ARCHIVED -  Transcript

 

 

 

 

 

 

 

              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                      SUBJECT / SUJET:

 

 

 

Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

 

 

 

 

 

 

 

 

 

 

 

 

HELD AT:                              TENUE À:

 

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

 

April 16, 2008                        Le 16 avril 2008

 

 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

 

 

BEFORE / DEVANT:

 

Konrad von Finckenstein           Chairperson / Président

Michel Arpin                      Commissioner / Conseiller

Leonard Katz                      Commissioner / Conseiller

Rita Cugini                       Commissioner / Conseillère

Michel Morin                      Commissioner / Conseiller

Ronald Williams                   Commissioner / Conseiller

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Jade Roy                          Secretary / Secretaire

Cynthia Stockley                  Hearing Manager /

                                  Gérante de l'audience

Martine Vallée                    Director, English-Language

                                  Pay, Specialty TV and

                                  Social Policy / Directrice,

                                  TV payante et spécialisée

                                  de langue française

Annie Laflamme                    Director, French Language

                                  TV Policy and Applications/

                                  Directrice, Politiques et

                                  demandes télévision langue

                                  française

Shari Fisher                      Legal Counsel /

Raj Shoan                         Conseillers juridiques

 

 

HELD AT:                          TENUE À:

 

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

 

April 16, 2008                    Le 16 avril 2008

- iv -

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

PRESENTATION BY / PRÉSENTATION PAR:

 

 

TELUS Communications Company                     1376 / 7690

 

Lee Weston                                       1464 / 8250

 

Bragg Communications Inc.                        1483 / 8396

 

Torstar Media Group Television                   1548 / 8773

 

 

 

 

 

 

 

 

 

 

 

Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon commencing on Wednesday, April 16, 2008

    at 0859 / L'audience débute le mercredi 16 avril

    2008 à 0859

7684             THE CHAIRPERSON:  Madame Secretary?

7685             THE SECRETARY: Thank you, Mr. Chairman.

7686             We will now hear the presentation of Telus Communications Company.

7687             Mr. Hennessy is appearing for Telus.

7688             Please introduce your colleagues, after which you will then have 15 minutes for your presentation.

7689             Thank you.

PRESENTATION / PRÉSENTATION

7690             M. HENNESSY:  Merci M. le Président.

7691             TELUS appreciates the opportunity to appear before the Commission and provide its views on the challenges of how to streamline regulation in order to better respond to consumer demand.

7692             My name is Michael Hennessy, Vice‑President, Wireless, Broadband and Content Policy for Telus.

7693             Let me start by presenting the other members of the Telus panel.

7694             On my immediate left is Maria Hale, Vice‑President of Content, and our key business partner for the broadcast community.

7695             And on her left is Sean Ruzicka, our Manager of Product Development and our technology guru for the panel.

7696             And to my right is Ann Mainville‑Neeson, Director, Broadcast Regulation.

7697             As the Commission notes in its Public Notice, the consumer is now in charge.

7698             As a new and fully digital distribution undertaking, Telus is building a content business anchored by interactivity and on‑demand services.

7699             In order to compete with cable, we need to be more innovative and flexible in responding to a multiplicity of demands from the public.

7700             In a digital future, every consumer will have multiple options for accessing the types of content they prefer.

7701             Distributors and broadcasters will both face challenges in attempting to ensure demand is served from within the Canadian system.

7702             Partnership and compromise must guide us forward.

7703             We agree that the Commission has a responsibility under the Broadcasting Act to ensure a strong Canadian broadcasting system.

7704             However, we note that detailed regulation will become increasingly difficult to sustain in an environment where the public has more options available for them for their content consumption.

7705             And we are encouraged that the CRTC intends to streamline regulation, but we have become concerned that false assumptions are now leading the Commission into a rabbit hole of new regulatory "fixes" for problems which simply don't exist and where the "fixes" merely create more problems.

7706             Fee for carriage is one such fix to a non‑existent problem.  A fix that is simply not in the public interest.

7707             The minimal basic package is another intervention that is a step back from the future.

7708             There is no evidence that consumers are clamoring for the CRTC to pick a small number of mandatory services for them.

7709             More content à la carte perhaps, but a smaller basic is not a solution to any problem we are aware of.

7710             Indeed many of the "fixes" on the table in this proceeding would have the effect of reducing competition by making it more difficult for a new entrant like Telus to win customers.

7711             Accordingly, while Telus supports the maintenance of key regulatory requirements related to the current linear television environment, Telus firmly opposes adding any layer of regulation to new, developing platforms such as video‑on‑demand.

7712             These new television platforms must be given a chance to flourish without additional regulatory constraints in order to provide a viable Canadian alternative to other platforms ranging from the black market to the Internet.

7713             MS HALE:  At Telus we are investing hundreds of millions of dollars in a television platform that integrates the best elements of broadcast distribution in terms of capacity and quality of service and the best elements of the Internet in terms of search capabilities.

7714             We are doing this to gain competitive advantage by better responding to consumer demand.

7715             We have prepared a short video to give you a flavor of what consumers are asking for and just how innovative this new technology can be.

‑‑‑ Video presentation / Présentation vidéo

7716             MS HALE:  At Telus we foster and respect the existing TV value chain and will continue to work with broadcasters and Canadian rights holders to keep this platform robust and relevant for the audiences of the future.

7717             As you just saw, our energy is focused on improving the content experience on the television platform, by integrating Internet‑esque experiences like on‑demand content and deep search capability.

7718             Because we are investing in platforms that will allow a richer and deeper search experience than ever before, our VOD and SVOD platforms can become very powerful alternatives to over the top internet services and extend known Canadian brands into the interactive space.

7719             Our technology can also support highly targeted ads including promotional opportunities that can drive incremental revenues and increase the value of the programming rights broadcasters hold.

7720             Perhaps most exciting is the concept of a Network PVR that would allow audiences to access on‑demand programming from existing branded linear channels.

7721             That means that on‑demand becomes part of the overall broadcaster experience.

7722             NPVR is not a pipe‑dream; distributors like Comcast in the U.S. are already creating business models for this strategy.

7723             In order to ensure that the future of TV is TV, we all need to do our part.

7724             BDUs need to innovate and make the necessary investments in technology that will improve the distribution platform and attract and retain subscribers.

7725             Broadcasters need to further their efforts to acquire cross platform rights, providing the best content to viewers when and where they want, and delivering the highest audiences to advertisers.

7726             The CRTC needs to provide the right regulatory framework to incent both parties to do just that.

7727             MS MAINVILLE‑NEESON:  Merci, Maria.

7728             Assurer le maintien d'un système de radiodiffusion canadien vigoureux requiert que l'on trouve le bon équilibre entre la protection de la contribution importante qu'apportent les plans d'affaires existants et les façons d'augmenter le choix et la diversité pour le public auditoire dans l'avenir.

7729             Les recommandations de Telus dans le cadre de cet examen de réforme réglementaire présentent justement une telle approche mesurée.

7730             We submit that the Commission shouldn't look to make changes where there aren't problems and that many of the proposed changes to the regulatory environment on the table in this proceeding should be rejected.

7731             Specifically, Telus submits the following recommendations...

7732             First, fee for carriage and the ancillary desire to reduce the size of the basic package must be rejected because these are solutions to non‑existent problems.  They are anti‑consumer, and bad for the system.

7733             Second, no change should be made to the current distant signals regime.

7734             There is no need to introduce an element of consent from broadcasters for the importation of distant signals into local markets when there is already a compensatory regime in place that has worked well and can at any time be renegotiated between the parties.

7735             In our view there is no evidence to support arguments that broadcasters are suffering harm and are not sufficiently compensated by the current negotiated agreement with the CAB.

7736             Third and fourth, we support maintaining the current access rules for analog and Catetory 1 specialty services and maintaining the current rules governing genre protection and authorization of foreign services.

7737             Fifth, there should be no increased regulation of VOD services.

7738             The current contribution and exhibition requirements of these services are in keeping with the nascent state of the platform.

7739             Telus considers that change is only necessary in the following two key areas.

7740             First, the distribution and linkage rules should be eliminated in favour of a simple preponderance rule based on services received by each subscriber.

7741             Second, the advertising framework needs to be changed to allow for new incremental revenue for Canadian rights holders and distributors.

7742             Telus proposes a model whereby new advertising opportunities can only stem from content sourced from Canadian rights holders, with their explicit consent.

7743             This provides incentives for distributors to pursue rights through Canadian broadcasters and for Canadian broadcasters to make their content available on demand.

7744             This model also provides an incentive‑based solution to the concern expressed by broadcasters with respect to the sourcing of programming by VOD operators.

7745             Nous croyons que nos propositions pour la réforme permettent aux meilleurs éléments du système de radiodiffusion d'aujourd'hui d'évoluer et de trouver leur place dans les systèmes de radiodiffusion de demain.

7746             MR. HENNESSEY:  Mr. Chairman, Commissioners, let me be clear about our position.

7747             We believe that the future of the Canadian broadcasting system has to be based on the consumer.

7748             Serving consumer demand is central to the achievement of Broadcasting Act objectives:  the "public" in "public interest" is the audience and the audience is the consumer.

7749             At Telus we believe that we will best serve consumers by partnering with Canadian broadcasters to unleash the full potential of TV, whether through creative packaging or exploiting on‑demand platforms.

7750             However, we do not support any regulatory reform if it adds fee for carriage or consent for distant signals as a quid pro quo.

7751             We submit that, fee for carriage is not in the public interest no matter how the public is defined.

7752             It is a fix to a problem the Commission has already addressed at great cost in terms of diversity of voices with the exit of Alliance Atlantis and Chum from the system.

7753             As a result of consolidation, the conventional ownership groups are now stronger and more profitable than ever.

7754             Accordingly, there is simply no need to force consumers to finance these billion‑dollar consolidations through higher fees for basic service.

7755             If that is the deal, we say "no thanks".

7756             We would much rather settle for the freedoms we already have under the status quo than proceed down a rabbit hole of new regulation that creates more complexity and uncertainty precisely at the time we need more flexibility, more innovation and more choice.

7757             We think the CRTC was on the right track when it launched this proceeding, and we ask you not to lose sight of the principles you set out in Notice of Public Hearing 2007‑10.

7758             In particular may we end by quoting the Commission's observation in that notice last July:

"More and more in Canadian broadcasting, the consumer is in charge.  BDUs and programmers must be able to respond to the evolving expectations, tastes and demographics of Canadian viewers.  In order to meet the challenges in the years ahead, above all, licensees will need to have the flexibility to react quickly and creatively to the opportunities and challenges they encounter, and not be burdened by detailed or unnecessary regulations." (As read)

7759             That was the right approach in July and it's even more correct today.

7760             Thank you Mr. Chair and Commissioners.

7761             We are now ready to answer your questions.

7762             THE CHAIRPERSON: Thank you very much for your presentation.

7763             It is certainly very clear and to the point.

7764             Let me walk you through some of the points you make.

7765             You said "Do not add new fixes" and you think one of those fixes would be prescribing a minimum basic fee.  And you go one step further and you say that would make it more difficult for new entrants like Telus to win customers.

7766             Explain that to me.

7767             You heard the CBC, for instance, suggesting you should have a bare‑bone minimum basic package, being basically the over the air, the 9(1)(h), the educational broadcasters and the community channels, and that should be offered as a must.

7768             Obviously, you can offer more.  You can offer an enhanced basic, etc.

7769             But the consumer should have the ability to have access to a minimum package like this.

7770             Some people suggested there should be one 4(1)(h), four plus one in there.

7771             And others say "No, you don't have to."

7772             You suggest "No, we shouldn't have such a minimum basic."  You actually go further and say it makes it more difficult for entrants like you.

7773             Please explain that to me.

7774             MR. HENNESSY:  Okay.  Just to be clear, to start with, all of the Canadian services that you identified, we would suggest, should remain in basic.

7775             So, point number one.

7776             Point number two, which deals with your question about competition, I think is pretty simple.

7777             We have to compete by differentiating our product.  And to do that today we offer what we think is a very attractive essentials package for about $22 that includes all the services you described and many other Canadian and foreign services.

7778             If we reduced the basic package with likely very little decrease in the kind of price we offer today, we are essentially offering consumers less for, you know, fundamentally nothing.

7779             And that makes it, from our perspective, a lot more difficult to compete with other suppliers who now offer exactly the same basic package that we offer in the market.

7780             That is my point.

7781             THE CHAIRPERSON:  I guess I don't follow that because the logic that CBC said, that there is a certain amount of indigent Canadians who just want a basic package and that, really, we should allow them to have that basic package.  Then everybody is going to offer, in effect, an enriched basic package ‑‑ or whatever you call it, "enhanced basic package", et cetera ‑‑ and the competition would be between you and others what is in this enhanced basic.

7782             You may have all sorts of gadgets in there that Shaw doesn't have, et cetera, and the consumers would, in effect, compare one enhanced basic to another.  But the fact that everybody is obligated to service a minimum basic package which contains whatever is the regulation, and presumably they would be more or less at the same price, and the competition would be on the enhanced basics.

7783             Why doesn't that work?

7784             MR. HENNESSY:  Okay. Well, I fundamentally disagree with the CBC on that point.  As we said in our opening comments, consumers are not looking for that particular type of basic package.  They may be looking for the ability to choose more programs à la carte, and that raises its own problems, but that's not what they're looking for.

7785             They're not looking for the CRTC to determine what it is they need, limited only to Canadian services, at a price which, if not regulated, is certainly pushed in that direction.  And I think there's ‑‑ we still believe that if that's the only must‑buy service ‑‑ because we're talking about must‑buy, you are forced to buy this.  So we're saying to the consumer today, "We're going to give you what we think is the essential service you require and charge you X price for it."

7786             I don't think that that's consumer‑friendly, I don't think there's a demand for it and I think, you know, putting aside the issue of competition, I think it's also a great way to reignite the black market, because if I can now go and, say, spend $15 for a limited package of local Canadian channels, and then steal the rest, I have the best of both worlds, and that's something we spent the last few years working to avoid.

7787             THE CHAIRPERSON:  You were here yesterday when Videotron testified, or you heard it.  They offer, actually, such a stripped‑down basic, without even American channels and ‑‑ what was the number, Michel, they said?  The uptick?

7788             COMMISSIONER ARPIN:  They were talking from, in the Montréal market, up to 12, and in some other markets 10 signals.

7789             THE CHAIRPERSON:  There is actually a demand for it.  You suggested that consumers do not want that.

7790             MR. HENNESSY:  I think it is very difficult for a television distributor from Alberta and British Columbia to be compared to one in the Quebec market.  I think everybody would agree that in the Francophone market, in the Quebec market, there is a much higher demand for programming because that is really the language of the province.

7791             It's an apples and oranges comparison.

7792             THE CHAIRPERSON:  But you would have no problem with the Commission saying there is a must buy.  It must contain as a basic package at least the following, whatever that list is: every BDU is‑‑

7793             MR. HENNESSY:  Yes, we continue to support that principle.

7794             MS MAINVILLE‑NEESON:  Mr. Chairman, may I also add something?

7795             THE CHAIRPERSON:  Yes.

7796             MS MAINVILLE‑NEESON:  I believe there is a misconception that by limiting the size of basic, by limiting the basic package to only the priority carriage services, that somehow the price of basic will go down.

7797             In fact, that's not true.  It is not the cost of programming that comprises the biggest part of the cost of offering a basic services.  What goes into the cost, or determination of the cost of a basic service, is our network and just the whole infrastructure back office elements of running our business.

7798             Therefore, adding additional services for a price that makes that cost that we cannot bring down just makes it that much more tenable for consumers to pay for it.

7799             So adding additional services, for example, sometimes they are very low cost services.  The U.S. four‑plus‑ones do not cost anything to add to the basic service.  So why not leave them?  Why not offer that to consumers since they are going to pay the same price anyways?

7800             THE CHAIRPERSON:  Okay.  Now going on to access, you basically suggest we maintain the present system, both the mandatory access and guaranteed access, if I understood you correctly.

7801             MR. HENNESSY:  That's correct.  Given that all these services are carried today, we don't see the harm to anybody in maintaining that carriage.  We accept there is a risk of taking them down.  We are not interested in making tradeoffs to have more flexibility in our negotiations with those services.

7802             It just seems like for us, what we are trying to do here is achieve a compromise.

7803             There are probably things that, you know, if you asked us where we personally stood, we might not be there.  But that's what compromise is about.

7804             This seems to us pretty simple.  If everybody says well, we're not really going to drop them, then the only reason the people want to get rid of the access rule seems to me is because they believe that will give them more leverage in terms of negotiating affiliation agreements.

7805             To us, that's not how to build a partnership.

7806             THE CHAIRPERSON:  Is that access frozen at its present level or can it be increased?

7807             You've heard various intervenors suggesting‑‑ obviously it can be increased through the 9(1)(h) process but also some people said a process similar to 9(1)(h) should be invoked to identify services or niches of national importance and after hearing, in effect we could add them on as a way of increasing the Category 1 channel tirade there right now.

7808             Where do you stand?

7809             MR. HENNESSY:  Well, as long as we are not talking about mandatory basic, I don't see a huge problem with that.

7810             I think realistically it's hard to believe that we haven't, with the number of proceedings we've had looking at 9(1)(h) and basic, that we haven't kind of gone through and found all the niches today.

7811             Certainly within the Commission's power, again as long as that power is not used all the time, I don't think it creates huge problems in terms of ensuring that there is capacity.

7812             Maybe just‑‑ no, I think that's fine.

7813             Do you have anything to say on that?

7814             MS MAINVILLE‑NEESON:  I was just going to add that we believe that there should be a very high threshold.  So when you mention 9(1)(h) as a test for adding access to any new licensed service, I think that would be the appropriate concept rather than simply any new service.

7815             Of the services that currently have access, I don't think they would meet the 9(1)(h) test per se and yet they are very important.  And because of their historical importance, we have agreed to carry them.

7816             But for any new services, the threshold should be very high.

7817             MR. HENNESSY:  It is not a hill for us to die on.

7818             THE CHAIRPERSON:  Good.

7819             Genre protection.  You were here on Monday, no doubt, when Rogers was here and basically gave what is usually called the infant industry argument.  It's time for people to grow up.  You had a leg‑up.  You had nine years or 12 years, whatever, to establish your brand, to find your place in the market, et cetera, but now you either sink or swim.  There's no need for having the genre protection any more.

7820             You are a Canadian channel.  You have your brand.  You have your loyalty.  You have your customers.  It's time to sink or swim.  And we should, as they suggested, at least take the first step and rather than individual genres have buckets of genres, whole categories of lifestyles, sports, news, religion, whatever.  And you can argue what they are.

7821             And in effect in those allow genres to compete and allow others to come in into that genre, because having the advantage of being there ten years in the market and branding yourself, et cetera, you should be able to maintain that.

7822             What do you think of that suggestion?

7823             MR. HENNESSY:  We gave it a lot of thought.  If you wanted to go back a couple of years, you could probably find copious amounts of speeches I gave as the President of the Cable Association and things we wrote in our annual report.

7824             THE CHAIRPERSON:  We won't quote them against you.

‑‑‑ Laughter / Rires

7825             MR. HENNESSY:  That's okay.  I mean, that was a position we took.  It's a position that I think has a lot of merit.

7826             But again, a real point here is the future of the system is going to be increasingly on demand.  Maybe Maria can talk a bit to this.

7827             So if you did it, we don't mind.  It certainly wouldn't hurt us.  Some of the broadcasters feel it would hurt them, and there are probably are issues of scale.

7828             I think it's fair to say, if you're looking at it from the broadcaster position, that you can't simply say because there are a lot of genres that exist in the United States without this kind of regulation, they would exist in Canada.  The market is a tenth of the size and broadcasters would tend to move first to the centre and then out.

7829             I'm not so sure that some of the genres that exist today could be supported in an open market or that the end result of that might not just be to significantly increase program acquisition costs.

7830             I think, as Maria said earlier‑‑ and you may want to comment on it‑‑ let's focus more on VOD.

7831             Again, it's like let's compromise.  I've been sitting around listening to these debates for more years than I want to think about at this point, and nobody has moved forward from their positions.  It's all as hard and fast as it was ten years ago, as it was 15 years ago.

7832             Unless we have some kind of movement to the centre, we are not going to be able to build a system in the future.

7833             Again, for us it's not the hill to die on.  We think the future is just to increase the flexibility that we see on demand and partner with Canadian broadcasters to do that.

7834             THE CHAIRPERSON:  But given the fact that you don't have any specialty channels and given your personal background, I'm interested in your views on this.

7835             You heard, for instance, Score saying that's very fine but that really benefits the big boys.  I who are the small, little headline news, I can be very easily duplicated by TSN but I can't duplicate TSN.  So if you create these buckets, you are only going to create more consolidation and force out the small guys.

7836             MR. HENNESSY:  We came up with this proposal at CCTA a few years ago, and that's why I say you go back.  And I think there is a lot of merit to it.

7837             I still believe in competition and choice, and clearly if you have more competition between Canadian services, the odds are that you are going to end up with a reduced number of channels but maybe they will be better channels.

7838             I'm just not sure that totally restructuring the linear environment in a world that is increasingly on demand, whether it's the Internet or the kind of TV that we can deliver today, is the way to go.

7839             So for sure, I think Rogers made a lot of very good points.  And I think Glenn O'Farrell made a lot of very good points.

7840             So the issue, it gets back to you're stuck probably with making more decisions about consumer choice than you really want.  But there is a saw‑off there.

7841             I would say absolutely you would end up with less channels if you had genre competition, but that's not necessarily a bad thing if you end up with better channels.  Just think that there are ways to serve that same demand in a more efficient fashion on the on demand platform.

7842             THE CHAIRPERSON:  In terms of foreign services, the existing test doesn't require any modification?  You think we should just‑‑ in effect, program overlap is sort of the key determination?

7843             MR. HENNESSY:  I think it works.  Again, you are talking to the person that spearheaded the application to bring HBO and the big U.S. channels into Canada.

7844             I hate to go back to video on demand, but I really believe in VOD.

7845             THE CHAIRPERSON:  We are coming there.

7846             MR. HENNESSY:  I know you are coming there, but let me explain.

7847             When we applied for HBO, the Commission was much more restrictive than it is today.  You could get very little out of the Commission in terms of any competitive programming.

7848             You know, since that point in time, if you look at what that application to bring in more U.S. channels did, it led TMN and Chorus and others to start looking seriously at the on‑demand platform, to offer those kind of HBO programs and other things that people wanted.  I think those Canadian companies found a way to create the kind of model of choice that we were looking for as distributors within the Canadian system.

7849             If you ask me today personally or representing TELUS whether we should bring in an HBO or anything else, it doesn't matter any more, no.  We are better off to work with our Canadian partners and protect the Canadian rights market.

7850             THE CHAIRPERSON:  Okay.  Video on demand, your favourite subject.

7851             First of all, you suggested that you should have the right to advertise on it.  Is this an unrestricted right, or should it be restricted to advertising ‑‑ dynamic advertising, or targeted advertising?

7852             I had a long discussion with Rogers about the fact that one way to keep advertising dollars in the broadcasting system and not have them migrating to the internet is to ensure that, through the data that BDUs have, you can actually target advertising, and you can hit, specifically, the person you want.

7853             You could have the same Canada GM ad on one program, but in different households they would receive a different ad.  In one they would have a truck ad, and in another a sports car ad or something, so that you can promise the advertiser, obviously, a much greater targeting of the advertising ‑‑ return for the advertising, and therefore charge more, and, in effect, increase the advertising pie, rather than taking away what is right now the domain of the broadcasters.

