ARCHIVED -  Decision CRTC 95-897

Decision

Ottawa, 15 December 1995

Decision CRTC 95-897

MacKenzie Media Ltd.

Yellowknife, Northwest Terrritories - 950236000

Northwestel Cable Inc.
Pangnirtung, Northwest Territories and Watson Lake, Yukon Territory
- 950290700 - 950289900

Northwestel Cable Inc.
Aklavik, Fort Good Hope, Fort Norman, Fort Providence, Nanisivik, Tuktoyaktuk, Northwest Territories; Haines Junction and Old Crow, Yukon Territory - 950263400 - 950267500 - 950268300 - 950269100 - 950274100 - 950277400 - 950270900 - 950275800

Applications for authority to transfer effective control of three existing cable distribution undertakings and for licences to carry on eight new cable distribution undertakings in the Yukon and the Northwest Territories

Following a Public Hearing held in Yellowknife on 18 September 1995, the Commission approves the application for authority to transfer effective control of MacKenzie Media Ltd., licensee of the cable distribution undertaking serving Yellowknife, through the transfer of all of the issued and outstanding shares of the licensee to Northwestel Cable Inc. (Northwestel Cable).

The Commission also approves the applications, by Northwestel Cable, on behalf of Performance Communications Corp. and of Pangnirtung Cable T.V. Limited, for authority to transfer effective control of the cable distribution undertakings serving Pangnirtung and Watson Lake, respectively.

Further, the Commission approves the applications by Northwestel Cable for licences to carry on cable distribution undertakings to serve Aklavik, Fort Good Hope, Fort Norman, Fort Providence, Nanisivik, and Tuktoyaktuk, Northwest Territories and Haines Junction and Old Crow, Yukon Territory.

1. Background

Northwestel Cable is a wholly-owned subsidiary of Northwestel Inc., a telephone company providing 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.

In Decision CRTC 94-706 dated 29 August 1994, the Commission denied applications by Northwestel Inc. (representing a company to be incorporated) to acquire control of MacKenzie Media Ltd., licensee of the cable distribution undertaking serving Yellowknife, and of Performance Communications Corp., licensee of the cable distribution undertaking serving Watson Lake. The Commission also denied the applicant's proposal to carry on new cable distribution undertakings in eight northern communities. Northwestel Inc. had indicated that the applications in question were part of a plan to extend cable service to 33 communities across northern Canada by the year 2000 and to possibly 16 additional communities thereafter.

The Commission identified two key areas of concern, specifically the apparent failure, on the part of Northwestel Inc., to consult fully with the communities involved prior to the filing of the applications, and the absence of a clear commitment to extend service to all communities identified in the plan.

Despite its denial of those applications, the Commission determined that Northwestel Inc. was a "smaller common carrier" for the purposes of its policy on the licensing of common carriers, and that the proposed cable plan to extend cable service to more than 50 small communities dispersed throughout 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.

Subsequently, on 19 May 1995, the Commission released its report to the "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition" (the Convergence Report), in which the Commission set out its findings with regard to the development of content and competition policies for new communications technologies and services that will comprise the "information highway".

2. The current proposal

 a) 1995 Cable Plan

As part of the current applications, Northwestel Cable submitted a restructured 1995 Cable Plan under which it has committed, by the year 1999, to provide cable service to all communities in the Yukon and Northwest Territories that have phone service, subject to community support and regulatory approval.

The applicant also filed a copy of an agreement between itself, Northwestel Inc. and Arctic Co-operatives Limited (ACL), setting forth commitments by each party with respect to the provision of cable services to the Yukon and the Northwest Territories. ACL is a co-operative federation providing business services to its member co-operatives in the Northwest Territories and the Yukon. ACL's commitments pursuant to the agreement are examined in Decision CRTC 95-898 of today's date which approves applications to provide cable service to several northern communities.

Under the terms of the Northwestel Inc./Northwestel Cable/ACL agreement, Northwestel Cable will provide, by 1999, cable services to 29 communities in the Yukon Territory and the Northwest Territories "that currently have phone service, that are not presently the subject of cable licences and that do not currently have a co-operative operating in the community". The Commission notes that Northwestel Cable has agreed that, upon request by ACL, it will surrender its licences for two of these communities, Aklavik and Tuktoyaktuk, and give its support to applications by ACL to serve these communities.

The Commission notes Northwestel Cable's firm commitment to provide service to the communities listed in Appendix A of the agreement, subject only to community support and regulatory approval. During questioning at the hearing, the applicant assured the Commission that cash flow would not be a factor affecting its commitment to build those systems that are not currently the subject of applications before the Commission. Northwestel Cable also confirmed that, should ACL be unable to provide cable service by 1999 to any of the communities set out in the agreement, Northwestel Cable is prepared to do so. Conversely, the applicant indicated at the hearing that, should it be unable to provide service to a particular community due, for example, to lack of community support, Northwestel Cable would not object to ACL serving that community.

