ARCHIVED - Transcript, Hearing 21 June 2011
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Volume 2, 21 June 2011
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To review its regulatory framework relating to vertical integration. Broadcasting Notice of Consultation CRTC 2010-783, 2010-783-1 and 2010-783-2
140 Promenade du Portage
21 June 2011
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.
Canadian Radio-television and Telecommunications Commission
To review its regulatory framework relating to vertical integration. Broadcasting Notice of Consultation CRTC 2010-783, 2010-783-1 and 2010-783-2
Konrad von FinckensteinChairperson
Stephen MillingtonSenior Legal Counsel
Eric BowlesLegal Counsel
Stephen DelaneyHearing Manager and Senior Advisor, Broadcasting
140 Promenade du Portage
21 June 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
8. Bell Canada (int. #31) 259 / 1467
9. TELUS (int. #28) 365 / 2020
10. Score Media Inc. (int. #66) 423 / 2334
12. FreeHD Canada Inc. (int. #16) 449 / 2475
13. Accessible Media Inc. (int. #9) 466 / 2569
- v -
PAGE / PARA
Undertaking 323 / 1795
Undertaking 336 / 1868
Undertaking 379 / 2084
--- Upon commencing on Tuesday, June 21, 2011 at 0902
1461 LE PRÉSIDENT : Commençons.
1462 THE SECRETARY: Thank you.
1463 For the record, the Commission has been advised that Media Access Canada, listed on the Agenda for today, will not be appearing at the hearing.
1464 Also, the Commission announced yesterday that it will accept final written comments, for those who file comments in this proceeding, provided that they submit such comments on or before the 8th of July.
1465 We will begin with the presentation by Bell Canada.
1466 Please introduce your colleagues and yourself, after which you will have 10 minutes for your presentation.
1467 MR. BIBIC: Thank you, Madam Secretary.
1468 Commissioners, good morning. I am Mirko Bibic, Senior Vice-President of Regulatory and Government Affairs at BCE.
1469 Joining me on our panel:
1470 - to my far left is Bart Yabsley; Bart is Executive Vice-President of Content Sales and Distribution at Bell Media, leads our negotiations with BDUs and other distributors;
1471 - next to Bart is Tracey Pearce, SVP of Business and Legal Affairs at Bell Media; Tracey negotiates Bell Media's content deals, was also the lead for the broadcasting industry in negotiating the Terms of Trade Agreement with the independent producers;
1472 - to my left, of course you know Kevin Crull, the President of Bell Media; and
1473 - to my right, Wade Oosterman; Wade is the President of Bell Residential Services; so that comprises home phone, Internet, satellite TV, Fibe TV and Bell Mobility, and Wade is also Bell's Chief Brand Officer.
1474 So that is our panel this morning.
1475 So, Commissioners, to begin, we would like to express our concern that many of the comments filed in this proceeding, frankly, have nothing whatsoever to do with vertical integration per se. They are trying to steer the debate in inappropriate directions, so we encourage the Commission to maintain the focus squarely on matters that relate to vertical integration.
1476 In keeping with this, our comments will address the benefits of vertical integration to the system, after which we will respond to the calls by some for additional regulation.
1477 In 2007, the Commission set itself a goal of striking the proper balance between regulation and free market processes to achieve the objectives of the Broadcasting Act. The focus was to regulate with a lighter hand to allow market forces to unleash creativity, produce efficiencies and create value.
1478 This was captured in the Commission's submission to the Competition Policy Review Panel, and I quote:
"The Commission considers it critical that incumbent communications companies be in a position to innovate and to react quickly to new forms of content and distribution models. Ex ante rules and regulations that restrict our broadcasters' and distributors' freedom of action prevents those from taking full advantage of new opportunities."
1479 And we completely support the view expressed in that quote.
1480 The broadcasting system is more dynamic and innovative than ever, with the consumer driving the industry's agenda globally. Canadians' demands for additional content, choice and convenience are being satisfied with a broader range of quality programming delivered over multiple platforms. This is supported by the current regulatory framework.
1481 A vertically integrated business model contributes meaningfully to the Act's objectives. It is not a new model, and certainly not the only response to the marketplace. Some companies favour it, some don't, but it is disingenuous for those who don't to seek more regulation in order to validate their strategic choices.
1482 As we discussed in February, BCE's acquisition of CTV was precipitated largely by recent Commission decisions which updated the regulatory framework, in particular the BDU and discretionary services policy, the new media decision and the group licensing policy.
1483 In them, the Commission consistently, and in our view correctly, ruled there should be greater reliance on the market to determine how best to deliver the content consumers want. As an industry, we welcomed these decisions.
1484 Vertical integration has been a positive step in stabilizing conventional TV, a business which struggled mightily during a financial storm that threatened to sink some key players. The industry remains unstable.
1485 The Commission's 2010 statistical and financial summaries confirm the ongoing struggles of conventional TV. It remained unprofitable for the fifth consecutive year, with pre-tax losses of $53 million in 2010. Despite the 2010 rebound, revenues have only returned to 2005 levels. Without a $66-million boost from the LPIF, 2010 pre-tax losses for conventional TV would have been more than twice as high.
1486 In a fragile market, stability is a must. The stability BCE provides is evident in our rebranding and reinvigoration of the struggling /A\ Channels, including a planned upgrade to HD. Greater financial and regulatory certainty enables us to accelerate the launch of many more HD channels, continue to innovate with mobile content and acquire increasingly important programming rights to build a consumer market for anytime/anywhere/anyhow viewing. Bell's initiatives have led to several global firsts.
1487 In fact, it is increasingly clear that all elements of the communications industry operate in a global economy. It is therefore more important than ever for Canadian players to have the necessary scale to compete against large global players. We've seen it in the smartphone wars where it applies to RIM and we're going to see it as competition intensifies with Netflix and others.
1488 If the Commission's framework permits, vertical integration will position Canadian companies to better compete against unregulated online foreign broadcasters.
1489 The selective use of exclusive distribution arrangements in new media, which have been a source of concern and misunderstanding in this proceeding, has nothing to do with vertical integration. In our view, the debate on exclusives has ignored several key facts:
1490 1. Exclusives are the exception, not the rule, for content distribution.
1491 2. Merely having exclusive content is not an undue preference.
1492 3. Non-integrated players can readily take advantage of exclusives. For example, Bell's exclusive distribution agreements with the NFL and NHL not only pre-date BCE's acquisition of CTV, they have nothing to do with CTV. The important implications are that content creators do not favour integrated companies and non-integrated players are not rendered defenceless by those that are integrated.
1493 4. Even if Bell or Rogers or TELUS has an exclusive distribution arrangement for TV content on mobile devices, the same content is widely available on conventional TV, on specialty channels, through VOD services on set-top boxes or online, through download-to-own services or from one of the thousands of online sites that bypass the Canadian rights market. The fact that mobile subscribers have yet another screen choice should not be considered a regulatory problem. It can't possibly be the case in our view, as we sit here today, that the Act's objectives won't be met because a traveller waiting at the airport with a Bell smartphone can watch the Sens play the Columbus Blue Jackets but a TELUS customer's phone doesn't have that game. If that is considered a problem, then the inevitable regulatory restrictions that will follow will erect another innovation barrier for broadcasters.
1494 5. Exclusives can be an important funding and promotional mechanism for innovation and for supporting the creation of more and better Canadian content.
1495 6. And perhaps most importantly, interference with how U.S. rights holders distribute their content in Canada could encourage them to pursue a North American rights model by selling rights to foreign online broadcasters across North America or by launching their own online sites directly in Canada. Bypassing the Canadian rights market would have harmful impacts on the system for reasons known all too well. A Canadian rights market is critical to the creation of high quality Canadian content.
1496 These are just some of the reasons why we oppose making the moratorium on exclusive arrangements permanent. Not only does the lack of market failure demonstrate that it is unnecessary but BCE and Shaw have both categorically stated that we are open for business. In short, the moratorium is a blunt instrument that will guard against minor risks by foreclosing major opportunities.
1497 Now, Commissioners -- and I apologize for doing this but I have a whole page of scribbles here -- it occurred to me this morning that actually reminds me a lot for those who were here then of the diversity of voices proceeding.
1498 I remember at that proceeding we submitted that what the industry needed from the Commission was a clear understanding of how you would examine an issue, rather than being told up front, ex ante in other words, that we can't do something that may very well be positive in the right circumstances.
1499 So I pulled the diversity of voices decision this morning and I reread it. And you didn't prohibit media mergers in that decision; rather, you told us the factors you would consider in assessing a merger.
1500 And that same approach could actually apply here. Rather than a rigid code -- so TELUS says no exclusives whatsoever; Rogers says no new media exclusives whatsoever; TELUS says no head starts; Rogers said, my God, you can't have an agreement more than five years; why not five, why not seven, why not eight, why not two, why not three.
1501 So rather than do that and rather than ban new media exclusives outright, it's our view that it would be far more flexible and allow us to pursue the positives of exclusives in appropriate situations if the Commission were to say that generally you would prefer to see linear TV content widely available on all platforms, but in examining whether a new media exclusive has an undue preference you will consider on a case-by-case basis, whether the content is otherwise widely available to consumers on other platforms, whether it's mainstream linear TV content or ancillary content; whether it's designed exclusively for new media; whether the content would have been funded and produced absent the exclusive. With parameters like these we could ourselves make business decisions to pursue exclusives, knowing how you would deal with a complaint if it arose.
1502 That could form the basis of a flexible, workable guideline. It wouldn't be blunt, it would be in keeping with the philosophy of flexibility embedded in your submission to the competition panel in recent decisions like group licensing policy. You would let the market work, you wouldn't over-regulate and...
1503 Mr. Chairman, you asked Rogers a question yesterday: Well, what happens if new media content becomes the prevalent forum? In other words, content becomes created just for new media, what would you do then? Mr. Engelhart's answer was, "We will have another hearing."
1504 Well, with guidelines like this we would actually be able to address it. You would say if the content becomes created exclusively for new media it may change the framework under which we assess things.
1505 So guidelines like that with decisions over time based on those guidelines, over time we would actually get a code and I think that would be far more positive, in our view, than just putting forward what Rogers and TELUS, Cogeco MTS, Astral and others have done.
1506 Okay. So I veered off the page. I apologize for having done that because it just came to us this morning. Madam Secretary, I hope you will indulge me, I usually try to respect the time.
1507 I'm at paragraph 14 of the written text.
1508 Basically 14, as I mentioned, some intervenors want you to impose heavy-handed regulation to prevent us from fully maximizing the opportunities from our chosen business strategy.
1509 I think that's just plain wrong.
1510 TELUS has gone so far as to ask the Commission to impose, and again I quote, "as many ex ante rules as possible", even in the face of the Commission's emphatic direction that the onus is squarely on those seeking expanded regulation to provide compelling evidence that new measures are necessary and in the best interests of the system.
1511 Two recent undue preference decisions, against Vidéotron and Bell, demonstrate the high evidentiary threshold adopted by the Commission. This same rigour must apply to those calling for new or expanded regulation in this proceeding.
1512 Those advocating new regulation must demonstrate that the current system is broken. They must also show their calls for reform relate to vertical integration. They have done neither. Their concerns are hypothetical and, in most cases, completely unrelated, as I have said, to vertical integration.
1513 In contrast, the current framework the Commission has provides you with a comprehensive toolkit that is effective at addressing any perceived anti-competitive behaviour, and in fact has done so as recently as two weeks ago in The Cave TV decision.
1514 The joint submission of Cogeco, MTS, SaskTel and TELUS, as well as Rogers' Code, are the primary examples of the harmful proposals on the table. They seek to stifle innovation, service differentiation, speed to market, and cost and price advantages. Fundamentally, they seek to overhaul the framework recently established in 2008-100.
1515 Missing from their proposals, in our view, is any concern for the consumer. For example, they propose that vertically integrated companies must not have a "head start" in launching new content services. By that logic, Rogers would not have introduced Canadians to the iPhone, and the rich content associated with it, because other service providers were not ready to do likewise.
1516 Another critical deficiency of Rogers' Code is that it completely relies on impossible measures and highly subjective interpretations, practically inviting a raft of regulatory complaints. Regarding pricing, what guidance can the industry possibly take from an ex ante rule which states that a wholesale fee cannot exceed the program's fair market value? Good-faith negotiations must take place first and in fact are a prerequisite for determining fair market value. Surely the Commission is in no position to set a predetermined value as an ex ante rule.
1517 The Commission should not take the retrograde step of becoming an old fashioned pricing regulator, nor adopt rules reminiscent of the prohibitions on incumbent telco promotions and winbacks which were long-ago eliminated because of their anti-consumer impacts.
1518 The proposed regulations are simply unnecessary given the safety nets already in place, including competition among BDUs; the 3:1 distribution rule; the undue preference backstop; all under the rubric of the CRTC dispute resolution procedures.
1519 More fundamentally, it cannot be the Commission's intention to embrace a public policy that would dictate that all broadcasting services must be only as good as those of the weakest competitor.
1520 In conclusion, vertical integration is neither the source of all broadcasting ills nor a panacea for Canadian broadcasters. It is, however, a positive, Commission-approved business strategy that benefits the system. Those calling for more rules in the name of vertical integration favour a return to the excessively regulated past, and do so without any evidence of market failure. They fail to understand that competition and market forces will drive us forward, assisted of course by regulation carefully calibrated to ensure that the Broadcasting Act's cultural objectives are met.
1521 The guidelines I mentioned earlier would constitute regulation for sure, but that would be something that would be, in our view, properly calibrated.
1522 Thank you for your attention.
1523 THE CHAIRPERSON: Thank you for your presentation. I commended Rogers for following the process letter that we sent out and I equally do not commend you for disregarding it. It is helpful for us if people follow -- we sent that letter out because that's where our thinking is, that's how we ordered the issues in our mind and it would be easier for us to understand where you are coming from if you follow that pattern.
1524 So obviously if you are a small player with a single issue you won't have to address a whole panoply, but somebody like Bell, I would have expected you to follow it, but we will do it by way of questioning then.
1525 As far as you are against the code -- I think this is right, I can understand if you say you are against the code the way it is suggested by TELUS et al, which really very much deals with the issues of primary concern, but overall a code incorporating some of the ideas that you put forward surely would be helpful to the industry.
1526 You call it guidelines call I don't. I think code is much better. So this is the behaviour that we expect from the players in the industry, much like, you know, the terms of trade that your colleagues negotiated, et cetera. That sort of basic set up still leaves huge room for negotiation, but at least people know the outside parameters.
1527 I really think it would be of great benefit to us to have such a code and I would ask you, the same as I ask Rogers and anybody else, to really put your fruitful mind to it. You have in the past come forward with an awful lot of creative solutions in the five years that I have had hearings here and I would look very much forward to seeing Bell using its considerable firepower to see how could one put this in a code, which gives you the flexibility that you need and that you want at the same time strikes a balance in creating a certain predictability and certain rules of the game so that smaller players know what they can insist on and what they can't.
1528 MR. BIBIC: Mr. Chairman, can we talk about this because --
1529 THE CHAIRPERSON: Absolutely.
1530 MR. BIBIC: -- this is the single biggest issue we have and it causes us no end of concern. Put aside labels, codes, guidelines. Let's talk about what's been discussed.
1531 So there was a suggestion made yesterday that Rogers' position is reasonable because somehow they are in the middle, they have a big distribution arm and they have a generally smaller broadcaster. Their position is nowhere near the middle.
1532 If you take a close look, but really carefully look at that code that they proposed, it's heavily slanted towards distribution to protect their core business. The Rogers Media business and the independent broadcaster concerns are complete afterthought for Rogers. They want no mechanical rules for independent broadcasters or their own media business, but lots of mechanical rules on the distribution side. So let's really call what those proposals are for what they are.
1533 This is what they want: no head starts; control what goes into basic; control packages; control pricing; mandate service the same as the new media with no differentiation. The list goes on.
1534 So if the idea is to have a code that goes anywhere near those kinds of things, they don't want us to bundle services. They say that an agreement, a distribution agreement that Bell Media puts to distributors that's five years is too long.
1535 If that's what we are talking about as a code then we fundamentally object. If however, as I mentioned, we are talking about principles that the Commission would look to, then we can see our way to getting to that point of view.
1536 And I also tried to kind of compare the code that the competitors or the intervenors are discussing and that you have questioned them on with other codes we have seen in telecom or broadcasting. So take local disconnection code, the issue was sent to the CCTS. Develop an industry code that says how service providers are going to treat customers when it comes to disconnecting service. That's a very discrete issue and it's about standardizing a process.
1537 If you talk about Tracey's terms of tier trade agreement with the CMPA, again you have a situation that constantly occurs. Broadcasters are always negotiating for content with independent producers. So it's a recurring issue and you are negotiating around the same three or four parameters, so you can develop a code.
1538 But when you are talking about what we are talking about here, you are talking about linear content on OTA, on specialty, on the media, on mobile, online, you are talking about pricing, you are talking about packaging, you are talking about technical issues. There are so many permutations and combinations, how could we possibly address them all upfront in a way that will give us any meaningful guidance?
1539 THE CHAIRPERSON: I don't disagree with you if you paint it that way. I didn't say that -- first of all, Rogers didn't put forward a code, they put forward some principles only. The only ones who put forward a code were the independents. Rogers submission does not have a code in it.
1540 MR. BIBIC: Well, Mr. Chairman, they have something called "the Rogers rights holder code of good practices" and there's about 20 items.
1541 THE CHAIRPERSON: Then they said it should contain these principles. They never actually laid out a full code.
1542 But be that as it may, I do not think that Rogers -- I said Rogers itself is in the middle. I didn't say necessarily the code is in the middle. What I wanted to see is code from various people.
1543 One of the key issues, as you just put your finger on, what is really essential and what is normal negotiating. This shouldn't be in here at all, but what it is, and which we need some clarity and some basic tenets, if you want to call it, or whatever, clearly exclusivity is one of them.
1544 You mentioned head start. Is head start an issue that should be treated with or not. You know, obviously you say not, others say no. I am not making a decision here, I just thought it would be useful to have you lay this out.
1545 Now you, today, for instance, this morning -- in your aside, which is not in your opening remarks -- you suggested that we use a Diversity of Voices approach to exclusivity. Clearly, this is the sort of approach that comes out if you reflect on how you deal with it and you want to put it down.
1546 You could go with Rogers, which is saying: Blanket prohibition on exclusivity.
1547 You could go, obviously, the other way, saying a blanket with an allowance of flexibility and certain exceptions.
1548 Or you could say a blanket prohibition, except this category; and what is this category?
1549 And, obviously, you are not isolated, you are going to try to describe it by characteristics.
1550 And then it becomes a question of, in the category that is exclusive, and it is permitted exclusive, do you make it subject to prior approval or ex post examination, and you suggested this morning ex post examination, which is consistent with our overall approach to have as few ex ante rules as possible.
1551 And I don't see why this should be such anathema to Bell. I think, for Bell saying: Look, if you want to quote, here is Bell's -- we think these are the five issues, and everything else is negotiation. Don't get in there. The existing rules of ex post are good enough to deal with it, et cetera. These we feel are legitimate issues, and here is our position, or the way we would approach it.
1552 For instance, in today's submission, which I read very carefully -- not your opening, but the one you filed -- you are quite clearly suggesting that we don't need to expand our reverse onus.
1553 But then you say: However, if you do keep the reverse onus, specify, and clarify, and clarify very clearly, to make this thing workable, what does the person, first of all, have to do to establish preference before the reverse onus kicks in?
1554 Those are very helpful suggestions, et cetera, so --
1555 MR. BIBIC: We will definitely -- we would love, actually -- and we will do it in our final written reply -- put together the principles that we think the Commission should use to examine what we think are the core issues in this proceeding --
1556 THE CHAIRPERSON: Right.
1557 MR. BIBIC: -- in the Diversity of Voices model.
1558 I didn't mean to suggest that we are not going to put forward anything, I just really wanted to make an emphatic point on how what has been put forward by others really constitutes ex ante rules that say yes or no, with no grey area or flexibility.
1559 But we will definitely look at the key issues and say: Here, in our view, are the principles that should guide determinations by the Commission, if ever there are disputes.
1560 We will do that.
1561 THE CHAIRPERSON: I said in my opening remarks that we have a face in the market system. We will not introduce ex ante rules unless we are convinced that they are necessary, given the vertical integration and how that has changed the nature of the business.
1562 And it is up to you and others to convince us.
1563 But let's come back to this key issue of exclusivity. I think that you and I are not very far apart in our thinking on this. God knows where we will land, but doing something blanket does probably more harm than good.
1564 There will be some instances where exclusivity might be appropriate, but what are those instances? How do you characterize them? What is key for them? And how do we deal with that?
1565 The Americans use the expression "non-applicable programming", which, frankly, doesn't do much for me. It seems to me that it means sports, but they haven't defined it yet, so we will see on what sports, et cetera.
1566 But your idea -- if you start off with Rogers -- I mean, could one come up with a solution if one takes Rogers, or are you saying that exclusivity, per se, is not good and things should be shared?
1567 And that's what -- even this morning you say that you will be doing it, and that's what Shaw has been saying. However, there may be one category of programming where exclusivity would be appropriate, and this is the category, and this is how it is defined.
1568 MR. CRULL: Mr. Chairman, we think on the exclusives themselves, and the way they relate to the code, that over time you will have, with undue preference proceedings -- that a code of specifics will emerge over time, as you hear complaints.
1569 We think that anything you try to do by right now being too specific will stifle the market and it will absolutely have unintended consequences.
1570 I think what Mirko laid out in his notes that weren't in the opening comments said: We fully accept if you will give us your preferences.
1571 It would be our preference to see linear television, OTA and specialty broadly available to the market.
1572 And, by the way, that is also the economic motivation that Bell Media has: linear, specialty and OTA. Economically, we desire that to be broadly available, and today I have made all of my mobile content available, on commercial terms, to wireless providers.
1573 We just feel so strongly that a continuation of the moratorium and an absolute restriction prevents innovation, and it prevents creativity.
1574 These are nascent markets, where we are competing with huge global players, and we don't know what business models are going to emerge, and we absolutely require the freedom to be creative.
1575 The word "exclusive" has been erroneously confused with "anti-competitive". It's not at all. Marketing differentiation is, in fact, great for consumers and great for competition, and that is what we are trying to preserve.
1576 We do believe that, with undue preference -- and particularly if reverse onus is enhanced to be on broadcasters -- we absolutely believe that you have the power to then see a code emerge over time.
1577 MR. OOSTERMAN: If I may add to that, Mr. Chairman --
1578 THE CHAIRPERSON: Yes, please.
1579 MR. OOSTERMAN: I think that Kevin touched on the importance of innovation and how sometimes exclusives can help drive that. A perfect example would be the Olympics. As you know, Bell had that content exclusively, and on mobile devices, and the result of that exclusivity was several world firsts for Canada -- the world's first all IP games, which enabled viewing on multiple screens, to the benefit of Canadians.
1580 That is very positive support of the Broadcasting Act.
1581 So the more we put in place, regulation that would prevent that kind of innovation from going forward, the more detrimental it would be to Canada.
1582 Another example would be our funding of the Habs' reality show, which was funded by us -- and I am talking specifically about Bell Mobility -- which created that show. Without that show being funded by us, the content wouldn't have been created; again, detrimental to the interests of the Broadcasting Act. And --
1583 THE CHAIRPERSON: I'm sorry, I have to stop you there. I mean, if the Olympics are a perfect example, this is a two-way thought. Yes, it drove innovation. But, on the other hand, it was a national event. The taxpayer of Canada paid a huge amount for it. Why should the benefit of this only accrue to Bell Mobility holders and not to all mobility holders?
1584 That is the issue.
1585 I see the innovation argument, but there is also the national argument, and you can't exclude that.
1586 MR. OOSTERMAN: But let's be clear on that. First, every single competitor in the country had a chance to buy those rights, and we spent hundreds of millions of dollars securing them on behalf of Bell and Bell subscribers.
1587 The issue of choice, which I think you are touching on, is not one that should be shied away from. I will use the example of the BlackBerry versus Apple iPhones.
1588 If I am a subscriber and I really, really, really love BlackBerry Messenger, I have no choice but to buy a BlackBerry.
1589 If I also really, really love iTunes and the App Store, I have no choice but to buy an iPhone.
1590 So choice, as a concept for consumers, is not something that is unknown by them. It's prevalent every day. It's there every day and it doesn't --
1591 THE CHAIRPERSON: You are just making my point. That is exactly it. In some instances innovation comes, and in some it doesn't, and the question is, how do we define those?
1592 MR. OOSTERMAN: Absolutely. So you have to allow both to take place.
1593 The core issue for me is that you can't, actually, easily separate the technology from the exclusivity. Some devices do not support mobile video.
1594 Are we really saying that, therefore, mobile video shouldn't be on the devices that Carrier A has?
1595 That would seem very counterintuitive and counterproductive.
1596 MR. BIBIC: Mr. Chairman, back to the Olympics and choice, and Canadian taxpayers having paid a dear price, to me, from my own personal point of view, this is the single biggest issue that we should discuss, or that dictates where this goes.
1597 Canadians had access to the Olympics on conventional TV, on specialty TV, by the way of the 94 percent penetration in the country, online. There was just one little aspect there where it was also available on Smartphones, never been done before; and, yes, only Bell Mobility subscribers had it.
1598 It was just one tiny little window. There were so many other avenues to access the Olympics that there is no way that the fact that a TELUS or a Rogers wireless subscriber couldn't access the curling game for ten minutes on a mobile phone denied their enjoyment of the Olympic games. There's just no way.
1599 MR. OOSTERMAN: In each case, Canadian consumers had a chance to see that content on alternate screens. In no case was a Canadian prevented from seeing the content.
1600 So I do find it a curious argument on the part of some of the others.
1601 At the end of the day, it really is about driving innovation forward and enhancing choice for Canadians, and having Canada lead, in an important industry, on technology.
1602 THE CHAIRPERSON: It's a tough balance to make. I hear your innovation arguments; you hear my arguments of making sure that Canadians have the benefit. Where do we strike --
1603 That is why there is no clear-cut division. That's why --
1604 I appreciate your reluctance for ex ante rules and that you want to build in some flexibility, but by the same token, I think you understand our need to put some predictability and some order in the system.
1605 So let's see what you can come up with.
1606 MR. OOSTERMAN: May I just add one more point?
1607 It's important, I think -- crucially important -- to remember that all of this happened before Bell achieved vertical integration status, again. So to tie exclusivity to vertical integration, again, is a misguided thought.
1608 THE CHAIRPERSON: I'm sorry, but Mr. Bibic made that comment, and I -- vertical integration has accentuated these problems and brought them forward. They have become --
1609 By virtue of the industry now being integrated, and it being in four hands, for all intents and purposes, makes some of these problems more acute than they were before.
1610 MR. BIBIC: Mr. Chairman, the reason we accentuated it in the opening statement, and that Wade reiterates it now, in large part comes from a discussion you had with Rogers yesterday. Rogers made a plea, and we agree with it, if there is going to be a moratorium of some sort -- hopefully there isn't but that's permanent -- it should be applied symmetrically. And then you asked a valid question which is, "Well, why should it apply to TELUS? You know, how do they have any bargaining power?"
1611 Well, let's turn it around. Let's take the Olympics again. If in 2016 Games it's TELUS, a non-integrated TELUS that gets the mobile rights to the Olympics, aren't you back to where you were before with your concern about Canadian taxpayers only being able to access the mobile -- the Games through mobile on TELUS? Why is that any different?
1612 If TELUS does an exclusive deal with the CBC for the Tudors, how does that impact the consumer any less than if Bell does an exclusive deal with Bell Media for something on MuchMusic?
1613 So we reiterated that point because, first, we don't think that exclusive has anything to do with vertical integration and, two, the concept of symmetry to us is very, very important. I use TELUS and the CBC.
1614 I could also use Netflix. I mean Netflix is buying -- as Mr. Peladeau mentioned yesterday and everybody knows, they bought the exclusive rights to first run Paramount movies. Well, they didn't buy the exclusive rights just for new media. They bought all the rights for linear VOD and for new media VOD. They happen not to be showing it or won't show it on linear VOD because they don't have a linear service but they still own those rights.
1615 So why shouldn't the band on exclusives, if there is to be one, apply to them? So that's why we made that point.
1616 THE CHAIRPERSON: Okay.
1617 Now, on your point of that there are all sorts of issues that get thrown in the mix which, by the way, is not new to this hearing -- it happens in every other hearing too as you well know -- there are some that truly are traceable only to vertical integration.
1618 One of them is this whole issue of access to rights, horizontal flow. There is a suggestion that integrated, vertically integrated companies should create something akin to the customers services group and telecom so that you know the distribution arm doesn't get access to information that it shouldn't have when it comes -- sorry, it's the programming arm access to information it doesn't have which a distribution arm has by virtue of communications, et cetera.
1619 What is your position on that? This is a vertical integration issue. This is not a free loader.
1620 MR. BIBIC: Well, Mr. Chairman, you asked us the very same question in February when we appeared before you to get approval to purchase CTVglobemedia.
1621 Then I pointed to CRTC Public Notice 2001-66. And so this is a 10-year old rule that says any competitively sensitive info relating to a competitive distributor that is obtained by a programmer which is affiliated with another distributor should not be shared with the affiliated distributor.
1622 So if Kevin gets competitively-sensitive information from a programmer, from Rogers Cable, he cannot share it with Wade. The rule is there. We obey the rule.
1623 We all -- pretty much all of our affiliation agreements on the Bell Media side have NDA clauses which prohibit Bell Media from sharing anything that's competitively sensitive info. Like Rogers, we take great pains to respect and honour these things and we have issued guidelines to our key business people that say you can't share.
1624 Now, there is -- you know the only people who can have access to it are those who need to know. So like me, for example, on the telecom side when we have wholesale issues, of course I can have access to what's going on the retail and wholesale side because how else am I going to deal with a regulatory dispute? We have adopted the same principles.
1625 THE CHAIRPERSON: How can your competitors be assured that this is -- obviously it's a concern to them. Otherwise, it wouldn't have come up at this hearing.
1626 MR. BIBIC: On the telecom side the Commission has got principles in place just like you did on the broadcasting side in 2001 and we respect it.
1627 I mean the issue is -- actually, I find the issue potentially even more acute on the telecom side and there are no issues. It's well understood that our wholesale business units don't share competitively sensitive info with our retail business unit and the system works.
1628 MR. CRULL: Mr. Chairman, it's been -- you know we have had practical experience now operating for -- I have been in my position for a little bit over six months and, as Mr. Bibic said, the only places where information from -- that's sensitive about the distribution business and the broadcasting business is necessary is in Mirko's office for regulatory purposes or to support George, frankly, which is where it all comes together.
1629 George has a strategy team that Wade and I feed our information into and they advise George on decisions of integrated consideration. Wade and I don't have access to any of the specifics in that. And that has been our practice and would continue to be.
1630 I guess I would just reiterate that our affiliation agreements right now are fully -- we have looked at that and asked ourselves but our affiliation agreements have the necessary NDAs that would restrict me from sharing any sensitive information with the distribution side of the house.
1631 MR. BIBIC: Mr. Chairman, while we are on the subject there is one point I should mention. I should mention it right up front.
1632 Mr. Engelhart yesterday somehow suggested -- well, he gave a very similar answer to mine but he then dropped this one that said, "But those rules shouldn't apply amongst vertically integrated companies" and I view that as -- I totally disagree.
1633 I would hope that Rogers treats Bell information in the same way that it would treat the information of Astral as certainly we treat Rogers Media information the same way that we treat Astral's -- sorry, Rogers Cable information the same way that we treat independent distributors like TELUS.
1634 So obviously, if the two vertically integrated companies are going to negotiate a broad set of issues and they kind of agree that information can be shared, that's fine. That's on consent. But the prima facia rule ought to be competitively sensitive info is competitively sensitive info.
1635 THE CHAIRPERSON: Well, you are just making the point for code, that a code would -- you could put the very point in there, you know.
1636 MR. BIBIC: We could reiterate what's already Commission policy.
1637 THE CHAIRPERSON: Yes, but you just said how to apply. So you have just moved any doubt of how it would apply on vertical integration.
1638 MR. BIBIC: On that issue we are ad idem.
1639 THE CHAIRPERSON: Good.
1640 MR. BIBIC: I see no -- I have no objection.
1641 THE CHAIRPERSON: Yeah.
1642 Rita, you have a whole 11 questions as far as I can see -- areas of questioning. Go ahead.
1643 COMMISSIONER CUGINI: Thank you, Mr. Chairman.
1644 I want to start with one general question. Obviously whether we are talking about a code or we are talking about exclusivity or we are talking about distribution programming or access to Bell as a BDU, all of the submissions that have proposed such measures obviously are concerned about potential anticompetitive behaviour on the part of vertically integrated companies. You dismiss any of these proposals.
1645 So my general question is, how do you define anticompetitive and are you concerned that other vertically integrated companies in this country could engage in anticompetitive behaviour?
1646 MR. BIBIC: Defining anticompetitive behaviour, well, that's -- I mean, I could trot out a classic competition answer.
1647 We are not -- we don't see -- we have lived with vertical integration for a decade and we haven't seen a pattern or a practice of behaviour by any one party that leads us to believe that there is a prima facia problem. Of course, issues pop up but issues pop up and disputes pop up in every single industry.
1648 I'm sure Future Shop/Best Buy have a lot of disputes with their suppliers like Sony and Samsung, et cetera. It happens all the time. So we don't see a pattern that would cause us concern.
1649 And when there are issues we are very comfortable that there is a well-developed framework in place that we can resort to. In fact, we have resorted to the undue preference provision on numerous occasions to deal with particular disputes.
1650 So it brings me back to -- I spent a lot of time at the beginning of my career in this industry arguing for relaxation of heavy handed ex-ante rules on the telecom side because we really, truly felt that those rules were getting in the way of incumbent telcos delivering the very best they had to offer to consumers.
1651 And at the time, about '06/'07, even before -- at the time we all know what intervenors said, "Do not relax the rules because Bell will re-monopolize a telecom industry".
1652 Guess what has happened four years from now? Nothing of the sort. At the time we had an over 90 percent market share in home phone and now in cities like Quebec City and Montreal we are in the low fifties.
1653 So competition is what is delivering value. The threats, the fears, the hypothetical scare mongering didn't turn out to be the case. In fact, even the Chairman pointed out to Rogers yesterday that, "You are now the elephant, not the incumbent telcos".
1654 And I say, let market forces work. You have got regulatory protection and it will work again.
1655 COMMISSIONER CUGINI: So your position is that you don't anticipate or you dismiss these warnings that have been submitted as part of these proceedings. You don't anticipate that companies like Videotron or Shaw, or Rogers even, will engage in anticompetitive behaviour and if they do we already have the toolkit and the measures in place to deal with them. That's your --
1656 MR. BIBIC: Yes. So I say that emphatically with the comfort that there is a well-developed framework. So it's far from the Wild West, as someone suggested yesterday. There is a well-developed framework.
1657 MR. CRULL: I would just add in my prior position running Bell TV I competed, as Mr. Bibic said, with vertically integrated providers in Rogers and in Videotron and absolutely never had an issue that the current framework couldn't address. In fact, it was very, very rare. In six years, I think, we have brought one or two issues of undue preference and we are comfortable with the way the process served the facts in those cases.
1658 I think that it has to be reiterated that there has been no evidence, zero evidence of market failure. Vertical integration is a good thing for this industry.
1659 Two years ago we were on the precipice of disaster with one of our major broadcasters in bankruptcy, the other one having cash calls to is investors to avoid defaulting on loans. And, frankly, it was vertical integration that allowed us to take a step or two back from that precipice.
1660 I absolutely feel that the scaremongering and the proposed ancillary or unnecessary and unrelated code aspects will push us right back over. They will destroy any benefits of vertical integration that have been realized and actually hamper our industry to compete in the new marketplace and make it worse than it was before.
1661 COMMISSIONER CUGINI: I am going to ask you to be a little bit more specific on that issue in particular because both your written submission and obviously, your oral presentation today do a great job at outlining what the benefits are.
1662 I don't get as strong a sense -- and I'm going to ask you to be specific -- on how harmful it would be to Bell in particular, and to the industry in general, if we were to adopt any of the codes proposed or a hybrid of the codes proposed when it comes to vertical integration.
1663 MR. CRULL: I will address two quickly, and then allow my colleagues to comment.
1664 The first on the continuation of the moratorium. We absolutely believe that something like the Olympics an the marketplace, which is world-leading in the breadth of availability of mobile content, it wouldn't have emerged if an exclusive wasn't possible. It was platform investment required in order to deliver that service and it was not money-making in its initial incarnation.
1665 So the ability to be exclusive and differentiate your product is what stimulated the investment and development. I can't predict if holographic, you know, exclusives will be the next one, but the technology moves very quickly.
1666 The second thing is many of the proposals get into price regulation, ex-ante price regulation. We firmly firmly believe that is the most heavy-handed and market-destroying form of regulatory oversight. And we are frankly astonished, can't believe, the number of pricing and packaging interventionist regulatory proposals that were put in some of the codes.
1667 MR. OOSTERMAN: Well, if I may add I think, you know, our concern is that if you really looked at each of the issues that have been raised by others, they almost in all cases, in fact I think in all cases, turn out to be groundless if you look at what has actually happened in the market.
1668 So take the proposed prohibition on exclusives. The NHL, the NFL deal that we did was done before we were vertically integrated and the implications of that are so profound.
1669 One, it suggests that content providers don't by default favour vertically integrated players. Because we competed against vertically integrated players for that content.
1670 Second, it suggests that non-vertically integrated players are not, by definition, uncompetitive. Because we were a non-vertically integrated player and we were able to secure content.
1671 The same is true of Telus, they secure content on an exclusive basis, the same is true of Rogers, the same is true of each of the players at various times have done that. So vertical integration and exclusive content are not related. And the same thing happens in each case.
1672 So ultimately, what it feels like is hey now that Bell is vertically integrated you are so big, look out. There will be so much more of that we will be in trouble. Well, again, if we go back and look at the facts, you know, in each market in which we compete we are smaller than the player we compete against. We are smaller in the west than Telus and Shaw, we are smaller in Quebec than Videotron, we are smaller in Ontario than Rogers.
1673 So simply because we have chosen to compete in each of those markets and therefore have become bigger should not be held against us. Because in each market and certainly in some cases against competitors that are far more vertically integrated than we are, we have been able to make, you know, positive investments in this country through technology innovation, through service enhancement, through a number of areas that are beneficial to Canadians and Canadian consumers then have an enhanced choice.
1674 So I think our issue with the proposals is precisely that; every single time you push and poke and prod at one of them, it kind of falls apart in the face of what has actually happened.
1675 And then ultimately, I agree totally with your summation of it; we believe that if there is a case of poor behaviour on the part of somebody, the existing framework and undue preference rules, et cetera, et cetera, et cetera, provides ample ammunition to cure whatever ill might be in place.
1676 COMMISSIONER CUGINI: I was just summarizing your position.
1677 MR. OOSTERMAN: Oh, and I was trying to suggest that --
1678 COMMISSIONER CUGINI: No, that is fine.
1679 On the issue of exclusivity though, and I will read it so you don't have to rifle through your paper there, but in paragraph 84 of your written you say, "The moratorium, if maintained, should cover all content intended to be distributed on new media platforms by which ever new media distributor or programmer which also first aired on any programmer's conventional and/or specialty linear service."
1680 Are you saying here that if the Commission in our deliberations decides to continue the moratorium on exclusivity, this provision that I have just read to you would be acceptable to Bell?
1681 MR. BIBIC: So we are against, as you know, the outright ban, number one.
1682 COMMISSIONER CUGINI: Right.
1683 MR. BIBIC: Two, our preferred second fallback position is what I read out this morning in my handwritten scribbles, which is if you are not just going to leave it alone, you could issue a guideline saying, we prefer linear content to be widely or generally available on new media platforms. But if you are going to exploit exclusives in the name if innovation and service differentiation, et cetera, then these are the factors we will look to if you choose to exploit an exclusive.
1684 For example, is the content otherwise generally available on all the parameters I listed which we will repeat in final argument.
1685 Now, the second fallback would be what we said there. In all cases, everything needs to be symmetrical. And you asked for specific examples of harm.
1686 This is one, the lack of symmetry in a temporary moratorium is harmful because it prevents Bell from doing an exclusive deal for MuchMusic content, because that is owned by Bell Media, but somehow it is okay for Telus to do an exclusive deal with a competing music video service or with CBC or with any number of independent broadcasters of which there are a myriad number.
1687 So the fundamental point there is there is going to be some kind of rule on exclusives, it's got to be symmetrical.
1688 COMMISSIONER CUGINI: So that is in your order of priority?
1689 MR. BIBIC: Correct.
1690 COMMISSIONER CUGINI: No exclusives --
1691 MR. BIBIC: But symmetry is --
1692 COMMISSIONER CUGINI: Paramount?
1693 MR. BIBIC: -- top principle.
1694 COMMISSIONER CUGINI: Okay, thank you.
1695 MS PEARCE: But Commissioner, I think one of the things we wanted to touch on in terms of your question about, you know, what would be the harm of making the moratorium permanent, particularly with respect to the issue of exclusives.
1696 And I think the participants in this proceeding have tended to focus on the issues of exclusives from a very distribution-centric perspective. And I think there is potential harm from a content and a broadcast rights market perspective.
1697 As we know, the new media platforms, both online and mobile, are currently operating really in a dual capacity. Sometimes it is content aggregators that akin to a network, sometimes more like a pipe or a BDU.
1698 And we all know that from a content aggregator perspective exclusives have long been part of the toolkit. But more importantly, exclusives can lead to the creation of more and better Canadian content. And they can also be important to the preservation of a distinct Canadian rights marketplace.
1699 We have seen that some non-Canadian rights holders have, from time to time, concluded that the best way to monetize their content is by offering them on an exclusive basis.
1700 And I think if we decide pre-emptively to preclude Canadian players from participating on that basis, there is the potential that those non-Canadian rights holders may decide that the best way to monetize their content in the Canadian market is not through the Canadian players.
1701 In other words to say, you know, I think the highest value I can secure for my content is an exclusive deal. Canadian players can't do exclusive deals, I will consider doing it on a North American or a global basis. They don't have to sell to us to make their content available on those platforms in this market.
1702 And so I think that is just a factor that we think is important to have, you know, on the table as you review this situation, and one of the important reasons why we are very concerned about an ex-ante prohibition on exclusives.
1703 COMMISSIONER CUGINI: Is this your way of introducing over-the-top services into this discussion?
1704 MS PEARCE: Well, it is over-the-top services, for sure.
1705 MR. BIBIC: Let's get very specific. So the key point is NFL; before video became robust on new media platforms, how was the NFL really going to get its content into Canada on linear services? Well now, if they feel they can't properly exploit their rights in Canada because there is a ban on exclusives, why can't they just set-up on NFL.ca and sell subscriptions directly online to Canadians? Do we want that? Is that going to uphold the objectives of the Act?
1706 So these are the kinds of things that -- look, we are not saying that this is the killer answer that should move you off exclusives, but I think it is an important factor that ought to make the Commission think we shouldn't ban them outright. Because in some cases, it may very well be a good thing.
1707 THE CHAIRPERSON: Surely nothing is stopping them from doing it right now.
1708 MR. BIBIC: Well, it is because they are able to exploit the rights the way they want to in Canada.
1709 THE CHAIRPERSON: Oh, so it is obviously a question of dollars at the end of the day.
1710 COMMISSIONER CUGINI: I am going to move on to the area of distribution of programming services and access of programming services to Bell as a BDU.
1711 As you know, submissions in these proceedings have also warned us that the distribution of the programming services owned by Bell can be problematic.
1712 So I just want to know what assurances you can give us that the distribution of programming services will continue on fair and reasonable terms with fair market value pricing and that there won't be anti-competitive behaviour when it comes to the distribution of programming services owned by Bell.
1713 MR. CRULL: Commissioner Cugini, I can assure you 1,000 per cent that everything we have available will continue to be market -- your rules around Category A are clear, Category B are discretionary, Category C we spent a lot of time creating sports and news services. We are currently in negotiations of and establishing the fair market value for those services.
1714 And so the existing framework works and I think that Bell Media, as well as Bell Distribution, has always been commended by players in the market as being open for business and very fair to deal with on a commercial basis. And I give you my word, that is how we proceed.
1715 COMMISSIONER CUGINI: Well, as you know, parties have said otherwise in these proceedings.
1716 MR. BIBIC: Well, on the distribution side Wade can speak to Bell TV's motivations.
1717 MR. OOSTERMAN: Well always, as a BDU, we look for quality content. And, you know, if you take an organization like Stingray, which delivers an exceptional product and is constantly innovating, that is consistent with the value we try to deliver to our subscribers on the BDU side. And we see no reason for that kind of behaviour to change.
1718 I think, you know, there is a clear recognition that Bell Media has outstanding content, but as do many other players in Canada. And so on the BDU side our objective is always to maximize the content we carry, to maximize the choice and quality for our subscribers. So again, I find it a peculiar angst on the part of some of the participants in this proceeding.
1719 And if you take specifically a platform like Mobile, I think it's fair to say that anything we acquire from Bell Media, Kevin, you have made available to every other participant in the industry and I would say at rates below, quite frankly, what they could have been.
1720 MR. BIBIC: Commissioner Cugini, a couple of additional general comments and then a specific regulatory comment or two.
1721 So if you take the Bell Mobile TV offering on Bell Mobility, take a look at the menu of services, there are a lot of services there, not just Bell Media services. That's one.
1722 Two, there are a few submissions that were filed that pointed out that vertical integration is not a bad thing and even a party or two came forward saying they have been well treated by Bell TV, which shows you our willingness and our desire to carry good content, because we have to compete with larger cable companies.
1723 The regulatory comment I have is we have a 3:1 rule to obey, there is an undue preference provision that would have to live by ultimately, and the third point is let's not -- this is a reasonable discussion, but where we bristle is when the rules put forward by independent broadcasters are nothing more than indirect bootstrapping into must carry status.
1724 We have accepted long ago that there is a category called Category "B" and Category "B", there is no obligation to supply nor obligation to carry and it gets sorted out, and we carry a lot of Category "B" services, but not all. There is not one BDU who carries them all. In fact, we carry a bunch of Category "B"s that our competitors don't and we accept this and it works. That's what it is to compete in the marketplace.
1725 COMMISSIONER CUGINI: Well, as you know, the independent broadcasters group have suggested that we postpone the imposition of PN 2008-100, which is due to come into effect September 1st, and that distribution of programming services be guided by whatever policy comes out of these proceedings.
1726 So two questions. Comment on that proposal; and, secondly, how far along is Bell on making sure that you are compliant with 2008-100?
1727 MR. BIBIC: One is, we object to the notion that 2008-100 should be delayed. The industry was given a three-year ramp-up to it, how much longer can one give? In fact, that's why I personally think ramp-ups like that, especially long ones, are always a problem, because they just invite, at the last minute, people coming forward and asking for extensions of time.
1728 The same reason why, as an aside, sunsets I find are a bit of a problem. They never go away. A rule that said we will sunset in five years, some -- I have never seen one go away.
1729 So you had a policy, it's the right policy, it's one component in an integrated framework, new media fit into that, GLR get into that, the over-the-air TV policy fit into that and 2008-100 fit into that. So it's kind of reasonably calibrated and we would disagree.
1730 COMMISSIONER CUGINI: So you don't see any reason --
1731 MR. BIBIC: And we will comply. We complied with 5:1 rule, we will comply with the 3:1 rule. On September 1 we will be compliant.
1732 COMMISSIONER CUGINI: Yes. I have no doubt that you will be compliant. It was more of if the Commission were to take the independent broadcasters group's suggestion and postpone the implementation of 2008-100, what would that do to you as a distributor?
1733 MR. CRULL: Well, Commissioner Cugini, I will tell you, it's extremely troubling to us that over the last several years that this Commission and the participants in the market have spent a lot of time establishing a framework and billions of dollars of capital, risk capital. Strategic choices were made, others made different strategic choices and to change the rules that were carefully laid out and actually triggered those investments we would find unacceptable and very troubling.
1734 It's really important to note that you can't get a do over to companies -- and, by the way, when we bought CTV the interest of other parties was very, very high. Others were bidding and very interested in CTV. You can't give a do over whenever they make a different strategic choice or there is an outcome.
1735 MR. BIBIC: Commissioner Cugini, Kevin made me think, I was really thinking quite narrow in terms of 2008-100, but of course 2008-100 also contained the opening up of mainstream news and sports to competition. So are we going to put that genie back in the bottle? So it was determined that mainstream news and sports could negotiate in the free and open market for access to their services and it was also determined that anybody could come forward and acquire a sports licence. So if we are going to delay implementation of that, are we going to try to put the genie back in the bottle? Which means that Vidéotron's sports licence needs to be sent back and Shaw's application for sports licence needs to be sent back so that if we are going to delay we go back to genre protection for sports and news, and that applies to Sun News as well.
1736 So people have made very, very important expensive business decisions based on those frameworks, fully expecting that they would be implemented on September 1. If it gets delayed, in whole or in part, then it's totally fair for us to say put everything back in the bottle because we spent $3.2 billion to acquire this asset.
1737 COMMISSIONER CUGINI: So you don't see any validity in the arguments put forward that access and packaging rules for example should be in some way amended because of the magnitude of vertical integration in this country?
1738 I know you say we have been living with vertical integration for 10 years, but it's the magnitude of vertical integration over the last couple of years that is causing concern for those who are making those claims.
1739 MR. BIBIC: So, to cut straight to the chase, there have been a number of proposals. There is the 1:1 rule, we completely disagree with that and, rather than repeat Mr. Pelley's answer, we agree completely with the answer Mr. Pelley gave on that.
1740 Mr. Chairman, I think it was a Chair for another Commissioner mentioned, well, what about a modified 3:1 rule. So we maintain 3:1, but one of the three has to be an independent and we could accept that. That would be reasonable -- certainly a far more reasonable proposal or compromise than a hard and fast 1:1 rule which is going to have the impact on the market that Mr. Pelley mentioned and it also is an indirect way to bootstrap independents Category "B"s into Category "A" status, which is inappropriate.
1741 COMMISSIONER CUGINI: Okay. Thank you.
1742 My last question anyway, as you know it's an issue that was added to these proceedings and that is of a skinny basic. You heard Rogers yesterday saying that that is problematic and costly in an analog world. It means a truck roll, it means a trap, but easier when they are 100 percent Digital. Bell of course is 100 percent digital.
1743 Any thought or plan to adopt a skinny basic?
1744 MR. BIBIC: There's a difference between having the flexibility to kind of narrow your packages and tailor them to specific target markets.
1745 Rogers mentioned yesterday the ethnic market in Toronto and Vidéotron has done their thing for their market in Québec, but in terms of a regulated skinny basic in terms of either the services that they would contain or even the prices, we have tried that before. We have mentioned that at previous hearings.
1746 Vidéotron may have done it before, but we tried that before and there was very, very little take up, and in fact only 10 percent of our subscribers actually stick to the current basic package as it currently is.
1747 The other very important thing to note is the financial dimension of this.
1748 The programming cost component of our basic price is a small part of the overall price. What doesn't go away is acquisition costs, subsidies for set-top boxes, the call centre costs, billing and bad debt, costs of maintenance, all the regulatory fees we have to pay. So those don't go away. So we can force by regulation a skinny basic, but the price is still going to be -- you know, the price won't be as low as one would think. So we feel we deliver a lot more value at the price we have now in terms of adding these other services and that has ancillary benefits to those other services who find themselves in the basic package as well.
1749 So we maintain the positions we have had when we have discussed this two or three times over the years, that it would be an inappropriate measure.
1750 COMMISSIONER CUGINI: Okay.
1751 MR. CRULL: I might add, Commissioner Cugini, there's something really powerful that I have observed and learned in my time on the media side of the industry.
1752 If the breadth of choice for Canadian viewers is an important goal and if diversity of voices is an important goal, the economics of this industry up and down the value chain, from the content creators to the distributors to the aggregators in Canada and to the BDUs, popular programs subsidize less popular ones to get created. Popular services subsidize more niche services to allow them to be available. If you have a service that 3 percent of Canadians really love, it won't stand on its own without that ability to have the system and our entire system of choice has been built on that.
1753 COMMISSIONER CUGINI: So your position is it's working for you, no need to change?
1754 MR. CRULL: Customers aren't interested, the economics don't work and the entire system is built on the way its developed today.
1755 COMMISSIONER CUGINI: Okay. Well, thank you very much. Those are my questions.
1756 THE CHAIRPERSON: On this last point, I cannot just take that down silently. You just are not being truthful.
1757 First of all, you say you can afford it, you have done it in the past, and then you are saying there was no uptake. We have now an integrated industry, we have OTT, we have a huge offering otherwise. Why don't you put the customer to choice? Let them decide whether they want a skinny basic or not. You have done it before, you did, so obviously it is feasible, it is economically feasible. So if it was economically feasible before why is it not now and why would it be contrary to your philosophy to let the customer decide rather than making him buy a larger package which includes stuff he doesn't want?
1758 MR. BIBIC: Mr. Chairman, it is not correct for you to say that by virtue of the fact that we offered it that proves that it's economically feasible. In fact, it is not economically feasible. Lots of things are tried that turn out not to be economically feasible. We tried it, there was no customer take-up and the financials just don't work. They don't work. Now, that's one answer.
1759 The other answer is, it's a far cry from we are trying something in order to serve a particular target demographic and the Commission says this must be what's in your package and this must be the price. There's a big difference between those two.
1760 THE CHAIRPERSON: Hold it. I didn't say this must be the price, okay. That is your edit.
1761 I just say give the customer the choice. I like Bell, I think you could -- but I only like these five channels so I will do the basic and the five channels, everything else I don't want. If the customer feels that way I don't see that you can't construct a business case to serve him and make profit.
1762 MR. OOSTERMAN: With all the changes that you talked about, over the top and all the different ways to acquire video content, with all that and our current basic package, which is richer in content than what is being proposed --
1763 THE CHAIRPERSON: Right.
1764 MR. OOSTERMAN: -- the take rate on that basic package is 10 percent, which suggests that in spite of the fact that people have all these choices to go get content somewhere else, only 10 percent -- less than 10 percent take our current version of basic, if we skinnied that up even more it's unlikely that it would increase in penetration.
1765 MR. BIBIC: Not to mention, Mr. Chairman --
1766 THE CHAIRPERSON: Just a second.
1767 If that's right and nobody takes it up, then where is your loss?
1768 I mean if you are right -- let's assume you are right -- you create a skinny basic, if 2 percent or 1 percent takes it up, everybody else goes for the large one, where is your loss?
1769 MR. OOSTERMAN: Well, there are significant costs to manage a multiplicity of package choices on our call centre staff, on our distribution channels, on our billing system, our operational processes, our IT systems. So to suggest that we can just add packages at a whim, without any implications financially, is not correct.
1770 So you do need to think carefully about will this have the desired outcome. Mirko articulated quite well I think all the costs that remain even if we strip some programming costs out of our basic package, and so you cannot make the financial headway on the price to the consumer that you are hoping for.
1771 Every indication we have that the uptake of such a plan would be low, and then you weigh that against the costs that the organization would have to absorb to enable it, and it just doesn't make sense.
1772 THE CHAIRPERSON: Could you file with us in confidence a figure of what it would cost to set up a basic package?
1773 MR. BIBIC: We could certainly file kind of a net present value analysis showing that if you were to slim down the costs that would remain and therefore the price that you would need and whether or not it's net present value positive, sure.
1774 THE CHAIRPERSON: You are talking price now, he's talking cost. He's talking about the cost of setting up --
1775 MR. BIBIC: Certainly. I understand. We could file the costs that remain in numbers, sure.
1776 MR. CRULL: So, Mr. Chairman, you would like a customer to be able to take our current skinny basic and take it down maybe to the five services they want. So would you desire also for Canadians to have choice for those other services that maybe Mr. Oosterman doesn't want? Should they still be available?
1777 I think the answer is yes, obviously yes. So if those have to be available the cost of providing those services don't go away and so then fundamentally the economics of getting smaller and smaller packages mean that you can't lower the price, otherwise choice goes away. Otherwise choice -- maybe we only offer five services in Canada and that's their choice.
1778 THE CHAIRPERSON: The extra channels that you have in the basic package, those are yours; right? You are saying they are being --
1779 MR. BIBIC: No. There are a lot of services in the basic package that are not ours.
1780 THE CHAIRPERSON: Which you don't have to carry, which you voluntarily add to your basic package?
1781 MR. BIBIC: Absolutely.
1782 THE CHAIRPERSON: For instance?
1783 MR. BIBIC: I ran to The Source store in the mall.
1784 MR. BIBIC: OMNI 1, OMNI 2, Knowledge, The Shopping Channel, Game TV, Galaxy which is of course Stingrays, there are a number of radio stations, there are all the OTAs, none of which are ours which I presume would be in a skinny basic.
1785 THE CHAIRPERSON: Mr. Bibic, I said those you don't have to carry. You have to carry the OTAs.
1786 MR. BIBIC: Okay. Well, MétéoMédia, CMT, the --
1787 THE CHAIRPERSON: All of those are 91(h)s. Let's talk about the ones that you voluntarily carry.
1788 MR. BIBIC: CMT, there is one. Well, there are USnets, Treehouse, YTV, "W" Network. So there are a number and we don't own any of those. You're right, I mean I did start naming a few that were OTAs.
1789 THE CHAIRPERSON: Okay. Anyway, let's not --
1790 MR. BIBIC: MTV, that's ours; Galaxy. So there is a half a dozen, if not more.
1791 And we also add the USnets in there.
1792 THE CHAIRPERSON: Anyway, why don't you file with us in confidence exactly what Mr. Oosterman was talking about --
1793 MR. BIBIC: Sure.
1794 THE CHAIRPERSON: -- the cost of setting up from you a basic service.
1795 MR. BIBIC: Absolutely.
1796 THE CHAIRPERSON: Thank you.
1797 Len, you had a question?
1798 COMMISSIONER KATZ: Thank you, Mr. Chairman and good morning.
1799 I have a question related to where the wireless industry is going, because we spent a lot of time talking about new media and for some reason wireless is considered new media in the broader scope, although it's been around for 25 years.
1800 Everything that I have read clearly indicates that nobody wants consumers to have multiple wireless phones in their pockets because it's user unfriendly, it costs a lot of money and there are other reasons as well obviously, yet I keep reading about in Europe people have multiple SIMs, multiple phone numbers in order to get the best advantages of all the providers that are out there as well. We are now reading about phones being opened up in Canada's well, so you can buy a phone on the Rogers Network and use it on the TELUS Network or vice versa as well.
1801 First of all, from a technical perspective is there a day when there will be full flexibility and simplicity in my picking up a smart phone and just pushing a button on it and suddenly I'm on the Rogers Network, suddenly I'm on the Bell Network, suddenly I'm on the TELUS Network in order to acquire content? Right now I understand you have to take the battery out, you have to pull the SIM card out, you have to reboot it, you have SIM cards in your pocket and everything else. Where is technology going and are we going to get to a point where it will be no different than a television at home, even though it's wired and stuck into a wall, where you just turn the channel and suddenly you are on another network?
1802 MR. OOSTERMAN: Well, one can only hope not.
1803 MR. OOSTERMAN: And I say that was the full intent of those words. Because if you are suggesting that all differentiation in wireless be eliminated I think Canadians end up with a much poorer service experience than they do today.
1804 I think at the heart of your question when you say nobody likes the thought of people carrying multiple phones, well, the suggestion that every single Canadian has a right to every single bit of content that exists on whatever device they might happen to choose is a preposterous thought. There are three specific reasons for that.
1805 First, you know, it is the norm today in traditional TV, as my colleague Mirko said, not every bit of content is carried by every BDU. So today already in traditional TV people have to make a choice on service provider if they really care about a specific bit of content.
1806 Second -- and I do not know how to do this, I do not know how you separate fully content from technology deployed in the wireless. Again, Mirko made the point. The iPhone is a very rich media content device. Rogers launched that exclusively because they had a technology choice that they deployed, they were the only ones in Canada who did that, and so they were able to carry the iPhone and opened up access to a variety of content for those subscribers. That meant people who were interested in that content chose an iPhone and by definition chose Rogers. So if you are talking about eliminating the choice on devices -- because what you are really suggesting or what that would lead to is in order to make content ubiquitous you have to make handsets ubiquitous. Every handset must be available from every carrier because there is a relationship between a handset technology and the content you can see. Different manufacturers build in different --
1807 COMMISSIONER KATZ: These phones are being opened up now. As I just said, you can take the iPhone off the Rogers Network and put it on a TELUS Network or vice versa.
1808 MR. OOSTERMAN: Yes, but the iPhone will do things that a BlackBerry won't and what you can't do is have the Apple experience on a BlackBerry. The Samsung device does things that a BlackBerry or an iPhone won't. You cannot have the Samsung experience on an iPhone or a BlackBerry. So if you really want ubiquity of content it means you have to have ubiquity of handsets.
1809 And then you take it the next step, you're saying okay, as we all know there is a vast difference in network performance and the investments we make in our network to enable mobile video, if those are not matched by a competitor, now we are getting to the situation where you are forcing the exact same technology and the exact same deployment into every carrier in Canada.
1810 So now we have the environment where to ensure that everybody has access to every bit of content on the device they choose, all manufacturers of handsets must employ the exact same thing and every provider of technology, network technology, must provide the exact same --
1811 COMMISSIONER KATZ: No, it's a content issue. All you need to do is have access to the internet --
1812 MR. OOSTERMAN: With all due respect --
1813 COMMISSIONER KATZ: -- wireless access.
1814 MR. OOSTERMAN: With all due respect, as you know, the devices work very differently. A dual core processor will render video much better than not. Some providers are manufacturers support Flash, others don't. So that enables video delivery to varying degrees. So you cannot separate one from the other.
1815 COMMISSIONER KATZ: If I go into a wireless store, whether it's one of yours or somebody else's, I can see virtually the same phones, they may have a different model number on them, but the access to content that any one of these stores sell me is equal. They all tell me I can access the Internet; they all tell me I can download, I don't know, www.ctv.ca or whatever, as long as it's a Smartphone and it has internet access to it.
1816 All I'm saying is, is this issue of exclusivity on wireless a red herring downstream -- I don't know how far that is, is it three years, is it five years -- where people will be walking around with multiple SIM cards or multiple capabilities on their phones, price excepted, and therefore they can get the Olympics on ctv.ca off of your SIM card on the phone and if tomorrow I want to watch the Blue Jays I will get that off of Rogers.
1817 MR. OOSTERMAN: Right. So you made my third point for me, which is -- we talked about how preposterous it is to have every device, have every bit of content so a consumer doesn't have to choose, and that gets to my third reason, which is in wireless there are multiple platforms as alternative choices available to a subscriber.
1818 So I recall we challenged Vidéotron on an undue preference rule in advertising and the Commission decided no, that's not a case of undue preference because there are multiple platforms available to you, Bell, to have your advertising message reach its intended audience. The exact same thing is true here. There are multiple platforms for anybody who is interested in seeing a bit of content available to them, whether that's in your local bar on a 60 inch plasma TV or, as you said, through a browser service on your Smartphone where you dial in to reach the online site that the content provider might have.
1819 So those alternatives are available, which is again another reason why there is no issue with exclusives in wireless, in my view.
1820 MR. BIBIC: Mr. Vice Chairman, I would also add that I think the issue of exclusives on mobile is a red herring now not just down the road, because even in the scenario you have put forward the subscriber needs multiple wireless subscriptions.
1821 So I think the position you are putting forward is a subscriber has one phone and so if you want to watch NHL you put in the Bell SIM card and if you want to watch World Cup you pop that out and you put in the Rogers SIM card. Well, the customer still needs two wireless subscriptions to get that.
1822 And that's right and customers will have to make a choice, just like they have to make a choice on the traditional platform. If you want BBC Kids you have to be on Bell or on TELUS Optik, Rogers. You can't get it on Shaw direct.
1823 So you make these trade-offs all the time in the linear world and I could -- I'm not going to bore you with all the details, but I have a whole list of the services that are available and not all on every platform.
1824 So the same situation can exist, should exist, there's nothing wrong with it, in the wireless world.
1825 COMMISSIONER KATZ: But that's why I am asking that question, at what point in time from a technological perspective will this simplicity -- and ease of use -- price aside, I mean price will be a function of demand and everything else as well.
1826 But do you, given you are in that industry right now, see a day when these Smartphones will have that free capability, freely available without having to pull out batteries and SIM cards and rebooting and everything else as well, or are we still a couple of years away from that?
1827 That was the basic question that started this.
1828 MR. OOSTERMAN: Yes. I see nothing in the short-term horizon that would do what you are suggesting.
1829 COMMISSIONER KATZ: Thank you.
1830 THE CHAIRPERSON: Tom...?
1831 COMMISSIONER PENTEFOUNTAS: Yes. Just back on skinny basic.
1832 I see your basic plan here is $30 a month -- is that correct -- on your site? I don't know if you have that there, but that's what you have here on your site, $30 a month.
1833 MR. BIBIC: Correct.
1834 COMMISSIONER PENTEFOUNTAS: Okay. In other words, you have fixed costs and eliminating -- I don't know how many services there are there, I don't have that on your site here, there may be 30 or 40 channels in that skinny basic that you are offering?
1835 MR. BIBIC: The basic?
1836 COMMISSIONER PENTEFOUNTAS: The basic. There's no skinny, okay.
1837 MR. BIBIC: Forty-five or so.
1838 COMMISSIONER PENTEFOUNTAS: Okay. Now, to use the Chairman's words, if we are going to go from basic to skinny basic the cost won't change. I mean, you can eliminate 20 of those stations but the per-station cost will increase and you will be pretty much where you are at now, because there are fixed costs that you can't get around.
1839 MR. BIBIC: That's the essential point we are trying to make, yes.
1840 COMMISSIONER PENTEFOUNTAS: That's your point.
1841 MR. BIBIC: Yes.
1842 COMMISSIONER PENTEFOUNTAS: Okay. Thank you.
1843 MR. BIBIC: And, as Kevin points out -- and this I remember the last time we debated this at the hearing -- we, Bell TV anyway, already loses money on basic. So where you start making money, as much of a struggle as that is, is when the customer upgrades to digital theme packs.
1844 COMMISSIONER PENTEFOUNTAS: Yes, you make money on bozos like me that spend $150 a month.
1845 COMMISSIONER PENTEFOUNTAS: Thank you.
1846 MR. OOSTERMAN: Thanks very much.
1847 COMMISSIONER PENTEFOUNTAS: Do you want to thank him?
1848 MR. OOSTERMAN: For the $150.
1849 THE CHAIRPERSON: Candice...?
1850 COMMISSIONER MOLNAR: Thank you.
1851 I want to move away from skinny basic actually.
1852 I heard you talking here about the dangers of ex-ante regulation and the potential harms that it could cause. You also, I see, have discussed the lack of market failure to date.
1853 In paragraph 17 of your statement here you say that those that are advocating for a new system and new regulations have failed to make their case that there are dangers of vertical integration. But there are parties to this proceeding who actually have made quite a significant case of the potentials where vertically integrated companies have both an incentive and an opportunity to act in an anti-competitive basis. I'm sure you have read some of those submissions as well.
1854 If you don't accept ex-ante rules and we are looking at an ex post -- you know, retaining the ex post kind of regulatory framework, I would like to have your comments on how an ex post framework could be perhaps improved to protect against the potential for foreclosures. Particularly I would like your comments on the standstill provision that's been proposed by some parties.
1855 MR. BIBIC: Okay. We will give the standstill some thought without providing a specific answer. We will take the appropriate time to think it through. I think we have to realize that there is also a difference between a standstill that applies to a service that is already on a platform that may be repackaged and that's been on for a number of years for example. That's one thing.
1856 It's quite different than a standstill in the sense of no head start where you actually can't even launch something because somebody raises their hand and says I have a complaint and it's designed to forestall the ability of the player to move forward with an initiative. So that's an important distinction that we would make.
1857 Other ideas, and they are in our written statement, written submission, we have absolutely no objection whatsoever to resolving undue preference complaints more quickly. You know, I have looked at the last few that we have been involved in and they range from 5 to 7 months. You know, three months. If we could get something done in three months then if I'm on the receiving end of a complaint I would be happy to deal with something very quickly.
1858 Reverse onus is another one where I think if you apply reverse onus consistently across the board -- as reluctant as I am with respect to the reverse onus, but it is what it is -- if you apply it across the board we could support that. That would be another improvement.
1859 So these are the ideas we will rearrange in our final written reply.
1860 COMMISSIONER MOLNAR: Okay. Please address standstill particularly.
1861 MR. BIBIC: We will. We will.
1862 COMMISSIONER MOLNAR: Because that is one that has been brought forward, as I'm sure you are aware, by many parties.
1863 MR. BIBIC: Commissioner Molnar, just the incentive and the opportunity language, that is exact language word-for-word that the same parties used on the telecom side three or four years ago, don't deregulate because Bell and other incumbent telcos across this country, in whatever province, have both an incentive and an opportunity to foreclose competition. It didn't happen. That's speculative.
1864 If you really look at all the evidence that's been filed -- TELUS' Arnold & Porter study. It's a good study, but it talks about merger review cases. That doesn't prove any instances of anti-competitive behaviour. If you look at TELUS' Nordicity study it's the same thing. You can't confuse a merger review with evidence of an anti-competitive behaviour by vertically integrated entities. So those pieces of evidence are completely useless in terms of supporting the point that there is anti-competitive behaviour.
1865 COMMISSIONER MOLNAR: Fair enough, but I was asking you about ex post measures.
1866 MR. BIBIC: And I heard you.
1867 COMMISSIONER MOLNAR: Ex post measures are not on the basis that the behaviour exists, it's in case that behaviour were to occur.
1868 MR. BIBIC: We will definitely file an answer to your specific question.
1869 COMMISSIONER MOLNAR: Thank you.
1870 THE CHAIRPERSON: Okay, we have been at it an hour and a half, I have three more questioners, so I think we all need a nature break.
1871 Let's take a 10-minute break before continuing.
1872 MR. BIBIC: Thank you.
--- Upon recessing at 1031
--- Upon resuming at 1044
1873 THE SECRETARY: Please take your seats.
1874 THE CHAIRPERSON: Michel?
1875 CONSEILLER MORIN : Merci, Monsieur le Président.
1876 Alors, j'aurais simplement une question sur le service de base squelettique, le skinny basic service.
1877 Vous avez dit, Monsieur Bibic, que, évidemment, c'est simplement 10 pour cent des clients, des abonnés des cablôdistributeurs ou des entreprises satellitaires qui sont des abonnés.
1878 Mais 10 pour cent, ça fait plus d'un million de consommateurs et de clients, et si on prend une moyenne, c'est peut-être près de 3 millions de personnes qui ont un intérêt direct dans un service de base qui serait vraiment un service de base le moins coûteux possible et qui serait défini par un contenu uniforme, pas au niveau du prix mais suivant le contenu.
1879 Comme on disait hier, ça pourrait être Radio-Canada, des services éducatifs, des services gratuits. On pourrait même prendre en compte éventuellement s'il y a un jugement de la Cour suprême de la valeur ajoutée, par exemple, CTV, s'ils avaient une valeur, pourrait ne pas se retrouver sur ce service de base.
1880 Dans le marché de Montréal, vous êtes déjà quatre entreprises qui offrez un service de base : IPTV, Bell ExpressVu, Star Choice et, évidemment, Vidéotron.
1881 Si on avait un service de base uniforme, pas avec tous les canaux spécialisés que les consommateurs, les 90 pour cent d'autres consommateurs, sont obligés de prendre, mais si on avait un service de base, est-ce que vous ne pensez pas qu'il y aurait, d'une part, beaucoup plus de concurrence sur le prix lui-même parce que les gens pourraient comparer des pommes avec des pommes et des oranges avec des oranges, qui n'est pas le cas actuellement, où on a un service de base à Montréal, un autre à Calgary, un autre à Vancouver, un autre à Toronto, avec différents services et surtout pas le même prix?
1882 Mais si on avait le même contenu, on risquerait d'augmenter la concurrence -- qui est un mot qui vous est cher -- d'augmenter la concurrence entre les fournisseurs de services et aussi dans le contexte des OTT, des Netflix et des Google de ce monde, bien, on risquerait d'avoir un service canadien, un système canadien beaucoup plus compétitif face à l'arrivée des nouveaux.
1883 Alors donc, et au niveau de l'accès et au niveau de la concurrence, le service de base squelettique, le skinny basic service, serait peut-être une réponse, pas toutes les réponses, mais une réponse au besoin de plus de concurrence, de moins de coût pour les consommateurs, et, finalement, de favoriser un accès plus grand à ces 10 pour cent qui représentent un million de clients et près de 3 millions de consommateurs.
