ARCHIVED - Transcript, Hearing 27 July 2010
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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
Expedited procedure for resolving a competitive issue - Telecom application
Réal Therrien Room
1 Promenade du Portage
July 27, 2010
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
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.
Canadian Radio-television and
Expedited procedure for resolving a competitive issue - Telecom application
Rita Cugini Chairperson
Suzanne Lamarre Commissioner
Louise Poirier Commissioner
Danielle Peterson Secretary
Joshua Dougherty Legal Counsel
Gerry Lylyk Director, Dispute Resolution
Kathleen Taylor Manager, Dispute Resolution
Claude Brault Senior Analyst
Réal Therrien Room
1 Promenade du Portage
July 27, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
Opening remarks by Torstar 6 / 31
Opening remarks by Rogers 13 / 71
Questions by Torstar 70 / 400
Questions by Rogers 81 / 464
Questions by the Commission 96 / 582
Closing remarks by Torstar 116 / 738
Closing remarks by Rogers 124 / 781
- v -
Undertakings can be found at the following paragraphs:
713, 714, 715, and 716
--- Upon commencing on Tuesday, July 27, 2010 at 0913
1 THE CHAIRPERSON: Good morning, everyone. I apologize for the delay, but we thought that we had better get through that technical announcement first before starting and stopping.
2 So I am Commissioner Rita Cugini and I will be chairing today's hearing.
3 I am joined today on the Panel by my colleagues Commissioner Lamarre and Louise Poirier.
4 I would like to introduce the CRTC staff who will be assisting the Panel today. At the table we have Joshua Dougherty; Legal Counsel; Gerry Lylyk, Director, Dispute Resolution; Kathleen Taylor, Manager, Dispute Resolution; and Claude Brault, Senior Analyst.
5 During the course of the hearing please address any administrative or procedural matters in the hearing to Danielle Peterson, behind me to my right.
6 As you know, the Commission has decided to hold this expedited hearing with a view to making determinations on the request for dispute resolution that was submitted by Torstar Corporation on May 4th, 2010.
7 I will now ask the Commission's Legal Counsel, Joshua Dougherty, to continue to outline a few key points.
8 Mr. Dougherty.
9 MR. DOUGHERTY: Thank you, Commissioner.
10 Before we begin, I would like to say a few words about the administration of this hearing.
11 Avant de débuter, j'aimerais dire quelques mots sur le déroulement de l'audience.
12 Le 26 juillet 2010, les deux parties ont reçu une copie de l'ordre du jour que nous allons suivre aujourd'hui.
13 Les parties devront tout d'abord présenter les membres de leur équipe. La requérante, suivie de l'intimée, aura chacune 10 minutes pour présenter leurs observations préliminaires.
14 On the 26th of July 2010 both parties received a copy of the Agenda that we will be following today. The parties will be asked to introduce the members of their respective teams and the applicant, followed by the respondent, will each have 10 minutes for opening remarks.
15 Following those remarks the Commission will question the applicant, followed by the respondent, on matters related to the application and both the applicant and the respondent will have 20 minutes to question each other. The Commission will then ask any additional questions it may have.
16 Finally, in order to address any issues that involve material that has been filed in confidence, the Commission will hold an in camera session for approximately 45 minutes. During this time the live audio stream of the hearing will be cut and the room will be cleared except for the Commission, CRTC staff and the representatives of the two parties.
17 Suite à ces remarques, le Conseil interrogera la requérante suivie de l'intimée sur la demande. Ensuite, le requérant et l'intimé auront chacun 20 minutes pour poser des questions de l'autre partie. Le Conseil posera d'autres questions qu'il pourrait avoir.
18 Enfin, afin d'aborder la question concernant le matériel qui a été déposé à titre confidentiel, la Commission tiendra une séance à huis clos pendant environ 45 minutes. Pendant ce temps, l'audio en direct de l'audience sera coupée, et seuls le panel, le personnel du CRTC et les représentants des deux parties pourront rester.
19 The Commission will not entertain written final arguments, rather parties will have 10 minutes at the end of the hearing, following a short recess, to make their final submissions.
20 Le Conseil n'acceptera pas des observations finales écrites. Plutôt, les parties, après une courte pause, auront 10 minutes à la fin de l'audience, à rendre leurs observations finales.
21 Les parties sont encouragées de parler dans la langue officielle de leur choix.
22 Des services de traduction française et anglaise seront fournis au cours de la procédure. Les appareils sont disponibles à l'arrière de la salle.
23 Parties are free to speak in the language of their choice. English and French translation services are provided during the course of the proceeding. Headsets are available at the back of the room for this purpose.
24 Please note that a live audio stream of the hearing in both languages is available over the Commission's website.
25 Veuillez noter que l'audience est diffusée en direct, dans les deux langues, sue le site Web du Conseil par moyen de lecture audio.
26 Un sténographe judiciaire préparera un compte rendu textuel de l'audience. Pour que le sténographe puisse produire un compte rendu exact, assurez-vous que votre microphone est allumé lorsque vous parlez. Pour savoir comment obtenir une partie ou la totalité de ce compte rendu, veuillez vous informer à la fin de l'audience auprès du sténographe.
27 There is a verbatim transcript of this hearing being taken by the court reporter. In order to ensure that the court reporter is able to produce an accurate transcript, please make sure that your microphone is turned on when speaking, simply by pushing the button under the microphone.
28 Nous vous rappelons que vos téléphones cellulaires et téléavertisseurs devraient être désactivés en tout temps lorsque vous êtes dans la salle d'audience.
29 We would like to remind you that cell phones and pagers should be turned off at all times while you are in the hearing room.
30 We will begin with opening remarks by Torstar, which will have 10 minutes to make its presentation.
OPENING REMARKS BY TORSTAR
31 MR. GOODALE: Good morning, Madam Chair, Members of the Commission. My name is Mark Goodale, I am the Vice President and General Manager of Torstar Media Group Television.
32 I will start by introducing my panel. On the left I have Heather Brunt, our Director of Operations at Torstar Media Group Television; on my immediate right we have Stephen Zolf, a partner at Heenan Blaikie and our Regulatory Counsel; and to Stephen's immediate right Alejandro Manevich, Stephen's colleague from Heenan Blaikie.
33 We thank the Commission for accepting Torstar's request for an expedited hearing. This Commission has identified two issues, first whether Rogers has an obligation under the BDU Regulations to provide analog access to ShopTV on all Rogers systems; and
34 second, the rate that ShopTV will have to pay to Rogers for distribution of ShopTV on Roger systems.
35 The Commission's regulatory framework for exempt services recognizes the BDUs fundamental conflict of interest between its role as gatekeeper for carriage and its role as an owner and operator of exempt programming services.
36 This conflict has led to an imbalance of power which has disadvantaged ShopTV. We have tried to offer a viable service in competition with Rogers affiliated service, The Shopping Channel, but to date we have been denied fair terms for carriage.
37 The rate we pay Rogers is critical to our business case. Unlike pay or specialty services, ShopTV pays Rogers to gain carriage, not the other way around.
38 We pay close to $3 million a year for only 1.5 million homes. Despite our repeated requests, we still don't have access to all of Rogers 2.4 million homes, even though Rogers carriage has given to its own service, The Shopping Channel, full carriage on their system.
39 We have attempted to renegotiate the rate and our penetration with Rogers for several years with little success. We have simply been denied comparable access to the channel assignments that Rogers provides to its own shopping channel for which ShopTV has been the one-to-one match for the last 12 years.
40 To give you an idea of what's at stake, just since we initiated the request for an expedited hearing in early May, Torstar has paid Rogers just over $750,000 in carriage fees.
41 Delay works directly to Rogers financial advantage. We believe that Rogers is attempting to shift the focus from the real issue of rate by raising questions today about ShopTV's carriage entitlement.
42 Rogers has argued that the distribution of exempt parliamentary and legislature channels should be counted towards its matching requirement for its affiliated shopping and listings channels.
43 We respectfully disagree. Under the Commission's access framework, the parliamentary and legislature channels were never intended to serve as a match for an affiliated exempt service.
44 In 1994 when Rogers acquired Maclean-Hunter it undertook to provide access to any exempt programming service that was designated as "having a carriage priority". It specifically acknowledge the provincial legislature channel as a priority carriage service.
45 Before approving Rogers acquisition of the Maclean-Hunter, the Commission also required Rogers to ensure:
"...fair and equitable access among exempt programming services that have not been assigned a carriage priority by the Commission". (As read)
46 That was followed by a 1995 Order-in-Council requiring the Commission to establish industry-wide access rules for all services, including exempt services that have not been assigned a carriage priority. In other words, the history behind the access rules shows that carriage priority services such as the parliamentary and legislature services were never intended to be used to satisfy the matching requirement.
47 We respectfully submit that BDU Regulations do not permit what Rogers is now arguing, for them to get a freebie to carry their own affiliated service, The Shopping Channel, by matching exempt services that already enjoy priority carriage status under the Regulations. This would be an absurd reading of the Regulations, in our opinion.
48 Nor can these priority carriage services trump ShopTV's first-in-line status.
49 It is clear from the contract between the parties that Rogers has never treated the legislative services as capable of fulfilling its matching requirement nor as trumping ShopTV's first-in-line status, until now of course.
50 We believe that Rogers is simply stalling to avoid dealing with the rate issue. As a service operating in a regulated environment, Torstar believed and relied upon the rationale for the access policy as stated by the Commission in its 1994 decision. This was later codified in the 1996 policy and the 1997 BDU Regulations. Torstar expected that the Commission would apply its policy in a way consistent with its own express rationale.
51 In summary, Rogers is asking the Commission to do an about-face on the regulatory framework. This would be contrary to the principle of regulatory predictability and stability which the Commission has so often emphasized.
52 Finally let's turn to the main issue why we are here: the rate.
53 The Commission established a maximum rate for carriage of exempt services in Public Notice 1997-35. Two points are critical.
54 First, the rate was expressly made subject to a three year review, which to date has not happened.
55 Second, the Commission wanted market forces to influence the rate as much as possible so the calculated rate was established as a cap, a maximum, and parties were directed to negotiate actual contract rates anywhere below the cap.
56 Rogers argues that the Commission should not set an access rate for ShopTV in the context of this expedited hearing. Rogers points in their submission to an industry-wide policy proceeding in 1997 which sent the exempt services access rate to support its position.
57 Rogers is confusing two separate and distinct issues.
58 Torstar is not asking the Commission in this hearing to revisit the maximum rate established in Public Notice 1997-35. No matter what your finding in this proceeding, that rate will remain a maximum.
59 We are simply asking the Commission to resolve an ongoing protracted and expensive rate dispute between the parties.
60 To assist the Commission in its determination, we have submitted three appropriate exempt service rate benchmarks.
61 Our first, the supporting documentation we filed concerning international exempt services rates demonstrates that $.25 per subscriber per year is an appropriate proxy in terms of what has been established in other markets for BDUs.
62 A second benchmark that we provided was Jim Macdonald's 2007 study which attempts to update the current CCTA formula using more recent data to reach an average rate.
63 Should the Commission have any questions regarding Mr. Macdonald's study, he has graciously agreed to keep this time available and can be reached by phone if needed.
64 A third benchmark that we submitted are the rates that Torstar pays other BDUs who do not have affiliated exempt teleshopping services. These rates are far below those that we pay to Rogers. We would be pleased to filed this evidence of these rates with the Commission in confidence upon request.
65 In summary, we submit that the Commission has all of the information it needs to set an appropriate, fair rate which reflects competition, equity and the actual value of the channel to Rogers.
66 As we have already noted, your ruling will have no impact on the maximum rate set under 1997-35, which remains just that, a maximum.
67 It is open to the Commission at any time to commence a policy proceeding on this issue, but we are pleased that the Commission has committed to determine in this hearing the rate that Torstar will pay to Rogers for carriage.
68 In conclusion, Torstar has spent millions of dollars in carriage fees during negotiations with Rogers with no end in sight. We appreciate the Commission's time in bringing resolution to a very long and expensive dispute. After your decision we will move forward with Rogers to secure fair and equitable carriage.
69 Thank you. We look forward to your questions.
70 THE CHAIRPERSON: We will ask Rogers for their opening remarks, please.
OPENING REMARKS BY ROGERS
71 MS DINSMORE: Thank you, Madam Chair.
72 Commissioners and staff, my name is Pamela Dinsmore and I am the Vice President, Regulatory at Rogers Communications.
73 Also part of Rogers' panel today are David Purdy, Michael Allen and David Watt. Scott Prescott from Fasken's is our Legal Counsel. Joining us in the audience are Michael Webber, Vice President and Legal Counsel, Rogers Communications; and Peter Kovacs, Director, Regulatory Affairs at Rogers Cable.
74 We are here today at Torstar's instigation and the Commission's request to discuss two questions.
75 First, whether Rogers' Class 1 cable systems have any obligation to provide analog access to Torstar's exempt programming service known as ShopTV; and
76 second, assuming carriage, either by order or negotiated agreement, the rate that Torstar should pay to Rogers for access to an analog channel.
77 The answer to both questions is straightforward.
78 First, we have no regulatory obligation to accept Torstar's access demands. With or without ShopTV our Class 1 systems fully comply with the one-to-one linkage requirement for third-party exempt services outlined in section 21 of the Broadcasting Distribution Regulations.
79 Second, if Rogers did decide to offer ShopTV access to an analog channel there can be no doubt what the rate for that access would be. The Commission established it in an industry-wide basis in Public Notice 1997-35 and has not to date initiated a proceeding to amend or alter that rate.
80 Furthermore, even if the Commission determined that this proceeding was the appropriate forum in which to undertake an industry-wide costing review, our analysis demonstrates that on the evidence before it the Commission would conclude that the rate for a 6 MHz analog channel should be higher today than it was in 1997.
81 Having stated our positions on the issues before the Commission today, let me take a few minutes to expand on them, beginning with the access question.
82 The Regulations recognize only two types of exempt services, those in which a Class 1 system directly or indirectly enjoys a 15 percent or greater ownership interest and those in which it doesn't.
83 The second type is, logically enough, referred to as a third-party exempt service.
84 To keep things simple this morning I will refer to the first type as affiliated.
85 The essence of Commission's one-to-one linkage rule is the obligation placed on a Class 1 system to carry one third-party exempt service for each affiliated service it carries. The one-to-one linkage rule applies only to Class 1 systems and only to analog distribution.
86 With the exception of our St. John's system, every Class 1 system operated by Rogers distributes two affiliated exempt services on analog channels, The Shopping Channel and the advertising portion of the TV Listings channel. In St. John's we carry three, The Shopping Channel, TV Listings and Homesplus, a real estate channel that is affiliated with Rogers.
87 To satisfy the one-to-one linkage rule in Ontario and New Brunswick, we distribute two exempt third-party owned programming services, the provincial legislature service and the parliamentary service on analog. In Newfoundland we carry the provincial legislature service, the parliamentary service and an unaffiliated exempt service known as Dealers Choice.
88 In parts of Ontario, by contractual agreement with Torstar, we have also carried ShopTV, but there is no regulatory obligation on Rogers to do so.
