ARCHIVED -  Decision CRTC 94-706

Decision

Ottawa, 29 August 1994

Decision CRTC 94-706

MacKenzie Media Ltd.

Yellowknife, Northwest Territories - 931715700Watson Lake, Yukon Territory - 932438500Aklavik; Coppermine; Deline; Hay River; Lutselk'e and Tuktoyaktuk, Northwest Territories; and Dawson City; and Haines Junction, Yukon Territory - 932435100 - 931709000 - 932436900- 931712400 - 931713200 - 931714000 - 931710800 - 931711600

Applications for authority to transfer control of the Yellowknife and Watson Lake cable distribution undertakings to Northwestel Inc. and for new licences to carry on cable distribution undertakings to serve the eight other communities noted above - Denied

Following a Public Hearing held in Saskatoon beginning on 6 June 1994, the Commission denies the application submitted by Mackenzie Media Ltd., licensee of the cable distribution undertaking serving Yellowknife, and that by Performance Communications Corp., licensee of the cable distribution undertaking serving Watson Lake, in each case for authority to transfer effective control of the licensee, through the sale of all of its issued and outstanding shares to Northwestel Inc. (representing a company to be incorporated) (Northwestel).

The Commission also denies the related applications submitted by Northwestel for licences to carry on cable distribution undertakings to serve Aklavik, Coppermine, Deline, Hay River, Lutselk'e, Tuktoyaktuk, Dawson City and Haines Junction.

Northwestel included in its applications a plan to extend cable television service to 33 communities across the north by the year 2000 through its subsidiary, the company to be incorporated. Depending upon the financial performance of each proposed undertaking, Northwestel intended to extend service subsequently to an additional 16 communities.

According to Northwestel, the acquisitions of the Yellowknife and Watson Lake cable systems would be the "first step" in implementing its cable plan. Northwestel claimed that acquisition of these undertakings would be essential to provide "the minimum scale and scope of economies to enable construction of cable facilities in [the] smaller communities". In particular, Northwestel stressed that it would need the subscriber base and cash flow of the Yellowknife system in order to proceed with its plan. At the hearing, Northwestel stated:

 The size and expertise within the Yellowknife system is the key to starting the Northwestel Cable Plan. Without it, there is not the necessary foundation for Northwestel to commence its proposed Cable Plan.

Northwestel is a common carrier that provides telecommunications services in the Northwest Territories and part of the Yukon Territory. In a public announcement dated 3 December 1969 and entitled "Licensing Policy in Relation to Common Carriers", the Commission stated that "it would not be in the public interest to encourage common carriers to hold licences for CATV (cable) systems." That policy did, however, make an allowance for exceptions in the case of smaller common carriers serving smaller communities and stated:

 The Commission also realizes that, under certain circumstances, smaller common carrier companies may be the only entities capable of providing a CATV (cable) service in certain of Canada's smaller population centres, and the Commission will, therefore, consider any such applications for licences for CATV systems by common carriers on their individual merits.

Northwestel argued that these applications qualify for consideration as exceptional circumstances because of the unique characteristics of northern Canada. It noted that the Yukon and Northwest Territories contain a population of approximately 80,000 persons who live in small, isolated communities widely dispersed over one-third of Canada's land mass. Northwestel argued that the regional approach used by some cable operators to establish cable systems to serve small, neighbouring communities in southern Canada is not feasible in the North where most communities are separated by distances of well over 325 kilometres, and many are only accessible by air.

Northwestel claimed that the synergies and economies of scale that would be realized by combining the operations of broadcasting and telecommunications services would allow for the introduction of a wider range of services across the North.

At the hearing, Northwestel also stated that approval of these applications should not be seen as setting a precedent regarding cross-ownership of telecommunications and cable services in southern Canada. Northwestel argued that its cable plan:

 should be studied on its own merits as an original solution to a unique problem, as a particular situation to be applied in the Canadian North. Northwestel's application should not be viewed as a precedent as to how telco/cable cross-ownership issues are to be resolved in southern Canada. ... southern Canada's circumstances are different in most respects.