1884 M. BIBIC: Monsieur Morin, merci pour la question. J'ai quelques points en réponse, aucun ordre spécifique.
1885 Mais de notre point de vue, on ne définit pas la concurrence seulement au niveau du prix. On fait de la concurrence en faisant de la différentiation en ce qui concerne le service et même les forfaits qu'on offre.
1886 Donc, on a déjà quatre fournisseurs, comme vous le constatez, à Montréal, et on fait de la concurrence. Les quatre plateformes font de la concurrence un avec l'autre en développant le service de base qu'on a aujourd'hui en fonction de ce qu'on croit que le consommateur désire.
1887 Je crois que ça serait une mauvaise chose de simplement dire que la concurrence devrait se faire au niveau seulement du prix, avec un service de base uniforme. Donc, là, on enlève le potentiel de se différencier, de faire la différentiation sur la question des forfaits, surtout le forfait de base. Premier point.
1888 Deuxième point. Moi, je ne prendrais pas pour acquis que s'il y a 10 pour cent de nos abonnés aujourd'hui qui s'abonnent au service de base qu'on offre aujourd'hui qu'on devrait prendre pour acquis que le 10 pour cent serait intéressé à un skinny basic.
1889 Il y a peut-être un grand nombre des 10 pour cent qui sont intéressés au service de base aujourd'hui parce qu'on offre 50 services, mais si le skinny basic n'offrait que 15 ou 20 services, ça serait peut-être moins intéressant pour une partie de ces 10 pour cent là.
1890 Troisième point. Je ne crois pas que 10 pour cent... Nous, on a 2 millions d'abonnés; 10 pour cent de 2 millions, ce n'est pas un million.
1891 CONSEILLER MORIN : Je parlais du 11 millions d'abonnés.
1892 M. BIBIC : Ah, d'accord. Je comprends. Je comprends.
1893 Et le dernier point, c'est le même point qu'on soulignait un peu plus tôt. C'est que le prix doit se faire en fonction des coûts. Les prix déterminent les coûts. Naturellement, la concurrence déterminera les coûts de l'opération, mais quand même, il faut s'assurer qu'on couvre les coûts fixes du service.
1894 CONSEILLER MORIN : Mais pour les consommateurs, vous supposez que le consommateur est capable vraiment de choisir entre et d'évaluer chacun des services de base. C'est une hypothèse valable, mais il reste que ce serait beaucoup plus simple pour le consommateur et ça mettrait surtout plus de pression au niveau des prix avec un service squelettique.
1895 Vous ne voulez pas définir votre offre comme une offre qui est basée sur le prix. Je comprends très bien. Il n'y a personne qui veut parler du prix. Il y a seulement peut-être les compagnies pétrolières qui n'ont pas peur d'afficher leurs prix à toutes les semaines.
1896 Mais avec le système de radiodiffusion, ce n'est pas, évidemment, aussi facile d'évaluer entre les services et les options surtout quand on passe aux différents assemblages, tandis qu'avec le service de base, au moins là-dessus, on a vraiment quelque chose qui est une base minimale sur laquelle tout le monde peut s'entendre et qui favorise l'accès.
1897 Mais à cette question d'accès, vous répondez, on ne sait pas combien, mais tant qu'on ne l'aura pas fait, on ne le saura pas. Et nous comme régulateur, est-ce que ce n'est pas notre devoir d'essayer d'augmenter la concurrence dans le système, y compris au niveau des prix, naturellement?
1898 MR. CRULL: Commissioner Morin, a couple of points.
1899 You said that -- you suggested that it's very difficult for consumers to discover and to understand what they are paying.
1900 Vice-Chair Pentefountas found that it was $30 for our basic service in a matter of seconds. Mirko reached behind him and found that it was $30. They know what they're paying. Thirty dollars is the English entry point for basic services. In Quebec it's $19.
1901 Are you even suggesting to me that $19 is an unfair and an unreasonable and an excessive price for 50 television services? I can't understand. Should it be five? Is that our goal?
1902 The last point that I have to make is that we should put out the exact same content and that's the definition of more competition. I can't think of two things that are any more distantly varied than suggesting the exact same product made available by multiple companies is more competition. That's absolutely incongruent.
1903 COMMISSIONER MORIN: But perhaps if there is a basic skinny service everyone will see just in a matter of seconds that there is a difference and there is some push downward for the prices, and that's the point.
1904 MR. CRULL: We have $9 phone service in the Province of Quebec right now. We have $19 television service. Competition, sir, is pushing down prices, not regulation.
1905 COMMISSIONER MORIN: But if you want to have some competition you have to look at the price right away and it's not the case now because if I ask the Vice-Chair the price of Star Choice, the price of Bell, the price of IPTV, I'm not sure what the answers will be.
1906 MR. OOSTERMAN: Well, the price of Bell TV in Quebec is actually $9.95 at the moment. So it's very good.
1907 But I get the impression that the only thing that matters is a lower price as if that's the sole objective of the Broadcast Act, and surely that's incorrect because when I read it, it seems to support a balanced approach, trading off price and quality and choice and selection, Canadian content, diversity of voices. There are a number of elements that matter.
1908 And really if price is the only thing that matters, how do you explain a company like Apple, which certainly does not have the lowest priced product on the market? In fact, it's the most expensive, and yet it's number one in market share.
1909 It's because consumers value things other than a cheap price, and our job as an organization is to find the best balance between content and selection and price and quality of support, quality of network, quality of service, innovation and technology.
1910 All those elements come into play and out of that we find our best value proposition we can deliver and it does not by definition have to be the identical value proposition as somebody else so that it forces us to compete only on price because consumers have spoken many, many times with their wallets that they care about things other than price, and anything that stops that differentiation from happening is a backward step for this country.
1911 COMMISSIONER MORIN: Thank you very much. These are my questions.
1912 THE CHAIRPERSON: Steve?
1913 COMMISSIONER SIMPSON: Thank you very much.
1914 Good morning. I would like to talk on two areas -- ask questions, rather, on two areas. One is starting with OTT.
1915 I noticed, as the big dog in the hunt or one of the big dogs in the hunt, that you didn't use OTT a lot in your dissertations. I know that it's out of the scope of this hearing but I was just curious as to why.
1916 Is it something that you don't really feel is a threat provided it's got its foot in many camps?
1917 MR. CRULL: Commissioner Simpson, that's not the case at all. We certainly take OTT very seriously. It's precisely the reason why we believe that ex ante regulation that stifles innovation, that this is the absolute wrong time given the pace of change in the industry and the technology availability and, as you know, in some sense the tearing of the border for content and differentiation. So we feel very strongly.
1918 COMMISSIONER SIMPSON: Could you help me understand what you see as the primary difference between OTT and something like IPTV or VOD?
1919 They are all functionally non-linear services and they are just coming at you from different pipes or different distribution channels and I'm wondering if you could just give me your overview on the difference.
1920 MR. CRULL: I'll start and try to be brief and hand to my colleagues.
1921 IPTV is a regulated service in Canada. It is riding the pipes, the distribution pipes of the same company that is also doing the content sales. So in the case of a Netflix or an OTT there's no investment in the distribution, no investment in the infrastructure, in the pipes. It's riding somebody else's infrastructure investment.
1922 Both cable and IPTV make that investment in infrastructure and I think the largest difference is that IPTV is a regulated distribution service and Netflix or OTT is not.
1923 MR. OOSTERMAN: I think those folks at Netflix are plenty smart, you know. If you think about how they used to have to get a movie to me as a consumer, they used to have to pay the post office to get it to me, and surely, somebody sat there and said, why am I doing that, I can just ride those telcos and cablecos for free, why don't I just do that. And so they did.
1924 And so it avoids for them the obligation to invest in that infrastructure. It avoids for them all the Canadian broadcast funding that ourselves and others in our space here in Canada contribute to the health of the industry.
1925 So it is really a bypass environment that's created through over-the-top and that doesn't even deal with the multiplicity of what I'll call pirate sites which completely bypass all rights legislation to deliver a video signal.
1926 THE CHAIRPERSON: Well, let's be clear, it's not for free, it's just less expensive maybe. They're paying Akamai or somebody to distribute. So I mean it's wrong to say it's for free. It's just a different cost.
1927 MR. OOSTERMAN: Well, all right. But as Vice-Chairman Katz pointed out --
1928 MR. BIBIC: Well, they are certainly not paying the ISP for access for their bits to travel over the central portion of the network that we're delivering in the backbone and in the access, that's for sure.
1929 THE CHAIRPERSON: Absolutely. I don't disagree. But you said free. It's not free. There's a cost to it. Distribution is a different cost.
1930 MR. OOSTERMAN: I stand corrected on free. It's certainly at a significantly lower total cost.
1931 And, you know, as Vice-Chairman Katz pointed out earlier, on any smartphone today you can get every bit of content that Bell offers simply by accessing the browser and going to the site of your choice.
1932 So the whole exclusivity thing is a red herring. I think OTT is actually one of the fundamental issues facing the broadcast industry, and the reason we didn't put a lot of it in our submission is precisely because it's outside the scope of this hearing, but we look forward to participating in such a thing.
1933 MR. BIBIC: So we did make some mention to it in the opening statement and had a couple of statements there kind of walking that fine line between complaining about everyone else jamming in issues that are out of scope and then doing the same thing ourselves. So that was one of the reasons.
1934 But to pick up Kevin's point, so if Bell Media acquires a piece of content, gets a distribution deal, earns revenue from the subscriber, 30 percent of it goes to CPE, Netflix zero, even though, as I mentioned, they're buying linear rights, and, of course, the moratorium if Bell Media buys a piece of content and distributes it on new media platforms, right now anyway as the rule stands that can't be done exclusively.
1935 Netflix goes out and does, for a particular piece of content, a clean sweep of the platforms. They'll buy linear rights even though they don't have a linear channel. No moratorium applies to them, so it can be exclusive to themselves.
1936 So those are two big differences. It's not symmetrical. We have a big issue with it and we will be coming forward in the other proceeding with those answers.
1937 COMMISSIONER SIMPSON: Thank you very much.
1938 Why I was asking that question is because from the consumer standpoint, the infrastructure and the regulatory policy, they're touched by it but they don't understand, you know, that it lies below the surface. What they're after is the content.
1939 And where I'm going with this next question is right now organizations like Netflix are looming, you know, you feel the shadow behind the broadcasting industry, but right now functionally the content that's on that type of distribution system is what I would call second run or B grade content largely because of distribution deals that exist with the primary purchasers, which are broadcasters.
1940 So the next question is: Do we have to be more cognizant of codes of conduct and regulatory policy that inhibit your ability to compete effectively in purchasing content and stifle the ability of OTT to be able to start end-running broadcasting from being able to get the content it wants?
1941 MR. CRULL: Commissioner Simpson, there is no question to that and we're competing with OTT providers for content in the recent sort of annual pilgrimage to purchase the fall season shows. I sympathize, I think a lot of work will go into the fact-finding and the deliberations around this topic because the solution is not easy.
1942 Your question about consumers, they look at the various ways that they can now get content, and, you know, what's not always clear and I think what we as an industry have to -- if we absolutely believe that the various elements of our system that introduce costs on regulated entities, like the multitude of regulatory fees as well as the obligations around Canadian content carriage, programs of national interest and various things, if we believe those are absolutely essential, we actually have to find ways to convince Canadians that they're essential to the system because those are the very things that are just -- those are really the only things that are differentiating when the consumer looks at the two choices and says, my gosh, this OTT is much less expensive than this homegrown Canadian choice.
1943 COMMISSIONER SIMPSON: Two more questions and then I'm done.
1944 Following through on that theme, the OTA regime right now, and you are now a full-fledged broadcaster as well as a distributor and a telecommunications company, but the OTA regime largely has been the delivery system for national interest stuff, you know, news, programs of national interest and so on.
1945 My question is -- the entertainment component, when you look at it as the bait on the hook for the consumer, has occupied about 90 percent of the programming day of OTA.
1946 My question is: As part of being competitive with OTT and other forms of distribution of that entertainment content, does the Commission also have to be cognizant of the fact that to compete with OTT in the future it may cause a compromise of the conventional broadcasting system to the extent that the future for a lot of television is cablecast, not over the air, and therefore devoid of a lot of the regulatory burden that OTA has that would allow you to be able to just walk away from that?
1947 In other words, you know, we know that broadcasting is in peril, has been since 2008. We've seen the numbers. We've heard the pleas. The OTT competitive environment, I think, is linked to this and I would like you to comment on that.
1948 MR. CRULL: I think, Commissioner Simpson, that you are right. The OTA whether it's delivered over cable, telco, TV, satellite or it's over-the-air, the conventional television does remain in peril. I don't think that yet OTT is the contributor to that. So that's even before the further challenges that OTT introduces.
1949 I don't believe yet we've seen -- I believe we're experiencing what would be called cord-shaving but very limited cord-cutting to date, but we would anticipate -- you know, it's astonishing to me the rapid pace of change now. You rewind a year and Netflix wasn't in our vocabulary.
1950 MR. OOSTERMAN: If I may add, I do think at the heart of your question are two very important principles that need to be carefully considered.
1951 One is just reciprocity, you know, the same rules for all. Otherwise, you really end up with a distorted landscape where strange behaviour takes place.
1952 I think equally important though is the importance of scale because in Canada we're not limited to competing only with Canadian organizations. Apple runs an over-the-top service. It's the largest technology company in the world. It's fully integrated A to Z. That's who we're competing with in some cases and so the importance of scale is one that I think needs to be recognized.
1953 And so again, vertical integration aids scale. It's there for a very positive thing and anything that whittles away at that, I think, will ultimately be detrimental.
1954 MR. CRULL: I just might add one final point. You mentioned the 90 percent entertainment on OTA and I don't want it to be lost that the reason I have such a strong conviction that our broadcast system requires three strong pillars to support the stool, if you will, distribution, specialty and conventional.
1955 Eighty-five percent of the local news that Canadians receive is over OTA or conventional channels and 55 percent of Canadian content is delivered. So it's an important pillar in and of its own right.
1956 COMMISSIONER SIMPSON: Exactly.
1957 Just to wrap that up, I'm trying to come to a better understanding of how tied something like the skinny basic is to the assurance that news and special interest programming is maintained and freely available as the pull of the rest of that entertainment day gets more -- leans more toward the gravitational forces of easier distribution systems without regulatory burden. I'm just trying to understand that.
1958 The last question, and this is one of my famous "what if" questions.
1959 You had mentioned earlier, Mr. Bibic, that in the competitive environment -- I think you were trying to make the point that why is investment of billions of dollars into the broadcast entertainment technology system looked at as potentially anticompetitive behaviour when it's, in your view, competitive behaviour, you know, you're putting the skin in the game.
1960 You had mentioned that an organization like TELUS, for example, has every ability and every right to negotiate for distribution rights to things like Olympic broadcasting.
1961 Is that a realistic statement given your experiences with how programming is sold today? I mean would the Olympic movement or any other content producer really divide up their assets to extract the best dollars from each distribution platform?
1962 MR. BIBIC: Well, remember in August TELUS stood up in front of analysts and bragged about how they were making a very conscious and deliberate choice to stay to their core business, as they put it, bragged about it, and then a few weeks later Bell announced that it would acquire CTVglobemedia and all of a sudden there was a rush to the regulator with the most heavy-handed code I frankly have seen in eight years.
1963 In terms of Olympic rights negotiations, as Wade pointed out and as in our opening statement, Bell Mobility acquired the exclusive rights to broadcast the Olympics, to stream the Olympics over mobile against a vertically integrated Rogers, which was part of that Olympic consortium which was selling the rights which we did not own at the time. So Tracey can add to that.
1964 MS PEARCE: I think it is realistic and we have seen in the past where rights holders have consciously separated rights out and sold them to the highest bidder, contrary to the preferences oftentimes of broadcasters who are madly trying to aggregate rights to preserve the value of the OTA broadcast in particular.
1965 I think at the end of the day it comes down to price and who is prepared to pay the highest price to the rights holder.
1966 And to tie it back to your comments about Netflix, which I think was very fair, you know, Netflix is making a conscious decision to spend its money to maximize the quantity of programming they're acquiring right now. That is their business objective.
1967 They have more than enough money to compete with us right now for first-run programming. They are just not doing that because their business proposition is otherwise.
1968 And we have seen, you know, the preliminary forays into that. They acquired rights to two CTV series during this current season. They acquired some first-run movie programming. They acquired a first-run television series that was not sold to broadcasters.
1969 So I think that that's the threat and that's the opportunity for other players to say, I don't need all that other stuff but I'll pay a premium for mobile rights. And as the seller, you know, wearing our Olympic consortium hat, that's what we were looking for.
1970 MR. OOSTERMAN: May I just add a little point, one small --
1971 THE CHAIRPERSON: You've exhausted this point. In the interests of time, unless there is something really relevant, let's move on.
1972 MR. OOSTERMAN: It's an important nuance, if I may.
1973 It is most frequently price, but that is certainly not the only reason that a content provider would choose to do business with somebody. There is the ability to deliver the content in a way that is consistent with the quality thresholds that that provider has set. There are the resources at the content provider. They may not have the bandwidth to do multiple deals with multiple players. There are financial considerations, which we talked about. Brand alignment is an area of importance for some.
1974 As our deals prior to being vertically integrated prove, without question, it is possible for non-vertically integrated players to acquire content. All of them have done so.
1975 THE CHAIRPERSON: Peter...
1976 COMMISSIONER MENZIES: I will try to be brief.
1977 Commissioner Molnar, more or less, went down the road that I was wanting to go down, but I just wanted to encourage you to be studious about that work, in terms of what you were talking about, Mr. Bibic, in terms of some ex post ideas.
1978 The public likes competition. It spurs innovation. It makes them feel empowered. When companies get too big it makes them uncomfortable, and they want to be assured that competition and innovation will continue to serve them.
1979 So it may not necessarily be what is happening now -- although we are obviously open to everything -- but what could happen, so that the game continues and the competition continues, but nobody ever wins. That is really --
1980 MR. BIBIC: I think we have heard several of you loud and clear, so we are adamant about ex ante codes and how harmful they would be, and they wouldn't deliver what consumers want, in our view, or allow us the flexibility to do that.
1981 But we have heard you loud and clear. I think we can come up with something that is workable, that retains the flexibility we need, that is more ex post than ex ante. And that gets us to a place where everyone can be comfortable.
1982 We heard that loud and clear, and that would include standstills, and we will give that some thought.
1983 THE CHAIRPERSON: Okay. Before I let you go, one point that we raised specifically, and we didn't hear from you at all on, was the TELUS suggestion that we have powers under the Broadcasting Act to, in effect, create something akin to AMPs, Administrative Monetary Penalties.
1984 And you heard me yesterday, I spoke to Rogers at great length, saying: Why could we not -- assume that we have a code of -- whatever you want to call it -- you call it guidelines, we call it codes --
1985 There is a hearing and we find out that Bell has not lived up to it. Could we then not order Bell, besides rectifying whatever they have done wrong, also to make a payment into a fund, let's say one of the Bell Media funds?
1986 It would help the system. It would create more Canadian programming, but also have the punitive aspect to it. It would be an investment that you would otherwise not make. Therefore, we would obviously need Parliament to give us specific AMPs.
1987 MR. BIBIC: I don't think, Mr. Chairman, that legally it works. I think that a body like the Commission needs the express power to impose AMPs, and I don't think saying that putting the money into a fund cures the fact that it would be an AMP.
1988 The reason it's an AMP is that it would be imposed -- regardless of where the money goes, it would be imposed in response to non-compliance, and if that is the reason for imposing that payment, non-compliance, then put it wherever you want, it's an AMP and you need express statutory authority for that.
1989 THE CHAIRPERSON: Well, it could be --you could have an assessment of the damage cost, and that becomes the remedy. Do you want the remedy to go to the victim or do you want it to go into the fund?
1990 By putting it in the fund, it would make it available to a greater group of beneficiaries than just the specific victim.
1991 MR. BIBIC: But it's still a remedy based on non-compliance, and therefore it's an AMP.
1992 THE CHAIRPERSON: You will have an opportunity to address, hopefully, all of the 12 points that we set out, and also this one, because I am not sure --
1993 Clearly, if we do it, it will be challenged and the courts will ultimately decide, but I think there are good arguments to be made on either side.
1994 Other people will make the arguments for it, so I will be interested to hear views on it.
1995 MR. BIBIC: For sure. For sure it will be challenged. There is no doubt there.
1996 MR. BIBIC: Well, I didn't mean that facetiously, actually. I think it will be challenged.
1997 The other thing is -- back to the TELUS point, where we completely are at odds with them, among many things, but as it relates to the AMPs -- and I have said this before, and I was asked at the last hearing.
1998 The notion of having heavy ex ante regulation and AMPs on the other end, to us, is not something we will support. Giving conditional kind of support to AMPs in principle, so long as it comes with a lessening of the regulatory burden, that is logical in our view, not both ex ante and AMPs.
1999 Provided you had the express statutory authority, of course.
2000 THE CHAIRPERSON: Okay. Thank you very much. I think those are our questions --
2001 MR. CRULL: Mr. Chair, the Commission has been very generous with its time and I appreciate it. There are just two things that I believe you may hear from other parties who appear before you, and I want to make sure that we have a chance to be on the record, in case they come up.
2002 Very, very briefly, I do want to make it clear that Bell Mobility -- or Bell Media, for mobile, has a package of all of the available rights that Bell Mobility has today, which has been made available on commercial terms to all wireless providers.
2003 And I want to stress that those commercial terms are remarkably stimulative for penetration, remarkably low-priced. In fact, the payback period on the pricing that we have put out is well under a year, and in recurring revenue businesses I have not seen a payback that attractive very often in my career.
2004 So you may hear some attacking that.
2005 We are also guaranteeing three years of access, in these commercial agreements, to all of this content.
2006 THE CHAIRPERSON: How does that square with exclusives?
2007 MR. CRULL: This was the content that I wanted to make available to my vertically integrated partner for distribution during the moratorium, so we said -- during that because, as we have said, we think that linear content will be very rarely taken to market in exclusives, but we want, and we think it's important to have that flexibility.
2008 In this case, it was our decision, both during the moratorium and it would be after, that content like TSN, CTV News, BNN, MuchMusic, as well as the forthcoming CTV content, would be available on commercial terms to all wireless providers, and we are in the market with that.
2009 The second topic that you may hear about -- and I know that others have written about -- is our negotiation of the Category C sports service, TSN.
2010 You might be aware, I had an old job where I was a buyer of TSN, and the gentleman to my far left, Mr. Yabsley, came to me in my Bell TV hat, before I had any idea that I would be in this job, and was advising me that at the termination of my TSN contract last year the rates were going to go up, and the rates were going up because of the creation of this Category C service, because of 20 years of frozen rates on basic, and for a variety of cost input reasons.
2011 I accepted that. I put it in my budget for 2011 and I anticipated it.
2012 When I got this new job, I put a lot of effort into understanding what is the fair market value that we would negotiate through commercial negotiations, and I just want to assure the Commission of two things. I am fully prepared to defend the fair market value price that we are seeking, and I have extensive evidence; and the second thing is that deals are getting done in the marketplace. Commercial deals are getting done now for this service, and they are not easy. You will hear turmoil, but that's the way commercial negotiations go, and deals are getting done.
2013 THE CHAIRPERSON: Thank you for the warning. I am sure we are going to hear an earful about TSN pricing in the next few days.
2014 THE CHAIRPERSON: That's it for Bell. Thank you.
2015 Let's take a five-minute break while TELUS sets up.
--- Upon recessing at 1121
--- Upon resuming at 1129
2016 THE CHAIRPERSON: Madam Secretary, let's begin.
2017 THE SECRETARY: We will now hear the presentation of TELUS.
2018 Please introduce yourself and your colleagues, and you will have ten minutes for your presentation.
2019 Thank you.
2020 MR. HENNESSY: Thank you, Mr. Chairman, for the opportunity to address, as you suggest in your Order of Conduct, perceived problems and benefits associated with vertical integration.
2021 I am Michael Hennessy, Senior Vice President, Regulatory and Government Affairs for TELUS. With me, on my right, are David Fuller, Senior Vice President and Chief Marketing Officer for the company, and Blair Miller, Vice President, Content Solutions.
2022 On my left are Ann Mainville-Neeson, Director, Broadcast Regulation, and Richard Stursberg, Senior Advisor on Media and Entertainment.
