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ARCHIVED - Broadcasting Decision CRTC 2002-84

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Broadcasting Decision CRTC 2002-84
Ottawa, 12 April 2002
Shaw Communications Inc., Canadian Satellite Communications Inc. and Star Choice Television Network Incorporated
Across Canada
Applications 2001-0517-3, 2001-0515-7, 2001-0516-5
Public Notice CRTC 2001-95
17 August 2001

Amendments to conditions of licence relating to structural separation for Cancom and Star Choice

Summary
The Commission, by majority vote, approves applications to replace existing conditions of licence relating to structural separation for the Cancom satellite relay distribution undertaking (SRDU) and the Star Choice direct-to-home (DTH) undertaking with new conditions. The new conditions provide that each of the undertakings must maintain independent sales, marketing and customer service functions as well as staff, and require adherence to confidentiality procedures.
The Commission's approval is subject to an addition to the condition of licence that the applicants originally proposed for the Star Choice DTH undertaking with respect to confidentiality of information. The revised condition extends such confidentiality so that it also applies to Star Choice's affiliation agreements with programmers.
In addition, the Commission's approval will only be effective at such time as the applicants have submitted and the Commission has approved revised confidentiality procedures. The Commission is requiring the licensees to submit such procedures, which must address specific matters discussed in the decision, within 30 days.
The new conditions of licence, as well as the ones that they replace, are set out in Appendix A of the decision (for Cancom) and in Appendix B (for Star Choice).

The applications

1.

 The applicants noted above jointly sought to replace certain conditions of licence relating to structural separation for the SRDU licensed to Canadian Satellite Communications Inc. (Cancom) and the DTH undertaking licensed to Star Choice Television Network Inc. (Star Choice). The applicants also proposed similar amendments to the conditions of licence for the SRDU operated by Star Choice. However, after the application was filed, the Commission, at Star Choice's request, revoked the licence for the Star Choice SRDU in Revocation, Decision CRTC 2001-705, 20 November 2001.

2.

 Both the Cancom SRDU and the Star Choice DTH undertaking are ultimately controlled by Shaw Communications Inc. (Shaw), which also ultimately controls numerous cable systems. In a series of past decisions, the Commission imposed conditions of licence on both the Cancom SRDU and the Star Choice DTH undertaking intended to ensure the structural separation of these undertakings from each other and from Shaw's other broadcasting concerns. The decisions include Amalgamation of Cancom and Star Choice, Decision CRTC 99-169, 9 July 1999 (Decision 99-169), in which the Commission approved the merger of the Cancom and Star Choice SRDU services. The Commission set out its rationale for imposing structural separation conditions of licence as follows:

The objective of such conditions is to prevent the possibility of undue preference and disadvantage that Shaw could confer, due to its dominant position in the cable distribution sectors and its vertically- and horizontally- integrated corporate structure which includes both programming and cable distribution arms.

3.

 The conditions imposed on each undertaking generally provided that:
  • The undertaking must remain at all times an entity that is independent of, and legally separate and distinct from Shaw and all companies or other entities controlled directly or indirectly by Shaw.
  • None of the members of the licensee's board of directors may also be members of the board of directors of Shaw or any company or other entity controlled directly or indirectly by Shaw.
  • No employees of the undertaking, or any individual providing services on a contractual basis to the licensee (except those providing certain technical services), may at the same time be employed by Shaw or any of Shaw's subsidiaries, affiliates or related companies licensed as distribution undertakings or programming undertakings, or by any broadcasting distribution undertaking controlled directly or indirectly by Shaw.

4.

 The applicants applied to replace the above provisions by conditions of licence specifying that
  • each must maintain independent sales, marketing and customer service functions and staff;
  • all sales, marketing and customer service staff must comply with written procedures established by the licensee designed to ensure that any confidential information obtained from a customer or potential customer or pertaining to a product or service offering of the undertaking will remain confidential;
  • the licensee must file a copy of the confidentiality procedures, as may be amended from time to time, with the Commission for prior approval.

5.

 At the Commission's request, the applicant filed proposed confidentiality procedures that would be the subject of the conditions of licence set out above. These proposed procedures indicated that all officers and employees of Shaw, Cancom and Star Choice, including but not restricted to sales, marketing and customer service, must adhere to the following procedures as conditions of their employment:
  • Separate customer databases will be maintained for each of the Shaw Cable, Cancom SRDU, and Star Choice DTH businesses.
  • There will be no sharing of customer information between sales, marketing and customer service staff of the Shaw Cable, Cancom, and Star Choice DTH businesses, including customer information pertaining to the services subscribed and the status of any customer account. In particular, no sales, marketing or customer service staff of one licensed business will be permitted access to customer databases or confidential information concerning product offerings concerning other licensed businesses.
  • No sales, marketing or customer service staff of one licensed business will promote or give any information to the potential or actual customers of that business concerning other licensed businesses, unless expressly requested by the customer.
  • All supervisory personnel and officers or employees who are engaged in providing support services to sales, marketing and customer service staff of the licensed businesses generally will only be provided with access to confidential customer information on a need-to-know basis consistent with their corporate responsibilities, and will take all measures necessary to ensure that such information is not provided to sales, marketing and customer service staff of licensed businesses other than the one in which such confidential information originated.
  • Any questions concerning the application of these procedures should be directed by an employee to his or her supervisor and, if necessary, may be referred by the supervisor to the General Counsel & Corporate Secretary or to the Senior Vice President, Corporate & Regulatory Affairs.

