TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

                          SUBJECT:

REVIEW OF THE OVER-THE-AIR TV POLICY /

EXAMEN DE CERTAINS ASPECTS DU CADRE RÉGLEMENTAIRE

DE LA TÉLÉVISION EN DIRECT

HELD AT:                              TENUE À:

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

Portage IV                            Portage IV

140 Promenade du Portage              140, promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

November 30, 2006                     Le 30 novembre 2006

Transcripts

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

Contents.

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.

Transcription

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.

               Canadian Radio‑television and

               Telecommunications Commission

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

                 Transcript / Transcription

           REVIEW OF THE OVER-THE-AIR TV POLICY /

     EXAMEN DE CERTAINS ASPECTS DU CADRE RÉGLEMENTAIRE

                 DE LA TÉLÉVISION EN DIRECT

BEFORE / DEVANT:

Michel Arpin                      Chairperson / Président

Rita Cugini                       Commissioner / Conseillère

Richard French                    Commissioner / Conseiller

Elizabeth Duncan                  Commissioner / Conseillère

Ronald Williams                   Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Chantal Boulet                    Secretary / Secrétaire

John Keogh                        Legal Counsel /

Valérie Lagacé                    Conseillers juridiques

Shelley Cruise

Peter Foster                      Hearing Manager /

Gérant de l'audience

HELD AT:                          TENUE À:

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

Portage IV                        Portage IV

140 Promenade du Portage          140, promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

November 30, 2006                 Le 30 novembre 2006

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

PRESENTATION BY / PRÉSENTATION PAR:

Shaw Communications                              1089 / 5956

Bell Canada                                      1141 / 6261

Cogeco Inc.                                      1228 / 6805

British Columbia Institute of Technology         1277 / 7026

Fédération nationale des communications          1306 / 7211

Société des autres et compositeurs dramatiques   1339 / 7417

  et de la Société civile des autres multimédia

Shaw Rocket Fund                                 1365 / 7565

                 Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Thursday, November 30, 2006

    at 0830 / L'audience reprend le jeudi

    30 novembre 2006 à 0830

LISTNUM 1 \l 1 \s 59485948             THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.

LISTNUM 1 \l 15949             Madame la Secrétaire.  Mrs. Secretary.

LISTNUM 1 \l 15950             LA SECRÉTAIRE : Merci, Monsieur le Président.

LISTNUM 1 \l 15951             Avant de débuter, j'aimerais rappeler aux participants que l'interprétation gestuelle est disponible durant cette audience, et si vous voulez bénéficier de cette interprétation, s'il vous plaît m'en faire part.

LISTNUM 1 \l 15952             Also, for the information of the participants in these proceedings, we would like to indicate that we do have some additional information that was added to the public record since the commencement of this hearing.  Copies are available in the examination room.

LISTNUM 1 \l 15953             In addition, we have ‑‑ nous avons une étude sur la production indépendante, mentionnée dans le mémoire du Conseil provincial du secteur des communications du Syndicat de la fonction publique, qui est le commentaire numéro 42.  Cette étude était mentionnée dans leurs commentaires.  Elle a été déposée au dossier public.

LISTNUM 1 \l 15954             We are now ready to proceed with the next presentation this morning of Shaw Communications Inc.  Mr. Jim Shaw will introduce his panel, after which you will have 15 minutes for your presentation.

LISTNUM 1 \l 15955             Mr. Shaw.

PRESENTATION / PRÉSENTATION

LISTNUM 1 \l 15956             MR. SHAW:  Thank you and good morning.  I apologize, I am getting a bit of a cold, so I won't be speaking too loud and hopefully everybody can hear.

LISTNUM 1 \l 15957             It is a pleasure to have with me today Michael D'Avella; our President Peter Bissonnette; the guy we call Ken "Steinovich" ‑‑ it is really Ken Stein but we nickname him and I am sure he is familiar to all of you here.  We have our trusted advisor and long‑term member of CRTC panels, Chris Johnston, with us; Cynthia Rathwell; and Mike Ferras today.

LISTNUM 1 \l 15958             So with that I think you will be pleased to know that our presentation will be quite brief, as was our ad in the paper.

LISTNUM 1 \l 15959             We are Canada's largest video ‑‑

LISTNUM 1 \l 15960             THE CHAIRPERSON:  You are just giving me an opportunity because I was looking for one and I have one.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 15961             MR. SHAW:  I thought I had 15 minutes.

LISTNUM 1 \l 15962             THE CHAIRPERSON:  I have nothing against your ad and I was told that CanWest Global and BGM are very pleased that you took that much lineage in their newspapers.  So I am sure they appreciate the intent.

LISTNUM 1 \l 15963             MR. SHAW:  Yes.  I understand ‑‑

LISTNUM 1 \l 15964             THE CHAIRPERSON:  It was also followed by emails that my colleagues and I have received and numerous other members of Parliament have also received.

LISTNUM 1 \l 15965             MR. SHAW:  Right.

LISTNUM 1 \l 15966             THE CHAIRPERSON:  But on behalf of my colleague Mr. French and myself, I want to say that we are pleased to see that your employees are not concerned about losing their job but they are concerned about accountability, they are concerned about ‑‑ let me read it through ‑‑ the core values of your company, which is accountable, balance, customer focus, integrity, loyalty, positive, can‑do attitude and team player.

LISTNUM 1 \l 15967             MR. SHAW:  Right.

LISTNUM 1 \l 15968             THE CHAIRPERSON:  Personally, I have received over 100 of them, mostly, mostly from your own employees, not from the general public.

LISTNUM 1 \l 15969             For the record, I want to let you know that we will not take them into consideration because the time to file comments was September the 27th ‑‑

LISTNUM 1 \l 15970             MR. SHAW:  Okay.

LISTNUM 1 \l 15971             THE CHAIRPERSON:  ‑‑ and it was known at that time that the broadcasters were to seek fee for carriage.  We understand that you are quite upset by the idea of the broadcasters.  That is why we are having this forum.

LISTNUM 1 \l 15972             MR. SHAW:  Right.

LISTNUM 1 \l 15973             THE CHAIRPERSON:  But I don't think the way the whole matter has been handled so far was the correct way.

LISTNUM 1 \l 15974             MR. SHAW:  I would just like to say back that it is our view and our intention and has been for quite a while to allow Canadians to have a view.  I get calls from customers every day asking me to keep them informed and involved.  Now whether we did that in a right form or we did it in the wrong form ‑‑

LISTNUM 1 \l 15975             THE CHAIRPERSON:  Well the thing is that wait for the decision.  Obviously, if the decision was to be the one that you are asking us to make, i.e. authorizing fee for carriage, then I could understand the campaign.  But so far it was not warranted.  So you have in face of you members, particularly myself, who is not very happy about this campaign.

LISTNUM 1 \l 15976             MR. SHAW:  Okay.  Should I continue?

LISTNUM 1 \l 15977             THE CHAIRPERSON:  Yes, you could.

LISTNUM 1 \l 15978             MR. SHAW:  Okay.

LISTNUM 1 \l 15979             We are Canada's largest video provider, servicing over 3.1 million Canadian customers and we are here today to speak to you on behalf of those customers.

LISTNUM 1 \l 15980             We would also like to present our views on the future of the broadcasting system.

LISTNUM 1 \l 15981             Contrary to what a lot of you have heard over the past few days, we think the future is incredibly bright for broadcasters, distributors and consumers.

LISTNUM 1 \l 15982             We operate in a highly competitive environment driven by the demands of our customers.

LISTNUM 1 \l 15983             Over the past five years we have invested over $4 billion in expanding capacity, in introducing services in our cable and satellite businesses.  We have also made a tremendous investment in customers, servicing, providing 24/7, 365, same day, next day.  This is what we do to remain competitive, innovative and leaders in our business.

LISTNUM 1 \l 15984             We have virtually no regulatory protection, lots of competitors and a growing black market satellite problem.  We have to compete every day to keep the customer.

LISTNUM 1 \l 15985             The industry does not need new layers of regulatory protection.  Instead, we should use our strengths, work together and conquer all challenges of the digital world.  We can do this by innovating and putting the customer first.

LISTNUM 1 \l 15986             As we face more competition, the answer will not be to increase prices without increasing value.  If we do, we will lose the loyalty of our customers and everyone will suffer.

LISTNUM 1 \l 15987             Rogers and others have discussed the harm of the entire system that will result from a fee for carriage and we strongly agree with their submission and their positions but today we are here to talk about problems and we are here to talk about solutions.

LISTNUM 1 \l 15988             MR. BISSONNETTE:  One of the most important elements of our vision of a bright future is a strong analog basic cable service.

LISTNUM 1 \l 15989             Local broadcasters will always be part of this service.  The fact is that 70 percent of our customers take only analog services.  That is why we believe that a strong analog offering is not only good public policy but great for consumers and good for business.

LISTNUM 1 \l 15990             We believe that a strong analog service is a competitive advantage to the system in a world where customers want the best programming on two, three, four or even five outlets in the home without having to buy a digital box.

LISTNUM 1 \l 15991             But make no mistake, we are committed to developing a strong digital platform as well.

LISTNUM 1 \l 15992             We are always adding new digital services, especially high definition television, and we recently made the move to simulcast, all analog services in digital, so that we could offer our customers a low cost digital box.  In addition, we have also invested over $2 billion in Star Choice, our all digital service.

LISTNUM 1 \l 15993             And the strength of our digital and analog offerings are strengths for the system and for broadcasters.

LISTNUM 1 \l 15994             Broadcasters rely on cable and satellite to provide stronger, interference‑free, reliable signals throughout their coverage areas.  In fact, along with the priority carriage and simultaneous substitution, broadcasters rely on cable to deliver 90 percent of their audiences.

LISTNUM 1 \l 15995             We are committed to ensuring that all conventional broadcasters receive priority carriage as part of our basic service.  Broadcasters will continue to have tremendous opportunities to generate billions of dollars in advertising revenue to support their businesses.  We think this is being and will continue to be an extremely fair bargain for broadcasters, consumers and BDUs.

LISTNUM 1 \l 15996             Broadcasters have the largest audiences and continue to take the lion's share of all TV advertising.  They are the largest best‑known destination for the most popular Canadian and U.S. programming.  Conventional TV is still the most watched service and its revenues continue to grow.

LISTNUM 1 \l 15997             We further support strengthening the system by giving broadcasters even more market‑based opportunities to generate revenue.  We suggest full advertising flexibility, including removing the 12‑minute advertising limit and allowing promotions, sponsorship and product placement.