The Commission acknowledges an intervention submitted by the Canadian Cable Television Association (CCTA) opposing the application for approval of the transfer of control of the Yellowknife undertaking since in its view, the circumstances do not justify permitting a common carrier to control both telephone and cable television service in the same market.

The Commission considers that in light of the applicant's commitment to provide cable service to the 29 remote and largely unserved communities referred to above, the granting of the licences in question to Northwestel Cable is consistent with the Commission's Convergence Report.

With respect to the issue of public consultation, having reviewed the documents submitted as part of these applications and having considered the representations made by the applicant at the hearing, the Commission is satisfied that Northwestel Cable has fully and adequately consulted all the communities involved prior to filing its applications. In view of the above, therefore, the Commission is satisfied that approval of these applications is in the public interest.

 b) Access

In an intervention to these applications, Television Northern Canada (TVNC) requested that the Commission impose a condition of licence obliging the applicant to provide TVNC with access to its cable facilities for the distribution of future services. In this regard, TVNC outlined its plans to develop and deliver information highway services in the North through a joint aboriginal and northern telecommunications entity.

In its written reply to this intervention, Northwestel Cable submitted that access to available capacity for the provision of non-programming services would be provided to all customers on a non-discriminatory basis, as required by the Telecommunications Act. However, it argued against TVNC's proposed condition of licence, insofar as it would apply to any telecommunications facilities Northwestel Cable may have, stating that a condition of licence giving a right of access to a specific customer would constitute an unjust preference under the Telecommunications Act.

The Commission emphasizes the importance it attaches to access issues relating to both programming and non-programming services, and notes that they are being addressed in proceedings initiated pursuant to the Broadcasting Act and the Telecommunications Act.

 c) Establishment of a Broadcast Production Fund

The Native Communications Society (NCS), Inuit Broadcasting Corporation (IBC) and TVNC each proposed in their respective interventions that Northwestel Cable be required to contribute between 5% and 10% of its gross revenues to the establishment of an Aboriginal Production Fund which would be administered by TVNC and used to support the development and distribution of northern aboriginal programming.

Northwestel Cable stated that, while it is supportive of the objectives of an Aboriginal Production Fund, its business plan contains no provision for such a fund. It indicated that "it would be quite prepared to pay a subscriber surcharge for carrying TVNC" on a per-subscriber basis per month, but that, depending on the magnitude of a fee decided upon by the Commission, it might have to pass a portion of the surcharge on to its subscribers. In discussing a possible specific contribution, Northwestel Cable stated that if the subscriber surcharge for the proposed production fund was set at $0.55 per subscriber, Northwestel Cable would be able to maintain the basic monthly subscriber rates proposed in its current applications.

The Commission is of the view that the establishment of a fund to promote the development of aboriginal programming is a worthwhile initiative and, accordingly, the Commission expects Northwestel Cable to contribute to an aboriginal broadcast fund an amount of $0.55 per subscriber per month. It requests that Northwestel Cable confirm, within three months of the date of this decision, the basis of how these contributions will be remitted. The Commission notes that these contributions will not constitute a tariff paid to TVNC, but will be contributions to a fund administered by TVNC.

The Commission will request TVNC to file, within three months of the date of this decision, a report providing details concerning the structure and the administration of the fund, including such matters as program eligibility, access and funding.

 d) Continued operation of radiocommunication distribution undertakings

During questioning at the hearing concerning radiocommunication distribution undertakings (RDUs) currently operating in Fort Providence, Nanisivik and Haines Junction, Northwestel Cable indicated that it is prepared to let the RDUs "co-exist" with its cable undertakings so long as they are already in operation and do not alter or add additional services.

The Commission notes Northwestel Cable's willingness to co-exist with existing RDUs, but reminds the applicant of the general position adopted by the Commission in its Convergence Report that there should be competition between cable and other types of distribution undertakings.

3. The individual applications

 a) Transfer of effective control of MacKenzie Media Ltd. to Northwestel Cable

The purchase price for all outstanding shares of MacKenzie Media Ltd. is $9,700,000 subject to adjustments. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the community served by the broadcasting undertaking and to the Canadian broadcasting system as a whole, and that it is in the public interest.

In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the management, financial and technical resources available to the purchaser.

In an intervention opposing this transfer, the Yellowknife Direct Charge Co-op submitted that the benefits package offered by Northwestel Cable does not provide any significant direct benefits to the Yellowknife subscribers, and that the "double monopoly" resulting from this transfer would deny Yellowknife residents the benefits of competition which southern centers may enjoy.

The Commission has assessed the proposed benefits package totalling $970,002, identified by the applicant as flowing from this transaction. The Commission notes that this amount includes $39,000 for the purchase of test equipment for the head end and field strength meters. As capital expenditures that would not qualify under section 18 of the Cable Television Regulations, 1986 (the regulations), these would not normally constitute acceptable benefits. While noting that this undertaking is a Part III undertaking, and thereby not subject to section 18 of the regulations, it is the Commission's determination that these expenditures should not be accepted as benefits in this case.