7854             Do you see it going that way, too?

7855             MR. HENNESSY:  Yes, and I am going to pass it ‑‑ if you like, you can start asking questions of Maria and Sean, because they are going to have the expertise.

7856             In terms of a restricted right, we think it should be any type of advertising, but the restriction we would put on it is, really, much more of an incentive.

7857             What we are saying is that the restriction should be limited to the Canadian broadcaster, and that provides an incentive for VOD providers to go to Canadians for the rights.

7858             And because you are doing it on a consent regime, it is with the consent of the Canadian broadcaster.

7859             So limit it to the Canadian broadcaster.  With their consent, you are ensuring ‑‑ you don't have to make the determination as to whether or not it is incremental, because if the broadcaster believes that that kind of advertising is going to undermine the system, they are not going to give their consent.

7860             THE CHAIRPERSON:  You say Canadian broadcaster.  What if it is not a Canadian program but a foreign program?

7861             MR. HENNESSY:  If the Canadian broadcaster has the rights, let's say, to "Desperate Housewives", a show that probably you and I don't watch, but many people do ‑‑

‑‑‑ Laughter / Rires

7862             THE CHAIRPERSON:  Correct.

7863             MR. HENNESSY:  If the broadcaster has the rights to "Desperate Housewives", they could sell commercials on that because ‑‑ I mean, that's how the whole broadcasting system works today.

7864             You allow the conventional broadcaster to import a preponderance or a majority of U.S. programming, because that's what attracts advertising, and you flow the advertising into the Canadian system.

7865             It would work the same on the on‑demand platform.

7866             THE CHAIRPERSON:  Why the reluctance to restrict it to what I see as sort of the future of broadcasting advertising ‑‑ much more targeted?

7867             We, the Commission, had a presentation by this company INVIDI, who suggests that the technology is there.  Rogers, in their opening statement, said that they have the capability; then, under questioning, they took a little bit of a retreat and said:  Well, not exactly today, but in the near future.

7868             It strikes me that that is, surely, where the broadcasting industry wants to go.  They want to retain ‑‑

7869             MR. HENNESSY:  Yes, we think it's a super idea.

7870             I'm sorry, I didn't want to leave you with that impression.

7871             It's a super idea.  We just said consent ‑‑

7872             But maybe Maria ‑‑ because we paid a lot for her to fly down, maybe she could ‑‑

‑‑‑ Laughter / Rires

7873             MS HALE:  On the VOD side, really, coming from the broadcast environment most recently, being at TELUS for only eight months, we were looking at how it practically can work and, I think, sort of dispelling a lot of the myth and a lot of the fear around what is the role of the BDU, and do they want to take over everything.

7874             We are coming at it from the perspective of:  We have enough to do.

7875             Our role in all of this would be facilitating dynamic ad insertion ‑‑ and Sean can talk about that technology and where we are at in our position, because we are not there today either, but we can be ‑‑ and investing in and growing this overall advertising pie for everyone in the value chain.

7876             We are approaching it from the perspective that broadcasters hold these brands in the marketplace.  They are the ones promoting these brands in Canada.  Let's put it on the VOD platform and make it part of the overall audience experience.  Allow them to sell those ads and generate a higher CPM.  Because the ads would therefore be targeted to a consumer   , you could charge a higher CPM.

7877             We would share in that process for our role, but I think it would just be a simple way to move this forward and really uninhibit what is now a constrained platform.

7878             Because, really, the consumer and the audience is moving to on‑demand.  Broadcasters are investing millions of dollars in on‑demand platforms.  I built many of them myself ‑‑ well, not personally, but under my leadership ‑‑ and as I look at it more and more, it is really about trying to make TV sustainable into the future.  It's not about pushing it to the web.

7879             So, I think, whatever we can do to free up the constraints around VOD will help grow the market.

7880             MS MAINVILLE‑NEESON:  If I may add, it is not a question of wanting to restrict it only to technologies, so that we would only have incremental new advertising if it was using a new technological platform.  Rather, we see the ability to advertise on VOD as being a partnership with the broadcaster, looking at different business models.

7881             Perhaps sponsored programming.  Someone who wants to watch "Desperate Housewives" on demand may not want to pay $5.99 or $1.99 ‑‑ I have no idea how much we would charge for that, that would be Maria's role, but maybe we could reduce that price through a bit of advertising, some bumper ads on either side.

7882             I think that what we really need to look at are any restrictions ‑‑ the one that we have proposed has to do with partnering.  As long as we are partnering with the Canadian broadcaster to bring both Canadian and foreign programming to the platform, and then let us innovate on both technology and business models.

7883             THE CHAIRPERSON:  This partnering with Canadian broadcasters, obviously, presupposes that you reach a mutually satisfactory agreement.  Should there be an inability to do that, what happens?

7884             You just can't put anything on, or do you see a dispute settlement ‑‑ do you see a role for the Commission in that?

7885             MR. HENNESSY:  I am going to ask Maria to talk to that, because that really gets to the point of how she wants to approach the negotiations.

7886             MS HALE:  I think that with this model everyone is incented to participate, and it is opt‑in, so there is no mandate in which you participate.

7887             But the reality is, broadcasters are very aware of where their audiences are going and what they are asking for, and this is just a way to allow that to happen.

7888             THE CHAIRPERSON:  So, basically, we stand back until ‑‑

7889             MS HALE:  Yes.

7890             THE CHAIRPERSON:  You two have to work it out.

7891             MS HALE:  Absolutely.

7892             MR. HENNESSY:  We are asking for a change to the rules, because the rules prohibit that today.

7893             We are saying:  Make the rules so that anything is allowed, as long as it is limited to the rights held by Canadians, and as long as it is with the consent of the broadcaster.

7894             THE CHAIRPERSON:  This takes me into the whole subject of SVOD.

7895             A lot of BDUs are very excited about SVOD and how far you can stretch it.  But, I mean, if you take it to its logical extension, subscription media could become a complete duplicate of existing channels.

7896             I presume, in your model, because it is based on consent and partnership with the broadcaster, that the broadcaster, therefore, has the handle on determining to what extent it sees this as an incremental source of revenue, and to what extent it sees this as cannibalizing its existing service and, therefore, wouldn't agree to it.

7897             MR. HENNESSY:  Yes.  To be clear, we are saying that only the Canadian broadcaster, or the rights holder ‑‑ the Canadian broadcast rights holder ‑‑ can avail themselves of this, but we are not saying that the VOD platform should be controlled through the broadcaster.

7898             THE CHAIRPERSON:  No ‑‑

7899             MR. HENNESSY:  They are two separate ‑‑

7900             THE CHAIRPERSON:  You have the platform, but you may actually negotiate with five or six different broadcasters and put together a video‑on‑demand which has the genre of "Desperate Housewives", that kind of show, and just put them one after the other, with their consent.

7901             MR. HENNESSY:  You know what?  I don't think so.

7902             Again, I will ask Maria to explain.  It goes back to what she was talking about in terms of extending brand, and why that is probably a better way.

7903             MS HALE:  A lot of what we are talking about, or what I find we are talking about ‑‑ the hearing, distant signals, all of these things ‑‑ are answers to getting content when you want it.

7904             THE CHAIRPERSON:  Yes.

7905             MS HALE:  VOD, today, is an answer to that.  I don't think it is the correct ‑‑ or the end state of what that product is going to look like.

7906             We talked about NPVR ‑‑ network PVR ‑‑ where we are hoping to bring into the marketplace a product off the linear channel.

7907             So, again, if you are watching CTV and you happen to want to watch "Desperate Housewives", and you come home at 8:15, you could still start that show, from its beginning, from the linear channel itself.

7908             So you are not having to actually go down to another channel to access VOD as a separate experience from the brand of linear channel.

7909             Longer term, it is a more coherent experience for the audience.  It is a more coherent experience for the advertiser and for the broadcaster.

7910             So, at the end of the day, it is good for consumers.

7911             That is sort of the end state of where we are at.  A lot of what we are talking about in the middle is kind of noise, and that's why we say, much like new media exemptions and those kinds of things, don't restrict it, because it will inhibit the end state, which is really, probably, a better place than where we are at in the middle.

7912             THE CHAIRPERSON:  How is NPVR different from PVR right now?

7913             MS HALE:  I am going to toss it over to Sean for that one.

7914             MR. RUZICKA:  NPVR has always been, I think, the Holy Grail for the service providers, because you have a network‑based recording and storage mechanism, which means that you don't have to deploy a lot of expensive equipment in consumers' homes.

7915             Now, there are different business models around how NPVR can work.  You could have it so that the customer sets some future‑dated recording, or you could have it so that the service provider actually records everything that comes into its network, and makes all of the programs recorded in a defined period of time, let's say, the past 24 hours, the past week, perhaps the past several months, on an individual channel basis, available to the customer, so they would be able to go back and review.

7916             That's what we are working toward today.  We are preparing to launch PVR.  I think everybody is probably fairly well aware of how PVR works, whereby the customer actually has to choose a specific program, to either record it once or record it for a few weeks.

7917             THE CHAIRPERSON:  Is there any NPVR in existence right now?

7918             MR. RUZICKA:  Yes.  There are a number of NPVR deployments in Europe.  They actually do it similar to how we actually ‑‑ we have what is called "Look Back", where you can actually watch anything within the past 24 hours, or "Replay TV", where you can watch anything in the past week, up to ‑‑ some folks actually will record everything, and make persistent recordings of anything that has been available on your service for a significant period of time.

7919             Probably the leading example in the U.S. is AT&T.  They have contracts, I believe, with about 80 providers.

7920             I think what has happened down there ‑‑ not to take you through a lot of the history, but cablevision tried to do it without any broadcaster agreements.  They are subject, still, I believe, to a class action suit.

7921             I think that AT&T tried that first, and then figured out that that wasn't going to work, so they actually struck individual contracts with the broadcasters, whereby I think the broadcasters recognized that it was a better reach, more eyeballs for their content and advertising.

7922             So I think it is actually a solution that is friendly all the way around.  It prevents higher CapX investments for the service provider.  It is cheaper for the consumer, because they don't have to buy more boxes, and it actually adds more value to the broadcasting system.

7923             THE CHAIRPERSON:  But, then, from what Mr. Hennessy has said so far, I presume it is a logical extension that we would see NPVR developing in this country on a partnership basis with the broadcasters, too.

7924             MS HALE:  Absolutely.

7925             THE CHAIRPERSON:  Now we come to the last subject, fee for carriage, which you describe as another fix.

7926             You have heard the various submissions here and, essentially, I think that the case for fee‑for‑carriage service is based on the fact that we have chosen to use OTA as the cornerstone of our system, to ensure that there is local content and drama content.  Really, the OTA is the primary vehicle for that, and they have been funded, traditionally, through advertising, and substitution, and the C‑58 taxes.

7927             The traditional ones say that those sources have eroded.  They are fragmented.  They have gone partially to the specialty channels, partially to the internet, but our obligations remain, so you have to find new sources of revenue for us.

7928             And asking us to cross‑subsidize, as you suggest here ‑‑ et cetera ‑‑ is asking us to follow an illogical economic model.  No businessman in their right mind cross‑subsidizes.  You don't do that.  You get out of the business if it doesn't make sense, et cetera.

7929             But we have to be in this business and so therefore one way of dealing with it for the lack of advertising is to set a fee for service or, to put it differently as some have suggested, you know, adopt the U.S. system that we have the ability to deny consent to retransmit by the BDUs, et cetera, which then will engender obviously negotiations.

7930             I gather you don't buy this argument at all and tell me why.

7931             MR. HENNESSY:  All right.

7932             You know, I won't get into the whole issue of retransmission consent and the fact that, you know, in some respects there is a better retransmission rate that doesn't exist.  And let's get to the meat of the issue.

7933             The fundamental concern of the over‑the‑air broadcaster recently has been an erosion of the growth of their advertising and a shift of those revenues to the specialty sector.  There is a concern about the internet but I don't think yet we are seeing a one‑to‑one relationship in terms of advertising on the internet going towards programming like we see on the television environment.  So it's primarily going to the specialty sectors.

7934             The Commission, as I said at the beginning, at a significant cost in diversity and one that, you know, we supported at the time of the hearing because we believed consolidation was necessary to make broadcasters stronger, the Commission allowed Canada's largest broadcasters to end up owning the majority of Canada's best specialty network.  In other words, they through the marketplace chose a price that they believe would make them better off by owning an integrated offering that contained all the advertising revenues that they said they were losing to specialty.  They own the specialty today.

7935             So it's a bit ‑‑ I find, you know, when I go back to our business it's a bit like saying we are losing a lot of customers to Shaw.  So all across our heritage business, our long distance our local business revenues are down.  And they continue to go down and it's a big concern.  So we spend billions of dollars investing in a wireless platform.  Revenues go up.

7936             The street, the market doesn't value our stock just by what happens in one business segment.  They say is Telus or in this case, you know they look at the broadcasters like CTV or Global, "Have they made the right decisions and are they on a growth trajectory?"  And I think everybody would agree that CTV, CanWest because of the acquisitions they have made in the last couple of years, are much better off than they were and have a huge growth potential.

7937             So in terms of ‑‑ you know it's a specious argument in my mind, a specious argument, just in case that wasn't clear ‑‑

‑‑‑ Laughter / Rires

7938             MR. HENNESSY:  ‑‑ you know, to suggest that they need the money.  And you know make no mistake, those charges, that fee‑for‑carriage will be passed on directly to the consumer.

7939             And I believe, and I totally believe that it is fundamentally wrong to have approved the kind of consolidation that the Commission did and then allow the broadcasters to put a portion of that debt on the backs of consumers.  That is exactly what they want to do and that's just wrong.

7940             THE CHAIRPERSON:  Except you leave out of your equation, I mean we are talking here about ‑‑ if we were talking about a free market then, yes, sure I buy everything you say.  But then you also say, "I'm losing money on the OTA and I'm going to cut down, strip it down and bring it down so that it is profitable."  However, they can't do that because we impose a Canadian content requirement and local content, drama requirement, whatever you call it, on them.  So that's a conundrum that they are facing.

7941             They say, you know, "You want us to do that."  You have chosen this as the main ‑‑ the Canadian Broadcasting Act requires that Canadians see themselves reflected in the Act.  That means they should see what happens in their local community.  How do we do that through over‑the‑air?  You are responsible to deliver that and, yet, the source of revenue with which it was financed in the past is no longer there.  That's the argument they make.

7942             MR. HENNESSY:  No, the source of revenue that was financed in the past and is still there; it's still growing.  It's just not growing very well and it's threatened.

7943             THE CHAIRPERSON:  Yes.

7944             MR. HENNESSY:  The source of revenue to the broadcaster ‑‑ I find it remarkable that the broadcasters go, "Well, the specialties don't count.  Now, all the program rights that we acquire, you know, we replay on all those specialty channels but don't worry about that.  Don't look at the, you know, 35‑40 percent PBIT on the specialty channels.  Don't look at the fact that we now control most of the market and can cross‑promote.  Those revenues don't count, only the small thing is the only thing that matters."

7945             And that to me I mean is ‑‑ you know a simple fix for you is to look at whether their revenues from broadcast licenses collectively are contributing in the proper fashion to the achievement of all of the objectives of the Act.  I think it's just ‑‑ to limit it to say, you know, that the local channels are standalone they are not standalone.  It might have ‑‑ in an age when there were a lot of independent local broadcasters in different communities across the country that may have been an issue we could debate today, but that's not the way the market is.

7946             THE CHAIRPERSON:  But if I follow that logic then we have to redo the whole broadcasting system when you look at broadcast group rather than individual licences.  And you would really have to total up not only the revenues as you are doing but also the obligations and the requirements, et cetera.

7947             MR. HENNESSY:  You could.  You know, when last the Commission ruled on fee‑for‑carriage they said you know, "Denied but come back if you can make a case".  So I have seen nothing in this proceeding that suggests that they have made a case.  Tomorrow, I'm sure, they will say that's a bunch of garbage and of course they are going to make the case and the room will be full once again with everybody they flew into town.

7948             But you know there is not a problem here.  I have heard no one suggest to me that there is a significant problem facing the Canadian broadcaster today that will be fixed by fee‑for‑carriage.  And even, I think, as the Commission has expressed throughout this hearing, you know, you are not going to flow the money through to the bottom line like they would like.  You are going to flow it through to local production which is not what they want because if you actually did a proper accounting they would be, you know, still unhappy.

7949             So I think maybe you do have to look at, you know, broadcast groups as a whole.  Maybe you do have to look at their licence conditions.  Maybe you do have to listen to producers and, you know, talk about exhibition requirements in primetime or examine what the Dunbar Report said about the problem with simultaneous substitution.

7950             I just don't think that's the way of the future.  I think the local broadcaster can grow their business by sitting down with Maria as CTV does today and look at ways to extend the brand to maximize the advertising opportunities that aren't here today.  And when their revenues stop growing, because they are still growing, then it's time for them to come back and beg for more money.

7951             THE CHAIRPERSON:  Well, I see an old question.  I mean, we look at it prospectively.  Do you cover the well before the child drowns or do you wait till a child drowns before you put the cover on it, you know?

7952             MR. HENNESSY:  You gave them an economic future, a profitable economic future gift wrapped with the deals that went down around Alliance Atlantis and CHUM.   These guys are super profitable today as companies.  They have all the elements throughout the system to package, to cross‑promote.  They control most of the value chain when it comes to content today.  They are well off.  They are not hurting.

7953             THE CHAIRPERSON:  Follow my thought for argument sake.  All of this is obviously hypothetical but if notwithstanding your persuasive logic we say, "No, there will be a fee‑for‑carriage" as Quebecor for instance yesterday said, should that fee‑for‑carriage be earmarked?  Should we say, "Yes, you get this but it can only be spent on local content or it can only be spent on local content and drama" for instance, et cetera?

7954             And secondly, would it be going to the network or will it go to individual OTA stations?  How would you suggest we do it?

7955             I know you don't like the concept but just follow my thoughts.  Yes, you lost that battle.  You are now fighting a rearguard battle.

7956             MR. HENNESSY:  M'hm.

7957             THE CHAIRPERSON:  That concept that you don't like, what would be the most intelligent way of administering it?

7958             MR. HENNESSY:  You know I ‑‑ have you got an answer for that?

‑‑‑ Laughter / Rires

7959             MS HALE:  I have got something.

7960             I think if the issue is, you know, a high cost of news production, we saw CTV ‑‑ congratulations on 50 years, by the way ‑‑ talking about the high cost of news and those kinds of things.  I think when you are looking at it you have really got to figure out if there is a problem with the system where is the problem, and if it is at the local level then make sure that's addressed.  If it is Canadian drama that we want a solution for, and maybe this is part of that whole solution, then allocate the money accordingly that way.

7961             But you know this is a local station issue so in my view, then, it should go to support.

7962             MR. HENNESSY:  I guess it is kind of interesting, you know, because not all over‑the‑air channels obviously are local, except in the physical sense of broadcasting.  I mean, a good example, I guess, would be Global in Ottawa.

7963             THE CHAIRPERSON:  Yes.

7964             MR. HENNESSY:  They don't do anything local.  So you might say if you still want to be carried on the Ottawa system as a ‑‑ you know in terms of basic choice, then you have to be a local channel; otherwise, no fee‑for‑carriage for you because you are not really a local broadcaster.  You are just a retransmission stick.

7965             THE CHAIRPERSON:  Okay, thank you.

7966             Michel, you have some questions?

7967             COMMISSIONER ARPIN:  Well, I have a few questions because obviously throughout your presentation you referred to the situation of CTV and Global but I understand Telus is providing telephony services throughout a portion of Quebec, the eastern part of Quebec.

7968             Have you implemented your television service in that portion of the country?

7969             MR. HENNESSY:  C'est correct.

7970             Ann.

7971             MS MAINVILLE‑NEESON:  Oui, effectivement.  We have launched our service in Rimouski and other areas in Quebec.

7972             COMMISSIONER ARPIN:  So taking ‑‑ well, going back to the discussion that you just had with the Chair regarding some of the issues and particularly the fee‑for‑carriage in the Quebec market, you said that obviously the answer for you regarding fee‑for‑carriage is a consolidation that both CTV and Global did but what about the French broadcasters?  What are your answers to Quebecor and particularly TQS in regards to fee‑for‑carriage?

7973             MR. HENNESSY:  Is there something Quebecor doesn't own today in terms of the broadcasting?

‑‑‑ Laughter / Rires

7974             COMMISSIONER ARPIN:  Yes, TQS.

7975             MR. HENNESSY:  They do need help.

‑‑‑ Laughter / Rires

7976             COMMISSIONER ARPIN:  Yes, and also what they also said yesterday is that obviously Quebecers are watching a lot of the Canadian programming but they need more financial support to do better and more Canadian content, particularly the high cost dramas that are very hard to finance today and because of their loss ‑‑ not the loss of viewership.  They still have a lot of viewership, but the loss of value of advertising.  So that's for them, so that's why they are making the claim that they need the fee‑for‑carriage.

7977             MR. HENNESSY:  Ann, feel free to jump in.

7978             But I think that the drama issue ‑‑ I am not sure if you can really separate what Quebecor is saying in terms of need from their position on the, you know, Canadian Television Fund and a sense that it would be better if they just kept that money to begin with.  So I guess, you know, if you look at their total position, they seem to want to keep the money they contribute to the fund so they can put it into their own production choices and then they want to also raise prices or not.  It is kind of hard to tell with Quebecor since they own all the key pieces where the money will flow but there does seem to be a certain sense of double‑dipping here.

7979             MS MAINVILLE‑NEESON:  And certainly the Quebec market is very different, obviously, in two very important ways.  Obviously, it is a lot smaller than the rest of Canada and already Canada is so small compared to the North American market.

7980             COMMISSIONER ARPIN:  Every time the CAB appears before us they remind us that Canada is California and Quebec is San Francisco.

7981             MS MAINVILLE‑NEESON:  Yes, and I think that is an apt analogy except that it is a whole different language and a different culture, so it is not the same way in that sense.  And yet, because of that they have succeeded and drama does extremely well.  So the dollars that you do invest in French‑language drama go a long way because you actually get the viewers.

7982             However, can the small Quebec market, French‑language market, support the four networks that they have with Télé‑Québec, with TVA, with TQS and with Radio‑Canada?  That is a really hefty ‑‑ it is almost more than we have in English Canada.

7983             So one would really wonder:  Will fee‑for‑carriage fix that kind of problem or was it just something that needed to take its natural course and there is a maximum of networks that can serve that small market?  And do so very well.  As I indicated, the viewership to those networks in that market is significant.

7984             COMMISSIONER ARPIN:  Yes.  Could the Commission arrive at different conclusions regarding the English market and the French market, in your own mind?

7985             MR. HENNESSY:  Absolutely!

7986             MS MAINVILLE‑NEESON:  In fact, the Broadcasting Act does require you to look at them to ‑‑

7987             COMMISSIONER ARPIN:  Not require, it says we could.  Not we should but we could.

7988             MS MAINVILLE‑NEESON:  Well certainly, I believe you are right that it does say that you should and that it is an important aspect of our Canadian diversity.

7989             COMMISSIONER ARPIN:  So what ‑‑

7990             MS MAINVILLE‑NEESON:  So you certainly ‑‑

7991             COMMISSIONER ARPIN:  Have all the flexibility to come to a different conclusion, that is what ‑‑

7992             MS MAINVILLE‑NEESON:  Absolutely!

7993             MR. HENNESSY:  If Steven Harper can get there, you know, anybody can.

‑‑‑ Laughter / Rires

7994             MR. HENNESSY:  Definitely.  Definitely.  It has always been that way and I think it always should be.

7995             COMMISSIONER ARPIN:  In the early stage of the interrogatory made by the Chair, you talk about your current basic service, to which you said it generally costs $22 for the subscriber.