In examining whether Northwestel's cable plan might justify making an exception to its longstanding policy against common carrier/cable cross ownership, the Commission first gave consideration to the question of who, in fact, would effectively control the prospective licensee. Northwestel stated that the company to be incorporated would be controlled by a board of directors appointed by the shareholder, Northwestel. Northwestel, itself, is a wholly-owned subsidiary of Tele-Direct Publications Inc. (Tele-Direct), a subsidiary of BCE Inc. (BCE). Bell Canada (Bell) is also a subsidiary of BCE.

Tele-Direct is a corporation that carries out two distinct business activities that are operated as two different entities. The "Directory Business", which provides telephone directory services, operates under Bell's exclusive control. The "Other Business", which includes Northwestel, is under BCE's exclusive control.

While BCE is eligible to hold a broadcasting licence, section 7 of the Bell Canada Act prohibits Bell from directly or indirectly holding a broadcasting licence or operating a broadcasting undertaking. In order to ascertain that it is BCE, and not Bell, that effectively controls Northwestel, the Commission examined the Amended and Restated Shareholder's Agreement (the Agreement) that governs Tele-Direct's affairs.

The Agreement creates two classes of shares, namely A and B. Bell holds all outstanding Class A shares, while BCE holds all outstanding Class B shares. Under the Agreement, unless a majority of directors are nominees of the holders of the Class B shares, the board of directors has no powers to manage the "Other Business", which includes Northwestel. Instead, the board of directors' rights, powers and duties with respect to the "Other Business" belong to BCE and are exercised by three or more representatives appointed by BCE, through instruments in writing signed by a majority of these representatives. Pursuant to a separate agreement between Bell and BCE, the latter is required to vote for the directors nominated by Bell.

In response to a request at the hearing, Northwestel filed with the Commission, for its examination, two such instruments in writing. These instruments illustrate clearly that the affairs of the "Other Business" are handled by BCE's representatives or their delegates, and not by Tele-Direct's board of directors.

At the hearing, Northwestel confirmed that, while a majority of Tele-Direct's board of directors is composed of Bell representatives, they have no say in the management of the company's "Other Business". Northwestel stated:

 In terms of directions that come to us through the shareholder, those are through BCE representatives and the directors at Bell have no bearing on those directions.

The Commission notes that absent BCE's agreement to vote for Bell's nominees, the Board of Directors of Tele-Direct would be BCE-controlled, since BCE effectively holds 95% of the outstanding voting shares in Tele-Direct.

Based on the foregoing, the Commission is satisfied that neither Bell, nor any person controlled by Bell, plays an active role in Northwestel's affairs. Consequently, the Commission is of the opinion that the proposed licensee, the company to be incorporated, would, therefore, not be prohibited from holding a broadcasting licence pursuant to section 7 of the Bell Canada Act.

The Commission next considered whether Northwestel is a "smaller common carrier company" within the meaning of the Commission's 1969 licensing policy regarding common carriers, and consequently whether the applicant's wholly-owned subsidiary, the company to be incorporated, might thus qualify for licensing as a cable operator under the exceptional circumstances contemplated by that policy. The Commission notes in this regard that, while the applicant is part of a large communications company, namely BCE, on a stand-alone basis, Northwestel has only 63,000 subscriber lines. On this basis and for the purpose of its policy on the licensing of common carriers, the Commission considers Northwestel to be a smaller common carrier company.

While the Commission cannot deem Yellowknife, which has a population of 15,000 to be among the "smaller population centres" contemplated by the 1969 policy announcement, it is satisfied that virtually all of the remaining communities named within Northwestel's cable plan would so qualify. The Commission also agrees that the North's unique characteristics warrant special consideration. For these reasons, notwithstanding its denial of Northwestel's applications, the Commission is satisfied that the cable plan proposed by Northwestel and included with its applications, whereby cable service would be extended to more than 50 small communities dispersed through the Yukon and Northwest Territories, would meet the criteria set out in the 1969 policy announcement that allows common carriers to provide cable service under special circumstances.

The Commission notes, however, that Northwestel's plan to extend cable service beyond the ten communities that are the subject of the current applications is dependent upon the financial performance of each approved undertaking. At the hearing, Northwestel stated:

 The ability to expand is dependent on the financial health and well-being of the cable company.... so expansion is dependent upon the success of the initial licences.