89 Torstar argues that there exists two classes of third-party exempt services, those of a commercial nature and those of a public interest nature and that the public interest services cannot be used as matches for commercial services under the linkage rules. There is no basis whatsoever for this proposition.
90 The Commission confirmed this in Broadcasting Decision 2003-518. In that decision the Commission ruled that provincial legislature services are third-party exempt programming undertakings and it made a specific determination that Shaw Cable's distribution of its affiliated TV Listings advertising service could be met with the provincial legislature service.
91 The parliamentary programming service, which operates under the same exemption order as the provincial legislature services, is equally a match for an affiliated service. It is wholly owned by the House of Commons. While CPAC has agreed to operate the undertaking, neither it nor Rogers holds any ownership interest in the exempt parliamentary programming service.
92 The definition of a third-party exempt programming undertaking is clear and unambiguous. Torstar's suggestion that this definition be arbitrarily altered by the Commission is unprecedented and should be refused. To accept it would be to create industry-wide regulatory uncertainty and confusion.
94 MR. WATT: As for the rate that Torstar should pay Rogers for access to an analog channel, it is our submission that this is not a decision that should be made in the context of this bilateral proceeding. We hold this view for two equally compelling reasons.
95 First, if the Commission is going to propose a change to the access rate policy, then, with respect, it should hold a separate proceeding where all interested parties will have an opportunity to present comments and evidence as to what that new rate should be. An expedited bilateral dispute proceeding is not the appropriate forum in which to resolve a broad industry issue like this.
96 A second reason why the Commission should not grant Torstar's request for a revised access rate is that the record is woefully inadequate. No evidence has been presented in this proceeding that would enable the Commission to make a fact-based determination that the value of an analog channel on Rogers cable systems is now less than what it was when it was set in Public Notice 1997-35.
97 The evidence that Torstar filed with the Commission in this proceeding includes a memo prepared by Jim Macdonald, a material that Torstar calls international research. It is selective and unreliable.
98 The Macdonald memo is fundamentally flawed. It does not use the same methodology that the Commission used in PN 1997-35 and it provides no credible support for an access rate of $.08.
99 The so-called research on rates for the carriage of teleshopping channels internationally that was submitted by Torstar has even less value. It consists of a one-page chart listing what Torstar says are access rates for six countries, the U.K., Russia, Ukraine, Poland, Romania and Turkey. No context or background analysis as to how these rates were determined was provided, nor is any information provided as to why these particular countries were chosen.
100 The three letters from foreign companies are equally deficient. After reading those letters we have no idea how the values were obtained or what costs these companies included to arrive at their values for a channel.
101 The two letters from the United Kingdom are not even about cable rates, they are about satellite and digital over-the-air rates.
102 There is simply no way for the Commission or Rogers to test the accuracy or veracity of any of the claims made in the so-called international research.
104 MR. PURDY: In closing, it is Rogers submission that all of our Class 1 cable systems are operating in full compliance with the one-to-one linkage rule set out in section 21 of the Regulations and we have no obligation to distribute ShopTV on those systems.
105 Further, we do not believe that it would be appropriate for the Commission to consider amending the access rate established in Public Notice 1997-35 in the context of an expedited bilateral dispute proceeding or on the basis of Torstar's costing research.
106 Before inviting questions, we would draw the Commission's attention to the pertinent underlying realities of this dispute.
107 In this day and age of market forces and light-handed regulatory direction, Torstar is essentially asking the Commission to go back to the future. It tried the same arguments in the exhaustive policy review that led to Broadcasting Notice 2008-100 and failed, with good reason. The Commission at the time did not adopt any of its recommendations.
108 Torstar has come to this hearing seeking the equivalent of mandatory analog carriage on all of Rogers Class 1 systems. That is a sort of privileged access that has traditionally been granted only to services of national importance and those that make an exceptional contribution to the furthering of the policy objectives of the Broadcasting Act.
109 There is something terribly out of step with Torstar's demands when ShopTV, an infomercial service, is placed in this context.
110 Not only is Torstar demanding the sort of access that is all but an anachronism in the digital environment, it is demanding as well bargain basement rates. Essentially it is asking the Commission to order Rogers to subsidize its business and I cannot imagine how long the lineup would be outside the Commission's building if it were to establish a precedent like that.
111 What I can imagine, though, is what would happen if we were to redraft Torstar's demands and call for tenders and test the market on the value of guaranteed basic analog carriage. I can absolutely guarantee you that Rogers will receive bids offering to pay rates well in excess of what Torstar is paying now, never mind the $.08 figure in Mr. Macdonald's memo.
112 That concludes our opening remarks, Madam Chair, and we would be pleased to respond to any questions you have.
113 THE CHAIRPERSON: Thank you to both Torstar and Rogers for your opening remarks.
114 I have a few preliminary questions. I probably won't have many because you can hear my voice, but I will remind you that we have agreed to an in camera session so if at any point we ask any questions to which you would prefer to respond in the in camera session, just please indicate as such.
115 Rogers, I will begin with one question for you.
116 You continue to say throughout your presentation that you are under no obligation to carry ShopTV. This has been an ongoing dispute now for three years.
117 Why do you continue to carry it if you are under no obligation to do so?
118 MR. PURDY: Historically we had a commercial relationship with Torstar and it worked for us on some levels. There was not the same demand on analog spectrum and at the time we were carrying them in systems where we had spectrum enough to be able to afford to carry them.
119 THE CHAIRPERSON: And now that spectrum is in question?
120 MR. PURDY: Well, two things.
121 One, they are asking for broader-based carriage in systems where we are more challenged for spectrum, markets where we carry more foreign language or French language programming on analog.
122 And even in the markets where we are carrying them today we are increasingly under pressure from a spectrum perspective. Things like high definition, multicultural programming channels, faster Internet speeds and video-on-demand are all causing us to be, I guess pressured if you will, in terms of the amount of spectrum we can devote to analog channels.
123 THE CHAIRPERSON: I know this is looking into the future, but you don't want to go back to the future so let's look ahead.
124 As you know, September 1, 2011 is going to be a pivotal moment in the broadcasting history so what will be the status of exempt services as of September 1, 2011?
125 MR. PURDY: When we are looking at our spectrum plan for a multitude of reasons we are seeing the need to harvest analog spectrum. So at some point over the next 12 to 24 months we are going to need to selectively and then increasingly more aggressively move channels off of analog to digital.
126 We have a plan in place and we are going to make sure that it has as little customer impact as possible, but it's our intent to migrate selectively analog channels to digital.
127 THE CHAIRPERSON: But doesn't that mean that as of September 1, 2011 capacity issues will be minimized?
128 MR. PURDY: No.
129 THE CHAIRPERSON: Because the answer to my previous question was there is a high demand on analog spectrum and there is a limited supply.
130 MR. PURDY: Right.
131 THE CHAIRPERSON: So therefore that's why the follow-up question, what happens as of September 1, 2011?
132 MR. PURDY: I think what would impact us coming out of September 1, 2011 is basically any channel that hasn't already gone high-definition in our local markets will go high-definition.
133 So we will see channels like CHCH for example put up an HD tower and go HD. So that I think will put demands on our capacity.
134 THE CHAIRPERSON: But again, what will be the status of exempt services as of that date?
135 MR. WATT: Sorry, this may or may not be helpful.
136 But say, for example, you were to move Tier 3 -- I'm not sure how many analog channels are there, 24 months -- they move to digital, but those analog channels then -- a number of them then are used to carry those digital channels and additional digital channels, so it's not as if there are a great number of analog channels really left lying fallow.
137 And the other point that Mr. Purdy made was that, and we have made this in other proceedings, that as we increase the speed of our high-speed Internet services we have assigned additional channels to that particular service to be bonded in DOCSIS 3.0.
138 THE CHAIRPERSON: Okay.
139 MR. WATT: Madam Chair, I think, if I could add one thing, if your question is directly would we see more of these exempt programming services moving from analog to digital in that time period, the answer would be yes.
140 THE CHAIRPERSON: Okay.
141 I will get to you, Torstar, I promise.
142 Rogers, you emphatically state that you consider CPAC to be an exempt programming service especially to satisfy the 1:1 linkage rules.
143 And, as we know, it is a little bit of a hybrid service. I'm just going to read from Broadcasting Decision 2002-377 which granted CPAC 9(1)(h) status where it says:
"CPAC is licensed to provide in English and in French a public affairs programming service that is complementary to the exempt programming service that CPAC also operates. The exempt service includes gavel-to-gavel coverage of the proceedings of the House of Commons, it also includes coverage of the Committees..." (As read)
144 THE CHAIRPERSON: And so on. And we also say that the amendments to the BDU Regulations that came into effect -- this was September, 2002 -- making carriage of the proceedings of the House of Commons and its Committees mandatory for most BDUs, which -- does that mean it's an exempt service or doesn't it?
145 MR. PRESCOTT: Well, I think it still is an exempt service. It operates under the same exemption order that the Provincial Legislature channels operate under.
146 The Commission has consistently made the distinction between CPAC and the House of Commons or the Parliamentary programming service. CPAC is licensed, the House of Commons is not.
147 And the House of Commons service is not owned or controlled by Rogers and that's very clear in these agreement between CPAC and the Speaker of the House and it's also very clear in the exemption order for Provincial Legislatures and the House of Commons service.
148 If you read that exemption order there's a specific provision in there that says that the Speaker shall maintain control over the proceedings.
149 THE CHAIRPERSON: Now there is a question of -- we already know from Torstar that, of course, as an exempt service it pays for carriage as 9(1)(h) services receive a subscriber fee.
150 What is the situation with CPAC?
151 MS DINSMORE: CPAC gets a subscriber fee, but the House of Commons does not and the Ontario Legislature doesn't pay, they don't make any revenue, the House of Commons doesn't make any revenue, so it's only the revenue generating services that are charged the fee.
152 THE CHAIRPERSON: Okay. Now I will move on to Torstar.
153 Mr. Goodale, as far as the rate -- the issue of the rate is concerned, you say in your opening remarks on page 4 that:
"The rate was expressly made subject to a three-year review which to date has not happened." (As read)
154 THE CHAIRPERSON: And when I read something like that, of course, my mind automatically goes to well, does this mean that you want a rate review, but then in the next paragraph you say that's not where you're going at all, you would not want the Commission to enter into a rate review. Am I correct in assuming that?
155 MR. GOODALE: We see them as two distinct issues, so I'll answer both.
156 THE CHAIRPERSON: Okay.
157 MR. GOODALE: We believe that this hearing, we have a commercial relationship with Rogers,,we believe that that rate is in dispute. I think you heard from Mr. Purdy's comments it's fairly evident there is no intent to charge anything other than the maximum rate as set out in 1997-35.
158 We believe that that's a position that they stand on despite any level of evidence we supply that thinks that rate should be reduced. So, we're at a commercial standstill between the two parties that have a commercial relationship.
159 The second part to your question, Madam Chair, Torstar would be very happy to participate in a rate review, but we are one of the only services in the Canadian broadcasting system that pays especially this level of rate, so any delay in further hearings, proceedings that would be on our dime while we're paying full and maximum 1997-35 rate would be unfair to Torstar.
160 We've been carrying this service at maximum rate for a long period of time, waded through a regulatory framework hearing, met with the Commission Staff to talk about the best way to push this one issue with Rogers forward.
161 I can tell you that in non-conflicted BDUs, we do not have the issue of the maximum rate applying to us.
162 THE CHAIRPERSON: So your priority is to settle this dispute and, if a rate review -- if the Commission deems a rate review is necessary, you'd be happy to participate?
163 MR. GOODALE: We would be more than happy to participate after the settlement of this dispute.
164 THE CHAIRPERSON: Okay. Now obviously you don't agree with the Rogers' position that either the Provincial Legislature channel or CPAC qualify as exempt programming services?
165 MR. GOODALE: That's correct.
166 THE CHAIRPERSON: A very general question. I see that throughout your oral presentation you cite a number of decisions and policy reviews that the Commission has had, but you do not in any way cite the one decision that Rogers has cited which is 2003-518.
167 MR. GOODALE: Before I hand it to Mr. Zolf who will give you our very detailed explanation on that, we draw ourselves back to the Order-in-Council that put the Commission in motion to create the access rules, and we believe it's critical that when the Commission determines these decisions they go back to why were these access rates created, and the Order-in-Council was to create a competitive environment.
168 I'm paraphrasing in my own words, Mr. Zolf will jump in from there.
169 THE CHAIRPERSON: Okay.
170 MR. ZOLF: Thanks, Mark. Madam Chair, we feel that -- we are not disputing that those two services are exempt services, the Legislature channel and the Parliamentary channel, they are exempt services, it's just that we feel that the proper reading of the Regulations makes it difficult to conclude that both can be counted for the purposes of the 1:1 match.
171 Now, on your decision that you referred to -- that Rogers referred to on 2003-518, first of all, it's really important to point out that the Commission did not make any ruling in that decision at all about the Parliamentary service.
172 One of the parties had raised that as a possible match, the Commission was silent on that issue. I think it was Shaw who expressly invited you to make such a determination but you did not, you only looked at the status of the Provincial Legislature channel.
173 Now, even then, if you look at the decision closely you didn't need to get to that result to reach your conclusion because you found that both -- the Commission found that both TSC, the Rogers service which was not affiliated to Shaw given that the decision concerned Shaw and not Rogers, was sufficient to meet their match.
174 So, technically speaking, it was in the way of obiter and I think you're not bound by that.
175 But for the other reasons we've said in our oral presentation, starting with the 1994 Maclean Hunter decision, leading to the Order-in-Council that followed that, leading to the 1996-60 access policy and then the codification of the Regulations, is it makes it difficult -- we think the Commission has to read the Regs in a way that makes sense of the ranking order.
176 Now, let's look at the Parliamentary channel in particular because that to me draws it into stark contrast. The Parliamentary channel is a must carry service by virtue of its piggy-backing on CPAC. CPAC is a licensed service, we're not taking any issue with CPAC, but it gets dragged along as a must carry service.
177 Before a BDU can make the decision about which exempt services to carry, it has to meet its section 17 must carry priority carriage obligations. That sweeps in the Parliamentary channel. Only then does section 19 I believe say, once you've met your obligations under 17, please -- you can do -- you may do the following and if you scroll down to, I think it's (m), it says you may carry an exempt service.
178 So, Rogers and any BDU and Class 1 BDU has to carry the Parliamentary channel under section 17.
179 So, for us it just seems -- it actually seems like, Rogers has said earlier in its submission that we would be asking the Commission to amend the Regulations. I actually think -- I would submit it's the opposite, that you would be amending those Regulations by agreeing that the must carry Parliamentary can be turned around and brought forward as a match to a discretionary exempt service.
180 So, yes, we acknowledge 2003-518, but it doesn't go all the way, it doesn't cover the Parliamentary channel at all. And more over, for the reasons we've said in the Order-in-Council, the intent of the Legislature and even the Commission in its access policy was to bifurcate priority exempt services and commercial exempt services.