The applicants' rationale

6.

 The applicants proposed that all of the current requirements for structural separation be eliminated. They would be replaced by requirements for separate sales, marketing and customer service groups for Cancom, Star Choice and Shaw Cable, which would be governed by confidentiality provisions.

7.

 According to the applicants, approval of the applications would allow Cancom and Star Choice to integrate their technical operations and their human resources, legal, administrative, investor relations, and accounting departments. Separate groups of employees would deal with sales, marketing and customer service for each of the businesses.

8.

 The applicants considered that these changes would bring efficiencies that would, in turn, improve the cost effectiveness and competitiveness of Cancom and Star Choice, help sustain their growth, and facilitate investment and innovation. As a result, both undertakings would be able to improve the service that they provide to their customers and to compete more effectively with the DTH and SRDU services offered by Bell ExpressVu Limited Partnership (ExpressVu).

9.

 The applicants were also of the view that, since the Commission issued Decision 99-169, "a number of clear circumstances, market and regulatory changes and environmental factors that support the applicants' request to amend the existing conditions of licence have occurred."

10.

 According to the applicants, these factors include:
  • The emergence of Star Choice and ExpressVu as competitive DTH services.
  • Shaw's substantial and continued financial support of Star Choice so that it might emerge as a viable BDU competitor.
  • Cancom and Star Choice's increasing need for financial and other support from Shaw. The applicants noted that Shaw's investment in satellite activities has exceeded $868 million.
  • The growth of BCE Inc. within the broadcasting system, which serves to ensure that Star Choice will remain under intense competitive pressure from ExpressVu.
  • Shaw's acquisition of all of Cancom's shares. The applicant considered that it is inconsistent to approve the merger of Cancom and Star Choice as well as Shaw's acquisition of control of Cancom while, at the same time, imposing structural separation conditions that prevent them from effecting integration and maximizing their competitive contribution to the broadcasting system.
  • The significant consolidation of Canadian programmers that has occurred in the broadcasting industry. As well, Shaw has created Corus Entertainment Inc. (Corus) to which it has transferred almost all of its programming assets.
  • The demonstrated support that Cancom has offered to small cable systems by reducing its SRDU rates to small cable systems by an average of approximately 40% and introducing the head-end-in-the-sky (HITS) and cable plus services so small cable systems may compete more effectively.
  • The Commission has developed a regulatory framework that promotes a fair and sustainable market for broadcasting services in Canada, and that protects the interests of Canadian consumers and programming services. As a result, the ability of any broadcasting distribution undertaking (BDU) to exercise market power over a programming undertaking has effectively been removed.

Interveners' concerns and the applicants' reply

11.

 The Commission received interventions from the Canadian Cable Systems Alliance Inc. (CCSA), the Canadian Association of Broadcasters (CAB), CTV Inc. (CTV), Global Television Network (Global) and ExpressVu.

The CCSA

12.

 The CCSA, an association representing the interests of smaller cable operators, opposed the applications. It considered that the existing structural separation conditions of licence were an essential commercial protection for the CCSA and its member companies.

13.

 The CCSA noted that its members rely heavily on licensed SRDUs such as Cancom to receive program signals. It considered that Star Choice, a principal competitor to small cable systems, would stand to benefit directly from any decision on Cancom's part to restrict the availability or to increase the overall cost of television programming provided to CCSA members. It therefore was of the view that relaxing conditions of licence related to structural separation would increase the danger that Cancom's commercial dealings with the CCSA would be affected by competing business objectives.

14.

 The CCSA was also concerned that, under the new conditions of licence proposed by the applicants, Cancom and Star Choice would no longer be precluded from sharing information in the BDU affiliation agreements in force between CCSA members and Cancom. It considered that this information would be of evident commercial value to Star Choice as a DTH competitor and would be likely to place the CCSA and its members at a significant commercial disadvantage.

15.

 In reply, the applicants stated that the business objectives of the Cancom SRDU, Star Choice DTH and Shaw Cable operations are, and will remain, distinct. Thus, while Star Choice's business objectives might be furthered if the Cancom SRDU did not meet its customers' needs, this would be at the cost of achieving the SRDU's business objectives. The applicants indicated that the presence of these separate business objectives is precisely why each of the operations must have separate marketing, sales and customer service organizations bound by confidentiality provisions, as proposed in the applications.