2023 And behind me is our broadcast team, Lisa Simpson and Alan Hamilton.
2024 TELUS is convinced that there are very real problems associated with vertical integration; specifically the incentive to restrict, to limit or to delay access to broadcast content in order to prefer affiliated distribution undertakings, whether through outright exclusives or indirectly through the offering of content at anti-competitive prices or with excessive terms and conditions attached. That is why we and other distributors have proposed a base set of rules, which could take the form of a Code of Conduct, to address these incentives to leverage vertical integration in an anti-competitive fashion.
2025 In our view, vertically integrated firms have both the incentive and the ability to engage in anti-competitive behaviour, and if not checked, such behaviour would reduce choice for consumers and increase price.
2026 So, why protect independent distributors, as you have asked.
2027 Competition in the broadcast distribution sector brings many benefits, including driving innovation, such as the recent integration of social media Facebook into our Optik TV product, exerting downward pressure on rates, and providing choice and diversity for consumers.
2028 Take note that cable rates have outpaced growth in the Consumer Price Index by 34 percent over the nine years between 2000 and 2009, while prices for more competitive services, like internet or mobile, have stayed flat or declined.
2029 The benefits of more competition and distribution are all important means to achieve the objectives of the Broadcasting Act, and to us this is a critical point, because broadcasting is not just another economic market. Broadcasting is a protected market by law and by regulation. The Act limits certain market-based conditions in order to better achieve social and cultural objectives.
2030 Let me address your concerns with respect to exclusivity.
2031 The problem, in its simplest terms, is that a vertically integrated firm has the incentive and opportunity to withhold content from its competitors or to charge them access to it at exorbitant prices.
2032 Let me give you some examples.
2033 If, for example, Bell were to significantly increase the prices of its specialty services and say to TELUS, "Pay or we withhold the signals", it wins either way.
2034 If TELUS pays, it must raise its prices or reduce its margins. For its part, Bell need not raise its prices, since it is effectively paying the increases to itself. It could forgo the increases and be no worse off.
2035 If, on the other hand, TELUS declines to pay and Bell pulls the signals from TELUS, then Bell's competitive position as a BDU is enhanced. It can say to consumers, "If you want these services, you have to subscribe to our satellite service".
2036 The same logic applies to all other platforms. If Bell tries to jack up the prices for online or mobile access, TELUS' online or mobile services are disadvantaged. If TELUS refuses to pay, Bell benefits from the migration of subscribers to their online or mobile service. Either way Bell wins.
2037 Indeed, when one notes that the revenues generated by carriage subscriptions -- TV distribution, mobile and internet access -- are seven times greater than the revenues generated by content services -- broadcasting, which is what we are here about -- it makes good business sense to sacrifice the content revenues for the sake of the carriage business. If one were to lose a little on the content side to do better on the BDU, online or wireless side, one would do it every time; particularly, as a Harris/Decima survey to Canadians notes, when 54 percent of Canadians would switch providers if they weren't able to get the content they wanted.
2038 Let's be clear, exclusives in distribution are not intended to save the broadcast system from OTT. That is absurd. Exclusives reduce choice, making the broadcast system less attractive.
2039 The results of exclusives would be very unfriendly to consumers. If Bell withholds mobile content, or charges prices for it that are so high it comes to the same thing, consumers lose. Canadians do not want to have to buy multiple tablets and smart phones to get the content they want.
2040 When TELUS asked Harris/Decima to survey Canadians on this point, their response was overwhelming. Over 90 percent said that "All content must be made equally available to all distributors, so that as consumers you can watch any program you like, no matter which company you buy your TV, internet, or wireless service from."
2041 So, how best to ensure that the vertically integrated companies cannot abuse their positions and engage in anti-competitive, consumer unfriendly conduct?
2042 We think it is very simple. As the Commission has asked us to comment on, the CRTC needs to establish a Code of Conduct. The one we propose, which, by the way, would apply equally to integrated and non-integrated entities, is essentially a re-confirmation and clarification of the Commission's existing rules. It is fair to all parties and easy to administer.
2043 You have asked, why should we have ex ante rules?
2044 Most of the rules we propose should be established ex ante. That way everyone will know in advance what is fair and what is not. Everyone can know from the outset what will be considered an undue preference. By establishing them this way, the Commission will reduce its workload in arbitrating disputes and reduce the level of complexity in the system.
2045 The first and most straightforward ex ante rule is that there can be no exclusives for any format or platform. A content supplier must make all content rights available to their competitors in the carriage business. If they cannot, for whatever reason, they cannot exercise the rights themselves.
2046 Second, there can be no quasi-exclusives achieved through "head starts". The competitors have to be advised that the service is coming and given an opportunity to negotiate its price in sufficient time so that both companies can launch at the same time. If the parties cannot agree, the content, as Rogers suggested, must be made available at the same time as the launch, subject to pricing being negotiated later.
2047 Third, there cannot be overly restrictive packaging requirements. Insisting that services be put in a particular tier, whether in basic or otherwise, is inimical to consumer choice. Trying to force the same result through minimum penetration requirements is equally oppressive.
2048 Fourth, there can be no withholding of signals during a dispute. If content is available for whatever platform it must be made available to competitors in the carriage and distribution business. Issues of price can be sorted out later through dispute resolution, if necessary.
2049 Apart from these ex ante provisions, the Commission may be called upon to arbitrate price. In this case, it should adopt the simple principle that when choosing between two proposals in a baseball arbitration, it will choose the one that conforms most closely to historic pricing and the relative pricing of other services.
2050 The regime is very straightforward, but to address a point raised you requested on equal sharing, it should be supplemented by confidentiality rules, separating the information held by the vertically integrated company between its distribution and broadcast arms, similar to the rules applicable to wholesale telecom services.
2051 None of this breaks new ground for the CRTC. Rather, it makes for a simple and easy to understand set of requirements that should restrict anticompetitive conduct and safeguard consumers. At the same time, it will be easy to operate and impose a lighter burden on both the Commission and the industry.
2052 So in respect of your question "Why is the current dispute resolution process not adequate?" some of the integrated carriers suggest ex ante limits on the potential to abuse market power are unnecessary and that in most cases integrated players will willingly negotiate on commercially reasonable terms and a timely basis. We disagree.
2053 The Commission should take little comfort in such blanket assurances. It need look no further than the ongoing disputes between Quebecor and TELUS and, ironically, Quebecor and Bell, over access to VOD content that the Commission has already directed should be provided and made available.
2054 Similarly, while Bell continues to claim its content is available at commercially negotiated prices, its offer does not extend to the very popular NHL and NFL content on mobile. A dispute regarding the exclusivity of this content continues without resolution. And while other CTV content such as TSN mobile has been offered to competitors, it has been excessively priced and is therefore not available on any other carrier than Bell at this time.
2055 So you asked for comments on remedial actions. Enforceability of the existing rules tends to be on an ex post or after the fact basis.
2056 Ex-post remedies will become increasingly problematic with the vertical integration of all the biggest players in the broadcasting sector. An increase in disputes plays to the benefit of the vertically integrated broadcaster, particularly if the broadcaster can withhold signals during a dispute or launch content on new platforms before its competitors.
2057 As we said before, this becomes very problematic if you are negotiating for hockey rights and then you don't get the rights till after the playoffs or baseball rights when the World Series is over by the time you win.
2058 In addition, the perceived lack of real penalties for anticompetitive acts can in itself create an incentive to act in an anticompetitive way. It is thus crucial for the Commission to be in a position to act swiftly and unequivocally to resolve complaints relating to undue preference by articulating what constitutes undue preference in advance.
2059 In conclusion, Mr. Chair, there is one thing that is certain. As the FCC and the U.S. Department of Justice among others have found, and that is that vertical integration creates the means and incentives for integrated carriers to behave in an anticompetitive fashion.
2060 As a result, it is inevitable that disputes will increase and stress the resources of the CRTC. The consequence will be delays in resolving disputes, which in this fast-paced environment has the same impact as allowing exclusivity.
2061 Ex-ante rules can prevent anticompetitive behaviour in the first case by providing reasonable ground rules as to what constitutes undue preference. That in turn provides certainty for all and in our view is a small price to pay to ensure diversity and choice for consumers.
2062 We thank you and we are open to your questions.
2063 THE CHAIRPERSON: Thank you very much.
2064 Let's start on something where you and Bell probably agree. What is your position on skinny basic?
2065 MR. HENNESSEY: I think Dave is our chief marketing officer. It's probably something he might want to comment on.
2066 MR. FULLER: Yeah. So our position is -- in fact, it is similar to Bell in some respects but not all in that we do not believe that you need to mandate a skinny basic.
2067 We actually do believe that, you know, the channels you choose to put in your basic should be one of the means by which you compete. So that's similar in that regard to the points that Bell made, right, that you don't just compete on price. You compete on the choice that you offer.
2068 Having said that, I would say we don't feel quite as strongly as they do, and that if you look at our packaging today it's actually pretty close to skinny basic already, at least in terms of what you had laid out. In fact, one of the ways we have competed effectively with our primary competition in the west is by offering fewer channels in our basic and, therefore, more choices for our consumers.
2069 I would agree with Bell's comments that very few consumers choose basic, right. Our number is slightly higher than the numbers they talked about but still it's in that sort of ballpark. But that's missing the point to me.
2070 The main point and advantages of having fewer channels in basic is it propagates consumer choice about the channels that you want to get.
2071 So yes, many consumers will add additional channels. The point is they will add the channels that they choose to want to watch as opposed to, you know, an extensive basic package where there is 55 channels and of which, you know, maybe 20 of them they don't want.
2072 THE CHAIRPERSON: Rogers yesterday suggested a skinny basic, doing it on analog, might be difficult because you have to build in traps and stuff like that but on digital it wouldn't be any problem.
2073 Now, you are all digital. You are either fibre TV or you sell the duplicate of Bell under your own label. So presumably the cost of implementing a skinny basic would be inconsequential.
2074 MR. FULLER: True, the cost to pull them out or not or leave them in is inconsequential. I would echo the points Bell made, though, that the cost of acquisition and the cost of infrastructure and all of those fixed costs that they referred to still apply equally.
2075 But you're right. In terms of like pulling a channel in and out because we have an all-digital service it's not undue here.
2076 THE CHAIRPERSON: In our process letter we specifically pointed a reference to your suggestion on having the ability under the existing Act to order payments into funds as a deterrent for wayward behaviour from a code, et cetera.
2077 Did you -- you raised that issue and I put it up for discussion for everybody. Have you done anything further?
2078 Do you have any -- did you solicit legal opinions as to whether this is feasible or not and whether we can implement it or it's beyond our jurisdiction?
2079 MS MAINVILLE-NEESON: We proposed this as a somewhat creative solution. It is not a panacea to some of the problems in the Act such as not having the ability to create and to have -- to implement interim decisions, for example, or to otherwise implement true administrative monetary penalties.
2080 However, I do believe that it is a creative solution and you do have very broad powers to perform remedial -- to order remedial actions.
2081 THE CHAIRPERSON: We were quite specific. Have you solicited outside legal opinions?
2082 MS MAINVILLE-NEESON: We have, but not specifically on that issue. They are broader but we could make that particular issue available if necessary.
2083 THE CHAIRPERSON: Since you raised the issue it might be opportune for you to solicit such opinion and file it with your final comments.
2084 MS MAINVILLE-NEESON: Yes.
2085 THE CHAIRPERSON: Now, on the whole -- on the issue of exclusivity which is really at the heart of these proceedings under which we really started it, you heard Bell this morning starting off saying they are against a code and for the reason that they are spent out.
2086 But then when I pushed them, et cetera, then Mr. Bibic made this offhand remark that maybe we could use a sort of competition approach and do it -- have a principle and then on a case by case basis examine whether the exclusivity in question was indeed anticompetitive or contrary to the objectives of the Broadcasting Act or whatever goal you put out.
2087 I pushed him further in saying, let's assume we have a code that we all agree or you grudgingly accept -- you will never agree but at least you will grudgingly accept it -- and then we say, as a general rule exclusivity is not allowed. However, assuming it meets these criteria we are willing to countenance it and then we will have lots of dispute as to whether some exclusivity meets that criteria or not.
2088 What would be the reasons in your view that would justify exclusivity?
2089 MR. HENNESSY: Yeah. So we started from the premise that just as in broadcast and video-on-demand where there is a blanket prohibition, the same blanket prohibition should apply to the emerging broadcast platforms.
2090 That said, listening to the Bell panel the only real exception I ever heard them comment on was the Olympics. It struck us that you can have a blanket prohibition with some caveat clause that says, "If you really believe that exclusivity of a particular example like the Olympics ultimately contributes to the objectives of the Broadcasting Act".
2091 And I would say this is a very important point, right? It's not "ultimately contributes to the bottom line by limiting competition in the carriage or distribution side". It is "contributes to the objectives of the Broadcasting Act".
2092 Then you should have the opportunity to come forward and try to make a case that in this particular circumstance there should be an exception to the blanket rule. But I would say you keep the blanket rule because even Bell said it would be very exceptional.
2093 So I think his way still takes you much more into an ex post environment.
2094 THE CHAIRPERSON: I mean you can flip it. You can flip it and say the rule is you can have exclusivities but you cannot have it on these things which are so essential. They are really drivers which will force people, will drive people to change a handset in order to get that device.
2095 Examples could again be Olympics, could be NFL games. If you are really keen on NFL games you have to have it on your handset and if TELUS doesn't deliver it then I will buy Bell's.
2096 I mean, does it make sense to flip it and have a rule of sort of must share, must -- non-exclusive programming?
2097 MR. HENNESSY: I think that becomes more difficult trying to -- because it becomes a very subjective interpretation as to what is really important programming to people in terms of how they make their decisions.
2098 It goes to Keith Pelley's point, I think, yesterday. He said, "It's not just sports. There are popular programs that we would carry that would carry weight with consumers or motivate consumers to move if they were exclusive".
2099 So I think it's a much more difficult way to proceed. If we take Bell at its word that it's an exceptional circumstance then, yes, you know, you should have the opportunity to come and make the case. But it's a lot -- you know, we have had -- we have had non-exclusivity.
2100 THE CHAIRPERSON: Yes, but not count it as sort of -- like we didn't do in other regulatory tools like the ITMPs. We specified the criteria.
2101 You as a carrier then makes a decision as to whether you want to do it on exclusive basis or not with the full expectation you may be challenged and may have to justify yourself that you fit into that box.
2102 MR. HENNESSY: Yes. I wouldn't agree with that. If we start with linear VOD where we came from --
2103 THE CHAIRPERSON: Yes.
2104 MR. HENNESSY: And remember that the driver for this in the first place was that, you know, Bell was excluded from being able to offer an NFL Sunday ticket on the satellite. So they were basically -- the cable industry had created a deal initially through Rogers, very much like what Bell today is doing on Bell Mobile. So it would be interesting to go back and read the record of that.
2105 But since then the Commission has really imposed rules on the linear platforms which up until now has pretty much been the whole broadcasting system and nobody has had a problem with it.
2106 And the reason nobody has had a problem with it is that when you think purely about the broadcaster, the incentives to maximize audience to sell advertising revenues because you have maximized audience by selling to all distributors and because you are getting increased subscription revenues by selling to all the distributors, almost always are, you know, the things that drive you.
2107 Unless you are vertically integrated and suddenly say if I exclude access of my distribution and carriage competitors to getting that content, I will lose money on the broadcasting side and that will flow to the broadcasting system, but it will flow over to a business that has a higher EBITDA and I will be better off. That to me is the conundrum.
2108 And the proof, I think, is in the pudding that we have had these rules in place for linear channels and for video-on-demand for a number of years now and there has never been a problem.
2109 THE CHAIRPERSON: Okay, thank you.
2110 Candice, I believe you have a lot of questions for them?
2111 COMMISSIONER MOLNAR: Yes, I do.
2112 And I do have quite a few questions so I will try and be brief in my questions.
2113 First of all, just to be clear on this issue of exclusivity before I go on to other questions, you have no problems with the rules as they exist today for linear broadcasting? I wasn't exactly sure of what you --
2114 MR. HENNESSY: Not in terms of exclusivities. There is the issue of the Category C and the issue of withholding signals which, you know, really creates de factor exclusivity.
2115 COMMISSIONER MOLNAR: Right.
2116 MR. HENNESSY: But in terms of a general rule on exclusivity, no, we don't have issues.
2117 COMMISSIONER MOLNAR: Okay.
2118 Okay. Moving back to one of the general thrusts of your position, and that is putting in place as many ex ante rules as possible, you heard Bell who was before you, just before you saying ex ante rules have the potential to stifle innovation.
2119 MR. HENNESSY: Yes, we did hear that.
2120 COMMISSIONER MOLNAR: So you would suggest that the potential of preventing anticompetitive behaviour is a much more significant benefit than the benefit of potentially stifling innovation?
2121 MR. HENNESSY: Yes. You kind of stole my answer.
2122 MR. HENNESSY: I do believe that it's competition that drives innovation, not putting up a walled garden around something. And the competition we are seeing, you know, it does lower prices. It has led to new services.
2123 Our IPTV service is a new service. It's a managed service within the system but it has driven quite different changes in behaviour and Shaw, our main competitor in the market, in the last two years since we have become incredibly successful.
2124 But if you start using stories like, you know, we have to have exclusivity to combat OTT which, you know, to use a word that was used today is I would say is a preposterous story.
2125 Then, you know, what you are really doing is you are not saying that. What you are really saying is, "I have to have an exclusivity because I'm worried I'm going to use this potential threat of competition out there in the cloud as a reason to club my Canadian competitors over the head because I'm vertically integrated now".
2126 To do that then you take away the benefits of competition and innovation and everything else that that brings, which really are the things that the Commission, as pointed out, have been useful in achieving many of the objectives of the Act.
2127 COMMISSIONER MOLNAR: So I want you to be very specific and clear with me here.
2128 MR. HENNESSY: Sure.
2129 COMMISSIONER MOLNAR: Nobody wants anticompetitive behaviour but there are two approaches to regulation and one is ex ante and one is ex post. And as you well know, the regulator has been -- you know we have been taking an ex post, hands off as much as possible approach over the years and putting in place safeguards to enable an ex post mechanism to work.
2130 So with an ex post approach, reverse onus potentially has been, I think, you know, discussed at great length in this proceeding.
2131 So changing the reverse onus provisions perhaps improving dispute resolution to some extent, why can't that be good enough?
2132 MR. HENNESSY: I think it goes to our point that, because the incentives have changed and the incentives have changed, you are going to have more disputes. And that stresses your resources. You are not able to resolve the disputes on a timely fashion and the whole process gets bogged down.
2133 I think that's -- probably the timeliness is probably the number one issue and then the number two issue is the ability to be punitive when it's demonstrated that the behaviour is egregious.
2134 But timing is probably -- we have -- Dave, I think, wants to comment on that, but we have real issues with the time it takes to resolve the disputes on an ex post basis.
2135 MR. FULLER: Yes, I just wanted to -- I guess that is exacerbated by the fact that content in and of itself is transient, right?
2136 Like so the next Olympics are coming up in London, right, in a short period of time. If a dispute around that can't be resolved prior to the Olympics starting -- well, if everything is done on an ex post basis that's come and gone, right?
2137 And you know if the arbitration is done ex post and then that's appealed and then the decision is appealed and then they drag, you know, the whole process out, you can have two or three seasons of sports. A week could go by. You can have a special event like the Olympics or a Super Bowl go by.
2138 So you know we would prefer an environment where there is a clear set of rules upfront that can quickly be arbitrated and covered against as opposed to something that evolves over time.
2139 MS MAINVILLE-NEESON: Perhaps if I may --
2140 COMMISSIONER MOLNAR: Okay. I am going to go on if that is okay.
2141 But I think it would be nearly impossible for us to put in place ex ante rules that cover every foreseeable situation be it the Olympics one year or, you know, a soccer tournament the next and what could be. I mean the set of rules we would need to put in place to address all future circumstances would be --
2142 MR. HENNESSY: That is why you need a blanket rule on exclusivity like we have today, exactly for that reason.
2143 COMMISSIONER MOLNAR: Sorry. One more question on exclusivity.
2144 For TELUS I think it is maybe true that exclusivity on mobile might be especially concerning.
2145 Do you have any information or evidence to suggest that content on mobile platforms is part of the buyer's decision and it has influenced take up between your wireless and that of your competitors?
2146 MR. FULLER: So, yes, we do believe that in certain circumstances, not broadly but in certain circumstances if you have a piece of content that is available only with a certain provider that for people that are, you know, strong fans of that particular content that they will switch providers.
2147 We have research that proves that and also, you know, numerous anecdotal evidence where people have left us for someone else because of content they can get.
2148 MR. STURSBERG: I just might add that, as Michael has made clear in his opening remarks, we did this study through Harris/Decima to look at the impacts of exclusives and Canadian attitudes towards exclusives.
2149 The numbers are a little bit alarming because what they show is if there is content that Canadians really want that is an enormously powerful incentive to switch platform.
2150 That was filed as part and parcel of our evidence.
2151 MR. MILLER: A concern that we have is that with the tying of rights where a consumer is watching a TV service, there is a growing expectation among clients that that content is then viewable across all the screens, be it a tablet at home or in a mobile context, a smart phone again at home or in a mobile context, and similarly on a PC or laptop.
2152 COMMISSIONER MOLNAR: Okay. I want to move on to the joint proposal that you have put forward with the other independent BDUs and I have some questions on that.
2153 I am going to start with the issue of fair pricing. Your guidelines speak to fair pricing and you say that the fee charged for a content service should be commensurate with the fee charged for other services at equal value to consumers.
2154 How would you propose to know what is of equal value to consumers and how would you propose we know that?
2155 MR. HENNESSY: Let me give this to Richard. And I guess one caveat, is that while that gives you a signal, it is not actually and ex -- you know, it is not something you can rule on at the end of a day on an ex-ante basis. So just to be clear on that, but I'll let him explain the actual wording.
2156 MR. STURSBERG: Well, the question is, what is a fair price? And to understand what is a fair price we thought it would be useful to look to see how services have been priced in the past before there was any vertical integration when there was a relatively open market.
2157 So as it turns out, if you -- the most important variable in determining price is, I think not surprisingly, the amount of audience that the service actually attracts. So that those services that pull higher audiences have been priced higher.
2158 And we know this and in fact what we tabled with the Commission as part of our evidence with a little model that reviews this issue. And what it shows is that there is a very very strong relationship between audience delivered and price, and that has been true historically.
2159 So to come to the answer to your question -- and by the way, I just might add that the model is completely replicable. We used CRTC data and BBM data, so it is all public data that is in the model.
2160 So the answer to your question is let's say there is a dispute about price. So both parties come in in a baseball arbitration, one party says it is worth X and the other party says it is worth Y. What we say is, you should look to see -- there is two things that you should bear in mind when you look in terms of determining which of the two is right.
2161 One, what was the historic price that was charged, and that you have everything filed with you because you have asked for it all. And secondly, how does it look in relation to the pricing of other services?
2162 And that is precisely what this little model allows you to do. Not to say that that is the exact right price, but it is designed to give you guidance so that you can choose intelligently between the two offers that are in front of you.
2163 MR. HENNESSY: If I could just qualify that at one point.
2164 We are not asking the Commission to use the model to set a price, but to guide them in the arbitration. So we are still recognizing there is arbitration. Usually in any of these deals price may be most relevant, but not necessarily the only relevant factor. So you can't just say because the model is X the price is X.
2165 What it does allow you is get a sense as to which way to lean, all other things being equal in a baseball arbitration where people have actually put their price on the table. And that expedites the time it takes to work through. The intent is to try to simplify the process to get the decision out the other end faster. And it still is an ex-post arbitration.
2166 MR. STURSBERG: It is ex-post, that is the important point.
2167 And the other point is it doesn't fix a price. But if you articulate the principles along those lines, what it does is it drives both parties closer to those principles and the distance between the two sides of the arbitration tend to shrink.
2168 COMMISSIONER MOLNAR: And I did understand this, and to ensure I do understand this code of good commercial practices was for purposes of ex-post to look at issues of commercial dispute.
2169 MR. STURSBERG: On pricing, that is correct. But on the other aspects of it, for example, the rules with respect to packaging or minimum penetrations and so on, we propose that those be ex-ante.
2170 So there is three or four ex-ante rules that Michael, as part of his opening statement, that are embodied in the details of the code of conduct. And then the pricing issue is dealt with after the fact on a baseball arbitration along the lines that we have described.
2171 COMMISSIONER MOLNAR: Okay. So your fair terms and prohibition on packaging is an ex-ante rule.
2172 My question there is related to the status today. You would propose limitations on packaging, you would propose prohibitions on tied selling as a result of vertical integration. But I wonder do those conditions exist within the commercial market today or the market before vertical integration occurred?
2173 MR. HENNESSY: No, they did not. You mean did tied selling occur? Yes.
2174 COMMISSIONER MOLNAR: And packaging, proposing that, you know, you guys package --
2175 MR. HENNESSY: Many of -- yes, many of --
2176 COMMISSIONER MOLNAR: So this has all occurred before. So what now would cause us to prohibit it on a go-forward basis if it is not a consequence of vertical integration?
2177 MR. HENNESSY: It is not a consequence of vertical integration, but the ability to use what came before to foreclose competition in the downstream distribution market has increased significantly. That is where the linkage is.
2178 MR. STURSBERG: So, for example, if you wanted, it is true that people in the past, when they negotiated deals would, you know, negotiate minimum penetration deals. But that was outside of a context where you could use a forced minimum penetration to disadvantage your BDU competitor.
2179 And you can disadvantage them in a couple of ways. One is you obviously can disadvantage them in terms of price or you can force them to try to replicate the offer that you have, which makes it harder for you to differentiate yourself by offering greater choice to consumers.
2180 So to Michael's point, while these things might have happened in the past, they never happened for those reasons. But now, because the incentive structure has changed, they can be used for those purposes in the future, and that is what it is we would like to forego.
2181 COMMISSIONER MOLNAR: So do you propose this rule applies solely to vertically integrated entities?
2182 MR. HENNESSY: No. All the rules that we propose should apply to everybody.
2183 COMMISSIONER MOLNAR: Okay, I am just going to go on.
2184 Competitive sensitive information. You have proposed, when I read it, what looks like structural separation and not simply CSG. I think you propose to separate sales, marketing, customer services and affiliate relations.
2185 Could you give me the reasons as to why you think it needs to be so severe?
2186 MR. HENNESSY: Yes. So let me start with what you noted and I think what other people have picked up, and which wasn't our intent, is that it wasn't our intent to propose structural separation. And we will fix that in final argument. It was more our intent to replicate the nature of the carrier service group process that exists today primarily in the telecom business.
2187 And so the separation of the people is really the separation of the information that the people hold from, you know, between wholesale and retail. That is the intent. That is what we do on the telecom side today.
2188 It has been brought up before, which strikes me that, you know, that is probably bad writing on our part. We are certainly not trying to impose something that is larger or more extensive than what already has been approved for other markets the Commission regulates.
2189 COMMISSIONER MOLNAR: And non-disclosure agreements are not adequate? We have heard, for example, Rogers say that they have operated with non-disclosure agreements as their basis.
2190 MS MAINVILLE-NEESON: I believe we heard Rogers say they do operate with non-disclosure agreements, which we also suggest in our submission. And they also operate with CSGs. And I think that it is a common thing that we have in our wholesale market for telecom services, and Rogers uses that as well, as does Bell. And I think that we are not proposing anything different than what Bell is proposing.
2191 Now, the language may differ, as we have in telecom and broadcasting. The language that we have used is in fact the same type of language, which was the reduced, not structural separation, but the reduced wording that the Commission imposed to separate BDU from SRDU services and we simply replicated that language.
2192 MR. HENNESSY: Just listening to what Bell proposed today, we didn't think was unreasonable at all. You know, it is a good model. The point is that it should be articulated in the code and that you need those kinds of processes in place. So where they were I think is, you know, is legitimate. I don't take issue with how they proposed it.
2193 COMMISSIONER MOLNAR: Okay, thanks. Moving on to some of the enforcement measures that you have in your guidelines. I just need some clarification as to what is meant or intended.
2194 If you have your guidelines in front of you -- if not, I can read it here. The second principle you have laid out here, and it relates to reverse onus, it says, "A request for formal dispute resolution from an independent carrier/distributor will also adopt a reverse onus requirement on the vertically integrated undertaking who seeks to oppose or modify the request."
2195 I am not certain I understand what is meant by that.
2196 MS MAINVILLE-NEESON: So currently, the regulations provide for many different mechanisms for dispute resolution. You can go to mediation, you can go to final offer arbitration. And essentially, it is either party can choose and the others can oppose, whichever method.
2197 So if one party does not want mediation, but wants to proceed immediately to final offer arbitration or vice versa. And what we are suggesting is that in the case of a dispute involving these ex-ante rules, so if have a breach of the rules that we have established to be prima facie undue preference, then the party seeking a remedy can choose that remedy and it would be a reverse onus for the other party to say, no, let's do this one instead.
2198 I am not sure that clarified. I hope it did.
2199 COMMISSIONER MOLNAR: No, it did. Yes, I understand what you are saying.
2200 You also state in the enforcement measures that you support a standstill provision. And while I understand that the potential harm that can occur in negotiations if a vertically integrated carrier withdraws their signal, what I can't quite understand is if a standstill provision is put in place, what then is the leverage that is left to the vertically integrated, you know, broadcast unit?
2201 MR. HENNESSY: Yes and, you know, we listened to Rogers yesterday, and that modified our thought somewhat. I think that Rogers articulated our point better than we had. That if you are going to enter into a standstill, subject to the rates, terms and conditions being arbitrated, you are also really entering into I think what Rogers said is potentially getting a pig in a poke.
2202 So you may end up at the end of that process getting a good rate, as you had hoped, and the service continues in the interim or you may end up paying more than you had hoped, as baseball arbitration will sometimes do. But there was never any withholding of the service during the process.
2203 So there is a risk there, but I think in terms of your question about how do you balance that so it is not all just tilted in our favour, that is a reasonable thing. Ultimately, you know, the price that applies at the end is going to be the price and terms and conditions that you have to live by.
2204 MS MAINVILLE-NEESON: If I may add as well. I think that whereas before vertical integration, when you did have the prohibition against the withholding of signals, there still was the leverage that that service wants to be carried. And in fact, it was the distributor who may the one who is forcing negotiations in a direction that the actual broadcaster doesn't want and, hence, the leverage had to be the other way around. So that is why the prohibition on the withholding of signals.
2205 Now, with vertical integration, things are reversed. In fact, there is a very true incentive for the broadcasters for, you know, pick anyone that you like to say, well, actually I am going to stick to my price and if you don't carry my signal that is okay. Because it knows that it has a distribution arm that will gain significantly by the withholding of signals.
2206 And so it is because of that reversal now with vertical integration that all of a sudden the prohibition on withholding signals becomes much more important and provides significant leverage where it is really needed, for the independent distributor.
2207 MR. STURSBERG: I would just add, the nice thing about the Rogers proposal too is that it obviates the Bell concern, and the Bell concern was that they would have something that they wanted to put in the market, but that other people would use their ability to -- they would attempt to block it by saying we haven't agreed and, therefore, you can't release it.
2208 So the nice thing about the Rogers proposal is it says, no no no, what happens is both sides release it, you get it at the same time, if there is a difference about pricing that is fine, you can continue to negotiate or you come to the Commission for arbitration. But in no way is the consumer disadvantaged by having the service held back for any period of time.
2209 COMMISSIONER MOLNAR: Thank you. Actually, that addressed my next question as it regarded the head start, because it certainly, as you heard from Bell, was a key issue for them, that they not be withheld. So you have modified your position a bit on that.
2210 MR. HENNESSY: That is correct.
2211 COMMISSIONER MOLNAR: Okay. I want to leave with just one question. You put forward a very comprehensive listing of regulations, ex-ante rules and safeguards as well as enforcement measures and ex-post measures and so on. So just kind of put them in some priority for me. All cannot be equal, so what is it you need? From your perspective, what is the top two?
2212 MR. HENNESSY: Just the top two, okay. And you will forgive me if my --
2213 COMMISSIONER MOLNAR: It is almost lunch.
2214 MR. HENNESSY: -- panel jumps. It is almost lunch so I won't do a long consultation. So they are allowed to sort of go, no, you idiot, you just blew it.
2215 The number one issue is exclusivity, whether that is direct or, you know, de facto. I would say the number two issue is much more timely resolution of disputes.
2216 MS MAINVILLE-NEESON: May I clarify slightly? One of the things that we are very interested in of course is the exclusives and ensuring that we don't either loose content through the withholding of signals or not get content by the head start type of provision.
2217 So the ex-ante rules, they are merely clarifications of the undue preference rule you already have. What we are proposing is that these clarifications tell you that there is an instance here where these provisions for no withholding and no head start kick in.
2218 At that point we resolve the dispute after the fact and you can look at any ex-post factors, criteria in ultimately resolving the dispute. But at the very least, we have access to the content, we are not at a disadvantage in the market.
2219 So these are triggers for these measures that we feel we need in order to be protected against anti-competitive behaviour.
2220 COMMISSIONER MOLNAR: So if I put together what I heard, it is a ban on exclusive content and no enhanced dispute resolution by putting the standstill provision back in. Is that what I heard?
2221 MR. HENNESSY: Let me just go back and take the last shot at it.
2222 No exclusivity, either directly or indirectly. And indirectly, really it deals with the fact that you can create exclusivity by excessive terms and conditions, whether it is price or packaging or penetration guarantees. But it is all about no exclusivity.
2223 The other thing is the ability to resolve a dispute quickly. I think that probably everybody and you listen to Bell and others, just because of resource problems, there isn't a timeliness to getting the decision in and out in terms of the arbitration process. You know, it may need, I think as Bell had suggested, better set times.
2224 But those are really the two things in my mind. I think that that captures a lot of the other bits.
2225 COMMISSIONER MOLNAR: I think you did attempt to capture everything in a word, that is right. But that is fair.
2226 Thanks, those are my questions.
2227 MR. HENNESSY: I write big sentences.
2228 THE CHAIRPERSON: Okay, lunch is approaching, so let's keep going.
2229 Tom, next?
2230 COMMISSIONER PENTEFOUNTAS: Just briefly. I am sure I misunderstood, as is often the case. But are you proposing two separate dispute resolution mechanisms; one for ex-ante rules and one for ex-post rules? Just a clarification on that.
2231 MR. HENNESSY: No. I think the --
2232 COMMISSIONER PENTEFOUNTAS: Or is it simply a reverse onus?
2233 MR. HENNESSY: Yes. The assumption on the ex-ante ones is that the behaviour wouldn't apply if there was really anything that led to a dispute. It would be pretty fast turned over and likely end up in terms of a penalty.
2234 In terms of price, which is the primary -- price and other terms and conditions, the combination of, that is more general ex-post basis.
2235 THE CHAIRPERSON: Aren't you going further than Rogers? I mean, Rogers really dealt with distribution issues, et cetera, where they are already in distribution agreement. We talk more of exclusivity.
2236 I don't think they went quite so far as to suggest that you would have a standstill where there isn't a distribution agreement yet in place. If somebody comes to Rogers, to any of the distribution companies, and wants to be distributed and they can't agreement on price, then suggest that well you have to carry anyway and the price will be set later. That is not what Rogers suggested and I presume you are not suggesting that either.
2237 MR. HENNESSY: No. Well, I mean, we were suggesting there that the way to address the no head start rule is to provide, you know, the process and if you can't agree on the prices, to provide the service and settle the price, whatever that will be from baseball arbitration once the arbitration takes place.
2238 So I think we are in agreement with --
2239 THE CHAIRPERSON: At least in regard to exclusivity is what you -- or anywhere?
2240 MR. STURSBERG: Let me just try because I think there is two slightly different issues.
2241 One is if a vertically integrated company like Bell has an offer they want to put on the market, whether that is, you know, they have a new television offer, say they have a new channel and we can't agree on price.
2242 Then the way it would work is we would say, okay fine, give us the offer, including all of the different platforms associated with it, we will sort out the price problem later. That way it doesn't stop them from moving forward.
2243 Now, the reverse of that is I think what you were talking about, which is when a service comes and asks for distribution, the answer is we are not proposing a difference to the rules.
2244 THE CHAIRPERSON: That is what -- okay, thank you.
2246 COMMISSIONER SIMPSON: Just one line of questioning, perhaps two questions.
2247 The subject of this hearing, you know, in terms of the lens we have been looking at or through rather is the migration of conventional broadcasting as it ekes its way through the various platforms and distribution chains and whether that creates competitive or anti-competitive situations.
2248 I would like to go the other way around. I am asking you this question because, you know, you are functionally a telecommunications company without a broadcast interest. And looking from the other direction of the decision to buy mobile devices.
2249 We have been asking questions of Bell as to whether the choice of a Bell phone over a Telus phone would be the result of, you know, a particular proprietary product, but I would like to ask you about PurePlay. Social media is driving the world as well and taking eyeballs away from conventional media. Gaming product that is platform-specific that winds up on mobility devices, certain types of entertainment self-generated product, seems to be driving phone sales a lot where phones are being chosen for their functionality and the buyers taking a pretty basic data package. But going the other way, is social media and PurePlay product driving mobile phone sales more than perhaps conventional broadcasting being available on mobile devices?
2250 Because you had said earlier that any data to the latter point is rather anecdotal right now, I'm just wondering if you are seeing more mobility devices being sold by PurePlay?
2251 MR. FULLER: I don't think I actually quite understand what you mean by "PurePlay".
2252 COMMISSIONER SIMPSON: PurePlay could be a product -- let's say, for example, poker. Poker right now is a PurePlay product behind a firewall or a subscription environment, but migrates back into conventional broadcasting to aggregate its customers, the same with some forms of pay-per-view and interactive gaming that migrate back to conventional media to attract subscribers, but the actual monetization of what they are doing is happening at the participation level, which is usually on a device, largely mobile device like an iPad or an iPhone, and so on.
2253 I'm wondering, our focus has been so specific up to this point about how vertically integrated companies are going to program producers and exploiting that content, not just through a conventional broadcasting but as it migrates down into the other proprietary channels that they have, including mobile, and I'm wondering if you have a point of view about companies that are developing content that's specifically for mobile devices that migrate back into conventional broadcasting, largely for promotion.
2254 MR. FULLER: Okay. So, I guess, our point of view would be that we see ourselves predominantly as a service provider who wants to be able to provide a suite of devices that can ubiquitously access as much content as possible. So to my mind most PurePlays, as you have described them, should be available through multiple different devices.
2255 Whether the device manufacturer, the OEM in the case of Apple or RIM, has chosen to support the access or the viewing of that type of protocol, that type of content, is a technical decision that's actually made by the OEM, not us as a service provider.
2256 COMMISSIONER SIMPSON: Right.
2257 Well, for example, the reason why I'm asking this question is that if you look at the stats that we have been seeing so far conventional broadcasting doesn't seem to be driving mobile device sales because of exclusivity or non-exclusivity, it seems to be just a way of getting extra monetary value out of a property that's been purchased, but if you look at the stance that we have been seeing the last few years on things like gaming, gaming is a bigger industry than the movie business in Hollywood and it's becoming more and more device-specific, platform-specific, Xbox-specific and so on.
2258 I was curious as to whether you, being a very advanced telco with a very strong wireless division, are finding that the water is flowing uphill where the choice of device, because of the type of PurePlay product that is available on that device, is actually creating sales going the other way. That was the purpose of my question.
2259 MR. FULLER: So the answer is, yes, some people are coming in and specifically requesting a particular type of device because it can play a game -- support a gaming platform that they support. So some people purposely choose to get a WinMo 7 Microsoft phone because they are also on Xbox. I would say that's still a pretty significant minority.
2260 COMMISSIONER SIMPSON: But in the publishing effort of these PurePlay products, is there any movement toward them monetizing their product by going for exclusive distribution?
2261 MR. FULLER: No.
2262 COMMISSIONER SIMPSON: Okay.
2263 MR. FULLER: No. No. Most of them are going by the view that they actually don't like exclusives, they want their content, their game, whatever it might be, as available to as many consumers as possible. That's why so many game manufacturers, game developers do their utmost to actually get on Android Marketplace store, get on Apple's IOS, get on RIM's store as well.
2264 MR. HENNESSY: Just a quick point, Mr. Simpson.
2265 You know, a lot of that isn't broadcasting so it's a bit out of the ambit of the Commission's reach, but there are -- I was picking up on a question the Chairman had with Rogers yesterday in a debate he had with Mr. Engelhart, do you see coming from the mobile and online space broadcast services originating there and coming into the system. The answer I think at the time was no. I was thinking about it last night and I think that I would disagree a bit with that.
2266 I think actually we have seen in the last couple of years has been -- certainly for some of us that obviously predicted wrong -- a phenomenal shift. Probably the best example would be a service like Netflix which is only available online and on mobile, on tablets like the Apple, Apple TV, these kind of things. They are potentially real and substantial right now, proving that you can actually come from the other direction and I assume are going to become more ubiquitous as we move along.
2267 So we are definitely seeing trending starting from the other direction.
2268 COMMISSIONER SIMPSON: Thank you.
2269 That's it.
2270 THE CHAIRPERSON: Peter...?
2271 COMMISSIONER MENZIES: I'm having a little -- I'm confused about your philosophical approach to exclusivity.
2272 You have an exclusive deal with the CFL for TELUS; right?
2273 MR. FULLER: We do not. No.
2274 COMMISSIONER MENZIES: You got rid of that?
2275 MR. FULLER: We never had it.
2276 COMMISSIONER MENZIES: Well, you advertised it as having it.
2277 MR. FULLER: We never. I would like to see that advertisement that shows us as exclusive. We do not have -- we have a sponsorship, right, with the CFL, but the content has never been exclusive guys. In fact, Bell has the exact same content on their Bell Mobile offering that we do.
2278 COMMISSIONER MENZIES: Remember the value adds that were written about? That's not true?
2279 MR. FULLER: Not to my knowledge, no.
2280 COMMISSIONER MENZIES: Anyway, you were the exclusive supplier according to -- I mean correct me if I'm wrong, you just Google "TELUS" and "exclusive" and you get a bunch of stuff.
2281 MR. FULLER: I'm quite sure you do.
2282 COMMISSIONER MENZIES: You get Skype, you get the CFL, you get a special deal for TELUS subscribers at the Fairmont Château Whistler for only $123 a night. That was last year though. You used to have an exclusive on the Touchstone BlackBerry. You used to have an exclusive -- or last year announced as the exclusive carrier of the Motorola BACKFLIP and Rogers used to have an exclusive deal on the iPhone until 2009; right.
2283 So exclusives have been used to sell product to look for a commercial advantage for some time and I don't understand why -- you know, from what you said this is what I'm taking. From what you said you have to give people a heads up on an exclusive. You would have had to phone Shaw before you launched your Facebook app on Optik TV in March and said, by the way, just to make sure your customers have access to everything that ours do, so that all Canadians have access to the same stuff, we are going to be doing a Facebook app on Optik TV and maybe you guys would like to have one, too.
2284 It just doesn't make any sense to me.
2285 MR. FULLER: Mr. Menzies, in that specific example there's nothing exclusive about Facebook.
2286 COMMISSIONER MENZIES: I know, but did you phone --
2287 MR. FULLER: There's nothing to stop Shaw from phoning up Facebook and doing an app on their TV, other than the fact that their platform wouldn't support it.
2288 COMMISSIONER MENZIES: Sure. But did you have to phone Shaw beforehand and let them know what you were going to do so that they could do it, too --
2289 MR. HENNESSY: I think, Mr. Menzies --
2290 COMMISSIONER MENZIES: -- so that it would all be fair?
2291 MR. HENNESSY: -- we have to take it back a step.
2292 Everything except where you started at the CFL to begin with isn't broadcasting and our whole proposition here has been limited to broadcasting content because we are dealing under the Broadcasting Act. Our position is that the Broadcasting Act is not a market like other economic market, it's a market that has very many social and cultural objectives that actually limit natural market forces on the assumption that that will better serve the various section 7 objectives of the Act.
2293 So quite clearly there are exclusives in all kinds of markets. To date, before the evolution of broadcasting online and on wireless, there weren't exclusives in broadcasting because there was a belief that you wanted to maximize the reach of programming, both Canadian and U.S. programming that contributed to the development of Canadian programming to the greatest audience because that maximized the most dollars, and it was determined therefore that if you also wanted competition when we got into the satellite business you had to ensure that the new distributors had access to that content which extended, one, the geographic reach of the network and, two, started to bring down price and added a certain level of diversity in choice in the system and the way things were packaged which were deemed to be benefits to achieving the objectives of the Act and making the system overall more attractive.
2294 That's really the box that we came here today to operate in. Philosophically in my mind there is a difference between a pure economic argument, say telecom -- or market, say telecom, and broadcasting and that leads to different outcomes.
2295 COMMISSIONER MENZIES: Okay. But just in terms of that, so cultural broadcasting is something that belongs in a separate -- you are putting that in a separate box, okay.
2296 What incentive would there be to create new content for mobile applications if there was no opportunity for exclusivity?
2297 MR. HENNESSY: Exactly the same incentive that exists today to create it on the linear platform, because the fundamental -- if you just said for a second, let's forget about benefiting the distribution side of the business, the carrier side of the business, the wireless side of the business, you said, "I'm going to create a piece of content and the way I'm going to market that content in order to get the most revenues, the most advertising dollars, the most subscription revenues, is to sell it to everybody that has a distribution outlet", so the IPTV guys, the satellite guys, the cable guys, the Bell guys. That's just the way the broadcast business has always worked.
2298 The broadcasters themselves get exclusive rights. They have always had exclusive rights because that differentiates what's on the linear channels, differentiates their product, but in order to maximize the reach of the broadcast channels and programs on the channels, there has been non-exclusivity on the distribution side of the business because that increases penetration, audience, advertising revenues, et cetera, and it has worked.
2299 What we have said, our main point in this proceeding is, where you can suddenly reduce the revenues on the broadcasting side to the detriment of the objectives of the broadcasting system, there is an incentive when you are vertically integrated to do it, if you can reduce competition or improve your position, which is kind of the same thing, on the distribution, carriage or wireless side of the business where your revenues and EBITDA and everything else are higher. That really in my mind is the philosophical change.
2300 But the argument that I have heard from both Bell today and Quebecor that exclusivity is somehow going to drive innovation, when in my mind it's competition that drives innovation -- that exclusivity will drive innovation and that is what's going to save us from OTT, it's nonsense. It makes absolutely no sense.
2301 Because if you listened to Mr. Péladeau and Mr. Dépatie yesterday, they said we are starting to see changes. We can't count it, but we are seeing these changes, we are getting squeezed here, so what we are going to do is take our product, which reaches a large audience, and we are going to pull it back so it reaches a smaller audience and generates less revenue, because that will make us more competitive with Netflix. That makes no sense.
2302 The only thing that makes sense is you say I'm going to draw that back so that the people I'm actually competing with in reality today are put in a more disadvantaged favour and therefore if Netflix cuts a chunk off me it doesn't matter because I cut a bigger chunk off the competitors that are in the market with me. That's, I think, what that story is about.
2303 MR. STURSBERG: Can I just add one little thing --
2304 COMMISSIONER MENZIES: Certainly. You can probably argue --
2305 MR. STURSBERG: -- because I think it's important to frame this, that where the non-exclusivities apply is they apply only to broadcast content. It's broadcast, it's nonexclusive period. You want to innovate around the outside of that, that's fine.
2306 But the idea that somehow or other what Bell was saying, that if we get exclusive on broadcast content it allows us to be more innovative, it's simply untrue. The example that they cited to the effect that, well, because we got exclusives for the Olympic Games on mobile we could suddenly do something novel, I put on an older hat and, as I recall, in 2007 we started streaming Newsworld onto mobile phones and in 2008 put the Olympic Games onto mobile phones. So these arrangements were not new.
2307 And the idea somehow that exclusivities around broadcast content will lead to innovation I think it's unlikely to be true. In fact, exactly the opposite is probably likely to be true. The larger the number of people who have access to broadcast content, the more innovative kind of offers you will see.
2308 COMMISSIONER MENZIES: We're good. Done.
2309 THE CHAIRPERSON: Okay.
2310 Mr. Fuller, you asked to see an ad where you claimed exclusivity. July 10, 2010. You, on CFL, said:
"TELUS customers will have exclusive access to the apps advanced features, including live video streaming of all CFL games and exciting in-game on-demand features, special scoreboard experiences, lifestyles and a chance to win a trip to this year's sold-out 98th Grey Cup in Edmonton ." (As read)
2311 MR. FULLER: Right.
2312 THE CHAIRPERSON: Now, I appreciate the exclusivity is regarding the add-ons not the games, but the way it's worded -- and I have just read it out to you -- it really does sound as if --
2313 MR. FULLER: Sure.
2314 THE CHAIRPERSON: -- you are exclusively delivering CFL --
2315 MR. FULLER: There are exclusive aspects to the application, no different than many of our competitors who also offer exclusive applications.