7996             How many specialty services do you have on that basic service?

7997             MR. HENNESSY:  Sean.

7998             MR. RUZICKA:  We have approximately 32 channels in our basic package.  Unfortunately, I am not prepared to speak to how many specialty channels but I would say there is a handful.

7999             MS MAINVILLE‑NEESON:  There are at least 10 specialty channels and that would include APTN as being a specialty.  We have Vision, APTN, many services in fact.

8000             COMMISSIONER ARPIN:  Obviously, The Weather Channel, which ‑‑

8001             MS MAINVILLE‑NEESON:  The Weather Channel.

8002             COMMISSIONER ARPIN:  ‑‑ and the 9(1)(h) that are ‑‑

8003             MS MAINVILLE‑NEESON:  The 9(1)(h) but also we have MuchMusic, for example, and we also have some Category 2s that wanted a broader distribution and we have decided to launch them on our basic so that everyone can have a taste of what they are like.

8004             COMMISSIONER ARPIN:  I see.  Now in your discussion regarding VOD, you are restricting it only to those who have the Canadian broadcasting rights system.

8005             What about feature films?  What about their content for VOD?  That is not attractive for you?

8006             MR. HENNESSY:  In terms of advertising?

8007             COMMISSIONER ARPIN:  No, in terms of the offering.

8008             MR. HENNESSY:  No, no.  We are only restricting advertising to ‑‑

8009             COMMISSIONER ARPIN:  So your comments were only restricted to advertising content on VOD but not the total VOD platform?

8010             MR. HENNESSY:  Oh, no, no.

8011             COMMISSIONER ARPIN:  All right.

8012             MR. HENNESSY:  We are a programming undertaking when it comes to VOD and we have done a number of major deals with the studios.

8013             But we think in terms of, as Maria said, the future of television, so linear conventional television on video‑on‑demand, is to extend the Canadian broadcaster brand into that space rather than worrying about running down to the States and trying to cut one‑offs with all the different production houses.

8014             COMMISSIONER ARPIN:  Now down the road, don't you think that it will be attractive for producers to start producing VOD, exclusively VOD programs which could support ad insertion?

8015             MR. HENNESSY:  I think Maria ‑‑

8016             COMMISSIONER ARPIN:  I know that Quebecor is already doing that in Montreal, having some ‑‑ that is what they claim.

8017             MS HALE:  Yes.  I think it is really hard to build brands on VOD.  I think a lot of the success you have even seen on the internet from on‑demand programming is based off of existing brands in the television space, and the same thing for mobile.

8018             Independent producers approach us all the time about a great mobile show.  We are great, how is anyone going to know it is there?

8019             So I think creating content specifically for VOD in the nascent market might be a bit of a challenge.  It might be different in Quebec.

8020             COMMISSIONER ARPIN:  But the thing is the one program that Quebecor is doing, it is an extension of existing programming that they have already on TVA.

8021             MS HALE:  And they will promote it off of TVA?

8022             COMMISSIONER ARPIN:  Sure, yes.

8023             MS HALE:  Yes.  So that whole linkage is really key.

8024             COMMISSIONER ARPIN:  But the only place you could consume it is on the VOD platform.  It will never happen to be on the air.

8025             MS HALE:  Absolutely, and again, as long as there is a broadcast linkage to that so that the consumer and the audience gets the message.

8026             COMMISSIONER ARPIN:  Okay.  So you are extending your proposal to include genuine VOD programming ‑‑

8027             MS HALE:  Absolutely.

8028             COMMISSIONER ARPIN:  ‑‑ as long as it is related to broadcasting rights ‑‑

8029             MS HALE:  Well ‑‑

8030             COMMISSIONER ARPIN:  ‑‑ or rights that belong to a broadcaster?

8031             MS HALE:  Vis‑à‑vis how we are going to support it with advertising, outside of ad‑supported content ‑‑

8032             COMMISSIONER ARPIN:  Yes.

8033             MS HALE:  ‑‑ that the platform itself ‑‑

8034             COMMISSIONER ARPIN:  Obviously, it is easy to understand.  If there is no support, how will you know and why would you produce it as well?

8035             I am sure that you are aware of the dynamic insertion, the project of INVIDI.  Is it something that you are contemplating, offering targeted advertising according to some demographic or some other ‑‑

8036             MR. RUZICKA:  Well, TELUS doesn't have that capability today.  The technology certainly exists and it is compatible with our platform.  So we could invest in the hardware and we could invest in building the middleware capabilities that would allow us to do that.

8037             It is actually a fairly complex undertaking in terms of being able to have a repository of advertising and be able to index that to the appropriate consumer.  So it is something that would be complex for us to build but we are contemplating it if the right business terms and framework can be put in place to support it.

8038             But again, I think it is going to be a complement to what we would, I think, rely on with linear broadcast for the foreseeable future.

8039             Maria, would you agree?

8040             COMMISSIONER ARPIN:  I guess that you are operating your own VOD platform?

8041             MR. RUZICKA:  Correct.

8042             COMMISSIONER ARPIN:  I don't know if you have any comments.  In the A&E submission to this proceeding they are talking about content aggregators for VOD and they are saying they are relying on third parties that they call content aggregators in the U.S. to provide their VOD material.

8043             I don't know if you have any views about making use of content aggregators rather than doing it yourself.

8044             MR. HENNESSY:  Maria?

8045             MS HALE:  I have no views.

8046             MS MAINVILLE‑NEESON:  If I may say something, actually the concept that A&E put forward is one that works very well in the U.S. but here in Canada we have had no difficulty with our VOD operators to get our own content, and because of the partnerships that we have with broadcasters, more and more as we go beyond the feature film business we are dealing with broadcasters who have that knowledge and essentially the broadcaster become the aggregator.

8047             I think in the Canadian model we have just made our broadcasters so strong that that is where we are going, that is where we are building relationships for our VOD platform.

8048             COMMISSIONER ARPIN:  I see.  I want to get back ‑‑

8049             MR. HENNESSY:  Just ‑‑

8050             COMMISSIONER ARPIN:  Yes?

8051             MR. HENNESSY:  ‑‑ to be clear on that, the broadcaster is one partner.  The studios, as you pointed out, for feature films are other partners.  I am sure there are lots of third‑language service providers that you could look at as being yet other partners.

8052             So I don't want to leave the impression that we are saying that everything we source through our VOD platform should come from the Canadian broadcaster or should be limited to that or that we could have a vibrant VOD platform if we only work with the Canadian broadcaster.  But certainly, to extend the television brand there is no better way than to work with the Canadian broadcaster.

8053             COMMISSIONER ARPIN:  Mr. Chair, those were my questions.

8054             THE CHAIRPERSON:  Just one clarification.  In your answer to Vice‑Chairman Arpin, you said that you also have an offering of feature films on VOD.

8055             Are you asking for the right to advertise on those, in agreement with the people who supply the feature films for you or are you just saying keep it as it is right now, just on a fee basis?

8056             MR. HENNESSY:  No, we are not asking at this point to advertise on that.  If we see the models developing in the future, maybe but that is not part of what we are putting on the table today.

8057             At the same time, you will get something like TMN on demand or I should ‑‑ we have TMN, I guess, in Rimouski but Corus in the rest of the country.  To the extent that we are sourcing anything through them, then you could do that model.

8058             THE CHAIRPERSON:  Okay.

8059             Len, you have some questions?

8060             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

8061             I want to come back to the issue of the consolidating industry.  Some would say that the reason consolidation has happened is because of fragmentation.

8062             Do you have any comments on that?

8063             MR. HENNESSY:  Yes.  I think that is clearly ‑‑ and we put this in our submission in the diversity of voices proceeding, is that all Canadian media companies need to achieve a certain level of scale if they are to have the capacity both to acquire program rights and the underlying technology to deliver it in a variety of fashions.  So absolutely.

8064             COMMISSIONER KATZ:  So this consolidation happened last year and you cited two big consolidators, CTV ‑‑

8065             MR. HENNESSY:  Or actually three, right, because some of the properties split out to Rogers.

8066             COMMISSIONER KATZ:  Right, absolutely.

8067             The Commission then had a proceeding on diversity of voices where we basically identified it will become likely increasingly more difficult to consolidate without creating the diversity or retaining the diversity of voices out there.

8068             So if you overlay that onto the fact that there was consolidation as a solution to the challenge of fragmentation, if you look out in another period of time, whatever that is, and the Commission is faced with another situation where fragmentation has hit the market and people are finding it more difficult to run their businesses and meet the obligations that are inherent in the Broadcasting Act, what then?

8069             MR. HENNESSY:  You know, the what then could always be a proceeding but I would say that ‑‑ and one of the points we tried to make in that proceeding is that there really isn't a significant loss of diversity in the system if you look at it from the ability of the public, and I use the word "public" more than "consumer" here because we are talking of sort of long tail thought.

8070             If I was to look at anywhere over the last 25 years in terms of the Canadian broadcasting system and increasing the internet and everything else that is available in terms of digital media, there has never been more choice available from more producers and more countries anywhere in the world.

8071             The issue, I guess, at the end ‑‑ and I don't want to put words in the Commission's mouth, so please correct me.  I think the issue that the Commission struggled with was, given the nature of television today, was there a potential loss of local expression through the television system that maybe could not immediately be made up by new digital platforms?

8072             COMMISSIONER KATZ:  I was coming to that issue of local.  That was my next point.

8073             If you start to narrow it down, yes, there is diversity in terms of multi‑lingual, multi‑ethnic programming of all sorts and genres.  When you get to local, there's fewer and fewer as the major broadcasters in Canada have consolidated.

8074             The question is:  How do we continue to offer local programming where fragmentation has resulted in either a revisiting of the obligations that are inherent under the Broadcasting Act for some of the local broadcasters?

8075             MR. HENNESSY:  I would start by focusing on the Community Channel that will be provided by us, I guess, whenever we get our licence and is provided by the cable companies today and I guess regional variations that could be provided by DTH.

8076             If you look at the Community Channel across Canada today ‑‑ and I know ultimately this is yet another proceeding ‑‑ there is tremendous local expression from the grassroots up that reflects an incredible diversity, particularly in terms of some of the multicultural aspects of our communities: sports, local politics.

8077             I think that that medium has filled a tremendous void that was probably lost 20 years ago when local broadcasters or local over the air broadcasters ceased to be really local focused and became national in their orientation, Max Keeping aside.  CTV I think still does a pretty good job of that and should be commended for it.

8078             That to me is ‑‑ you know, you can get in the questions about do you allow advertising on the Community Channel to even encourage more of that.

8079             I think if you combine say the Community Channel with what you are seeing evolving in community expression on the Internet, then there is a pretty solid base there.

8080             And the real question then becomes ‑‑ and one I haven't heard the answer to here:  For the local broadcaster, the over the air broadcaster, what is it that the Commission thinks they should be producing in terms of local content that isn't produced today?

8081             They do news, do a fairly good job at news, I think; again CTV probably by a mile, but I tend to watch the CBC.

8082             I've heard lots of things like we need to put more money into local expression.  But what is that?  I don't think the scale is there to do local drama, so is it going back to the seventies and eighties where we had more talent shows?  That is what the local broadcaster did.

8083             I don't know, more talk shows?  Clearly some of the specialty channels have sort of taken up that format.

8084             COMMISSIONER KATZ:  The issue of community broadcasting programming will be the focus of another proceeding, as you mentioned.

8085             You do see then community programming being an adjunct to the localness that the system ‑‑

8086             MR. HENNESSY:  I don't think it is necessarily an adjunct.  If you think why is local important, why if we really go back into the bowels of the Broadcasting Act, '68 Act and what it was all about, local broadcasting was supposed to ultimately provide some kind of democratic expression for the people in a community to speak and to share ideas.

8087             Is a large scale broadcaster the best way to do that any more when we do have things like the Community Channel and increasingly Internet?

8088             You know, really I'm not sure that that is the case.  I think local broadcasters have become much more national; community channels have become much more local.

8089             So I would be careful at this point to assume that the Community Channel has to remain an adjunct.  It may become your solution.

8090             COMMISSIONER KATZ:  I want to move on to the issue of VOD, SVOD and some of the discussions you had earlier with both the Vice‑Chair and the Chair as well.

8091             It dawned on me, as I read your brief this morning on network PVR and discussions you have been having in the past with other folks on dynamic ad insertion, that these two are an obvious complement to each other.

8092             When I push a button on my computer saying download for me "Desperate Housewives" or something, you know I've just asked for that as well.  You know what the demographics are of the people that are watching that program.  You have some information as to who I am as well.  It's a lot easier then to feed into that system coming back to me the ads that are targeted at myself personally.

8093             Is that an obvious logical relationship?

8094             MR. HENNESSY:  Yes, I think so.

8095             Sean...?

8096             MR. RUZICKA:  Yes, I think that when we build up a forum, it can be extended to feed into even linear broadcasts at a Community Channel's request through to what we want to do with video on demand or network PVR.  Ultimately that's how I think, as we pointed out in the video, we help make it more relevant to the customer, and we add value back into the broadcasting system by allowing or I should say increasing marketing effectiveness for the actual advertisers.

8097             I think that we ultimately expand that opportunity to advertise, because it doesn't have to be Coke and Ford any more.  It can be the pizza place down the street maybe, you know, based on the consumer's past behaviour.

8098             That is the level of granularity that it is conceivably possible we could get down to if the industry wanted to go there.

8099             MR. HENNESSY:  I think Sean makes a good point.  You can really start to tailor the ads.  I think Ted Rogers missed that point at the hearing when he was batting Mike Lee over the head, because, you know, it's been a long time since he ordered a pizza.

‑‑‑ Laughter / Rires

8100             MR. HENNESSY:  You know, it is something.

8101             But here is the really neat thing about NPVR.  One of the concerns of the broadcasters is that today technology is allowing people to avoid ads.  If you the broadcaster put your programming on an NPVR platform ‑‑ and we are talking again about the consent of the broadcaster ‑‑ you can't skip through the ads.  The broadcaster can control that functionality or we can control that functionality for the broadcaster.

8102             Again, concern about the loss of control to technology is actually resolved by technological solutions.

8103             So it's like what Mr. Reaume said earlier in the proceeding by the Canadian Association of Advertisers, not only do you have the opportunity here to enhance the value of the ad but to protect it from erosion that exists today from other technologies.

8104             COMMISSIONER KATZ:  Unless people get frustrated and then just go to the Internet where they can actually avoid some of these ads.

8105             MR. HENNESSY:  I think the best way to stop people from going to the Internet is to ensure that they get to watch what they want when they want.

8106             I think particularly if you tailor the ads, you will see a lot less incentive to go to the Internet; maybe into the black market.

8107             COMMISSIONER KATZ:  Back to the MPVRs.  So the MPVRs are around today.  They are being utilized in various countries around the world.

8108             MR. RUZICKA:  Yes.  Europe again is most progressive in that and then a couple of the American operators are doing kind of various strengths of I think a full suite of capabilities that could be expressed with MPVR.

8109             COMMISSIONER KATZ:  Have the Europeans looked at dynamic ad insertion in that context as well?

8110             MR. RUZICKA:  They have but I'm not sure how far they have advanced on that front.

8111             COMMISSIONER KATZ:  You have said repeatedly now that the future of the system is increasingly on demand, and we are hearing the opportunities and the benefits of the on‑demand system.

8112             It begs the question:  What happens to linear programming?

8113             I think I heard you say that you can use linear programming and intertwine the two of them as well.

8114             I think I heard you, Mr. Hennessy, also say you are negotiating with the feature film industry in the U.S. and elsewhere, as well, to put all this on your platform essentially.

8115             The platform, as I understand it, the  BDUs and TELUS specifically, want to control your own VOD.  If someone else came to you tomorrow and said "I've got a VOD platform and I want to interconnect it into your system", what would your response be?

8116             MR. HENNESSY:  No, because we are talking ‑‑ we are starting to get, I think, into telecom language here.

8117             But jump in if you want.

8118             You are suggesting to me ‑‑ well, you can't interconnect.  I think the proper fashion, assuming that ‑‑ and it's never been tested that VOD is actually a programming service which we hold a licence for.  We assumed that at the time.

8119             Assuming that, you would have to first get a licence.  So I think somebody wouldn't come to us and say I want to interconnect.  They would come to the Commission and say I want a licence, because they wouldn't be able to do it any other way.

8120             I'm not sure.  Could you add a lot of value with a separate VOD licence?  It would be pretty tough because then you're going to have to get into all kinds of battles about shared capacity and how much capacity do you take from say the linear system to support another VOD channel?  And should broadcasters have the right to give their programming to only one VOD provider per system or to many?

8121             I don't know.  I'm not sure there is a business model here.

8122             I think what we are seeing more of is that people are putting together packages of content on demand that you can watch anywhere any time and bringing the packages to the VOD provider and saying we would like to it.

8123             Is that more how it works, Maria?

8124             MS HALE:  Absolutely.

8125             COMMISSIONER KATZ:  I guess I'm thinking out loud here, and it's always dangerous when I think out loud.

8126             MR. HENNESSY:  That's okay.  I do it all the time and I pay the price.

‑‑‑ Laughter / Rires

8127             COMMISSIONER KATZ:  The opportunity that the BDUs have for VOD and SVOD also has a risk of I guess I will use the word disintermediating the linear broadcasters of today because you can basically work around them by getting your own rights to various programs and then putting them on yourself, unless you work with them in packages, which is an alternative obviously as well.

8128             But to the extent that the BDUs right now have the sole and exclusive access to the VOD platform as you have it today, and what you are looking at doing is broadening that out into a retail marketplace with advertising and everything else, doesn't that give you an awful lot of power?

8129             MR. HENNESSY:  No.  I will answer the question why not, and then Maria can explain.

8130             There is certainly a lot of paranoia that the BDUs will do that and somehow control the whole universe.

8131             As programmers we have certainly ‑‑ and I've always been allowed and there was an expectation that we would deal with the studios directly for the feature film rights and the big sports events.

8132             You have to remember that content on VOD is not exclusive.

8133             Number one, TELUS cannot go out, or Rogers or anybody else, and sign up TV or movie rights to something that they can only show on their VOD platform.  In terms of competitive advantage, you get no competitive advantage from exclusivity.  So the issue becomes:  If you had that exclusivity as distributors, your question is do you disintermediate, do you reduce the middle man?

8134             And I think I will let Maria answer the rest of the question.

8135             You go back to it's a very, very cumbersome task to deal with this.  The only way I think that you are really going to push programming on demand, broader programming than just feature films, is by brand extension.

8136             MS HALE:  Yes.  Ann is probably going to follow up as well and jump in here.

8137             I think the reality of VOD is that it is so nascent; it's so early days.  Is there potential for this or that?  Ideally, at the end of the statement, we don't know what the answer to that is.

8138             What we are saying is that at this point where we are at, we see better value in working with the broadcasters and creating an incentive‑based environment whereby if there is advertising allowed and only through Canadian broadcasters, we are incented to focus our energy there because there is increased revenue for everyone in the pie.

8139             VOD is not a cheap alternative.  There are lots of expenses attached to VOD.  Encoding alone is quite pricey among operating expenses.

8140             So for us right now, it's really about innovating on the platform and serving the consumer.  So it's all about:  How are we going to keep them with us on the Canadian broadcasting system as a whole and how are we going to satisfy their demand for content in whatever format they are looking for?

8141             So we are going to be innovating and doing different things.  We have done a few things already.  Our focus is really to work with the broadcasters on the system and see what we can really do with the platform.

8142             I think we had also discussed that if at some point down the road where we started seeing some crossover on these lines, there is an opportunity obviously to come back before you and address those concerns when they are actually reality instead of now when they are not.

8143             Ann...?

8144             MS MAINVILLE‑NEESON:  Yes.  Essentially that is why we proposed the model that we did.  We think that VOD isn't going to grow just on its own without additional revenue sources and other opportunities, which is why in our proposal for advertising we ensured that there was an incentive for us to go through the Canadian broadcaster.  That's our way of ensuring that the whole system works.

8145             We did try to present in all of our proposals a very holistic approach and one that both safeguards the existing system and the contribution, the important contributions that the current system offers for the objectives of the Broadcasting Act, but also for the ability to innovate that our current proposal ensures that the broadcasters don't get disintermediated to your concern.

8146             COMMISSIONER KATZ:  Thank you.

8147             My last set of questions is regarding capacity.

8148             Do you have a capacity constraint today on access?

8149             MR. HENNESSY:  Yes.

8150             COMMISSIONER KATZ:  So when people approach you right now, you are not at liberty to carry them, given the limitations you have?

8151             MR. HENNESSY:  Yes.

8152             COMMISSIONER KATZ:  Maybe I should know the answer to this question.  Is Allarco being carried right now by you folks?

8153             MR. HENNESSY:  I will give you the answer to that question.  The answer is no because we have been unable to reach an agreement with them over the last few months.

8154             We have offered to come before the Commission through the Dispute Resolution Program to deal with the issues of capacity or price, if they wish.  I think because we are a small player, I don't think that was very attractive to them during the period of time they were negotiating with the big guys who don't want to set a precedent in the wrong court at the wrong time.

8155             We have explained our problems to them.  We have explained our capacity constraints to them, and we have discussed with them our views of what comparable means.

8156             I guess to answer your follow‑up question, no, we have not added any channels since we carried on these discussions with them.

8157             COMMISSIONER KATZ:  When do you see yourselves getting over the hump on capacity, so to speak?

8158             MR. RUZICKA:  Well, today an IPTV service is subject to the laws of physics and the enhancement of technology and how we can deal with it.

8159             So really, what that amounts to is that we have to use the latest IPTV equipment for encoders and because we need to ensure that we can achieve and ensure video quality that is on par with what consumers have come to expect from existing TV service providers, that means that we also go out and, wherever possible, we actually build a fibre connection to the actual broadcaster so that we can pick up a pristine source signal.

8160             We have seen a big difference in quality from what we could pick up off of the satellite, which is rather cheaper, versus what we can produce when we pick it up off of a terrestrial fibre‑based connection.

8161             Consequently, that means that it is a fairly laborious and equipment intensive process.  Adding a new channel to TELUS TV, it amounts to a fairly costly process.

8162             MR. HENNESSY:  And Ann makes sure that our technical and business people understand that being mandatory channel under the Commission's rules means what the word "mandatory" means and that has to be the priority.

8163             MS MAINVILLE‑NEESON:  And let's be clear about the Allarco situation.  It was very interesting to listen to their presentation to you a few days ago; different versions of the facts.

8164             The point is that while we believe in mandatory carriage ‑‑ in fact, we agree with the access rules; we are not fighting those rules.

8165             What Allarco is pushing, though, is for carriage of six multiplex channels: so two HD and four SD channels.  They are saying that that is what we were entitled to with our mandatory carriage licence.

8166             And that's not what we considered to be the carriage requirement.  It certainly can't be up to the programming service who has received a licence for mandatory carriage to then determine we would like to have a hundred channels.  It just doesn't make sense.

8167             I believe that we do need a resolution from the Commission on the issue of multiplexes.  We did ask Allarco to continue to pursue the current complaints that they had but also to resolve the issues with respect to the number of stations that we were required to carry.

8168             In any event, we are more than willing to go to Dispute Resolution and we have indicated that to them and to Commission staff.