16.

 With respect to the CCSA's concern about Star Choice obtaining access to cable operators' affiliation agreements with Cancom, the applicants indicated that the proposed condition of licence and procedures related to confidentiality had been specifically developed to avoid such disclosures.

17.

 The applicants also affirmed Cancom's continuing commitment to provide the widest range of programming at the lowest possible costs to all BDU customers. As evidence of this commitment, they pointed to volume discounts extended to CCSA members, and Cancom's development of a new HITS system that reduces the headend costs for small cable operators.

18.

 The applicants further argued that Cancom competes aggressively against ExpressVu's operations. They considered that such competition helps ensure that both SRDU companies offer the broadest range of services to their customers. As well, they were of the view that the total integration of ExpressVu's DTH and SRDU operations had not disturbed the competitive SRDU market, and considered that the more limited integration that they proposed would also not disturb the market.

The CAB, CTV and Global

19.

 None of these interveners opposed the applications. They did, however, raise concerns from their perspective as providers of the programming distributed by DTH undertakings and cable systems.

Affiliation agreements with programmers

20.

 The CAB considered that the applicants should be required to ensure that affiliation agreements between programming services and Shaw Cable undertakings or Star Choice remain confidential and are not shared between the two entities.

21.

 The CAB submitted that access by one competing BDU to the terms enjoyed by the other in areas such as marketing requirements or other confidential information could allow the applicants to obtain an inappropriate competitive advantage.

22.

 In reply, the applicants noted that adoption of the CAB's position would force Shaw Cable and Star Choice to negotiate separately with program suppliers. This, they argued, would prevent the maximum synergies from the proposed consolidation from being passed on to customers, ultimately detracting from the objective of creating the most competitive broadcasting system.

23.

 The applicants also considered that all BDUs share the objective of obtaining programming services on the best possible terms, and that it is common practice for entities within the same corporate group to combine their purchasing power. They considered that the Commission had recognized this in Short-term licence renewals for the satellite relay distribution undertakings operated by Cancom and Star Choice, Decision CRTC 2001-288, 28 May 2001 (Decision 2001-288) when it stated that seeking volume discounts was a "normal business practice." The applicants were of the view that such practices provide clear benefits for consumers by permitting them to receive the most competitive offerings from each of Shaw Cable and Star Choice.

24.

 The CAB considered that the applicants should clearly detail the practices they will use to seek volume discounts in a fair manner that also satisfies and preserves the confidentiality of the separate affiliation agreements between programmers and Shaw's cable undertakings and Star Choice. It further considered that it would be inappropriate for the applicants to seek volume discounts relating to subscriber levels achieved in an analog environment for services that will be distributed on a digital basis.

25.

 In reply, the applicants again noted the Commission's statement in Decision 2001-288 that the negotiation of volume discounts was a normal business practice. They further considered that the appropriateness of extending volume discounts to digital services was an issue to be addressed in commercial negotiations.

26.

 The applicants also considered that programmers possess a great deal of negotiating power through ownership of multiple services, as well as access to a broad range of regulatory provisions that allow commercial negotiation of distribution arrangements while still ensuring that programming undertakings enjoy fair and equitable access to BDUs.

27.

 The CAB also raised the issue of the integrity of existing affiliation agreements between programmers and the applicants' BDUs. The CAB was concerned that, as a fully integrated corporate entity, the applicants would continue to attempt to renegotiate existing affiliation agreements to obtain more favourable terms. The CAB was of the view that the Commission should expressly state that no changes to an existing affiliation agreement may be made without the express written consent of the programming service. CTV and Global raised the same concern.

28.

 In their reply, the applicants acknowledged and agreed that affiliation agreements cannot be renegotiated unless both parties agree to do so. They noted that this was a clear principle of commercial law and practice. However, they considered that the statement requested by the CAB was inappropriate in that it might prevent even an attempt to renegotiate a contract. They submitted that it is a fundamental feature of a competitive market, and the Canadian broadcasting market in particular, that agreements are continuously being reviewed and negotiated as competitive and other conditions in the market change.

Audit rights

29.

 CTV noted that it is critical that programming services be able to verify that the number of subscribers that distributors provide to programmers each month, as the basis upon which payments by distributors are made are, in fact, accurate. It recommended that provision of such audit rights be a condition of approval of the applications.

30.

 In reply, the applicants referred to Principles for the launch of Category 1 and 2 digital services, Public Notice CRTC 2001-57, 25 May 2001 (Public Notice 2001-57), which contained joint principles for the fair provision and distribution of digital programming services. These principles included the provision of audit rights. Since both Shaw Cable and Star Choice are subject to the joint principles, the applicants considered that additional requirements relating to this matter were not necessary.

ExpressVu

31.