LISTNUM 1 \l 15998             MR. D'AVELLA:  We would also like to discuss time‑shifting in some detail because it has been raised as problem when in reality it is one of the great strengths of the system and one that supports the ability of broadcasters to generate advertising revenue.

LISTNUM 1 \l 15999             Time‑shifting preserves advertising, unlike, for example, PVRs, it increases windows available for Canadian programming, it encourages Canadians to adopt digital technologies, and it keeps our broadcasting system competitive with unregulated options by offering more choice and flexibility to viewers.

LISTNUM 1 \l 16000             Broadcasters, predominantly large national companies, should find ways to monetize the value of time‑shifting instead of trying to eliminate or reduce choices for consumers.

LISTNUM 1 \l 16001             Large‑market broadcasters such as CanWest and CTV call for DTH to distribute all local stations to preserve broadcasters' existing advertising models.

LISTNUM 1 \l 16002             Star Choice already carries nine CanWest stations and 10 CTV stations in standard definition.  We foot the entire bill for their distribution on costly and scarce national satellite transponders.  In the future we are going to need capacity for HDTV services to sustain our competitive position and give our customers greater value.

LISTNUM 1 \l 16003             We also currently carry 13 small‑market broadcasters on Star Choice.  Six of these broadcasters are owned by the Pattison Group, Newcap and Standard Broadcasting.  They are affiliates of the large national networks and broadcasters.

LISTNUM 1 \l 16004             From a Star Choice customer perspective, they add little value outside of their local communities.  Mandated carriage of even more of these services is unnecessary.  For Star Choice, it is untenable.

LISTNUM 1 \l 16005             We cannot and the system cannot afford to waste scarce and expensive resources on the distribution of stations that add little value.  By the broadcasters' own admission, these stations are highly duplicative and offer a limited amount of unique local programming.

LISTNUM 1 \l 16006             The CRTC has identified omnibus channels as a way to make efficient use of capacity.  However, there appears to be little willingness on the part of broadcasters to explore this practical solution.  Giving them more regulatory protection will only reinforce that unwillingness.  We need a strong signal from the Commission or means to make omnibus channels more achievable.

LISTNUM 1 \l 16007             We also think that small markets provide excellent opportunities.  Shaw has over 100 cable systems with less than 6,000 subscribers.  We recently purchased some small cable systems in Whistler, Grand Forks and Kenora.

LISTNUM 1 \l 16008             These markets represent challenges but we have found ways to bring new digital services, high‑speed internet and soon even digital phone to some of these small communities.  Serving small markets takes work, investment and innovation but it can be done.

LISTNUM 1 \l 16009             MR. STEIN:  As business people we prefer market‑based solutions.  We don't like being told what to do and we don't want to tell broadcasters what to do.

LISTNUM 1 \l 16010             With respect to the question of whether broadcasters should be required to provide an over‑the‑air digital or HD signal, that is their business decision to make.  Shaw is committed to distributing the broadcasters' over‑the‑air digital services on basic, no matter how they deliver the signal to our headend, provided there is no fee for carriage.

LISTNUM 1 \l 16011             We would like to work with broadcasters to ensure a smooth transition to digital.  HD provides broadcasters a fantastic new opportunity to strengthen their service and to counter the attraction of web‑based services.

LISTNUM 1 \l 16012             Yes, it will cost money to implement high definition but that is the cost of doing business.  Our cost to facilitate distribution in the next five to 10 years will be in the billions for Star Choice and for our cable systems as we acquire and operate transponders and expand cable capacity.

LISTNUM 1 \l 16013             We encourage broadcasters to make the investments they need to make.  Improving high definition content will be one of the ways that we will retain and even repatriate customers.

LISTNUM 1 \l 16014             We also need a regulatory framework that puts the consumer first.  This means replacing complex and inflexible rules with a simple rule requiring BDUs to distribute a majority of Canadian services.  This will ensure Canadian programming choices exist so that people are always able to buy Canadian.

LISTNUM 1 \l 16015             Collectively, the regulator, broadcasters and distributors will need to foster innovation, provide greater choice and ensure continued viewer loyalty to the Canadian broadcasting system.  This is the only way to succeed in a digital world.

LISTNUM 1 \l 16016             MR. SHAW:  Throughout the history of the Canadian broadcasting system, which you all know very well, we face many challenges.  The current situation is no different.  Thankfully, broadcasters and distributors are both strong.

LISTNUM 1 \l 16017             The CRTC should be wary of making important decisions based on only anticipated trends and consumer surveys and the cyclical problems of some broadcasters' business plans.

LISTNUM 1 \l 16018             We have presented a number of proposals here today that we think will provide a solid framework for the future.  A strong analog service guarantees priority carriage for over‑the‑air broadcasters; provides broadcasters with full advertising flexibility, including product placement promotion and sponsorship opportunities; supports the benefits of time shifting through commercially negotiated arrangements; continues measures to support small system markets; looks at the Commission to see what they could do to remove the regulatory burden that is now placed on broadcasters, whether that is reporting on ‑‑ whether you have, what do you call it?

LISTNUM 1 \l 16019             MR. STEIN:  Capacity.

LISTNUM 1 \l 16020             MR. SHAW:  Capacity.  We had capacity but logs and stuff like that.  Is there a way that the Commission could make the load lighter rather than just look to the consumer?

LISTNUM 1 \l 16021             I'm sure there is somebody there that does that report that wouldn't be that happy with that idea.

LISTNUM 1 \l 16022             Collaboration between distributors and broadcasters to ensure an effective market and transition to digital, but only on the basis that the distributor will provide, and we will take up and do whatever we want with the signal, and they can provide it in any form.

LISTNUM 1 \l 16023             So if they want to stay analog, we are fine with analog; if they want to go to digital, we are fine with digital.  If they want to work on HD, let's work on a business plan for HD.

LISTNUM 1 \l 16024             So we are very flexible there and we think that gives the ability for Canadians to have a maximum level of choice from the system today.

LISTNUM 1 \l 16025             One last comment.  We love the TV business.  As you know, Shaw was just able to purchase CJBN‑TV Kenora, Canada's newest superstation.

LISTNUM 1 \l 16026             Other small market stations are for sale, or maybe a network.  We would ask them to please give us a call because we like the small markets.  Serving over a hundred small markets now, we think that we have come up with a good plan to do it and we don't understand why they can't.

LISTNUM 1 \l 16027             With that, that ends my comments here today.  Thank you very much.

LISTNUM 1 \l 16028             THE CHAIRPERSON:  Thank you, Mr. Shaw.

LISTNUM 1 \l 16029             I will ask Commissioner Williams.

LISTNUM 1 \l 16030             COMMISSIONER WILLIAMS:  Good morning, Mr. Shaw, gentlemen, Ms Rathwell.

LISTNUM 1 \l 16031             That's probably a good place to start, Mr. Shaw, with small market stations.

LISTNUM 1 \l 16032             You state in your submission that you do not support regulatory protections for large broadcast ownership groups with small market stations.  You just said you would have some innovative solutions to challenges within the small market television industry.

LISTNUM 1 \l 16033             What measures do you consider would be appropriate to ensure these stations continue to fulfil their local programming obligations?

LISTNUM 1 \l 16034             MR. STEIN:  I will start and I'm sure others will have some comments.

LISTNUM 1 \l 16035             We think that measures that we have put in place, as described by the small broadcasters ‑‑ I think they described it as a home run.  We think that those measures are appropriate in terms of providing support in those areas.

LISTNUM 1 \l 16036             So I think where we have a concern primarily is when we get into excessive duplication.

LISTNUM 1 \l 16037             We think that the small broadcasters can make their own decisions, make their own investments in terms of serving the particular community.  They may have in those areas substantive over‑the‑air audience, which is fine and appropriate, and where we deliver them we will make them available as part of the basic service on cable.  And where we deliver them via satellite and they are linked up, then they will be made available.

LISTNUM 1 \l 16038             One of the options we would really like to explore much more is the omnibus channel because there is just excessive duplication.  Looking at the omnibus channel and creative ways of advertising to support them I think would be appropriate.

LISTNUM 1 \l 16039             So far we haven't received a very positive response in that front, but that is what we would like to explore.

LISTNUM 1 \l 16040             COMMISSIONER WILLIAMS:  Describe your omnibus channel proposal, please.

LISTNUM 1 \l 16041             MR. STEIN:  Cynthia, do you want to take that?

LISTNUM 1 \l 16042             MS RATHWELL:  Thank you.

LISTNUM 1 \l 16043             Our omnibus channel proposal would be that we would take local programming from each of the small market signals and compile it on one channel, much as the Commission envisioned in its decision regarding partial and omnibus channels that was issued to Bell ExpressVu.

LISTNUM 1 \l 16044             Ideally, we would like to negotiate those kinds of channels with broadcasters.  Unfortunately, to date, we haven't sensed a great willingness on their behalf to afford any consent that would be necessary to arrive at those channels.

LISTNUM 1 \l 16045             We would be appreciative of any Commission support.  We know that in the decision that was rendered on this already the Commission signified that it viewed it as an efficient and perhaps very good solution to the problem of duplication.  And that is the kind of thing we would like as well.

LISTNUM 1 \l 16046             COMMISSIONER WILLIAMS:  The broadcasters have recommended that all of their stations that originate programming should be carried on satellite in their entirety.  The distribution of just their original programming would not be adequate, in their view.

LISTNUM 1 \l 16047             How much does it cost per year to distribute a typical local station by satellite in high definition across its market?  And if you could include costs like the uplink costs, the transponder costs, receiver costs, just give us an idea of how much money is involved in this type of distribution.

LISTNUM 1 \l 16048             MR. D'AVELLA:  I will start, Commissioner Williams.  Thank you for your question.

LISTNUM 1 \l 16049             Right now I think we distribute about 73, including three HD broadcast television stations, on Star Choice.  They occupy, I believe, about ten transponders.

LISTNUM 1 \l 16050             If we were to do all of them ‑‑ I think there are 124; that's the number we have heard in this hearing ‑‑ it would obviously require another anywhere from seven to eight transponders.  And bear in mind that that is essentially standard definition.

LISTNUM 1 \l 16051             So when we move to HD, the greatest efficiency that we have been able to achieve on a transponder is essentially three per transponder, and the standard definition world is anywhere from eight to ten, depending on the content.

LISTNUM 1 \l 16052             So there simply isn't enough capacity.  We don't have enough transponders.  We don't own the satellite.  We lease capacity from Telesat.

LISTNUM 1 \l 16053             Right now I think, Peter, we probably have one and a half transponders available probably for HD services.  That is all incremental cost to us.  They pay absolutely none of the costs associated with backhaul.  They don't pay any of the transponder costs.  It is all costs to Star Choice.

LISTNUM 1 \l 16054             MR. BISSONNETTE:  And the reality also is whereas on the cable side we have the opportunity to continue to expand through upgrading and resizing our networks to provide for more services, with satellites, after the one and a half transponders are used up, there is no more capacity.  The next capacity that will be available to us will be when there is a new satellite that is launched by Telesat.

LISTNUM 1 \l 16055             So we are continually looking at more creative ways of adding services that our customers really want, utilizing the capacity that we currently have in a more effective way ‑‑ and that's why omnibus really appeals to us; looking at different technological approaches to multiplexing, if you will, on transponders.  We looking at 8‑QSB or 8‑PSK types of multiplexing to even use our existing transponders more effectively.

LISTNUM 1 \l 16056             So it is a continuous challenge.  We just could not accommodate those additional local channels.

LISTNUM 1 \l 16057             We don't think that by providing those services that we really add more value to the system and to our customers, other than those that might be specifically in a discrete location within that community.

LISTNUM 1 \l 16058             MR. SHAW:  I guess, Peter, it would be fair to say that we think that each transponder is about $20 million.  So every time you add one to us, that is roughly our cost.

LISTNUM 1 \l 16059             You know, even right now, if we take TVA, we have nine channels up.  Right?

LISTNUM 1 \l 16060             MR. BISSONNETTE:  Yes.

LISTNUM 1 \l 16061             MR. SHAW:  They are almost all duplicated and all for the Quebec region, which is only a certain part of Canada.  We are glad to do that, but the duplication is so heavy.  And you go and every channel has the same thing on.  It just uses up all our space and we don't have any ability to offset that at all.  So that is our issue.

LISTNUM 1 \l 16062             We are trying to be more efficient.  We are not saying we won't show CBC.  You might not get CBC Moose Jaw; you might get Regina or you might get Winnipeg.  Maybe we could go by region and get a few.

LISTNUM 1 \l 16063             But the load is really heavy on this duplication.  Every channel is the same except for the local news.

LISTNUM 1 \l 16064             What we were hoping is to just make a channel and we will put all the local news on it.  We will just copy them all and put them all on, because that's Canadian programming.  Then you can just tune to the channel and you can watch ‑‑ you know, we will do it by time zone and you can watch Toronto, then you can watch this.  All the other programming is identical.  You just take the network feed and move ahead.

LISTNUM 1 \l 16065             For us, it really just reduces our cost; maybe allows the ability for us to be a little more creative and do a few more things on a go forward basis.

LISTNUM 1 \l 16066             COMMISSIONER WILLIAMS:  Thank you for your answers, gentlemen.

LISTNUM 1 \l 16067             In your written submission you propose a regulatory model that calls for replacement of the existing distribution framework with the simple preponderance rule:  one basic requirement that distributors offer predominance of Canadian services to customers.

LISTNUM 1 \l 16068             Could you please elaborate on this concept.  Are you proposing that a predominance of Canadian services would have to be offered but that subscribers could choose any combination of services they wanted, including one that might not include any Canadian services at all?

LISTNUM 1 \l 16069             MR. STEIN:  Yes.  What we are basically proposing is that we would have a basic ‑‑ whether it is analog or digital, there would be a basic package which would have all the priority carriage services: the CBCs, the local services.  So that would be fundamentally a package that would be predominantly Canadian, quite frankly.

LISTNUM 1 \l 16070             Added to that we would also put on that basic package some of the channels that might currently be on tiers or on digital that we think would be particularly relevant to a good portion of the market.

LISTNUM 1 \l 16071             We still believe very strongly in the analog market.  So we would like to make sure that the basic package is strong.  That service for every consumer would be predominantly Canadian.

LISTNUM 1 \l 16072             In terms of packages, we do believe that people should be able to pick from the other services.  They should be free to pick what services they wish, whether they are Canadian or international.

LISTNUM 1 \l 16073             We would think that on an overall basis, even if they picked a U.S. or foreign package ‑‑ and we would include in that things like Rye and BBC World.  It is not limited to the U.S. services.

LISTNUM 1 \l 16074             But if they pick that, we still think that the overall package they would take would still be predominantly Canadian.  But we would not require them to buy a strictly Canadian package.

LISTNUM 1 \l 16075             COMMISSIONER WILLIAMS:  The first package that you described with the local signals and the Canadian services, and I imagine the 91H services, have you given any thought to what price point that would be offered at?

LISTNUM 1 \l 16076             MR. STEIN:  Price point?  The price point it would be offered at would be very similar to the price point we would offer it at now.  We wouldn't see that shifting or changing.

LISTNUM 1 \l 16077             COMMISSIONER WILLIAMS:  There would be no reductions or increases?

LISTNUM 1 \l 16078             MR. STEIN:  No.  It's popular now.  We have been able to maintain our basic cable subscribers with that set of services by increasing value in that package and continuing to invest in the system.

LISTNUM 1 \l 16079             MR. SHAW:  And we always have the market forces coming in to monitor us.  As you know, satellite guys do different things.  The black market guys come in and do different things.

LISTNUM 1 \l 16080             Our ability to continue to raise the rate is always a big subject at our firm when we go and say gee, we have 3,000 trucks right now.  Well, when gas goes up three bucks or it goes up a buck, this is a big deal for us.  Then of course everybody wouldn't mind getting the odd little wage increase, and stuff like that.  So we have a lot of imbedded costs.

LISTNUM 1 \l 16081             We have 9,000 employees now and we are just trying to manage it.  So there is a lot of that in there, Ken.

LISTNUM 1 \l 16082             We also have to be cognizant of the market.

LISTNUM 1 \l 16083             Peter, are we charging ‑‑ is it around 50 bucks?  I can't remember, 40 bucks.

LISTNUM 1 \l 16084             MR. BISSONNETTE:  The average is around $50, but that includes more services than just our basic services.  Our basic services are priced at $23, $24.

LISTNUM 1 \l 16085             MR. SHAW:  I'm talking about the seventy.

LISTNUM 1 \l 16086             MR. BISSONNETTE:  Yes.  So it is in that $49 for 70 channels.

LISTNUM 1 \l 16087             There is good value in there.  The fact that 70 percent of our customers are quite happy to take an analog‑only service, bundled in some cases with our Internet or telephone services, really reflects the kind of value that they see in those services.

LISTNUM 1 \l 16088             COMMISSIONER WILLIAMS:  Thank you.

LISTNUM 1 \l 16089             In your written submission, you state that Shaw believes the market, rather than regulatory mechanisms, is the most effective way of ensuring the production ‑‑

LISTNUM 1 \l 16090             This is in the area of Canadian programming.

"...ensuring the production, presentation and the amount of popular Canadian programming, but that the current reality is that the Canadian Television Fund is the major determinant of what Canadian programs are produced."

LISTNUM 1 \l 16091             If marketing is the most effective way of ensuring the protection of Canadian programming, why is there a need for the CTF?  Why does the CTF exist?

LISTNUM 1 \l 16092             MR. SHAW:  Don't everybody reach at once!

‑‑‑ Laughter / Rires

LISTNUM 1 \l 16093             MR. SHAW:  Our view of the CTF is that it is not a very effective organization, that it is basically ‑‑

LISTNUM 1 \l 16094             What do you call it on the farm when you have a big thing and everybody goes and eats there?

‑‑‑ Pause

LISTNUM 1 \l 16095             MR. SHAW:  Okay.  I won't call it that.

LISTNUM 1 \l 16096             I think that when we look at it, it has shown that it hasn't been that effective, even though our company this year will pay $56 million ‑‑ this year alone ‑‑ and, yet, they are having a hard time figuring out how to get us ‑‑ our satellite guys can't get a Board seat to help make a decision.

LISTNUM 1 \l 16097             It is really ineffective.  When you have 25 Board members, you can't run anything effectively, I wouldn't care what it was.

LISTNUM 1 \l 16098             I think that, when you look at it, it is another thing that needs to be revamped.  It might be more of an overall government issue, but, certainly, when the CBC is allowed to go in and take, automatically, 37 percent ‑‑ what for?

LISTNUM 1 \l 16099             Why is that?  Why is that not a decision?

LISTNUM 1 \l 16100             Do I get an automatic right to go there?  I don't.

LISTNUM 1 \l 16101             I get an automatic right to do what?  I get an automatic right to pay.

LISTNUM 1 \l 16102             The only thing they ever call us about ‑‑ and they have never called me.  They call Peter, I guess.  I said to them:  We are the largest payer in there, and yet the chairman has never even bothered to phone me once since its inception, about anything.  "What do you think?"  "How is it doing, Jim?"  "Do you have any opinions?"  "Are we doing a good job; not doing a good job?"

‑‑‑ Laughter /  Rires

LISTNUM 1 \l 16103             MR. SHAW:  I get judged quarter‑over‑quarter at Shaw Communications, and I can tell you that some quarters ain't that great and I get in trouble.

LISTNUM 1 \l 16104             What is the process, and what do they do with it?

LISTNUM 1 \l 16105             We are not here recommending solutions, but we do see it as not as helpful as everyone would think.

LISTNUM 1 \l 16106             COMMISSIONER WILLIAMS:  As you know, Mr. Shaw, the CRTC has no involvement in how the Canadian Television Fund operates, but we do play a significant role in its funding.

LISTNUM 1 \l 16107             Could you explain why the way the CTF is funded should be re‑examined?  And what changes would you propose?

LISTNUM 1 \l 16108             How can we fix this organization that, in your opinion, isn't as effective as it could be?

LISTNUM 1 \l 16109             MR. STEIN:  This started with the cable industry's proposals in the early nineties, because it was felt that there was a recognition, as we developed new programming services, that we would need to invest not only in the capital expenditures that we would have to make, in terms of our distribution systems, but that we would have to make investments in the development of content.

LISTNUM 1 \l 16110             The original idea was that this would be an investment in the development of Canadian programming.

LISTNUM 1 \l 16111             Our concern, over the past number of years, has been that it is not really looked at as an investment vehicle, but much more as a vehicle to take care of special interests, and to be able to allocate funding on an ‑‑ I hate to say it ‑‑ envelope basis ‑‑ the CBC is entitled to so much ‑‑ and that winning programming, like children's programming, for example, has actually been on the decline.

LISTNUM 1 \l 16112             As well, since 1999, when the expenditure requirements were changed, it is obvious that there has been a flat line in terms of Canadian programming investment.

LISTNUM 1 \l 16113             We feel that the original intent of the fund, which was to invest in Canadian programming, to make it worldwide competitive, to put it on a sustainable basis, has clearly been an abject failure.

LISTNUM 1 \l 16114             Our changes would be:  to run it more as a fund; to run it as an investment vehicle.

LISTNUM 1 \l 16115             That is what the world's broadcasting is all about.  It is a very competitive environment for distributors and broadcasters, and we think that investment in programming should be treated the same way.

LISTNUM 1 \l 16116             We think that, in any industry you look at, the fact that it has to be competitive, that it has to exist without subsidies, that always strengthens the industry.

LISTNUM 1 \l 16117             A perfect example is western Canada's transportation system.  We used to have lots of subsidies, and the subsidies, under a variety of governments, were eliminated, which led to a tremendous strengthening of the transportation industry, and tremendous benefits for the economy of western Canada.

LISTNUM 1 \l 16118             I think the example holds:  that excessive regulation, excessive attention to allocating on an entitlement basis, is not the way to develop an industry.

LISTNUM 1 \l 16119             That is our view.

LISTNUM 1 \l 16120             COMMISSIONER WILLIAMS:  Thank you, Mr. Stein.

LISTNUM 1 \l 16121             In the area of time shifting to Fee for Carriage, in your written submission you state that the provision of time‑shifted signals is beneficial to Canadian consumers, and the Canadian broadcasting system generally, as it increases the windows for viewing Canadian programming, it encourages Canadians to adopt digital technologies, and it encourages consumers to remain within the broadcasting system, rather than choosing non‑regulated options.

LISTNUM 1 \l 16122             The time shifting of Canadian over‑the‑air stations has been a significant selling point for DTH operations, such as the one you have, in attracting subscribers to the service.

LISTNUM 1 \l 16123             Why should over‑the‑air licensees be able to negotiate with DTH for the use of their distant signals?

LISTNUM 1 \l 16124             There was a proposal put forward that they would like the ability to withdraw their consent for carriage to help the negotiating process go along.

LISTNUM 1 \l 16125             Could I have your comments on that, please?

LISTNUM 1 \l 16126             MR. STEIN:  First of all, the reason time shifting developed was because people demanded that we carry their signals.  So the whole basis, as it evolved, on DTH was this magical development, where we started putting these signals up, and people started saying:  Wow!  This is terrific.  I can watch this show at this time.

LISTNUM 1 \l 16127             I noticed in one of the surveys, though, that one of the advantages people saw in time shifting was watching sports earlier.  I guess you could watch your hockey game an hour earlier ‑‑ before it started.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 16128             MR. STEINS:  You could get the result early, too.

LISTNUM 1 \l 16129             Consumers like it.  Its advantages are there for people now, and it is a double advantage.  One is that signals get lifted up and they get carried, and they are on the satellite; and, aside from the excessive duplication, the fact that people can choose when to watch it is advantageous.

LISTNUM 1 \l 16130             I think the surprise to us was when a broadcaster said that it wasn't of value to them, the fact that people had increased windows to watch their programs.  We thought that that was a tremendous value.

LISTNUM 1 \l 16131             In any event, we were willing to negotiate with them, and we did come to a negotiation ‑‑ a commercial negotiation ‑‑ as to the carriage of their signals, and that's the way it is at the moment.

LISTNUM 1 \l 16132             MR. SHAW:  I have to say that one of the main things that we find on time shifting ‑‑ and we recently started it on the cable system, because we were at such a disadvantage to all of the other providers.

LISTNUM 1 \l 16133             I think, Peter, that happened within a month or two.

LISTNUM 1 \l 16134             I think the commercial rate negotiation has gone very well, so I don't think you should be concerned about that.  It is no different from any other signal we have, and any other supplier relationship, and provider relationship.

LISTNUM 1 \l 16135             We have always been able to come to some deal.  You have the dispute mechanism, if that goes the wrong way down the road, and you can get involved, if you guys want, or not.

LISTNUM 1 \l 16136             We think that it is a natural progression.

LISTNUM 1 \l 16137             The one thing that is really hard for us is that Canadians love it.  Other than, when you go through all of the CBC, if you get the wrong time shift and you get a whole bunch of the same programming, they don't like that, but they do like being able to watch ‑‑ I always get these numbers mixed up ‑‑ CFTO, and then Winnipeg, and then you can watch Regina ‑‑

LISTNUM 1 \l 16138             I don't know about you, but I am having a hard time staying up past 10 at night.

LISTNUM 1 \l 16139             I am waiting for the 11 o'clock CTV news in Calgary, and I can barely make it.

LISTNUM 1 \l 16140             And I am not the biggest CBC fan, because that channel seems a bit different to me.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 16141             MR. SHAW:  I do like to watch some news, and I can hardly make it.  I am up really early in the morning, but I can't make it ‑‑ midnight is a stretch.

LISTNUM 1 \l 16142             MR. BISSONNETTE:  Jim, let's not forget that five, six or seven years ago, when people thought of satellite, they thought of black market satellite, and they thought of the advantages that black market satellite provided to them, which was time shifting, the ability to look at services at different times of the day, to look at prime time kind of programming.

LISTNUM 1 \l 16143             We have now provided a product where there is no difference, if you will, in terms of the advantages that our customers, who happen to be DTH customers, will experience between the services we provide and those services that the black market might provide.

LISTNUM 1 \l 16144             The one advantage, I guess, is that the black market is free.

LISTNUM 1 \l 16145             But the fact is, in terms of programming, we have a very, very compelling series of programs that are available to our customers.

LISTNUM 1 \l 16146             As Ken said, when we weren't carrying some of the distant signals, we were written to by the broadcasters, saying:  Why aren't you carrying my services?

LISTNUM 1 \l 16147             When we launched high definition television, we were asked:  Why aren't you carrying CFTO?  You have to carry CFTO.

LISTNUM 1 \l 16148             It is a compelling service, and based on the compelling service, we agreed that it would make a nice tuck‑in, if you will, with our other HD services on Star Choice, and now on our cable services.

LISTNUM 1 \l 16149             So the broadcasters have expressed the desire to be carried, and you don't express a desire to do something if it is hurting you.

LISTNUM 1 \l 16150             MR. FERRAS:  I would add, in terms of the negotiation, that I think it is our full expectation, and we are fully committed to having a very good negotiation with the broadcasters.

LISTNUM 1 \l 16151             As you know, we didn't really have that opportunity ‑‑ no one in the industry did ‑‑ because the agreements expired in August of last summer.  Then we went into this policy proceeding, and we hope to take guidance from the Commission and from the record, in terms of policy, go away and meet the broadcasters, and really sit down and work hard and try to come to a solution.

LISTNUM 1 \l 16152             Our perspective is going to be that time shifting is really valuable for the system.  It keeps Canadians plugged into the broadcasting system, to the regulated platform, and that has to be good for everybody.

LISTNUM 1 \l 16153             That is our intention.  We are here to listen and to participate, and we really want to take your guidance and then go and sit down with the broadcasters.

LISTNUM 1 \l 16154             MR. D'AVELLA:  Just one final comment on that subject.  We don't know any broadcaster or programmer who is looking for less carriage.  They all want more carriage.  And they are not homogenous enterprises.  We are dealing with companies, some of which own 33 specialty services.

LISTNUM 1 \l 16155             So they are all interested in:  What is the big deal?  Give me more carriage of this, and a trade‑off for that.

LISTNUM 1 \l 16156             As Michael points out, these are all commercial negotiations that we are quite comfortable entering into, and we are very confident that we can get a deal done.

LISTNUM 1 \l 16157             COMMISSIONER WILLIAMS:  Thank you.

LISTNUM 1 \l 16158             You also state that specialty and pay television services do not transmit free over the air, and, thus, consumers understand and accept the logic of an associated fee.

LISTNUM 1 \l 16159             However, the signals of Canadian television stations are available to customers free over the air.  Canadians will resent and resist being forced to pay for these signals, and many will find alternative sources of programming.

LISTNUM 1 \l 16160             Describe the scenario.  Would subscribers in Winnipeg not accept the logic of a fee associated with the DTH carriage of stations from Vancouver and Halifax, since these stations cannot be received over the air in Manitoba?

LISTNUM 1 \l 16161             I would ask you to elaborate a bit on that answer to describe what you view the customer/subscriber reaction would be to such fees being introduced.

LISTNUM 1 \l 16162             MR. SHAW:  Currently, we use it as a digital promotion, to enhance digital, to expand the capacity across the network.

LISTNUM 1 \l 16163             Basically, most of these ‑‑ Peter ‑‑ are available at no cost.  Right?

LISTNUM 1 \l 16164             That is basically it.  No one is paying for it now.  It is the same way we do it with the music channels.  The Guide you get for free, to try and promote access to digital, which is good for us, but also good for all of the other networks that are on the digital capacity ‑‑ or in the digital category.  And you have seen them go up.

LISTNUM 1 \l 16165             But what happens ‑‑ it is funny, with a subscriber, when you say ‑‑ let's see if I can think of a good example.

LISTNUM 1 \l 16166             If I went to you every day and I said, "You got 5 bucks?" and then I went to the next person and said, "You got 5 bucks?" you would say, "I'm not giving you 5 bucks."

LISTNUM 1 \l 16167             What did I get?

LISTNUM 1 \l 16168             If the answer is nothing ‑‑ and maybe a time shift is good from a consumer point of view ‑‑ the answer is nothing.

LISTNUM 1 \l 16169             The subscriber, I mean they go crazy.  Like you should see the calls I get.  I mean, they would make the e‑mails to the Commission look mild.  I mean, you can't even believe it.

LISTNUM 1 \l 16170             By the time they get to me, it's like full‑out war.  As I say, when we hurt a subscriber, we really hurt him.  We knife him and hurt him and knife him and hurt him.

LISTNUM 1 \l 16171             But when you practically look at it, we have to hang our hat in our group on value and that is why we are so adamant about it that it doesn't provide any value to any Canadian and no one will understand.

LISTNUM 1 \l 16172             The same way if I try to describe to a consumer how simultaneous substitution works, it's just like you might as well have glazed in the globe because no one can figure it out, and no one wants it.  They say, "Why do we have to do it?"  Then I explain the reason why we have to do it.

LISTNUM 1 \l 16173             I guess those are the benefits they have, but right now, even on the simulcast, I don't know if there is a lot of value that you can go and say, "Yes, here, give me a buck or two bucks" and that kind of thing.

LISTNUM 1 \l 16174             COMMISSIONER WILLIAMS:  Thank you.

LISTNUM 1 \l 16175             We will move into the area of transition to digital.

LISTNUM 1 \l 16176             In your written submission you state that:

"Fee for carriage or any other economic reward should not be linked with making the decision to broadcast in digital or offer HD programming.  These are investments that broadcasters will need to incur to operate in a competitive digital world and they should not be subsidized by cable or DTH customers."  (As read)

LISTNUM 1 \l 16177             In Public Notice 1993‑74 announcing its determinations pursuant to the structural public hearing, the Commission considered it reasonable that cable subscribers should bear a portion of the capital costs of implementing digital video compression, DVC, and universal addressability and to allow a portion of DVC and addressability related expenditures to be eligible for the purposes of cable operators, capital expenditure fee increases.

LISTNUM 1 \l 16178             Could it not be argued that programming services should be given the same sort of assistance that cable licensees have received in the past?

LISTNUM 1 \l 16179             MR. SHAW:  Why don't I start, and then we will go ‑‑ I'm sure the boys have a bit of a comment.

LISTNUM 1 \l 16180             You know, when we go ‑‑ and I will just try to remember our capital.

LISTNUM 1 \l 16181             So four years ago it was $850 million; three years ago I'm thinking $460 million ‑‑ Peter, around there?

LISTNUM 1 \l 16182             MR. BISSONNETTE:  Yes.

LISTNUM 1 \l 16183             MR. SHAW:  Yes.  And last year was $530 million, and this year going to $630 million a year.  I mean, we are supporting and a lot of these channels have carried at no cost.  We support all the uplinking, we do all this stuff.  For someone to argue that Jimmy Pattison, who is one of the richest guys in Canada, can't afford to upgrade Kamloops, I just find that ‑‑ like I don't understand.

LISTNUM 1 \l 16184             Some of these guys, they are really successful guys and they are going, "Well, you don't got $10 million or $5 million or something and we are spending hundreds."  We are just trying to keep the well shut.

LISTNUM 1 \l 16185             In cable TV my father always said, it's just a license to spend money.  He said, we are just waiting to the day we get to make some.

LISTNUM 1 \l 16186             So, I mean, we are coming, but there are a lot of requirements on the system and on us for capacity.

LISTNUM 1 \l 16187             You know, we have to put on all the French channels as soon as we hit ‑‑ I don't know, what is it, eight‑something, 750.  We have French channels that they have 40 customers ‑‑ 40, and they are on every network we have?

LISTNUM 1 \l 16188             So the burden on us is a lot to keep all this stuff going.  So for a guy to come and argue that you couldn't afford to go and spend a little bit on your business, I have to say:  You know what, you should maybe get out.  I guess maybe they will phone us to sell.

LISTNUM 1 \l 16189             MR. BISSONNETTE:  Jim, just to put it in context, we have heard numbers bandied around in terms of what it costs to move a transmitter from an analog to digital or to high definition.

LISTNUM 1 \l 16190             Given that there is even sufficient transponder space available, we are looking over the next five to 10 years what Shaw will have to invest, just in our satellite business, to provide high definition television to those broadcasters who will want to have high definition television distribution, and it is in the order of $775 million.

LISTNUM 1 \l 16191             $775 million; that is a lot of $10 a months.

LISTNUM 1 \l 16192             MR. STEIN:  A comment I would like to make on it is that I found it interesting Mr. Brace's comments about the costs for CTV of about $46 million.  They are willing to pay $1.7 billion for CHUM and they don't have $46 million to invest in going to HD?  That would seem to me to be not a very good kind of way to put the number.

LISTNUM 1 \l 16193             I think we are spending $630 million in capital in the coming year, just as Jim says, to keep the well closed.  So these are the investments that one has to make.

LISTNUM 1 \l 16194             In the high technology business, if you are a transmitter, if you are trying to depend on towers that last 20 years, that is just not the way this business is going to develop over the next 10‑15 years.  There are going to be a lot of changes and everybody is going to have to make those kinds of investments, and they are going to have to make those kinds of investments in a competitive marketplace.

LISTNUM 1 \l 16195             So that's the way we see that this has to develop.

LISTNUM 1 \l 16196             COMMISSIONER WILLIAMS:  All right.  Thank you very much, Mr. Shaw and your panel members.  That completes my line of questioning.

LISTNUM 1 \l 16197             Vice‑Chair Arpin...?

LISTNUM 1 \l 16198             THE CHAIRPERSON:  Yes.

LISTNUM 1 \l 16199             Vice‑Chair French...?

LISTNUM 1 \l 16200             COMMISSIONER FRENCH:  I guess this is a question for Mr. Shaw.

LISTNUM 1 \l 16201             There were 17 very small market broadcasters came to see us yesterday or the day before and one of the things they asked us to do was to eliminate the benefits policy for transfers of property where the broadcasting property's revenues were less than $10 million a year.

LISTNUM 1 \l 16202             If we did that, would that stimulate that market?  Would it be the kind of market you might be interested in absorbing?

LISTNUM 1 \l 16203             MR. SHAW:  You know, listen, I think our main point is that we are a large operator of small markets, right, and we have been very successful at deploying and building.

LISTNUM 1 \l 16204             So it's just we don't agree with the argument that you have no money, you can't convert, your system is in dire needs when all you do is local news that looks like community programming, you know, you have two anchors and one truck and four cameramen or something.  I mean, we just don't agree with that argument.

LISTNUM 1 \l 16205             We go and say, "You know what, if you don't like that business, call."

LISTNUM 1 \l 16206             COMMISSIONER FRENCH:  If we remove the benefits policy there would be more sellers and you might be a buyer?

LISTNUM 1 \l 16207             MR. SHAW:  I think all you would see is there might be a little quicker consolidation.  There will be consolidation across every line, no different than you see now with even telephony.  There are only really two large telcos.  Cablecos, there are only really three or four.

LISTNUM 1 \l 16208             You will just see a quicker consolidation where you will have, you know, Hildebrand buying them up or one of these guys, or maybe Shaw.

LISTNUM 1 \l 16209             COMMISSIONER FRENCH:  I don't know if this is for you, Mr. Shaw, or not.  You said there is a growing black market satellite problem.

LISTNUM 1 \l 16210             Do you have evidence and could you share it with us?

LISTNUM 1 \l 16211             MR. SHAW:  Well, I don't know if we have it or not with us, but what we are seeing is a continued response from our customers.  As you know, cable penetration has dropped.  I think Mr. Rogers was here yesterday saying they are down 5 to 8 percent.  I think we are down in that similar kind of range across the board.

LISTNUM 1 \l 16212             What is happening is that when ‑‑ maybe some of you go to Florida, maybe some of you go to California and some go to Arizona, that you have access to all these different channels, and when people come back they want them.  So the only way to get them is to really take them.

LISTNUM 1 \l 16213             Now, some might pay and some might not pay, that's a different issue, but we are seeing greater pressure on us to provide everything everybody wants and then we just have to come up with how we can support the Canadian broadcasting system with that.

LISTNUM 1 \l 16214             But we are seeing a huge demand for I want, I don't know, Comedy Central, or I want, you know, Hokey‑Pokey, HBO or whatever channel.

LISTNUM 1 \l 16215             You know what, people are not as patient as they used to be.  They are asking us all the time for this stuff.

LISTNUM 1 \l 16216             I'm not making a pitch for it, I'm just saying that there is a lot of pressure from general consumers that go "Why do I have to steal?"  I don't have an answer.  I can't offer it.  What do we do?

LISTNUM 1 \l 16217             MR. BISSONNETTE:  And there is evidence.  In the last two weeks ‑‑ and we have worked with our other satellite competitor in this area because it is mutually beneficial to all of us, whether in the cable industry or in the satellite industry, to do something to prevent the growing black market.

LISTNUM 1 \l 16218             In the last two weeks we know that there was a coordinated bust taking place in Ontario where one satellite retailer of black market devices was arrested.  All of his inventory was seized, his records were seized, and his records reflected in the most recent year how many people he has been selling black market devices to.

LISTNUM 1 \l 16219             And we know it's going on.  We see if you just go to the internet and you look under some of the Bluebird/Blackbird types of devices, the number of retailers or the number of private people who are actually selling software to activate those devices continues to grow.

LISTNUM 1 \l 16220             MR. SHAW:  I think if you look in Toronto, if we go to the Yellow Pages and we look under "satellite", I think we counted like 250 guys selling them.  And it won't be any different in Toronto than it is in Calgary or Vancouver or Ottawa or anywhere.

LISTNUM 1 \l 16221             COMMISSIONER FRENCH:  I don't think anyone contests that it exists.  I was just interested ‑‑ I appreciate the anecdotal evidence, but I underline it is anecdotal ‑‑ that it is actually growing.  And you believe it is and you are well‑placed to make that judgment and I appreciate it.

LISTNUM 1 \l 16222             It is very hard always for the Commission, and for broadcasters and for distributors to have concrete data and anything you have of course would be valuable.

LISTNUM 1 \l 16223             But it is your contention or your experience and interpretation of that experience that this is a "growing problem"?

LISTNUM 1 \l 16224             MR. STEIN:  Well, you know, Mr. French, with all respect, over the last number of years we have filed all kinds of evidence about this problem.  We have worked with the Motion Pictures Distributors Association and we have worked with the RCMP, we have done surveys, we have spent hundreds of thousands of dollars with evidence.

LISTNUM 1 \l 16225             The federal government hasn't acted, the Commission says it's not your jurisdiction, so we are left on our own, totally on our own to deal with the problem.

LISTNUM 1 \l 16226             The thing is, Mike can talk about some of the latest kind of events in terms of it growing, it is very hard to get enforcement under the current set of laws.  It is very easy to get access to the system, it is very easy to hack some of the systems that are out there.

LISTNUM 1 \l 16227             We at Shaw have invested in Star Choice in a more expensive technology to make sure it couldn't be hacked, but we can't realize the advantages of that because we are still competing against the black market.

