that accrue to the MUDs' managers in the form of free services. Second, the exclusive marketing provisions ensure that the owner cannot promote the services of any distributor other than Cogeco. The Commission considers that these provisions, taken together, provide the managers and owners who obtain free service with a vested interest in limiting access to the MUDs by Cablevision or BDUs other than Cogeco, and in otherwise restricting access by consumers to Cablevision or any other distributor other than Cogeco. Cogeco's exclusive right to announce and promote its services serves as an additional obstacle to competitors to reaching the tenants. Finally, the Commission accepts Cablevision's submissions, including those set out in paragraph 5, that its access to MUDs has been denied as a direct result of these agreements.

29.

The Commission considers that, in the circumstances of this case, including the particular market in question, the cumulative effect of these provisions has been to restrict, and is likely to restrict, access by Cablevision or other competitors to the tenants in the MUDs in question and would thus constitute a significant barrier to competition. Such a situation would be inconsistent with the Commission's policy objectives of assuring fair and sustainable competition and end-user choice.

30.

The Commission therefore concludes that Cogeco has conferred upon itself a preference, and subjected Cablevision to a disadvantage that has had, or is likely to have, a material adverse impact on Cablevision. In addition, by impeding reasonable access to MUDs by a competing BDU, Cogeco has seriously undermined, or is likely to seriously undermine, the achievement of end-user choice in the area served by the two companies.
 
Conclusion

31.

In light of the foregoing, the Commission concludes that, by entering into agreements containing the exclusive marketing clauses and related provisions for financial incentives to owners and managers referred to in paragraphs 23 and 24 above, Cogeco has, in the circumstances of this case, conferred upon itself an undue preference and subjected Cablevision and residents of MUDs in the areas served by the two companies to an undue disadvantage, in contravention of section 9 of the Regulations.
 
Appropriate remedial action to be taken by Cogeco to rectify the contravention of section 9 of the Broadcasting Distribution Regulations

32.

Appropriate remedial action to rectify the contravention of section 9 of the Regulations is for Cogeco to:
 
  • amend the specific existing agreements by removing the clauses and/or appendices that have been found by the Commission to have contravened section 9 of the Regulations;
 
  • amend all other existing agreements between Cogeco and MUD owners or managers, as appropriate, containing the clauses and/or appendices in question; and
 
  • ensure that any new agreement it may enter into does not include clauses and/or appendices having similar or substantially similar wording to that used in the clauses and/or appendices that have been found by the Commission to have contravened section 9 of the Regulations.

33.

In the event that Cogeco does not take the necessary steps to remedy this situation, the Commission may convene a public hearing to examine why it should not issue an order or use other enforcement measures at its disposal.
 

Commercial bulk accounts

34.

As mentioned earlier in the section of this decision setting out the details of Cablevision's complaint, Cablevision has argued that the agreement between Cogeco and Centre polyvalent des Aînés(es) de Rimouski, which established a monthly subscriber fee that was lower than the fee Cogeco normally charged residential subscribers in Rimouski, was a violation of section 9 of the Regulations. This is an instance of bulk billing.

35.

Bulk billing is a practice whereby the owner or management of a MUD acquires programming services from a BDU on a wholesale basis for redistribution to the residents of the building. As noted by the Commission in Bulk billing by direct-to-home satellite distribution undertakings, Broadcasting Public Notice CRTC 2002-7, 12 February 2002:
 

Bulk billing arrangements have been used by cable for some time as a marketing tool that can, in the Commission's view, provide consumers with both convenience and cost savings.

36.

Such discounts, when reasonable and offered to all subscribers living in a MUD, are consistent with the Commission's long-standing policy that permits bulk billing. Having examined the bulk billing arrangement complained of, the Commission finds that it does not constitute an undue preference and/or disadvantage and, therefore, does not contravene section 9 of the Regulations. Accordingly, the Commission dismisses this portion of the complaint. However, regarding clause 4 of the pertinent "bulk" agreement between Cogeco and Centre polyvalent des Aînés(es) de Rimouski, the Commission reminds Cogeco that nothing in this clause should be so interpreted or applied as to preclude, or attempt to preclude, another distributor from providing its service in a MUD, upon payment of the appropriate fee for the use of the inside wire.
 

Winback Rules

37.

The purpose of the Winback Rules is to prevent the direct marketing, by incumbent cable BDUs, of customers who have given notice of their intention to cancel basic cable service. More specifically, in its 1 April 1999 letter decision setting out the Winback Rules, the Commission stated its determination to:
 

.require incumbent cable companies to refrain from offering discounts or other inducements not generally offered to the public where customers personally initiated contact with the cable company for the purpose of cancelling basic cable service. This restriction will be in effect from the date of receipt of notice to terminate and for ninety (90) days from the date of disconnection of basic cable service.

38.

As mentioned earlier, Cablevision had alleged that Cogeco's offer of free digital decoders and rebates on the basic monthly rate were examples of a strategy designed to systematically win back Cablevision subscribers when they call to cancel their cable service and that this strategy contravened the Winback Rules.

39.

In response, Cogeco submitted that, in the cases cited by Cablevision, Cogeco had extended to subscribers only those offers that are generally available to all Cogeco customers in Quebec. Specifically, Cogeco stated that all of its customers, wherever they reside in Quebec, who communicate with Cogeco's customer service department can subscribe to the basic digital service for its current rate of $10.99 per month or purchase their decoder for $79.99 if it had already been leased for at least 12 months. The change in the monthly rate paid by the subscriber was thus the result of the subscriber choosing to alter his or her analog cable package, replace the basic analog service with the less expensive basic digital service, or purchase a previously-leased digital decoder.
 
Conclusion

40.

In light of the above, and based on the record in this proceeding, the Commission finds that Cogeco has not breached the Winback Rules insofar as the offers were generally available to all Cogeco customers.

41.

The Commission is, however, concerned that it is Cogeco's apparent practice to inform clients of "generally available" offers only when contacted by them. It is the Commission's view that "generally available" offers should be broadly communicated and would expect Cogeco to ensure that this is the case.
 

Request for confidentiality

42.

Cogeco has requested that its service agreements with Gestion Simon Brisson (Immeubles Brisson), Immeubles Jean Rioux Inc., and Logeri Inc. (Résidence l'Oasis), and the terms of its bulk billing arrangement with Centre polyvalent des Aînés(es) de Rimouski, be treated on a confidential basis because they contain highly confidential and commercially sensitive information that, if disclosed, would give an undue competitive advantage to Cogeco's competitors and cause serious and irreparable damage to Cogeco and the other parties to these agreements.

43.

The Commission is of the view that the potential harm that could result from disclosure of the terms of such commercially sensitive agreements outweighs the public interest in disclosure. The request for confidential treatment of these particular documents is therefore allowed. In accordance with CRTC policy, all correspondence related to this complaint, other than confidential information, will be placed on the public file.
  Secretary General
  This decision is to be appended to each licence. It is available in alternative format upon request, and may also be examined at the following internet site: www.crtc.gc.ca

Date Modified: 2004-01-14

Date modified: