ARCHIVÉ - Transcript / Transcription - Gatineau, Quebec - 2003-10-21
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VARIOUS BROADCASTING APPLICATIONS /
PLUSIEURS DEMANDES EN RADIODIFFUSION
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Portage IV Portage IV
Outaouais Room Salle Outaouais
Gatineau, Quebec Gatineau (Québec)
October 21, 2003 Le 21 octobre 2003
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.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
BEFORE / DEVANT:
Charles Dalfen Chairperson / Présidente
Andrée Wylie Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Ronald Williams Commissioner / Conseiller
Joan Pennefather Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
James Wilson Legal Counsel /
Cynthia Stockley Acting Director of
Broacasting and Competition
Policy / Directrice
intérimaire des politiques
sur la distribution et la
Coordonnateur de l'audience
Pierre LeBel Secretary / Secrétaire
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Portage IV Portage IV
Outaouais Room Salle Outaouais
Gatineau, Quebec Gatineau (Québec)
October 21, 2003 Le 21 octobre 2003
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Bell ExpressVu Incorporated 424 / 2523
INTERVENTION BY / INTERVENTION PAR:
Rogers Communications Incorporated 483 / 2846
Pelmorex Communications Inc. 493 / 2884
Canadian Association of Broadcasters 519 / 3004
Quebecor Média Inc. 532 / 3067
Canadian Broadcasting Corporation 567 / 3203
Cogeco Incorporated 598 / 3359
REPLY BY / RÉPLIQUE PAR:
Bell ExpressVu Incorporated 636 / 3512
Gatineau, Quebec / Gatineau (Québec)
--- Upon resuming on Tuesday, October 21, 2003
at 0930 / L'audience reprend le mardi
21 octobre 2003 à 0930
2518 THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît.
2519 Mr. Secretary.
2520 MR. LeBEL: Thank you, Mr. Chairman.
2521 The next appearing application is an application by Bell ExpressVu Incorporated, the General Partner, and BCE Inc. and 4119649 Canada Incorporated (Partners in BCE Holdings G.P.), the limited partners, carrying on business as Bell ExpressVu Limited Partnership, to renew the broadcasting licence of its national direct-to-home undertaking expiring 29 February, 2004.
2522 Gentlemen and lady, you have 20 minutes to make your presentation.
PRESENTATION / PRÉSENTATION
2523 MR. McGEE: Bonjour. Good morning, Mr. Chairman, Commissioners.
2524 My name is Tim McGee and I am President of Bell ExpressVu. I will be acting as Chair of our witness team this morning, and I am pleased to introduce my fellow panellists.
2525 On my right is Paul Nathanielsz, Senior Director, Product Marketing. On my left is Chris Frank, Senior Director, Regulatory and Government Affairs. Beside Chris is David Elder, regulatory counsel to Bell ExpressVu.
2526 In the second row seated behind me the David McGraw, ExpressVu's Senior Director of Finance. Seated next to David is Sophie Lamontagne, National Associate Director, Commercial Business.
2527 Mr. Chairman, the face of Canadian broadcasting distribution has changed dramatically since the Commission's licensing of direct-to-home service in December of 1995, and its subsequent launch in September of 1997. The government's and the CRTC's determination to foster a competitive distribution marketplace has resulted in a very positive changes for Canadians.
2528 A l'occasion de la demande de renouvellement de licence d'ExpressVu, je suis heureux d'être ici pour partager avec vous et vos collègues les contributions significatives et positives que le service de radiodiffusion directe en général, et Bell ExpressVu en particulier, ont apporté au système de radiodiffusion canadien.
2529 Quelque soit la mesure objective utilisée, nos réalisations ont permis aux consommateurs, aux producteurs de contenu ainsi qu'aux diffuseurs d'en retirer des bienfaits substantiels qui continuent de s'accumuler. Nous sommes très fiers des nombreux succès accomplis au cours des six dernières années.
2530 Voyons comment cela se traduit dans les faits.
2531 Prior to the market entry of DTH, there was no competition to cable in Canada. Many Canadians lived in regions that had no access to multi-channel Canadian TV. They were forced to rely on the one or two over-the-air signals that might be available or, in the case of many of them, elected to watch unauthorized and illegal U.S. satellite services.
2532 The Commission's licensing of ExpressVu and subsequently Star Choice changed the situation dramatically. After six years of operation, these two Canadian DTH companies have succeeded in adding 1.1 million net new subscribers to the Canadian broadcasting system, with a total combined base of 2.2 million customers. A wide range of licensed and authorized programming services -- both English and French, as well as a growing number of ethnic services -- were once available only to subscribers in major cities. Now they are equally accessible to those living in rural and remote areas throughout the entire country. Big city TV is no longer confined to Canada's urban centres.
2533 In addition to the unprecedented choice now available to Canadian consumers, DTH's leading-edge initiatives have meant tangible benefits for Canadian programmers and broadcasters as well. Providing consumers with what they want is, not surprisingly, proving to be good business.
2534 It is no exaggeration to assert that DTH has revitalized pay TV and has added considerably to the success of Canadian specialty services. In fact, the 1.1 million net new customers added by DTH resulted last year in more than $700 million in net new revenue for the Canadian broadcasting industry. This number includes over $200 million in net new revenue to Canadian specialty and pay TV services in the form of subscription and advertising revenue, and more than $140 million in new monies for the creation and production of Canadian programming.
2535 The regulatory framework established by the CRTC for DTH has been critical to this success. The Commission's recognition of the technical advantages of our service -- national, digital, addressable -- has allowed for unprecedented consumer choice and has ensured that linguistic minorities throughout the country are well-served. The distribution rules have been invaluable to our ability to respond to the broad range of customer taste and represent an appropriate balance for the digital delivery of a full slate of services in English, French and other languages across the country.
2536 At this point, I would like to make one thing perfectly clear. We are unequivocally committed to the principle of a level playing field as between DTH and cable and, in this context, we firmly believe that the digital model is by far preferable to that of analog cable, rather than the reverse.
2537 Similarly, the Commission's recent decision setting the rules for the distribution of 20 additional local TV channels has provided an appropriate balance amongst a number of stakeholders in the industry. I am pleased to report that ExpressVu has already lifted all of the signals in accordance with the Commission directive, having cleared transponder space and backhauling these signals at our own cost. This is an important milestone in expanding our reach to communities across Canada and in offering Canadians more local and regional programming and content.
2538 Certainly, we are proud of the range of signals that ExpressVu delivers to our customers. Indeed, ExpressVu is the acknowledged leader in providing Canadians with digital broadcasting services, with our all-digital programming line-up and the unprecedented launch of 40 Category 1 and Category 2 digital specialty services.
2539 Solutions Research Group Consultants Inc. recently confirmed our leadership in a comprehensive, independent consumer trend study, stating that, and I quote:
2540 "DTH provider Bell ExpressVu ranks number one in customer satisfaction ratings among Canada's major television distributors."
2541 SRC goes on to say that television viewers' satisfaction is governed not just by price, but also by the quality of the signal, the perceived flexibility of packages and how effectively their provider solves problems that crop up.
2542 We believe that ExpressVu is also the undisputed leader with respect to emerging areas, such as high definition TV and interactive TV, as well as integrated personal video recorders known as PVRs, which afford customers more flexibility and control over their viewing experiences. High def TV represents the future of Canadian broadcasting, and ExpressVu, while mindful of capacity constraints, intends to carry as much high def content as possible. In doing so, we commit to the carriage of a predominance of local Canadian high def services and to undertake simultaneous substitution to ensure that Canadians are watching domestic high def services, thereby protecting domestic program rights and advertising dollars.
2543 The road to these successes has not been easy. This is a tough business. The short history of DTH in Canada features a number of ambitious initiatives which have fallen short. One DTH licensee never launched, a second failed to survive its early stages, and two others found it necessary to consolidate forces, as the need for a critical mass of subscribers became increasingly evident. To say the least, we operate in a particularly demanding industry sector, one which sees to it that success is well earned.
2544 ExpressVu has made significant investments to achieve the levels of growth and scale necessary for success. Despite a softening in the growth trend of the digital market generally, we are committed to a strategy of growth at ExpressVu and to achieving profitability, which we have not yet done after six years of operation. ExpressVu's continuing ability to respond to consumer choice is key to this positive trajectory.
2545 While DTH has brought choice to many Canadians, a number of significant challenges continue to face us. For example, despite having established itself in rural, remote and suburban areas of the country, DTH has not mirrored this progress in the most densely populated areas of Canada, namely the multiple dwelling unit, MDUs, if you will, in that market. In Toronto, for example, some 40 per cent of the citizens live in apartments and condominiums. Yet, cable enjoys a greater than 95 per cent share of this market. This market is critical to our growth strategy, and we will be redoubling our efforts in the months to come to bring choice to these Canadians.
2546 Another issue facing the entire industry is that of signal theft. While this matter is the subject of a separate Commission process, I would nonetheless like to say a few words.
2547 First, I commend Chairman Dalfen for the Commission's initiative in identifying this as an industry-wide issue and for bringing together all major players to deal with this critical matter head on. The ensuing industry discussions have resulted in a number of significant commitments aimed at minimizing signal theft.
2548 ExpressVu is particularly proud of the progress it has made in this area. As the Commission is aware, ExpressVu has taken the lead on a number of important fronts, both in its internal operations and processes, as well as in other areas, such as public awareness and the launching and pursuit of litigation against the illegal distribution network. These initiatives are part of our comprehensive anti-piracy plan, which we have shared in detail with the Commission and other industry stakeholders in a parallel process.
2549 ExpressVu believes that its actions will increasingly yield results and trusts that this is also true of the efforts of the other participants in the industry's anti-piracy coalition. We are convinced that industry commitments and increased government action are critical to the success of these initiatives as a whole. In this regard, amendments to the Radio Communication Act, as announced by Ministers Copps and Rock, will provide further important tools to combat this industry-wide problem, thus making a significant contribution to ending the losses suffered by ExpressVu, other members of the industry, as well as the Canadian broadcasting system.
2550 Mr. Chairman, as ExpressVu prepares for what we believe should be a full seven-year second licence term, we are mindful of the significant opportunities before us. With the fair and balanced regulatory framework currently in place, we will continue to pursue our growth strategy, anchored by our distribution of an expanded digital programming line up, as well as innovative new offers in the form of high definition TV and interactive TV. We intend to build on our strengths in these areas and have every intention of maintaining our leadership well into the future.
2551 In addition, we will continue to grow and forge our partnerships with broadcasters and other members of the industry in finding flexible and creative responses to the many challenges we correctively face.
2552 ExpressVu thanks the Commission for this opportunity to share our views on this licence renewal, and we are ready to respond to whatever questions you may have.
2553 THE CHAIRPERSON: Thank you very much, Mr. McGee.
2554 I will canvas a number of areas with you.
2555 To begin with, I am encouraged by your optimism in the face of the financial performance that, as you say, has still not resulted in profitability for the company over its period. I would like, I guess, your general views on the prospects for the company and the DTH sector going forward and what you see as the positive signs encouraging you in your belief to be optimistic.
2556 MR. McGEE: Thank you, Mr. Chairman.
2557 The DTH industry has developed a lot of momentum, as I mentioned, fuelled mostly by the recognition by Canadians that this is really the television medium of choice.
2558 That is where our optimism lies. Consumers have demonstrated that this is a viewing medium of choice and the way the Bell ExpressVu delivers it, in particular, is what they are after.
2559 Going forward, we continue to see growth because we believe that, through the quality of our system, the quality of our picture and our continued focus on expanding the recognition of these benefits will increasingly allow us to gain customers, not only from underserved and unserved areas, but also from the analog base.
2560 What is going to be very important for us, however, is the fact that the battle for these customers, if you will, is increasingly in urban areas. The reality is that Canadians in urban centres live in multiple dwelling units, not single family homes, as has been the foundation of our growth and the DTH growth in the future.
2561 For us, that is going to be a very important area going forward, continuing to bring the choice, the quality into those markets, where we, to this date, have not had the success, not without trying, but have not had the success that we believe is necessary in order to continue the growth of DTH.
2562 So, overall, we see that the continuing consumer demand for the quality television that digital DTH represents is there. We need to crack the urban markets. We need to continue to find ways to improve the cost structure of our business. We see growth, as it would be across the board, slowing. The rates of growth in the early years of the business they were unprecedented. In fact, the rates of growth of Canadian DTH in the first five years exceeded that of the U.S. DTH providers. We view this as a natural softening of that growth, but it means that we have to be very focused and we have to be very focused not only on addressing the right markets, but also in doing so in a way that makes good business sense, and we can grow the business to a profitable basis.
2563 THE CHAIRPERSON: Thank you. You mentioned in your opening remarks the fact that you were proud of the progress that you had made in regard to dealing with program signal theft.
2564 Do you have any results that you can measure in terms of the reduction in, say, erosion or leakage of revenues from the DTH sector and from your company in particular?
2565 MR. McGEE: At this stage, our belief is it is probably too early to give specific numbers. Let me just expand on that.
2566 I believe, as the Commission is aware, the estimates of the theft, both of U.S. satellite and of cable and Canadian satellite, are just that, they are estimates. That is the inherent difficulty in therefore measuring the starting point.
2567 What we are seeing is two things that are very promising. One is that, as we monitor the activity of the illegal distribution networks for U.S. satellite, for example, which has spillover into other areas of theft, we note that these websites and the channels of information that we have suggest that things are getting very, very tough. Why are they getting very, very tough? It is for a number of reasons.
2568 First of all and perhaps most importantly at the top of the list is that the last faint hope that the illegal distributors had was that their activity was somehow protected by the Charter of Rights and Freedoms. The lawsuit that we have been leading has now collapsed in that the Defendants have walked way from that defence and are no longer pursuing that, largely because, we believe, the evidence that we put forward to contradict their claims.
2569 That, we believe, is a very important milestone and we see it through the websites in terms of the network not continuing to operate in a way they believe they are insulated.
2570 So, that is one measure.
2571 The second measure which is tougher from a business point of view but we said right from the start we are prepared to accept this, is that the measures that we have put in place at the point of sale in terms of requiring photo identification, credit cards, tracking of all customer information on an online system, that has had an effect in the top line activity in stores in terms of a deterrent effect.
2572 In other words, to put it another way, we believe that the slowness in the growth that we may be experiencing over the next period of time and up to now is because we are turning away pirates at the door. That alone, we believe, is a very significant development.
2573 As we continue to go forward, there will be other ways that we measure this, Mr. Chairman. Our hope is to have methods of measurement in the parallel process that allow us to report in, as well as the other members, in ways that we can demonstrate this in ways that we are all comfortable with.
2574 THE CHAIRPERSON: At this time, in terms of your business planning, you haven't quantified the amount of let's call it recapture of erosion of your own service through theft either through devices or through theft of discretionary services or whatever as in effect something you can build in as a revenue stream going forward?
2575 MR. McGEE: We have actually done two-fold on that score, as you must.
2576 The first is we have made assumptions in our going forward business planning with respect to the deterrent effect of the measures that we see taking effect in the marketplace. As I say, it is tough love, if you will, but that results in pressure on our growth. We will make up for that commercially through solid offers in marketing, but that is another issue. We will experience reduction in growth through those measures.
2577 Ultimately, though, we believe the name of the game should be to convert those that are stealing satellite, particularly those that are enjoying U.S. satellite illegally, on to legitimate paying systems. Quite Frankly, if that's to cable, so be it. We think the choice could and should be to DTH and Bell ExpressVu in particular, but we have built those conversion features into our business planning. We must because the investments we had made encounter piracy or in the many, many millions of dollars to date and we will continue to make those investments.
2578 So, in order for this to make business sense, as well as good sense, we have taken those factors into consideration.
2579 THE CHAIRPERSON: Who do you see as your major competitors?
2580 MR. McGEE: Clearly, we are in competition with Star Choice, no question.
2581 We think that our success in the DTH space has been extremely promising. Today I think that our competitor are the cable companies. That is increasingly evident in terms of the competitive activity we see. It is increasingly evident in the stated objectives, we believe, of the cable companies to attempt to convert their analog base to digital.
2582 Our challenge, of course, is to grow the base. We will increasingly have to address the analog base, no question. And as I mentioned in my opening remarks, the addressable market, if you will, is increasingly in the urban centres, where there is a very strong foothold of the existing cable companies.
2583 So, the short answer to your question is: We have two competitors. I would say it's increasingly becoming DTH/cable competitive environment.
2584 THE CHAIRPERSON: When you say you will have to address the analog base, what do you mean by that?
2585 MR. McGEE: What I mean by that is we believe that a significant portion of the addressable market for DTH growth lies in the existing base of television customers who are subscribing to basic analog services or even enhanced analog services, packages and so on.
2586 That is a significant part of the market that we believe has yet to enjoy the benefits of full digital television, the flexibility that comes with that and the quality of our programming. We will be absolutely up front about that. We believe our service is far superior to the basic cable service, and so we need to get at that market.
2587 What we recognize, of course, is that the cable companies now ramping up their digital conversion strategies have a distinct method, which is to go right to their base and convert those to digital.
2588 So, we accept the degree of difficulty in that regard, but that doesn't make the challenge any less important.
2589 THE CHAIRPERSON: Do you find the cable companies more formidable as digital providers than as analog providers as competitors?
2590 MR. McGEE: No, we don't think that. In fact, we believe that our ability to retain digital customers is superior to that of cable's ability to retain digital customers, which really goes to the quality and the overall satisfaction of the service.
2591 I did indicate in our opening remarks that our evidence suggests that once you are on digital ExpressVu style you love it; it is great. We have, like everybody else, shoes that we work on day in, day out to improve that. But we believe in the digital area that we are superior.
2592 I think we like our positioning there very much. The trick is to compete in that area head on and to compete in the segments where there is the most potential for growth.
2593 THE CHAIRPERSON: Recent newspaper articles suggest that Bell Canada is seeking to apply for a BDU licence to offer television services over high speed copper fibre.
2594 If such a licence were applied for and granted, what would you see as its impact on ExpressVu's operations?
2595 MR. McGEE: First of all, I should say the terms and the content of that licence will be for Bell to decide. So, I am certainly not here to comment on that.
2596 What I think I can usefully comment on, though, is, generically speaking, the VDSL delivery mechanism at the end of the day is really a style of delivery. The content, the packaging, the ultimate viewing experience is what ExpressVu has banked its success on and has earned its success on.
2597 So, we would see that relationship as leveraging the content expertise, the broadcast expertise at the front end, if you will, as being a possible impact of any movement into that area by Bell Canada.
2598 THE CHAIRPERSON: I know you can't speak for Bell Canada here, but in your view from where you sit, does it suggest some form of diminution of confidence in the satellite alternative in favour of a terrestrial high speed copper fibre delivery?
2599 MR. McGEE: No, I wouldn't put it that way. I would not put it at a diminution of the confidence at all.
2600 Quite frankly, Bell ExpressVu, certainly from our perspective, this is a highly complimentary, if I may, elegant way to address customer needs, particularly in urban area, and to the extent that we can take the assessment of this from being complimentary, being two is stronger than one, we will certainly be pursuing that as this initiative unfolds because it is not really in substitution for one. It is really finding better, more efficient and more customer friendly ways to deal with the overall objective, which is bring digital television to people that don't have it today.
2601 THE CHAIRPERSON: Thank you. Turning to your satellite capacity, Mr. McGee, I wonder whether you could just provide us with some information. Following the launch of Nimiq 2, I gather that you are now offering services on a two-satellite platform?
2602 MR. McGEE: Yes, we are, Mr. Chairman.
2603 THE CHAIRPERSON: How have you transitioned customers from the one satellite to the two satellite platform?
2604 MR. McGEE: I will answer your question and then if you have additional areas, I would like my colleague, Paul Nathanielsz, to fill out part of the marketing aspect. But let me tackle this one from the front end.
2605 The transition for Nimiq 2 has gone like this. For those customers we had at Nimiq 1, whose services were "moved to Nimiq 2" and we have a programming strategy which Paul can elaborate on, if you wish, that were moved to Nimiq 2, those customers were all repointed, as we say, which essentially meant upgrading their existing dish to a wider dish with additional LNB to allow them to view the two satellites so that there was no disruption of programming.
2606 We did that fully at our cost over the past several months. Repointing is not a fun exercise. I don't recommend it to anybody, but I think we did a very good job in that and we now have only a very few customers left to move over and they have all been in contact with.
2607 For new customers that want the service, want a service that is a position at Nimiq 2, we provide deep discounts for the repoint service through programming credits and through discounts off installation and so on. So, that is the regime of how we deal with it today.
2608 THE CHAIRPERSON: How have you made the decision about service allocation as between the two satellites?
2609 MR. McGEE: Paul, would you like to elaborate rate on that?
2610 MR. NATHANIELSZ: Sure, thanks, Tim. We have allocated a number of our services solely over to Nimiq 2. Those customers that were previously on these services, that I will detail in just a moment, have been migrated, as Tim mentioned, at our cost, free of charge.
2611 The current services that we have moved over to Nimiq 2 are all of our ethnic services. We have also moved our HD services, as well as our highly def pay-per-view service over to Nimiq 2. We have moved our direct PC service, as well as our business television, our BTV service, over to Nimiq 2. We are also looking at Nimiq 2 for future interactive television applications, and also for any future Cat 2 channels that we may look to add in the future.
2612 THE CHAIRPERSON: What proportion of your subscribers are on Nimiq 2 exclusively and what percentage are on both?
2613 MR. NATHANIELSZ: The majority of our customers that are on Nimiq 2 would be able to look at both satellites. I should point out that it is very early days. We just started to move these services over in the second quarter of this year.
2614 There is approximately 50,000 customers right now that have line of sight to both satellites.
2615 THE CHAIRPERSON: And does that require a two-horn satellite? There's 91 and 82. Is that correct?
2616 MR. NATHANIELSZ: That is correct.
2617 THE CHAIRPERSON: Would one be able to point to both of them?
2618 MR. NATHANIELSZ: What the customer requires is a new dish if they were working from our old smaller dish. The new dish is slighter larger and they require two LNBs.
2619 THE CHAIRPERSON: What contingency plans do you have in the event of satellite problems?
2620 MR. McGEE: We have capacity, of course, on Nimiq 2 today. Nimiq 2, as the Commission may be aware, experienced an electrical failure earlier in the year and reduced transponder capacity from 32 to 26. Our first contingency for failure clearly would reside there.
2621 We are actively working with Telesat and others, Telesat specifically, to look at other options for additional capacity for redundancy and back up.
2622 THE CHAIRPERSON: What year is Nimiq 1 in, or put another way, how much useful life does it have left, quite a few years as I recall?
2623 MR. McGEE: I believe it is 2012, but I can confirm that for you.
2624 THE CHAIRPERSON: Do you foresee adding another satellite to your service in that time frame?
2625 MR. McGEE: 2012 is a long time. I would love to have that issue.
2626 At the present time, we see ourselves expanding through Nimiq 2 and we are very focused on that. But I would love to be able to say today that we were thinking about it, but we don't have any concrete plans for that right now.
2627 THE CHAIRPERSON: You mentioned that HD services are on Nimiq 2, Mr. Nathanielsz.
2628 MR. NATHANIELSZ: Right.
2629 THE CHAIRPERSON: Could you describe the HD services that you now offer?
2630 MR. NATHANIELSZ: We offer 19 channels of high definition. We offer the five U.S. networks, both east and west feeds. We offer TMN and Movie Central. We offer TSN and Discovery, and we have four pay-per-view HD channels.
2631 THE CHAIRPERSON: And when those broadcasters are not broadcasting on high definition, the signal comes through in low definition. Is that how it works?
2632 MR. NATHANIELSZ: On those channels when the signal is on high definition there is no programming on those channels.
2633 THE CHAIRPERSON: Say the 4+1s that you are carrying, what percentage of their programming is currently in high definition on average?
2634 MR. NATHANIELSZ: I have never done the exact percentage but I would say it is about a third of the eight hours a day.
2635 MR. FRANK: Could I just clarify something for the record, Mr. Chairman. All of the over-the-air signals that we carry are 24/7. If they are not in high definition, they are in digital. So, we have a continuous stream discrete as network over network.
2636 THE CHAIRPERSON: Run that by me again.
2637 MR. FRANK: Each network, whether it be City or CBS, has a full channel dedicated to it in high def or digital all the time, which is different from our standard definition 4+1 or Canadian network.
2638 THE CHAIRPERSON: So, is your answer different from Mr. Nathanielsz?
2639 MR. FRANK: No, I was just clarifying the fact that each network has or each signal has its own discrete 24 by seven stream of programming.
2640 THE CHAIRPERSON: But I gather only a third of that programming is in high definition?
2641 MR. FRANK: That is correct, but when it is not in high def it is still in digital.
2642 THE CHAIRPERSON: Still in digital, but is it receivable by your customers?
2643 MR. FRANK: Yes.
2644 THE CHAIRPERSON: It is received in standard. That was the original intent of the question.
2645 How many of your customers have HD receivers, what per cent or what number?
2646 MR. NATHANIELSZ: We don't typically publish that information, but it is a relatively small percentage of our base at this point in time.
2647 THE CHAIRPERSON: Can they provide a standard analog version? I guess not. Again, when a viewer is watching his HD receiver and the signal is not in HD, what does he see?
2648 MR. NATHANIELSZ: When they are not watching HD, they can receive standard definition programming off that receiver.
2649 THE CHAIRPERSON: Including analog?
2650 MR. NATHANIELSZ: All of our programming would be in standard definition or HD.
2651 MR. McGEE: It is all digital, but if you have a high def box and you are not watching high def you can still watch standard definition but it is always in digital.
2652 THE CHAIRPERSON: Yes, I got that.
2653 Looking forward, you say you are carrying 19 services now. How do you see HD ramping up on your system going forward?
2654 MR. NATHANIELSZ: As Tim mentioned in his opening remarks, we do view ourselves in a leadership position in HD at this time. We would look in the future to bring more HD programming to all Canadians. We are in commercial discussions with a number of other carriers or programmers, rather, to introduce new services and we would hope to expand our offering in the future, including local Canadian broadcasters, once digital signals become available or HD signals, rather, become available.
2655 THE CHAIRPERSON: How does the proliferation of HD from your point of view affect your capacity going forward, given the band width that those services consume.
2656 MR. NATHANIELSZ: Whenever we look at new services, we really focus on what we refer to as the four Cs. We focus first on the consumer; we focus on commercial viability; we focus clearly on capacity; and we focus fourthly on competition.
2657 Therefore, HD, we definitely view as a requirement for us to remain competitive in the future for us to deliver on the needs of consumers. They are asking for HD programming. The purchase of large TV screens is quickly overtaking the purchase of small. People are buying HD-ready TV sets. They are going to expect this service in the future and we wish to continue our leadership. So we definitely view this as something that will be key to our future.
2658 THE CHAIRPERSON: Back to the capacity issue, are you not concerned about HD consuming sufficient band width to require you to displace other services over the next few years? I understand your answer is basically we make tradeoffs as we go forward wanting to stay competitive and so forth, but do you foresee capacity, and that was the line of previous questioning?
2659 At what point do you see a crunch capacity wise with the advent of HD?
2660 MR. McGEE: You are absolutely on to the right point. High def or right now band width intensive, as we look out, our stated objective is to have a good mix, a good balance as we go forward with the business. Today, it means 19 high def and the predominance of other programming.
2661 As that changes, we will definitely be targeting and making sure that we are allocating space on Nimiq 2 to respond to the move to high def. That will mean choices for us, but these choices will be consumer driven. They will be driven by the reality of the economics of running the business, and, at the present time, part of what we are trying to deal with is a bit of the chicken and egg. We are not exactly sure when and to what extent the Canadian high def content will be there, but we are committed to bring it all up when we get it because we think that is the right thing to do. But we will have tradeoffs to make on capacity, no question.
2662 THE CHAIRPERSON: Do you make tradeoffs on technical quality, data rates and so forth?
2663 MR. McGEE: That is probably getting out of my league, but if I could answer the question.
2664 There are different compression standards that we need to look at to make sure that the standards that we currently use will provide us with the flexibility to launch the programming at Nimiq 2.
2665 I will just emphasize, today the programming at Nimiq 2 from a programming point of view is in its formative stages as a programming strategy. We absolutely plan to focus on that package so that we are drawing customers on to Nimiq 2. We suspect that high def will lead the charge but it could well be other specialty channels, whether it is in the ethnic mode or whatever.
2666 Our commitment is we want that to be the desirable neighbourhood to be in, and part of our commitment is to use high definition as the carrot, if you will, to attract channels into there, to get customers interested in that site, but we are going to have to be mindful of capacity.
2667 THE CHAIRPERSON: Thank you. You have replied to source U.S. HD 4+1 services from separate sources within the same time zone as your standard definition 4+1 services. Is that correct?
2668 MR. FRANK: We went through that aspect of our application, Mr. Chair. The application was developed about a year and a half ago. We have since significantly advanced with our HD plans. We are now sourcing our high definition services from the same communities in the United States as we do our standard definition. That is Boston for eastern Canada.
2669 THE CHAIRPERSON: You began in your remarks to comment on your compliance with the requirements, I take it, of Decision 2003-257. Basically, I reviewed with Star Choice yesterday their compliance and perhaps you can go through the same review, if you have that decision.
2670 MR. McGEE: Yes, the so-called CAB decisions you are referring to.
2671 THE CHAIRPERSON: Yes.
2672 MR. McGEE: I will just make a very brief comment and then ask my colleague, Chris Frank, to expand.
2673 We view the CAB decision as a milestone, as I said in my opening remarks. It took over a year. I think that the compromises that were made, the puts and takes, the quality of the inputs, I think are exemplary in terms of what stakeholders in the industry need to do in order to deal with reasonable, competing interests, and we think it really is a very important decision and that is why we have now stepped up. This is not without considerable expense to us. We think it is absolutely the right thing to do and we fully implemented it.
2674 Chris, would you like to expand on our views on the CAB deal?
2675 MR. FRANK: Sure, Tim, very quickly. We launched the first four CAB channels, the so-called emergency channels last year.
2676 We launched the second phase, all of the large market signals which would bring us into our understanding of equitable distribution as among the large broadcasters, and just a few days ago, we launched the remaining small market independent stations.
2677 We now have 12 small market independent stations on our system and eight new large market systems to bring us into, as I said, our understanding of equitable distribution as among all of the major players.
2678 THE CHAIRPERSON: And the other provisions?
2679 MR. FRANK: The only other provision that is outstanding that will be completed by the 5th of November is the local blackouts in the small independent market areas.
2680 We ran into a supply problem with the dual receivers that Tim was talking about a few minutes ago, which has precluded us repointing certain customers. So we couldn't move services from 91 to 82 without disrupting service.
2681 In discussion with the CAB, we elected to launch the services because of the importance of the current rating sweep period. We will launch the last part of it, as I said, by the 5th of November.
2682 THE CHAIRPERSON: Thank you. You have asked for a COL authorizing the distribution of audio programming services?
2683 MR. FRANK: Yes, we have.
2684 THE CHAIRPERSON: Originally you had sought a clarification of Section 39(a) of the BDU Regs. Right?
2685 MR. FRANK: Yes.
2686 THE CHAIRPERSON: What is the rationale for the request?
2687 MR. FRANK: Well, we understand that we have currently the ability to lift any Canadian television or radio signal from across Canada.
2688 We noticed in Section 22, I believe it is, that Class 1 cable has the opportunity to pick up certain foreign radio services, and we are simply seeking the same treatment.
2689 THE CHAIRPERSON: Okay, I understand that.
2690 Would this change your plans if this request were granted in terms of uplinking audio?
2691 MR. FRANK: It gives us the flexibility to add more services as consumer demand warrants.
2692 We don't have any immediate plans to add more radio, no, but it is something for the future, provides a level playing field, as Tim was talking about earlier, as between us and our competitors and it also clarifies the go forward position from a regulatory perspective.
2693 THE CHAIRPERSON: Do you have any comments on the presentation yesterday by Impératif français regarding your carriage of audio signals?
2694 MR. FRANK: Of CBC and the Radio-Canada audio services?
2695 THE CHAIRPERSON: Yes.
2696 MR. FRANK: I am pleased to say that we carry CBC -- I was going to say AM and FM but that is dated -- Radio 1 and Radio 2 services from the east coast, from eastern Canada and from the west coast, and we have Radio-Canada, Première chaîne and Deuxième chaîne from Montreal and Vancouver.
2697 So, I believe we have a very good selection of Radio-Canada radio signals as we speak.
2698 THE CHAIRPERSON: In your answers to Commission deficiencies of March 3rd, you listed the CBC signals that you would carry. That was back in March.
2699 You said that these were conditional or contingent on the availability of satellite capacity at the new orbital location. That, I take it, has now been satisfied?
2700 MR. FRANK: I believe it has, yes.
2701 THE CHAIRPERSON: So, the list we have here, and I will run down it and ask you for your progress on it, you mentioned you have six signals currently and you name them.
2702 You speak of having permission from the CBC to supplement the six full-time signals with local content from Montreal, St. John's, Fredericton and Charlottetown. Have you put that into effect?
2703 MR. FRANK: We do have those part-time signals up, yes.
2704 Is it radio or television we are focused on, Mr. Chair, because the right number of television stations for CBC is eight. We have eight O&O signals and six affiliate stations at the present time.
2705 THE CHAIRPERSON: Eight O&O and six affiliates?
2706 MR. FRANK: Yes. There has been some evolution. Excuse me if I mislead you initially.
2707 THE CHAIRPERSON: You are right, the segue wasn't clear. I am talking television now. I guess that is what you are talking about in this.
2708 MR. FRANK: Yes, that is correct.
2709 THE CHAIRPERSON: So, you are uplinking the local content, and you say how many CBC English?
2710 MR. FRANK: Eight CBC owned and operated full time, six affiliate stations full time, and three communities part time for local news, weather and sports.
2711 THE CHAIRPERSON: Here it says seven additional CBC signals of affiliates in this particular deficiency response, Terrace, Kitimat, Prince George, Dawson creek, Medicine Hat, Lloydminster, Thunder Bay and Peterborough.
2712 MR. FRANK: You are correct. I am in error. I missed Peterborough. I was thinking small markets when I was going through the affiliates. There was Peterborough which is a large market.
2713 THE CHAIRPERSON: So, this is correct?
2714 MR. FRANK: It is correct.
2715 THE CHAIRPERSON: The agreement was for seven O&Os and you say now there's an eight?
2716 MR. FRANK: Yes, there is.
2717 THE CHAIRPERSON: And on SRC, what are the numbers?
2718 MR. FRANK: The number is five O&Os and one affiliate, for a total of six.
2719 THE CHAIRPERSON: So, eight plus five. So 13 full-time signals O&Os?
2720 MR. FRANK: Yes.
2721 THE CHAIRPERSON: Local content from it says eight additional. Is that still correct? Does that add up to eight?
2722 MR. FRANK: The local content, I believe, is from three stations on a part-time basis.
2723 THE CHAIRPERSON: And eight affiliates. So, I guess the list in here suggested for CBC for local content the four I mentioned, Montreal, St. John's, Fredericton and Charlottetown and on SRC, Ottawa, Gatineau, Toronto and Edmonton.
2724 MR. FRANK: We have not yet lifted the SRC part-time services. That requires an agreement with the CBC because they have the copyright, and we have not yet been able to gain that authority from the CBC.
2725 THE CHAIRPERSON: Thank you. And that is the only area in which you have not yet reached an agreement with SRC?
2726 MR. FRANK: We have had extensive discussions with the CBC. We don't have an agreement per se with the CBC but we certainly have, through our extensive discussions, understood what is a priority with the CBC. That is why we have moved beyond our commitment of two years ago, which was for one additional CBC and one additional Radio-Canada service to in, fact two, additional services from both networks.
2727 We have added Quebec City at the request of the CBC, and we have also added the Arctic service at the request of the CBC. We have also -- I am sorry, I am mixing English and French here. I have confused myself. Quebec City and Winnipeg from SRC and Ottawa and the Arctic for CBC. So, that brings the total to five SRC and eight English O&Os.
2728 THE CHAIRPERSON: The CBC will be making an intervention and then you will have an opportunity to reply to what they raise at that point.
2729 MR. FRANK: Yes, thank you.
2730 THE CHAIRPERSON: In terms of your access for the disabled, can you describe any plans that you have to improve accessibility of your services to the visually impaired, the hearing impaired or other persons with disabilities in regard billing, customer information, complaint response, program guides, anything else?
2731 MR. NATHANIELSZ: I would be pleased to do that.
2732 We offer both services and we present our programming as well as provide customer service to both the visually impaired as well as the hearing impaired.
2733 We have approximately 20 described video channels, and we also offer an audio EPG for the blind, and we also pass through all closed captioned signals of course for the hearing impaired.
2734 When it comes to customer service we provide extensive e-mail customer service capabilities, as well as we provide large print collateral, and we are also working to develop some of our key collateral in brail for the bind.
2735 For the hearing impaired we make available a TDD device available 8:00 a.m. through 8:00 p.m., seven days a week. We also provide online web-based account management for them to service their accounts directly.
2736 THE CHAIRPERSON: Do you have any requests from any of these communities for improvements in your service that you haven't yet addressed that are on your radar screen?
2737 MR. NATHANIELSZ: As I mentioned, we are working to provide some of our key collateral in brail. However, we find typically most of these communities request, as well as receive, their information via e-mail. That's the most popular form of correspondence that we would have with them.
2738 So, we will continue to look to means to provide better service where requested.
2739 THE CHAIRPERSON: Thank you very much. Those are my questions. I don't know whether my colleagues have any further questions.
2740 Commissioner Pennefather.
2741 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman. Good morning. Just a quick clarification.
2742 You said earlier you moved the ethnic services to Nimiq 2?
2743 MR. NATHANIELSZ: That is correct.
2744 COMMISSIONER PENNEFATHER: All of the ethnic services you offer, conventional, specialty, pay and Category 2, were they all moved?
2745 MR. NATHANIELSZ: They have all been moved, that is correct.
2746 COMMISSIONER PENNEFATHER: What proportion, then, of your viewing public still has just Nimiq 1 or does everybody have access to Nimiq 2?
2747 MR. NATHANIELSZ: Everybody would have access to Nimiq 1, with the exception of the subscriber count I mentioned that would have access to both satellites.
2748 COMMISSIONER PENNEFATHER: So there may be some portion of your viewing public that don't have access to these ethnic services until the transition is complete?
2749 MR. NATHANIELSZ: That is correct. If you only have access to Nimiq 1, then you would require duel sat capability in order to access the ethnic channels.
2750 COMMISSIONER PENNEFATHER: Thank you very much. Thank you, Mr. Chairman.
2751 THE CHAIRPERSON: Thank you. Commissioner Williams.
2752 COMMISSIONER WILLIAMS: Good morning, Mr. McGee and panel members.
2753 I just have a few questions in the economic area of your business.
2754 What has been the total investment since the beginning of this enterprise?
2755 MR. McGEE: We have publicly disclosed a number, approximately $2 billion, 1.8 billion I believe is the number on the public record.
2756 COMMISSIONER WILLIAMS: Thank you.
2757 What is the total of your annual losses since starting this business?
2758 MR. McGEE: I don't have that number at my fingertips. I would certainly be happy to provide that for you.
2759 Perhaps I could comment that, since the inception of the business, we have improved every year the measure that we run the business by, which in our world is an EBITDA measure. We expect that we have made significant improvements in our EBITDA performance since inception. We are targeting now to be EBITDA positive by the end of next year.
2760 COMMISSIONER WILLIAMS: Thank you.
2761 How many of your typical subscribers, how many new typical subscribers would you require in order to achieve break even?
2762 MR. McGEE: Right now, this is what we call the critical mass issue for the industry, quite frankly. We believe that for Bell ExpressVu, a subscriber count in the range of 1.7 million, 1.8 million, given current the economic circumstances that we are in, would provide a critical mass that would generate positive free cash flow. That, we have indicated publicly, would be at the end of 2006.
2763 But of course there are a number of factors that go into that equation, if you will, including items such as the cost of running the business. As you can imagine, we are constantly trying to find ways to improve our cost structure and will continue to do so.
2764 But at the present time, we believe that is the trajectory that we are on.
2765 COMMISSIONER WILLIAMS: How long do you estimate until profitability would provide a return on investment sufficient to recover the investment or at least provide an incentive for continued investment?
2766 MR. McGEE: We believe there already is an incentive to invest in this business.
2767 First and foremost, we believe that there is albeit significant challenges and some markets that we must crack or the business will not be successful to the degree that we want it to be. But I think that probably the best measure of this, as we go forward, is to continue to improve our EBITDA performance with a view to positive free cash flow at the end of 2006 as being a good indicator of the ability to have the business with the critical mass, where you can continue to generate increased revenues from the base and run the business on a going forward basis in a positive cash position.
2768 COMMISSIONER WILLIAMS: Has your shareholder given any indication as to how long they would be prepared to invest in this business in absence of a return?
2769 MR. McGEE: Our shareholders are supporting us. They are in for the long haul.
2770 COMMISSIONER WILLIAMS: What are your views on anti-competitive cross-subsidization?
2771 MR. McGEE: I am not sure I understand the question.
2772 COMMISSIONER WILLIAMS: It would be where a profitable sector of an enterprise was helping an unprofitable sector of the enterprise for a mixed commercial reason.
2773 MR. McGEE: Certainly in the context of ExpressVu, we don't believe there is any cross-subsidization that is in any way inappropriate.
2774 The owners of the business invest in the business to achieve the growth, and we have delivered increasingly improved economic performance year over year and will do so again this year.
2775 COMMISSIONER WILLIAMS: Can you explain the logic of discounted service bundle participation and how it would improve your potential profitability or efforts towards achieving a positive cash flow?
2776 MR. McGEE: I will respond generally to that. If you would like more detail, I can certainly ask Paul to fill in some of the details.
2777 The way to look at bundling in our view is the Chairman was asking me earlier who we thought the major competitor was. Clearly, the cable companies are front and centre in terms of the competition for Bell ExpressVu. We need to succeed in that market.
2778 The cable companies have been offering bundles. Certainly Rogers has been offering a bundle for well over a year; it could be longer. Therefore, as a competitive response, we need to look at bundles as part of a growth strategy. If we can't do that, then we are not going to be competitive.
2779 I am pleased to say that we do have not only a very competitive product, a very good quality product, but we are now able to offer it to consumers as part of a bundle. So I think that is our view in terms of why bundles are important and we will continue to grow that.
2780 COMMISSIONER WILLIAMS: So, are bundles still important all the while losing money? Is a money losing bundle a good idea?
2781 MR. McGEE: I think the short answer is bundles are an excellent idea because one, it is what consumers want; two, it is what the players in the business can deliver and that alone makes for good business.
2782 The positioning of those bundles and the features of those bundles is something that is always work in progress and they need to be competitively priced. We believe that our bundles are just that.
2783 COMMISSIONER WILLIAMS: Given the size of your business in terms of number of customers, and the quality of your service, and your lack of profitability or ability to achieve break even, do you think your product may be underpriced?
2784 MR. McGEE: The short answer is no, I don't think it is underpriced. Once again, I think pricing is always relative to two things.
2785 One, your ability to deliver the product, and also what the market demands. We have, in the past, in fact increased prices over the past year or so. We have done so because we believe that the quality of the service and the investments we are making require us to continue to ensure that our customers not only expect the best but get the best.
2786 So, once again, as much as price increases are never popular, we have taken those increases and we believe that the job that we need to do and are doing is to continue to bring the value proposition in terms of the quality of the service and what you get to higher levels and that is the challenge for us.
2787 COMMISSIONER WILLIAMS: Thank you, Mr. McGee. I have no further questions, Mr. Chairman.
2788 THE CHAIRPERSON: Thank you very much. Commissioner Noël.
2789 COMMISSIONER NOËL: I was listening to you talking about the migration of some of the services to the Nimiq 2 bird and the fact that to have a line of sight with the two satellites you needed a bigger dish. Am I right to have understood that at this time there is about 50,000 subscribers that have that wider dish?
2790 I am thinking aloud. I just want to check my ideas with you. Wouldn't it be a way to eradicate some of your piracy problems by moving or shuffling services from one of the satellites to the other and reinstalling dishes in a more aggressive way so that those who have pirate dishes wouldn't be one of your customers?
2791 MR. McGEE: By the way, we will take ideas anywhere we can get them, so thank you for that.
2792 I think the response is that the opportunity we have today in terms of counter-piracy, where it relates specifically to a Nimiq 2 upgrade is the fact that it is professionally installed and that we monitor that.
2793 So, part of the key element of the counter-piracy program is knowing where the system is activated, and a large part of that is covered off when you do any sort of site visit and you do installation.
2794 Part of the answer is we do it today. There is a counter-piracy benefit today from doing this. But as a standalone counter-piracy measure it, wouldn't be terribly efficient because the reason why people are on Nimiq 2 is principally because they have chosen the programming there and at the present time not everybody is choosing the programming there. We hope to change that. So we think the more that people do choose the programming there and, to the extent that we absolutely are trying to migrate programming there with better quality programming, there will be an inherent opportunity to do counter-piracy.
2795 COMMISSIONER NOËL: That is what I had in mind. By moving some of the programming from Nimiq 1 to Nimiq 2, you create a need for your wider dish and that is where you can control who is a subscriber and who is stealing the signal.
2796 MR. McGEE: I agree with you it has a built-in advantage and we will take advantage of that, but within the context of our migration plans generally.
2797 COMMISSIONER NOËL: And those who have the not legit dish will lose programming services at the same time?
2798 MR. McGEE: That is correct. I think it is also important to distinguish it is not the dish per se that enables the theft of the service. It is actually the receiving box and, more particularly --
2799 COMMISSIONER NOËL: But could somebody that uses the dish that was the 16-inch dish off the Nimiq 1 system, could it be repointed to Nimiq 2 and be used to capture the programming of Nimiq 2 or is it you have to have a new dish to get to Nimiq 2?
2800 MR. McGEE: You do need a bigger dish to get to Nimiq 2. So, if you were planning on stealing signals that were at Nimiq 2, you would not be able to do it unless you had appropriate equipment.
2801 COMMISSIONER NOËL: Thank you.
2802 THE CHAIRPERSON: Thank you. Vice-chair Wylie.
2803 COMMISSIONER WYLIE: Presumably you wouldn't call Bell to tell them to come to your house to install the dish so that you could get to Nimiq 2.
2804 I want to understand how you do HDTV better. Do you have any channels that are not the full channel of the service in HD format, if it has what I understood to be about one-third programming, what is sometimes referred to by the staff, at least, as omnibus channels that we spoke to Star Choice about yesterday.
2805 MR. FRANK: We do not have any so-called omnibus channels. That is what I was trying to explain a little earlier about 24/7. All of the over-the-air signals that we carry are carried on a full-time basis discrete networks.
2806 We do have part-time HD services. They would be pay and pay-per-view services because there simply isn't enough product to program full-time channels.
2807 The pay services we get from pay TV licensees east and west, and the pay-per-view service of course we do ourselves.
2808 COMMISSIONER WYLIE: For example, if I take TSN or an American service, it would be entirely on a channel, one-third of which would be high definition and the other one would be standard digital?
2809 MR. FRANK: Yes.
2810 COMMISSIONER WYLIE: And then there would be another channel. It would just be on one channel --
2811 MR. FRANK: Which would be standard definition.
2812 COMMISSIONER WYLIE: -- another channel where the subscriber would get it only in standard definition?
2813 MR. FRANK: That is correct.
2814 COMMISSIONER WYLIE: So it requires the entire channel to be duplicated?
2815 MR. FRANK: That is correct.
2816 COMMISSIONER WYLIE: In its entirety. You would never take the one-third of one and combine it with one-third of the other in these omnibus channels?
2817 MR. FRANK: No.
2818 COMMISSIONER WYLIE: So then the difference for the subscriber is the receiving equipment?
2819 MR. FRANK: Yes.
2820 COMMISSIONER WYLIE: Or receiving equipment; I include the high definition television sets.
2821 MR. FRANK: Yes. You need a special box from our retailers to get the high definition and a special TV.
2822 COMMISSIONER WYLIE: And, of course, that requires a whole lot of channels.
2823 MR. FRANK: It requires --
2824 COMMISSIONER WYLIE: How many of these 19 HD channels are duplicated, all of them?
2825 MR. FRANK: All of them.
2826 COMMISSIONER WYLIE: All of them?
2827 MR. FRANK: Yes.
2828 COMMISSIONER WYLIE: Thank you.
2829 THE CHAIRPERSON: Thank you. Counsel.
2830 MR WILSON: Thank you, Mr. Chairman. I just have is a couple of questions.
2831 Just to go back to this issue with respect to piracy, the black and grey market, I take your point from earlier the difficulty of sort of assessing the size of that black or grey market. But my understanding is at various points in time, ExpressVu has had what I am going to call various repatriation programs to encourage people that may have black market equipment to turn that equipment in in return for ExpressVu equipment.
2832 Do you have any numbers in terms of how successful those kinds of repatriation programs have been?
2833 MR. McGEE: We don't view them as terribly effective. We offer it, but when we did a deep dive into this whole issue over the last year, we left no stone unturned. This was one area where we will take it, but we don't believe it is terribly effective.
2834 MR WILSON: Thank you. Then just one other question in terms of clarification with respect to your request for a condition of licence for the distribution of audio programming.
2835 In your presentation, or in your answer to questions from the Chair, you referred to the ability to distribute similar to the manner in which Classes 1 and 2 licensees can do under Section 23 of the BDU Regs. Those licensees are of course also subject to Section 22 of the BDU Regs which requires them to distribute certain services, in that case all local radio stations, at least one English, one French CBC station and educational radio programming, services of an educational authority designated by the province.
2836 If the Commission were to give you this condition of licence, what would your approach be in terms of what the Commission should be looking at in terms of services that you should be required to distribute in a similar manner that the Class 1 licensees have under Section 22?
2837 MR. FRANK: I would think they would equate radio to television in that we are required to carry at least one signal from national networks.
2838 MR WILSON: I have no further questions, Mr. Chairman.
2839 THE CHAIRPERSON: Thank you very much. Thank you very much, lady and gentlemen.
2840 We will break now for 15 minutes and resume with Phase II. Nous reprendrons dans 15 minutes.
--- Upon recessing at 1050 / Suspension à 1050
--- Upon resuming at 1110 / Reprise à 1110
2841 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.
2842 Mr. Secretary.
2843 MR. LeBEL: Thank you, Mr. Chairman.
2844 The first appearing interventions to be presented will be from Rogers Communications Incorporated. Mr. Phil Lind will introduce his colleagues.
2845 You have 20 minutes to make your presentation. I meant ten minutes, of course.
2846 MR. LIND: Good morning, Mr. Chairman and members of the Commission. I am Phil Lind, Vice-Chairman of Rogers Communications. With me today are Dave Watt, Vice-President, Business Economics; Ken Engelhart, Vice-President, Regulatory; peter Kovacs, Director, Regulatory, Rogers Cable; and Alain Strati, Director, Business and Regulatory Affairs for Rogers Media.
2847 Our presentation will focus on three key issues. Issue number one, the commitments made by ExpressVu to combat signal theft; number 2, the inequitable distribution of Omni.2 by ExpressVu; and issue number 3, the importance of establishing regulatory symmetry amongst all BDUs.
2848 Issue number one, one of the principle industry concerns is the alarming degree of ExpressVu signal theft. ExpressVu's current conditional access system and its practice of selling dishes without programming subscriptions provides an irresistible opportunity for hackers.
2849 This is not an industry-wide problem, but a problem unique to ExpressVu because of the technology it has adopted. To date, ExpressVu has you has done little to combat signal theft. As stated by the CEO of BCE at a conference in New York in June 2002, one of the fundamental business objectives for ExpressVu is to weaken the cable industry and, thereby, minimize its potential as a competitor for the local telephony market. We believe that this objective explains the consistent lack of activity by ExpressVu regarding the theft of its signals.
2850 ExpressVu recently announced several initiatives it has committed to undertake to combat signal theft. While long overdue, these initiatives may produce some results.
2851 However, ExpressVu may well not deliver on all its promises, given BCE's stated business objective.
2852 As a result, we strongly believe that the Commission should take this opportunity to ensure that these commitments are fulfilled. To do so, we believe the Commission should impose these commitments as conditions of licence. These conditions will provide reasonable guarantees to all broadcast industry stakeholders that ExpressVu is fully committed to undertake anti-piracy initiatives within a specific time frame.
2853 In our view, the Commission has been too patient, perhaps far too patient, in waiting for ExpressVu to address these problems. This licence renewal provides an ideal opportunity for the Commission to impose enforceable deadlines on ExpressVu.
2854 Issue number 2, carriage of Omni.2 by ExpressVu.
2855 ExpressVu has recently added Omni.2 to its service offering. However, unlike other Canadian television stations, Omni.2 is being carried on Nimiq 2. Nimiq 2 is available to only approximately 5 per cent of existing ExpressVu subscribers. Only ethnic subscribers, HD subscribers and purchasers of their $100 technical upgrade kit receive the Nimiq 2 service.
2856 We believe that the availability of Omni.2 on such a limited basis does not satisfy the Commission's requirement for equitable distribution and is not consistent with the Commission's broadcasting policy objectives.
2857 Omni.2 is a free over-the-air TV station with local programming requirements and priority carriage rights, with an ethnic programming focus and a broad service mandate.
2858 Omni.2 plays an increasingly important role in the Canadian broadcasting system. Omni.2 provides a truly distinctive voice for a large and significantly growing segment of our population. Our ethnic programming provides a unique forum for cross-cultural dialogue and understanding.
2859 Only the most extensive distribution can possibly adequately reflect the policy objectives of the Canadian broadcasting system and the unique service mandate of a local ethnic broadcaster. To fulfil these objectives, we believe that ExpressVu should ensure that Omni.2 is made available to our entire local and regional audience through carriage on the Nimiq 1 satellite.
2860 Recent decisions by the Commission have examined the CAB-ExpressVu Memorandum of Understanding. The Commission's decision stated that DTH providers are required to provide "equitable distribution" of stations owned by certain larger broadcast groups. Rogers Media is on that list of larger broadcast groups. As such, we are entitled to equitable distribution of our stations by ExpressVu.
2861 Given the very limited availability of Omni.2 on Nimiq 2, we believe that the concept of equitable distribution is not being applied fairly by ExpressVu. Throughout this process, many broadcasters small and large have been accommodated by carriage on Nimiq 1. This is not, however, the case with Omni.2.
2862 We understand that ExpressVu is considering the carriage of other local stations on Nimiq 2 in order to fulfil its commitment to small market local broadcasters. Unlike Omni.2, ExpressVu intends to provide each subscriber in these stations' local markets with free Nimiq 2 up grade. No such offer has been made to Omni.2.
2863 In its reply, ExpressVu claimed that we should pleased with the trans-Canada satellite distribution of Omni.2. Well, Mr. Chairman, we are not pleased. Local Canadian stations do not get advertiser credit for out-of-market or trans-Canada carriage. It is the audience share in local markets that affect the advertising revenue and this will be reduced by carriage on Nimiq 2.
2864 Most of the ExpressVu subscribers in the Toronto/Hamilton area will not be able to access our signal. Compounding this competitive disadvantage, every other single broadcasting station in the Toronto/Hamilton market is available on Nimiq 1.
2865 Issue number 3, regulatory symmetry.
2866 We believe that the Commission should establish a principle of regulatory symmetry between BDUs the same regulatory obligations should apply to all distributors, irrespective of the technology used to distribute the programming.
2867 We believe that the Commission should not give preferential conditions of licence to a specific BDU. Rather, rules and obligations should apply to all BDUs. These rules should be contained in either the Broadcasting Distribution Regulations or in the Commission policy documents.
2868 ExpressVu has become the fourth largest distributor in the country, with significant market penetration in a number of different markets. ExpressVu is no longer a new entrant requiring regulatory advantages in order to stimulate competition. DTH BDUs have already established themselves as viable alternatives to cable, and they are the largest providers of digital services in Canada. It no longer makes sense to accord less stringent rules to distributors that are larger than all but a few cable BDUs in Canada.
2869 The need for regulatory symmetry also extends to any new initiatives proposed by competing BDUs. For example, ExpressVu routinely charges $240,000 a year for an uplink fee to specialty services. But cable operators cannot charge this fee. The Commission should not permit this inequity to continue.
2870 We would be pleased to answer any questions you may have. Thank you.
2871 THE CHAIRPERSON: Thank you. Mr. Lind, I just have one question of clarification. Your intervention was clear and so were your remarks, so the lack of questions doesn't evidence a lack of interest. We normally try and follow through where we need further clarity.
2872 But I did have one question I wanted to ask you on paragraph 91 of the reply of ExpressVu. In particular, the reference that the CAB, on your behalf and on behalf of others, of course, asked for the "status quo" in respect to the Rogers signal at 91, which I assume is Omni.2. Would you comment on that?
2873 MR. ENGELHART: First of all, ExpressVu is relying on the CAB-ExpressVu agreement. But that agreement, of course, is null and void. It was only to be in force if every single term of it was adopted by the Commission, which it wasn't.
2874 So, instead, the Commission has issued its own decision on the way that the rules are supposed to operate, and those rules include equitable distribution for the larger broadcaster that is listed in the appendix of that agreement, and that includes us.
2875 Secondly, I totally disagree with ExpressVu's interpretation of the words in that agreement if that agreement is still in force. The agreement said that existing distribution for Rogers television assets, plural. How can it be the status quo if they are saying that the new station doesn't get equal carriage to the old station? That is what the sentence clearly means, is that the same rules that applied to Omni.1 would apply to Omni.2. That is what we understood. We certainly wouldn't have agreed to anything other than that.
2876 So, I would disagree with their interpretation of the agreement, and I would say furthermore the agreement doesn't apply and what does apply is the Commission's equitable distribution rules. Equitable distribution can't mean that there is, I don't know, ten Globals, ten CTVs, ten CBCs, all of which are showing a lot of the same programming, and here we have Omni.2 with completely different programming shoved away on Nimiq 2 where nobody is seeing it.
2877 THE CHAIRPERSON: So, you are saying that you didn't think that any of that meant that Omni.2 would be carried at 91. Is that correct?
2878 MR. ENGELHART: Correct. And the plain language of the words doesn't support that either.
2879 THE CHAIRPERSON: Thank you. Thank you very much, gentlemen.
2880 Mr. Secretary.
2881 MR. LeBEL: Thank you, Mr. Chairman.
2882 The next appearing intervention will be presented by Pelmorex Communications Inc., Messrs. Pierre Morrissette et Luc Perreault.
2883 For the record, Mr. Chairman, I would like to indicate that intervenors number 7 listed in the agenda, Global, and number 14, Telesat Canada, and number 15, Mr. François Ménard will not be appearing intervenors. They will remain on file as non-appearing intervenors.
2884 MR. MORRISSETTE: Good morning, Mr. Chairman, Commissioners.
2885 My name is Pierre Morrissette. I am President and CEO of Pelmorex Communications Inc., licensee of The Weather Network and MétéoMédia. With me today is Luc Perreault, Vice-President, Affiliate and Government Relations.
2886 M. PERREAULT: Monsieur le président, d'entrée de jeu, je voudrais souligner que Pelmorex appuie les positions de l'ACR quant aux éléments suivants de son intervention
les droits de vérification;
les règles de distribution et d'assemblage équitable;
la lutte au vol de signal, ainsi que l'interactivité.
2887 Le Conseil aura sans doute noté mes efforts dans le but de contrer le vol de signal à titre de président du comité de l'Association canadienne des radiodiffuseurs à cet effet.
2888 Pelmorex croit fermement que ce combat est essentiel au développement soutenu et harmonieux du système canadien de radiodiffusion. Nous n'insisterons pas sur ces points étant donné le temps limité dont nous disposons, mais il nous fera plaisir par la suite de répondre à toutes vos questions.
2889 Aux commentaires de l'ACR, nous désirons rajouter ce que nous avons faits dans notre intervention d'hier et qui s'appliquent également à ExpressVu.
2890 MR. MORRISSETTE: Pelmorex hopes that ExpressVu will maintain its growth and will keep flourishing as a company. As all other program suppliers in the industry, Pelmorex has benefitted from ExpressVu's success in expanding the number of total homes served by a BDU in Canada. We value ExpressVu's contribution, and we hope to be able to further develop new horizons that would benefit both our companies in the near future.
2891 This is why, Mr. Chairman and Commissioners, we are here to discuss how ExpressVu's approach to launching interactivity is causing prejudice to The Weather Network and MétéoMédia. As you are aware, Pelmorex also participated in the interactivity proceeding that was initiated by the Commission in 2002.
2892 As we explained in this proceeding, Pelmorex has been involved in developing interactive weather content since the early 1990s both in Canada with licensed Canadian BDUs and in Europe with Canal Satellite.
2893 We are here today because the programming content of our two services continues to be impaired by the actions of ExpressVu, and we believe that the licence renewal proceeding is an appropriate forum in which to discuss measures that should be taken to prevent this impairment from continuing.
2894 Interactive programming will play an important role in the future development of the Canadian broadcasting industry.
2895 In the case of The Weather Network and MétéoMédia, however, interactivity is not only important but is absolutely critical to the success and development of our two services as the system enters a digital distribution environment.
2896 The Weather Network and MétéoMédia are not like any other programming services that are available in Canada. While The Weather Network and MétéoMédia are licensed as national speciality services, both services are mandated to provide subscribers with local and regional weather-related information. In order to do this in an analog world, our services use our own patented localization technology to deliver local forecasts and other localized weather-related information that are of particular interest to our subscribers.
2897 In addition to local weather forecasts, our technology has enabled Pelmorex to provide subscribers with access to a host of information, including local road and ski conditions, pollen reports, and reports on other environmental conditions.
2898 The success that our services have achieved to date is in large measure a result of our ability to provide subscribers with an up-to-the-minute local weather information. Our research has consistently shown that it is the local aspect of our services that is the most attractive to our viewers. Without local weather information, The Weather Network and MétéoMédia are simply not able to attract the same audience numbers.
2899 This is the problem that we have been trying to address in the digital distribution environment.
2900 In the digital world, in order to maintain this level of service and to make local weather-related information available to subscribers "on demand," Pelmorex must have the ability to deliver information to subscribers on an interactive basis. Interactivity is not only important in this digital environment, it is absolutely necessary if we are to be able to deliver all aspects of our weather information services to subscribers. Interactivity is the only way that we can continue to deliver local and regional weather information to subscribers in a digital environment.
2901 That is why Pelmorex proposed, as part of our own licence renewal in 2001, to add interactivity to the nature of service description contained in the licence for The Weather Network and MétéoMédia services.
2902 The Commission did not accept our proposal at that time. The Commission did, however, appear to recognize the importance of interactivity to Pelmorex's future success and, therefore, encouraged us and distributors to work together to implement interactive services and negotiate the terms and conditions for distributing the interactive versions of our services in good faith.
2903 Unfortunately, in the DTH context there has been no progress since our licence was renewed in 2001. To our knowledge, Star Choice does not currently have an interactive capability and is therefore not able to deliver the localized aspect of our services, I guess I would add yet. More to come on that.
2904 ExpressVu, on the other hand, does have an interactive capability and, in fact, has launched several unlicensed interactive services. ExpressVu, however, has refused to provide The Weather Network/MétéoMédia with access to this interactive capability we need to deliver the localized elements of our services to DTH subscribers.
2905 This has caused significant harm to our services. In recent years, we have received an abundance of phone calls and letters from our subscribers that have lamented the fact that the DTH version of The Weather Network and MétéoMédia are inferior to the version of those two services as distributed by cable BDUs. We have also witnessed a significant difference in the viewership levels for the DTH version of our two services as compared to the cable version of the services. Almost one-quarter of the level of audience ratings in the DTH environment relative to what we experience in the cable environment.
2906 The letters and phone calls we have received and the declining DTH viewership numbers provide clear indications of the harm that is being inflicted upon The Weather Network and MétéoMédia.
2907 Our concerns relating to the DTH version of our two services have been heightened in recent years as the DTH market has grown. ExpressVu alone has achieved well over 1.3 million subscribers and is the fourth largest BDU in Canada. At that size, ExpressVu now accounts for approximately 14 per cent of our subscriber base. In our view, it is simply not fair or equitable for a BDU of that size to refuse to provide The Weather Network and MétéoMédia with the interactive capability we need to deliver the localized elements of our services to subscribers.
2908 ExpressVu's refusal to provide The Weather Network and MétéoMédia with an interactive capability is even more frustrating, given that the DTH distributor has been offering subscribers its own interactive weather information service since September 2001.
2909 ExpressVu's interactive service operates 24 hours a day and provides viewers with access to localized weather-related information on demand. ExpressVu also charges each subscriber 50 cents per month for access to this service.
2910 It is important to emphasize that the information provided on ExpressVu's interactive weather service is the same kind of local weather forecasts that The Weather Network and MétéoMédia are currently providing to cable subscribers using our localization technology. This gives ExpressVu's weather service an enormous advantage over the DTH version of our own services.
2911 As the Commission is aware, we have attempted to negotiate an agreement with ExpressVu that would enable The Weather Network and MétéoMédia to provide subscribers with local weather information on an interactive basis. In those negotiations we have not insisted that ExpressVu cease and desist operating its own weather service. We have even agreed to provide ExpressVu with the information it needs for its service, provided that ExpressVu agrees to provide our two services with access to the same interactive capability that it has given to their own service.
2912 Those negotiations have failed because ExpressVu has not been willing to provide The Weather Network and MétéoMédia with the on-screen interactive triggers necessary for subscribers to access local weather information directly from the channels that are used by The Weather Network and MétéoMédia.
2913 Instead, ExpressVu has presented Pelmorex with a number of different proposals that would involve Pelmorex agreeing to supply weather information to ExpressVu's virtual weather channel. ExpressVu would continue to charge each subscriber a specific amount to access the service and, in exchange, Pelmorex would either retain a portion of that revenue or any advertising revenue that would be obtained from the unlicensed weather service.
2914 Pelmorex has refused to accept ExpressVu's proposals because they would threaten the future viability of The Weather Network and MétéoMédia. The ExpressVu proposals have been specifically designed to lure viewers away from our two specialty services. Agreeing to such terms would have a devastating impact on Pelmorex. It would also create a dangerous precedent that could most surely be exploited by other BDUs.
2915 If light of the failed attempts to reach a compromise with ExpressVu, Pelmorex is requesting that the Commission, as part of this licence renewal proceeding, take steps to ensure that ExpressVu provides The Weather Network and MétéoMédia with fair and equitable access to the interactive capabilities that are available on its distribution system.
2916 In the context of our two services, such fair and equitable access should necessarily require ExpressVu to provide our two licensed programming services with access to the interactive capability that is comparable to the interactive capability that the DTH distributor has bestowed on its own unlicensed weather service.
2917 Without regulatory rules, ExpressVu has had the opportunity and the incentive to capitalize on its control of its DTH bottleneck facility to the detriment of the Canadian broadcasting system as a whole and to Pelmorex in particular. ExpressVu has used all means at its disposal to limit our ability to participate in and to benefit from the development and distribution of an interactive version of our two speciality services.
2918 We believe that the Commission has the opportunity, in the context of this licence renewal proceeding, to alter the approach that ExpressVu has adopted in implementing interactivity on its system.
2919 We are, therefore, asking the Commission to impose an obligation upon ExpressVu that would require the DTH distributor to provide programming services such as The Weather Network and MétéoMédia with access to interactive capabilities that are comparable to those that ExpressVu provides to its own services.
2920 In addition, ExpressVu should be prohibited from providing its interactive weather service to any additional subscribers until after the Commission has issued a determination setting out the manner in which a DTH distributor is to provide interactivity to the programming services it distributes.
2921 We appreciate this opportunity to comment on this one aspect of ExpressVu's licence renewal application, and are prepared to respond to any questions you may have.
2922 THE CHAIRPERSON: Thank you. Madam Wylie.
2923 COMMISSIONER WYLIE: Good morning, gentlemen.
2924 I am a cable subscriber so I am not familiar with ExpressVu's weather channel. I hope that the news on it was better than on cable yesterday. We all got very wet yesterday, Mr. Morrissette.
2925 I would like to know what it looks like. Is it mostly text? Has it got images? You say it is a service without authorization. What is it? Compare it to your channel.
2926 MR. MORRISSETTE: It would compare to the localized pages of information that we show on cable.
2927 Every ten minutes on the tens we present two minutes of local information on the typical cable analog service.
2928 These are pages of information and it is the essence of our service. It is what people desire the most.
2929 What you would see on an interactive service on direct-to-home, such as ExpressVu's service, would be similar to that.
2930 COMMISSIONER WYLIE: So, the images would be limited to suns and rain and --
2931 MR. MORRISSETTE: That is correct.
2932 COMMISSIONER WYLIE: Any advertising on it?
2933 MR. MORRISSETTE: Not to my knowledge.
2934 COMMISSIONER WYLIE: I know that Pelmorex has a complaint before the Commission, so I guess we are again in the process of negotiating.
2935 Are you expecting ExpressVu to come across at reply?
2936 MR. MORRISSETTE: It would be nice, but I guess I am not very optimistic, given two years of frustrating negotiations.
2937 I would just like to take a brief opportunity to put in perspective with an easy to understand example of the impact of the interactive weather service provided by ExpressVu to our service.
2938 First of all, when you calculate our local content, weather content, two minutes every ten minutes on the tens, that works out to four hours and 48 minutes per day of our prime local weather content. The analogy would be that for a more conventional type of specialty network, our four hours and 48 minutes of prime content compares to the full evening prime time of a regular network.
2939 So, here is the deal. We are preempted by not being able to be provided access to our local capability via interactivity. We are preempted from providing our prime local content. That is analogous to taking another specialty service and saying, we are going to black out your full evening prime time and it is going to be shown by us on this other service and, by the way, that other prime time that is part of your basic service available to all subscribers as part of our 23 cents per month, we are going to take that away from the basic subscriber's programming package, and sell it to them on a discretionary a la carte basis without providing you access to that.
2940 That is the deal that is being proposed.
2941 In the negotiations they said, well, you know, we are prepared to take your core content that we are now going to present on the discretionary a la carte basis, and we are going to share that with you. The proposal was they keep 90 per cent and we get 10 per cent. Well, quite frankly, that was not a very attractive proposal.
2942 Our offer to the subscribers under condition of licence under the programming definition that we have is to provide local, regional, national and international weather information for a price of 23 cents per month for both services in English and in French. To dissect our prime content and not allow us the capability to present this to our subscribers for that all inclusive price of 23 cents per month for both services and for them to then turn around and offer it on a discretionary a la carte, for me it raises issues of access, undue preference, undue disadvantage to the subscriber, who is prevented from accessing it within the 23 cents or free, as part of what they are already getting, and then turning around and offering it on a discretionary a la carte basis.
2943 I don't think that they understand that our service is a basic service available for 23 cents, including all of this information. So, that has been our frustration and we are anxious to resolve it.
2944 COMMISSIONER WYLIE: Mr. Morrissette, maybe I am belabouring this because I don't understand the engineering aspect of it or the capacity or technical aspects of it and their related costs.
2945 I am a subscriber to Rogers cable. I am very familiar with your service and I see on the PEMS, the local, and it is true that it is very attractive to know whether you should wear your good shoes or your bad shoes because you are going to be walking across puddles, whatever. If I am in Winnipeg during that portion of time that I see the Ottawa local, the Winnipeger would see what is expected in Winnipeg for the day. Right?
2946 MR. MORRISSETTE: That is correct.
2947 COMMISSIONER WYLIE: Those are your 113, am I correct, little head ends?
2948 MR. MORRISSETTE: We have 1300 different communities that receive 1300 different local information simultaneously.
2949 COMMISSIONER WYLIE: If I were an ExpressVu subscriber next week instead of a Rogers subscriber, what would I see on the PEMS when I tune into the Weather Channel?
2950 MR. MORRISSETTE: In two minutes we can only present a page on the screen which provides perhaps -- I don't have the exact number at my fingertips -- let's say approximately 15 cities across Canada with not seven-day forecasts because we don't have enough time to present all those pages, but only two-day forecasts.
2951 So, it is severely constrained in terms of information. For those people living in rural areas, it is far inferior to what they could get via interactivity.
2952 COMMISSIONER WYLIE: Via these 1,300, you say?
2953 MR. MORRISSETTE: Well, that is right.
2954 COMMISSIONER WYLIE: So if I were an ExpressVu subscriber in Ottawa, I would see the same thing as the Winnipeg subscriber sees on the PEMS?
2955 MR. MORRISSETTE: Absolutely, that is right.
2956 COMMISSIONER WYLIE: In those discussions, have technical difficulties and resulting costs been raised as a reason? I would hope that by the time we hear ExpressVu in reply we understand what their position is on this in relation to capabilities, technology, costs.
2957 We are hardly going to get into the business of how each is compensated, but surely there has to be some reason. Anyway, it is up to ExpressVu to reply or not.
2958 MR. PERREAULT: To go directly to your point, Madam Vice-Chair, the information we provide is data. Data is technology neutral.
2959 Rogers operates an interactive system based on Wink. We provide interactive weather information on screen. It works perfectly, and we have a very good understanding with Rogers.
2960 COMMISSIONER WYLIE: You are talking here about Rogers cable?
2961 MR. PERREAULT: Digital cable. We provide interactive on digital cable with Rogers. With a Wink system, it works perfectly. Data is neutral. We provide with Vidéotron interactive weather information on PowerView. It works perfectly. Data is neutral.
2962 With ExpressVu, the only thing we need is access to a little sub-carrier to enable us to deliver the interactive information. This is no rocket science. Pelmorex has done this in Canal Satellite and la Chaîne météo in Europe in the mid 1990s.
2963 COMMISSIONER WYLIE: Who would absorb the cost of that sub-carrier?
2964 MR. PERREAULT: The cost of that sub-carrier is so minute it wouldn't make a change in the way ExpressVu would broadcast our signal. We believe that.
2965 This software that enables the ExpressVu subscriber right now to see their interactive weather service is imbedded in the box and the subscriber has purchased that box. Why shouldn't he be able to use all of the middleware and software that's included in that box?
2966 COMMISSIONER WYLIE: Excuse me, the box that permits a subscriber to see their interactive content?
2967 MR. PERREAULT: Yes.
2968 COMMISSIONER WYLIE: And you just want to add yours?
2969 MR. PERREAULT: I just want to access that box. If I purchase a computer and within that computer there is software like Outlook and Word and what have you. I can access all of that software. If I purchase a box that is a digital box and there is software within that box that could be enabled if the proper triggers are provided to it, why shouldn't the subscriber be allowed to access it?
2970 COMMISSIONER WYLIE: I gather from page 11, in the middle of the large paragraph of your presentation this morning -- excuse me, that is not right.
2971 Somewhere in your presentation you say you have no problem with them continuing to provide their service, assuming it is one that doesn't need authorization as long as they provide comparable access to yours. So that possibly with ExpressVu, if I was a subscriber to ExpressVu, you wouldn't mind the fact that I could have access to whatever service they provide, as well as the full service you provide. Correct?
2972 MR. MORRISSETTE: That is correct. We are confident enough in our brand and our quality of service and the breadth and depth of the service that we would provide that we would be very competitive.
2973 COMMISSIONER WYLIE: Yes, it is at page 11 where I saw the sentence in the middle of the large paragraph.
"In those negotiations we have not insisted that ExpressVu cease and desist operating its own weather service."
2974 So, you are now on the record as saying that, given comparable access, you have not insisted in negotiation, but would you go as far as saying you are prepared, assuming it is a service they can provide without authorization, to compete with it?
2975 MR. MORRISSETTE: Absolutely.
2976 COMMISSIONER WYLIE: That is your position?
2977 MR. MORRISSETTE: Yes. In fact, we would even be prepared to provide them with some of the content that they require if they so choose.
2978 We just reached an agreement with Vidéotron, I referred to that yesterday, along this very basis. They provide a weather service, interactive service in their wall garden array of services and, in fact, we will be providing them with or do provide them with their weather interactive content, and in the meantime, we have an enhanced interactive service that you access through our two television networks, The Weather Network and MétéoMédia.
2979 If you are watching The Weather Network or MétéoMédia, you access the interactivity and you go to a menu and you have the full interactive programming lineup behind our service.
2980 That is the model and we have absolutely no difficulties with the BDU operating a parallel weather service, as long as we have access for our own.
2981 COMMISSIONER WYLIE: We have certainly heard about your position and hopefully we will hear more about theirs.
2982 Thank you very much. Merci.
2983 THE CHAIRPERSON: Mr. Morrissette, I gather the issue is more than price. It is principle here?
2984 MR. MORRISSETTE: It is principle and we are talking about one of the very fundamentals, the essence of our service: Our core, prime content.
2985 The numbers speak for themselves. Without local content in direct-to-home services, our ratings are one-quarter the level that we experience through cable distribution. Well, the financial impact of those lower ratings in terms of on the advertising revenues that we generate, for which we are entirely dependent upon for our future growth in order to carry out our regulatory obligations under conditions of licence, are significantly materially impaired.
2986 If this was a case for all BDUs and we lost 75 per cent of our advertising revenues because of inability to access --
2987 THE CHAIRPERSON: I take those points. I don't mean to interrupt you.
2988 I guess I wasn't as clear as I could have been in my question, which was: I gather that you are arguing not only that this is inherent in your service but that in some way it is part of the programming service, although the Commission declined to incorporate that as part of your nature of service and in our interactivity report we basically opened the question of what is program related and what is not and that proceeding is, in effect, continuing.
2989 Your basic position on this is that it is program-related and part of the programming service and, therefore, should be carried as part of that service. Would that be correct?
2990 MR. MORRISSETTE: That is correct.
2991 MR. PERREAULT: To add to this, Mr. Chairman, technology is a means to an end. As Mr. McGee said earlier, ExpressVu is 100 per cent digital. So is Star Choice. If ExpressVu is 100 per cent digital and the only means for a programmer like us to deliver local weather information, local road reports and so on and so forth is to have access to that box to deliver that product to a subscriber, then technology should be open to that and the BDU should be open to it.
2992 Technology shouldn't be a barrier for a programmer to expand its content or deliver the content he has been licensed for. It should help actually to enhance that content.
2993 THE CHAIRPERSON: In your arrangements with other BDUs, in terms of the sharing of the monthly revenues or the increase in monthly revenues, have those been affected by the interactivity portion?
2994 MR. MORRISSETTE: None whatsoever. We are capable of providing our complete service, including interactivity, receive the full 23 cents per month per subscriber, and receive 100 per cent of all the advertising revenues generated, not just through our regular television channel, but that new advertising revenue to be generated through interactive television.
2995 THE CHAIRPERSON: From a conceptual regulatory point of view, you are basically arguing that it is part of your service and that it should be passed through, so to speak, just as your video programming?
2996 MR. MORRISSETTE: That is precisely our point.
2997 MR. PERREAULT: That is correct, Mr. Chairman, and also for all of them, and that is key for the broadcasting system. Since we are getting all of the advertising revenues from these interactive pages, it goes down to our bottom line.
2998 As you are aware, we are regulated as 37 per cent of past due revenues goes to Canadian content. Then, if these interactive services become more and more successful, they will generate more money and obviously that will be re-invested in Canadian content.
2999 MR. MORRISSETTE: Just to add one comment. At the time of our licence renewal in 2001, that is precisely why we requested to amend our definition of content to include interactivity.
3000 THE CHAIRPERSON: As you know, there is the concept of regulation, following technology and waiting to see how it develops, and I guess you fell into that. But the proceeding is continuing and, no doubt, these matters will be resolved in a general sense, as well from your point of view as in a specific case.
3001 Thank you. Mr. Secretary.
3002 MR. LeBEL: Thank you, Mr. Chairman.
3003 The next appearing intervention will be presented by the Canadian Association of Broadcasters, Mr. Glenn O'Farrell.
3004 MR. O'FARRELL: Thank you, Mr. Chairman.
3005 Bonjour, mesdames et messieurs.
3006 Mon nom est mon nom est Glenn O'Farrell. Je suis le président et chef de la direction de l'Association canadienne des radiodiffuseurs. Je suis accompagné aujourd'hui de M. Luc Perreault qui, comme vous le savez, est vice-président aux Affaires gouvernementales de Pelmorex, mais également président du Comité du piratage de l'ACR.
3007 For the purposes of today's oral intervention, we would like to focus on three key issues that relate particularly to the pay and specialty submissions that we had filed with the Commission during the written phase of this proceeding.
3008 The first matter is that of equitable carriage regimes for BDUs. We feel that at this point in time, with the DTH sector having grown or having had the success that it has had, we are of the view that there needs to be at this point a balancing of the distribution regimes, the regulatory regimes that apply to DTH and Class 1 cable operators.
3009 Our second concern is with regard to the matter of a BDU audit framework. Again, as was suggested by others in this proceeding, we see it as a core fundamental instrument of negotiation and of verification that ensures accountability and effectiveness.
3010 The third is the matter of signal theft. I will ask Luc to speak to the issue of signal theft.
3011 MR. PERREAULT: Mr. Chairman, Commissioners, as you are aware, signal theft is probably the most pressing issue for the pay and speciality members at the CAB these days.
3012 I would like first to thank the Chairman for all of his support because the Chairman has been instrumental in helping us in getting these new regulations and new amendments to the Radiocom Act and Customs Act that Mr. McGee spoke of earlier. The CEO meeting that has been conveyed by the Chairman actually created a mood where very positive discussions were held.
3013 From these positive discussions, papers were exchanged and we believe at the CAB that the commitments made by ExpressVu at the CEO meeting should be included as conditions of licence in the ExpressVu licence renewal.
3014 Estimates are not sufficient any more. We need hard evidence and we need hard data. In its intervention, the CAB has asked for information that could be provided in confidence with the Commission in terms of set-top boxes sold and what have you. That would enable the Commission, in the framework of privacy, to evaluate what the problem is.
3015 The bottom line question is: Are we searching for a cure for a cold or pneumonia? You can have that information and look at it privately.
3016 We, in the future, need methods of measurement. You have addressed that in the CEO meeting. I guess on a year-to-year basis the Commission could look at the measures that could be implemented by various BDUs into fighting signal theft. We need this methods to be transparent and we need them to be filed yearly with annual reports, and we need commitments and time lines from ExpressVu.
3017 We have heard that a letter went to the subscribers saying that ExpressVu would be exchanging all of their smart cards. We applaud that measure. This is something that will help fight piracy indeed, but we need a time line. When is it going to start? When is it going to end? Are we going to start with new subscribers or existing subscribers?
3018 All of these elements have to be discussed and all of these elements have to be taken into account if you are going to renew this licence for seven years because you are not going to be seeing that licensee for the next seven years.
3019 So, we have a unique window, a unique opportunity in creating a framework where we, as Canadians, will be able to say to our own Parliament, we have dealt with that issue now; now there is the issue of the U.S. black market. But let's clean up what we need to clean up first, and at the same time let's address the most significant problem.
3020 I am not saying here that ExpressVu has the most significant problem. This is not true. The most significant problem is the theft of U.S. DTH signals. But let's clean up our own act and let's get measures, let's get reporting, and let's get time lines, and from then on we will be able to move and I believe very strongly, with the new amendments, be able to fight this problem and cure it.
3021 M. O'FARRELL: Monsieur le président, nous avons restreint nos commentaires ce matin aux questions qui ont trait au secteur des services spécialisés payants seulement. Cependant, si vous avez des questions à nous poser sur les autres parties de notre intervention, à savoir les commentaires que nous avons déposés relativement aux services conventionnels, il nous fera plaisir de vous répondre, et c'est tout ce que nous avons à faire comme commentaires à ce moment-ci, mais nous anticipons vos questions et nous chercherons à y répondre du mieux que nous pouvons.
3023 THE CHAIRPERSON: Thank you.
3024 We covered the first part of your submission, which was common to Star Choice yesterday. So I have the answers on those.
3025 On signal theft and a condition of licence, and others I think will be putting this forward as well in intervention and the Applicant will have a chance to reply, but from your point of view, in trying to conceive, if one were even inclined to go that route, one has a series of measures that are undertaken.
3026 It seems to me very difficult to express what the measurements and goals are of that particular condition of licence. It seems to me that if one wants to combat this scourge, one has to continually be vigilant and adopt as technology changes and as new developments come on line to implement them, new business measures, new technology measures, more education and so forth. It is a multi-faceted process, as you better than most people, Mr. Perreault, know.
3027 It seems to me very hard to simply take a list that was handed of what I think we generally regarded as very constructive measures and to say, okay, now that is a condition of licence. What does that really mean? Does it really mean we shouldn't be beyond it? Is there any way of monitoring its effectiveness?
3028 One can talk about inventory controls, but let's say the inventory controls are 100 per cent. How do we know what the results are out in the field in terms of satellite theft? So, we are, in effect, throwing something into the mix here as a hard condition of licence for seven years that is the best measures that anybody could come up with at a moment in time. I am wondering what the advisability of doing that is rather than continuing to be as vigilant as we all are trying to be in combatting this with state-of-the-art measures and up-to-date technologies.
3029 O'FARRELL: Mr. Chair, I would like to offer just an opening comment and I will ask Luc to comment further.
3030 When we looked back at the initial policy that we saw government direct the CRTC to develop, one of the objectives was to have a made in Canada solution to combat the concept of death stars, as they were known at the time.
3031 I don't think anybody at that point in time had clearly envisioned that there would be a Canadian piracy problem to the extent that we have unfortunately uncovered one. It was all about the American dishes in the Canadian market, not about Canadian compromised technology in the Canadian market.
3032 So, we feel that it is important, and we appreciate your questions relating to this today, because, as Luc said, this is an opportunity now, going into the future, to take stock on what we know and the measures that have been put in place. But we don't think that is it prudent, nor is it desirable to sit back and say, well, based on what has been done in the way of corrective action and new initiatives, can we be satisfied that we can forecast the future with any more certainty than we could forecast the future when the policy was introduced in the first place?
3033 I would like to add my voice to the voice of others, certainly to commend you on the leadership you showed in creating a round table to have the discussions that have lead to a much more fruitful and constructive dialogue and for the exchange of commitments.
3034 However, on a going forward basis, the only real forum that we can look to is the public record and the public record as it relates to the licensing and the renewal of licensing requirements on any individual licensee, which is why we raise it in this context here, as a matter for the public record going into the future so that our views have at least been aired and you can take them into consideration.
3035 A COL, as you have discussed, would be problematic, depending on the way it would be framed or shaped or otherwise. But clearly, at the essence of it is inventory control. The heart of it is in inventory control. One of the ideas that we have that you may want to consider is that, as an alternative, if at a minimum there were reporting requirements that were filed on a very punctual basis that ensured that there was transparency on this issue, we would be in a better position to at least monitor the situation.
3036 Beyond that, I know Luc has other thoughts, and I would ask him to add his views, please.
3037 MR. PERREAULT: As Glen said, inventory control is paramount and reporting would be fine if we knew what the ins and the outs would be. If we are going to exchange all of these smart cards for 1.3 million subscribers, maybe the Commission, the CRTC, should get an annual report on the status of this swap.
3038 Maybe the Commission could get reports annually on how the new methods of marketing and selling the equipment are implemented with the dealers, how many dealers have this new system that ExpressVu is installing, what is the percentage of all dealerships utilizing this system and so on and so forth.
3039 With this information, we will be in a better position to zero in and evaluate where the nature of the problem is and, as the Chairman said earlier, be able to also evolve with technology because in this domain, Mr. Chairman, you are right, technology evolves very fast.
3040 It might not be a firm COL, but the COL might be that the licensee would be reporting on very specific items on a yearly basis on their own progress.
3041 THE CHAIRPERSON: Thank you. Madam Wylie.
3042 COMMISSIONER WYLIE: Have you, Mr. Perreault, presented to ExpressVu these questions that you feel could be reported on to keep the dossier alive, questions that you seem to be able to put on the table today?
3043 MR. PERREAULT: Yes, we did, Madam Vice-Chair.
3044 COMMISSIONER WYLIE: You have. And what was the response?
3045 MR. PERREAULT: On the specific set-top box questions, there was no response. On the reporting, it was luke warm.
3046 COMMISSIONER WYLIE: Perhaps ExpressVu can add that to its homework between now and reply and see, as an alternative for a condition of licence, whether there are measurable areas that they would be prepared to report on.
3047 MR. PERREAULT: I would like to add that we appreciate Mr. McGee's support in all of the legal actions and all of the monies invested in these legal actions and the fact that he is conscious of the problem and really helping us.
3048 CONSEILLÈRE WYLIE: Non, mais je croyais que ce que vous proposiez c'est qu'il y aurait probablement des exigences ou des mécanismes, même les mécanismes qu'eux-mêmes ont offerts qui serait mesurables et que ça aiderait à garder le dossier vraiment...
3049 M. PERREAULT: Central.
3050 CONSEILLÈRE WYLIE: Très central et présent s'il y avait des rapports sur des items qui sont finalement mesurables.
3051 Alors peut-être qu'à la réplique ExpressVu aura des commentaires à cet effet.
3052 M. PERREAULT: Tout à fait.
3053 CONSEILLÈRE WYLIE: A ce moment-là ils pourraient eux-mêmes suggérer quels sont les items ou les mécanismes qui sont, de fait, mesurables et qui aideraient vraiment à voir comment la situation progresse.
3054 M. O'FARRELL: Madame Wylie, juste pour être bien clairs, il n'est pas de notre intention de demander à quiconque de soumettre des rapports pour le plaisir de demander des rapports et d'ajouter du papier à un dossier public qui est déjà très volumineux. Cependant...
3055 CONSEILLÈRE WYLIE: Surtout quand vous n'utilisez que deux pages.
3056 M. O'FARRELL: C'est pour ça que nous on est sur un régime très stricte et puis on croit dans l'efficacité de nos moyens.
3057 Ceci étant dit, on pense, comme je crois que vous l'avez dit, qu'il y a matière à identifier des éléments d'un rapport efficace et fonctionnel, mais qui ajouterait une information qui n'est pas au dossier public présentement, et que ce soit, exemple sur les contrôles d'inventaires, que ce soit en matière de rapports sur les activités de comment dit-on « Electronic counter measures », ou autrement où on pourrait voir de quelle manière on s'adresse au problème parce que pour nous c'est très simple, et pour ExpressVu. On partage le même intérêt.
3058 On voudrait voir un accroissement du nombre d'abonnés au système. Si ces mesures-là peuvent nous aider à mieux comprendre où on s'en va dans tout ce débat-là, je pense qu'on serait mieux servis.
3059 CONSEILLÈRE WYLIE: Et je remarque que la même suggestion a été faite par Quebecor dans son intervention.
3060 Il y aura probablement des questions de confidentialité possiblement, mais au moins que le Conseil lui soit en mesure de voir comment le dossier progresse et ça permettrait également au président, probablement, de savoir ce qui se passe sans avoir des réunions qui sont plus onéreuses.
3061 Voilà. Merci.
3062 LE PRÉSIDENT: Merci, messieurs.
3063 Monsieur le secrétaire.
3064 M. LeBEL: Merci, monsieur le président.
3065 La prochaine intervention nous sera présentée par Quebecor Média Inc., et M. Pierre-Karl Péladeau nous présentera ses collègues.
3066 Vous disposez de dix minutes pour faire votre présentation.
3067 M. PÉLADEAU: Merci.
3068 Monsieur le président, madame la vice-présidente, radiodiffusion, mesdames et monsieur les conseillers, membres du personnel du Conseil. Mon nom est Pierre-Karl Péladeau, je suis le président et chef de la direction de Quebecor Média et de Quebecor.
3069 M'accompagnent aujourd'hui, à ma droite, M. Yvan Gingras, vice-président principal, Finances et administration de Vidéotron; à ma gauche, M. Édouard Trépanier, vice-président, Affaires réglementaires, Quebecor Média; et M. Serge Bellerose, vice-président, canaux spécialisés, Affaires corporatives et stations régionales, Groupe TVA.
3070 Nous sommes heureux d'être ici aujourd'hui parce que nous tenons à exposer publiquement une situation qui met en danger le système canadien de radiodiffusion.
3071 La licence qu'on vous demande de renouveler sera attribuée à Bell Canada. Je pense que vous devez vous interroger sur le plan d'affaires de la division de Bell qui distribue des signaux satellites de télévision, ExpressVu.
3072 Selon les quelques renseignements disponibles publiquement, sept ans après la mise en exploitation, en environ 1,8 milliard d'investissements plus tard, le bénéfice d'exploitation de Bell ExpressVu demeure largement négatif.
3073 Nous avons préparé quelques tableaux afin d'illustrer visuellement les différents chiffres que nous présenterons.
3074 J'ai passé toute ma vie dans le monde des affaires. J'ai la responsabilité de très nombreuses entreprises actuellement et je peux vous assurer qu'aucune entreprise ne peut se payer une telle aventure. La seule explication possible est que le véritable rôle de Bell ExpressVu est d'être l'instrument d'une stratégie visant au maintien du statu quo dans l'industrie de la téléphonique locale.
3075 BCE a pris le contrôle d'ExpressVu dès l'entrée en vigueur de la concurrence dans le secteur de la télédistribution. Le plan d'affaires qu'on vous avait soumis pour obtenir la licence qu'on vous demande aujourd'hui de renouveler a été jeté à la poubelle.
3076 La stratégie de Bell Canada est transparente. Elle est prête à tout pour arracher des parts de marché aux câblodistributeurs, pas dans le but de rentabiliser un jour l'entreprise, mais dans le but de s'assurer que les câblodistributeurs ne deviendront jamais suffisamment solides financièrement pour se lancer dans la téléphonie locale.
3077 Jetez un coup d'oeil sur le ratio d'endettement de la compagnie-mère, BCE, et vous constaterez que cette compagnie a les moyens de se payer ce genre de stratégie.
3078 Remarquez plus particulièrement donc ce qu'on appelle ratio dette EBIDTA qui est extrêmement élevé auprès des câblodistributeurs pour avoir effectué les importantes modernisations des dernières années alors que Bell Canada détient le statut de « investment grades » qui est le contraire de l'ensemble de l'industrie de la câblodistribution au Canada.
3079 Il est utile d'indiquer que nulle part ailleurs dans notre monde occidental un distributeur satellite est détenu par une entreprise de télécom qui jouit d'un monopole centenaire en téléphonie locale.
3080 C'est probablement l'une de raisons principales qui nous obligent de constater que la concurrence en téléphonie locale est marginale au Canada alors qu'elle s'est installée de façon relativement importante dans d'autres pays comme les États-Unis ou la France.
3081 Je suis personnellement d'avis qu'il est dans la nature des monopoles de déployer tous les moyens à leur disposition pour s'assurer du maintien de ce monopole et il nous apparaît évident que nous en sommes encore une fois témoins.
3082 Bell ExpressVu n'est qu'un pion dans le jeu d'inertie de Bell Canada et son rôle, elle le joue très bien. Ses attaques tous azimuts contre les câblodistributeurs ont donné jusqu'à maintenant les résultats escomptés, à savoir qu'aucun câblodistributeur ne s'est lancé dans la téléphonie locale, une avenue pourtant logique parce qu'aucun d'entre eux n'a les moyens financiers de le faire.
3083 A l'appui de notre hypothèse, regardez l'enjeu. Pour protéger un monopole de fait qui génère plus de sept milliards de dollars par année, soit près de quatre fois le bénéfice d'exploitation des câblodistributeurs réunis, l'investissement dans l'aventure Bell ExpressVu représente, bien évidemment, un faible déboursé.
3084 D'ailleurs, la haute direction de BCE s'en cache à peine. Lors d'une présentation devant un groupe d'investisseurs à New York, le chef de la direction de BCE, M. Michael Sabia, le disait assez ouvertement, comme en fait foi cette diapositive extraite de sa présentation.
3085 Il parlait, bien sûr, de la stratégie d'ensemble de BCE, en parlant du rôle assigné à ExpressVu, il le décrivait ainsi:
« Defensively to minimize Cable's potential IP telephony opportunity ».
3086 Cette stratégie est tellement transparente que BCE n'a même pas cru bon de faire de ExpressVu une entité autonome. Ces résultats sont consolidés à ceux de Bell Canada, le monopole en téléphonie locale.
3087 Nous vous demandons d'ailleurs dans l'intervention que nous avons déposée au dossier, d'exiger que ExpressVu devienne une entité relativement autonome afin qu'on puisse mieux comprendre comment on peut arriver à dépenser 1,8 milliards de dollars, ne générer aucun EBIDTA, n'avoir aucune perspective de profitabilité et n'avoir pratiquement aucune dette.
3088 Si vous acceptez d'accorder une licence à Bell ExpressVu dans les mêmes paramètres, ce que vous acceptez c'est la légitimité de cette évidente stratégie et du mme coup vous accepterez que ce n'est pas demain la veille que le voeu pieux exprimé par les élus canadiens et endossé sans retenue par vous, monsieur le président, sera réalisé.
3089 Chez Quebecor c'est sans hésitation que nous affirmons que le consommateur est toujours mieux servi lorsqu'il a le choix de ses fournisseurs de biens et services. La concurrence, nous la vivons au quotidien depuis la création de notre entreprise il y a plus d'un demi siècle. Mais la concurrence n'est pas possible quand les dés sont pipés d'avance, comme c'est le cas dans le dossier de la téléphonie locale.
3090 Parmi ses pratiques visant à enlever des parts de marché aux câblodistributeurs, Bell ExpressVu vend ses récepteurs en deça du prix coûtant. D'une pierre deux coups : d'une part elle accélère l'acquisition des parts de marché, et d'autre part elle force son concurrent à dépenser des sommes considérables pour conserver ses clients. Vidéotron se voit forcée de vendre ses terminaux sous le prix coûtant si elle veut résister à cet assaut.
3091 Enfin, triomphe du cynisme, monsieur le président, Bell ExpressVu exploite un réseau qui permet au public de recevoir les signaux de radiodiffusion sans payer. L'évident laxisme de Bell ExpressVu dans le dossier du piratage s'explique par la même logique. Puisque le but de l'opération n'est pas de rentabiliser l'entreprise mais plutôt d'affaiblir les câblodistributeurs, le piratage sert la stratégie globale de BCE.
3092 D'ailleurs, monsieur le président, nous aimerions de nouveau vous remercier pour votre initiative d'avoir convoqué un sommet des CEO afin de remédier à ce fléau national et international, comme on peut le constater maintenant dans le domaine de la musique, forcés de constater, toutefois, que les efforts de Bell Canada à cet égard nous sont inconnus, mais que nous soupçonnons minimaux alors que la société bénéficie indéniablement de moyens financiers de le combattre agressivement.
3093 Le phénomène du vol de signaux satellites est tellement répandu au Canada qu'on peut compter près d'un million de visites par mois sur les sites Web qui expliquent comment pirater. La GRC a saisi des dizaines de milliers de pièces d'équipement servant à voler les signaux satellites, ainsi que des dizaines de milliers de noms de clients. En fait, s'il n'y a pas un redressement radical à court terme, il y aura bientôt un nombre suffisant de pirates pour que le mouvement devienne irréversible.
3094 Comment pouvez-vous accepter que la plus grande entité corporative au Canada mette en danger l'intégrité du système canadien de radiodiffusion en se contentant d'une technologie totalement compromise?
3095 Pourquoi n'exigez-vous pas de Bell ExpressVu qu'elle rende public le chiffre magique qui pourrait enfin nous donner une indication concrète de la gravité du problème? La question est simple : Combien de décodeurs ont été vendus par Bell ExpressVu depuis sa création?
3096 En tenant pour acquis que les acquéreurs de ces décodeurs ne peuvent pas s'en servir comme objet décoratif et que ces appareils n'ont qu'une seule fonction, recevoir des signaux satellites de télévision, nous pourrions comparer ce chiffre, que Bell tient tant à cacher, avec le nombre de clients de la requérante, et nous saurions combien de Canadiens piratent les signaux de Bell.
3097 Je l'ai souvent expliqué et je crois qu'il serait utile que je le fasse à nouveau. Le piratage des signaux des satellites américains est un problème somme toute marginal au Québec pour une raison bien simple : les Québécois tiennent à recevoir de la programmation en langue française et il n'y en a pas sur les satellites américains.
3098 Les Québécois qui veulent voler des signaux satellites de télévision volent ceux de Bell ExpressVu. C'est un jeu d'enfant de le faire et ils y retrouvent leur programmation de langue française. Le laxisme de Bell en cette matière est en train de mettre en danger le Star System québécois.
3099 Chers membres du Conseil et public présents dans l'auditoire, nous soumettons que BCE prend le système canadien de radiodiffusion en otage pour protéger ses bénéfices dans une industrie dix fois plus puissante que l'ensemble de la radiodiffusion au Canada.
3100 C'est pour dénoncer ce comportement inacceptable de la part de Bell ExpressVu que nous intervenons dans le renouvellement de cette licence. Nous vous demandons de:
Ne pas laisser le système canadien de radiodiffusion devenir une simple carte dans le jeu de la plus grande entreprise de télécommunications au Canada;
Vous donner les outils pour reconnaître le véritable rôle que joue Bell ExpressVu dans le système de la radiodiffusion au moyen d'une séparation structurelle et des exigences de divulgation suffisante;
Combattre le piratage avec les moyens à votre disposition en imposant les conditions de licences énumérées dans notre intervention et aussi déposées en annexe de cette présentation; et enfin
De n'attribuer qu'un renouvellement de licence à court terme jusqu'au 31 décembre 2006, pour vous donner le temps d'y voir clair et corriger cette situation intolérable.
3101 Nous sommes maintenant disposés à répondre à vos questions.
3102 LE PRÉSIDENT: Monsieur Péladeau, merci. Merci, messieurs.
3103 Je pense que votre présentation est assez claire et assez forte en même temps. On n'a pas beaucoup de questions, mais je veux vous poser une question plus générale.
3104 Le focus de votre intervention c'est sur Bell ExpressVu, mais comment est-ce que vous pensez que les stratégies de Star Choice et de Shaw Communications sont effectuées étant donné votre idée de Bell?
3105 Ce n'est peut-être pas assez clair, mais Star Choice eux aussi perdent de l'argent. Ils ont fait beaucoup d'investissements. Il y a un certain parallélisme.
3106 Quelle est leur stratégie si la stratégie de Bell est seulement d'affaiblir l'industrie des câblodiffuseurs? Est-ce que c'est la même stratégie que Star Choice?
3107 M. PÉLADEAU: Évidemment, monsieur le président, c'est difficile pour moi de connaître les stratégies de Star Choice. Comme vous le savez, depuis maintenant plus d'un an systématiquement nous avons abordé la problématique du piratage en ce qui concerne Bell ExpressVu. Je pense que nul intervenant hier, lors des auditions amenant au renouvellement de la licence de Star Choice a abordé cette problématique.
3108 Aujourd'hui on constate avec donc tous les éléments que nous avons apportés auprès du piratage et les efforts considérables qui ont été faits depuis maintenant je dirais 24 mois et plus particulièrement au Québec, on constate encore une fois, et je tiens à le répéter, l'état difficile de la situation financière des câblodistributeurs dont le ration dette/équité est sensiblement différent et donc un environnement extrêmement concurrentiel.
3109 Il existe de la concurrence dans la distribution des signaux. Il n'en existe pas en téléphonie locale. Maintenant, quelle va être la stratégie de Star Choice à long terme? Je ne peux pas, évidemment, donner d'information à cet égard. Est-ce que Star Choice va demeurer un joueur dans la distribution satellite ou pour les mois et les années qui viennent? Nul ne le sait.
3110 Chose certaine, je pense qu'on est en mesure également de constater une situation financière difficile de leur côté à l'égard de leur activité spécifique de distribution par satellite.
3111 LE PRÉSIDENT: Oui, mais le point de ma question c'est que vous tirez votre théorie des quelques faits les résultats financiers de Bell ExpressVu et sur ce plan-là je ne vois pas grand différence entre les résultats financiers de Bell ExpressVu et de Star Choice.
3112 Vous tirez aussi votre théorie d'une diapositive de M. Sabia à New York comme preuve d'une certaine théorie de pression sur le câble. Ça c'est différent et je comprends d'où vous venez et les gens d'ExpressVu vont commenter.
3113 Mais on a leurs témoignages ici qu'ils sont optimistes qu'ils vont améliorer. Il y a un pattern d'amélioration des résultats financiers d'ExpressVu. On voit que et Star Choice et ExpressVu sont dans presque la même situation au point de vue de pertes, et c'est une concurrence assez difficile et on essaie de faire du progrès.
3114 Je vous demande si le fait que Bell fait des profits dans le domaine de la téléphonique, c'est une chose, bien sûr. Shaw eux aussi font des profits dans la câblodiffusion. Je me demande si ça suffit pour tirer une telle théorie noire, mettons, de conspiration ou de malfaisance. Est-ce que c'est juste de votre part?
3115 M. PÉLADEAU: Encore une fois, monsieur le président, excusez-moi mais c'est extrêmement difficile pour moi de spéculer sur les enjeux spécifiques de Star Choice à l'intérieur donc des activités de Shaw.
3116 Chose certaine c'est qu'on constate que Shaw a modifié sa position. Je pense que vous avez soulevé récemment la problématique de l'augmentation des tarifs. Star Choice a modifié sa position en cette matière et honnêtement je ne peux pas vous donner de réponse spécifique. Ce serait faire de la spéculation et on n'est pas en mesure de prouver quelques pratiques qui ont été, je dirais, semblables à celles qu'on retrouve en ce qui concerne Bell ExpressVu.
3117 On a parlé des rapports d'inventaire. On ne peut pas acheter un terminal Star Choice et ne pas acheter un abonnement alors qu'on a pu le faire pendant les deux dernières années pour Bell ExpressVu. D'ailleurs, je pense que c'est utile de le répéter. Essayez d'acheter un téléphone pour Bell Mobilité, vous ne pourrez pas acheter un téléphone sans acheter d'activation. Or, cette situation-là s'est produite avec ExpressVu depuis les deux dernières années et on vient tout récemment d'y mettre fin.
3118 M. TRÉPANIER: Je voudrais peut-être, si vous permettez, monsieur le président, dire qu'on ne nie pas le fait que c'est difficile, effectivement, financièrement de lancer un service de distribution national. Il s'agit d'un investissement important.
3119 Par contre, certains chiffres et peut-être que M. Gingras pourra en ajouter là-dessus démontrent que l'approche de Star Choice est une approche logique financièrement alors que celle d'ExpressVu ne semble pas avoir de logique financière.
3120 Aux questions du conseiller Williams ce matin, on a eu des réponses qui ont évité les chiffres systématiquement. En fait, on n'a pas eu de réponse quant à la logique financière d'ExpressVu.
3121 LE PRÉSIDENT: Mais voyez-vous de grandes différences entre les résultats financiers des deux compagnies?
3122 M. GINGRAS: Si je peux me permettre de commenter. Star Choice nous montre quand même un EBIDTA positif, un « free cash flow » positif. Ils ont quand même un EBIDTA positif. On a eu ce matin une expectative de la part de Bell ExpressVu d'être positif éventuellement d'ici la fin de l'année.
3123 Bell ExpressVu bénéficie tout de même d'une masse critique beaucoup plus importante que celle de Star Choice. On qualifiait la masse critique requise par Bell ExpressVu de 1,7 ou 1,8 million d'abonnés. Star Choice en a beaucoup moins et aujourd'hui réussi à s'en tirer.
3124 Maintenant, leur position compétitive et leur stratégie de « pricing », ils ont fait des efforts. Ils ont essayé d'augmenter les prix peut-être en premier, mais je ne voudrais pas commenter trop sur leur stratégie interne en terme de pricing, mais on voit qu'ils ont des résultats financiers, somme toute, légèrement mieux que Bell ExpressVu avec une masse critique moindre.
3125 LE PRÉSIDENT: Oui, mais je comprends qu'ils ont changé leur stratégie. Peut-être qu'ils ont réduit leur pourcentage du marché. C'est une décision on fait des « trade offs », coût par abonné, et cetera, et on fait des décisions si on veut réduire des coûts, on veut augmenter sa part de marché. Je pense que c'est une décision légitime.
3126 Mais je ne vois pas grand différence entre les résultats et la légitimité des décisions qui ont été faites. Peut-être que vous pouvez je comprends votre point que vous voyez un certain laxisme au sujet du piratage. Je comprends ce point-là, mais mettons ça de côté pour le moment pas de côté à 100 pour cent, mais pour le moment. Est-ce que vous voyez des stratégies dans le marché, du « business marketing », ou vous voyez encore la preuve de votre théorie?
3127 MR. PÉLADEAU: Once again, it may be tough for me to speculate on this issue, but as Yvan and Édouard mentioned and as I also mentioned earlier -- and this is sort of a personal opinion -- I believe that Shaw management found out that the way that they were competing was unsustainable and, therefore, they were the first one to readjust maybe what we can call their business model.
3128 But, once again, I don't know, this is speculation. But if we are looking at what took place for the last six to nine months, I think that Shaw, through Star Choice, had been changing the way that they were proposing to the different customers their satellite services.
3129 Once again, we don't have any evidence of this and, once again, it will always be speculation.
3130 THE CHAIRPERSON: Right. But I suppose your entire approach is speculative in that sense in that you are suggesting some --
3131 MR. PÉLADEAU: With Bell ExpressVu, Mr. Chairman, we have harder facts because, once again, we have been looking at the numbers, we have been seeing cost of acquisitions significantly higher.
3132 We didn't see any debt after a company invested $1.8 billion. If you go to the United States, Echo Star or Direct TV, Echo Star carries a $5 billion debt. They don't have the capacity to compete unfairly like what we have been seeing with Bell ExpressVu because, one day or another, they will be caught by the financial markets.
3133 So they have been readjusting the way that they were dealing with their customers. They don't have the capacity to enjoy this steady flow of cash that comes in every year at a level of $7 billion, and obviously there is no company that will be able to make mistakes like BCE did with Teleglobe without any problem. Their debt EBITDA is still at two times. They enjoy the best balance sheet of the industry and, unfortunately, distributions through cable have the worst. We are all non-investment grades because we have been obliged to invest for so many years, upgrading our networks, to be able to get all those specialized channels, those digital services to be offered to the Canadian population.
3134 THE CHAIRPERSON: Unfortunately, we are not able to deal with the financial picture fully here for reasons of confidentiality and so forth. Investments are made. They are funded.
3135 I think you had an application which we rejected in respect to cross subsidization a few months ago. So, that was examined in its context.
3136 I guess what I am trying to do is I hear what you are saying in regard to the motivation that you ascribe to BCE based essentially on the slide that you and another intervenor have presented. I follow the logic of the presentation that you are making, but I guess what I am also asking you is that, in the context of running a satellite business, is there any other evidence that you have that would show support for your theory or is it just a matter of one business decision versus another to try and get this off the ground?
3137 Because we do have evidence from ExpressVu that their financial situation is improving and, as Mr. Gingras said, they have said that they are expecting to be EBITDA positive going forward this year.
3138 MR. PÉLADEAU: Mr. Chairman, don't forget that when the Commission accepted the transfer of the licence in 1997, they had a business plan that was providing profitability two or three years after. We are by far past this time. We have been seeing an enormous amount of losses and once again without any debt.
3139 THE CHAIRPERSON: You may be right about that. I guess, though, over the years having seen a lot of financial projections for new business, and as I am sure you have seen as well, they don't follow the plan all that well. There are a number of undertakings. I suspect that Star Choice's plan would have shown a profitability a lot earlier as well in its regional projections. So I don't know
3140 MR. PÉLADEAU: Mr. Chairman, when the CRTC has had the chance to transfer the licence from TVA and Vidéotron and Quebecor Média took obligation, we expect to follow them, and I am sure that the Commission will watch us following our obligation.
3141 Therefore, I don't know why, then, they will give some licence on financial models or business plans that are not serious at the beginning.
3142 THE CHAIRPERSON: It is not so much that they are not serious. It is that it is difficult to predict the future and it is difficult to predict the competitive elements that are going to be facing an enterprise as it goes forward.
3143 MR. PÉLADEAU: I understand, Mr. Chairman, that you can have plus or minus 5 per cent or 10 per cent, but they are so far away from what was said that it starts to be a little bit ridiculous.
3144 THE CHAIRPERSON: You may be right on that.
3145 I am trying to get your point as clearly as I can and I am trying to look for the elements that you draw upon, and I think I have a number of them and I just am just trying to probe for any more.
3146 I am trying to, in my own mind, separate out call it faulty decision making. I mean, nobody is perfect. Businessmen make mistakes. They bet on the wrong horse; they make the wrong investment from time to time and often they are right. How many of those are judgment calls as distinct from anything that flows from any kind of non-business related strategy such as the one that you are putting forward towards BCE?
3147 I am just looking for any other evidence that you would have in trying to sort out in my own mind what is a business judgment that may be right or wrong and what is a decision that would be directed towards a goal that you are suggesting they might have. That was all.
3148 M. TRÉPANIER: J'ajouterais deux choses, si vous le permettez.
3149 Partir d'un projet où on va investir 55 millions pour en investir après l'échéance de la première licence à 1,8 milliards, ça fait un pourcentage de différence assez considérable. Mais admettons que ce que nous vous soumettons ce matin est une hypothèse, machiavélique peut-être, mais certainement à la faveur des investisseurs de Bell Canada et de BCE.
3150 Ce que nous vous demandons au moment où vous allez renouveler une licence potentiellement jusqu'en 2010, ce que nous vous demandons c'est d'exiger une divulgation plus importante pour que Bell ExpressVu réponde aux questions soulevés ce matin, par exemple, par le conseiller Williams, et pour avoir cette divulgation-là, nous vous demandons soit une séparation structurelle ou une comptabilité séparée sérieuse où vous, le Conseil, pouvez juger si notre hypothèse est plausible ou non.
3151 M. PÉLADEAU: Monsieur le président, peut-être un commentaire pour ajouter à Édouard.
3152 Comme vous le savez, on est devant vous je dirais sans moyens. Nous on essaie d'obtenir l'information qui est publiquement divulguée. On n'a pas accès et on n'a aucun moyen qui nous permette de déterminer quelles sont les stratégies et quelle est la situation financière de Bell ExpressVu. Vous, vous détenez par le parlement canadien les pouvoirs.
3153 On constate que lors du transfert de la licence en 1997, une situation a été créée et je pense d'ailleurs et il est utile peut-être de répéter ce qu'a dit Glenn O'Farrell à ce sujet. La problématique du Deathstar était à l'époque existante en 1997 et on n'aurait pas soupçonné qu'il y aurait pu y avoir un problème de piratage de satellites canadiens.
3154 Là on fait face à une réalité et donc, en conséquence de cette situation-là, et pour renouveler, je dirais, l'invitation qui est faite par Édouard, sachant qu'on a vécu une situation particulièrement déplorable, donnons-nous les moyens comme pays de s'assurer qu'on ne met pas en péril le système de radiodiffusion par le piratage et par l'incapacité qui est aujourd'hui démontrée que nous ne pouvons pas, à partir de la situation financière des câblodistributeurs, concurrencer la téléphonie locale.
3155 A ma connaissance, à moins qu'il y ait quelqu'un qui ait de meilleures idées, il n'y a pas d'autre intervenant possible au Canada, compte tenu de l'environnement législatif, qui va pouvoir implanter la téléphonie locale autres que les câblodistributeurs.
3156 LE PRÉSIDENT: Merci.
3157 Monsieur Williams.
3158 COMMISSIONER WILLIAMS: Good morning, Mr. Péladeau.
3159 One of the intervenors in this process of licence renewal suggested that if the Commission does not forcefully and diligently exercise its jurisdiction in matters of unfair competition, Canadian consumers would face continued monopoly or near monopoly conditions on residential telephone services and a gradual monopolization of the broadcasting distribution services by the telephone companies.
3160 Could you please tell me the effect on your company, on Vidéotron, by ExpressVu as it would relate to a statement like that, and perhaps comment also on what the broadcasting landscape would look like four or five years out if we were not to make any substantial changes to the way these licences are issued and administered now.
3161 MR. PÉLADEAU: I think that Mr. McGee, Commissioner Williams, was pretty clear this morning saying that he is looking to get analog customers, to migrate them onto digital.
3162 As I mentioned earlier, I think that the cable industry in Canada made significant financial efforts to be able to upgrade those networks and be able, then, to get all the Canadian programming that is now available through the different systems.
3163 When we look at the digital situation, it is clear that the number one digital distributor in Canada is Bell ExpressVu. So, what will be their long-term plan, I am sure at least where they are today, and if, as I think the Commission thinks, that future belongs to digital TV, and we also agree with the statement, therefore, they are already number one in this marketplace.
3164 So, we are strong. We are incumbent players coming from the analog. We have been investing a significant amount of money, but we are not enjoying a monopoly local telephony that was used by Bell Canada to compete against cable companies.
3165 I know that this had been probably an argument or an issue that we raised regarding cross-subsidization. Many people in Regulatory Affairs at Bell Canada told us that we know nothing about the broadcasting industry in Canada because there are two laws. There is the Telecom Act and the Broadcasting Act. Bell ExpressVu is ruled by the Broadcasting Act and Bell Canada is under the Telecom Act.
3166 If we are strictly restraining ourselves from the rules, therefore, yes, that is right. But in the meantime, the message that we were trying to carry is we are working in two silos any more. I think that every cable distributor, every telecom company is evolving in the telecom environment. We are not only distributing signals. We are providing Internet, and we hope that there will be many other services that the cable industry will be able to provide for the Canadian population in the future. But obviously we need to have the financial means to do this and, actually, we don't because of the situation we described earlier.
3167 MR. TRÉPANIER: Mr. Williams, if you allow, I would add that this is the case for all operators but indeed it is the case for Vidéotron. Perhaps Mr. Gingras will want figures to what I am going to say, but in a sense, the timing was very good for cable operators to have high speed Internet. High speed Internet will reach a plateau at one point in the near future because a high proportion of the population of the households will have high speed Internet at home.
3168 If we were to look only at the distribution side and if nothing changes, we believe close to 20 per cent of those who own equipment from our main competitor do steal signals. If the financial power of the local telephony company is used to extract clientele by any means possible to cable operators, and here we are talking about a licence that would be renewed until 2010, in the long run, we are even asking, without having the answer, will distribution of broadcast be a good business to be in? That is why we are using strong words like you mentioned.
3169 COMMISSIONER WILLIAMS: If distribution of broadcast becomes an unattractive business proposition, would your company continue to work in the high speed broadband to the home through an Internet type of business or would that also suffer?
3170 MR. PÉLADEAU: That is a question that we raised earlier. Technology evolves so quickly. Mr. Chairman, you mentioned earlier during your question period of the VDSL or delivering TV with copper wire, what will be the future of this?
3171 What will be the future of broadband? Are we going to use the network or what we use today as being our Internet backbone to distribute signals that are not going to be static but will be dynamic like basically what we have been seeing now for a couple of months.
3172 This is probably, once again, the reason why there is overlap between telecom and broadcasting that necessitates, I would say, a global perspective instead of looking at it in terms of silos like we have been doing in the past because it was two different businesses.
3173 MR. GINGRAS: Maybe also to comment on the profitability of where we are going as a cable company. If we look at numbers, cable companies show basically 40 per cent EBITDA compared to revenue. With that 40 per cent, overall it's barely sufficient to pay interest and cap ex to support the business. And we compete with somebody that is showing negative EBITDA.
3174 Basically, we are looking at 50 per cent difference in revenues as a profitability to support the business. We don't know what ExpressVu is spending as capital because it is not shown.
3175 So we are saying where are we going to be in five years? If we compete with them, they can afford 50 per cent less of revenues as spending, and that is why we say what is the plan? Where are we going? What are they going to do to reverse that situation? We are not looking at 2, 3, 4 per cent of revenues. We are discussing 50 per cent of revenues. That is a very big amount.
3176 COMMISSIONER WILLIAMS: Thank you very much, Mr. Péladeau and panel members. Those are all my questions.
3177 THE CHAIRPERSON: Thank you.
3178 Mr. Péladeau, I don't want to let this opportunity pass without asking you about the following.
3179 A number of the financial houses have recently been putting out documents regarding voice over IP. One of the messages that seems to be coming through is that the time of voice over IP seems to be nearing and the technological and cost problems seem to be getting resolved slowly but surely.
3180 Would you subscribe to that view and, if so, what are your own plans and would you care to discuss with us at this point?
3181 MR. PÉLADEAU: Did you ask me about the status of the technology or where the voice over IP or --
3182 THE CHAIRPERSON: Yes, what is your own corporate view on voice over IP and the prospects of you entering the local telephony market?
3183 MR. PÉLADEAU: The cable industry, like the telecom industry, as everybody knows is capital intensive. Let's say that the technology was viable or was reliable enough to be able to provide a service to our customers.
3184 Once again, the question I think which is totally legitimate is: Does the balance sheet of the Canadian cable industry provide the capacity of proposing that service, taking a bet, taking a risk, where there is no room for the cable industry for mistakes, which is, I am sorry to say it, but once again, you can make so many mistakes at Bell, you are enjoying a monopoly.
3185 So, one year and a half, two years later it will all be over, it is behind us. Throughout those years, everybody knows around the industry that Bell or BCE or any other companies have been making such large mistakes but didn't have any problems to sustain and to be where they are today with quite a sizeable market share with the mobile business, with the digital TV.
3186 Given that we do not have any room for mistakes, it is always going to be a bet. Therefore, we have a Board of Directors, we have shareholders that are always going to be concerned about the capacity to make sure that we are not going to bet the company on a project which is not at this stage far enough in terms of technology and in terms of financial deployment to succeed.
3187 THE CHAIRPERSON: Do you see a time frame in which that would change?
3188 MR. PÉLADEAU: Given the actual situation, I think once again -- I am sorry, I will repeat this -- the balance sheet, everybody has bankers. So there is always a banker that will tell you, well, you can't do this any more. If you don't have a banker, you have a bond market in the U.S.
3189 So, there is a certain level of that EBITDA ratio that you are going to be able to meet. If not, the financing for your capital expenditures will be much too high to make sure that you will have a decent return on it.
3190 What is the time frame? I think that as everybody has been working for the last two years, given the state of our balance sheet, I think that the cable industry has been working very hard to generate free cash flow and reduce the debt level that we were obliged to carry for the many reasons I mentioned earlier.
3191 When you look at what the industry went through for the last four or five years, I think the burden in terms of investment on the cable industry was significant. They have been basically carrying most, if not all, the investment for the benefit of the Canadian broadcasting system. I think that somewhere, if we believe that we need to give appropriate conditions to make sure that local telephony will exist in terms of competition, then maybe we need to review the way that the system works because, once again, as of today, the burden of investment has been carried by the cable industry.
3192 THE CHAIRPERSON: So, I guess no time frame?
3193 MR. PÉLADEAU: I think it will be unfortunately also speculation, and I don't think that it is worth it to mention any time frame.
3194 LE PRÉSIDENT: Merci beaucoup, messieurs. Thank you, gentlemen.
3195 M. PÉLADEAU: Merci beaucoup, messieurs, dames.
3196 Thank you very much, Mr. Chairman.
3197 THE CHAIRPERSON: We will break now and resume at 2:30. Nous reprendrons à 14 h 30.
--- Upon recessing at 1300 / Suspension à 1300
--- Upon resuming at 1430 / Reprise à 1430
3198 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.
3199 Mr. Secretary.
3200 MR. LeBEL: Thank you, Mr. Chairman.
3201 The next appearing intervention will be presented by the Canadian Broadcasting Corporation. Mr. Michel Tremblay will introduce his co-panel members. Thank you.
3202 You have 20 minutes to make your presentation.
3203 M. TREMBLAY: Merci beaucoup.
3204 MR. LeBEL: Make that ten minutes again.
--- Laughter / Rires
3205 MR. TREMBLAY: I will settle for 15.
3206 MR. LeBEL: Ten is all you get.
3207 M. TREMBLAY: Monsieur le président, mesdames et messieurs les membres du Conseil.
3208 Je m'appelle Michel Tremblay et je suis vice-président, Stratégie et Développement commercial à la Société Radio-Canada.
3209 Je comparais devant vous aujourd'hui en compagnie de représentants de nos services locaux de télévision.
3210 A ma gauche, Michel Picard, chef d'antenne du Midi et Aujourd'hui à CBOFT; Rita Celli, présentatrice de Canada Now à CBOT; à ma droite, Steven Guiton, premier directeur, Planification stratégique et Affaires réglementaires; et immédiatement dernière moi, Lynne Raineault, directrice, Développement et Projets spéciaux, Télévision anglaise, et Bob Rioux, chef des émissions d'information et d'affaires publiques, Ontario et Outaouais.
3211 I am very pleased to be here today to provide you with the CBC's comments in support of the renewal of Bell ExpressVu's DTH licence for a seven-year term. ExpressVu has the largest digital subscriber base of any BDU in Canada and is the fourth largest BDU overall.
3212 Given its size and cross-Canada reach, ExpressVu plays a very important role in the distribution of CBC services. It is, therefore, very important to the CBC that ExpressVu's licence be renewed on a basis that properly recognizes its importance in the Canadian broadcasting system.
3213 You have already received our written intervention with our detailed submissions, so in my remarks today, I will focus on what we see as the four key issues in this application.
3214 Number one, the need for a new regulatory regime for ExpressVu, a regime that fully recognizes ExpressVu's status as a major BDU.
3215 Number two, the need to maintain News World and RDI on its basic services in both the French and English market.
3216 Number three, the need for the CBC to be given immediate carriage parity with the major private television networks on an O&O basis.
3217 Fourthly, the need to implement the recommendation by the Standing Committee on Official Languages that DTH providers carry all of the CBC's regional television stations, a recommendation that was endorsed two months ago by the government.
3218 I will speak briefly to each of these points and then ask our representatives from CBC Radio-Canada television services in the National Capital to speak to the consequences of not being carried on satellite.
3219 Comme vous le savez, de 1997 à aujourd'hui, ExpressVu est passée du statut d'entreprise en démarrage pour devenir l'une des plus importantes entreprises de distribution de radiodiffusion grâce aux quelques 1,3 million d'abonnés qu'elle dessert.
3220 ExpressVu est, toutes catégories confondues, la quatrième plus importante EDR au Canada, tout juste derrière Viodéotron et ses 1,4 million d'abonnés. Ce matin, ExpressVu indiquait qu'elle prévoyait atteindre les 1,8 million d'abonnés d'ici la fin de sa prochaine période de licence.
3221 ExpressVu bénéficie d'une base solide au chapitre du nombre d'abonnés et sa situation financière est en nette progression. En effet, à 638 millions de dollars en 2002, le chiffre d'affaires d'ExpressVu a doublé par rapport à l'an 2000 grâce à une stratégie d'accroissement de sa pénétration très agressive.
3222 Merril Lynch prévoit que l'entreprise affichera un bilan positif à cet égard dès l'année prochaine.
3223 De surcroît, ExpressVu appartient à BCE, la plus importante société de communications au Canada, ce qui lui assure des assises financières solides. Peu importe le point de vue adopté, le profit d'ExpressVu n'est certainement plus celui d'une entreprise naissante.
3224 Compte tenu de sa position de force, il est primordial que les obligations réglementaires imposées à ExpressVu à l'occasion du renouvellement de sa licence soient à la mesure de cette position et du rôle majeur que cette entreprise joue désormais au sein du système canadien de radiodiffusion.
3225 Le cadre réglementaire qui régit les activités d'ExpressVu doit être révisé afin de limiter la discrétion dont ExpressVu bénéficie actuellement dans l'établissement des conditions auxquelles elle distribue CBC Newsworld et le RDI, qui sont d'ailleurs distribué au service de base d'ExpressVu dans chacun des marchés linguistiques depuis le début.
3226 En vertu du cadre réglementaire actuel, ExpressVu peut unilatéralement décider de distribuer le signal de ces deux services de nouvelles et d'information canadiens essentiels dans son volet de base ou de les déplacer à un volet facultatif à faible pénétration. Tant Newsworld que RDI doivent être maintenus au service de base des abonnés anglophones et francophones.
3227 CBC/Radio-Canada s'est forcée par la voie de négociations d'obtenir d'ExpressVu qu'elle maintienne la distribution du signal de Newsworld et du RDI à même ses volets de base, mais ExpressVu insiste pour se réserver le droit de décider comment le signal de ces chaînes sera distribué à ses abonnés, une position que l'entreprise réitère d'ailleurs dans sa réplique.
3228 Nous maintenons que le déplacement de Newsworld et du RDI hors des volets de base d'ExpressVu dans chacun des marchés linguistiques aurait des conséquences néfastes pour l'auditoire et affecterait leur capacité de remplir leurs engagements.
3229 CBC/Radio-Canada demande donc au Conseil de se pencher sur cette question importante et d'imposer cette obligation à ExpressVu dans le cadre des conditions de sa licence vu l'importance des services impliqués.
3230 Permettez-moi maintenant de revenir sur la question de la distribution des services de télévision de CBC/Radio-Canada par ExpressVu.
3231 While we recognize that there has been progress made with ExpressVu in the last year with the addition of two CBC stations, CBC North and CBOT Ottawa, and two Radio-Canada stations, CBVT Quebec and CBFT Winnipeg, CBC television is still trailing CTV and CanWest in terms of carriage. ExpressVu currently carries eight CBC English language television stations, nine CTV stations and ten Canwest stations. In our view, there can be no justification for ExpressVu putting the CBC in third place behind CTV and Canwest.
3232 The CBC is Canada's national broadcaster with a statutory mandate to ensure that its programming is available throughout Canada. In its negotiations with ExpressVu, the CBC has insisted that at a minimum it receive carriage parity with the major private television networks. The CBC has also insisted that it be able to choose which CBC services ExpressVu carries. ExpressVu has agreed to the first point in principle but not the latter.
3233 ExpressVu argues in its reply that it has exhausted its capacity on the satellite located at 91 degrees and that considering its future needs, it does not have the capacity to add more CBC stations. We do not consider this a reasonable response to the CBC's demand for carriage parity. ExpressVu has dozens of pay-per-view channels and other low priority services on the satellite at 91 degrees and, if necessary, it could shift some of its low priority services to the satellite at 82 degrees in order to free up capacity for the carriage of additional CBC signals at 91 degrees.
3234 Given CBC's inability to negotiate a renewed agreement with ExpressVu on carriage, we believe we have no choice but to ask the Commission to impose a condition of licence requiring ExpressVu to provide CBC's owned and operated stations with immediate carriage parity with the major private television networks, both English and French.
3235 In addition, given ExpressVu's plea of no capacity, CBC believes it is essential for the Commission to determine how much satellite capacity ExpressVu actually has, and how they use it, and to monitor this on an ongoing basis, perhaps by means of requiring regular capacity reports from them. When this information is available to Commission, it will be in a better position to make informed decisions on ExpressVu's carriage issues.
3236 Plus tôt cette année, le Comité permanent sur les langues officielles a déposé un rapport dans lequel il était notamment recommandé que les services de distribution par satellite comme ExpressVu soient tenus de distribuer le signal de toutes les stations de télévision régionales de langue anglaise et de langue française de CBC/Radio-Canada. Le gouvernement a d'ailleurs dans sa réponse appuyé cette recommandation sans équivoque.
3237 CBC/Radio-Canada souscrit sans réserve à ce point de vue du gouvernement et du Comité permanent.
3238 ExpressVu fait valoir sans sa réplique qu'elle ne possède pas la capacité d'ajouter à son offre le signal d'autres stations de CBC/Radio-Canada.
3239 Si le Conseil devait décider qu'il est nécessaire qu'elle distribue davantage de signaux de CBC/Radio-Canada, ExpressVu propose la distribution des émissions locales sur des canaux dits occasionnels comme un compromis satisfaisant.
3240 Nous ne reconnaissons pas l'absence de capacité invoquée par ExpressVu comme un argument valable. Nous ne considérons pas non plus la distribution partielle de nos émissions comme une solution viable. D'ailleurs, l'intervention de CTV Network relativement à CJOH-TV, dont seul le bulletin de nouvelles est distribué par ExpressVu, atteste de façon éloquente des conséquences de cette approche.
3241 Ces canaux dits occasionnels constituent, à notre avis, le meilleur moyen de rendre un service de radiodiffusion orphelin, de faire en sorte qu'il soit oublié et qu'il perde son auditoire parce que ces canaux n'ont pas de présence permanente au sein de l'alignement de canaux offerts.
3242 La distribution intégrale du signal de toutes les stations de télévision de langue française et anglaise de Radio-Canada est la seule méthode possible pour mettre en oeuvre la recommandation du Comité permanent et se conformer à la volonté exprimée par le gouvernement dans sa réponse au rapport du Comité et aux exigences de la Loi sur la radiodiffusion.
3243 A notre avis, ExpressVu devrait être tenue d'ajouter les stations de CBC/Radio-Canada non-distribuées selon un échéancier pré-déterminé au cours de la période couverte par sa licence renouvelée.
3244 Quelle que soit la méthode retenue par le Conseil, nous estimons qu'ExpressVu devrait être tenue de distribuer le signal de toutes les stations de langue anglaise et de langue française de CBC/Radio-Canada d'ici la fin de la période couverte par la licence dont elle demande le renouvellement.
3245 Avant de terminer notre présentation, j'aimerais céder la parole à Mme Rita Celli et à Michel Picard pour vous expliquer comment l'absence de distribution satellitaire affecte notre capacité de rejoindre les communautés que nous devons desservir.
3247 Mme CELLI: Merci.
3248 Thank you for your time. I will give you a very brief picture from the ground zero, if I can call it that. We were fortunate in our newsroom on the English side to be added to the satellite service in the spring time.
3249 By way of illustration, if I could show you what the frustration was like and then the change that there has been for us in our newsroom and our operation.
3250 When I joined the service I came from CBC Radio two years ago and was also at that time a satellite subscriber. So I understood very well that I was coming to a program that at that point couldn't be seen in my home at that moment. It is almost difficult to choose the words and how you can explain to someone that if they are right next to the station where you are broadcasting, but if they happen to have a little dish, that they could not see the program, and that closing down of access to viewers.
3251 This hit a zenith for us when we did an investigative series involving the housing boom, the construction boom. There was a lot of cheerleading in the media of how this was really terrific for the local economy, but there was another aspect to that story. So we peeled away a little bit of the veneer and got to the heart of some of the frustrations of people who were paying top dollar and having real frustrations either with delays or the quality of work to put something on the public record.
3252 Our phone was ringing off the hook. They could hear me promoting it on CBC radio. They could not see it on television. We had no way to explain to people. We would try to tell them, you can flip your TV and we put it on the website. You could just hear them groaning on the other side.
3253 I can tell you that we did have a viewer who was in a brand new house, very proud to have the TV room with the satellite and the new couch, and they actually had their mother tape the program in Vanier and called their neighbours over so they could view a segment on the new housing industry. There was such a tremendous appetite for this story. We all know that that is an extraordinary thing to do to try to watch part of the supper hour cast. It is not going to happen every day.
3254 In terms of the switch for us, then, what a remarkable difference. The day we went on, the first satellite service, we took dozens and dozens of phone calls from you viewers. That is without even advertising; people I guess surfing and noticing that it had popped up. What a relief. Again, I did a short interview to tell people on the CBC radio side to promote that, yes, we had joined the digital age or the satellite age and dozens of e-mails again that we could get that word out and people saying thank you, we are so glad to have the choice again.
3255 Just during the last election campaign that was the tone again of many of the calls that we would take. Even if they were quibbling with something in content, they would express that we are really happy that we can get this service now.
3256 So, just by way of I guess punctuation, having a satellite service is tremendous. You can see the BBC news. You can see private newscasts from Boston. You can see everything you want about Coby Bryant and The Young and the Restless across six time zones, but when it shuts down access to local communities and when you meet someone in the grocery store who says to you where did you go, why aren't you there, why is the news from Toronto, it is really difficult to try to give a logical explanation for that.
3257 If I could just offer: The satellite service can open the world for people, but it shouldn't shut down that access to their own neighbourhoods that they live in.
3258 Thank you.
3259 M. TREMBLAY: Merci, Rita. Monsieur le président, madame la vice-présidente. Je pense que c'est une chance d'être encore ici avec vous aujourd'hui.
3260 Je vais essayer de me faire le porte-parole. Je suis un simple artisan d'une équipe fière de travailler à Radio-Canada. J'ai travaillé 30 ans à Radio-Canada. J'ai été basé en Saskatchewan, en Colombie-Britannique, à Ottawa depuis plus de 25 ans.
3261 Pour avoir visité le pays, je sais combien c'est important pour les francophones d'avoir accès aux services de Radio-Canada et d'avoir un sentiment de proximité avec l'information régionale, d'une part, mais aussi avec les affaires publiques régionales.
3262 Je vous donnais des chiffres hier. Je pense que c'est très révélateur. Quand on regarde les coupoles pour nos jeunes, mes adolescents et les autres, ce n'est pas l'avenir, c'est le présent. C'est maintenant que ça se passe depuis des années et on a vu les chiffres aussi. Ça va augmenter.
3263 Donc les gens s'abonnent spontanément à ça quand ils ne peuvent pas recevoir un signal normal.
3264 Je vous disais hier aussi qu'on dessert le plus grand territoire de francophones en dehors de Montréal. C'est un million de personnes. L'Ontario au complet, l'Outaouais, la Petite-Nation, l'est ontarien, c'est plus gros que Québec en terme de nombre de francophones et de francophiles et on n'est pas sur la coupole.
3265 On couvre et j'écoutais Rita les mêmes enjeux à Ottawa que nos camarades de la CBC, c'est-à-dire, par exemple, la mobilité de la main-d'oeuvre d'une province à l'autre et tous les sujets sociaux, le boom immobilier on doit le couvrir.
3266 Pas plus tard que ce matin j'ai demandé à Robert Paquette une entrevue. Il va venir. Robert c'est un grand artiste de Sudbury qui a connu des heures de gloire au Canada, qui est le président d'honneur de la Fondation franco-ontarienne qui va distribuer dans deux semaines trois millions de fonds à des Franco-Ontariens. Moi je souhaite que les Franco-Ontariens, entre autres, puissent voir cette soirée-là et c'est ce qu'on va couvrir. Donc c'est important qu'ils le sachent.
3267 Donc je pense que c'est vraiment capital le plus rendement possible de pouvoir rendre accessible finalement notre antenne à tous et à toutes des deux côtés de la rivière.
3268 M. GUITON: Merci, Michel.
3269 Monsieur le président, mesdames et messieurs du Conseil.
3270 Ceci complète notre présentation. Nous sommes disposés à répondre à vos questions.
3271 LE PRÉSIDENT: Merci.
3272 Madame Wylie.
3273 COMMISSIONER WYLIE: Welcome back, ladies and gentlemen.
3274 I am a little confused about this issue of the acceptability of what you call the "canaux occasionnels", where there would be mostly, from what I gather, the supper hour newscast.
3275 I am looking at your written intervention at paragraph 54, page 14, where you say they raise with the Commission that the supper hour newscasts are population, et cetera, and you talk about the government's response, and you hope that necessary steps will be taken to ensure that all regional French-language newscasts are distributed by both the DTH and BDUs in a manner which properly reflects the CBC's status under the Broadcasting Act and its role in the Canadian broadcasting system. That is the end of paragraph 54.
3276 Then I noticed in ExpressVu's application that in response to a deficiency question they say they have already four, they are to launch Winnipeg prior to the end of 2003, I assume that is done.
3277 MR. TREMBLAY: Yes.
3278 COMMISSIONER WYLIE: And ExpressVu hopes to conclude an agreement with the corporation that will allow it to distribute before the end of the year, 2003, the unique local content of Ottawa, Edmonton and Sarnia, Ontario.
3279 Am I to understand that your top goal is to have all stations up by the end of the licence term. Your immediate goal is parity. Parity is also achieved on the French side. But you would want immediately the local material on, because in your presentation you also say that that is not an acceptable alternative. So where are we with this?
3280 M. TREMBLAY: Je vais laisser Steve Guiton clarifier.
3282 MR. GUITON: I will try and be clear. Our goal is the full service.
3283 COMMISSIONER WYLIE: That would be the eight base stations or all the stations?
3284 MR. GUITON: The licence services that are listed at the back of both of our written interventions.
3285 COMMISSIONER WYLIE: All of them?
3286 MR. GUITON: All of them. Let me just be a little clearer. The partial channels, the local news, the small segments that have been discussed in the last few days are unacceptable. Horrible solutions. Horrible solutions for consumers; horrible solutions for broadcasters and not something that we would accept. The reason that they are mentioned in our written intervention was because they have come up in negotiations with the DTH providers.
3287 In those situations you have to understand we are reaching for crumbs, any crumbs that we could get. We are here to tell you the bigger issue is to get all our services launched in a parity way initially. Parity is the immediate step.
3288 In the case of ExpressVu, we are already at parity in terms of the French side. We have five services; TVA has five services. Just to be clear, the parity issue is one that could move over time as the privates move. On the English side, we are not yet at parity with ExpressVu.
3289 If I could just take one final moment to explain one other thing. The issue of these partial channels has been raised in this proceeding to deal with what the carriers have called the capacity problems and to deal with the issue of what they say is duplication of CBC services, but duplication is not a CBC issue. There is lots of duplication on DTH services. There is duplication, as we saw yesterday, with Star Choice and their multiple U.S. services. I am not talking about different time zones. I am talking with within a time zone there will be multiple services. That is duplication.
3290 There is duplication on the private network side. Duplication is not a CBC issue. There is duplication throughout. To impose this type of channel solution as a solution for CBC only is completely unacceptable to us.
3291 COMMISSIONER WYLIE: If I take parity as being achieved now and your goal over the licence term is to have all of the stations listed in the appendix uplinked, which is eight stations, as opposed to five, you would not consider, even as an interim measure, using these local content channels?
3292 MR. TREMBLAY: Let me say that the carriage of our local news on a dedicated channel somewhere up in 197 or 203 are completely lost and are short of proper promotion. It goes against the grain in terms of attempting to nurture the viewership to the station because there is nothing else but the news and, in many instances, those channels go dark outside of that newscast. I have experienced what CJOH claims to be a terrible situation in their intervention. I think it is not a proper way to serve our audience.
3293 In those situations, we are totally deprived of the capacity to reach out to them through community announcements. They don't get access to regional, local advertising, special events because there is much more that we do. Our representatives today can speak to the amount of local programming we carry on our schedule outside of news. I think we are really short changing the viewers.
3294 COMMISSIONER WYLIE: Obviously, all -- there is a western music song, all is better than -- I forget exactly what the words are, but in any event, you would want all.
3295 But the obvious is parity now, what you have, and I thought I heard you say all of the ones in the appendix, which would then include Regina, Edmonton and Vancouver over the licence term, and you would not find acceptable an interim means of assuring that at least some of the local programming is uplinked. You would rather wait until year six to put Edmonton on.
3296 MR. TREMBLAY: We are willing to be reasonable in that. Yes, parity must be achieved in the immediate. The pace at which news stations are added, we will let ExpressVu respond to that. But we would like to end up, at the end of this process, with a clear time table as to when and at what pace our local stations will be added to get to the optimum position.
3297 COMMISSIONER WYLIE: Except that doesn't answer my question, which is: Is an interim measure, once you get this échéancier acceptable, parce que je pense que vous avez mentionné que le Comité, je crois, avait soulevé la possibilité que ce serait une façon de donner le maximum aussi vite que possible. Mais ça ne vous est pas acceptable, si je comprends bien.
3298 MR. TREMBLAY: I just have to make two points. One of them is that once our signal goes up partially, that is how it will stay. There will be no pressure to offer the full signal. The bottom line is that we fail to see how this provides a true local service to our viewers.
3299 COMMISSIONER WYLIE: Do you think if you were an Edmonton viewer and the "échéancier" was that you would get on on the sixth year of the licence term, you wouldn't rather have the local newscast on?
3300 MR. TREMBLAY: We trust the good judgment of the Commission to make this unacceptable.
3301 COMMISSIONER WYLIE: Sounds good to me.
3302 You emphasize the status of RDI and News World, the carriage status they are now given. Do I get from this that you have been given some indication by ExpressVu that they would change the carriage status of RDI and News World from basic to another tier?
3303 MR. TREMBLAY: Yes, this is absolutely correct. We have enjoyed basic carriage in both linguistic basic of ExpressVu from the outset. Now we have had indication and we are guaranteed that presence up until now. We are now told they will no longer provide us with that guarantee and that we could be moved to a discretionary tier down the road. They were not specific when.
3304 Our concern is that we cannot live with that risk level, given what has been achieved through News World and RDI. Right now, in excess of 90 per cent of all Canadians subscribe to a BDU. I think this would force us to backtrack in terms of service level.
3305 Not only that, moving us to a discretionary tier would affect definitely affect our economic capacity to meet our commitments and the extent of the news apparatus that News World and RDI have developed.
3306 COMMISSIONER WYLIE: When you say they won't guarantee that, I gather that your master agreement contained this clause before this guarantee?
3307 MR. TREMBLAY: This is correct.
3308 COMMISSIONER WYLIE: And they are no longer prepared to put this guarantee in writing?
3309 MR. TREMBLAY: That is correct, or make any commitments.
3310 COMMISSIONER WYLIE: You have also been told that they may move the services?
3311 MR. TREMBLAY: That is correct.
3312 COMMISSIONER WYLIE: With regard to those local channels, what was your position yesterday with Star Choice?
3313 MR. GUITON: I am sorry, with regard to the local channels?
3314 COMMISSIONER WYLIE: Well, to the occasional channels or whatever you call it, the local content channels.
3315 MR. GUITON: I can give you the same answer again. It is exactly the same.
3316 COMMISSIONER WYLIE: It is the same position?
3317 MR. GUITON: It is exactly the same position. I would only add that yesterday there was a further explanation I think provided by Star Choice about two possible solutions, one being the occasional channel, the part channel, and this other solution being some sort of AB switch that is attached to the receiver or the TV that allows you to use your antenna to pick up the local station.
3318 Once again I would use the word "horrible." Both solutions are just simply horrible for the consumer and are not acceptable.
3319 COMMISSIONER WYLIE: Have you ever had a master agreement with Star Choice?
3320 MR. TREMBLAY: Never.
3321 COMMISSIONER WYLIE: I find it kind of surprising -- it may be the time of day -- but you seem to have gathered a head of steam today, considering how better served you are by ExpressVu in the sense of having seemingly more problems than you had --
3322 MR. TREMBLAY: It is clear, if I may, from our intervention that --
3323 COMMISSIONER WYLIE: Or did I misspeak myself? I meant with Star Choice.
3324 MR. TREMBLAY: We recognize that there are broader and deeper issues in our relationship with Star Choice, which we highlighted yesterday. While we have maintained a good relationship with ExpressVu and made some progress, I don't think we are where the national public broadcaster should be. That is why we are here today.
3325 Nevertheless, I think we have signalled in our presentation today and in our written intervention that progress has been made, but we believe it is not enough and that the partial channel solution is not a solution for the CBC.
3326 COMMISSIONER WYLIE: Of course, ExpressVu has more subscribers so it has a greater effect.
3327 MR. TREMBLAY: If I may, Mr. Rioux would like to add something.
3329 M. RIOUX: A titre de chef des émissions d'information et d'affaires publiques pour Radio-Canada Ontario/Outaouais, le fait de mettre les émissions d'information ou le bulletin de 18 h sur un canal occasionnel ce n'est vraiment pas une bonne solution parce qu'à Radio-Canada Ottawa/Outaouais on ne produit pas seulement un bulletin à 18 h. On produit un midi, on produit un bulletin à 18 h, on produit un bulletin à 23 h pour les Ontariens, mais on produit aussi une programmation régionale. On produit 8,5 heures de programmation régionale et 7,5 de programmation réseau à CBOFT.
3330 De ces émissions-là il y a des émissions pour la famille comme des Mots et des Mots, un quiz sur la langue. On a un magazine socioculturel et une émission d'affaires publiques qui s'appelle Impact qui est diffusée le mercredi soir en heure de grande écoute.
3331 Juste à titre d'indication, la semaine dernière nous avons eu la nouvelle que notre émission d'affaires publiques était en nomination pour les Gémeaux pour la meilleure émission d'affaires publiques en français. Alors pour une histoire qui s'est passée il y a 40 ans dans le nord de l'Ontario à Resort Siding, une grève la plus meurtrière de l'histoire de l'Ontario. Quand on a diffusé ce documentaire-là, nous avons eu plein d'appels des gens de l'Ontario parce qu'une personne sur deux ne peut pas recevoir ça.
3332 Aujourd'hui, ce documentaire va être en nomination comme étant une des meilleures émissions d'affaires publiques produites de l'année et la moitié de notre public du nord de l'Ontario n'a pas vu cette émission-là.
3333 Alors de nous mettre sur un canal occasionnel à 18 h, ce n'est vraiment pas la solution et ce n'est vraiment acceptable pour nos téléspectateurs.
3334 CONSEILLÈRE WYLIE: Je vous remercie. Merci, messieurs et madame.
3335 LE PRÉSIDENT: Merci.
3336 Just following up on Vice-Chair Wylie's questions and comparing with your chart, do you have the Bell ExpressVu answers to the Commission's efficiencies of March the 3rd?
3337 I reviewed it with Mr. Frank. It is regarding the CBC signals that are carried.
3338 MR. GUITON: I took notes on that. I don't have the actual deficiency in front of me.
3339 THE CHAIRPERSON: First of all, I gather that there is a CBC local content English television channel on ExpressVu. Do you know what number that is? I was trying to find it on their list. I am sure they could point it out if you don't know it.
3340 MR. GUITON: These are one of the problems with the occasional channels is that they are hard to find.
3341 THE CHAIRPERSON: I take your point.
3342 MR. TREMBLAY: If I may, yes, we recognize that our Charlottetown local newscast and also our Fredericton local newscast have been carried for a number of years on an occasional channel. But certainly this is not the way we propose to go in the future.
3343 THE CHAIRPERSON: I follow that point. It says in their brief that Montreal, St. John's, Fredericton and Charlottetown news are on there, and yet St. John's is now carried on your O&O list on page 17 of your intervention.
3344 So, you get the St. John's news twice, once on its own channel and once on what you are calling the occasional channel?
3345 MR. TREMBLAY: I need to double check on that. That is the issue is that it is a moving target.
3346 THE CHAIRPERSON: But you gave them permission for that?
3347 MR. GUITON: Yes.
3348 THE CHAIRPERSON: What were the terms and conditions of that permission, to the extent you are willing to talk about them?
3349 MR. GUITON: Originally, going back -- and I will ask Michel to confirm this -- when we were in negotiations, the idea was to move originally to the occasional channels until such time as capacity was available to augment the service.
3350 Over time, to be fair to ExpressVu, they have done an excellent job of putting more and more of our services on. To the extent that there are still some occasional channels, we hope to change that situation.
3351 The point I was trying to make is it is not a long-term solution for any broadcaster to be in.
3352 THE CHAIRPERSON: Right. And there isn't currently a French channel like that; there is not. Is that correct?
3353 MR. TREMBLAY: That is correct.
3354 THE CHAIRPERSON: Thank you very much.
3355 Mr. Secretary.
3356 MR. LeBEL: Thank you, Mr. Chairman.
3357 The next appearing intervention will be presented by Cogeco Incorporated.
3358 THE CHAIRPERSON: In order to gain time, I can say you have ten minutes for each of your presentations. Please proceed.
3359 MR. AUDET: Thank you, and you will be pleased to see that we have timed ourselves, Mr. Chairman.
3360 Good afternoon, Mr. Chairman, Commissioners, Commission staff, I am Louis Audet, President, CEO of Cogeco. To my right is Yves Mayrand, Vice-President, Corporate Affairs; to my left is Caroline Dignard, Director, Legal Affairs.
3361 We wish to thank the Commission for giving us an opportunity to appear in support of our written intervention, dealing specifically with the renewal of the Bell ExpressVu licence. As you know, we filed separately a brief on subjects of a more general interest that is not specifically related to the application. I will make that second presentation after Yves Mayrand has concluded the first one.
3363 MR. MAYRAND: Thank you. Our intervention on the Bell ExpressVu licence renewal covers essentially three major points: First, the theft of Bell ExpressVu's satellite signals and the measures required to effectively deal with this problem on an ongoing basis. Second, the potential for conflicts in intra-corporate dealings within the Bell group in confirmation of the safeguards that would apply in the circumstances. Third, concerns regarding certain conditions of licence that Bell ExpressVu has requested in its renewal application. There are other smaller points covered in our written intervention which we will not present on in this presentation.
3364 To the first point, signal security. We do not object to the renewal of the licence for Bell ExpressVu. Furthermore, we do not object to a maximum renewal term, provided that appropriate conditions of licence are attached to the renewal to deal with the critical issue of signal security.
3365 From the record of the proceedings so far, we understand that Bell ExpressVu does not agree with the imposition of any such condition of licence. We submit to you that the renewal term should be shorter in the absence of appropriate conditions and of a clear path to enforcement of the licensee's commitments in curtailing the theft of its signals.
3366 While Bell ExpressVu has acknowledged the problem in recently issued public warnings on the theft of its services, the blue market remains a serious threat to the entire Canadian broadcasting system that must not be left unattended or unchecked for the next seven years.
3367 We are particularly concerned by the fact that the technical opportunity to steal services from Bell ExpressVu has not yet been conclusively addressed, and that the conditional access system used by Bell ExpressVu for the last six years should not be allowed to be used unconditionally by the licensee for the long term in the face of a serious and lingering security problem.
3368 Other elements required to deal both with the opportunity and the incentive to steal Bell ExpressVu signals may have been addressed to some extent by certain voluntary commitments of Bell ExpressVu, but considerable and sustained efforts will be required to implement them and it would not be prudent for the Commission to rely on purely voluntary and essentially unenforceable commitments for the next seven years.
3369 Given the fact that DTH distribution does not involve any physical connection to the end user premises, signal security is indeed a critical element of this type of undertaking. In retrospect, it is rather surprising that there are to this date no formal, specific and enforceable requirements on signal security for DTH satellite signals by way of regulation, order or condition of licence. We think there should be. It is difficult to imagine something more destructive for the Canadian broadcasting system, Canadian rightsholders and Canadian talent than a national distribution undertaking that would allow viewers to get all of its valuable licensed programming in the clear, free of charge, and free of any contribution to the community, from sales taxes to Canadian program funding to copyright royalties.
3370 Yet, technically, the current DTH licences do not preclude it. This surprising void at the licensing level should not be allowed to continue further.
3371 We propose that the Commission attach four specific conditions to the renewal of the Bell ExpressVu licence. Except for the fourth condition, which deals with specific commitments of Bell ExpressVu, we have also proposed in a separate intervention that the same conditions be attached to the other DTH licensee.
3372 In short, the conditions that we propose for Bell ExpressVu cover the following points.
3373 One, the licensee has the responsibility of implementing and maintaining security for all its signals, and to replace signal security systems, equipment and components upon expiry of their useful life or their obsolescence, whichever happens first.
3374 Second, the licensee has the responsibility to implement and maintain direct control of the conditional access process and to ensure that authorizations are tied to customer accounts with defined attributes.
3375 Three, the licensee has to implement and maintain control and audit procedures and report annually to the Commission.
3376 Four, the licensee has to implement the PRISM system, a full smartcard swapout within 18 months and a recurring ECM program, in line with its own commitments made during the CRTC process on signal theft.
3377 We would have expected an acknowledgement that these principles are reasonable, together with comments on the specific wording to be used. Instead, Bell ExpressVu has replied that conditions of licence would amount to micro management on the Commission's part and that they are both unnecessary and inappropriate. Frankly, we find this extremely disappointed, coming from the biggest national digital broadcasting distribution service, when there are still no proven and meaningful results on the field for deauthorizing the large pool of decoders presently used to steal Bell ExpressVu signals. Many Canadians know a relative, friend or neighbour who can still steal Bell ExpressVu signals. We get direct reports of pirate decoders still working for the full slate of Bell ExpressVu signals, and we see no significant disruption in the blue market in the area that we serve, at least.
3378 In the circumstances, resolution of this problem cannot be left only to good intentions and self-governance.
3379 Our second point relates to the fact that Bell ExpressVu is now part of the largest single integrated communications group in Canada and is clearly an integral part of group strategies determined by its ultimate sole owner BCE.
3380 Let us not forget that since the original licensing of this national DTH service as an independent distribution undertaking, BCE has taken over control of Bell ExpressVu, caused the minority partners to be bought out entirely, placed Bell ExpressVu in the fold of Bell Canada, its main incumbent phone company entity, taken over control of Netstar and CTV, obtained a number of new specialty service licences, and taken over control of the Globe and Mail. In short, this is not at all the same licensee you originally licensed.
3381 One of the consequences of all these subsequent transactions is that not only is Bell ExpressVu the largest digital broadcasting distributor in Canada, it also deals with parent companies for the largest collection of licensed Canadian programming services in this country.
3382 The Commission is aware of at least one demonstrated situation of Bell ExpressVu selling a related programming service below the cost that was charged by this programming service to competing cable distributors.
3383 The hurdle faced by competitors is perhaps best illustrated in your decision 2002-254 on an undue preference complaint. The Commission held that the complainant had to show that the corporate link and/or business relationship between the parties was such that the related programming service was in a position to influence or control ExpressVu's marketing practices, an impossible test when in fact the common corporate direction may come from the controlling entity and specific corporate directives are confidential.
3384 Another example, we cannot ascertain whether Bell ExpressVu has most favoured nation clauses with its related programming services or their extent, but we know, however, these related programming services will not give us the benefit of such clauses.
3385 Another example, in our written intervention we point out that we are required to keep a separate group to handle competitor requests for inside wire transfers, but that Bell ExpressVu has no similar requirement, although sensitive information gathered similarly by Bell ExpressVu could be used by itself or related entities for competitive advantage.
3386 Bell ExpressVu's argument is that it is a new entrant and that it does not have market power in the BDU market and that, therefore, there is no need for safeguards. We beg to differ.
3387 Bell ExpressVu is no longer a new entrant. That has been mentioned, I think, by a number of parties to this hearing. Bell ExpressVu has been operating for six years and has close to one and a million customers. Not only does it have market power as the largest national digital broadcasting distributor, it is clearly and unmistakably part of Bell Canada, which in turn is part of BCE, which has market power on national network programming, Internet services, a number of telephone and telecom services and the domestic satellites through which all DTH satellite services are provided in Canada.
3388 Bell ExpressVu services are now bundled and heavily promoted with Internet and telephony services by Bell under Bell brand pursuant to an integrated corporate strategy. There is, indeed, a need for clear safeguards to be confirmed by the licensee itself, which, as you know, includes BCE Inc. as limited partner and ultimate owner of the general partner entity Bell ExpressVu Inc.
3389 Our third point is that we object to the some of the conditions that Bell ExpressVu would like to see attached to its renewal term. We are were notified last Friday, Mr. Chairman, that the request for the additional 4+1 American HDC signals wasn't strong.
3390 THE CHAIRPERSON: It wasn't me, Mr. Mayrand.
3391 MR. MAYRAND: So, that part of our intervention has been dealt with. However, there are still some conditions that have been applied for with respect to audio signals. We won't expand on that, but we still object to that condition.
3392 Thank you.
3393 MR. AUDET: Thank you, Yves. Thank you, Chairman.
3394 Ladies and gentlemen of the Commission, we genuinely do understand that you are faced with a daunting task: Ensuring a vibrant marketplace for consumers showcasing Canadian talent, providing high quality telecommunications products for entertainment pleasure, economic progress and intellectual growth.
3395 You are entrusted by law with shaping the rules that ensure that the actors in the Canadian marketplace fulfil this agenda in the best possible way. In our view, there are two classes of players in the marketplace today: Those who invest their shareholders' money heavily on infrastructure required to make these services available to Canadians and those who do not. Today we will concentrate on those who do invest, for they owe a reasonable return to their shareholders.
3396 There are very various types of companies in the category of players who invest in infrastructure. To analyze their behaviour, I will use an analogy, if you will allow me, that of the board game of Monopoly. But rest assured, I will not do so frivolously.
3397 Some players on the Monopoly board game are very large. The largest of these players is unquestionably BCE. They have properties in local telephony, long distance telephony, wireless telephony, dial-up Internet, high speed Internet, national direct-to-home satellite distribution, national specialty broadcasting, national general interest broadcasting, data transmission services and many more electronic services, not to mention national print media. No player in Canada holds as many squares on the board game as does BCE. For example, our company, Cogeco, owns only three regional squares on the national board game.
3398 In our view, based on observation of past behaviour, the rules being set by this Commission are set on a square-by-square basis, through very narrowly focused proceedings. The result is that, while you set the rules for satellite distribution, for example, BCE reorganizes its resources on the ten other squares to neutralize other players; hence, our presence here now.
3399 As long as the transition to sustainable competition across the whole of the board game is not completed, and incumbent telcos have both the opportunity and an incentive to cross-subsidize their competitive services from their monopolistic services such as local telephony, as they are still doing today, the infrastructure builders capable and willing to offer competing local telephony services will be kept to the sidelines in a state of economic weakness and inferiority, which is our case today, and you will not have competition in local telephony, and unless you analyze the board game in its entirely, you will not be able to referee the game to fulfil your mandate. If that is what you want, everything is fine. Don't change anything. But if you want a vibrant, creative, competitive marketplace, then you must change a number of things quickly.
3400 First, you must ensure fair competition on the board game. The vision back in 1995 was that both broadcasting distribution and telecommunications would become concurrently and equally competitive. This may still be the vision, but it is certainly not the reality. Let's face it, in reality, BCE was effectively granted a head start. Against this back drop of uneven competition, we are now seeing major shifts towards the bundling of broadcast distribution, Internet and telephone services.
3401 The Commission has stated that imputation tests and bundling restrictions were put in place to prevent such anti-competitive and cross-subsidization practices during the transition to full competition. We submit that these safeguards must not only exist, but that in fact you must also enforce them diligently. We are sorry, but we don't see that happening right now.
3402 Furthermore, if you really want local telephone competition, you have to deal conclusively with the issue of the Internet connection costs to the public switch telephone network. Look, they should be totally free for three years. Then, if the incumbents are suffering unduly, you can always reassess the situation. Also, mandatory interconnection in each local telephone exchange is a barrier to competition. It should be removed.
3403 And as you do so, please remember that the phone companies do not need your protection.
3404 Second, it is obvious to all concerned, including Canadian consumers, that the broadcasting distribution market in Canada is now fully competitive. Bell ExpressVu is the fourth distributor in Canada in terms of overall subscribers. Star Choice is sixth. They are both growing. Indeed, there is entrenched competition and it is working. DTH has achieved spectacular growth, well above its original projections, and has done so at cable's expense, essentially through price cuts made possible by its local phone monopoly.
3405 Please note that the deep price discounting that prevailed up to April 2003 has hindered our company's ability to compete on other squares of the board game.
3406 We all know the three key principles set in sub-paragraph 3(1)(t) of the Broadcasting Act with respect to the distribution of broadcasting undertakings. Such is the law for all BDUs. Yet, current broadcasting distribution requirements are a complex collection of regulations, policy statements, circulars, orders, decisions, letters, individual conditions of licence and staff rulings issued over a quarter of a century. In our view, the time has come to harmonize and simplify the regulatory framework in line with the three key principles set in the Act. Unshackle cable, please.
3407 And as you do so, please remember that the phone companies do not need your protection.
3408 Our third general concern is the role that the Commission must continue to play in the fight against unauthorized reception of satellite signals in Canada, as one in ten Canadian households have now effectively left the system. I am sorry to say, the Federal Government is not seriously discharging its responsibilities here. We suggest that the Commission is uniquely positioned to coordinate the initiatives of the government and, in particular, enforce the commitments of its licensees in dealing effectively with both the opportunity and the incentive to steal satellite signals.
3409 And as you do, please remember that the phone companies do not need your protection.
3410 Chairman, Commissioners, this is our message, and I will now conclude this general representation. Of course in this analysis, I have used an analogy, that of the board game of Monopoly. The analogy is imperfect, I hope, because in the board game, the game inevitably ends with one player bankrupting all of the others and controlling everything. That game does not involve real people, real money or real assets.
3411 In our case today, there are real people and real money, our shareholders' money invested in trust and confidence and real assets needed to help build and support our economy and our broadcasting system. Also, in the real competitive game, the goal is sustainable competition and not remonopolization.
3412 If the real competitive game ever comes to an end, it will be because there is only one player left. He will get up, fold the board and leave the tables and we, including this Commission, will have failed collectively and miserably.
3413 You must make sure that this does not happen by making the rules fair across the board and applying them fairly across the board.
3414 Thank you for hearing us separately on these very basic issues. We would be pleased to answer your questions on the presentation and our brief. Thank you.
3415 THE CHAIRPERSON: I believe Commissioner Pennefather has some questions on Mr. Mayrand's presentation.
3416 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
3417 I was just going to clarify a couple of points. Mr. Mayrand, I think you were here this morning in the discussion regarding these points.
3418 What I would obviously like to ask you is your comment on the point raised by the Chairman this morning regarding the use of conditions of licence in terms of your concerns and all our concerns around signal theft.
3419 The point was made and I believe also made in ExpressVu's reply that this method of using conditions of licence may not be the best route considering, amongst other points, the technological environment we are talking about and the speed with which change occurs, the conditions of licence seem to be, I am not talking about the micro management point so much as this being the most effective tool, in effect, for all of us to achieve the goals we are after.
3420 Do you have any comment on that point, and do you still consider the condition of licence approach as the best route?
3421 MR. MAYRAND: Yes, I was here during the question period earlier today. I do have some comments, a couple of them actually.
3422 First of all, on the appropriateness of the condition tool, certainly if one goes to a level of detail that is quite considerable, conditions become certainly very unwieldy.
3423 What we have tried to convey in our written intervention and this presentation today is that without getting into the minute details, certainly we are struck by the fact that even the principle of securing signals that are on satellite -- and picture this: A satellite distribution system is like a big relay transmission right there in orbit collecting all kinds of signals from all origins for redistribution throughout the land in any number of languages, in any number of situations, irrespective of where the particular signals actually come from within that land.
3424 So, it is a very all-encompassing situation. Clearly, the Commission from the outset way back in 1995 recognized that there is a concern with the integrity of program rights and the whole architecture of the broadcasting system.
3425 COMMISSIONER PENNEFATHER: I don't mean to interrupt. It wasn't really the content that I was interested in, and I share your analysis of that.
3426 It was really the methodology of the COL. I believe also this morning we looked at several different methods, one being reporting requirements as opposed to conditions of licence for exactly the reason you are laying out. This is very complex.
3427 Indeed, it is just a question of whether you think the condition of licence approach is appropriate as opposed to other methods to accomplish the same goals.
3428 MR. MAYRAND: If I may, then, let me cut to the chase.
3429 We have tried to put our conditions really just to the principles. We didn't think that the principles that we were putting forward in the conditions that we have articulated were that complicated.
3430 The second observation I would make, there are a number of conditions of licence dealing with very specific and intricate situations particularly program substitution and program deletion. We seem to have been able to find our way through all of these complications over the years. We think it is not unreasonable to say, well, you know there has been this problem with theft of signal; there is a very basic principle involved here, and there should be at least a condition of principle stating that signals have to be reasonably protected. Right now there is nothing that says that.
3431 COMMISSIONER PENNEFATHER: Thank you very much. That was my question.
3432 MR. AUDET: I would like to add something to that.
3433 COMMISSIONER PENNEFATHER: Thank you.
3434 MR. AUDET: These signals can be protected. It is a matter of having the appropriate technology in use and securing the cards, the decoder cards. All of these are perfectly within the means of the licensed party, the licence holder, and all Yves is saying, well, entrench it in the conditions of licence. It appears to us quite simple.
3435 COMMISSIONER PENNEFATHER: Thank you, Mr. Audet. Merci, monsieur Mayrand.
3436 THE CHAIRPERSON: Mr. Williams.
3437 COMMISSIONER WILLIAMS: Good afternoon, Mr. Audet and panel members.
3438 A cornerstone of the Canadian Broadcasting Act is essentially that the Canadian broadcasting system should serve to safeguard, enrich, strengthen the cultural, political, social and economic fabric of Canada. That is a basic tenet in the Act that we work with.
3439 If a Canadian broadcasting system is made up of a cast of weakened, in cable's case, or money losing companies in the examples of the licence renewals that are before us today as a result of various competition practices, in your opinion are Canadians better served by this type of competition or how should it be structured? What advice can you give us to create the kind of real competitive gain that you stated should be sustainable competition?
3440 MR. AUDET: As always, these issues are not easy to deal with. But I think there is a decision in principle to be made.
3441 One of them is there is a Competition Bureau that has been set up by the Federal Government to look after competitive issues. First you have a decision to make. Who will call the shots in terms of competition in the marketplace for both broadcasting and telecommunications issues.
3442 You will have seen from our presentation that in fact we no longer think it is appropriate to consider them separately. They should be considered as a whole. And corporate behaviour as a whole should be the thing to be watched at all times.
3443 That being said, you have a decision to make. So, either the Competition Bureau takes care of it or the CRTC takes care of it. If the CRTC takes care of it, then it is our view that it must thoroughly engage itself in monitoring the market, and things are wrong. Someone has to blow the whistle. The game can't just go on. The whistle has to be blown and the appropriate party brought to its senses.
3444 Directionally, that is the way to approach it.
3445 MR. MAYRAND: Indeed, it is a very difficult question to tackle. But it seems to us that, by and large, as a result of a number of decisions over the years, we are now faced inevitably with the situation where we are going to be living for quite a number of years with bundles of all kinds of telecom and broadcast distribution services.
3446 To that extent, we don't think that we can move backwards and say this can be undone.
3447 As Louis was saying, certainly if that is going to be the environment and we are already in that environment that we all have to operate with, including this Commission, then certainly the competitive game has to operate under reasonably clear rules, and the rules have to be enforced in a very timely fashion.
3448 I would add that certainly providing any further properties on the board game to the largest or some of the larger integrated groups should be very, very carefully considered by the Commission before exceeding to those requests. That is certainly something that is within your ability to control because you, in fact, can watch the whole board game and see how it really actually unfolds on the field and be very cautiously distributing additional pieces on the board game as you go ahead.
3449 MR. AUDET: The difficulty, if I may, is that, as Yves has said, the game develops day by day. It is not always easy to recognize what is happening.
3450 For example, Bell just announced a series of bundles, high speed Internet, Bell ExpressVu and wireless. You can have access as a consumer to that bundle if you are a long distance customer. Of course, to be a long distance customer you have to be a wire line telephony customer of that company as well.
3451 So, you ask yourself: What is the impact of this particular bundle on us today? You do your analysis and you say, well, it looks threatening. What will be the impact a month from now, six months from now, a year, two years, three years? It is very hard to tell in advance.
3452 I would say if you are the referee, it is tough to tell when to blow the whistle. But one thing I also do know is that, given past actions, you now have a cable industry, as the people from Vidéotron have so aptly described this morning, that is not in a position to compete in telephony for a number of reason, which we could discuss later if you wish.
3453 So, there comes a time with the passage of time, you can see the financial results of the companies pile up and eventually you do have a reasonable base to intervene.
3454 The question was asked this morning, for example, why was Vidéotron considering that there was some sort of dark scheme initiated by Bell and how would that measure up against the strategy of Star Choice. I think one element of the answer that should have been given was, well, the players are of totally uneven size. Today BCE has $20 billion of revenue; Star choice has $1.8 billion. In fact, when Star Choice got involved in the satellite game, it had perhaps less than $1 billion of revenue.
3455 So, Star Choice has no market power. Star Choice's strategy is dictated by Bell ExpressVu's execution in the field. That is the simple answer that we would add to what was said this morning.
3456 And these results have deteriorated. If you look at Shaw Communications results, they lost $282 million last year. It is not up to me to judge or comment or what have you, but you, as an observer, know how the players are doing and the data is readily available, quarter by quarter, and, if not, year by year with our private filings to you.
3457 I think you have the means to see how the game is unfolding.
3458 COMMISSIONER WILLIAMS: Would it be safe, then, for us to assume that the current market environment that the DTH and cable BDUs are operating in isn't conducive to sustainable competition in the longer term, then?
3459 MR. AUDET: I guess what we all want is a vibrant marketplace, right? We want innovation, we want new services brought on board. We have players with the ability to develop things, bring them to market and sell them to customers at reasonable prices.
3460 You have an industry now, the cable industry, that is not in a position to fulfil part of its mandate. So, yes, I would say that the current competitive framework is not working properly. Yes, I would agree with you.
3461 MR. MAYRAND: With your permission, could I just add a small comment to that.
3462 Of great concern to us, within the present regulatory framework, is this whole body of regulation concerning analog distribution. Of course, we have heard ExpressVu this morning saying that now that growth is becoming more difficult to achieve, well, they are going to target even more the analog distribution base of cable operators and cable is the key competitor of their DTH service.
3463 Frankly, is it sustainable that each and every time there is a new over-the-air signal put up in a cable service area, we have to allocate a full six megahertz channel slot to that service to distribute it, no matter what the duplication of issues might be. We just have to carry it. Whilst services can be carried with a much more efficient ratio on digital satellite distribution.
3464 How sustainable is it for us on the cable side to have measured channel capacity against a decision rule that says, well, available channel capacity is measured for cable, at least, with respect to certain specific services, not just when the slot is occupied by something.
3465 On the satellite side, what is the decision rule? We have heard capacity problems left, front and centre, throughout this hearing, but what is the measuring standard? I mean, advertising of DTH says we have the greatest number of channels, yet we don't have capacity to carry Canadian programming services.
3466 How sustainable is that in the long run? That is the question we have put forward, among others on the structural issues in our presentation.
3467 COMMISSIONER WILLIAMS: Thank you. Mr. Audet.
3468 MR. AUDET: Thank you. We read, as I am sure the Commission does, the analysis that is provided by financial analysts. Of course, they are their own people. They make up their own minds on evaluating evidence and certainly don't take their cue from us. Vince Valentini has written analyses in October 2003 about our company. By the way, he has declared that because of the bundling initiative our stock price is worthless.
3469 And by the way, that is very reminiscent of the 1994 to 1998 situation, where Bell announced the Beacon project and all of the cable stocks tumbled, fell, considerably. It has just happened again.
3470 If you read the analysis, he will refer you to a paragraph that says:
"It seems clear to us that the main motive behind the aggressive pricing by Bell is to delay and distract the cable industry from deploying IP telephony over the next couple of years. The fact that Bell is offering much more aggressive discounts in the 13 to 17 per cent range suggests to us that it made a conscious decision to leave money on the table in order to make life more difficult for its cable competitors. At the end of the day, BCE can afford a much longer and tougher price war than [so and so and any other company in the cable industry]."
3471 And so on and so forth.
3472 We didn't invent this stuff. There are other people who are figuring it out and who are laying it all out for people to see.
3473 Yes, there are problems in the current competitive landscape. The problems extend through one player being so powerful that by merely declaring something, he causes everybody else's stock to fall. He did it once in 1994. He just did it a month ago.
3474 So, yes, there are flaws. They have to be rectified. Someone said earlier today, I don't know of another country where ownership of Bell ExpressVu would have been entrusted to BCE. Well, now the cat is out of the bag, and we have to deal with the issue. Now there is a blue whale in Lake Ontario. So, what are you going to do? You are going to have to do something. You can't do nothing and I guess that is why we are here today.
3475 THE CHAIRPERSON: Commissioner Noël.
3476 CONSEILLÈRE NOËL: Alors il faudrait peut-être revenir un peu en arrière et faire suite aux questions de mon collègue Williams.
3477 Ce matin, M. McGee de Bell, je vais citer sa phrase, disait:
« After six years of operations these two Canadian DTH companies have succeeded in adding... »
3478 Il faisait référence à Star Choice et Bell ExpressVu:
« ...have succeeded in adding $1.1 million net new subscribers to the Canadian broadcasting system with a total combined base of 2.2 million customers. »
3479 Un peu plus loin il disait, toujours au paragraphe 5:
« Now there are equally accessible... »
3480 En parlant des signaux:
« ...to those living in rural and remote areas throughout the entire country. Big city TV is no longer confined to Canada's urban centres. »
3481 Croyez-vous qu'en l'absence de la distribution par satellite, les gens qui vivent à l'extérieur des grands centres urbains auraient pu avoir accès à une distribution de signaux de télévision équivalente à ce qu'ils ont avec les satellitaires ou si, comme j'y ai fait référence hier, on aurait dû se contenter des oreilles de lapin, peut-être même avec de la laine d'acier, comme disait M. Perreault de l'Impératif français.
3482 M. MAYRAND: Madame Noël, d'abord, je vais admettre que ça fait quelques années que je suis dans le domaine, et dans les plus anciennes années je me souviens que le problème du service vraiment dans ce qu'on appelait les régions éloignées et mal desservies a d'abord été réglé par une entreprise qui s'appelait et s'appelle toujours Cancom. Alors donc bien avant l'avènement de la SRD on a eu des façons d'essayer de s'attaquer au problème du choix des services dans les régions plus éloignées et non câblées.
3483 Ce que la SRD a apporté clairement, c'est un choix concurrentiel dans le cas de zones qui sont câblées et un choix concurrentiel entre fournisseurs SRD dans les régions non-câblées. Ça on est d'accord là-dessus.
3484 CONSEILLÈRE NOËL: Parce qu'il y a des régions qui ne le sont pas et j'ai un souvenir très clair que le système de Cogeco, par exemple, s'arrête à six portes de chez moi.
3485 M. MAYRAND: Alors sans entrer de la situation de branchement particulier et des zones de desserte autorisées pour les entreprises de câble, parce qu'il y en a encore, des zones délimitées avec une carte précise, la réalité cependant c'est qu'on a sûrement réussi au plan de la concurrence dans la distribution de services de radiodiffusion, comme le gouvernent le souhaitait en 1994 ou 1995.
3486 Maintenant, on a quand même des problèmes, je pense, très réels d'équivalence de choix parce que dans les cas où le fournisseur satellitaire ou les fournisseurs satellitaires sont les seules possibilités de réception, je ne pense pas qu'ils soient vraiment considérés comme un progrès pour capter dans la même zone des services qui offrent une information locale, ou des informations d'affaires publiques locales, de retourner à des modes beaucoup plus primitifs de réception.
3487 Alors ça c'est notre point de vue et notre filiale TQS c'est pour ça qu'elle est intervenue, en autres choses, pour vous dire, « Écoutez, il y a un réel problème quand les gens dans notre zone de rayonnement hertzien qui s'abonnent à avoir une soucoupe ne peuvent pas nous prendre. Il y a comme un certain problème et il y a particulièrement un problème quand ils peuvent recevoir notre concurrent et pas nous ».
3488 Alors nous sommes rendus, je pense, à ce stade-là où il faut aller de l'avant et non revenir en arrière à la réception qui a précédé les premières années de la câblodistribution, vous en conviendrez. On remonte pas mal loin. Je ne pense pas que ce serait souhaitable.
3489 CONSEILLÈRE NOËL: Je vous remercie.
3490 Je n'ai pas d'autres questions.
3491 THE CHAIRPERSON: Commissioner Williams.
3492 COMMISSIONER WILLIAMS: Mr. Audet, when DTH, in the form of ExpressVu/Star Choice, was introduced to the north, they competed aggressively with many of the smaller cable companies just by virtue of their price and their signal offering because these were serving small areas. In most cases, the cable companies just folded up their board, as you say, and exited the game.
3493 I guess the biggest loss in looking at it now is the opportunity for a competitive broadband pipe into the homes.
3494 In your company's case or I guess in your industry's case, do you see the same type of activity happening as a result of aggressive competition in some of your smaller marketplaces, and then I guess how small is small?
3495 MR. AUDET: Clearly serving smaller centres that are difficult to interconnect is a challenge. You have seen, we witnessed this year a cable operator involved in bankruptcy proceedings which I never thought I would see one day, but we did see it.
3496 So, there are challenges. It is hard for me to comment about the situation at other companies.
3497 The situation at our company is that we have rolled up our sleeves a long time ago and we are fighting back and we are investing, we are investing heavily. We have been amongst the first in North America to bring high speed interconnect services to our customers. We rolled video-on-demand out aggressively. One of the largest deployments, at least percentage wise to customers, 85 per cent of our customers had it as of last March. So, we are innovating and we are fighting and we are going ahead.
3498 I wish we could say so much for telephony. There are real impediments that regrettably don't make it possible to go with the same enthusiasm.
3499 Does that answer your question?
3500 COMMISSIONER WILLIAMS: I guess you are saying that there is not a real effect on your company because you have decided to roll up your sleeves, so to speak.
3501 MR. AUDET: That is not quite what I meant. Yes, there is an effect. I think we are in a state of economic inferiority. Our return on equity used to be in the late 8 to 11 per cent range and for the last three years has languished in the half a per cent range. This year, we just released our results yesterday, and we are so excited, we are at 1.1 per cent return on equity.
3502 So, we are doing better. We are happy. We are working hard. But we are not offering our shareholders an adequate return. That is because the key market power holder is selling his products too cheaply, incurring huge losses in so doing, and hiding them in his local phone EBITDA line. That is our problem.
3503 COMMISSIONER WILLIAMS: Thank you, Mr. Audet.
3504 I have no further questions, Mr. Chairman.
3505 THE CHAIRPERSON: Thank you. That will be all.
3506 Mr. Secretary.
3507 MR. LeBEL: This does complete Phase II of this application, Mr. Chairman.
3508 THE CHAIRPERSON: We will take a brief pause of ten minutes and then resume with Phase III.
3509 Nous reprendrons dans dix minutes.
--- Upon recessing at 1600 / Suspension à 1600
--- Upon resuming at 1610 / Reprise à 1610
3510 MR. LeBEL: Mr. Chairman, before ExpressVu responds to the intervention, I would like to indicate, for the record, that Star Choice was provided with an opportunity to respond to the Cogeco intervention. Star Choice will be responding in writing within 48 hours and their response will be placed on the public record.
3511 You have ten minutes to respond to the interventions. Thank you.
REPLY / RÉPLIQUE
3512 MR. FRANK: Mr. Chairman, I would just like to make a correction on a question you posed to me this morning about the CBC.
3513 I may have indirectly and inaccurately advised you that we carry CBC affiliate Medicine Hat CHAT. This is owned by the Pattison Broadcast Group. You will recall that the Pattison Group also owns CBC affiliates in Kamloops and Prince George. The CAB agreement allows for carriage of up to two of these three signals. Upon consultation with the Pattison Group, we were encouraged to carry the Kamloops and Prince George stations and, in fact, that is what we do. So, the Medicine Hat station is not carried by us.
3514 THE CHAIRPERSON: That is in your letter. So, that stands corrected.
3515 MR. FRANK: Thank you.
3516 MR. McGEE: Thank you, Mr. Chairman. ExpressVu has previously provided written responses to intervenors in the reply phase of this proceeding. This afternoon we will address several issues raised by intervenors over the course of the last two days.
3517 The distribution of local TV signals is a priority of Canadian broadcasting policy and ExpressVu remains responsive to Canadian's strong interest in having as many local channels carried as possible.
3518 The Commission's recent decision regarding the carriage of local channels recognizes the need for balance and the challenges of making the best use of satellite capacity, and it is with this in mind that ExpressVu has significantly increased its carriage of large and small market TV stations.
3519 Let me express and confirm ExpressVu's commitment to carry the CBC and the SRC.
3520 The CBC put it very well this afternoon, I think, when they described the very positive momentum that Bell ExpressVu stepping up to take the lead in carriage of CBC stations. With respect, carrying all of the stations is just not reasonable and we continue to work on innovative solutions like unique local programming, content carriage, and also, with respect, we disagree with the CBC that this is customer unfriendly.
3521 To the contrary, we believe this is customer friendly because it is a way of finding ways in a capacity constrained and competitive environment to bring solutions to customers. This is also what the Heritage Committee, a parliamentary committee, has endorsed.
3522 ExpressVu now carries eight full-time CBC owned and operated stations from all time zones and regions in Canada, as well as six CBC affiliates. All provinces are currently represented by local CBC stations on the ExpressVu lineup save for Saskatchewan. Mr. Chairman, let me confirm that ExpressVu is receptive to the addition of CBC Regina to complete our comprehensive Canadian coverage.
3523 With 14 local TV stations, no other network has this many of its local signals on ExpressVu. As well, SRC local TV channels have increased by two to the same level as that of TVA and TQS, with the possibility, I should add, of additional local signals being carried under active consideration.
3524 In its testimony, the CAB claimed that the study that it filed with its intervention is an update of earlier studies that it sponsored and that all of this analysis remains uncontested. The CAB is mistaken in this regard. The CAB's current study has its genesis in a study dated March 2001 that the CAB filed with the Commission on November 30, 2001.
3525 The DTH companies carefully reviewed the study and found it had numerous major flaws, the principal one being that the author had assumed that all of the loss experienced by local broadcasters between 1997 and 2000 was the result of DTHs delivering distant Canadian signals and a second set of U.S. 4+1 signals.
3526 For example, when a new Canadian DTH viewer stopped watching a local broadcaster and switched to watching a licensed Canadian specialty service, the study incorrectly assumed that to be a loss to DTH's delivery of a distant Canadian signals and a second set of U.S. 4+1 signals.
3527 The DTH companies pointed out these and other flaws in the study to the CAB, and then reworked the analysis based on more accurate data. We submitted our findings in a report to the CAB in March of 2002.
3528 In our working that took into account actual viewing patterns, we found that the total impact of DTHs delivering all distant Canadian signals and the second set of U.S. 4+1 signals into all local markets was $5.1 million in 2002, as compared with the estimated impact of $31 million claimed in the CAB study.
3529 The CAB has stated that the study filed with its intervention is based on the earlier strategic study. Consequently, it suffers from the same critical flaws and should be ignored, as pointed out in our written reply to the intervention.
3530 Let me turn now, Mr. Chairman, to the question of piracy. Bell ExpressVu takes the issue of signal piracy very seriously. The Commission has properly recognized that signal piracy is an industry problem and is not unique to DTH in general or ExpressVu in particular.
3531 Cable signal theft has been an ongoing issue for decades and the by-pass of the Canadian system through illegal viewing of U.S. DBS systems has been a significant issue in Canada since they were first dubbed death stars by the cable industry in the earlier nineties.
3532 To address this issue, we have implemented a comprehensive anti-piracy plan which I have openly shared with the Commission and the other members of the industry through the Chairman's industry-wide committee. In that forum, all the major distributors have shared information and have made significant commitments to fight piracy. In spite of the views expressed to the contrary by certain intervenors, its actions are working and will continue to work as they take effect.
3533 We continue to believe that, in absolute terms, signal piracy is a bigger problem for cable than it is for ExpressVu. Mr. Chairman, I have left with the secretary a brief overview detailing Bell ExpressVu's extensive and effective measures that have been put in place to combat signal theft.
3534 With respect to the proposal that ExpressVu be given a condition of licence as a means to combat signal theft, we would like to make the following comments.
3535 First, we are already part of a committed process involving all key stakeholders to fully disclose, report, assess, respond and improve our respective counter piracy initiatives. This works.
3536 Second, and perhaps more importantly, we agree with the thoughts expressed by the Chair this morning regarding the difficulty and indeed desirability of using conditions of licence for this purpose. It is not helpful to talk of conditions of licence for the sake of a condition of licence. The key to this is to recognize that counter piracy is, by its nature, a dynamic process. It must be state of the art to be successful. This is complex stuff and we do not underestimate the need for innovation and change. Therefore, the measures and the process and the methods must be flexible. They must be responsive to what works best at any point in time. To free such any obligations or encumber them is simply not responsive or an effective way to view this.
3537 We would suggest that those that have suggested otherwise do so in part because they themselves are relying on a static view of the signal theft issue. The same methods and techniques which they have used for 20 years with little innovation, perhaps very little state of the art attached to them, do not effectively address the issue. The challenge, we would suggest for those, is to participate in the Commission's parallel signal theft process, which is now fully engaged, with this forward looking and innovative mindset firmly in place.
3538 At ExpressVu, we know the Commission expects us and the other players to be proactive, to participate fully, to report, assess, respond, to share ideas and methodologies. This is what lies ahead in the process that we are actively involved in.
3539 We are committed to this and believe this is the right forum for all the stakeholders to work on addressing the issues which face us all.
3540 I would like to turn now, Mr. Chairman, to some of the comments raised about Nimiq 2. Let me assure you, Mr. Chairman, that Nimiq 2 is our future. It represents a major investment and we have the strongest possible motivation to generate as much revenue as possible from services that we carry on it.
3541 We have every expectation that the new services which we will distribute will attract a growing number of subscribers. This is a key part of our future.
3542 In respect of Rogers' complaint regarding Omni.2, the Rogers panel stated it themselves. Omni.2 is a discretionary DTH service. It is available off air throughout its licensed area. Persons that are interested in Omni.2 service on DTH can receive it if they so choose. In fact, its position on Nimiq 2, with the Montreal ethnic channel and the Vancouver ethnic channel and other licensed Canadian ethnic services, is ideally placed to serve its intended market.
3543 Let me turn now to the submissions by Pelmorex. Pelmorex has alleged that ExpressVu is behaving in an unjustly, discriminatory manner with respect to ExpressVu's offering of an interactive weather service. This is simply incorrect.
3544 Moreover, in its presentation, Pelmorex has unfortunately ignored many important facts. We would first note that the matters raised today by Pelmorex are currently before the Commission in other proceedings that were explicitly initiated to focus on issues respecting interactive television generally and on the concerns of Pelmorex specifically.
3545 In this regard, Pelmorex has both requested dispute resolution and filed a complaint with the Commission. These actions have resulted in meetings between the parties and Commission staff and many pages of submissions, including, at the Commission's request, detailed submissions on the associated legal issues.
3546 In addition, as the Commission is aware, the matter of the appropriate terms and conditions for the mandatory carriage by all broadcast distributors of broadcasters interactive enhancements is currently before the Commission following a lengthy and detailed public proceeding. The Commission ruled earlier this month that it would be inappropriate to deal with Pelmorex's complaint until a decision is issued in this ITV framework proceeding.
3547 It is important to note that ExpressVu has not refused to carry Pelmorex's interactive information. Rather, we have sought carriage on reasonable commercial terms that share risk and reward between content provider and distributor, consistent with deals we have successfully negotiated with other unaffiliated ITV providers. To be clear, contrary to the surprising allegation of Pelmorex earlier today, ExpressVu's offer to Pelmorex was to share risk and reward on a 50/50 basis, not 90/10 in favour of ExpressVu, as suggested by Pelmorex.
3548 Finally, it is important to note that ExpressVu's interactive weather services is the result of ExpressVu taking action and making the necessary investments to fill a gap to our subscribers with respect to local weather information, a gap that Pelmorex was previously unable or unwilling to fill.
3549 If we are forced to carry Pelmorex's interactive service, which would be received by all ExpressVu subscribers at a wholesale fee of 23 cents per month, we would effectively be forced to abandon our investment in our interactive weather service and forego the associated revenue. This would be our reward for taking the lead on interactivity and meeting subscriber needs.
3550 As a final matter, Mr. Chairman, I would be remiss if I did not comment on the unsubstantiated and I must say extraordinary allegations made by Mr. Péladeau this morning. While I must admit I have a difficult time separating the apparent conspiracy theory from the allegation of improper cross-subsidization, on the latter I would note that Mr. Péladeau's claims have been thoroughly reviewed by the Commission, the Competition Bureau and the cabinet, all of whom have unequivocally rejected them. There is no need whatsoever to revisit this issue.
3551 In conclusion, Mr. Chairman, ExpressVu notes that we have met or exceeded all of the terms of our broadcasting distribution licence. We have delivered on our commitments and the benefits to consumers, broadcasters and programmers are as I have noted earlier.
3552 By virtue of a fair and balanced regulatory framework, ExpressVu has firmly established itself as an attractive competitive alternative to cable for an increasing number of consumers. We continue to lead the Canadian digital TV revolution, having brought comprehensive service to rural Canada and English, French and third language services to all regions of our country coast to coast.
3553 We look forward to the successful continuation of our good news story and to the prospect of another seven years of growth, leadership and innovation.
3554 Thank you, Mr. Chairman.
3555 THE CHAIRPERSON: Thank you very much, Mr. McGee. I have a few follow-up questions. I have you position on a number of questions I was going to ask you, so I won't bother to ask those.
3556 On the CBC willing to uplink their O&O in Regina, which would make that nine stations, their point is CanWest has ten. They seek parity. What is your comment on that?
3557 MR. FRANK: For clarity, Mr. Chairman, the offer for CBC Regina would be on a part-time basis. We have that covered in terms of time zone from both central time and for mountain time on a full-time basis. We would be happy to offer all of the unique local programming to the Regina market.
3558 THE CHAIRPERSON: Their position is they aren't satisfied with that. So, in terms of O&O full station carriage, you are basically leaving it to us to make a ruling one way or the other?
3559 MR. FRANK: We believe that eight CBC O&Os, combined with the affiliates we have, is equitable treatment for the CBC.
3560 THE CHAIRPERSON: I have your position on that. I think I also have your position on Pelmorex as far as I am concerned.
3561 You have seen the attachment that was made to both the Rogers and Quebecor Média oral presentations purporting, as lawyers say, to be a slide that was shown in New York in June of 2002 and containing the statement under strategy by BCE that the strategy is to sustain pressure on cable's core with ExpressVu defensively to minimize cable's potential, IP telephony opportunity.
3562 How are we to read that in your view?
3563 MR. McGEE: Mr. Chairman, I can certainly respond from a Bell ExpressVu perspective, and that would be this. The cable companies have demonstrated, certainly Rogers has taken the lead, that the bundling of Internet service with television service is good business and it is responsive to consumers' requirements, demands and needs.
3564 From ExpressVu's perspective, we share that view. We have been late out of the gate in terms of being able to make that offering, but from our perspective, the business grows through bundling, it grows as a standalone business and certainly that is the mandate that this company has from its owners is to grow the business, to use good marketing, to be competitive, and we will continue to do that.
3565 As I said, our trajectory is one of growth. It is one of improving profitability consistently, and that is the extent of the mandate of this company. I would not comment on what others might view our business plans to be other than hopefully we have discussed those and been clear about our determination to win in the marketplace. If that is going to be head on competing with cable, we are ready for that fight.
3566 THE CHAIRPERSON: I hear what you are saying, Mr. McGee, but in answer to I think it was Commissioner Williams, one of his questions where I think he asked about shareholder commitment, you are able to confidently say that the shareholders are, I think your phrase was, committed all the way or totally committed. So, you were speaking for the shareholders on that point.
3567 I guess I am asking you to speak for them in helping me understand the phrase that I read into the record. If you can't do that and you would like to get back to us with a more BCE direct response, that is fine too. But it is on the record; it has been presented. It is matter clearly of concern to a number of the intervenors and I think clarification might be helpful.
3568 As I say, if you are capable of doing it, but I don't want to push you to say anything you don't feel you shouldn't say.
3569 MR. McGEE: Absolutely, I appreciate that, Mr. Chairman. I will take you up on that suggestion.
3570 My response is, as I say, just looking at this slide, clearly ExpressVu has a role to play in bringing consumer choice to the broadband home and making the broadband home a reality. That is a well-stated objective of the cable companies, and I am pleased to say that it is a capability that ExpressVu is rapidly developing. So, that is clearly something that we have our sights set on.
3571 To the extent that that relates to a sensible business strategy, which I believe it is, to the extent it may relate to other BCE issues, I would be happy to take that away.
3572 THE CHAIRPERSON: That would be helpful. I guess I would ask you to comment on what follows from there on a reading, for example, by Rogers, if you look at page 4 of their oral presentation. I don't think you have it. Do you have it with you?
3573 MR. ELDER: Not of their oral presentation, no.
3574 THE CHAIRPERSON: I will read it to you. It is brief. They say:
"ExpressVu recently announced several initiatives it has committed to undertake in order to combat satellite signal theft. While long overdue, these initiatives may produce positive results. However, ExpressVu may not deliver on all its promises given BCE's stated business objective."
Which they, of course, relate back to the slide. What would be your comment on that?
3575 MR. McGEE: Mr. Chairman, if that in any way would suggest that BCE is not committed, as ExpressVu is, to our comprehensive plan to fight signal theft, then I would strongly take exception to that as any indication of reality, quite frankly.
3576 We have been very clear on this, as has BCE. The right thing for this business, the right thing for the industry, is for Bell ExpressVu and all the players to make the investments, to come up with the solutions, to be dogmatic about addressing this problem, and that is what our initiatives are all about.
3577 So, if there is any suggestion in there that that would not be consistent with BCE's thinking, then that is not correct.
3578 THE CHAIRPERSON: Thank you. Those are my questions.
3579 MR. FRANK: Mr. Chairman, David Elder reminds me that I missed part of your question about the CBC.
3580 The CBC has suggested that we carry ten Global signals. I would point out that we carry nine English language Global signals, seven from Global itself and two from English language CH. The tenth they are referring to is in fact a multi-cultural over-the-air station, which we have placed at 82 degrees.
3581 We have three multi-cultural over-the-air stations at 82 degrees, one from Montreal, one from Toronto and one from Vancouver. They in fact provide the anchor, if you will, for our ethnic strategy at 82. I think it would be most unfortunate if that service was counted as a Global English language service per se and got caught up in this question of equitable treatment.
3582 We have nine Global English language services at 91 degrees. We have nine CTV services at the present time.
3583 As part of our agreement with the CAB, the numbers we provided to you in our earlier submissions, those nine services will go to eight by the end of the year, that is the intention. So the CBC, by the end of the year, will be at eight, along with Global and CTV, and we believe that represents equitable treatment amongst the two largest private commercial networks and the public broadcaster.
3584 THE CHAIRPERSON: Sorry, Mr. Frank, I thought you said eight Global. I got from ten to nine, subtracting --
3585 MR. FRANK: And there is nine CTV.
3586 THE CHAIRPERSON: No, on Global.
3587 MR. FRANK: There is nine English language Globals, if we hold aside for a moment the multi-cultural station from Montreal.
3588 The intention of the CAB deal that we put together last year was that the nine from Global and the nine for CTV would go to eight for each station group so you would have, by the end of the year, eight, eight and eight.
3589 THE CHAIRPERSON: I understand now.
3590 A further question, Mr. McGee, that arose from Mr. Péladeau, I believe, remarks. I note in the document you left with the Secretary, where you refer to your PRISM system for inventory control, I think it was Mr. Péladeau who made the point that, unlike the situation say with Bell Mobility or with Star Choice, where you can't get a box or a device without subscribing to the service, is it the case that with ExpressVu you can still get the box without getting the service at the point of sale?
3591 MR. McGEE: No, you must subscribe to minimum service. The positioning of the products now is to increase the attractiveness of the pricing depending upon the length of your contract up to two years.
3592 So, yes, you must have a minimum programming commitment at the point of sale and that can go as far as two years.
3593 THE CHAIRPERSON: Thank you. Mr. Williams.
3594 COMMISSIONER WILLIAMS: One question, Mr. McGee, on this same topic.
3595 How many receivers have you sold since the inception of your service?
3596 MR. McGEE: I don't have that number specifically. I might respond that I think where your question may be directed is in terms of can you reverse engineer piracy numbers through the counting of boxes. Is that what you were referring to?
3597 COMMISSIONER WILLIAMS: Yes, Mr. Péladeau again raised the issue as an easy way of trying to identify the magnitude of the problem.
3598 MR. McGEE: Right, that is what I thought it was, so I would like to be responsive to that.
3599 It is, to put it bluntly, not a workable measure for determining the scope of the piracy for a number of reasons, not the least of which is, while it is simple to say that if a box is out there, if it is not being used as part of a paying service then it must be used for piracy, we know that there are a number of alternative uses to which these boxes get put, including thrown out, including broken, bookends, call it what you want.
3600 We obviously don't feel that is a good use of that product, but that is reality. So, while you could enter into that exercise -- we have looked at this, by the way, because what we have committed to and continue to commit to and will continue to work for this is to find better ways to refine and measure both the scope of theft within our environment, but also with the other stakeholders in terms of cable. We want to work to find ways to help measure this better. There aren't any quick and easy ways right now, but we will keep working at it.
3601 COMMISSIONER WILLIAMS: So, somewhere in your company they must know how many of these boxes you purchased. I see you work with RCMP and Customs and others as they come across the border.
3602 While it might not be an exact figure, as you have just described and I agree with that, it still may be helpful to know the total magnitude of these boxes out there as opposed to how many customers you have, given that security has been breached.
3603 MR. McGEE: Emphasize "might be." I would emphasize your words "might be."
3604 COMMISSIONER WILLIAMS: So, can you provide that number?
3605 MR. McGEE: We can certainly give it a try. The source of the boxes, as you know or may not know, part of our new inventory tracking system allows us now to identify exactly where the boxes are. This is something that has not been in place for the past few years. Therefore, that is going to limit my ability to deliver you a reliable number.
3606 COMMISSIONER WILLIAMS: Would Mr. McGraw be able to say, for example, go back through past payment invoices or something and just realize how many ExpressVu had in fact purchased?
3607 MR. McGEE: We can certainly look at that, Mr. Commissioner, and provide that into the working group session, if that would be responsive.
3608 COMMISSIONER WILLIAMS: Yes, or I look to our Chair for direction. It could perhaps even be provided to us in confidence. But it would be good to have that information.
3609 MR. McGEE: We will certainly try and pull something together for you.
3610 COMMISSIONER WILLIAMS: Thank you.
3611 THE CHAIRPERSON: Commissioner Noël.
3612 COMMISSIONER NOËL: Just a question out of curiosity. What is the average number of TV sets in a household in Canada?
3613 MR. McGEE: In Canada, I know for our service -- I am sorry, I am not sure I understand the question.
3614 COMMISSIONER NOËL: TV sets in households.
3615 MR. McGEE: TV households.
3616 COMMISSIONER NOËL: No, TV sets in households.
3617 MR. McGEE: In each household. I was confused as to whether or not you meant how many TV households are there as opposed to sets within households.
3618 COMMISSIONER NOËL: Sets within households.
3619 MR. McGEE: Certainly for Bell ExpressVu it is less than two. The average is 1.8, which is a rather strange number, because obviously there is an eight of a set. But obviously there are some houses that have four or five sets, some have two or three, et cetera.
3620 COMMISSIONER NOËL: But you don't have a figure of the average per household?
3621 MR. McGEE: The average in the case of ExpressVu is 1.8. So it is less than two.
3622 COMMISSIONER NOËL: A strange number indeed. What I was aiming at is you need a set-top box for each TV if you want to see the digital signal?
3623 MR. McGEE: That is correct.
3624 COMMISSIONER NOËL: So, you would have more than one box, one set-top box, per subscriber's household?
3625 MR. McGEE: Sure. If you have multiple TVs and you are using ExpressVu for each TV, then you would need a box for each TV.
3626 MR. FRANK: Just for the record, you can tie one box to more than one television set.
3627 COMMISSIONER NOËL: You can move it around the house?
3628 MR. FRANK: You can actually have multiple wires serving more than one TV with one box. You can't watch different programming on the two TVs.
3629 COMMISSIONER NOËL: That defeats the purpose.
3630 MR. FRANK: It depends on how many people are in the family. Certainly it works at our house, but that's just a measure of one.
3631 COMMISSIONER NOËL: You mean you are not watching TV with your wife. She is in the kitchen and you are in the living room with your feet on the couch?
3632 MR. FRANK: I wouldn't touch that.
3633 COMMISSIONER NOËL: Are you watching the same programs?
3634 MR. FRANK: I have come to realize answering that question might get me in trouble at home.
3635 THE CHAIRPERSON: Go to your room and watch what I watch.
3636 COMMISSIONER NOËL: What I wanted to know is if the number of boxes is in relation to the number of subscribers. That is what I am aiming at. The number of boxes, is it a direct relation, is it a one-on-one direct relation to the number of subscribers or is there more often than not more than one box per subscriber?
3637 MR. McGEE: There is more than one box per subscriber by approximately, let's round it off, two.
3638 COMMISSIONER NOËL: Thank you.
3639 THE CHAIRPERSON: Thank you. Commissioner Wylie.
3640 COMMISSIONER WYLIE: I thought I would end this part of your presentation, this phase, unless counsel has questions, with a detailed question.
3641 Why is it that there is a reluctance by BDUs to look at the possibility of responding to the programmers requirement for minimal audit rights or a framework that is a little more defined than saying we will just negotiate and we will use industry practices based on a broadly stated audit written in a contract.
3642 Would it not minimize or alleviate, at least, some of the disputes that appear before the Commission in more and more numbers? Do I understand correctly that in your reply you were not responsive to the CAB's and the programmer's request to look at the possibility of an audit framework that would be possibly required to be a minimal component of the affiliation agreements?
3643 MR. McGEE: We come at it like this, and that is audit rights in the agreements and contracts that we have with our affiliation partners, programmers we believe is a fundamental part of the relationship, as it is in many commercial relationships where an audit type right is something that parties expect.
3644 So, we come at it fist of all that we have those.
3645 The framework we are not rejecting out of hand. Our review of this at the present stage for us reveals that it is two one-sided. In its current form, it is not a balanced document. As they say, whoever has the pen on the first cut likely is going to draft it in such a way that it favours their interests. I think to a large measure that is what we are faced with here.
3646 So, we are absolutely supportive of the principle of audit rights. We respect them today; I think our track record speaks for that.
3647 In terms of what is on the table today, it needs a lot of work.
3648 COMMISSIONER WYLIE: I think I made it clear, maybe not to you but to some other parties with whom we had this conversation, that it wasn't necessarily those points, but the principle of enshrining in a framework more than perhaps a contract would contain or contains at the moment so that there is a refinement of what is allowed. It doesn't mean that that was a first draft, you are quite right, that was forwarded, as far as I understand it, to the BDUs.
3649 So, you are not against the idea of examining this as a possible help in defusing some of the disputes that we see?
3650 MR. FRANK: Mrs. Wylie, I take you back to 1999 prior to the licensing of the Category 1s and Category 2s.
3651 COMMISSIONER WYLIE: I was so young then.
3652 MR. FRANK: ExpressVu alone was the only BDU to come forward with a code of conduct. A principle in that code of conduct was fair treatment going both ways, recognizing that both the programmers and the BDU had an obligation to treat each other fairly.
3653 Under that umbrella, we enshrined in that document audit rights, and that would be part of the negotiations and an affiliation agreement.
3654 So, we recognized this sort of thing early on. That was refined into a BCE code of conduct and subsequently directed by the CRTC to an industry-wide discussion.
3655 Since then, I believe our track record is very, very good in terms of according programming affiliates with whom we have a contract the right to audit. If the Commission, in its wisdom, determines that this should be part of an industry forum, then we would gladly participate. Our point was that it does need some scrubbing. It does need to be fair to both the BDUs on the one side and the programmers on the other. Generally that happens when you get consultation, discussion, negotiation, call it what you will, but it does need to be scrubbed and further iterations developed.
3656 COMMISSIONER WYLIE: Is it your belief that this would in fact be an aid in reducing the number of disputes or complaints?
3657 MR. FRANK: Well, as Tim said, we are certainly --
3658 COMMISSIONER WYLIE: Not necessarily for ExpressVu itself but as a growing member of the industry, whether this is an area that some effort should be put into.
3659 MR. FRANK: We recognized the anxiety in 1999 that new specialty services had in a new digital environment. That is why we came forward with our original code of conduct to put some of their minds at ease.
3660 I think the launch of our 40 Category 1 and 2s speaks to how well that went. If it would help, if there are recalcitrant members of the industry, perhaps those discussions are appropriate.
3661 I know for our part, we are according programmers with affiliation contracts full audit privileges that are discussed at the time of affiliation and we have honoured them. If a forum in the industry is required, then we would surely participate. From our point of view, I think we are on that page.
3662 COMMISSIONER WYLIE: Yes, and it may well be, if we look back, that what underlies the 1999 code of conduct was a motivation that wasn't quite the same as what is occurring now in those disputes, with the growing number of players on both sides, et cetera.
3663 Thank you.
3664 MR. FRANK: Mr. Chairman, can I just say a few more words about the CBC. I would just like to reiterate Tim's point that we do support the CBC.
3665 COMMISSIONER WYLIE: We got down to Global seven and the CBC six.
3666 MR. FRANK: I realize we are getting a little granular, but I just wanted to make the point because it was raised about the alleged consumer unfriendliness of these part-time channels. I thought it might be useful for the panel to know what it is we are proposing.
3667 We are not proposing a wheel, one channel with a big wheel of CBC services, but, rather, a specific place for each of these part-time channels on our EPG. So, a customer who went to the electronic programming guide would see the part-time channel and it would be contiguous to the in time zone full period CBC service. So there would be no confusion, no loss of place in terms of programming. The unique local programming would be illuminated on the EPG quite clearly. When the channel was off air it would say off air, please turn to channel, whether it was one above or one below. So, there would be very, very minimal confusion. Plus we would make our customers aware of this on our marketing channels.
3668 We think it is a creative way to get more CBC services up. We think that if the CBC feels it needs a preferential place on the dial, I think as recognized by the Heritage Committee report, then in today's capacity-challenged world, creative ways need to be found to get that programming.
3669 I note the presentation of Ms Celli earlier. She provided I think a very heartfelt look at a program, obviously a lot of passion in her voice. I just make the point that, with our proposal, that service would have been available on our service. All of the special unique events in a community or a region that are applicable to that local station would be made available across the country.
3670 THE CHAIRPERSON: Thank you. Counsel.
3671 MR. WILSON: Just one question, Mr. Chairman.
3672 I just want to clarify or confirm in terms of there was some information that was asked to be filed subsequently just in terms of the time frame within which that could be filed. Would you be able to file that information say by the end of tomorrow or within what time frame would you be able to file the information requested?
3673 MR. McGEE: Was this the information regarding the set-top box inventory?
3674 MR. WILSON: And also I believe the Chair's request with respect to further response on the slide.
3675 MR. McGEE: If we could have until the end of the week, that would be helpful.
3676 MR. WILSON: That is fine.
3677 THE CHAIRPERSON: Thank you very much. That brings Phase III to a conclusion.
3678 Mr. Secretary. We will actually take a break now of five minutes or so the next panel, which I believe is LOOK, can assume their position.
--- Upon recessing at 1655 / Suspension à 1655
--- Upon resuming at 1700 / Reprise à 1700
3679 LE PRÉSIDENT: A l'ordre, s'il vous plaît. Order, please.
3680 Monsieur le secrétaire.
3681 MR. LeBEL: Thank you, Mr. Chairman.
3682 The next item on the agenda is an application by LOOK Communications Incorporated, to renew the licences for its multipoint distribution system undertaking serving the localities indicated in the agenda expiring 29 February, 2004.
3683 You have 20 minutes to make your presentation.
PRESENTATION / PRÉSENTATION
3684 MR. CYTRYNBAUM: Just before I start, I have a device here which assists me in my hearing. So if counsel or somebody wants to whisper to me, they may take it. Just so you don't feel we're into a spy versus spy scenario.
3685 COMMISSIONER WYLIE: We're used to conspiracies.
3686 MR. CYTRYNBAUM: Mr. Chairman, members of the Commission, my name is Michael Cytrynbaum and I am the Chairman of the Board and Chief Executive Officer of LOOK Communications Inc. Before we start our presentation, I would like to introduce you to the members of our panel here with me today.
3687 To my left is René Vocelle, Chief Operating Officer and Senior Vice-President of Finance of LOOK. To my far right is Anthony Schultz, LOOK's head of Planning and Design Network and Engineering. To my immediate right is Michael Koch of Goodmans, our legal counsel. Behind me, Robert Yates of LeMay Yates Associates Inc.
3688 LOOK's raison d'être has always been to offer customers choice, innovation and affordability. When LOOK was first licensed to operate in Ontario and Quebec, digital MDS was a new, leading edge wireless technology. Back then, our customers wanted high resolution video, more programming choices and service in hard to reach or underserved areas. Yet, they were wary of the cost and complexity associated with satellite delivery.
3689 LOOK delivered affordable, easy-to-use digital television before almost anyone else. We set ourselves an ambitious standard for customer service, built towers in many small centres as well as large, and competed aggressively with the incumbents. For a while, it worked. By the end of 2000, LOOK had acquired almost 92,000 subscribers.
3690 We helped to stimulate competition from the incumbent cable companies and DTH providers, who were forced to roll out digital networks more quickly to compete. That's been good for Canadian subscribers, who have experienced the benefits of competition and for the Canadian broadcasting system. But the early success of our digital television also catalyzed a dramatic change in the competitive environment. Suddenly, our competitors had up to nine times our capacity. And with greater band width came a greater demand on the part of our customers for not just more programming but for high speed Internet too.
3691 Faced with the limited capacity offered by our MDS technology, many of our customers moved on. Today LOOK serves just over 42,000 subscribers, with a collection of 26 small systems, most of which serve fewer than 2,000 subscribers each.
3692 The world today is different than the world was yesterday. Today there is an abundance of choice with respect to distributors, prices and programming. But the needs of our customers have also changed. Today they are looking for greater band width, both for data and for video and for innovative programming packaging at affordable prices. LOOK has changed as much as we can to meet those needs. But we believe the demands of customers will continue to change exponentially over the next seven years. LOOK must be able to change with them.
3693 We appreciate the opportunity that the Commission gave LOOK when it originally granted us our licences in Ontario and Quebec. LOOK was given a relative amount of flexibility to compete in the competitive environment as then foreseen. Throughout our licence term, we have complied with our conditions of licence and respected the regulatory scheme applicable to Class 1 operators.
3694 But there have been enormous changes since the time that LOOK was first licensed. It is astounding to realize that over two million Canadians now subscribe to a technology, DTH, that barely existed at the time. With our next licence, we will therefore need not only the flexibility and capacity to meet our customers' needs today, but to meet them as they may develop over the course of the next seven years.
3695 LOOK has taken as many steps as we can on our own to change in order to meet our customers' needs. We have restructured our debt, pared our costs, cut our work force by two-thirds and developed inventive packaging and new services. We have become leaner, more efficient and better positioned to serve our customers. We are here today to ask the Commission to put in place the last necessary piece of the puzzle, to grant us the flexibility we require in order to compete on a level playing field.
3696 Specifically, we are looking for greater flexibility in the way that we use our limited capacity. Our competitors enjoy an overwhelming advantage in their ability to deliver choice, not just of programming channels, but of communications services. We want the ability to compete effectively with them.
3697 We have also requested temporary relief from the obligation to make contribution to Canadian programming, only until we regain a crucial scale of operations. We will not get there unless we can reinvest more in our enterprise.
3698 Third, we seek greater flexibility in the manner in which we package our programming services, to permit us to target niche segments of the market. Our customers do not want less of the same.
3699 Above all, we want the ability to deliver the services our customers want, today and tomorrow. With increased flexibility, we can achieve our goal: To become the alternative niche broadband services provider of choice in selected markets.
3700 With the support of the Commission, we believe we can position the company to meet the demands of customers in a manner that is distinct from our competitors and which adds value to the Canadian broadcasting system.
3701 LOOK is proud of our accomplishments during our first licence term. Despite challenging financial markets, we have substantially met the Commission's expectations with respect to the extent of our territorial coverage. We have also provided a suitable mix of local, network, pay, specialty and other services in accordance with the Commission's access policy, despite our limited channel capacity. Finally, we have made our required contributions to the development of Canadian programming, although this has had a disproportionate effect on LOOK compared to our cable and DTH competitors.
3702 LOOK currently provides digital television using customer premises equipment consisting of a small antenna, radio transceiver and a digital decoder. Our customers can access more than 100 digital television and 30 digital audio signals, and we offer inclusive packages of programming services at extremely competitive prices.
3703 LOOK's digital television services are currently available in larger centres such as Toronto, Montreal and the National Capital Region, as well as many smaller communities, including Brantford, Fonthill, St. Hyacinthe and Joliette. In fact, although LOOK only holds two licences, we offer service via transmitters located in 26 different markets. In the vast majority of these markets, we have 2,000 or less subscribers, making us more like a collection of individual small systems than most integrated Class 1 systems.
3704 LOOK has been as flexible as we can within our limited capacity in order to meet our customers' demand for Internet access and other band width services. We are doing out best to meet those needs today through the most economically viable means possible. LOOK currently provides Internet access to over 100,000 customers. The overwhelming majority of these customers are serviced using a third party's network. While most are dial-up customers right now, we would like to be in a position to upgrade them to bundled packages of digital television with high speed Internet access. Currently, just 4 per cent of our customers benefit from broadband data services delivered over our own wireless network.
3705 LOOK faces formidable competition. LOOK competes with Canada's major cable multiple systems operators: Rogers, Vidéotron, Cogeco and Shaw through its DTH affiliate, Star Choice. We also compete with the country's largest communications company, BCE, through its DTH affiliate, Bell ExpressVu. Moreover, LOOK completes against those entities using a mere fraction of the band width available to them. At 90 megahertz, one can fit nine LOOKs into one upgraded cable plant and six LOOKs into a DTH pipe.
3706 Cable operators have theoretically unlimited capacity and can thus offer unlimited Internet and unlimited numbers of programming services. Why? Because they can build out their plant by using different technologies, like cable or optical fibre. Furthermore, there are no restrictions on the amount of the cable or fibre they can lay out. So they can build as many lanes on the highway as they like, or, as in the case of Shaw or BCE, our competitors can skip the highway all together and take to the skies.
3707 We know the Commission can't solve our capacity shortfall by handing us six or nine times more spectrum. But the Commission can give us the regulatory flexibility to find the capacity with which to meet the needs of our customers. If we are given this flexibility, we are optimistic that we can meet the challenges in the marketplace, despite the overwhelming disparity between us and our competitors in both financial resources and capability. With this flexibility, we can compete on a level playing field.
3708 M. VOCELLE: D'après les recherches que nous avons réalisées et notre expérience, nos clients recherchent un certain nombre de choses.
3709 Tout d'abord, ils veulent davantage de largeur de bande : un guichet unique pour le service de télédistribution numérique jumelé à l'accès Internet haute vitesse.
3710 Ensuite, ils veulent un service transparent, convivial et fonctionnel. Ils se souvient moins de la technologie sous-jacente que de recevoir des services de qualité avec constance et simplicité.
3711 Afin de répondre aux besoins de ses clients, LOOK doit pouvoir se prévaloir de la possibilité d'utiliser le spectre qui lui est attribué, en ayant recours à la technologie MDS de la manière exigée par ces besoins.
3712 Par conséquent, nous demandons à ce que nos obligations relatives à l'accès soient assouplies. Nous pourrons ainsi utiliser notre spectre de façon à fournir des services d'accès Internet haute vitesse en plus des services de programmation.
3713 Nous recherchons également la possibilité de livrer des services sans égard à la technologie utilisée pour ce faire, afin d'être en mesure de répondre à l'évolution du marché et de la technologie.
3714 Nous avons pu observer à quel point le monde avait changé au cours des cinq dernières années. Le monde changera encore plus au cours des sept prochaines années et les besoins de nos clients évolueront en conséquence.
3715 Pour demeurer concurrentiels, nous aurons besoin des outils nécessaires pour nous permettre de fournir des services supplémentaires et différents, et ce, par tous les moyens dont nous disposerons.
3716 En janvier dernier, LOOK a commandé à Lemay-Yates et associés un rapport sur l'environnement concurrentiel et l'évolution du marché des entreprises de distribution de radiodiffusion au Canada. Un exemplaire de ce rapport est annexé à notre demande de renouvellement de licence.
3717 L'une des principales conclusions du rapport Lemay-Yates est que les services d'accès Internet haute vitesse sont devenus une des pierres angulaires de l'offre de service des câblodistributeurs et des entreprises de télécommunications concurrentes de LOOK. Cette conclusion correspond à notre propre expérience du marché.
3718 A la fin de 2002, plus de deux millions d'abonnés canadiens recevaient l'accès Internet haute vitesse par le truchement de leur modem câble. Depuis, le taux de croissance a été assez appréciable, les abonnements par câble modem ayant crû à un taux de 30 pour cent par année.
3719 De plus, les abonnements DSL, qui représentaient environ 1,5 millions d'abonnements résidentiels à la fin de 2002, croissent à un taux similaire à celui des abonnements par câble modem. Ainsi, tandis que le rapport Lemay-Yates a révélé que 25 pour cent des foyers canadiens disposaient de l'accès Internet haute vitesse à la fin de 2002, le taux de pénétration atteindra rapidement 40 pour cent.
3720 Les câblodistributeurs et les entreprises de télécommunications commercialisent activement le service d'accès Internet haute vitesse ne l'incluant dans une offre de services groupés. Le succès de ces offres de service a été tel qu'elles sont devenues la norme, pour les petits câblodistributeurs comme pour les grands, que ce soit dans des marchés d'envergure modeste ou dans les grands centres urbains.
3721 Selon de récentes études effectuées par Bell Canada, 70 pour cent des consommateurs auraient tendance à s'abonner à des services groupés incluant la télévision, l'Internet et les services de téléphonie longue distance. Il est aussi important de noter que Bell a aussi révélé que 83 pour cent des consommateurs tendraient à demeurer fidèles à leur fournisseur actuel si celui-ci leur fournit de bons services groupés. Ceci vient confirmer le fait qu'il est primordial pour un petit compétiteur comme LOOK de pouvoir offrir des services groupés attirants et viables.
3722 La possibilité pour LOOK d'offrir des services d'accès Internet se situe dans le droit fil du programme de « connectivité » mis de l'avant par le gouvernement du Canada. Répondant à la demande de ses clients, LOOK a commencé récemment à combiner son offre de service de télédistribution numérique au service d'accès Internet haute vitesse.
3723 Bien que sa capacité à cet égard soit limitée, la technologie MDS lui permet de fournir ces deux services à large bande à partir d'une plate-forme unique.
3724 Selon les conditions de licence actuelles, LOOK a l'obligation de fournir des services canadiens autorisés de télévision payante et d'émissions spécialisées dans la mesure où la technologie MDS le lui permet.
3725 Nous demandons au Conseil de rendre cette obligation conditionnelle à l'utilisation raisonnable du spectre qui lui a été attribué pour l'exploitation de services d'accès Internet haute vitesse.
3726 En réalité, LOOK a peu ou n'a pas le choix de fournir ce service, étant donné les exigences des consommateurs et l'environnement concurrentiel dans lequel elle évolue; elle est régie par les lois du marché.
3727 Nous avons l'intention en tout premier lieu d'augmenter les choix proposés à nos clients, si possible, à partir de nos propres installations. Nos concurrents ou leurs sociétés affiliées on déjà cette possibilité. Par conséquent, ce qui sera considéré comme « raisonnable » en terme d'utilisation du spectre pour l'Internet haute vitesse dépendra en partie de la demande du marché et des désirs de nos clients.
3728 Toutefois, LOOK s'occupe de distribution de radiodiffusion. Par conséquent, nous reconnaissons que ce qui est considéré comme raisonnable doit tenir compte de l'ensemble des services offerts sur le réseau de LOOK.
3729 Durant le prochain terme de sa licence, LOOK doit aussi profiter de technologies de rechange. Ces dernières peuvent s'avérer pour elle le moyen le plus efficace d'obtenir la capacité requise pour lui permettre de fournir la gamme de services à large bande réclamés par nos clients et offerts par nos concurrents.
3730 D'une manière générale, les clients ne s'intéressent pas au type de technologie utilisé pour leur fournir les services de communications. Ils veulent un excellent service combiné à une pure fonctionnalité de haute qualité. Par conséquent, même si LOOK aujourd'hui a recours à la technologie MDS pour livrer son service de télédistribution numérique, elle est persuadée que ses licences devraient lui être délivrées sans égard à la technologie utilisée. Elle pourra ainsi avoir recours à des solutions de rechange pour lui permettre d'offrir des services de programmation.
3731 Au cours du prochain terme de sa licence, le domaine de la distribution de radiodiffusion devrait connaître une évolution aussi rapide qu'au cours de la période précédente. LOOK cherche ainsi à obtenir la capacité et la flexibilité nécessaires pour s'adapter rapidement aux nouvelles technologies au moment où elles émergent.
3732 La possibilité d'utiliser une technologie de rechange lui permettra de tirer parti des nouveaux développements dans le but d'améliorer sa capacité, de proposer à ses clients tout un choix de services ainsi que des solutions innovatrices à des prix abordables.
3733 Une telle flexibilité comporterait l'avantage de reconnaître qu'un régime de réglementation équitable ne devrait pas être établi en fonction de la technologie, parce que le véritable enjeu réside dans la capacité et non pas dans la technologie.
3734 C'est la capacité de la technologie MDS par rapport à celle des technologies ayant recours aux satellites ou au câble qui rend la concurrence difficile pour LOOK.
3735 Dans un environnement concurrentiel, chaque entreprise de distribution de radiodiffusion démarre sur les mêmes bases : les clients et leur demande de services. Par la suite, certaines d'entre elles connaissent des limites tenant à leur capacité de livrer ces services. Nos concurrents, leurs sociétés affiliées, ont la capacité de s'adapter au fur et à mesure aux demandes des clients qui réclament des services supplémentaires, davantage de largeur de bande et une baisse des prix.
3736 En raison des contraintes actuelles qui sont les nôtres, nous ne le pouvons pas.
3737 Nos concurrents disposent de quatre voies et de la capacité d'en construire plus, ou de choisir carrément un moyen de transport différent. Nous, nous sommes coincés sur une autoroute à voie unique.
3738 Comme indiqué de manière détaillée dans notre demande ainsi que dans notre réponse du mois d'avril à la demande de précisions, LOOK a dû relever un certain nombre de défis depuis qu'elle a obtenu sa licence. Au fur et à mesure de l'intensification de la concurrence au cours des dernières années, en particulier de la part des entreprises de distribution par satellite de radiodiffusion directe qui ont lourdement subventionné l'équipement des abonnés, le coût d'acquisition des clients est monté en flèche. Le coût d'installation et de l'équipement des abonnés demeure de loin la plus importante dépense directe de LOOK.
3739 Afin que celle-ci demeure concurrentielle par rapport à ses rivaux qui disposent de budgets substantiels, elle doit subventionner l'achat par ses clients de l'équipement et de l'installation de celui-ci.
3740 Pourtant le coût de la fourniture de l'équipement à nos clients est exacerbé par le fait que la contribution de LOOK à la programmation canadienne s'applique aussi aux revenues qu'elle tire de la vente ou de la location de celui-ci.
3741 Alors que LOOK ne récupère du client qu'une fraction des coûts réels de l'équipement des abonnés, elle est néanmoins tenue de verser une redevance sur ces revenus. Nous demandons, par conséquent, que les revenus tirés de l'équipement des abonnés ne soit pas compris dans le total de nos revenus aux fins du calcul de notre contribution à la programmation canadienne.
3742 Nous demandons aussi que la licence qui nous est octroyée pour le Québec soit alignée sur celle de l'Ontario de manière à réduire notre obligation relative à la programmation canadienne au Québec qui est de 7 pour cent pour la ramener à 5 pour cent.
3743 LOOK demande aussi une suspension temporaire de sa contribution destinée à appuyer la programmation canadienne. Une telle requête n'est pas faite à la légère.
3744 Nous sommes conscients que la promotion de la programmation canadienne constitue la pierre angulaire des politiques du Conseil. Toutefois, dans notre situation actuelle, l'obligation de payer un pourcentage fixe de nos revenus a des répercussions sans commune mesure sur notre rentabilité.
3745 L'année dernière, 50 pour cent des profits d'opération, ou en langage comptable BAIIA, a entièrement été affecté aux contributions relatives à la programmation canadienne. Au 30 juin 2003, 100 pour cent des profits d'opération de cette année a été attribué au fonds. Par comparaison, les contributions financières des câblodistributeurs de classes 1 et 2 ont représenté sensiblement 6 pour cent de leurs profits d'opérations pour les années de radiodiffusion 1999 à 2001.
3746 En d'autres termes, LOOK verse environ 15 fois la contribution de ses concurrents câblodistributeurs.
3747 Nous recherchons là aussi un rééquilibrage des règles du jeu. Nous demandons à être déchargés de cette obligation jusqu'à ce que nous ayons retrouvé le volume d'activité que nous avions atteint en 2001.
3748 Nous demandons au Conseil de soupeser, comme il a été amené à le faire pour les câblodistributeurs de classe 3, les avantages découlant d'un système qui comporte pour nous l'obligation d'effectuer ces paiements par rapport aux répercussions que ces derniers ont sur notre capacité de réaliser les investissements nécessaires afin de répondre aux exigences de nos clients.
3749 MR. CYTRYNBAUM: The explosive growth in the number of licensed Canadian pay and specialty services and the marketing campaigns of LOOK's cable and satellite competitors have created an expectation by many customers of almost unlimited channel lineups, unlimited speed and unlimited band width. Under LOOK's current capacity constraints, we will never be in a position to compete with the cable incumbents or DTH providers on the basis of the sheer number or variety of video services we can offer.
3750 Notwithstanding the limitations of our capacity, however, LOOK has the opportunity to differentiate our services by responding to the needs of niche segments of the market.
3751 The evolution of the competitive environment provides both challenges and opportunity. The LeMay-Yates report found that the shift in immigration patterns and the growth in the availability of programming services in languages other than English or French creates a real opportunity for BDUs such as LOOK to tailor special packages and target market segments in a more precise way to meet customer demand. LOOK has started to do this, and requires greater flexibility in order to deliver desirable packages aimed at ethnic communities at an attractive price point. We will continue to seek out and develop niches and market segments that respond to customers' needs. With increased regulatory flexibility, LOOK believes we can play a valuable role as an alternative niche provider of broadband services.
3752 LOOK remains committed to giving our customers what they want, while continuing to meet our commitments to the Canadian broadcasting system. A lighter, more flexible regulatory framework that puts LOOK on a level playing field with its competitors will allow us to continue to offer choice, innovation and affordability in the delivery of broadcasting services to Canadians.
3753 We look forward to answering your questions.
3754 THE CHAIRPERSON: Thank you very much, Mr. Cytrynbaum, and gentlemen.
3755 Commissioner Noël.
3756 CONSEILLÈRE NOËL: Bonsoir. Alors je pense que c'est le quart de nuit qui entreprend sa session ce soir.
3757 I don't know what you prefer. I can ask my questions in either languages. I think maybe I will do so in English to accommodate the majority of your panel.
3758 MR. CYTRYNBAUM: I think that would work best, and thank you.
3759 COMMISSIONER NOËL: I have a number of questions and I have been told that we have to be out of here early. "Early" is a word that is not defined in the Chairman's language. So, I will try to proceed diligently.
3760 There are a number of areas I would like to cover with you. If you can bear with me, I will just give you an overlook of what my line of questions will be. I hope your answers will help the Commission clarify some aspects of your application for renewal.
3761 We will talk about what you qualify as niche markets and the measure of regulatory action required to ease the difficulties faced by MDS undertakings.
3762 We will discuss the use of MDS capacity for the provision of Internet services and the impact it will have on your customers, the broadcasters and the carriage of pay and specialty services and what, in your view, constitutes a reasonable use of capacity for Internet purposes.
3763 We will try to clarify what alternative technologies you have in mind to deliver programming services instead of your MDS capability, as well as the potential impact on program rightsholders in case of technology specific licences.
3764 We will talk about the community channel or the absence thereof in your application. We will discuss the packaging and distribution of your programming services. We will talk about the distribution of CPAC outside of the NCR area, and we will discuss the need to harmonize your two licences and the reason for that.
3765 We will review your offering for access to visually and hearing impaired customers. We will then look at your financial, your subscriber base, the contribution to the Canadian programming and the proposed amendment to that condition of licence, and your projections for the future.
3766 Finally, we will discuss the availability of French services outside Quebec.
3767 Do you agree with the menu?
3768 MR. CYTRYNBAUM: Absolutely, and I will have it à la carte.
3769 COMMISSIONER NOËL: You will have it à la carte. Good.
3770 In your application, you would like to see that the regulatory framework that is applicable to MDS undertakings be adapted, and I quote, to recognize the technical and financial limitations of MDS undertakings. Could you be a bit more specific and tell us what are the specific -- more precise, should I say, not more specific.
3771 MR. CYTRYNBAUM: Sorry, specific?
3772 COMMISSIONER NOËL: Be more precise and tell us what are the specific regulations or elements of the overall regulatory framework applicable to MDS undertakings and explain how they may be adapted to recognize the limitation of MDS undertakings?
3773 MR. CYTRYNBAUM: First and foremost, which is a word that, as I read this script for the manyth time, is flexibility, and particularly flexibility in terms of what we have to deliver to the market.
3774 It is essential, in our view, for us to have the ability to deliver high speed Internet to our customers, which means that as long as we are using our own network for delivering broadcasting as well, that we will have to deliver less in that area. That is probably the most important aspect.
3775 The customer today demands connectedness, and with connectedness they demand high speed because dial up by many is not considered connectedness.
3776 COMMISSIONER NOËL: When you were talking about high speed, and I think I understand what you are aiming at. Let me go back to your presentation. I have made little notes in the margins.
3777 It was in the English part, so it is at the beginning. But what it says is that your licence urges you to use your MDS capacity for broadcasting services?
3778 MR. CYTRYNBAUM: Yes.
3779 COMMISSIONER NOËL: And you feel that that term limits you or prevents you from using some of that capacity for Internet purposes? Is that where you want the flexibility? I am trying to understand --
3780 MR. CYTRYNBAUM: Yes, but for the sake of accuracy let me elaborate. We do have a token amount that we are using today, but by far the bulk of it is for broadcasting.
3781 What we would like to be able to do is to use a lot more for Internet access.
3782 COMMISSIONER NOËL: And you feel that the way you are licensed now, the way that we say you have to use the capacity, the MDS capacity for broadcasting purposes, precludes you to use that for Internet purposes. Is that what you have in mind?
3783 MR. KOCH: I think that it is a good question as to what the licence means or does not mean today. But I think looking forward, which is what we want to do, we are aware that certainly in the licensing decision, the Commission expressed the view that LOOK was subject to the access obligation.
3784 So, the question is: To what extent is the access obligation to be balanced against other things that LOOK feels it must do to be competitive going forward? I am not sure it is so much a characterization of what the situation is today as to say, well, here we are, we are up against -- you know, it is renewal time, it is time to put in place those measures that make it clear going forward that LOOK will have the tools it needs to succeed.
3785 But it is very specifically in respect of how LOOK can meet the Commission's access policy, which was explicitly referred to in LOOK's licences.
3786 COMMISSIONER NOËL: So, it is not the way that we have framed the original licence per se. You want us to define your access obligations?
3787 MR. KOCH: No, I think it is the former. The licence, not in the licence conditions, but in the text of the licence, did refer to the Commission's access policy and did remind the company that there was an obligation to use its MDS capacity for programming services.
3788 So, the concern --
3789 COMMISSIONER NOËL: Therefore, not using it for other purposes, i.e. Internet services.
3790 MR. KOCH: The concern going forward, again to be a good corporate citizen and to get things clear, is to make it clear that in order for LOOK to be able to compete going forward that we get that clarified.
3791 The point is to have some clarity. But I just want to make absolutely sure that everyone is clear that the reason it is raised is because of the reference to the access policy.
3792 COMMISSIONER NOËL: You described your future role against your competitors as a role in niche markets. What would you need in that licence renewal that would allow you to compete in niche markets? There is the ethnic market that you haven't identified. Is there any other type of niche market, the MUDs market, the ethnic market? What about any other?
3793 MR. CYTRYNBAUM: The only other market, and it is a logical conclusion of the first part, is there are areas, and surprisingly like Markham, areas that people would think that you have high speed or an alternative high speed, where DSL isn't available, and if we are going to offer -- and some areas where no high speed is available.
3794 So, that is a niche market that is available to us, but the requirements flow from the first item that we were discussing.
3795 The ethnic community is a very large one. In that regard, in order for them to have a specific channel or channels that interest them, if they have to buy an entire package which already cost a considerable amount, a lot of them lose interest. Many of them are new Canadians and are financially challenged as a result.
3796 COMMISSIONER NOËL: How does the current licence and the current regulations prevent that type of catering to niche markets? Is there something that you would like to be removed or taken out or can you offer niche products now?
3797 MR. KOCH: Thank you. It will probably be me who responds to many of the technical questions because actually, the licences, if anyone has gone to look at the licence conditions, they can be quite confusing. It has taken me a long time and I am sure I still don't have them exactly.
3798 COMMISSIONER NOËL: I have noted that you asked that they be aligned with the BDUs instead of the old cable regulations.
3799 MR. KOCH: That is one thing, but there are also discrepancies between Ontario and Quebec and I think those highlight some of the concerns.
3800 If we use the two niches, firstly the niche that Mr. Cytrynbaum speaks of when he speaks of serving those areas that don't already have a high speed alternative, and I think that is an important niche for LOOK because it does serve areas where there is not DSL roll out. It is not close enough to the central office of the telephone company. There the capacity again is to make sure that it is clear from the licence terms going forward that we are not going to bump up against a situation where we use some more spectrum for Internet and we are involved in a discussion about whether or not we are complying with the access policy. So, that is one.
3801 On the side of being able to be more flexible in order to package for the ethnic market, which Mr. Cytrynbaum refers to, there is a really good example in terms of the difference between the Quebec licence and the Ontario licence.
3802 The Quebec license does in fact refer to the distribution of linkage rules. The Ontario licence, for example, does not. So, there is already greater flexibility in the Ontario licence.
3803 We don't want you to take from our presentation or appearance that the Commission has not already made a real effort to provide greater flexibility to MDS. I think what we are saying is we need some more flexibility. But within, for instance, the packaging rules, one of the requests we have made, without throwing out or proposing that you throw out all the constraints that do require Canadian services to be packaged in a certain way, is to a certain extent or actually completely eliminate the distinction between discretionary and basic, which will in fact assist in a certain sense some of the packaging flexibility.
3804 René, do you want to add anything to that.
3805 MR. VOCELLE: That is exactly it. If we wanted to build a Chinese package or a Greek package, under the distribution linking rules, then we need to create a bigger package and then we have to cost it and nobody wants to buy it because it is too expensive. So by having a little bit more flexibility, we can package it so that people can afford buying it.
3806 COMMISSIONER NOËL: So in fact what you want is not to be a competing BDU with the cable or the DTH but to be sort of complimentary. I am lost with my English tonight, but you want to be able to offer small packages for very finite type of customers that would not be interested in buying large DTH or cable company's basic offerings?
3807 MR. VOCELLE: Exactly. I have just spent two days here and I am new at this, so I am nervous and you will have to forgive me.
3808 COMMISSIONER NOËL: It's okay. I am nervous too.
3809 MR. VOCELLE: We are playing in the ballgame of giants. One million here, one million there and I have 32,000 subscribers. If we want to survive and prosper and grow, we need to be more nitpicking on an intelligent sector. Niche marketing is one. Better target marketing is another one. We talked about MDU. That's where we want to go. If I want to compete head to head with the big boys, I am not going to make it. So we need to be more specifically targeted, niche marketing or market targeting.
3810 Barrie is a beautiful sector for us. That is a niche market for us.
3811 COMMISSIONER NOËL: There are no trees.
3812 MR. VOCELLE: There are no trees.
3813 MR. KOCH: I think it is important, when you speak about packages, the Commission asked some good questions in terms of deficiencies. We did file a deficiency response. One of the questions was: Are we going to be sure that everyone is going to get a certain core of services still? We can certainly appreciate that that is very important as well.
3814 One of the things we have also sat through for two days is the discussion about the great consternation over carriage of local signals. So, that is something that LOOK can do and proposes to continue to do.
3815 There are some what I would call mandatory basic services like CPAC, APTN, TVR, which again LOOK does propose to carry.
3816 COMMISSIONER NOËL: As part of those like the Chinese offering?
3817 MR. KOCH: Yes. It is certainly not the case that you are going to see these tiny packages, but they are going to be relatively smaller, again on the theory that you can't compete offering less of the same.
3818 LOOK is going to have to offer less and, if it less of the same, that is not a very attractive proposition.
3819 COMMISSIONER NOËL: How do you view the future of MDS services? You have two of the MDS licences. There are a couple of others who do have those licences.
3820 MR. CYTRYNBAUM: Manitoba and B.C.
3821 COMMISSIONER NOËL: How do you view the future for MDS service providers?
3822 MR. CYTRYNBAUM: I think they can play an important role if they can target a section of the market which is largely ignored by the bigger players. It is too small for them.
3823 COMMISSIONER NOËL: How do you view the viability of the MDS service providers in the medium term?
3824 MR. CYTRYNBAUM: I believe there is a good opportunity. I believe if we go forward on the basis that we have asked and we are granted the flexibility by the Commission, we can substantiate the financial model and, once we have done that, the financial markets will open to us. Right now they are closed to us.
3825 COMMISSIONER NOËL: So, you have expectations that the financial markets will look at the MDS providers in the near to medium future?
3826 MR. CYTRYNBAUM: I am convinced of that. If we have a couple of years under our belt where we have shown that we are able to take the policies that we hope to come away with from this Commission, we can show the financial markets that there is a market for the products that we are offering and other people aren't or can't fill those niches.
3827 COMMISSIONER NOËL: You haven't factored those expectations into your financial projections though?
3828 MR. CYTRYNBAUM: Not to date.
3829 COMMISSIONER NOËL: Because I don't see any return at least until 2007, the PBIT is still negative.
3830 MR. CYTRYNBAUM: I believe it would be reckless to project that when we don't have the flexibility that we are seeking.
3831 MR. VOCELLE: Can I add, Mrs. Commissioner, the projection that we made for the Commission, number one, I am a conservative guy so they are very conservative. I prefer surprising you by delivering early than not surprising you and not delivering at all. But they are also just based on video revenue. What we are asking you is the flexibility to --
3832 COMMISSIONER NOËL: You haven't factored in any Internet revenues, high speed Internet?
3833 MR. VOCELLE: Not at all.
3834 COMMISSIONER NOËL: I noticed that you have slightly more than twice the amount of subscribers for your Internet services than you have for your broadband services or your programming services.
3835 MR. VOCELLE: Yes, today LOOK is EBITDA positive for the last seven quarters. What we are asking is the flexibility to be able to reinvest the money in the business.
3836 MR. CYTRYNBAUM: If I may add so there is no confusion, when referencing that there is twice as many, let's say almost 100,000, by far the majority of those are dial up. We have seen it; it is going this way because people want to go to high speed and we haven't been able to offer that.
3837 COMMISSIONER NOËL: When you are asking about a reasonable use of your MDS capacity for high speed Internet, what in terms of the number of megahertz do you have in mind? Actually you are using, as far as I know, six megahertz for your delivery of high speed Internet services.
3838 You have a total of 90 megahertz. How much megahertz would you like to devote?
3839 MR. CYTRYNBAUM: 180.
3840 COMMISSIONER NOËL: Well, you would have to apply to Industry Canada. We are not here for allocation of spectrum.
3841 MR. CYTRYNBAUM: I realize that. The question was like that isn't necessarily related to reality.
3842 Coming back to reality --
3843 COMMISSIONER NOËL: But you are talking about reasonable. What in your mind is reasonable? That is why I am asking for a figure.
3844 MR. CYTRYNBAUM: It is a very, very difficult question to answer because technology and services change. I mean, that has been the theme of -- I have been listening to this and there are so many things that have come forward which has been our position for some time and it just makes it very, very difficult.
3845 COMMISSIONER NOËL: But you haven't answered my question.
3846 MR. CYTRYNBAUM: And I warned in advance that I don't think I can. It is extremely difficult.
3847 COMMISSIONER NOËL: For us it is difficult to, how would I say it, to nail down what you have in mind if you cannot come up with some more precise estimate of what the capacity you want to use will be.