LISTNUM 1 \l 16228             We could do a survey every month to put the evidence on the table, but the evidence we have put on the table in the past hasn't led to action to deal with this problem, as contrary to the kind of actions that have been taken in the United States.

LISTNUM 1 \l 16229             Mike may want to give you some more information about what is happening.

LISTNUM 1 \l 16230             MR. FERRAS:  Just quickly, I agree with everything that has been said, but I guess the point we want to make is just to understand that the problem has changed.  It used to be you would go and take a satellite receiver and you would ship it or you would have a grey address.  That problem, there has been great work done in the industry by our industry partners in the U.S.   As Ken mentioned, we work very closely with the RCMP across the country and Canadian Motion Pictures Distributors Association, DirectTV has fixed their system.

LISTNUM 1 \l 16231             The new problem is the one that Peter talked about, which is the free‑to‑air problem where you can go and buy this box illegally that is meant to pick up satellite signals that are in the clear.  There are still a few of those out there.

LISTNUM 1 \l 16232             But that box could be sold and imported with no problem whatsoever, because until it is modified it is legal.  And it so easy to modify now, you just hook it up to your internet ‑‑ hook your internet into it, bang you get it, and you get all the satellite services from two major providers.

LISTNUM 1 \l 16233             Evidence is always anecdotal.  It is really hard to say, "Well, the problem has gone from this much to this much, but the people that we deal with all the time on this say this is going to be bigger than the old black market problem ever was unless something is done.

LISTNUM 1 \l 16234             COMMISSIONER FRENCH:  I just equally, respectfully to Mr. Stein, it is not the testimony of all the participants in this proceeding that this is a growing problem.  This is the first time we have heard that it is a growing problem.

LISTNUM 1 \l 16235             We realize it is a large problem, a troubling problem, there is an enforcement issue.  Other people have said this problem seems to have levelled off.  I'm just giving you an opportunity to expand on your view that it is growing and I appreciate that you have done that.

LISTNUM 1 \l 16236             Thank you, Mr. Chairman.

LISTNUM 1 \l 16237             THE CHAIRPERSON:  I want to come back to narrow your question that Commissioner Williams asked of Mr. D'Avella and Mr. Bissonnette and it has to do with regard to cost comparison.

LISTNUM 1 \l 16238             What we are really looking for is regarding the cost of a satellite carriage of an analog over‑the‑air signal versus the carriage of a similar over‑the‑air station but with an HD signal.

LISTNUM 1 \l 16239             You referred to the fact that only opening up a new transponder cost $20 million, but we are trying to get some information regarding a more narrow situation of what are the uplink costs of an analog service versus an HD signal transponder cost and receiving cost.

LISTNUM 1 \l 16240             MR. D'AVELLA:  Well, the cost of the transponder doesn't change, it is our ability to put programming on that transponder in a standard definition form ‑‑ in satellite it's all digital ‑‑ we can compress it eight‑to‑one, so we can provide eight programming services on a single transponder.

LISTNUM 1 \l 16241             In the HD world, the current state‑of‑the‑art is two.  we can provide two HD signals on that single transponder.

LISTNUM 1 \l 16242             There are technologies that will allow us to take it to possibly three services on a single transponder, so you could look at it in the sense of it is three times the cost to do HD.

LISTNUM 1 \l 16243             It also costs more money to backhaul, simply because of the fact that this is not a broader service with more information on it.  I mean, we have fibre networks in place that allow us to do this.

LISTNUM 1 \l 16244             In all the HD deals that we have done, whether they are broadcast services or other types of services, we typically pay the cost of backhauling the service to an uplink.  That is the way the market is kind of unfolding here.

‑‑‑ Pause

LISTNUM 1 \l 16245             MR. D'AVELLA:  Peter is asking me a question.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 16246             MR. D'AVELLA:  Well, the operating cost on the transponder, I think it is in the order of about $2 million a year on a per‑transponder basis, but that is in addition to the capital we have already committed to buy it.

LISTNUM 1 \l 16247             On the consumer side, on the receiver side, I think the cost of our satellite receivers is typically in that ‑‑ the HD receivers is typically in that $300 to $500 range, depending on whether it has a PBR or not.

LISTNUM 1 \l 16248             THE CHAIRPERSON:  I don't know if you were following the hearing at the beginning of the week, but the cablecos that are involved with the operation of TVA and TQS are supporting a fee for carriage.

LISTNUM 1 \l 16249             Since you are operating Star Choice and you are delivering francophone signals throughout Québec, do you have different views regarding fee for carriage for the Québec market, or the one that you have expressed so far applies also for the French market?

LISTNUM 1 \l 16250             MR. SHAW:  It did make us think it looked a bit self‑serving if you owned both and then you wanted one fee to just go from ‑‑ what's that commercial where they all jump up and they go ‑‑ somebody's got their hand in your pocket, this kind of hand in your pocket, hand in your pocket.  You have seen that commercial.  It did look a little bit like that to us.  We didn't see a lot of benefit out of doing it.

LISTNUM 1 \l 16251             We certainly carry all those markets.  We have a big operation in Montréal and we are supportive of that, but we still feel that there is no subscriber, no Canadian benefit to have that fee in there.

LISTNUM 1 \l 16252             THE CHAIRPERSON:  Mr. Shaw, Mr. Bissonnette, Mr. Stein and the team, I want to thank you on behalf of the Commission.

LISTNUM 1 \l 16253             We will take a 15‑minute break.

LISTNUM 1 \l 16254             MR. SHAW:  Super.  Well, thank you.

LISTNUM 1 \l 16255             We are very positive about the future and the direction you guys are doing.  So thank you very much.

‑‑‑ Upon recessing at 0923 / Suspension à 0923

‑‑‑ Upon resuming at 0952 / Reprise à 0952

LISTNUM 1 \l 16256             THE CHAIRPERSON:  Order, please.  A l'ordre, s'il vous plaît.

LISTNUM 1 \l 16257             Madame la Secrétaire ?

LISTNUM 1 \l 16258             THE SECRETARY: Merci, Monsieur le Président.

LISTNUM 1 \l 16259             We are now ready to proceed with our next presentation of Bell Canada.  Mr. Gary Smith will introduce his colleagues.  After which, you will have 15 minutes for your presentation.

LISTNUM 1 \l 16260             Mr. Smith?

PRESENTATION / PRÉSENTATION

LISTNUM 1 \l 16261             MR SMITH:  Thank you, and good day, Chairperson Arpin, Vice‑Chairperson French and Commissioners.

LISTNUM 1 \l 16262             My name is Gary Smith and I am the President of the Bell Video Group, which comprises Bell ExpressVu, our DTH platform and Bell IPTV, our terrestrial broadcasting distribution undertaking.

LISTNUM 1 \l 16263             Joining me today, on my left, are Chris Frank, Vice‑President of Programming; Barry Kiefl, President of Canadian Media Research; and on my right, David Elder, Vice‑President of Regulatory Law.

LISTNUM 1 \l 16264             Bell appreciates the opportunity to participate in this important review of the regulatory framework for over‑the‑air television.

LISTNUM 1 \l 16265             We will focus today on three key issues:

LISTNUM 1 \l 16266             First, the proposal for a fee‑for‑carriage regime;

LISTNUM 1 \l 16267             Second, the impact of distant signals;

LISTNUM 1 \l 16268             And finally, the transition to over‑the‑air digital and HD transmission.

LISTNUM 1 \l 16269             We will explain to the Commission why we feel that the broadcasters do not have a case for increased funding, and why if would be inappropriate to implement fee‑for‑carriage.

LISTNUM 1 \l 16270             With regard to distant signals, we submit that the problem is not only overstated and dramatised, but also has already been dealt with satisfactorily such that no new provisions are needed.

LISTNUM 1 \l 16271             Finally we will confirm Bell's support for the hybrid distribution models suggested by several broadcasters, and that we are prepared to assume a contributing role in this respect.

LISTNUM 1 \l 16272             Turning first to fee‑for‑carriage, there are compelling reasons to reject such a regime.

LISTNUM 1 \l 16273             First, broadcasters have failed to prove that a problem actually exists.  Indeed, the evidence suggests otherwise.

LISTNUM 1 \l 16274             We have no reason to dispute the broadcasters' claim that growth in advertising spent on conventional channels is slowing, but we would note that these dollars are moving primarily to the specialty channels, where advertising revenues have increased 318 per cent since 1997.

LISTNUM 1 \l 16275             Most, if not all, of the broadcasters seeking fee‑for‑carriage are already benefiting from this shift through their ownership interests in specialty and pay services.

LISTNUM 1 \l 16276             In any event, the chart in your hand‑out reveals that broadcaster PBITs for conventional services have remained consistent over the last six years and are themselves reasonably healthy, averaging 12 per cent annually.

LISTNUM 1 \l 16277             These are hardly businesses in dire need, as they would have you believe.

LISTNUM 1 \l 16278             No doubt the marketplace will continue to yield shifts in fortune between different services and between competitive broadcasters.

LISTNUM 1 \l 16279             Good and bad business decisions have been made by the broadcasters regarding such factors as their acquisitions of Canadian and U.S. programming, diversification into specialty and pay services, and the development of Internet‑based initiatives.

LISTNUM 1 \l 16280             Some have even diversified outside of broadcasting and outside of Canada.  These decisions have inevitably impacted individual broadcaster profitability, yielding winners and losers.

LISTNUM 1 \l 16281             Nevertheless, the profitability of the group of broadcasters in aggregate has proven reasonably consistent over these last few years.

LISTNUM 1 \l 16282             Further evidence of the health of these businesses is the significant interest in station start‑ups and acquisitions.

LISTNUM 1 \l 16283             Conventional over‑the‑air TV programming undertakings have been added to the Vancouver and Toronto markets.

LISTNUM 1 \l 16284             CanWest MediaWorks is one of the five applicants currently vying for a broadcasting licence to serve the markets of Calgary and/or Edmonton.

LISTNUM 1 \l 16285             CHUM acquired the broadcast properties of Craig Broadcasting Systems prior to being acquired itself by Bell Globemedia.

LISTNUM 1 \l 16286             Most recently, Shaw Communications has acquired CJBN‑TV in Kenora, Ontario.

LISTNUM 1 \l 16287             Not only is there no problem to solve here, but in fact, this is a healthy industry sector worthy of investment.

LISTNUM 1 \l 16288             It is clear that the broadcasters have been evolving their businesses to meet the changes in their current business environment.

LISTNUM 1 \l 16289             For example, they have begun ad‑supported Internet content initiatives intended to exploit the revenue opportunity that this presents.