 Like the applicants, ExpressVu operates a DTH undertaking as well as an SRDU. ExpressVu indicated that it did not oppose the applications but considered that, if the current safeguards relating to structural separation were removed, new safeguards to prevent anti-competitive behaviour must be put in place.

32.

 ExpressVu noted that, when the combined number of subscribers were considered, Shaw Cable/Star Choice ranked as the largest broadcasting distributor in Canada. It therefore considered that, due to the strong position of the applicants' services and the characteristics of the broadcasting environment, the applicants would have an opportunity to use their combined market power relative to programming services to extract agreements that might not be available to direct competitors such as ExpressVu.

33.

 ExpressVu was therefore of the view that the Commission should require the Shaw group to develop and implement a code of conduct for the BDUs it controls. The intervener noted that a similar code was required of BCE Inc. when it acquired effective control of CTV Inc., as approved by the Commission in Transfer of effective control of CTV Inc. to BCE Inc., Decision CRTC 2000-747, 7 December 2000. The code, which would be applied as a condition of licence, would require, among other things, that any agreements between Corus and any of Shaw's distribution companies contain most favoured nation (MFN) provisions under which the same terms would be offered to ExpressVu.

34.

 Finally, ExpressVu supported the applicants' proposal to maintain structurally separate groups of employees to deal with sales, marketing and customer services for each of the three businesses. ExpressVu added that such separation should, by condition of licence, be extended to Shaw's competitive services group (CSG).

35.

 In reply, the applicants disputed that they have a competitive advantage over ExpressVu, submitting that ExpressVu is the dominant digital distributor in Canada. As such, they considered that ExpressVu is in a position to insist on MFN treatment for itself, and possesses sufficient leverage to obtain joint marketing arrangements that are at least as favourable as those granted to other distributors.

36.

 The applicants also disagreed with ExpressVu's submission that the Shaw group should be required to establish a code of conduct similar to that of BCE. It noted that, in the case of the BCE/CTV transaction, a distributor acquired control of a significant producer of programming, and the acquisition was not subject to structural separation conditions. In the present case, all of the applicants are distributors, and the applications contemplate separate marketing, sales and customer service functions for each business. As well, unlike the BCE group, the applicants argued that there is a significant structural separation between Shaw's distribution activities and the programming activities of Shaw that have been transferred to Corus.

37.

 As well, the applicants again referred to Public Notice 2001-57, which contains joint principles for the provision and distribution of digital programming services, and considered that those joint principles have become the code of conduct governing all BDUs. They considered that the presence of that code, as well as other regulatory safeguards available to ensure programmers' access to distribution systems, make adherence to another code unnecessary.

38.

 As to ExpressVu's request that Shaw's CSG remain, by condition of licence, autonomous from the applicants' respective marketing divisions, the applicants submitted that such autonomy is the very essence of the function of a CSG. They therefore considered that the CSG's confidential treatment of information received from entities such as ExpressVu is already safeguarded through existing practices and procedures.

39.

 Finally, the applicants noted that under their proposal, they would be subject to safeguards related to marketing, sales and customer service that do not apply to ExpressVu. They considered that the imposition of additional conditions, as suggested by the intervener, would hinder fair competition.

The Commission's determination

40.

 After considering the submissions of the parties, the Commission approves the applications, by majority vote, subject to an addition to the proposed conditions of licence applicable to the Star Choice DTH undertaking to require the confidentiality of affiliation agreements with programmers. Further, the new licence conditions will take effect only upon approval by the Commission of revised confidentiality procedures. These two issues are discussed in greater detail below. The new conditions of licence, as well as the ones that they replace, are set out in Appendix A of this decision (for Cancom) and in Appendix B (for Star Choice).

41.

 The Commission considers that, under the current circumstances and within the existing environment, the maintenance of separate sales, marketing and customer service functions combined with the confidentiality of affiliation agreements with programmers and strengthened confidentiality procedures will be sufficient to address the concerns that gave rise to the previous conditions of licence relating to structural separation. At the same time, it considers that, under the new conditions, the applicants will have an opportunity to combine their operations to a greater degree and therefore be able to compete more effectively in various areas of the broadcasting distribution industry.

42.

 The Commission notes the concern expressed by the CCSA that, under a more integrated structure, Cancom might share information with Star Choice about its affiliation agreements with cable systems thus enabling Star Choice to improve its competitive position with respect to small cable operators. However, the Commission considers that the conditions of licence relating to the independence of sales, marketing and customer service functions, in conjunction with adequate confidentiality provisions, are sufficient safeguards against such an eventuality. In particular, since cable systems are customers of Cancom, these conditions and confidentiality procedures will apply to protect information pertaining to Cancom's affiliation agreements with cable companies. The Commission considers that this is both necessary and appropriate.

43.

 As well, the Commission notes that each of Shaw's licensed distribution services is subject, either by regulation or by condition of licence, to a provision that forbids them from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage.