3848 MR. CYTRYNBAUM: As part of the flexibility, we reference the use of technology. In the use of technology, what is included in that is the manner of delivering.
3849 COMMISSIONER NOËL: Yes, and I will come to that.
3850 MR. CYTRYNBAUM: Okay.
3851 COMMISSIONER NOËL: I will come to that. But you are currently delivering 100 digital television and 30 audio signals. Let's say we allow you to use, for the sake of discussion, 12 megahertz of your capacity for Internet purposes. What would be the result on those 100 video and 30 audio signals?
3852 MR. CYTRYNBAUM: Offhand that is roughly 6 per cent, 6 or 7 per cent.
3853 COMMISSIONER NOËL: Would have to be taken off?
3854 MR. CYTRYNBAUM: Yes. I am glad it was for discussion purposes because that won't give us what we need. We won't have enough to offer both to our customers.
3855 COMMISSIONER NOËL: So we are not talking doubling the capacity devoted to Internet. We are talking bigger figures?
3856 MR. CYTRYNBAUM: I am sorry?
3857 COMMISSIONER NOËL: We are talking bigger figures than doubling the six megahertz?
3858 MR. CYTRYNBAUM: Twelve won't work.
3859 COMMISSIONER NOËL: What will work?
3860 MR. CYTRYNBAUM: The absolute minimum would be 30.
3861 COMMISSIONER NOËL: Which means that you would have to cut your alignment of channels by 30 per cent?
3862 MR. CYTRYNBAUM: It would mean approximately 70 channels.
3863 COMMISSIONER NOËL: Instead of 100?
3864 MR. CYTRYNBAUM: I think it is 105.
3865 COMMISSIONER NOËL: From what you have in your presentation I read 100.
3866 MR. CYTRYNBAUM: Yes. So it would be roughly 70.
3867 COMMISSIONER NOËL: What would be the impact on your customer base, your current customer base?
3868 MR. CYTRYNBAUM: I think generally it would improve. Some may change, some may not want it, but overall I think it would improve. In addition to which we would be able to keep many of those that we have.
3869 From the year 2000, when high speed Internet became something significant and we had 92,000 customers, we have seen the churn take us down and people have said, well, we also want high speed Internet and we want it from one provider.
3870 So, all in all, I think it would benefit us in keeping what we have. There may be a small minority that will say, we don't like what you are doing. But the overall, I think, will become more solid customers and it will enable us to attract new ones.
3871 COMMISSIONER NOËL: What about high definition, will you be able to offer high definition signals?
3872 MR. KOCH: If I can answer that question. The answer is a quite clear is no. We don't have that today. In fact, we have looked at it. Our present network layout does not let us deploy any high definition and we have no plans for the future either.
3873 COMMISSIONER NOËL: And, again, what impact would that have on your customer base? If and when high definition services are available on cable or DTH, what will be the normal reaction of a customer who wants to have HD and can't get it on LOOK, they will switch?
3874 MR. SCHULTZ: The answer to that question is that is some time in the future. Things change, as you know. Although I say today we have no plans, that could change in 18 or 24 months as the technical capability changes.
3875 Things cannot remain the same. That is what we are talking about here. Things have to change, and we will certainly be watching as the technology evolves in the future.
3876 MR. CYTRYNBAUM: If I may, there is one thing that I think is missing. We have been talking about Internet and concentrating on that. In no way do I want you to feel that we want to abandon broadcasting. We need both streams of revenue. So that I don't want to, in any manner, diminish it.
3877 So, the packages that we will offer will be to be able to service both. We want to have $80 and $90 RPU as opposed to the $30 to $40 we presently have, and that will help us go a long way towards being viable.
3878 In terms of bundling, I don't have to say anything, it has been said many times and very well today, but everyone regards it as being essential.
3879 COMMISSIONER NOËL: If we were to agree to your proposal and give you the flexibility, what kind of specific carriage requirements would you be willing to accept, including pay and specialty?
3880 MR. KOCH: I think you have to begin with the current licence conditions, which are, as I said, a little -- well, they are very unique and they are even different between Quebec and Ontario.
3881 COMMISSIONER NOËL: For the sake of the discussion, let's say they have been harmonized.
3882 MR. KOCH: Okay, they have been harmonized. I think the way we have asked for them to be harmonized is in the direction of the Ontario conditions, although they then have to be converted to the new regulations because the Ontario conditions were brought in --
3883 COMMISSIONER NOËL: The main irritant being the 7 per cent, I guess, in the Quebec one.
3884 MR. KOCH: That is certainly something we have asked for a change in, but we haven't asked to switch over entirely to the Ontario conditions just to deal with that. I think the distribution and linkage conditions on the Ontario side are seen as preferable to being subject to the distribution and linkage rules that apply generally to Class 1 and Class 2 licensees.
3885 But I think that we would go back to the licence conditions, and if you look at the licence conditions, in Ontario what the Commission did was it authorized LOOK to carry a number of over-the-air signals. It obligated LOOK to carry some specific local over-the-air signals. There are obviously some mandatory basic services that, as I previously said, LOOK would propose that it continue obviously to be obligated to carry.
3886 Then when you get beyond that, essentially what you have under the current licence is that, rather than being subject directly to Section 18 of the BDU Regulations, which of course wouldn't work because if LOOK were required to carry all the Canadian licence pay specialties, you would need additional spectrum. That is where the access policy kicks in. So, that is where the request that we fashion to say, well, that access policy might still apply, but it has to be balanced against the need for LOOK to be able to offer both services in order for it to complete going forward.
3887 If you look at the overall package, I think that is the package. I think what Craig is asking for is -- maybe what we are asking for is too complicated in the sense that we have tried to structure it within the current licence conditions and structure it by reference to the current access obligation. Craig proposal looks more --
3888 COMMISSIONER NOËL: You want authority to carry and not obligation to carry?
3889 MR. KOCH: I think what we are saying is we are accepting certain obligations to carry, but we have tried to fashion them so that they are appropriate, not only to the capacity constraints on the company, but also to really trying to get the company to play to its strengths, given the challenges that Mr. Cytrynbaum described.
3890 COMMISSIONER NOËL: Can you think of a condition of licence that would suit your purposes?
3891 MR. KOCH: We certainly made a number of proposals. It may be implicit in your question that you don't like the way we designed it, but we did take some pains in Appendix 2 to our application to go through the existing conditions of licence.
3892 Craig has proposed a condition of licence which basically refers to Section 6 of the BDU Regulations. Obviously, that is something we would accept, together with those obligations that we have expressed, or that is my understanding of where their proposal has ended up and it has the advantage of much greater simplicity.
3893 COMMISSIONER NOËL: You are also referring to alternate technologies in your application and your supplementary brief.
3894 Could you give us a taste of what those alternate technologies can be?
3895 MR. CYTRYNBAUM: Yes, and some of it is what is coming tomorrow and there I can't give you a taste because I don't know what is coming tomorrow. Things change very dramatically in the world of technology, but one of the ones which I referenced earlier was the method of delivering.
3896 One possible way of addressing it would be to allow us to deliver in a different fashion. We could use an alternative network as an example.
3897 COMMISSIONER NOËL: Could you be more precise? Like, you want to have a mast on a building and then use wire lines to --
3898 MR. CYTRYNBAUM: No, that would require building out a network, and I think that would be a foolish financial decision.
3899 COMMISSIONER NOËL: I mean inside MUDs, multiple unit dwellings.
3900 MR. CYTRYNBAUM: We are capable of dealing with that now with the technology that we have in terms of the line of sight. I am getting back to capacity in terms of how much can we use for Internet. If can deliver using another network as a possibility, and I only mention that as speculation just to help you with it, if we could buy wholesale time to deliver unique packages from one of the two DTH networks, and I am specifically not referring to reselling. I am referring to using their network to deliver our packages.
3901 COMMISSIONER NOËL: You mean through satellite distribution, direct-to-home?
3902 MR. CYTRYNBAUM: Yes.
3903 COMMISSIONER NOËL: You would beam your signal to the satellite and partner with them in some way?
3904 MR. CYTRYNBAUM: Or we arrange to get the signal to the satellite. Not too different than renting someone else's network or buying space on someone else's network, which happens in the telephone industry frequently.
3905 COMMISSIONER NOËL: You would rent a transponder?
3906 MR. CYTRYNBAUM: Rent a transponder.
3907 COMMISSIONER NOËL: Or a number of transponders.
3908 MR. CYTRYNBAUM: Now we are getting technical, sorry.
3909 COMMISSIONER NOËL: I would like to understand.
3910 MR. CYTRYNBAUM: All that I am saying is that what is in my mind -- if we are going to get technical, I will pass it on to Tony -- but conceptually is we would arrange for the signal to come from the satellite to our dish. Today you have a LOOK dish that is more terrestrial. This one would be a LOOK dish what would the celestial.
3911 COMMISSIONER NOËL: With wings. Any other type of alternate distribution that you had in mind?
3912 MR. CYTRYNBAUM: Not that I am aware of or that I could think of at the moment.
3913 MR. SCHULTZ: If I could add, there are other possibilities. As IP networks evolve and stream video over IP networks evolve, we could possibly use that methodology. Video over DSL networks are starting to be deployed. We could possibly use that as well, provided that the people who build those networks have to resell them.
3914 COMMISSIONER NOËL: You would have to have agreements with partners in some way?
3915 MR. SCHULTZ: Yes. But there are a number of possibilities that are in front of us and they are increasing on a weekly, monthly basis.
3916 COMMISSIONER NOËL: The twisted pair still rests with the telephone company.
3917 MR. SCHULTZ: Correct. I would like to add, on the question asked earlier on high definition, it is those type of evolutionary or perhaps revolutionary changes that let us carry high definition signals.
3918 COMMISSIONER NOËL: Like additional compression of signals and the like?
3919 MR. SCHULTZ: Yes.
3920 MR. CYTRYNBAUM: The delivery through DSL, I am going to suggest, is more delivery through high speed. I don't see why it couldn't be delivered over wireless high speed. I think it would be as good, perhaps better.
3921 COMMISSIONER NOËL: Could you repeat that, please? I missed a part.
3922 MR. CYTRYNBAUM: Bell and Telus are talking about delivering broadcasting --
3923 COMMISSIONER NOËL: Yes, over the twisted pair.
3924 MR. CYTRYNBAUM: Over the twisted pair, but they are delivering it over DSL fundamentally, which is simply high speed access.
3925 COMMISSIONER NOËL: That is right.
3926 MR. CYTRYNBAUM: I can't see any reason why that couldn't be wireless high speed access. I don't know that it has to be over the twisted pair. Tony.
3927 MR. SCHULTZ: Exactly. A few moments ago we mentioned using IP networks to deliver video services and that is exactly the same thing, only in this case it would be a wireless high speed Internet connection that would deliver the video service.
3928 MR. CYTRYNBAUM: And then we could use our own network entirely.
3929 COMMISSIONER NOËL: Okay, I think I follow you now.
3930 MR. KOCH: If I could try and put this into context because I think it may sound a little disjointed, but I think what this company is trying to tell the Commission is that it is facing competition out there who are clearly able to deliver this broad range of services. The company has to get there, as well, in order to compete maybe on a more limited basis, but it clearly has to be able to offer both.
3931 I think we see in the regulatory structure as much flexibility as has been, given two potential impediments. One is the label, MDS. So, the concern is, yes, we don't exactly know what it is that may offer us the ability to deliver both, but the problem is once we get there, then we have to deal with the fact that the licence is very technology specific.
3932 On the other hand, and in a way it is the other side of the coin, within the context of MDS, there is a real capacity constraint and there is a very specific access obligation that has to be dealt with to make sure that the company is addressing its regulatory obligations but still in a way that it can be able to offer both services.
3933 So, it is an attempt to try and deal with both of those challenges to get out the other end and be able to compete by offering both.
3934 Obviously, if ultimately what becomes a viable solution is the use of an alternative network through some kind of agreement, if that network has characteristics that are very different from MDS and which attract a very different regulatory regime in terms of carriage obligations, then LOOK isn't proposing that it gets to use its MDS carriage obligations in respect of that type of network. It would pick up those obligations.
3935 COMMISSIONER NOËL: Given that your plans are, as we say in French, a little bit "flou", you know, you don't have definite solutions, you don't have definite plans, why should the Commission give you the flexibility now? Why shouldn't it be available if and when you get to that point?
3936 MR. CYTRYNBAUM: That is a chicken and egg issue really, because if we go down the route of one particular one and we negotiate and we come to the Commission and say, we have spent all this time and money on this process and then the Commission were to say, well, we don't like that one, try another one, we haven't got the time to do that or the money or the deep pockets to do it.
3937 COMMISSIONER NOËL: So you want an open frame?
3938 MR. CYTRYNBAUM: I don't mind having a frame, yes, so there are limits. But I would like to be flexible as to which way I could go. I am not that significant in the market and I would like to be able to pursue that niche.
3939 On reflection, when I was talking about an alternative network, because I don't feel that I left it satisfactorily with you, so let me give you an example. I am able to think of one that exists.
3940 In terms of PCS, Virgin, the famous Mr. Branson, he has a very, very successful PCS company which he is about to take public. In none of the jurisdictions where he operates does he have his own network. He buys time, space, however you want to call it, off of someone who has a network and that is an incumbent.
3941 He competes vigorously with that incumbent with his own packages, his own designs. They are his customers and he bills them. So, instead of building his own highway, he pays a toll and he buys a whole bunch of tolls so he gets a cheap price so he can have his cars go along someone else's highway.
3942 COMMISSIONER NOËL: But then if the price goes up, he is stuck with his margins being squeezed.
3943 MR. CYTRYNBAUM: If the what, sorry?
3944 COMMISSIONER NOËL: If the price of the highway goes up.
3945 MR. CYTRYNBAUM: But you enter into long-term contracts. These aren't short-term contracts, and usually there is competition.
3946 When he went to the U.S. there was big speculation as to who he would use, and I think he ended up with Sprint. But there is a lot of people who want that business.
3947 COMMISSIONER NOËL: Let's say for the sake of discussion that we agree with you -- and, by the way, my learned colleague from the left tells me that "flou" in English is vague. Sorry for the use of the French.
3948 Let's say for the sake of the discussion that we agree with you and we give you the required flexibility, not knowing ahead of time what kind of technologies will be available in the near- or medium-term future, what would be the impact on your rightsholders? Some licences are technology specific. Will you have some discussions with rightsholders, I am talking on the broadcasting side here, as to technology neutral licences?
3949 MR. KOCH: You are referring to programming?
3950 COMMISSIONER NOËL: Programming, yes.
3951 MR. KOCH: Presumably, if one were to use someone else's network, that would be a challenge in implementation to deal with programming agreements, which can be quite technology specific. I think we would have to concede that that is a challenge involved in assembling that type of approach.
3952 Again, it is a tool that the company would like to have in order to address what is a real constraint in terms of beating the competition.
3953 COMMISSIONER NOËL: Let's turn to another subject. At the start of your operation you had a community channel and you discontinued it.
3954 Do you have plans in the future to ever going back to having a community channel and does it add value to the service you provide?
3955 MR. VOCELLE: When we faced financial difficulties at the end of 2000, our market research or the survey of our customers said it did not really add any value and it was costing us --
3956 COMMISSIONER NOËL: An arm and a leg.
3957 MR. VOCELLE: An arm and a leg, thank you. So we decided to discontinue with it.
3958 COMMISSIONER NOËL: And you have no plans in the future to reinstate a community channel?
3959 MR. VOCELLE: Not at this point in time.
3960 COMMISSIONER NOËL: Not in the foreseeable future.
3961 The BDU Regs. There was a question I wanted to ask you because you keep referring to aligning the conditions of the LOOK Télé licence with the LOOK TV licence. Wouldn't it be less of a burden for you to have only one licence instead of two licences? Have you thought of that, merging your licences?
3962 MR. KOCH: That has not been something that we have discussed. René, do you have any comments on that.
3963 MR. VOCELLE: If the Commission would give me one licence for both Ontario and Quebec, I would really appreciate it.
3964 COMMISSIONER NOËL: Okay. That one was clear.
3965 Going back to the Regs, as the licence now stands, LOOK is not currently required to offer the services listed in Section 17.
3966 MR. KOCH: That is correct, except actually that is not strictly true. Under the Quebec licence there are lists of services that were provided by LOOK to the Commission at the time and the way it technically works is 17 applies if those services were listed. Again, the Ontario side --
3967 COMMISSIONER NOËL: Was more lenient.
3968 MR. KOCH: Well, was different all together.
3969 COMMISSIONER NOËL: Was different. What would be the effect if the Commission was to force you to abide by the disposition of Section 17?
3970 MR. KOCH: Again, I think the issue is one of capacity. I don't know whether the company has done a study of what the 17 requirements would be in each of its serving areas and what in terms of capacity that would be, but that would obviously be a restriction on -- would make the licences less flexible.
3971 I think one thing that is interesting is that because of the way the licences are structured, LOOK doesn't actually currently have the permission to add a service that would be required by 17, if LOOK were subject to 17 in the usual way. That is one of the pieces of flexibility that LOOK has asked for in case it wishes to use some of the spectrum in order to add a service that would otherwise be required by 17.
3972 COMMISSIONER NOËL: Is your capacity used to its maximum at the present time? There is no room for anything else.
3973 MR. VOCELLE: There is no room to add any channels.
3974 MR. SCHULTZ: I can expand on that, if you would like.
3975 We are using the full 90 megahertz, as we discussed earlier. 84 megahertz is used for video services, and at this time it is not possible to add any more channels on any of the transponders.
3976 COMMISSIONER NOËL: What I have seen from your supplementary brief, you did use a higher rate of compression, which means that your reach has diminished?
3977 MR. SCHULTZ: Correct. Also, you will --
3978 COMMISSIONER NOËL: I don't know if this is the proper term, the reach.
3979 MR. SCHULTZ: Yes. We are using 64 qualm modulation whereas our initial plan had been to use 16 qualm, and that is very technical talk, but it means that our reach is in fact less. We are using a combination of ten-to-one compression and six-to-one compression and that is based on the video content of the services themselves. Some services we can compress more because they have less --
3980 COMMISSIONER NOËL: Movement.
3981 MR. SCHULTZ: Correct.
3982 COMMISSIONER NOËL: So, sports are less compressed than The Weather Network?
3983 MR. SCHULTZ: That's correct, and also the networks that carry cartoons, for example, have less motion. So they can be compressed to a deeper depth.
3984 COMMISSIONER NOËL: In response to a deficiency question, you indicated that LOOK TV does not currently offer several pay and speciality services and, in particular, it does not offer Category 1 digital specialty services.
3985 Could you let us know in LOOK's view as to whether its current service offering meets the requirement of the BDU Regulations under Section 18, the access rules?
3986 MR. KOCH: Again, what it is is the Category 1 obligation comes in under Section 18. So you have to start with the licence and say, well, to what extent does Section 18 apply or not? In Ontario, the licence makes it clear that the predecessor to Section 18 doesn't apply. In Quebec, it makes it clear that Section 18 applies to the extent that a specific service was listed in that famous letter from LOOK to the Commission. So, obviously those services are not on that letter.
3987 You go over to the access obligation and the issue is using the capacity. But obviously the access obligation does not draw a distinction between Category 1, Category 2 and other services.
3988 COMMISSIONER NOËL: Let me just make sure. LOOK Télé is exempted and LOOK TV is not.
3989 MR. KOCH: I am sorry, exempted from what?
3990 COMMISSIONER NOËL: I am mixed up. Which one is exempted and which one is not?
3991 MR. KOCH: LOOK TV is exempted from the predecessor. LOOK Télé is exempted only to the -- well, in LOOK Télé's case, I think the way it --
3992 COMMISSIONER NOËL: I think we can solve that by giving you only one licence if we decide to renew your licence.
3993 MR. KOCH: I think you have an answer that that would be welcomed by the company. Under the LOOK Télé licence, the way it is expressed is that Section 18 applies to the extent that the services are listed.
3994 COMMISSIONER NOËL: So, if we use the Regs as they are now standing, what precise modifications would you like to have in the united licence world that we have been discussing, the one licence?
3995 MR. KOCH: Again, I think on that issue probably the Quebec approach is right, that the listed ones would be acceptable to the company, but it is not practical in terms of capacity to apply Section 18 holus bolus.
3996 We then flip over to the access policy. Obviously, that is somewhat antiquated policy. I think it was put in place in an old environment. I think it can be, to a certain extent, dragged forward into the new environment, but that is where we say, hey, wait a minute, now we have a situation where BDU can't compete without offering both services and you can interpret the access policy as leaving not enough room to be able to viably offer both services.
3997 So, that is how those pieces of the puzzle fit together. I acknowledge it is quite complex. We were trying to work within the existing licence conditions and regulations to try and find a way forward.
3998 COMMISSIONER NOËL: Let's move to another area. Your basic offering is now pretty large. It is at $32.95 per month. Do you think that kind of offering is serving the policy objectives to offer efficient delivery of programming at affordable rates, or do you want to review those packages in the future? Will you continue to offer those big packages or are you looking in the future if we grant you the flexibility that you are asking for to review entirely what you are offering?
3999 MR. VOCELLE: We will have to review it. Part of the reason we did that, Mrs. Commissioner, is to go back to the original way LOOK started, which was a pick and choose solution, and the reality was 75 per cent of the people were the subscribers to the small packages which left us no margin.
4000 By redoing that in April 2002, once we came out of the financial problem, that was a way of driving the RPU higher. Now the reality is we need to start bundling more accounts. So, with a bundled account you will get $75 to $80.
4001 COMMISSIONER NOËL: With a what account?
4002 M. VOCELLE: Si on offre des services groupés haute vitesse on est capables d'aller chercher 75-80 $ de revenu moyen et là o peut réévaluer ça et couper ça en trois ou quatre petits morceaux. C'était plus facile de faire ça en avril 2002. C'était plus intelligent financièrement.
4003 CONSEILLÈRE NOËL: D'accord.
4004 Now, you are asking us to remove the references to basic and discretionary packages from your licence.
4005 MR. KOCH: That is correct, from the specific distribution and linkage rules that were included in Section 5.
4006 COMMISSIONER NOËL: What would be the impact on your pricing and the size of your offering, your basic offering or your offering?
4007 MR. KOCH: I think we have spoken a little bit about what the basic offering might include. I don't know, René, if there is something to add to that.
4008 COMMISSIONER NOËL: So, you would have CBC, SRC, TVA, APTN and CPAC.
4009 MR. VOCELLE: You would have something like 20, 21 channels, all the local channels, off-the-air channels will all be there.
4010 COMMISSIONER NOËL: And optionals would be what?
4011 MR. VOCELLE: The rest.
4012 COMMISSIONER NOËL: So there would be no U.S. channels on your basic offerings?
4013 MR. KOCH: There is a response to the deficiencies that deals with this. I think it outlines the type of services that would be included. There is obviously the over-the-air that are currently being offered, the mandatory basic services mandated by the Commission, there would be a 4+1 in there, and there would be some Canadian specialty services in there. I think that is indicated in a response to deficiencies, I think it is the April response.
4014 COMMISSIONER NOËL: In your schedule, I think it is Schedule 3 to your application, you say that you have only partially fulfilled your condition of licence regarding CPAC.
4015 MR. VOCELLE: CPAC, Madam Commissioner, is carried in Quebec and Ottawa now, and we are scheduled to launch in the first quarter of 2004 for Ontario.
4016 COMMISSIONER NOËL: So you will meet the condition of licence concerning CPAC?
4017 MR. VOCELLE: Yes.
4018 COMMISSIONER NOËL: Now I have a very technical question so I will read it.
4019 In your application you request that the references to the cable television regulations contained in the LOOK licence be amended to refer instead to the BDU Regs and be included in both or the unique licence, as the case may be. You propose exempting LOOK from Section 3 of the BDU Regulations which prohibits the distribution of programming services except as required or authorized under its licence or the BDU Regulations.
4020 LOOK TV's current licence refers to Section 3 of the Cable Television Regulations, which is a bit difference from the provisions in the BDU Regulations in that it prohibited BDUs at the time from using broadcasting facilities or equipment in a manner other than that required or authorized under its licence or by those regulations. Could you give us the difference between the two?
4021 MR. KOCH: That is a very technical question. I am not sure I was following the question. I have to apologize for that. In fairness, I don't have the old regulations in front of me.
4022 COMMISSIONER NOËL: Could you make an undertaking of some sort to tell us what difference you see between the two?
4023 MR. KOCH: Certainly. I think that would be a practical way of proceeding and I may ask Commission counsel afterwards to give me the very specific language of the question. Then we would be more than happy to provide an answer.
4024 COMMISSIONER NOËL: You also propose exempting LOOK from Section 16 Of the BDU Regs which stipulates that the regulations contained in Part II of the BDU Regulations apply to all Classes 1 and 2 licensees except as otherwise specified in Part II or in a licensee's condition of licence. Although the LOOK TV licence provides an exemption to the comparable section of the Cable Television Regulations, LOOK Télé licence is currently subject to Section 16.
4025 Could you again explain the difference that you see between those two sections and the impact on LOOK, if any, of not including an exemption from the section in the new licences?
4026 MR. KOCH: Could I propose we handle that the same way? There is a chance that what happened was that numbers crept in from the one set of regulations into the other unintentionally. If it is acceptable to the Commission, I think that would be a good way of dealing with that.
4027 COMMISSIONER NOËL: Now, the LOOK Télé licence specifies that where LOOK Télé distributes CGNT, the ethnic program in Montreal as a distant Canadian television signal, it must be distributed in a discretionary tier rather than on basic. There is no such provisions in the LOOK TV licence. Should this condition be imported from the LOOK Télé and the LOOK TV or should it be --
4028 MR. KOCH: Again, CGNT probably has application in the context of certain areas in Quebec and not in certain areas of Ontario. So, again that may be an issue that has to be grappled with, maybe one of the down sides of putting it all into one licence.
4029 COMMISSIONER NOËL: Well, you still have the option of having two.
4030 MR. KOCH: Yes. But I have just explained that it may be different in different areas, but I think what LOOK would request is that the reference to the discretionary carriage be removed again to create that flexibility to do things on a basic or discretionary basis.
4031 COMMISSIONER NOËL: Let's move to another subject, which is descriptive video. Your application does not tell how you distribute descriptive video information. Do you have plans for the descriptive video distribution in the future or in how?
4032 MR. SCHULTZ: When you say descriptive video --
4033 COMMISSIONER NOËL: It is the second audio channel, you know, somebody slams a door and for the blind person there is a voice over that says somebody slams the door.
4034 MR. SCHULTZ: At present we don't have plans to do that. Our technology does not allow us at this time to pass those secondary audio programs through our system.
4035 We do, however, carry the subtext for the hearing impaired on all channels and we also have a voice print service available in both Ontario and Quebec.
4036 COMMISSIONER NOËL: But as of now, there is no technical way you could use a second audio signal to give the video description for the blind?
4037 MR. SCHULTZ: It is an issue of capacity again, unfortunately.
4038 COMMISSIONER NOËL: Do you have any plans to improve accessibility of services to the blind, the visually impaired, the deaf, the hearing impaired or any kind of other disabilities; in particular, do you have any plan for improvements with respect to billing customer information, complaint response, et cetera?
4039 MR. VOCELLE: I will respond. On the technology, I don't know if we are capable of doing it. On the billing side, we don't have any plans to do it right now, and the system won't allow it. On the cable side or the television distribution, technology won't allow it.
4040 MR. SCHULTZ: We do allow our customers to review their accounts on line on the Internet. So they can in fact do that.
4041 COMMISSIONER NOËL: But what about for the blind people, do you have brail or alternate modes of billings?
4042 MR. SCHULTZ: No.
4043 COMMISSIONER NOËL: You mentioned that your subscriber base for programming services has eroded dramatically in the last year and a half, I would say. Could you tell us exactly what the reasons were for the decline in the customer numbers, subscriber numbers?
4044 MR. CYTRYNBAUM: We believe in both cases -- and when I say "both cases" I am referring to video and Internet -- it was an inability to bundle and to give people the packages that they wanted and that that was the primary purpose. Many of the video customers that we lost, in after calls indicated they wanted both services and from the same provider.
4045 COMMISSIONER NOËL: And that would be the reason for the change?
4046 MR. CYTRYNBAUM: That is the principal reason.
4047 COMMISSIONER NOËL: You mention in your application that you would like to be relieved from your contribution to the Canadian programming, namely the 7 per cent and the 5 per cent. Have you been able to meet all your Canadian programming contribution requirements in the past?
4048 MR. VOCELLE: Aside from the period of CCAA, yes, we have paid every year.
4049 MR. CYTRYNBAUM: With great pain.
4050 COMMISSIONER NOËL: If the Commission didn't agree with your requests, how would that affect your finances? Would you be able to make those payments if we were not to agree to remove that obligation?
4051 MR. CYTRYNBAUM: Let me refer to what Mr. Audet said earlier. He said there were two classes, one that the shareholders reinvested and one that they didn't. I would suggest that we are in a third class, we would like to be able to but can't.
4052 This year, all of our EBITDA or profit has gone towards making that payment. Last year it was half, which is why we are seeking a holiday. I found it interesting to note that the ultimate beneficiary of that, as an intervenor in one of the earliest ones indicated that there may be flexibility for MDS, although he capped it at 5,000 or 6,000 subscribers and we are more than that; we believe it should be more.
4053 COMMISSIONER NOËL: What do you mean by "it should be more?"
4054 MR. CYTRYNBAUM: More than the 5,000 or 6,000 that he was suggesting.
4055 COMMISSIONER NOËL: You mean it should be in the range of the 40,000 subscribers?
4056 MR. CYTRYNBAUM: You are very intuitive.
4057 MR. KOCH: I think it is important to recall that the request in terms of that relief is a temporary relief.
4058 COMMISSIONER NOËL: A temporary one until you reach earnings of 25 million.
4059 MR. KOCH: In each licence, that is right.
4060 COMMISSIONER NOËL: Which means on the reunited licence you would ask for relief after 50 million?
4061 MR. VOCELLE: We would settle for 40 million.
4062 COMMISSIONER NOËL: Maybe at the end of the day it will be 30 million.
4063 If we don't agree to relieving you from that obligation, your projection of new subscribers, usual projections of new subscribers of 18.5 per cent year over year until 2007, could you elaborate on those projections?
4064 MR. VOCELLE: Yes, and again it depends -- voulez-vous que je parle en français?
4065 CONSEILLÈRE NOËL: C'est comme vous voulez.
4066 MR. VOCELLE: It also depends on if you give us the flexibility. You could say, I'm not going to give you a sunset clause on the programming fund but I will give you all the flexibility. That is a different story than nothing or all. The way we have built this is the sunset clause that we are asking you is we want to reinvest it either in technology or sales and marketing to grow the plan faster than 25 million, but it is all based on the actual premise that we will grow now and that we are out of our financial problems and that we are reinvesting in sales and marketing activities.
4067 COMMISSIONER NOËL: This application was filed eight months, nine months ago. Do you have signs of growth in your subscriber base for broadcasting services?
4068 MR. VOCELLE: On the video side unfortunately not yet. We have yet to turn the corner and to show a growth. What we have been able to do is to maintain the subscriber base. So, we are adding new customers, but we also lose some.
4069 COMMISSIONER NOËL: Because of the churn?
4070 MR. VOCELLE: Churn, the competition, the bundles.
4071 MR. CYTRYNBAUM: By far the more important of the two that we are talking about is the flexibility so that we can increase or improve very significantly by offering both services.
4072 COMMISSIONER NOËL: In either scenario your projections show that your PBIT will remain in the negative until 2007. Is there a reasonable expectation that you will show positive results at some time?
4073 MR. VOCELLE: Again, Madam Noel, I need to stress that this is video revenues only.
4074 COMMISSIONER NOËL: Thank you. I keep forgetting that.
4075 MR. VOCELLE: As a combined company, we do make money. The problem on the video side, as stressed by the last two days of being here, is the cost of acquiring the customers on the video side is very, very expensive. That is one of the reasons the video on a standalone business --
4076 COMMISSIONER NOËL: But because of bundles you still think it is important that you are licensed?
4077 MR. VOCELLE: The bundle is the difference between -- Mr. Audet said it this afternoon. Mr. Péladeau said it this morning. He was very pleased of timing of bundle, high speed, Internet, video. We are no different. The difference between the $32 subscriber and an $80 subscriber is a big difference.
4078 Our reality, Madam Commissioner, is if we do an installation to video and Internet on our own system, we don't have a single dollar more of installation costs. It is the same system, same antenna. The only difference is now we have a little modem in the house. So, we normally double and half the RPU for practically no acquisition cost. That is where the big difference is for us.
4079 COMMISSIONER NOËL: You are asking to be exempted or relieved from the contribution, but you are also asking, I guess, if we decide not to relieve you entirely so that the calculation is made excluding customer premises equipment. What would be the impact of removing the customer premises equipment on the overall cost in terms of percentage?
4080 MR. VOCELLE: Today one-third represents the contribution based on CP rental and revenue installation sale.
4081 COMMISSIONER NOËL: So instead of costing you 100 percent, it would cost you 66 percent?
4082 MR. VOCELLE: Yes.
4083 COMMISSIONER NOËL: If we excluded the CP from the calculation?
4084 MR. VOCELLE: Yes.
4085 COMMISSIONER NOËL: We are going back to flexibility and basic and discretionary, but what about RTV, do you have any intention of distributing RTV in English language serving areas?
4086 MR. VOCELLE: At this point in time again, it is the capacity issue.
4087 COMMISSIONER NOËL: It is distributed in Quebec, though?
4088 MR. VOCELLE: Quebec and Ottawa.
4089 COMMISSIONER NOËL: But you don't have plans in the near future to offer it in Ontario other than the Capital Region?
4090 MR. VOCELLE: Yes, and again unfortunately it is the capacity issue.
4091 COMMISSIONER NOËL: If we grant you the flexibility that you are asking, would you accept a condition of licence requiring that one French-language Canadian specialty service be distributed for every ten English speaking service?
4092 MR. CYTRYNBAUM: We have thought long and hard about that and we would be prepared at 20, which is half the requirement that you are proposing. So, one in 20.
4093 COMMISSIONER NOËL: So you would be prepared one in 20, so 5 per cent instead of the 10 per cent?
4094 MR. CYTRYNBAUM: Yes.
4095 COMMISSIONER NOËL: And if we do not grant the flexibility you are asking, what would be your answer?
4096 MR. CYTRYNBAUM: We don't have the capacity.
4097 COMMISSIONER NOËL: Mr. Chair, these are my questions.
4098 MR. VOCELLE: I know this is unusual, but can I leave the room for five minutes?
4099 THE CHAIRPERSON: It is a quarter to 7:00 in any case. We are going to resume at 9:30 tomorrow morning.
4100 COMMISSIONER NOËL: Mr. Chair, I was finished with my questioning.
--- Whereupon the hearing adjourned at 1840, to
resume on Wednesday, October 22, 2003
at 0930 / L'audience est ajournée à 1840 pour
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