181 That's how we would address that.
182 THE CHAIRPERSON: I just have one final question. Mr. Goodale or Mr. Zolf, I'm not sure who will answer this, but you speak somewhat at length about the Rogers Shopping Channel in your oral remarks.
183 Is this a veiled attempt at arguing undue preference?
184 MR. ZOLF: Madam Chair, it's not a veiled attempt at arguing it. I mean, I wouldn't preclude -- I would not preclude that kind of a proceeding if -- or a complaint if things warranted, but the undue preference, we're here today, you know, on an access dispute under the expedited hearing and under our rights under section 12 of the BDU Regulations because, as Mark said so eloquently, time is of the essence and much water has gone under the bridge.
185 And, you know, these complaints can be time consuming and costly, so we're not saying this is mutually exclusive with that finding, but that necessarily doesn't give one the best remedial satisfaction, we feel the -- and that's why we were so adamant in seeking a Commission ruling pursuant to an expedited hearing.
186 THE CHAIRPERSON: Okay. I will ask Commissioner Lamarre to continue with the questioning.
187 COMMISSIONER LAMARRE: Merci, Madame la Présidente.
188 Good morning.
189 First of all, Torstar, I have a question for you since you're the applicant here.
190 In your presentation on page 2, first paragraph, at the end of the paragraph you mention that you've been denied comparable access to the channel assignment that Rogers provides to its own Shopping Channel for which Shop TV has been the 1:1 match for the last 12 years.
191 Now, is that statement an attempt to get the Commission to conclude that the 1:1 match should be done considering the nature of service?
192 MR. GOODALE: Madam Commissioner, we've had two separate five-year contracts with Rogers and then subsequent years under what we would call implied contract.
193 COMMISSIONER LAMARRE: That was a yes or no question, and then you may explain.
194 MR. GOODALE: We are -- if you could repeat your question, I'm sorry.
195 COMMISSIONER LAMARRE: I said, is that statement that, you know, the Shop TV has been the 1:1 match of the Shopping Channel for the last 12 years, is that an attempt to get the Commission to conclude that the 1:1 match should be done on a nature of service basis?
196 MR. GOODALE: No, that is not the case.
197 COMMISSIONER LAMARRE: And you may continue your explanation.
198 MR. GOODALE: Torstar has had two subsequent -- two contracts with Rogers, commercially negotiated contracts with Rogers, albeit very difficult negotiated contracts with Rogers due to an existence of a maximum rate and then subsequent years of carriage under what we would call an implied contract where we've had this contracted dispute.
199 Until we raised this dispute with the Commission, we have not heard from Rogers that we were not the match to that channel.
200 And, in fact, within our contract we believe it addresses that we were the match for TSC and it was acknowledged by Rogers in the writing of those contracts, which we're happy to disclose in camera, that we were the 1:1 match for the Shopping Channel.
201 It was when we filed the dispute over this rate issue that Rogers came back and indicated we were not even covered under the 1:1 match because they had fulfilled their obligations with Parliamentary and Legislature.
202 COMMISSIONER LAMARRE: Mr. Zolf.
203 MR. ZOLF: Could I add to that, Commissioner Lamarre?
204 COMMISSIONER LAMARRE: M'hmm.
205 MR. ZOLF: Because I think there was a nature of a regulatory question buried in there.
206 COMMISSIONER LAMARRE: M'hmm.
207 MR. ZOLF: Although I think everything's a regulatory question.
208 COMMISSIONER LAMARRE: So do I.
209 MR. ZOLF: But I think there's a careful distinction that has to be made here. We're not asking the Commission to say all shopping services have to be matched with -- you know, Rogers affiliated shopping service must be matched with an exempt shopping service. The Regulations do not say that. Absolutely not.
210 But what we're saying is that certain exempt services, priority exempt services cannot be matched with that service which happens to be a commercial service. So, there's a big distinction there.
211 We're certainly not asking you to ignore the Regulations and say, you know, shopping must be matched with shopping, it's more that if you look at the Regulatory Code in 17, 18 and 19 our position is you cannot match particularly the Parliamentary channel against an affiliated service which is a non-priority service.
212 COMMISSIONER LAMARRE: While I have you on the mic, would you kindly on page 3 give me the precision of the 1995 Order-in-Council you're referring to, the precise number so I don't have to fish it out of my files.
213 MR. ZOLF: Oh, yes, we've got it right here. My colleague, Mr. Manevich, will -- it's Order-in-Council PC-1995-398, March 14th, 1995.
214 COMMISSIONER LAMARRE: Okay.
215 MR. ZOLF: And we refer the Commission particularly to the recital -- well, the document is mostly recitals.
216 COMMISSIONER LAMARRE: M'hmm.
217 MR. ZOLF: But the key recital would be the fifth and seventh recital which actually, interestingly the fifth recital addresses the decision of the Commission approving Rogers acquisition of Maclean Hunter where Rogers had put out an access policy that included carriage of exempt services and said we will -- Rogers in that decision said, we will promise to carry all priority exempt services such as the Legislature channel and the Parliamentary channel -- pardon me, only the Legislature channel.
218 And the Commission said, thank you, Rogers, we agree with that but you haven't gone far enough, you also need to give us an exempt service policy that applies to non-priority exempt services.
219 I'm not making -- I mean, I'm not embellishing this, with due respect, it just says that in the decision cited by the Order-in-Council.
220 So, if you read the decision that it refers to, read the Order-in-Council and trace through into the subsequent access policy, it seems to me that the Commission has to start making gradations amongst those classes of exempt services.
221 COMMISSIONER LAMARRE: Going back to the 2003 decision in the Shaw case, you do mention that the Commission did not make a statement as far as the Parliamentary service is concerned, and I take your point on that, but like it or not and no matter how you qualify it, we did make a statement regarding the Provincial Legislature.
222 Now, that was in 2003. What, if anything, has changed in your opinion for the Commission to change its view today on this?
223 MR. ZOLF: Well, we think there's good reasons you should -- with all due respect, that with more drill down on the whole history in terms of the Order-in-Council, the decision we referred to that you can see that, I think it's more nuance. Perhaps at the time the Commission didn't feel it had to drill down so heavily -- drill down -- had to look into that issue with its nuances because you didn't need to rely on that finding because you had TSC as a finding. TSC was enough to reject, was it WAG who was the applicant in that.
224 COMMISSIONER LAMARRE: M'hmm.
225 MR. ZOLF: WAG. That was enough. You said, well, both are independent exempt services. So, we feel that it wasn't central to your ruling.
226 But, in any case, we think you couldn't have made that ruling on the Parliamentary channel. You didn't, you didn't even address it, the Commission didn't address it in the decision, but our position is that it would have been a misreading of the Regulations to have made that finding on the Parliamentary channel.
227 So, we would regret if you held to that decision but would understand that because it's out there.
228 But in most of the systems that Ms Dinsmore referred to, I guess we'll talk about that later perhaps, but it seems that Rogers would need in most cases I think the Parliamentary and the Provincial Legislature channel to match before they could conclude that they can't carry Torstar.
229 So, in that sense I would say 2003-518 is there but it's not determinative of the issue before you.
230 COMMISSIONER LAMARRE: Okay. On the rate issue, I must say that as a scientist I take great exception and I have great concern when people try to establish a fact by comparison and I do find it concerning that you filed -- the word is not comparable -- you filed existing rates in other countries without making the distinction between the cable industry over there and the cable industry here in Canada.
231 So, do you want to add to, you know, what you filed on this?
232 MR. GOODALE: Madam Commissioner, as a service in Canada, so I accept your statement as a scientist, I'm not one, but I completely accept it.
233 I enjoy a lot of data when I make decisions and there is not a lot of data in this round.
234 COMMISSIONER LAMARRE: Okay.
235 MR. GOODALE: Those services and DTH and cable providers around the world are as secretive and cautious and confidential with this data as our colleagues from Rogers. This is not publicly shared data.
236 What we sought was to find consultants who held broker between services and cable or DTH providers in other parts of the world as a validation to Torstar that our business model was fine, it was that our carriage fees were not comparable with what other people doing our types of services would do in other places around the world.
237 Hence the reason we didn't rely on one chart from a set of consultants that gave us some opinions from other places in the world.
238 We did ask Mr. Macdonald as a completely subsequent exercise to validate both the CCTA and the CRTC's adopted rate under that and got to a surprisingly comparable number.
239 We were looking for ballpark validations not a finite number to put our fingers on and pick a percent item.
240 COMMISSIONER LAMARRE: Okay.
241 MR. GOODALE: So -- sorry, the last piece of that is also that in the in camera portion we're very happy to address that with non-conflicted BDU rates.
242 COMMISSIONER LAMARRE: Thank you. I have a few questions for Rogers.
243 And we'll continue a little bit on the rate question. You've probably noticed that at the end of their presentation Torstar mentioned that, you know, a third benchmark or the rates that Torstar pays other BDU who do not have an affiliated exempt shopping, okay, these rates are -- never mind. I've answered my own question by asking it. Forget it. Okay, it happens.
244 Now, going back to the 2003 decision in the Shaw case, you've heard the response that Torstar gave to my question as to what in their mind might have changed to change our mind about the statement we made in 2003 regarding the Provincial Legislature.
245 Would you like to comment on that?
246 MS DINSMORE: Thank you, Madam Commissioner.
247 I think what they really said was that since 2003 there has been no change. That remains the most recent decision on this issue. There hasn't been a further decision.
248 The Commission was extremely clear when it said that the purpose of the match with Shaw's affiliated TV Listings service, either the Shopping Channel or the Legislature channel were a match. It was very clear on that.
249 The fact that it didn't make any determination on CPAC is not determinative. In fact, I would argue that Torstar itself came to the 2008 hearing with all the arguments that it's put before you today, didn't get any determination on that, here it is back again making the same arguments.
250 So, the fact that the Commission didn't make a determination on CPAC at the time is not meant to be interpreted that that was saying that CPAC did not qualify as an exempt programming service.
251 What is helpful about the decision is that the Legislature and the House of Commons service operate under the same exemption order, absolutely the same, and in both cases there is no ownership of either by Rogers in this case or by a BDU.
252 And what's interesting about CPAC, for example, is that as we all know the CPAC programming portion of the channel does have cable ownership. Rogers has a piece of the ownership, so does Shaw, so does Videotron. In some cases these ownership levels are above the 15 percent.
253 The Commission has never ruled that it is a whole service and, therefore, it must be matched when carried by any of these distributors. It hasn't made that ruling and I believe it's because the Commission itself has recognized, and it has recognized this over many, many determinations, these are two separate and distinct services, separate ownership, operate separately and the House of Commons operates under an exemption order and that is what is the most important point to take from that Shaw/WAG decision in 2003.
254 COMMISSIONER LAMARRE: From your answer, there's two points I'd like to look into a little bit more.
255 First, you mention that there are no other decisions since 2003 and I take your point, I haven't found any either yet, but it doesn't mean I'm perfect when I do research.
256 But would you agree, you know, as a matter of law that either statutory regulation may overturn a decision?
257 MS DINSMORE: As a matter of law that is a possibility, but I would say there is nothing that has been brought forward today that should be taken to overturn that decision because the words of the Regulation are clear and unambiguous.
258 The Regulation itself -- this is not an exercise in revisionist history, we're looking at the Regulation and what it says. It has a very clear and unambiguous meaning.
259 The Commission itself in interpreting its Regulation within the Regulations has never said that there's a difference between a priority and a -- a priority service and a non-priority service. That exists nowhere in the Regulations nor in the companion document.
260 So, I hear what Torstar is saying and I understand the history they're trying to put before you, but I would argue in reply that that was never made clear and it's never been written in the Regulations. The Regulations themselves speak to third party exempt programming service, they are defined within the Regulations with the 15 percent, you know, cap.
261 So, I don't think anything has been brought before the Commission today that would cause the Commission to change its decision.
262 COMMISSIONER LAMARRE: Okay. You also -- my second point that I took from your previous answer is about the Parliamentary channel operating under an exempt order.
263 It does, but the carriage and its access to BDU systems is also under the provision on a 2005 Order-in-Council that instructed the Commission to ensure that two, not just one, but two channels were put aside in all systems that had at least 2,000 subscribers for the French and the English channels.
264 So, how do you reconcile that with your position?
265 MS DINSMORE: I think the salient point is that it's an exempt programming service. I think that's the salient point here for the purpose of the discussion is that what we're looking at is a match for a Rogers owned service with a Rogers non-owned service and in this case the House of Commons service is an exempt programming service for the purposes of that match, it is not owned by Rogers.
266 So, whether or not it's mandatory is not the most important point, the most important point to look at is whether or not -- or whether it's coupled with CPAC whether it's -- you know, all those points are not the most salient points, the most salient point is that it is an exempt programming service operating under an exemption order and, therefore, qualifies as a match for either the Rogers Shopping Channel or our TV Listings channel which we own which are affiliated with Rogers.
267 COMMISSIONER LAMARRE: Okay.
268 MR. PRESCOTT: And just if I can follow up, sorry. There is nothing in the Regulation that makes this distinction between mandatory and discretionary exempt services. That isn't in the -- as Pam said, it's not in the companion document, it's not in the Regulation.
269 To accept Torstar's argument, you would have to read into that Regulation this whole notion of mandatory versus discretionary and that isn't there and you didn't do that in 2003 and you shouldn't do it now.
270 And the Commission has to take the words -- when it creates a Regulation and it cannot simply ignore the words that are used in that Regulation and it must apply those words -- must apply a meaning to those words that they are reasonably capable of bearing.
271 That's the fundamental principle of statutory interpretation that applies across the board in Canada.
272 COMMISSIONER LAMARRE: That is one of them.
273 MR. PRESCOTT: No, but that's the key one though. You go back and you look at what the Macintosh case that we referred to in our material and you'll see that the Supreme Court was very clear in that case that any definition that you -- interpretation of a provision has to be reasonable and the words have to be reasonably capable of bearing that.
274 And the same is for the case that Torstar refers to in its materials, the CCTA versus Barrie PUC case. The majority in that case -- they refer to the dissent of the majority in that case specifically overturned the Commission's decision on what is a transmission line precisely because the Commission didn't give enough weight to the plain and ordinary meaning of the words used in that provision.
275 And that's all we're saying here is that you have to take -- you've made a Regulation, you've defined third party exempt service in a certain way and it's very clear and unambiguous and you have to use those words.
276 If you want to change that Regulation now, then you have to have a proceeding under section 10.3 of the Act --
277 COMMISSIONER LAMARRE: Yes, I know how that works.
278 MR. PRESCOTT: -- and say, and put it out in the public and say, now we're going to change the meaning of that term or we're going to consider changing the meaning of that term to import these other notions that Torstar is proposing, commercial, public interest, mandatory, discretionary.
279 I think that's the way to do it.
280 COMMISSIONER LAMARRE: Okay. I realize I'm asking picky questions here and I'm sorry I'm going to have to continue because I really want to get to the bottom of this and I do need your position on this.
281 If I go back to the -- I take your point that obviously, you know, with the Macintosh case and that once you read some provisions you have to first use the words as they're normally being used, I mean, that's sheer common sense, okay, interpretation rules or not.
282 But at the same time, because we're talking about statutes, nothing is simple and regarding the distribution Regulation, we do have a list of definition right at the beginning of that Regulation.
283 One definition is for the expression exempt programming undertaking and so third party we can infer from that what a third party is, and the other provision in the Regulation, but we also have a specific definition for the House of Commons service, and in that definition I do not find the word exempted.
284 Now, why would we have two different definitions if the House of Commons service should for the purpose of that Regulation fall under the definition of exempt programming undertaking?
285 MR. PRESCOTT: There is no reason to define, I mean it doesn't even say -- the definition of House of Commons doesn't even say it's an exempt service.
286 COMMISSIONER LAMARRE: Exactly.
287 MR. PRESCOTT: But it is, it operates -- how does the House of Commons service operate if it's not under the exemption order under -- I have the exemption order here, 2002-73, that's the exemption order that it operates under. So, it is clearly an exempt service and there's no doubt about it. And Rogers doesn't hold any interest in that service.
288 So, based on the definition, a more specific definition of third party exempt programming undertaking in section 21, Rogers doesn't -- the House of Commons service fits within that definition of third party exempt programming undertaking because the only distinction you make in that definition is the 15 percent threshold.
289 And Rogers doesn't have any ownership interest in the House of Commons and the House of Commons couldn't operate unless you had an exemption order or you decided to license it instead.
290 COMMISSIONER LAMARRE: Taking you back to your presentation on page 6, you mention that Torstar has come to this hearing seeking the equivalent of mandatory carriage on all of Rogers Class 1 system, and then you go on to say:
"This is the sort of privileged access that has traditionally been granted only to services of national importance and those that make an exceptional contribution to furthering the policy objectives of the Broadcasting Act." (As read)
291 COMMISSIONER LAMARRE: And then you say that:
"There is something terribly out of step with Torstar's demands when Shop TV, an infomercial service, is placed in that context." (As read)
292 COMMISSIONER LAMARRE: Well, aren't you doing the same by placing the House of Commons programming at the same level as it is mandatory -- a mandatory service of national importance?
293 MS DINSMORE: I think it is simply de facto at that level because it is what it is, it is a service that the Commission has decided to grant 9(1)(h) status to to CPAC and the House of Commons is the complementary service to CPAC. But that's not our placement of CPAC in that category, that's the Commission's placement of CPAC in that category.
294 But what Torstar would be getting if it were to get carriage on Rogers either by CRTC order or what have you, it would be getting the equivalent of that kind of status which, in our view, and which the Commission has ruled, is only granted to services that meet the national importance test. That's what we're saying there.
295 So, our point is that as an infomercial service it doesn't meet the test. That's all.
296 COMMISSIONER LAMARRE: It doesn't meet the test for 9(1)(h), but what about the reverse? How can we treat a 9(1)(h) service like CPAC on the same footing, with all due respect, as Shop TV and the Shopping Channel?
297 MS DINSMORE: We treat the House of Commons portion of CPAC as an exempt programming service which is what it is. It's the House of Commons service that is the exempt service that we are matching our affiliated exempt service with, not CPAC, it's the House of Commons exempt programming service.
298 COMMISSIONER LAMARRE: Thank you.
299 MR. PRESCOTT: If I could just add, and the fact that it's a mandatory service, again, that's nowhere mentioned in your Regulation.
300 So, I don't understand why we would bring it in. I understand -- I think the point that David was making was that we're moving in a direction of digital carriage and these 6MHz channels are precious, valuable real estate and that it would seem odd that the Commission would now re-invent the definition of third party undertaking to exclude something like the House of Commons service and force the carriage of an infomercial service like Shop TV.
301 COMMISSIONER LAMARRE: One question about the rate value of a 6MHz channel in this new carriage environment.
302 You do mention both in your presentation and also in documents you have filed with the Commission that should we be redoing the exercise of trying to assess what would be the access rate for this 6MHz we might come up with much higher numbers than we did back in 1997.
303 Would you say that this higher number is a result of more costly technology or the realistic value, as you mention it, of that 6MHz?
304 MR. WATT: We made our statement on the basis of additional cost in the sense that, you understand how the cost was derived, it was to take the cost of the distribution plant and the drops of physical, the capital cost.
305 A large component of that capital cost is capitalized labour, it's digging in the wires, hanging the wires, et cetera.
306 COMMISSIONER LAMARRE: M'hmm.
307 MR. WATT: So, many people think costs may have come down since 1997 because of the march of technological progress, however, the costs that are at issue here are actually the costs of the wires and deploying those wires.
308 So, we think the -- if you were to redo the analysis on the basis of the methodology that you would get a higher cost because those unit costs have gone up as people are being paid more.
309 The other point to make is that the way the per subscriber rate is calculated is to take the total costs --
310 COMMISSIONER LAMARRE: M'hmm.
311 MR. WATT: -- divide by the total number of channels, divide by 12 to get into a month and then divide by the number of basic subscribers.
312 So, you have this total cost number that you start with. Since 1997 we have built out wires and fibre optics to 900,000 more homes. We've only added 60,000 new subscribers.
313 So, if you added the costs associated with 900,000 homes, but we only get to recover those effectively over the base that was there at the beginning plus 60,000 homes.
314 So, because our penetration rate has gone down, we think when you spread those costs over the fewer number of subscribers in proportion to the homes passed, the rate would go up.
315 COMMISSIONER LAMARRE: So basically, regardless of the real estate inflation or value of that 6MHz channel, you're saying that the cost increase of maintaining and enhancing your infrastructure plus the diminishing of your penetration rate actually had an effect in hiking up the -- in increasing the price?
316 MR. WATT: That's correct.
317 COMMISSIONER LAMARRE: Okay.
318 MR. WATT: Just in short, it's a cost-based statement, it's not an --
319 COMMISSIONER LAMARRE: Okay.
320 MR. WATT: -- opportunity value statement.
321 COMMISSIONER LAMARRE: Based statement. Okay.
322 MR. WATT: No.
323 COMMISSIONER LAMARRE: Thank you.
324 THE CHAIRPERSON: Thank you.
325 I believe Commissioner Poirier may be asking questions in French, so if you would like to avail yourselves of translation devices, please do so.
326 MR. DOUGHERTY: Yes, Madam Chair. Thank you.
327 THE CHAIRPERSON: Okay.
328 MR. DOUGHERTY: And just for parties' information, the English is on channel 4.
329 CONSEILLÈRE POIRIER : Merci beaucoup. Je vais vous laisser installer votre appareil et m'assurer que vous entendez bien la traduction, et puisque toutes les principales questions ont été posées, je vais poser quelques questions de poutine, de cuisine.
330 CONSEILLÈRE POIRIER : J'aimerais d'abord poser des questions à Rogers.
331 Quel pourcentage de la programmation qui est diffusée sur CPAC est celle de la Chambre des Communes, donc exemptée, et l'autre partie en est une d'affaires publiques, donc non exemptée, et je sais qu'il y aurait des pourcentages différents en fonction du fait que la Chambre siège ou non?
332 MS DINSMORE: Yes. Thank you, Commissioner.
333 We do have that figure for you. It is on average 40 percent programming of the House of Commons and 60 percent programming of the wraparound programming of the CPAC, which of course is all related back to its discussion around what happens on the House of Commons channel.
334 But, as you say, that number does vary. It depends if there is an election in a given year or not; it depends how many days the House actually sits. We had a prorogation in the last year; before that we had an election; the last two years before that were regular years so the numbers would vary depending on how many hours the House does sit, but overall it's about a 40:60 split.
335 Which is, in effect by extension, if you look at Rogers TV Listings channel, equally in that context, that part of that service that is exempt is about 33 percent in any given year.
336 So the number devoted to the exempt House of Commons service, the percentage of time, potential to screen devoted to the House of Commons exempt programming compares on almost the same basis as the amount of programming devoted to the exempt service that we have to match on the Rogers-owned TV Listings channel.
337 THE CHAIRPERSON: I just have one follow-up question just to this one point.
338 So if it were not for CPAC the House of Commons channel would look more like the provincial legislature channel? That is, when the House is not sitting there would simply be a slide up that says this is the parliamentary channel?
339 MS DINSMORE: That is absolutely correct. In fact, the Ontario Legislature, when it's not covering proceedings or informing people of proceedings that are upcoming, it merely runs pictures of MPPs, their address, you know, what their riding is. It's alphanumeric programming with a little picture on the side.
340 That would be what House of Commons would have to do to fill the time. You might there see pictures of MPs and their ridings and their addresses and you might get that alphanumeric programming, but instead CPAC many years ago opted to do the wraparound programming and fill that time with programming and that's in fact what the arrangement is.
341 THE CHAIRPERSON: Okay. Thank you.
343 CONSEILLÈRE POIRIER : CPAC doit, par contre, aussi payer pour assurer son lien avec le satellite ou a des coûts de transpondeur.
344 Est-ce qu'il y a moyen de connaître ces coûts sur une base annuelle ou est-ce que c'est une donnée que vous voulez garder confidentielle?
345 MS DINSMORE: CPAC would have that information.
346 MR. PRESCOTT: I don't think we want to speak for CPAC. I'm sure they would have that information, whether they would file it or file it in confidence or whether they have in the past I don't know the answer to that.
347 CONSEILLÈRE POIRIER : Est-ce que c'est de l'information que vous pouvez nous acheminer rapidement ou non?
348 You don't know? Okay.
349 MS DINSMORE: I would have to check.
350 CONSEILLÈRE POIRIER : O.K. O.K.
351 Ce que je comprends mal dans la position de Rogers, c'est que CPAC a obtenu d'être un service 9(1)(h); deuxièmement, CPAC n'a pas une programmation entièrement exemptée; et troisièmement, CPAC, contrairement à un service exempté, reçoit de l'argent au lieu d'en payer à son BDU.
352 Sur la base de ces trois données-là, comment peut-on donner priorité au mot "exempté" pour qualifier CPAC par rapport à un service obligatoire qui ne pourrait pas nécessairement être évalué comme un service exempté? Comprenez-vous bien ma question?
353 MS DINSMORE: I believe so.
354 COMMISSIONER POIRIER: Okay. Because I gave you three examples where it's different from an exempt service.
355 MS DINSMORE: Okay. Maybe you could just give me those three examples again.
356 COMMISSIONER POIRIER: Yes.
357 MS DINSMORE: Okay? The three examples being CPAC pays an affiliation payment and what were the other two?
358 COMMISSIONER POIRIER: Well, 9(1)(h).
359 MS DINSMORE: CPAC has 9(1)(h) status.
361 COMMISSIONER POIRIER: And part of the programming is exempt, only part of it, and you said -- vous avez même dit peut-être 30 à 50 pour cent, je pense.
362 Alors, considérant ces trois éléments, comment ne pas considérer CPAC différemment d'un service exempté comme Torstar, qui, lui, vous paie entièrement, n'est pas un 9(1)(h) et toute sa programmation est exemptée?
363 MS DINSMORE: Okay. Let me just address each of these points in turn.
364 I think the point around the fact that only part of the service is exempt, that is very much similar to the Rogers TV Listings channel and on that service only part of the service is exempt and the Commission has ruled that we must match that TV Listings channel as if the whole service was exempt.
365 So the Commission itself has decided that where part of the service is exempt it must be treated under section 21(3) as an exempt programming service. So that requirement is upon Rogers with our affiliated service, so then by extension we look at CPAC, again only part of it is exempt, but on the same logic it would qualify as an exempt service, just as the Rogers TV Listings channel at 33 percent of the time qualifies as an affiliated exempt programming service. So that is my response to the first part of your questioning.
366 Now, the fact that CPAC has 9(1)(h) status, I think it's very important to understand always that these are two separate services. They are two separate services. They are complementary, yes, but they are two separate services and the exempt portion is owned by the House of Commons, owned by Parliament, and CPAC operates it by virtue of an agreement that they have with the Speaker of the House, but the Speaker of the House controls the service. So that part of the service is separate from CPAC.
367 Now, CPAC is a programming service, it's the wraparound programming, as we know, for the House of Commons service, but as Commissioner Cugini just mentioned, our Chair in this proceeding, she mentioned the fact that if the House of Commons service did not have that wraparound programming it would simply fill the time effectively with interstitial programming and that's instead of that. CPAC is instead of having screens up showing pictures of MPs and their addresses in their ridings, that sort of alphanumeric programming you would otherwise get if CPAC was not in existence.
368 CPAC is in existence so in this context, unlike the provincial legislature services CPAC fills the gap, but it doesn't mean in any way or take away in any way from the fact that the House of Commons service itself is an exempt programming service. That's plain and clear from the fact that it meets the exemption order that the Commission created.
369 The fact that CPAC pays an affiliation payment, that's because it's a programming service, it has -- it's quite different from the exempt programming service. The exempt portion, the House of Commons is a not-for-profit cooperative, so it does not make money, it does not make any revenue, ergo like the provincial legislature service it doesn't pay an access fee. Only the revenue-generating exempt programming services pay an access fee.
370 CONSEILLÈRE POIRIER : J'aimerais demander à Torstar de répondre aussi à cette demande que j'ai faite par rapport à CPAC sur les trois éléments que j'ai mentionnés.
371 Pour vous, est-ce que cela justifie qu'on considère CPAC d'une façon différente des autres canaux exemptés?
372 MR. ZOLF: Madam Commissioner, we feel that the Commission should take into account CPAC's status as a must carry status.
373 I actually think we are not quibbling with CPAC's -- pardon me, the parliamentary portion that Ms Dinsmore referred to that gets carried as an exempt service. We are not quibbling with the fact that that's an exempt service.
374 Our position is that that service, the parliamentary service, is swept along with the distribution order that CPAC is subject to, as well as section 17 of the Regs which require the House of Commons exempt service to be carried, and that if you read the Regulations in their entirety that cannot be the subject of a match under section 21(3). That's our position effectively.
375 I think again to pick up earlier, you need to -- we submit that the only reasonable and purposive interpretation of the Regs is to read it that way.
376 So I think our position is that it's almost beside the point effectively how you characterize those.
377 Now, there are some issues on predominance perhaps you could argue. I'm not sure if CPAC gets you all the way on a predominance test in terms of how much is devoted to the feed from the House of Commons. As Ms Dinsmore said, I think it's 40 percent on average for the House of Commons, but of course even when the House is sitting there is a lot -- on a predominance test how do you measure predominance when for 6, 10 or 12 hours there is no exempt service there at all. If I was to turn on CPAC and I was watching wraparound programming, inquiries or all of those political shows, it doesn't look like an exempt service in that case.
378 So I think there may be trickier issues on predominance in that case than there are for example on the Listings channel.
379 But all of that said, our position is that the House of Commons service as a mandatory carriage service cannot be matched and it's not because of policy, it's because we think the Commission should interpret the Regulations in that manner as the ranking order sets out in 17, 18 and 19 and then getting to 21.