2316 THE CHAIRPERSON: Yes.
2317 MR. FULLER: But just to be clear and for the record, the content, ironically, was provided by TSN on a nonexclusive basis and anybody could get it and in fact Bell chose to take up that option.
2318 THE CHAIRPERSON: No, but I mean, I have heard this TELUS argument over and over again raised by other people, that TELUS has an exclusive on CFL and it comes from this kind of ad.
2319 MR. FULLER: Right. Okay. That's fair.
2320 But I just -- you know, what we did was a sponsorship agreement with the CFL, no different than a sponsorship agreement Rogers has with the Vancouver Canucks or the Toronto Maple Leafs or Bell with --
2321 MR. HENNESSY: We get it, Mr. Chairman, you understand that it's not nonexclusive and it's our fault for sloppy ads.
2322 THE CHAIRPERSON: Okay.
2323 MR. HENNESSY: I think that's what I heard. I will accept that.
2324 THE CHAIRPERSON: Those are all our questions.
2325 You have time to supplement your answers with written comments and I would appreciate if you would follow the order that we sent out of the 12 issues, give us your position on all these 12 issues.
2326 As I mentioned to everybody else, I think the idea of a code is good. I think your code is a little bit over the top and you might want to look at it and see whether there are some aspects you want to clarify or modify.
2327 So with those words I will leave you.
2328 We will take a lunch break now and we will be back in one hour, so at 1:40.
2329 Thank you.
--- Upon recessing at 1242
--- Upon resuming at 1343
2330 THE CHAIRPERSON: Okay, Madam la Secrétaire, commençons.
2331 THE SECRETARY: Merci. We will now proceed with a presentation by Score Media Inc.
2332 Please introduce yourselves for the record, after which will have 10 minutes for your presentation.
2333 Thank you.
2334 MR. JOHN LEVY: Thank you very much.
2335 Mr. Chairman, members of the Commission and Commission staff, my name is John Levy. I am the Chairman and CEO of Score Media Inc., parent company of theScore Television Network. theScore is an independent speciality programming service, delivering sports news and information to viewers all across Canada.
2336 With me today are Benjie Levy, our Executive Vice President and Chief Operating Officer; Asha Daniere, our Senior Vice President and General Counsel; and Andree Wylie, our outside regulatory counsel.
2337 We are very pleased to appear before you today at this important public hearing to address the regulatory framework relating to vertical integration.
2338 Our submission today will concentrate on three of the five key areas of focus identified by the Commission, specifically:
2339 (i) the risks of vertical integration on the Canadian broadcasting system;
2340 (ii) the inadequacy of existing regulatory measures to address concerns resulting from vertical integration; and
2341 (iii) the need for enhanced safeguards to protect independent broadcasters.
2342 Mr. Chairman, as you are well aware, the landscape of the Canadian broadcasting system has changed radically over the past twelve months. Canada's largest BDUs now control Canada's largest broadcasters. Broadcasting services owned by Bell, Rogers and Shaw have a combined 73.5 percent market share of the viewing audience in Canada's English-language television market, and a combined 79 percent revenue share of the English-language discretionary content services market.
2343 While the presence of strong vertically integrated players certainly provides a degree of benefit to the Canadian broadcasting system, it also introduces substantial risk which falls disproportionately on the independent members of the system.
2344 Vertically integrated BDUs -- operating to maximize profits for their shareholders -- have every commercial incentive and opportunity to favour their own services to the detriment of independent services and the broadcasting system.
2345 theScore has worked very hard over the past 14 years to become a vibrant, diverse and independent contributor to the Canadian broadcasting system. We have over 6.8 million subscribers across Canada and have invested over $127 million in the production of Canadian content.
2346 However, our continued success -- in fact, our survival -- has been put at risk by the widespread vertical integration that has taken place. Today, theScore must rely on Bell, Rogers and Shaw to reach over 80 percent of our 6.8 million subscribers. Bell and Rogers already own the largest sports specialty networks in the country, and Shaw has applied to the Commission for a Category "C" mainstream sports licence. These vertically integrated gatekeepers cannot be permitted to choke off access to our subscribers -- which they have the incentive and the opportunity to do if left unchecked.
2347 Our written submission squarely addresses these risks in detail. The potential for anti-competitive behaviour is rampant. Vertically integrated BDUs will offer their own services in the most highly penetrated packages, bundled with popular foreign services. At the same time, without additional safeguards, independent services can expect to be relegated to lower penetrated tiers, or threatened with such relegation, and face downward pressure on wholesale rates.
2348 Only two weeks ago, the Commission released its decision addressing a real-life example, where Bell was found to have exhibited undue preference for its own programming service to the disadvantage of The Cave, a competing programming service. The risks of vertical integration are not perceived; they are very real and must be addressed. If Bell is willing to go to this extent in a dispute with vertically integrated competitors, what chance does an independent service have?
2349 So what safeguards are in place to protect independent broadcasters against this increasing risk of abuse? Unfortunately, the safeguards have been disappearing.
2350 As part of an effort to reduce regulation and rely increasingly on market forces, many safeguards have been eliminated or pared back. Rate regulation is gone. Packaging and linkage rules are gone. The ratio of related to unrelated services has been lowered.
2351 What remains are genre exclusivity, must-carry status and a dispute resolution process, but those mechanisms are not sufficient to counter the substantial consolidation of the market power that has resulted from vertical integration.
2352 Broadcasting Public Notice 2008-100 confirmed theScore's status as a Category A specialty service with genre exclusivity and mandated access to distribution.
2353 Genre exclusivity has long been an important measure to ensure the continued success of small independent Category A services like theScore. It has prevented large broadcasting groups from directly invading the genre of an independent Category A service, and moving forward, it will prevent vertically integrated BDUs from doing the same thing.
2354 We note that in their appearance yesterday Rogers acknowledged that genre exclusivity should be retained for independent programming services. However, even without the ability to launch a directly competitive service, there are substantial financial incentives for a vertically integrated BDU to advantage its own services to the detriment of independents, and the Commission's genre exclusivity policy alone does not prevent this.
2355 Similarly, the Commission's policy conferring must-carry status on Category A services has ceased to be the meaningful safeguard it once was. The transition to a fully digital distribution environment provides vertically integrated BDUs with the opportunity to repackage -- or to threaten to repackage -- independent services with just a few keystrokes.
2356 In this new environment, it is critical to recognize that "Guaranteed Access" and "Meaningful Distribution" are not the same thing. Programming services owned by vertically integrated BDUs are guaranteed to enjoy the latter in the most highly penetrated packages, while in the absence of any additional regulatory safeguards independent services can expect to find themselves relegated to the sidelines.
2357 The vertically integrated BDUs collectively place great reliance on dispute resolution as the answer to all of the independent broadcasters' concerns. Some in fact urge the Commission to alter the reverse onus provision and to limit the "stand still" provision when disputes arise. They want to avoid any upfront measure that would influence their activity in the marketplace, preferring to have their lawyers slug it out after the fact in front of the Commission in a quasi-judicial setting.
2358 Reliance on dispute resolution is entirely unsustainable for independent broadcasters. It would not only exhaust the resources of companies like theScore, it would exhaust the resources of the Commission. The CRTC would become an overheated judicial forum adjudicating on the actions of parties that should have been guided by clear rules of conduct at the outset.
2359 Independent broadcasters cannot afford to play in this game. The process is too lengthy, it's too expensive and it's too demanding on our limited resources.
2360 Even with a "stand-still" provision, independent programming services embroiled in a dispute with the likes of Bell, Rogers or Shaw will be subjected to continuing business uncertainty. In the case of small public companies like ours, such uncertainty can have a very real and negative effect on credit facilities, disclosure requirements, share value, and most importantly in our case, employee morale. It can make strategic management decisions impossible and arrest any potential for growth.
2361 A lengthy, expensive dispute resolution process may be fine for large companies like Bell and Quebecor who wrestled in dispute resolution for six months in the recent dispute regarding distribution of THE CAVE, but for small independent broadcasters with a single television asset the stakes are simply too high to rely on this process.
2362 Dispute resolution inevitably requires the Commission to answer subjective questions on a case-by-case basis, like: What is a "material adverse effect"? What is "undue"? What are "reasonable" packaging terms?
2363 This process allows vertically integrated BDUs to continually test the boundaries of how far they can go to favour their own services and disadvantage independent broadcasters. If they don't like the result of a particular decision, they have the resources and wherewithal to game the system by adjusting their approach until they wear down the independent broadcaster.
2364 In a vertically integrated world, dispute resolution is inefficient and burdensome for smaller independent players. It cannot be the cornerstone of regulatory protection.
2365 We believe that a new, clear ex ante rule incorporated into the BDU regulations is required to restore balance in the system and ensure that independent Category A services remain vibrant, diverse contributors in this new vertically integrated environment.
2366 Put simply, our proposed new rule would ensure that vertically integrated BDUs do not distribute or package an independent Category A programming service in a manner that would have a negative impact on the average penetration that the service achieved in a non-vertically integrated environment.
2367 We believe this measure is fair and balanced and based on the actual achieved performance of an independent service in a non-vertically integrated environment. It's simple. It's easy to monitor. Changes to packaging are easily identifiable events.
2368 Importantly, the measure also avoids the pitfalls of relying on subjective codes, principles and policies. It provides clear direction to industry participants.
2369 Before closing, we would like to briefly comment on two additional matters with regard to good commercial practices.
2370 First, and directly related to our new proposed distribution rule, is an expansion of the notice provision that BDUs are currently required to provide to broadcasters.
2371 Specifically, we believe that vertically integrated BDUs should be required to provide a broadcaster with 60 days advance notice of any change to the package in which such a service is distributed, as opposed to the current notice requirement which focuses only on the realignment of such a service to a different package.
2372 Our second comment relates to the near ubiquitous appearance of "MFN" clauses in affiliation agreements. We believe MFN provisions are anticompetitive, unenforceable and should be prohibited by the Commission.
2373 A determination of what constitutes "more favourable terms" in two agreements taken as a whole is nearly impossible in such a context, rendering these MFN provisions in fact almost meaningless and accordingly unenforceable.
2374 We note that Rogers appeared before the Commission yesterday and agrees with our position on MFN clauses. We truly look forward to negotiating our next affiliate agreement with Rogers without that provision.
2375 Mr. Chairman, members of the Commission, we thank you for your time today. We hope our comments have been helpful and we welcome the opportunity to answer any questions that the Commission may have. Thank you.
2376 THE CHAIRPERSON: Thank you.
2377 On this MFN stuff, my discussion with Rogers was somewhat funny. They suggested that they are not that important, that they're rarely invoked, and I wasn't quite clear how they're invoked.
2378 I understood the negative side for people like you is that when there's an MFN clause that's usually between -- it would be used as a tool, as something that they granted one of their affiliate broadcasters, and then they say, you know, since we got that from our affiliate, we have to get it from you too. Is that not the normal way that it cuts against you?
2379 MR. JOHN LEVY: Absolutely.
2380 THE CHAIRPERSON: And so do we have to go as far as you suggest or could we just say that MFN clauses between vertically integrated entities cannot be applied to third parties?
2381 I mean if they cut a better deal with Vision than with you, that you should get the advantage of that or vice-versa. I don't see how that would be unfair.
2382 MR. BENJIE LEVY: The issue is more related to if we were to cut a deal with Rogers and then we are working on a deal with Bell and there are some different terms in the deal with Bell, you know, to the extent that Rogers was previously happy with the deal that we had struck with them, they would then look to a deal that we did with a different BDU and say, you know what, actually we like their deal better, give us their deal, and that's what the MFN clause requires.
2383 THE CHAIRPERSON: But the MFN clause requires, as you point out, the identification of what is more advantageous and you have to look at all the clauses of the deal which clearly are not similar, which is more, rather than just a single clause?
2384 MR. BENJIE LEVY: Exactly. Exactly, which is our core issue because the BDUs do try and rely on those provisions notwithstanding the fact that in a deal with a different BDU there are oftentimes terms which, in our view, are not similar, and therefore the clause should be unenforceable.
2385 But ultimately, you know, the benefit -- when you're dealing with a situation where you have a large BDU on one hand -- or a large vertically integrated BDU on the one hand and a small independent broadcaster on the other, it's not typically a battle we win.
2386 THE CHAIRPERSON: We had a long talk with Rogers about a code, you know, a set of principles, and then this morning with Bell as well.
2387 Where do you stand on that? You're making a suggestion here regarding a single clause in order to deal with packaging difficulties, but presumably there are others that come out of vertical integration.
2388 Do you think that sort of the idea of having a general code and then any disputes would be adjudicated against the background of that code makes sense or not?
2389 MR. JOHN LEVY: We really tried to focus on what was of critical importance to us.
2390 THE CHAIRPERSON: Yes.
2391 MR. JOHN LEVY: You know, we looked at a lot of the suggestions and some of the existing definitions of what's in a code and it's a difficult task for the Commission to sift through this and determine how to amend the codes and what's reasonable and what's not reasonable and there's a lot of objectivity (sic) and discretion in it.
2392 From our perspective, they probably -- subjective. Sorry, subjective.
2393 From our perspective, they -- from our perspective, we looked at the core rationale as to what we thought would potentially be most harmful to us. And, you know, if we are no longer, because of the imbalance that now exists for the reasons that we talked about, able to communicate and broadcast to our 6.8 million subscribers, all the other terms and conditions that we talked about are basically less important in determination.
2394 THE CHAIRPERSON: Right.
2395 MR. JOHN LEVY: You know, if I drop from 6.8 million subs to 4 million subs, our discussion about what our rate is is pretty academic, or who else is in the package or whatever else is happening, and that's the big fear for us. So that's why we concentrated on that.
2396 THE CHAIRPERSON: Okay.
2397 Peter, you have some questions?
2398 COMMISSIONER MENZIES: A couple of questions.
2399 In para 7 of your written submission anyway you referred to the downward pressures on wholesale rates, how the BDUs can apply downward pressures on wholesale rates to their benefit and the detriment of the independents.
2400 Can you just describe for the record where that incentive is and how that would work?
2401 MR. JOHN LEVY: The incentive is particularly acute today where you have powerful distributors who now own programming services which they're trying and they're incented to try and maximize their profits and returns from.
2402 And for them to do that, they have one of two options. One is to increase the price to the consumer or the other is to cut back costs on other programming services.
2403 And for independents such as ours where we don't have any leverage with respect to the negotiations with respect to the distributors, their approach is potentially to come to us and say, look, if you want to be maintained in the same package, you can only do so if the rates are reduced.
2404 COMMISSIONER MENZIES: In other words, if they have to pay more for TSN, they will try to take that out of your hide?
2405 MR. JOHN LEVY: I was told not to get started on that whole issue, but the answer is yes. The answer is potentially yes.
2406 COMMISSIONER MENZIES: Thank you.
2407 In your written presentation you offered us a piece of regulation that reads -- you recommend:
"...that the Commission approve the following distribution measure and recommend that it be incorporated into the Proposed Regulations:
'Except as otherwise provided under a condition of its licence, a licensee shall not distribute or package an independent Category A service in a manner that would have a negative impact on the average penetration of that service across the anglophone markets served by that licensee;'
2408 It seems simple and straightforward. What would you anticipate the response to that proposal would be from people with interests other than yours?
2409 MR. JOHN LEVY: Well, I guess it depends who we're talking about. If we're talking about the BDUs, we actually heard some interesting comments this morning that sort of suggested that they were, you know, potentially not interested in taking a situation where they would reduce the distribution or the subscriber base of Category Bs, I think they were talking about, with respect to access rules, and what we're talking about is independent Category A.
2410 So perhaps they wouldn't even object to this because, you know, it's not something that if they intend not to do, then they probably should have no problem with it.
2411 What we need though, and the reason we suggested it as a rule, is we want a clear signal to the BDUs that when they go about changing their packaging -- and this is a very user-friendly suggestion as well -- we're not saying to the BDUs, don't change your packages or don't do anything, what we're saying to them is if you do do it, make sure that you don't harm the independent Category A services such as ours.
2412 COMMISSIONER MENZIES: Right.
2413 And you further go on to suggest a procedure that if they wanted to move you because you were not as good as you should be, frankly, that they would have to apply to us and make their point ahead of time, saying, look, these guys, they're going downhill fast, we need to move them out of here, we can use this better.
2414 MR. JOHN LEVY: That's correct. I mean, you know, we think that if there's an err, it should be on the err of caution for the independent. What we're trying to eliminate is the capricious self-serving realignment of the packaging to the detriment of a service such as ours.
2415 You know, if a service -- if they're going to move someone -- and I'm not just talking about us but any service or any Category A service -- because, for example, they're not pulling their weight or because the service isn't useful, let them establish that, let them prove that, come to the Commission and say, look, this isn't a matter of hurting -- this isn't a matter or reducing what this service is entitled to.
2416 What we're really concerned about is not that situation, what we're concerned about is the capricious sort of removal of us from a package for no reason whatsoever.
2417 COMMISSIONER MENZIES: Okay. It will be interesting to hear the response from them, if any.
2418 Those are all my questions. Thanks.
2419 THE CHAIRPERSON: Rita?
2420 COMMISSIONER CUGINI: Thank you.
2421 I'll just follow up on what Commissioner Menzies was talking about, and what I have in front of me, of course, is the language from your oral presentation.
2422 So "in a manner that would have a negative impact on the average penetration." How would that average penetration be calculated, over what period of time?
2423 MR. BENJIE LEVY: We were just looking at the average penetration across the systems, across the BDU systems, not cherry-picking in any one system but just taking the average penetration across all of their systems as at the date the Commission put out the notice for the vertical integration hearing, which is October 22nd.
2424 COMMISSIONER CUGINI: So, if I am Rogers, how would I figure that out?
2425 MR. BENJIE LEVY: If I were Rogers, I would look at how many subscribers theScore has on October 22nd in my systems against the total number of basic subscribers that I have in all my systems, and then you would arrive at a percentage.
2426 COMMISSIONER CUGINI: Okay.
2427 And I think you just answered the question that I have because you say "that the service achieved in a non-vertically integrated environment."
2428 We heard Bell this morning say they've been working in a vertically integrated environment for the last 10 years. So as of what date would this average apply, as of the date of the decision?
2429 MR. BENJIE LEVY: We were looking at as of the date the Commission put out their notice related to this vertical integration proceeding, which was October 22nd.
2430 COMMISSIONER CUGINI: So that would delineate between a non-vertically integrated and a vertically integrated environment?
2431 MR. BENJIE LEVY: Correct.
2432 COMMISSIONER CUGINI: Okay. Thank you.
2433 THE CHAIRPERSON: Len?
2434 COMMISSIONER KATZ: Thank you.
2435 Good afternoon. In paragraph 13 of your remarks this afternoon you say that:
"As part of an effort to reduce regulation and rely increasingly on "market forces", ... safeguards have been eliminated or pared back. Rate regulation is gone. Packaging and linkage ... is gone. The ratio of related to unrelated ... has been lowered." (As read)
2436 Have you seen a market effect on your business as a result of those changes?
2437 MR. JOHN LEVY: The market effect as a result of those changes would come as we renegotiate our contracts with the BDUs, and because of everything that's been going on with respect to the Commission and because of licence extensions that we've had, we are right now in that process.
2438 COMMISSIONER KATZ: So to date there's been no effect on your business per se?
2439 MR. BENJIE LEVY: I would add one more additional point there.
2440 I think, you know, you also have to look at the digital migration which is in process and coming over the course of the next 12 months, as traditionally our analog distribution on cable transitions to digital.
2441 We heard Rogers talk yesterday about how difficult it is to repackage on analog and you have to roll trucks in, you have to trap. So for a service like ours that launched in 1996 you end up in a tier and that tier largely doesn't get modified very often except in extreme circumstances.
2442 We think that the impact of, you know, this reduction in regulation is going to show up when these BDUs have the full ability to exercise that repackaging, which will not occur until they're fully digital.
2443 COMMISSIONER KATZ: So that leads me to my next question.
2444 You are a Cat 1 today and you go on in paragraph 17 here to talk about that:
"...even without the ability to launch a directly competitive service, there's an incentive for vertically integrated BDUs to advantage their own service..." (As read)
2445 I mean either you are protected or you're not protected, number one. And if you are in a standalone genre, what incentive would they have to treat you in a negative fashion when in fact you have genre protection?
2446 MR. BENJIE LEVY: I think at the end of the day, for the BDU, one of their overriding motivations is making money, and they make money by advantaging their own services to the detriment of services that they don't own.
2447 So yes, we do have genre exclusivity, which means that Bell Media cannot launch TSN News, but that doesn't mean that they can't move theScore to a lower-penetrated package or try and pay theScore a lower rate while moving their own services into a higher-penetrated package and pay their services a higher rate.
2448 COMMISSIONER KATZ: I know that in the U.S., I guess it was when the Comcast/NBC deal came about, there was some discussion and an order with regard to what they call neighbouring, which is putting all like genres in the same area.
2449 Are you in favour of that?
2450 MR. BENJIE LEVY: As we were prepping for the hearing, you know, we had a saying, which is if the vertically integrated BDUs treated us like they treat their own children, we would probably be okay. So yes.
2451 COMMISSIONER KATZ: Okay. Those are my questions.
2452 THE CHAIRPERSON: What happens if we adopt your rule and a BDU doesn't abide by it?
2453 MR. JOHN LEVY: Well, it's a regulation. The --
2454 THE CHAIRPERSON: So you want us to force a repackaging?
2455 MR. JOHN LEVY: They're forced to put us back in a position where we were in, I would say. That might be difficult because once the egg is unscrambled, it's maybe sometimes difficult to put it back together.
2456 But in the unlikely event that they did it, in light of this regulation, then I would say that they should put us back.
2457 THE CHAIRPERSON: So you want, first of all, a 60-day notice about repackaging. Presumably then you will have a discussion with them as to how the repackaging affects you and you want to convince them that it should be done this way so it doesn't affect your penetration rate?
2458 I'm just playing it out in my mind. And then it directly does affect your penetration rate, so you come then to us and say, they've broken this rule. And then at that point in time, if essentially -- unless they offer, we have to order them to repackage?
2459 MR. JOHN LEVY: I believe that's true. I think -- you know, Mr. Chairman, I think the real objective is that with this rule in place they are not going to do it. And the grey areas are not the areas that we're really concerned about. It's the obvious area that scares us.
2460 THE CHAIRPERSON: Now, the way you put it here in paragraph 29 is relatively loosely. I haven't seen your written submissions though, but in the question that my colleague Cugini posed it listed some further specifications. You may want to redraft it so the ex ante rules are absolutely clear and unmistakeable.
2461 MR. BENJIE LEVY: We can certainly file that in our reply comments and I would encourage you to take a look at our written brief where we do in detail and in quite legal language, you know, go through what we would actually like to see in a proposed regulation.
2462 THE CHAIRPERSON: Okay.
2463 And lastly, Andrée, I understand yesterday was your birthday. Belated happy birthday.
2464 MR. JOHN LEVY: We kept her working.
2465 MS WYLIE: I didn't tell them in case they asked for my age.
2466 MR. JOHN LEVY: There goes the rate.
2467 THE CHAIRPERSON: Okay.
2468 MS WYLIE: I didn't want them to think they had hired a passé person.
2469 THE CHAIRPERSON: Okay, those were our questions for you. Thank you very much.
2470 We'll take a five-minute break to let the other ones set up.
--- Upon recessing at 1412
--- Upon resuming at 1416
2471 THE CHAIRPERSON: Madam Secretary, let's begin.
2472 THE SECRETARY: We will now proceed with FreeHD Canada Inc.
2473 Please introduce yourself and your colleague, and you will have ten minutes for your presentation.
2474 Thank you.
2475 MR. LEWIS: Good afternoon, Mr. Chairman, Commissioners and CRTC Staff. My name is David Lewis, and I am the Chairman and founding CEO of FreeHD Canada Inc.
2476 Seated with me today is Brian Olsen, FreeHD Canada's President and Chief Operating Officer.
2477 As a new entrant Direct-to-Home BDU, FreeHD Canada's direct experiences with the perils of dealing with vertically integrated competitors and content providers for this new initiative is limited. However, FreeHD Canada hopes that its input provides a unique new entrant perspective to some of the challenges that face the unaffiliated Canadian BDUs and programming undertakings today, and adds another voice to the significant and growing evidence of concerns on the public record of this proceeding.