8169             COMMISSIONER KATZ:  Thank you very much.  Those are my questions.

8170             THE CHAIRPERSON:  Rita...?

8171             COMMISSIONER CUGINI:  Thank you.

8172             I have just a couple of follow‑up questions.  I will start with VOD.

8173             Currently the rules allow for TELUS subscribers to access only VOD and not have to subscribe to essential services package, for example.  Correct?

8174             MR. RUZICKA:  No.  They must actually subscribe to the essential service before we will install VOD and make any of the other services available to them.

8175             COMMISSIONER CUGINI:  Okay.  So they can subscribe to essential services and then go to VOD.

8176             MR. RUZICKA:  Correct.

8177             COMMISSIONER CUGINI:  Do you know what percentage of your subscribers have chosen that option?

8178             MR. RUZICKA:  Well, 100 per cent of the subscribers obviously have it.  But unfortunately I don't know what percentage only have the essentials.

8179             We could actually determine that and give that to you in a future submission.

8180             COMMISSIONER CUGINI:  That would be great; thank you.

8181             Again, it goes to the impact of VOD and that platform on linear broadcasting, just as a follow‑up to Vice‑Chairman Katz's question earlier.

8182             In terms of access ‑‑ and obviously I acknowledge that you are saying keep the access rules as they are ‑‑ do you think they should stay in place for both standard definition and high definition services or should we opt for, for example, the requirement that you carry either/or and you satisfy the access rules?

8183             MR. HENNESSY:  This may show sometimes that I answer the questions before I know the answer to them, but I wasn't aware that there are access rules for high def specialties.  So I should have probably thrown this to Ann immediately.

8184             MS MAINVILLE‑NEESON:  Yes.  Certainly we believe that the access rules should apply to either/or, and that will incent broadcasters to provide more high definition programming on their high def services.

8185             As you have seen from the video we have presented, we do have a lot of customers who want HD and only HD.  The more HD services we can offer, we do feel that that is where the world is going.

8186             As for carrying both, that is a significant burden.  It's not so much a capacity issue, as Sean was trying to explain.  It's just the cost of adding each new channel:  new encoders, transforming the signals in a format that we can actually distribute.  Requiring duplicate services to be carried is not ultimately in the best interests of Canadians.

8187             COMMISSIONER CUGINI:  If we were to go along the road of either/or, do you think that that would have the potential of causing some disputes with specialty services where they say I want you to carry my HD version and you say no, I don't have the capacity?

8188             MR. HENNESSY:  I think in the last year, as I've learned, are technology because the future of IPTV promised to be unlimited.  As Sean says, some of the laws of physics and vendors suggest otherwise.  So I think all of us, as you've heard in this proceeding, face in the short run capacity issues, probably none more so than as you were discussing with Telesat and the satellite guys, what's going to happen to that business as there is more HD and people asking them to carry more.

8189             I think this starts to become not only an issue of dispute between distributors and specialty services but will be an issue of potentially some distributors using it, depending on their capacity requirements, to get a competitive advantage over other distributors, which is probably why Rogers was so happy to sort of say well, you know, local into local is okay for satellite.  We only really offer distant signals because we're competing.

8190             You are going to have some mess in the short run.

8191             I think, again, take distant signals, for instance, I think the long‑run solution is not to change the rules today but to serve the need the people are going to distant signals for, which is more flexibility in how they watch their programming.

8192             Again, it may be that for some services putting the rights they acquire through an on‑demand window may be better than using up a lot of linear capacity on the ‑‑

8193             COMMISSIONER CUGINI:  You put three subjects into one question.

8194             MR. HENNESSY:  Yes.  I know.  I know you are probably pressing for the break.

8195             COMMISSIONER CUGINI:  No, no.  My point is ‑‑

8196             MR. HENNESSY:  You could be franker and just say could you say that in a comprehensible fashion, please.

8197             COMMISSIONER CUGINI:  I just need an answer to which should be the obligation.

8198             MR. HENNESSY:  I would say that the obligation has to remain today on SD.  I don't think that you can move to an HD must carry requirement until all elements of the system demonstrate that there really is the capacity to carry all that without pushing things out, recognizing that at the end of the day the Commission still has the right to determine what gets carried.

8199             COMMISSIONER CUGINI:  Thank you.

8200             MS MAINVILLE‑NEESON:  If I might add with respect to the HD ‑‑ because of course I can understand that the broadcasters are very concerned that as they make that transition, they want to ensure carriage of the HD service.

8201             There may be an interest in the Commission establishing rules for a certain minimum amount of programming, and it would have to be significantly high.

8202             If you reach that threshold, perhaps there is mandatory carriage for the HD, at which point there is that swap.  We don't have to carry both.

8203             COMMISSIONER CUGINI:  Thank you.  I appreciate that.

8204             Preponderance.  And if I've missed it in your written submission, I do apologize.

8205             What is your position on preponderance?

8206             MS MAINVILLE‑NEESON:  Fifty per cent plus one on services received.

8207             COMMISSIONER CUGINI:  So you reject the CBC two‑thirds?

8208             MS MAINVILLE‑NEESON:  Absolutely.

8209             COMMISSIONER CUGINI:  Okay.

8210             One more question about the Network PVR, just so I understand.

8211             Whose responsibility is it to make the capital expenditure?  Is it the broadcaster or the distributor?

8212             MR. HENNESSY:  It's the distributor.  You share the recovery of that between all the people that benefit from it.

8213             COMMISSIONER CUGINI:  I'm at home.  How does it work for me as a TELUS subscriber and you have installed the network PVR?

8214             MR. HENNESSY:  Sean...?

8215             MR. RUZICKA:  There are two different ways it could work, but the primary way that we would envision it working is that you would have your on‑screen guide, just the prosaic grid guide, where you would be able to scroll either forward or backward in time to find a program and either set it for future recording or pull it back from a previously recorded episode that is stored in our network.

8216             The other way that it can also work is through a search and recommendation engine, where we would promote something that happens say within a predefined period of time, either future or post hoc.

8217             COMMISSIONER CUGINI:  And is there an opportunity for the broadcaster to brand its show?  Let's continue with the "Desperate Housewives".  On a network PVR, is there a way for CTV to brand the fact that it is CTV that is bringing you "Desperate Housewives"?

8218             MS HALE:  In two ways.  They brand it now even on the ‑‑

8219             COMMISSIONER CUGINI:  On linear, of course.

8220             MS HALE:  ‑‑ with their little logo on the bottom.  But the way network PVR would work is the main access point for getting the program is off the linear channel.  So off the guide that you see now, normally you would go to Channel 8 or CTV and you scroll along, so you will find ‑‑ we will continue with the "Desperate Housewives" analogy.  You would find "Desperate Housewives" off that linear CTV branded channel and access it from there.

8221             COMMISSIONER CUGINI:  All right; thank you.

8222             Thank you, Mr. Chairman.

8223             THE CHAIRPERSON:  I have a question.

8224             On this MPVR, you are the first person who mentioned it.  Have you let the cat out of the bag here or why has another BDU not even mentioned the concept?  Until today I've never heard of it and none of us ‑‑

8225             MR. HENNESSY:  You know, I think that ‑‑ and I'm sure if we listen to Mike Lee in other proceedings, we would probably find mention of that.

8226             I think one of the reasons is initially the distributors' strategies may not have been correct.  As Ann suggested, the first sort of cut cablevision took at it was just to say we're going to take all the programming other people have rights to off the TV and we're going to put it up there for free, or whatever, and it will all be great.  And that led to lawsuits.

8227             We spent the last couple of years saying okay, we looked at the broadcasters in a very traditional distributor fashion as our enemies, just as in a very traditional fashion they often do, as you have probably seen over the last couple of weeks.

8228             That was a huge mistake because what that led us to was to try to lobby for changes to the Copyright Act for fair use amendments that would allow us to do this because it was a reasonable extension of the consumers' rights to watch what they want, when they want.

8229             I think as more rational people like Maria Hale joined the company with experience at broadcasters like CHUM ‑‑ so there are benefits of less diversity; we get Maria working for us ‑‑ is that the logical model came along.

8230             If you want to promote the scenario, you use the broadcaster brand.  You get the rights through them because they have the rights.  You cut a deal with them and it becomes, rather than Copyright Act or asking the Commission for all kinds of permission, you do a deal.  And if you do a deal with enough broadcasters, then you have sufficient content on the thing.

8231             The big benefit for us is not only that it extends on demand and makes peoples stickier to the system, but then you don't have to invest a whole bunch of money in expensive set‑top boxes that include PVRs that you have to swap out all the time because technology changes.

8232             So it is a win‑win.  But like many things in this regulatory process, we all come to the table sort of with our old paradigms, old battles and somehow never get to the future because we think the other guy is going to somehow sneak one by us.

8233             THE CHAIRPERSON:  But there is no existing PVR system in Canada right now and there are no rules for MPVR either, as far as I understand it.

8234             MS HALE:  Yes.  I was going to jump in on that one too.

8235             You probably haven't heard about it because there is a lot of work to be done still.  I think again what we are talking about here is not too far in the distant future.  But the conversations and the real work still needs to go on to make it a reality.

8236             I think this is a good opportunity just to put some things like distant signals in perspective because a lot of that is trying to get us to where we want to be.

8237             THE CHAIRPERSON:  But listen to your colleagues.  There is a model in Europe.

8238             MS HALE:  Absolutely.

8239             THE CHAIRPERSON:  So the technology is there.

8240             MS HALE:  Yes, but we have to do the work here.

8241             MR. RUZICKA:  But I think the distinction is where the work is and the work is really on the business terms, in terms of making sure that a viable economic framework exists so that we can make the investment to actually build the technology.

8242             The technology is not exorbitantly expensive, nor is it actually platform‑specific.  I think that is probably a very important take‑away for the panel; is that shaw has looked at doing this before.  I believe Rogers would like to do this.

8243             THE CHAIRPERSON:  Yes.

8244             MR. RUZICKA:  It's a natural for an IPTV platform like TELUS.  The challenge is absolutely centred around the copyright for the actual content itself and striking reasonable contract terms to do so.

8245             THE CHAIRPERSON:  But regardless of that, the business model and the technology, et cetera, you have also put on the table a regulatory issue which until today we didn't even know about and which might have implications for this whole proceeding.

8246             Anyway, we will reflect on that.

8247             Thank you very much.  I think we will take a ten‑minute break, Madam Secretary.

‑‑‑ Upon recessing at 1048 / Suspension à 1048

‑‑‑ Upon resuming at 1106 / Reprise à 1106

8248             THE SECRETARY:  We will now hear the presentation of Mr. Lee Weston.

8249             You have 15 minutes for your presentation.  Thank you.

PRESENTATION / PRÉSENTATION

8250             MR. WESTON:  I would like to thank you people for the opportunity to present today.

8251             Most of what I will be talking about relates to the independent community channels and the effects that some of these changes might have on them.

8252             I will start with BDU community channel advertising.

8253             The Dunbar‑Leblanc Report suggests that BDU community channel advertising rules be altered to match the commercial stations.  This is a horrible idea.  It will both reduce community access to those channels and wipe out the independent community channel class entirely.

8254             First, some misconceptions.

8255             BDU community channels are cute, cuddly things.  No, some are large networks.

8256             Community channels can't advertise.  They can and they do.  It is under rules designed for them, which are in some ways more restrictive, but in some ways more liberal than other stations.

8257             Last year Rogers had 2.3 million households, and its community network had a budget of $73 million.  This year it is up to 3.4 million households.

8258             Rogers wants some of its programming, such as "Enfamil Nine Months", on every single one of its English‑language community stations, spanning four provinces.

8259             Nor is it shy about exploiting commercial opportunities.  "Enfamil", the show's title, is the name of the sponsored brand of baby formula.

8260             If you make community networks larger operations, how many vice‑presidents of community programming do you get to before you start to exclude the community from community programming?

8261             How many dollar signs do you put in front of increasing ratings before you start excluding community and community programming?

8262             The BDU community channel regulations were never designed to withstand the stress of such large fiscal incentives to increase ratings.

8263             Dunbar‑Leblanc made no comment on the effect of their proposal on the independent community class.  It would wipe out that class before it really got started.

8264             The unlicensed incumbent BDUs enjoy so many benefits over the licensed independent stations ‑‑ use of local avails, no backhaul expenses, great channel placement and more ‑‑ that to let them compete directly with the independent stations for advertising is unfair in itself.  But ‑‑ and this is the most, I think, important point about this ‑‑ BDU channels already fund themselves from a percentage of subscriber fees alone, so they can always undercut the independent station's advertising rate, right down to zero dollars.

8265             Community OTA carriage fees.

8266             A licence‑classed, community‑based television programming undertaking contains two categories.

8267             These sub‑categories are all major licensing criteria with respect to ownership, programming, financing and licensing.  They differ only in the method of distribution.

8268             One category's carriage is basically the same as conventional OTA, including local analog carriage.  Or, if there is no analog available, digital.

8269             The other category's carriage is digital cable only, and no OTA.

8270             I will focus on the OTA one.

8271             I would like to suggest, rather than considering conventional OTA and community OTA as separate issues, that you consider them together, varying your decision only if there is a reason.

8272             How do they differ?

8273             Commercial OTA is affected by the cost of U.S. programming.  Community OTA isn't.

8274             Community OTA is so far in the front lines of the YouTube innovations that one really has to wonder if they are going to become cannon fodder.

8275             The resale value of commercial local programming is low.  The resale value of community local programming approaches zero.

8276             These differences don't seem to be significant enough to justify different approaches.

8277             I am not going to present arguments for the carriage fee, because others already have.  I can see from people that you have been here awhile hearing those.  But I will say that the Commission gets itself all tied up in knots about the type of carriage, at the cost of considering the station's role in the broadcast system, its responsibility under the Act, et cetera.

8278             I know you have this problem because last year the Commission scheduled its first hearing for the category of community channel whose carriage resembles a specialty channel, and, by mistake, it was heard as a specialty channel application.  I was involved in that, and I will stop there on that.

8279             The summary so far:  BDU community channels' advertising should be left as is.

8280             The Dunbar‑Leblanc proposal would harm local expression on the BDU channels, and it would wipe out the independent community channels.

8281             Carriage for OTA ‑‑ commercial and community OTA should be treated the same or similarly.

8282             OTA ‑‑ over‑the‑air broadcasting:  Industry Canada's official plan is to eliminate, as fully as possible, the spectrum that community OTA uses ‑‑ unallocated spectrum.  Inside Industry Canada is a strategic plan to eliminate all OTA ‑‑ all over‑the‑air broadcasting.

8283             I am not talking about converting analog to digital, I am talking about eliminating all OTA.

8284             Don't bother asking Industry Canada about it; you will get back a party line stating that it supports OTA.

8285             If you look in my intervention on this topic, you will find the quotes of the source documents.

8286             That will hurt OTA broadcasters' revenue, eliminate one of the distinctions between conventional and specialty broadcasters, and, thus, support a carriage fee for OTA.

8287             The general view seems to be that OTA is dead because it has to be dead.

8288             The U.K.'s conversion to digital was designed to address what the public wanted from OTA.  Canada's was not.

8289             A decade after Canada began its conversion of OTA to digital, viewership seems to be around 1 percent; while in the U.K., which started later, viewership is 35 percent of the market.

8290             OTA does not suck.  Canada's OTA policy does.  Both Industry Canada and this Commission have played a role.

8291             If Canada could approach the U.K. numbers, then OTA broadcasters would not need a carriage fee, and the Canadian public would save about $1.5 billion a year in subscription fees.

8292             If we are prepared to accept that Canada's over‑the‑air policies are as good as we are likely to get, then I support the carriage fee, and expect over‑the‑air broadcasting to become meaningless as a means of distribution.

8293             But if we think we can do a lot better, then don't grant the carriage fee.  Because, once you do, the OTA broadcasters will oppose anything that moves viewers back from the BDU to OTA.

8294             In summary ‑‑ and I am repeating some points ‑‑ BDU community channel advertising should be left as is.

8295             The Dunbar‑Leblanc proposal would harm community expression on the BDU channels, while wiping out the independent community channel class.

8296             Carriage for OTA ‑‑ commercial and community should be treated the same or similarly.

8297             And don't tunnel in on carriage mechanisms.

8298             Over‑the‑air broadcasting ‑‑ I think it's a choice between book the funeral or resuscitate it.

8299             Don't grant OTA broadcasters a carriage fee now if you plan to resuscitate OTA.

8300             Thank you very much.

8301             THE CHAIRPERSON:  Thank you.

8302             Let me pick up on the very last thing that you said:  Either book the funeral or resuscitate it.

8303             If I take your advice, what do I do to resuscitate it?

8304             MR. WESTON:  In Canada we made a choice with our over‑the‑air, and we decided to go for HD.  This was an important thing.

8305             The U.K. decided to go for quantity.

8306             I chose the U.K. example because it is about the most successful in the world.  Freeview offers 25 channels, standard definition, and this seems to be what gets the public's attention.

8307             If you think of it, why did people convert from OTA to cable in the first place, decades ago?  What were the big pushes?

8308             They wanted more selection, better reception, and to get rid of that big, huge antenna in their backyard.

8309             The last two points aren't really within the Commission's control, those are Industry Canada things, the reception and the big antenna ‑‑ and I think we may have a problem, because I believe that we have the world's worst digital transmission system ‑‑ but the first one, choice, is.

8310             Now, I don't know ‑‑ I mean, the BDUs would probably scream to hear me say it, but 25 channels, standard definition, got 35 percent market share in the U.K.

8311             Right now we have, typically, five over‑the‑air channels ‑‑ I believe that is the quoted number ‑‑ in communities in Canada running HD.  That could be switched to, say, five standard definition channels.

8312             The thing is, right now, with OTA viewership, no one is deciding what programming to produce on the basis of the people watching OTA.  It won't make any difference to how much HD or SD programming is produced.

8313             THE CHAIRPERSON:  But, I mean, we have mandated conversion to digital by 2011, so you are going to have your 25 HD channels in 2011 ‑‑ your 25 digital channels.

8314             MR. WESTON:  No, you are going to have ‑‑

8315             What I am suggesting is, right now you are going to have the same number as you have analog channels, which will typically be five or six, I think, across Canada.  Those channels, if run as multiplexes, could support 25 standard definition ‑‑

8316             THE CHAIRPERSON:  Okay.

8317             MR. WESTON:  That's what the U.K. is doing, they are running multiplexes.

8318             THE CHAIRPERSON:  All right.

8319             Ron, I believe you have some questions.

8320             COMMISSIONER WILLIAMS:  Yes, I do, Mr. Chair.  Thank you.

8321             Good morning, Mr. Weston.  In your presentation today, and in your written remarks, which are quite detailed, you spent quite a bit of time talking about a couple of Industry Canada documents that you believe are relevant to the current process.

8322             MR. WESTON:  Yes.

8323             COMMISSIONER WILLIAMS:  One of them being a strategic plan to eliminate all over‑the‑air public broadcasting.

8324             MR. WESTON:  Yes.

8325             COMMISSIONER WILLIAMS:  And the other, an official plan, already partially implemented, which would eliminate over‑the‑air community TV broadcasting.

8326             MR. WESTON:  Yes.

8327             COMMISSIONER WILLIAMS:  Keeping those two reports in mind, as I work my way through my questions, you can refer to them.

8328             How old are these reports, or how new are these reports?

8329             MR. WESTON:  The community channel one, which is an official plan, not a strategic plan, is dated September 26, 2006.

8330             COMMISSIONER WILLIAMS:  It is relatively recent.

8331             MR. WESTON:  Yes.  I remember the date because it's the day before my birthday.

8332             The other one is "Strategic Plan ‑ 2007‑2010".  It is not planning to implement the elimination in that period, but that's what it is called.

8333             COMMISSIONER WILLIAMS:  You also refer to the Dunbar‑Leblanc Report, which suggests that BDU community channel advertising rules be altered to match those of commercial stations.

8334             You talk a bit about that, also, in your written submission.

8335             Can you tell me why, specifically, it will reduce community access to these channels, and how you see it, in your words, wiping out the independent community licence class?

8336             MR. WESTON:  I would like to take them in the other order, if that's okay with you.

8337             COMMISSIONER WILLIAMS:  That's fine.

8338             MR. WESTON:  The first thing is to realize just how many benefits the cable companies have over an independent station to start with.  One of them TELUS was talking about, VOD.

8339             Rogers, in Toronto, now has permission to run its community channel programming on VOD, to create VOD community programming.

8340             And I did list some things, like use of local avails to promote it.

8341             We can't ignore the fact that these cable companies are incumbents.  I mean, they have been doing it for 30 years, they must have developed some skills ‑‑ the backhaul fees and stuff like this.

8342             The thing to also think about with some of these advantages is that a community station is dependent on people voluntarily contributing material, or contributing their time.

8343             A commercial broadcaster can go and get content from people by offering them more money, but usually, with community programming, what they want is to see more carriage.  That is what they are interested in.  So these are important.

8344             The big one, though, is ‑‑ let's say that you make that change tomorrow.  All of the community channels ‑‑ the BDU community channels know how to pay their bills, so any advertising sales they get would be a bonus.

8345             The independent channel is relying on that advertising sale to pay the light, the rent ‑‑ and, oh, yeah, for the programming.

8346             So the BDUs will be able to undercut their advertising rates and push them out of business, if they want to.

8347             I think that is going to be more of a problem in the smaller areas.  When I speak of Rogers and their things, I think they are so big that I don't think they are actually even going to sell down into that market.

8348             So I think that you will find that more of a problem elsewhere.

8349             COMMISSIONER WILLIAMS:  If I am to understand you, we would find the lack of success, or the threat to the independent community channels in the smaller communities, rather than the larger centres that have these other community channels run by the BDUs?

8350             MR. WESTON:  I would think so.

8351             I am thinking specifically of the Rogers' situation.  They are so big that I don't think they would actually end up selling local advertising.

8352             I did mention the more liberal rules.  I don't know what you were thinking of doing about this, but right now BDU community channels have no restrictions on local, regional or national advertising; whereas the independent ones are restricted solely to local advertising.

8353             COMMISSIONER WILLIAMS:  Do you view that as a bad thing, that you are restricted to local advertising and being a local community channel?

8354             MR. WESTON:  Personally I don't, with a caveat.  The Commission has no formal definition of what local advertising is, so it could be tricky.

8355             You also asked how it harms the content on the BDU community channels themselves.  You have to remember that these regulations for the BDU channels have evolved over time.  There have been many changes made to them.  They were never thought of from the beginning as selling commercial advertising.

8356             So those regulations aren't really appropriate for protecting community programming in that situation.

8357             You guys know the numbers better than I do.  How much would a minute of advertising on Rogers' English‑language community network be worth per rating point?

8358             If I said to you, "Instead of putting the local quilting society on, we will put this quasi‑community programming on and it will get us 4 more rating points," how many dollars is that worth across Rogers' entire community network?

8359             Because they are running programs across their entire community network.

8360             It seems to me that that is a really strong incentive to push the community out of community programming.

8361             COMMISSIONER WILLIAMS:  Since we have a future proceeding on community channels, I am going to try to pull our discussion back a little closer to the issues before us today.

8362             MR. WESTON:  Okay.

8363             COMMISSIONER WILLIAMS:  In terms of the basic cable package, should an independent community channel be part of that package?

8364             What are your views with respect to the content of the basic package?

8365             MR. WESTON:  Right now, my understanding is that it has mandatory carriage.  I think that it is vital that it does have mandatory carriage, and there are a couple of reasons for that.

8366             One is, it is the only case where ‑‑ pretty much every cable company has its own community channel, and an independent channel would be competing directly with it.