380 CONSEILLÈRE POIRIER : Une autre question de poutine pour Rogers.
381 Je ne suis pas certaine, le canal de la législature provinciale, est-ce qu'il paie pour être distribué chez Rogers?
382 MS DINSMORE: No, they do not.
383 CONSEILLÈRE POIRIER : Gratuit, lui aussi. O.K.
384 Et ma dernière question à Torstar : Si vous n'aviez pas demandé pour être distribué ailleurs que dans le Grand Toronto, est-ce qu'on serait ici aujourd'hui?
385 MR. GOODALE: I think it's safe to say that we have -- our request for carriage was to settle a dispute on a contract that we could not come to terms with with Rogers. In that dispute it had non-competition clauses that we would not agree with, it had a maximum rate that we felt was unfair and inappropriate in today's day, and it also dealt with a third issue of continued carriage across the rest of the Rogers systems.
386 So I don't know how to succinctly answer would we be here today. We would rather not be here today, and I think my former CEO has said that when we have spoken before. It is not Torstar's interest to participate in regulatory proceedings, we will when asked to, we will when we believe there is an issue that needs to be addressed, but we like to deal with commercial relationships and these two parties have been unable for a long time to get a commercially agreeable deal between them.
387 CONSEILLÈRE POIRIER : Merci, Madame la Présidente.
388 THE CHAIRPERSON: Thank you.
389 Legal counsel...?
390 MR. DOUGHERTY: I just have one quick clarification for Torstar.
391 In your June 11th letter of Additional ArgumentS at page 8 you suggest that:
"Torstar submits that the Commission should reassess the rate under the existing formula approved in 1996 and 1997 access proceedings and set the revised rate as a maximum." (As read)
392 However, today you say that you are not suggesting a new maximum.
393 Are you modifying the arguments that were submitted on June 11th?
394 MR. ZOLF: I will answer that.
395 Counsel, yes. It's a slight modification in the sense that Torstar, as Mr. Goodale said, if you opened up the rate for a national proceeding or for an industry-wide proceeding to revisit the methodology and establish a new maximum rate of coarse Torstar would urge that, but it is not mutually exclusive with the request before you and nothing turns on that.
396 So it is a slight modification and we feel that, as Mr. Goodale said, we want to take advantage of the Commission's dispute resolution procedures that we have standing to do and we shouldn't be precluded from doing that while waiting for such a proceeding to take place.
397 MR. DOUGHERTY: Thank you.
398 THE CHAIRPERSON: I think we will take a 15-minute break before we move on to the questioning of parties by the parties.
399 So we will resume in 15 minutes. Thank you.
--- Upon recessing at 1035
--- Upon resuming at 1058
QUESTIONS BY TORSTAR
400 THE CHAIRPERSON: We will resume and we will ask Torstar to ask Rogers the questions first, please.
401 MR. ZOLF: Thank you, Madam Chair
402 In the interests of brevity we are going to have just a few questions for Rogers which Mr. Goodale I think is going to ask, but we will keep them very limited.
403 MR. GOODALE: Thank you.
404 Mr. Watt, you talked about your unit costs in your remarks, but you didn't address channel capacity. We were wondering if you could give us some idea of the channel lineup or the number of channels that are offered in both analog and digital on, let's say, the average Rogers systems.
405 MR. WATT: I will take a start at answering that and then David Purdy will continue on.
406 I think what's relevant for this proceeding is that we in Toronto -- our biggest system, and in many of our -- our Ottawa system, et cetera -- we have 860 MHz of capacity. About 60 of that -- about 52 actually -- is upstream capacity, so not used for downstream channels. This leaves somewhere between -- I think it's about 808 MHz for downstream channels.
407 We could carry 134 6 MHz channels; we currently carry I believe it is 69 -- David will correct me if I'm wrong -- 69 analog channels, each consuming 6 MHz of spectrum. The remaining amount of spectrum -- and if you did the multiplication there, that's roughly a little bit over 400 MHz I believe, 414 MHz of downstream capacity in analog 6 MHz slots. The remaining downstream capacity is a variety of digital channels, et cetera.
408 So that's the split between analog and digital at the current time.
409 MR. GOODALE: Could either you or David give us the number of digital channels that you offer?
410 So there are 69 analog channels, how many digital channels would be in your average Rogers lineup?
411 MR. PURDY: I'm guessing close to 400 now.
412 MR. GOODALE: And what's the megahertz capacity of any one of those channels?
413 MR. WATT: I really can't answer that question, except with a range because with digital channels you will have standard definition digital channels, high-definition digital channels, we have digital channels that are provided through switched digital video, so in essence sort of on demand. We have VOD digital, we have pay-per-view digital, we have downstream channel for voice service, we had some control channels.
414 So it ranges for a digital channel -- and it depends upon the complexity of the signal as well -- probably anywhere from 8/10 of a MHz up to 3 MHz, 6/10 of a the 3 MHz.
415 David, if you would like to jump in.
416 MR. PURDY: Yes. So not all HD channels are created equal so some can be compressed at a higher rate so in some cases you can fit three HD channels into a slot that's occupied by one analog channel and in other cases it's only two. It depends on how much movement there is.
417 So talking-head, news-type programming requires less spectrum than sports or movies. Actually, movies are actually pretty good, but sports is really the big consumer.
418 MR. GOODALE: Thank you. I will just ask one further.
419 I believe it was either Mr. Watt or Mr. Purdy who had talked about that the rate value of a 6 MHz channel is much higher, but did you file any cost information on the record of this proceeding as to what the cost was?
420 MR. WATT: What we did, I believe it's in our June 28th response in Appendix D we commented upon your $.08 per month per subscriber number and indicated that we believed if there was going to be a change in rate it should flow from a full, proper costing proceeding, but at a high level that we expected the 16.2 cent per month per sub rate would actually increase and gave the two underlying reasons why that I spoke about this morning.
421 MR. PURDY: If I could just add, if you look at our systems today, as David so eloquently pointed out, we are now having to run by many more homes passed historically to get the same number of subscribers. So in the early '90s or mid-90s we were at 85 percent penetration of homes passed, today we would be somewhere below 65 percent penetration of homes passed. So the costs have gone up in that regard, since we are having to wire more homes passed to get the same number of subscribers.
422 Additionally, the complexity of serving those homes has gone up in the form of HD, video-on-demand, et cetera. So the demands on our spectrum are acute. Every year is different.
423 If you had asked me 24 months ago or 36 months ago would I be building into my spectrum plan assumptions around 3-D television, the answer would have been no, but unfortunately now I'm having to figure out how we are going to provision or allow for multiple channels available in 3-D in the foreseeable future. So that's always ongoing.
424 Additionally, we carry many more multicultural channels than we have historically and we do that so that we can be competitive with all the over-the-top video providers that are in the marketplace today and video-on-demand is requiring more spectrum and now requirements on high-speed Internet are also drawing down on the spectrum. So people are consuming more and more video over the web so we are having to allow for that in our spectrum planning.
425 So I don't want it to seem disingenuous, we really have seen a very different world today than we were seeing 24, 36, 54 months ago in terms of the demands on our spectrum.
426 So one of the earlier questions was why would you continue to carry Torstar if you didn't have to. The short answer was because it was commercially good terms for us to do so and we could afford to, there wasn't the same demands on our spectrum 24, 36 or 54 months ago that there is today.
427 MR. ZOLF: But just to follow up on that, but you actually didn't -- just so I understand, you didn't file anything on the record in confidence or otherwise showing the actual costs?
428 MR. WATT: No, we didn't. We didn't view this as a costing proceeding. So simply we had the comments in Appendix D on June 28th and then we put in our -- on cost matters our assessment or critique of the Macdonald memorandum on July 7th.
429 MR. ZOLF: Could I ask one more follow-up?
430 Mr. Watt you mentioned I think close to 400 channels of digital give-or-take after you did the math there.
431 Are some of those digital channels deployed to mirroring of what is on analog in your systems?
432 MR. PURDY: Yes, we do. We simultaneously -- or simulcast analog and digital signals. So if you take a channel like Channel 6, CBC in the Toronto marketplace, it's available in analog for our analog customers, standard definition digital, high-definition, and so we will carry the same channel in three different formats.
433 If you are digital customer in Toronto you will see -- and you tune to Channel 6, you will see the standard definition digital signal, but the analog signal is also available on Channel 6.
434 So the challenge we have going forward and from a spectrum perspective is you could see us having to carry four different formats of the same channel. So imagine a TSN, if you will, available on analog, standard definition digital, HD and 3-D if it follows suit the way ESPN is planning on launching a 3-D version. So we will actually be having to carry four versions of a channel or four formats simultaneously.
435 MR. GOODALE: Right.
436 MR. ZOLF: Thank you.
437 MR. GOODALE: So there have been comments about the information we have submitted and, as we have said, it has been difficult for us to gather information worldwide due to the confidential nature of what companies pay cable companies or DTH companies.
438 Have you submitted anything in this hearing about competitive prices anywhere else in the world?
439 MR. WATT: No, we have not. We consider that the relevant rate is the rate that will recover our costs.
440 MR. PURDY: I mean, it's hard for us to get that type of competitive information. Cable companies are collaborative in terms of 30,000 foot marketing directions, adoption of new technology, things like that, but in terms of what they pay or are paid for carriage of channels, very challenging. In fact, I think in the States you run up against a number of rules and regulations around competition if you share that information.
441 Our sources, though, tell us that a comparable service like QVC is in the range that we are paying. So if the established rate in the Canadian marketplace is $1.94, my understanding is that QVC is paying very similar to that rate on an apples-to-apples basis. What I mean by that is analog carriage and lower down analog carriage.
442 One of the challenges we had reading your documentation was that there was references to U.K. satellite and things like that, which we don't think is necessarily comparable, or ShopNBC.
443 I mean the channels that enjoy preferential channel placement and analog channel placement are paying in the range of the CRTC rate of $1.94.
444 MS DINSMORE: Having said that, the other, though, very relevant point in all of this is that the rate that has been arrived at through the CRTC process is a cost-per-channel rate and that rate was arrived at through a very extensive process where all the major cable companies in Canada were looked at back in -- the data back in 1995.
445 From what we can understand, the rates that are arrived at, whether it's digital or analog carriage for any kind of shopping channel in other parts of the world appear to be rates that are based on any number of different items. It could be channel placement, it could be neighbourhood, it could be some sort of in-kind arrangement as between The Shopping Channel and the carrier. It could be some sort of commission on sales.
446 There are many, many different kinds of arrangements so that when we try and look at rates in other countries in any event it's almost -- it's impossible to compare them to the CRTC rate because -- it's impossible to compare them to each other because of all these variables and then it's impossible to compare them to the CRTC rate because none of them are cost-per-channel rates, they have nothing to do with arriving at a cost per channel, they have everything to do with a pre-market negotiation, whatever that may look like.
447 MR. ZOLF: Thanks.
448 Mr. Purdy, you were saying that cable companies treat that information quite close to the vest on rates and other exempt services, but is it possible for you to get that kind of -- to do a comparative analysis from your affiliated shopping Channel? Would they have that data that could be provided to what's going on internationally or do they not collect that data?
449 MR. PURDY: It wouldn't be possible for me to get it.
450 MR. ZOLF: Why is that?
451 MR. PURDY: I doubt that an affiliate negotiator for the Rogers Media would give me access to competitive rates. It may be possible for Ms Dinsmore.
452 MR. ZOLF: Okay. Ms Dinsmore is more persuasive?
453 MR. PURDY: I am the gentleman who negotiates on behalf of the cable company so they would be unlikely willing to share competitive rates with me.
454 I'm less welcome on the sixth floor of my own building that I am probably in Torstar.
455 MR. ZOLF: Thank you.
456 Madam Chair, can you bear with us for 30 seconds or so? Thank you.
457 MR. ZOLF: I believe those are all of our questions in this part of the process.
458 Thank you.
459 THE CHAIRPERSON: Rogers?
460 MS DINSMORE: I will have some questions in this part of the process and they will be directed at Jim Macdonald, so I would ask that Jim Macdonald be made available on the phone as planned.
461 MR. ZOLF: Yes. Madam Chair, I spoke with Commission counsel about this and we feel that -- and I spoke with Ms Dinsmore, we agree that while we filed Mr. Macdonald's study in confidence it really tried to address publicly available rates and that after talking to Mr. Macdonald we are satisfied that we can get him on the phone now in this part of the proceeding as opposed to waiting for in camera.
462 THE CHAIRPERSON: Okay, that's fine.
463 So we will just wait for the connection to be confirmed.
QUESTIONS BY ROGERS
464 MR. MACDONALD: Hi it's Jim Macdonald,
465 THE CHAIRPERSON: Good morning, Mr. Macdonald. Welcome.
466 Rogers will address some questions to you right now.
467 MR. MACDONALD: Thank you.
468 MS DINSMORE: Hi, Jim, it's Pam Dinsmore.
469 MR. MACDONALD: Hello, Pamela.
470 MS DINSMORE: How are you?
471 MR. MACDONALD: I'm very well, thank you.
472 MS DINSMORE: Good.
473 I just want to thank you for making yourself available, that's very helpful. Equally I just want to warn you in advance that I have a number of questions for you in relation to your studies or your memo that you sent to Heather Brunt back in 2007.
474 Given that we want to keep moving along briskly and our time is short, I would appreciate it if you could give me fairly crisp answers to the questions I'm going to ask. They are mostly yes or no questions anyway. So with that in mind I will just get going.
475 Mr. Macdonald, in your memo of September 14th, 2007 addressed to Heather Brunt you performed two separate analyses in which you attempt to, in your words, and I will quote:
"... bring forward the Commission's 1996 formula to reflect recent available data based on the same methodology". (As read)
476 Is that correct?
477 MR. MACDONALD: That was the attempt, yes.
478 MS DINSMORE: Okay.
479 MR. MACDONALD: However, the attempt did not work out. In fact, a number of the calculations that were in the first chart that you referred to in your letter of July 7th were in fact to give my client an example of some of the calculations that I tried for experimental purposes.
480 MS DINSMORE: Okay. Okay. I understand that.
481 So as I understand it further, you are asked to update the CRTC's 1996 proposed methodology for determining an access rate for exempt programming undertakings that have been set out in Public Notice CRTC-1996-32 using recent data, and you applied the proposed methodology first to the 1997 numbers.
482 Is that correct?
483 MR. MACDONALD: That is correct
484 MS DINSMORE: Okay. So once you --
485 MR. MACDONALD: One of the reasons of using the 1997 numbers was because -- your notice had questioned why that was done. It was for the specific reason of creating baseline data as close to 1995 as possible.
486 The 1996 data was not usable because it was an aggregation of Class 1, 2 and 3 systems.
487 MS DINSMORE: Yes, I understand that. You made that clear I think in the memo.
488 But once you had updated the 1996 proposed methodology using those '97 numbers, you arrived at an access rate of $.33 per subscriber per month.
489 Is that correct?
490 MR. MACDONALD: That's correct.
491 MS DINSMORE: Okay. But then, just to follow this through, you then adjusted the number and you made two adjustments and one was to the technical operating costs and the other was to the average subscriber number.