2478 As a "pure-play" video distributor, FreeHD Canada's purpose is simple: to provide quality content and support all digital platforms with content that comes from all of its suppliers, while being as different as possible from any vertically integrated affiliated BDU.
2479 As a new entrant, FreeHD Canada cannot afford to be constrained from the outset to look like other BDUs. It is most important for us to market FreeHD Canada's service as different within the scope of the existing rules, not within the boundaries set by the largest BDUs who are now affiliated with the majority of content suppliers.
2480 The preponderance of intervenors who responded to the Notice of Consultation for this hearing noted the overwhelming market dominance of the four vertically integrated companies and the arising business imperatives to take advantage of their investments in content.
2481 These imperatives give rise to many concerns. The publicly stated rationale for those purchases alone should provide sufficient evidence for the need for new Commission guidelines and policies.
2482 In this same regard, several interventions included reports from expert sources regarding the pitfalls and harms of vertical integration, and how other regulators and administrations have dealt with VI and similar market dominance around the world.
2483 In response to the Hearing Notice specific request, the Commission received many examples of past anti-competitive actions of the Canadian VIs.
2484 The Commission also has sufficient evidence of undue preferences and anti-competitive actions on the public record from formal complaints and past arbitration hearings, and has itself publicly expressed its concern with VI.
2485 FreeHD Canada echoes all of those serious concerns, but what can and should the Commission do about them?
2486 To begin, FreeHD Canada believes it is important to balance statements in favour of vertical integration, and specifically those in Bell Media's submission surrounding the Vancouver Olympics example, with the marketing and competitive reality. Bell has often cited the Olympics as a prime example of the synergies that vertical integration can facilitate. Bell positioned itself in a press release prior to the games by stating that the content services it was providing were unprecedented and that no other telecommunications company in Canada could offer.
2487 So, yes, vertical integration provides the incentive and ability for this to happen, but precluding all other providers from access to desirable content for their customers is wrong.
2488 Bell is quoted as saying that the Olympics were "Canadian communications innovation at its best, with consumers the ultimate beneficiaries." However, it was clearly only Bell customers who were the ultimate beneficiaries, as Rogers reported a decrease in wireless subscribers that was due to the exclusivity of the event by a major competitor.
2489 FreeHD Canada believes this is only the beginning of what integration of content and distribution can deliver to VIs, but at the expense of consumers, and particularly those of unaffiliated BDUs.
2490 Therefore, when the VIs advocate for market forces to govern the industry going forward, FreeHD Canada would support that if the VIs are prepared to fully and unconditionally allow market forces to act by enabling unfettered access to all content, and by further allowing their content businesses to develop innovative content, products, and services with all other BDUs in order to provide value that all consumers can access, regardless of their TV provider.
2491 Finally, FreeHD Canada refutes the rationale stated in the interventions of Bell and Shaw for lighter regulation, and notes that despite verbal assurances in their takeover hearings that they would not engage in anti-competitive behaviours such as program exclusivity, they are not only opposed to any rules to that effect, but are here seeking further loosening of regulations.
2492 The VIs not only appear unwilling to agree to unfettered access to content, but will likely dismiss collaborative developments with competitors and the protections to keep those confidential from their distribution arms. As a result, and to address the earlier concerns outlined by many intervenors, FreeHD Canada believes that the Commission will need to provide clear guidelines and revised policies, ultimately designed to protect consumers, such as the code that people have been talking about.
2493 FreeHD Canada endorses the ex ante policy recommendations of the Joint Proposal of the Independents, and also strongly supports the additional recommendations and comments made by TELUS Corporation, the CCSA, Cogeco and the CBC in their interventions, and the materials in the reports attached to those submissions, with some minor clarifications and recommendations specific to new entrants, as follows.
2494 FreeHD Canada proposes the following recommendations.
2495 FreeHD Canada believes that it is imperative that the Commission take steps to pre-empt anti-competitive VI behaviour wherever possible. This will not only reduce the administrative burden of dealing with complaints, but will also lessen the serious and lasting negative impact on the unaffiliated providers.
2496 To this end, the Commission must send clear messages of expectations of behaviour, with examples of what constitutes preferences.
2497 FreeHD Canada endorses the proposed ex ante rules as outlined in the Joint Proposal by the Independents and the TELUS intervention, and urges the Commission to adopt them, with one modification.
2498 Whereas the Joint Proposal suggests the requirement to package three or more content services constitutes a prima facie undue preference, FreeHD Canada believes this is true when any services are required to be packaged together. This is obviously even more critical when services are affiliated with a rival BDU. While the affiliated BDU has every incentive to package its services together, the VIs should be prevented from effectively limiting a rival BDU's ability to deliver consumer choice.
2499 As the Joint Proposal submits, explicit packaging requirements are anti-competitive and do not deliver on the promise of the digital transition and consumer choice.
2500 Important policy changes, which include prohibitions against content exclusivity, Most Favoured Nation clauses, and sharing of competitor's confidential information, are also required. FreeHD Canada urges the Commission to include those specific prohibitions in any new policy changes arising from this hearing.
2501 To protect against the sharing of competitive information, FreeHD Canada supports the concept of a carrier services group, and rejects the CCSA's recommendation of an officer's certificate approach to ensuring confidentiality, because there is nothing that prevents hallway conversations from taking place off the record.
2502 FreeHD Canada also wants to echo the Joint Proposal's submission that penetration minimums represent prima facie undue preference, and adds that it is clearly inappropriate to allow a VI to force upon a rival BDU a minimum sales quota that may or may not align with its affiliated BDU's objectives or performance.
2503 FreeHD Canada would like to add to the list of what constitutes prima facie undue preference in the Joint Proposal, which arises from the need for BDUs to develop differentiated technologies, products and services. Any action that hampers that development, such as the failure or delay of a VI to cooperate or exchange information to produce technical innovations on rival BDU platforms, or harms that development, such as by disclosure within the VI, should be considered a prima facie undue preference.
2504 To further assist unaffiliated providers, FreeHD Canada recommends that the Commission universally adopt reverse onus provisions, and an expedited arbitration process with standstills during negotiations whenever complaints occur.
2505 The Commission must send a zero tolerance message to VIs by instituting AMPs or monetary penalties and levying the maximum fines for any violations.
2506 Although VIs may view these fines as a miniscule cost of doing business, a possible way to recompense the parties would be to put half the funds from fines into programming funds, as proposed by several intervenors, while the other half is awarded to the affected BDU or programmer as compensation for their losses and to offset legal expenses.
2507 In instances where several BDUs or programmers are affected, the fines could be redirected into a marketing pool, where all affected BDUs or programmers could access the pool of funds to offset marketing costs and to promote their services based on their unaffiliated market share.
2508 Finally, FreeHD Canada urges the Commission to abandon the value-for-signal regime, as it is no longer relevant given the strong balance sheets of the VIs, and would promote the natural unattended consequence of cartel behaviour, and most importantly, would negatively affect consumers.
2509 Let's talk for a moment about further protections for new entrants.
2510 Promoting new entrants specifically advances the Commission's policies of furthering competition and providing consumers with choice and better offers. Of particular importance to new entrants are the principles of fair pricing of content, non-exclusivity, and availability of content during negotiations.
2511 Without large volumes of subscribers, new entrants are limited in their ability to compete by the volume discounts and other preferences inferred through MFNs and other means to larger BDUs.
2512 Specifically to address the unique issues of the new entrants, FreeHD Canada suggests the following policy considerations.
2513 In the absence of current affiliation agreements and standstill protections, FreeHD Canada recommends that the Commission adopt a policy where access to content or programming cannot be withheld during any negotiation, thereby including initial negotiations and not just during renewals.
2514 VIs should be required to file a standard rate card applicable to all BDUs with less than 500,000 subscribers, with fees no higher than the aggregate average charged to the four largest BDUs in their affiliation agreements between the parties at least six months prior to the latest vertical integration.
2515 In the event of new content, fee prices should be based on the fair market cost principles proposed by several intervenors.
2516 Transparency of all Commission complaints and settlements of disputes would assist new entrants to understand if they are being treated fairly and equitably.
2517 Any vertical integration Head Start initiatives should be limited by a minimum 60-day prior notice of content availability and rate cards to all BDUs.
2518 In conclusion, FreeHD Canada is very concerned about the current level of vertical integration.
2519 The record and evidence here in Canada clearly shows the need for regulation appropriate to the changing market. FreeHD Canada joins the chorus of independent distributors who call for ex ante rules in a code of business conduct to set clear expectations for VI corporations, and urges the Commission to adopt the recommendations of TELUS, CCSA, Cogeco, and the Joint Proposal of the Independents.
2520 FreeHD Canada hopes that the Commission will also consider the specific policy considerations that we have proposed, as well as the policies to assist new entrants, including a prohibition against withholding content during any negotiations and standard rate cards for smaller BDUs.
2521 Finally, FreeHD Canada urges the Commission to abandon the value-for-signal regime completely.
2522 Thank you for the opportunity to appear before you again, Mr. Chairman, and now we would be pleased to answer any questions that you and the Commissioners may have.
2523 THE CHAIRPERSON: Thank you.
2524 Explain paragraph 8 to me. I don't understand at all what you are getting at. You say that you are prepared to accept a market approach, provided the VIs are prepared to fully and unconditionally allow market forces to act by enabling unfettered access to all content.
2525 The implication is that that's not happening right now, so what exactly are you proposing here?
2526 MR. LEWIS: I think that's exactly right, Mr. Chairman. The implication is that unfettered access isn't occurring. In the past we have seen several applications for undue preferences around content access and timing, and all of those types of things. So, exactly, this is one of the concerns that we have.
2527 If you hear Rogers and others, with their size and power, here expressing those concerns, you are going to hear it from us in spades, for the same reasons.
2528 THE CHAIRPERSON: So this is not a prescriptive remedy, it's just a statement.
2529 MR. LEWIS: Exactly.
2530 THE CHAIRPERSON: You are saying that now their behaviour is not, as such, to allow entrants.
2531 MR. LEWIS: That's exactly right.
2532 THE CHAIRPERSON: Okay.
2533 Len, do you have some questions?
2534 COMMISSIONER KATZ: I just have one, Mr. Chairman. Thank you.
2535 Paragraph 7: I just need to understand your comment. I believe it is limited only to wireless.
2536 You have the statement in the middle saying that vertical integration provides the incentive and ability for this to happen, and I guess that is denial of access.
2537 Then it says, "... but precluding all other providers from access to desirable content for their customers is wrong."
2538 One of the key obligations of this Commission is to make sure that consumers get access and get choice at a reasonable price.
2539 On the terrestrial side, as I understand it, for the Olympics, which is what you are talking about, that was not a problem.
2540 So are you limiting your comments here just to the wireless side of the business?
2541 MR. LEWIS: Yes and no. Perhaps we should have been a little more clear in this paragraph, Mr. Vice-Chair. However, I think what we are talking about here is exactly wireless, and that was the example, and it's a repeated one that we heard oftentimes in testimony earlier, and also in their written submissions, as something that is a clear advantage of vertical integration.
2542 I think our point was exactly that. You are right, there was no withholding of any content, it was in a linear fashion, or TV specifically, but in the wireless domain it was clearly an example where somebody else was affected negatively, to your earlier point and discussion about the multiple devices and where things are going. Those are the types of concerns.
2543 Content should be basically available to everybody. That is our opinion. So whether it's wireless or other providers, nobody should have exclusive rights to content.
2544 COMMISSIONER KATZ: It's interesting because we lived in this environment, before we got into vertical integration, where everything was land-based. It was terrestrial, it was cable, and there was never an issue. So the regulations and the history were all built on that premise.
2545 Suddenly, now, we have a competitive market, we have vertical integration, we have new media, and we are almost at a crossroads. Do we take new media and treat it in the regulatory fashion that we have always treated all broadcasting assets historically, or do we find some way of differentiating new media from old media, and creating a different set of rules perhaps, over time, and allow the industry to evolve in a much more competitive and open environment, while still protecting consumers and consumer choice?
2546 That is one of the dilemmas that we face right now, as new media comes to us, as well as vertical integration, at the same time.
2547 MR. LEWIS: I think you heard that from other people earlier in the hearing. Certainly, Netflix comes up often as an example of a concern.
2548 Definitely, there may have to be some changing of the rules, whether it's as a result of vertical integration or just more new media and the like. Absolutely.
2549 Content exclusivity is a big concern for all of us. I think you are going to hear that throughout the next week for sure.
2550 COMMISSIONER KATZ: Thank you, those are my questions.
2551 THE CHAIRPERSON: There don't seem to be any other questions. Let me take this opportunity; bring me up to date on where you are in terms of launching your satellite service.
2552 You have been twice before me, and each time it was imminent. Is it still imminent?
2553 MR. LEWIS: Thank you, Mr. Chairman, for your interest. I know you want to be a subscriber, so...
2554 Our quick report is that we are looking at launching next spring.
2555 Our challenge, as you well know, I think -- or at least your staff well know -- has been finding adequate satellite capacity to launch a compelling service. We have tried to bring some requests forward through the Commission process to gain access to capacity; however, those were unsuccessful.
2556 So we have looked elsewhere, and once the satellite capacity is all locked down, which it looks like it all is, we have about a 12-month integration effort to build all of the facilities to access the satellites, uplinks, technical content, et cetera.
2557 So we would be a little less than a year from now out in the marketplace, and looking forward to having you as a subscriber, Mr. Chairman.
2558 THE CHAIRPERSON: Will this only be BDU, or are you also going to provide internet access by satellite?
2559 MR. LEWIS: That's a good question. We don't have any plans, per se, to have Internet access by satellite. It might be a little different platform.
2560 However, we have been awarded a pay-per-view licence and our VOD licence has gone through a hearing process and we are awaiting the outcome of that decision. That content to make available certain parts of the pay-per-view and on-demand will be delivered broadband-wise.
2561 So we will have to have a broadband connection on the set-top box delivered by some means. And of course with a rural SKU for any satellite provider, any DTH provider, we would like to be able to offer to those subscribers a broadband access by satellite for those people that don't have connectivity elsewhere by terrestrial means.
2562 THE CHAIRPERSON: Okay. Thank you very much for that update.
2563 MR. LEWIS: Thank you.
2564 THE CHAIRPERSON: Those are all our questions. Let's go on.
2565 We have one more intervenor, I believe. Okay.
2566 THE SECRETARY: I will now ask Accessible Media Inc. to come to the presentation table.
2567 THE CHAIRPERSON: Okay, Madame la Sécretaire, commençons s'il vous plait.
2568 THE SECRETARY: Please introduce yourself and you have 10 minutes for your presentation.
2569 MR. ERRINGTON: Sure. If we can just give Kelly a moment here to get set up with his computer? He is speaking to his computer system.
2570 MR. ERRINGTON: Okay? Great.
2571 Thank you.
2572 Good afternoon, Mr. Chairman, Commissioners and Commission staff.
2573 My name is David Errington and I am the President and CEO of Accessible Media Inc. or AMI.
2574 Here with me today is Robert Pearson, AMI's Director, Accessible Digital Media, and Kelly MacDonald, National Reporter for TACtv.
2575 AMI appreciates the opportunity to appear before the Commission to present our views on vertical integration.
2576 AMI is a not-for-profit organization with a mandate to enhance media access for millions of Canadians who are blind, vision or print-restricted so they may enjoy the same level and quality of information entertainment as the general population.
2577 AMI operates two services, VoicePrint and TACtv, that have been granted mandatory distribution status under section 9(1)(h) of the Broadcasting Act.
2578 We serve more than five million Canadians who are blind, low vision, print restricted, deaf or hearing impaired by making broadcast print online media accessible.
2579 AMI shares the Commission's goal of ubiquitous access to televisions services for persons with perceptual disabilities. Our mission statement is simple, to make all media accessible to all Canadians.
2581 MR. PEARSON: Over the years the Commission has taken considerable steps in reaching the goal of universal accessibility including, but not limited to the licensing of the VoicePrint and La Magnétothèque audio reading services in 1990; the licensing of TACtv in 2007, reestablishment of the video description pass-through requirements for BDUs in 2007; the introduction of the accessibility policy in 2009 and the creation of the $5.7 million Broadcasting Accessibility Fund as part of the benefits payments made by BCE as part of its acquisition of CTV.
2582 Most recently through the Described Video Working Group established by the Commission, AMI is working closely with the Canadian Association of Broadcasters to first build awareness of the availability of described programming across all platforms through a described video programming guide on AMI's website and through a 1-800 number and;
2583 Second, to develop technical standards for description and;
2584 Third, to further develop qualitative description standards through the sharing of AMI's expertise within the industry.
2585 MR. ERRINGTON: From AMI's perspective, vertical integration is a positive development for the Canadian broadcasting system.
2586 In today's increasingly borderless environment, consumers with or without perceptual disabilities, are seeking to access content on a variety of platforms. We believe this can be accomplished if Canada has some large vertically integrated media companies to compete against non-Canadian media conglomerates and over-the-top content aggregators.
2587 We also believe that this does not have to be the case of large versus small. In our experience the large media companies we deal with have a heightened sense of social responsibility and a genuine desire to be good corporate citizens.
2588 AMI is a good example of what can be accomplished by small, independent broadcasters working hand in hand with the support of the Commission and the cooperation of large, vertically integrated BDUs and broadcasters. In our experience, vertically integrated BDUs and broadcasters have generally gone above and beyond the regulatory requirements to aid us and achieve in the goal of universal accessibility.
2589 For instance, during the 2010 Paralympic Winter Games in Vancouver the Bell Media/Rogers Olympic consortium provided a 90-minute highlight reel of the Games free of charge to TACtv at the end of each day so that it could be described overnight and made available to our audience the next day.
2590 Rogers, Shaw and Bell are currently providing TACtv with promotional spots on their channels as well as access to U.S. ad avails for our consumer awareness campaign.
2591 In addition, all the broadcasters now owned by large BDUs support AMI by partnering in production and airing of described video programming; clearing the rights to programming so that the audio component can be played on VoicePrint and ami.ca and lending their television and radio personalities as volunteer celebrity readers on VoicePrint.
2593 MR. MacDONALD: These partnerships allow AMI to break new ground.
2594 For instance, in 2010 in partnership with Shaw Media, AMI was able to simulcast a described version of the first season of the Canadian drama series, Rookie Blue, alongside the Global Television and ABC broadcasts. This collective effort was a world first, airing a series premiere with described video in real time.
2595 Since that time, in partnership with CBC, we have also aired live video description of the royal wedding and federal election night coverage. All of these successful partnerships have allowed us to expand our content to various platforms.
2596 Last month we launched our new ami.ca website guided by the AMI web accessibility standards and with consideration of the highest W3C standards and the integrated accessibility regulation of Ontario to provide a broadcast of a wide variety of accessible content.
2597 This August we will launch a mobile website that will offer accessible content both from TACtv and VoicePrint on smart phone devices.
2598 In addition, we are in the process of establishing news bureaus at 10 of our local broadcast centres that will cover local news from the perspective of the blind and low vision community. In the last year we have launched four of the 10 bureaus and we expect to have all 10 up and running by the end of 2013.
2599 We also have been active in commissioning independently-produced, originally-produced Canadian programming for TACtv. Two current projects are "Accessibility in Action" and "A Whole New Light".
2600 Accessibility in Action is a 13-episode series hosted by a paraplegic broadcaster Joanne Smith. This studio-based series will demonstrate how accessibility, technology and assistive tools can help persons with disabilities achieve their life goals.
2601 A Whole New Light is a Canadian one-hour documentary that explores the scientific, medical and therapeutic treatments that are helping improve the quality of life for persons with vision loss.
2602 MR. ERRINGTON: We point to all these initiatives and successes as proof that the measures the Commission has put in place combined with the cooperative efforts of BDU and broadcast partners are working.
2603 There seems to be a perception that not enough is being done with Canadian broadcasting system in the areas of audio description and captioning. In fact, this is not the case.
2604 While more can always be done as resources become available, the fact is that Canada is a world leader in both captioning and description. No other country has channels that are fully dedicated to serving the vision-impaired community. Canada has three, VoicePrint and its French-language counterpart and TACtv.
2605 VoicePrint is the largest -- sorry -- VoicePrint is the world's largest broadcast reading service and is accessible to more than 10 million Canadian households through cable, satellite and internet. VoicePrint's staff and volunteers produce and broadcast more than 125 hours of new programming every week.
2606 TACtv broadcasts programming from conventional and specialty television services as well as foreign rights holders in a fully open described closed caption format, a world's first.
2607 By way of comparison, in Australia and the European Union there are no described video requirements and in the U.K. broadcasters are expected to describe just 10 percent of their content over the next five years.
2608 In the U.S. only the top four networks, ABC, CBS, NBC and Fox and the top five cable channels have DV obligations.
2609 Section 3(1)(p) of the Broadcasting Act provides that programming for persons with disabilities should be made available as resources become available for that purpose.
2610 In our view, the Commission's accessibility initiatives and the collaborative efforts of TACtv and VoicePrint with vertically integrated companies like Bell Media, Shaw Media and Rogers have achieved great progress in making media accessible.
2611 While it is up to the Commission to determine if additional regulations or contributions from vertically integrated companies are warranted at this time, we wanted to appear before you today to make you aware of what has already been accomplished.
2612 We believe that the benefits of a vertical integration combined with the maintenance of a 9(1)(h) status for our services will allow us to accomplish a common goal of making all media accessible to all Canadians.
2613 We appreciate the opportunity to present our views and would be pleased to respond to any questions of the Commission. Thank you.
2614 THE CHAIRPERSON: Thank you for your presentation. It's good to hear that some of our policies actually work and produce the results intended.
2615 You are talking about the Broadcasting Accessibility Fund on page 2 that we recently created. Where are we with that? I know it's in the setup stage.
2616 I presume you are intimately involved and can give me a sort of short update. It would be appreciated.
2617 MR. ERRINGTON: We have been contacted with respect to the Broadcasting Accessibility Fund. I have been asked to participate as a board member and to that point that's where we are with it now.
2618 THE CHAIRPERSON: Okay.
2619 Tom, you have some questions?
2620 COMMISSIONER PENTEFOUNTAS: Nothing much to add. It's nice to hear that something is working and someone is here in favour of how things are coming along.
2621 I read your brief and you have pretty much recapitulated what you mention in your brief. So we thank you for coming down.
2622 I think it's also a source of -- should be a source of Canadian pride that we are way ahead of our European and Commonwealth partners on these issues.
2623 So I don't have any questions for you per se. Thank you.
2624 THE CHAIRPERSON: Before I let you go, just one question that comes to mind.
2625 Are you worried that these various ex ante rules that parties are suggesting we should impose, would divert attention from integrated broadcasters or the integrated companies on accessibility issue or it's a cost of what you are doing in terms of accessibility?
2626 MR. ERRINGTON: There are lots of issues in front of our vertically integrated BDUs that we deal with on a day to day basis. Accessibility is just one of them; that we should be proud of the fact that we are leading.
2627 THE CHAIRPERSON: Yes.
2628 MR. ERRINGTON: And I think over time we would like to take a collaborative approach with our partners and develop media and accessibility to it over a period of time.
2629 That seems to work and it's worked very well for me in the last two years of my position here at AMI.
2630 I just want to add one other thing.
2631 We think it's important that it's not just about making media accessible. It's also creating a voice for people with disabilities. You know it's a variety of voices, you know, and it's a diversity of voices that we think we attempt to do.
2632 So for instance, Kelly yesterday was at the Canadian Bank of Canada yesterday where they launched the new dollar bills or five dollar bills and twenty dollar bills and the fact that they are accessible now with a different texture on them.
2633 Nobody else covered that. We did that for our community. Our community knows that. So those our stories that we will tell from our 10 broadcast centres across Canada.
2634 THE CHAIRPERSON: Okay. Thank you very much for your presentation.
2635 MR. ERRINGTON: Thank you for your time.
2636 THE CHAIRPERSON: Madam la Sécretaire, I think that's all for today. So we will start tomorrow morning at what time?
2637 THE SECRETARY: Nine a.m.
2638 THE CHAIRPERSON: Okay, thank you. We are adjourned to then.
--- Whereupon the hearing adjourned at 1415, to resume on Wednesday, June 22, 2011 at 0900
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