8367             So you can't really expect the cable companies to be putting these things on voluntarily.

8368             The second reason is 3.1(b) of the Broadcasting Act.

8369             Community programming is pretty much ‑‑ in the sense of the two together ‑‑ is pretty much a direct implementation of the Act, and it has to be there.

8370             I would compare this to, say, a specialty channel.  That is a very constructive interpretation of the Act.  If specialty channels disappeared tomorrow, you would still meet the primary objectives ‑‑ or the objectives in 3.1(b) of the Broadcasting Act.

8371             If community programming disappeared tomorrow, there would be no broadcasting system in Canada, technically, if you read the Act.

8372             So, yes, I think they should have mandatory carriage.  I can't see how it would work otherwise.

8373             Actually, I can tell you what the next one is.  We all know that community television's ratings are going to be terrible.  They always are.  I'm sorry, but if you have two attractive women having sex on TV, it will always outweigh community television.

8374             But if you look at the mandate of the Broadcasting Act, I think you will know which one should be there, or which one is more important.

8375             COMMISSIONER WILLIAMS:  I don't know if we could agree with that, but thank you for your point of view.

‑‑‑ Laughter / Rires

8376             MR. WESTON:  You are disagreeing with me that the community channel will always have really bad ratings?

8377             COMMISSIONER WILLIAMS:  In terms of fee for carriage, you said that point has been argued well by others, so you weren't going to make any comments.

8378             In your written presentation you suggested a 15‑cent fee.  Can you describe how you arrived at that number, and who would it be applied to, and where you would be spending the money?

8379             MR. WESTON:  First of all, rather than describe how I arrived at that fee, I would say that I am unqualified to actually determine a fee.

8380             I did the best I could, but I just made up the number.  It seemed like a nice number.

8381             It would apply to independent community channels who enjoy mandatory carriage within their mandatory carriage area.

8382             So when an independent community channel applies and says, "That's my carriage area" ‑‑ and there will be a big discussion about where the cable companies go.  "We don't want to carry it there," and stuff like that.

8383             When the Commission makes that decision, that would be, effectively, determining the people who get the carriage ‑‑ the number of people that the carriage fee would be applied to.

8384             COMMISSIONER WILLIAMS:  Mr. Weston, looking through the balance of your presentation, it seems to be dealing primarily with matters directed specifically toward the community channel.

8385             MR. WESTON:  Yes.

8386             COMMISSIONER WILLIAMS:  So those comments are probably best reserved for another proceeding, Mr. Chairman.

8387             MR. WESTON:  I would like to raise the point that the call specifically says OTA broadcasters, and community channels are OTA broadcasters.

8388             THE CHAIRPERSON:  You are absolutely right.

8389             You have made your submission, we heard your comments, and I think those are the questions we have.

8390             Thank you very much.

8391             MR. WESTON:  Thank you very much.

8392             THE CHAIRPERSON:  Let's take a five‑minute break before we hear the next presenter.

‑‑‑ Upon recessing at 1128 / Suspension à 1128

‑‑‑ Upon resuming at 1132 / Reprise à 1132

8393             THE CHAIRPERSON:  Madam Secretary, who will we hear from now?

8394             THE SECRETARY:  We will now hear the presentation of Bragg Communications.

8395             Please introduce yourselves.  You will have 15 minutes for your presentation.  Thank you.

PRESENTATION / PRÉSENTATION

8396             MR. McKEEN:  Good morning, Mr. Chairman, Commissioners and Staff.  I am Dan McKeen, co‑CEO of Bragg Communications, also known as Eastlink, Persona and Amtelecom.  We have numbers of brands.

8397             THE CHAIRPERSON:  Make up your mind, which one is it?

‑‑‑ Laughter / Rires

8398             MR. McKEEN:  We are working on it.

8399             With me is Natalie MacDonald, our Director of Regulatory Matters.

8400             Bragg Communications is pleased to have the opportunity to provide input regarding the Commission's review of the regulatory framework for BDUs and discretionary programming services.

8401             At the outset, we are very supportive of the Commission's approach to this review.  We think that the approach of relying on market forces wherever possible, with a view to reducing unnecessary regulations, will provide all parties with more opportunities to meet the demands of today's consumers, thereby ensuring that they remain within the traditional broadcasting system.

8402             We recognize the importance of our broadcasting system maintaining its unique Canadian character, and we support a strong Canadian presence in the system, in the form of distinct and diverse Canadian programming services.

8403             We believe that enabling a regime that relies more on market forces, while maintaining only those rules that are essential, will provide all stakeholders with the flexibility to provide services and quality content that will draw viewers into the system, as we face ongoing external competition from other platforms, such as the internet.

8404             We are here to advocate an approach to regulating:

8405             Set the objectives, and let programmers and BDUs have the flexibility to meet those goals.  Do not specify exactly how the objectives must be met.

8406             Rely on market forces whenever possible.

8407             A big one that we use in our company all the time is:  not to manage by exception.

8408             Strengthen dispute resolution so that exceptional cases can be resolved expeditiously.

8409             And ensure that small systems have access to programming services at reasonable rates, and that U.S. services do not impede our ability to move to digital.

8410             We propose, consistent with many other parties, a simple licensing regime, with systems being either licensed or exempt;

8411             A removal of carriage obligations, other than a core basic service;

8412             The removal of distribution and linkage rules, in favour of a preponderance of Canadian programming;

8413             More flexibility for BDUs to advertise on existing platforms and VOD;

8414             More flexibility with the licensing regime for VOD;

8415             And we strongly oppose a fee for carriage for over‑the‑air broadcasting stations.

8416             Before we talk about each of these issues, we think it is important to clarify that Bragg is fully supportive of the Commission's objectives that ensure there is a strong Canadian presence in the broadcasting system in the form of distinct and diverse Canadian programming services.

8417             Bragg supports a framework that requires BDUs to provide a preponderance of Canadian programming ‑‑ more than 50 percent ‑‑ and that packages should be 50 percent Canadian.

8418             There is no need, in our view, for regulations that require each customer to take a preponderance of Canadian.

8419             It is our view that this is not an appropriate balance for the Commission to strike among all stakeholders, including the most important stakeholder, the consumer.

8420             With overall preponderance at 50 percent Canadian in packages, it would be possible for a customer to select a combination of services that would result in less than 50 percent Canadian.  However, it is highly unlikely, and it would be such a small number as to be insignificant.

8421             Consider that the basic service has to be predominantly Canadian, that each package has to be 50 percent Canadian, and that U.S. services are strongly against standalone.  So, if the requirement for each customer to take predominantly Canadian is dropped, the result is full choice for the consumer, thus maintaining their presence in the system, and no real risk to Canadian preponderance or broadcasters.

8422             It is simply a regulation that is not required.  You can rely on market forces.  We don't have to manage by exception.  And small systems don't have the IT capacity to manage such a regulation.

8423             In fact, today, we have that essentially available, in that our digital services are offered on a standalone basis ‑‑ almost all of them. The price is $2.95 for a channel on its own, and $6.95 for a package of six.  Therefore, most consumers choose packages.

8424             We went back and looked a little bit at statistics.  Rather than just having a report, we said:  What is actually happening in the marketplace today?

8425             In our systems we have over 1 million digital channels that are purchased by customers.  Over 1 million channels are purchased in our Eastlink systems.

8426             We haven't made up our minds about our name in our other systems yet, so we can't ‑‑ also, our data isn't as good, so they are just on the Eastlink side.

8427             Ninety‑nine percent of those customers buy packages.  When given the choice to buy packages or buy channels on a standalone basis, 99 percent of them choose packages.  So only 1 percent are standalone.

8428             So the marketplace doesn't ‑‑ although they like to have the choice, they don't regularly exercise that choice.

8429             Of the standalone channels that we offer, 91 percent of those are Canadian and 9 percent are foreign.  So the balance is still going highly to the Canadian side.

8430             So the market forces are working fine.  It is not something that needs to be regulated.

8431             We support a basic tier available to digital subscribers, consisting of OTA, provincial education services, and the 91H service.  We assume that the purpose of this basic tier is to reduce the cost of entry for consumers and to provide more choice.  It is an affordability issue.

8432             On a practical basis, what this means is, if a customer chooses to subscribe to the new basic tier, then all analog services would be disconnected by a single trap.

8433             So if you choose to buy the smaller ‑‑ the very small basic service, we would have to disconnect all of the analog services.  It would be completely impractical to do it otherwise.

8434             The customer would be responsible for the cost of the digital box, whether purchased or provided with the monthly cost, to access the new cable services.

8435             Another point is, if the Commission does decide to do this, they should ensure that the regulated rates for specialty services that are currently carried on basic will continue to apply to these services, as long as they continue to be distributed to more than 90 percent of customers.

8436             If the percentage drops below 90 percent, then the parties would need to negotiate a rate.

8437             Without this protection, introducing a smaller basic could translate into significant programming fee increases for BDUs, which would need to be passed on to consumers.

8438             We don't want to have to renegotiate with services that are currently on basic because 1 or 2 percent of the customers decide to buy this very small basic service.

8439             It is our strong belief that a new basic tier would appeal to a very small group of customers.  This does, however, provide more choice to the consumer, which is positive and maintains consumers within the system.

8440             A smaller basic service outside of digital is completely impractical.  It is almost impossible to think about how you would put together a trapping mechanism that would make that happen.

8441             It is also impractical for digital systems with less than 20,000 subscribers if the local OTA services are not available via satellite due to the high cost of encoding the signals and making them digital.

8442             Our recommendation for smaller systems offering a smaller basic service is that it should be encouraged, rather than required.

8443             Natalie MacDonald will continue our presentation.

8444             MS MacDONALD:  Our view of the regulatory framework would see BDUs with the requirement to carry a core basic service, but with the right to choose other services it carries, subject to a preponderance requirement.

8445             Most of the Canadian specialty services have wide distribution, and we feel that they have had an opportunity to enjoy the mandated carriage status for a sufficient period of time to develop consumer interest, thus allowing market forces to play a greater role in their carriage.

8446             Having said that, we note the Commission's concerns regarding new Canadian services that may not yet have had the opportunity to create consumer demand.

8447             Our proposed approach would state that the Commission should not mandate carriage for these services simply because they are new.  We have seen many Category 2 services being carried when they faced similar challenges.

8448             Creating a role for guaranteed access would, therefore, equate to ruling for the exceptions.

8449             Consistent with our approach, the Commission should instead provide an opportunity for a service to seek such carriage, with the onus on the service to establish that carriage is essential.

8450             If guaranteed access is granted, it should be granted for a limited timeframe.

8451             Although we think that guaranteed access for the existing specialty services is no longer required, removing this carriage obligation isn't a major concern for us.  It is not critically important, because we don't plan to discontinue those services.

8452             Our concern is that, in the future, most new licensees should be granted discretionary carriage, thus relying on market forces and a dispute resolution process.

8453             With regard to the issue of genre protection, Bragg has no ownership interest in programming services, and we primarily serve very small markets.  As such, we have not had the experience of getting deeply involved in issues relating to genre protection.  We can only state that we support decisions that maintain the protection of our Canadian programming, while at the same time recognizing that some flexibility in terms of increasing Canadian content and quality of such content may mean a relaxation of some of the rules as between Canadian services.

8454             We tend to be of the view that more flexibility in this regard may enhance competition, and thus improve services for consumers.

8455             With regard to entry by non‑Canadian services, we agree that sufficient protection should be in place to ensure that Canadian services are not at risk by the entry of substantially similar non‑Canadian services.  We would defer to those parties who have a greater experience with these issues in terms of the approach that may work.

8456             Again, we think that a balance should be struck to ensure that non‑competing services can be authorized, consistent with the approach of providing consumers with more choice.

8457             We submit that authorizing non‑Canadian services should be permitted if the service can demonstrate that it would not threaten the ongoing viability of an existing Canadian service.  This is really consistent with the approach that Rogers proposed, and it seems to make sense to us, as it would provide the Commission with flexibility to assess various impacting factors, one of which could be programming overlap.

8458             With regard to licensing and exemption, we strongly support the need for a simplified licensing and exemption framework, relieving small operators of unnecessary licensing obligations.

8459             We propose that systems be classified into either licensed or non‑licensed systems.

8460             We note that there have been a number of proposals filed on this issue, and we are generally supportive of those proposals that ease the burden on smaller systems and small system operators.

8461             We have proposed that any systems with less than 20,000 subscribers should be exempt, with the possibility that other systems with over 20,000 subscribers could apply for exempt status, on a case‑by‑case basis.

8462             This approach would recognize that it is not essential to maintain the licensing obligations for smaller systems and incorporate some flexibility for systems above 20,000 subscribers.

8463             The CCSA has also proposed an approach that all systems not owned by the major MSOs be exempt.  This approach also deserves serious consideration.  Particularly, we note that the impact of such a decision on existing licensed systems is fairly nominal, as these systems represent only a small portion of total Canadian BDU subscribers.

8464             We support a licensing framework for VOD that is similarly flexible, with the key being that the Commission set objectives and principles for licensees to meet, without telling us how to get there in every manner.

8465             While we are relatively new to the VOD business, we support this type of regime and we think it should be considered.

8466             With regard to advertising, Bragg maintains that VOD licensees should have more flexibility in providing programming content that includes advertisements.

8467             We think that the potential for VOD is only at early stages and, as such, the Commission should permit some flexibility of licensees that will enhance their ability to offer more content, with the inclusion of advertising.

8468             While we are not at the stage of enabling dynamic ad insertion, we agree that this may present additional opportunities, for both BDU and broadcasters alike, to increase viewership.

8469             With regard to how the revenue is allocated, we propose that parties be permitted to negotiate this with appropriate splits.

8470             The Commission has also asked about the appropriate level of financial disclosure to be made by BDUs.  It is our position that we should not be forced to provide public financial disclosure.  We don't feel that there is sufficient evidence indicating a need for it, particularly in the case of smaller BDUs, such as Bragg.  As a privately owned company, we have continued to maintain confidentiality over our information, and we don't think it is necessary to disclose it on the public record.

8471             Thank you.

8472             MR. McKEEN:  Bragg has now become small in a big way with our purchase of Persona Systems.  We have over 700 cable systems and 493 cable subscribers distributed as follows:

8473             We have one system over 40,000 subscribers, which is Halifax representing 9 percent of our subscribers.

8474             Between 20 and 40,000 we have four systems, which represent 25 percent of subscribers.

8475             The vast majority of our systems are below 20,000; over 700 systems representing 66 percent of our subscribers and the average system size is 464 subscribers.  That's quite a challenge for us.

8476             The impact of regulation on small systems is significant.  The vast majority of our 700 systems are either exempt or Class 3 systems.  Yet, depending on the exemption order that apply to them they may have different rules.

8477             Sifting through these rules for each system depending on whether they were exempt under 2000 ‑‑ exempted under the 2006 order or our existing Class 3 system or our licensed system is inefficient and unnecessary.  All exempt systems should simply be required to carry a preponderance of Canadian programming and a minimal but core of basic services for consumers.  Anything beyond those rules should generally be at the BDU's discretion.

8478             Many of these systems are so small that it is a major economic challenge to improve service for customers.  To further inhibit our ability to offer services in these areas will do a disservice to those consumers.  Smaller systems face more hurdles than the very large centres do to operational, technical and resource challenges combined with lower subscriber levels.

8479             In most of these areas we are now the third choice behind Bell ExpressVu and Star Choice.

8480             Penetration levels are often in the 10 percent to 20 percent range of homes passed.  The principles of smart regulation and only regulation where essential needs to be applied in these areas.

8481             Regarding CRTC's role in setting rates or resolving disputes between distributors and programming, where services remain mandated for carriage we support the Commission being involved in setting rates or capping rates.  While the Commission has asked about the need for specific mechanisms to protect the interests of owners of independent programming services from unfair dealing, we likewise propose that a similar mechanism be in place for smaller BDUs like Bragg and others serving rural customers and those which have no interest in programming services.

8482             We believe that a directive from the Commission that all programming services must treat all BDUs equally in terms of carriage rates is critically important.  For smaller BDUs without ownership interests in programming service, our ability to negotiate reasonable rates of access to services is of key importance for our long term survival.

8483             A comment on that that we haven't in our presentation is that there is volume discounts that are specifically designed that the larger BDUs can get the volume discounts and the smaller BDUs can't get those volume discounts.  There really isn't any justification for a volume discount.  It's no easier to deliver services to Rogers than anybody else.  So it puts us at a competitive disadvantage.

8484             It's critically important to Bragg that we are able to access a strengthened arbitration process and that a CRTC principle for equitable treatment of large and small BDUs be established.

8485             On the issue of dispute resolution we support a reverse onus mechanism to deal with undue preference issues.  We also support a mechanism to permit parties to deal expeditiously with disputes including final offer arbitration in such a case.

8486             As far as fee‑for‑carriage we said at the opening we provided our position in a previous submission as to why we strongly disagree with a fee‑for‑carriage regime for OTA services.

8487             Establishing a fee‑for‑carriage is a fundamental change to the revenue structure of the broadcasting system for OTA services and we do not agree that it is essential for the fulfilment of the Act's objectives or the ongoing viability of broadcasters.

8488             We believe that fee‑for‑carriage is not good for the system.  Over‑the‑air broadcasters need to innovate and invest in their services to maintain their viewership, their ad revenue and address their cost structures just like every other business.  It is our view that OTA broadcasters have not established that there is a need for regulatory intervention.

8489             We find it very interesting that this debate is only centred around Canadian programming produced by the OTA broadcasters.  Very little discussion has taken place regarding the significant increases in Canadian content from Canadian specialty services and on local community channels with improvements and technology.

8490             In our view the OTA request is no different than local radio asking for a fee from local broadcasters.  Technology changes and businesses must adjust.  The system is flexible and has been demonstrated by the dominance of Canadian specialty services.

8491             On U.S. ad avails we support a framework that permits BDUs to sell advertising on U.S. ad avails for which they have acquired rights, community programming and on VOD.

8492             Increased revenues to the BDU would flow into the 5 percent contribution to Canadian production and Bragg proposes that the selling of U.S. ad avails will strengthen the system by adding unused inventory that's currently paid for by cable subscribers into the system.  We propose that 30 percent of the revenue from ad avails would be directed to our community channel by Bragg.

8493             Super Bowl simulcasts, Bragg believes the exemption of the requirement for simulcasting the Super Bowl would be an example of smart regulation.  In general simulcasting provides a significant benefit to the Canadian Broadcasting System with very little impact on the Canadian consumer.  So it's providing the OTA broadcasters with a benefit.

8494             But the Super Bowl is an exception where the unveiling of new advertising campaigns has become an integral part of the show.  Simulcasting the Super Bowl creates a significant number of customer complaints each year and highlights simulcasting in the consumer's mind as a bad experience.

8495             We believe the Canadian broadcasting system would be the net winner by encouraging consumers to remain within the regulated system if the Super Bowl was exempt from simulcasting requirements.  We can tell you it's the number one issue we have with our customers every year, is the complaints we get from that.

8496             During this proceeding the Commission has heard many proposals.  However, the burden is on the parties seeking to maintain our established regulation to prove that regulation is essential.

8497             The distribution and programming market is now competitive; consumers have numerous opportunities to access content.  The Commission's recognition that the marketplace is changing and therefore the rules must change is a very positive sign and we hope the outcome of this proceeding will continue to recognize that.

8498             Thank you.

8499             THE CHAIRPERSON:  Well, thank you very much for your presentation.

8500             I believe you were here this morning when we heard from Telus and they suggested on VOD advertising that it should be done on a shared basis that in effect as a pre‑condition to advertising on VOD there would have to be a deal between the BDU and the broadcaster on how those revenues would be shared.

8501             Do you concur with that approach?

8502             MR. McKEEN:  Was there comments that it had to be on that particular piece of advertising or on all advertising in general on VOD?  So I would say if we were carrying something that was obviously coming from the broadcaster because the broadcaster own the rights to ‑‑

8503             THE CHAIRPERSON:  That's the position ‑‑

8504             MR. McKEEN:  We should not be able to carry and do anything with VOD unless we have an agreement with that broadcaster.

8505             THE CHAIRPERSON:  I see.

8506             MR. McKEEN:  It's totally their property.  They have negotiated the rights.  We should agree with them.

8507             If there is some other programming that has come from some other source and it has nothing to do with the broadcasters; for instance, us putting our community television on VOD.

8508             THE CHAIRPERSON:  Yes.

8509             MR. McKEEN:  Then the broadcaster should have no say in that and should not be involved.

8510             THE CHAIRPERSON:  Okay.

8511             And the second thing they raised with us is the whole issue of network PVR and this was a new concept to us and they suggested that this is really the Holy Grail at the end of the day, that networks have their PVR so that the customer can decide what he wants, what he wants in and apparently there are some European model that already works that in effect there will be a whole program in storage in the computer and I could go and see what you played through in the last week and select and see it on‑demand, et cetera.

8512             Are you familiar with the idea?  Are you working on this?

8513             MR. McKEEN:  We are, yes.  We are quite familiar with it.  Really, from a customer point of view it's a moot point to a degree.

8514             Whether the box that you have in front of your set actually has the technology inside it that it is recording it at the spot on your set and you are able to access everything that you have watched in the last week or whether that goes to through the cable system back through to a big local server that has aggregated all that memory to store it in a local place and you are accessing, is really irrelevant to the consumer.

8515             So it's really about how does the technology evolve and which is the most cost‑effective way to distribute that.

8516             THE CHAIRPERSON:  I think consumers like to differ.  I think this makes a huge difference whether I actually have to think beforehand whether I want to record something and watch it or whether I watch an episode and it turns out to be episode three and I like it; I missed one and two and I can go back and get it from you immediately.

8517             MR. McKEEN:  Right, but that could be done ‑‑ that could be done on the set that's in your home as easily as it could be done in the back end.

8518             THE CHAIRPERSON:  Sure.

8519             MR. McKEEN:  All it really is about aggregating memory.

8520             THE CHAIRPERSON:  Yes.

8521             MR. McKEEN:  So when you put it all back in one place you can aggregate it.

8522             But I would expect that there will be a hybrid solution, like what you will see develop is that some shows and some activities will go that way and will be ‑‑ there will be hybrid solutions.  So you might say ‑‑ I think in the U.S. now some of the most popular shows, particularly their news broadcasts, are available on a ‑‑ essentially, it's on a VOD format.

8523             THE CHAIRPERSON:  But I mean, right now the PVR that most of us at home you can only do one show at any particular time.  You know, you can't do three shows at the same time.  If the network doesn't ‑‑

8524             MR. McKEEN:  You can do two if you have a dual tuner.  But you can't do 10, right?

8525             THE CHAIRPERSON:  Yes.

8526             MR. McKEEN:  Exactly.

8527             THE CHAIRPERSON:  If the network does it and the consumer can access the network, you know, for whatever time period he takes, the last week or the last month and basically he or she can have everything what he wants.

8528             So they suggested that this was really ‑‑ at the end of the day this would be the most desirable way of allowing the consumer to have everything when they want it, at the time they want ‑‑ you know, at the time what they want and therefore in effect keep the consumer on the broadcasting system rather than having them migrate to the internet.

8529             MR. McKEEN:  Yes, I would agree that it does provide a wider variety of access and it does provide everything on demand.  It essentially turns it into an internet model.

8530             THE CHAIRPERSON:  And you expect that Bragg will offer such a service at some point in time in the future?

8531             MR. McKEEN:  Yes.  I mean, our strategy as a company is to be a close follower.

8532             THE CHAIRPERSON:  Yes.

8533             MR. McKEEN:  So the chances of us being the first people in Canada to do that, but we would monitor that very closely and see when it would be available.  We would be supportive of that.