44.

 ExpressVu was concerned that Shaw's CSG remain autonomous from the applicants' respective marketing divisions. The Commission notes the applicants' acknowledgement that the CSG's confidential treatment of entities such as ExpressVu is already safeguarded through existing practices and procedures. As well, it notes that the draft confidentiality procedures submitted by the applicants specifically prohibit the sharing of customer information between sales, marketing and customer service staff of Shaw Cable, Cancom and Star Choice.

Affiliation agreements with programmers

45.

 The CAB expressed concern about how the applicants would seek and apply volume discounts while still ensuring the confidentiality of agreements with programmers. ExpressVu was also concerned that Shaw could use the combined number of subscribers of its cable and BDU undertakings as a lever to obtain volume discounts. It considered that, when the combined subscriber numbers are considered, Shaw has many more subscribers than ExpressVu. Thus, if combined subscriber levels were used, Shaw could be in a position to negotiate terms that are considerably better than those of ExpressVu.

46.

 As a possible remedy, ExpressVu requested that the Commission require the Shaw group to file and adhere to a code of conduct for its BDUs, similar to that required of BCE in connection with its acquisition of CTV. The code would specify, among other things, that any agreements between Shaw BDUs and Corus must include an MFN clause under which the same terms and conditions would be available to ExpressVu. The applicants, on the other hand, considered that ExpressVu, as a strong, integrated player with a larger number of digital subscribers than Shaw, was in a position to insist on MFN treatment and disputed that Shaw would hold a competitive advantage over ExpressVu.

47.

 The Commission does not consider that, given the relative subscriber levels, ExpressVu has enough leverage to obtain terms sufficiently comparable to those available to the combined Shaw group to avoid skewing the competitive market.

48.

 The Commission is also concerned that Star Choice and Shaw Cable distribution undertakings provide genuine competitive alternatives to each other. The Commission notes that competitors do not, in the normal course, share the kind of information contained in affiliation agreements.

49.

 In Decision 2001-288, the Commission noted that seeking volume discounts is a normal business practice. However, for the reasons stated above, the Commission does not consider that it is appropriate in the circumstances for Shaw BDUs to attempt to seek a volume discount based on the combined subscribers of its cable and DTH operations and notes that programmers are not obliged to enter into agreements with Shaw BDUs on the basis of such combined subscriber numbers.

50.

 Accordingly, the Commission is approving a revised version of the conditions of licence applicable to the Star Choice DTH undertaking. Specifically, the Commission is expanding the proposed condition of licence requiring that sales, marketing and customer service staff adhere to written confidentiality procedures so that these procedures will apply as well to staff involved in the negotiation and/or administration of affiliation agreements with programmers. The revised condition, set out in Appendix B, states as follows:

The licensee shall require all sales, marketing and customer service staff,as well as all staff involved with the negotiation and/or administration of affiliation agreements with programming services, to comply with written procedures established by the licensee designed to ensure that any confidential information obtained from a customer or potential customer of the licensee's DTHundertaking, or pertaining either to product or service offerings of the DTH undertaking or to its affiliationagreements with programmers, will remain confidential.The licensee will file a copy of such procedures, as the same may be amended from time to time, with the Commission for prior approval.

51.

 The CAB was concerned that the applicants not unilaterally change existing affiliation agreements with programmers. The Commission notes the applicants' acknowledgement that any changes to such agreements would require the consent of both parties.

Changes to confidentiality procedures

52.

 The Commission considers that the confidentiality procedures filed by the applicants require strengthening in order to ensure both the separation of their sales, marketing and customer service functions, and the confidentiality of information.

53.

 The Commission considers that correct and complete implementation of the applicants' confidentiality procedures is essential, and that specific measures must be put in place to ensure that Shaw employees are familiar with them and have agreed to abide by their provisions. The guidelines should therefore set out specific commitments for familiarizing employees with the confidentiality procedures. Specifically, the Commission considers that managers should be obligated to review the procedures with sales, marketing and customer service employees upon initial hiring and on a regular basis thereafter. In addition, the procedures should provide that other employees who may have access to the confidential information are aware of the requirement for confidentiality and of the specific confidentiality provisions. Employees should also confirm in writing that they have received appropriate instruction. The Commission considers that the employee review procedures in the CSG agreement approved for Teleglobe Canada, along with the related employee acknowledgement forms, provide an appropriate model for the review process.

54.

 The Commission also notes that, while the procedures refer to "customer information," "confidential information," and "confidential customer information," no definitions of these terms are provided. In the interests of clarity and in order to ensure that the licensees and their employees understand their obligations, the Commission considers that the confidentiality procedures should be revised to incorporate appropriate definitions. In addition, it should be made clear that the procedures themselves apply to all "confidential information," and not just to "customer information."

55.