Among the proposed tangible benefits, the Commission notes Northwestel Cable's commitment to reduce the monthly basic rate for Yellowknife subscribers by $1.00, from $39.09 to $38.09, and to maintain the new rate over a period of approximately five years, representing a total benefit amount of $291,392. Northwestel Cable subsequently revised this amount to $284,340. Other benefits include the purchase of equipment for the community channel, the establishment of a community programming fund, and other technical expenditures.

In light of the applicant's commitment to reduce the basic rate, and taking into account the revised estimate for the rate reduction benefit, the Commission is satisfied that the acceptable benefits package, totalling $923,950, is commensurate with the size and nature of the transaction, and that approval of this application is in the public interest.

The Commission expects the applicant to ensure that all of the expenditures included in the proposed benefits package are made in accordance with the schedule outlined in the application.

Northwestel Cable confirmed at the hearing that it will offer to subscribers of the Yellowknife undertaking the same television and audio services as those currently offered.

 b) Transfer of control of Performance Communications Corp. and Pangnirtung Cable T.V. Limited

The purchase prices for all issued and outstanding shares of the current licence holders are $300,000 for Performance Communications Corp. and $290,000 for Pangnirtung Cable T.V. Limited. Based on the evidence filed with these applications, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

While applicants acquiring control of undertakings with fewer than 2,000 subscribers have generally not been required to meet the benefits test, the Commission notes Northwestel Cable's commitment, proposed as a benefit with respect to the Watson Lake undertaking, to perform upgrades amounting to a $389,000 expenditure. The Commission expects Northwestel Cable to adhere to its commitment not to increase rates as a result of this expenditure. Similarly, with respect to the Pangnirtung undertaking, the Commission notes Northwestel Cable's proposed benefits package of $30,000 and its commitment not to increase subscriber rates in respect of the expenditures contained therein. The Commission expects Northwestel Cable to adhere to these commitments.

The Commission notes that as a result of the major increase in channel capacity that Northwestel Cable has proposed as a benefit, Northwestel Cable indicated that it would be able to offer more services to subscribers of the Watson Lake undertaking. The Commission notes, however, that the only immediate change will be the transfer of The Sports Network (TSN) from basic service to a discretionary tier.

Under subsection 4.4 of the agreement, Northwestel Cable has agreed to sell the Pangnirtung undertaking to ACL, subject to Commission approval of the ownership transfer. The parties have also agreed that ACL will operate the undertaking pending this approval, subject to the parties entering into a reasonable operating agreement which complies with all applicable regulatory requirements.

When questioned at the hearing, Northwestel Cable indicated that during the period of the operating agreement, ACL will assume responsibility for connections, disconnections and bill collections but Northwestel Cable will retain ownership and have the obligation and the responsibility to ensure that the system is operated in accordance with the Broadcasting Act. The Commission requires Northwestel Cable to submit to the Commission forthwith a copy of the operating agreement so that the Commission can be assured that Northwestel Cable will indeed retain effective control of the undertaking during the interim period.

 c) New undertakings in Aklavik, Fort Good Hope, Fort Norman, Fort Providence, Nanisivik and Tuktoyaktuk, Northwest Territories; Haines Junction and Old Crow, Yukon Territory

The Commission will issue licences to Northwestel Cable expiring 31 August 1998, subject to the conditions specified in this decision and in the licences to be issued. This term is consistent with the Commission's practice regarding the licensing of new Part III cable distribution undertakings.

As noted earlier, pursuant to the agreement between Northwestel Cable, Northwestel Inc. and ACL, Northwestel Cable has agreed not to proceed with implementation of its authority granted herein with respect to the Aklavik and Tuktoyaktuk undertakings before 1 February 1996. Upon receipt of a written request by ACL before that date, Northwestel Cable will surrender its licences for those two locations and support ACL's applications for licences to serve these communities, provided that ACL agrees to build the undertakings in 1996.

Although the Commission does not regulate the rates of Part III cable distribution undertakings, it notes that the applicant has proposed monthly subscriber fees of $30.95 for Aklavik, Fort Good Hope, Fort Norman, Fort Providence, Haines Junction, Old Crow and Tuktoyaktuk, and $25.00 for Nanisivik.

It is a condition of each licence that construction of the undertaking in question be completed and that it be in operation within twelve months of the date of this decision or, where the applicant applies to the Commission within this period and satisfies the Commission that it cannot complete implementation before the expiry of this period and that an extension is in the public interest, within such further period of time as is approved in writing by the Commission.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. In this regard, the Commission notes Northwestel Cable's intention to adopt its parent company's (Northwestel Inc.) initiatives, and encourages it to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Interventions

The Commission acknowledges the numerous interventions received in support of these applications.

The Commission also acknowledges the other interventions submitted in connection with these applications, and notes that it is satisfied with the licensee's replies thereto.

Allan J. Darling
Secretary General