8534             We would also be supportive of making sure that the over‑the‑air broadcasters are some of the first people to have that kind of access.  When we talk about over‑the‑air broadcasters we have been watching the hearings and hearing the discussions.

8535             And when you look at what is currently provided to the over‑the‑air broadcasters it is really about having advantages.  It is about having advantages in the system so Canadian broadcasters provide Canadian content.  They are important to the system, provide the diversity and the Commission and BDUs in conjunction with the Commission have provided the broadcasters with advantages, low channel placement, simulcasting; so advantages that allow the broadcasters to flourish.

8536             Having VOD and putting the broadcasters on first, having them on VOD first, some of those things would all be advantages whereas fee‑for‑carriage is a financial bailout.  It's not an advantage.  It is a complete change of the things.

8537             So mostly what we do is provide advantages that over‑the‑air broadcasters have a little bit of advantage so they can operate better, ut providing a fee is essentially a financial bailout and we don't see any end to it, that you provide this fee, you spend more money.

8538             If the U.S. programming goes up more they simply increase the fee and all the money just flows through to the U.S. programming suppliers who are putting their fees up, as opposed to saying the over‑the‑air broadcasters have to adjust to market realities.  They have to negotiate better for their fees and they have to manage their business the same as all of us have to manage our business.

8539             THE ADJUDICATOR:  Okay.

8540             Len, you had some questions?

8541             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

8542             Good morning.

8543             MR. McKEEN:  Good morning.

8544             COMMISSIONER KATZ:  I wanted to start actually not on the five questions or on your submission but something you stated in here.

8545             And I guess, regardless of where the Commission comes out at the end of the day, you folks in CCSA have both indicated that there should be exemptions for small carriers.  And I think you stated in here that you are small in a big way.

8546             MR. McKEEN:  Right.

8547             COMMISSIONER KATZ:  Another way of looking at it is you are big in a small way.

8548             MR. McKEEN:  Either/or.

‑‑‑ Laughter / Rires

8549             COMMISSIONER KATZ:  And the question where do you fall at the end of the day, obviously the Commission in the past has looked at the four big players in the game; Shaw, Rogers, Videotron and Cogeco and you were a small player, a member of CCCSA.  You have subsequently grown up a bit.  You still have a lot of small markets and more small markets but in aggregate you are getting up there as well.

8550             MR. McKEEN:  It's interesting and you know, like there was a change when ‑‑ obviously, we bought Persona so it basically doubled our size of cable subscribers.  But in fact, when you look at the number of cable subscribers that we purchased through Persona we have a lot more smaller systems now than we did before.

8551             So I think it's very clear to us that we represent a very large number of the small, independent cable systems ‑‑ small, non‑interconnected exempt systems, Class 3 systems in Canada.

8552             And we are very much on the small side.  If you look at the percentage of subscribers that we serve in the whole country ‑‑ you know our Halifax system ‑‑ in our few systems we have 66 percent of our systems are less than 20,000 subscribers.  So we think we are very clearly on the small side.

8553             And any systems ‑‑ it's the myriad of rules and complexities bundled in with the economic challenges in the small systems.  By the time you start going through it you just say, "Well, just forget it.  We will just let them die".

8554             There is no ‑‑ there is no economic ‑‑ if even with making all the rules go away and having flexibility, there is still some huge economic challenges about how you improve these services to make them competitive.

8555             COMMISSIONER KATZ:  No, I understand that but from our perspective here, I mean, I am sure Cogeco and Shaw and some of the other ones as well all have small Class 3 markets as well that they serve as part of it.  Now, they may not be proportionately in size.

8556             MR. McKEEN:  Well, I think that's the big difference.  I think that's the big difference, is proportionately.

8557             Two things; is they are much larger in total.  So you are looking at total number of subscribers.  If you are looking at total number of subscribers they have in Canada they are much bigger than we are.  If you look at the amount of small systems that they operate compared to the number of small systems we operate, we have a much higher percentage of small systems than they do.

8558             It's interesting.  You talk about the small systems and when we are talking about over‑the‑air fees I don't know which one I should hope for, because if you do actually grant an over‑the‑air fee it's really that the Commission is going to be interventionist and is going to provide you know for mechanisms that provide funding for people who get into trouble in the system.

8559             So I would say in our small systems we are in trouble.  So we would like to have some fees from the satellite guys who really destroyed our business and the competition in the small areas.  So we should be back in front of you asking for fees from the small systems from the satellite providers.

8560             MS MacDONALD:  I think if I can just add another point on the issue of the small systems?

8561             If the Commission goes back to the digital migration decisions where it established a small system, the reasons for determining what made a system small do exist for our systems which gets to the issue of, you know, the individual systems; they are not fully interconnected.  They represent very small communities and also we don't have that negotiating ability with the services as other larger systems do.

8562             So I just wanted to make that note as well.

8563             COMMISSIONER KATZ:  You said you do have one large system, Halifax obviously.

8564             MR. McKEEN:  We do.

8565             COMMISSIONER KATZ:  Relatively speaking to other markets in Canada it stands up quite well to it as well, and if there is exemptions to all of your operations obviously it encompasses a major market as well.

8566             MR. McKEEN:  Yes.  I guess when you look at Halifax compared to Toronto or some of the other major operators, Halifax is 45,000 subscribers.  So it's very small compared ‑‑ our bigger systems are smaller and our smaller systems are smaller.  So it's just the scale at which we operate.  So we operate at a scale and, you know, it's interesting.

8567             A lot of these discussions that we talk about, you know, VOD and the broadcasters and how these things will be organized, we won't be involved in any of those discussions.  Those will happen and we will follow closely.

8568             The reality is that Rogers and the broadcasters will settle a lot of those VOD rules.  They come to us a fait accompli, "Here it is.  If you want to participate this is your role.  If you don't want to participate then don't."  But we have already set these things with Rogers and Shaw and we set them up and you are either following alongside or you are out.  We are not involved in those discussions.

8569             COMMISSIONER KATZ:  Okay.

8570             Let's go back to the beginning of your submission, the issue of preponderance.  I noticed in here that you are advocating preponderance at 50 percent.  When I read through your reply, I guess, dated February, I think you were suggesting there that preponderance not include the over‑the‑air Canadian services which would mean that overall there would be a higher Canadian content when you added them back in again; whereas now from what I gather, you are including the basic services as well.

8571             Is that a change in your position?

8572             MS MacDONALD:  I would have to go back and look at that but I don't think it was the intention.  I don't know if it was perhaps ‑‑ but no, clearly we would say that the preponderance would include the total services.

8573             MR. McKEEN:  We think also there is a point on that when we were listening to one of the other discussions about whether the basic is included in the preponderance count.

8574             And if you exclude the basic in the preponderance count what you actually do is disincent BDUs to put services on the basic.  So as you put a Canadian service on the basic that now does not count, so you say, "Well, I would love to put that on basic, but if I do it doesn't count in my preponderance number."

8575             So you are essentially ‑‑ what looks like a positive for the system actually in practice becomes a negative for the system.  So if you ‑‑ because if you essentially build up the basic with all kinds of Canadian services that should ‑‑ because everybody gets those services it should get a net benefit to the system and should then be something that's encouraged rather than actively discouraged.

8576             THE CHAIRPERSON:  That logic doesn't work if you talk about preponderance in terms of channels received by a customer rather than offered.

8577             MR. McKEEN:  Yes, that's right.  If you had to do both it does help you with the percentage received by the customers because everybody receives the basic service.  Therefore, it does help you in that percentage.

8578             THE CHAIRPERSON:  But if you only have a preponderance in terms of channels subscribed to by customers that logic doesn't work.

8579             MR. McKEEN:  That's right.  If you just choose that one component of the regulation that's right.  But if you do it by packages then it does hurt you.

8580             COMMISSIONER KATZ:  On the issue of access you are advocating that, I guess, the players have grown up now and they should be allowed to freely negotiate their own arrangements and access shouldn't be mandatory.

8581             Does that apply as well when it comes down to someone who has been around and has to renegotiate access with you; the contract is up before the agreement is up; it's got to be renegotiated and he no longer has the vehicle of saying, "I have got access rights from the CRTC"?  Does anyone come in front of you to renegotiate who have lost some degree of balance in their negotiations?

8582             MR. McKEEN:  Well, I do think that they have grown up.  There is a piece of that which is about consumers.

8583             So there is two things that have changed; one is that the systems of those channels have an ability to establish their brand and their value with consumers.  So we are not in the habit of making our consumers upset with us.

8584             The other thing is that you have two significantly‑established competitive services in Bell ExpressVu and Star Choice and in our major market in Halifax we have Aliant TV service.  So to move services off would be very negative.

8585             So there is ‑‑ market forces can now be relied on to do that.  And I think if you had a dispute resolution mechanism that systems were able to ‑‑ we would also have to be cognizant that if we were to remove a service or not negotiate for them that they could take it to the Commission and say, well, why are you doing that?

8586             So we didn't have a really good case to be saying, "Well, the reason we want to move this service to digital or the reason we want to remove this service is because they no longer have any viewers or because they have done these kinds of things or our customers just are not interested in it."  We would have to have a very good case to do that.

8587             So I just think you can rely on market forces and we don't really expect it to happen.

8588             In our case we are already at the other end of the negotiating spectrum anyway.  So when you say, "Would that give you too much power over the services?' it wouldn't.  We are already at the very low end of the negotiating side with the services, that they come to us after they have already done deals with Rogers and Shaw and say, "This is the deal.  We can't change it.  We have already done it with Rogers and Shaw.  We have a most favoured nations clause with them.  You have to take it.  That's it."

8589             COMMISSIONER KATZ:  Do you offer theme packs to your customers?

8590             MR. McKEEN:  We do, yes.  Theme packs in packages of discretionary services in digital?

8591             COMMISSIONER KATZ:  Right.

8592             MR. McKEEN:  Yes, we offer them.  Mostly they are about six channels deep.

8593             COMMISSIONER KATZ:  And they are based on genres of some sort?

8594             MR. McKEEN:  Yes, they are.  In fact, we had some ‑‑ it was interesting.  We talked about the ‑‑ there has been a lot of discussion about the time zone and we offer our packages and we don't ‑‑ we offer time zone as a separate package, and time zone is not our most popular package.

8595             In fact, entertainment is our most popular package where 24 percent of our digital customers take entertainment.  That goes down to movies at 21 percent, education at 20 percent.  Time zone is ‑‑ 13 percent of our digital customers choose our time zone package.

8596             If you take how many customers also take digital it represents 5 percent of our customers in Eastlink.  So only 5 percent of our customers in Eastlink take time zone and if we take our other systems it will be lower than that because the digital penetration is much lower than our other systems.

8597             So for us it's a very small issue and we don't have a problem with paying the networks ‑‑ the over‑the‑air broadcasters for time zone.  We think it's a service.  It should be paid for.

8598             What we do have a problem with is if the over‑the‑air broadcasters came out and said, "It's 25 cents to satellite but it's $1.50 for cable."  I mean, it's "So well, why?"  "Well, cable has so many more customers."  "Well, that just doesn't make any sense."  So it was a negotiation piece that really brought up the issue with over‑the‑air broadcasters and distant signals.

8599             So treated fairly, we are happy to pay for time zone package services the same as satellite should be paying for them or Rogers or anybody else, but we think it is a discretionary service.  It is an extra service.  It is from a different place and it should be paid for.  And we pay for it now.

8600             COMMISSIONER KATZ:  Do you believe that if the Commission reduced the genre protection that's out there, there will be morphing and if there is morphing will that impact your ability to package and promote your theme packs because they will all be interchangeable, effectively?

8601             MR. McKEEN:  I don't think.  I think that if you look at the U.S. example where there is not very many ‑‑ there is no regulations on genre protection, stations have still gone for a particular brand, a particular genre.  They want to have something, because in the end they want viewers as well.  It's not just about being in a package.

8602             I do think that we should be looking at evolution rather than revolution so that it should be a little bit a time rather than just throwing it all open to the wind and say, "That's what happened".  Because we are very conscious, and I think that we run our business in a way that our consumers react really badly to revolution, a complete wholesale change.

8603             So we would want to do changes a little bit at a time.  We want to introduce things.  We want to introduce digital packages in a way that are very friendly for our customers.

8604             So I think that no part of the broadcasting system is well served by revolution rather than a consistent evolution of the regulations.

8605             COMMISSIONER KATZ:  So do you think that one of the scenarios put forward by ‑‑ I think it was Rogers early last week ‑‑ of evolving the themes into broader themes as opposed to the distinctions that are there right now with all the conditions whether it's gaming or movies or whatever, should be removed and there should be broader genres as a first step in this evolution?

8606             MR. McKEEN:  Yes, I think you should take baby steps as opposed to ‑‑ you know, it's not really that impactful for us because we don't plan to launch a broadcasting service.  We don't ‑‑ we are not big enough to launch specialty services.

8607             So you have to think why ‑‑ why are the genres a problem?  So it's people who want to launch new services.  They want to launch competing services.  Well, we are not in that business and we are not likely to be.  We are not large enough to do that.

8608             So I think that you do want to have a healthy amount of competition in the marketplace.  It would be upsetting to us if a large number of our specialty services started changing what they deliver on a very quick basis and all over.

8609             So if the Weather Channel started not delivering weather anymore that would be a problem for us.  You know the Sports Network is no longer sports; that's a problem.  You know those things if they are changing all the time would be problems for our consumers and would be problems for us.

8610             COMMISSIONER KATZ:  Moving to the issue of arbitration, I guess, and you talked about the reverse onus would be something you support but you also say on page 9, the third paragraph down:

"It is critically important to Bragg we are able to access a strengthened arbitration process and that the CRTC principle for equitable treatment of large and small BDUs be established."  (As read)

8611             COMMISSIONER KATZ:  When you say "a strengthened arbitration process" what do you have in mind?

8612             MR. McKEEN:  Well, you know right now when you go to arbitration and you talked to the ‑‑ they do try to get the two parties together but there is no sort of decision‑making position.  So there is not, "Okay.  This is the position we take".

8613             And so we look at it and one of the ones we like is sort of the binding final offer arbitration where you put in two final offers.  I think you should have some negotiations before that but at the end you say, "Okay, well, you put in your best offer and you put in your best offer".  And they do it in baseball.

8614             What it does is it brings the two parties close together, because you don't want to be way over on one side.  So it helps people get close to the centre and then you put in something that ‑‑ and the Commission has you know the decision‑making ability to do that.  So that's what we would like to see.  We are obviously on a small end of the side.

8615             We think it's ‑‑ you know, our biggest concern is programming fees.  So if we pay 3 or 4 percent more for programming fees than the major BDUs over time they will buy us out.  We won't be able to survive.  So we will have this competitive disadvantage on our cost of goods sold.

8616             So that's a major concern for us.  And so to have a mechanism that says that we could take any particular network ‑‑ and I don't want to mention mine because they will get mad at me and say I was picking on them when I was in front of the CRTC.  But there is no ‑‑ and there is no particular network that we feel this is important to but what they do is they will have volume discounts, and so we essentially pay more for our programming than Rogers or Shaw or Vidéotron.

8617             So why should we have to pay more per customer for our programming than those guys?  We still serve our subscribers.  We have the same cost structure as they do.  It takes no more money to deliver it to us.  We should be able to pay the same kinds of fees.

8618             If we provide the same kinds of percentages ‑‑ I can understand if Rogers has it on a first tier and they are getting 90 percent and we have it on digital and they are getting 30 percent.  That should be a difference in fees.  But if we are delivering the same kind of percentage why should we be disadvantaged?

8619             So we think that there needs to be something from the Commission to help small guys like us negotiate with the big broadcasting conglomerates.

8620             And another thing that is important for us is about tiered selling, that you can't connect one service with another service so you have got to buy all these, otherwise we won't negotiate any of the individual ones.  So that's a major concern for us to go forward, for us to be able to compete as small operators and to be as efficient and effective as the large operators.  Otherwise, we say it would be difficult for us to survive.

8621             COMMISSIONER KATZ:  I am going to go on to fee‑for‑carriage and sort of couple it with local broadcasting and programming.  You are in an awful lot of rural areas.  I think you said 700‑odd rural areas?

8622             MR. McKEEN:  That's right.

8623             COMMISSIONER KATZ:  Is there a higher cost from your perspective for broadcasters to broadcast locally in all these rural areas versus a big city?

8624             MR. McKEEN:  I'm not sure what ‑‑ is there a higher cost for us ‑‑

8625             COMMISSIONER KATZ:  Not for you, for the broadcasters.  Do you think there is a higher cost for the broadcasters to broadcast local news and information in rural areas than in big cities?

8626             MR. McKEEN:  I'm sure it is.  I mean it's just economics, right?  It's just scale economics that they will have, you know, staff.

8627             You know to make a TV show or make a news program takes a certain amount of staff whether you are delivering that to a million people or whether you are delivering to 50,000.  So I am sure that their costs are higher in the rural areas.

8628             It's interesting you know that when we are talking about over‑the‑air fees that to us it seems that also the satellite guys have grown up, so that both ExpressVu and Star Choice have significant numbers of subscribers.  And particularly in ExpressVu's case they have more high definition channels than any other broadcaster.  They are leading the charge on it.  We are under severe and competitive pressure because of the number of HD channels that ExpressVu is able to put up but yet, somehow, there is no capacity for carrying the local broadcasters.  It just seems a little bit hard to understand how that is the case.

8629             COMMISSIONER KATZ:  I guess I am sort of hypothesizing that downstream if there is a financial crunch on the broadcasters where they start to skinny down their broadcasting operations, and in all likelihood it may in fact be in the rural areas as opposed to the urban areas since the cost of providing local service in rural than in urban.

8630             MR. McKEEN:  Right.  But there are other ways ‑‑ there are other ways to address it.  One is:  Are they spending too much on U.S. programming, so have they been able to negotiate those programming rights?  Have they used technology in an innovative way in order to reduce their costs in producing programming news channels?

8631             We know that in our ‑‑ you know, necessity is the mother of invention, so in our small systems in our community television areas we produce many more programming hours per dollar than the local broadcasters do if you look at our cost structure and what we produce per hour.

8632             We have people come and ask us what ‑‑ we think our cost to do a local hockey game might be $10,000 to $20,000 and we know that if we bring in TSN or one of the other big broadcasters it is somewhere between $100,000 and $200,000.  And when you put the two products up next to each other you really can't see the difference but it is because we have invested in technology, we have volunteers work with us, we do all kinds of things innovatively to provide that programming.

8633             And we think the local broadcasters should do that the same thing.  There are ways for them to work through that rather than to get a fee.

8634             COMMISSIONER KATZ:  My last question is on the Super Bowl simulcast and the request for an exemption.

8635             MR. McKEEN:  We knew you would like that one.

8636             COMMISSIONER KATZ:  I mean if the Oscars came along and had creative advertising in the Oscars and then the request came in again, where does it stop?

8637             MR. McKEEN:  Well, I guess it is about a balance, right.  It is a phenomenon, the Super Bowl.  It is not like anybody else has started doing it.  It is the big U.S. advertising dollars.  They create campaigns.  They work for months talking about these campaigns and then the Canadians don't get it.

8638             I guess my big point is it points to simulcasting as being a bad thing.  In the vast majority of cases, simulcasting is a good thing.  People don't mind it.  It helps the system.  It is all good, except for this one example.  So why wouldn't we just say don't do this one example.

8639             And the over‑the‑air broadcasters don't have to buy the fees.  They don't have to buy the Super Bowl.  They can decide not to buy the Super Bowl and then it will be provided.

8640             THE CHAIRPERSON:  Do you have any idea how much you would take out of the system by taking away simulcasting of the Super Bowl?

8641             MR. McKEEN:  I don't know for sure.  I think that the Super Bowl is not particularly profitable for the local broadcasters.

8642             I do know particularly that I had information that was passed on to me about "American Idol," that "American Idol" is a big, big activity but because of the costs of buying "American Idol," they really don't make any money on "American Idol."  So if they didn't carry it, it wouldn't be that ‑‑ it hurts the revenues but it doesn't really hurt the profitability because there is so much expense involved.

8643             But we are not really in a position to make ‑‑ I just don't think that the Super Bowl is particularly profitable.

8644             THE CHAIRPERSON:  Just to keep you happy, I will ask that question tomorrow to CTVglobemedia.

‑‑‑ Laughter / Rires

8645             MR. McKEEN:  All right, there you go, thank you.

8646             THE CHAIRPERSON:  Michel.

8647             COMMISSIONER ARPIN:  Thank you very much, Mr. Chair.

8648             Mr. ‑‑

8649             MR. McKEEN:  McKeen.

8650             COMMISSIONER ARPIN:  McKeen, excuse me.  I had McDonald.

‑‑‑ Laughter / Rires

8651             MR. McKEEN:  We are all the same in the East.

8652             COMMISSIONER ARPIN:  In your oral presentation on page 2, your point number 5, you are saying ensure that U.S. services do not impede our ability to move to digital but you didn't say anything further in talking about this issue.  The CCSA raised it as well with us.

8653             What could this Commission do?

8654             MR. McKEEN:  The real challenge here is that the Commission doesn't have much authority over the U.S. programming service providers.  So we have providers like CNN or A&E or other ones who are very concerned about their domestic relationship in the U.S. so that if they were to allow digital carriage in Canada, the U.S. operators, particularly the FCC in the U.S. would say:  See, it is possible for you to go digital.  You have just been saying it is not possible and you should allow digital migration in the U.S.

8655             But if there was a rule in Canada, so if there was a strengthened rule in Canada that says that the U.S. services have to do that, otherwise, they won't be allowed to be distributed in Canada, then the U.S. programmers could say:  See, we had to do it in Canada.  It is bad for our business but we were regulated in Canada to do it.  That is why it had to work.

8656             Because otherwise, when we talk to the U.S. programmers about moving them to digital in a digital migration strategy, they simply say no.  They don't say, you have to do it this way.  They don't say, you need to do it with these kinds of requirements and if you did it this way and this way, it would be okay.  They just say no.

8657             COMMISSIONER ARPIN:  But isn't it that the migration policy is the rule that you are asking us to put in place?

8658             MR. McKEEN:  Well, the pieces, you have to tell the U.S., for specialty services, that they have to abide by this policy, they can't be obstructionist or you are going to withdraw their ability to distribute it in Canada.  That is the only hammer you have.  So if you don't tell them that, they simply say, well ‑‑

8659             COMMISSIONER ARPIN:  What you are saying here is that we should go a step further?

8660             MR. McKEEN:  Well, I think you can do incremental steps.

8661             COMMISSIONER ARPIN:  Yes.

8662             MR. McKEEN:  I think you can send a signal without actually withdrawing them from the satellite list, by saying:  Our expectation is that everybody on this list, both Canadian and U.S. services, will abide by this.  Otherwise, there will be repercussions.

8663             I don't think you have to say exactly what those repercussions are.  You just have to make a statement that you are willing to support it and that a move into digital is important.  So I think that kind of statement from the Commission will help us significantly in negotiations.

8664             But in reality what will happen is Rogers and Shaw will get it done first and we will follow closely afterwards.

8665             COMMISSIONER ARPIN:  Okay.  Then on the top of your page 10, you say:

"In our view, the over‑the‑air broadcasters' request is no different than local radio asking for a fee for local broadcasters." (As read)

8666             What do you mean?

8667             MR. McKEEN:  The point there is that technology changes and communication evolves.  At one time local radio would have had all the advertising dollars available in Canada, split with the newspapers.  So along came the over‑the‑air broadcasters.  The over‑the‑air broadcasters siphoned the money away from radio.  But radio evolved, it changed, it survived but it didn't get a fee.  It didn't get a fee from the local broadcasters.