LISTNUM 1 \l 16290             CTV's recently‑launched Broadband Network is a great example.

LISTNUM 1 \l 16291             It is, in the words of its CEO Ivan Fecan:

"...part one of CTV's answer to Canadian's appetite to tap programming on emerging platforms and to provide a solution to the advertisers who want to reach them."  (As read)

LISTNUM 1 \l 16292             CanWest MediaWorks has also launched its own online presence, featuring exclusive, ad‑supported on‑demand content.

LISTNUM 1 \l 16293             These early forays into online ventures continue the pattern of profitable diversification established by these broadcasters, first demonstrated via their expansion into pay and specialty.

LISTNUM 1 \l 16294             Moreover, the fee‑for‑carriage proposal itself would be bad for consumers, harmful to BDUs and would establish a damaging precedent for the industry.

LISTNUM 1 \l 16295             To ask consumers to pay a tax to receive services that they already receive is certain to be unpopular.  The broadcasters' proposed fees are all over the map.

LISTNUM 1 \l 16296             However, it is clear that the aggregate fee to be faced by consumers could be significant.

LISTNUM 1 \l 16297             Consumers would react to the increase by scaling back on the number of pay and specialty service packages to which they subscribe.

LISTNUM 1 \l 16298             As well, Canadian BDUs would inevitably face subscriber losses, as we know that all price increases cause churn and a price increase with no added value such as this would be a particularly serious customer irritant.

LISTNUM 1 \l 16299             The BDUs' role is also badly misrepresented by the broadcasters in this debate.

LISTNUM 1 \l 16300             They have suggested that BDUs are getting a free ride here.

LISTNUM 1 \l 16301             This is simply untrue.

LISTNUM 1 \l 16302             Bell incurs significant expense in the acquisition and distribution of conventional over‑the‑air signals.

LISTNUM 1 \l 16303             These costs cover backhaul, signal processing, uplink and transponder costs.

LISTNUM 1 \l 16304             As you will have observed from the chart on page 3 of this statement, we are less profitable than the broadcasters who are asking that we subsidise them.

LISTNUM 1 \l 16305             We simply cannot afford to absorb a fee‑for‑carriage and would, without any doubt whatsoever, be forced to pass it on to our customers.

LISTNUM 1 \l 16306             In this debate, the broadcasters conveniently ignore the many benefits that DTH brings to them.

LISTNUM 1 \l 16307             Signal quality is enhanced significantly, while coverage is extended to many more markets, both urban and rural.

LISTNUM 1 \l 16308             Additional value is afforded those conventional broadcasters who own pay and specialty services, whose distribution benefits in the same way.

LISTNUM 1 \l 16309             Finally, in respect of fee for carriage, we submit that the proposal, if accepted, would establish an unhealthy precedent.

LISTNUM 1 \l 16310             The broadcasters would inevitably come to rely on this tax, a purely regulatory fix, in support of their bottom lines.

LISTNUM 1 \l 16311             Such a tax would be susceptible to regular requests for a rate increase, having become an entrenched and accepted component of their business planning.

LISTNUM 1 \l 16312             Fee‑for‑carriage income would also reduce their incentive to innovate in response to technological and competitive pressures.

LISTNUM 1 \l 16313             Furthermore, the U.S. is also serious about fee‑for‑carriage. U.S. broadcasters want to receive fees from Canadian BDUs for the carriage of their local signals to Canadian households.

LISTNUM 1 \l 16314             Canada has been debating an opt‑out clause to the WIPO treaty to avoid this leakage from the Canadian broadcasting system.

LISTNUM 1 \l 16315             Any decision by the CRTC in favour of fee‑for‑carriage would probably put beyond reach any such opt‑out, resulting in fees‑for ‑carriage flowing to U.S. over‑the‑air broadcasters.

LISTNUM 1 \l 16316             None of this southerly revenue flow would contribute to the production of Canadian content.

LISTNUM 1 \l 16317             I would now ask my colleague, Chris Frank, to speak briefly on the second key issue in this proceeding:  distant signals.

LISTNUM 1 \l 16318             MR. FRANK:  Thanks, Gary.

The availability of distant signals is a significant consumer benefit.

LISTNUM 1 \l 16319             Our subscribers across the country value the viewing choices that such signals provide, and the ability to time‑shift programming at their convenience.

LISTNUM 1 \l 16320             Moreover, the value to broadcasters of time‑shifted advertising is not lost to the fast‑forward button of a PVR, as time‑shifted programming is viewed in real time.

LISTNUM 1 \l 16321             Over‑the‑air broadcasters maintain that the time‑shifting of distant signals has had a serious, negative impact on local broadcasters.

LISTNUM 1 \l 16322             We submit that such claims are overstated and that, in fact, distant signals drive a major increase in the viewing of over‑the‑air signals.

LISTNUM 1 \l 16323             Nielsen data show that, by virtue of distant Canadian signals, DTH generates increased viewing of Canadian over‑the‑air broadcasters, which is in keeping with the policy objectives of the Broadcasting Act.

LISTNUM 1 \l 16324             Indeed, the percentage of viewing of English‑language, Canadian over‑the‑air channels is 33 per cent greater on DTH than it is on cable.

LISTNUM 1 \l 16325             This 33 per cent increase in share is a bonus audience for over‑the‑air broadcasters that would not exist without the accessibility of distant signals.

LISTNUM 1 \l 16326             It is an audience and a revenue source that has been ignored in the studies submitted by the broadcasters.

LISTNUM 1 \l 16327             DTH also provides a repatriation of Canadian audiences.

LISTNUM 1 \l 16328             U.S. over‑the‑air broadcasters enjoy less than half the viewing share in Canadian DTH homes than they do in Canadian cable homes.

LISTNUM 1 \l 16329             Thus, DTH generates additional viewing of Canadian over‑the‑air‑services at the expense of U.S. broadcasters.

LISTNUM 1 \l 16330             Some conventional broadcasters argue that they are unable to monetize the viewing of these distant signals by generating additional advertising revenues.

LISTNUM 1 \l 16331             We have learned that this is inaccurate as a general statement.

LISTNUM 1 \l 16332             Broadcasters are monetizing a significant percentage of out‑of‑market tuning.

LISTNUM 1 \l 16333             Moreover, there is nothing preventing them from changing the way that they sell ads so that they can monetize this to a greater extent.

LISTNUM 1 \l 16334             That is, seize the opportunity and adapt instead of seeing only a problem and asking for a regulatory fix.

LISTNUM 1 \l 16335             Existing distant signal arrangements are working successfully in support of the Commission's desire for a vibrant, competitive environment in the BDU sector by incenting Canadians to move to digital platforms.

LISTNUM 1 \l 16336             It is important to note that the impact of distant signals on large‑market broadcasters is not the intended focus of this proceeding.

LISTNUM 1 \l 16337             The Commission has previously approved a comprehensive deal which saw substantial benefits to both large‑market and small‑market broadcasters.

LISTNUM 1 \l 16338             Now that the deal is due to be renewed, large‑market broadcasters continue to demand additional compensation from BDUs based on what Bell considers to be exaggerated claims of financial losses.

LISTNUM 1 \l 16339             Indeed, Bell submits that the negative market impact of distant signals on all markets, major or otherwise, totals less than 20 million dollars per year, while aggregate compensation that we believe is paid by digital cable and DTH providers exceeds that figure.

LISTNUM 1 \l 16340             Bell's own contributions include more than two transponders, uplinking, encoding, encryption and back‑hauling; as well, cash compensation for the second set of U.S. networks; and commercial arrangements with small independent broadcasters.

LISTNUM 1 \l 16341             In the Public Notice initiating this proceeding, the Commission stated that, and I quote:

"...the carriage provisions and the programming fund approved in Public Notice 2003‑37 have improved the financial situation for most small market independently owned television licensees."

LISTNUM 1 \l 16342             This has been confirmed by earlier speakers in this proceeding.

LISTNUM 1 \l 16343             Further, in terms of the specific written comments of the small‑market independent broadcasters, we are prepared to discuss their suggestions in prospective negotiations regarding a renewal of this agreement.

LISTNUM 1 \l 16344             In the distant signals debate the broadcasters conveniently ignore the major benefits that DTH brings to the broadcasting system.

LISTNUM 1 \l 16345             For example, as the following chart shows by year, since its launch in 1997, Canadian DTH added many new BDU customers to the Canadian broadcasting system.

LISTNUM 1 \l 16346             The total net new subscribers added reached 1.4 million in 2005.

LISTNUM 1 \l 16347             This growth has generated an estimated two billion dollars in net new revenue for Canadian pay and specialty services, much of which flows to Canadian content producers.

LISTNUM 1 \l 16348             Additional new revenue is generated for the Canadian Television Fund and other CRTC‑approved independent programming funds.

LISTNUM 1 \l 16349             This is extra revenue with no risk or investment requires on the part of broadcasters or content producers.

LISTNUM 1 \l 16350             Since all the major over‑the‑air broadcasters own specialty services, they have directly benefited from DTH investments.

LISTNUM 1 \l 16351             All this, in addition to the more direct benefits to conventional broadcasters of added over‑the‑air viewership.

LISTNUM 1 \l 16352             We have provided further explanation of these data in the attached charts.

LISTNUM 1 \l 16353             Gary?

LISTNUM 1 \l 16354             MR. SMITH:  Thanks, Chris.

LISTNUM 1 \l 16355             The third key issue is the transition to digital and HD over‑the‑air transmission.

LISTNUM 1 \l 16356             Easy access to conventional broadcast services in a digital world is vital for 100 per cent of Canadians and is clearly the business concern of the over‑the‑air broadcasters licensed to provide these services.

LISTNUM 1 \l 16357             However, we acknowledge that the cost of traditional terrestrial distribution outside major markets is prohibitive.

LISTNUM 1 \l 16358             We therefore support the broadcasters' hybrid proposals, which we understand to provide digital terrestrial distribution of signals in major markets only, leaving BDUs to assist with a solution outside the major markets.

LISTNUM 1 \l 16359             Appropriate alternative approaches supported by the BDUs should be considered.

LISTNUM 1 \l 16360             The BDU are themselves facing the need for major investments, in this case, to meet the growing demand for high‑definition services.

LISTNUM 1 \l 16361             The BDUs accept this as a cost of doing business and submit that the over‑the‑air broadcasters have to assume a similar level of responsibility for the costs associated with the hybrid solutions that they propose.