492 Is that correct?
493 MR. MACDONALD: That's correct as well, but we need to be I think fairly clear that these were experimental calculations.
494 The $.33 obviously told me very quickly that we were nowhere close to the Commission's formula based on the fact that the data was only two years old.
495 So the other columns that you are referring to were playing, for lack of a better word, to try to figure out where the major anomalies were. And certainly the operating costs, the average common facilities operating costs were one of the major areas where there was a big, big discrepancy.
496 MS DINSMORE: Okay. Well, I just want to look at those two adjustments then and we will just go to your chart at what I call page 6 of your memorandum, but it's that first chart that has 1995 numbers, the CRTC numbers down one side and the '97 -- your findings on the other.
497 So on the first adjustment you got the rate down to $.25 and even though we question that adjustment, as we explained in our response of July 7th, but since time is short what I really want to focus on is the second adjustment that you made and that's the one --
498 MR. MACDONALD: Okay. Excuse me for interrupting, but if time is short, then I would say just get skip off this page because none of it was used in calculating the $.08.
499 MS DINSMORE: Okay, but this --
500 MR. MACDONALD: These experiment calculations, period, end of conversation on that.
501 So I just want to make sure that's clear as opposed to having a significant debate about what's on this page, because it really had nothing to do with the $.08.
502 MS DINSMORE: Okay. But it was submitted in this proceeding so I just want to go over the next adjustment --
503 MR. MACDONALD: Absolutely.
504 MS DINSMORE: -- which was the adjustment of the average subscriber number.
505 There you adjusted it and you cut the monthly subscriber rate from $.25 to $.12.
506 Isn't that correct?
507 MR. MACDONALD: I believe that it actually came down to $.16.
508 MS DINSMORE: No, I believe it came down to $.12.
509 MR. MACDONALD: I apologize, yes. Because I incorrectly used -- the one that you saw had 100,000 which was a mistake. But yes, you are absolutely correct.
510 MS DINSMORE: Okay. So you used that 100,000 subscriber number, but in doing that what you are doing is you had calculated the costs for an average system, so in my view you logically would have had to have divided the number of subscribers -- divided that number by the number of subscribers in an average system and the real average number of subscribers per system which got you to the $.33 rate was 42,279 subscribers.
511 So how did you justify using that 100,000 subscriber number that's sort of more than doubling of the number in this calculation?
512 MR. MACDONALD: Well, once again I want to make sure that it's clear that this page is experimental calculations trying to deal with different metrics to get as close to the Commission's rate as possible. So that last column, actually when the 100,000 was initially used it was only to come close to the average number of subscribers in an 80,000 to 120,000 system, which you will see on the left-hand side as 101,568. Then if I was being consistent I would have used the average for all systems, which was 73,508, but I did not in the page that went in which actually that 100,000.
513 Now, you make the point -- and I would just like to agree with it because I certainly indicated in the report -- that using a straight average is not appropriate, it really should be a weighted average, but that was just one more of the many issues in trying to effectively replicate the rate.
514 MS DINSMORE: I do want to move on, but I just want to point out that if we took this number to its logical conclusion, the 100,000 subscribers, and we multiplied it by the 144 systems that you were looking at, we would get to a number of 14.4 million subscribers across the systems in Canada, which is about double the number of cable subscribers that exist today.
515 So I guess what you are telling me is that this particular chart, this particular exercise, the $.12 number that you arrived at is not relevant to this proceeding?
516 MR. MACDONALD: That is correct.
517 MS DINSMORE: It was an experiment and is not meant to be read as anything more than that?
518 MR. MACDONALD: That's correct.
519 MS DINSMORE: Okay. But you were trying to duplicate what the CRTC did?
520 MR. MACDONALD: That's correct.
521 MS DINSMORE: Okay. But it didn't really work out so you did this experimentation.
522 Let's move forward to the analysis using the --
523 MR. MACDONALD: Excuse me, but let me just comment on that.
524 I tried to replicate the rate based on what was available from the CRTC financial database information. As you know, it doesn't break it out in the same way. Some information is aggregated differently and using averages is not really going to work because it's weighted. And this whole thing was to find out whether or not by using information that was publicly available whether I could replicate the rate. What this exercise proved was I couldn't.
525 MS DINSMORE: Okay.
526 MR. MACDONALD: So I moved on to the second chart and I will stop there because you are the one asking the questions.
527 MS DINSMORE: Fair enough. We will move on to the second chart, because this is the one where you arrive at the $.08 rate that Torstar has included in its filing.
528 MR. MACDONALD: Correct.
529 MS DINSMORE: So in this estimate you looked at data from 2001 to 2005.
530 Is that correct?
531 MR. MACDONALD: Correct.
532 MS DINSMORE: Okay. So now let's go to the chart at page 10 of your memo. There is a line there entitled "Channel Capacity at Year End" and we see there you have used the figure of 350 channels across the board.
533 Now, this number is almost six times the number of channels the Commission used in its original methodology.
534 Is that correct?
535 MR. MACDONALD: That would be correct, yes.
536 MS DINSMORE: Okay.
537 Now, Mr. Macdonald, an analog channel such as the one used by Torstar consumes 6 MHz of capacity.
538 Would you agree?
539 MR. MACDONALD: I have no reason to believe that it doesn't based on what you have said in your documents.
540 MS DINSMORE: Okay. In your calculation to arrive at a figure of $.08 you used the 350 channel figure, but as we have talked about today, and as you note in your memo, this includes analog channels that use 6 MHz as well as standard def digital channels that use 1/10 or 1/8 of that capacity; high definition channels that might use 1/2 to 1/3 of that capacity.
541 Your client, Torstar, is demanding a 6 MHz channel and that Rogers our largest system only has 134 of those.
542 So how then can you justify using a 350 channel figure to set the price of $.08?
543 MR. MACDONALD: Well, as a Rogers customer, which I am, I kept getting information that said I had a choice of 500 and 600 channels, so actually the use of 350 I thought was incredibly fair based on what I was getting at my house and what I was seeing.
544 And furthermore, having read the Commission's various documents on the two releases, including 1996-132 and the final decision which came out in 1997-35, it was pretty clear to me that it was talking about digital and analog capacity. The CCTA had argued that there should be a separate digital rate, but the Commission came back and said no, we are going to have one rate and that one rate applies to digital and analog alike.
545 So it never, ever occurred to me to isolate analog capacity, regardless of what kind of access that they were looking for.
546 MR. MACDONALD: Hello...?
547 MS DINSMORE: Yes, that's helpful.
548 But at the end of the day, whether you call it analog or digital, what Torstar is looking for is a 6 MHz channel. So isn't the only relevant costing element here the cost of a 6 MHz channel?
549 MR. MACDONALD: Well, I wouldn't have said so, but ultimately the Commission will decide that.
550 I look at channel capacity, which obviously is not reported in any of the financial data, at least that I'm aware of. You may be aware of some other report, but I looked, quite frankly, at the major systems that Torstar is actually carried on and I said is 350 a reasonable estimate of the number of channels?
551 I read channel capacity to mean channel capacity. I didn't ever look at it as analog or digital, I looked at it as channel capacity.
552 And I said we looked at the factor of duplicate channels, we looked at a number of other things, I certainly did not want to consider any of the audio channels, and I thought that 350 was a reasonable number. In fact I thought it was probably on the lower side, but I just did not want it to be a contested number because obviously dividing by 60 or dividing by 350 there's going to be a big difference.
553 MS DINSMORE: So what I'm trying to get at here is that different channels occupy different amounts of capacity and what this analysis is based on is cost per channel. So when the Commission did its original calculation it looked at 66 MHz channels and it made its calculation and arrived at a cost per channel on that basis.
554 What you did is look at sort of a mix of channels that occupy varying degrees of spectrum and you then made a sort of arbitrary decision to cut the number down, I think from 581 to 350. That was some sort of a rather arbitrary decision based on what you thought might represent a more useful number.
555 I would put it you that in order to have done this analysis were properly that the 134 number, the number of 6 MHz channels that Rogers carries in its larger systems, should have been at maximum the number that you should have used for the purposes of your formula.
556 MR. MACDONALD: Well, we could debate that, but I will just leave it on this basis.
557 I read very carefully the Commission's documents on the access rate, I looked specifically at whether there was a differentiation between analog and digital capacity. In my view there was none stated and none that I was aware of.
558 You made the comment a few seconds ago that it was based on a specific bandwidth. I never saw that in any of the documentation that I read. But the fact that this formula was first created by CCTA, possibly that's where it comes from.
559 I used the best data I could find. I was not able to find channel capacity issued by the Commission, otherwise I would have obviously used it.
560 As a Rogers customer I see -- at the time in 2007, as I said, I was being offered 500, 600 channel plus, so I thought that the use of 350 after breaking it out as I did, was a very reasonable number.
561 I never, ever consider doing that on the basis of analog only simply because the Commission had rejected analog separate and apart from digital.
562 And in fact during some of the negotiations, early negotiations with Rogers, the position that Rogers took was that the rate was identical for digital and analog and really weren't prepared to discuss a different rate, even though one was offered by Torstar.
563 MS DINSMORE: So this doesn't really tell us anything about the cost of a 6 MHz channel, the kind of channel that Torstar is looking for carriage on?
564 MR. MACDONALD: If you are saying that channel capacity was based only on 6 MHz channels, then that's a different calculation certainly. I did not look at 6 MHz all. I looked at channel capacity. I am unaware of any reference to 6 MHz in any of the Commission's decisions.
565 MS DINSMORE: I would suggest that in 1995 that's the only kind of capacity that was available, was 6 MHz channels, that there was no digital at that time.
566 MR. MACDONALD: Well, then okay. That's an interesting approach.
567 So if the Commission says that we are going to have a digital rate and an analog rate and it's going to be the same, yet future -- clearly digital channels were being considered at that time so they shouldn't count.
568 Is that the conclusion?
569 MS DINSMORE: It may be possible that a reason the Commission was looking to do a review at some time was due to the upcoming changes in capacity usage, but we don't know.
570 So thank you very much Mr. Macdonald, I appreciate your responses to my questions and that's all the questions I had today on this portion of the preceding.
571 MR. MACDONALD: Thank you very much.
572 THE CHAIRPERSON: Thank you.
573 MR. MACDONALD: Am I needed for anything else, Commissioner Cugini?
574 THE CHAIRPERSON: Not that I'm aware of, unless Torstar requires you to stay on the line.
575 MR. GOODALE: The only questions would be if there is anything in camera that is required that Rogers will be asking of Mr. Macdonald. Okay.
576 THE CHAIRPERSON: Okay. Rogers has indicated that they won't.
577 MR. GOODALE: Thank you, Jim.
578 THE CHAIRPERSON: So no, we don't need you any more, Mr. Macdonald, but thank you very much for participating.
579 MR. MACDONALD: Thanks very much, Commissioner Cugini.
580 THE CHAIRPERSON: Legal counsel or my fellow Commissioners, any follow-up questions?
581 Commissioner Lamarre...?
QUESTIONS BY THE COMMISSION
582 COMMISSIONER LAMARRE: Merci.
583 A question to Rogers. On your different distribution systems do you adjust the bandwidth of your digital programming depending on whether it's standard, high-definition -- 3-D is to come, so let's forget about 3-D -- and depending on the type of programming do you adjust it?
584 MR. PURDY: Thank you, Commissioner.
585 COMMISSIONER LAMARRE: If it's confidential information you don't have to answer it now.
586 MR. PURDY: Thank you, Commissioner.
587 Absolutely, yes, we do adjust it.
588 So just further to my earlier answer, I have the exact numbers from Toronto now so all of --
589 COMMISSIONER LAMARRE: Okay. From the lower one to the highest one?
590 MR. PURDY: Absolutely.
591 COMMISSIONER LAMARRE: The highest one probably being The Sports Network, TSN and whatever.
592 MR. PURDY: Absolutely. So I will try and walk you through my interpretation of the numbers.
593 We carry 71 analog channels in the Toronto marketplace -- so very close to the number Mr. Watt said, which was the national average -- and you can't adjust the spectrum required for those analog channels. That's fixed.
594 We carry 115 HD channels and those HD channels can be compressed at different rates. So as I said earlier, if it's CNN or a talking-head news-type program in theory it requires less spectrum than something like TSN in high-definition, because sports requires -- there's more movement on screen, ergo there's more bits that need to be put down the pipe and it requires more spectrum.
595 COMMISSIONER LAMARRE: I get that, but what would be the most that you would need for one specific -- and you don't need to tell me what the specific is --
596 MR. PURDY: Okay.
597 COMMISSIONER LAMARRE: -- what would be the most that you would need and the lease that you would need?
598 MR. PURDY: Usually you need about two -- an analog channel could provide capacity for two HD signals, maybe 2 1/2.
599 And then we carry 70 -- I'm sorry, did you want -- David?
600 MR. WATT: Just the other way to express that would be if it was two that would be 3 MHz per --
601 COMMISSIONER LAMARRE: So it would be from 1 to 3 MHz?
602 MR. WATT: Yes. Well, if we could get 2 1/2 in it doesn't make it as easy, but if you got three in it would be 2 MHz and if you get two in its 3 MHz of consumption.
603 COMMISSIONER LAMARRE: And you said something about if it's on the lower end you may get as much as six.
604 MR. WATT: We could never get six -- six, sorry. When you say --
605 COMMISSIONER LAMARRE: Standard definition, digital channels, programming in there.
606 MR. PURDY: Yes.
607 COMMISSIONER LAMARRE: So the capacity --
608 MR. PURDY: Usually it's 10 -- somewhere between 8 and 10 standard definition digital channels per analog slot.
609 COMMISSIONER LAMARRE: Okay. So let's make it easy.
610 MR. PURDY: Yes.
611 COMMISSIONER LAMARRE: So the capacity needed for a digital channel is anywhere between 1 MHz and 3 MHz.
612 Is that a fair statement?
613 MR. PURDY: That's a fair statement.
614 COMMISSIONER LAMARRE: Mr. Watt...?
615 MR. WATT: It's a fair statement.
616 You might be able to get down to .9, .8 MHz.
617 COMMISSIONER LAMARRE: Let's forget about the extremes.
618 MR. WATT: Yes. So 1 to 3, sure.
619 COMMISSIONER LAMARRE: Okay. Thank you.
620 MR. PURDY: And then of those analog channels, because we have a 100 percent digital lineup for our digital customers, we simulcast those 71 analog channels in standard definition digital. So ShopTV would be available in analog and digital on our systems where it's carried, and then we carry 259 standalone standard definition digital channels. These are non-simulcast channels that aren't available in analog. Then we would carry 80 audio services.
621 So I think the marketing materials that Mr. Macdonald would have included a total channel count and I think where he was perhaps confused was he was including the audio channels in the total number when he did his calculation.