8668             COMMISSIONER ARPIN:  They may have forgot to ask.

8669             MR. McKEEN:  They may have forgot to ask.

‑‑‑ Laughter / Rires

8670             MR. McKEEN:  Or maybe they asked and were turned down, you never know.

8671             So I think this is the same kind of thing.  There is money that is moving but specialty is taking a lot of the lion's ‑‑ is doing a lot of Canadian programming.  So there is no reason to introduce a fee for this as technology changes.  People have to adapt.

8672             COMMISSIONER ARPIN:  Thank you very much.

8673             Thank you, Mr. Chair.

8674             THE CHAIRPERSON:  Rita?

8675             COMMISSIONER CUGINI:  Thank you.

8676             I too just have a couple of questions on your oral presentation.

8677             You added when you were talking about the basic tier that it is an affordability issue and TELUS today said, it doesn't matter how many services we put on basic, that is not what influences the cost of basic.  It is a network ‑‑ the cost is all bred in the network as opposed to the number of services that are available on basic.

8678             MR. McKEEN:  Yes, that is true.  I mean the biggest cost we have is actually running our network.

8679             I think the question is:  Why does the Commission want to have a smaller basic service?  We are not against it.  We don't think the consumers will embrace it.  We don't think it will have very much impact.  But if it is an affordability issue, we think we can do that.  We wouldn't like the price to be below cost, so we would like to be able to cover our costs.

8680             But the reality is if you say that these customers who buy the new basic service ‑‑ we think they will be new customers.  We don't think hardly any of our current customers will downgrade to it.  So it might be new customers.

8681             Well, if you get a new customer, you are already paying for the entire network now, so the cost to add one additional customer in isn't that great because you have already covered the cost of the entire infrastructure.  But we wouldn't want it to be below cost because we have other costs that happen.  We have copyright fees.  We have other costs that happen.  So we wouldn't want it to be below cost.

8682             We think that if it is an affordability issue, you should set some kind of rate.  If you said it is $10 and you have to provide at least this many services, then we would do at least that.  If people wanted to put more services, they could but you would keep the affordability piece of it in.

8683             Natalie, did you have something?

8684             MS MacDONALD:  I was just going to clarify that I think when we spoke about a smaller core basic it was really because we had understood the Commission was looking to create a smaller package that was affordable for those consumers that didn't want anything more.

8685             MR. McKEEN:  We are very close to our customers.  One of the things about being smaller is you are closer to your customers.  We never get any complaints that the basic service costs too much.  We just never get that.  It is more about why can't I buy more, why can't I add other things to the consumers.

8686             I think it would be a good idea to actually do some research on the consumers who aren't in the system today or even the ones that are in the system and say:  Would you want to buy something that is very small, only has this and is this much money?

8687             I think you would find that it is an extremely small slice of the population.

8688             Having said that, it might be good to still service that extremely small slice of the population.

8689             COMMISSIONER CUGINI:  Thank you for that clarification.

8690             On the issue of access, on page 5 of your oral presentation you say:

"The Commission should instead provide an opportunity for a service to seek such carriage but the onus on the service to establish that carriage is essential." (As read)

8691             Is this a mini‑version of 9(1)(h)?

8692             MR. McKEEN:  Well, I guess it would be ‑‑ it is more not managing by exception.  When channels launch, they are generally able to get distribution, they build those into their business plan and unless they are having some kind of significant problem or there is some reason why they are not being launched, and you also have to look at whether it is part of their programming genre, is it something that is really popular, then they should be able to ‑‑ if they can prove that, they should be able to go and ask for that.

8693             But we think that that would be the exception, that most services are launched, they are picked up, they do find an audience and it is not something that needs to be regulated.

8694             I guess it is the piece about whether regulation is needed or not.  We just don't think it is needed in most cases and therefore just to reduce the regulatory burden on all parts of the system.

8695             COMMISSIONER CUGINI:  Would it be appropriate if we were to determine that HD versions of specialty services should have must‑carry status if they reach a certain threshold of Cancon?  In HD would that be acceptable to you?

8696             MR. McKEEN:  So HD versions of specialty services, so not over‑the‑air broadcasters of specialty services?

8697             COMMISSIONER CUGINI:  Right.

8698             MR. McKEEN:  So they have launched an HD service and they have reached a certain amount of Canadian content.

8699             We would not want to have that regulated upon us because we have a very small ‑‑ what happens is that we have a finite capacity of channels and so we are balancing very much whether we are launching new SD services, whether we are launching new HD services and what things we are doing in order to address the marketplace.

8700             So it is a very dynamic piece.  So we wouldn't want to have additional regulations in there that stop ‑‑ we would hate to have a situation where we have to launch an HD service of a Canadian programming service that has launched but is not very popular with our customers rather than launch another HD version of a different specialty service that doesn't have as much Canadian content, that is hugely popular with our customers.

8701             We assume that everything that is in the broadcasting system is there for a reason.  So we try to react much more to what the customers want and so that is why we would want to not have additional regulation there.

8702             But we are going to do our best to manage the flow from standard definition to digital and to keep up on HD.  We have to keep up on HD.  Like I don't think ‑‑

8703             COMMISSIONER CUGINI:  I mean it goes to your point that Bell ExpressVu has the competitive advantage because of the number of HD services that it carries.

8704             MR. McKEEN:  I mean we talk every day about how we are going to get more HD channels on, who are we going to do this, how are we going ‑‑ without upsetting our customers, and we only have a finite channel capacity, how are we going to get more HD services on?

8705             In many of our systems, the reality is we are just not going to have any HD, and unless we can get them interconnected with fibre, those systems ‑‑ it is not a question of if those systems will die, it is a question of when those systems will die.  We can't carry HD on those systems.  They don't have the capacity.  There are not enough customers now connected to them to allow the investment to be reasonable in order to carry HD services.

8706             So we think as high as 10‑15 percent of our systems that we carry today will ‑‑ 10 years from now they will go down to a level where we will turn them off because there won't be enough customers to justify running them anymore without HD.

8707             So we have a tremendous amount of incentive to do HD and the real challenge for us is how to interconnect these systems with fibre in order that they can survive in the next 10‑15 years.

8708             COMMISSIONER CUGINI:  Thank you.

8709             Thank you, Mr. Chairman.

8710             THE CHAIRPERSON:  Thank you.

8711             Ron, you had another question?

8712             COMMISSIONER WILLIAMS:  Yes, I do, Mr. Chair.

8713             Welcome, Mr. McKeen, Ms MacDonald.

8714             I am reading from your section on small systems on page 8 of your presentation where you say that the impact of regulation on small systems is quite significant and you describe some of the challenges that your smaller systems face:

"They face more hurdles in large centres due to operational, technical and resource challenges." (As read)

8715             You say in some of these areas you are now the third choice behind ExpressVu and Star Choice.

8716             If the Commission was to accept your arguments and reasons for reduced regulation in these systems and I guess the standardization between the different sizes of systems that you describe, would the trade‑off be a further investment in these systems?

8717             I guess what I envision an investment producing would be an agile, deregulated competitor to DTH, having the full advantages of the deployment of your famous bundle, plus the added weapon of a community channel, and if penetration levels are only in the 10‑20 percent, a remarkable opportunity for growth presenting itself.

8718             So would the trade‑off for us helping you on the regulatory side be that these small systems get just as good services as any large system?

8719             MR. McKEEN:  It is nowhere even near that.  These small systems, if you reduced all the ‑‑

8720             COMMISSIONER WILLIAMS:  I know where they are now.  I am saying, if you got this, could you take ‑‑

8721             MR. McKEEN:  No, but I am saying even if you did that, even if you reduced all the regulations on these small systems, it only means that a small percentage of them now become viable that weren't viable before.

8722             So for a large number of these systems, even complete deregulation without any regulations at all or tiering linkage or any kind of regulations, they are still not going to survive.

8723             COMMISSIONER WILLIAMS:  Why are you buying them then?

8724             MR. McKEEN:  Well, we bought a package.

8725             COMMISSIONER WILLIAMS:  So they came in a bundle?

8726             MR. McKEEN:  They came in a bundle, so we bought the bundle and we are going to do our best with the bundle.  And we would love to, you know, in many of the systems ‑‑ like we have lots of systems in small areas and if we can work with other providers and other communication providers and particularly with governments, particularly provincial governments, to create a strategy where we can build a fibre network to interconnect systems together, then they have a fighting chance.

8727             If we are not able to do that ‑‑ we have done a significant one in Newfoundland.  So with the Government of Newfoundland we built a fibre network from Halifax ‑‑ and it really was Persona, the previous owners, that did this and we simply bought the system.  But they had worked a network where there was a number of systems.

8728             The Newfoundland Government is involved, Rogers are involved, we are involved, Allstream is involved, to build a fibre network to connect many of these small systems.  If we can do that, which then significantly reduces the cost of fibre, then you can justify spending the money within the system because you have to do two things.

8729             You have to connect them with fibre and then you have to rebuild the system itself because just connecting them with fibre, connecting a 330 system one way with fibre doesn't do anything.  It just means you get your signals easier but it doesn't do anything else for you.  You have to actually rebuild the system.  So all those components are necessary.  So we have to combine those things together to try to make these systems survive.

8730             The other thing is that when they are at 10 or 20 percent, there is no necessary reason that they will go below that because the people who bought our services may continue to buy those services even with HD.  The problem is as the population changes.  So in our 10 or 20 percent we would be a very senior demographic.  If you looked at our customers, they would skew towards the senior side and so over time that will also diminish.

8731             So there are some very real challenges in these small systems.  I just don't want you to think that if you change the regulations, it is going to solve our problems because it is a small component of the whole problem.

8732             COMMISSIONER WILLIAMS:  No.  I think it would take a fair amount of investment and work as well.

8733             MR. McKEEN:  That is right.

8734             COMMISSIONER WILLIAMS:  This Newfoundland example that you put forward of the government funding the fibre network ‑‑

8735             MR. McKEEN:  Shared funding, but yes.

8736             COMMISSIONER WILLIAMS:  Shared funding?

8737             MR. McKEEN:  Yes.

8738             COMMISSIONER WILLIAMS:  Because public monies, I guess, have helped build it, is it available to other users or was it ‑‑

8739             MR. McKEEN:  Well, what happened was what you would call a condominium build.  So we built this whole fibre network.  We own a certain number of the fibres and the Newfoundland Government owns a certain number of the fibres.  So they can do what they will with their fibres.

8740             COMMISSIONER WILLIAMS:  I understand.

8741             MR. McKEEN:  So by doing it together, your incremental cost ‑‑ like if you are building a fibre strand of 24 fibres, the incremental cost to put in 48 fibres might be 5 percent, 5 percent more money to get twice as many fibres.

8742             The cost is buying the fibre.  Half the cost is labour.  Half the cost is actually getting it on the pole.  There are pole rental fees.  All those other pieces are a big part of the cost.  So to put more glass in while you are doing it isn't that particularly expensive.

8743             But the problem with a lot of our small communities is that nobody is putting fibre to them.  We can't join in with anybody else because nobody is doing it.

8744             COMMISSIONER WILLIAMS:  Okay, thank you, Mr. McKeen.

8745             That is my question, Mr. Chair.

8746             THE CHAIRPERSON:  On this last point, I mean I look at your submission and you say that the average system has 464 subscribers.

8747             Isn't it the sad reality that those systems aren't viable and are probably going to go to DTH ‑‑

8748             MR. McKEEN:  That is right.

8749             THE CHAIRPERSON:  ‑‑ unless you have the fibre ‑‑

8750             MR. McKEEN:  I mean we work at it every day, about how are we going to ‑‑ we work on our plans, how can we interconnect these systems, what other systems are close to it.

8751             We have a situation where we have been operating in Nova Scotia, all the systems that we have connected are interconnected with fibre.  We have been able to upgrade, introduce internet, introduce telephone and they have a future.

8752             There are a number of systems in Nova Scotia that used to be 2 percent of our subscribers that are not interconnected fibre.  There was no economic justification to build the fibre.  There was no government help.  So those systems have now decreased to about .4 percent of our subscribers.  They are just continually going down and they will get to a point where they are going to be turned off.

8753             So our challenge is how do we do that?  We know the CRTC can't solve that problem for us but we have significant challenges there.  So we have to try to work with governments or other areas.

8754             But what we will try to do is the ones that we connect, we will try to grow the subscribers in those areas.  So it is your point, is if you provide the bundle, provide great internet service, provide telephone service, provide VOD, get a cluster of services.

8755             So what we hope is that as we grow the systems, our systems in the west, Grande Prairie and Bonneville and St. Paul, some systems where we are looking at making a big investment to connect these systems with fibre, do a sort of a hub system and then as they grow, they will offset the losses from the other systems.  So we will try to win back customers from satellite in those areas, knowing that satellite is going to win customers in our other areas.

8756             The same in Newfoundland.  We have covered ‑‑ about 75 percent of our customers are connected with this fibre network.  The other 25 percent are going to be challenged.  We want to gain in the 75 percent and we know that over time we will lose in the other 25 percent.  But there are some opportunities maybe with government to do some additional connectivity.

8757             So that is the balance that we are trying to play and trying to make the investment in the right areas.

8758             THE CHAIRPERSON:  Presumably there is also the possibility of a deal between you and some of the satellite companies with regard to some of the systems?

8759             MR. McKEEN:  I don't know how it helps us.  You say a deal with the satellite companies?

8760             THE CHAIRPERSON:  Well, I mean if, in effect, you are selling the customer list and everything and cutting a deal for your customers prior to going out of service.

8761             MR. McKEEN:  Yes.  The thing is that they don't really need to do a deal.  Like we have turned off a couple of systems and we talked to them and they said, why would we do that?  You are going to turn them off anyway, we will get all the customers.

8762             THE CHAIRPERSON:  I see.

8763             MR. McKEEN:  And you get down to a very small number before you are actually turning off a system.  I mean we don't want to turn off systems.

8764             THE CHAIRPERSON:  No, no, of course not.

8765             MR. McKEEN:  We want to keep them on.  But that might not be a bad idea.  We could ask them to trade that and we would get some of their customers in Toronto.

‑‑‑ Laughter / Rires

8766             THE CHAIRPERSON:  Okay.  Well, thank you very much for your presentation.

8767             I think that is it for this morning, Madame Roy.  We will take a one‑hour break.

8768             MR. McKEEN:  Thank you.

8769             MS MacDONALD:  Thank you.

‑‑‑ Upon recessing at 1237 / Suspension à 1237

‑‑‑ Upon resuming at 1345 / Reprise à 1345

8770             THE SECRETARY:  We will now hear the presentation of Torstar Media Group Television.

8771             Please introduce yourself and your colleagues and you will then have 15 minutes for your presentation.

8772             Thank you.

PRESENTATION / PRÉSENTATION

8773             MR. PRICHARD:  Chairman, Commission Vice‑Chairs, Members of the Commission, for many reasons I regret my name is not Frank Iacobucci and that I am not Chairman of the Board of Torstar Corporation.  Instead, my name is Robert Prichard and I am President and CEO of Torstar Corporation.  Mr. Iacobucci was taken ill overnight.  He sends his regrets and apologizes very much for not being here, as he had looked forward to leading us today.  He has asked me to extend his regrets to you and to deliver his remarks, which I will do.

8774             We are very pleased to be here today.  Before we begin, let me introduce my colleagues who are with me.

8775             On my immediate right is Mark Goodale, Vice President and General Manager of the Torstar Media Group Television which is responsible for Shop TV Canada.  On Mark's right is Heather Brunt, Director of Operations at TMGTV.  Next to Heather is Ian Buchanan, Director of Finance at TMGTV.  Ian has broad experience in the teleshopping sector from an international perspective.  Finally, on my left is our counsel, Stephen Zolf, a partner at Heenan Blaikie.

8776             If he were here, Frank Iacobucci would say the following by way of context to our remarks.

8777             First, we acknowledge that the issues we are raising in our oral submissions today regarding exempt programming services are not at the top of your agenda as they are not directly related to the five broad questions you raised last week.

8778             Our issues are, however, important to Torstar and speak to the very viability of our broadcasting service.  We are here because the current regulatory framework for exempt programming services and, in particular, teleshopping, has not realized its intended objective of creating a vital and competitive teleshopping sector.  This has left us at a serious competitive disadvantage which we believe the Commission should redress.  The business that we have invested in for over 10 years is seriously at risk, not because our teleshopping service is unattractive or uneconomic, but because, in our view, we face unfair and prejudicial treatment from a number of BDUs, some of which operate teleshopping services with which we compete.

8779             In short, we believe the current situation is fundamentally unfair and should be changed.  We are very pleased to have the opportunity to make that case to you and make recommendations for a strengthened regulatory framework.

8780             That was Frank Iacobucci.

8781             Now Robert Prichard.

8782             Our submissions are concerned with exempt services and teleshopping in particular.  Torstar owns and operates Shop TV Canada.

8783             As Mr. Iacobucci said, this hearing is very important to Torstar.  That's why we are here and that's why the Chairman expected to lead us here.  With the right regulatory framework in place, we can continue to serve Canadian consumers and build our business, but absent an effective regulatory framework, we are not confident we will be able to remain in the teleshopping business, a bad outcome not just for us but for Canadians.

8784             As an exempt service, Shop TV Canada is not licensed, but it is regulated by the Commission.  Our activities are defined as broadcasting under the Broadcasting Act and we are required to contribute to the objectives of the Act through programming that originates in Canada and by making predominant use of Canadian creative and other resources, which we do.

8785             We also pay the BDUs to gain carriage, not the other way round.  We pay close to $3 million a year to BDUs for access to approximately 1.7 million homes.  We would like to pay more to the BDUs to have access to more homes.  A percentage of our carriage fees paid to the BDUs ultimately flows back into Canadian production funds.

8786             Teleshopping is shopping in response to an on‑air call‑to‑action, either in an infomercial or a live shopping environment.  Teleshopping is a substantial business in Canada with publicly reported revenues of nearly $300 million annually.

8787             In our submission, we want to make four points.

8788             First, the current regulatory framework for exempt services, while appropriate in concept when adopted by the Commission a decade ago, has not worked in practice.  Instead of promoting healthy competition, the framework has allowed the teleshopping field to be almost totally dominated by BDU‑owned and affiliated services to the detriment of competitors, potential competitors and consumers.

8789             Second, as a result, Canada lags far behind the rest of the developed world in providing teleshopping services, depriving Canadian consumers of choice and opportunity and offering no compensating benefit in return.

8790             Third, deregulation as proposed by Dunbar‑Leblanc would make a bad situation worse and should be rejected.

8791             And fourth and finally, a strengthened regulatory framework is required to promote real and effective competition in teleshopping.

8792             We will make specific recommendations as to changes that are required.

8793             Underlying these four points is a common thread.  That thread is the fundamental conflict of interest for BDUs between their role as gate‑keepers for carriage on the one hand and their role as owners and operators of teleshopping services on the other.  This leads to a gross imbalance of power that severely disadvantages non‑BDU‑owned or affiliated operators like us and can only be redressed by an effective regulatory regime designed and enforced by the Commission.  To remedy this situation we ask the Commission to step up, not away.

8794             In the remainder of our time, I will elaborate on these four submissions.

8795             First is the current regulatory framework.

8796             When the Commission established the regulatory framework for exempt services over a decade ago, there was already a significant degree of BDU ownership of exempt services.  Given the potential for BDUs acting as gatekeepers to prevent others from gaining carriage, the Commission, appropriately, adopted a regulatory framework intended to ensure that the both BDU‑owned and independently‑owned exempt services could compete with each other on fair terms and all succeed.  Conceptually, it was a good approach.

8797             In response to the Government's Order in Council asking the Commission at that time to examine rules for access for licensed and exempt services, the CRTC established rules designed to preclude preferential treatment to BDU‑owned or affiliated services.  The rules, which are codified in the Regulations and in accompanying policies, are, on their face, transparent, straightforward and appropriate.

8798             The key elements are the following:

8799             First, in analog, the 1:1 rule which requires that any BDU distributing an exempt service in which it has an ownership interest of 15 per cent or more must also agree to distribute an independently‑owned exempt service.

8800             Second, the Commission indicated this 1:1 rule would also apply to situations where a BDU elects to carry an exempt service owned by another BDU of a similar type.  Rather than codifying this rule in the Regulations, the Commission stated that failure to respect the 1:1 rule in these circumstances would:

"... generally be considered to constitute an undue preference."  (As read)

8801             Third, the guiding principle for distribution of exempt services in the digital environment is the broader principle that such services should not be unreasonably denied access.

8802             Fourth, in cases involving BDU ownership of exempt services, the BDU is required to select the other exempt programming services using the "first come, first served" approach.

8803             Fifth, and finally, a maximum rate for carriage of exempt services was established by the Commission and made subject to a three‑year review by the Commission.

8804             These five elements provided an apparently workable framework that recognized the conflicting roles of the BDUs as gatekeepers and as operators of exempt services.  But, regrettably, it has not worked.

8805             A decade after this initial framework was established, only a single nationally distributed teleshopping service has taken hold ‑‑ The Shopping Channel, which is owned by Rogers, a BDU.  Two other English‑language regional services are available, ours, called Shop TV Canada; and the recently launched Eyes on TV, a digital‑only service owned by Corus and carried by Shaw, its affiliated BDU.

8806             We at Torstar are the only English‑language service not owned by or affiliated with a BDU.  There are two French‑language services, Shopping TVA, carried by Vidéotron, its affiliated BDU; and TATV, owned and operated by Astral.

8807             Over 90 per cent of the nearly $300 million in gross sales revenues generated by English‑language exempt teleshopping services flow to The Shopping Channel, which is affiliated, as I said, with a BDU.

8808             Torstar's Shop TV Canada, unaffiliated with any BDU, has struggled consistently to gain carriage.  We have been repeatedly rebuffed when we have sought expanded carriage, even though we pay very high carriage fees.  We have been severely restricted in our ability to compete with the BDU‑owned and affiliated services.

8809             Quite simply, after a decade of experience, the Commission's initial objective to foster a competitive environment for exempt services has not been realized.

8810             Second submission.

8811             As a result, Canada lags far behind the rest of the developed world in this respect.  Teleshopping is much more advanced in the rest of the developed world than in Canada.

8812             We have given you three slides in your package and the first of them shows that Canada has fewer choices for consumers than in the UK, USA, Germany, Japan and South Korea and, in most cases, far fewer services.

8813             This is simply unfair to Canadian consumers and, in our view, it is a direct result of the regulatory structure which protects the BDU‑owned and affiliated incumbents at the expense of us and of other potential entrants into this field.

8814             A second measure of the under served Canadian consumer is the level of consumer spending on teleshopping per capita.

8815             In this area, Canada lags dramatically behind the amount spent in other jurisdictions.

8816             We believe this is also a direct consequence of the lack of choice and opportunity offered Canadians.

8817             Experience in South Korea, as evidenced by our second and third slides, demonstrates that when choice is increased for consumers consumption grows quickly.  In South Korea, it grew by a multiple of more than six times over five years following the period when the number of teleshopping services was increased from two to five services.

8818             The barrier to growth by non‑BDU‑owned or affiliated services in Canada is access to carriage, not our unwillingness to pay for it.  We offer to pay for access to more subscribers and we are consistently rebuffed by the BDUs.

8819             Absent a strengthened regulatory framework, there is no reason to believe we will be successful in gaining significantly more carriage for our service or that other non‑BDU‑owned or affiliated services will be successful in gaining significant carriage either.  So long as the BDUs can restrict carriage for competitors and potential competitors, the current situation will persist.

