Broadcasting - Commission Letter adressed to to Yuval Barzakay (Comwave Networks Inc.)

Ottawa, 27 October 2021

BY EMAIL  

Yuval Barzakay
President
Comwave Networks Inc.
61 Wildcat Road
Toronto, Ontario  M3J 2P5
ybarzakay@comwave.net

RE:  Shortfalls relating to Canadian programming contributions

Dear Yuval Barzakay:

In Broadcasting Decision 2015-90, the Commission approved an application by Comwave Networks Inc. (Comwave) for a regional broadcasting licence to operate terrestrial broadcasting distribution undertakings (BDUs) to serve various locations in Ontario.^Footnote1 In that decision, the Commission indicated that the operation of these undertakings would be regulated pursuant to the Broadcasting Distribution Regulations (the Regulations) and all related policies.

As you are aware, Commission staff, by way of emails dated 2 March 2021 and 5 May 2021, recently questioned Comwave in regard to the obligations for its licensed BDUs to file annual returns and, where applicable, to make contributions to Canadian programming as prescribed by the Regulations.^Footnote2

In April 2021, following correspondence with Commission staff, Comwave submitted its annual return forms for the 2016-2017, 2017-2018, 2018-2019 and 2019-2020 broadcast years. In its response dated 13 May 2021 to a Commission request for information, Comwave acknowledged that for the broadcast years in question, it did not file its annual returns on time and did not make the contribution payments required pursuant to the Regulations. Comwave acknowledged that in order to return to compliance, it would have to make in total $561,800 in contribution payments ($528,092 to Canadian programming and $33,708 to the Independent Local News Fund (ILNF)) for the broadcast years in question.

In addition, when asked about the possibility that the Commission find it in non-compliance and require payment of the shortfall within 90 days of a Commission decision, Comwave submitted that, due to its relatively small size, it did not have the means to make up this shortfall. Instead, Comwave requested that, retroactive to the start date of its operations, the Commission allow its currently licensed BDUs to operate as if they were exempt pursuant to the exemption order for terrestrial BDUs serving fewer than 20,000 subscribers^Footnote3 (the BDU exemption order).

Commission determinations

Comwave’s non-compliance

Pursuant to the Regulations, Comwave is required to comply with the following:

• subsection 11(1) of the Regulations: On or before November 30 of each year, a licensee shall submit to the Commission a statement of accounts, on the annual return of broadcasting licensee form, for the 12-month period ending on the previous August 31.
• subsection 34(2) of the Regulations: Except as otherwise provided under a condition of its licence or subsection (3), a licensee shall, for each broadcast year, contribute to Canadian programming an amount equal to 4.7% of its gross revenues derived from broadcasting activities in the previous broadcast year […].
• section 35 of the Regulations: Except as otherwise provided under a condition of its licence, a licensee shall, for each broadcast year, contribute an amount equal to 0.3% of its gross revenues derived from broadcasting activities in the previous broadcast year to the Independent Local News Fund.

Comwave has acknowledged that for the 2016-2017 through 2019-2020 broadcast years, it did not file its annual returns on time and did not made the contribution payments required pursuant to the Regulations. However, Comwave explained that it had no previous communication from Commission staff indicating that there may be potential issues relating to compliance or contribution shortfalls until just recently in 2021. 

The Commission notes that since the 2017-2018 broadcast year, Comwave has operated BDUs that are subject to the Regulations, and that it is therefore incumbent on Comwave to be aware of its regulatory obligations and to operate in accordance with the Regulations at all times. In the process leading up to the issuance of Broadcasting Decision 2015-90, in which the Commission approved Comwave’s application for a regional broadcasting licence to operate terrestrial BDUs to serve various locations in Ontario, Comwave was put on notice that its BDUs would need to comply with the Regulations. Moreover, each year, Commission staff notifies all licensed BDUs, including Comwave, that their annual returns for the previous broadcast year are due by no later than 30 November following the end of that broadcast year.

Accordingly, the Commission finds Comwave in non-compliance with subsections 11(1) and 34(2), and section 35, of the Regulations for the 2016-2017 through 2019-2020 broadcast years.

Comwave’s request that the exemption order be applied retroactively

Comwave requested that, retroactive to the start date of their operations, the Commission allow its currently licensed BDUs to operate as if they were exempt pursuant to the BDU exemption order. It noted that this would be a fairer approach to the regulation of its small BDUs.

Since the issuance of Broadcasting Regulatory Policy 2015-543, dated 9 December 2015, it has been incumbent upon Comwave to take the necessary steps with the Commission to request either that its BDUs be carved out^Footnote4 from its regional licence or that the Commission revoke its licence and permit its BDUs to operate as exempt undertakings at any time between the date of the issuance of the BDU exemption order and the time it launched its BDU operations, or at any time thereafter. Comwave has never undertaken this process.

In addition, where licensees have their licences revoked by the Commission in order for their BDUs to operate pursuant to the BDU exemption order, such exemptions are effective as of the date of the Commission decision and not retroactively. Finally, the Commission generally denies the retroactive application of exemption orders that would result in licensed undertakings not having to make up contribution shortfalls.

Consequently, the Commission denies Comwave’s request that its licensed BDUs be permitted to operate, on a retroactive basis, as exempt BDUs pursuant to the BDU exemption order.

Comwave’s Canadian programming contribution shortfall

Comwave noted that it is a small service provider competing against larger players and submitted that it does not have the margins to make the required Canadian programming contributions.

The Commission notes that the payment of Canadian programming contributions is a requirement applicable to all licensed BDUs under the Regulations, and is a cost of providing BDU services, similar to Canadian content development payments required for licensees of radio stations and Canadian programming expenditures required for licensees of private conventional television stations and discretionary services.

Accordingly, in regard to Canadian programming contribution payments, the Commission determines that Comwave has incurred shortfalls of $528,092 to the Canada Media Fund (CMF) and $33,708 to the ILNF, for a total of $561,800, up to the end of the 2019-2020 broadcast year (i.e., 31 August 2020).

In light of the above, the Commission directs Comwave to pay the total Canadian programming contribution shortfall ($561,800) as follows:

• 20% of the total shortfall amount to each fund ($105,618.40 to the CMF and $6,741.60 to the ILNF) to be paid to each fund within 90 days of the date of this letter decision;
• the remaining shortfall amount to each fund to be paid to each fund in equal monthly instalments ($17,603.07 to the CMF and $1,123.60 to the ILNF) over 24 months, beginning from the date of this letter decision.

The Commission reminds Comwave that while it is making up this shortfall, it is required to comply with the Regulations, including the sections relating to the filing of annual returns by 30 November following the end of each broadcast year and the payment of all mandatory contributions.

Sincerely,

Original signed by

Claude Doucet
Secretary General

Date modified:

2021-10-25