622 COMMISSIONER LAMARRE: The audio channel will occupy what bandwidth?
623 MR. PURDY: Much, much lower spectrum.
624 COMMISSIONER LAMARRE: Specifically?
625 MR. PURDY: I will have to get back to you. I can get you that.
626 COMMISSIONER LAMARRE: Okay. Thank you.
627 MR. PURDY: I don't have that with me right now.
628 COMMISSIONER POIRIER: Yes, I have one question and I will make it easier, I will ask it in English, okay.
629 In the event the Commission -- and I'm really saying in the event that Commission were to find CPAC is not a third party exempt service for the purpose of section 21(3) of the BDU Regulations, would you have the capacity to carry the shop channel, their channel in St. John's, in New Brunswick, in Ontario, because you described the channels you offer on page 3 of today's document, so I wonder would you have that capacity?
630 MR. PURDY: The short answer would be no. In the systems if we were to not able to use CPAC as the match I think I would have to make tough decisions and move either the TV Listing service or The Shopping Channel or some other service off of analog to digital in order to --
631 COMMISSIONER POIRIER: Okay. But there are some solutions?
632 MR. PURDY: Yes, the answer is -- I mean we are going to be making tough decisions over the next 12, 24, 36 months on spectrum and channel carriage anyways, which is really an interesting question.
633 So I think ShopTV is kind of petitioning or campaigning for must carry analog status at a time when most of our exempt programming services are under review to be moved to digital anyways. So even if they were to be granted the match it would be for a very short period of time because we are going to have to free up this spectrum anyways.
634 COMMISSIONER POIRIER: I'm always surprised when you say "must carry", they are aiming to become a must carry.
635 MR. PURDY: I'm sorry, perhaps a match is a better word.
636 COMMISSIONER POIRIER: Okay. Thank you.
637 Okay, because it's different, okay. The vocabulary is really different.
638 MR. PURDY: Understood. Yes.
639 COMMISSIONER POIRIER: Okay. A must carry is a 9(1)(h).
640 MR. PURDY: I understand.
641 COMMISSIONER POIRIER: Not always, but in this.
642 MR. PURDY: I'm not a regulatory expert --
643 COMMISSIONER POIRIER: Okay.
644 MR. PURDY: -- just it looks a lot like must carry, but I understand what you are saying.
645 COMMISSIONER POIRIER: Okay. Thank you.
646 THE CHAIRPERSON: And for Torstar, any plans to go digital or high-definition in the near future?
647 MR. GOODALE: Torstar has great interest in expanding the carriage and the format of the channel and so we would like contracts that allow us not to be precluded from only a certain format.
648 So we would look for full carriage as far as we can get it for our channel with --
649 THE CHAIRPERSON: On analog or digital? Because the question was whether or not you have plans to go digital or high-definition.
650 MR. GOODALE: We are currently -- Rogers currently in our current systems carries us on digital --
651 THE CHAIRPERSON: Okay.
652 MR. GOODALE: -- so we are transmitting to them and they are putting that as a digital mirror to the analog channel. So we are already there for digital.
653 Would I take an infomercial station HD, probably not, but if I didn't have a preclusion on the format in my contract then all bets are off as to what type of format and what type of transmission I would send them.
654 THE CHAIRPERSON: Okay. Thank you.
655 Legal counsel...?
656 MR. DOUGHERTY: This question is for Rogers and if you choose to answer this in the in camera session that's fine as well, but the question is: Are there any other third party exempt programming services in line for any of your systems currently?
657 MR. PURDY: I wouldn't say in line. There have been discussions from other third parties who have expressed an interest in -- not in analog carriage but in digital.
658 And in fairness we have offered digital carriage and various pricing for digital carriage to Torstar as well as others and in fact are encouraging people to explore new options.
659 So there are other services that would qualify as exempt programming services, but nobody asking to match on analog.
660 MR. DOUGHERTY: Thank you.
661 THE CHAIRPERSON: Okay. Before we move into the in camera session I would like to ask both parties to confirm that whoever is in the room should be in the room.
662 And that is, Rogers, you will confirm that the people in the room are only Rogers employee, same with -- or contracted to you, same with Torstar.
663 MR. ZOLF: Madam Chair, that's correct.
664 Now, to the extent we can cover an issue about comparable rates that ShopTV -- or the rates that ShopTV pays to other BDUs, that is, from my discussions with Mr. Goodale and Ms Brunt, that that is so highly sensitive confidential, and it's no offence taken, but I don't think we want Rogers to necessarily hear that number.
665 We are happy to talk around it, but to file that number in confidence with the Commission, but it's so highly sensitive that I think -- on that specific narrow issue I think we are at the highly sensitive confidential level, if you will.
666 THE CHAIRPERSON: I understand.
667 MR. PURDY: Madam Chairman, I feel like I'm back at Rogers.
668 THE CHAIRPERSON: But, Mr. Zolf, you do confirm that there is nobody in this room who shouldn't be in this room for the in camera session?
669 MR. ZOLF: We can confirm that the four people sitting on this side of the table are the only representatives from Torstar.
670 THE CHAIRPERSON: Okay. And we'll confirm that the people sitting around us are only CRTC Staff.
671 You'll confirm that the web line -- that the online access is closed and we will start our in camera session.
672 I think we're good.
673 MS DINSMORE: Madam Chair, the point that Mr. Zolf raised is equally true of any questions that we might get with respect to rates that the Shopping Channel pays to other distributors, it is in the same category of highly sensitive information. So, the same issues arise there.
674 THE CHAIRPERSON: Understood.
--- Upon recessing in public at 1141, to resume immediately in camera
--- Upon resuming at 1227
675 MR. DOUGHERTY: Madam Chair, we are back now on public record.
676 THE CHAIRPERSON: Okay. Thank you very much.
677 We will now resume on the public record.
678 A question for both parties. As you know, this Commission always likes to have it put on the record what it is -- what your priorities are in terms of a possible outcome and I will use the phrasing that Commissioner Poirier used earlier.
679 In the event, and just in case, perhaps, if this Commission decides that Torstar does in fact have a right to carriage there is the question of the rate and how it is that the two parties will come to an agreement in terms of the rate.
680 As far as we can tell so far there are a couple of options:
681 We could set you back and you could negotiate that rate;
682 we could send you back and offer final offer arbitration and give you a timeframe in which to do that; or
683 the Commission could establish a rate. I will say that in order for the Commission to do that we would need more time because we would need a lot more information in order to establish that rate.
684 So, like I said, it is just in case. It will help us to write a more fulsome decision in the event, just in case, we do decide that Torstar does have access rights.
685 In the event that this Commission decides that Torstar does not have access rights, I think there the foregone conclusion is that the two parties would be free to negotiate an appropriate rate. That would be totally up to market forces and up to your negotiating skills.
686 So of those three options I would like first to ask Torstar could you rate them in terms of preference?
687 MR. GOODALE: I will start and then I will turn it to Mr. Zolf.
688 To rate those three options we would rate as number one have the Commission make a ruling from this.
689 We undertook in 2007 to speak to Commission staff to be advised about the best way forward to get this rate reviewed. We then respectfully and understandably waited in line behind a regulatory framework, which had a lot bigger issues than this one.
690 All the while we have been paying Rogers the better part of $3 million a year. We said it in our opening, I will say it again, we believe that anything that would delay just further has a rate that we feel is unreasonable paid into Rogers.
691 So our first preference succinctly would be to have this dispute, have a decision from it so that there is at least a final end to that process.
692 The middle option would be our second, if I am to rate all three. The middle option would be our second, as I have personally been involved in the negotiations for the better part of four years now with Rogers and I have spent over a decade prior to that negotiating labour agreements.
693 This is the single most difficult negotiation I have been a part of due specifically to the imbalance of power between the two parties. I do not, in my professional opinion, believe there is a win-win arrangement to be had while there is a maximum rate sitting out there with a precedent that has been paid for the last period of time.
694 So I believe option one is not a viable option for us.
695 You didn't ask me to comment on the third option, which is should the Commission decide that we do not have access rights, I don't believe much of a negotiation will be required because I'm not sure the service will continue to exist at either Rogers hand or Torstar's.
696 THE CHAIRPERSON: Okay. I don't want to take anything away from your closing remarks, so thank you.
697 Rogers, if you could answer the same question, please?
698 MR. PURDY: Thank you, Madam Chairman.
699 Just to recap and make sure I have the three options. So one is that we go back and negotiate; two is if there was some form of baseball arbitration; and then three is that the CRTC go through a process whereby you establish a new rate.
700 The first comment would be that we would much prefer to sit and negotiate.
701 I do believe that it's a bit unfair -- I won't go so far as to say disingenuous, but it's a bit unfair to characterize Rogers as being intransigent or not flexible. We have offered a multitude of different ways that Torstar could get carriage. We have some challenges as it relates to spectrum -- and I will talk about spectrum little more in a second -- but if we are talking about digital there is room for us to be more flexible than we have been historically, and we believe that we have tried to create a package that comprehensively allowed for Torstar to be successful and viable.
702 As the person responsible for the P&L associated with the Rogers Cable Television business, I have no desire to see the money that we derive from Torstar go away, in fact quite the opposite, I have tried. The reason we have continued to carry the channel is that we don't want that commercial relationship to go away, in fact we would like to explore other opportunities, particularly on digital where Torstar could expand its business in the exempt programming space. And we have had those conversations and I think we should take another opportunity to explore those options.
703 The spectrum is really the challenging thing for us. When you look at the challenges we will face in 2011 and beyond in terms of digital migration, meeting our requirements for HD, 3-D, video on demand, high-speed Internet, we are looking for flexibility in terms of what channels we do or don't carry in analog.
704 So when Torstar asks for expanded analog carriage in Atlantic Canada, that's what makes the negotiation problematic.
705 And they point to The Shopping Channel as being the Achilles heel in argument. The reality is The Shopping Channel gladly pays us $1.94. I don't know the rates they pay other cable systems, that might be a question you want to ask Ms Dinsmore, but I suspect it's not dissimilar to what they pay us, and they do so because they are occupying prime beachfront real estate: analog spectrum.
706 When we get into the digital space they have a lot more flexibility in terms of rates and I'm convinced that if we took another shot at it that we would be able to come to common ground. So that's what we would be in favour of doing.
707 THE CHAIRPERSON: So final offer arbitration would be two; and obviously us establishing a rate would be three, in terms of your priorities?
708 MR. PURDY: I'm convinced actually that you establishing a rate would be preferable because I think that based on what I have heard today there is a keen understanding amongst the Commission about the difference between analog and digital spectrum, so I actually have more faith in you coming to a sound decision than I do an arbitrator I have never met before.
709 THE CHAIRPERSON: Okay. Thank you.
710 We will take a 10-minute break in order for you to prepare your final remarks.
711 Oh, I'm sorry, Legal Counsel has something.
712 MR. DOUGHERTY: Sorry, just a few items that we would like to have filed with the Commission that have been discussed.
713 First, Rogers mentioned that they have reviewed the data regarding Russia and their cable systems there and the costs, if that could be filed with the Commission.
714 Also, the data on the rates that The Shopping Channel pays to other BDUs. Obviously understood that almost all of this information will be filed in confidence.
715 Also, rates that other unaffiliated exempt programming undertakings paid to the Rogers systems.
716 For Torstar we would ask that you re-file the studies that were filed in the BDU proceeding as part of this proceeding, and also the rates that Torstar pays to other BDUs for access.
717 Again, we would understand they would be in confidence.
718 MR. ZOLF: Counsel, just to clarify on your first question for Torstar, we did not file any studies at the hearing. The reference I made in the transcript from the April 16th hearing is that we had information at the time from 2008 if requested.
719 Now, the Commission didn't request it in the follow-up from the hearing so we didn't file anything, but we do have -- we came to the hearing armed with it.
720 MR. DOUGHERTY: Okay, thank you.
721 MS DINSMORE: Can I just clarify something with you?
722 The rates that The Shopping Channel pays to other distributors would be filed in confidence with the Commission for the Commission's eyes only.
723 Is that correct?
724 MR. DOUGHERTY: Yes, absolutely.
725 MR. ZOLF: And the same concern for Torstar.
726 MR. DOUGHERTY: Yes, yes.
727 THE CHAIRPERSON: We get that.
728 MR. PURDY: Just one other point of clarification.
729 When you reference exempt programming services, so the other services that are paying us are technically not exempt programming service, it would be religious services, things of that nature, they are paying for carriage.
730 MR. DOUGHERTY: I was thinking perhaps of the Dealers Choice that you referenced as a non-affiliated exempt programming undertaking.
731 MR. PURDY: Oh, okay. Thank you.
732 MR. DOUGHERTY: Sorry, and the undertakings should be filed with the Commission by the end of Friday, this Friday.
733 THE CHAIRPERSON: Okay. Thank you.
734 We will now take that 10-minute break and allow you to prepare your final arguments.
735 Thank you.
--- Upon recessing at 1227
--- Upon resuming at 1254
736 THE CHAIRPERSON: Okay, we will now move on to the closing remarks.
737 Torstar, you have 10 minutes.
CLOSING REMARKS BY TORSTAR
738 MR. GOODALE: Thank you, Madam Chair, Commissioners, Commission staff.
739 I am pleased to have the opportunity to respond. Mr. Zolf will chime in following my comments.
740 I think that what is abundantly clear from today's discussion is the urgency of this matter. As we have already told you, we pay Rogers almost $3 million a year for carriage, yet there has been no appetite on the part of Rogers for any meaningful negotiation or to actually meet its commitments to carry us on all of its systems on which it carries its own shopping service.
741 We have been going in circles for over five years to no avail. Frankly, the negotiations have not really been real or meaningful from our perspective. Why, because it is surely not in Rogers interest to do anything but charge us the maximum rate and carry us where it suits them.
742 While the chronology that we have filed in our initial request for an expedited hearing shows how many near misses we have had, it really underscores that Rogers is not interested in concluding. It's doing its best to evade its clear regulatory commitments under the Commission's framework.
743 We submit that the Commission has enough evidence from this hearing to clearly establish that Rogers did not appropriately meet its one-to-one requirements. We urge you to put aside all of the noise that has been put before you and make a ruling on the issue of rate.
744 We listened to your three options and feel that the decision from this dispute best suits the needs of both parties. It is perfectly within your jurisdiction within this hearing. You decided in your wisdom in accepting this for an expedited hearing to make a ruling on the rate and, as we have said, it will have no impact on the maximum rate.
745 We need a decision in order to move forward with our business. We feel that we have given the Commission three benchmarks or sanity checks by which we can establish a more equitable, fair and accurate rate that ShopTV should pay Rogers for access in view of current industry costs and the current universe of multiple channels.
746 We will file by Friday, at the end of this, in confidence to the Commission, what we pay BDUs that are not conflicted with their own shopping service.
747 We feel that is a third benchmark that gives the Commission clearly enough evidence to move forward with the decision on this.
748 We do not want the Commission to hold our hand, we only want the Commission to break the logjam which has gone on for nearly half a decade between these parties. Once each party has a clear understanding of the regulatory obligations at a fair and equitable rate, the parties will negotiate a mutually satisfactory commercial agreement.
749 MR. ZOLF: Thank you, Mark.
750 Please bear with me, Madam Chair and Members of the Commission, because we are just going to address two or three things that were raised earlier today during the questions in closing.