8820             Our third submission is that the deregulation as proposed in the Dunbar‑Leblanc report would make a bad situation worse and should be rejected.

8821             The Dunbar‑Leblanc Report recommended that the Commission should delete the 1:1 access rule.  The report states, I say, without any evidence in support of this statement, that:

"...concerns about preferential treatment for exempt services in which a distributor has an ownership interest have diminished greatly."  (As read)

8822             This is wrong and is directly contrary to our extended experience.

8823             Our concerns are more pronounced than ever.  The current framework has not supported competition and consumer choice and entrants like us have faced a host of unfair barriers.

8824             For example, our teleshopping service has faced measures such as:  removal of our service from analog carriage, while leaving our BDU‑owned competitor in place in both analog and digital; refusal by some BDUs even to entertain carriage discussions in digital, which we believe is contrary to the existing principle not to unreasonably deny access to exempt services; and unreasonable and anti‑competitive contractual demands, all of which are presented to us on a take‑it‑or‑leave‑it basis.

8825             In our view, contrary to Dunbar‑Leblanc, market forces alone cannot be relied upon in this area as an appropriate regulatory approach because it ignores the dual roles and inherent conflict of interest for the BDUs in this area.  Furthermore, given the imbalance of power and interests, specific rules and not just general principles are required to facilitate competition and consumer choice.

8826             In the same vein, we have been surprised to see some BDUs argue in this proceeding that access, distribution and linkage rules should be eliminated as these rules were created during a time of scarce analog capacity and monopoly distribution.  They argue the rules are no longer necessary in a competitive environment of unlimited shelf space and increased consumer control.

8827             It is very hard for us at Torstar to reconcile these statements with the statements made to us, often in writing, by more than one BDU over the course of the past year citing capacity constraints as the principal rationale for refusing to provide us with initial or continued carriage of our service, while at the same time continuing to carry our BDU‑owned or affiliated competitor.

8828             In this environment, we believe that eliminating the rules governing fair access for exempt services would be unfair and contrary to the objectives of the Broadcasting Act.  BDUs continue to have an overwhelming incentive to favour their own programming services and to exclude ours and others like us.  Deregulation would only make that situation worse.

8829             Which finally brings me to our fourth submission, which is that a strengthened regulatory framework is required to promote real and effective competition in teleshopping.

8830             We submit certain changes to the regulatory framework are necessary for effective competition to take hold in the teleshopping field.  We are asking the Commission to provide clearer and more specific guidelines to govern the carriage of teleshopping and other exempt services to facilitate a competitive market by addressing the inherent conflict of interest referred to previously.

8831             Our written submissions set out in detail our proposals for regulatory reform.  Let me just summarize them.

8832             We think the Commission should:

8833             First, reaffirm and strengthen the 1:1 rule ‑‑ reaffirm and strengthen the 1:1 rule by:

8834             (a) applying the rule only between two services in the same category, which means that a BDU‑owned teleshopping service must be matched by another teleshopping service, not by a real estate channel or the legislative channel;

8835             (b) confirming that a BDU cannot use an exempt service owned by or affiliated with another BDU to complete its matching requirement; and

8836             (c) explicitly extending the 1:1 rule to the digital environment.

8837             That is our first submission, maintain and strengthen the 1:1 rule.

8838             Second, we submit the Commission should maintain the first come, first served" policy, which you already have.  This rules avoids the possibility that channel capacity will be rationed arbitrarily or for ulterior purposes.

8839             Third, we believe the Commission should confirm that the digital migration framework for licensed programming services also applies to exempt services.  This will ensure that we will be treated the same as the BDU‑owned teleshopping services during the transition to digital.

8840             Fourth, we believe the Commission should reverse the onus in undue preference complaints, and Torstar fully supports the Commission's proposal in this respect.

8841             Fifth, we submit you should strengthen the principle of no unreasonable denial of access in digital by extending the reverse onus to this concept as well.  We also think that examples of what constitutes unreasonable denial would be useful guides to appropriate conduct.

8842             Finally in our recommended changes, sixth, the Commission should revisit the maximum rate for carriage for exempt services. The Commission developed a rate formula over 10 years ago and stated the rate would be reviewed after 3 years, but now, 10 years later, no review has been done.  A review is badly needed and we urge the Commission to review and update the maximum rate based on today's expanded channel capacity.

8843             We recently retained the respected industry analyst, Jim MacDonald, well known to the Commission, to review the current rate using publicly available data.  He concluded the rate could well drop by as much as 50 per cent.  He recognizes, and we do as well, that this analysis may change with the full data available to the Commission.  All we ask is the Commission undertake the review.

8844             We note, however, that a 50 per cent reduction would make the maximum rate in Canada more consistent with information provided to us about the current amounts being paid in other jurisdictions, including the U.S., the U.K. and Germany.  Our data indicates that Canadian rates are the highest among these jurisdictions and often by a multiple.

8845             To assist the Commission in understanding our six proposals, we have taken the liberty of preparing and attaching a summary of our proposed amendments to the current regulatory framework for exempt services and they are in your package.  If you were to find our submissions persuasive, our attached draft would give effect to each of the changes we have proposed to strengthen the regulatory framework.

8846             If I might, for my final words, revert to being Mr. Iacobucci instead of myself, he would say to you:  Chairman, Vice‑Chairs and Commissioners, we submit these proposed changes to the regulatory framework are reasonable and in fact necessary in order:

8847             to realize the broadcasting policy goals expressly set out by the Commission for exempt programming services, including teleshopping services;

8848             to achieve the Commission's stated objectives of developing a straightforward and equitable regulatory framework; and

8849             to ensure distinct and diverse Canadian programming and services, and to provide audiences and consumers with the greatest possible choice of services.

8850             We hope the Commission will recognize the need for regulatory reform in the exempt service sector and act to provide it.  Our proposals for a revised framework are a necessary step to bringing about real and fair competition in this sector by addressing the inherent conflict of interest we face in having BDUs act as both gatekeepers and service providers.

8851             We very much appreciate the opportunity to appear before the Commission and we would welcome any questions you may have.

8852             Thank you very much.

8853             THE CHAIRPERSON:  Well, thank you for your submission.

8854             You start out by saying these are not at the top of our agenda.  Let me ask you a bit more specifically:  How do you show your harm yourself in these proceedings?  As far as I'm concerned, it's not part of the agenda anywhere.

8855             Is there any reference in our Public Notice to this particular issue?

8856             MR. PRICHARD:  I will have my counsel give the specific references in your Public Notice that invite us to be here.

8857             MR. ZOLF:  Thank you, Rob.

8858             Yes, Mr. Chairman, the Commission does ask specifically in Notice of Public Hearing 2007‑10, by citing the exempt service provisions as well as a series of other provisions and in particular whether those should be struck and instead that the Commission should rely solely on an undue preference prohibition going forward to treat this type of service.  It was raised expressly in the Public Notice.  I don't have the cite with me, but I can ‑‑

8859             THE CHAIRPERSON:  No, I hear you.

8860             So your view is, if we are sympathetic to your views, et cetera, we would have sufficient notice in the public record to act on this?

8861             MR. ZOLF:  Oh, absolutely, Mr. Chairman.  The Dunbar‑Leblanc report, which of course is part of the public file, specifically dealt with exempt services, including in a recommendation, and the Commission has asked for comments on this issue in particular, based on our reading of the Notice.

8862             MR. PRICHARD:  And we gave written submissions and reply submissions prior to today.

8863             THE CHAIRPERSON:  Yes.  No, I understand.  But if it is a policy in general, then just putting it in your submission doesn't put you on it.

8864             Second, you mentioned at the outset when you were summarizing the existing exemption regime and you say on the face of it it should be fine, but in fact it hasn't worked.

8865             Have you taken the second step and had the specific issues that you have encountered with BDUs ‑‑ have you ever taken them to the Commission and asked for us to deal with this?

8866             MR. PRICHARD:  Yes, we have and we have been consistently unsuccessful in those cases in being able to demonstrate undue preference.  We have been able to demonstrate preference, but in each of the cases that have been decided by the Commission we have been unsuccessful.

8867             THE CHAIRPERSON:  It was the undue element that you had trouble establishing?

8868             MR. ZOLF:  That's right, Mr. Chairman.

8869             In a most recent Decision in 2007‑401 of November 2007 the Commission did find ‑‑ and it respected a dispute between Cogeco and Torstar ‑‑ that there was a preference, but that there was insufficient evidence to conclude that the preference was undue.

8870             Now, that's why we took comfort from the reverse onus proposal put forward by the Commission.  However, as we have said in our written submissions today, we feel that it's a necessary but not sufficient requirement to straighten out the regulatory framework.

8871             MR. PRICHARD:  Mr. Chairman, we are not bringing other complaints to you in this hearing, because it would be inappropriate, but sitting here are letters of refusal from BDU after BDU declining to even have discussion with us of the possibility of carriage.  We believe part of the reason for that is waiting to see what the disposition is of these issues in this hearing which will then allow us, we hope, to gain carriage to expand our service to other Canadians.

8872             THE CHAIRPERSON:  All right.  Thank you.

8873             MR. ZOLF:  And could I just add to that, Mr. Chairman?

8874             We have said on the record as well that we think the dispute resolution process will be more appropriate once more clear and streamlined rules are in place.  We think then we will be an appropriate candidate to go before the Commission for dispute resolution when those issues are settled.

8875             THE CHAIRPERSON:  All right.  Thank you.

8876             Now that you have set the context, my colleague, Rita, has some questions for you.

8877             COMMISSIONER CUGINI:  Thank you, Mr. Chairman.

8878             Good afternoon.  Before we begin hopefully we would just like to wish Honourable Iacobucci a speedy recovery.

8879             So we can put the situation into context, I just want to ask you some very specific questions, and if we are treading into the waters of confidential information, please stop me.

8880             But on page 7 where you talk about the other English‑language regional services that are available, Shop TV Canada of course owned by Torstar, and the recently launched Eyes on TV owned by Corus and carried by Shaw.

8881             Is your service carried by Shaw?

8882             MR. PRICHARD:  No, it's not.

8883             COMMISSIONER CUGINI:  And the reasons they give for not carrying it?

8884             MR. PRICHARD:  Well, I would just take the Chairman's guidance as the extent to which we should refer to correspondence that we received from them.

8885             COMMISSIONER CUGINI:  Just because it was ‑‑

8886             MR. PRICHARD:  I don't wish to improperly ‑‑ the Chairman has already asked should we be here at all.  I certainly don't want to go somewhere where we shouldn't go in terms of individual ones.

8887             THE CHAIRPERSON:  You have raised a specific example before us, saying that Shaw has a specific shopping channel ‑‑ has their own shopping channel.  My colleague asked you:  Are you carried by them?  The rules would suggest on 1:1 if they have their own they have to carry you, too.

8888             So the answer was no.

8889             MR. PRICHARD:  They have declined to carry us.

8890             COMMISSIONER CUGINI:  Okay.  I guess I ‑‑

8891             MR. PRICHARD:  We have sought carriage and we have been declined.

8892             THE CHAIRPERSON:  Surely you can give us the reason why you have been declined.

8893             MR. PRICHARD:  We will read you ‑‑ do you have the letter?

8894             MR. GOODALE:  Star Choice has indicated that they are unable to carry and other teleshopping service at this time and Shaw Cable has said that they, I believe, have limited capacity to carry our service at this time.

8895             COMMISSIONER CUGINI:  Other than saying therefore that they feel that they have fulfilled the requirement by carrying other exempt services ‑‑ you gave the example of the legislative channel and there was one other there.

8896             MR. GOODALE:  That example was from a previous case that was before the Commission, which is why we cited it here.  We have had no further conversations.

8897             I would say we have respectfully waited for the Commission's process before we then proceed with filing a dispute or pursuing their denial to us.

8898             COMMISSIONER CUGINI:  Is it a similar case with Vidéotron?

8899             MR. GOODALE:  We have not sought French cable or satellite access.

8900             COMMISSIONER CUGINI:  Okay.  Thank you.

8901             You speak quite at length, both in your written submission and again today, about the maximum rate and that it should be reviewed and it's been 10 years.

8902             Have you made a presentation to the CRTC between years 4 and 10 to give us the evidence or to come and talk to us about why the maximum rate should be reduced?

8903             MR. GOODALE:  No, we have not and I would say that is where we have been most remiss.

8904             We are probably the only people in the country that might be using this rate or care about this rate extensively in that we are not owned by a BDU.

8905             So no, we probably should have done that many years prior.  We still believe, based on the formula, one of the main variables in the formula the Commission adopted was channel capacity and the current rate that is still being practised today is based, to the best of my recollection, off of a channel capacity of 60.

8906             We believe the Commission acknowledged and knew that when they set the formula in the first place, that's why they recommended that they would review the raid after three years.  They declined at the time a proposed CCTA formula for a digital‑only rate because they would be reviewing this after three years and they could deal with it then.

8907             COMMISSIONER CUGINI:  You do talk in your written submission about ‑‑ you know, you employ hundreds of freelancers on top of your employee base and you have been able to run the station and produce internationally recognized infomercial productions.

8908             What percentage of the infomercials that to air are produced by you?

8909             MR. GOODALE:  I don't have the percentage that we air currently.  It's always a variable number.

8910             We currently have over 70 per cent of the content we air is either produced, edited or modified by Canadians, not necessarily our company.  There are two or three other major Canadian infomercial producers that we compete quite heavily with.  So a series of those.  There are also foreign programs that come up, most of which are edited and modified to Canadian standards to comply with telecaster, et cetera.

8911             COMMISSIONER CUGINI:  Do you have an average on a yearly basis, how many hours?

8912             MR. GOODALE:  I think when we did the math before the hearing the most recent two years we are averaging over 70 per cent of all content has either been modified, edited or produced and just over 74 per cent I believe of the advertisers that we accept content from are Canadian distribution companies.

8913             COMMISSIONER CUGINI:  All right.

8914             Now, if we take all of your recommendations as a whole some might say you are coming up really close to line of being a licensed service, because you are essentially asking for must‑carry.

8915             So how do we draw the line between exempt and becoming a licensed service?

8916             MR. GOODALE:  The first point we would make is, we pay for carriage.  We are not asking to receive fees from anyone.  We are asking to have the privilege of paying fees to gain carriage.

8917             Second, in the 1:1 rule we are saying if a BDU is carrying a shopping service we then think we should have the right to be beside it.  So that's our ‑‑ which we think it is just fundamental fairness that we should have that.

8918             Stephen can speak to whether we would have reservations about imagining going to a licensed regime, I don't have a good enough understanding of that, but in principle we are not adverse to your judging us in any way you wish and we think we live to the highest standards of the industry, we think we comply with the purpose of the Act and if you wish to go to a license regime I don't think we have any hesitation about it, unless Stephen kicks me to the contrary.

8919             I don't know what's in it for the Commission and for Canadians to do so, but there is nothing in our conduct that we are not happy to have scrutinized by the Commission and we invite scrutiny.  We are putting ourselves forward asking you to pay attention to us, asking you to take this sector seriously, because in the absence of you taking it seriously we don't think we can get in and serve Canadians.  We only get to 1.7 million homes at present, we want to get too many, many more homes.

8920             Stephen, do you have any reservation about licensing?

8921             MR. ZOLF:  No, I don't.  And I don't disagree to the ‑‑ I'm not taking Rob to the contrary or otherwise.

8922             I just wanted to say that in the Commission's wisdom it decided that the broadcasting policy objectives in the Act would not be realized by licensing, that it was sufficient to exempt.  We think with these adopted rules that situation could continue.

8923             I also just wanted to clarify, we don't view ourselves as must‑carry.  As Rob said, it's a drag‑along right.  If the BDU carries their teleshopping service, we want to be treated fairly.  There is no requirement to carry either service under the regs.

8924             COMMISSIONER CUGINI:  Well, I think both your written submission and your presentation here this afternoon could not be more clear.  So I want to thank you for your participation.

8925             Mr. Chairman, those are all my questions.

8926             THE CHAIRPERSON:  Thank you.

8927             COMMISSIONER ARPIN:  One quick and only question.

8928             Have you been talking with Astral regarding their Québec experience in that area?

8929             MR. GOODALE:  We have not talked to Astral.

8930             We have talked many times about connecting with Astral, we have looked at their TATV service, which is fairly fundamentally different than our service in that we are live programming and they are classified advertisements.

8931             COMMISSIONER ARPIN:  Yes.  They are classified ads and real estate ads.

8932             MR. GOODALE:  Yes.  Correct.

8933             COMMISSIONER ARPIN:  I know very well the background because I have been the operator of that Service.

8934             MR. GOODALE:  Of course.

8935             COMMISSIONER ARPIN:  During the days of Radio mutuelle, not during the days of Astral.

8936             So the changes that you are seeking, you haven't had a chance to discuss them with Astral either I would suspect.

8937             MR. GOODALE:  We have not.  We have not.

8938             COMMISSIONER ARPIN:  Your counsel either?

8939             MR. ZOLF:  No.  Commissioner Arpin, I have spoken with ‑‑ Mr. Vice Chairman, I have spoken with my cohorts at Astral on the legal side and regulatory side and who have informed me about the nature of the service, but unfortunately they were just preliminary discussions.  They were aware of our submission, but obviously their focus in this particular proceeding was somewhat different.

8940             COMMISSIONER ARPIN:  Could I ask you to give a copy of your oral presentation because they are going to be before us on Friday and so they will have an opportunity to say a few words regarding your proposal.

8941             I know that their situation is totally different because they are all over Vidéotron and they are all over Cogeco across Québec, so they don't have an issue of having access to ‑‑ at least to the analog distribution.  I really don't know what is their current situation regarding digital.

8942             MR. ZOLF:  We would be happy to do that.  We will make sure that they receive a copy of our oral presentation in addition to a discussion prior to their appearance, Mr. Vice Chairman.

8943             COMMISSIONER ARPIN:  Thank you.

8944             Thank you, Mr. Chair.

8945             MR. GOODALE:  Mr. Vice Chair, if I may?

8946             We also do believe, though, that Astral has one competitive advantage over us in that they have many interested in licensed programming.  When we go to a BDU, we have virtually no bargaining power and we think that's an important difference between us and Astral.

8947             COMMISSIONER ARPIN:  Except that in the case of Astral the TATV is run by their radio division, not by their specialty services group.  So the advantage, quote/unquote, may be ‑‑ well, I don't know.  It's a matter of ‑‑

8948             MR. PRICHARD:  Can I go an extra step, too, Chairman?

8949             We have made our case here, which I think is a fair case.  In doing that, we don't wish to paint all BDUs as behaving the same way.  We have had one very good experience recently dealing with a smaller BDU, and so we think if the rules are clear and the landscape is said to be fair and these are the rules, we have every confidence, as long as the rules are clear, the BDUs will behave as we hope to behave, in an honourable and appropriate way.

8950             We are just saying the current rules don't create that, do not create that playing field and, as I say, I wouldn't wish it to be said Torstar came and said all BDUs are bad.  We are trying to say there is this inherent conflict of interest which we think you do need to address, and if you address it as we have proposed we believe it will work fine and we won't be here with complaints and we won't be at your staff with complaints.

8951             We think with the simplicity of what we propose it will deal with the matter and, in the case where we have had the good experience, we are already there, the trouble is with the large ones we have had this consistently negative experience.  It may be Astral's experience with Vidéotron, where we have had no experience with Vidéotron, has been to the contrary and we would complement Vidéotron in that respect.

8952             COMMISSIONER KATZ:  Thank you, Mr. Chairman.

8953             Do the vertically integrated companies offer each other services?  Does Shaw offer Rogers Shopping Network and the Shopping Network offer Eyes on TV?

8954             MR. GOODALE:  One yes, one no.

8955             Rogers Shopping Channel is offered, to the best of my knowledge, on Star Choice and on Shaw Cable.  However, Eyes on TV ‑‑ which launched I believe the end of January 2008, so it is but a few months old ‑‑ currently does not appear to be carried on Rogers.

8956             COMMISSIONER KATZ:  With regard to the Québec‑based channels, do they offer ‑‑

8957             MR. GOODALE:  I do know, Vice Chair, that TATV is carried on Vidéotron's system and I believe they are ‑‑ I think Vice Chair Arpin just said that they are also carried on Cogeco as well.

8958             COMMISSIONER KATZ:  My only other question is:  Prior to you availing yourself of CRTC dispute mechanism, did you approach staff at all with regard to ADR and ask for them to mediate at all before you actually formally applied to the CRTC?

8959             MR. GOODALE:  We have recently spoken to Commission staff, more to get an understanding of what we need to do to become more visible at the Commission.

8960             As you have heard, we have had a series of denials on undue preference.  We don't believe that without the reverse onus, we don't believe that we will be able to prove undue preference and that we can't gain access to the data to prove undue.

8961             So we did have a conversation with Mr. Hudson about dispute resolution and how we would use that process and how to most efficiently move through without tying up the Commission's time.

8962             MR. ZOLF:  And, Mr. Vice Chairman, I had, on behalf of Torstar, had similar discussions with Mr. Hudson in trying to advise Torstar in advance of this proceeding on their issues.

8963             COMMISSIONER KATZ:  Thank you.

8964             Those are my questions.

8965             THE CHAIRPERSON:  Lastly, you mentioned that you want us to review the formula which is 10 years old, et cetera.

8966             Have you actually made a formal request to that effect or is this it?

8967             MR. GOODALE:  We have not.  We have not.  We believed we would wait for this process.

8968             THE CHAIRPERSON:  All right.

8969             Well, thank you very much for bringing this issue to our attention.

8970             Please say to Frank Iacobucci how sorry I am that he wasn't here.  I would have looked forward to having him appear in front of me for a change, rather than my bowing in front of him.

‑‑‑ Laughter / Rires

8971             MR. PRICHARD:  Thank you.  His regret is more acute than your own that not being here and I appreciate your good wishes.

8972             I want to stress, he has a bad flu not something more serious.

8973             COMMISSIONER CUGINI:  All the more reason for a speedy recovery.

8974             MR. PRICHARD:  So I think we will have a speedy recovery.

8975             Chairman, let me just say, we are very grateful that you have heard us out, that you understand the issue we have.

8976             What we are asking is you not forget us.  We are in a corner.  There are more compelling issues to Canadians, there are more compelling issues to the Commission.

8977             We believe this is a proceeding in which, if you find us persuasive it will not be at the front of the decision, it will be at the back of the decision.

8978             It is something that should be attended to.  It will get corrected, and you won't see us again for a long time if it is corrected.  If it isn't corrected, you will see us repeatedly in what we think is a far less productive way of going about our work.

8979             So we really appreciate the hearing you have given us.

8980             Thank you very much.

8981             THE CHAIRPERSON:  We appreciate you coming not only with the problem, but with a constructive solution to those problems.

8982             Thank you very much.

8983             MR. PRICHARD:  Thank you, sir.

8984             THE CHAIRPERSON:  I think that concludes our hearing for today, Madam Roy.

8985             THE SECRETARY:  Exactly.

8986             We will return tomorrow morning at 9:00 a.m.

8987             Thank you.

‑‑‑ Whereupon the hearing adjourned at 1425, to resume

    on Thursday, April 17, 2008 at 0900 / L'audience

    est ajournée à 1425, pour reprendre le jeudi

    17 avril 2008 à 0900

 

 

                      REPORTERS

 

 

 

____________________      ____________________

Johanne Morin             Monique Mahoney

 

 

 

____________________      ____________________

Jean Desaulniers          Fiona Potvin

 

 

 

____________________

Sue Villeneuve