LISTNUM 1 \l 16362             There is, therefore, a need for the industry to find the synergies allowing the over‑the‑air broadcasters to avoid the need for digital transmission towers everywhere, without imposing extra costs on the BDUs.

LISTNUM 1 \l 16363             As you heard yesterday, Bell is already discussing small initiatives along these lines with APTN in northern areas of Canada and is similarly prepared to discuss alternative distribution arrangements with all interested over‑the‑air broadcasters.  We would present the results of such discussions for Commission consideration and approval.

LISTNUM 1 \l 16364             In conclusion, Bell categorically rejects the conventional broadcasters' proposal for fee for carriage as the wrong solution to an unsubstantiated problem.

LISTNUM 1 \l 16365             We also dispute the exaggerated claims made by broadcasters regarding the impact of distant signals on local broadcasters.

LISTNUM 1 \l 16366             And finally, we support the consideration of appropriate alternatives to a costly transition to digital over‑the‑air broadcasting.

LISTNUM 1 \l 16367             This concludes our opening comments.  Thank you for your time and we are happy to answer any questions you may have.

LISTNUM 1 \l 16368             THE CHAIRPERSON:  Thank you, Mr. Smith.

LISTNUM 1 \l 16369             I am asking Commissioner Duncan to initiate the questions.

LISTNUM 1 \l 16370             COMMISSIONER DUNCAN:  Good morning.  Your written brief and your comments this morning are certainly very helpful as they probably answered some of my questions but I will proceed anyway.

LISTNUM 1 \l 16371             You noted that you generally agree with the analytical approach taken in the Nordicity study but that the estimates and assumptions taken in the study are Nordicity's own.  So there are three areas I would like to ask you about specifically and then I have a broader request after that.

LISTNUM 1 \l 16372             I am just wondering if you agree with Nordicity that the rate could increase as much as $6.00 to $19.00 if we were to allow compensation for over‑the‑air signals.

LISTNUM 1 \l 16373             MR. SMITH:  I think the wide range of fees proposed by broadcasters over the course of this hearing illustrates the fact that the range of possible outcomes could be within the ranger proposed by the Nordicity study or wider.

LISTNUM 1 \l 16374             COMMISSIONER DUNCAN:  I am going to ask you more specifically about that in a minute then.

LISTNUM 1 \l 16375             Do you agree with Nordicity that we could lose as many as 900,000 households?

LISTNUM 1 \l 16376             MR. SMITH:  Perhaps I could ask my colleagues Chris and Barry to comment on that.

LISTNUM 1 \l 16377             MR. FRANK:  I would suggest, Commissioner Duncan, that is wholly dependent on the level of the fee.

LISTNUM 1 \l 16378             COMMISSIONER DUNCAN:  I should qualify that.  I actually had meant to qualify it by saying if we were at the high end of that range.

LISTNUM 1 \l 16379             MR. FRANK:  It also depends on the range of over‑the‑air broadcasters who would benefit from fee for carriage.  For instance, we have heard from certain private broadcasters that the fee would be restricted to strictly private broadcasters and exclude private broadcasters.  So it would depend on the fee level and on the range of broadcasters, i.e. the number of broadcasters who benefited.

LISTNUM 1 \l 16380             Barry, do you have anything further to add?

LISTNUM 1 \l 16381             MR. KIEFL:  No.

LISTNUM 1 \l 16382             COMMISSIONER DUNCAN:  It is probably unlikely that the public broadcasters and the educational broadcasters would be excluded though?

LISTNUM 1 \l 16383             MR. FRANK:  Well, that has been our experience in previous CRTC decisions.  When we have arranged commercial deals with private broadcasters, the Commission has ensured that those benefits ‑‑ and I am speaking specifically of DTH over‑the‑air carriage ‑‑ also apply to the CBC and Radio‑Canada.  So I take your point.

LISTNUM 1 \l 16384             COMMISSIONER DUNCAN:  Uh‑huh.  Thank you.

LISTNUM 1 \l 16385             They also, Nordicity, estimated that the EBITDA for the BDUs could be reduced ‑‑ would, I think they said ‑‑ would be reduced between $328 million and $426 million if we did allow fee for carriage.

LISTNUM 1 \l 16386             Is that one of the items that you disagree with or agree with in the Nordicity study?

LISTNUM 1 \l 16387             MR. SMITH:  I think it is clear that fee for carriage would cause significant churn to customer bases assuming the BDUs pass it on to the customers, as we would, and that churn would have a very significant effect on the profitability of all BDUs.  For us, it would be very, very serious.

LISTNUM 1 \l 16388             I would point out that a successful satellite platform such as ourselves has a churn rate of approximately 1 percent per month.  In a difficult environment, you could easily see that doubling to 2 percent per month.  Losing an additional 1 percent of your customers every month would cost us hundreds of millions of dollars.

LISTNUM 1 \l 16389             COMMISSIONER DUNCAN:  You are losing net 1 percent a month?  They are just turning on and off, so people come back?

LISTNUM 1 \l 16390             MR. SMITH:  Yes.  A platform such as ourselves, we decide essentially how much to invest in growth and how much to invest in acquiring new customers.  So most platforms will invest enough to replace any churn that does happen on your platform and some platforms such as Bell ExpressVu is going further than that and still growing aggressively.

LISTNUM 1 \l 16391             COMMISSIONER DUNCAN:  Thank you.

LISTNUM 1 \l 16392             In your conclusion you state, and I quote:

"Bell does not specifically endorse all assumptions made or conclusions drawn by the Nordicity study."  (As read)

LISTNUM 1 \l 16393             I was wondering if it would be possible for you to provide us with a report or an overview of where the differences are, what your thoughts are so that we have a better picture of what your position is.

LISTNUM 1 \l 16394             MR. FRANK:  The prime intent of that statement was to indicate that we agree with the trends in the Nordicity Group, not specifically each and every assumption.  However, if you would like us to provide a list, we would be happy to.

LISTNUM 1 \l 16395             But I think the point we are trying to make is that we agree with the trend, we don't necessarily agree with the specific assumptions and the specific figures.

LISTNUM 1 \l 16396             COMMISSIONER DUNCAN:  When I was reading your brief I thought it was very alarming but it was qualified by that but I just didn't quite understand or couldn't appreciate exactly what the degree of concern should be based on that qualifier.  I couldn't ‑‑ it didn't give me a good picture.

LISTNUM 1 \l 16397             MR. FRANK:  Well let me reinforce our opposition to fee for carriage.  We don't think it is a good idea.  It is a solution in search of a problem.

LISTNUM 1 \l 16398             Having said that, it really depends on the number of broadcasters and the level of the fee for carriage that will be determined, what kind of losses in customers and what kind of increased expenses we will have to face.

LISTNUM 1 \l 16399             COMMISSIONER DUNCAN:  Okay.  I think that is fine.  Your position is perfectly clear.  I have got that, so I don't think we would need anything else but I do have some more questions along this line.

LISTNUM 1 \l 16400             CanWest questioned the high range of $19.00 and indicated they felt an increase in the order of $2.00 to $5.00 would be more reasonable.  So it is quite a difference.

LISTNUM 1 \l 16401             Would you care to comment on their projection?

LISTNUM 1 \l 16402             MR. SMITH:  Well we saw a range of different fees for individual channels proposed over the course of the hearing, everything from the low end of 10 cents, I think was the lowest, through to ‑‑ I think one of the channels was proposing they would like to see a fee of $2.00 per channel.

LISTNUM 1 \l 16403             Now clearly, if you take the higher end of that range and you multiply it by the number of channels that could receive these fees, you do get to the very large numbers of $19.00 quoted.

LISTNUM 1 \l 16404             It would be unthinkable ‑‑ unthinkable ‑‑ to reach anything like those high numbers and I am sure the Commission wouldn't want to go there but our concern is more that it is establishing such a damaging precedent.

LISTNUM 1 \l 16405             Even if you were to apply a fee of $1.00, say, that you could argue would be bearable by the market, the broadcasters will be back for more and they will be back for more time and again, and I think that it is establishing a tax that has no benefit to consumers and will ultimately result in the damaging effects that we have identified in our submission.

LISTNUM 1 \l 16406             COMMISSIONER DUNCAN:  Thank you for that.

LISTNUM 1 \l 16407             MR. FRANK:  Commissioner Duncan, I would just like to add that I think that was confirmed by the Global panel.  When asked how long such a fee would stay in place, they suggested within three to four years they would be back to look at it again.

LISTNUM 1 \l 16408             COMMISSIONER DUNCAN:  Yes.  Yes, they did.

LISTNUM 1 \l 16409             MR. FRANK:  And our experience is those fees generally go down ‑‑ excuse me, don't generally go down.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 16410             COMMISSIONER DUNCAN:  Yes.  I knew what you were thinking.

LISTNUM 1 \l 16411             So with respect to the other ‑‑ I mean I get your position but I am just wondering if you want to have any specific comments.  I would like to give you an opportunity to comment on the specific amounts proposed by some ‑‑ the CanWest, I can take it I just got your comment on the 50 cents per signal.

LISTNUM 1 \l 16412             But TQS, for example, they suggested $1.00 for themselves and $1.00 for TVA.

LISTNUM 1 \l 16413             Others supported a flat rate that would apply to all broadcasters and that the Commission should determine that rate.

LISTNUM 1 \l 16414             CTV offered 10 cents a signal with 50 percent committed to Canadian programming and the balance to be used for other initiatives that would be approved by the Commission.

LISTNUM 1 \l 16415             Do you have anything that you want to add to any of those or just ‑‑

LISTNUM 1 \l 16416             MR. FRANK:  If I could just add a few words and it goes to the comment you made a few minutes ago, Commissioner Duncan, and that is that it is unlikely that the Commission would not include public broadcasters.

LISTNUM 1 \l 16417             We note that none of the private broadcasters' suggestions to you include the public broadcasters or in fact some of the other niche over‑the‑air broadcasters and that would drive up ‑‑ even the CTV proposal, some might think 80 cents ‑‑ I think when we did the math in the Toronto market it was closer to $1.40.  So these are big numbers.

LISTNUM 1 \l 16418             COMMISSIONER DUNCAN:  I think Commissioner Cugini did draw that out in her questioning at the time.

LISTNUM 1 \l 16419             MR. FRANK:  I am sorry, I missed that.

LISTNUM 1 \l 16420             COMMISSIONER DUNCAN:  No, no, that is all right.  She did ask about the extra signals, thank