 With respect to an appropriate definition for the term "customer information," the Commission refers the applicants to the definition of "confidential information" in the Teleglobe Canada CSG agreement. However, for the purposes of the confidentiality procedures, the Commission considers that the definition of the broader term "confidential information" would also include, at a minimum, reference to sales, marketing, customer service and product line information that would not in the normal course be known outside the licensee, and whose confidentiality the licensee would in the normal course seek to protect from its competitors (including "confidential information concerning product offerings" as referenced in the procedures proposed by the applicants).

56.

 Further, the Commission considers that the confidentiality procedures applicable to the Star Choice DTH undertaking must, consistent with the revised conditions of licence approved here, be expanded so that they refer to information related to affiliation agreements with programmers. Therefore, the Commission would consider appropriate that such information related to the terms and conditions of such agreements be included in the definition of "confidential information."

57.

 Finally, the Commission considers that the confidentiality procedures must provide for the physical security of all "confidential information," and again refers the applicants to the Teleglobe Canada CSG agreement as an appropriate model.

58.

 The revised confidentiality procedures must be filed for the Commission's approval and served on those parties who filed comments in this proceeding by 13 May 2002. Those wishing to comment on the procedures should do so by 24 May 2002. The applicants may reply to those comments until 3 June 2002.
Audit rights

59.

 The Commission further notes that, in reply to concerns raised by CTV, the applicants acknowledged that programmers had the right to audit and verify the number of subscribers that receive their service.
Secretary General
This decision is to be appended to the licences. It is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca
 

Appendix A to Broadcasting Decision CRTC 2002-84
 

Conditions of licence for the Cancom SRDU Undertaking

 

New conditions
  The conditions of licence approved in this decision are as follows:
 
  • The licensee shall maintain independent sales, marketing and customer service functions and staff for its satellite relay distribution undertaking.
 
  • The licensee shall require all sales, marketing and customer service functions and staff to comply with written procedures established by the licensee designed to ensure that any confidential information obtained from a customer or potential customer of the licensee's satellite relay distribution undertaking or pertaining to product or service offerings of the satellite relay distribution undertaking remain confidential. The licensee will file a copy of such procedures, as the same may be amended from time to time, with the Commission for prior approval.

 

Former conditions
  The conditions set out above replace the following conditions of licence:
 
  • The SRDU shall remain at all times an entity that is independent of, and legally separate and distinct from Shaw Communications Inc. (Shaw) and all companies or other entities controlled directly or indirectly by Shaw.
 
  • None of the licensee's board of directors shall be persons who are members of the board of directors of Shaw or any company or other entity controlled directly or indirectly by Shaw.
 
  • No employee of the SRDU licensee, or any individual providing services on a contractual basis to the SRDU licensee, shall, at the same time, be employed by any BDU (including a DTH BDU) that is controlled, directly or indirectly, by Shaw, or by any company or other entity controlled directly or indirectly by Shaw.
 
  • To the extent the licensee is entitled to information in the possession of a BDU, pursuant to an affiliation agreement, and such information is not available on the public record, the licensee shall retain an independent third-party auditor to access such information and to ensure that only aggregate information and recommendations regarding the SRDU's compliance with the terms of the DTH/SRDU signal supply agreement are transmitted to the licensee.
 

Appendix B to Broadcasting Decision CRTC 2002-84
 

Conditions of licence for the Star Choice DTH Undertaking

 

New conditions
  The new conditions approved in this decision are as follows:
 
  • The licensee shall maintain independent sales, marketing and customer service functions and staff for its DTH undertaking.
 
  • The licensee shall require all sales, marketing and customer service staff,as well as all staff involved with the negotiation and/or administration of affiliation agreements with programming services, to comply with written procedures established by the licensee designed to ensure that any confidential information obtained from a customer or potential customer of the licensee's DTHundertaking, or pertaining either to product or service offerings of the DTH undertaking or to its affiliationagreements with programmers, will remain confidential. The licensee will file a copy of such procedures, as the same may be amended from time to time, with the Commission for prior approval.

 

Former conditions
  The conditions set out above replace the following conditions of licence:
 
  • The DTH undertaking to be carried on by the licensee shall remain at all times an entity that is independent of and legally separate from Shaw Communications Inc. (Shaw) and any of Shaw's subsidiaries, affiliates or related companies.
 
  • None of the members of the licensee's board of directors shall be persons who are members of the board of directors of Shaw Communications Inc. (Shaw), or who are members of the board of directors of any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entities thereof. However, as an exception, members of the board of directors (who are independent of Shaw) of WIC Western International Communications Ltd., WIC Television Ltd.,. Electronic Digital Delivery Inc., WIC Premium Television Ltd., WIC Radio Ltd., and their subsidiaries, may be members of the licensee's board of directors.
 