Northwestel explained that it would operate each undertaking as a "profit centre within the cable company" and would use the profits generated by each undertaking in operation to expand service to additional communities. Rather than providing a specific timetable for extension of service to additional communities, Northwestel stated:

 The timing could shift, depending on whether or not we get all of the licensings. For example, if we are not successful in Hay River, then that would have an impact on us and the timing of when we rolled out. We would still go ahead with the plan, but it would shift the timing.

While the Commission considers that the cable plan proposed by Northwestel would warrant approval as an exception to the 1969 policy, the Commission is concerned by the absence of a clear commitment to extend service to all of the communities in the plan. As discussed below, the Commission is also concerned by the apparent failure on the part of Northwestel to consult fully with the communities involved.

While the Commission acknowledges the many interventions submitted in support of Northwestel's proposals, including those by the Hay River Dene Band, the Village of Haines Junction, the Champagne and Aishihik First Nations, the Town of Watson Lake, the Liard First Nation, the Association Franco-Yukonaise and the Fédération FrancoTéNOise, it notes that some interveners, expressed only conditional support. In this regard, the City of Yellowknife stressed the importance of greater consultation with the communities involved.

The Government of the Northwest Territories recommended modifications to Northwestel's applications as well as conditions of licence to protect against possible negative effects arising from the absence of competition in the provision of communications services to the North. Although generally supportive of Northwestel's applications, the Government of Yukon stated that it expected Northwestel to demonstrate that each cable application is supported by the community it is proposing to serve.

While opposing the transfer of control of the Yellowknife cable undertaking to Northwestel, the Inuit Tapirisat of Canada (ITC) supported Northwestel's application for a cable licence to serve Tuktoyaktuk. The ITC also supported licensing Northwestel to provide cable service to remote communities that would be otherwise unserved, as long as Northwestel had obtained prior "representative local consent" from the community involved.

Television Northern Canada Incorporated (TVNC) supported Northwestel's applications, subject to a number of conditions, including increased participation on the applicant's Board of Directors by representatives of the First Nations and Inuit peoples.

Many interventions strongly opposed Northwestel's applications, including those submitted by Arctic Cooperative Limited, representing 37 cooperatives in 37 communities in the Northwest Territories, Yellowknife Direct Charge Cooperative Limited and Coppermine Eskimo Cooperative Limited.

In view of the opposition to Northwestel's proposals expressed in many of the interventions filed by community-based organizations, the Commission asked Northwestel at the hearing whether, in preparing its applications, it had consulted with the communities involved. In response, Northwestel stated that, with the exception of Lutselk'e, it had contacted all of the communities for which it filed applications. Northwestel acknowledged, however, that some communities were contacted only after the application was filed. In addition, Northwestel admitted that it would have been preferable to have consulted more fully with the communities before submitting the applications, and stated that it would do so before filing any future applications.

The Commission considers that it is incumbent upon an applicant seeking to provide cable service to any community, and particularly to the small, isolated communities of northern Canada, to consult fully with that community before submitting an application to the Commission.

The Commission attaches the utmost importance to the introduction of a full range of broadcasting and telecommunications services to the North. While it notes Northwestel's argument that the subscriber base and cash flow associated with the Yellowknife cable system would be essential as a foundation for building a comprehensive network of cable systems to serve the North, the Commission considers that the public interest would be best served by licensing an applicant who will provide a firm commitment to extend service to the many small, isolated communities throughout this region. Accordingly, without prejudice to other applications that might be submitted from individual communities, the Commission would be disposed to deal expeditiously with applications proposing a comprehensive plan, but one that is based on full public consultation and that also contains firm commitments and a time-table for implementation, by which cable service will be extended to the small communities dispersed throughout the Yukon and Northwest Territories.

In a related decision released today (Decision CRTC 94-708), the Commission has approved applications by the City of Dawson to renew the licence and expand the programming services offered by the established radiocommunication distribution undertaking serving Dawson City. The Commission has also approved an application by the Hay River Community Service Society to expand the programming services offered by the established radio-communication distribution undertaking serving Hay River, and denied an application by the same applicant for a licence to carry on a cable distribution undertaking to serve Hay River (Decision CRTC 94-707).

Allan J. Darling
Secretary General