751 Now, with respect to the one-to-one carriage requirement, in some of the testimony or the discussion today I know Mr. Purdy had mentioned that we reserve analog only for the carriage of services of national importance. But that's precisely why we are here. We are here because Rogers has accorded its affiliated service, The Shopping Channel, analog carriage and Torstar is seeking the exact same comparable access requirements. So we wanted to point that out.
752 The next thing is, there was some discussion earlier on with Rogers counsel about the interpretation issue about how to read the Regulations and there was discussion of the case law.
753 Well, we want to underscore, particularly in respect of the parliamentary channel, that the Commission should read the Regulations in their entirety and we think there is full justification for concluding that the parliamentary channel in particular is not a suitable matching service.
754 We point you to the decision of Bell ExpressVu Limited Partnership and Rex, 2002 Supreme Court of Canada Decision, which basically in our view -- we think when you apply that analysis of statutory interpretation or regulatory interpretation into this issue, we think that the section 21(3) requirement -- and that's what we are here about on the first issue -- would be drained of its meaning contrary to the well-known principle of statutory interpretation which requires, and I quote:
"... that all sections of an enactment he given effect. The Legislature does not speak in vain." (As read)
755 We submit that under Rogers' interpretation of how to read those requirements of the Legislature would be speaking in vain.
756 So we just wanted to add that on the issue of interpreting the Regulations.
757 We also wanted to point out in Ms Dinsmore's -- now going back to the rate issue. In Ms Dinsmore's questions of Mr. Macdonald we wanted to underscore that Mr. Macdonald made it very clear that some of the problems that he had with the data going back to the 1997 and the '95 base year, that all of that was really related to availability of data at his fingertips. But, as he said, none of that had anything to do with the $.08 rate that he came to. That was just using the 2001 to 2005 data.
758 So he made that clear in response to Ms Dinsmore.
759 Now, Ms Dinsmore also, in some of the questions to Mr. Macdonald, asked about: Well, why are you looking at the digital channels, the 350 digital channels in assessing the rate? You know, it's really your asking for an analog channel carriage.
760 Yes, that's true, but the Commission's formula looks at all capacity, digital and analog. And, moreover, at the time when the Commission did the formula, if you look back to Public Notice 1996-132, there were no digital channels offered at the time. I think we were at the eve of the roll-out, what they called DVC roll-out, as it was then called.
761 But that being said, we are now here in 2010 and even in the mid-2000s it is very reasonable to put a very conservative assessment of the digital channel availability in Rogers systems in order to calculate which we think is a benchmark rate in addition to the other benchmarks that Mark referred to.
762 The other thing is, Mr. Purdy argued that well, there is room for negotiation on digital. He said there's a lot more, but the reality is we are here to adjudicate the first issue which is the analog carriage requirement, given that Rogers accords an affiliated service analog carriage. So that may be a negotiation for another day but that, I say with respect, is not the issue before the Commission.
763 The other point I just wanted to make as a matter of process. I know legal counsel has asked for the QVC rate to be filed by Friday.
764 Rogers did have a right to respond to our interrogatory of July 5th and they did, frankly by criticizing very vociferously what we filed, but they didn't make any mention of the QVC rate, nor did they assist the Commission in putting it on the record.
765 I'm sorry, the TSC rate. I'm sorry, but I think somebody mentioned today that -- I think Ms Dinsmore put to Mr. Goodale that: "Would I surprise you if QVC pays a similar rate?" I think you mentioned QVC.
766 But unfortunately in their July 5th reply they didn't mention that. They didn't put that on the record to assist the Commission.
767 Finally -- I'm still going through my notes here -- Ms Dinsmore characterized section -- oh, we are not -- I take we are -- let me interrupt here. We are not --
768 THE CHAIRPERSON: You are not in camera.
769 MR. ZOLF: -- not in camera.
770 Let me just say, certain characterizations of the commercial agreements, a certain clause was characterized as a termination clause. In fact, if you read that clause more closely you will see that it speaks to far, far more issues than termination.
771 Let me just -- bear with me.
772 MR. ZOLF: I believe those are all my comments before I turn it back to Mark.
773 Thank you.
774 MR. GOODALE: I conclude by highlighting Mr. Macdonald's -- which Mr. Zolf has just highlighted, but one of the key things for us to understand when Mr. Macdonald did his assessment for us was that the second chart he produced was produced from CRTC database data. He did not extrapolate anything in that chart except for the channel number that he added to 350.
775 I believe from both Mr. Purdy and Mr. Watt today we heard numbers north of 450 and Mr. Zolf said it, but I will reinforce it, we urge the Commission to read -- that the Commission when it set 1997-35 clearly indicated, despite objections from both sides that this would be a digital and analog rate. And we believe it's critical that you not look at the individual analog channels that Rogers is suggesting the costs should be divided by.
776 I end with while this is only a bilateral dispute, we do think it's significant in terms of making the Commission's regulatory framework meaningful. It is something that should be attended to. If it can be addressed appropriately, you will not see us again for a while.
777 We want to avoid repeated disputes in front of the Commission on what could easily be addressed on a commercial basis. This is not a productive way for us to do our business or for the Commission.
778 We appreciate that the Commission has heard our arguments and that they have given us the time for this dispute and we thank them very much.
779 THE CHAIRPERSON: Thank you very much, Mr. Goodale and Mr. Zolf.
780 Rogers, you have 10 minutes.
CLOSING REMARKS BY ROGERS
781 MS DINSMORE: Thank you, Madam Chair.
782 We will start with Scott Prescott providing closing remarks and then I will provide the closer on the closing remarks.
783 MR. PRESCOTT: I'm going to start with the access issue.
784 On that issue we find it quite surprising that Torstar has reached all the way back to Maclean-Hunter and the 1995 Order-in-Council on access to find any support for the notion that mandatory services like the parliamentary service have been inadvertently swept into the Commission's third-party access rule.
785 Those documents have clearly been overtaken by subsequent events. The Commission held an exhaustive proceeding in 1996 on access and issued a detailed policy at that time which included the one-to-one linkage rule and nowhere in that policy did the Commission make any reference that make this mandatory versus discretionary distinction.
786 Similarly, when the policy was enacted into law in 1998 in section 21 of the Regulations, the Commission said nothing that would exclude the parliamentary service, or any other public interest type service, from the definition of exempt third-party undertaking.
787 Section 21 does not distinguish between exempt services based on carriage status. Surely if the Commission had intended to do that it would have said so in section 21.
788 By enacting section 21 of the Regulations and by clearly defining third-party exempt programming undertaking, the Commission has in effect lawfully fettered its discretion as to what a third-party undertaking can be and what it is and what it isn't.
789 So if the Commission now wants to consider changing that definition, then it has to go through the process of amending the Regulations, especially since it has already issued a decision in Shaw versus Wagg that found that provincial legislature services which operate under the same exemption order as the parliamentary service is a valid match under section 21.
790 So based on the words used in section 21 of the Regulations, it is Rogers' position that the parliamentary service is an appropriate match under the one-to-one linkage rule, because it is a separate and distinct programming service that operates under that same exemption order as the provincial legislature.
791 The Commission itself has consistently treated the parliamentary service as a distinct service from the licensed CPAC service and the Speaker of the House has maintained control on the parliamentary service through its agreement with CPAC and the CRTC's exemption order for the House of Commons and for provincial legislature services contains a specific provision that requires the Speaker of the House to maintain control over the exempt programming undertaking.
792 Neither Rogers nor CPAC hold any ownership interest in that parliamentary programming service and certainly no private entity like Rogers or CPAC would ever actually control the House of Commons. It is clearly parliament's undertaking.
793 Those are my comments on access.
794 MS DINSMORE: As for the access rate that Torstar should pay Rogers for access to a channel, there has been nothing said or written in this proceeding that has altered our view on this issue.
795 The access rate of 16.2 cents per subscriber per month was established in 1997 after an exhaustive cost based analysis of the cost of a 6 MHz analog channel.
796 That kind of detailed evidence has not been produced in this proceeding. There has been no comprehensive review of the cost of an analog channel and the evidence presented by Torstar in this proceeding is, in our submission, woefully inadequate and lacks credibility, and that includes the evidence it provided today.
797 Based on our own analysis, and using the methodology employed by the Commission in Public Notice 1995-35, the cost of an analog channel today should be far greater than it was in 1997.
798 It is Rogers' respectful submission, therefore, that the Commission should conclude as follows in this proceeding:
799 One, that Rogers has no obligation under the Broadcasting Distribution Regulations to provide access to ShopTV; and
800 two, that Rogers is entitled to recover its costs of providing access on an analog basis.
801 In the absence of credible evidence to the contrary, the access rate established in Public Notice 1997-35 for access to an analog channel on Rogers Class 1 systems is appropriate.
802 As Mr. Purdy alluded to, although we do not believe ShopTV is entitled to carriage under the one-to-one matching rule, we have much more flexibility from a cost perspective and in providing value to Torstar such as multiple channel locations as well as enabling interactive TV applications in a digital universe.
803 Thanks very much.
804 That completes our comments in this proceeding.
805 THE CHAIRPERSON: Thank you very much, Ms Dinsmore.
806 Just to ensure that we have a complete record -- and I do realize that I am causing a delay between us and lunch and you guys and lunch -- I just have one question for Torstar and I will give Rogers an opportunity to respond based on your answer.
807 If we accept your definition of what constitutes an exempt programming and therefore decide that Rogers does not meet the obligation of matching one-to-one, why is it that you believe that ShopTV will be the exempt service that will be carried?
808 What guarantees you carriage if we decide that they need to carry another third-party exempt service? Why would they pick you?
809 MR. ZOLF: Madam Chairperson, your question is that in the event that you find that Rogers does have a one-to-one matching requirement, in other words that the two parliamentary and/or legislature channels do not meet that match, what is the guarantee that it will be ShopTV as the chosen one?
810 THE CHAIRPERSON: Right.
811 MR. ZOLF: There is no guarantee. If there is another exempt -- it's not a must carry requirement, I mean I think we have talked about that earlier. It is a one-to-one matching requirement. If there is another third-party exempt service that meets the Regulations they could carry that.
812 Now, that being said, we have said on the record quite clearly that ShopTV is first in line. So the regulatory framework is more than just the 21(3). The regulatory framework for exempt services is a combination of that regulatory provision plus the various Commission policies, for example 2000-72 which says that we met our first in line requirements. We have asked Rogers for carriage, we feel we have first in line status, so that's by way of verification.
813 In fact we do have first in line in status. That actually does give ShopTV far more carriage priority vis-à-vis other independent exempt services, should they be out there, because we have done the necessary steps under Public Notice 2000-72 to be first in line on the current systems and on the additional systems for which we are seeking carriage.
814 We filed the July 31st, 2008 letter that there was some discussion and writing about that, but the purpose of that letter was to seek carriage on the additional systems. Upon Rogers receiving that they are obligated under Public Notice 2000-72 to advise us where we are in first in line and, if they don't show us that there is another service waiting, they have three months to carry us.
815 So as of October 31st, 2008 they have an obligation to carry The Shopping Channel on those additional systems.
816 THE CHAIRPERSON: Okay. Thank you.
817 MR. ZOLF: I'm sorry, ShopTV, not The Shopping Channel.
818 THE CHAIRPERSON: I understand.
819 MR. ZOLF: Yes.
820 THE CHAIRPERSON: Rogers, I will give you a chance to respond.
821 MS DINSMORE: First of all I just want to address this first in line issue.
822 ShopTV takes the position that in some way the agreement that we had filed in confidence provides them with a first in line status and we dispute that.
823 We believe those sections of the agreement that might deal with that issue are very narrowly defined and do not provide them with a broad-based first in line right in the Rogers systems that they are currently not carried in in the rest of the Rogers systems in Ontario, New Brunswick and Newfoundland. We believe that that discussion in that provision in that agreement is extremely narrow in both instances.
824 Secondly, Torstar may be saying today that it believes it's first in line and therefore would be the one, however we have a letter from Torstar in 2008 that asks Rogers: What's our status.
825 So the fact that they are telling you today that they are first in line is certainly not what they believed in 2008 when they asked us that very question. So I think that their first in line status is in doubt.
826 However, having said that I will pass it to Mr. Purdy who wishes to speak briefly to recent history with Torstar.
827 MR. PURDY: The only thing I would add, Madam Chair, is that in markets where we had spectrum flexibility we have offered Torstar carriage in those markets, but at the matching rate, if you will, to what The Shopping Channel was paying and in other markets we have offered them digital carriage.
828 They have declined. So I'm not sure from a regulatory perspective if you line up, ask for carriage, are offered carriage and then decline it based on the rate, whether that still puts you first in line. If that's the case, there are a number of people that would claim that they have some sort of status as well because they have come in and talked to us and not been able to make the business model work based on the rate.
829 So I would think that that you would have to do a reset every time you declined carriage because you don't agree with the rate.
830 MS DINSMORE: Could I just add one further point?
831 We all understand that the issue or the related policy notice around first in line, it only relates, you know, unless and until Rogers carries an affiliated service. So even under your scenario if Torstar were to end up being first in line, that obligation then on Rogers to carry Torstar would only kick in if Rogers continued to have an unmatched affiliated service.
832 So I just want to make that point very clear on analog.
833 MR. PURDY: Right. And just to add to Ms Dinsmore's comments, I mean you know the challenge we face in 2011 going forward around spectrum and the analog to digital migration, so much of this conversation I think if you go 12 months out it's a moot point, but be that as it may I would like to reiterate in closing that we are open for business on digital, in fact we would love to explore multiple channels with Torstar.
834 The tragedy I think of this current negotiation has been that Torstar has been holding out for -- I won't use the word must carry, but for matching -- matching rights and not really earnestly negotiating until such time as they know whether or not they have a guarantee match requirement and whether or not they can get this bargain-basement rate for analog beachfront.
835 So I think if told to go back and negotiating good faith, I think both parties could come to common ground.
836 We are excited about the idea of teleshopping services and more of them and we are also excited about interactive television applications and the flexibility that digital brings to their business model.
837 MR. ZOLF: Madam Chair, could I just add something to what Ms Dinsmore said quickly?
838 THE CHAIRPERSON: Yes.
839 MR. ZOLF: Just to clarify the record, and it's on the record, the 2008 July 31st letter has nothing to do with the agreement and the systems that are covered by the agreement. The 2008 letter is a request to be carried on the additional systems and to get our first in line status.
840 That letter is in a hermetically sealed bubble on that issue alone and we just want to clarify that and those issues shouldn't be confused.
841 Thank you.
842 THE CHAIRPERSON: Well, thank you very much. That concludes this hearing.
843 I want to thank both parties for your frank and honest answers, as always, the staff, who always seem to do a stellar job no matter how difficult the issue is, and of course my fellow Commissioners.
844 So this hearing is adjourned.
845 Safe travels. Thank you.
--- Whereupon the hearing concluded at 1319
Johanne Morin Jean Desaulniers
Beverley Dillabough Monique Mahoney
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