  • No employee of the DTH licensee, or any individual providing services on a contractual basis to the DTH licensee, shall, at the same time, be employed by Shaw Communications Inc. (Shaw), or by any of Shaw's subsidiaries, affiliates or related companies licensed as cable distribution undertakings or as programming undertakings, or any direct or indirect holding companies or entitities thereof. However, technical employees (for example, those working in engineering, programming and electronics of the DTH licensee or individuals providing technical services (for example, engineering, programming, and electronics) to the DTH licensee could, at the same time, be employed by an SRDU licensee that is related to Shaw, or by a company or entity related to Shaw that is not directly or indirectly involved in cable distribution or programming activities.

 

Dissenting Opinion of Commissioner Andrée Noël
  With all due respect for the majority opinion in this proceeding, I believe that it is premature, at the very least, to approve the joint application filed by Shaw Communications Inc. (Shaw), Canadian Satellite Communications Inc. (Cancom) and Star Choice Television Network Inc. (Star Choice) to relax the structural separation conditions of licence pertaining to Cancom's satellite relay distribution undertaking (SRDU) and the direct-to-home (DTH) undertaking operated by Star Choice. Cancom and Star Choice are both controlled by Shaw.
  I was a member of the panel that heard and approved the application for the merger of Cancom and Star Choice (Decision CRTC 99-169, 9 July 1999). In arriving at that decision, we saw it as essential that we set conditions of licence requiring structural separation in order to prevent and avoid the potential for undue preference and disadvantage that Shaw could confer through its dominant position in the cable distribution sector and its vertically and horizontally integrated corporate structure, in both programming and cable distribution. The conditions set for each undertaking are described in full in paragraph 3 of today's majority opinion.
  In Decision CRTC 2001-288 dated 28 May 2001, the Commission issued short term renewals for the SRDU licences of Cancom and Star Choice (the latter licence has since been revoked at the request of the licensee Star Choice in Decision CRTC 2001-705).
  Although the applicants had requested longer licence terms, the renewals granted were for short terms, expiring on 31 August 2003. As indicated in the decision, the Commission was convinced that the conditions of licence requiring that a structural separation be maintained, between the two SRDU licensees, as well as between these two licensees and their owner Shaw, were not being respected.
  In its decision, the Commission examined the impact of Harold Roozen's presence on the Board of Directors of Shaw and his position as President of Cancom, and Peter Classon's dual responsibilities as First Vice President of Shaw and Acting President of Cancom. Based on its analysis, the Commission rejected the applicants' explanations and found as follows:
 

The conditions related to structural separation, quoted above, are very clear. The concurrent appointment of a person to the boards of Shaw and Cancom, or the sharing of employees between these companies, even on an interim basis, is not appropriate under any circumstances. The Commission finds that both Shaw and Cancom should have known that the appointments of Mr. Roozen and Mr. Classon would be in direct contravention of the conditions of licence related to structural separation from Shaw.
 

The Commission views with great concern the contravention of these conditions and reiterates the importance of them by imposing a short-term licence renewal. The original conditions of licence remain in place for both Cancom and Star Choice, as set out in the appendices attached to this decision. (emphasis added)
  In the context of this unanimous decision, the Commission thus did not confine itself to application of the existing conditions of licence concerning structural separation, but determined that it was equally essential to reiterate their importance. I note that this unanimous decision was reached, taking into account the applicants' circumstances at the time the decision was issued on 28 May 2001.
  I find it hard to believe that these circumstances have changed radically since 28 May 2001.
  Indeed, the application that we are addressing in the present decision was filed jointly by Shaw, Cancom and Star Choice on 9 April 2001, almost two months before Decision CRTC 2001-288 was released. Therefore, the circumstances relating to structural separation, as described in that application, cannot be radically different from the circumstances considered by the Commission less than two months later, in Decision CRTC 2001-288.
  On the contrary, I consider that Shaw is, more than ever, the dominant player in Canada in the distribution of signals, whether it be by cable or satellite. Through Corus, Shaw is also a very important player in programming, particularly in radio and specialty television. I am concerned, therefore, that the close relationships between various licensees within the Shaw Group could have an anti-competitive impact on the market, a potential that only increases if integration of the duties of the senior executives in the undertakings concerned is allowed.
  Moreover, it is important to note that the applicants, at the time they filed their joint application, were in non-compliance with their conditions of licence. The Commission's practice is to deny applications for amendments to conditions of licence by licensees who are in non-compliance. This practice is essential to maintaining the integrity of the Commission's policies, and I see no reason in the present case to depart from it.
  In addition to changes in the market, the regulations and the industry cited by the applicants in support of their application, an argument that I have dismissed above, they claim that their competitor Bell ExpressVu is not subject to similar conditions of licence relating to structural separation, and that, consequently, it has a competitive advantage in the marketplace.
  While it is true that Bell ExpressVu dominates the DTH market, having 57% of all subscribers compared to Star Choice's 43%, the same cannot be said of the SRDU market, which is almost entirely controlled by Cancom. Moreover, Bell Canada, in total contrast to Shaw, has practically no involvement in Canada's cable distribution industry, other than on a very small scale, in north-western Quebec and Atlantic Canada.
  In this regard, the Commission's decision concerning the acquisition by BCE Inc. of control of Bell ExpressVu (Decision CRTC 97-149) is clear and speaks for itself:
 

Interveners also argued that, should the Commission decide to approve this application, such approval should be subject to certain safeguards in order to ensure that there would be no possibility of anti-competitive practices resulting from BCE acquiring effective control of ExpressVu. In particular, a number of interveners proposed that, in order to address this concern, any approval of this application should be subject to conditions similar to the conditions of licence imposed by the Commission in approving the application by Shaw Communications Inc. (Shaw), on behalf of a company to be incorporated (HomeStar) for a broadcasting licence to carry on a national DTH satellite distribution undertaking (Decision CRTC 97-38 dated 31 January 1997).
 

In assessing this matter, the Commission has considered the specific concerns that led to the imposition of certain conditions of licence on HomeStar, and has reviewed their relevance in light of the circumstances prevailing in the present application. Two central issues related to competition had been raised in the context of the HomeStar application.
 

First of all, some interveners to the HomeStar application expressed concern that a DTH undertaking owned by a cable operator would not have any incentive to compete vigorously for subscribers, thus reducing competition and choice in the DTH market. Clearly, in the case of the present application, given that neither BCE nor ExpressVu has any interest in other broadcasting distribution undertakings, this concern does not arise.
 

Secondly, certain interveners had argued that a cable-owned DTH service would have opportunities for cross-subsidization and preferential treatment stemming from Shaw's cable operations, for example, in negotiations with third parties regarding the provision and cost of programming, choices of technology and arrangements regarding satellite space. As a result of these concerns, the Commission attached conditions of licence to the HomeStar decision to ensure structural separation between HomeStar and Shaw's cable operations, and to prevent undue preference to HomeStar that might otherwise arise from Shaw's ownership. Interveners to the present application argued that similar concerns about potential cross-subsidization and preferential treatment would exist in the case of ExpressVu should BCE acquire effective control, and that similar conditions were therefore necessary.
 

In this regard, the Commission considers that, in the context of its jurisdiction under the Telecommunications Act, appropriate mechanisms already exist to prevent cross-subsidization of ExpressVu's operations by Bell Canada. As for potential preferential treatment stemming from BCE acquiring effective control of ExpressVu, the Commission notes that, in the HomeStar situation, the concern primarily related to the fact that Shaw is one of the largest cable licensees in Canada, and could be in a position to influence negotiations between HomeStar and third party programming licensees for access to programming in a manner that would tend to confer an undue preference on HomeStar in relation to its DTH competitors. In the Commission's view, however, such a situation does not arise in the context of the current application since, as noted above, neither BCE nor ExpressVu has interests in other broadcasting distribution undertakings. (emphasis added)
  In fact, Shaw, with approximately 2.8 million subscribers, after adding the cable subscribers and Star Choice's DTH customers, is the largest signal distributor in Canada, far ahead of Rogers, Vidéotron, ExpressVu and Cogeco. This places it in a strong position when dealing with programming undertakings. All the more so if structural separation is abandoned and if the duties of the senior executives of all three applicants are permitted to become integrated. In the current context, adoption of the proposed confidentiality procedures by sales, marketing and customer service personnel does not, in my view, offer an effective mechanism to counterbalance a situation in which an integrated senior management, through its position of systemic dominance, is fully knowledgeable of the operations of the broadcasting undertakings concerned.
  Furthermore, I consider it largely wishful thinking to believe that the observation of confidentiality procedures by personnel charged with negotiating and administering affiliation contracts with programming undertakings would serve as an effective mechanism for preventing undue pressure being brought against programming undertakings. This would owe precisely to the aforementioned systemic dominance and intimate knowledge of the operations of the applicant undertakings by integrated senior management.
  Consequently, I find that the joint application filed by these applicants for relief from their conditions of licence relating to structural separation is premature. In essence, the applicants have failed to demonstrate that there has been an appreciable change in the market conditions and the circumstances they currently face, from those that existed on 9 July 1999 and on 28 May 2001, when the Commission found it essential, first to establish rules for a structural separation, and subsequently to reiterate their importance.
  Moreover, as I have stated above, I believe that the Commission's practice of denying applications for amendments to conditions of licence by licensees who are in non-compliance is essential to maintaining the integrity of the Commission's policies. I see no valid reason to depart from this practice in the present case.
  Accordingly, I would deny this application and retain the existing conditions, at least until the licences come due for renewal in 2003, and the Commission is able to conduct a full examination of the matter.

Date Modified: 2002-04-12

Date modified: